<PAGE> 1
As filed with the Securities and Exchange Commission
on April 30, 1997
Registration No. 33-16296; 811-8275
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
[X]
Post-Effective Amendment No. 36
And
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 38 [X]
(Check appropriate box or boxes)
-------------------------
OVERLAND EXPRESS FUNDS, INC.
(Exact Name of Registrant as specified in Charter)
111 Center Street
Little Rock, Arkansas 72201
(Address of Principal Executive Offices, including Zip Code)
-------------------------
Registrant's Telephone Number, including Area Code: (800) 458-6589
Richard H. Blank, Jr.
c/o Stephens Inc.
111 Center Street
Little Rock, Arkansas 72201
(Name and Address of Agent for Service)
With a copy to:
Robert M. Kurucza, Esq.
Marco E. Adelfio, Esq.
Morrison & Foerster LLP
2000 Pennsylvania Ave., N.W.
Washington, D.C. 20006
It is proposed that this filing will become effective (check appropriate box):
[X] Immediately upon filing pursuant [ ] on _________ pursuant
to Rule 485(b), or to Rule 485(b)
[ ] 60 Days after filing pursuant [ ] on _______________ pursuant
to Rule 485(a)(1), or to Rule 485(a)(1)
[ ] 75 days after filing pursuant [ ] on _______________ pursuant
to Rule 485(a)(2), or to Rule 485(a)(2)
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
The Registrant has registered an indefinite number of shares of its Common
Stock, $.001 par value, under the Securities Act of 1933, pursuant to Rule
24f-2 under the Investment Company Act of 1940, as amended. The Rule 24f-2
Notice for the fiscal year ending December 31, 1996, was filed with the
Securities and Exchange Commission on February 27, 1997.
This Post-Effective Amendment to the Registrant's Registration Statement also
has been executed by Master Investment Trust (another registered investment
company with separate series in which certain of the Registrant's series invest
substantially all of their assets) and by such company's trustees and principal
officer.
<PAGE> 2
EXPLANATORY NOTE
This Post-Effective Amendment No. 36 to the Registration Statement (the
"Amendment") of Overland Express Funds, Inc. (the "Company") is being filed to
add to the Company's Registration Statement the audited financial statements
and certain related financial information for the fiscal year (or period, as
applicable) ended December 31,1996 for the Company's California Tax-Free Bond,
California Tax-Free Money Market, Index Allocation (formerly, Asset
Allocation), Money Market, Municipal Income, National Tax-Free Institutional
Money Market, Overland Sweep, Short-Term Government-Corporate Income,
Short-Term Municipal Income, Small Cap Strategy, Strategic Growth, U.S.
Government Income, U.S. Treasury Money Market and Variable Rate Government
Funds.
<PAGE> 3
Cross Reference Sheet
Overland Express Funds, Inc.
Form N-1A Item Number
Part A Prospectus Captions
1 Cover Page
2 Prospectus Summary
Summary of Expenses
3 Financial Highlights
4 Investment Objective(s) and Policies
Investment Activities
5 Management of the Fund(s)
6 Organization and Capital Stock
7 Determination of Net Asset Value
Purchase of Shares
Exchange Privileges
Dividends and Distributions
Taxes
8 Redemption of Shares
9 Not Applicable
Part B Statement of Additional Information Captions
10 Cover Page
11 Table of Contents
12 Management
Capital Stock
13 Investment Restrictions
Additional Permitted Investment Activities
Appendix
14 Management
15 Management
Capital Stock
16 Management
Distribution Plans
Class A Administrative Servicing Plan
Class D Servicing Plan;
Fund Expenses
Independent Auditors
17 Portfolio Transactions
18 Capital Stock; Other
19 Determination of Net Asset Value
Additional Purchase and Redemption Information
20 Federal Income Taxes
21 Distribution Plans
22 Performance Calculations
23 Financial Information
Part C Other Information
24-32 Information required to be included in Part C is set forth under
the appropriate Item, so numbered, in Part C of this Document.
<PAGE> 4
OVERLAND EXPRESS FUNDS
PROSPECTUS
MAY 1, 1997
SHORT-TERM MUNICIPAL INCOME
FUND
SHORT-TERM GOVERNMENT-CORPORATE
INCOME FUND
VARIABLE RATE GOVERNMENT FUND
LOGO
<PAGE> 5
Overland Express Logo
PROSPECTUS DATED MAY 1, 1997
Telephone: (800) 552-9612
Overland Express Funds, Inc. (the "Company") is an open-end, series investment
company. This Prospectus contains information about three of the Company's
funds -- the SHORT-TERM MUNICIPAL INCOME FUND, the SHORT-TERM
GOVERNMENT-CORPORATE INCOME FUND and the VARIABLE RATE GOVERNMENT FUND (each a
"Fund" and collectively, the "Funds"). This Prospectus describes Class A and
Class D shares of the Variable Rate Government Fund, and a single class of
shares (hereafter, also referred to as "Class A shares") of each of the
Short-Term Funds.
The SHORT-TERM MUNICIPAL INCOME FUND seeks to provide investors with a high
level of income exempt from federal income taxes, while managing principal
volatility. The SHORT-TERM GOVERNMENT-CORPORATE INCOME FUND seeks to provide
investors with current income, while managing principal volatility. The VARIABLE
RATE GOVERNMENT FUND seeks to earn a high level of current income, while
reducing principal volatility, by investing primarily in adjustable rate
mortgage securities issued or guaranteed by the U.S. Government, its agencies
and instrumentalities.
Investors should read this Prospectus carefully and retain it for future
reference. It sets forth concisely the information a prospective investor should
know before investing in the Funds. Statements of Additional Information
("SAIs") dated May 1, 1997, containing additional and more detailed information
about the Funds, have been filed with the Securities and Exchange Commission
(the "SEC") and are hereby incorporated by reference into this Prospectus. The
SAIs are available without charge and can be obtained by writing the Company at
P.O. Box 63084, San Francisco, CA 94163 or by calling (800) 552-9612.
The Short-Term Municipal Income Fund and the Short-Term Government-Corporate
Income Fund (each, a "Short-Term Fund") each invests all of its assets in a
separate portfolio (a "Master Portfolio") of Master Investment Trust (the
"Trust"), an open-end, series investment company, rather than directly in a
portfolio of securities. The Short-Term Municipal Income Fund seeks to achieve
its investment objective by investing all of its assets in the Short-Term
Municipal Income Master Portfolio. The Short-Term Government-Corporate Income
Fund seeks to achieve its investment objective by investing all of its assets in
the Short-Term Government-Corporate Income Master Portfolio. The performance of
each Fund corresponds directly to the performance of its Master Portfolio.
References to the investments, investment policies and risks of the Short-Term
Funds, unless otherwise indicated, should be understood as references to the
investments, investment policies and risks of the corresponding Master
Portfolios.
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FUND SHARES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR ISSUED, ENDORSED OR
GUARANTEED BY, WELLS FARGO BANK, N.A. OR ANY OF ITS AFFILIATES. SUCH SHARES ARE
NOT INSURED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. AN INVESTMENT IN A FUND INVOLVES
CERTAIN INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
WELLS FARGO BANK IS THE INVESTMENT ADVISER AND ADMINISTRATOR AND PROVIDES
CERTAIN OTHER SERVICES TO THE FUNDS AND MASTER PORTFOLIOS FOR WHICH IT IS
COMPENSATED. STEPHENS INC. WHICH IS NOT AFFILIATED WITH WELLS FARGO BANK, IS THE
SPONSOR, CO-ADMINISTRATOR AND DISTRIBUTOR FOR THE FUNDS.
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.
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PROSPECTUS SUMMARY................................. 1
SUMMARY OF EXPENSES................................ 4
FINANCIAL HIGHLIGHTS............................... 7
INVESTMENT OBJECTIVES AND POLICIES................. 11
INVESTMENT ACTIVITIES.............................. 13
MANAGEMENT OF THE FUNDS............................ 17
DETERMINATION OF NET ASSET VALUE................... 20
PURCHASE OF SHARES................................. 21
EXCHANGE PRIVILEGES................................ 24
REDEMPTION OF SHARES............................... 25
DIVIDENDS AND DISTRIBUTIONS........................ 27
TAXES.............................................. 27
ORGANIZATION AND CAPITAL STOCK..................... 28
OTHER.............................................. 28
</TABLE>
PROSPECTUS
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<PAGE> 7
PROSPECTUS SUMMARY
The Company, as an open-end management investment company, provides a convenient
way for you to invest in portfolios of securities selected and supervised by
professional management. The following provides information about the Funds.
Q. WHAT ARE THE FUNDS' INVESTMENT OBJECTIVES?
A. The SHORT-TERM MUNICIPAL INCOME FUND seeks to provide investors with a high
level of income exempt from federal income taxes, while managing principal
volatility.
The SHORT-TERM GOVERNMENT-CORPORATE INCOME FUND seeks to provide investors
with current income, while managing principal volatility.
The VARIABLE RATE GOVERNMENT FUND seeks to earn a high level of current
income, while reducing principal volatility, by investing primarily in
adjustable rate mortgage securities issued or guaranteed by the U.S.
Government, its agencies and instrumentalities.
See "Investment Objectives and Policies."
Q. WHAT ARE THE FUNDS' PRINCIPAL INVESTMENTS?
A. The SHORT-TERM MUNICIPAL INCOME FUND seeks to achieve its investment
objective by investing primarily in investment-grade municipal securities.
The Fund also may invest in certain U.S. Government obligations and money
market instruments. The SHORT-TERM GOVERNMENT-CORPORATE INCOME FUND seeks to
achieve its investment objective by investing primarily in obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities
(including government-sponsored enterprises) and in investment-grade
corporate obligations. The securities that the Fund may purchase include U.S.
Treasury bonds, notes and bills; obligations of the U.S. Government, its
agencies or instrumentalities; investment-grade corporate bonds and notes,
asset-backed securities and money market instruments.
Each Short-Term Fund's investments include fixed, variable-and floating-rate
instruments. Except during temporary defensive periods, the Short-Term Funds
each seek to maintain a portfolio of securities with an average weighted
maturity of 90 days to 2 years. Each Short-Term Fund seeks to manage
principal volatility by diversifying its assets among permissible investments
based, in part, on maturity, duration or other characteristics that affect
such securities' sensitivity to changes in market interest rates.
The VARIABLE RATE GOVERNMENT FUND invests primarily in adjustable rate
mortgage securities ("ARMS") issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, including the Government National Mortgage
Association ("GNMA"), the Federal National Mortgage Association ("FNMA") and
the Federal Home Loan Mortgage Corporation ("FHLMC"). The Fund also may
invest in the adjustable rate portions of collateralized mortgage obligations
("CMOs") issued by government agencies or instrumentalities, including
primarily FNMA and FHLMC, and collateralized by pools of mortgage loans.
See "Investment Objectives and Policies" and "Investment Activities."
Q. WHAT ARE SOME OF THE POTENTIAL RISKS ASSOCIATED WITH AN INVESTMENT IN THE
FUNDS?
A. Investments in a Fund are not bank deposits or obligations of Wells Fargo
Bank, are not insured by the Federal Deposit Insurance Corporation ("FDIC")
and are not insured against loss of principal. When the value of the
securities that a Fund owns declines, so does the value of your Fund shares.
You should be prepared to accept some risk with the money you invest in a
Fund.
The market value of the Funds' investments in fixed-income securities changes
in response to various factors, such as changes in market interest rates and
the financial strength of each issuer. During periods of falling interest
rates, the value of fixed-income securities generally rises. Conversely,
during periods of rising interest rates, the value of such securities
generally declines. Debt securities with longer maturities, which tend to
produce higher yields, are subject to potentially greater price fluctuation
than obligations with shorter maturities. Fluctuations in the market value of
fixed income securities can be reduced, but not eliminated, by variable rate
or floating rate features. In addition, some of the asset-backed securities
in which the Funds invest are subject to extension risk. This is the risk
that when interest rates rise, prepayments of the underlying obligations
slow, thereby lengthening the duration and potentially reducing the value of
these securities.
The debt securities held by the Funds also may be subject to credit risk.
Credit risk is the risk that the issuers of securities in which a Fund
invests may default in the payment of principal and/or interest. Any such
defaults or adverse changes in an issuer's financial condition or credit
rating may adversely affect the value of the Funds' portfolio securities and,
hence, the value of your investment in the Fund.
Although some of the Funds' portfolio securities are guaranteed by the U.S.
Government, its agencies or instrumentali-
PROSPECTUS
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1
<PAGE> 8
ties, such securities are subject to interest rate risk and the market value
of these securities, upon which the Funds' daily net asset value is based,
will fluctuate. No assurance can be given that the U.S. Government would
provide financial support to its agencies and instrumentalities where it is
not obligated to do so. Government-sponsored enterprises such as FNMA and
FHLMC in the event of a default in payment on the underlying mortgages which
such entity is unable to satisfy.
As with all mutual funds, there is no assurance that the Funds will achieve
their investment objectives. See "Investment Objective and Policies -- Risk
Factors."
Q. WHO MANAGES MY INVESTMENTS?
A. Wells Fargo Bank, as the investment adviser, manages the investments of the
Variable Rate Government Fund and manages the investments of each Short-Term
Fund in the corresponding Master Portfolio. The Company has not retained the
services of a separate investment adviser for the Short-Term Funds because
each such Fund invests all of its assets in the corresponding Master
Portfolio. Wells Fargo Bank also provides the Funds with administrative,
transfer agency, dividend disbursing agency and custodial services. Stephens
is the sponsor, co-administrator and distributor for the Funds. See
"Management of the Funds."
Q. HOW MAY I PURCHASE SHARES?
A. Shares of each Fund may be purchased on any day the Fund is open. There is a
maximum sales load of 3.00% (3.09% of the net amount invested) for purchasing
shares of the Short-Term Funds and Class A shares of the Variable Rate
Government Fund. Class D shares of the Variable Rate Government Fund are
subject to a maximum contingent deferred sales charge of 1.00% of the lesser
of net asset value at purchase or net asset value at redemption. In most
cases, the minimum initial purchase amount is $1,000. The minimum purchase
amount is $100 for shares purchased through the Systematic Purchase Plan and
$250 for shares purchased through qualified retirement plans. The minimum
subsequent purchase amount is $100. You may purchase Fund shares through
Stephens, Wells Fargo Bank, as transfer agent (the "Transfer Agent"), or any
authorized broker/dealer or financial institution. Purchases of Fund shares
may be made by wire directly to the Transfer Agent. See "Purchase of Shares."
Q. HOW WILL I RECEIVE DIVIDENDS?
A. Dividends on Fund shares are declared daily and paid monthly. Any capital
gains are distributed annually. Each Fund's dividends and capital gain
distributions are automatically reinvested in additional shares of the same
class of the Fund, unless you elect to receive dividends by check or to have
them deposited in an approved bank account. All reinvestments of dividends
and/or capital gain distributions in Fund shares are effected at the then
current net asset value free of any sales load. In addition to the above
options for receiving dividends and capital gain distributions, you may elect
to reinvest Fund dividends and/or capital gain distributions in shares of the
same class of another of the Company's funds with which you have an
established account that has met the applicable minimum initial investment
requirement. See "Dividends and Distributions."
Q. HOW MAY I REDEEM SHARES?
A. Shares of each Fund may be redeemed on any day the Fund is open upon request
to Stephens or the Transfer Agent directly or through any authorized
broker/dealer or financial institution. Shares may be redeemed by a request
in good form in writing or by telephone direction. Proceeds are payable by
check or, for shareholders who make prior arrangements, by wire. Accounts
maintaining less than the applicable minimum initial purchase amount may be
redeemed at the option of the Company. Except for any contingent deferred
sales charge which may be applicable upon redemption of Class D shares, the
Company does not charge for redeeming its shares. However, the Company
reserves the right to impose charges for wiring your redemption proceeds. See
"Redemption of Shares."
Q. WHAT ARE DERIVATIVES AND DO THE FUNDS USE THEM?
A. Derivatives are financial instruments whose value is derived, at least in
part, from the price of another security or a specified asset, index or rate.
Some of the permissible investments described in this Prospectus, such as
variable-rate instruments and ARMS which have an interest rate that is reset
periodically based on an index, can be considered derivatives. Some
derivatives may be more sensitive than direct securities to changes in
interest rates or sudden market moves. Some derivatives also may be
susceptible to fluctuations in yield, duration or value due to their
structure or contract terms.
PROSPECTUS
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2
<PAGE> 9
Q. WHAT STEPS DO THE FUNDS TAKE TO CONTROL DERIVATIVES-RELATED RISKS?
A. Wells Fargo Bank, as investment adviser, uses a variety of internal risk
management procedures to ensure that derivatives use is consistent with each
Fund's investment objective, does not expose the Funds to undue risks and is
closely monitored. These procedures include providing periodic reports to the
Board of Directors concerning the use of derivatives. Derivatives use by each
Fund also is subject to broadly applicable investment policies. For example,
the Funds may not invest more than a specified percentage of their assets in
"illiquid securities," including those derivatives that do not have active
secondary markets. Nor may a Fund use certain derivatives without
establishing adequate "cover" in compliance with SEC rules limiting the use
of leverage.
PROSPECTUS
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3
<PAGE> 10
SUMMARY OF EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
SHORT-TERM VARIABLE RATE
GOVERNMENT- SHORT-TERM GOVERNMENT
CORPORATE MUNICIPAL FUND
INCOME FUND INCOME FUND CLASS A
<S> <C> <C> <C>
Maximum Sales Load on Purchases (as a percentage of offering
price)..................................................... 3.00% 3.00% 3.00%
Maximum Sales Load on Reinvested Dividends.................. None None None
Maximum Sales Load on Redemptions
During Year 1.............................................. None None None
After Year 1............................................... None None None
Exchange Fees............................................... None None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
SHORT-TERM VARIABLE RATE
GOVERNMENT- SHORT-TERM GOVERNMENT
CORPORATE MUNICIPAL FUND
INCOME FUND(1) INCOME FUND(1) CLASS A
<S> <C> <C> <C>
Management Fees (after waivers or reimbursements)(2)........ 0.00% 0.00% 0.40%
Rule 12b-1 Fees(3).......................................... 0.25% 0.25% 0.25%
Other Expenses (after waivers or reimbursements)(4)......... 0.11% 0.15% 0.13%
----- ----- -----
TOTAL FUND OPERATING EXPENSES (after waivers or
reimbursements)(5)......................................... 0.36% 0.40% 0.78%
===== ===== =====
</TABLE>
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(1) Summarizes expenses charged to the Fund and the Master Portfolio.
(2) Management Fees (before waivers or reimbursements) for the Short-Term
Municipal Income Fund would be 0.50% and for the other Funds would be 0.50%.
(3) Class A shares of the Variable Rate Government Fund and shares of the
Short-Term Funds are subject to either a 0.25% 12b-1 Fee or a 0.25%
Administrative Servicing Fee. In no case will shareholders be assessed both
12b-1 and Administrative Servicing Fees and Total Fund Operating Expenses
will not be greater than the amount shown above because of the combination
of such fees. See "Distribution Plans" and "Administrative Servicing Plan".
(4) Other Expenses (before waivers or reimbursements) for the Short-Term
Government-Corporate Income, Short- Term Municipal Income and Variable Rate
Government Funds would be 1.10%, 0.68% and 0.23%, respectively.
(5) Total Fund Operating Expenses (before waivers or reimbursements) for the
Short-Term Government-Corporate Income, Short-Term Municipal Income and
Variable Rate Government Funds would be 1.85%, 1.43% and 0.98%,
respectively.
PROSPECTUS
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4
<PAGE> 11
SUMMARY OF EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
VARIABLE RATE
GOVERNMENT
FUND CLASS D
<S> <C>
Maximum Sales Load on Purchases (as a percentage of offering
price)..................................................... None
Maximum Sales Load on Reinvested Dividends.................. None
Maximum Sales Load on Redemptions
During Year 1.............................................. 1.00%
After Year 1............................................... None
Exchange Fees............................................... None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
VARIABLE RATE
GOVERNMENT
FUND CLASS D
<S> <C>
Management Fees (after waivers or reimbursements)(1)........ 0.40%
Rule 12b-1 Fees............................................. 0.50%
Servicing Fee............................................... 0.25%
Other Expenses (after waivers or reimbursements)(2)......... 0.13%
-----
TOTAL FUND OPERATING EXPENSES (after waivers or
reimbursements)(3)......................................... 1.28%
=====
</TABLE>
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(1) Management Fees (before waivers or reimbursements) would be 0.50%.
(2) Other Expenses (before waivers or reimbursements) would be 0.42%.
(3) Total Fund Operating Expenses (before waivers or reimbursements) would be
1.67%.
EXAMPLE OF EXPENSES
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment
in a Fund's Class A shares, assuming (1) a 5% annual return
and (2) redemption at the end of each time period indicated:
Short-Term Municipal Income Fund........................... $34 $41 $50 $74
Short-Term Government-Corporate Income Fund................ $34 $42 $52 $79
Variable Rate Government Fund.............................. $38 $54 $72 $124
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment
in Class D shares of the Variable Rate Government Fund,
assuming (1) a 5% annual return and (2) redemption at the
end of each time period indicated:
Variable Rate Government Fund.............................. $23 $41 $70 $155
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
You would pay the following expenses on the same investment
in Class D shares of the Variable Rate Government Fund,
assuming no redemption:
Variable Rate Government Fund.............................. $13 $41 $70 $155
</TABLE>
PROSPECTUS
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5
<PAGE> 12
The purpose of the foregoing tables is to assist you in understanding the
various costs and expenses that investors in the Funds will pay directly or
indirectly. There are no other sales loads, redemption fees or exchange fees
charged by the Funds. The Company reserves the right to impose a charge for
wiring redemption proceeds.
SHAREHOLDER TRANSACTION EXPENSES are charges you pay when you buy or sell Fund
shares. You are subject to a front-end sales charge on purchases of the
Short-Term Funds and on Class A shares of the Variable Rate Government Fund and
may be subject to a contingent deferred sales charge on the Variable Rate
Government Fund's Class D shares if you redeem such shares within a specified
period. In certain instances you may qualify for a reduction or waiver of the
front-end sales charge. See "Purchase of Shares."
ANNUAL FUND OPERATING EXPENSES for each Fund are based on amounts incurred
during the most recent fiscal year, adjusted to reflect fee waivers and expense
reimbursements expected to continue during the current fiscal year. Wells Fargo
Bank and Stephens each have agreed to waive or reimburse all or a portion of
their respective fees charged to, or expenses paid by, each Short-Term Fund and
corresponding Master Portfolio through at least the current fiscal year so that
such fees do not exceed on an annual basis 0.50% of each such Fund's average
daily net assets. There is no assurance that voluntary waivers and
reimbursements will continue. Long-term shareholders of a Fund could pay more in
distribution-related charges than the economic equivalent of the maximum
front-end sales charges applicable to mutual funds sold by members of the
National Association of Securities Dealers, Inc. ("NASD").
EXAMPLE OF EXPENSES is a hypothetical illustration of the expenses associated
with a $1,000 investment over the periods shown, based on the expenses in the
above tables and an assumed annual rate of return of 5%. This annual rate of
return should not be considered an indication of the actual or expected
performance of a Fund. In addition, the Example should not be considered a
representation of past or future expenses; actual expenses and returns may be
greater or less than those shown. See "Management of the Funds" for more
complete descriptions of the various costs and expenses applicable to the Funds.
With regard to the combined fees and expenses of the Short-Term Funds and the
corresponding Master Portfolios, the Company's Board of Directors has considered
whether various costs and benefits of investing all of a Fund's assets in a
corresponding Master Portfolio rather than directly in a portfolio of securities
would be more or less than if the Fund invested in portfolio securities
directly. The Company's Board believes that the aggregate per share expenses of
a Fund will not be more than the expenses incurred by such Fund if the Fund
invested directly in the securities held by the Master Portfolio. The Board
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 a Fund would be spread across a larger asset base provided by more
than one fund investing in a Master Portfolio. In addition to selling its
interests to the Short-Term Funds, each Master Portfolio may sell its interest
to other mutual funds or accredited investors. The expenses and corresponding
return of these other funds may differ from the expenses and corresponding
returns of the Short-Term Funds. Information regarding any other investment
options in the Funds or the Master Portfolios may be obtained by calling
Stephens at (800) 643-9691.
PROSPECTUS
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6
<PAGE> 13
FINANCIAL HIGHLIGHTS
The following information has been derived from the Financial Highlights
included in the Funds' 1996 annual financial statements. The financial
statements are incorporated by reference into the SAI for each Fund and have
been audited by KPMG Peat Marwick LLP, independent auditors, whose report dated
February 14, 1997 also is incorporated by reference into the SAIs. This
information should be read in conjunction with the Funds' 1996 annual financial
statements and notes thereto. The SAI for each Fund has been incorporated by
reference into this Prospectus.
SHORT-TERM MUNICIPAL INCOME FUND
For a Share Outstanding
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
DEC. 31, DEC. 31, DEC. 31,
1996 1995 1994(1)
-------- -------- --------
<S> <C> <C> <C>
Net asset value, beginning of period........................ $ 4.99 $ 4.92 $ 5.00
Income from investment operations:
Net investment income (loss)................................ 0.20 0.22 0.09
Net realized and unrealized gain (loss) on investments...... (0.02) 0.07 (0.08)
Total from investment operations............................ 0.18 0.29 0.01
Less distributions:
Dividends from net investment income........................ (0.20) (0.22) (0.09)
Distributions from net realized gain........................ 0.00 0.00 0.00
------- ------- -------
Total from distributions.................................... (0.20) (0.22) (0.09)
------- ------- -------
Net asset value, end of period.............................. $ 4.97 $ 4.99 $ 4.92
======= ======= =======
Total return (not annualized)*.............................. 3.62% 6.10% 0.13%
Ratios/supplemental data:
Net assets, end of period (000)............................. $26,714 $16,486 $11,778
Number of shares outstanding (000).......................... 5,373 3,302 2,392
Ratios to average net assets (annualized):
Ratio of expenses to average net assets(2).................. 0.40% 0.38% 0.27%
Ratio of net investment income (loss) to average net
assets(2).................................................. 3.95% 4.39% 3.67%
Portfolio turnover(3)....................................... 47% 46% 8%
Ratio of expenses to average net assets prior to waived fees
and reimbursed expenses(2)................................. 1.43% 1.97% 1.98%
Ratio of net investment income to average net assets prior
to waived fees and reimbursed expenses(2).................. 2.92% 2.80% 1.96%
</TABLE>
- ---------------
(1) The Short-Term Municipal Income Fund and the corresponding Master Portfolio
commenced operations on June 3, 1994.
(2) This ratio includes income and expenses charged to the Short-Term Municipal
Income Master Portfolio.
(3) The portfolio turnover shown in the table is for the Short-Term Municipal
Income Master Portfolio.
* Total returns do not include any sales charges.
PROSPECTUS
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7
<PAGE> 14
SHORT-TERM GOVERNMENT-CORPORATE INCOME FUND
For a Share Outstanding
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
DEC. 31, DEC. 31, DEC. 31,
1996 1995 1994(1)
-------- -------- --------
<S> <C> <C> <C>
Net asset value, beginning of period........................ $ 5.02 $ 4.93 $ 5.00
Income from investment operations:
Net investment income (loss)................................ 0.28 0.30 0.08
Net realized and unrealized gain (loss) on investments...... (0.04) 0.09 (0.07)
------- ------ -------
Total from investment operations............................ 0.24 0.39 0.01
Less distributions:
Dividends from net investment income........................ (0.28) (0.30) (0.08)
------- ------ -------
Distributions from net realized gain........................ 0.00 0.00 0.00
------- ------ -------
Total from distributions.................................... (0.28) (0.30) (0.08)
------- ------ -------
Net asset value, end of period.............................. $ 4.98 $ 5.02 $ 4.93
======= ====== =======
Total return (not annualized)*.............................. 4.83% 8.05% 0.28%
Ratios/supplemental data:
Net assets, end of period (000)............................. $14,023 $5,954 $ 96
Number of shares outstanding (000).......................... 2,815 1,185 20
Ratios to average net assets (annualized):
Ratio of expenses to average net assets(2).................. 0.36% 0.30% 0.30%
Ratio of net investment income (loss) to average net
assets(2).................................................. 5.47% 6.01% 5.77%
Portfolio turnover(3)....................................... 247% 227% 0%
Ratio of expenses to average net assets prior to waived fees
and reimbursed expenses(2)................................. 1.85% 6.79% 67.89%
Ratio of net investment income (loss) to average net assets
prior to waived fees and reimbursed expenses(2)............ 3.98% (0.48)% (61.82)%
</TABLE>
- ---------------
(1) The Short-Term Government-Corporate Income Fund and the corresponding Master
Portfolio commenced operations on September 19, 1994.
(2) This ratio includes income and expenses charged to the Short-Term
Government-Corporate Income Master Portfolio.
(3) The portfolio turnover shown in the table is for the Short-Term
Government-Corporate Income Master Portfolio.
* Total returns do not include any sales charges.
PROSPECTUS
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8
<PAGE> 15
VARIABLE RATE GOVERNMENT FUND
For a Class A Share Outstanding
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED ENDED
DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1996 1995 1994 1993 1992 1991 1990(1)
-------- -------- ---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period........... $ 9.35 $ 9.19 $ 9.99 $ 9.95 $ 10.13 $ 10.12 $10.00
Income from investment operations:
Net investment income.......................... 0.50 0.53 0.43 0.44 0.59 0.78 0.08
Net realized and unrealized gain (loss) on
investments................................... (0.10) 0.16 (0.80) 0.04 (0.18) 0.01 0.12
-------- -------- ---------- ---------- ---------- -------- ------
Total from investment operations............... 0.40 0.69 (0.37) 0.48 0.41 0.79 0.20
Less distributions:
Dividends from net investment income........... (0.46) (0.53) (0.43) (0.44) (0.59) (0.78) (0.08)
Distributions from net realized gain........... 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Tax return of capital.......................... (0.04) 0.00 0.00 0.00 0.00 0.00 0.00
-------- -------- ---------- ---------- ---------- -------- ------
Total from distributions....................... (0.50) (0.53) (0.43) (0.44) (0.59) (0.78) (0.08)
-------- -------- ---------- ---------- ---------- -------- ------
Net asset value, end of period................. $ 9.25 $ 9.35 $ 9.19 $ 9.99 $ 9.95 $ 10.13 $10.12
======== ======== ========== ========== ========== ======== ======
Total return (not annualized)(2)............... 4.41% 7.69% (3.81)% 4.87% 4.23% 8.60% 2.75%
Ratios/supplemental data:
Net assets, end of period (000)................ $393,948 $653,897 $1,215,546 $1,949,013 $2,559,363 $566,840 $6,858
Number of shares outstanding (000)............. 42,589 69,952 132,256 195,132 257,238 55,933 678
Ratios to average net assets (annualized):
Ratio of expenses to average net assets........ 0.88% 0.84% 0.79% 0.76% 0.75% 0.50% 0.00%
Ratio of net investment income to average net
assets........................................ 5.36% 5.71% 4.40% 4.37% 5.62% 7.36% 4.93%
Portfolio turnover............................. 277% 317% 164% 201% 197% 250% N/A*
Ratio of expenses to average net assets prior
to waived fees and reimbursed expenses........ 0.98% 0.96% 0.94% 0.95% 0.94% 1.08% 5.48%
Ratio of net investment income (loss) to
average net assets prior to waived fees and
reimbursed expenses........................... 5.26% 5.59% 4.25% 4.18% 5.43% 6.78% (0.55)%
</TABLE>
- ---------------
(1) The Class A shares of the Variable Rate Government Fund commenced operations
on November 1, 1990.
(2) Total returns do not include any sales charges.
* The Variable Rate Government Fund sold no securities during this period.
PROSPECTUS
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9
<PAGE> 16
VARIABLE RATE GOVERNMENT FUND
For a Class D Share Outstanding
<TABLE>
<CAPTION>
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1996 1995 1994 1993(1)
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........................ $13.97 $13.74 $ 14.93 $ 15.00
Income from investment operations:
Net investment income....................................... 0.68 0.73 0.57 0.27
Net realized and unrealized gain (loss) on investments...... (0.14) 0.23 (1.19) (0.07)
------ ------ ------- -------
Total from investment operations............................ 0.54 0.96 (0.62) 0.20
Less distributions:
Dividends from net investment income........................ (0.63) (0.73) (0.57) (0.27)
Distributions from net realized gain........................ 0.00 0.00 0.00 0.00
Tax return of capital....................................... (0.05) 0.00 0.00 0.00
------ ------ ------- -------
Total from distributions.................................... (0.68) (0.73) (0.57) (0.27)
------ ------ ------- -------
Net asset value, end of period.............................. $13.83 $13.97 $ 13.74 $ 14.93
====== ====== ======= =======
Total return (not annualized)(2)............................ 3.95% 7.08% (4.25%) 1.32%
Ratios/supplemental data:
Net assets, end of period (000)............................. $5,516 $7,730 $12,220 $11,319
Number of shares outstanding (000).......................... 399 553 889 758
Ratios to average net assets (annualized):
Ratio of expenses to average net assets..................... 1.38% 1.35% 1.29% 1.26%
Ratio of net investment income to average net assets........ 4.85% 5.23% 3.94% 3.41%
Portfolio turnover.......................................... 277% 317% 164% 201%
Ratio of expenses to average net assets prior to waived fees
and reimbursed expenses.................................... 1.67% 1.64% 1.55% 1.75%
Ratio of net investment income to average net assets prior
to waived fees and reimbursed expenses..................... 4.56% 4.95% 3.68% 2.92%
</TABLE>
- ---------------
(1) The Class D shares of the Variable Rate Government Fund commenced operations
on July 1, 1993.
(2) Total returns do not include any sales charges.
PROSPECTUS
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10
<PAGE> 17
INVESTMENT OBJECTIVES AND POLICIES
Set forth below is a description of the investment objectives and related
policies of the Funds. As with all mutual funds, there is no assurance that a
Fund will achieve its investment objective.
The SHORT-TERM MUNICIPAL INCOME FUND seeks to provide investors with a high
level of income exempt from federal income taxes, while managing principal
volatility. The Fund seeks to achieve its investment objective by investing all
of its assets in the Short-Term Municipal Income Master Portfolio, which has the
same investment objective as the Fund.
The Master Portfolio invests (under normal market conditions) substantially all
of its 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 seeks to
manage principal volatility by diversifying its assets among permissible
investments based, in part, on their duration, maturity or other characteristics
that affect their sensitivity to changes in market interest rates.
As a fundamental policy, at least 80% of the net assets of the Short-Term
Municipal Income Master Portfolio are invested (under normal market conditions)
in municipal obligations that pay interest that is exempt from federal income
taxes. However, as a matter of general operating policy, the Fund seeks to have
substantially all of its assets invested in such municipal obligations. The
investment adviser may rely either on an opinion of counsel to the issuer of the
municipal obligations or bond counsel 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 in such a way that an economic,
business or political development or change affecting one such obligation could
also affect the other obligations. For example, the Master Portfolio may own
different municipal obligations which pay interest based on the revenues of
similar types of projects. The Master Portfolio may also invest in U.S.
Government obligations and money market instruments.
The SHORT-TERM GOVERNMENT-CORPORATE INCOME FUND seeks to provide investors with
current income, while managing principal volatility. The Fund seeks to achieve
its investment objective by investing all of its assets in the Short-Term
Government-Corporate Income Master Portfolio, which has the same investment
objective as the Fund.
The Master Portfolio seeks to achieve its objective by investing primarily in
obligations issued by the U.S. Government, its agencies or instrumentalities
(including government-sponsored enterprises) and investment-grade corporate
obligations. The securities that the Master Portfolio may purchase include U.S.
Treasury bonds, notes and bills; obligations of the U.S. Government, its
agencies or instrumentalities; investment-grade corporate bonds and notes,
asset-backed securities and money market instruments. The Master Portfolio seeks
to manage principal volatility by diversifying assets among permissible
investments based, in part, on their maturity, duration or other characteristics
that affect the sensitivity of such investments to changes in market interest
rates.
Under normal market conditions, the Short-Term Government-Corporate Income
Master Portfolio invests substantially all of its assets in U.S. Government
obligations and corporate securities, and at least 65% of its assets in
income-producing securities. The Master Portfolio is a flexible portfolio, in
that there is no minimum level of assets that will be invested in either
category of investments. The investment adviser intends, as a general matter, to
keep at least 20% of the Master Portfolio's assets invested in U.S. Government
obligations and at least 20% of its assets invested in corporate securities. The
allocation of assets between these investment categories will vary, depending
primarily on their relative yields.
The VARIABLE RATE GOVERNMENT FUND seeks to earn a high level of current income,
while reducing principal volatility, by investing primarily in adjustable rate
mortgage securities ("ARMS") issued or guaranteed by the U.S. Government, its
agencies and instrumentalities.
The Variable Rate Government Fund may invest in obligations of any maturity.
Under ordinary circumstances, the dollar-weighted average maturity of the Fund's
portfolio is expected to be between 10 and 30 years. However, under unusual
circumstances, the dollar-weighted average maturity of the portfolio may be
shorter than 10 years. At least 65% of the value of the total assets of the Fund
will, under normal circumstances, be invested in ARMS issued or guaranteed by
the U.S. Government, its agencies or instrumentalities (including
government-sponsored enterprises). ARMS are pass-through certificates
representing ownership interests in a pool of adjustable rate mortgages and the
resulting cash flow from those mortgages. The ARMS in which the Variable Rate
Government Fund may invest are issued and guaranteed by GNMA, FNMA or FHLMC.
Unlike conventional debt securities, which provide for periodic (usually
semi-annual) payments of interest and payments of principal at maturity or on
specified call dates, ARMS provide for monthly payments based on a pro-rata
share of both periodic interest and principal payments and pre-
PROSPECTUS
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11
<PAGE> 18
payments of principal on the underlying mortgage pool (less GNMA's, FNMA's or
FHLMC's fees and applicable loan servicing fees).
The Variable Rate Government Fund also may invest in the adjustable rate
portions of CMOs issued by government agencies, instrumentalities or
government-sponsored enterprises including, primarily, FNMA and FHLMC, and
collateralized by pools of mortgage loans. Payments of principal and interest on
the collateral mortgages are used to pay debt service on the CMO. In a CMO, a
series of bonds or certificates is issued in multiple classes. Each class of
CMOs, often referred to as a "tranche," is issued at a specified coupon rate and
has a stated maturity or final distribution date. The principal and interest
payment on the underlying mortgages may be allocated among the classes of CMOs
in several ways. Typically, payments of principal, including any prepayments, on
the underlying mortgages would be applied to the classes in the order of their
respective stated maturities or final distribution dates, so that no payment of
principal will be made on CMOs of a class until all CMOs of other classes having
earlier stated maturities or final distribution dates have been paid in full.
One or more classes of CMOs may have coupon rates that reset periodically based
on an index, such as the London Interbank Offered Rate ("LIBOR"). All CMOs
purchased by the Fund will be rated, at the time of purchase, AAA by Standard &
Poor's Ratings Group ("S&P") or Aaa by Moody's Investors Service, Inc.
("Moody's"). The Fund will not invest in CMOs that, at the time of purchase, are
"high-risk mortgage securities" as defined in the then current Federal Financial
Institutions Examination Council ("FFIEC") Supervisory Policy Statement on
Securities Activities.
The Variable Rate Government Fund also may invest cash balances in U.S. Treasury
securities with remaining maturities of two years or less. As described further
in the SAI, certain securities in which the Fund may otherwise invest may be
purchased on a when-issued basis, but the Fund does not presently intend to
invest more than 5% of its net assets in when-issued securities during the
coming year.
INVESTMENT POLICIES
Each Fund's investment objective, as set forth above, is fundamental; that is,
the investment objective may not be changed without approval by the vote of the
holders of a majority of a Fund's outstanding voting securities, as described
under "Capital Stock" in the SAI. If the Board of Directors determines, however,
that a Fund's investment objective can best be achieved by a substantive change
in a non-fundamental investment policy or strategy, the Company may make such
change without shareholder approval and will disclose any such material changes
in the then current prospectus.
Each Short-Term Fund's investment policy of investing all of its assets in the
corresponding Master Portfolio, as set forth above, is fundamental. The
investment objective of a Master Portfolio may not be changed without approval
of the investors in the Master Portfolio. The classification of each Short-Term
Fund and Master Portfolio as "diversified" may not be changed, in the case of a
Fund, without the approval of the Fund's shareholders, or, in the case of a
Master Portfolio, without the approval of the corresponding Short-Term Fund and
any other investors in such Master Portfolio.
In addition, as a matter of fundamental policy, each Fund may borrow from banks
up to 10% of the current value of its net assets for temporary purposes in order
to meet redemptions. These borrowings may be secured by the pledge of up to 10%
of the current value of such Fund's net assets (but investments may not be
purchased by the Variable Rate Government Fund while any such outstanding
borrowing exists and may not be purchased by a Short-Term Fund while any such
outstanding borrowing exceeds 5% of the Fund's net assets). As a matter of
fundamental policy, each Short-Term Fund may not invest more than 25% of its
assets (i.e., concentrate) in any particular industry, excluding U.S. Government
obligations. As a matter of non-fundamental policy, each Short-Term Fund may
invest up to 15% of the current value of its net assets in securities that are
illiquid by virtue of the absence of a readily available market or 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, provided
that this restriction does not affect a Fund's ability to invest a portion or
all of its assets in its corresponding Master Portfolio. As a matter of
fundamental policy, the Variable Rate Government Fund may invest up to 10% of
the current value of its net assets in repurchase agreements having maturities
of more than seven days, restricted securities and illiquid securities.
Disposing of illiquid or restricted securities may involve additional costs and
require additional time.
Except during temporary defensive periods, each Short-Term Fund seeks to
maintain a portfolio of securities with an average weighted maturity of between
90 days and 2 years. The maximum final maturity of the Short-Term Municipal
Income Fund's investments will not exceed 5 years, excluding certain variable
rate instruments described above. The Short-Term Government-Corporate Income
Fund may invest in obligations of any maturity.
The Short-Term Government-Corporate Income and Variable Rate Government Funds
may experience high portfolio turnover rates, which results in relatively higher
portfolio transaction costs, such as brokerage commissions or dealer mark-ups.
Portfolio turnover also can generate relatively higher capital gains tax
exposure.
PROSPECTUS
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12
<PAGE> 19
RISK FACTORS
Investments in a Fund are not bank deposits or obligations of Wells Fargo Bank,
are not insured by the FDIC and are not insured against loss of principal. When
the value of the securities that a Fund owns declines, so does the value of your
Fund shares. You should be prepared to accept some risk with the money you
invest in a Fund.
The market value of investments in fixed-income securities changes in response
to various factors, such as changes in market interest rates and the financial
strength of each issuer. During periods of falling interest rates, the value of
fixed-income securities generally rises. Conversely, during periods of rising
interest rates, the value of such securities generally declines. Debt securities
with longer maturities, which tend to produce higher yields, are subject to
potentially greater price fluctuation than obligations with shorter maturities.
Fluctuations in the market value of fixed-income securities can be reduced, but
not eliminated, by variable rate or floating rate features. In addition, some of
the asset-backed securities in which the Funds invest are subject to extension
risk. This is the risk that when interest rates rise, prepayments of the
underlying obligations slow, thereby lengthening the duration and potentially
reducing the value of these securities.
The debt securities held by the Funds also may be subject to credit risk. Credit
risk is the risk that the issuers of securities in which a Fund invests may
default in the payment of principal and/or interest. Any such defaults or
adverse changes in an issuer's financial condition or credit rating may
adversely affect the value of the Fund's portfolio securities and, hence, the
value of your investment in the Fund.
Although some of the Funds' portfolio securities are guaranteed by the U.S.
Government, its agencies or instrumentalities, such securities are subject to
interest rate risk and the market value of these securities, upon which the
Funds' daily net asset value is based, will fluctuate. No assurance can be given
that the U.S. Government would provide financial support to its agencies or
instrumentalities where it is not obligated to do so.
As with all mutual funds, there is no assurance that the Funds will achieve
their investment objectives. See each Fund's SAI for additional information.
INVESTMENT ACTIVITIES
Set forth below is a more detailed description of the Funds' permissible
investments. References to the investments, investment policies and risks of the
Short-Term Funds, unless otherwise indicated, should be understood as references
to the investments, investment policies and risks of the corresponding Master
Portfolio. For additional information, see "Additional Permitted Investment
Activities" in each Fund's SAI.
U.S. GOVERNMENT OBLIGATIONS
The Funds may invest in obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities ("U.S. Government obligations"). Payment of
principal and interest on U.S. Government obligations (i) may be backed by the
full faith and credit of the United States (as with Treasury bills and GNMA
certificates) or (ii) may be backed solely by the issuing or guaranteeing agency
or instrumentality itself (as with FNMA notes). In the latter case investors
must look principally to the agency or instrumentality issuing or guaranteeing
the obligation for ultimate repayment, which agency or instrumentality may be
privately owned. There can be no assurance that the U.S. Government will provide
financial support to its agencies or instrumentalities where it is not obligated
to do so. In addition, U.S. Government obligations are subject to fluctuations
in market value due to fluctuations in market interest rates. As a general
matter, the value of debt instruments, including U.S. Government obligation,
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, duration or value due to their structure or contract
terms.
BONDS
Certain of the debt instruments purchased by the Short-Term Funds may be bonds.
A bond is an interest-bearing security issued by a company or governmental unit.
The issuer of a bond has a contractual obligation to pay interest at a stated
rate on specific dates and to repay principal (the bond's face value)
periodically or on a specified maturity date. An issuer may have the right to
redeem or "call" a bond before maturity, in which case the investor may have to
reinvest the proceeds at lower market rates. Most bonds bear interest income at
a "coupon" rate that is fixed for the life of the bond. The value of a fixed
rate bond usually rises when market interest rates fall, and falls when market
interest rates rise. Accordingly, a fixed rate bond's yield (income as a percent
of the bond's current value) may differ from its coupon rate as its value rises
or falls.
Other types of bonds bear income at an interest rate that is adjusted
periodically. Because of their adjustable interest rates, the value of
"floating-rate" or "variable-rate" bonds fluctuates much less in response to
market interest rate movements than the value of fixed rate bonds. Also, the
Funds may treat some of these bonds as having a shorter maturity for purposes of
calculating the weighted average maturity of their investment portfolios. Bonds
may be senior or subordinated obligations. Senior obligations generally have the
first claim on a corporation's earnings and assets and, in the event of
liquidation, are paid before subordinated debt. Bonds may be unsecured (backed
only by the issuer's general creditworthiness) or secured (also backed by
specified collateral).
PROSPECTUS
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13
<PAGE> 20
The Short-Term Municipal Income Fund may invest in variable-rate instruments
with a maximum final maturity of up to 30 years, provided the period remaining
until the next readjustment of the instrument's interest rate, or the period
remaining until the principal amount can be recovered through demand, is less
than 5 years.
ASSET-BACKED SECURITIES
The Short-Term Government-Corporate Income Fund may invest in various types of
asset-backed securities. Asset-backed securities are typically backed by an
underlying pool of assets (such as credit card or automobile trade receivables
or corporate loans or bonds) which provides the interest and principal payments
to investors. Credit quality depends primarily on the quality of the underlying
assets and the level of credit support, if any, provided by the issuer. The
underlying assets may be subject to prepayment, which can shorten the life of
asset-backed securities and may lower their return. Asset-backed securities are
subject to interest rate risk and their value may also change because of actual
or perceived changes in the creditworthiness of the originator, servicing agent
or of the financial institution providing any credit support.
REPURCHASE AGREEMENTS
Each of the Funds may enter into repurchase transactions in which the seller of
a security to the Fund agrees to repurchase that security from the Fund at a
mutually agreed-upon time and price. The period of maturity is usually quite
short, often overnight or a few days, although it may extend over a number of
months. A Fund may enter into repurchase agreements only with respect to
securities which could otherwise be purchased for the Fund. All repurchase
agreements must be fully collateralized. A Fund may incur a loss on a repurchase
transaction if the seller defaults and the value of the underlying collateral
declines or is otherwise limited or if receipt of the security or collateral is
delayed. The Funds may enter into pooled repurchase agreement transactions with
other funds advised by Wells Fargo Bank.
MUNICIPAL SECURITIES
The Short-Term Municipal Income Fund may invest in municipal securities that are
issued by states and municipalities to raise money for various public purposes,
including general purpose financing for state and local governments as well as
financing for specific projects or public facilities. Municipal securities may
be backed by the full taxing power of a state or municipality, by the revenues
from a specific project or the credit of a private organization. In addition,
certain municipal securities may be supported by letters of credit furnished by
domestic or foreign banks. Yields on municipal securities generally depend on a
variety of factors, including: the general conditions of the municipal note and
municipal bond markets; the size and maturity of the particular offering; the
maturity of the obligations; and the rating of the issue or issuer. Furthermore,
any adverse economic conditions or developments affecting a particular state or
municipality could impact the municipal securities issued by such entities. The
two principal classifications of municipal securities are "general obligation"
securities and "revenue" securities. General obligation securities are secured
by the issuer's pledge of its full faith, credit, and taxing power for the
payment of principal and interest. Revenue securities are payable only from the
revenues derived from a particular facility or class of facilities or, in some
cases, from the proceeds of a special excise tax or other specific revenue
source such as the user of the facility being financed. "Private activity
bonds," the interest on which is generally includable for federal alternative
minimum tax purposes, held by the Short-Term Municipal Income Fund are, in most
cases, revenue securities and are not payable from the unrestricted revenues of
the issuer. Consequently, the credit quality of private activity bonds is
usually directly related to the credit standing of the corporate user of the
facility involved.
The highest rating assigned by S&P is "AAA" for state and municipal bonds,
"SP-1" for state and municipal notes, and "A-1" for state and municipal paper.
The highest rating assigned by Moody's is "Aaa," "MIG 1," and "Prime-1" for
state and municipal bonds, notes and commercial paper, respectively. These
instruments are judged to be the best quality and present minimal risks and a
strong capacity for repayment of principal and interest. If a municipal security
ceases to be rated or is downgraded below an investment grade rating after
purchase by the Fund, it may retain or dispose of such security. In any event,
the Short-Term Municipal Income Master Portfolio does not intend to purchase or
retain any municipal security that is rated below the top four rating categories
by a nationally recognized statistical rating organization ("NRSRO"), or, if
unrated, is considered by the investment adviser to be of comparable quality.
Securities rated in the fourth highest category are considered to have
speculative characteristics. A description of ratings is contained in the
Appendix to the SAI.
Municipal securities may include "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of moral obligation
bonds is unable to meet its debt service obligations from current revenues, it
may draw on a reserve fund, the restoration of which is a moral commitment but
not a legal obligation of the state or municipality which created the issuer. An
issuer's obligation to pay principal or interest on an instrument may be backed
by an unconditional bank letter or line of credit, guarantee or commitment to
lend.
PROSPECTUS
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14
<PAGE> 21
Municipal securities may include variable- or floating-rate instruments issued
by industrial development authorities and other governmental entities. While
there may not be an active secondary market with respect to a particular
instrument purchased by the Short-Term Municipal Income Fund, it may demand
payment of the principal and accrued interest on the instrument or may resell it
to a third party as specified in the instruments. The absence of an active
secondary market, however, could make it difficult for the Fund to dispose of
the instrument if the issuer defaulted on its payment obligation or during
periods the Fund is not entitled to exercise its demand rights, and the Fund
could, for these or other reasons, suffer a loss.
Municipal participation interests, which give the purchaser an undivided
interest in one or more underlying municipal securities, may be purchased from
financial institutions. To the extent that municipal participation interests are
considered to be "illiquid securities" such instruments are subject to the
Short-Term Municipal Income Fund's limitation on the purchase of illiquid
securities.
In addition, the Short-Term Municipal Income Fund may acquire "stand-by
commitments" from banks or broker/dealers with respect to municipal securities
held in its portfolios. Under a stand-by commitment, a dealer agrees to purchase
at the Fund's option specified municipal securities at a specified price. The
Fund acquires stand-by commitments solely to facilitate portfolio liquidity and
without intending to exercise its rights thereunder for trading purposes.
The Short-Term Municipal Income Fund may purchase municipal obligations known as
"certificates of participation" which represent undivided proportional interests
in lease payments by a governmental or nonprofit entity. The lease payments and
other rights under the lease provide for and secure the payments on the
certificates. Lease obligations may be limited by applicable municipal charter
provisions or the nature of the appropriation for the lease. In particular,
lease obligations may be subject to periodic appropriation. Lease obligations
also may be abated if the leased property is damaged or becomes unsuitable for
the lessee's purpose. If the entity does not appropriate funds for future lease
payments, the entity cannot be compelled to make such payments. Furthermore, a
lease may or may not provide that the certificate trustee can accelerate lease
obligations upon default. If the trustee could not accelerate lease obligations
upon default, the trustee would only be able to enforce lease payments as they
became due. In the event of a default or failure of appropriation, it is
unlikely that the trustee would be able to obtain an acceptable substitute
source of payment. Certificates of participation are generally subject to
redemption by the issuing municipal entity under specified circumstances. If a
specified event occurs, a certificate is callable at par either at any interest
payment date or, in some cases, at any time. As a result, certificates of
participation are not as liquid or marketable as other types of municipal
obligations and are generally valued at par or less than par in the open market.
ADJUSTABLE RATE MORTGAGES AND COLLATERALLIZED MORTGAGE OBLIGATIONS
The Variable Rate Government Fund may invest in ARMS issued or guaranteed by
GNMA, FNMA or FHLMC. The full and timely payment of principal and interest on
GNMA ARMS is guaranteed by GNMA and backed by the full faith and credit of the
U.S. Government. FNMA also guarantees full and timely payment of both interest
and principal, while FHLMC guarantees full and timely payment of interest and
ultimate payment of principal. FNMA and FHLMC ARMS are not backed by the full
faith and credit of the United States. However, because FNMA and FHLMC are
government-sponsored enterprises, these securities are generally considered to
be high quality investments that present minimal credit risks. The yields
provided by these ARMS have historically exceeded the yields on other types of
U.S. Government securities with comparable maturities, although there can be no
assurance that this historical performance will continue.
The mortgages underlying ARMS guaranteed by GNMA are typically insured or
guaranteed by the Federal Housing Administration, the Veterans Administration or
the Farmers Home Administration, while those underlying ARMS issued by FNMA or
FHLMC are typically conventional residential mortgages which are not so insured
or guaranteed, but which conform to specific underwriting, size and maturity
standards.
The interest rates on the mortgages underlying the ARMS and some of the CMOs in
which the Variable Rate Government Fund may invest generally are readjusted at
periodic intervals ranging from one year or less to several years in response to
changes in a predetermined interest rate index. There are two main categories of
indices: those based on U.S. Treasury securities and those derived from a
calculated measure, such as a cost-of-funds index or a moving average of
mortgage rates. Commonly utilized indices include the one-year and five-year
constant maturity Treasury note rates, the three-month Treasury bill rate, the
180-day Treasury bill rate, rates on longer-term Treasury securities, the
National Median Cost of Funds, the one-month, three-month, six-month or one-year
LIBOR, a published prime rate or commercial paper rates. Certain of these
indices follow overall market interest rates more closely than others.
Adjustable rate mortgages generally have a specified maturity date. Most provide
for amortization of principal in a manner similar to fixed-rate mortgages, but
have interest rates that change in response to changes in a specified interest
rate index. The rate of interest due on such a mortgage is calculated by adding
an
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agreed-upon "margin" to the specified index, although there generally are
limitations or "caps" on interest rate movements in any given period or over the
life of the mortgage. To the extent that the interest rates on adjustable rate
mortgages cannot be adjusted in response to interest rate changes because of
interest rate caps, the ARMS or CMOs backed by such mortgages are likely to
respond to changes in market rates more like fixed rate securities. In other
words, interest rate increases in excess of such caps can be expected to cause
CMOs or ARMS backed by mortgages that have such caps to decline in value to a
greater extent than would be the case in the absence of such caps. Conversely,
interest rate decreases below interest rate floors can be expected to cause the
CMOs or ARMS backed by mortgages that have such floors to increase in value to a
greater extent than would be the case in the absence of such floors.
These adjustable rate features should reduce, but will not eliminate, price
fluctuations in such securities, particularly during periods of extreme
fluctuations in market interest rates. Since the interest rates on mortgages
typically are reset at most annually and generally are subject to caps, it can
be expected that the prices of ARMS and CMOs backed by such mortgages will
fluctuate to the extent prevailing market interest rates are not reflected in
the interest rates payable on the underlying adjustable rate mortgages. In this
regard, the net asset value of the Fund's shares could fluctuate to the extent
interest rates on underlying mortgages differ from prevailing market interest
rates during interim periods between interest rate reset dates. Accordingly,
investors could experience some principal loss or less gain than might otherwise
be achieved if they redeem their shares of the Fund or if the Fund sells these
portfolio securities before the interest rates on the underlying mortgages are
adjusted to reflect prevailing market interest rates.
The holder of ARMS and certain CMOs receives not only monthly scheduled payments
of principal and interest, but also may receive unscheduled principal payments
representing prepayments on the underlying mortgages. Changes in market interest
rates and interest rate indexes can affect these prepayment rates, thereby
shortening or lengthening their duration, the holder therefore, may have to
reinvest the periodic payments and any unscheduled prepayments of principal it
receives at a rate of interest which is lower than the rate on the ARMS and CMOs
held by it.
CMOs backed by fixed rate mortgages share many of the rate, duration and
investment risks described above because of their contractual and investment
features and because of factors such as the prepayment rates on the underlying
fixed rate mortgages.
FORWARD COMMITMENTS, WHEN-ISSUED PURCHASES AND DELAYED DELIVERY TRANSACTIONS
The Funds may purchase or sell securities on a when-issued or delayed delivery
basis and may make contracts to purchase or sell securities for a fixed price at
a future date beyond customary settlement time. Securities purchased or sold on
a when-issued, delayed delivery or forward commitment basis involve a risk of
loss if the value of the security to be purchased declines, or the value of the
security to be sold increases, before the settlement date. Although the Funds
generally purchase securities with the intention of acquiring them, a Fund may
dispose of securities purchased on a when-issued, delayed-delivery or a forward
commitment basis before settlement when deemed appropriate by Wells Fargo Bank.
FOREIGN OBLIGATIONS
The Short-Term Government-Corporate Income Fund may invest up to 25% of its
assets in "Yankee Bonds." Yankee Bonds are U.S. dollar-denominated debt
obligations issued in the U.S. by foreign banks and corporations. Such
investments may involve special risks and considerations not typically
associated with investing in U.S. companies. These include differences in
accounting, auditing and financial reporting standards; generally higher
commission rates on foreign portfolio transactions; the possibility of
nationalization, expropriation or confiscatory taxation; adverse changes in
investment or exchange control regulations (which may include suspension of the
ability to transfer currency from a country); and political instability which
could affect U.S. investments in foreign countries. Additionally, dispositions
of foreign securities and dividends and interest payable on those securities may
be subject to foreign taxes, including withholding taxes. Foreign securities
often trade with less frequency and volume than domestic securities and,
therefore, may exhibit greater price volatility. The Fund's investments may be
affected either unfavorably or favorably by fluctuations in the relative rates
of exchange between the currencies of different nations, by exchange control
regulations and by indigenous economic and political developments. See the SAI
for further information about foreign obligations.
TEMPORARY INVESTMENTS
The Short-Term Municipal Income Fund may elect to invest temporarily up to 20%
of its net assets in: U.S. Government obligations; negotiable certificates of
deposit, bankers' acceptance and fixed time deposits and other obligations of
domestic banks (including foreign branches) that have more than $1 billion in
total assets at the time of investment and are members of the Federal Reserve
System or are examined by the Comptroller of the Currency or whose deposits are
insured by the FDIC; commercial paper rated at the date of purchase "Prime-1" by
Moody's or
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"A-1+" or "A-1" by S&P; high quality taxable municipal obligations; shares of
taxable or tax-free money market mutual funds; and repurchase agreements. The
Short-Term Municipal Income Fund may invest temporarily in shares of other
open-end, management investment companies, subject to the limitations of
Sections 12(d)(1) of the Investment Company Act of 1940 (the "1940 Act").
Purchases of shares of other investment companies will be limited to temporary
investments in shares of unaffiliated investment companies, and the investment
adviser will waive its fee for that portion of the Fund's assets so invested.
Such temporary investments would most likely be made for cash management
purposes or when there is an unexpected or abnormal level of investor purchases
or redemptions of shares of the Fund or because of unusual market conditions.
The income from these temporary investments and investment activities may be
subject to federal income taxes. However, as stated above, Wells Fargo Bank
seeks to invest substantially all of the Fund's assets in securities exempt from
such taxes.
MANAGEMENT OF THE FUNDS
The Company's Board of Directors supervises the Funds' activities, monitors
their contractual arrangements with various service providers and decides upon
matters of general policy.
INVESTMENT ADVISER
The Variable Rate Government Fund and each Master Portfolio are advised by Wells
Fargo Bank. 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 April
1, 1997, Wells Fargo Bank and its affiliates provided investment advisory
services for approximately $57 billion of assets of individuals, trusts, estates
and institutions. Wells Fargo Bank is the investment adviser to other separately
managed portfolios of the Company and the Trust and serves as investment adviser
or sub-adviser to five other registered open-end management investment
companies. Wells Fargo Bank, a wholly owned subsidiary of Wells Fargo & Company,
is located at 420 Montgomery Street, San Francisco, California 94104.
Wells Fargo Bank provides investment guidance and policy direction in connection
with the daily portfolio management of the Variable Rate Government Fund and the
Master Portfolios. Wells Fargo Bank also furnishes to the Boards periodic
reports on the investment strategy and performance of the Variable Rate
Government Fund and the Master Portfolios.
For its advisory services, Wells Fargo Bank is entitled to receive a monthly
advisory fee at the annual rate of 0.50% of the respective average daily net
assets of the Variable Rate Government Fund and each Master Portfolio.
For the year ended December 31, 1996, Wells Fargo Bank was paid 0.50% of the
average daily net assets of the Variable Rate Government Fund as compensation
for its services as investment adviser. For the year ended December 31, 1996,
Wells Fargo Bank waived all advisory fees payable by each of the Short-Term
Municipal Income Master Portfolio and Short-Term Government-Corporate Income
Master Portfolio.
PORTFOLIO MANAGERS
Ms. Tamyra Thomas assumed responsibility as portfolio co-manager for the
day-to-day management of the portfolio of the Short-Term Government-Corporate
Income Master Portfolio as of July 16, 1996. Ms. Thomas is a senior
vice-president and the chief fixed income investment officer of the Investment
Management Group Policy Committee. Ms. Thomas has managed bond portfolios for
over a decade. She currently manages in excess of $1 billion of long-term
taxable bond portfolios for various foundations, defined benefit plans and other
clients. Prior to joining Wells Fargo Bank in early 1988, she held a number of
senior investment positions for the Valley Bank & Trust Company of Utah
including vice president and manager of the investment department and chairman
of the Trust Investment Committee. She holds a B.S. from the University of Utah
and was past president of the Utah Bond Club. Ms. Thomas is a chartered
financial analyst.
Ms. Madeline Gish also assumed responsibility as portfolio co-manager for the
day-to-day management of the portfolio of the Short-Term Government-Corporate
Income Master Portfolio as of July 16, 1996. Ms. Gish joined Wells Fargo Bank in
1989 as the portfolio coordinator for the Mutual Funds Division and played an
integral part in the rapid growth of the Company. Since joining the fixed-income
group in 1992, Ms. Gish has assisted in research and trading for adjustable-rate
mortgage funds and is currently managing taxable liquidity portfolios. She holds
a B.S. in Business Administration from the University of Kansas and is a
chartered financial analyst candidate.
Mr. Scott Smith also assumed responsibility as portfolio co-manager for the
day-to-day management of the portfolio of the Short-Term Government-Corporate
Income Master Portfolio as of July 16, 1996. Mr. Smith is a co-manager of the
Variable Rate Government Fund. Mr. Smith has co-managed this Fund since May 1,
1995. He joined Wells Fargo Bank in 1988 as a taxable money market portfolio
specialist. His experience includes a position with a private money management
firm with mutual fund investment operations. Mr. Smith holds a B.A. from the
University of San Diego and is a chartered financial analyst.
Mr. Jeff L. Weaver has acted as portfolio co-manager to the Short-Term
Government-Corporate Income Master Portfolio since May 1, 1996. Mr. Weaver
joined Wells Fargo Bank after three years as a short-term fixed income trader
and portfolio manager in the
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investment management group of Bankers Trust Company in New York. He holds a
B.A. in economics from the University of Colorado and is a chartered financial
analyst candidate.
Ms. Laura L. Milner, portfolio co-manager of the Short-Term Municipal Income
Master Portfolio, joined Wells Fargo Bank in 1988. Her background includes over
seven years experience specializing in short- and long-term municipal
obligations with Salomon Brothers. She is a member of the National Federation of
Municipal Analysts and its California chapter.
Mr. David Klug, portfolio co-manager for the Short-Term Municipal Income Master
Portfolio, has managed municipal bond portfolios for Wells Fargo Bank for over
nine years. Prior to joining Wells Fargo Bank, he managed the municipal bond
portfolio for a major property and casualty insurance company. His investment
experience exceeds 20 years and includes all aspects of tax-exempt fixed-income
investments. He holds an M.B.A. from the University of Chicago and is a member
of the National Federation of Municipal Analysts and its California Chapter. Mr.
Klug and Ms. Milner have co-managed the Municipal Income Master Portfolio since
its inception in May 1994.
Mr. Paul Single is responsible for the day-to-day management of the Variable
Rate Government Fund. Mr. Single has managed taxable bond portfolios for over a
decade with specific expertise in mortgage-backed securities. Prior to joining
Wells Fargo Bank in early 1988, he was a senior portfolio manager for Benham
Capital Management Group. Mr. Single has been portfolio co-manager of the Fund
since its inception in November 1990. Mr. Single received his B.S. from
Springfield College.
Purchase and sale orders of the securities held by the Variable Rate Government
Fund and each Master Portfolio may be combined with those of other accounts that
Wells Fargo Bank manages or advises, 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 a Fund or Master Portfolio and other accounts managed by Wells Fargo
Bank, Wells Fargo Bank has undertaken to allocate those transaction costs among
the participants equitably. From time to time, each Fund and Master Portfolio,
to the extent consistent with its investment objective, policies and
restrictions, may invest in securities of companies with which Wells Fargo Bank
has a lending relationship.
Morrison & Foerster LLP, counsel to the Company and the Trust and special
counsel to Wells Fargo Bank, has advised the Company, the Trust and Wells Fargo
Bank that Wells Fargo Bank and its affiliates may perform the services
contemplated by the Advisory Contracts and this Prospectus without violation of
the Glass-Steagall Act. Such counsel has pointed out, however, that there are no
controlling judicial or administrative interpretations or decisions and that
future judicial or administrative interpretations of, or decisions relating to,
present federal or state statutes, including the Glass-Steagall Act, and
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, as well as future changes in such statutes,
regulations and judicial or administrative decisions or interpretations, could
prevent such entities from continuing to perform, in whole or in part, such
services. If any such entity were prohibited from performing any such services,
it is expected that new agreements would be proposed or entered into with
another entity or entities qualified to perform such services.
ADMINISTRATOR AND CO-ADMINISTRATOR
Wells Fargo Bank as administrator and Stephens as co-administrator, provide the
Funds with administrative services, including general supervision of each Fund's
operation, coordination of the other services provided to each Fund, compilation
of information for reports to the SEC and 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 Directors and officers. Wells Fargo Bank and Stephens also furnish
office space and certain facilities to conduct each Fund's business, and
Stephens compensates the Company's Directors, officers and employees who are
affiliated with Stephens. For these administrative services, Wells Fargo Bank
and Stephens are entitled to receive monthly fees at the annual rates of 0.04%
and 0.02%, respectively, of each Fund's average daily net assets. Wells Fargo
Bank and Stephens may delegate certain of their administrative duties to sub-
administrators.
Stephens previously provided substantially the same services as sole
administrator to the Funds and was entitled to receive from each Fund a monthly
fee at the annual rate of 0.15% of its respective average daily net assets. This
fee decreased to 0.10% of the average daily net assets of each Fund in excess of
$200 million.
SPONSOR AND DISTRIBUTOR
Stephens is the Funds' sponsor and distributes the Funds' shares. Stephens is a
full service broker/dealer and investment advisory firm located at 111 Center
Street, Little Rock, Arkansas 72201. Stephens and its predecessor have been
providing securities and investment services for more than 60 years.
Additionally, they have been providing discretionary portfolio management
services since 1983. Stephens currently manages investment portfolios for
pension and profit sharing plans, individual investors, foundations, insurance
companies and university endowments.
Stephens has entered into a Distribution Agreement with the Company pursuant to
which Stephens has the responsibility for distributing Fund shares. Pursuant to
the Distribution Agreement,
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Stephens may enter into selling agreements with agents for the sale of Fund
shares. Stephens bears the cost of printing and mailing prospectuses to
potential investors and any advertising expenses incurred by it in connection
with the distribution of Fund shares, subject to the terms of the distribution
plans described below.
In addition, Stephens has established a non-cash compensation program, pursuant
to which broker/dealers or financial institutions that sell shares of the Funds
may earn additional compensation in the form of trips to sales seminars or
vacation destinations, tickets to sporting events, theater or other
entertainment, opportunities to participate in golf or other outings and gift
certificates for meals or merchandise.
DISTRIBUTION PLANS
The Company's Board of Directors has adopted Distribution Plans (the "Plans") on
behalf of each class of shares of the Funds. Total payments under the Plan for
Class A shares may not exceed 0.25% of the average daily net assets of the Class
A shares of each Fund on an annual basis. Under the Plan for Class A shares,
each Fund may defray all or part of the actual cost of preparing and printing
prospectuses and other promotional materials and of providing such prospectuses
and other promotional materials to prospective shareholders of the Fund and may
compensate personnel of the distributor or reimburse the distributor for
compensation paid to selling agents for distribution-related or sales support
services and may pay for any other activities primarily intended to result in
the sale of Class A shares of a Fund. Payments also may be used to compensate or
reimburse servicing agents for shareholder liaison services provided by entities
that are dealers of record or which have a servicing relationship with the
beneficial owners of Class A shares of a Fund under a servicing agreement in
substantially the form approved by the Board of Directors.
Under the Plan for Class D shares of the Variable Rate Government Fund and
pursuant to the Distribution Agreement, the Fund may pay Stephens, as
compensation for distribution-related services provided, or reimbursement for
distribution-related expenses incurred, a monthly fee at the annual rate of up
to 0.50% of the Fund's average daily net assets attributable to Class D shares.
The actual fee payable to Stephens shall, within such limit, be determined from
time to time by mutual agreement between the Company and Stephens and may not
exceed the maximum amount payable under the Conduct Rules of the NASD.
SERVICING AGENTS
The Variable Rate Government Fund may enter into servicing agreements with one
or more servicing agents on behalf of its Class D shares. Under such agreements,
servicing agents provide shareholder liaison services, which may include
responding to customer inquiries and providing information on their investments,
and provide such other related services as the Fund or a Class D shareholder may
reasonably request. For these services, a servicing agent receives a fee which
will not exceed, on an annualized basis, the lesser of 0.25% of the average
daily net assets of the Class D shares of the Fund (represented by Class D
shares owned by investors with whom the servicing agent maintains a servicing
relationship), or an amount which equals the maximum amount payable to the
servicing agent under applicable laws, regulations or rules.
SERVICING PLAN
The Company has adopted a servicing plan ("Servicing Plan") on behalf of the
Class D shares of the Variable Rate Government Fund. Pursuant to the Servicing
Plan the Fund may enter into servicing agreements with one or more servicing
agents who agree to provide administrative support services to their customers
who are the record or beneficial owners of Class D shares. Such servicing agents
will be compensated at an annual rate of up to 0.25% of the average daily net
asset value of the Class D shares held of record or beneficially by such
customers.
ADMINISTRATIVE SERVICING PLANS
The Company has adopted a Shareholder Administrative Servicing Plan (the
"Administrative Servicing Plan") on behalf of the Short-Term Funds and on behalf
of Class A shares of the Variable Rate Government Fund. Pursuant to the
Administrative Servicing Plan, the Funds may enter into administrative servicing
agreements with administrative servicing agents (which may include Wells Fargo
Bank and its affiliates) who are dealers/holders of record, or that otherwise
have a servicing relationship with the beneficial owners of the shares.
Administrative servicing agents agree to perform administrative shareholders
services which may include, among other things, maintaining an omnibus account
with the Funds, aggregating and transmitting purchase, exchange and redemption
orders to a Fund's Transfer Agent, answering customer inquiries regarding a
shareholder's account in a Fund, and providing other services the Company or a
customer may reasonably request. Administrative servicing agents are entitled to
a fee which will not exceed 0.25%, on an annualized basis, of the average daily
net assets of the shares represented by the shares owned of record or
beneficially by the customers of the administrative servicing agent during the
period for which payment is being made. In no case shall shares be sold pursuant
to a Fund's Rule 12b-1 Plan while being sold pursuant to its Administrative
Servicing Plan.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT
Wells Fargo Bank has been retained to act as the custodian and transfer and
dividend disbursing agent for the Funds and the Master Portfolios. Wells Fargo
Bank's principal place of business is 420 Montgomery Street, San Francisco,
California 94104, and its
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transfer and dividend disbursing agency activities are managed at 525 Market
Street, San Francisco, California 94105.
FUND EXPENSES
From time to time, Wells Fargo Bank and/or Stephens may waive fees from the
Funds in whole or in part and reimburse expenses payable to others. Any such
waivers or reimbursements will reduce expenses of the Funds and, accordingly,
have a favorable impact on the performance of the Funds. Under the agreement
with the Trust, Stephens is not entitled to receive a fee for providing
administrative services to the Master Portfolios as long as Stephens is entitled
to be compensated for providing administrative services to another mutual fund
that invests all of its assets in the Master Portfolios. Except for the expenses
borne by Wells Fargo Bank and Stephens, the Company and the Trust bear all costs
of their respective operations, including advisory, shareholder servicing,
transfer agency, custody and administration fees, payments pursuant to any
Plans, fees and expenses of independent auditors and legal counsel and any
extraordinary expenses. Expenses attributable to each Fund and/or each Master
Portfolio are charged against the respective assets of the Fund and/or the
Master Portfolio. Each Short-Term Fund bears a pro rata portion of the
corresponding Master Portfolio's expenses.
DETERMINATION OF NET ASSET VALUE
Net asset value per share for a Fund is determined by Wells Fargo Bank on each
day that the Fund is open for trading (a "Business Day"). The Funds are open
Monday through Friday and are closed on weekends and standard New York Stock
Exchange holidays. The net asset value per class of a Fund is the value of total
net assets attributable to such class divided by the number of outstanding
shares of that class.
The net asset value of each Fund and class is expected to fluctuate daily. In
the case of each Short-Term Fund, net asset value is based on the net asset
value of its corresponding Master Portfolio. The net asset value of an interest
in a Master Portfolio is the value of the Master Portfolio's total assets
divided by the number of Master Portfolio interests outstanding.
The net asset value of each Fund is determined as of 1:00 p.m. (Pacific time).
Except for debt instruments with remaining maturities of 60 days or less, which
are valued at amortized cost, assets are valued at current market prices, or if
such prices are not readily available, at fair value as determined in good faith
by the Boards of Directors/Trustees. Prices used for such valuations may be
provided by independent pricing services.
PERFORMANCE DATA
From time to time, the Company may advertise yield and total return information
with respect to a class of shares of a Fund. Total return and yield information
are based on the historical earnings and performance of such class of shares and
should not be considered representative of future performance.
The total return of a class of shares of a Fund is calculated by subtracting (i)
the public offering price of the class of shares (which includes the maximum
sales charge for the class of shares) of one share of the class of shares at the
beginning of the period, from (ii) the net asset value of all shares of the
class of shares an investor would own at the end of the period for the share
held at the beginning of the period (assuming reinvestment of all dividends and
capital gain distributions), and dividing by (iii) the public offering price per
share of the class of shares at the beginning of the period. The resulting
percentage indicates the positive or negative rate of return that an investor
would have earned from reinvested dividends and capital gain distributions and
changes in share price during the period for the class of shares. A Fund may
also, at times, calculate total return of a class of shares based on net asset
value per share of a class (rather than the public offering price), in which
case the figures would not reflect the effect of any sales charges that would
have been paid by an investor in the class of shares, or by assuming that a
sales charge other than the maximum sales charge (reflecting the Volume
Discounts set forth below) is assessed, provided that total return data derived
pursuant to the calculation described above are also presented.
The yield of a class of shares is computed by dividing its net investment income
per share of the class earned during a specified period (usually 30 days) by its
public offering price per share (which includes the maximum sales charge) on the
last day of such period and annualizing the result. For purposes of sales
literature, these yields may also, at times, be calculated on the basis of the
net asset value per share of the class (rather than the public offering price),
in which case the figures would not reflect the effect of any sales charges that
would have been paid by an investor in the class of shares, or by assuming that
a sales charge other than the maximum sales charge (reflecting the Volume
Discounts set forth below) is assessed, provided that yield data derived
pursuant to the calculation described above are also presented.
Because of differences in the fees and/or expenses borne by Class D shares of
the Variable Rate Government Fund, the net yield on such shares can be expected,
at any given time, to be lower than the net yield on the Fund's Class A shares.
Performance information quotations will be computed separately for Class A
shares and Class D shares.
Additional information about the performance of the Funds is contained in the
Annual Report. The Annual Report may be
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obtained free of charge by calling the Company at (800) 552-9612.
PURCHASE OF SHARES
The minimum initial purchase amount for each Fund is generally $1,000. The
minimum initial purchase amount is $100 for purchases through the Systematic
Purchase Plan and $250 for shares purchased through a retirement plan qualified
under the Internal Revenue Code of 1986, as amended (the "Code"). The minimum
subsequent purchase amount is generally $100. The minimum initial or subsequent
purchase amount requirements may be waived or lowered for investments effected
on a group basis by certain entities and their employees, such as pursuant to a
payroll deduction or other accumulation plan. The Company reserves the right to
reject any purchase order. All funds, net of sales loads, are invested in full
and fractional shares. Checks are accepted for the purchase of a Fund's shares
subject to collection at full face value in U.S. dollars. Inquiries concerning
purchases may be directed to the Company at (800) 572-7797 or at the address on
the back cover of the Prospectus.
Shares of each Fund may be purchased on any Business Day through Stephens, any
authorized broker/dealers or financial institutions with which Stephens has
entered into agreements, or through the Transfer Agent. Such broker/dealers or
financial institutions are responsible for the prompt transmission of purchase,
exchange or redemption orders, and may independently establish and charge
additional fees to their clients for such services, other than services related
to purchase orders, which would reduce their clients' overall yield or return.
Shares of each Fund are offered continuously at the applicable offering price
(including any sales load) next determined after a purchase order is received.
Payment for shares purchased through a broker/dealer is not due from the
broker/dealer until the settlement date, currently three Business Days after the
order is placed. It is the broker/dealer's responsibility to forward payment for
shares being purchased to a Fund promptly. Payment for orders placed directly
through the Transfer Agent must accompany the order.
When payment for shares of a Fund purchased through the Transfer Agent is by a
check that is drawn on any domestic bank, federal funds normally become
available to the Fund on the Business Day after the day the check is deposited.
Checks drawn on a non-member bank or a foreign bank may take substantially
longer to be converted into federal funds and, accordingly, may delay execution
of an order.
When Fund shares are purchased through a broker/dealer or financial institution,
Stephens reallows that portion of the sales load designated below as Dealer
Allowance. When shares are purchased directly through the Transfer Agent and no
broker/dealer or financial institution is involved with the purchase, the entire
sales load is paid to Stephens.
Sales loads relating to the purchase of Class A shares in each Fund are as
follows:
<TABLE>
<CAPTION>
DEALER
SALES LOAD SALES LOAD ALLOWANCE
AS % OF AS % OF AS % OF
OFFERING NET AMOUNT OFFERING
AMOUNT OF PURCHASE PRICE INVESTED PRICE
------------------ ---------- ---------- ---------
<S> <C> <C> <C>
Less than $100,000.............. 3.00% 3.09% 2.75%
$100,000 up to $199,999......... 2.00 2.04 1.75
$200,000 up to $599,999......... 1.00 1.01 0.90
$600,000 up to $999,999......... 0.60 0.60 0.50
$1,000,000 and over............. 0.00 0.00 0.00
</TABLE>
The Class D shares of the Variable Rate Government Fund are not subject to a
front-end sales load. However, Class D shares which are redeemed within one year
from the receipt of a purchase order will be subject to a contingent deferred
sales charge equal to 1% of the dollar amount equal to the lesser of the net
asset value at the time of purchase of the shares being redeemed or the net
asset value of such shares at the time of redemption.
A selling agent or servicing agent and any other person entitled to receive
compensation for selling or servicing shares may receive different compensation
for selling or servicing Class A shares as compared with Class D shares.
REDUCED SALES CHARGE -- CLASS A SHARES
The above Volume Discounts are available to you based on the combined dollar
amount being invested in Class A shares of the Funds or Class A shares of one or
more of the portfolios of the Company which assess a sales load (the "Load
Funds"). Because Class D shares are not subject to a front-end sales charge, the
amount of Class D shares you hold is not considered in determining any volume
discount.
The Right of Accumulation allows you to combine the amount being invested in
Class A shares of the Funds with the total net asset value of Class A shares in
any of the Load Funds in accordance with the above sales load schedule to reduce
the sales load. For example, if you own Class A shares of the Company's other
investment portfolios with an aggregate net asset value of $90,000 and invest an
additional $20,000 in Class A shares of a Fund, the sales load on the entire
additional amount would be 2.00% of the offering price. To obtain such discount,
you must provide sufficient information at the time of purchase to permit
verification that the purchase qualifies for the reduced sales load, and
confirmation of the order is subject to such verification. The Right of
Accumulation may be modified or discontinued at any time with respect to all
Class A shares purchased thereafter.
PROSPECTUS
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21
<PAGE> 28
A Letter of Intent allows you to purchase Class A shares of the Funds over a
13-month period at reduced sales loads based on the total amount intended to be
purchased plus the total net asset value of Class A shares in any of the Load
Funds already owned. Each investment made during the period receives the reduced
sales load applicable to the total amount of the intended investment. If such
amount is not invested within the period, you must pay the difference between
the sales loads applicable to the purchases when made and the charges previously
paid.
You may reinvest proceeds from a redemption of Class A shares of a Fund in Class
A shares of the Funds or in Class A shares of another of the Company's
investment portfolios that offers Class A shares at net asset value, without a
sales load, within 120 days after such redemption. However, if the other
investment portfolio charges a sales load that is higher than the sales load
that you have paid in connection with the Class A shares you have redeemed, you
pay the difference. In addition, the Class A shares of the other investment
portfolio to be acquired must be registered for sale in your state of residence.
The amount that may be so reinvested may not exceed the amount of the redemption
proceeds, and a written order for the purchase of the Class A shares must be
received by a Fund or the Transfer Agent within 120 days after the effective
date of the redemption.
If you realized a gain on your redemption, the reinvestment will not alter the
amount of any federal capital gains tax payable on the gain. If you realized a
loss on your redemption, the reinvestment may cause some or all of such loss to
be disallowed as a tax deduction, depending on the number of Class A shares
purchased by reinvestment, the period of time that has elapsed after the
redemption and which funds' shares are purchased. Although for federal income
tax purposes, the amount disallowed is added to the cost of the Class A shares
acquired upon the reinvestment.
Reductions in front-end sales loads apply to purchases by a single "person,"
including an individual, members of a family unit, consisting of a husband, wife
and children under the age of 21 purchasing securities for their own account, or
a trustee or other fiduciary purchasing for a single person's fiduciary account
or single person's trust estate.
Reductions in front-end sales loads also apply to purchases by individual
members of a "qualified group." The reductions are based on the aggregate dollar
amount of Class A shares purchased by all members of the qualified group. For
purposes of this paragraph, a qualified group consists of a "company," as
defined in the 1940 Act, which has been in existence for more than six months
and which has a primary purpose other than acquiring shares of a Fund at a
reduced sales load, and the "related parties" of such company. For purposes of
this paragraph, a "related party" of a company is: (i) any individual or other
company who directly or indirectly owns, controls or has the power to vote five
percent or more of the outstanding voting securities of such company; (ii) any
other company of which such company directly or indirectly owns, controls or has
the power to vote five percent or more of its outstanding voting securities;
(iii) any other company under common control with such company; (iv) any
executive officer, director or partner of such company or of a related party;
and (v) any partnership of which such company is a partner.
Class A shares of the Funds may be purchased at a purchase price equal to the
net asset value of such shares, without a sales load, by Directors, officers and
employees (and their spouses, parents, children, siblings, grandparents,
grandchildren, father-in-law, mother-in-law, brother in-law, sister in-law,
aunts, uncles, nieces, and nephews; herein, "Relatives") of the Company,
Stephens, its affiliates and of other broker-dealers that have entered into
agreements with Stephens to sell such shares. Class A shares of the Funds also
may be purchased at a purchase price equal to the net asset value of such
shares, without a sales load, by present and retired Directors, officers and
employees (and their Relatives) of Wells Fargo Bank and its affiliates if Wells
Fargo Bank and/or the respective affiliates agree. Such shares also may be
purchased at such price by employee benefit and thrift plans for such persons
and by any investment advisory, trust or other fiduciary account (other than an
individual retirement account) maintained, managed or advised by Wells Fargo
Bank or Stephens or their affiliates.
Class A shares of the Funds may be purchased at net asset value (without payment
of a sales load) by the following types of investors when the trades are placed
through an omnibus account maintained with the Funds by a broker/dealer: trust
companies; retirement and deferred compensation plans and the trusts used to
fund these plans; investment advisers and financial planners who charge a
management, consulting or other fee for their services and who place trades on
their own behalf or on behalf of their clients; and clients of such investment
advisers or financial planners who place trades on their own behalf if the
clients' accounts are linked to the master account of such investment adviser or
financial planner on the books and records of the broker/dealer.
By investing in a Fund, you appoint the Transfer Agent, as agent, to establish
an open account to which all shares purchased will be credited, together with
any dividends and capital gain distributions that are paid in additional shares.
See "Dividends and Distributions." Although most shareholders elect not to
receive stock certificates, certificates for full shares of a Fund can be
obtained on request. It is more complicated to redeem shares held in
certificated form, and the expedited redemption described below is not available
with respect to certificated shares.
PROSPECTUS
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22
<PAGE> 29
CONTINGENT DEFERRED SALES CHARGE -- CLASS D SHARES
Class D shares of the Variable Rate Government Fund which are redeemed within
one year of receipt of a purchase order for such shares will be subject to a
contingent deferred sales charge equal to 1.00% of an amount equal to the lesser
of the net asset value at the time of purchase for the Class D shares being
redeemed or the net asset value of such shares at the time of redemption.
Contingent deferred sales charges will not be imposed on amounts representing
increases in net asset value above the net asset value at the time of purchase
and are not assessed on Class D shares purchased through reinvestment of
dividends or capital gain distributions. In determining whether a contingent
deferred sales charge is applicable to a redemption, Class D shares are
considered redeemed on a first-in, first-out basis so that Class D shares held
for a longer period of time are considered redeemed prior to more recently
acquired shares.
The contingent deferred sales charge is waived on redemptions of Class D shares
(i) following the shareholder's death or disability (as defined in the Internal
Revenue Code) after the initial purchase of the shares redeemed, (ii) to the
extent that the redemption represents a minimum required distribution from an
individual retirement account or other retirement plan to a shareholder who has
reached age 59 1/2, (iii) effected pursuant to the Company's right to liquidate
a shareholder's account if the aggregate net asset value of the shareholder's
account is less than the minimum account size, or (iv) in connection with the
combination of the Company with any other registered investment company by a
merger, acquisition of assets or by any other reorganization transaction.
Investors who are entitled to purchase Class A shares of the Variable Rate
Government Fund at net asset value without a sales load should not purchase
Class D shares. Other investors, including those who are entitled to purchase
Class A shares of the Fund at a reduced sales load, should compare the fees
assessed on Class A shares against those assessed on Class D shares (including
potential contingent deferred sales charges and higher Rule 12b-1 fees) in light
of the amount to be invested and the anticipated time that the shares will be
owned.
Shares of a Fund may be purchased by any of the methods described below.
INITIAL PURCHASES BY WIRE
1. Telephone toll free (800) 572-7797. Give the name(s) and class of shares, in
which the shares are to be registered, the address, and social security number
(or tax identification number, where applicable) of the person or entity in
whose name shares are to be registered, dividend payment election, amount to be
wired, name of the wiring bank and name and telephone number of the person to be
contacted in connection with the order. An account number will be assigned.
2. Instruct the wiring bank, which may charge a separate fee, to transmit the
specified amount in federal funds ($1,000 or more) to:
Wells Fargo Bank, N.A.
San Francisco, California
Bank Routing Number: 121000248
Wire Purchase Account Number: 4068-000462
Attention: Overland Express (Name of Fund -- designate Class, if applicable)
Account Name(s): (name(s) in which to be registered)
Account Number: (as assigned by telephone)
3. A completed Account Application should be mailed, or sent by telefacsimile
with the original subsequently mailed, to the following address immediately
after the funds are wired and must be received and accepted by the Transfer
Agent before an account can be opened. An original Application must be received
within thirty days or you may be subject to backup withholding taxes.
Wells Fargo Bank, N.A.
Overland Express Shareholder Services
P.O. Box 63084
San Francisco, California 94163
Telefacsimile: 1-415-781-4082
4. Share purchases are effected at the public offering price, or, in the case of
Class D shares, at the net asset value, next determined after the Account
Application is received and accepted.
INITIAL PURCHASES BY MAIL
If you wish to purchase Fund shares by mail:
1. Complete an Account Application. Indicate the services to be used.
2. Mail the Account Application and a check for $1,000 or more, payable to
"Overland Express (Name of Fund -- designate Class, if applicable)" to the
mailing address set forth above.
ADDITIONAL PURCHASES
Additional purchases of Fund shares in amounts of $100 or more may be made by
instructing the Funds' Transfer Agent to debit the Wells Fargo Bank account
designated in your Account Application, by wire by instructing the wiring bank
to transmit the specified amount as directed above for initial purchases by
wire, or by mail with a check payable to "Overland Express (Name of
Fund -- designate Class, if applicable)" to the above address. Write your Fund
account number on the check and include the detachable stub from a Statement of
Account or a letter providing the account number.
PROSPECTUS
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23
<PAGE> 30
SYSTEMATIC PURCHASE PLAN
The Company's Systematic Purchase Plan provides a convenient way for you to add
to your existing accounts on a monthly basis. You may elect to participate in
this plan by specifying an amount ($100 or more) to be withdrawn automatically
by the Transfer Agent on a monthly basis from an approved bank account
designated in your Account Application (an "Approved Bank Account"). The
Transfer Agent withdraws and uses this amount to purchase shares of a Fund for
you on or about the fifth Business Day of each month. The Transfer Agent
requires a minimum of ten (10) Business Days to implement your Systematic
Purchase Plan purchases. There are no additional fees charged for participating
in this plan.
You may change the investment amount, the date on which your Systematic Purchase
is effected, suspend purchases or terminate your participation in the Systematic
Purchase Plan at any time by providing written notice to the Transfer Agent at
least ten (10) Business Days prior to any scheduled transaction. An election
will be terminated automatically if the designated Approved Bank Account balance
is insufficient to make a scheduled withdrawal, or if either your designated
Approved Bank Account or your Fund account is closed.
PURCHASES THROUGH AUTHORIZED BROKER/DEALERS AND FINANCIAL INSTITUTIONS
Purchase orders for shares of a Fund placed through authorized broker/dealers
and financial institutions by 1:00 p.m. (Pacific time) on any Business Day,
including orders for which payment is to be made from free cash credit balances
in securities accounts held by a dealer, are effective on the same day the order
is placed if the order is received by the Transfer Agent before the close of
business. Purchase orders that are received by a broker/dealer or financial
institution after 1:00 p.m. (Pacific time) or by the Transfer Agent after the
close of business generally are effective on the next day that shares are
offered. The broker/dealer or financial institution is responsible for the
prompt transmission of purchase orders to the Transfer Agent. Payment for Fund
shares is not due until settlement date. A broker/dealer or financial
institution that is involved in a purchase transaction may charge separate
account, service or transaction fees. Financial institutions may be required to
register as dealers pursuant to applicable state securities laws, which may
differ from federal law and any interpretations expressed herein.
EXCHANGE PRIVILEGES
SHORT-TERM FUNDS. Shares of each Short-Term Fund may be exchanged for Class A
shares or single class shares of one of the Company's other funds, for Class A
shares of a fund in the Stagecoach Family of Funds or for shares of one of the
Company's money market funds in an identically registered account at respective
net asset values.
VARIABLE RATE GOVERNMENT FUND. Class A shares of the Fund may be exchanged for
Class A shares or single class shares of one of the Company's other funds, for
Class A shares of a fund in the Stagecoach Family of Funds or for shares of one
of the Company's money market funds in an identically registered account at
respective net asset values. Class D shares of the Fund may be exchanged for
Class D shares of one of the Company's other funds or for Class A shares of the
Money Market Fund in an identically registered account at respective net asset
values. You are not charged a contingent deferred sales charge on exchanges of
Class D shares for Class D shares of one of the Company's other funds or for
Class A shares of the Money Market Fund.
If you exchange Class D shares for Class D shares of another fund, or for Class
A shares of the Money Market Fund, the remaining period of time (if any) that
the contingent deferred sales charge is in effect will be computed from the time
of the initial purchase of the previously held shares. Accordingly, if you
exchange Class D shares for Class A shares of the Money Market Fund, and redeem
the shares of the Money Market Fund within one year of the receipt of the
purchase order for the exchanged Class D shares, you will have to pay a deferred
sales charge equal to the contingent deferred sales charge applicable to the
previously exchanged Class D shares. If you exchange Class D shares for Class A
shares of the Money Market Fund you may subsequently re-exchange the acquired
Class A shares only for Class D shares. If you re-exchange the Class A shares of
the Money Market Fund for Class D shares, the remaining period of time (if any)
that the contingent deferred sales charge is in effect will be computed from the
time of your initial purchase of Class D shares.
Important factors that you should consider:
- - You will need to read the prospectus of the fund into which you want to
exchange.
- - Every exchange is a redemption of shares of one fund and a purchase of shares
of another fund. The redemption may produce a gain or loss for federal income
tax purposes.
- - You must exchange at least the minimum initial purchase amount of the fund you
are redeeming, unless your balance has fallen below that amount due to market
conditions or you have already met the minimum initial purchase amount of the
fund you are purchasing.
- - If you exchange Class A shares, you will need to pay any difference between
the load that you have already paid and the load that you are subject to in
the new fund.
PROSPECTUS
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24
<PAGE> 31
- - You will not pay a contingent deferred sales charge on any exchange from Class
D shares into other Class D shares or a Money Market Fund. The new shares will
continue to age while they are in the new fund and will be charged the
contingent deferred sales charge applicable to the original shares upon
redemption.
- - If you exchange Class A or Class D shares for shares of a Money Market Fund,
you may not re-exchange shares of the Money Market Fund for shares other than
the original exchanged class.
- - The Company may limit the number of time shares may be exchanged or may reject
any telephone exchange order. Subject to limited exceptions, the Company will
notify you 60 days before discontinuing or modifying the exchange privilege.
You may exchange shares by writing the Transfer Agent as indicated below under
"Redemption By Mail" or by calling the Transfer Agent or your authorized
broker/dealer, financial institution or servicing agent, unless you have elected
not to authorize telephone exchanges in your Account Application (in which case
you may subsequently authorize such telephone exchanges by completing a
Telephone Exchange Authorization Form and submitting it to the Transfer Agent in
advance of the first such exchange). Shares held in certificate form may not be
exchanged by telephone. The Transfer Agent's telephone number for exchanges is
(800) 572-7797.
Telephone redemption or exchange privileges are made available to you
automatically upon opening an account, unless you decline such privileges. These
privileges authorize the Transfer Agent to act on telephone instructions from
any person representing himself or herself to be the investor and reasonably
believed by the Transfer Agent to be genuine. The Company requires the Transfer
Agent to employ reasonable procedures, such as requiring a form of personal
identification, to confirm that instructions are genuine. If the Transfer Agent
does not follow such procedures, the Company and the Transfer Agent may be
liable for any losses attributable to unauthorized or fraudulent instructions.
Neither the Company nor the Transfer Agent will be liable for following
telephone instructions reasonably believed to be genuine.
REDEMPTION OF SHARES
Shares may be redeemed at their next determined net asset value after receipt of
a request in proper form by the Transfer Agent directly or through any
authorized broker/dealer or financial institution.
Except for any contingent deferred sales charge which may be applicable upon
redemption of Class D shares, as described under "Purchase of Shares," the
Company does not charge for redemption transactions. However, a broker/dealer or
financial institution that is involved in a redemption transaction may charge
separate account, service or transaction fees. Redemption orders received by an
authorized broker/dealer or financial institution before 1:00 p.m. (Pacific
time) on any Business Day and received by the Transfer Agent before the close of
business on the same day will be executed at the net asset value per share
determined at 1:00 p.m. (Pacific time) that day. Redemption orders received by
authorized broker/dealers or financial institutions after 1:00 p.m. (Pacific
time), or not received by the Transfer Agent prior to the close of business,
will be executed at the net asset value determined at 1:00 p.m. (Pacific time)
on the next Business Day.
Redemption proceeds, net of any contingent deferred sales charge applicable with
respect to Class D shares, ordinarily are remitted within seven days after the
order is received in proper form, except proceeds may be remitted over a longer
period to the extent permitted by the SEC under extraordinary circumstances. If
an expedited redemption is requested, redemption proceeds are distributed only
if the check used for investment is deemed to be cleared for payment by your
bank, currently considered by the Company to be a period of up to ten (10)
Business Days after investment. The proceeds, of course, may be more or less
than your investment cost. Payment of redemption proceeds may be made in
securities, subject to regulation by some state securities commissions.
REDEMPTION BY MAIL
1. Write a letter of instruction naming the Fund, class of shares and the dollar
amount or number of shares to be redeemed. Refer to your Fund account number and
give either your social security or tax identification number (as applicable).
2. Sign the letter in exactly the same way your account is registered. If there
is more than one owner of the shares, all must sign.
3. If shares to be redeemed have a value of $5,000 or more or redemption
proceeds are to be paid to someone other than you at your address of record, the
signature(s) must be guaranteed by an "eligible guarantor institution," which
includes a commercial bank that is a member of the FDIC, a trust company, a
member firm of a domestic stock exchange, a savings association or a credit
union that is authorized by its charter to provide a signature guarantee.
Signature guarantees by notaries public are not acceptable. Further
documentation may be requested from corporations, administrators, executors,
personal representatives, trustees or custodians.
4. If shares to be redeemed are held in certificated form, enclose the
certificates with the letter. Do not sign the certificates and for protection
use registered mail.
PROSPECTUS
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25
<PAGE> 32
5. Mail the letter (and any share certificates) to the Transfer Agent at the
mailing address set forth under "Purchase of Shares -- Initial Purchases by
Wire."
Unless other instructions are given in proper form, a check for the proceeds of
a redemption, net of any contingent deferred sales charge applicable with
respect to Class D shares, will be sent to your address of record.
SYSTEMATIC WITHDRAWAL PLAN
The Company's Systematic Withdrawal Plan provides a way for you to have shares
redeemed from your account and the proceeds, net of any contingent deferred
sales charge applicable to Class D shares, distributed to you on a monthly
basis. You may elect to participate in this plan if you have a shareholder
account valued at $10,000 or more as of the date of your election to participate
and are not also a participant in the Company's Systematic Purchase Plan at any
time while participating in this plan. To participate in the plan you must
specify an amount ($100 or more) to be distributed by check to your address of
record or deposited in your Approved Bank Account. The Transfer Agent redeems
sufficient shares and mails or deposits the proceeds of the redemption, net of
any contingent deferred sales charge applicable with respect to Class D shares,
as instructed, on or about the fifth Business Day prior to the end of each
month. There are no additional fees charged for participating in this plan.
It may take up to ten (10) Business Days after receipt of your request to
establish your participation in the Systematic Withdrawal Plan. You may change
the withdrawal amount, suspend withdrawals or terminate your participation in
the Systematic Withdrawal Plan at any time by providing written notice to the
Transfer Agent at least ten (10) Business Days prior to a scheduled transaction.
Participation in the Systematic Withdrawal Plan may be terminated automatically
if your account balance is insufficient to make a scheduled withdrawal or if
your Fund account or Approved Bank Account is closed.
EXPEDITED REDEMPTIONS BY LETTER AND TELEPHONE
If shares are not held in certificated form, you may request an expedited
redemption of shares by letter or telephone (unless you have elected not to
authorize telephone redemptions on your Account Application or other form that
is on file with the Transfer Agent) on any day the Fund is open for business.
See "Exchange Privileges" for additional information regarding telephone
redemption privileges.
You may request expedited redemption by telephone by calling the Transfer Agent
at (800) 572-7797. You may request expedited redemption by mail by mailing your
expedited redemption request to the Transfer Agent at the mailing address set
forth under "Purchase of Shares -- Initial Purchases by Wire."
Upon request, proceeds of expedited redemptions of $5,000 or more, net of any
contingent deferred sales charge applicable with respect to Class D shares, will
be wired or credited to your Approved Bank Account or wired to an authorized
broker/dealer or financial institution designated in your Account Application.
The Company reserves the right to impose charges for wiring redemption proceeds.
When proceeds of an expedited redemption are to be paid to someone other than
yourself, to an address other than that of record, or to a bank, broker/dealer
or other financial institution that has not been predesignated, the expedited
redemption request must be made by letter and the signature(s) on the letter
must be guaranteed, regardless of the amount of the redemption. If an expedited
redemption request is received by the Transfer Agent by the close of business on
any Business Day, the redemption proceeds will be transmitted to your bank or
predesignated broker/dealer or financial institution on the next Business Day
(assuming the investment check has cleared as described above), absent
extraordinary circumstances. A check for proceeds of less than $5,000 will be
mailed to your address of record, except that, in the case of investments in the
Company that have been effected through broker/dealers, banks and other
institutions that have entered into special arrangements with the Company, the
full amount of the redemption proceeds may be transmitted by wire or credited to
a designated account.
REDEMPTIONS THROUGH AUTHORIZED BROKER/DEALERS AND FINANCIAL INSTITUTIONS
Redemption requests placed through authorized broker/dealers and financial
institutions by 1:00 p.m. (Pacific time) on any Business Day will be effective
on the same day the request is placed if received by the Transfer Agent before
the close of business. Redemption requests that are received by a dealer or
financial institution after 1:00 p.m. (Pacific time) on any Business Day or by
the Transfer Agent after the close of business generally will be effective on
the next day that shares are offered. The broker/dealer or financial institution
is responsible for the prompt transmission of redemption requests to the
Transfer Agent. Unless you have made other arrangements and have informed the
Transfer Agent of such arrangements, proceeds of redemptions made through
authorized broker/dealers and financial institutions are credited to your
account with such broker/ dealer or institution. You may request a check from
the broker/ dealer or financial institution or may elect to retain the
redemption proceeds in your account. The broker/dealer or financial institution
may benefit from the use of the redemption proceeds prior to the clearance of a
check issued to you for such proceeds or prior to disbursement or reinvestment
of such proceeds on your behalf.
The proceeds of a redemption may be more or less than the amount invested and,
therefore, a redemption may result in a gain
PROSPECTUS
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26
<PAGE> 33
or loss for federal and state income tax purposes. Due to the high cost of
maintaining small accounts, the Company reserves the right to redeem accounts
that fall below $1,000 because of a shareholder redemption. Prior to such a
redemption, you will be notified in writing and permitted 30 days to make
additional investments to raise the account balance to the specified minimum.
DIVIDENDS AND DISTRIBUTIONS
Each Fund intends to declare as a dividend to all shareholders of record as of
1:00 p.m. (Pacific time) substantially all of its net investment income at the
close of each Business Day to shareholders of record. Shares purchased in a Fund
begin earning dividends on the Business Day following the date the purchase
order settles, and shares redeemed earn dividends through the date of
redemption. Net investment income for a Saturday, Sunday or holiday is declared
as a dividend to shareholders of record as of the prior Business Day.
Dividends declared in, and attributable to, any month are paid on the last
Business Day of the month and generally are mailed early in the following month.
Shareholders of a Fund who redeem shares prior to a dividend payment date are
entitled to all dividends declared but unpaid prior to their redemption of such
shares on the next dividend payment date. Any net capital gains of a Fund are
distributed annually.
Dividends and/or capital gain distributions paid by a Fund will be invested in
additional shares of the same class of the Fund at net asset value (without any
sales load) and credited to your account on the reinvestment date or, at your
election, paid by check. In addition, you may elect to reinvest Fund dividends
and/or capital gain distributions in shares of another portfolio of the Company
with which you have an established account that has met the applicable minimum
initial investment requirement.
The Variable Rate Government Fund's net investment income available for
distribution to the holders of Class D shares will be reduced by the amount of
servicing fees payable to servicing agents under the Servicing Plan and by the
distribution fees payable under the Distribution Plan. There may be certain
other differences in fees (e.g. audit fees, transfer agent fees) between Class A
shares and Class D shares that would affect their relative dividends.
DIVIDEND AND DISTRIBUTION OPTIONS
When you fill out an Account Application, you can choose from three dividend and
distribution options:
A The AUTOMATIC REINVESTMENT OPTION provides for the reinvestment of dividends
and capital gain distributions in additional shares of the same Fund. Dividends
and distributions declared in a month are reinvested at net asset value early in
the following month. You are assigned this option automatically if you make no
choice on your Account Application.
B. The AUTOMATIC CLEARING HOUSE OPTION permits you to have dividends and capital
gain distributions deposited in an Approved Bank Account. In the event your
Approved Bank Account is closed, and such distribution is returned to the Funds'
dividend disbursing agent, the distribution will be reinvested in your Fund
account at the net asset value next determined after the distribution has been
returned. If this happens, your Automatic Clearing House Option will be
converted to the Automatic Reinvestment Option.
C. The CHECK PAYMENT OPTION allows you to receive a check for a dividend or
capital gain distribution, which is mailed either to the designated address, or
your Approved Bank Account, early in the month following declaration. If the
U.S. Postal Service cannot deliver such checks, or if such checks remain
uncashed for six months, those checks will be reinvested in your Fund account at
the net asset value next determined after the earlier of the date the checks
have been returned to the dividend disbursing agent or the date six months after
the payment of such dividend or distribution. If this happens, your Check
Payment Option will be converted to the Automatic Reinvestment Option.
The Company takes reasonable efforts to locate investors whose checks are
returned or uncashed after six months. The Company forwards moneys to the
dividend disbursing agent so that it may issue investors dividend checks under
the Check Payment Option. The dividend disbursing agent may benefit from the
temporary use of such moneys until these checks clear.
TAXES
Dividends from net investment income and net short-term capital gains, if any,
of the Short-Term Government-Corporate Income and Variable Rate Government Funds
are taxable as ordinary income to their respective shareholders. The Short-Term
Municipal Income Fund's shareholders will not be subject to federal income taxes
on any Fund dividends attributable to interest from tax-exempt securities.
However, dividends of the Short-Term Municipal Income Fund attributable to
interest from taxable securities, and capital gains (if any) will be taxable to
shareholders. To the extent any Fund distributes taxable dividends and capital
gains, such distributions will be taxable to shareholders, regardless of whether
the shareholder takes such distributions in cash or has them automatically
reinvested in additional Fund shares. Distributions declared in October,
November and December and distributed by the following January will be taxable
as if they were paid by December 31. The Funds' dividends will not qualify for
the dividends-received deduction allowed to corporate shareholders.
PROSPECTUS
- --------------------------------------------------------------------------------
27
<PAGE> 34
Your redemptions (including redemptions in-kind) and exchanges of Fund shares
will ordinarily result in a taxable capital gain or loss, depending on the
amount you receive for your shares (or are deemed to receive in the case of
exchanges) and the cost of your shares. See "Federal Income Taxes -- Disposition
of Fund Shares" in the SAIs.
Foreign shareholders may be subject to different tax treatment, including
withholding taxes. See "Federal Income Taxes -- Foreign Shareholders" in the
SAIs. In certain circumstances, U.S. residents may also be subject to
withholding taxes. See "Federal Income Taxes -- Backup Withholding" in the SAIs.
The foregoing discussion regarding taxes is based on tax laws which were in
effect as of the date of this Prospectus and summarizes only some of the
important federal tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning; you
should consult your tax advisor with respect to your specific tax situation as
well as with respect to foreign, state and local taxes. Further federal tax
considerations are discussed in the SAI for each Fund.
ORGANIZATION AND CAPITAL STOCK
The Company was incorporated in Maryland on April 27, 1987. All shares of the
Company have equal voting rights and are 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. 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 Act; however, at the written request of
10% or more of the holders of the Company's shares, the Board of Directors will
call a meeting of shareholders for purposes of voting on removal of a Director
or Directors of the Company. 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 Trust was established on August 14, 1991, as a Delaware business trust. The
Trust's Declaration of Trust permits the Board of Trustees to issue beneficial
interests in the Trust to investors based on their proportionate investments in
the Trust. The Board of Trustees of the Trust is responsible for the general
management of each Master Portfolio. The Trust currently offers nine series of
beneficial interests, including the Short-Term Government-Corporate Income and
Short-Term Municipal Income Master Portfolios.
THE MASTER PORTFOLIOS
A Short-Term Fund may withdraw its investment in its corresponding 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 a Short-Term 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
corresponding Master Portfolio.
Whenever a Short-Term Fund, as an interestholder of a corresponding Master
Portfolio, is requested to vote on any matter submitted to interestholders of
the Master Portfolio, the Fund will hold a meeting of its shareholders to
consider such matters. Each such Fund will cast its votes in proportion to the
votes received from its shareholders. Shares for which each such Fund receives
no voting instructions will be voted in the same proportion as the votes
received from the other shareholders of such Fund. If a Master Portfolio's
investment objective or fundamental or non-fundamental policies are changed, the
corresponding Fund may elect to change its objective or policies to correspond
to those of the Master Portfolio. The Fund may also elect to redeem its
interests in the Master Portfolio and either seek a new investment company with
a matching objective in which to invest or retain its own investment adviser to
manage the Fund's portfolio in accordance with its objective. In the latter
case, 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.
OTHER
On March 14, 1995, certain shareholders of the Variable Rate Government Fund
filed a class action lawsuit in the United States District Court for the
Southern District of California against the Company, Wells Fargo Bank, Wells
Fargo & Company and Stephens. The law suit asserted claims under federal and
California securities law and common law relating to alleged misstatements and
omissions in the prospectus, reports and marketing materials pertaining to the
Fund and derivative claims on behalf of the Fund against Wells Fargo Bank, Wells
Fargo & Company and Stephens. On March 10, 1997, the court approved a settlement
of the class action and settlement of a derivative claim against the Fund based
upon the substantive allegations in the class action. The settlement provides
for distribution of a settlement fund to members of the class who do not opt-out
of the class and who timely file proof of claim forms, as well as prospective
reductions in fees charged by Wells Fargo Bank or Stephens to the Fund. The Fund
will not be required to contribute to the settlement fund under the terms of the
proposed settlement agreement.
PROSPECTUS
- --------------------------------------------------------------------------------
28
<PAGE> 35
<TABLE>
<S> <C>
---------------------
BULK RATE
U.S. POSTAGE
PAID
DALLAS, TEXAS
Permit No. 1808
---------------------
</TABLE>
NOT FDIC INSURED
For Customer Service or questions about
your account, call (800) 572-7797
For more information about the Funds,
simply call (800) 552-9612
You may also write the Funds at:
OVERLAND EXPRESS FUNDS, INC.
c/o Overland Express
Shareholder Services
Wells Fargo Bank, N.A.
P.O. Box 63084
San Francisco, California 94163
CM P 5/97 LOGO
<PAGE> 36
OVERLAND EXPRESS FUNDS
PROSPECTUS
MAY 1, 1997
INDEX ALLOCATION FUND
SMALL CAP STRATEGY FUND
STRATEGIC GROWTH FUND
LOGO
<PAGE> 37
LOGO
PROSPECTUS DATED MAY 1, 1997
Telephone: (800) 552-9612
Overland Express Funds, Inc. (the "Company") is an open-end, series investment
company. This Prospectus contains information about three of the Company's
funds -- the INDEX ALLOCATION FUND, the SMALL CAP STRATEGY FUND and the
STRATEGIC GROWTH FUND (each, a "Fund" and collectively, the "Funds").
This Prospectus describes the Class A and Class D shares of each Fund.
Investors should read this prospectus carefully and retain it for future
reference. It sets forth concisely the information a prospective investor should
know before investing in a Fund. Statements of Additional Information ("SAIs")
dated May 1, 1997, containing additional and more detailed information about
each Fund have been filed with the Securities and Exchange Commission (the
"SEC") and are hereby incorporated by reference into this Prospectus. Each
Fund's SAI is available without charge and can be obtained by writing the
Company at P.O. Box 63084, San Francisco, CA 94163 or by calling the Company at
(800) 552-9612.
The INDEX ALLOCATION FUND seeks to earn over the long term a high level of total
investment return (that is, income and capital appreciation combined),
consistent with the assumption of reasonable risk, by pursuing an "asset
allocation" strategy whereby its investments are allocated, based on changes in
market conditions, among three asset classes -- common stocks in the Standard &
Poor's Index of 500 Stocks (the "S&P Index"), U.S. Treasury bonds and money
market instruments. The Fund is an index allocation fund and is NOT an index
fund.
The SMALL CAP STRATEGY FUND (sometimes, the "Small Cap Fund") seeks
above-average long-term capital appreciation in order to provide investors with
a rate of total return exceeding that of the Russell 2000 Index (before fees and
expenses) over a time horizon of three to five years. The Fund seeks to achieve
this objective by investing all of its assets in the Small Cap Master Portfolio
( a "Master Portfolio") of Master Investment Trust (the "Trust"), an open-end,
series investment company, rather than directly in a portfolio of securities.
The STRATEGIC GROWTH FUND (sometimes, the "Growth Fund") seeks to provide
investors with an above-average level of capital appreciation. The Fund seeks to
achieve this objective by investing all of its assets in the Capital
Appreciation Master Portfolio (collectively, with the Small Cap Master
Portfolio, also a "Master Portfolio") of the Trust rather than directly in a
portfolio of securities.
Each Master Portfolio has the same investment objective as its corresponding
Fund. The performance of each Fund will correspond directly with the performance
of its Master Portfolio. References to the investments, investment policies and
risks of the Small Cap Strategy and Strategic Growth Funds, unless otherwise
indicated, should be understood as references to the investments, investment
policies and risks of the corresponding Master Portfolio.
- --------------------------------------------------------------------------------
FUND SHARES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR ISSUED, ENDORSED OR
GUARANTEED BY, WELLS FARGO BANK, N.A., BARCLAYS GLOBAL FUND ADVISORS OR ANY OF
THEIR RESPECTIVE AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S. GOVERNMENT,
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY
OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN A FUND INVOLVES CERTAIN INVESTMENT
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
WELLS FARGO BANK IS THE INVESTMENT ADVISER AND ADMINISTRATOR AND PROVIDES
CERTAIN OTHER SERVICES TO THE FUNDS AND MASTER PORTFOLIOS FOR WHICH IT IS
COMPENSATED. BARCLAYS GLOBAL FUND ADVISORS SERVES AS SUB-ADVISER TO THE INDEX
ALLOCATION FUND AND BARCLAYS GLOBAL INVESTORS, N.A. SERVES AS CUSTODIAN TO THE
INDEX ALLOCATION FUND. STEPHENS INC., WHICH IS NOT AFFILIATED WITH WELLS FARGO
BANK, IS THE SPONSOR, CO-ADMINISTRATOR AND DISTRIBUTOR FOR THE FUNDS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<PAGE> 38
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PROSPECTUS SUMMARY................................. 1
SUMMARY OF EXPENSES................................ 4
FINANCIAL HIGHLIGHTS............................... 7
INVESTMENT OBJECTIVES AND POLICIES................. 12
INVESTMENT ACTIVITIES.............................. 16
MANAGEMENT OF THE FUNDS............................ 20
DETERMINATION OF NET ASSET VALUE................... 24
PURCHASE OF SHARES................................. 24
EXCHANGE PRIVILEGES................................ 28
REDEMPTION OF SHARES............................... 29
DIVIDENDS AND DISTRIBUTIONS........................ 31
TAXES.............................................. 31
ORGANIZATION AND CAPITAL STOCK..................... 32
</TABLE>
PROSPECTUS
- --------------------------------------------------------------------------------
<PAGE> 39
PROSPECTUS SUMMARY
The Company, as an open-end investment company, provides a convenient way for
you to invest in portfolios of securities selected and supervised by
professional management. The following provides information about the Funds.
Q. WHAT ARE THE FUNDS' INVESTMENT OBJECTIVES?
A. The INDEX ALLOCATION FUND seeks to earn over the long term a high level of
total investment return (that is, income and capital appreciation combined),
consistent with the assumption of reasonable risk, by pursuing an "asset
allocation" strategy whereby its investments are allocated, based on changes
in market conditions, among three asset classes -- common stocks in the S&P
Index, U.S. Treasury bonds and money market instruments. The SMALL CAP
STRATEGY FUND seeks above-average long-term capital appreciation in order to
provide investors with a rate of total return exceeding that of the Russell
2000 Index (before fees and expenses) over a time horizon of three to five
years. The STRATEGIC GROWTH FUND seeks to provide investors with an
above-average level of capital appreciation.
See "Investment Objectives and Policies."
Q. WHAT ARE THE FUNDS' PRINCIPAL INVESTMENTS?
A. The INDEX ALLOCATION FUND may invest in three asset classes: common stocks
representative of the S&P Index, bonds representative of the Lehman Brothers
20+ Treasury Bond Index and high-quality money market instruments. The Fund
seeks to maximize its long-term investment results by shifting its
investments periodically among the various asset classes to attempt to
achieve a return that is superior to an investment in any single asset class.
The Fund does not attempt to replicate the performance of a single index and
is NOT an index fund.
The SMALL CAP STRATEGY FUND seeks to achieve its investment objective by
investing all of its assets in the Small Cap Master Portfolio. The Master
Portfolio has the same investment objective as the Fund. The Master Portfolio
seeks to achieve its investment objective through the active management of a
broadly diversified portfolio consisting primarily of growth-oriented common
stocks. Under normal market conditions, the Master Portfolio invests
primarily in companies whose market capitalizations fall within the
capitalization range of companies listed on the Russell 2000 Index. As of
July 1996, the capitalization range of companies in the Russell 2000 Index
was between $161 million and $1.1 billion. The range is expected to change
frequently. The Master Portfolio will sell the common stock of any company in
its investment portfolio after such company's market capitalization exceeds
$2 billion. The Fund and Master Portfolio are designed to provide
above-average capital growth for investors willing to assume above-average
risk.
The Russell 2000 Index is a subset of the larger Russell 3000 Index. The
Russell 3000 Index is an index of 3000 small capitalization U.S. companies.
The Russell 2000 Index consists of the 2000 smallest companies in the larger
Russell 3000 Index.
The STRATEGIC GROWTH FUND seeks to achieve its investment objective by
investing all of its assets in the Capital Appreciation Master Portfolio of
the Trust. The Master Portfolio has the same investment objective as the
Fund. The Master Portfolio seeks to achieve its investment objective through
the active management of a broadly diversified portfolio of equity securities
of companies expected to experience strong growth in revenues, earnings and
assets. The Fund and Master Portfolio are designed to provide above-average
capital growth for investors willing to assume above-average risk.
The Capital Appreciation Master Portfolio invests primarily in common stocks
that are expected by Wells Fargo Bank to have better-than average prospects
for appreciation. Under normal market conditions, the Master Portfolio will
hold at least 20 common stock issues spread across multiple industry groups
and at least 50% of the Master Portfolio's assets will be invested in
companies whose market capitalizations at the time of acquisition are within
the range of companies listed on the S&P Small Cap 600 Index. As of December
1996, the capitalization range for companies in the S&P Small Cap 600 Index
was between $40 million and $2.6 billion. The range of the S&P Small Cap 600
Index is expected to change.
See "Investment Objectives and Policies" and "Investment Activities."
Q. WHAT ARE SOME OF THE POTENTIAL RISKS ASSOCIATED WITH AN INVESTMENT IN THE
FUNDS?
A. Investments in a Fund are not bank deposits or obligations of Wells Fargo
Bank, Barclays Global Fund Advisors or Barclays Global Investors, are not
insured by the Federal Deposit Insurance Corporation ("FDIC") and are not
insured or guaranteed against loss of principal. When the value of the
securities that a Fund owns declines, so does the value of your Fund shares.
Therefore, you should be
PROSPECTUS
- --------------------------------------------------------------------------------
1
<PAGE> 40
prepared to accept some risk with the money you invest in a Fund.
The stock investments of the Funds are subject to equity market risk. Equity
market risk is the possibility that common stock prices will fluctuate or
decline over short or even extended periods. The U.S. stock market tends to
be cyclical, with periods when stock prices generally rise and periods when
prices generally decline. For the first quarter of 1997, the stock market, as
measured by the S&P 500 Index and other commonly used indices, was trading at
or close to record levels. There can be no guarantee that these performance
levels will continue. The portfolio debt instruments of the Funds are subject
to credit and interest rate risk. Credit risk is the risk that issuers of the
debt instruments in which the Funds invest may default on the payment of
principal and/or interest. Interest-rate risk is the risk that increases in
market interest rates may adversely affect the value of the debt instruments
in which the Funds invest. The value of the Funds' portfolio debt instruments
generally changes inversely to market interest rates.
Because the Index Allocation Fund may shift its investment allocations
significantly from time to time, its performance may differ from funds which
invest in one asset class or from funds with a stable mix of assets. Further,
shifts among asset classes may result in relatively high turnover and
transaction (i.e., brokerage commission) costs. Portfolio turnover also can
generate short-term capital gains tax consequences. During those periods in
which a high percentage of the Index Allocation Fund's portfolio is invested
in long-term bonds, the Fund's exposure to interest-rate risk will be greater
because the longer maturity of such securities means they are generally more
sensitive to changes in market interest rates than shorter-term securities.
The Small Cap Strategy and Strategic Growth Funds may invest a significant
portion of their assets in the securities of smaller and newer issuers.
Investments in such companies may present opportunities for capital
appreciation because of high potential earnings growth. However, such
investments may present greater risks than investments in larger-size
companies with more established operating histories, diverse product lines
and financial capacity. Securities of small and new companies generally trade
less frequently or in limited volume, or only in the over-the-counter market
or on a regional securities exchange. As a result, the prices of such
securities may be more volatile than those of larger, more established
companies and, as a group, these securities may suffer more severe price
declines during periods of generally declining equity prices. In addition,
the Small Cap and Growth Funds may invest in securities of foreign issuers.
Investments in foreign securities involve risks not typically associated with
domestic securities. Among other things, they may be less liquid than
domestic securities and may be affected by political, social and monetary
instability.
Because the Small Cap Strategy and Strategic Growth Funds engage in active
portfolio management, they may experience relatively high turnover and
transaction (i.e., brokerage commission) costs. Portfolio turnover also can
generate short-term capital gains tax consequences. You should consult your
individual tax adviser with respect to your particular tax situation.
As with all mutual funds, there is no assurance that a Fund will achieve its
investment objective. See "Investment Objectives and Policies -- Risk
Factors."
Q. WHO MANAGES MY INVESTMENTS?
A. Wells Fargo Bank, as the investment adviser to the Index Allocation Fund and
the Master Portfolios, manages your investments. The Company has not retained
the services of a separate investment adviser for the Small Cap Strategy and
Strategic Growth Funds because these Funds invest all of their assets into
the corresponding Master Portfolios. Wells Fargo Bank also provides the Small
Cap and Growth Funds with administrative, transfer agency, dividend
disbursing agency and custodial services.
Barclays Global Fund Advisors ("BGFA") serves as sub-adviser to the Index
Allocation Fund and receives compensation from Wells Fargo Bank for its
sub-advisory services. Barclays Global Investors, N.A. ("BGI") provides the
Index Allocation Fund with custodial services. Stephens Inc. ("Stephens")
serves as the Funds' sponsor, co-administrator and distributor. See
"Management of the Funds."
Q. HOW MAY I PURCHASE SHARES?
A. Shares of each Fund may be purchased on any day the Fund is open. There is a
maximum sales load of 4.50% (4.71% of the net amount invested) for purchasing
Class A shares of the Funds. Class D shares that are redeemed within a year
of purchase are subject to a maximum contingent deferred sales charge of
1.00% of the lesser of net asset value at purchase or net asset value at
redemption. Front-end or contingent-deferred sales charges may, in certain
cases, be waived or reduced. In most cases, the minimum initial purchase
amount for Fund shares is $1,000. The minimum initial purchase amount is $100
for shares purchased through the Systematic Purchase Plan and $250 for shares
purchased through qualified retire-
PROSPECTUS
- --------------------------------------------------------------------------------
2
<PAGE> 41
ment plans. The minimum subsequent purchase amount is $100 or more. You may
purchase Fund shares through Stephens, Wells Fargo Bank, as transfer agent
(the "Transfer Agent"), or any authorized broker/dealer or financial
institution. Purchases of Fund shares may be made by wire directly to the
Transfer Agent See "Purchase of Shares."
Q. HOW WILL I RECEIVE DIVIDENDS?
A. Dividends on shares of the Index Allocation Fund are declared and distributed
quarterly. Dividends on shares of the Small Cap Strategy and Strategic Growth
Funds are declared and distributed annually. Any capital gain distributions
are distributed at least annually. Each Fund's dividends and capital gain
distributions are automatically reinvested in additional shares of the same
class of the Fund, unless you elect to receive distributions by check or to
have them deposited in an approved bank account. All reinvestments of
dividends and/or capital gain distributions in shares of a Fund are effected
at the then current net asset value free of any sales load. In addition, you
may elect to reinvest Fund dividends and/or capital gain distributions in
shares of the same class of another of the Company's funds with which you
have an established account that has met the applicable minimum initial
investment requirement. See "Dividends and Distributions."
Q. HOW MAY I REDEEM SHARES?
A. Fund shares may be redeemed on any day the Fund is open upon request to
Stephens or the Transfer Agent directly or through any authorized
broker/dealer or financial institution. Shares may be redeemed by request in
good form in writing or through telephone direction. Proceeds are payable by
check or, for shareholders who make prior arrangements, by wire. Accounts
maintaining less than the applicable minimum initial purchase amount may be
redeemed at the option of the Company. Except for any contingent deferred
sales charge which may be applicable upon redemption of Class D shares, the
Company does not charge redemption fees. However, the Company reserves the
right to impose charges for wiring redemption proceeds. See "Redemption of
Shares."
Q. WHAT ARE DERIVATIVES AND DO THE FUNDS USE THEM?
A. Derivatives are financial instruments whose value is derived, at least in
part, from the price of another security or a specified asset, index or rate.
The Funds use derivatives only to a limited extent in ways that are
incidental to their overall strategy. For example, the futures contracts and
options on futures contracts that the Index Allocation Fund may purchase are
considered derivatives. The Fund may only purchase or sell these contracts or
options as substitutes for comparable market positions in the underlying
securities. In addition, the Master Portfolios may, from time to time, hold
options, warrants or debt instruments that are convertible into (and whose
value is, therefore, "derived from") common stocks or may hold derivatives to
hedge against an underlying position in a security. Some derivatives may be
more sensitive than direct securities to changes in interest rates or sudden
market moves. Some derivatives also may be susceptible to fluctuations in
yield, duration or value due to their structure or contract terms. See
"Investment Activities -- Derivative Securities" for more information on
derivatives.
Q. WHAT STEPS ARE TAKEN TO CONTROL DERIVATIVES-RELATED RISKS?
A. Wells Fargo Bank and BGFA use a variety of internal risk management
procedures to ensure that derivatives use is consistent with the investment
objectives of the Funds, does not expose the Funds to undue risks and is
closely monitored. These procedures include providing periodic reports to the
Boards of Directors concerning the use of derivatives. Derivatives use also
is subject to broadly applicable investment policies. For example, a Fund may
not invest more than a specified percentage of its assets in "illiquid
securities," including those derivatives that do not have active secondary
markets. Nor may certain derivatives be used without establishing adequate
"cover" in compliance with SEC rules limiting the use of leverage.
PROSPECTUS
- --------------------------------------------------------------------------------
3
<PAGE> 42
SUMMARY OF EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
CLASS A SHARES
<TABLE>
<CAPTION>
INDEX SMALL CAP STRATEGIC
ALLOCATION FUND STRATEGY FUND GROWTH FUND
<S> <C> <C> <C>
Maximum Sales Load on Purchases
(as a percentage of offering price)........................ 4.50% 4.50% 4.50%
Maximum Sales Load on Reinvested Dividends.................. None None None
Maximum Sales Load on Redemptions........................... None None None
Exchange Fees............................................... None None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
CLASS A SHARES
<TABLE>
<CAPTION>
INDEX SMALL CAP STRATEGIC
ALLOCATION FUND STRATEGY FUND(1) GROWTH FUND(1)
<S> <C> <C> <C>
Management Fees............................................. 0.70% 0.60% 0.50%
Rule 12b-1 Fees(2).......................................... 0.25% 0.25% 0.25%
Other Expenses (after waivers or reimbursements)(3)......... 0.36% 0.50% 0.49%
---- ---- ----
TOTAL FUND OPERATING EXPENSES
(after waivers or reimbursements)(4)....................... 1.31% 1.35% 1.24%
==== ==== ====
</TABLE>
- ---------------
(1) Summarizes expenses charged to the Fund and the Master Portfolio.
(2) Class A shares are subject to either a 0.25% Rule 12b-1 Fee or a 0.25%
Administrative Servicing Fee. In no case will a shareholder be charged both
12b-1 and Administrative Servicing Fees, and Total Fund Operating Expenses
will not be greater than the amounts shown above because of the combination
of such fees. See "Distribution Plans" and "Class A Administrative Servicing
Plan."
(3) Other Expenses (before waivers or reimbursements ) for the Index Allocation,
Small Cap Strategy and Strategic Growth Funds would be 0.49%, 4.72% and
0.52%, respectively.
(4) Total Fund Operating Expenses (before waivers or reimbursements ) for the
Index Allocation, Small Cap Strategy and Strategic Growth Funds would be
1.44%, 5.57% and 1.27%, respectively.
EXAMPLE OF EXPENSES
CLASS A SHARES -- You would pay the following expenses on a $1,000 investment in
Class A shares of a Fund, assuming (1) a 5% annual return and (2) redemption at
the end of each time period indicated:
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Index Allocation............................................ $58 $85 $114 $196
Small Cap Strategy.......................................... $58 $86 $116 $200
Strategic Growth............................................ $57 $83 $110 $188
</TABLE>
PROSPECTUS
- --------------------------------------------------------------------------------
4
<PAGE> 43
SHAREHOLDER TRANSACTION EXPENSES
CLASS D SHARES
<TABLE>
<CAPTION>
INDEX SMALL CAP STRATEGIC
ALLOCATION FUND STRATEGY FUND GROWTH FUND
<S> <C> <C> <C>
Maximum Sales Load on Purchases (as a percentage of offering
price)..................................................... None None None
Maximum Sales Load on Reinvested Dividends.................. None None None
Maximum Sales Load on Redemptions
Redemption during year 1................................... 1.00% 1.00% 1.00%
Redemption after year 1.................................... 0.00% 0.00% 0.00%
Exchange Fees............................................... None None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
CLASS D SHARES
<TABLE>
<CAPTION>
INDEX SMALL CAP STRATEGIC
ALLOCATION FUND STRATEGY FUND(1) GROWTH FUND(1)
<S> <C> <C> <C>
Management Fees............................................. 0.70% 0.60% 0.50%
Rule 12b-1 Fees............................................. 0.75% 0.75% 0.75%
Servicing Fees.............................................. 0.25% 0.00%(2) 0.25%
Other Expenses (after waivers or reimbursements)(3)......... 0.35% 0.75% 0.50%
---- ---- ----
TOTAL FUND OPERATING EXPENSES (after waivers or
reimbursements)(4)......................................... 2.05% 2.10% 2.00%
==== ==== ====
</TABLE>
- ---------------
(1) Summarizes expenses charged to the Fund and the Master Portfolio.
(2) Servicing Fees (before waivers or reimbursements) for the Small Cap Strategy
Fund would be 0.25%.
(3) Other Expenses (before waivers or reimbursements) for the Index Allocation,
Small Cap Strategy and Strategic Growth Funds would be 0.50%, 4.70% and
0.52%, respectively.
(4) Total Fund Operating Expenses (before waivers or reimbursements) for the
Index Allocation, Small Cap Strategy and Strategic Growth Funds would be
2.20%, 6.30% and 2.02%, respectively.
EXAMPLE OF EXPENSES
CLASS D SHARES -- You would pay the following expenses on a $1,000 investment in
Class D shares of the Fund, assuming (1) a 5% annual return and (2) redemption
at the end of each time period indicated:
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Index Allocation............................................ $31 $64 $110 $238
Small Cap Strategy.......................................... $31 $66 $113 $243
Strategic Growth............................................ $31 $63 $108 $233
</TABLE>
You would pay the following expenses on the same investment in Class D shares of
the Fund, assuming no redemption:
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Index Allocation............................................ $21 $64 $110 $238
Small Cap Strategy.......................................... $21 $66 $113 $243
Strategic Growth............................................ $21 $63 $108 $233
</TABLE>
The purpose of the foregoing tables is to assist you in understanding the
various costs and expenses that investors in the Funds will pay directly or
indirectly. There are no other sales loads, redemption fees or exchange fees
charged by the Funds. The Company reserves the right to impose charges for
wiring redemption proceeds. The tables do not reflect any charges that may be
imposed directly by Shareholder Servicing Agents on their customer accounts in
connection with an investment in the Funds.
PROSPECTUS
- --------------------------------------------------------------------------------
5
<PAGE> 44
SHAREHOLDER TRANSACTION EXPENSES are charges you may pay when you buy or sell
Fund shares. You are subject to a front-end sales charge on purchases of Class A
shares and may be subject to a contingent-deferred sales charge on Class D
shares if you redeem such shares within a specified period. In certain
instances, you may qualify for a reduction or waiver of the front-end sales
charge. See "Purchase of Shares."
ANNUAL FUND OPERATING EXPENSES for each Fund are based on amounts incurred
during the most recent fiscal year adjusted to reflect fee waivers and expense
reimbursements expected to continue during the current fiscal year. There can be
no assurance that voluntary fee waivers and reimbursements will continue.
Long-term shareholders of a Fund could pay more in distribution related charges
than the economic equivalent of the maximum front-end sales charges applicable
to mutual funds sold by members of the National Association of Securities
Dealers, Inc. ("NASD").
EXAMPLE OF EXPENSES is a hypothetical illustration of the expenses associated
with a $1,000 investment over the periods shown, based on the expenses in the
above tables and an assumed annual rate of return of 5%. This rate of return
should not be considered an indication of actual or expected performance of a
Fund. The Examples should not be considered a representation of past or future
expenses; actual expenses and returns may be greater or less than those shown.
See "Management of the Funds" for more complete descriptions of the costs and
expenses applicable to the Funds.
With regard to the combined fees and expenses of the Small Cap and Growth Funds
and the corresponding Master Portfolios, the Company's Board of Directors has
considered whether various costs and benefits of investing all of a Fund's
assets in a Master Portfolio rather than directly in a portfolio securities
would be more or less than if the Fund invested in portfolio securities
directly. The Company's Board believes that the aggregate per share expenses of
the Fund will not be more than the expenses incurred by the Fund if the Fund
invested directly in the type of securities held by the Master Portfolio. The
Board 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 a Fund would be spread across a larger asset base provided by
more than one fund investing in a Master Portfolio. There can be no assurance
that these economic efficiencies will be achieved.
In addition to selling its interests to the Small Cap or Growth Funds, a Master
Portfolio may sell its interests to other mutual funds or accredited investors.
The expenses and corresponding investment returns of other investment options in
a Master Portfolio may differ from those of the shares of the Small Cap and
Growth Funds. Information regarding these and other investment options in the
Master Portfolios may be obtained by calling Stephens at (800) 643-9691.
PROSPECTUS
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6
<PAGE> 45
FINANCIAL HIGHLIGHTS
The following information has been derived from the Financial Highlights in the
Funds' 1996 annual financial statements. The financial statements are
incorporated by reference into the SAI for each Fund and have been audited by
KPMG Peat Marwick LLP, independent auditors, whose report dated February 14,
1997 also is incorporated by reference into the SAIs. This information should be
read in conjunction with each Fund's 1996 annual financial statements and the
notes thereto. The reorganization of the Strategic Growth Fund to a
master/feeder structure was effective on February 20, 1996, and the financial
highlights for the periods presented prior to that date refer only to the prior
operating history of the Fund on a stand-alone basis. The SAIs have been
incorporated by reference into this Prospectus.
INDEX ALLOCATION FUND
For a Class A Share Outstanding
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1996 1995 1994 1993 1992 1991 1990 1989 1988(1)
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period........................ $ 13.76 $ 10.67 $ 11.90 $ 11.45 $ 11.95 $ 10.31 $ 10.39 $ 10.17 $ 10.00
Income from investment
operations:
Net investment income.......... 0.29 0.28 0.31 0.30 0.47 0.57 0.63 0.67 0.28
Net realized and unrealized
gain (loss) on investments.... 2.02 3.42 (0.39) 1.12 0.36 1.51 0.10 0.33 0.18
------- ------- ------- ------- ------- ------- ------- ------- -------
Total from investment
operations.................... 2.31 3.70 (0.08) 1.42 0.83 2.08 0.73 1.00 0.46
Less distributions:
Dividends from net investment
income........................ (0.29) (0.28) (0.31) (0.30) (0.63) (0.44) (0.61) (0.63) (0.27)
Distributions from net realized
gain.......................... (1.79) (0.33) (0.84) (0.67) (0.70) 0.00 (0.20) (0.15) (0.02)
------- ------- ------- ------- ------- ------- ------- ------- -------
Total from distributions....... (2.08) (0.61) (1.15) (0.97) (1.33) (0.44) (0.81) (0.78) (0.29)
------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of
period........................ $ 13.99 $ 13.76 $ 10.67 $ 11.90 $ 11.45 $ 11.95 $ 10.31 $ 10.39 $ 10.17
======= ======= ======= ======= ======= ======= ======= ======= =======
Total return (not
annualized)(2)................ 17.04% 34.71% 0.68% 12.54% 7.44% 20.69% 7.08% 10.23% 4.60%
Ratios/supplemental data:
Net assets, end of period
(000)......................... $60,353 $52,007 $40,308 $53,124 $41,165 $38,663 $27,689 $23,814 $13,220
Number of shares outstanding
(000)......................... 4,313 3,778 3,779 4,465 3,596 3,235 2,686 2,293 1,300
Ratios to average net assets
(annualized):
Ratio of expenses to average
net assets.................... 1.31% 1.30% 1.30% 1.36% 1.25% 1.38% 1.59% 1.76% 1.76%
Ratio of net investment income
to average net assets......... 2.06% 2.07% 2.41% 2.64% 4.08% 5.23% 6.01% 6.44% 4.69%
Portfolio turnover............. 67% 47% 50% 53% 38% 18% 94% 62% 200%
Average commission rate
paid(3)....................... $0.0227 N/A N/A N/A N/A N/A N/A N/A N/A
Ratio of expenses to average
net assets prior to waived
fees and reimbursed
expenses...................... 1.44% 1.35% 1.38% 1.47% 1.71% 1.56% 1.74% 2.37% 3.02%
Ratio of net investment income
to average net assets prior to
waived fees and reimbursed
expenses...................... 1.93% 2.02% 2.33% 2.53% 3.62% 5.05% 5.86% N/A N/A
</TABLE>
- ---------------
(1) The Class A shares of the Index Allocation Fund commenced operations as the
shares of the Asset Allocation Fund on April 7, 1988. The Fund changed its
name to "Index Allocation Fund" in February of 1997.
(2) Total returns do not include any sales charges.
(3) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for security trades on
which commissions are charged. This amount may vary from period to period
and fund to fund depending on the mix of trades executed in various markets
where trading practices and commission rate structures may differ.
PROSPECTUS
- --------------------------------------------------------------------------------
7
<PAGE> 46
INDEX ALLOCATION FUND
For a Class D Share Outstanding
<TABLE>
<CAPTION>
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1996 1995 1994 1993(1)
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 17.10 $ 13.26 $14.75 $15.00
Income from investment operations:
Net investment income....................................... 0.22 0.20 0.25 0.07
Net realized and unrealized gain (loss) on investments...... 2.54 4.24 (0.45) 0.61
------- ------- ------ ------
Total from investment operations............................ 2.76 4.44 (0.20) 0.68
Less distributions:
Dividends from net investment income........................ (0.22) (0.20) (0.25) (0.10)
Distributions from net realized gain........................ (2.22) (0.40) (1.04) (0.83)
------- ------- ------ ------
Total from distributions.................................... (2.44) (0.60) (1.29) (0.93)
------- ------- ------ ------
Net asset value, end of period.............................. $ 17.42 $ 17.10 $13.26 $14.75
======= ======= ====== ======
Total return (not annualized)(2)............................ 16.37% 33.72% (1.38)% 4.56%
Ratios/supplemental data:
Net assets, end of period (000)............................. $24,655 $16,075 $9,798 $8,996
Number of shares outstanding (000).......................... 1,415 940 739 610
Ratios to average net assets (annualized):
Ratio of expenses to average net assets..................... 2.05% 2.05% 2.01% 0.96%
Ratio of net investment income to average net assets........ 1.35% 1.30% 1.75% 0.53%
Portfolio turnover.......................................... 67% 47% 50% 53%
Average commission rate paid(3)............................. $0.0227 N/A N/A N/A
Ratio of expenses to average net assets prior to waived
fees and reimbursed expenses............................... 2.20% 2.17% 2.20% 1.12%
Ratio of net investment income to average net assets prior
to waived fees and reimbursed expenses..................... 1.20% 1.18% 1.56% 0.37%
</TABLE>
- ---------------
(1) The Class D shares of the Index Allocation Fund commenced operations as the
Class D shares of the Asset Allocation Fund on July 1, 1993. The Fund
changed its name to "Index Allocation Fund" in February of 1997.
(2) Total returns do not include any sales charges.
(3) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for security trades on
which commissions are charged. This amount may vary from period to period
and fund to fund depending on the mix of trades executed in various markets
where trading practices and commission rate structures may differ.
PROSPECTUS
- --------------------------------------------------------------------------------
8
<PAGE> 47
SMALL CAP STRATEGY FUND
For a Share Outstanding
<TABLE>
<CAPTION>
CLASS A CLASS D
PERIOD ENDED PERIOD ENDED
DEC. 31, 1996(1) DEC. 31, 1996(1)
---------------- ----------------
<S> <C> <C>
Net asset value, beginning of period........................ $ 10.00 $ 10.00
Income from investment operations:
Net investment income (loss)................................ (0.01) (0.02)
Net realized and unrealized gain (loss) on investments...... 0.05 0.03
-------- -------
Total from investment operations............................ 0.04 0.01
Total from distributions.................................... 0.00 0.00
-------- -------
Net asset value, end of period.............................. $ 10.04 $ 10.01
======== =======
Total return (not annualized)*.............................. 0.40% 0.10%
Ratios/supplemental data:
Net assets, end of period (000)............................. $ 2,935 $ 1,627
Number of shares outstanding (000).......................... 292 162
Ratios to average net assets (annualized):
Ratio of expenses to average net assets(2).................. 1.41% 2.16%
Ratio of net investment income (loss) to average net
assets(2).................................................. (0.40)% 1.12%
Portfolio turnover(3)....................................... 28% 28%
Average commission rate paid(4)............................. $ 0.0775 $0.0775
Ratio of expenses to average net assets prior to waived
fees and reimbursed expenses(2)............................ 5.57% 6.30%
Ratio of net investment income to average net assets prior
to waived fees and reimbursed expenses(2).................. (4.56)% (5.26)%
</TABLE>
- ---------------
(1) The Class A and Class D shares of the Small Cap Strategy Fund commenced
operations on September 16, 1996.
(2) This ratio includes income and expenses charged to the Small Cap Master
Portfolio.
(3) Reflects the portfolio turnover and average commission rates for the Small
Cap Master Portfolio.
(4) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for security trades on
which commissions are charged. This amount may vary from period to period
and fund to fund depending on the mix of trades executed in various markets
where trading practices and commission rate structures may differ.
* Total returns do not include any sales charges.
PROSPECTUS
- --------------------------------------------------------------------------------
9
<PAGE> 48
STRATEGIC GROWTH FUND
For a Class A Share Outstanding
<TABLE>
<CAPTION>
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1996 1995 1994 1993(1)
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 16.82 $ 13.29 $ 13.20 $ 10.00
Income from investment operations:
Net investment income (loss)................................ (0.03) (0.04) (0.11) (0.03)
Net realized and unrealized gain (loss) on investments...... 1.77 5.66 0.67 3.68
-------- ------- ------- -------
Total from investment operations............................ 1.74 5.62 0.56 3.65
Less distributions:
Dividends from net investment income........................ 0.00 0.00 0.00 (0.03)
Distributions from net realized gain........................ (0.14) (2.09) (0.33) (0.41)
-------- ------- ------- -------
Tax return of capital....................................... 0.00 0.00 (0.14) (0.01)
-------- ------- ------- -------
Total from distributions.................................... (0.14) (2.09) (0.47) (0.45)
-------- ------- ------- -------
Net asset value, end of period.............................. $ 18.42 $ 16.82 $ 13.29 $ 13.20
======== ======= ======= =======
Total return (not annualized)*.............................. 10.32% 42.51% 4.23% 36.56%
Ratios/supplemental data:
Net assets, end of period (000)............................. $131,226 $59,016 $26,744 $25,413
Number of shares outstanding (000).......................... 7,124 3,508 2,013 1,926
Ratios to average net assets (annualized):
Ratio of expenses to average net assets..................... 1.24%(2) 1.28% 1.20% 0.66%
Ratio of net investment income (loss) to average net
assets..................................................... (0.82)%(2) (0.76)% (0.81)% (0.01)%
Portfolio turnover.......................................... 10%(3) 171% 149% 182%
Average commission rate paid(4)............................. $ 0.0760(3) N/A N/A N/A
Ratio of expenses to average net assets prior to waived
fees and reimbursed expenses............................... 1.27%(2) 1.38% 1.55% 1.64%
Ratio of net investment income to average net assets prior
to waived fees and reimbursed expenses..................... (0.85)%(2) (0.86)% (1.16)% (0.99)%
</TABLE>
- ---------------
(1) The Class A shares of the Strategic Growth Fund commenced operations on
January 20, 1993.
(2) This ratio includes income and expenses charged to the Capital Appreciation
Master Portfolio.
(3) The portfolio turnover and average commission rates for the Capital
Appreciation Master Portfolio for the period from its inception on February
20, 1996 to December 31, 1996, were 137% and $0.0781, respectively. The
portfolio turnover and average commission rates shown in the table for the
Strategic Growth Fund reflect the stand alone period from January 1, 1996 to
February 19, 1996, before the Fund converted to a feeder fund of the Master
Portfolio.
(4) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for security trades on
which commissions are charged. This amount may vary from period to period
and fund to fund depending on the mix of trades executed in various markets
where trading practices and commission rate structures may differ.
* Total returns do not include any sales charges.
PROSPECTUS
- --------------------------------------------------------------------------------
10
<PAGE> 49
STRATEGIC GROWTH FUND
For a Class D Share Outstanding
<TABLE>
<CAPTION>
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1996 1995 1994 1993(1)
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 20.79 $ 16.54 $ 16.55 $ 15.00
Income from investment operations:
Net investment income (loss)................................ (0.08) (0.16) (0.24) (0.43)
Net realized and unrealized gain (loss) on investments...... 2.05 6.99 0.81 2.51
-------- ------- ------- -------
Total from investment operations............................ 1.97 6.83 0.57 2.08
Less distributions:
Dividends from net investment income........................ 0.00 0.00 0.00 0.00
Distributions from net realized gain........................ (0.17) (2.58) (0.40) (0.53)
-------- ------- ------- -------
Tax return of capital....................................... 0.00 0.00 (0.18) 0.00
-------- ------- ------- -------
Total from distributions.................................... (0.17) (2.58) (0.58) (0.53)
-------- ------- ------- -------
Net asset value, end of period.............................. $ 22.59 $ 20.79 $ 16.54 $ 16.55
======== ======= ======= =======
Total return (not annualized)*.............................. 9.46% 41.54% 3.46% 13.84%
Ratios/supplemental data:
Net assets, end of period (000)............................. $ 55,063 $26,326 $15,335 $11,932
Number of shares outstanding (000).......................... 2,437 1,266 927 721
Ratios to average net assets (annualized):
Ratio of expenses to average net assets..................... 2.00%(2) 2.02% 1.95% 0.61%
Ratio of net investment income (loss) to average net
assets..................................................... (1.58)%(2) (1.49)% (1.56)% (1.00)%
Portfolio turnover.......................................... 10%(3) 171% 149% 182%
Average commission rate paid(4)............................. $ 0.0760(3) N/A N/A N/A
Ratio of expenses to average net assets prior to waived fees
and reimbursed expenses.................................... 2.02%(2) 2.09% 2.23% 2.14%
Ratio of net investment income to average net assets prior
to waived fees and reimbursed expenses..................... (1.60)%(2) (1.56)% (1.84)% (2.53)%
</TABLE>
- ---------------
(1) The Class D shares of the Strategic Growth Fund commenced operations on July
1, 1993.
(2) This ratio includes income and expenses charged to the Capital Appreciation
Master Portfolio.
(3) The portfolio turnover and average commission rates for the Capital
Appreciation Master Portfolio for the period from its inception on February
20, 1996 to December 31, 1996, were 137% and $0.0781, respectively. The
portfolio turnover and average commission rates shown in the table for the
Strategic Growth Fund reflect the stand alone period from January 1, 1996 to
February 19, 1996, before the Fund converted to a feeder fund of the Master
Portfolio.
(4) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for security trades on
which commissions are charged. This amount may vary from period to period
and fund to fund depending on the mix of trades executed in various markets
where trading practices and commission rate structures may differ.
* Total returns do not include any sales charges.
PROSPECTUS
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11
<PAGE> 50
INVESTMENT OBJECTIVES AND POLICIES
Set forth below is a description of the investment objectives and related
policies of the Funds. As with all mutual funds, there is no assurance that a
Fund will achieve its investment objective.
The INDEX ALLOCATION FUND seeks to earn over the long term a high level of total
investment return (that is, income and capital appreciation combined),
consistent with the assumption of reasonable risk, by pursuing an "asset
allocation" strategy whereby its investments are allocated, based on changes in
market conditions, among three asset classes -- common stocks in the S&P Index,
U.S. Treasury bonds and money market instruments.(1)
The Index Allocation Fund is a diversified portfolio. Under normal market
conditions, it allocates at least 65% of its portfolio to stocks representative
of the S&P Index, bonds representative of the Lehman Brothers 20+ Treasury Bond
Index (the "LBT Bond Index"), or a combination of both indices. The LBT Bond
Index is an unmanaged index comprised of U.S. Treasury securities with remaining
maturities of twenty years or more. The portion of the Fund's portfolio
allocated to bonds is invested so as to replicate the performance
characteristics of the LBT Bond Index. The Fund also may allocate a portion of
its portfolio to money market instruments. Whenever more than 20% of the Fund's
portfolio is allocated to money market instruments, such instruments will
consist of U.S. Treasury bills and/or a broadly diversified range of money
market instruments. The Fund allocates its investments among common stocks
representative of the S&P Index, bonds representative of the LBT Index and money
market instruments and is therefore an index allocation fund. It does not
attempt to replicate the performance of a single index and is NOT an index fund.
The Index Allocation Fund's allocation strategy is based upon the premise that,
from time to time, certain asset classes are more attractive long-term
investments than others and, accordingly, that timely shifts among common
stocks, U.S. Treasury bonds with maturities of 20 to 30 years and money market
instruments, as determined by their relative over-valuation or under-valuation,
can produce superior investment returns.
To the extent the Index Allocation Fund's assets are allocated to replicate the
S&P Index or the LBT Bond Index (each, an "Index"), the Fund will attempt to
maintain under normal market conditions a correlation of at least 95% between
the total return of such assets (before fees and expenses) and the total return
of the relevant Index. The Fund's sub-adviser will monitor the correlation of
the Fund's portfolio to the relevant Index and will adjust the Fund's portfolio
to the extent necessary to maintain at least a 95% correlation to such Index. If
a particular industry grows to represent more than 25% of the S&P Index, the
Fund may, consistent with its concentration policy (as set forth in its SAI)
continue to invest in all industry components of the S&P Index.
In an attempt to more closely replicate the total return of the portfolio assets
allocated to replicate an Index, the Index Allocation Fund may engage in the
purchase and sale of options, futures contracts and related instruments, and may
participate in interest rate and index swaps. Each of these transactions
involves risks to the Fund. See "Additional Permitted Investment Activities" in
the Fund's SAI.
Use of Investment Model. BGFA, as sub-adviser to the Fund, uses a proprietary
investment model to determine the appropriate mix of asset classes within the
Fund's portfolio in accordance with the investment objective, policies and
restrictions set forth herein and in the Fund's SAI. The investment model was
originally developed in 1973 and is continually refined and updated. As of
January 1, 1997, investments totaling approximately $32 billion were managed by
BGFA and its affiliates using this investment model. The investment model
analyzes extensive financial data from numerous sources, and, based on such
data, recommends a portfolio among common stocks, U.S. Treasury bonds and money
market instruments.
The principal financial data used by BGFA in connection with the investment
model currently are: (i) consensus estimates of the earnings, dividends and
payout ratios on a broad cross-section of common stocks as reported by
independent financial reporting services that survey over 1,000 Wall Street
analysts; (ii) the estimated current yield to maturity on new long-term
corporate bonds rated "AA" by Standard & Poor's Corporation ("S&P") or on
long-term U.S. Treasury bonds; (iii) the present yield on money market
instruments; (iv) the historical standard statistical deviation in investment
return for each class of assets; and (v) the historical standard statistical
correlation of investment return among the various asset classes.
The investment model has broad latitude to allocate and reallocate the assets in
the Index Allocation Fund's portfolio. The investment model recommends
allocations among each asset class in 5% increments only. Any reallocation will
be implemented in accordance with trading policies that have been de-
- ---------------
(1) The S&P Index is an unmanaged index of stocks comprised of 500 industrial,
financial, utility and transportation companies. "Standard & Poor's(R)",
"S&P(R)", "S&P 500(R)" and "Standard & Poor's 500(R)" are trademarks of
McGraw-Hill, Inc. and have been
licensed. The Fund is not sponsored, endorsed, sold or promoted by Standard
& Poor's and Standard & Poor's makes no representation regarding the
advisability of investing in the Fund.
PROSPECTUS
- --------------------------------------------------------------------------------
12
<PAGE> 51
signed to take advantage of market opportunities and to reduce transaction
costs. Notwithstanding any recommendation of the investment model to the
contrary, the Fund generally maintains at least that portion of its assets in
money market instruments reasonably considered necessary to meet redemption
requirements. The Fund's investments are compared from time to time to the
investment model's recommendations. Recommended reallocations are implemented
subject to BGFA's assessment of current economic conditions and investment
opportunities. BGFA may change from time to time the criteria and methods it
uses to implement the recommendations of the model. The overall management of
the Fund is based on the recommendations of the investment model, and no person
is primarily responsible for recommending the mix of asset classes in the Fund's
portfolio or the mix of securities within the asset classes. Decisions relating
to the investment model are made by BGFA's investment committee.
The SMALL CAP STRATEGY FUND seeks above-average long-term capital appreciation
in order to provide investors with a rate of total return exceeding that of the
Russell 2000 Index (before fees and expenses) over a time horizon of three to
five years.
The Small Cap Strategy Fund is designed to provide above-average capital growth
for investors willing to assume above-average risk. The Fund seeks to achieve
its investment objective by investing all of its assets in the Small Cap Master
Portfolio, which has the same investment objective as the Fund. The Master
Portfolio seeks to achieve its investment objective through the active
management of a broadly diversified portfolio of growth-oriented common stocks.
Under normal market conditions, the Master Portfolio invests primarily in
companies whose market capitalizations fall within the capitalization range of
the companies included in the Russell 2000, although it may sometimes invest in
companies with capitalizations greater or less than these amounts. As of July
1996, the capitalization range of companies in the Russell 2000 was between $161
million and $1.1 billion. The range is expected to change frequently. The Master
Portfolio will sell the common stock of any company in its investment portfolio
after such company's market capitalization exceeds $2 billion. The Master
Portfolio invests primarily in common stocks of domestic and foreign companies
believed by Wells Fargo Bank, as investment adviser, to be characterized by new
or innovative products, services or processes and to have above-average
prospects for capital appreciation.
Under normal market conditions, the Small Cap Master Portfolio holds at least 20
common stock issues spread across multiple industry groups and sectors of the
economy. The majority of these holdings consist of smaller capitalization
companies, established growth companies and turnaround or acquisition
candidates. The Master Portfolio may invest in securities through initial public
offerings of companies whose securities have been offered to the general public
for three months or less ("IPOs") and may invest in securities of start-up
companies and other newer issuers. It is expected that no more than 20% of the
Master Portfolio's assets will be invested in these highly aggressive issues at
one time. The Master Portfolio also may invest in securities of foreign
governmental or private issuers and in securities of issuers in emerging or
less-developed markets. The Master Portfolio may invest up to 25% of its assets
in American Depositary Receipts and similar instruments.
Under normal market conditions, up to 5% of the Small Cap Master Portfolio's net
assets will be invested in convertible debt securities that are not either rated
in the four highest rating categories by one or more nationally recognized
statistical rating organizations ("NRSROs"), such as Moody's Investor Service,
Inc. ("Moody's") or S&P, or unrated securities determined by Wells Fargo Bank to
be of comparable quality. Securities rated in the fourth highest rating category
(i.e., rated "BBB" by S&P or "Baa" by Moody's) are regarded by S&P as having an
adequate capacity to pay interest and repay principal, but changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make such repayments. Moody's considers such securities as having speculative
characteristics.
From time to time, Wells Fargo Bank may determine that conditions in the
securities markets make pursuing the Small Cap Master Portfolio's basic
investment strategy inconsistent with the best interests of the Master
Portfolio's investors. At such times, Wells Fargo Bank may use temporary
alternative strategies, primarily designed to reduce fluctuations in the value
of the Master Portfolio's assets. In implementing these temporary "defensive"
strategies, the Master Portfolio may invest in preferred stock or
investment-grade debt securities and in money market securities. It is expected
that these temporary "defensive" investments will not exceed 33% of the Fund's
total assets.
WELLS FARGO BANK, AS INVESTMENT ADVISER, RESERVES THE RIGHT TO CLOSE THE SMALL
CAP STRATEGY FUND TO NEW INVESTORS AT ITS DISCRETION AND MAY REOPEN AND CLOSE
THE FUND THEREAFTER TO NEW INVESTORS. IF THE FUND IS CLOSED, SHAREHOLDERS WHO
MAINTAIN OPEN ACCOUNTS WITH THE FUND MAY MAKE ADDITIONAL INVESTMENTS IN THE
FUND.
The STRATEGIC GROWTH FUND seeks to provide investors with an above-average level
of capital appreciation.
The Strategic Growth Fund is designed to provide above-average capital growth
for investors willing to assume above-average risk. The Fund seeks to achieve
its investment objective by investing all of its assets in the Capital
Appreciation Master Portfolio, which has the same investment objective as the
Fund. The Master
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Portfolio seeks to achieve its objective through the active management of a
broadly-diversified portfolio of equity securities of companies expected to
experience strong growth in revenues, earnings and assets.
Under normal market conditions, the Master Portfolio invests primarily in equity
securities that Wells Fargo Bank, as investment adviser, believes have
better-than-average prospects for appreciation. Though the Growth Fund may hold
a number of larger capitalization stocks, under normal market conditions more
than 50% of the Fund's total assets will be invested in companies whose market
capitalizations at the time of acquisition are within the range of companies
listed on the S&P Small Cap 600 Index. As of December 1996, the capitalization
range of companies in the S&P Small Cap 600 Index was between $40 million and
$2.6 billion. The range of the S&P Small Cap 600 Index is expected to change.
The Master Portfolio may invest in companies with a market capitalization under
$40 million or over $2.6 billion if Wells Fargo Bank believes such investments
to be in the best interest of the Master Portfolio.
Under normal market conditions, the Master Portfolio will hold at least 20
common stock issues spread across multiple industry groups, with the majority of
these holdings consisting of established growth companies, turnaround or
acquisition candidates, or attractive larger capitalization companies. The
Master Portfolio also may invest up to 25% of its assets in American Depositary
Receipts ("ADRs") and similar instruments and may invest up to 15% of its assets
in equity securities of companies in emerging or less developed markets.
Additionally, it is expected that the Master Portfolio will from time to time
acquire securities through initial public offerings, and will acquire and hold
common stocks of smaller and newer issuers. It is expected that no more than 40%
of the Master Portfolio's assets will be invested in these highly aggressive
issues at one time.
Under ordinary market conditions, at least 65% of the value of the Master
Portfolio's total assets will be invested in common stocks and in securities
which are convertible into common stocks that Wells Fargo Bank, as investment
adviser, believes have better-than-average prospects for appreciation. The
Master Portfolio also may invest in convertible debt securities. At most, 5% of
the Master Portfolio's net assets will be invested in convertible debt
securities that are either not rated in the four highest rating categories by
one or more NRSROs, such as Moody's or S&P, or unrated securities determined by
Wells Fargo Bank to be of comparable quality. Securities rated in the fourth
lowest rating category (i.e., rated "BBB" by S&P or "Baa" by Moody's) are
regarded by S&P as having an adequate capacity to pay interest and repay
principal, but changes in economic conditions or other circumstances are more
likely to lead to a weakened capacity to make such repayments. Moody's considers
such securities as having speculative characteristics.
From time to time, Wells Fargo Bank may determine that conditions in the
securities markets make pursuing the Master Portfolio's basic investment
strategy inconsistent with the best interests of the Master Portfolio's
investors. At such times, Wells Fargo Bank may use temporary alternative
strategies, primarily designed to reduce fluctuations in the value of the Master
Portfolio's assets. In implementing these temporary "defensive" strategies, the
Master Portfolio may invest in preferred stock or investment-grade debt
securities that are convertible into common stock and in money market
securities. It is expected that these temporary "defensive" investments will not
exceed 30% of the Master Portfolio's total assets.
INVESTMENT POLICIES
The investment objectives of the Funds, as set forth above, are fundamental;
that is, they 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. If the 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 may make such
change without shareholder approval and will disclose any such material changes
in the then current prospectus.
As matters of fundamental policy, the Index Allocation Fund may: (i) 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 borrowing exists); (ii) make loans of portfolio
securities; (iii) invest up to 10% of the current value of its net assets in
repurchase agreements having maturities of more than seven days, restricted
securities and illiquid securities; and (iv) 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.
As matters of fundamental policy, the Small Cap Strategy and Strategic Growth
Funds may: (i) not purchase securities of any issuer (except U.S. Government
obligations) if as a result, with respect to 75% of the Fund's assets, more than
5% of the value of the Fund's total assets would be invested in the securities
of such issuer or the Fund would own more than 10% of the outstanding voting
securities of such issuer; (ii) borrow from banks up to 10% of the current value
of its net assets for temporary purposes only in order to meet redemptions, and
these borrowings may be secured by the pledge of up to 10% of the current value
of its net assets (but investments may not be purchased while any such
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outstanding borrowings exceed 5% of its net assets); (iii) make loans of
portfolio securities in accordance with its investment policies; and (iv) not
invest 25% or more of its assets (i.e., concentrate) in any particular industry,
except that the Fund may invest 25% or more of its assets in U.S. Government
obligations. With respect to fundamental investment policy (iii) above, the Fund
does not intend to make loans of its portfolio securities during the coming
year.
As matters of non-fundamental policy, the Small Cap Strategy and Strategic
Growth Funds may invest up to 15% of the current value of its net assets in
illiquid securities. For this purpose, illiquid securities include, among
others, (a) securities that are illiquid by virtue of the absence of a readily
available market or legal or contractual restrictions on resale, (b) fixed time
deposits that are subject to withdrawal penalties and that have maturities of
more than seven days, and (c) repurchase agreements not terminable within seven
days. Disposing of illiquid or restricted securities may involve additional
costs and require additional time.
RISK FACTORS
Investments in a Fund are not bank deposits or obligations of Wells Fargo Bank,
are not insured by the FDIC and are not insured against loss of principal. When
the value of the securities that a Fund owns declines, so does the value of your
Fund shares. You should be prepared to accept some risk with the money you
invest in a Fund.
The portfolio equity securities of the Funds are subject to equity market risk.
Equity market risk is the risk that stock prices will fluctuate or decline over
short or even extended periods. For the first quarter of 1997, the stock market,
as measured by the S&P 500 Index and other commonly used indices, was trading at
or close to record levels. There can be no guarantee that these performance
levels will continue. The portfolio debt instruments of the Funds are subject to
credit and interest-rate risk. Credit risk is the risk that issuers of the debt
instruments in which the Funds invest may default on the payment of principal
and/or interest. Interest-rate risk is the risk that increases in market
interest rates may adversely affect the value of the debt instruments in which
the Funds invest and hence the value of your investment in a Fund.
The market value of the Funds' investment in fixed-income securities will change
in response to various factors, such as changes in interest rates and the
financial strength of each issuer. During periods of falling interest rates, the
value of fixed-income securities generally rises. Conversely, during periods of
rising interest rates, the value of such securities generally declines. Debt
securities with longer maturities, which tend to produce higher yields, are
subject to potentially greater price fluctuation than obligations with shorter
maturities. Fluctuations in the market value of fixed income securities can be
reduced, but not eliminated, by variable and floating rate features.
Securities rated in the fourth highest rating category are regarded by S&P as
having an adequate capacity to pay interest and repay principal, but changes in
economic conditions or other circumstances are more likely to lead to a weakened
capacity to make such repayments. Moody's considers such securities as having
speculative characteristics. Subsequent to its purchase by a Fund, an issue of
securities may cease to be rated or its rating may be reduced below the minimum
rating required for purchase by the Funds. Securities rated below the fourth
highest rating category (sometimes called "junk bonds") are often considered to
be speculative and involve greater risk of default or price changes due to
changes in the issuer's credit-worthiness. The market prices of these securities
may fluctuate more than higher quality securities and may decline significantly
in periods of general economic difficulty.
There may be some additional risks associated with the Small Cap and Growth
Funds' investments in smaller and/or newer companies because such companies'
shares tend to be less liquid than securities of larger companies. Further,
shares of small and new companies are generally more sensitive to purchase and
sale transactions and changes in the issuer's financial condition and,
therefore, the prices of such stocks may be more volatile than those of larger
company stocks and may be subject to more abrupt price movements than securities
of larger companies. The equity securities in the Small Cap and Growth Fund's
portfolios may have some of the following characteristics: low or no dividends;
smaller market capitalizations (less than $1 billion); newly public companies
(i.e., recent initial public offering); less market liquidity; relatively short
operating histories; aggressive capitalization structures (including high debt
levels); and involvement in rapidly growing/changing industries and/or new
technologies.
The Small Cap and Growth Funds may invest in securities of foreign issuers.
These investments involve certain considerations that are not typically
associated with investing in domestic securities. There may be less publicly
available information about a foreign issuer than about a domestic issuer.
Foreign issuers also are not generally subject to the same accounting, auditing
and financial reporting standards or governmental supervision as domestic
issuers. In addition, with respect to certain foreign countries, interest may be
withheld at the source under foreign income tax laws, and there is a possibility
of expropriation or confiscatory taxation, political, social and monetary
instability or diplomatic developments that could adversely affect investments
in, the liquidity of, and the ability to enforce contractual obligations with
respect to, securities of issuers located in those countries.
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There are special risks relating to the Small Cap and Growth Funds' investments
in emerging-market countries. Most are heavily dependent on international trade,
and some are especially vulnerable to recessions in other countries. Many of
these countries are also sensitive to world commodity prices. Some countries may
still have obsolete financial systems, economic problems or archaic legal
systems. In addition, many of these nations are experiencing political and
social uncertainties. Many investments in emerging markets can be considered
speculative, and their prices can be much more volatile than in the more
developed nations of the world. This difference reflects the greater
uncertainties of investing in less established markets and economies. The
financial markets of emerging markets countries are generally less well
capitalized and thus securities of issuers based in such countries may be less
liquid.
Illiquid securities, which may include certain restricted securities, may be
difficult to sell promptly at an acceptable price. Certain restricted securities
may be subject to legal restrictions on resale. Delay or difficulty in selling
securities may result in a loss or be costly to the Funds.
The adviser may use certain derivative investments or techniques, such as buying
and selling options and futures contracts and entering into currency exchange
contracts or swap agreements, to adjust the risk and return characteristics of a
Fund's investments. Derivatives are financial instruments whose value is
derived, at least in part, from the price of another security or a specified
asset, index or rate. Some derivatives may be more sensitive than direct
securities to changes in interest rates or sudden market moves. Some derivatives
also may be susceptible to fluctuations in yield, duration or value due to their
structure or contract terms. If the adviser judges market conditions
incorrectly, the use of certain derivatives could result in a loss, regardless
of the adviser's intent in using the derivatives.
The Small Cap and Growth Funds pursue an active trading investment strategy, and
the length of time a Fund has held a particular security is not generally a
consideration in investment decisions. Accordingly, the portfolio turnover rate
for such Fund may be higher than that of other funds that do not pursue an
active trading investment strategy. Portfolio turnover generally involves some
expense to a Fund, including brokerage commissions or dealer mark-ups and other
transaction costs on the sale of securities and the reinvestment in other
securities. Portfolio turnover also can generate short-term capital gains tax
consequences.
As with all mutual funds, there is no assurance that the Funds will achieve
their investment objectives. See each Fund's SAI for additional information.
INVESTMENT ACTIVITIES
Set forth below is a more detailed description of the Funds' permissible
investments. References to the investments, investment policies and risks of the
Small Cap Fund and the Growth Fund, unless otherwise indicated, should be
understood as references to the investments, investment policies and risks of
the corresponding Master Portfolio. For additional information, see "Additional
Permitted Investment Activities" in each Fund's SAI.
FOREIGN OBLIGATIONS AND SECURITIES
The Small Cap and Growth Funds each may invest up to 25% of its assets in
securities of foreign companies and foreign governmental issuers through
American Depositary Receipts ("ADRs"), Canadian Depositary Receipts ("CDRs"),
European Depositary Receipts ("EDRs"), International Depositary Receipts
("IDRs") and Global Depositary Receipts ("GDRs") or other similar securities
convertible into securities of foreign issuers. These securities may not
necessarily be denominated in the same currency as the securities into which
they may be converted. ADRs (sponsored or unsponsored) are receipts typically
issued by a U.S. bank or trust company and traded on a U.S. stock exchange, and
CDRs are receipts typically issued by a Canadian bank or trust company, that
evidence ownership of underlying foreign securities. Issuers of unsponsored ADRs
are not contractually obligated to disclose material information in the U.S.
and, therefore, such information may not correlate to the market value of the
unsponsored ADR. EDRs and IDRs are receipts typically issued by European banks
and trust companies, and GDRs are receipts issued by either a U.S. or non-U.S.
banking institution, that evidence ownership of the underlying foreign
securities. Generally, ADRs in registered form are designed for use in U.S.
securities markets and EDRs and IDRs in bearer form are designed primarily for
use in Europe. The Index Allocation Fund may invest up to 25% of its assets in
high-quality, short-term debt obligations of foreign branches of U.S. banks or
U.S. branches of foreign banks that are denominated in and pay interest in U.S.
dollars. See "Risk Factors".
EMERGING MARKET SECURITIES
The Small Cap and Growth Funds each may invest up to 15% of its assets in equity
securities of companies in "emerging markets." The Funds consider countries with
emerging markets to include the following: (i) countries with an emerging stock
market as defined by the International Finance Corporation; (ii) countries with
low- to middle-income economies according to the International Bank for
Reconstruction and Development (more commonly referred to as the World Bank);
and (iii) countries listed in World Bank publications as developing. The adviser
may invest in those emerging markets that have a relatively low gross national
product per capita, compared to the world's major economies, and which exhibit
potential for rapid economic growth. The
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adviser believes that investments in equity securities of emerging market
issuers offer significant potential for long-term capital appreciation.
Equity securities of emerging market issuers may include common stock, preferred
stocks (including convertible preferred stocks) and warrants; bonds, notes and
debentures convertible into common or preferred stock; equity interests in
foreign investment funds or trusts and real estate investment trust securities.
The Small Cap and Growth Funds may invest in ADRs, CDRs, GDRs, EDRs, and IDRs of
such issuers. Emerging market countries include, but are not limited to:
Argentina, Brazil, Chile, China, the Czech Republic, Columbia, Ecuador, Greece,
Hong Kong, Indonesia, India, Malaysia, Mexico, the Philippines, Poland,
Portugal, Peru, Russia, Singapore, South Africa, Thailand, Taiwan and Turkey. A
company is considered in a country, market or region if it conducts its
principal business activities in the country, market or region, namely, if it
derives a significant portion (at least 50%) of its revenues or profits from
goods produced or sold, investments made, or services performed in such country,
market or region or has at least 50% of its assets situated in such country,
market or region.
PRIVATELY ISSUED SECURITIES (RULE 144A)
The Small Cap and Growth Funds each may invest in privately issued securities
that may be resold in accordance with Rule 144A under the Securities Act of 1933
("Rule 144A Securities"). Rule 144A Securities are restricted securities that
are not publicly traded. Accordingly, the liquidity of the market for specific
Rule 144A Securities may vary. Delay or difficulty in selling such securities
may result in a loss to a Fund. Privately issued securities that are determined
by Wells Fargo Bank to be "illiquid" will be subject to each Master Portfolio's
policy of not investing more than 15% of its net assets in illiquid securities.
CORPORATE REORGANIZATIONS
The Small Cap and Growth Funds may invest in securities for which a tender or
exchange offer has been made or announced, and in securities of companies for
which a merger, consolidation, liquidation or similar reorganization proposal
has been announced if, in the judgment of Wells Fargo Bank, there is a
reasonable prospect of capital appreciation significantly greater than the added
portfolio turnover expenses inherent in the short term nature of such
transactions. The principal risk associated with such investments is that such
offers or proposals may not be consummated within the time and under the terms
contemplated at the time of the investment, in which case, unless such offers or
proposals are replaced by equivalent or increased offers or proposals which are
consummated, the Funds may sustain a loss.
FLOATING- AND VARIABLE-RATE INSTRUMENTS
The Funds may purchase debt instruments with interest rates that are
periodically adjusted at specified intervals or whenever a benchmark rate or
index changes. These adjustments generally limit the increase or decrease in the
amount of interest received on the debt instruments. The floating- and
variable-rate instruments that the Funds may purchase include certificates of
participation in such obligations. Floating- and variable-rate instruments are
subject to interest-rate risk and credit risk.
LOANS OF PORTFOLIO SECURITIES
Each Fund may lend securities from their portfolios to brokers, dealers and
financial institutions (but not individuals) in order to increase the return on
such Fund's portfolio. The value of the loaned securities may not exceed
one-third of a Fund's total assets and loans of portfolio securities are fully
collateralized based on values that are market-to-market daily. The Funds will
not enter into any portfolio security lending arrangement having a duration of
longer than one year. The principal risk of portfolio lending is potential
default or insolvency of the borrower. In either of these cases, a Fund could
experience delays in recovering securities or collateral or could lose all or
part of the value of the loaned securities. The Funds may pay reasonable
administrative and custodial fees in connection with loans of portfolio
securities and may pay a portion of the interest or fee earned thereon to the
borrower or a placing broker. See "Additional Permitted Investment Activities"
in the SAI for additional information.
REPURCHASE AGREEMENTS
The Funds may enter into repurchase transactions in which the seller of a
security to a Fund agrees to repurchase that security from such Fund at a
mutually agreed-upon time and price. The period of maturity is usually quite
short, often overnight or a few days, although it may extend over a number of
months. A Fund may enter into repurchase agreements only with respect to
securities which could otherwise be purchased by the Fund, and all repurchase
agreements must be collateralized. A Fund may incur a loss on a repurchase
transaction if the seller defaults and the value of the underlying collateral
declines or is otherwise limited or if receipt of the security or collateral is
delayed. The Funds also may participate in pooled repurchase agreement
transactions with other funds advised by Wells Fargo Bank.
MONEY MARKET INSTRUMENTS
The Funds may invest in the following types of high-quality money market
instruments that have remaining maturities not exceeding one year: (i) U.S.
Government obligations; (ii) negotiable certificates of deposit, bankers'
acceptances and fixed time deposits and other obligations of domestic banks
(including foreign branches) that have more than $1 billion in total assets at
the time of investment and are members of the
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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; and in the case of the
Index Allocation Fund (iv) certain repurchase agreements and (v) short-term U.S.
dollar-denominated obligations of foreign banks (including U.S. branches) that
at the time of investment: (i) have more than $10 billion, or the equivalent in
other currencies, in total assets; (ii) are among the 75 largest foreign banks
in the world as determined on the basis of assets; (iii) have branches or
agencies in the United States; and (iv) in the opinion of Wells Fargo Bank, as
investment adviser, are of comparable quality to the obligations of U.S. banks
which may be purchased by the Funds. The Index Allocation Fund also may purchase
nonconvertible corporate debt securities (e.g., bonds and debentures) with
remaining maturities at the date of purchase of no more than one year that are
rated at least "Aa" by Moody's or "AA" by S&P.
U.S. GOVERNMENT OBLIGATIONS
The Funds may invest in obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities ("U.S. Government obligations"). Payment of
principal and interest on U.S. Government obligations (i) may be backed by the
full faith and credit of the United States (as with U.S. Treasury bills and GNMA
Certificates) or (ii) may be backed solely by the issuing or guaranteeing agency
or instrumentality itself (as with FNMA notes). In the latter case investors
must look principally to the agency or instrumentality issuing or guaranteeing
the obligation for ultimate repayment, which agency or instrumentality may be
privately owned. There can be no assurance that the U.S. Government will provide
financial support to its agencies or instrumentalities where it is not obligated
to do so. In addition, U.S. Government obligations are subject to fluctuations
in market value due to fluctuations in market interest rates. As a general
matter, the value of debt instruments, including U.S. Government obligations,
declines when market interest rates increase and rise when market rates
decrease. Certain types of U.S. Government obligations are subject to
fluctuations in yield, duration or value due to their structure or contract
terms.
OTHER INVESTMENT COMPANIES
Each of the Funds may invest in shares of other open-end, management investment
companies provided that any such investments will be limited to temporary
investments in shares of unaffiliated investment companies. Wells Fargo Bank
will waive its advisory fees for that portion of the Funds' assets so invested,
except when such purchase is part of a plan of merger, consolidation,
reorganization or acquisition. The Funds may also purchase shares of
exchange-listed closed-end funds.
Notwithstanding any other investment policy or limitation (whether or not
fundamental), as a matter of fundamental policy, the Small Cap and Growth Funds
each may invest all of its assets in the securities of a single open-end
management investment company with substantially the same fundamental investment
objective, policies and limitations as the Fund.
FORWARD COMMITMENTS, WHEN-ISSUED PURCHASES AND DELAYED-DELIVERY TRANSACTIONS
The Small Cap and Growth Funds may purchase or sell securities on a when-issued
or delayed-delivery basis and make contracts to purchase or sell securities for
a fixed price at a future date beyond customary settlement time. Securities
purchased or sold on a when-issued, delayed-delivery or forward commitment basis
involve a risk of loss if the value of the security to be purchased declines, or
the value of the security to be sold increases, before the settlement date.
Although a Fund will generally purchase securities with the intention of
acquiring them, such Fund may dispose of securities purchased on a when-issued,
delayed-delivery or a forward commitment basis before settlement when deemed
appropriate by Wells Fargo Bank.
FUTURES CONTRACTS AND OPTIONS TRANSACTIONS
A futures transaction involves a firm agreement to buy or sell a commodity or
financial instrument at a particular price on a specified future date, while an
option transaction generally involves a right, which may or may not be
exercised, to buy or sell a commodity or financial instrument at a particular
price on a specified future date. Futures contracts and options are standardized
and exchange-traded, where the exchange serves as the ultimate counterparty for
all contracts. Consequently, the primary credit risk on futures contracts is the
creditworthiness of the exchange. Futures contracts, however, are subject to
market risk (i.e., exposure to adverse price changes).
Although the Index Allocation Fund intends to purchase or sell futures contracts
only if there is an active market for such contracts, no assurance can be given
that a liquid market will exist for any particular contract at any particular
time. Many futures exchanges and boards of trade limit the amount of fluctuation
permitted in futures contract prices during a single trading day. Once the daily
limit has been reached in a particular contract, no trades may be made that day
at a price beyond that limit or trading may be suspended for specified periods
during the trading day. Futures contract prices could move to the limit for
several consecutive trading days with little or no trading, thereby preventing
prompt liquidation of futures positions and potentially subjecting a Fund to
substantial losses. If it is not possible, or a Fund determines not to close a
futures position in anticipation of adverse price movements, the Fund will be
required to make daily cash payments of variation margin.
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An option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in a futures contract (a long position if the
option is a call and a short position if the option is a put) at a specified
exercise price at any time during the option exercise period. The writer (i.e.,
seller) of the option is required upon exercise to assume an offsetting futures
position (a short position if the option is a call and a long position if the
option is a put). Upon exercise of the option, the assumption of offsetting
futures positions by both the writer and the holder of the option will be
accompanied by delivery of the accumulated cash balance in the writer's futures
margin account in the amount by which the market price of the futures contract,
at exercise, exceeds (in the case of a call) or is less than (in the case of a
put) the exercise price of the option on the futures contract.
Stock Index Options. The Index Allocation and Small Cap Funds may purchase put
and call options on stock indices. The Index Allocation Fund may sell call
options on stock indices and the Small Cap Fund may sell covered call options on
stock indices. A covered call option is a call option for which the seller of
the option owns the security covered by the option. The Index Allocation Fund
may purchase and write call and put options on stock indices only as a
substitute for comparable market positions in the underlying securities. The
aggregate premiums paid on all options purchased by the Index Allocation Fund
may not exceed 20% of the Fund's total assets and the value of the options
written may not exceed 10% of the value of the Fund's total assets. The Small
Cap Funds investments in call and put options on stock indices is limited to 15%
of the value of the Fund's total assets.
The effectiveness of purchasing or writing stock index options will depend upon
the extent to which price movements in a Fund's portfolio correlate with price
movements of the stock index selected. Because the value of an index option
depends upon movements in the level of the index rather than the price of a
particular stock, whether a Fund will realize a gain or loss from purchasing or
writing stock index options depends upon movements in the level of stock prices
in the stock market generally or, in the case of certain indices, in an industry
or market segment, rather than movements in the price of particular stock. When
a Fund writes an option on a stock index, the Fund will place in a segregated
account with the Fund's custodian cash or liquid securities in an amount at
least equal to the market value of the underlying stock index and will maintain
the account while the option is open or otherwise will cover the transaction.
Call and Put Options on Specific Securities. The Small Cap and Growth Funds each
may invest in call and put options on a specific security; the Growth Fund's
investment in such options is limited to 15% of its assets represented by the
premium paid. A call option gives the purchaser of the option the right to buy,
and obligates the writer to sell, an underlying security at the exercise price
at any time during the option period. Conversely, a put option gives the
purchaser of the option the right to sell, and obligates the writer to buy, an
underlying security at the exercise price at any time during the option period.
The Small Cap Fund may write covered call option contracts and secured put
options. Covered call options written by a Fund expose the Fund during the term
of the option (i) to the possible loss of opportunity to realize appreciation in
the market price of the underlying security or (ii) to possible loss caused by
continued holding of a security which might otherwise have been sold to protect
against depreciation in the market price of the security. If a Fund writes a
secured put option, it assumes the risk of loss should the market value of the
underlying security decline below the exercise price of the option. The use of
covered call options and secured put options will not be a primary investment
technique of the Funds, and they are expected to be used infrequently. If the
adviser is incorrect in its forecast of market value or other factors when
writing the foregoing options, a Fund would be in a worse position than it would
have been had the foregoing investment techniques not been used.
Stock Index Futures and Options on Stock Index Futures. The Index Allocation
Fund may invest in stock index futures and options on stock index futures as a
substitute for a comparable market position in the underlying securities. A
stock index future obligates the seller to deliver (and the purchaser to take),
effectively, an amount of cash equal to a specific dollar amount times the
difference between the value of a specific stock index at the close of the last
trading day of the contract and the price at which the agreement is made. No
physical delivery of the underlying stocks in the index is made. With respect to
stock indices that are permitted investments, the Fund intends to purchase and
sell futures contracts on the stock index for which it can obtain the best price
with consideration also given to liquidity.
Interest-Rate Futures Contracts and Options on Interest-Rate Futures Contracts.
The Index Allocation Fund may invest in interest-rate futures contracts and
options on interest-rate futures contracts as a substitute for a comparable
market position in the underlying securities. The Fund may also sell options on
interest-rate futures contracts as part of closing purchase transactions to
terminate its options positions. No assurance can be given that such closing
transactions can be effected or as to the degree of correlation between price
movements in the options on interest-rate futures and price movements in the
Fund's portfolio securities which are the subject of the transaction.
Interest-Rate and Index Swaps. The Index Allocation Fund may enter into
interest-rate and index swaps in pursuit of its investment objective.
Interest-rate swaps involve the exchange by the Fund with another party of its
commitments to pay or receive
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interest (for example, an exchange of floating-rate payments for fixed-rate
payments). Index swaps involve the exchange by the Fund with another party of
cash flows based upon the performance of an index of securities or a portion of
an index of securities that usually include dividends or income. In each case,
the exchange commitments can involve payments to be made in the same currency or
in different currencies. The Fund will usually enter into swaps on a net basis.
In so doing, the two payment streams are netted out, with the Fund receiving or
paying, as the case may be, only the net amount of the two payments. If the Fund
enters into a swap, it will maintain a segregated account on a gross basis,
unless the contract provides for a segregated account on a net basis. If there
is a default by the other party to such a transaction, the Fund will have
contractual remedies pursuant to the agreements related to the transaction.
The use of interest-rate and index swaps is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio security transactions. There is no limit, except as provided
below, on the amount of swap transactions that may be entered into by the Index
Allocation Fund. These transactions generally do not involve the delivery of
securities or other underlying assets or principal. Accordingly, the risk of
loss with respect to swaps generally is limited to the net amount of payments
that the Fund is contractually obligated to make. There is also a risk of a
default by the other party to a swap, in which case the Fund may not receive net
amount of payments that the Index Allocation Fund contractually is entitled to
receive. The Fund may invest up to 10% of its net assets in interest-rate and
index swaps.
SHORT-TERM CORPORATE DEBT INSTRUMENTS
The Index Allocation Fund may invest in commercial paper (including variable
amount master demand notes), which refers to short-term, unsecured promissory
notes issued by corporations to finance short-term credit needs. Commercial
paper is usually sold on a discount basis and has a maturity at the time of
issuance not exceeding nine months. Variable amount master demand notes are
demand obligations that permit the investment of fluctuating amounts at varying
market rates of interest pursuant to arrangements between the issuer and a
commercial bank acting as agent for the payee of such notes whereby both parties
have the right to vary the amount of the outstanding indebtedness on the notes.
The Fund also may invest in nonconvertible corporate debt securities (e.g.,
bonds and debentures) with no more than one year remaining to maturity at the
date of settlement. The Fund will invest only in such corporate bonds and
debentures that are rated at the time of purchase at least "Aa" by Moody's or
"AA" by S&P.
CONVERTIBLE SECURITIES
The Small Cap and Growth Funds may invest in convertible securities that provide
current income and are issued by companies with the characteristics described
herein that have a strong earnings and credit record. The Small Cap and Growth
Funds may purchase convertible securities that are fixed-income debt securities
or preferred stocks, and which may be converted at a stated price within a
specified period of time into a certain quantity of the common stock of the same
issuer. Convertible securities, while usually subordinate to similar
nonconvertible securities, are senior to common stocks in an issuer's capital
structure. Convertible securities offer flexibility by providing the investor
with a steady income stream (which generally yields a lower amount than similar
nonconvertible securities and a higher amount than common stocks) as well as the
opportunity to take advantage of increases in the price of the issuer's common
stock through the conversion feature. Fluctuations in the convertible security's
price can reflect changes in the market value of the common stock or changes in
market interest rates. At most, 5% of each Fund's net assets will be invested,
at the time of purchase, in convertible securities that are not rated in the
four highest rating categories by one or more NRSROs, such as Moody's or S&P, or
unrated but determined by Wells Fargo Bank to be of comparable quality.
TEMPORARY INVESTMENTS
Each Fund may hold a certain portion of its assets in cash or short-term
investments in order to maintain adequate liquidity for redemption requests or
other cash management needs or for temporary defensive purposes during periods
of unusual market volatility. The short-term investments that the Funds may
purchase include, among other things, U.S. government obligations, shares of
other mutual funds, repurchase agreements, obligations of domestic banks and
short-term obligations of foreign banks, corporations and other entities. See
"Additional Permitted Investment Activities" in the SAI for additional
information.
MANAGEMENT OF THE FUNDS
The Company's Board of Directors supervises the Funds' activities, monitors
their contractual arrangements with service providers and decides upon matters
of general policy.
INVESTMENT ADVISER
The Index Allocation Fund and the Master Portfolios are advised by Wells Fargo
Bank. 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 April
1, 1997, Wells Fargo Bank and its affiliates managed more than $57 billion of
assets of individuals, trusts, estates and institutions. Wells Fargo Bank is the
investment adviser to the other separately managed portfolios of the Company and
acts as adviser or sub-adviser to five other
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registered open-end management investment companies. Wells Fargo Bank, a wholly
owned subsidiary of Wells Fargo & Company, is located at 420 Montgomery Street,
San Francisco, California 94104.
Wells Fargo Bank provides investment guidance and policy direction in connection
with the daily portfolio management of the Index Allocation Fund and the Master
Portfolios. Wells Fargo Bank also furnishes to the Board of Directors periodic
reports on the investment strategy and performance of the Funds and Master
Portfolios.
For its services as investment adviser, Wells Fargo Bank is entitled to receive
a monthly advisory fee at the annual rate of 0.60% and 0.50% of the average
daily net assets of the Small Cap and Capital Appreciation Master Portfolios,
respectively. For its services as investment adviser to the Index Allocation
Fund, Wells Fargo Bank is entitled to monthly advisory fees at the annual rate
of 0.70% of the Fund's average daily net assets up to $500 million and 0.60% of
average daily net assets in excess of $500 million.
Wells Fargo Bank has engaged BGFA to provide sub-advisory services to the Index
Allocation Fund. BGFA is located at 45 Fremont Street, San Francisco, California
94105. BGFA is a wholly owned subsidiary of BGI and an indirect subsidiary of
Barclays Bank PLC ("Barclays"). As of January 1, 1997, BGFA and its affiliates
provided investment advisory services for over $410 billion of assets. Wells
Fargo Bank pays BGFA for its sub-advisory services an annual fee equal to
$60,000 plus a monthly fee at the annual rate of 0.20% of the average daily net
assets of the Index Allocation Fund.
For the year ended December 31, 1996, Wells Fargo Bank was paid 0.70% of the
average daily net assets of the Index Allocation Fund as compensation for its
services as investment adviser. For the same period, Wells Fargo Bank paid BGFA
0.20% of the average daily net assets of the Fund as compensation for its
services as sub-adviser.
For the period from September 16, 1996 (commencement of operations) to December
31, 1996, Wells Fargo Bank was paid 0.60% of the average daily net assets of the
Small Cup Fund as compensation for providing advisory services to the Small Cap
Master Portfolio.
For the year ended December 31, 1996, Wells Fargo Bank was paid advisory fees
at an annual rate of 0.50% of the average daily net assets of the Strategic
Growth Fund. This includes amounts paid prior to the Fund's conversion to a
master-feeder structure on February 20, 1996.
PORTFOLIO MANAGERS
The allocation of investments within the portfolio of the Index Allocation Fund
is based solely on the recommendation of the investment model. No person is
primarily responsible for recommending the mix of asset classes held by the Fund
or the mix of securities within any such asset class. Decisions relating to the
Investment Model are made by various BGFA investment committees.
Mr. Jon Hickman, as manager of the Growth Equity Team, is responsible as
co-manager for the Capital Appreciation Master Portfolio and has performed such
duties since the Capital Appreciation Master Portfolio's inception in February
1996. Mr. Hickman has also managed the Strategic Growth Fund of the Company, the
predecessor fund to the Capital Appreciation Master Portfolio, since its
inception on January 20, 1993. In September of 1996, Mr. Hickman assumed
responsibility as co-manager of the Small Cap Master Portfolio. Mr. Hickman had
also co-managed the Small Capitalization Growth Fund from November 1994 until
the sale of its assets to the Small Cap Master Portfolio in September 1995. Mr.
Hickman has over sixteen years' experience in the investment management field.
He joined Wells Fargo Bank in 1986 managing equity and balanced portfolios for
individuals and employee benefit plans. He is a senior member of Wells Fargo
Bank's Equity Strategy Committee. Mr. Hickman has a B.A. and an M.B.A. in
finance from Brigham Young University.
Mr. Steve Enos assists Mr. Hickman with the day-to-day management of the Capital
Appreciation Master Portfolio. In addition, as portfolio co-manager of the Small
Cap Master Portfolio since its inception in September of 1996, Mr. Enos assists
Mr. Hickman with the day-to-day management of the Master Portfolio. Mr. Enos
co-managed the Small Capitalization Growth Fund from November 1994 until the
sale of its assets to the Small Cap Master Portfolio in September, 1996. Mr.
Enos joined Wells Fargo in 1993 and is a member of the Wells Fargo Bank Growth
Equity Team. He began his career with First Interstate Bank, where he was
assistant vice president and portfolio manager. From 1991 to 1993, Mr. Enos was
a principal at Dolan Capital Management where he managed both personal and
pension portfolios. Mr. Enos received his undergraduate degree in economics from
the University of California at Davis. Mr. Enos is a Chartered Financial Analyst
and a member of the Association for Investment Management and Research.
Purchase and sale orders of the securities held by the Funds 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 Funds and other accounts managed by Wells Fargo
Bank, Wells Fargo Bank undertakes to allocate those transaction costs among the
participants equitably. From time to time, each of the Funds, consistent with
its investment objective, policies and restrictions, may invest in securities
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<PAGE> 60
of companies with which Wells Fargo Bank has a lending relationship. The Index
Allocation Fund, in accordance with its investment objective, may invest in
stock of Wells Fargo & Company so long as Wells Fargo & Company is included in
the S&P 500 Index.
Morrison & Foerster LLP, counsel to the Company and the Trust, and special
counsel to Wells Fargo Bank, has advised the Company, the Trust and Wells Fargo
Bank that Wells Fargo Bank and its affiliates may perform the services
contemplated by the Investment Advisory Contracts and this Prospectus without
violation of the Glass-Steagall Act. Such counsel has pointed out, however, that
there are no controlling judicial or administrative interpretations of, or
decisions relating to, present federal or state statutes, including the
Glass-Steagall Act, and regulations relating to the permissible activities of
banks and their subsidiaries or affiliates, as well as future changes in such
statutes, regulations and judicial or administrative decisions or
interpretations, that could prevent such entities from continuing to perform, in
whole or in part, such services. If any such entity were prohibited from
performing any such services, it is expected that new agreements would be
proposed or entered into with another entity or entities qualified to perform
such services.
ADMINISTRATOR AND CO-ADMINISTRATOR
Wells Fargo Bank as administrator and Stephens as co-administrator, provide the
Funds with administrative services, including general supervision of each Fund's
operation, coordination of the other services provided to each Fund, compilation
of information for reports to the SEC and 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 Directors and officers. Wells Fargo Bank and Stephens also furnish
office space and certain facilities to conduct each Fund's business, and
Stephens compensates the Company's Directors, officers and employees who are
affiliated with Stephens. For these administrative services, Wells Fargo Bank
and Stephens are entitled to receive monthly fees at the annual rates of 0.04%
and 0.02%, respectively, of each Fund's average daily net assets. Wells Fargo
Bank and Stephens may delegate certain of their administrative duties to sub-
administrators.
Stephens previously provided substantially the same services as sole
administrator to the Funds. For these administrative services, Stephens was
entitled to receive from the Index Allocation Fund a monthly fee at the annual
rate of 0.10% of its average daily net assets, decreasing to 0.05% of the
average daily net assets of the Fund in excess of $200 million; from the Small
Cap Strategy Fund a monthly fee at the annual rate of 0.10% of its average daily
net assets; and from the Strategic Growth Fund a monthly fee at the annual rate
of 0.15% of its average daily net assets, decreasing to 0.10% of the average
daily net assets of the Fund in excess of $200 million.
SPONSOR AND DISTRIBUTOR
Stephens is the Funds' sponsor and distributes the Funds' shares. Stephens is a
full service broker/dealer and investment advisory firm located at 111 Center
Street, Little Rock, Arkansas 72201. Stephens and its predecessor have been
providing securities and investment services for more than 60 years.
Additionally, they have been providing discretionary portfolio management
services since 1983. Stephens currently manages investment portfolios for
pension and profit sharing plans, individual investors, foundations, insurance
companies and university endowments.
Stephens has entered into a Distribution Agreement with the Company pursuant to
which Stephens has the responsibility for distributing Fund shares. Pursuant to
the Distribution Agreement, Stephens may enter into selling agreements with
agents for the sale of Fund shares. Stephens bears the cost of printing and
mailing prospectuses to potential investors and any advertising expenses
incurred by it in connection with the distribution of Fund shares, subject to
the terms of the distribution plans described below.
In addition, Stephens has established a non-cash compensation program, pursuant
to which broker/dealers or financial institutions that sell shares of the Funds
may earn additional compensation in the form of trips to sales seminars or
vacation destinations, tickets to sporting events, theater or other
entertainment, opportunities to participate in golf or other outings and gift
certificates for meals or merchandise.
DISTRIBUTION PLANS
The Company has adopted Distribution Plans (the "Plans") on behalf of each class
of shares of the Funds. Total payments under the Plan for Class A shares may not
exceed 0.25% of the average daily net assets of the Class A shares of each Fund
on an annual basis. Under the Plan for Class A shares, each Fund may defray all
or part of the actual cost of preparing and printing prospectuses and other
promotional materials and of providing such prospectuses and other promotional
materials to prospective shareholders of the Fund and may compensate personnel
of the distributor or reimburse the distributor for compensation paid to selling
agents for distribution-related or sales support services and may pay for any
other activities primarily intended to result in the sale of Class A shares of a
Fund. Payments also may be used to compensate or reimburse servicing agents for
shareholder liaison services provided by entities that are dealers of record or
which have a servicing relationship with the beneficial owners of Class A shares
of a Fund under a servicing agreement in substantially the form approved by the
Board of Directors.
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Under the Plan for Class D shares, the Funds may pay Stephens, as compensation
for distribution-related services provided, or reimbursement for
distribution-related expenses incurred, a monthly fee at the annual rate of up
to 0.75% of the Fund's average daily net assets attributable to Class D shares.
The actual fee payable to Stephens shall, within such limit, be determined from
time to time by mutual agreement between the Company and Stephens and may not
exceed the maximum amount payable under the Conduct Rules of the NASD.
SERVICING AGENTS
The Funds may enter into servicing agreements with one or more servicing agents
on behalf of Class D shares. Under such agreements, servicing agents provide
shareholder liaison services, which may include responding to customer inquiries
and providing information on shareholder investments, and provide such other
related services as the Funds or a shareholder may reasonably request. For these
services, a servicing agent receives a fee which will not exceed, on an
annualized basis for a Fund's then current fiscal year, the lesser of 0.25% of
the average daily net asset value of the Class D shares of the Fund owned by
investors with whom the servicing agent maintains a servicing relationship, or
an amount which equals the maximum amount payable to the servicing agent under
applicable laws, regulations or rules.
CLASS D SERVICING PLAN
The Company has adopted servicing plans ("Servicing Plans") on behalf of Class D
shares. Pursuant to the Servicing Plans, the Funds may enter into servicing
agreements with one or more servicing agents (which may include Wells Fargo Bank
and its affiliates) who agree to provide shareholder support services to their
customers who are the record or beneficial owners of such Class D shares. These
services may include, among other things, shareholder liaison services, such as
answering customer inquiries regarding purchases, account balances or
redemptions. Servicing agents are entitled to receive a fee which will not
exceed, on an annualized basis for the Funds' then-current fiscal year, the
lesser of 0.25% of the average daily net asset value of the Class D shares, or
an amount which equals the maximum amount payable to the servicing agent under
applicable laws, regulations or rules.
CLASS A ADMINISTRATIVE SERVICING PLAN
The Company has adopted a Shareholder Administrative Servicing Plan (the
"Administrative Servicing Plan") on behalf of Class A shares. Pursuant to the
Administrative Servicing Plan, the Funds may enter into administrative servicing
agreements with administrative servicing agents (which may include Wells Fargo
Bank and its affiliates) who are dealers/holders of record, or that otherwise
have a servicing relationship with the beneficial owners of the Funds' Class A
shares. Administrative servicing agents agree to perform administrative
shareholder services which may include, among other things, maintaining an
omnibus account with a Fund, aggregating and transmitting purchase, exchange and
redemption orders to a Fund's Transfer Agent, answering customer inquiries
regarding a shareholder's accounts in a Fund, and providing such other services
as the Company or a customer may reasonably request. Administrative servicing
agents are entitled to a fee which will not exceed 0.25%, on an annualized
basis, of the average daily net assets of the Class A shares represented by the
shares owned of record or beneficially by the customers of the administrative
servicing agent during the period for which payment is being made. In no case
shall shares be sold pursuant to a Fund's Rule 12b-1 Plan while being sold
pursuant to its Administrative Servicing Plan.
CUSTODIAN AND TRANSFER AND
DIVIDEND DISBURSING AGENT
Wells Fargo Bank serves as the Funds' custodian and transfer and dividend
disbursing agent. Wells Fargo Bank's principal place of business is 420
Montgomery Street, San Francisco, California 94104, and its transfer and
dividend disbursing agency activities are managed at 525 Market Street, San
Francisco, California 94105.
FUND EXPENSES
From time to time, Wells Fargo Bank and Stephens may waive fees from the Funds
in whole or in part and reimburse expenses payable to others. Any such waivers
or reimbursements will reduce expenses of a Fund and, accordingly, have a
favorable impact on such Fund's performance. Except for the expenses borne by
Wells Fargo Bank and Stephens, the Funds bear all costs of their respective
operations, including the compensation of the Company's directors and the
Trust's trustees who are not officers or employees of Wells Fargo Bank or
Stephens or any of their affiliates; advisory, shareholder servicing, and
administration fees; payments pursuant to any Plans; interest charges; taxes;
fees and expenses of independent auditors; legal counsel, transfer agent and
dividend disbursing agent; expenses of redeeming Fund shares; expenses of
preparing and printing prospectuses (except the expense of printing and mailing
prospectuses used for promotional purposes, unless otherwise payable pursuant to
a Plan), shareholders' or investors' reports, notices, proxy statements and
reports to regulatory agencies; insurance premiums and certain expenses relating
to insurance coverage; trade association membership dues; brokerage and other
expenses connected with the execution of portfolio transactions; fees and
expenses of the custodian, including those of keeping books and accounts and
calculating the net asset value of each Fund; expenses of shareholders' or
investors' meetings; expenses relating to the issuance, registration and
qualification of shares of the Funds; pricing services; organizational expenses;
and any extraordinary ex-
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penses. Expenses attributable to a Fund are charged against the respective
assets of the Fund. A pro rata portion of the expenses of the Company are
charged against the assets of a Fund.
DETERMINATION OF NET ASSET VALUE
Net asset value per share for each Fund or class is determined by Wells Fargo
Bank as of 1:00 p.m. (Pacific time) on each day that the Fund is open for
trading (a "Business Day"). The Funds are open Monday through Friday and are
closed weekends and standard New York Stock Exchange holidays. The net asset
value per class share of a Fund is the value of total net assets attributable to
such class divided by the number of outstanding shares of that class. The net
asset value of each class of a Fund is expected to fluctuate daily and, in the
case of the Small Cap and Growth Funds, is based on the net asset value of the
Small Cap Master Portfolio and the Capital Appreciation Master Portfolio,
respectively.
The net asset value of each Master Portfolio is determined as of 1:00 p.m.
(Pacific time). The net asset value of an interest in a Master Portfolio is the
value of the Master Portfolio's total assets divided by the number of Master
Portfolio interests outstanding. Except for debt obligations with remaining
maturities of 60 days or less, which are valued at amortized cost, assets are
valued at current market prices or, if such prices are not readily available, at
fair value as determined in good faith by the Boards of Directors/Trustees.
Prices used for such valuations may be provided by independent pricing services.
PERFORMANCE DATA
The performance of each Fund or class may be advertised in terms of average
annual total return and cumulative total return. These performance figures are
based on historical results and are not intended to indicate future performance.
Performance figures are calculated separately for each class.
Average annual total return on the shares of each class is based on the overall
dollar or percentage change in value of a hypothetical investment in such shares
and assumes that all dividends and capital gain distributions attributable to
such class are reinvested in shares of that class. The standardized average
annual total return as calculated for Class A shares assumes that you have paid
the maximum sales charge and, as calculated for Class D shares, assumes you have
paid the maximum applicable contingent deferred sales charge on your
hypothetical investment. Cumulative total return is calculated similarly except
that the return figure is aggregated over the relevant period instead of
annualized.
The total return of a class of shares of a Fund is calculated by subtracting (i)
the public offering price of the class of shares (which includes the maximum
sales charge for the class of shares) of one share at the beginning of the
period, from (ii) the net asset value of all shares of a class of shares an
investor would own at the end of the period for the share held at the beginning
of the period (assuming reinvestment of all dividends and capital gain
distributions), and dividing by (iii) the public offering price per share of a
class of shares at the beginning of the period. The resulting percentage
indicates the positive or negative rate of return that an investor would have
earned from reinvested dividends and capital gain distributions and changes in
share price during the period for the class of shares. A Fund may also, at
times, calculate total return of a class of shares based on net asset value per
share of a class of shares (rather than the public offering price), in which
case the figures would not reflect the effect of any sales charges that would
have been paid by an investor in the class of shares, or by assuming that a
sales charge other than the maximum sales charge (reflecting the Volume
Discounts set forth below) is assessed, provided that total return data derived
pursuant to the calculation described above are also presented.
Because of differences in the fees and/or expenses borne by each class of
shares, the performance on any such class of shares can be expected, at any
given time, to differ from the performance on any other such class of shares.
Additional information about the performance of the Funds is contained in the
Company's Annual Report which may be obtained free of charge by calling the
Company at 800-552-9612.
The performance information advertised by the Small Cap Strategy Fund for
periods prior to its commencement of operations on September 16, 1996, is based
upon the prior performance of the Small Capitalization Growth Fund for BRP
Employee Retirement Plans, a Wells Fargo Bank Collective Investment Fund for
Business Retirement Programs (the "CIF"). The performance information is
adjusted to reflect the Fund's and the Master Portfolio's current level of
operating expenses, including any front-end sales loads or contingent deferred
sales charges. The prior performance of the CIF is deemed relevant because the
Small Cap Strategy Fund invests all of its assets in the Small Cap Master
Portfolio which acquired the assets of the CIF immediately prior to the
commencement of the Fund's operations. The Small Cap Master Portfolio, as
successor to the assets of the CIF, is managed by Wells Fargo Bank in a manner
that is in all material respects equivalent to the management of the CIF.
PURCHASE OF SHARES
The minimum initial purchase amount for Fund shares is generally $1,000. The
minimum initial purchase amount is $100 for purchases through the Systematic
Purchase Plan and $250 for purchases through a retirement plan qualified under
the Internal Revenue Code of 1986, as amended (the "Code"). The minimum
subsequent purchase amount is generally $100. The minimum initial or subsequent
purchase amount requirements may be
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waived or lowered for investments effected on a group basis by certain entities
and their employees, such as pursuant to a payroll deduction or other
accumulation plan. The Company reserves the right to reject any purchase order.
All funds, net of sales loads, will be invested in full and fractional shares.
Checks will be accepted for the purchase of the Fund's shares, subject to
collection at full face value in U.S. dollars. Inquiries concerning purchases
may be directed to the Company at (800) 572-7797 or at the address on the back
cover of the Prospectus.
Shares of each Fund may be purchased on any Business Day through Stephens, the
Transfer Agent, or any authorized broker/dealers or financial institutions with
which Stephens has entered into agreements. Such broker/dealers or financial
institutions are responsible for the prompt transmission of purchase, exchange
or redemption orders, and may independently establish and charge additional fees
to their clients for such services, other than services related to purchase
orders, which would reduce the clients' overall yield or return.
Shares of each Fund are offered continuously at the applicable offering price
(including any sales load) next determined after a purchase order is received.
Payment for shares purchased through a broker/dealer will not be due from the
broker/dealer until the settlement date, currently three business days after the
order is placed. It is the broker/dealer's responsibility to forward payment for
shares being purchased to the Fund promptly. Payment for orders placed directly
through the Transfer Agent must accompany the order.
When payment for shares of a Fund through the Transfer Agent is by a check that
is drawn on any member bank of the Federal Reserve System, federal funds
normally become available to the Fund on the business day after the day the
check is deposited. Checks drawn on a non-member bank or a foreign bank may take
substantially longer to be converted into federal funds and, accordingly, may
delay execution of an order.
When Fund shares are purchased through a broker/dealer or financial institution,
Stephens reallows that portion of the sales load designated below as the Dealer
Allowance. When shares are purchased directly through the Transfer Agent and no
broker/ dealer or financial institution is involved with the purchase, the
entire sales load is paid to Stephens. Sales loads relating to orders for the
purchase of Class A shares of the Funds are listed below.
<TABLE>
<CAPTION>
DEALER
SALES LOAD SALES LOAD ALLOWANCE
AS % OF AS % OF AS % OF
OFFERING NET AMOUNT OFFERING
AMOUNT OF PURCHASE PRICE INVESTED PRICE
------------------ ---------- ---------- ---------
<S> <C> <C> <C>
Less than $100,000.............. 4.50% 4.71% 4.05%
$100,000 up to $199,999......... 4.00 4.17 3.60
$200,000 up to $399,999......... 3.50 3.63 3.15
$400,000 up to $599,999......... 2.50 2.56 2.25
$600,000 up to $799,999......... 2.00 2.04 1.80
$800,000 up to $999,999......... 1.00 1.01 0.90
$1,000,000 up to $2,499,999..... 0.60 0.60 0.50
$2,500,000 up to $4,999,999..... 0.40 0.40 0.40
$5,000,000 up to $8,999,999..... 0.25 0.25 0.25
$9,000,000 and over............. 0.00 0.00 0.00
</TABLE>
Class D shares are not subject to front-end sales charges. Class D shares that
are redeemed within one year from the receipt of a purchase order affecting such
shares are subject to a contingent-deferred sales charge equal to 1.00% of the
lesser of the net asset value at the time of purchase of the shares being
redeemed or the net asset value of such shares at the time of redemption. A
selling agent or servicing agent and any other person entitled to receive
compensation for selling or servicing shares may receive different compensation
for selling or servicing Class A shares as compared with Class D shares. See
"Investing in the Funds -- Contingent-Deferred Sales Charges -- Class D Shares."
REDUCED SALES CHARGE -- CLASS A SHARES
The above Volume Discounts are available to you based on the combined dollar
amount being invested in Class A shares of the Funds or of Class A shares of one
or more of the other portfolios of the Company which assess a sales load (the
"Load Funds"). For purposes of determining whether you are eligible for reduced
sales charges, shares of one of the Company's single class funds that charge a
front-end sales load are considered Class A shares. Because Class D shares are
not subject to a front-end sales charge, the amount of Class D shares you hold
is not considered in determining any volume discount.
The Right of Accumulation allows you to combine the amount being invested in
Class A shares of the Funds with the total net asset value of Class A shares in
any of the Load Funds already owned in accordance with the above sales load
schedule to reduce the sales load. For example, if you own Class A shares of the
Load Funds with an aggregate net asset value of $90,000 and invest an additional
$20,000 in the Class A shares of a Fund, the sales load on the entire additional
amount would be 4.00% of the offering price. To obtain such discount, you must
provide sufficient information at the time of purchase to permit verification
that the purchase qualifies for the reduced sales load, and confirmation of the
order is subject to such verification. The Right of
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Accumulation may be modified or discontinued at any time with respect to all
Class A shares purchased thereafter.
A Letter of Intent allows you to purchase Class A shares of the Funds over a
13-month period at reduced sales loads based on the total amount intended to be
purchased plus the total net asset value of Class A shares in any of the Load
Funds already owned. Each investment made during the period receives the reduced
sales load applicable to the total amount of the intended investment. If such
amount is not invested within the period, you must pay the difference between
the sales loads applicable to the purchases made and the charges previously
paid.
You may Reinvest proceeds from a redemption of Class A shares of a Fund in the
Class A shares of the Fund or in Class A shares of another of the Company's
investment portfolios that offers Class A shares at net asset value, without a
sales load, within 120 days after such redemption. However, if the other
investment portfolio charges a sales load that is higher than the sales load you
have paid in connection with the Class A shares you have redeemed, you pay the
difference. In addition, the Class A shares of the other investment portfolio to
be acquired must be registered for sale in your state of residence. The amount
that may be so reinvested may not exceed the amount of the redemption proceeds,
and a written order for the purchase of the Class A shares must be received by
the Fund or the Transfer Agent within 120 days after the effective date of the
redemption.
If you realized a gain on your redemption, the reinvestment will not alter the
amount of any federal capital gains tax payable on the gain. If you realized a
loss on your redemption, the reinvestment may cause some or all of such loss on
the redemption to be disallowed as a tax deduction, depending on the number of
Class A shares purchased by reinvestment during the period of time that has
elapsed after the redemption, although for tax purposes, the amount disallowed
is added to the cost of the Class A shares acquired upon the reinvestment.
Reductions in front-end sales loads apply to purchases by a single "person,"
including an individual, members of a family unit, consisting of a husband,
wife, and children under the age of 21 purchasing securities for their own
account, or a trustee or other fiduciary purchasing for a single person's
fiduciary account or single person's trust estate.
Reductions in front-end sales loads also apply to purchases by individual
members of a "qualified group." The reductions are based on the aggregate dollar
amount of Class A shares purchased by all members of the qualified group. For
purposes of this paragraph, a qualified group consists of a "company," as
defined in the 1940 Act, which has been in existence for more than six months
and which has a primary purpose other than acquiring shares of a Fund at a
reduced sales load, and the "related parties" of such company. For purposes of
this paragraph, a "related party" of a company is: (i) any individual or other
company who directly or indirectly owns, controls or has the power to vote five
percent or more of the outstanding voting securities of such company; (ii) any
other company of which such company directly or indirectly owns, controls or has
the power to vote five percent or more of its outstanding voting securities;
(iii) any other company under common control with such company; (iv) any
executive officer, director or partner of such company or of a related party;
and (v) any partnership of which such company is a partner.
Purchases of shares of the Small Cap and Growth Funds may be made at net asset
value, without a front-end sales charge, to the extent that you are investing
proceeds from a redemption of shares of another open-end investment company for
which you paid a front-end sales load and such redemption occurred within thirty
(30) days prior to the date of the purchase order. You must notify the Fund
and/or the transfer agent at the time you place such purchase order of your
eligibility for the waiver of front-end sales charges and provide satisfactory
evidence thereof (e.g., a confirmation of the redemption and the load paid).
Such purchases may not be made at net asset value to the extent the proceeds are
from a redemption of shares of another open-end investment company that is
affiliated with the Company on which you paid a contingent deferred sales charge
upon redemption.
Class A shares of the Funds may be purchased at net asset value, without a sales
load, by directors, officers and employees (and their spouses, parents,
children, siblings, grandparents, grandchildren, father in-law, mother in-law,
brother in-law, sister in-law, aunts, uncles, nieces, and nephews; herein,
"Relatives") of the Company, Stephens, its affiliates and of other broker-
dealers that have entered into agreements with Stephens to sell such shares.
Class A shares of the Funds also may be purchased at a purchase price equal to
the net asset value of such shares, without a sales load, by present and retired
Directors, officers and employees (and their Relatives) of Wells Fargo Bank and
its affiliates if Wells Fargo Bank and/or the respective affiliates agree. Such
shares also may be purchased at such price by employee benefit and thrift plans
for such persons and by any investment advisory, trust or other fiduciary
account (other than an individual retirement account) that is maintained,
managed or advised by Wells Fargo Bank or Stephens or their affiliates.
Class A shares of the Funds may be purchased at net asset value (without payment
of a sales load) by the following types of investors when the trades are placed
through an omnibus account maintained with the Fund by a broker/dealer: trust
companies; retirement and deferred compensation plans and the trusts used to
fund these plans; investment advisers and financial planners who charge a
management, consulting or other fee for their
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services and who place trades on their own behalf or on behalf of their clients;
and clients of such investment advisers or financial planners who place trades
on their own behalf if the clients' accounts are linked to the master account of
such investment adviser or financial planner on the books and records of the
broker/dealer.
By investing in a Fund, a shareholder appoints the Transfer Agent, as agent, to
establish an open account to which all shares purchased will be credited,
together with any dividends and capital gain distributions that are paid in
additional shares. Although most shareholders elect not to receive stock
certificates, certificates for full shares of the Fund can be obtained on
request. It is more complicated to redeem shares held in certificated form, and
the expedited redemption described below is not available with respect to
certificated shares. See "Dividends and Distributions."
CONTINGENT DEFERRED SALES CHARGE -- CLASS D SHARES
Class D shares are not subject to front-end sales charges but may be subject to
contingent-deferred sales charges if you redeem your shares within a specified
period. Class D shares that are redeemed within one year from the receipt of a
purchase order for such shares are subject to a contingent-deferred sales charge
equal to 1.00% of the dollar amount equal to the lesser of the net asset value
at the time of purchase of the shares being redeemed or the net asset value of
such shares at the time of redemption.
Contingent deferred sales charges are not imposed on amounts representing
increases in net asset value above the net asset value at the time of purchase
and are not assessed on Class D shares purchased through reinvestment of
dividends or capital gains distributions. In determining whether a contingent
deferred sales charge is applicable to a redemption, Class D shares are
considered redeemed on a first-in, first-out basis so that such shares held for
a longer period of time are considered redeemed prior to more recently acquired
Class D shares.
The contingent deferred sales charge is waived on redemptions of Class D shares
(i) following the shareholder's death or disability (as defined in the Internal
Revenue Code) after the initial purchase of the shares redeemed, (ii) to the
extent that the redemption represents a minimum required distribution from an
individual retirement account or other retirement plan to a shareholder who has
reached age 59 1/2 (iii) effected pursuant to the Company's right to liquidate a
shareholder's account if the aggregate net asset value of the shareholder's
account is less than the minimum account size, or (iv) in connection with the
combination of the Company with any other registered investment company by a
merger, acquisition of assets, or by any other reorganization transaction.
Investors who are entitled to purchase Class A shares at net asset value without
a sales load should not purchase Class D shares. Other investors, including
those who are entitled to purchase Class A shares of the Fund at a reduced sales
load, should compare the fees assessed on Class A shares against those assessed
on Class D shares (including potential contingent deferred sales charges and
higher Rule 12b-1 Fees) in light of the amount to be invested and the
anticipated time that the shares will be owned.
Fund shares may be purchased by any of the methods described below.
INITIAL PURCHASES BY WIRE
1. Telephone toll free (800) 572-7797. Give the name of the Fund and class of
shares, the name(s) in which the shares are to be registered, the address and
social security number (or tax identification number, where applicable) of the
person or entity in whose name(s) the shares are to be registered, dividend
payment election, amount to be wired, name of the wiring bank and name and
telephone number of the person to be contacted in connection with the order. An
account number will be assigned.
2. Instruct the wiring bank, which may charge a separate fee, to transmit the
specified amount in federal funds ($1,000 or more) to:
Wells Fargo Bank, N.A.
San Francisco, California
Bank Routing Number: 121000248
Wire Purchase Account Number: 4068-000462
Attention: Overland Express (Name of Fund -- designate Class)
Account Name(s): (name(s) in which to be registered)
Account Number: (as assigned by telephone)
3. A completed Account Application should be mailed, or sent by telefacsimile
with the original subsequently mailed, to the following address immediately
after the funds are wired and must be received and accepted by the Transfer
Agent before an account can be opened. An original Application must be received
within thirty days or you may be subject to backup withholding taxes.
Wells Fargo Bank, N.A.
Overland Express Shareholder Services
P.O. Box 63084
San Francisco, California 94163
Telefacsimile: 1-415-781-4082
4. Share purchases are effected at the public offering price, or, in the case of
Class D shares, at the net asset value, next determined after the Account
Application is received and accepted.
INITIAL PURCHASES BY MAIL
1. Complete an Account Application. Indicate the services to be used.
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2. Mail the Account Application and a check for $1,000 or more, payable to
"Overland Express (Name of Fund, designate Class)" to the mailing address set
forth above.
ADDITIONAL PURCHASES
Additional purchases of $100 or more may be made by instructing the Fund's
Transfer Agent to debit the Wells Fargo bank account designated in your Account
Application, by wire by instructing the wiring bank to transmit the specified
amount as directed above for initial purchases, or by mail with a check payable
to "Overland Express (Name of Fund, designate Class) to the above address. Write
the Fund account number on the check and include the detachable stub from a
Statement of Account or a letter providing the account number.
SYSTEMATIC PURCHASE PLAN
The Company's Systematic Purchase Plan provides you with a convenient way to
establish and automatically add to your existing accounts on a monthly basis. If
you elect to participate in this plan you must specify an amount ($100 or more)
to be withdrawn automatically by the Transfer Agent on a monthly basis from an
approved bank account designated in your Account Application (an "Approved Bank
Account"). The Transfer Agent withdraws and uses this amount to purchase shares
of the Fund on or about the fifth Business Day of each month. The Transfer Agent
requires a minimum of ten (10) Business Days to implement your Systematic
Purchase Plan upon notification. There are no additional fees charged for
participating in this plan.
You may change the investment amount, the date on which your Systematic Purchase
is effected and suspend purchases or terminate the election at any time by
providing written notice to the Transfer Agent at least ten (10) Business Days
prior to any scheduled transaction. An election will be terminated automatically
if your Approved Bank Account balance is insufficient to make a scheduled
withdrawal, or if either the Approved Bank Account or your Fund Account is
closed.
PURCHASES THROUGH AUTHORIZED BROKER/DEALERS AND FINANCIAL INSTITUTIONS
Purchase orders for Fund shares placed through authorized broker/dealers and
financial institutions by 1:00 p.m. (Pacific time) on any Business Day,
including orders for which payment is to be made from free cash credit balances
in securities accounts held by a dealer, will be effective on the same day the
order is placed if received by the Transfer Agent before the close of business.
Purchase orders that are received by a dealer or financial institution after
1:00 p.m. (Pacific time) or by the Transfer Agent after the close of business
generally will be effective on the next day that shares are offered. The
broker/dealer or financial institution is responsible for the prompt
transmission of purchase orders to the Transfer Agent. Payment for Fund shares
is not due until settlement date. A broker/dealer or financial institution that
is involved in a purchase transaction may charge separate account, service or
transaction fees. Financial institutions may be required to register as dealers
pursuant to applicable state securities laws, which may differ from federal law
and any interpretations expressed herein.
EXCHANGE PRIVILEGES
CLASS A SHARES -- Class A shares of a Fund may be exchanged for Class A shares
or single class shares of one of the Company's other funds, for Class A shares
of a fund in the Stagecoach Family of Funds or for shares of one of the
Company's money market funds in an identically registered account at respective
net asset values.
CLASS D SHARES -- Class D shares of a Fund may be exchanged for Class D shares
of one of the Company's other funds or for Class A shares of the Money Market
Fund in a identically registered account at respective net asset values. You are
not charged a contingent deferred sales charge on exchanges of Class D shares
for Class D shares of one of the Company's other funds or for Class A shares of
the Money Market Fund. If you exchange Class D shares for Class D shares of
another fund, or for Class A shares of the Money Market Fund, the remaining
period of time (if any) that the contingent deferred sales charge is in effect
will be computed from the time of the initial purchase of the previously held
shares. Accordingly, if you exchange Class D shares for Class A shares of the
Money Market Fund, and redeem the shares of the Money Market Fund within one
year of the receipt of the purchase order for the exchanged Class D shares, you
will have to pay a deferred sales charge equal to the contingent deferred sales
charge applicable to the previously exchanged Class D shares. If you exchange
Class D shares of an investment portfolio for Class A shares of the Money Market
Fund, you may subsequently re-exchange the acquired Class A shares only for such
Class D shares. If you re-exchange the Class A shares of the Money Market Fund
for Class D shares, the remaining period of time (if any) that the contingent
deferred sales charge is in effect will be computed from the time of your
initial purchase of such Class D shares.
Important factors that you should consider:
- - You will need to read the prospectus of the fund into which you want to
exchange.
- - Every exchange is a redemption of shares of one fund and a purchase of shares
of another fund. The redemption may produce a gain or loss for federal income
tax purposes.
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- - You must exchange at least the minimum initial purchase amount of the fund you
are redeeming, unless your balance has fallen below that amount due to market
conditions or you have already met the minimum initial purchase amount of the
fund you are purchasing.
- - If you exchange Class A shares, you will need to pay any difference between
the load that you have already paid and the load that you are subject to in
the new fund.
- - You will not pay a contingent deferred sales charge on any exchange from Class
D shares into other Class D shares or a Money Market Fund. The new shares will
continue to age while they are in the new fund and will be charged the
contingent deferred sales charge applicable to the original shares upon
redemption.
- - If you exchange Class A or Class D shares for shares of a Money Market Fund,
you may not re-exchange shares of the Money Market Fund for shares other than
the original exchange class.
- - The Company may limit the number of time shares may be exchanged or may reject
any telephone exchange order. Subject to limited exceptions, the Company will
notify you 60 days before discontinuing or modifying the exchange privilege.
You may exchange shares by writing the Transfer Agent as indicated below under
Redemption by Mail, or by calling the Transfer Agent or your authorized
broker/dealer, financial institution or servicing agent, unless you have elected
not to authorize telephone exchanges in the Account Application (in which case
you may subsequently authorize such telephone exchanges by completing a
Telephone Exchange Authorization Form and submitting it to the Transfer Agent in
advance of the first such exchange). Shares held in certificated form may not be
exchanged by telephone. The Transfer Agent's number for telephone exchanges is
(800) 572-7797.
Telephone redemption or exchange privileges are made available to you
automatically upon opening an account, unless you decline such privileges. These
privileges authorize the Transfer Agent to act on telephone instructions from
any person representing himself or herself to be the investor and reasonably
believed by the Transfer Agent to be genuine. The Company requires the Transfer
Agent to employ reasonable procedures, such as requiring a form of personal
identification, to confirm that instructions are genuine. If the Transfer Agent
does not follow such procedures, the Company and the Transfer Agent may be
liable for any losses attributable to unauthorized or fraudulent instructions.
Neither the Company nor the Transfer Agent will be liable for following
telephone instructions reasonably believed to be genuine.
REDEMPTION OF SHARES
Shares may be redeemed at their next determined net asset value after receipt of
a request in proper form by the Transfer Agent directly or through any
authorized broker/dealer or financial institution.
Except for any contingent deferred sales charge which may be applicable upon
redemption of Class D shares, as described under "Purchase of Shares," the
Company does not charge for redemption transactions. However, a broker/dealer or
financial institution that is involved in a redemption transaction may charge
separate account, service or transaction fees. Redemption orders received by an
authorized broker/dealer or financial institution before 1:00 p.m. (Pacific
time) on any Business Day, and received by the Transfer Agent before the close
of business on the same day will be executed at the net asset value per share
determined as of 1:00 p.m. (Pacific time) on that day. Redemption orders
received by authorized broker/dealers or financial institutions after 1:00 p.m.
(Pacific time), or not received by the Transfer Agent prior to the close of
business, will be executed at the net asset value determined as of 1:00 p.m.
(Pacific time) on the next Business Day.
Redemption proceeds, net of any contingent deferred sales charge applicable with
respect to Class D shares, ordinarily will be remitted within seven days after
the order is received in proper form, except proceeds may be remitted over a
longer period to the extent permitted by the SEC under extraordinary
circumstances. If an expedited redemption is requested, redemption proceeds will
be distributed only if the check used for investment is deemed to be cleared for
payment by your bank, currently considered by the Company to be a period of ten
(10) Business Days after investment. The proceeds, of course, may be more or
less than cost. Payment of redemption proceeds may be made in securities,
subject to regulation by some state securities commissions.
REDEMPTION BY MAIL
1. Write a letter of instruction naming the Fund, class of shares and the dollar
amount of or number of shares to be redeemed. Refer to your Fund account number
and provide either a social security or a tax identification number (as
applicable).
2. Sign the letter in exactly the same way the account is registered. If there
is more than one owner of the shares, all must sign.
3. If shares to be redeemed have a value of $5,000 or more, or redemption
proceeds are to be paid to someone other than you at your address of record, the
signature(s) must be guaranteed by an "eligible guarantor institution," which
includes a commercial bank that is a member of the Federal Deposit Insurance
Corporation, a trust company, a member firm of a domestic stock exchange, a
savings association, or a credit union that is authorized
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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. If shares to be redeemed are held in certificated form, enclose the
certificates with the letter. Do not sign the certificates and for protection
use registered mail.
5. Mail the letter to the Transfer Agent at the mailing address set forth under
"Purchase of Shares -- Initial Purchase of Shares by Wire."
Unless other instructions are given in proper form, a check for the proceeds of
a redemption, net of any contingent deferred sales charge applicable with
respect to Class D shares, will be sent to your address of record.
SYSTEMATIC WITHDRAWAL PLAN
The Company's Systematic Withdrawal Plan provides a way for you to have shares
redeemed from your accounts and the proceeds, net of any contingent deferred
sales charge applicable with respect to Class D shares, distributed to you on a
monthly basis. You may elect to participate in this plan if you have a
shareholder account valued at $10,000 or more as of the date of your election to
participate and are not a participant in the Company's Systematic Purchase Plan
at any time while participating in this plan. To participate in the plan,
specify an amount ($100 or more) to be distributed by check to your address of
record or deposited in your Approved Bank Account. The Transfer Agent redeems
sufficient shares and mails or deposits the proceeds of the redemption, net of
any contingent deferred sales charge applicable with respect to Class D shares,
as instructed on or about the fifth business day prior to the end of each month.
There are no additional fees charged for participating in this plan.
It may take up to ten (10) Business Days after receipt of your request to
establish your participation in the Systematic Withdrawal Plan. You may change
the withdrawal amount, suspend withdrawals or terminate your participation in
the Systematic Withdrawal Plan at any time by providing written notice to the
Transfer Agent at least ten (10) Business Days prior to a scheduled transaction.
Participation in the Systematic Withdrawal Plan may be terminated automatically
if your account balance is insufficient to make a scheduled withdrawal or if
your Fund account or Approved Bank Account is closed.
EXPEDITED REDEMPTIONS BY LETTER AND TELEPHONE
If shares are not held in certificated form, you may request an expedited
redemption of shares by letter or telephone (unless you have specifically
declined telephone redemptions on your Account Application or other form that is
on file with the Transfer Agent) on any Business Day. See "Exchange Privileges"
for additional information regarding telephone redemption privileges.
You may request expedited redemption by telephone by calling the Transfer Agent
at (800) 572-7797. You may request expedited redemption by mail by mailing your
expedited redemption request to the Transfer Agent at the mailing address set
forth under "Purchase of Shares -- Initial Purchases by Wire."
Upon request, proceeds of expedited redemptions of $5,000 or more, net of any
contingent deferred sales charge applicable with respect to Class D shares, will
be wired or credited to your Approved Bank Account or wired to an authorized
broker/dealer or financial institution designated in your Account Application.
The Company reserves the right to impose charges for wiring redemption proceeds.
When proceeds of an expedited redemption are to be paid to someone other than
yourself, to an address other than that of record, or to a bank, broker/dealer
or other financial institution that has not been predesignated, the expedited
redemption request must be made by letter and the signature(s) on the letter
must be guaranteed, regardless of the amount of the redemption. If an expedited
redemption request is received by the Transfer Agent by the close of business on
any day the Fund is open for business, the redemption proceeds will be
transmitted to your bank or predesignated broker/dealer or financial institution
on the next business day (assuming the investment check has cleared as described
above), absent extraordinary circumstances. A check for proceeds of less than
$5,000 will be mailed to your address of record, except that, in the case of
investments in the Company that have been effected through broker/dealers, banks
and other institutions that have entered into special arrangements with the
Company, the full amount of the redemption proceeds may be transmitted by wire
or credited to a designated account.
REDEMPTIONS THROUGH AUTHORIZED BROKER/DEALERS AND FINANCIAL INSTITUTIONS
Redemption requests placed through authorized broker/dealers and financial
institutions by 1:00 p.m. (Pacific time) on any Business Day will be effective
on the same day the request is placed if received by the Transfer Agent before
the close of business. Redemption requests that are received by a dealer or
financial institution after 1:00 p.m. (Pacific time) or by the Transfer Agent
after the close of business generally will be effective on the next day that
shares are offered. The broker/ dealer or financial institution is responsible
for the prompt transmission of redemption requests to the Transfer Agent. Unless
you have made other arrangements, and have informed the Transfer Agent of such
arrangements, proceeds of redemptions made through authorized broker/dealers and
financial institutions will be credited to your account with such broker/dealer
or institu-
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tion. You may request a check from the broker/dealer or financial institution or
may elect to retain the redemption proceeds in your account. The broker/dealer
or financial institution may benefit from the use of the redemption proceeds
prior to the clearance of a check issued to you for such proceeds or prior to
disbursement or reinvestment of such proceeds on your behalf.
The proceeds of a redemption may be more or less than the amount invested and,
therefore, a redemption may result in a gain or loss for federal and state
income tax purposes. Due to the high cost of maintaining small accounts, the
Company reserves the right to redeem accounts that fall below $1,000. Prior to
such a redemption, you will be notified in writing and permitted 30 days to make
additional investments to raise the account balance to the specified minimum.
DIVIDENDS AND DISTRIBUTIONS
Each Fund intends to declare as a dividend substantially all of its net
investment income annually to shareholders of record at 1:00 p.m. (Pacific time)
on the day of declaration. Net capital gains of a Fund, if any, will be
distributed annually.
Dividends and/or capital gain distributions will have the effect of reducing the
net asset value per share by the amount distributed on the record date. Although
a distribution paid to an investor on newly issued shares shortly after purchase
would represent, in substance, a return of capital, the distribution would
consist of net investment income and, accordingly, would be taxable as ordinary
income.
Dividends and/or capital gain distributions paid by a Fund will be invested in
additional shares of the same class of the Fund at net asset value (without any
sales load) and credited to your account on the reinvestment date or, at your
election, paid by check. Dividend checks and Statements of Account will be
mailed approximately three business days after the payment date. In addition,
you may elect to reinvest Fund dividends and/or capital gain distributions in
shares of another portfolio of the Company with which you have an established
account that has met the applicable minimum initial investment requirement.
A Fund's net investment income available for distribution to the holders of
Class D shares will be reduced by the amount of shareholder servicing fees
payable to shareholder servicing agents under the Servicing Plan and by the
distribution fees payable under the Distribution Plan. There may be certain
other differences in fees between Class A and Class D shares that would affect
their relative dividends.
DIVIDEND AND DISTRIBUTION OPTIONS
When you fill out an Account Application, you can choose from three dividend and
distribution options:
A. The AUTOMATIC REINVESTMENT OPTION provides for the reinvestment of dividends
and capital gain distributions in additional shares of the same class of a Fund.
Dividends and distributions declared in a month are reinvested at net asset
value early in the following month. You are assigned this option automatically
if you make no choice on your Account Application.
B. The AUTOMATIC CLEARING HOUSE OPTION permits you to have dividends and capital
gain distributions deposited in an Approved Bank Account. In the event your
Approved Bank Account is closed, and such distribution is returned to your
Fund's dividend disbursing agent, the distribution will be reinvested in your
Fund account at the net asset value next determined after the distribution has
been returned. If this happens, your Automatic Clearing House Option will be
converted to the Automatic Reinvestment Option.
C. The CHECK PAYMENT OPTION allows you to receive a check for a dividend or
capital gain distribution, which is mailed either to the designated address, or
your Approved Bank Account, early in the month following declaration. If the
U.S. Postal Service cannot deliver such checks, or if such checks remain
uncashed for six months, those checks will be reinvested in your Fund account at
the net asset value next determined after the earlier of the date the checks
have been returned to the dividend disbursing agent or the date six months after
the payment of such dividend or distribution. If this happens, your Check
Payment Option will be converted to the Automatic Reinvestment Option.
The Company takes reasonable efforts to locate investors whose checks are
returned or uncashed after six months. The Company forwards moneys to the
dividend disbursing agent so that it may issue investors dividend checks under
the Check Payment Option. The dividend disbursing agent may benefit from the
temporary use of such moneys until these checks clear.
TAXES
Distributions from a Fund's net investment income and net short-term capital
gains, if any, are designated as dividend distributions and taxable to the
Fund's shareholders as ordinary income. A portion of dividend distributions to
corporate shareholders may be excludable pursuant to the "dividends-received
deduction" allowable to corporate shareholders. Distributions from a Fund's net
long-term capital gains are designated as capital gain distributions and taxable
to the Fund's shareholders as long-term capital gains. In general, your
distributions will be taxable when paid, whether you take such distributions in
cash or have them automatically reinvested in additional Fund shares. However,
distributions declared in October, November and December and distributed by the
following January will be taxable as if they were paid by December 31.
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Your redemptions (including redemptions in-kind) and exchanges of Fund shares
ordinarily will result in a taxable capital gain or loss, depending on the
amount you receive for your shares (or are deemed to receive in the case of
exchanges) and the cost of your shares. See "Federal Income Taxes -- Disposition
of Fund Shares" in the SAIs.
Foreign shareholders may be subject to different tax treatment, including
withholding taxes. See "Federal Income Taxes -- Foreign Shareholders" in the
SAIs. In certain circumstances, U.S. residents may also be subject to
withholding taxes. See "Federal Income Taxes -- Backup Withholding" in the SAIs.
The foregoing discussion regarding taxes is based on tax laws which were in
effect as of the date of this Prospectus and summarizes only some of the
important federal tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning; you
should consult your tax advisor with respect to your specific tax situation as
well as with respect to foreign, state and local taxes. Further federal tax
considerations are discussed in the SAI for each Fund.
ORGANIZATION AND CAPITAL STOCK
The Company, an open-end management investment company, was incorporated in
Maryland on April 27, 1987. All shares of the Company have equal voting rights
and will be voted in the aggregate, and not by series or class, except where
voting by series is required by law or where the matter involved affects only
one series. The Company may dispense with the annual meeting of shareholders in
any fiscal year in which it is not required by the 1940 Act to elect Directors;
however, shareholders are entitled to call a meeting of shareholders for
purposes of voting on removal of a director or directors.
In addition, whenever the Small Cap or Growth Fund is requested to vote on
matters pertaining to its corresponding Master Portfolio, the Company will hold
a meeting of the Fund's shareholders and will cast its vote as instructed by
Fund shareholders. The Directors of the Company will vote shares for which they
receive no voting instructions in the same proportion as the shares for which
they do receive voting instructions. A more detailed statement of the voting
rights of shareholders is contained in the SAI. All shares of the Company, when
issued, will be fully paid and nonassessable.
The Trust was established on August 15, 1991, as a Delaware business trust. The
Trust's Declaration of Trust permits the Board of Trustees to issue beneficial
interests in the Trust to investors based on their proportionate investments in
the Trust. The Trust currently offers nine series of beneficial interests--the
Asset Allocation, Capital Appreciation, Cash Investment Trust, Corporate Stock,
Short-Term Government-Corporate Income, Short-Term Municipal Income, Small Cap,
Tax-Free Money Market and U.S. Government Allocation Master Portfolios.
THE MASTER PORTFOLIOS
The Small Cap Master Portfolio is the successor to certain assets of the Small
Capitalization Growth Fund for Employment Retirement Plans, a collective
investment fund (the "Collective Investment Fund"). The Collective Investment
Fund was a private, non-registered investment fund previously managed by Wells
Fargo Bank. Immediately prior to the commencement of the Small Cap Strategy
Fund's operations, the assets of the Collective Investment Fund were purchased
by the Small Cap Master Portfolio and the Collective Investment Trust redeemed
all of its outstanding interests and ceased operating as a trust. The Small Cap
Master Portfolio manages its investments in a manner identical in all material
respects to the operation of the Collective Investment Fund.
Whenever the Small Cap Strategy Fund or Strategic Growth Fund, as an
interestholder of a corresponding Master Portfolio, is requested to vote on any
matter submitted to interestholders of the Master Portfolio, the Fund will hold
a meeting of its shareholders to consider such matters. Each such Fund will cast
its votes in proportion to the votes received from its shareholders. Shares for
which each such Fund receives no voting instructions will be voted in the same
proportion as the votes received from the other shareholders of such Fund. If a
Master Portfolio's investment objective or fundamental or non-fundamental
policies are changed, the corresponding Fund may elect to change its objective
or policies to correspond to those of the Master Portfolio. The Fund may also
elect to redeem its interests in the Master Portfolio and either seek a new
investment company with a matching objective in which to invest or retain its
own investment adviser to manage the Fund's portfolio in accordance with its
objective. In the latter case, 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.
PROSPECTUS
- --------------------------------------------------------------------------------
32
<PAGE> 71
<TABLE>
<S> <C>
---------------------
BULK RATE
U.S. POSTAGE
PAID
DALLAS, TEXAS
Permit No. 1808
---------------------
</TABLE>
NOT FDIC INSURED
For Customer Service or questions about
your account, call (800) 572-7797.
For more information about the Funds,
simply call (800) 552-9612.
You may also write to the Funds at:
OVERLAND EXPRESS FUNDS, INC.
c/o Overland Express
Shareholder Services
Wells Fargo Bank, N.A.
P.O. Box 63084
San Francisco, California 94163
EQ P 5/97 LOGO
<PAGE> 72
OVERLAND EXPRESS FUNDS
PROSPECTUS
MAY 1, 1997
OVERLAND SWEEP FUND
[OVERLAND EXPRESS LOGO]
<PAGE> 73
[OVERLAND EXPRESS LOGO]
PROSPECTUS DATED MAY 1, 1997
Telephone: (800) 552-9612
Overland Express Funds, Inc. (the "Company") is an open-end, series investment
company. This Prospectus describes one of the Company's funds -- the OVERLAND
SWEEP FUND (the "Fund"). The Fund seeks to provide investors with a high level
of current income, while preserving capital and liquidity. The Fund seeks to
maintain a stable net asset value of $1.00 per share.
Investors should read this Prospectus carefully and retain it for future
reference. It sets forth concisely the information a prospective investor should
know before investing in the Fund. A Statement of Additional Information ("SAI")
dated May 1, 1997, containing additional and more detailed information about the
Fund, has been filed with the Securities and Exchange Commission (the "SEC") and
is hereby incorporated by reference into this Prospectus. The SAI is available
without charge and can be obtained by writing the Company at P.O. Box 63084, San
Francisco, CA 94163 or by calling the Company at (800) 552-9612.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE IS NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN A
STABLE $1.00 NET ASSET VALUE PER SHARE.
Shares of the Fund are offered only to customers of certain financial
institutions that have entered into Shareholder Servicing Agreements with the
Company on behalf of the Fund ("Servicing Agents"). Servicing Agents will
automatically invest, or "sweep," customer funds into shares of the Fund. As
further described below, Wells Fargo Bank, N.A. ("Wells Fargo Bank") will serve
as a Servicing Agent, and will receive certain fees pursuant to a Shareholder
Servicing Agreement. Wells Fargo Bank also has entered into a Selling Agreement
with Stephens Inc. ("Stephens") pursuant to which it will receive certain fees.
The Fund seeks to achieve its investment objective by investing all of its
assets in the Cash Investment Trust Master Portfolio (the "Master Portfolio") of
Master Investment Trust (the "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 and the Fund's performance corresponds
directly with the Master Portfolio's performance. The Master Portfolio seeks to
achieve its investment objective by investing in high-quality, short-term
instruments. References to the investments, investment policies and risks of the
Fund, unless otherwise indicated, should be understood as references to the
investments, investment policies and risks of the Master Portfolio.
- --------------------------------------------------------------------------------
FUND SHARES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR ISSUED, ENDORSED OR
GUARANTEED BY, WELLS FARGO BANK, N.A. OR ANY OF ITS AFFILIATES. SUCH SHARES ARE
NOT INSURED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN THE
FUND INVOLVES CERTAIN INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
WELLS FARGO BANK IS THE INVESTMENT ADVISER AND ADMINISTRATOR, AND IS COMPENSATED
FOR PROVIDING THE FUND AND MASTER PORTFOLIO WITH CERTAIN OTHER SERVICES.
STEPHENS, WHICH IS NOT AFFILIATED WITH WELLS FARGO BANK, IS THE SPONSOR,
CO-ADMINISTRATOR AND DISTRIBUTOR FOR THE FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<PAGE> 74
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PROSPECTUS SUMMARY................................ 1
SUMMARY OF EXPENSES............................... 2
FINANCIAL HIGHLIGHTS.............................. 3
INVESTMENT OBJECTIVE AND POLICIES................. 4
INVESTMENT ACTIVITIES............................. 5
MANAGEMENT OF THE FUND............................ 6
DETERMINATION OF NET ASSET VALUE, DIVIDENDS AND
DISTRIBUTIONS..................................... 8
PURCHASE AND REDEMPTION OF SHARES................. 9
TAXES............................................. 9
ORGANIZATION AND CAPITAL STOCK.................... 9
</TABLE>
PROSPECTUS
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<PAGE> 75
PROSPECTUS SUMMARY
The Company, as an open-end management investment company, provides a convenient
way for you to invest in a portfolio of securities selected and supervised by
professional management. The following provides information about the Fund.
Q. WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
A. The Fund seeks to provide investors with a high level of current income,
while preserving capital and liquidity. The Fund 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 Fund seeks to
maintain a stable net asset value of $1.00 per share. See "Investment
Objective and Policies."
Q. WHAT ARE THE FUND'S PRINCIPAL INVESTMENTS?
A. The Fund invests all of its assets in the Master Portfolio. The Master
Portfolio invests in high-quality, short-term instruments including
obligations of the U.S. Government, its agencies, or instrumentalities
(including government-sponsored enterprises), certain short-term debt
obligations of U.S. banks and U.S. branches of foreign banks, high-quality
commercial paper, and certain repurchase agreements and floating- and
variable-rate instruments. See "Investment Objective and Policies" and
"Investment Activities."
Q. WHAT ARE SOME OF THE POTENTIAL 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 or
interest. Therefore you should be willing to accept some risk with money
invested in the Fund. Although the Fund seeks to maintain a stable net asset
value of $1.00 per share, there is no assurance that it will be able to do
so. As with all mutual funds, there is no assurance that the Fund will
achieve its investment objective. The Fund may not achieve as high a level of
current income as other mutual funds that do not limit their investments to
the high credit quality instruments in which the Fund invests. See
"Investment Objective and Policies -- Risk Factors."
Q. WHO MANAGES MY INVESTMENTS?
A. Wells Fargo Bank, as investment adviser, manages the investments of the Fund
in the Master Portfolio. The Company has not retained the services of a
separate investment adviser for the Fund because the Fund invests all of its
assets in the Master Portfolio. Wells Fargo Bank also provides the Fund with
administrative, transfer agency, dividend disbursing agency and custodial
services. Stephens is the Fund's sponsor, co-administrator and distributor.
See "Management of the Fund."
Q. HOW MAY I PURCHASE SHARES?
A. Shares of the Fund may be purchased on any day the Fund is open through a
Servicing Agent that has entered into a Shareholder Servicing Agreement with
the Company. There are no sales loads for purchasing shares of the Fund.
There is no minimum initial purchase or subsequent purchase amount applicable
to Fund shares. See "Purchase and Redemption of Shares."
Q. HOW WILL I RECEIVE DIVIDENDS?
A. Dividends on Fund shares are declared daily each Business Day (as defined
below) and are paid in cash monthly. Any capital gains are distributed at
least annually. See "Determination of Net Asset Value, Dividends and
Distributions."
Q. HOW MAY I REDEEM SHARES?
A. Shares may be redeemed on any day the Fund is open for trading upon request
to a Servicing Agent. Proceeds of redemptions are credited to the Servicing
Agent's shareholder account with the Fund. The Fund imposes no redemption
fees. See "Purchase and Redemption of Shares."
PROSPECTUS
- --------------------------------------------------------------------------------
1
<PAGE> 76
SUMMARY OF EXPENSES
ANNUAL FUND OPERATING EXPENSES(1)
(as a percentage of average net assets)
<TABLE>
<S> <C>
Management Fee.............................................. 0.25%
Rule 12b-1 Fee.............................................. 0.55%
Other Expenses (after waivers or reimbursements)(2)......... 0.44%
-----
TOTAL FUND OPERATING EXPENSES............................... 1.24%
=====
(after waivers or reimbursements)(3)
</TABLE>
- ---------------
(1) Summarizes expenses charged to the Fund and the Master Portfolio.
(2) Other Expenses (before waivers or reimbursements) would be 0.46%.
(3) Total Fund Operating Expenses (before waivers or reimbursements) would be
1.26%.
EXAMPLE OF EXPENSES
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment
in
the Fund, assuming (1) a 5% annual return and (2) redemption
at the end of each time period indicated:................... $13 $39 $68 $150
</TABLE>
------------------------
The purpose of the foregoing tables is to assist you in understanding the
various costs and expenses that an investor in the Fund will pay directly or
indirectly. There are no sales loads or redemption fees charged by the Fund. The
Company reserves the right to impose charges for wiring redemption proceeds. The
tables do not reflect any charges that may be imposed by Servicing Agents for
services related to those provided under Shareholder Servicing Agreements.
ANNUAL FUND OPERATING EXPENSES are based on amounts incurred during the most
recent fiscal year. The percentages shown under "Other Expenses" and "Total Fund
Operating Expenses" have been adjusted to reflect voluntary fee waivers expected
to continue during the current year. Wells Fargo Bank has agreed to waive all or
a portion of its fees, through at least the current fiscal year, to ensure that
"Total Fund Operating Expenses" do not exceed 1.25% of the Fund's average daily
net assets. There is no assurance that such waivers or reimbursements will
continue. Long-term shareholders of the Fund could pay more in distribution
related charges than the economic equivalent of the maximum front-end sales
charges applicable to mutual funds sold by members of the National Association
of Securities Dealers, Inc. ("NASD").
EXAMPLE OF EXPENSES is a hypothetical example which illustrates the expenses
associated with a $1,000 investment over the periods shown, based on the
expenses in the table above and an assumed annual rate of return of 5%. This
rate of return should not be considered an indication of the actual or expected
performance of the Fund. In addition, the Example should not be considered a
representation of past or future expenses; actual expenses and returns may be
greater or less than those shown. See "Management of the Fund" for more complete
descriptions of the various costs and expenses applicable to investors in the
Fund.
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 rather
than directly in a portfolio of securities would be more or less than if the
Fund invested in portfolio securities directly. The Company's Board believes
that the aggregate per share expenses of the Fund will not be more than the
expenses incurred if the Fund invested directly in the type of securities held
by the Master Portfolio. The Board believes that if other investors invest their
assets in the Master Portfolio, certain economic efficiencies may be realized.
For example, fixed expenses that otherwise would have been borne solely by the
Fund would be spread across a larger asset base provided by more than one fund
investing in the Master Portfolio. There can be no assurance that these economic
efficiencies will be achieved. In addition to selling its shares to the Fund,
the Master Portfolio may sell its shares to other mutual funds or qualified
investors. The expenses and corresponding performance of such other mutual funds
and qualified investors may differ from the expenses and performance of 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.
PROSPECTUS
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2
<PAGE> 77
FINANCIAL HIGHLIGHTS
The following information has been derived from the Financial Highlights in the
Fund's 1996 annual financial statements. The financial statements are
incorporated by reference into the SAI and have been audited by KPMG Peat
Marwick LLP, independent auditors, whose report dated February 14, 1997 also is
incorporated by reference into the SAI. This information should be read in
conjunction with the Fund's 1996 annual financial statements and the notes
thereto. The SAI has been incorporated by reference into this Prospectus.
OVERLAND SWEEP FUND
For a Share Outstanding
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1996 1995 1994 1993 1992 1991(1)
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment operations:
Net investment income....................................... 0.04 0.05 0.03 0.02 0.03 0.01
Less Distributions:
Dividends from net investment income........................ (0.04) (0.05) (0.03) (0.02) (0.03) (0.01)
---------- ---------- -------- -------- -------- -------
Net asset value, end of period.............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ======== ======== ======== =======
Total return (not annualized):.............................. 4.29% 4.80% 3.11% 1.97% 2.31% 0.93%
Ratios/supplemental data:
Net assets, end of period (000)............................. $2,002,725 $1,209,183 $812,559 $528,072 $253,617 $14,010
Number of shares outstanding, end of period (000)........... 2,003,292 1,209,183 812,559 528,072 253,628 14,010
Ratios to average net assets (annualized)(2):
Ratio of expenses to average net assets..................... 1.24% 1.25% 1.25% 1.25% 1.24% 1.23%
Ratio of net investment income to
average net assets......................................... 4.20% 4.70% 2.92% 1.67% 2.20% 3.46%
Ratio of expenses to average net assets prior to waived
fees and reimbursed expenses............................... 1.26% 1.28% 1.33% 1.31% 1.51% 6.92%
Ratio of net investment income to average net assets
prior to waived fees and reimbursed expenses............... 4.18% 4.67% 2.84% 1.61% 1.93% (2.23%)
</TABLE>
- ---------------
(1) The Fund commenced operations on October 1, 1991.
(2) These ratios include expenses charged to the Master Portfolio. Prior year
ratios have been adjusted for comparability purposes.
PROSPECTUS
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3
<PAGE> 78
INVESTMENT OBJECTIVE AND POLICIES
Set forth below is a description of the investment objective and related
policies of the Fund. As with all mutual funds, there is no assurance that the
Fund will achieve its investment objective.
INVESTMENT OBJECTIVE
The Fund seeks to provide investors with a high level of current income, while
preserving capital and liquidity. The Fund 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
U.S. dollar-denominated securities with remaining maturities not exceeding
thirteen months, as defined under the Investment Company Act of 1940 (the "1940
Act"). The Master Portfolio seeks to maintain a dollar-weighted average
portfolio maturity of 90 days or less. The Master Portfolio seeks to maintain a
stable net asset value of $1.00 per share; however, there is no assurance that
this objective will be achieved.
The Master Portfolio may invest in:
<TABLE>
<C> <S>
(i) obligations issued or guaranteed by the U.S. Govern-
ment, its agencies or instrumentalities (including
government-sponsored enterprises);
(ii) negotiable certificates of deposit, fixed time
deposits, bankers' acceptances or other short-term
obligations of U.S. banks (including foreign
branches) that have more than $1 billion in total
assets at the time of investment and are members of
the Federal Reserve System or are examined by the
Comptroller of the Currency or whose deposits are
insured by the FDIC;
(iii) commercial paper rated at the date of purchase
Prime-1 by Moody's Investors Service, Inc.
("Moody's") or "A-1" or better by Standard & Poor's
Ratings Group ("S&P");
(iv) commercial paper unrated at the date of purchase but
secured by a letter of credit from a U.S. bank that
meets the above criteria for investment;
(v) certain floating- and variable-rate instruments;
(vi) certain repurchase agreements; and
(vii) short-term, U.S. dollar-denominated obligations of
domestic branches of foreign banks that at the time
of investment have more than $10 billion, or the
equivalent in other currencies, in total assets.
</TABLE>
Under the 1940 Act, the Fund and the Master Portfolio are each classified as
"diversified," even though, in the case of the Fund, all of its assets are
invested in the Master Portfolio.
INVESTMENT POLICIES
The investment objective of the Master Portfolio may not be changed without
approval of a majority vote of the investors in the Master Portfolio. The
classification of the Fund and the Master Portfolio as "diversified" may not be
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 a
majority vote of the investors in the Master Portfolio.
As a matter of fundamental policy, the Fund may borrow from banks up to 10% of
the current value of its 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 its net assets (but investments may not be purchased while
any such outstanding borrowing in excess of 5% of its net assets exists). As a
matter of fundamental policy, the Fund may not invest more than 25% of its
assets (i.e., concentrate) in any particular industry, excluding U.S. Government
obligations and obligations of domestic banks.
As a matter of non-fundamental policy, the Fund may invest up to 10% of the
current value of its net assets in repurchase agreements having maturities of
more than seven days, illiquid securities, and fixed time deposits that are
subject to withdrawal penalties and that have maturities of more than seven
days.
RISK FACTORS
Investments in the Fund are not bank deposits and are not insured or guaranteed
against loss of principal. Although the Fund seeks to maintain a stable net
asset value of $1.00 per share, there is no assurance that it will be able to do
so. As with all mutual funds, there is no assurance that the Fund will achieve
its investment objective. Pursuant to the 1940 Act, the Fund must comply with
certain investment criteria designed to provide liquidity, reduce risk and allow
the Fund to maintain a stable net asset value of $1.00 per share. The Fund seeks
to reduce risk by investing in securities of various issuers and will comply
with 1940 Act and Internal Revenue Code of 1986 (the "Code") diversification
requirements.
Since its inception, the Fund has emphasized safety of principal and high credit
quality. In particular, the internal investment policies of the Fund's
investment adviser, Wells Fargo Bank, have always prohibited the purchase of
many types of floating-rate instruments commonly referred to as "derivatives"
that are considered potentially volatile. The following types of derivative
securities ARE NOT permitted investments for the Fund:
- - capped floaters (on which interest is not paid when market rates move above a
certain level);
PROSPECTUS
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4
<PAGE> 79
- - 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 range);
- - 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 index).
Additionally, the Fund may not invest in securities whose interest rate reset
provisions are tied to an index that materially lags short-term interest rates,
such as Cost of Funds Index floaters. 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. Treasury bills, London Interbank Offered Rate, the prime
rate, published commercial paper rates, federal funds rates, Public Securities
Associates floaters or JJ Kenney Index floaters.
INVESTMENT ACTIVITIES
Set forth below is a more detailed description of the Fund's permissible
investments. References to the investments, investment policies and risks of the
Fund, unless otherwise indicated, should be understood as references to the
investments, investment policies and risks of the Master Portfolio. For
additional information, see "Additional Permitted Investment Activities" in the
Fund's SAI.
MONEY MARKET INSTRUMENTS
Money market instruments consist of: (a) short-term securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities (including
government-sponsored enterprises) ("U.S. Government obligations"); (b)
negotiable certificates of deposit, bankers' acceptances and fixed time deposits
and other short-term obligations of domestic banks (including foreign branches)
that have more than $1 billion in total assets at the time of the 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; (c) commercial paper
rated at the date of purchase "Prime-1" by Moody's or "A-1+" or "A-1" by S&P,
or, if unrated, of comparable quality as determined by Wells Fargo Bank; (d)
certain repurchase agreements; and (e) short-term U.S. dollar-denominated
obligations of foreign banks (including U.S. branches) that at the time of
investment; (i) have more than $10 billion, or the equivalent in other
currencies, in total assets; (ii) are among the 75 largest foreign banks in the
world as determined on the basis of assets; and (iii) have branches or agencies
in the United States.
U.S. GOVERNMENT OBLIGATIONS
U.S. Government obligations include securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. Payment of principal and interest
on U.S. Government obligations may be backed by the full faith and credit of the
United States, as with Treasury bills, or may be backed solely by the issuing or
guaranteeing agency or instrumentality itself. In the latter case investors must
look principally to the agency or instrumentality issuing or guaranteeing the
obligation for ultimate repayment, which agency or instrumentality may be
privately owned. There can be no assurance that the U.S. Government will provide
financial support to its agencies or instrumentalities where it is not obligated
to do so. In addition, U.S. Government obligations are subject to fluctuations
in market value due to fluctuations in market interest rates. As a general
matter, the value of debt instruments, including U.S. Government obligations,
declines when market interest rates increase and rises when market interest
rates decrease. Certain types of U.S. Government obligations are subject to
fluctuations in yield, duration or value due to their structure or contract
terms.
FLOATING- AND VARIABLE-RATE INSTRUMENTS
Certain of the debt instruments in which the Fund may invest may bear interest
rates that are periodically adjusted at specified intervals or whenever a
benchmark rate or index changes. These adjustments generally limit the increase
or decrease in the amount of interest received on the debt instruments. The
floating-and variable-rate instruments that the Fund may purchase include
certificates of participation in pools of floating- and variable-rate
instruments. Floating- and variable-rate instruments are subject to interest
rate risk and credit risk.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase transactions in which the seller of a
security to the Fund agrees to repurchase that security from the Fund at a
mutually agreed-upon time and price. The period of maturity is usually quite
short, often overnight or a few days, although it may extend over a number of
months. The Fund may enter into repurchase agreements only with respect to
securities that could otherwise be purchased by the Fund, and all repurchase
transactions must be collateralized. The Fund may incur a loss on a repurchase
transaction if the seller defaults and the value of the underlying collateral
declines or is otherwise limited or if receipt of the security or collateral is
delayed. The Fund may participate in pooled repurchase agreement transactions
with other funds advised by Wells Fargo Bank.
LETTERS OF CREDIT
Certain of the debt obligations, certificates of participation, commercial paper
and other short-term obligations in which the Fund is permitted to invest may be
backed by an unconditional and
PROSPECTUS
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5
<PAGE> 80
irrevocable letter of credit of a bank, savings and loan association or
insurance company that assumes the obligation for payment of principal and
interest in the event of default by the issuer. Letter of credit-backed
investments must, in the opinion of Wells Fargo Bank, be of investment quality
comparable to other permitted high-quality investments of the Fund.
FOREIGN OBLIGATIONS
The Fund may invest up to 25% of its 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 subject to the same uniform
accounting, auditing and financial reporting standards or governmental
supervision as domestic issuers. In addition, with respect to certain foreign
countries, taxes may be withheld at the source under foreign tax laws, and there
is a possibility of expropriation or confiscatory taxation, political or social
instability or diplomatic developments that could adversely affect investments
in, the liquidity of and the ability to enforce contractual obligations with
respect to securities of issuers located in those countries.
OTHER INVESTMENT COMPANIES
The Fund may invest in shares of other open-end, management investment companies
provided that any such investments will be limited to temporary investments in
shares of unaffiliated investment companies. Wells Fargo Bank will waive its
advisory fees for that portion of the Fund's assets so invested, except when
such purchase is part of a plan of merger, consolidation, reorganization or
acquisition.
ILLIQUID SECURITIES
The Fund may invest in securities not registered under the Securities Act of
1933 and other securities subject to legal or other restrictions on resale.
Because such securities may be less liquid than other investments, they may be
difficult to sell promptly at an acceptable price. Delay or difficulty in
selling securities may result in a loss or be costly to the Fund.
MANAGEMENT OF THE FUND
The Company's Board of Directors supervises the Fund's activities, monitors its
contractual arrangements with various service providers and decides upon matters
of general policy.
INVESTMENT ADVISER
The Company has not retained the services of an investment adviser for the Fund
since the Company seeks to achieve the investment objective of the Fund by
investing all of the Fund's assets in the Master Portfolio. The Master Portfolio
is advised by Wells Fargo Bank. 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 April 1, 1997, Wells Fargo Bank and its affiliates provided
investment advisory services for approximately $57 billion of assets of
individuals, trusts, estates and institutions. Wells Fargo Bank also serves as
the investment adviser to other separately managed portfolios of the Company and
the Trust, and as investment adviser or sub-adviser to four other registered
open-end management investment companies, each of which consists of several
separately managed investment portfolios. Wells Fargo Bank, a wholly owned
subsidiary of Wells Fargo & Company, is located at 420 Montgomery Street, San
Francisco, California 94104.
Wells Fargo Bank provides investment guidance and policy direction in connection
with the daily portfolio management of the Master Portfolio. Wells Fargo Bank
furnishes to the Board of Trustees of the Trust periodic reports on the
investment strategy and performance of the Master Portfolio.
For its services as investment adviser, Wells Fargo Bank is entitled to receive
a monthly advisory fee at the annual rate of 0.25% of the average daily net
assets of the Master Portfolio. For the year ended December 31, 1996, Wells
Fargo Bank was paid at the annual rate of 0.25% of the average daily net assets
of the Fund as compensation for its services as investment adviser.
Wells Fargo Bank deals, trades and invests for its own account in the types of
securities in which the Fund's may invest and may have deposit, loan and
commercial banking relationships with the issuers of securities purchased by a
Fund. Wells Fargo Bank has informed the Company that in making its investment
decisions it does not obtain or use material inside information in its
possession. 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 or advises, 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 transaction costs among the participants
equitably. From time to time, the Master Portfolio, to the extent consistent
with its investment objective, policies and restrictions, may invest in
securities of companies with which Wells Fargo Bank has a lending relationship.
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Morrison & Foerster LLP, counsel to the Company and the Trust and special
counsel to Wells Fargo Bank, has advised the Company, the Trust and Wells Fargo
Bank that Wells Fargo Bank and its affiliates may perform the services
contemplated by the Advisory Contract and this Prospectus without violation of
the Glass-Steagall Act. Such counsel has pointed out, however, that there are no
controlling judicial or administrative interpretations 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.
ADMINISTRATOR AND CO-ADMINISTRATOR
Wells Fargo Bank as administrator and Stephens as co-administrator, provide the
Fund with administrative services, including general supervision of the Fund's
operation, 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 Directors and officers. Wells Fargo Bank and Stephens also furnish
office space and certain facilities to conduct the Fund's business and Stephens
compensates the Directors and officers who are affiliated with Stephens. For
these administrative services, Wells Fargo Bank and Stephens are entitled to
receive monthly fees at annual rates of 0.04% and 0.02%, respectively, of the
Fund's average daily net assets. Wells Fargo Bank and Stephens may delegate
certain of their administrative duties to sub-administrators.
Stephens previously provided substantially the same services as sole
administrator to the Fund and was entitled to receive a monthly fee from the
Fund at an annual rate of 0.025% of its average daily net assets.
SPONSOR AND DISTRIBUTOR
Stephens, 111 Center Street, Little Rock, Arkansas 72201, is the Company's
sponsor and co-administrator and distributes the Fund's shares. 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
sixty 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.
The Company's Board of Directors has adopted a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the 1940 Act on behalf of the Fund. Under the Plan
and pursuant to the Distribution Agreement, the Fund pays Stephens, as
compensation for distribution-related services, a monthly fee at the annual rate
of up to 0.55% of the average daily net assets of the Fund or the maximum amount
payable under applicable laws, regulations and rules, whichever is less. The
actual fee payable to Stephens is determined, within the applicable limit, from
time to time by mutual agreement between the Company and Stephens. Stephens may
enter into selling agreements with one or more Selling Agents under which such
agents may receive compensation for distribution-related services from Stephens,
including, but not limited to, commissions or other payments to such agents
based on the average daily net assets of Fund shares attributable to them.
Stephens may retain any portion of the total distribution fee payable under the
Distribution Agreement to compensate it for distribution-related services
provided by it or to reimburse it for other distribution-related expenses. Since
the fee payable to Stephens under the Distribution Agreement is not based upon
the actual expenditures of Stephens, the expenses of Stephens (which may include
overhead expenses) may be more or less than the fees received by it under the
Distribution Agreement. The Plan contemplates further that, to the extent any
fees payable pursuant to a Shareholder Servicing Agreement (discussed below) are
deemed to be for distribution-related services, rather than shareholder
services, such payments are approved and payable pursuant to the Plan. Stephens
has entered into a Selling Agreement with Wells Fargo Bank, pursuant to which
Wells Fargo Bank will receive periodic payments based on the average daily net
assets of Fund shares attributable to its customers.
SERVICING AGENTS
The Company has entered into a Shareholder Servicing Agreement on behalf of the
Fund with Wells Fargo Bank, and may enter into such Agreements with one or more
other financial institutions which desire to act as Servicing Agents. Pursuant
to each such Shareholder Servicing Agreement, the Servicing Agent, as agent for
its customers, will, among other things: automatically invest cash balances
maintained in customer accounts with the Servicing Agent into the Fund, and
redeem shares out of the Fund, in the amounts specified pursuant to agency
agreements between the Servicing Agent and its customers; maintain a single
shareholder account for the benefit of its customers with the Fund; provide
sub-accounting services to monitor and account for its customers' beneficial
ownership of shares of the Fund held in the Servicing Agent's shareholder
account; answer customer inquiries regarding account status and history,
purchases and re-
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demptions of shares of the Fund, Fund performance and certain other matters
pertaining to the Fund; assist its customers in designating and changing account
designations and addresses; process Fund purchase and redemption transactions;
forward and receive funds in connection with purchases or redemptions of shares
of the Fund; provide periodic statements showing a customer's subaccount
balance; furnish (either separately or on an integrated basis with other reports
sent to a customer by the Servicing Agent) monthly statements and confirmations
of purchases and redemptions of Fund shares in the Servicing Agent's shareholder
account on behalf of the customer; forward to its customers proxy statements,
annual reports, updated prospectuses and other communications from the Fund to
shareholders as required; receive, tabulate and forward to the Company proxies
executed by or on behalf of its customers with respect to meetings of
shareholders of the Fund; and provide such other related services, and necessary
personnel and facilities to provide all of the shareholder services contemplated
by the Shareholder Servicing Agreement, in each case, as the Company or a
customer of the Servicing Agent may reasonably request. All purchases and
redemptions are effected through Stephens as the Fund's Distributor.
For providing these services, each Servicing Agent is entitled to receive a fee
from the Fund, which may be paid periodically, of up to 0.35%, on an annualized
basis, of the average daily net assets of the Fund represented by shares owned
of record by the Servicing Agent on behalf of its customers, or an amount which,
when considered in conjunction with amounts payable pursuant to the Fund's
Distribution Agreement, equals the maximum amount payable to the Servicing Agent
under applicable laws, regulations or rules, whichever is less. A Servicing
Agent also may impose certain conditions on its customers, subject to the terms
of this Prospectus, in addition to or different from those imposed by the Fund,
such as requiring a minimum initial investment or the payment of additional fees
for additional services offered to the customer. The exercise of voting rights
and the delivery to customers of shareholder communications will be governed by
the customers' agency agreements with the Servicing Agent. The Servicing Agent
has agreed to forward to its customers who are shareholders of the Fund
appropriate prior written disclosure of any fees that it may charge them
directly and to provide written notice at least 15 days prior to imposition of
any transaction fees.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT
Wells Fargo Bank has been retained to act as the custodian and transfer and
dividend disbursing agent for the Fund. Wells Fargo Bank performs the custodial,
transfer and dividend disbursing agency activities at 525 Market Street, San
Francisco, California 94105.
FUND EXPENSES
From time to time, Wells Fargo Bank and Stephens may waive their respective fees
from the Fund in whole or in part and reimburse expenses payable to others. Any
such waivers or reimbursements will reduce expenses of the Fund and,
accordingly, have a favorable impact on the performance of the Fund. Except for
the expenses borne by Wells Fargo Bank and Stephens, the Fund bears all costs of
its operations, including advisory (in the case of the Master Portfolio),
shareholder servicing, transfer agency, custody and administrative fees;
payments pursuant to any Plan (in the case of the Fund); fees and expenses of
independent auditors and legal counsel, and any extraordinary expenses. Expenses
attributable to the Fund are charged against the respective assets of the Fund.
General expenses of the Company are allocated among all of the funds of the
Company 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.
DETERMINATION OF NET ASSET VALUE,
DIVIDENDS AND DISTRIBUTIONS
Net asset value per share for the Fund is determined by Wells Fargo Bank on each
day the Fund is open for trading (a "Business Day"). The Fund is open Monday
through Friday and is closed weekends and standard New York Stock Exchange
holidays.
The net asset value per share of the Fund is determined by dividing the value of
the total assets of the Fund (i.e., the value of its investments in the Master
Portfolio and other assets) less all of its liabilities by the total number of
outstanding shares of the Fund. The net asset value of the Fund is determined as
of 9:00 a.m. and 1:00 p.m. (Pacific time). It is anticipated that the net asset
value of each share of the Fund will remain constant at $1.00, although there is
no assurance that the Fund will maintain a stable net asset value.
The Master Portfolio uses the amortized cost method to value its portfolio
securities. The amortized cost method involves valuing a security at its cost
and amortizing any discount or premium over the period until maturity, generally
without regard to the impact of fluctuating interest rates on the market value
of the security. The net asset value of the Master Portfolio is determined as of
9:00 a.m. and 1:00 p.m. (Pacific time) each Business Day.
The net investment income of the Fund is determined at the same time and on the
same days as the net investment income of the Master Portfolio. All the net
investment income of the Fund so determined is declared as a dividend to
shareholders of record at the time of such determination. Net investment income
for a Saturday, Sunday or Holiday will be declared as a dividend to
PROSPECTUS
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shareholders of record as of 9:00 a.m. (Pacific time) on the previous Business
Day.
Dividends of the Fund declared in, and attributable to, any month are paid on
the last Business Day of the month and generally are mailed early in the
following month. Shareholders of the Fund who redeem shares prior to a dividend
payment date will be entitled to all dividends declared but unpaid prior to
redemption on such shares on the next dividend payment date.
Since the net investment income of the Fund is declared as a dividend each time
the net investment income of the Fund is determined, the net asset value per
share of the Fund is expected to remain constant at $1.00 per share immediately
after each such determination and dividend declaration.
PERFORMANCE DATA
From time to time, the Company may advertise yield information with respect to
shares of the Fund. Yield information is based on the historical earnings and
performance of the Fund and should not be considered representative of future
performance. From time to time, the Fund may advertise its current yield and/or
its effective yield. Current yield is calculated by dividing net investment
income per share earned during a specified period by its net asset value per
share on the last day of such period and annualizing the result. The current
yield of the Fund will show the annualized income per share generated by an
investment in the Fund over a stated period. Effective yield is calculated
similarly but, assumes reinvestment of the income earned from the Fund. The
effective yield will be slightly higher than the current yield because of the
compounding effect of this assumed reinvestment. Additional information about
the performance of the Fund is contained in the Annual Report for the Fund. The
Annual Report may be obtained free of charge by calling the Company at (800)
552-9612.
PURCHASE AND REDEMPTION OF SHARES
Shares of the Fund are offered exclusively to customers of Servicing Agents who
have entered into a Shareholder Servicing Agreement with the Company on behalf
of the Fund. The Shareholder Servicing Agreements contemplate that customers of
a Servicing Agent will have entered into agency agreements with such Servicing
Agent whereby the Servicing Agent is authorized to invest certain amounts
maintained by the customer in an account with the Servicing Agent in shares of
the Fund through a single account in the name of the Servicing Agent on behalf
of its customers. Fund shares are offered continuously at the net asset value
next determined after a purchase order is received by the Servicing Agent. The
Servicing Agent is responsible for the prompt transmission of the purchase order
to the Fund. The net asset value is expected to remain constant at $1.00. No
sales loads are imposed.
Shares of the Fund may be purchased on any Business Day. There is no minimum
initial or subsequent purchase amount applicable to Fund shares. The Company
reserves the right to reject any purchase order for Fund shares. All amounts
accepted will be invested in full and fractional shares. Inquiries regarding
purchases and redemptions may be directed to the Company at (800) 572-7797 or at
the address on the back cover of the Prospectus.
Shares may be redeemed at their next determined net asset value after the
Servicing Agent has received a redemption order. The Servicing Agent is
responsible for the prompt transmission of the redemption order to the Fund. The
Company does not charge redemption fees. Proceeds of redemptions will be
credited to the Servicing Agent's shareholder account with the Fund.
TAXES
Distributions from the Fund's net investment income and net short-term capital
gains, if any, are designated as dividend distributions and taxable to the
Fund's shareholders as ordinary income. Distributions from the Fund's net
long-term capital gains, if any, are designated as capital gain distributions
and taxable to the Fund's shareholders as long-term capital gains. In general,
your distributions will be taxable when paid whether you take such distributions
in cash or have them automatically reinvested in additional Fund shares.
Distributions declared in October, November, and December and distributed by the
following January will be taxable as if they were paid by December 31.
Foreign shareholders may be subject to different tax treatment, including
withholding taxes. See "Federal Income Taxes -- Foreign Shareholders" in the
SAI. In certain circumstances, U.S. residents may also be subject to withholding
taxes. See "Federal Income Taxes -- Backup Withholding" in the SAI.
The foregoing discussion regarding taxes is based on tax laws 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 a substitute for careful tax planning; you
should consult your tax advisor with respect to your specific tax situation as
well as with respect to foreign, state and local taxes. Further federal tax
considerations are discussed in the SAI.
ORGANIZATION AND CAPITAL STOCK
The Company, an open-end, management investment company was incorporated in
Maryland on April 27, 1987. All shares of the
PROSPECTUS
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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 of the Company. A more detailed statement of the voting
rights of shareholders is contained in the SAI.
The Trust was established on August 14, 1991, as a Delaware business trust and
currently offers nine portfolios, including the Master Portfolio. The Trust's
Declaration of Trust permits the Board of Trustees to issue beneficial interests
in its separate series to investors based on their proportionate investments in
such series.
THE MASTER PORTFOLIO
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 its investment policies.
Whenever the Fund, as a Master Portfolio interestholder, is requested to vote on
any matter submitted to interestholders pertaining to any fundamental policy of
the Master Portfolio, the Company will hold a meeting of the Fund's shareholders
to consider such matters. The Fund will casts its votes in proportion to the
votes received from its 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
Trust's Trustees without interestholder vote. If the Master Portfolio's
investment objective or fundamental or non-fundamental policies are changed, the
Fund may elect to change its objective or policies to correspond to those of the
Master Portfolio, 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 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.
PROSPECTUS
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<PAGE> 87
NOT FDIC INSURED
For Customer Service or questions about
your account, call (800) 572-7797
For more information about the Fund,
simply call (800) 552-9612.
You may also write to the Fund at:
OVERLAND EXPRESS FUNDS, INC.
c/o Overland Express
Shareholder Services
Wells Fargo Bank, N.A.
P.O. Box 63084
San Francisco, California 94163
80 P 5/97 [OVERLAND EXPRESS LOGO]
<PAGE> 88
OVERLAND EXPRESS FUNDS
PROSPECTUS
MAY 1, 1997
INSTITUTIONAL CLASS
--------------------------------------------------------------------
MONEY MARKET FUND
NATIONAL TAX-FREE INSTITUTIONAL
MONEY MARKET FUND
U.S. TREASURY MONEY MARKET FUND
LOGO
<PAGE> 89
LOGO
PROSPECTUS DATED MAY 1, 1997
Telephone: (800) 552-9612
Overland Express Funds, Inc. (the "Company") is an open-end, series investment
company. This Prospectus describes the Institutional Class shares of the
Company's MONEY MARKET FUND and U.S. TREASURY MONEY MARKET FUND and shares of
the NATIONAL TAX-FREE INSTITUTIONAL MONEY MARKET FUND (each, a "Fund," and
collectively, the "Funds").
The MONEY MARKET FUND seeks to provide investors with a high level of current
income, while preserving capital and liquidity, by investing in high-quality,
short-term securities.
The U.S. TREASURY MONEY MARKET FUND seeks to provide investors with a high level
of current income, while preserving capital and liquidity, by investing in
short-term U.S. Treasury bonds, notes and bills.
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.
Each Fund seeks to maintain a stable net asset value of $1.00 per share.
Investors should read this Prospectus carefully and retain it for future
reference. It sets forth concisely the information a prospective investor should
know before investing in a Fund. Statements of Additional Information ("SAIs")
dated May 1, 1997, containing additional and more detailed information about
each of the Funds have been filed with the Securities and Exchange Commission
(the "SEC") and are hereby incorporated by reference into this Prospectus. The
SAIs are available without charge and can be obtained by writing the Company c/o
Overland Express Shareholder Services at P.O. Box 63084, San Francisco, CA 94163
or by calling (800) 552-9612.
AN INVESTMENT IN A FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE IS NO ASSURANCE THAT A FUND WILL BE ABLE TO MAINTAIN A STABLE
$1.00 NET ASSET VALUE PER SHARE.
The NATIONAL TAX-FREE INSTITUTIONAL MONEY MARKET 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
"Trust"), an open-end, management investment company, rather than directly in a
portfolio of securities. The Master Portfolio has the same investment objective
as the Fund and the Fund's performance corresponds directly with the Master
Portfolio's performance. References to the investments, investment policies and
risks of the National Tax-Free Institutional Money Market Fund, unless otherwise
indicated, should be understood as references to the investments, investment
policies and risks of the Master Portfolio.
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FUND SHARES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR ISSUED, ENDORSED OR
GUARANTEED BY, WELLS FARGO BANK, N.A. OR ANY OF ITS AFFILIATES. SUCH SHARES ARE
NOT INSURED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN A
FUND INVOLVES CERTAIN INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
WELLS FARGO BANK IS THE INVESTMENT ADVISER AND ADMINISTRATOR, AND PROVIDES
CERTAIN OTHER SERVICES TO THE FUNDS AND MASTER PORTFOLIO, FOR WHICH IT IS
COMPENSATED. STEPHENS INC., WHICH IS NOT AFFILIATED WITH WELLS FARGO BANK, IS
THE SPONSOR, CO-ADMINISTRATOR AND DISTRIBUTOR FOR THE FUNDS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<PAGE> 90
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PROSPECTUS SUMMARY................................. 1
SUMMARY OF EXPENSES................................ 3
FINANCIAL HIGHLIGHTS............................... 5
INVESTMENT OBJECTIVES AND POLICIES................. 8
INVESTMENT ACTIVITIES.............................. 10
MANAGEMENT OF THE FUNDS............................ 11
DETERMINATION OF NET ASSET VALUE................... 13
PURCHASE OF SHARES................................. 13
EXCHANGE PRIVILEGES................................ 15
REDEMPTION OF SHARES............................... 16
DIVIDENDS AND DISTRIBUTIONS........................ 17
TAXES.............................................. 18
ORGANIZATION AND CAPITAL STOCK..................... 19
</TABLE>
PROSPECTUS
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PROSPECTUS SUMMARY
The Company, as an open-end management investment company, provides a convenient
way for you to invest in portfolios of securities selected and supervised by
professional management. The following provides information about the Funds,
each of which has its own investment objective.
Q. WHAT ARE THE FUNDS' INVESTMENT OBJECTIVES?
A. The MONEY MARKET FUND seeks to provide investors with a high level of current
income, while preserving capital and liquidity, by investing in high-quality,
short-term securities. The U.S. TREASURY MONEY MARKET FUND seeks to provide
investors with a high level of current income, while preserving capital and
liquidity, by investing in short-term U.S. Treasury bonds, notes and bills.
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 seeks to achieve its investment
objective by investing all of its assets in the Tax-Free Money Market Master
Portfolio of the Trust, which has the same investment objective as the Fund.
Each Fund seeks to maintain a stable net asset value of $1.00 per share. See
"Investment Objectives and Policies."
Q. WHAT ARE THE FUNDS' PRINCIPAL INVESTMENTS?
A. The MONEY MARKET FUND invests in high-quality money market instruments,
including obligations of the U.S. Government, its agencies and
instrumentalities (including government-sponsored enterprises), certain debt
obligations, including corporate debt, certain obligations of U.S. banks and
certain repurchase agreements.
The U.S. TREASURY MONEY MARKET FUND invests in short-term U.S. Treasury
bonds, notes and bills.
The NATIONAL TAX-FREE INSTITUTIONAL MONEY MARKET FUND invests in
high-quality, U.S. dollar-denominated money market instruments, primarily
municipal obligations, with remaining maturities not exceeding thirteen
months.
See "Investment Objectives and Policies" and "Investment Activities."
Q. WHAT ARE SOME OF THE POTENTIAL RISKS ASSOCIATED WITH AN INVESTMENT IN A FUND?
A. Investments in the Funds 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 or
interest, although certain of the Funds' portfolio securities may be insured
or guaranteed as to repayments of principal and/or the payment of interest.
Therefore, you should be willing to accept some risk with money invested in
the Funds. Although each of the Funds 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 is no assurance that the Funds will
achieve their investment objectives. The Funds may not achieve as high a
level of current income as other mutual funds that do not limit their
investments to the high credit quality instruments in which the Funds invest.
See "Investment Objectives and Policies -- Risk Factors."
Q. WHO MANAGES MY INVESTMENTS?
A. Wells Fargo Bank, as investment adviser to the Money Market and U.S. Treasury
Money Market Funds and the Master Portfolio, manages your investments. Wells
Fargo Bank also provides the Funds with administrative, transfer agency,
dividend disbursing agency and custodial services Stephens Inc. ("Stephens")
is the Funds' sponsor, co-administrator and distributor. See "Management of
the Funds."
Q. HOW MAY I PURCHASE SHARES?
A. Shares of each Fund may be purchased on any day the Fund is open. There are
no sales loads. The minimum initial purchase amount is $150,000 with minimum
subsequent purchase amounts of $25,000 or more in each account, although
certain exceptions to these minimums may be available. Shares of the National
Tax-Free Institutional Money Market 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. You may purchase shares through Stephens, Wells Fargo Bank, as
transfer agent (the "Transfer Agent"), or any authorized broker/dealer or
financial institution. Purchases may be made by wire directly to the Transfer
Agent. See "Purchase of Shares."
Q. HOW WILL I RECEIVE DIVIDENDS?
A. Dividends are declared daily and paid monthly. Any capital gains are
distributed at least annually. Dividends and capital gain distributions are
automatically reinvested in additional Fund shares unless you elect to
receive
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dividends and distributions in cash. All reinvestments in Fund shares are at
net asset value. See "Dividends and Distributions."
Q. HOW MAY I REDEEM SHARES?
A. Shares of each Fund may be redeemed at net asset value on any day the Fund is
open upon request to Stephens or the Transfer Agent directly, or through any
authorized broker/dealer or financial institution. Shares may be redeemed by
request in good form by letter, by an automatic feature called the Systematic
Withdrawal Plan, or by telephone (unless the investor specifically declines
telephone privileges). Proceeds are payable by check or, for shareholders who
make prior arrangements, by wire. Accounts maintaining less than the
applicable minimum initial purchase amount may be redeemed at the option of
the Company. The Company does not charge redemption fees. However, the
Company reserves the right to impose charges for wiring redemption proceeds.
See "Redemption of Shares."
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SUMMARY OF EXPENSES
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
NATIONAL
TAX-FREE U.S.
INSTL. TREASURY
MONEY MONEY MONEY
MARKET MARKET MARKET
FUND FUND(1) FUND
<S> <C> <C> <C>
Management Fees (after waivers or reimbursements)(2)........ 0.25% 0.19% 0.25%
Rule 12b-1 Fees............................................. None None None
Other Expenses (after waivers or reimbursements)(3)......... 0.15% 0.11% 0.15%
---- ---- ----
TOTAL FUND OPERATING EXPENSES (after waivers or
reimbursements)(4)......................................... 0.40% 0.30% 0.40%
==== ==== ====
</TABLE>
- ---------------
(1) Summarizes expenses charged to the Fund and the Master Portfolio.
(2) Management Fees (before waivers or reimbursements) would be 0.30% for the
National Tax-Free Institutional Money Market Fund.
(3) Other Expenses (before waivers or reimbursements) would be 0.16% and 0.20%
for the Money Market and U.S. Treasury Money Market Funds, respectively.
(4) Total Fund Operating Expenses (before waivers or reimbursements) would be
0.41%, 0.51% and 0.45% for the Money Market, National Tax-Free Institutional
Money Market and U.S. Treasury Money Market Funds, respectively.
EXAMPLE OF EXPENSES
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a $1,000
investment, assuming a 5% annual return and redemption at
the end of each time period indicated:
Money Market Fund.......................................... $4 $13 $22 $51
U.S. Treasury Money Market Fund............................ $4 $13 $22 $51
National Tax-Free Institutional Money Market Fund.......... $3 $10 $17 $38
</TABLE>
------------------------
The purpose of the foregoing tables is to assist an investor in understanding
the various costs and expenses that investors in the Funds will pay directly or
indirectly. There are no sales loads, redemption fees or exchange fees charged
by the Funds. However, the Company reserves the right to impose charges for
wiring redemption proceeds.
ANNUAL FUND OPERATING EXPENSES are based on amounts incurred during the most
recent fiscal year adjusted to reflect voluntary fee waivers and expense
reimbursements expected to continue during the current fiscal year. Wells Fargo
Bank and Stephens each have agreed to waive all or a portion of its respective
fees, through at least the current fiscal year, to ensure that "Total Fund
Operating Expenses" for Institutional Class shares of the Money Market and U.S.
Treasury Money Market Funds do not exceed 0.45% of each Fund's average daily net
assets. There can be no assurances that voluntary fee waivers or expense
reimbursements will continue.
EXAMPLE OF EXPENSES is a hypothetical example which illustrates the expenses
associated with a $1,000 investment over the periods shown, based on the
expenses in the table above and an assumed annual rate of return of 5%. This
rate of return should not be considered an indication of the actual or expected
performance of a Fund. In addition, the Example should not be considered a
representation of past or future expenses; actual expenses and returns may be
greater or less than those shown. See "Management of the Funds" for more
complete descriptions of the various costs and expenses applicable to the Funds.
The Money Market and U.S. Treasury Money Market Funds also offer Class A shares.
Investors who are not eligible to invest in the Institutional Class shares may
be eligible to invest in Class A shares. The expenses and corresponding
performance of the Class A shares may differ from the expenses and corresponding
performance of the Institutional Class shares. Additional information about
Class A shares, and a free copy of the current prospectus describing the Class A
shares, is available from the Company by calling (800) 552-9612.
PROSPECTUS
- --------------------------------------------------------------------------------
3
<PAGE> 94
With regard to the combined fees and expenses of the National Tax-Free
Institutional Money Market 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 rather than directly in a portfolio of
securities would be more or less than if the Fund invested in portfolio
securities directly. The Company's Board believes that the aggregate per share
expenses of the Fund will not be more than the expenses incurred by the Fund if
the Fund invested directly in the type of securities held by the Master
Portfolio. The Board believes that if other investors invest 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 larger asset base provided by
more than one fund investing in the Master Portfolio. There can be no assurance
that these economic efficiencies will be achieved. In addition to selling its
shares to the National Tax-Free Institutional Money Market Fund, the Master
Portfolio may sell its shares to other mutual funds or qualified investors. The
expenses and corresponding performance of such other mutual funds and qualified
investors may differ from the expenses and performance of 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.
PROSPECTUS
- --------------------------------------------------------------------------------
4
<PAGE> 95
FINANCIAL HIGHLIGHTS
The following information has been derived from the Financial Highlights in the
Funds' 1996 annual financial statements. The financial statements are
incorporated by reference into the SAI and have been audited by KPMG Peat
Marwick LLP, independent auditors, whose report dated February 14, 1997 also is
incorporated by reference into the SAI. This information should be read in
conjunction with the Funds' 1996 annual financial statements and the notes
thereto. The SAI has been incorporated by reference into this Prospectus.
MONEY MARKET FUND
For an Institutional Class Share Outstanding
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
DEC. 31, DEC. 31, DEC. 31,
1996 1995 1994(1)
-------- -------- --------
<S> <C> <C> <C>
Net asset value, beginning of period........................ $ 1.00 $ 1.00 $ 1.00
Income from investment operations:
Net investment income....................................... 0.05 0.06 0.02
Net realized and unrealized gain on investments............. 0.00 0.00 0.00
-------- -------- -------
Total from investment operations............................ 0.05 0.06 0.02
Less distributions:
Dividends from net investment income........................ (0.05) (0.06) (0.02)
Distributions from net realized gain........................ 0.00 0.00 0.00
-------- -------- -------
Total from distributions.................................... (0.05) (0.06) (0.02)
-------- -------- -------
Net asset value, end of period.............................. $ 1.00 $ 1.00 $ 1.00
======== ======== =======
Total Return (not annualized)............................... 5.15% 5.71% 1.83%
Ratios/supplemental data:
Net assets, end of period (000)............................. $754,092 $324,175 $11,237
Number of shares outstanding, end of period (000)........... 754,092 324,222 11,238
Ratios to average net assets (annualized):
Ratio of expenses to average net assets..................... 0.40% 0.39% 0.38%
Ratio of net investment income to average net assets........ 5.04% 5.70% 5.05%
Ratio of expenses to average net assets prior to waived fees
and reimbursed expenses.................................... 0.41% 0.45% 0.55%
Ratio of net investment income to average net assets prior
to waived fees and reimbursed expenses..................... 5.03% 5.64% 4.88%
</TABLE>
- ---------------
(1) Institutional Class shares commenced operations on August 18, 1994.
PROSPECTUS
- --------------------------------------------------------------------------------
5
<PAGE> 96
NATIONAL TAX-FREE INSTITUTIONAL MONEY MARKET FUND
For a Share Outstanding
<TABLE>
<CAPTION>
PERIOD
ENDED
DEC. 31,
1996(1)
--------
<S> <C>
Net asset value, beginning of period........................ $ 1.00
Income from investment operations:
Net investment income....................................... 0.02
Net realized and unrealized gain on investments............. 0.00
-------
Total from investment operations............................ 0.02
Less distributions:
Dividends from net investment income........................ (0.02)
Distributions from net realized gain........................ 0.00
-------
Total from distributions.................................... (0.02)
-------
Net asset value, end of period.............................. $ 1.00
=======
Total Return (not annualized)............................... 2.27%
Ratios/supplemental data:
Net assets, end of period (000)............................. $60,292
Number of shares outstanding, end of period (000)........... 60,299
Ratios to average net assets (annualized):
Ratio of expenses to average net assets..................... 0.40%(2)
Ratio of net investment income to average net assets........ 2.99%(2)
Ratio of expenses to average net assets prior to waived fees
and reimbursed expenses.................................... 0.51%(2)
Ratio of net investment income to average net assets prior
to waived fees and reimbursed expenses..................... 2.88%(2)
</TABLE>
- ---------------
(1) The Fund commenced operations on April 2, 1996.
(2) Ratio includes income and expenses charged to the Master Portfolio.
PROSPECTUS
- --------------------------------------------------------------------------------
6
<PAGE> 97
U.S. TREASURY MONEY MARKET FUND
For an Institutional Class Share Outstanding
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
DEC. 31, DEC. 31, DEC. 31,
1996 1995 1994(1)
-------- -------- --------
<S> <C> <C> <C>
Net asset value, beginning of period........................ $ 1.00 $ 1.00 $ 1.00
Income from investment operations:
Net investment income....................................... 0.05 0.05 0.02
Net realized and unrealized gain on investments............. 0.00 0.00 0.00
-------- ------- ------
Total from investment operations............................ 0.05 0.05 0.02
Less distributions:
Dividends from net investment income........................ (0.05) (0.05) (0.02)
Distributions from net realized gain........................ 0.00 0.00 0.00
-------- ------- ------
Total from distributions.................................... (0.05) (0.05) (0.02)
Net asset value, end of period.............................. $ 1.00 $ 1.00 $ 1.00
======== ======= ======
Total Return (not annualized)............................... 4.86% 5.35% 2.00%
Ratios/supplemental data:
Net assets, end of period (000)............................. $156,808 $63,134 $3,898
Number of shares outstanding, end of period (000)........... 156,780 63,130 3,900
Ratios to average net assets (annualized):
Ratio of expenses to average net assets..................... 0.40% 0.39% 0.23%
Ratio of net investment income to average net assets........ 4.79% 5.16% 4.42%
Ratio of expenses to average net assets prior to waived fees
and reimbursed expenses.................................... 0.45% 0.49% 0.57%
Ratio of net investment income to average net assets prior
to waived fees and reimbursed expenses..................... 4.74% 5.06% 4.08%
</TABLE>
- ---------------
(1) Institutional Class shares commenced operations on June 20, 1994.
PROSPECTUS
- --------------------------------------------------------------------------------
7
<PAGE> 98
INVESTMENT OBJECTIVES AND POLICIES
Set forth below is a description of the investment objectives and related
policies of each of the Funds. As with all mutual funds, there is no assurance
that the Funds, each of which is a diversified portfolio, will achieve their
respective investment objectives. The Funds invest only in U.S.
dollar-denominated securities with remaining maturities not exceeding thirteen
months, as defined under the Investment Company Act of 1940 (the "1940 Act").
The Funds seek to maintain a dollar-weighted average portfolio maturity of 90
days or less. The Funds seek to maintain a constant net asset value of $1.00 per
share; however, there is no assurance that this objective will be achieved.
The MONEY MARKET FUND seeks to provide investors with a high level of current
income, while preserving capital and liquidity, by investing in high-quality,
short-term securities. Under normal market circumstances, the Fund invests its
assets exclusively in money market instruments (discussed below).
The U.S. TREASURY MONEY MARKET FUND seeks to provide investors with a high level
of current income, while preserving capital and liquidity, by investing in
short-term U.S. Treasury bonds, notes and bills ("U.S. Treasury Securities").
The Fund invests exclusively in U.S. Treasury Securities and repurchase
agreements fully collateralized by U.S. Treasury Securities. U.S. Treasury
Securities are debt obligations issued by the U.S. Government, of which the
payment of interest and repayment of principal are secured by the full faith and
credit of the U.S. Treasury. Treasury bonds, notes and bills differ mainly in
the length of their maturities. Treasury bonds are long-term debt instruments
with original maturities of ten years or more. Treasury notes are medium-term
debt instruments with original maturities of one to ten years. Treasury bills
are short-term debt obligations with original maturities of one year or less and
are issued on a discounted basis. The Fund may only purchase U.S. Treasury
Securities with remaining maturities of 13 months or less.
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 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. Shares of the National
Tax-Free Institutional Money Market 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.
As a matter of fundamental policy, at least 80% of the net assets of the Master
Portfolio are 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 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 Fund's investments in such
obligations.
INVESTMENT POLICIES
Each of the Funds' investment objectives is fundamental; that is, the investment
objective 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. If the Board of Directors determines, however, that
a Fund's investment objective can best be achieved by a substantive change in a
non-fundamental investment policy or strategy, the Company may make such change
without shareholder approval and will disclose any such material changes in the
then current prospectus.
As matters of fundamental policy, the following apply:
<TABLE>
<C> <S>
(i) each of the Funds may borrow from banks up to 10% of
the current value of its 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 its net assets (but
investments may not be purchased by the Money Market
Fund while any such outstanding borrowing exists and
investments may not be purchased by the U.S.
Treasury Money Market or National Tax-Free
Institutional Money Market Funds while any such
outstanding borrowing in excess of 5% of such Fund's
net assets exists);
</TABLE>
PROSPECTUS
- --------------------------------------------------------------------------------
8
<PAGE> 99
<TABLE>
<C> <S>
(ii) none of the Funds may 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 investment in that industry would exceed 25%
of the current value of such Fund's total assets,
provided that there is no limitation with respect to
investments in (a) U.S. Government obligations
(which includes U.S. Treasury Securities); (b)
certain obligations of domestic banks (for the pur-
pose 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 (c) for the National Tax-Free
Institutional Money Market Fund, municipal
securities (for the purpose of this restriction,
private activity bonds and notes shall not be deemed
municipal securities if the payments of principal
and interest on such bonds and notes is the ultimate
responsibility of non-governmental entities);
(iii) the National Tax-Free Institutional Money Market
Fund may not make loans, except that it 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; and
(iv) the National Tax-Free Institutional Money Market
Fund may 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 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 Master Portfolio's ownership would be
more than 10% of the outstanding voting securities
of such issuer.
</TABLE>
As matters of non-fundamental policy the National Tax-Free Institutional Money
Market Fund may:
<TABLE>
<C> <S>
(i) invest up to 10% of the current value of its 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 its 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).
</TABLE>
See "Investment Restrictions" and "Additional Permitted Investment Activities"
in the SAI.
RISK FACTORS
Investments in a Fund are not bank deposits and are not insured or guaranteed
against loss of principal. Although the Funds 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 is no assurance that the Funds will
achieve their respective investment objectives. Pursuant to the 1940 Act, each
Fund must comply with certain investment criteria designed to provide liquidity,
reduce risk and allow the Funds to maintain a stable net asset value of $1.00
per share. The Funds seek to reduce risk by investing in securities of various
issuers and will comply with 1940 Act and Internal Revenue Code of 1986 (the
"Code") diversification requirements.
Since their inception, the Funds have emphasized safety of principal and high
credit quality. In particular, the internal investment policies of the Funds'
investment adviser, Wells Fargo Bank, have always prohibited the purchase of
many types of floating-rate instruments commonly referred to as "derivatives"
that are considered potentially volatile. The following types of derivative
securities ARE NOT permitted investments for the Funds:
- - 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 range);
- - 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 index).
Additionally, the Funds may not invest in securities whose interest rate reset
provisions are tied to an index that materially lags short-term interest rates,
such as Cost of Funds Index floaters. The Funds 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. Treasury bills, London Interbank Offered Rate, the prime
rate, published commercial paper rates, federal funds rates, Public Securities
Associates floaters or JJ Kenney Index floaters.
PROSPECTUS
- --------------------------------------------------------------------------------
9
<PAGE> 100
INVESTMENT ACTIVITIES
Set forth below is a more detailed description of the Funds' permissible
investments. References to the investments, investment policies and risks of the
National Tax-Free Institutional Money Market Fund, unless otherwise indicated,
should be understood as references to the investments, investment policies and
risks of the Master Portfolio. For additional information, see "Additional
Permitted Investment Activities" in each Fund's SAI.
MONEY MARKET INSTRUMENTS
Money market instruments consist of: (a) short-term securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities (including
government-sponsored enterprises) ("U.S. Government obligations"); (b)
negotiable certificates of deposit, bankers' acceptances and fixed time deposits
and other short-term obligations of domestic banks (including foreign branches)
that have more than $1 billion in total assets at the time of the 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; (c) commercial paper
rated at the date of purchase "Prime-1" by Moody's Investors Service, Inc.
("Moody's") or "A-1" or better by Standard & Poor's Corporation ("S&P"), or, if
unrated, of comparable quality as determined by Wells Fargo Bank; (d) certain
repurchase agreements; and (e) short-term U.S. dollar-denominated obligations of
foreign banks (including U.S. branches) that at the time of investment: (i) have
more than $10 billion, or the equivalent in other currencies, in total assets;
(ii) are among the 75 largest foreign banks in the world as determined on the
basis of assets; and (iii) have branches or agencies in the United States.
U.S. GOVERNMENT OBLIGATIONS
The Money Market and National Tax-Free Institutional Money Market Funds may
invest in various types of U.S. Government obligations. The U.S. Treasury Money
Market Fund invests exclusively in U.S. Treasury Securities (and repurchase
agreements collateralized by U.S. Treasury Securities). Payment of principal and
interest on U.S. Government obligations may be backed by the full faith and
credit of the United States, as with U.S. Treasury Securities, or may be backed
solely by the issuing or guaranteeing agency or instrumentality itself. In the
latter case investors must look principally to the agency or instrumentality
issuing or guaranteeing the obligation for ultimate repayment, which agency or
instrumentality may be privately owned. There can be no assurance that the U.S.
Government will provide financial support to its agencies or instrumentalities
where it is not obligated to do so. In addition, U.S. Government obligations are
subject to fluctuations in market value due to fluctuations in market interest
rates. As a general matter, the value of debt instruments, including U.S.
Government obligations, declines when market interest rates increase and rises
when market interest rates decrease. Certain types of U.S. Government
obligations are subject to fluctuations in yield, duration or value due to their
structure or contract terms.
FLOATING- AND VARIABLE-RATE INSTRUMENTS
Certain of the debt instruments in which the Funds may invest bear interest
rates that are periodically adjusted at specified intervals or whenever a
benchmark rate or index change. These adjustments generally limit the increase
or decrease in the amount of interest received on debt instruments. The
floating-and variable-rate instruments that the Funds may purchase include
certificates of participation in pools of floating- and variable-rate
instruments. Floating- and variable-rate instruments are subject to interest
rate risk and credit risk.
REPURCHASE AGREEMENTS
The Funds may enter into repurchase transactions in which the seller of a
security to a Fund agrees to repurchase that security from such Fund at a
mutually agreed-upon time and price. The period of maturity is usually quite
short, often overnight or a few days, although it may extend over a number of
months. The Funds may enter into repurchase agreements only with respect to
securities that are permissible investments for the Funds. The U.S. Treasury
Money Market Fund may only enter into repurchase agreements that are fully
collateralized by U.S. Treasury Securities. A Fund may incur a loss on a
repurchase agreement transaction if the seller defaults and the value of the
underlying collateral declines or is otherwise limited or if receipt of the
security is delayed or limited. The Funds may participate in pooled repurchase
agreement transactions with other funds advised by Wells Fargo Bank.
FOREIGN OBLIGATIONS
The Money Market and National Tax-Free Institutional Money Market Funds each may
invest up to 25% of its assets in high-quality, short-term debt obligations of
foreign branches of U.S. banks or U.S. branches of foreign banks that are
denominated in and pay interest in U.S. dollars. Investments in foreign
obligations involve certain considerations that are not typically associated
with investing in domestic obligations. There may be less publicly available
information about a foreign issuer than about a domestic issuer. Foreign issuers
also are not subject to the same accounting, auditing and financial reporting
standards or governmental supervision as domestic issuers. In addition, with
respect to certain foreign countries, taxes may be withheld at the source under
foreign tax laws, and there is a possibility of expropriation or confiscatory
taxation, political or social instability or diplomatic development 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.
PROSPECTUS
- --------------------------------------------------------------------------------
10
<PAGE> 101
MUNICIPAL OBLIGATIONS
The National Tax-Free Institutional Money Market Fund invests (under normal
market conditions) substantially all of its 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.
TAXABLE INVESTMENTS
The National Tax-Free Institutional Money Market Fund 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 Fund 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 Fund 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 Fund 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 Fund's assets in securities exempt from such tax.
LETTERS OF CREDIT
Certain of the debt obligations, certificates of participation, commercial paper
and other short-term obligations in which the Money Market and National Tax-Free
Institutional Money Market Funds are permitted to purchase may be backed by an
unconditional and irrevocable letter of credit of a bank, savings and loan
association or insurance company that assumes the obligation for payment of
principal and interest in the event of default by the issuer. Letter of
credit-backed investments must, in the opinion of Wells Fargo Bank, be of
investment quality comparable to other permitted high-quality investments of the
Fund.
ILLIQUID SECURITIES
The Funds may invest in securities not registered under the Securities Act of
1933 and other securities subject to legal or other restrictions on resale.
Because such securities may be less liquid than other investments, they may be
difficult to sell promptly at an acceptable price. Delay or difficulty in
selling securities may result in a loss or be costly to the Fund.
MANAGEMENT OF THE FUNDS
The Company's Board of Directors supervises the Funds' activities, monitors
their contractual arrangements with service providers and decides upon matters
of general policy.
INVESTMENT ADVISER
The Money Market and U.S. Treasury Money Market Funds and the Master Portfolio
are advised by Wells Fargo Bank. 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 April 1, 1997, Wells Fargo Bank and its affiliates provided
investment advisory services for approximately $57 billion of assets of
individuals, trusts, estates and institutions. Wells Fargo Bank also serves as
the investment adviser to other separately managed portfolios of the Company and
serves as investment adviser or sub-adviser to five other registered investment
companies. Wells Fargo Bank is a wholly owned subsidiary of Wells Fargo &
Company and is located at 420 Montgomery Street, San Francisco, California
94104.
Wells Fargo Bank provides investment guidance and policy direction in connection
with the daily portfolio management of the Funds and Master Portfolio. Wells
Fargo Bank furnishes to the Board of Directors periodic reports on the
investment strategy and performance of each Fund and the Master Portfolio.
For its services as investment adviser to the Money Market and U.S. Treasury
Money Market Funds, Wells Fargo Bank is entitled to receive monthly fees at the
annual rate of 0.25% of each Fund's average daily net assets. For its services
as investment adviser to the Master Portfolio, Wells Fargo Bank is entitled to
receive monthly fees at the annual rate of 0.30% of the Master Portfolio's
average daily net assets. For the year ended December 31, 1996, the Money Market
and U.S. Treasury Money Market Funds each paid advisory fees to Wells Fargo Bank
at the annual rate of 0.25% of such Fund's respective average daily net assets.
For the period from commencement of operations (April 2, 1996) to December 31,
1996, the Master Portfolio paid advisory fees to Wells Fargo Bank at the annual
rate of 0.19% of the National Tax-Free Institutional Money Market Fund's average
daily net assets.
Wells Fargo Bank deals, trades and invests for its own account in the types of
securities in which the Funds may invest and may have deposit, loan and
commercial banking relationships with the issuers of securities purchased by a
Fund. Wells Fargo Bank has informed the Company that in making its investment
decisions it does not obtain or use material inside information in its
possession. Purchase and sale orders of the securities held by each of the Funds
may be combined with those of other accounts that Wells
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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 any of
the Funds and other accounts managed by Wells Fargo Bank, Wells Fargo Bank
undertakes to allocate those transaction costs among the participants equitably.
From time to time, each of the Funds, to the extent consistent with its
investment objective, policies and restrictions, may invest in securities of
companies with which Wells Fargo Bank has a lending relationship.
Morrison & Foerster LLP, counsel to the Company and the Trust and special
counsel to Wells Fargo Bank, has advised the Company, the Trust and Wells Fargo
Bank that Wells Fargo Bank and its affiliates may perform the services
contemplated by the Advisory Contracts and this Prospectus without violation of
the Glass-Steagall Act. Such counsel has pointed out, however, that there are no
controlling judicial or administrative interpretations or decisions and that
future judicial or administrative interpretations of, or decisions relating to,
present federal or state statutes, including the Glass-Steagall Act, and
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, as well as future changes in such statutes,
regulations and judicial or administrative decisions or interpretations, could
prevent such entities from continuing to perform, in whole or in part, such
services. If any such entity were prohibited from performing any such services,
it is expected that new agreements would be proposed or entered into with
another entity or entities qualified to perform such services.
ADMINISTRATOR AND CO-ADMINISTRATOR
Wells Fargo Bank as administrator and Stephens as co-administrator, provide the
Funds with administrative services, including general supervision of each Fund's
operation, coordination of the other services provided to the Funds, compilation
of information for reports to the SEC and state securities commissions,
preparation of proxy statements and shareholder reports, and general supervision
of data compilation in connection with preparing periodic reports to the
Company's Directors and officers. Wells Fargo Bank and Stephens also furnish
office space and certain facilities to conduct the Funds' business and Stephens
compensates the Directors and officers who are affiliated with Stephens. For
these administrative services, Wells Fargo Bank and Stephens are entitled to
receive monthly fees at annual rates of 0.04% and 0.02%, respectively, of each
Fund's average daily net assets. Wells Fargo Bank and Stephens may delegate
certain of their administrative duties to sub-administrators.
Stephens previously provided substantially the same services as sole
administrator to the Funds and was entitled to receive monthly fees at the
annual rate of 0.10% of the average daily net assets of the of the Money Market
and U.S. Treasury Money Market Funds, and 0.05% of the average daily net assets
of the National TaxFree Institutional Money Market Fund.
SPONSOR AND DISTRIBUTOR
Stephens is the Funds' and the Master Portfolio's sponsor and distributes the
Funds' shares. Stephens is a full service broker/dealer and investment advisory
firm located at 111 Center Street, Little Rock, Arkansas 72201. Stephens and its
predecessor have been providing securities and investment services for more than
sixty years. Additionally, they have been providing discretionary portfolio
management services since 1983. Stephens currently manages investment portfolios
for pension and profit sharing plans, individual investors, foundations,
insurance companies and university endowments.
The Company has entered into a Distribution Agreement with Stephens pursuant to
which Stephens is responsible for distributing the Funds' shares. Stephens bears
the cost of printing and mailing prospectuses to potential investors and any
advertising expenses incurred by it in connection with the distribution of
shares. In addition, Stephens has established a cash and non-cash compensation
program, pursuant to which broker/dealers or financial institutions that sell
shares of the Company's funds may earn additional compensation in the form of
trips to sales seminars or vacation destinations, tickets to sporting events,
theater or other entertainment, opportunities to participate in golf or other
outings and gift certificates for meals or merchandise or the cash value of a
non-cash compensation item.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
Wells Fargo Bank has been retained to act as the Funds' custodian and transfer
and dividend disbursing agent. Wells Fargo Bank performs the custodial, transfer
and dividend disbursing agency activities at 525 Market Street, San Francisco,
California 94105.
FUND EXPENSES
From time to time, Wells Fargo Bank and Stephens may waive their respective fees
in whole or in part and reimburse expenses payable to others. Any such waivers
or reimbursements will reduce a Fund's expenses and, accordingly, have a
favorable impact on the Fund's performance. Except for the expenses borne by
Wells Fargo Bank and Stephens, each Fund bears all costs of its operations,
including its pro rata portion of Company expenses such as fees and expenses of
its independent auditors and legal counsel, and compensation of the Company's
directors who are not affiliated with the adviser, administrators or any of
their affiliates; advisory, transfer agency, custody and administration fees;
and any extraordinary expenses. Expenses attributable to a Fund are charged
against the Fund's assets. General expenses of
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the Company are allocated among all of the funds of the Company, including the
Funds, in a manner proportionate to the net assets of each fund, on a
transactional basis, or on such other basis as the Company's Board of Directors
deems equitable. The National Tax-Free Institutional Money Market Fund bears a
pro rata portion of the Master Portfolio's expenses.
DETERMINATION OF NET ASSET VALUE
The price of each Fund share is its net asset value. Net asset value per class
of shares of each Fund is determined by Wells Fargo Bank on each day that the
Fund is open for trading (a "Business Day"). The Funds are open Monday through
Friday and are closed weekends and standard New York Stock Exchange holidays.
The net asset value of a share of a class of the Money Market or U.S. Treasury
Money Market Funds is the value of the total net assets attributable to such
class, divided by the number of outstanding shares of such class. The National
Tax-Free Institutional Money Market Fund's investment in the Master Portfolio is
valued at the net asset value of the Master Portfolio's shares, which is
calculated as described above.
The net asset value for Institutional Class shares of the Money Market and U.S.
Treasury Money Market Funds is determined as of 12:00 noon and 1:00 p.m.
(Pacific time). The net asset value for shares of the National Tax-Free
Institutional Money Market Fund is determined as of 9:00 a.m. and 1:00 p.m.
(Pacific time). The Master Portfolio calculates the net asset value of its
shares on each day and at the same time as the corresponding Fund. On any day
the trading markets for both U.S. government securities and money market
instruments close early, the Money Market and U.S. Treasury Money Market Funds
may close early. On these days, the net asset value calculation time and the
dividend, purchase and redemption cut-off times for each such Fund may be
earlier than 12:00 noon.
The Funds' and Master Portfolio's investments are valued on the basis of
amortized cost. 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.
PERFORMANCE DATA
From time to time, the Company may advertise yield information for a Fund or
class. Yield information is based on the historical earnings and performance of
a Fund or class and should not be considered representative of future
performance. Each of the Funds may advertise its current yield and effective
yield for a class of shares.
Current yield for a Fund or class is computed by dividing net investment income
per share of a class earned during a specified period by its net asset value per
share on the last day of such period and annualizing the result. The current
yield shows the annualized income per share generated by an investment in such
Fund or class over a stated period. In calculating the annualized effective
yield, the income earned per share of a Fund or class is assumed to have been
reinvested. The effective yield is slightly higher than the current yield
because of the compounding effect of this assumed reinvestment.
The National Tax-Free Institutional Money Market Fund also may advertise
tax-equivalent yield or effective tax-equivalent yield. The tax- equivalent
yield and 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 is contained in the Company's Annual Report
which is available upon request without charge by calling the Company at (800)
552-9612.
PURCHASE OF SHARES
The minimum initial investment in a Fund is $150,000. All subsequent purchases
must be at least $25,000. There is no minimum initial or subsequent additional
investment amount for shares purchased in connection with a Benefit Plan and 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.
Shares of each Fund may be purchased on any Business Day through Stephens, the
Transfer Agent, or any authorized broker/dealer or financial institution with
which Stephens has entered into agreements. Such broker/dealers or financial
institutions are responsible for the prompt transmission of purchase, exchange
or redemption orders, and may independently establish and charge additional fees
to their clients for such services, other than services related to purchase
orders, which would reduce the clients' overall yield or return. By investing in
Fund shares, a shareholder appoints the Transfer Agent to establish an account
to which all shares purchased will be credited, together with any dividends and
capital gain distributions that are paid in additional shares. Shares of the
Funds are offered continuously at the net asset value next determined after a
purchase order is effective. No sales loads are imposed.
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After a properly completed Account Application is received and the investor's
wire order or check is received and converted into federal funds, or an account
with a bank that is designated in the Account Application and that is approved
by the Transfer Agent is debited, the purchase order is effective, and full and
fractional shares are purchased at the next determined net asset value, which is
expected to remain a constant $1.00 per share.
Checks will be accepted for the purchase of Fund shares subject to collection at
full face value in U.S. dollars. When payment for Fund shares is by a check that
is drawn on any member bank of the Federal Reserve System, federal funds
normally become available to the Fund on the business day after the day the
check is deposited. Checks drawn on a non-member bank or a foreign bank may take
substantially longer to be converted into federal funds and, accordingly, may
delay the execution of an order. 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, a 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). All investments are
subject to a determination by the Company that the investment instructions are
complete. The Company reserves the right to reject any purchase order or suspend
sales at any time.
Purchase orders for shares of the National Tax-Free Institutional Money Market
Fund 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.
are executed on the next Business Day. Purchase orders for shares of the Money
Market and U.S. Treasury Money Market Funds that are received by the Transfer
Agent before 12:00 noon (Pacific time) are executed on the same day; orders
received by the Transfer Agent after 12:00 noon are executed on the next
Business Day. Purchase orders are processed at the net asset value next
determined after the order is received.
If investors, with the prior approval of the Company, notify the Company at or
before 12:00 noon (Pacific time) on any Business Day that they intend to wire
federal funds to purchase shares of the Money Market or U.S. Treasury Money
Market Funds, the Account Application will be executed at the net asset value
per share determined at 12:00 noon the same day.
Account Applications received from Benefit Plans before 1:00 p.m. (Pacific time)
on any Business Day are executed at the net asset value per share determined as
of 1:00 p.m. on the same day. Wire transmissions may, however, be subject to
delays of several hours, in which event the effectiveness of the order will be
delayed.
Inquiries concerning purchases may be directed to the Company at (800) 572-7797
or at the address on the back cover of the Prospectus. 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.
Fund shares may be purchased by any of the methods described below.
INITIAL PURCHASES BY WIRE
1. Telephone toll free (800) 572-7797. Give the name of the Fund and class of
shares, the name(s) in which the shares are to be registered, the address and
social security number (or tax identification number, where applicable) of the
person or entity in whose name(s) the shares are to be registered, dividend
payment election, amount to be wired, name of the wiring bank and name and
telephone number of the person to be contacted in connection with the order. An
account number will be assigned.
2. Instruct the wiring bank, which may charge a separate fee, 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 (Name of Fund -- designate Institutional Class, if
applicable)
Account Name(s): (name(s) in which the account is to be registered)
Account Number: (as assigned by telephone)
3. A completed Account Application should be mailed, or sent by telefacsimile
with the original subsequently mailed, to the following address immediately
after the funds are wired and must be received and accepted by the Transfer
Agent before an account can be opened. An original Application must be received
by the Transfer Agent within thirty (30) days of purchase to prevent backup
withholding taxes.
Wells Fargo Bank, N.A.
Overland Express Shareholder Services
P.O. Box 63084
San Francisco, California 94163
Telefacsimile: 1-415-781-4082
4. Share purchases are effected at the net asset value next determined after the
Account Application is received and accepted.
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INITIAL PURCHASES BY MAIL
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 (Name of Fund -- designate Institutional Class, if
applicable)" to the mailing address set forth above.
ADDITIONAL PURCHASES
Additional purchases of $25,000 or more may be made by instructing the Funds'
Transfer Agent to debit the Wells Fargo Bank account designated in the Account
Application, by wire by instructing the wiring bank to transmit the specified
amount as directed above for initial purchases, or by mail by mailing a check
payable to "Overland Express (Name of Fund, designate Class, if applicable)" to
the above address. Write the Fund account number on the check and include the
detachable stub from a Statement of Account or a letter providing the account
number.
PURCHASES THROUGH AUTHORIZED BROKER/DEALERS AND FINANCIAL INSTITUTIONS
Purchase orders for shares of the National Tax-Free Institutional Money Market
Fund placed through authorized broker/dealers and financial institutions 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 by a
dealer, are executed on the same day the order is placed if notice is provided
to the Transfer Agent by 9:00 a.m. and if federal funds are received by the
Transfer Agent before the close of business. Purchase orders for shares of the
National Tax-Free Institutional Money Market Fund that are received by a dealer
or financial institution after 9:00 a.m. 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.
Purchase orders for Institutional Class shares of the Money Market and U.S.
Treasury Money Market Funds placed through authorized broker/dealers and
financial institutions by 12:00 noon (Pacific time) on any Business Day,
including orders for which payment is to be made from free cash credit balances
in securities accounts maintained by a dealer, are executed on the same day the
order is placed if notice is provided to the Transfer Agent by 12:00 noon and if
federal funds are received by the Transfer Agent before the close of business.
Purchase orders for Institutional Class shares of the Money Market and U.S.
Treasury Money Market Funds that are received by a dealer or financial
institution after 12:00 noon 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 broker/dealer or financial institution is responsible for the prompt
transmission of purchase orders to the Transfer Agent. A broker/dealer or
financial institution that is involved in a purchase transaction may charge
separate account, service or transaction fees. Financial institutions may be
required to register as dealers pursuant to applicable state securities laws,
which may differ from federal law and any interpretations expressed herein.
EXCHANGE PRIVILEGES
Shares of the Funds may be exchanged for shares of another Fund or for Class A
shares of one of the Company's other funds in an identically registered account
(provided that shares of the fund to be acquired are registered for sale in the
investor's state of residence) at respective net asset values if the shares
being acquired carry no sales load or the shares being exchanged were acquired
in exchange for shares on which an equivalent sales load was paid. Otherwise,
applicable sales loads or sales load differentials will be charged on an
exchange. Before making an exchange from the Fund, an investor should observe
the following:
- - You will need to read the prospectus of the fund into which you want to
exchange.
- - Every exchange is a redemption of shares of one fund and the purchase of
shares of another fund.
- - You must exchange at least the minimum initial purchase amount of the Fund you
are redeeming unless you have already met the minimum initial purchase amount
of the fund you are purchasing.
- - You will need to pay the difference between any load you have already paid and
the load you are subject to in the new fund.
- - The Company may limit the number of times shares may be exchanged or may
reject any telephone exchange order. Subject to limited exceptions, the
Company will notify you 60 days before discontinuing or modifying 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, the only transaction orders that are processed at 1:00
p.m. (Pacific time) are those that are received prior to that time through
Benefit Plans. Exchange orders received after 9:00 a.m. (Pacific time) are
processed on the next Business Day for each fund involved in the exchange.
To exchange shares, investors should write the Transfer Agent at the address
under "Purchase of Shares -- Initial Purchases by
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Wire," call the Transfer Agent at (800) 572-7797 or contact a Selling Agent,
authorized broker/dealer or financial institution.
Telephone exchange and redemption privileges are made available to shareholders
automatically upon opening an account, unless specifically declined (in which
case the shareholder may subsequently authorize such telephone exchanges and
redemptions by completing a Telephone Exchange Authorization Form and submitting
it to the Transfer Agent in advance of the first such transaction). These
privileges authorize the Transfer Agent to act on telephone instructions from
any person representing himself or herself to be the investor. The Company will
require the Transfer Agent to employ reasonable procedures, such as requiring a
form of personal identification, to confirm that instructions are genuine. If
the Transfer Agent does not follow such procedures, the Company and the Transfer
Agent may be liable for any losses attributable to unauthorized or fraudulent
instructions. Neither the Company nor the Transfer Agent will be liable for
following telephone instructions reasonably believed to be genuine.
REDEMPTION OF SHARES
Shares may be redeemed at their next determined net asset value after receipt of
a request in proper form by the Transfer Agent directly or through any
authorized broker/dealer or financial institution. The Company does not charge
for redemption transactions. However, a broker/dealer or financial institution
that is involved in a redemption transaction may charge separate account,
service or transaction fees. There is no limitation on the amount that can be
redeemed at one time, although a Fund may limit new purchases if an investor
attempts to avoid the minimum initial purchase requirements by making partial
redemptions shortly following an initial purchase of $150,000.
Redemption orders for Institutional Class shares of the Money Market and U.S.
Treasury Money Market Funds that are received by the Transfer Agent before 12:00
noon (Pacific time) on any Business Day are executed at the net asset value
determined at 12:00 noon on that day. Redemption orders for shares of the
National Tax-Free Institutional Money Market Fund that are received by the
Transfer Agent before 9:00 a.m. (Pacific time) are executed at the net asset
value determined at 9:00 a.m. on that day.
Redemption orders for Institutional Class shares of the Money Market and U.S.
Treasury Money Market Funds that are received by the Transfer Agent after 12:00
noon (Pacific time) on any Business Day are executed at the net asset value
determined at 12:00 noon on the next Business Day. Redemption orders for shares
of the National Tax-Free Institutional Money Market Fund that are received by
the Transfer Agent after 9:00 a.m. (Pacific time) on any Business Day are
executed at the net asset value determined at 9:00 a.m. on the next Business
Day.
Redemption orders received in connection with Benefit Plans by the Transfer
Agent before 1:00 p.m. (Pacific time) on any Business Day are executed at the
net asset value determined at 1:00 p.m. on that day.
Redemption proceeds ordinarily will be remitted within seven days after the
order is received in proper form, except proceeds may be remitted over a longer
period to the extent permitted by the SEC under extraordinary circumstances.
If an expedited redemption is requested, redemption proceeds will be distributed
only if the check used for investment is deemed to be cleared for payment by the
shareholder's bank, currently considered by the Company to be a period of ten
(10) Business Days after investment. The redemption proceeds, of course, may be
more or less than cost. Payment of redemption proceeds may be made in
securities, subject to regulation by some state securities commissions.
REDEMPTION BY MAIL
1. Write a letter of instruction. Indicate the dollar amount or number of shares
to be redeemed. Refer to the investor's Fund account number and provide either a
social security or a tax identification number (where applicable) of the person
or entity in whose name(s) the shares are registered.
2. Sign the letter in exactly the same way the account is registered. If there
is more than one owner of the shares, all must sign.
3. If shares to be redeemed have a value of $5,000 or more, or redemption
proceeds are to be made to someone other than the shareholder at its address of
record, the signature(s) must be guaranteed by an "eligible guarantor
institution," which includes a commercial bank that is a member of the FDIC, a
trust company, a member firm of a domestic stock exchange, a savings
association, or a credit union that is authorized by its charter to provide a
signature guarantee. Signature guarantees by notaries public are not acceptable.
Further documentation may be requested from corporations, administrators,
executors, personal representatives, trustees or custodians.
4. Mail the letter to the Transfer Agent at the mailing address set forth under
"Purchase of Shares."
Unless other instructions are given in proper form, a check for the proceeds of
a redemption will be 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
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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 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 (an "Approved Bank Account"). 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 providing written notice to the
Transfer Agent at least ten (10) Business Days prior to any scheduled
transaction. Participation in the Systematic Withdrawal Plan may be terminated
automatically if the investor's Fund account balance is insufficient to make a
withdrawal or if the investor's Fund account or Approved Bank Account is closed.
EXPEDITED REDEMPTIONS BY LETTER AND TELEPHONE
A shareholder may request an expedited redemption of shares by letter or
telephone (unless the shareholder has elected not to authorize telephone
redemptions on the Account Application or other form that is on file with the
Transfer Agent) on any Business Day. See "Exchange Privileges" for additional
information regarding telephone redemption privileges. To request expedited
redemption by telephone, please call the Transfer Agent at (800) 572-7797. To
request expedited redemption by mail, mail your request for expedited redemption
to the Transfer Agent at the mailing address set forth under "Purchase of
Shares -- Initial Purchases by Wire."
Upon request, proceeds of expedited redemptions of $5,000 or more will be wired
or credited to the shareholder's Approved Bank Account or wired to an authorized
broker/dealer or financial institution designated in the Account Application.
The Company reserves the right to impose charges for wiring redemption proceeds.
When proceeds of an expedited redemption are to be paid to someone other than
the shareholder, to an address other than that of record, or to a bank,
broker/dealer or other financial institution that has not been predesignated,
the expedited redemption request must be made by letter and the signature(s) on
the letter must be guaranteed, regardless of the amount of the redemption.
If an expedited redemption request for Institutional Class shares of the Money
Market and U.S. Treasury Money Market Funds is received by the Transfer Agent by
12:00 noon (Pacific time), or by 9:00 a.m. for shares of the National Tax-Free
Institutional Money Market Fund on any Business Day, the redemption proceeds
will be transmitted to the shareholder's bank or predesignated broker/dealer or
financial institution on the same day (assuming the investment check has cleared
as described above), absent extraordinary circumstances. A check for proceeds of
less than $5,000 will be mailed to the shareholder's address of record, except
that, in the case of investments in the Company that have been effected through
broker/dealers, banks and other institutions that have entered into special
arrangements with the Company, the full amount of the redemption proceeds may be
transmitted by wire or credited to a designated account.
REDEMPTIONS THROUGH AUTHORIZED BROKER/DEALERS AND FINANCIAL INSTITUTIONS
Unless an investor has made other arrangements with an authorized broker/dealer
or other financial institution, and informed the Transfer Agent of such
arrangements, proceeds of redemptions will be credited to an Approved Bank
Account. 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 broker/dealer or
financial institution. A redeeming shareholder may request a check from the
broker/dealer or financial institution or may elect to retain the redemption
proceeds in such shareholder's account. The broker/dealer or financial
institution may charge a service fee and may benefit from the use of the
redemption proceeds prior to the clearance of a check issued to a redeeming
shareholder for such proceeds or prior to disbursement or reinvestment of such
proceeds on behalf of the shareholder.
DIVIDENDS AND DISTRIBUTIONS
Each of the Money Market and U.S. Treasury Money Market Funds intend to declare
as a dividend substantially all of its net investment income for each class at
the close of each business day to shareholders of record at 12:00 noon (Pacific
time) on the day of declaration. The National Tax-Free Institutional Money
Market Fund intends to declare dividends of substantially all of its net
investment income on a daily basis, payable to shareholders of record as of 9:00
a.m. (Pacific time).
Purchase orders for shares of the Money Market and U.S. Treasury Money Market
Funds received before 12:00 noon (Pacific time) on any Business Day begin
earning dividends on the day such purchase orders are effective and continue to
earn dividends through the day prior to the date such shares are redeemed.
Purchase orders for shares of the National Tax-Free Institutional Money Market
Fund received before 9:00 a.m. (Pacific time) on any Business Day begin earning
dividends on the day such purchase orders are effective and continue to earn
dividends
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through the day prior to the date such shares are redeemed. Purchase orders
processed at 1:00 p.m. (Pacific time) on any Business Day begin earning
dividends on the following Business Day and continue to earn dividends through
the day prior to the date such shares are redeemed.
Dividends for a Saturday, Sunday or Holiday will be declared as a dividend to
shareholders on the preceding Business Day. Dividends of each Fund declared in,
and attributable to, any month will be paid on the last Business Day of the
month and generally are mailed early in the following month. Shareholders of any
of the Funds who redeem shares prior to a dividend payment date will be entitled
to all dividends declared but unpaid prior to redemption on such shares on the
next dividend payment date.
Dividends and any capital gain distributions paid by each of the Funds will be
invested in additional shares of the same Fund at net asset value and credited
to the shareholder's account on the payment date or, at the shareholder's
election, paid by check. The Funds will declare and distribute any capital gains
at least annually. Dividend checks and Statements of Account will be mailed
approximately three business days after the payment date. Investors have three
options for receiving distributions of dividends and capital gains (if any). See
"Dividend and Distribution Options" 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 same Class of the
Fund. Dividends and distributions declared in a month are reinvested at net
asset value 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. 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 net asset value next determined after the
distribution has been returned. If this happens, 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 the investor's 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 net asset value next determined after the earlier
of the date the checks have been returned to the dividend disbursing agent or
the date six months after the payment of such dividend or distribution. If this
happens, 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 money until these checks clear.
TAXES
Dividends distributed from the National Tax-Free Institutional Money Market
Fund's net interest income from tax-exempt securities will not be subject to
federal income taxes. Dividends attributable to the National Tax-Free
Institutional Money Market Fund's interest income from taxable securities and
short-term capital gains are taxable to the Fund's shareholders as ordinary
income. Dividends from net investment income and net short-term capital gains,
if any, of the Money Market and U.S. Treasury Money Market Fund are taxable to
the Funds' shareholders as ordinary income. Distributions from the Funds' net
long-term capital gains, if any, are designated as capital gain distributions
and taxable to the Funds' shareholders as long-term capital gains.
Dividend and capital gain distributions will be taxable when paid, whether you
take such distributions in cash or have them automatically reinvested in
additional Fund shares. Distributions declared in October, November and December
and distributed in the following January will be treated as if they were paid by
December 31.
Foreign shareholders may be subject to different tax treatment, including
withholding taxes. See "Federal Income Taxes -- Foreign Shareholders" in the
SAIs. In certain circumstances, U.S. residents may also be subject to
withholding taxes. See "Federal Income Taxes -- Backup Withholding" in the SAIs.
The foregoing discussion regarding taxes is based on tax laws which were in
effect as of the date of this Prospectus and summarizes only some of the
important federal tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning; you
should consult your tax advisor with respect to your specific tax situation as
well as with respect to foreign, state and local taxes. Additional tax
considerations, including the federal alternative minimum tax, where applicable,
are discussed in the SAI for each Fund.
PROSPECTUS
- --------------------------------------------------------------------------------
18
<PAGE> 109
ORGANIZATION AND CAPITAL STOCK
The Company, an open-end, management investment company, was incorporated in
Maryland on April 27, 1987. 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 MASTER PORTFOLIO
The National Tax-Free Institutional Money Market 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 its investment policies.
The investment objective and other fundamental policies of the Master Portfolio
cannot be changed without approval by the holders of a majority, as defined in
the 1940 Act, of the Master Portfolio's outstanding voting securities. Whenever
the National Tax-Free Institutional Money Market Fund, as a Master Portfolio
interestholder, is requested to vote on matters 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 National Tax-Free
Institutional Money Market 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 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 National Tax-Free Institutional Money Market Fund could
redeem its Master Portfolio interests and either seek a new investment company
with a matching objective in which to invest or retain its own investment
adviser to manage the Fund's portfolio in accordance with its 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 National Tax-Free
Institutional Money Market 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. Additional information
regarding the officers and directors/trustees of the Company and the Trust is
located in Fund's SAI under "Management."
PROSPECTUS
- --------------------------------------------------------------------------------
19
<PAGE> 110
This page intentionally left blank.
<PAGE> 111
<TABLE>
<S> <C>
---------------------
BULK RATE
U.S. POSTAGE
PAID
DALLAS, TEXAS
Permit No. 1808
---------------------
</TABLE>
NOT FDIC INSURED
For Customer Service or questions about
your account, call (800) 572-7797
For more information about the Funds,
simply call (800) 552-9612.
You may also write to the Funds at:
OVERLAND EXPRESS FUNDS, INC.
c/o Overland Express
Shareholder Services
Wells Fargo Bank, N.A.
P.O. Box 63084
San Francisco, California 94163
MMI P 5/97 [OVERLAND EXPRESS LOGO]
<PAGE> 112
OVERLAND EXPRESS FUNDS
PROSPECTUS
MAY 1, 1997
CALIFORNIA TAX-FREE BOND FUND
MUNICIPAL INCOME FUND
U.S. GOVERNMENT INCOME FUND
LOGO
<PAGE> 113
Overland Express Logo
PROSPECTUS DATED MAY 1, 1997
Telephone: (800) 552-9612
Overland Express Funds, Inc. (the "Company") is an open-end, series investment
company. This Prospectus contains information about three of the Company's
funds -- the CALIFORNIA TAX-FREE BOND FUND, the MUNICIPAL INCOME FUND and the
U.S. GOVERNMENT INCOME FUND (each, a "Fund" and collectively, the "Funds").
The CALIFORNIA TAX-FREE BOND FUND seeks to provide investors with a high level
of income exempt from federal income taxes and from California personal income
taxes, while preserving capital, by investing in medium- to long-term,
investment-grade municipal securities.
The MUNICIPAL INCOME FUND seeks to provide investors with a high level of
income, consistent with the preservation of capital, by investing primarily in a
diversified portfolio of high quality, medium- to long-term municipal securities
issued by or on behalf of states, territories and possessions or commonwealths
of the United States and the District of Columbia or their political
subdivisions, authorities, agencies and instrumentalities, the income of which
is exempt from federal income tax, but subject to the federal alternative
minimum tax.
The U.S. GOVERNMENT INCOME FUND primarily seeks to provide investors with
current income, while preserving capital, by investing in a portfolio consisting
of securities issued or guaranteed by the U.S. Government, its agencies and
instrumentalities.
This Prospectus describes two classes of shares of each Fund -- Class A and
Class D shares.
Investors should read this Prospectus carefully and retain it for future
reference. It sets forth concisely the information a prospective investor should
know before investing in a Fund. Statements of Additional Information ("SAIs")
dated May 1, 1997, containing additional and more detailed information about the
Funds, have been filed with the Securities and Exchange Commission (the "SEC")
and are hereby incorporated by reference into this Prospectus. Each Fund's SAI
is available without charge and can be obtained by writing the Company at P.O.
Box 63084, San Francisco, CA 94163 or by calling the Company at (800) 552-9612.
- --------------------------------------------------------------------------------
FUND SHARES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR ISSUED, ENDORSED OR
GUARANTEED BY, WELLS FARGO BANK, N.A. OR ANY OF ITS AFFILIATES. SUCH SHARES ARE
NOT INSURED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN A
FUND INVOLVES CERTAIN INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
WELLS FARGO BANK IS THE INVESTMENT ADVISER AND ADMINISTRATOR AND PROVIDES
CERTAIN OTHER SERVICES TO THE FUNDS, FOR WHICH IT IS COMPENSATED. STEPHENS INC.,
WHICH IS NOT AFFILIATED WITH WELLS FARGO BANK, IS THE SPONSOR, CO-ADMINISTRATOR
AND DISTRIBUTOR FOR THE FUNDS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<PAGE> 114
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PROSPECTUS SUMMARY................................. 1
SUMMARY OF EXPENSES................................ 4
FINANCIAL HIGHLIGHTS............................... 7
INVESTMENT OBJECTIVES AND POLICIES................. 13
INVESTMENT ACTIVITIES.............................. 16
MANAGEMENT OF THE FUNDS............................ 17
DETERMINATION OF NET ASSET VALUE................... 20
PURCHASE OF SHARES................................. 21
EXCHANGE PRIVILEGES................................ 24
REDEMPTION OF SHARES............................... 25
DIVIDENDS AND DISTRIBUTIONS........................ 27
TAXES.............................................. 28
ORGANIZATION AND CAPITAL STOCK..................... 28
</TABLE>
PROSPECTUS
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<PAGE> 115
PROSPECTUS SUMMARY
The Company, as an open-end investment company, provides a convenient way for
you to invest in portfolios of securities selected and supervised by
professional management. The following provides information about the Funds.
Q. WHAT ARE THE FUNDS' INVESTMENT OBJECTIVES?
A. The CALIFORNIA TAX-FREE BOND FUND seeks to provide investors with a high
level of income exempt from federal income taxes and from California personal
income taxes, while preserving capital, by investing in medium- to long-term,
investment-grade municipal securities.
The MUNICIPAL INCOME FUND seeks to provide investors with a high-level of
income, consistent with the preservation of capital, by investing primarily
in a diversified portfolio of high-quality, medium- to long-term municipal
securities issued by or on behalf of states, territories, and possessions or
commonwealths of the United States and the District of Columbia or their
political subdivisions, authorities, agencies and instrumentalities, the
income of which is exempt from federal income tax, but subject to the federal
alternative minimum tax ("tax-advantaged municipal securities").
The U.S. GOVERNMENT INCOME FUND primarily seeks to provide investors with
current income, while preserving capital, by investing in a portfolio
consisting of securities issued or guaranteed by the U.S. Government, its
agencies and instrumentalities.
See "Investment Objectives and Policies."
Q. WHAT ARE THE FUNDS' PRINCIPAL INVESTMENTS?
A. The CALIFORNIA TAX-FREE BOND FUND invests in medium-to long-term,
investment-grade municipal securities, the interest on which is exempt from
federal income taxes and from California personal income taxes. Under
ordinary market conditions, (i) approximately 100% of the Fund's investment
portfolio consists of municipal securities, the interest on which is exempt
from California personal income taxes, and (ii) at least 80% of the Fund's
investment portfolio consists of municipal securities, the interest on which
is exempt from federal income taxes. The Fund may invest, on a temporary
basis, a limited portion of its portfolio in taxable securities to meet
redemption requests or for other limited purposes. Shares of the Fund may not
be suitable investments for tax-exempt institutions or tax-exempt retirement
plans, since such investors would not benefit from the exempt status of the
Fund's dividends.
The MUNICIPAL INCOME FUND under normal market conditions invests at least 80%
of its net assets in tax-advantaged municipal securities that at the time of
purchase are assigned the highest rating by a nationally recognized
statistical rating organization ("NRSRO") or, if unrated, are of comparable
quality as determined by Wells Fargo Bank, the Fund's investment adviser. The
Fund may invest in mortgage revenue bonds and shorter-term municipal notes
and municipal commercial paper. In addition, pending investment of assets, in
anticipation of redemption or to maintain a "defensive" posture when
determined appropriate, the Fund may invest temporarily in cash or taxable
securities.
The U.S. GOVERNMENT INCOME FUND invests in obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities, including
government-sponsored enterprises ("U.S. Government obligations"). The Fund
may, subject to the restrictions described herein and in the SAI, employ
interest rate futures contracts and options thereon, and may invest in
certain put and call options. Transactions in futures contracts and put and
call options bear the risk that commodity exchange limitations or market
conditions may adversely affect the Fund's ability to liquidate its
positions.
See "Investment Objectives and Policies" and "Investment Activities."
Q. WHAT ARE SOME OF THE POTENTIAL RISKS ASSOCIATED WITH AN INVESTMENT IN THE
FUNDS?
A. Investments in a Fund are not bank deposits or obligations of Wells Fargo
Bank, are not insured by the Federal Deposit Insurance Corporation ("FDIC")
and are not insured against loss of principal. When the value of the
securities that a Fund owns declines, so does the value of your Fund shares.
You should be prepared to accept some risk with the money you invest in a
Fund.
The market value of investments in fixed-income securities changes in
response to various factors, such as changes in interest rates and the
financial strength of each issuer. During periods of falling interest rates,
the value of fixed-income securities generally rises. Conversely, during
periods of rising interest rates, the value of such securities generally
declines. Debt securities with longer maturities, which tend to produce
higher yields, are subject to potentially greater price fluctuation than
obligations with shorter maturities. Fluctuations in the market value of
fixed income securities can be reduced, but not eliminated, by variable or
floating rate features. In addition, some of the mortgage-backed securities
in which the Municipal Income and U.S. Government Income Funds
PROSPECTUS
- --------------------------------------------------------------------------------
1
<PAGE> 116
invest are subject to extension risk. This is the risk that when interest
rates rise, prepayments of the underlying obligations slow thereby
lengthening the duration and potentially reducing the value of these
securities. The debt securities held by the Funds also may be subject to
credit risk. Credit risk is the risk that the issuers of the debt securities
in which a Fund invests may default on the payment of principal and/or
interest. Any such defaults or adverse changes in an issuer's financial
condition or credit rating may adversely affect the value of the Funds'
portfolio securities and, hence, the value of your investment in the Fund.
As with all mutual funds, there is no assurance that a Fund will achieve its
investment objective. See "Investment Objectives and Policies -- Risk
Factors."
Q. WHO MANAGES MY INVESTMENTS?
A. Wells Fargo Bank, as the investment adviser to each Fund, manages your
investments. Wells Fargo Bank also provides the Funds with administrative,
transfer agency, dividend disbursing agency and custodial services. Stephens
serves as the sponsor, co-administrator and distributor for the Funds. See
"Management of the Funds."
Q. HOW MAY I PURCHASE SHARES?
A. Shares of each Fund may be purchased on any day the Fund is open. There is a
maximum sales load of 4.50% (4.71% of the net amount invested) for purchasing
Class A shares of the California Tax Free Bond and U.S. Government Income
Funds, and a maximum sales load of 3.00% (3.09% of the net amount invested)
for purchasing Class A shares of the Municipal Income Fund. Class D shares
are subject to a maximum contingent deferred sales charge of 1.00% of the
lesser of net asset value at purchase or net asset value at redemption. In
most cases, the minimum initial purchase amount for a Fund is $1,000. The
minimum initial purchase amount is $100 for shares purchased through the
Systematic Purchase Plan and $250 for shares purchased through qualified
retirement plans. The minimum subsequent purchase amount is $100. You may
purchase shares of a Fund through Stephens, Wells Fargo Bank, as transfer
agent (the "Transfer Agent"), or any authorized broker/dealer or financial
institution. Purchases of Fund shares may be made by wire directly to the
Transfer Agent. See "Purchase of Shares."
Q. HOW WILL I RECEIVE DIVIDENDS?
A. Dividends on shares of the Funds are declared daily and paid monthly. Any
capital gains will be distributed at least annually. Each Fund's dividends
and capital gain distributions are automatically reinvested in additional
shares of the same class of the Fund, unless you elect to receive dividends
by check or to have them deposited in an approved bank account. All
reinvestments of dividends and/or capital gain distributions in shares of a
Fund are effected at the then current net asset value free of any sales load.
In addition, you may elect to reinvest Fund dividends and/or capital gain
distributions in shares of the same class of another of the Company's funds
with which you have an established account that has met the applicable
minimum initial investment requirement. See "Dividends and Distributions."
Q. HOW MAY I REDEEM SHARES?
A. Shares of each Fund may be redeemed on any day the Fund is open upon request
to Stephens or the Transfer Agent directly or through any authorized
broker/dealer or financial institution. You may redeem shares by a request in
good form in writing or through telephone direction. Proceeds are payable by
check or, for shareholders who make prior arrangements, by wire. Accounts
maintaining less than the applicable minimum initial purchase amount may be
redeemed at the option of the Company. Except for any contingent deferred
sales charge which may be applicable upon redemption of Class D shares, the
Company does not charge for redeeming its shares. However, the Company
reserves the right to impose charges for wiring redemption proceeds. See
"Redemption of Shares."
Q. WHAT ARE DERIVATIVES AND DO THE FUNDS USE
THEM?
A. Derivatives are financial instruments whose value is derived, at least in
part, from the price of another security or a specified asset, index or rate.
Some of the permissible investments described in this Prospectus, such as
variable-rate instruments or adjustable rate mortgage-backed securities, each
of which has an interest rate that is reset periodically based on an index,
can be considered derivatives. Some derivatives may be more sensitive than
direct securities to changes in interest rates or sudden market moves. Some
derivatives also may be susceptible to fluctuations in yield, duration or
value due to their structure or contract terms.
PROSPECTUS
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2
<PAGE> 117
Q. WHAT STEPS DO THE FUNDS TAKE TO CONTROL
DERIVATIVES-RELATED RISKS?
A. Wells Fargo Bank, as investment adviser to the Funds, uses a variety of
internal risk management procedures to ensure that derivatives use is
consistent with each Fund's investment objective, does not expose the Funds
to undue risks and is closely monitored. These procedures include providing
periodic reports to the Board of Directors concerning the use of derivatives.
Derivatives use by the Funds
also is subject to broadly applicable investment policies. For example, a
Fund may not invest more than a specified percentage of its assets in
"illiquid securities," including those derivatives that do not have active
secondary markets. Nor may the Funds use certain derivatives without
establishing adequate "cover" in compliance with SEC rules limiting the use
of leverage.
PROSPECTUS
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3
<PAGE> 118
SUMMARY OF EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
CLASS A SHARES
<TABLE>
<CAPTION>
CALIFORNIA
TAX-FREE MUNICIPAL U.S. GOVT.
BOND FUND INCOME FUND INCOME FUND
<S> <C> <C> <C>
Maximum Sales Load on Purchases (as a percentage of offering
price)..................................................... 4.50% 3.00% 4.50%
Maximum Sales Load on Reinvested Dividends.................. None None None
Maximum Sales Load on Redemptions........................... None None None
Exchange Fees............................................... None None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
CLASS A SHARES
<TABLE>
<CAPTION>
CALIFORNIA
TAX-FREE MUNICIPAL U.S. GOVT.
BOND FUND INCOME FUND INCOME FUND
<S> <C> <C> <C>
Management Fees (after waivers or reimbursements)(1)........ 0.50% 0.33% 0.39%
Rule 12b-1 Fees(2).......................................... 0.00% 0.15% 0.00%
Other Expenses (after waivers or reimbursements)(3)......... 0.21% 0.32% 0.50%
----- ----- -----
TOTAL FUND OPERATING EXPENSES (after waivers or
reimbursements)(4)......................................... 0.71% 0.80% 0.89%
===== ===== =====
</TABLE>
- ---------------
(1) Management Fees (before waivers or reimbursements) for each of the Municipal
Income and U.S. Government Income Funds would be 0.50%.
(2) Class A shares of the Municipal Income Fund are subject to either a 12b-1
Fee or a Administrative Servicing Fee of up to 0.25%. In no case will
shareholders be assessed both 12b-1 and Administrative Servicing Fees and
Total Fund Operating Expenses will not be greater than the amount shown
above because of the combination of such fees. See "Distribution Plans" and
"Administrative Servicing Plan".
(3) Other Expenses (before waivers or reimbursements) for the California
Tax-Free Bond, Municipal Income and U.S. Government Income Funds would be
0.32%, 0.60% and 0.74%, respectively.
(4) Total Fund Operating Expenses (before waivers or reimbursements) for the
California Tax-Free Bond, Municipal Income and U.S. Government Income Funds
would be 0.82%, 1.25% and 1.24%, respectively.
EXAMPLE OF EXPENSES
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment
in a Fund's Class A shares, assuming (1) a 5% annual return
and (2) redemption at the end of each time period indicated:
California Tax-Free Bond Fund.............................. $52 $67 $83 $129
Municipal Income Fund...................................... $38 $55 $73 $126
U.S. Government Income Fund................................ $54 $72 $92 $150
</TABLE>
PROSPECTUS
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4
<PAGE> 119
SHAREHOLDER TRANSACTION EXPENSES
CLASS D SHARES
<TABLE>
<CAPTION>
CALIFORNIA
TAX-FREE MUNICIPAL U.S. GOVT.
BOND FUND INCOME FUND INCOME FUND
<S> <C> <C> <C>
Maximum Sales Load on Purchases (as a percentage of offering
price)..................................................... None None None
Maximum Sales Load on Reinvested Dividends.................. None None None
Maximum Sales Load on Redemptions
During Year 1.............................................. 1.00% 1.00% 1.00%
After Year 1............................................... None None None
Exchange Fees............................................... None None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
CLASS D SHARES
<TABLE>
<CAPTION>
CALIFORNIA
TAX-FREE MUNICIPAL U.S. GOVT.
BOND FUND INCOME FUND INCOME FUND
<S> <C> <C> <C>
Management Fees (after waivers or reimbursements)(1)........ 0.50% 0.33% 0.39%
Rule 12b-1 Fees............................................. 0.50% 0.50% 0.50%
Servicing Fees.............................................. 0.25% 0.25% 0.25%
Other Expenses (after waivers or reimbursements)(2)......... 0.21% 0.32% 0.48%
----- ----- -----
Total Fund Operating Expenses (after waivers or
reimbursements)(3)......................................... 1.46% 1.40% 1.62%
===== ===== =====
</TABLE>
- ---------------
(1) Management Fees (before waivers or reimbursements) for each of the Municipal
Income and U.S. Government Income Funds would be 0.50%.
(2) Other Expenses (before waivers or reimbursements) for the California
Tax-Free Bond, Municipal Income and U.S. Government Income Funds would be
0.34%, 0.67% and 2.14%, respectively.
(3) Total Fund Operating Expenses (before waivers or reimbursements) for the
California Tax-Free Bond, Municipal Income and U.S. Government Income Funds
would be 1.59%, 1.92% and 3.39%, respectively.
EXAMPLE OF EXPENSES
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment
in Class D shares of a Fund, assuming (1) a 5% annual return
and (2) redemption at the end of each time period indicated:
California Tax-Free Bond Fund.............................. $25 $46 $80 $175
Municipal Income Fund...................................... $24 $44 $77 $168
U.S. Government Income Fund................................ $26 $51 $88 $192
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
You would pay the following expenses on the same investment
in Class D shares of a Fund, assuming no redemption:
California Tax-Free Bond Fund.............................. $15 $46 $80 $175
Municipal Income Fund...................................... $14 $44 $77 $168
U.S. Government Income Fund................................ $16 $51 $88 $192
</TABLE>
PROSPECTUS
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5
<PAGE> 120
The purpose of the foregoing tables is to assist you in understanding the
various costs and expenses that investors in the Funds will pay directly or
indirectly. There are no other sales loads, redemption fees or exchange fees
charged by the Funds. The Company reserves the right to impose charges for
wiring redemption proceeds.
SHAREHOLDER TRANSACTION EXPENSES are charges you pay when you buy or sell Fund
shares. You are subject to a front-end sales charge on purchases of Class A
shares and may be subject to a contingent-deferred sales charge on Class D
shares if you redeem such shares within a specified period. In certain
instances, you may qualify for a reduction or waiver of the front-end sales
charge. See "Purchase of Shares."
ANNUAL FUND OPERATING EXPENSES for the Funds are based on amounts incurred
during the most recent fiscal year, adjusted to reflect fee waivers and/or
expense reimbursements expected to continue during the current fiscal year.
Wells Fargo Bank and Stephens have agreed to limit the Municipal Income Fund's
payment of 12b-1 fees relating to Class A shares, at least through the end of
the current fiscal year, to a maximum of 0.15% of the average daily net assets
attributable to such Class A shares. There is no assurance that the voluntary
fee waivers and expense reimbursements will continue. Long-term shareholders of
the Funds could pay more in distribution related charges than the economic
equivalent of the maximum front-end sales charges applicable to mutual funds
sold by members of the National Association of Securities Dealers, Inc.
("NASD").
EXAMPLE OF EXPENSES is a hypothetical example which illustrates the expenses
associated with a $1,000 investment over the periods shown, based on the
expenses in the table on the previous page and an assumed annual rate of return
of 5%. This rate of return should not be considered an indication of actual or
expected performance of a Fund. In addition, the Example should not be
considered a representation of past or future expenses; actual expenses and
returns may be greater or lesser than those shown. See "Management of the Funds"
for more complete descriptions of the various costs and expenses applicable to
the Funds.
PROSPECTUS
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6
<PAGE> 121
FINANCIAL HIGHLIGHTS
The following information has been derived from the Financial Highlights in the
Funds' 1996 annual financial statements. The financial statements are
incorporated by reference into the SAIs and have been audited by KPMG Peat
Marwick LLP, independent auditors, whose report dated February 14, 1997 also is
incorporated by reference into the SAIs. This information should be read in
conjunction with each Fund's 1996 annual financial statements and the notes
thereto. The SAIs have been incorporated by reference into this Prospectus.
CALIFORNIA TAX-FREE BOND FUND
For a Class A Share Outstanding
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1996 1995 1994 1993 1992 1991 1990 1989 1988(1)
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period........................ $ 10.84 $ 10.20 $ 11.47 $ 10.92 $ 10.73 $ 10.27 $ 10.35 $ 10.03 $ 10.00
Income from investment
operations:
Net investment income.......... 0.54 0.60 0.64 0.63 0.68 0.69 0.71 0.72 0.21
Net realized and unrealized
gain (loss) on investments.... (0.12) 1.03 (1.13) 0.75 0.26 0.46 (0.08) 0.32 0.03
-------- -------- -------- -------- -------- -------- -------- ------- -------
Total from investment
operations.................... 0.42 1.63 (0.49) 1.38 0.94 1.15 0.63 1.04 0.24
Less distributions:
Dividends from net investment
income........................ (0.54) (0.60) (0.64) (0.63) (0.68) (0.69) (0.71) (0.72) (0.21)
Distributions from net realized
gain.......................... (0.23) (0.39) (0.14) (0.20) (0.07) 0.00 0.00 0.00 0.00
-------- -------- -------- -------- -------- -------- -------- ------- -------
Total from distributions....... (0.77) (0.99) (0.78) (0.83) (0.75) (0.69) (0.71) (0.72) (0.21)
-------- -------- -------- -------- -------- -------- -------- ------- -------
Net asset value, end of
period........................ $ 10.49 $ 10.84 $ 10.20 $ 11.47 $ 10.92 $ 10.73 $ 10.27 $ 10.35 $ 10.03
======== ======== ======== ======== ======== ======== ======== ======= =======
Total return (not
annualized)(2)................ 4.03% 16.38% (4.32)% 12.98% 9.01% 11.62% 6.48% 10.73% 2.44%
Ratios/supplemental data:
Net assets, end of period
(000)......................... $239,703 $268,352 $273,105 $361,779 $375,376 $332,845 $201,138 $70,412 $10,577
Number of shares outstanding
(000)......................... 22,845 24,750 26,780 31,529 34,376 31,008 19,576 6,803 1,055
Ratios to average net assets
(annualized):
Ratio of expenses to average
net assets.................... 0.71% 0.58% 0.50% 0.69% 0.50% 0.45% 0.29% 0.30% 0.08%
Ratio of net investment income
to average net assets......... 5.08% 5.59% 5.87% 5.54% 6.24% 6.56% 6.97% 6.85% 6.61%
Portfolio turnover............. 19% 38% 4% 10% 24% 8% 35% 26% N/A*
Ratio of expenses to average
net assets prior to waived
fees and reimbursed
expenses...................... 0.82% 0.78% 0.95% 0.85% 0.85% 0.87% 0.95% 1.18% 4.07%
Ratio of net investment income
to average net assets prior to
waived fees and reimbursed
expenses...................... 4.97% 5.39% 5.42% 5.38% 5.89% 6.14% 6.31% N/A N/A
</TABLE>
- ---------------
(1) The Class A shares of the California Tax-Free Bond Fund commenced operations
on October 6, 1988.
(2) Total returns do not include any sales charges.
* The Fund sold no securities during this period.
PROSPECTUS
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7
<PAGE> 122
CALIFORNIA TAX-FREE BOND FUND
For a Class D Share Outstanding
<TABLE>
<CAPTION>
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1996 1995 1994 1993(1)
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........................ $14.16 $13.32 $14.98 $15.00
Income from investment operations:
Net investment income....................................... 0.60 0.68 0.73 0.34
Net realized and unrealized gain (loss) on investments...... (0.16) 1.35 (1.47) 0.24
------ ------ ------ ------
Total from investment operations............................ 0.44 2.03 (0.74) 0.58
Less distributions:
Dividends from net investment income........................ (0.60) (0.68) (0.73) (0.34)
Distributions from net realized gain........................ (0.30) (0.51) (0.19) (0.26)
------ ------ ------ ------
Total from distributions.................................... (0.90) (1.19) (0.92) (0.60)
------ ------ ------ ------
Net asset value, end of period.............................. $13.70 $14.16 $13.32 $14.98
====== ====== ====== ======
Total return (not annualized)(2)............................ 3.24% 15.58% 5.00% 3.92%
Ratios/supplemental data:
Net assets, end of period (000)............................. $6,506 $7,063 $7,346 $7,641
Number of shares outstanding (000).......................... 475 499 552 510
Ratios to average net assets (annualized):
Ratio of expenses to average net assets..................... 1.46% 1.30% 1.20% 1.32%
Ratio of net investment income to average net assets........ 4.33% 4.87% 5.15% 4.50%
Portfolio turnover.......................................... 19% 38% 4% 10%
Ratio of expenses to average net assets prior to waived fees
and reimbursed expenses.................................... 1.59% 1.57% 1.82% 1.61%
Ratio of net investment income to average net assets prior
to waived fees and reimbursed expenses..................... 4.20% 4.60% 4.53% 4.21%
</TABLE>
- ---------------
(1) The Class D shares of the California Tax-Free Bond Fund commenced operations
on July 1, 1993.
(2) Total returns do not include any sales charges.
PROSPECTUS
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8
<PAGE> 123
MUNICIPAL INCOME FUND
For a Class A Share Outstanding
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1996 1995 1994 1993 1992 1991(1)
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 10.93 $ 9.91 $ 11.27 $ 10.56 $ 10.25 $ 10.00
Income from investment operations:
Net investment income....................................... 0.57 0.57 0.60 0.64 0.66 0.28
Net realized and unrealized gain (loss) on investments...... (0.21) 1.02 (1.36) 0.71 0.32 0.25
------- ------- ------- -------- ------- -------
Total from investment operations............................ 0.36 1.59 (0.76) 1.35 0.98 0.53
Less distributions:
Dividends from net investment income........................ (0.57) (0.57) (0.60) (0.64) (0.66) (0.28)
Distributions from net realized gain........................ 0.00 0.00 0.00 0.00 (0.01) 0.00
------- ------- ------- -------- ------- -------
Total from distributions.................................... (0.57) (0.57) (0.60) (0.64) (0.67) (0.28)
------- ------- ------- -------- ------- -------
Net asset value, end of period.............................. $ 10.72 $ 10.93 $ 9.91 $ 11.27 $ 10.56 $ 10.25
======= ======= ======= ======== ======= =======
Total return (not annualized)(2)............................ 3.49% 16.45% (6.82)% 13.11% 9.94% 5.81%
Ratios/supplemental data:
Net assets, end of period (000)............................. $44,326 $58,440 $73,791 $104,701 $52,553 $16,585
Number of shares outstanding (000).......................... 4,135 5,347 7,446 9,294 4,976 1,618
Ratios to average net assets (annualized):
Ratio of expenses to average net assets..................... 0.80% 0.71% 0.43% 0.39% 0.23% 0.00%
Ratio of net investment income to average net assets........ 5.39% 5.49% 5.77% 5.56% 6.05% 6.38%
Portfolio turnover.......................................... 16% 14% 32% 15% 67% 5%
Ratio of expenses to average net assets prior to waived fees
and reimbursed expenses.................................... 1.25% 1.09% 0.98% 1.09% 1.20% 3.02%
Ratio of net investment income to average net assets prior
to waived fees and reimbursed expenses..................... 4.94% 5.11% 5.22% 4.86% 5.08% 3.36%
</TABLE>
- ---------------
(1) The Class A shares of the Municipal Income Fund commenced operations on July
15, 1991.
(2) Total returns do not include any sales charges.
PROSPECTUS
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9
<PAGE> 124
MUNICIPAL INCOME FUND
For a Class D Share Outstanding
<TABLE>
<CAPTION>
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1996 1995 1994 1993(1)
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........................ $14.80 $ 13.42 $ 15.26 $ 15.00
Income from investment operations:
Net investment income....................................... 0.69 0.69 0.73 0.36
Net realized and unrealized gain (loss) on investments...... (0.28) 1.38 (1.84) 0.26
------ ------- ------- -------
Total from investment operations............................ 0.41 2.07 (1.11) 0.62
Less distributions:
Dividends from net investment income........................ (0.69) (0.69) (0.73) (0.36)
Distributions from net realized gain........................ 0.00 0.00 0.00 0.00
------ ------- ------- -------
Total from distributions.................................... (0.69) (0.69) (0.73) (0.36)
------ ------- ------- -------
Net asset value, end of period.............................. $14.52 $ 14.80 $ 13.42 $ 15.26
====== ======= ======= =======
Total return (not annualized)(2)............................ 2.90% 15.75% (7.37)% 4.19%
Ratios/supplemental data:
Net assets, end of period (000)............................. $9,753 $12,271 $15,545 $14,771
Number of shares outstanding (000).......................... 672 829 1,158 968
Ratios to average net assets (annualized):
Ratio of expenses to average net assets..................... 1.40% 1.32% 1.02% 1.13%
Ratio of net investment income to average net assets........ 4.79% 4.88% 5.17% 4.14%
Portfolio turnover.......................................... 16% 14% 32% 15%
Ratio of expenses to average net assets prior to waived fees
and reimbursed expenses.................................... 1.92% 1.78% 1.74% 1.84%
Ratio of net investment income to average net assets prior
to waived fees and reimbursed expenses..................... 4.27% 4.42% 4.45% 3.43%
</TABLE>
- ---------------
(1) The Class D shares of the Municipal Income Fund commenced operations on July
1, 1993.
(2) Total returns do not include any sales charges.
PROSPECTUS
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10
<PAGE> 125
U.S. GOVERNMENT INCOME FUND
For a Class A Share Outstanding
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1996 1995 1994 1993 1992 1991 1990 1989 1988(1)
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period........................ $ 10.78 $ 9.66 $ 10.87 $ 10.56 $ 10.97 $ 10.30 $ 10.22 $ 9.78 $10.00
Income from investment
operations:
Net investment income.......... 0.63 0.69 0.70 0.74 0.79 0.86 0.87 0.90 0.54
Net realized and unrealized
gain (loss) on investments.... (0.66) 1.12 (1.21) 0.36 (0.14) 0.90 0.10 0.50 (0.21)
------- ------- ------- ------- ------- ------- ------- ------ ------
Total from investment
operations.................... (0.03) 1.81 (0.51) 1.10 0.65 1.76 0.97 1.40 0.33
Less distributions:
Dividends from net investment
income........................ (0.63) (0.69) (0.70) (0.74) (0.79) (0.86) (0.89) (0.90) (0.54)
Distributions from net realized
gain.......................... 0.00 0.00 0.00 (0.05) (0.27) (0.23) 0.00 (0.06) (0.01)
------- ------- ------- ------- ------- ------- ------- ------ ------
Total from distributions....... (0.63) (0.69) (0.70) (0.79) (1.06) (1.09) (0.89) (0.96) (0.55)
------- ------- ------- ------- ------- ------- ------- ------ ------
Net asset value, end of
period........................ $ 10.12 $ 10.78 $ 9.66 $ 10.87 $ 10.56 $ 10.97 $ 10.30 $10.22 $ 9.78
======= ======= ======= ======= ======= ======= ======= ====== ======
Total return (not
annualized)(2)................ (0.11)% 19.32% (4.81)% 10.67% 6.27% 18.08% 10.17% 14.82% 3.24%
Ratios/supplemental data:
Net assets, end of period
(000)......................... $77,239 $30,471 $35,838 $50,301 $40,883 $20,457 $11,116 $4,238 $3,264
Number of shares outstanding
(000)......................... 7,631 2,826 3,711 4,628 3,871 1,865 1,079 415 334
Ratios to average net assets
(annualized):
Ratio of expenses to average
net assets.................... 0.89% 0.88% 0.76% 0.53% 0.47% 0.00% 0.07% 0.54% 0.29%
Ratio of net investment income
to average net assets......... 6.07% 6.79% 6.84% 6.79% 6.26% 8.30% 8.65% 8.89% 7.88%
Portfolio turnover............. 240% 95% 50% 115% 128% 100% 4% 11% N/A
Ratio of expenses to average
net assets prior to waived
fees and reimbursed
expenses...................... 1.24% 1.24% 1.08% 1.01% 1.13% 1.87% 2.72% 4.45% 7.31%
Ratio of net investment income
to average net assets prior to
waived fees and reimbursed
expenses...................... 5.72% 6.44% 6.52% 6.31% 5.60% 6.43% 6.00% N/A N/A
</TABLE>
- ---------------
(1) The Class A shares of the U.S. Government Income Fund commenced operations
on April 7, 1988.
(2) Total returns do not include any sales charges.
PROSPECTUS
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11
<PAGE> 126
U.S. GOVERNMENT INCOME FUND
For a Class D Share Outstanding
<TABLE>
<CAPTION>
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1996 1995 1994 1993(1)
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........................ $14.74 $13.20 $14.85 $15.00
Income from investment operations:
Net investment income....................................... 0.77 0.85 0.86 0.42
Net realized and unrealized gain (loss) on investments...... (0.90) 1.54 (1.65) (0.08)
------ ------ ------ ------
Total from investment operations............................ (0.13) 2.39 (0.79) 0.34
Less distributions:
Dividends from net investment income........................ (0.77) (0.85) (0.86) (0.42)
Distributions from net realized gain........................ 0.00 0.00 0.00 (0.07)
------ ------ ------ ------
Total from distributions.................................... (0.77) (0.85) (0.86) (0.49)
------ ------ ------ ------
Net asset value, end of period.............................. $13.84 $14.74 $13.20 $14.85
====== ====== ====== ======
Total return (not annualized)(2)............................ (0.79)% 18.54% (5.45)% 2.25%
Ratios/supplemental data:
Net assets, end of period (000)............................. $2,290 $2,793 $3,722 $9,594
Number of shares outstanding (000).......................... 166 189 282 646
Ratios to average net assets (annualized):
Ratio of expenses to average net assets..................... 1.62% 1.62% 1.37% 0.90%
Ratio of net investment income to average net assets........ 5.50% 6.07% 6.14% 5.90%
Portfolio turnover.......................................... 240% 95% 50% 115%
Ratio of expenses to average net assets prior to waived fees
and reimbursed expenses.................................... 3.39% 2.29% 1.87% 2.03%
Ratio of net investment income to average net assets prior
to waived fees and reimbursed expenses..................... 3.73% 5.40% 5.64% 4.77%
</TABLE>
- ---------------
(1) The Class D shares of the U.S. Government Income Fund commenced operations
on July 1, 1993.
(2) Total returns do not include any sales charges.
PROSPECTUS
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12
<PAGE> 127
INVESTMENT OBJECTIVES AND POLICIES
Set forth below is a description of the investment objective and related
policies of each Fund. As with all mutual funds, there is no assurance that a
Fund will achieve its investment objective.
The CALIFORNIA TAX-FREE BOND FUND seeks to provide investors with a high level
of income exempt from federal income taxes and from California personal income
taxes, while preserving capital, by investing in medium- to long-term,
investment-grade municipal securities.
Under normal market conditions, the Fund invests all of its assets in securities
issued by the State of California and its cities, municipalities and other
public authorities. As a matter of fundamental policy, the Fund, under normal
market conditions, invests at least 80% of its net assets in municipal
securities, the interest on which is exempt from both federal income taxes and
the federal alternative minimum tax ("AMT"). Under normal market conditions, at
least 65% of the value of the total assets of the Fund will be invested in
municipal bonds, as opposed to municipal notes or municipal commercial paper.
The municipal securities which the California Tax-Free Bond Fund may purchase
are discussed below.
Municipal Bonds. The municipal bonds in which the California Tax-Free Bond Fund
invests generally have a maturity at the time of issuance of up to thirty years.
The Fund may invest in municipal bonds that are rated at the date of purchase
"Baa" or better by Moody's Investors Service, Inc. ("Moody's") or "BBB" or
better by Standard & Poor's Ratings Group ("S&P"), or bonds that are not rated
but that are considered by Wells Fargo Bank, as investment adviser, to be of
comparable quality. Bonds rated at the minimum permitted level have speculative
characteristics and are more likely than higher rated bonds to have a weakened
capacity to pay principal and interest in times of adverse economic conditions;
all are considered investment grade. A description of the ratings is contained
in the Appendix to the SAI.
Municipal Notes. The municipal notes in which the California Tax-Free Bond Fund
invests generally have maturities at the time of issuance of three years or
less. The Fund may invest in municipal notes that are rated at the date of
purchase "MIG 3" (or "VMIG 3" in the case of an issue having a variable rate
demand feature) or better by Moody's or "SP-2" or better by S&P, or notes that
are not rated but that are considered by Wells Fargo Bank, as investment
adviser, to be of comparable quality. Municipal notes generally are 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 is, therefore,
dependent on such tax receipts, proceeds from bond sales or other revenues, as
the case may be.
Municipal Commercial Paper. 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.
The California Tax-Free Bond Fund may invest in municipal commercial paper that
is rated at the date of purchase "Prime-1" or "Prime-2" by Moody's or "A-1+,"
"A-1" or "A-2" by S&P, or municipal commercial paper that is not rated but is
considered by Wells Fargo Bank, as investment adviser, to be of comparable
quality.
The California Tax-Free Bond Fund also may invest in certain "private activity
bonds" or notes, the interest on which may be subject to the AMT, such as
pollution control bonds; provided that such investments will be made only to the
extent they are consistent with the Fund's fundamental policy, described above,
of investing, under normal market conditions, at least 80% of its net assets in
municipal securities, the interest on which is exempt from federal income taxes
and not subject to the AMT.
The California Tax-Free Bond Fund, pending the investment of proceeds from the
sale of Fund shares or proceeds from the sale of portfolio securities, 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, may elect to invest temporarily up to 20% of the
current value of its net assets in cash reserves or in taxable securities in
which the Fund may invest, or in instruments the interest on which is exempt
from federal income taxes, but not from California personal income taxes.
The MUNICIPAL INCOME FUND seeks to provide investors with a high level of
income, consistent with the preservation of capital, by investing primarily in a
diversified portfolio of high quality, medium- to long-term municipal securities
issued by or on behalf of states, territories and possessions or commonwealths
of the United States and the District of Columbia or their political
subdivisions, authorities, agencies and instrumentalities, the income of which
is exempt from federal income tax, but may be subject to the AMT
("tax-advantaged municipal securities").
The investment adviser may rely either on the opinion of counsel to the issuer
of the municipal securities or on bond counsel regarding the tax treatment of
the securities. Since a significant portion of the Fund's income is expected to
be subject to the AMT, investors who may be subject to such tax should consult
their tax advisers prior to investing in the Fund.
As a matter of fundamental policy, the Municipal Income Fund, under normal
market conditions, invests at least 80% of its net assets in tax-advantaged
municipal securities that, at the time of purchase, are assigned the highest
rating by an NRSRO or, if unrated, are considered by Wells Fargo Bank, as the
Fund's
PROSPECTUS
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13
<PAGE> 128
investment adviser, to be of comparable quality. In addition, under normal
market conditions, the Fund will seek to invest substantially all of its net
assets in the highest rated, medium- to long-term, tax-advantaged municipal
securities, except that it will maintain that portion of its net assets in
short-term, high quality investments reasonably considered necessary to meet
redemption requests and liquidity needs and may maintain a higher portion in
such investments for temporary defensive purposes.
Under normal market conditions, the Municipal Income Fund may not invest more
than 25% of its assets in securities of any one industry or in municipal
securities of any single state, territory, possession, commonwealth or the
District of Columbia.
Municipal Bonds -- The municipal bonds in the Fund's portfolio generally have a
maturity at the time of issuance of up to thirty years. They are principally
classified either as "general obligation" bonds or "revenue" bonds. General
obligation bonds are secured by the pledge of the municipality's full faith,
credit and taxing power for the payment of principal and interest. Revenue bonds
are payable only from the revenues derived from a particular project or
facility, or in some cases, from the proceeds of special excise tax, and
generally are dependent solely on a specific revenue source.
The Municipal Income Fund may invest in Mortgage Revenue Bonds ("MRBs"), a
specific type of municipal bond. MRBs may be considered "private activity
bonds," the interest on which may be subject to the AMT. MRBs are usually
limited obligations issued by a municipality, its instrumentalities or its
special purpose authority. MRBs do not represent indebtedness of these issuers,
but are payable from and secured by certain revenues and assets pledged as
collateral. MRBs may be collateralized by a pool of mortgage-backed securities
("MBSs") that are either: (i) guaranteed as to timely payment of principal and
interest by the Government National Mortgage Association ("GNMA"), a wholly
owned corporate instrumentality of the United States; (ii) guaranteed as to
timely payment of principal and interest by the Federal National Mortgage
Association ("FNMA"), a publicly owned, government sponsored corporation; or
(iii) guaranteed as to full and timely payment of interest and ultimate payment
of principal by the Federal Home Loan Mortgage Corporation ("FHLMC"), a publicly
chartered corporation. GNMA guarantees are backed by the full faith and credit
of the United States. FNMA and FHLMC guarantees are not backed by the full faith
and credit of the United States. However, because FNMA and FHLMC are
instrumentalities of the U.S. Government, the MBSs backed by their guarantees
are high quality instruments that present minimal credit risks. The MBSs, in
turn, are collateralized by pools of first-lien mortgage loans ("Mortgage
Loans") made to persons of low-to-moderate income to purchase new and existing
one- to four-family residences located in the applicable municipality or state
or to developers for the acquisition and construction of multi-family housing
for low-to-moderate income residents or senior citizens. The Mortgage Loans
underlying the MBSs may themselves be insured or guaranteed by the Federal
Housing Administration or the Veterans Administration. MRBs purchased by the
Fund generally have an initial scheduled maturity of between 30 and 40 years.
MRBs are subject to the risk of redemption prior to maturity. Such redemption is
more likely to occur during periods of declining interest rates. If an MRB is
redeemed prior to maturity, the Fund may have to reinvest the proceeds at a rate
of interest which is lower than the rate on the MRB that was redeemed.
The Municipal Income Fund may also invest in municipal bonds which are covered
by insurance guaranteeing the scheduled payment of principal and interest until
their maturity ("Insured Municipal Bonds"). This insurance feature minimizes the
risks to the Fund and its shareholders associated with payment delays or
defaults in these portfolio securities, but does not guarantee the market value
of these portfolio securities or the value of the shares of the Fund. The price
paid or received for an Insured Municipal Bond may be higher than the price that
would otherwise be paid or received for the municipal bond absent the insurance.
In addition, an Insured Municipal Bond is likely to receive a higher rating by
an NRSRO than it would receive without the insurance.
Municipal Notes and Commercial Paper -- The Municipal Income Fund may invest in
municipal notes that generally have maturities at the time of issuance of three
years or less. The Fund may also invest in municipal commercial paper. Municipal
commercial paper is a debt obligation with a 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.
The Municipal Income Fund also may invest in other private activity bonds or
notes, such as pollution control bonds, the interest on which also may be
subject to the federal alternative minimum tax. See the corresponding section
under "Investment Objectives and Policies -- The California Tax-Free Bond Fund"
for additional information on these instruments.
Bond Ratings -- The highest rating assigned by S&P is "AAA" for state and
municipal bonds, "SP-1" for state and municipal notes, and "A-1" for state and
municipal commercial paper. The highest rating assigned by Moody's is "Aaa,"
"MIG 1" and "Prime-1" for state and municipal bonds, notes and commercial paper,
respectively. Instruments assigned these ratings by S&P or Moody's are judged by
such organizations to be high quality instruments which present minimal risks
and offer a strong capacity for repayment of principal and interest. If a
municipal security ceases to be rated or is downgraded below the highest quality
rating after
PROSPECTUS
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14
<PAGE> 129
purchase by the Municipal Income Fund, the Fund may retain or dispose of such
security. In any event, the Fund does not intend to purchase or retain any
municipal security that is rated below the top two ratings assigned by an NRSRO,
or, if unrated, is considered by the investment adviser to be of comparable
quality. A description of ratings is contained in the Appendix to the SAI.
The U.S. GOVERNMENT INCOME FUND primarily seeks to provide investors with
current income, while preserving capital, by investing in a portfolio consisting
of securities issued or guaranteed by the U.S. Government, its agencies and
instrumentalities ("U.S. Government obligations").
Payment of principal and interest on U.S. Government obligations may be backed
by the full faith and credit of the United States (as with Treasury bills and
GNMA certificates) or may be backed solely by the issuing or guaranteeing agency
or instrumentality itself (as with FNMA notes). In the latter case investors
must look principally to the agency or instrumentality issuing or guaranteeing
the obligation for ultimate repayment, which agency or instrumentality may be
privately owned. There can be no assurance that the U.S. Government will provide
financial support to its agencies or instrumentalities where it is not obligated
to do so.
The U.S. Government Income Fund may invest in obligations of any maturity. Under
ordinary circumstances, the weighted average maturity of the Fund's portfolio is
generally expected to be between 10 and 30 years. However, under unusual market
circumstances, it may be shorter than 10 years. Wells Fargo Bank will seek to
preserve the stability of the net asset value of Fund shares during periods when
it believes that the bond markets are vulnerable to decline, by reducing the
weighted average maturity of the Fund's portfolio, by purchasing or retaining
securities with a lower expected volatility and/or by engaging in hedging
activities as more fully described below. Substantially all, and, in any event,
at least 65%, of the total assets of the Fund will under normal circumstances be
invested in income-producing U.S. Government obligations.
In addition, the Fund may invest cash balances temporarily in money market
instruments rated at the date of purchase "Prime-1" or "Prime-2" by Moody's,
"A-2" or better by S&P, or if not rated, which are of comparable quality in the
opinion of Wells Fargo Bank, under the Direction of the Board of Directors.
Certificates of the Government National Mortgage Association represent ownership
interests in pools of mortgages and the resulting cash flow from those
mortgages. The stated maturities of these obligations may be shortened by
unscheduled prepayments of principal and interest on the underlying mortgages,
thereby affecting the U.S. Government Income Fund's yield. The Fund may also
purchase securities which represent the interest portion or the principal
portion (sometimes referred to as "STRIPs") of securities in which the Fund may
otherwise invest. STRIPs may have different investment characteristics than the
instruments from which they derive.
INVESTMENT POLICIES
The investment objective of each Fund, as set forth above, is fundamental; that
is, the investment objective 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. If the Board of Directors
determines, however, that a Fund's investment objective can best be achieved by
a substantive change in a non-fundamental investment policy or strategy, the
Company may make such change without shareholder approval and will disclose any
such material changes in the then current prospectus.
As matters of fundamental policy, each of the Funds may: (i) borrow from banks
up to 10% of the current value of its net assets for temporary purposes only in
order to meet redemptions, and these borrowings may be secured by the pledge of
up to 10% of the current value of its net assets (but investments may not be
purchased by the California Tax-Free Bond and U.S. Government Income Funds while
any such borrowing exists and may not be purchased by the Municipal Income Fund
while any such outstanding borrowing in excess of 5% of the Fund's net assets
exist).
As matters of fundamental policy the California Tax-Free Bond Fund and U.S.
Government Income Fund may (i) make loans of portfolio securities; (ii) invest
up to 10% of the current value of its net assets in repurchase agreements having
maturities of more than seven days, restricted securities and illiquid
securities; and (iii) 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.
As a matter of non-fundamental policy, the Municipal Income Fund may invest up
to 10% of the current value of its net assets in restricted securities and other
illiquid securities.
RISK FACTORS
Investments in a Fund are not bank deposits or obligations of Wells Fargo Bank,
are not insured by the FDIC and are not insured against loss of principal. When
the value of the securities that a Fund owns declines, so does the value of your
Fund shares. You should be prepared to accept some risk with the money you
invest in a Fund.
The market value of investments in fixed-income securities changes in response
to various factors, such as changes in interest rates and the financial strength
of each issuer. During periods of falling interest rates, the value of
fixed-income securities generally rises. Conversely, during periods of rising
interest rates, the
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value of such securities generally declines. Debt securities with longer
maturities, which tend to produce higher yields, are subject to potentially
greater price fluctuation than obligations with shorter maturities. Fluctuations
in the market value of fixed income securities can be reduced, but not
eliminated, by variable or floating rate features. The mortgage-backed
securities in which the Municipal Income and U.S. Government Income Funds invest
are subject to extension risk. This is the risk that when interest rates rise,
prepayments of the underlying obligations slow thereby lengthening duration and
potentially reducing the value of these securities. The debt securities held by
the Funds also may be subject to credit risk. Credit risk is the risk that the
issuers of securities in which a Fund invests may default in the payment of
principal and/or interest. Any such defaults or adverse changes in an issuers
financial condition or credit rating may adversely affect the value of the
Funds' portfolio investments and, hence, the value of your investment in the
corresponding Fund.
The California Tax-Free Bond Fund is classified as non-diversified under the
1940 Act. The Municipal Income and U.S. Government Income Funds are classified
as diversified portfolios. Investment return on a non-diversified portfolio
typically is dependent upon the performance of a smaller number of securities
relative to the number held in a diversified portfolio. Consequently, the change
in value of any one security may affect the overall value of a non-diversified
portfolio more than it would a diversified portfolio, and thereby subject the
market-based net asset value per share of the non-diversified portfolio to
greater fluctuations. In addition, a non-diversified portfolio may be more
susceptible to economic, political and regulatory developments than a
diversified investment portfolio with a similar objective may be.
Since the California Tax-Free Bond Fund invests substantially all of its assets
in securities issued by California, its agencies and municipalities, events in
California are more likely to affect the Fund's investments. California
experienced recurring budget deficits for four of its five fiscal years ended
June 30, 1992, caused by lower than anticipated tax revenues and increased
expenditures for certain programs. The budget deficits of the early 1990s
depleted the state's available cash resources, and the state had to use a series
of external borrowings to meet its cash needs. As a consequence, between 1991
and 1994, the agencies rating California's long-term debt lowered their rating
of the state's general obligation bonds. In particular, on July 15, 1994,
Moody's Investors service lowered its rating from "Aa" to "A1," Standard &
Poor's Ratings Group lowered its rating from "A+" to "A" and termed its outlook
as "stable," and Fitch Investors Service lowered its rating from "AA" to "A."
Such downgrading may impair issuers of California municipal obligations from
paying interest on or repaying the principal of such California municipal
obligations. Although further downgrading and other factors may impact the
availability of securities that meet the Fund's investment policies and
restrictions, California has had operating surpluses for its past four fiscal
years ended June 30, 1996 and has forecast a balanced 1996-1997 fiscal year
budget. On July 30, 1996, Standard & Poor's upgraded its rating of California
municipal obligations back to "A+," reflecting California's economic
improvement. However, the rating agencies continue to monitor events in the
state and the state and local governments' responses to budget shortfalls. The
Fund's investment adviser continues to monitor and evaluate the Fund's
investments in light of the events in California and the Fund's investment
objective and investment policies. Certain of the municipal securities in which
the California Tax-Free Bond Fund invests may be considered to have speculative
characteristics.
As with all mutual funds, there is no assurance that the Funds will achieve
their investment objectives. See each Fund's SAI for additional information.
INVESTMENT ACTIVITIES
Set forth below is a more detailed description of the Funds' permissible
investments. For additional information, see "Additional Permitted Investment
Activities" in each Fund's SAI.
FLOATING- AND VARIABLE-RATE INSTRUMENTS
The Funds may purchase debt instruments with interest rates that are
periodically adjusted at specified intervals or whenever a benchmark rate or
index changes. These adjustments generally limit the increase or decrease in the
amount of interest received on the debt instrument. The floating- and
variable-rate instruments that the Funds may purchase include certificates of
participation in such obligations. Floating- and variable-rate instruments are
subject to interest-rate risk and credit risk.
REPURCHASE AGREEMENTS
Each Fund may enter into repurchase transactions in which the seller of a
security to the Fund agrees to repurchase that security from the Fund at a
mutually agreed-upon time and price. The period of maturity is usually quite
short, often overnight or a few days, although it may extend over a number of
months. A Fund may enter into repurchase agreements only with respect to
securities which could otherwise be purchased for the Fund. All repurchase
agreements must be fully collateralized. Each Fund may incur a loss on a
repurchase transaction if the seller defaults and the value of the underlying
collateral declines or is otherwise limited or if receipt of the security or
collateral is delayed. A Fund may enter into pooled repurchase agreement
transactions with other funds advised by Wells Fargo Bank.
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CERTIFICATES OF PARTICIPATION
The California Tax-Free Bond and Municipal Income Funds each may purchase
municipal obligations known as "certificates of participation" which represent
undivided proportional interests in lease payments by a governmental or
nonprofit entity. The lease payments and other rights under the lease provide
for and secure the payments on the certificates. Lease obligations may be
limited by applicable municipal charter provisions or the nature of the
appropriation for the lease. In particular, lease obligations may be subject to
periodic appropriation. Lease obligations also may be abated if the leased
property is damaged or becomes unsuitable for the lessee's purpose. If the
entity does not appropriate funds for future lease payments, the entity cannot
be compelled to make such payments. Furthermore, a lease may or may not provide
that the certificate trustee can accelerate lease obligations upon default. If
the trustee could not accelerate lease obligations upon default, the trustee
would only be able to enforce lease payments as they became due. In the event of
a default or failure of appropriation, it is unlikely that the trustee would be
able to obtain an acceptable substitute source of payment. Certificates of
participation are generally subject to redemption by the issuing municipal
entity under specified circumstances. If a specified event occurs, a certificate
is callable at par either at any interest payment date or, in some cases, at any
time. As a result, certificates of participation are not as liquid or marketable
as other types of municipal obligations and are generally valued at par or less
than par in the open market.
LETTERS OF CREDIT
The Municipal Income Fund may purchase debt obligations, including municipal
securities, certificates of participation, commercial paper and other short-term
obligations, backed by an 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. Letter of
credit-backed investments must, in the opinion of Wells Fargo Bank, as
investment adviser, be of investment quality comparable to other permitted
investments of the Fund.
TAXABLE AND OTHER INVESTMENTS
Pending the investment of proceeds from the sale of Fund shares or proceeds from
the sale of portfolio securities, 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, a Fund may elect
to invest temporarily up to 20% of the current value of its net assets in cash
reserves or in taxable securities. These investments may include among other
things, (i) direct obligations of the U.S. Treasury; (ii) commercial paper rated
at the date of purchase "Prime-1" by Moody's or "A-1" or better by S&P; and
(iii) shares of unaffiliated open-end, management investment companies that
invest primarily in high-quality, short-term securities, and that have a
fundamental policy of investing, under normal market circumstances, at least 80%
of their 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 by the Fund. However, the investment
adviser has undertaken to waive its advisory fees with respect to Fund assets so
invested (except when such purchase is part of a plan of merger, consolidation,
reorganization or acquisition). In no event may the Fund, together with any
company or companies controlled by it, own more than 3% of the total outstanding
voting stock of any such investment company, nor may the Fund, together with any
controlled company or companies, invest more than 5% of its assets in any one
such investment company or invest more than 10% of its assets in securities of
all such investment companies combined.
MANAGEMENT OF THE FUNDS
The Company's Board of Directors supervises the Funds' activities, monitors
their contractual arrangements with various service providers and decides upon
matters of general policy.
INVESTMENT ADVISER
Each of the Funds is advised by Wells Fargo Bank. 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 April 1, 1997, Wells Fargo Bank and its
affiliates provided investment advisory services for approximately $57 billion
of assets of individuals, trusts, estates and institutions. Wells Fargo Bank is
the investment adviser to other separately managed portfolios of the Company and
serves as investment adviser or sub-adviser to five other registered open-end
management investment companies. Wells Fargo Bank, a wholly owned subsidiary of
Wells Fargo & Company, is located at 420 Montgomery Street, San Francisco,
California 94104.
Wells Fargo Bank provides investment guidance and policy direction in connection
with the daily portfolio management of the Funds. Wells Fargo Bank also
furnishes to the Board of Directors periodic reports on the investment strategy
and performance of each Fund.
For its advisory services, Wells Fargo Bank is entitled to receive monthly
advisory fees at the annual rate of 0.50% of the average daily net assets of
each Fund. For the year ended December 31, 1996, Wells Fargo Bank received
0.50%, 0.33% and 0.39% of the average daily net assets of the California
Tax-Free Bond, Municipal Income and U.S. Government Income Funds, respectively,
as compensation for its services as investment adviser.
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PORTFOLIO MANAGERS
Mr. David Klug is responsible for the day-to-day management of the California
Tax-Free Bond and Municipal Income Funds and has managed municipal bond
portfolios for Wells Fargo Bank for over ten years. Mr. Klug has co-managed the
California Tax-Free Bond Fund since October 1988, and the Municipal Income Fund
since May 1, 1996. Prior to joining Wells Fargo Bank, he managed the municipal
bond portfolio for a major property and casualty insurance company. His
investment experience exceeds twenty years and includes all aspects of
tax-exempt fixed-income investments. He holds an M.B.A. from the University of
Chicago and is a member of The National Federation of Municipal Analysts and its
California Chapter.
Ms. Laura L. Milner also is responsible for the day-to-day management of the
California Tax-Free Bond Fund and Municipal Income Funds and has co-managed each
such Fund's portfolio since May 1, 1996. Ms. Milner joined Wells Fargo Bank in
1988. Her background includes over seven years experience specializing in short-
and long-term municipal securities with Salomon Brothers. She is a member of the
National Federation of Municipal Analysts and its California Chapter.
Mr. Paul Single has been responsible as portfolio co-manager for the day-to-day
management of the U.S. Government Income Fund since May 1, 1995. Mr. Single has
managed taxable bond portfolios for over a decade, and has specific expertise in
mortgage-backed securities. Prior to joining Wells Fargo Bank, in early 1988, he
was a senior portfolio manager for Benham Capital Management Group. Mr. Single
received his B.S. from Springfield College.
Ms. Tamyra Thomas has been responsible as portfolio co-manager for the
day-to-day management of the U.S. Government Income Fund since May 1, 1996. Ms.
Thomas is a senior vice-president and the chief fixed-income investment officer
of the Investment Management Group of Wells Fargo Bank. She is also Chair of the
Investment Management Group Policy Committee. Ms. Thomas has managed bond
portfolios for over a decade. She currently manages in excess of $1 billion of
long-term taxable bond portfolios for various foundations, defined benefit plans
and other clients. Prior to joining Wells Fargo Bank in early 1988, she held a
number of senior investment positions for the Valley Bank & Trust Company of
Utah including vice president and manager of the investment department and
chairman of the Trust Investment Committee. She holds a B.S. from the University
of Utah and was past president of the Utah Bond Club. Ms. Thomas is a chartered
financial analyst.
Mr. Scott Smith also has been responsible as portfolio co-manager for the
day-to-day management of the U.S. Government Income Fund since May 1, 1996. He
joined Wells Fargo Bank in 1988 as a taxable money market portfolio specialist.
His experience includes a position with a private money management firm with
mutual fund investment operations. Mr. Smith holds a B.A. from the University of
San Diego and is a chartered financial analyst.
Purchase and sale orders of the securities held by the Funds 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 Funds and other accounts managed by Wells Fargo
Bank, Wells Fargo Bank undertakes to allocate those transaction costs among the
participants equitably. From time to time, each of the Funds, consistent with
its investment objective, policies and restrictions, may invest in securities of
companies with which Wells Fargo Bank has a lending relationship.
Morrison & Foerster LLP, counsel to the Company and special counsel to Wells
Fargo Bank, has advised the Company and Wells Fargo Bank that Wells Fargo Bank
and its affiliates may perform the services contemplated by the Advisory
Contracts and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such statutes, regulations and judicial or
administrative decisions or interpretations, could prevent such entities from
continuing to perform, in whole or in part, such services. If any such entity
were prohibited from performing any such services, it is expected that new
agreements would be proposed or entered into with another entity or entities
qualified to perform such services.
ADMINISTRATOR AND CO-ADMINISTRATOR
Wells Fargo Bank as administrator and Stephens as co-administrator, provide the
Funds with administrative services, including general supervision of each Fund's
operation, coordination of the other services provided to each Fund, compilation
of information for reports to the SEC and 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 Directors and officers. Wells Fargo Bank and Stephens also furnish
office space and certain facilities to conduct each Fund's business, and
Stephens compensates the Company's Directors, officers and employees who are
affiliated with Stephens. For these administrative services, Wells Fargo Bank
and Stephens are entitled to receive monthly fees at the annual rates of 0.04%
and 0.02%, respectively, of each Fund's
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average daily net assets. Wells Fargo Bank and Stephens may delegate certain of
their administrative duties to sub-administrators.
Stephens previously provided substantially the same services as sole
administrator to the Funds. For these administrative services, Stephens was
entitled to receive from the California Tax-Free Bond Fund a monthly fee at the
annual rate of 0.15% of its average daily net assets, decreasing to 0.10% of the
average daily net assets of the Fund in excess of $200 million; from the
Municipal Income Fund a monthly fee at the annual rate of 0.10% of its average
daily net assets; and from the U.S. Government Income Fund a monthly fee at the
annual rate of 0.10% of its average daily net assets, decreasing to 0.05% of the
average daily net assets of the Fund in excess of $200 million.
SPONSOR AND DISTRIBUTOR
Stephens is the Funds' sponsor and distributes the Funds' shares. Stephens is a
full service broker/dealer and investment advisory firm located at 111 Center
Street, Little Rock, Arkansas 72201. Stephens and its predecessor have been
providing securities and investment services for more than 60 years.
Additionally, they have been providing discretionary portfolio management
services since 1983. Stephens currently manages investment portfolios for
pension and profit sharing plans, individual investors, foundations, insurance
companies and university endowments.
Stephens has entered into a Distribution Agreement with the Company pursuant to
which Stephens has the responsibility for distributing Fund shares. Pursuant to
the Distribution Agreement, Stephens may enter into selling agreements with
agents for the sale of Fund shares. Stephens bears the cost of printing and
mailing prospectuses to potential investors and any advertising expenses
incurred by it in connection with the distribution of Fund shares, subject to
the terms of the distribution plans described below.
In addition, Stephens has established a non-cash compensation program, pursuant
to which broker/dealers or financial institutions that sell shares of the Funds
may earn additional compensation in the form of trips to sales seminars or
vacation destinations, tickets to sporting events, theater or other
entertainment, opportunities to participate in golf or other outings and gift
certificates for meals or merchandise.
DISTRIBUTION PLANS
The Company has adopted Distribution Plans (the "Plans") on behalf of each class
of shares of the Funds. Under the Plans and pursuant to the Distribution
Agreement, the Funds may defray all or part of the cost of preparing and
printing prospectuses and other promotional materials and of delivering
prospectuses and those materials to prospective shareholders of the Fund, by
paying on an annual basis up to the greater of $100,000 or 0.05% of the average
daily net assets of the Class A shares of the California Tax-Free Bond and U.S.
Government Income Funds, 0.25% of the average daily net assets of the Class A
shares of the Municipal Income Fund and 0.50% of the average daily net assets of
the Class D shares of each Fund.
With respect to Class A shares of the Municipal Income Fund, the Company and
Stephens have mutually agreed to limit the fee to 0.15% of the Fund's average
daily net assets attributable to such shares. The actual fee payable to Stephens
is determined, within such limits, from time to time by mutual agreement between
the Company and Stephens, and may not exceed the maximum amount payable under
the Conduct Rules of the NASD. With respect to Class D shares of the Funds and
Class A shares of the Municipal Income Fund, Stephens may enter into selling
agreements with one or more selling agents under which such agents may receive
from Stephens compensation for sales support services. Such compensation may
include, but is not limited to, commissions or other payments to such agents
based on the average daily net assets of Fund shares attributable to them.
Services provided by selling agents in exchange for commissions and other
payments to selling agents are the principal sales support services provided to
the Funds.
A Fund may participate in joint distribution activities with any other
portfolios and classes of the Company, in which event expenses reimbursed out of
the assets of the Fund may be attributable, in part, to the distribution-related
activities of another portfolio. Generally, the expenses attributable to joint
distribution activities will be allocated among each Fund and any other
portfolio of the Company in proportion to their relative net asset sizes,
although the Board of Directors may allocate such expenses in any other manner
that it deems fair and equitable.
SERVICING AGENTS
The Funds may enter into servicing agreements with one or more servicing agents
on behalf of the Class D shares. Under such agreements, servicing agents provide
shareholder liaison services, which may include responding to customer inquiries
and providing information on shareholder investments, and provide such other
related services as the Funds or Class D shareholders may reasonably request.
For these services, a servicing agent receives a fee which will not exceed, on
an annualized basis for a Fund's then current fiscal year, the lesser of 0.25%
of the average daily net assets of the Class D shares of the Fund (represented
by Class D shares owned by investors with whom the servicing agent maintains a
servicing relationship), or an amount which equals the maximum amount payable to
the servicing agent under applicable laws, regulations or rules.
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SERVICING PLAN
The Company's Board of Directors has adopted a servicing plan ("Servicing Plan")
on behalf of the Class D shares of the Funds. Pursuant to the Servicing Plan the
Funds may enter into servicing agreements with one or more servicing agents who
agree to provide administrative support services to their customers who are the
record or beneficial owners of Class D shares. Such servicing agents will be
compensated at an annual rate of up to 0.25% of the average daily net asset
value of the Class D shares held of record or beneficially by such customers.
CLASS A ADMINISTRATIVE SERVICING PLAN
The Company's Board of Directors has adopted a Shareholder Administrative
Servicing Plan (the "Administrative Servicing Plan") on behalf of Class A shares
of the Municipal Income Fund. Pursuant to the Administrative Servicing Plan, the
Fund may enter into administrative servicing agreements with administrative
servicing agents (which may include Wells Fargo Bank and its affiliates) who are
dealers/holders of record, or that otherwise have a servicing relationship with
the beneficial owners of the Municipal Income Fund's Class A shares.
Administrative servicing agents agree to perform administrative shareholders
services which may include, among other things, maintaining an omnibus account
with the Fund, aggregating and transmitting purchase, exchange and redemption
orders to the Fund's Transfer Agent, answering customer inquiries regarding a
shareholder's account in the Fund, and providing other services the Company or a
customer may reasonably request. Administrative servicing agents are entitled to
a fee which will not exceed 0.25%, on an annualized basis, of the average daily
net assets of the Municipal Income Fund's Class A shares represented by the
shares owned of record or beneficially by the customers of the administrative
servicing agent during the period for which payment is being made. In no case
shall shares be sold pursuant to the Fund's Rule 12b-1 Plan while being sold
pursuant to its Administrative Servicing Plan.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
Wells Fargo Bank has been retained to act as the Funds' custodian and transfer
and dividend disbursing agent. Its principal place of business is 420 Montgomery
Street, San Francisco, California 94104 and its transfer and dividend disbursing
agency activities are managed at 525 Market Street, San Francisco, California
94105.
FUND EXPENSES
From time to time, Wells Fargo Bank and Stephens may waive their respective fees
in whole or in part and reimburse expenses payable to others. Any such waivers
or reimbursements will reduce a Fund's expenses and accordingly, have a
favorable impact on such Fund's performance. Except for the expenses borne by
Wells Fargo Bank and Stephens, each Fund bears all costs of its operations,
including its pro rata portion of Company expenses such as fees and expenses of
its independent auditors and legal counsel, and compensation of the Company's
directors who are not affiliated with the adviser, co-administrator or any of
their affiliates; advisory, transfer agency, custody and administration fees;
and any extraordinary expenses. Expenses attributable to each fund or class are
charged against the assets of the fund or class. General expenses of the Company
are allocated among all of the funds of the Company 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.
DETERMINATION OF NET ASSET VALUE
Net asset value per share for the Funds is determined by Wells Fargo Bank on
each day that the Fund is open (a "Business Day"). The Funds are open Monday
through Friday and are closed weekends and standard New York Stock Exchange
holidays. The net asset value of a share of a class of a Fund is the value of
total net assets attributable to such class divided by the number of outstanding
shares of that class. The net asset value of each class is expected to fluctuate
daily.
Net asset value per share for each class of the Funds is determined as of 1:00
p.m. (Pacific time) each Business Day. Except for debt obligations with
remaining maturities of 60 days or less, which are valued at amortized cost,
assets are valued at current market prices, or if such prices are not readily
available, at fair value as determined in good faith by the Board of Directors.
Prices used for such valuations may be provided by independent pricing services.
PERFORMANCE DATA
Fund performance may be advertised from time to time in terms of average annual
total return, cumulative total return and yield. Performance figures are based
on historical results and are not intended to indicate future performance.
Performance figures are calculated separately for each class of shares of a
Fund.
Average annual total return is based on the overall dollar or percentage change
in value of a hypothetical investment in shares of a class or Fund and assumes
that all dividends and capital-gain distributions attributable to such class or
Fund are reinvested at net asset value in shares of that class or Fund. The
standardized average annual total return, as calculated for Class A shares,
assumes that you have paid the maximum sales charge and, as calculated for Class
D shares, assumes that you have paid the maximum applicable contingent deferred
sales charge on your hypothetical investment. Cumulative total return is
calculated similarly except that the return figure is aggregated over the
relevant period instead of annualized.
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The yield on shares of a class is calculated by dividing the net investment
income per share earned during a specified period (usually 30 days) by its
public offering price per share. Standardized yield on Class A shares is
calculated assuming you have paid the maximum front-end sales charge and, on
Class D shares assuming you have paid the maximum applicable contingent deferred
sales charge. Effective yield is calculated similarly but assumes reinvestment
of the income earned from a Fund. Because of the effects of compounding,
effective yields are slightly higher than yields. Tax-equivalent yield may be
advertised for the California Tax-Free Bond and Municipal Income Funds. Tax-
equivalent yield assumes that a stated income tax rate has been applied to
non-exempt income to derive the tax-exempt portion of a Fund's yield.
In addition to presenting standardized performance figures, the Funds also may
present nonstandardized performance figures, including, distribution rates. For
example, the performance figure of the shares of a class or Fund may be
calculated on the basis of an investment at the net asset value per share or at
net asset value per share plus a reduced sales charge (see "Investing in the
Funds -- How To Buy Shares") rather than the public offering price per share. In
this case, the figure might not reflect the effect of the sales charge that you
may have paid.
Because of differences in the fees and/or expenses borne by Class D shares of
the Funds, the net yield on such shares can be expected, at any given time, to
differ from the net yield on Class A shares. Performance information will be
computed separately for Class A shares and Class D shares.
Additional information about the performance of each Fund is contained in the
SAI under "Performance Calculations" and in the Annual Report, which may be
obtained free of charge by calling the Company at (800) 552-9612 or by writing
the Company at the address on the back cover of the Prospectus.
PURCHASE OF SHARES
The minimum initial purchase amount for each Fund is generally $1,000. The
minimum initial purchase amount is $100 for shares purchased through the
Systematic Purchase Plan and $250 for shares purchased through a retirement plan
qualified under the Internal Revenue Code of 1986, as amended (the "Code"). The
minimum subsequent purchase amount is generally $100. The minimum initial or
subsequent purchase amount requirements may be waived or lowered for investments
effected on a group basis by certain entities and their employees, such as
pursuant to a payroll deduction or other accumulation plan. The Company reserves
the right to reject any purchase order. All funds, net of sales loads, will be
invested in full and fractional shares. Checks will be accepted for the purchase
of a Fund's shares subject to collection at full face value in U.S. dollars.
Inquiries concerning purchases may be directed to the Company at (800) 572-7797
or at the address on the back cover of the Prospectus.
Shares of each Fund may be purchased on any Business Day through Stephens, the
Transfer Agent, or any authorized broker/dealers or financial institutions with
which Stephens has entered into agreements. Such broker/dealers or financial
institutions are responsible for the prompt transmission of purchase, exchange
or redemption orders, and may independently establish and charge additional fees
to their clients for such services, other than services related to purchase
orders, which would reduce the clients' overall yield or return.
Shares of each Fund are offered continuously at the applicable offering price
(including any sales load) next determined after a purchase order is received.
Payment for shares purchased through a broker/dealer will not be due from the
broker/dealer until the settlement date, currently three Business Days after the
order is placed. It is the broker/dealer's responsibility to forward payment for
shares being purchased to the Funds promptly. Payment for orders placed directly
through the Transfer Agent must accompany the order.
When payment for Fund shares through the Transfer Agent is by a check that is
drawn on any member bank of the Federal Reserve System, federal funds normally
become available to a Fund on the Business Day after the day the check is
deposited. Checks drawn on a non-member bank or a foreign bank may take
substantially longer to be converted into federal funds and, accordingly, may
delay the execution of an order.
Sales loads relating to the purchase of Class A shares of the California
Tax-Free Bond and U.S. Government Income Funds are as follows:
<TABLE>
<CAPTION>
DEALER
SALES LOAD SALES LOAD ALLOWANCE
AS % OF AS % OF AS % OF
OFFERING NET AMOUNT OFFERING
AMOUNT OF PURCHASE PRICE INVESTED PRICE
------------------ ---------- ---------- ---------
<S> <C> <C> <C>
Less than $100,000.............. 4.50% 4.71% 4.05%
$100,000 up to $199,999......... 4.00 4.17 3.60
$200,000 up to $399,999......... 3.50 3.63 3.15
$400,000 up to $599,999......... 2.50 2.56 2.25
$600,000 up to $799,999......... 2.00 2.04 1.80
$800,000 up to $999,999......... 1.00 1.01 0.90
$1,000,000 up to $2,499,999..... 0.60 0.60 0.50
$2,500,000 up to $4,999,999..... 0.40 0.40 0.40
$5,000,000 up to $8,999,999..... 0.25 0.25 0.25
$9,000,000 and over............. 0.00 0.00 0.00
</TABLE>
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Sales loads relating to the purchase of Class A shares of the Municipal Income
Fund are as follows:
<TABLE>
<CAPTION>
DEALER
SALES LOAD SALES LOAD ALLOWANCE
AS % OF AS % OF AS % OF
OFFERING NET AMOUNT OFFERING
AMOUNT OF PURCHASE PRICE INVESTED PRICE
------------------ ---------- ---------- ---------
<S> <C> <C> <C>
Less than $100,000.............. 3.00% 3.09% 2.75%
$100,000 up to $199,999......... 2.00 2.04 1.75
$200,000 up to $599,999......... 1.00 1.01 0.90
$600,000 up to $999,999......... 0.60 0.60 0.50
$1,000,000 and over............. 0.00 0.00 0.00
</TABLE>
When Fund shares are purchased through a broker/dealer or financial institution,
Stephens reallows that portion of the sales load designated above as the Dealer
Allowance. When shares are purchased directly through the Transfer Agent and no
broker/dealer or financial institution is involved with the purchase, the entire
sales load is paid to Stephens.
Class D shares are not subject to a front-end sales load. However, Class D
shares which are redeemed within one year from the receipt of a purchase order
will be subject to a contingent deferred sales charge equal to 1% of the lesser
of the net asset value at the time of purchase of the shares being redeemed or
the net asset value of such shares at the time of redemption.
A selling agent or servicing agent and any other person entitled to receive
compensation for selling or servicing shares may receive different compensation
for selling or servicing Class A shares as compared with Class D shares.
REDUCED SALES CHARGE -- CLASS A SHARES
The above Volume Discounts are also available to you based on the combined
dollar amount being invested in Class A shares of a Fund or of Class A shares of
other portfolios of the Company which assess a sales load (the "Load Funds").
For purposes of determining whether you are eligible for reduced sales charges,
shares of one of the Company's single class funds that charges a front-end sales
load are considered Class A shares. Because Class D shares are not subject to a
front-end sales charge, the amount of Class D shares you hold is not considered
in determining any volume discount.
The Right of Accumulation allows you to combine the amount being invested in
Class A shares of a Fund with the total net asset value of Class A shares in any
of the Load Funds already owned in accordance with the above sales load schedule
to reduce the sales load. For example, if you own Class A shares of the Load
Funds with an aggregate net asset value of $90,000 and invest an additional
$20,000 in Class A shares of a Fund, the sales load on the entire additional
amount would be 4.00% of the offering price for the California Tax-Free Bond and
U.S. Government Income Funds, and 2.00% of the offering price for the Municipal
Income Fund. To obtain such discount, you must provide sufficient information at
the time of purchase to permit verification that the purchase qualifies for the
reduced sales load, and confirmation of the order is subject to such
verification. The Right of Accumulation may be modified or discontinued at any
time with respect to all Class A shares purchased thereafter.
A Letter of Intent allows you to purchase Class A shares of a Fund over a
13-month period at reduced sales loads based on the total amount intended to be
purchased plus the total net asset value of Class A shares in any of the Load
Funds already owned. Each investment made during the period receives the reduced
sales load applicable to the total amount of the intended investment. If such
amount is not invested within the period, you must pay the difference between
the sales loads applicable to the purchases made and the charges previously
paid.
You may reinvest proceeds from a redemption of Class A shares in Class A shares
of the Fund or in Class A shares of another of the Company's investment
portfolios that offers Class A shares at net asset value, without a sales load,
within 120 days after such redemption. However, if the other investment
portfolio charges a sales load that is higher than the sales load that you have
paid in connection with the Class A shares you have redeemed, you pay the
difference. In addition, the Class A shares of the investment portfolio to be
acquired must be registered for sale in your state of residence. The amount that
may be so reinvested may not exceed the amount of the redemption proceeds, and a
written order for the purchase of the Class A shares must be received by the
Funds or the Transfer Agent within 120 days after the effective date of the
redemption.
If you realized a gain on your redemption, the reinvestment will not alter the
amount of any federal capital gains tax payable on the gain. If you realized a
loss on your redemption, the reinvestment may cause some or all of the loss to
be disallowed as a tax deduction, depending on the number of Class A shares
purchased by reinvestment, the period of time that has elapsed after the
redemption and which funds' shares are purchased. Although for federal income
tax purposes, the amount disallowed is added to the cost of the Class A shares
acquired upon the reinvestment.
Reductions in front-end sales loads apply to purchases by a single "person,"
including an individual, members of a family unit, consisting of a husband,
wife, and children under the age of 21 purchasing securities for their own
account, or a trustee or other fiduciary purchasing for a single person's
fiduciary account or single person's trust estate.
Reductions in front-end sales loads also apply to purchases by individual
members of a "qualified group." The reductions are based on the aggregate dollar
amount of Class A shares purchased
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<PAGE> 137
by all members of the qualified group. For purposes of this paragraph, a
qualified group consists of a "company," as defined in the 1940 Act, which has
been in existence for more than six months and which has a primary purpose other
than acquiring shares of the Fund at a reduced sales load, and the "related
parties" of such company. For purposes of this paragraph, a "related party" of a
company is: (i) any individual or other company who directly or indirectly owns,
controls or has the power to vote five percent or more of the outstanding voting
securities of such company; (ii) any other company of which such company
directly or indirectly owns, controls or has the power to vote five percent of
more of its outstanding voting securities; (iii) any other company under common
control with such company; (iv) any executive officer, director or partner of
such company or of a related party; and (v) any partnership of which such
company is a partner.
Class A shares of the Funds may be purchased at net asset value of such shares,
without a sales load, by Directors, officers and employees (and their spouses,
parents, children, siblings, grandparents, grandchildren, father in-law, mother
in-law, brother in-law, sister in-law, aunts, uncles, nieces, and nephews;
herein, "Relatives") of the Company, Stephens, its affiliates and of other
broker-dealers that have entered into agreements with Stephens to sell such
shares. Class A shares of the Funds also may be purchased at a purchase price
equal to the net asset value of such shares, without a sales load, by present
and retired Directors, officers and employees (and their Relatives) of Wells
Fargo Bank and its affiliates if Wells Fargo Bank and/or the respective
affiliates agree. Such shares also may be purchased at such price by employee
benefit and thrift plans for such persons and by any investment advisory, trust
or other fiduciary account (other than an individual retirement account) that is
maintained, managed or advised by Wells Fargo Bank or Stephens or their
affiliates.
Class A shares of the Funds may be purchased at net asset value (without payment
of a sales load) by the following types of investors when the trades are placed
through an omnibus account maintained with the Funds by a broker/dealer -- trust
companies; deferred compensation plans and the trusts used to fund these plans;
investment advisers and financial planners who charge a management, consulting
or other fee for their services and who place trades on their own behalf or on
behalf of their clients; and clients of such investment advisers or financial
planners who place trades on their own behalf if the clients' accounts are
linked to the master account of such investment adviser or financial planner on
the books and records of the broker/dealer.
By investing in the Funds, you appoint the Transfer Agent, as agent, to
establish an open account to which all shares purchased will be credited,
together with any dividends and capital gain distributions that are paid in
additional shares. See "Dividends and Distributions." Although most shareholders
elect not to receive stock certificates, certificates for full shares of the
Funds can be obtained on request. It is more complicated to redeem shares held
in certificated form, and the expedited redemption described below is not
available with respect to certificated shares.
CONTINGENT DEFERRED SALES CHARGE -- CLASS D SHARES
Class D shares redeemed within one year of receipt of a purchase order for such
shares will be subject to a contingent deferred sales charge equal to 1.00% of
an amount equal to the lesser of the net asset value at the time of purchase for
the Class D shares being redeemed or the net asset value of such shares at the
time of redemption. Contingent deferred sales charges will not be imposed on
amounts representing increases in net asset value above the net asset value at
the time of purchase and are not assessed on Class D shares purchased through
reinvestment of dividends or capital gain distributions. In determining whether
a contingent deferred sales charge is applicable to a redemption, Class D shares
are considered redeemed on a first-in, first-out basis so that Class D shares
held for a longer period of time are considered redeemed prior to more recently
acquired shares.
The contingent deferred sales charge is waived on redemptions of Class D shares
(i) following the shareholder's death or disability (as defined in the Internal
Revenue Code) after the initial purchase of shares redeemed, (ii) to the extent
that the redemption represents a minimum required distribution from an
individual retirement account or other retirement plan to a shareholder who has
reached age 59 1/2, (iii) effected pursuant to the Company's right to liquidate
a shareholder's account if the aggregate net asset value of the shareholder's
account is less than the minimum account size, or (iv) in connection with the
combination of the Company with any other registered investment company by a
merger, acquisition of assets, or by any other reorganization transaction.
Investors who are entitled to purchase Class A shares at net asset value without
a sales load should not purchase Class D shares. Other investors, including
those who are entitled to purchase Class A shares of a Fund at a reduced sales
load, should compare the fees assessed on Class A shares against those assessed
on Class D shares (including potential contingent deferred sales charges and
higher Rule 12b-1 fees) in light of the amount to be invested and the
anticipated time that the shares will be owned.
Shares of the Funds may be purchased by any of the methods described below.
INITIAL PURCHASES BY WIRE
1. Telephone toll free (800) 572-7797. Give the name of the Fund and class of
shares, the name(s) in which the shares are to be registered, the address and
social security number (or tax
PROSPECTUS
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<PAGE> 138
identification number, where applicable) of the person or entity in whose
name(s) the shares are to be registered, dividend payment election, amount to be
wired, name of the wiring bank and name and telephone number of the person to be
contacted in connection with the order. An account number will be assigned.
2. Instruct the wiring bank, which may charge a separate fee, to transmit the
specified amount in federal funds ($1,000 or more) to:
Wells Fargo Bank, N.A.
San Francisco, California
Bank Routing Number: 121000248
Wire Purchase Account Number: 4068-000462
Attention: (Name of Fund -- designate Class A or D)
Account Name(s): (name(s) in which to be registered)
Account Number: (as assigned by telephone)
3. A completed Account Application should be mailed, or sent by telefacsimile
with the original subsequently mailed, to the following address immediately
after the funds are wired and must be received and accepted by the Transfer
Agent before an account can be opened. An original Application must be received
within thirty days or you may be subject to backup withholding taxes.
Wells Fargo Bank, N.A.
Overland Express Shareholder Services
P.O. Box 63084
San Francisco, California 94163
Telefacsimile: 1-415-781-4082
4. Share purchases are effected at the public offering price, or, in the case of
Class D shares, the net asset value next determined after the Account
Application is received and accepted.
INITIAL PURCHASES BY MAIL
1. Complete an Account Application. Indicate the services to be used.
2. Mail the Account Application and a check for $1,000 or more, payable to
"(Name of Fund -- designate Class A or D)" to the mailing address set forth
above.
ADDITIONAL PURCHASES
Additional purchases of $100 or more may be made by instructing the Funds'
Transfer Agent to debit the Wells Fargo Bank account designated in your Account
Application, by wire by instructing the wiring bank to transmit the specified
amount as directed above for initial purchases, or by mail with a check payable
to "(Name of Fund -- designate Class A or D)" to the above address. Write the
Fund account number on the check and include the detachable stub from a
Statement of Account or a letter providing the account number.
SYSTEMATIC PURCHASE PLAN
The Company's Systematic Purchase Plan provides you with a convenient way to
establish and automatically add to your existing accounts on a monthly basis. If
you elect to participate in this plan, you must specify an amount ($100 or more)
to be withdrawn automatically by the Transfer Agent on a monthly basis from an
approved bank account designated in your Account Application (an "Approved Bank
Account"). The Transfer Agent withdraws and uses this amount to purchase shares
of the designated Fund on or about the fifth Business Day of each month. The
Transfer Agent requires a minimum of ten (10) Business Days to implement your
Systematic Purchase Plan purchases. There are no additional fees charged for
participating in this plan.
You may change the investment amount, the date on which your Systematic Purchase
is effected, suspend purchases or terminate the election at any time by
providing written notice to the Transfer Agent at least ten (10) Business Days
prior to any scheduled transaction. An election will be terminated automatically
if your Approved Bank Account balance is insufficient to make a scheduled
withdrawal, or if either your Approved Bank Account or your Fund account is
closed.
PURCHASES THROUGH AUTHORIZED BROKER/DEALERS AND FINANCIAL INSTITUTIONS
Purchase orders for Fund shares placed through authorized broker/dealers and
financial institutions by 1:00 p.m. (Pacific time) on any Business Day,
including orders for which payment is to be made from free cash credit balances
in securities accounts held by a dealer, will be effective on the same day the
order is placed if received by the Transfer Agent before the close of business.
Purchase orders that are received by a dealer or financial institution after
1:00 p.m. (Pacific time) on any Business Day or by the Transfer Agent after the
close of business generally will be effective on the next day that shares are
offered. The broker/dealer or financial institution is responsible for the
prompt transmission of purchase orders to the Transfer Agent. Payment for Fund
shares is not due until settlement date. A broker/dealer or financial
institution that is involved in a purchase transaction may charge separate
account, service or transaction fees. Financial institutions may be required to
register as dealers pursuant to applicable state securities laws, which may
differ from federal law and any interpretations expressed herein.
EXCHANGE PRIVILEGES
CLASS A SHARES -- Class A shares of a Fund may be exchanged for Class A shares
or single class shares of one of the Company's other funds, for Class A shares
of a fund in the Stagecoach Family of Funds or for shares of one of the
Company's money market funds in an identically registered account at respective
net asset values.
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<PAGE> 139
CLASS D SHARES -- Class D shares of a Fund may be exchanged for Class D shares
of one of the Company's other funds or for Class A shares of the Money Market
Fund in an identically registered account at respective net asset values. You
are not charged a contingent deferred sales charge on exchanges of Class D
shares for Class D shares of one of the Company's other funds or for Class A
shares of the Money Market Fund. If you exchange Class D shares for Class D
shares of another fund, or for Class A shares of the Money Market Fund, the
remaining period of time (if any) that the contingent deferred sales charge is
in effect will be computed from the time of the initial purchase of the
previously held shares. Accordingly, if you exchange Class D shares for Class A
shares of the Money Market Fund, and redeem the shares of the Money Market Fund
within one year of the receipt of the purchase order for the exchanged Class D
shares, you will have to pay a deferred sales charge equal to the contingent
deferred sales charge applicable to the previously exchanged Class D shares. If
you exchange Class D shares for Class A shares of the Money Market Fund, you may
subsequently re-exchange the acquired Class A shares only for Class D shares. If
you re-exchange the Class A shares of the Money Market Fund for Class D shares,
the remaining period of time (if any) that the contingent deferred sales charge
is in effect will be computed from the time of your initial purchase of Class D
shares.
Important factors that you should consider:
- - You will need to read the prospectus of the fund into which you want to
exchange.
- - Every exchange is a redemption of shares of one fund and a purchase of shares
of another fund. The redemption may produce a gain or loss for federal income
tax purposes.
- - You must exchange at least the minimum initial purchase amount of the fund you
are redeeming, unless your balance has fallen below that amount due to market
conditions or you have already met the minimum initial purchase amount of the
fund you are purchasing.
- - If you exchange Class A shares, you will need to pay any difference between
the load that you have already paid and the load that you are subject to in
the new fund.
- - You will not pay a contingent deferred sales charge on any exchange from Class
D shares into other Class D shares or a Money Market Fund. The new shares will
continue to age while they are in the new fund and will be charged the
contingent deferred sales charge applicable to the original shares upon
redemption.
- - If you exchange Class A or Class D shares for shares of a Money Market Fund,
you may not re-exchange shares of the Money Market Fund for shares other than
the original exchanged class.
- - The Company may limit the number of times shares may be exchanged or may
reject any telephone exchange order. Subject to limited exceptions, the
Company will notify you 60 days before discontinuing or modifying the exchange
privilege.
You may exchange shares by writing the Transfer Agent as indicated below under
"Redemption by Mail," or by calling the Transfer Agent or your authorized
broker/dealer, financial institution or servicing agent, unless you have elected
not to authorize telephone exchanges in the Account Application (in which case
you may subsequently authorize such telephone exchanges by completing a
Telephone Exchange Authorization Form and submitting it to the Transfer Agent in
advance of the first such exchange). Shares held in certificated form may not be
exchanged by telephone. The Transfer Agent's telephone number for exchanges is
(800) 572-7797.
Telephone redemption or exchange privileges are made available to you
automatically upon opening an account, unless you decline such privileges. These
privileges authorize the Transfer Agent to act on telephone instructions from
any person representing himself or herself to be the investor and reasonably
believed by the Transfer Agent to be genuine. The Company requires the Transfer
Agent to employ reasonable procedures, such as requiring a form of personal
identification, to confirm that instructions are genuine. If the Transfer Agent
does not follow such procedures, the Company and the Transfer Agent may be
liable for any losses attributable to unauthorized or fraudulent instructions.
Neither the Company nor the Transfer Agent will be liable for following
telephone instructions reasonably believed to be genuine.
REDEMPTION OF SHARES
Shares may be redeemed at their next determined net asset value after receipt of
a request in proper form by the Transfer Agent directly or through any
authorized broker/dealer or financial institution.
Except for any contingent deferred sales charge, which may be applicable upon
redemption of Class D shares, as described under "Purchase of Shares," the
Company does not charge for redemption transactions. However, a broker/dealer or
financial institution that is involved in a redemption transaction may charge
separate account, service or transaction fees. Redemption orders received by an
authorized broker/dealer or financial institution before 1:00 p.m. (Pacific
time) on any Business Day and received by the Transfer Agent before 1:00 p.m.
(Pacific time) on the same day will be executed at the net asset value per share
determined at
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<PAGE> 140
1:00 p.m. (Pacific time) on that day. Redemption orders received by authorized
broker/dealers or financial institutions after 1:00 p.m. (Pacific time), or not
received by the Transfer Agent prior to the close of business, will be executed
at the net asset value determined at 1:00 p.m. (Pacific time) on the next
Business Day.
Redemption proceeds, net of any contingent deferred sales charge applicable with
respect to Class D shares, ordinarily will be remitted within seven days after
the order is received in proper form, except proceeds may be remitted over a
longer period to the extent permitted by the SEC under extraordinary
circumstances. If an expedited redemption is requested, redemption proceeds will
be distributed only if the check used for investment is deemed to be cleared for
payment by your bank, currently considered by the Company to be a period of ten
(10) Business Days after investment. The proceeds, of course, may be more or
less than cost. Payment of redemption proceeds may be made in securities,
subject to regulation by some state securities commissions.
REDEMPTION BY MAIL
1. Write a letter of instruction. Indicate the dollar amount or number of shares
to be redeemed. Refer to your Fund account number and provide either a social
security or a tax identification number (as applicable).
2. Sign the letter in exactly the same way the account is registered. If there
is more than one owner of the shares, all must sign.
3. If shares to be redeemed have a value of $5,000 or more, or redemption
proceeds are to be paid to someone other than you at your address of record, the
signature(s) must be guaranteed by an "eligible guarantor institution," which
includes a commercial bank that is a member of the Federal Deposit Insurance
Corporation, a trust company, a member firm of a domestic stock exchange, a
savings association, or a credit union that is authorized by its charter to
provide a signature guarantee. Signature guarantees by notaries public are not
acceptable. Further documentation may be requested from corporations,
administrators, executors, personal representatives, trustees or custodians.
4. If shares to be redeemed are held in certificated form, enclose the
certificates with the letter. Do not sign the certificates and for protection
use registered mail.
5. Mail the letter to the Transfer Agent at the mailing address set forth under
"Purchase of Shares -- Initial Purchase of Fund Shares by Wire."
Unless other instructions are given in proper form, a check for the proceeds of
a redemption, net of any contingent deferred sales charge applicable with
respect to Class D shares, will be sent to your address of record.
SYSTEMATIC WITHDRAWAL PLAN
The Company's Systematic Withdrawal Plan provides a way for you to have shares
redeemed from your account and the proceeds, net of any contingent deferred
sales charge applicable with respect to Class D shares, distributed to you on a
monthly basis. You may elect to participate in this plan if you have a
shareholder account valued at $10,000 or more as of the date of your election to
participate and are not also a participant in the Company's Systematic Purchase
Plan at any time while participating in this plan. To participate in the plan
you must specify an amount ($100 or more) to be distributed by check to your
address of record or deposited in your Approved Bank Account. The Transfer Agent
redeems sufficient shares and mails or deposits the proceeds of the redemption,
net of any contingent deferred sales charge applicable with respect to Class D
shares, as instructed, on or about the fifth Business Day prior to the end of
each month. There are no additional fees charged for participating in this plan.
It may take up to ten (10) Business Days after receipt of your request to
establish your participation in the Systematic Withdrawal Plan. You may change
the withdrawal amount, suspend withdrawals or terminate your participation in
the Systematic Withdrawal Plan at any time by providing written notice to the
Transfer Agent at least ten (10) Business Days prior to a scheduled transaction.
Participation in the Systematic Withdrawal Plan may be terminated automatically
if your Fund account balance is insufficient to make a scheduled withdrawal or
if your Fund account or Approved Bank Account is closed.
EXPEDITED REDEMPTIONS BY LETTER AND TELEPHONE
If shares are not held in certificated form, you may request an expedited
redemption of shares by letter or telephone (unless you have elected not to
authorize telephone redemptions on your Account Application or other form that
is on file with the Transfer Agent) on any Business Day. See "Exchange
Privileges" for additional information regarding telephone redemption
privileges. You may request expedited redemption by telephone by calling the
Transfer Agent at (800) 572-7797. You may request expedited redemption by mail
by mailing your expedited redemption request to the Transfer Agent at the
mailing address set forth under "Purchase of Shares -- Initial Purchases by
Wire."
Upon request, proceeds of expedited redemptions of $5,000 or more, net of any
contingent deferred sales charge applicable with respect to Class D shares, will
be wired or credited to your Approved Bank Account or wired to an authorized
broker/dealer or financial institution designated in your Account Application.
The Company reserves the right to impose charges for wiring redemption proceeds.
When proceeds of an expedited redemption are to be paid to someone other than
yourself, to an address other than that of record, or to a bank, broker/dealer
or other
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<PAGE> 141
financial institution that has not been predesignated, the expedited redemption
request must be made by letter and the signature(s) on the letter must be
guaranteed, regardless of the amount of the redemption. If an expedited
redemption request is received by the Transfer Agent by the close of business on
any day a Fund is open for business, the redemption proceeds will be transmitted
to your bank or predesignated broker/dealer or financial institution on the next
Business Day (assuming the investment check has cleared as described above),
absent extraordinary circumstances. A check for proceeds of less than $5,000
will be mailed to your address of record, except that, in the case of
investments in the Company that have been effected through broker/dealers, banks
and other institutions that have entered into special arrangements with the
Company, the full amount of the redemption proceeds may be transmitted by wire
or credited to a designated account.
REDEMPTIONS THROUGH AUTHORIZED BROKER/DEALERS AND FINANCIAL INSTITUTIONS
Redemption requests placed through authorized broker/dealers and financial
institutions by the close of the NYSE on any day that a Fund's shares are
offered for sale will be effective on the same day the request is placed if
received by the Transfer Agent before the close of business. Redemption requests
that are received by a dealer or financial institution after 1:00 p.m. (Pacific
time) or by the Transfer Agent after the close of business generally will be
effective on the next day that shares are offered. The broker/dealer or
financial institution is responsible for the prompt transmission of redemption
requests to the Transfer Agent. Unless you have made other arrangements, and
have informed the Transfer Agent of such arrangements, proceeds of redemptions
made through authorized broker/dealers and financial institutions will be
credited to your account with such broker/dealer or institution. You may request
a check from the broker/dealer or financial institution or may elect to retain
the redemption proceeds in your account. The broker/dealer or financial
institution may benefit from the use of the redemption proceeds prior to the
clearance of a check issued to you for such proceeds or prior to disbursement or
reinvestment of such proceeds on your behalf.
Redemption proceeds may be more or less than the amount invested and, therefore,
a redemption may result in a gain or loss for federal and state income tax
purposes. Due to the high cost of maintaining small accounts, the Company
reserves the right to redeem accounts that fall below $1,000. Prior to such a
redemption, you will be notified in writing and permitted 30 days to make
additional investments to raise the account balance to the specified minimum.
DIVIDENDS AND DISTRIBUTIONS
Each Fund intends to declare as a dividend substantially all of its net
investment income at the close of each Business Day to shareholders of record at
1:00 p.m. (Pacific time) on the day of declaration. Shares purchased in the
Funds will begin earning dividends on the Business Day following the date the
purchase order settles and shares redeemed will earn dividends through the date
of redemption. Net investment income for a Saturday, Sunday or holiday will be
declared as a dividend to shareholders of record at 1:00 p.m. (Pacific time) on
the prior Business Day.
Dividends of a Fund declared in, and attributable to, any month will be paid on
the last Business Day of the month and generally are mailed early in the
following month. Shareholders of the Funds who redeem shares prior to a dividend
payment date will be entitled to all dividends declared but unpaid prior to
redemption on such shares on the next dividend payment date. Net capital gains
of the Funds, if any, will be distributed annually.
Dividends and/or capital gain distributions paid by a Fund will be invested in
additional shares of the same class of the Fund at net asset value (without any
sales load) and credited to your account on the reinvestment date or, at your
election, paid by check. Dividend checks and Statements of Account will be
mailed within approximately three Business Days after the payment date. In
addition, you may elect to reinvest Fund dividends and/or capital gain
distributions in shares of another portfolio of the Company with which you have
an established account that has met the applicable minimum initial investment
requirement.
The Funds' net investment income available for distribution to the holders of
Class D shares will be reduced by the amount of shareholder servicing fees
payable to shareholder servicing agents under the Servicing Plan and by the
distribution fees payable under the Distribution Plan. There may be certain
other differences in fees (e.g., transfer agent fees) between Class A shares and
Class D shares that would affect their relative dividends.
DIVIDEND AND DISTRIBUTION OPTIONS
When you fill out an Account Application, you can choose from three dividend and
distribution options:
A. The AUTOMATIC REINVESTMENT OPTION provides for the reinvestment of dividends
and capital gain distributions in additional shares of the same class of a Fund.
Dividends and distributions declared in a month are reinvested at net asset
value early in the following month. You are assigned this option automatically
if you make no choice on your Account Application.
B. The AUTOMATIC CLEARING HOUSE OPTION permits you to have dividends and capital
gain distributions deposited in an Approved Bank Account. In the event your
Approved Bank Account is
PROSPECTUS
- --------------------------------------------------------------------------------
27
<PAGE> 142
closed, and such distribution is returned to your Fund's dividend disbursing
agent, the distribution will be reinvested in your Fund account at the net asset
value next determined after the distribution has been returned. If this happens,
your Automatic Clearing House Option will be converted to the Automatic
Reinvestment Option.
C. The CHECK PAYMENT OPTION allows you to receive a check for a dividend or
capital gain distribution, which is mailed either to the designated address, or
your Approved Bank Account, early in the month following declaration. If the
U.S. Postal Service cannot deliver such checks, or if such checks remain
uncashed for six months, those checks will be reinvested in your Fund account at
the net asset value next determined after the earlier of the date the checks
have been returned to the dividend disbursing agent or the date six months after
the payment of such dividend or distribution. If this happens, your Check
Payment Option will be converted to the Automatic Reinvestment Option.
The Company takes reasonable efforts to locate investors whose checks are
returned or uncashed after six months. The Company forwards moneys to the
dividend disbursing agent so that it may issue investors dividend checks under
the Check Payment Option. The dividend disbursing agent may benefit from the
temporary use of such moneys until these checks clear.
TAXES
Dividends distributed from the California Tax-Free Bond Fund's net interest
income from tax-exempt securities will not be subject to federal income taxes
and also will be exempt from California personal income tax to the extent such
dividends are attributable to instruments that pay interest which would be
exempt from California personal income taxes, if such instruments were held
directly by an individual. Dividends distributed from the Municipal Income
Fund's net interest income from tax-exempt securities generally will not be
subject to federal income taxes. Dividends attributable to the California
Tax-Free Bond and Municipal Income Funds' interest income from taxable
securities and short-term capital gains are taxable as ordinary income.
Dividends from the net investment income and net short-term capital gains, if
any, of the U.S. Government Income Fund are taxable to the Fund's shareholders
as ordinary income. Distributions from the Funds' net long-term capital gains,
if any, are designated as capital gain distributions and taxable to the Funds'
shareholders as long-term capital gains. Dividend and capital gain distributions
will be taxable when paid, whether you take such distributions in cash or have
them automatically reinvested in additional Fund shares. Distributions declared
in October, November and December and distributed by the following January will
be taxable as if they were paid by December 31. None of the Funds' dividends
will qualify for the dividends received deduction allowed to corporate
shareholders. You may be eligible to defer the taxation of dividends and capital
gain distributions on shares of the U.S. Government Income Fund which are held
under a qualified tax-deferred retirement plan.
Your redemptions (including redemptions in-kind) and exchanges of Fund shares
will ordinarily result in a taxable capital gain or loss, depending on the
amount you receive for your shares (or are deemed to receive in the case of
exchanges) and the cost of your shares. See "Federal Income Taxes -- Disposition
of Fund Shares" in the SAIs.
Foreign shareholders may be subject to different tax treatment, including
withholding taxes. See "Federal Income Taxes -- Foreign Shareholders" in the
SAIs. In certain circumstances, U.S. residents may also be subject to
withholding taxes. See "Federal Income Taxes -- Backup Withholding" in the SAIs.
The foregoing discussion regarding taxes is based on tax laws which were in
effect as of the date of this Prospectus and summarizes only some of the
important federal tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning; you
should consult your tax advisor with respect to your specific tax situation as
well as with respect to foreign, state and local taxes. Further federal tax
considerations are discussed in the SAI for each Fund.
ORGANIZATION AND CAPITAL STOCK
The Company, an open-end management investment company, was incorporated in
Maryland on April 27, 1987. 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 by the
1940 Act to elect Directors; however, shareholders are entitled to call a
meeting of shareholders for purposes of voting on removal of a Director or
Directors. 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.
PROSPECTUS
- --------------------------------------------------------------------------------
28
<PAGE> 143
<TABLE>
<S> <C>
---------------------
BULK RATE
U.S. POSTAGE
PAID
DALLAS, TEXAS
Permit No. 1808
---------------------
</TABLE>
NOT FDIC INSURED
For Customer Service or questions about your
account, call (800) 572-7797.
For more information about the Funds,
simply call (800) 552-9612.
You may also write to the Funds at:
OVERLAND EXPRESS FUNDS, INC.
c/o Overland Express
Shareholder Services
Wells Fargo Bank, N.A.
P.O. Box 63084
San Francisco, California 94163
INC P 5/97 LOGO
<PAGE> 144
OVERLAND EXPRESS FUNDS
PROSPECTUS
MAY 1, 1997
CLASS A SHARES
----------------------------------------------------------------
CALIFORNIA TAX-FREE MONEY
MARKET FUND
MONEY MARKET FUND
U.S. TREASURY MONEY MARKET FUND
[OVERLAND EXPRESS LOGO]
<PAGE> 145
LOGO
PROSPECTUS DATED MAY 1, 1997
Telephone: (800) 552-9612
Overland Express Funds, Inc. (the "Company") is an open-end, series investment
company. This Prospectus describes shares of the Company's CALIFORNIA TAX-FREE
MONEY MARKET FUND and Class A shares of the MONEY MARKET FUND and the U.S.
TREASURY MONEY MARKET FUND (each, a "Fund," and collectively, the "Funds").
The CALIFORNIA TAX-FREE MONEY MARKET FUND seeks to provide investors with a high
level of current income exempt from federal income taxes, a portion of which is
also exempt from California personal income taxes, while preserving capital and
liquidity, by investing in high-quality instruments, principally municipal
securities.
The MONEY MARKET FUND seeks to provide investors with a high level of current
income, while preserving capital and liquidity, by investing in high-quality,
short-term securities.
The U.S. TREASURY MONEY MARKET FUND seeks to provide investors with a high level
of current income, while preserving capital and liquidity, by investing in
short-term U.S. Treasury bonds, notes and bills.
Each Fund seeks to maintain a stable net asset value of $1.00 per share.
Investors should read this Prospectus carefully and retain it for future
reference. It sets forth concisely the information a prospective investor should
know before investing in a Fund. A Statement of Additional Information ("SAI")
dated May 1, 1997, containing additional and more detailed information about
each of the Funds has been filed with the Securities and Exchange Commission
(the "SEC") and is hereby incorporated by reference into this Prospectus. The
SAI is available without charge and can be obtained by writing the Company at
P.O. Box 63084, San Francisco, CA 94163 or by calling the Company at (800)
552-9612.
AN INVESTMENT IN A FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE IS NO ASSURANCE THAT A FUND WILL BE ABLE TO MAINTAIN A STABLE
$1.00 NET ASSET VALUE PER SHARE.
- --------------------------------------------------------------------------------
FUND SHARES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR ISSUED, ENDORSED OR
GUARANTEED BY, WELLS FARGO BANK, N.A. OR ANY OF ITS AFFILIATES. SUCH SHARES ARE
NOT INSURED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN A
FUND INVOLVES CERTAIN INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
WELLS FARGO BANK IS THE INVESTMENT ADVISER AND ADMINISTRATOR, AND PROVIDES
CERTAIN OTHER SERVICES TO THE FUNDS, FOR WHICH IT IS COMPENSATED. STEPHENS INC.,
WHICH IS NOT AFFILIATED WITH WELLS FARGO BANK, IS THE SPONSOR, CO-ADMINISTRATOR
AND DISTRIBUTOR FOR THE FUNDS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<PAGE> 146
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PROSPECTUS SUMMARY................................ 1
SUMMARY OF EXPENSES............................... 3
FINANCIAL HIGHLIGHTS.............................. 4
INVESTMENT OBJECTIVES AND POLICIES................ 7
INVESTMENT ACTIVITIES............................. 9
MANAGEMENT OF THE FUNDS........................... 11
DETERMINATION OF NET ASSET VALUE.................. 12
PURCHASE OF SHARES................................ 13
EXCHANGE PRIVILEGES............................... 15
REDEMPTION OF SHARES.............................. 15
DIVIDENDS AND DISTRIBUTIONS....................... 17
TAXES............................................. 18
ORGANIZATION AND CAPITAL STOCK.................... 18
</TABLE>
PROSPECTUS
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<PAGE> 147
PROSPECTUS SUMMARY
The Company, as an open-end management investment company, provides a convenient
way for you to invest in portfolios of securities selected and supervised by
professional management. The following provides information about the Funds,
each of which has its own investment objective.
Q. WHAT ARE THE FUNDS' INVESTMENT OBJECTIVES?
A. The CALIFORNIA TAX-FREE MONEY MARKET FUND seeks to provide investors with a
high level of current income exempt from federal income taxes, a portion of
which is also exempt from California personal income taxes, while preserving
capital and liquidity, by investing in high-quality instruments, principally
municipal securities. The MONEY MARKET FUND seeks to provide investors with a
high level of current income, while preserving capital and liquidity, by
investing in high-quality, short-term securities. The U.S. TREASURY MONEY
MARKET FUND seeks to provide investors with a high level of current income,
while preserving capital and liquidity, by investing in short-term U.S.
Treasury bonds, notes and bills. Each Fund seeks to maintain a stable net
asset value of $1.00 per share. See "Investment Objectives and Policies."
Q. WHAT ARE THE FUNDS' PRINCIPAL INVESTMENTS?
A. The CALIFORNIA TAX-FREE MONEY MARKET FUND invests in high-quality
instruments, primarily municipal securities, the income from which is exempt
from federal income taxes, a portion of which is also exempt from California
personal income taxes. Under normal market conditions, a substantial majority
of the Fund's total assets will consist of securities the interest on which
is exempt from California personal income taxes. In any event, at the close
of each calendar quarter at least 50% of the Fund's total assets will consist
of such securities. Income exempt from federal income tax may be of benefit
to investors who pay federal income taxes, whether or not they are residents
of California.
The MONEY MARKET FUND invests in high-quality money market instruments,
including obligations of the U.S. Government, its agencies and
instrumentalities (including government-sponsored enterprises), certain debt
obligations, including corporate debt, certain obligations of U.S. banks and
certain repurchase agreements.
The U.S. TREASURY MONEY MARKET FUND invests primarily in short-term U.S.
Treasury bonds, notes and bills.
See "Investment Objectives and Policies" and "Investment Activities."
Q. WHAT ARE SOME OF THE POTENTIAL RISKS ASSOCIATED WITH AN INVESTMENT IN A FUND?
A. Investments in the Funds 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 or
interest. Therefore, you should be willing to accept some risk with money
invested in the Funds. Although each of the Funds seeks to maintain a stable
net asset value of $1.00 per share, there is no assurance that it will be
able to do so. As with all mutual funds, there is no assurance that the Funds
will achieve their investment objectives. The Funds may not achieve as high a
level of current income as other mutual funds that do not limit their
investments to the high credit quality instruments in which the Funds invest.
Since the California Tax-Free Money Market Fund invests primarily in
securities issued by California, its agencies and municipalities, events in
California are more likely to affect this Fund's investments. Also, the
California Tax-Free Money Market Fund is non-diversified, which means that
its assets may be invested in fewer issuers and therefore the value of its
assets may be subject to greater impact by events affecting one of its
investments. See "Investment Objectives and Policies -- Risk Factors."
Q. WHO MANAGES MY INVESTMENTS?
A. Wells Fargo Bank, as investment adviser to each Fund, manages your
investments. Wells Fargo Bank also provides the Funds with administrative,
transfer agency, dividend disbursing agency and custodial services. Stephens
Inc. ("Stephens") is the Funds' sponsor, co-administrator and distributor.
See "Management of the Funds."
Q. HOW MAY I PURCHASE SHARES?
A. Shares of each Fund may be purchased on any day the Fund is open. There are
no sales loads. In most cases, the minimum initial purchase amount for Fund
shares is $1,000. The minimum initial purchase amount is $100 for shares
purchased through the Systematic Purchase Plan. The minimum subsequent
purchase amount is generally $100 or more. However, certain exceptions may
apply. You may purchase Fund shares through Stephens, Wells Fargo Bank, as
transfer agent (the "Transfer Agent"), or any
PROSPECTUS
- --------------------------------------------------------------------------------
1
<PAGE> 148
authorized broker/dealer or financial institution. Purchases may be made by
wire directly to the Transfer Agent. See "Purchase of Shares."
Q. HOW WILL I RECEIVE DIVIDENDS?
A. Dividends are declared daily and paid monthly. Any capital gains are
distributed at least annually. Dividends and capital gain distributions are
automatically reinvested in additional shares, unless you elect to receive
dividends and distributions in cash. All reinvestments in Fund shares are at
net asset value. See "Dividends and Distributions."
Q. HOW MAY I REDEEM SHARES?
A. Shares of each Fund may be redeemed at net asset value on any day the Fund is
open upon request to Stephens or the Transfer Agent directly, or through any
authorized broker/dealer or financial institution. Shares may be redeemed by
request in good form by letter, by an automatic feature called the Systematic
Withdrawal Plan, or by telephone. Proceeds are payable by check, or for
shareholders who make prior arrangements, by wire. Accounts maintaining less
than the applicable minimum initial purchase amount may be redeemed at the
option of the Company. The Company does not charge redemption fees. However,
the Company reserves the right to impose charges for wiring redemption
proceeds. See "Redemption of Shares."
PROSPECTUS
- --------------------------------------------------------------------------------
2
<PAGE> 149
SUMMARY OF EXPENSES
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
CALIFORNIA U.S. TREASURY
TAX-FREE MONEY MARKET MONEY MARKET
MONEY FUND FUND
MARKET FUND (CLASS A) (CLASS A)
<S> <C> <C> <C>
Management Fees......................... 0.45% 0.25% 0.25%
Rule 12b-1 Fees......................... 0.00% 0.25% 0.25%
Other Expenses (after waivers or
reimbursements)(1)..................... 0.18% 0.15% 0.15%
----- ----- -----
TOTAL FUND OPERATING EXPENSES........... 0.63% 0.65% 0.65%
===== ===== =====
(after waivers or reimbursements)(2)
</TABLE>
- ---------------
(1) Other Expenses (before waivers or reimbursements) for Class A shares of the
Money Market Fund and U.S. Treasury Money Market Fund would be 0.16% and
0.21%, respectively.
(2) Total Fund Operating Expenses (before waivers or reimbursements) for Class A
shares of the Money Market Fund and U.S. Treasury Money Market Fund would be
0.66% and 0.71%, respectively.
EXAMPLE OF EXPENSES
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming a 5% annual return and redemption at the end of
each time period indicated:
California Tax-Free Money Market Fund....................... $6 $20 $35 $79
Money Market Fund -- Class A................................ $7 $21 $36 $81
U.S. Treasury Money Market Fund -- Class A.................. $7 $21 $36 $81
</TABLE>
------------------------
The purpose of the foregoing tables is to assist you in understanding the
various costs and expenses that investors in the Funds will pay directly or
indirectly. There are no sales loads, redemption fees or exchange fees charged
by the Funds. However, the Company reserves the right to impose charges for
wiring redemption proceeds.
ANNUAL FUND OPERATING EXPENSES are based on amounts incurred during the most
recent fiscal year. The percentages shown under "Other Expenses" and "Total Fund
Operating Expenses" for Class A shares of the Money Market and U.S. Treasury
Money Market Funds have been adjusted to reflect voluntary fee waivers and
expense reimbursements expected to continue during the current fiscal year.
Wells Fargo Bank and Stephens each have agreed to waive or reimburse all or a
portion of their respective fees, through at least the current fiscal year, to
ensure that "Total Fund Operating Expenses" for Class A shares of the Money
Market and U.S. Treasury Money Market Funds do not exceed 0.70% of such Fund's
average daily net assets. There can be no assurance that voluntary fee waivers
or expense reimbursements will continue.
EXAMPLE OF EXPENSES is a hypothetical example which illustrates the expenses
associated with a $1,000 investment over the periods shown, based on the
expenses in the table above and an assumed annual rate of return of 5%. This
rate of return should not be considered an indication of the actual or expected
performance of a Fund. In addition, the Example should not be considered a
representation of past or future expenses; actual expenses and returns may be
greater or less than those shown. See "Management of the Funds" for more
complete descriptions of the various costs and expenses applicable to the Funds.
In addition to Class A shares, the Money Market and U.S. Treasury Money Market
Funds also offer an Institutional Class of shares. The Institutional Class
shares require a minimum initial investment of at least $150,000. The expenses
and corresponding performance of the Institutional Class shares may differ from
the expenses and performance of the Class A shares. For more information about
the Institutional Class shares, or to obtain a current prospectus for the
Institutional Class shares, please call the Company at (800) 552-9612.
PROSPECTUS
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3
<PAGE> 150
FINANCIAL HIGHLIGHTS
The following information has been derived from the Financial Highlights in the
Funds' 1996 annual financial statements. The financial statements are
incorporated by reference into the SAI and have been audited by KPMG Peat
Marwick LLP, independent auditors, whose report dated February 14, 1997 also is
incorporated by reference into the SAI. This information should be read in
conjunction with the Funds' 1996 annual financial statements and the notes
thereto. The SAI has been incorporated by reference into this Prospectus.
CALIFORNIA TAX-FREE MONEY MARKET FUND
For a Share Outstanding
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1996 1995 1994 1993 1992 1991 1990 1989 1988(1)
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period........................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment
operations:
Net investment income.......... 0.03 0.03 0.02 0.02 0.03 0.04 0.05 0.06 0.03
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations.................... 0.03 0.03 0.02 0.02 0.03 0.04 0.05 0.06 0.03
Less Distributions:
Dividends from net investment
income........................ (0.03) (0.03) (0.02) (0.02) (0.03) (0.04) (0.05) (0.06) (0.03)
Distributions from net realized
gain.......................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total from Distributions....... (0.03) (0.03) (0.02) (0.02) (0.03) (0.04) (0.05) (0.06) (0.03)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net Asset Value, End of
Period........................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ======== ======== ======== ========
Total Return (not
annualized)................... 2.81% 3.25% 2.22% 1.84% 2.54% 3.99% 5.20% 5.84% 3.29%
Ratios/supplemental data:
Net assets, end of period
(000)......................... $391,287 $355,868 $288,409 $397,712 $363,067 $299,234 $312,023 $247,777 $271,683
Number of shares outstanding,
end of period (000)........... 391,345 355,940 288,409 397,717 363,069 299,234 312,023 247,777 271,683
Ratios to average net assets
(annualized):
Ratio of expenses to average
net assets.................... 0.63% 0.68% 0.68% 0.66% 0.66% 0.66% 0.65% 0.61% 0.55%
Ratio of net investment income
to average net assets......... 2.79% 3.20% 2.17% 1.82% 2.50% 3.92% 5.07% 5.73% 4.93%
Ratio of expenses to average
net assets prior to waived
fees and reimbursed
expenses...................... 0.63% 0.68% 0.70% 0.70% 0.69% 0.70% 0.73% 0.75% 0.73%
Ratio of net investment income
to average net assets prior to
waived fees and reimbursed
expenses...................... 2.79% 3.20% 2.15% 1.78% 2.47% 3.88% 4.99% N/A N/A
</TABLE>
- ---------------
(1) The Fund commenced operations on April 7, 1988.
PROSPECTUS
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4
<PAGE> 151
MONEY MARKET FUND
For a Class A Share Outstanding
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1996 1995 1994 1993 1992 1991 1990 1989(1)
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period...... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment operations:
Net investment income..................... 0.05 0.05 0.04 0.03 0.03 0.06 0.08 0.01
-------- -------- -------- -------- -------- -------- -------- -------
Total from investment operations.......... 0.05 0.05 0.04 0.03 0.03 0.06 0.08 0.01
Less Distributions:
Dividends from net investment income...... (0.05) (0.05) (0.04) (0.03) (0.03) (0.06) (0.08) (0.01)
-------- -------- -------- -------- -------- -------- -------- -------
Total from Distributions.................. (0.05) (0.05) (0.04) (0.03) (0.03) (0.06) (0.08) (0.01)
Net Asset Value, End of Period............ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ======== ======== =======
Total return (not annualized)............. 4.89% 5.44% 3.70% 2.57% 3.23% 5.65% 7.88% 1.37%
Ratios/supplemental data:
Net assets, end of period (000)........... $384,527 $375,218 $307,878 $228,084 $268,424 $229,863 $198,187 $40,143
Number of shares outstanding, end of
period (000)............................. 384,605 375,364 307,915 228,085 268,434 229,866 198,192 40,143
Ratios to average net assets (annualized):
Ratio of expenses to average net assets... 0.65% 0.65% 0.68% 0.74% 0.75% 0.74% 0.68% 0.53%
Ratio of net investment income to average
net assets............................... 4.79% 5.43% 3.71% 2.54% 3.17% 5.54% 7.55% 8.11%
Ratio of expenses to average net assets
prior to waived fees and reimbursed
expenses................................. 0.66% 0.69% 0.72% 0.74% 0.75% 0.75% 0.84% 1.82%
Ratio of net investment income to average
net assets prior to waived fees and
reimbursed expenses...................... 4.78% 5.39% 3.67% 2.54% 3.17% 5.53% 7.39% N/A
</TABLE>
- ---------------
(1) The Fund commenced operations on November 1, 1989.
PROSPECTUS
- --------------------------------------------------------------------------------
5
<PAGE> 152
U.S. TREASURY MONEY MARKET FUND
For a Class A Share Outstanding
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1996 1995 1994 1993 1992(1)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment operations:
Net investment income....................................... 0.05 0.05 0.03 0.03 0.02
-------- -------- -------- -------- --------
Total from investment operations............................ 0.05 0.05 0.03 0.03 0.02
Less Distributions:
Dividends from net investment income........................ (0.05) (0.05) (0.03) (0.03) (0.02)
-------- -------- -------- -------- --------
Total from Distributions.................................... (0.05) (0.05) (0.03) (0.03) (0.02)
Net Asset Value, End of Period.............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return (not annualized)............................... 4.60% 5.09% 3.44% 2.56% 1.97%
Ratios/supplemental data:
Net assets, end of period (000)............................. $277,816 $198,753 $195,031 $118,169 $137,412
Number of shares outstanding, end of period (000)........... 277,807 198,782 195,042 118,169 137,416
Ratios to average net assets (annualized):
Ratio of expenses to average net assets..................... 0.65% 0.65% 0.63% 0.52% 0.27%
Ratio of net investment income to average net assets........ 4.60% 4.97% 3.47% 2.55% 3.12%
Ratio of expenses to average net assets prior to waived fees
and reimbursed expenses.................................... 0.71% 0.73% 0.80% 0.77% 0.79%
Ratio of net investment income to average net assets prior
to waived fees and reimbursed expenses..................... 4.54% 4.89% 3.30% 2.30% 2.60%
</TABLE>
- ---------------
(1) The Fund commenced operations on May 12, 1992.
PROSPECTUS
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6
<PAGE> 153
INVESTMENT OBJECTIVES AND POLICIES
Set forth below is a description of the investment objectives and related
policies of each of the Funds. As with all mutual funds, there is no assurance
that the Funds will achieve their respective investment objectives. The Funds
invest only in U.S. dollar-denominated securities with remaining maturities not
exceeding thirteen months, as defined under the Investment Company Act of 1940
(the "1940 Act"). The Funds seek to maintain a dollar-weighted average portfolio
maturity of 90 days or less. The Funds seek to maintain a constant net asset
value of $1.00 per share; however, there is no assurance that this objective
will be achieved.
The CALIFORNIA TAX-FREE MONEY MARKET FUND seeks to provide investors with a high
level of current income exempt from federal income taxes, a portion of which is
also exempt from California personal income taxes, while preserving capital and
liquidity, by investing in high-quality instruments, principally municipal
securities.
As a matter of fundamental policy, the Fund under normal market conditions
invests at least 80% of its net assets in municipal securities that are exempt
from both federal income taxes and federal alternative minimum taxes (or in
other open-end tax-free money market funds with a similar fundamental policy).
Under normal market conditions, a substantial majority of the Fund's total
assets will consist of securities, the interest on which is exempt from both
federal income taxes and California personal income taxes. Under normal market
conditions, at least 65% of the Fund's total assets will consist of such
securities. In addition, as a matter of fundamental policy, at the close of each
quarter of the Fund's taxable year at least 50% of its total assets will consist
of such securities. The Fund invests in municipal obligations issued by or on
behalf of the State of California, its cities, municipalities and other public
authorities and may also invest in obligations issued by the U.S. Virgin
Islands, Puerto Rico and Guam; the income on these securities is exempt from
both federal income taxes and California personal income taxes. See "Investment
Activities -- Municipal Securities" and "Taxes."
Pending the investment of proceeds from the sale of Fund shares or proceeds from
sales of portfolio securities or in anticipation of redemptions, or to maintain
a "defensive" posture when, in the opinion of the investment adviser, it is
advisable to do so because of market conditions, the Fund may elect to invest
temporarily up to 20% of the current value of its net assets in cash reserves,
high-quality taxable money market instruments (discussed below) and high-quality
municipal obligations, the income from which may or may not be exempt from
federal income taxes. Some portion of the income received by Fund shareholders
may be subject to federal income taxes and California personal income taxes. The
Fund is a non-diversified portfolio, which means that its assets may be invested
in fewer issuers than a diversified portfolio and therefore the value of its
assets may be subject to greater impact by events affecting one of its
investments. Since the Fund invests primarily in securities issued by
California, its agencies and municipalities, events in California are more
likely to affect its investments. See "Special Factors Affecting the California
Tax-Free Money Market Fund" in the SAI.
The MONEY MARKET FUND seeks to provide investors with a high level of current
income, while preserving capital and liquidity, by investing in high-quality,
short-term securities.
The Fund is a diversified portfolio and under normal market circumstances, will
invest its assets exclusively in money market instruments (discussed below).
The U.S. TREASURY MONEY MARKET FUND seeks to provide investors with a high level
of current income, while preserving capital and liquidity, by investing in
short-term U.S. Treasury bonds, notes and bills ("U.S. Treasury Securities").
The Fund invests exclusively in U.S. Treasury Securities and repurchase
agreements fully collateralized by U.S. Treasury Securities. U.S. Treasury
Securities are debt obligations issued by the U.S. Government, of which the
payment of interest and repayment of principal are secured by the full faith and
credit of the U.S. Treasury. Treasury bonds, notes and bills differ mainly in
the length of their maturities: Treasury bonds are long-term debt instruments
with original maturities of ten years or more; Treasury notes are medium-term
debt instruments with original maturities of one to ten years; and Treasury
bills are short-term debt obligations with original maturities of one year or
less and are issued on a discounted basis. The U.S. Treasury Money Market Fund
may only purchase U.S. Treasury Securities with remaining maturities of 13
months or less. The Fund is a diversified portfolio.
INVESTMENT POLICIES
Each of the Funds' investment objectives, as set forth above, is fundamental;
that is, the investment objective 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. If the Board of Directors
determines, however, that a Fund's investment objective can best be achieved by
a substantive change in a non-fundamental investment policy or strategy, the
Company may make such change without shareholder approval and will disclose any
such material changes in the then current prospectus.
As matters of fundamental policy, the following apply:
(i) each of the Funds may borrow from banks up to 10% of the current value
of its net assets for temporary purposes
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only in order to meet redemptions, and these borrowings may be secured
by the pledge of up to 10% of the current value of its net assets (but
investments may not be purchased by the California Tax-Free Money Market
or Money Market Funds while any such outstanding borrowing exists and
investments may not be purchased by the U.S. Treasury Money Market Fund
while any such outstanding borrowing in excess of 5% of its net assets
exists);
(ii) none of the Funds may 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
investment in that industry would exceed 25% of the current value of
such Fund's total assets, provided that there is no limitation with
respect to investments in (a) U.S. Government obligations (which
includes U.S. Treasury Securities), (b) 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 (c) with respect to the California
Tax-Free Money Market Fund, municipal securities (for the purpose of
this restriction, private activity bonds shall not be deemed municipal
securities if the payments of principal and interest on such bonds are
the ultimate responsibility of non-governmental users).
See "Investment Restrictions" and "Additional Permitted Investment Activities"
in the SAI.
RISK FACTORS
Investments in a Fund are not bank deposits and are not insured or guaranteed
against loss of principal. Although the Funds 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 is no assurance that the Funds will
achieve their respective investment objectives. Pursuant to the 1940 Act, each
Fund must comply with certain investment criteria designed to provide liquidity,
reduce risk and allow the Funds to maintain a stable net asset value of $1.00
per share.
Since their inception, the Funds have emphasized safety of principal and high
credit quality. In particular, the internal investment policies of the Funds'
investment adviser, Wells Fargo Bank, have always prohibited the purchase of
many types of floating-rate instruments commonly referred to as "derivatives"
that are considered potentially volatile. The following types of derivative
securities ARE NOT permitted investments for the Funds:
- - 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 range);
- - 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 index).
Additionally, the Funds may not invest in securities whose interest rate reset
provisions are tied to an index that materially lags short-term interest rates,
such as Cost of Funds Index floaters. The Funds 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. Treasury bills, London Interbank Offered Rate, the prime
rate, published commercial paper rates, federal funds rates, Public Securities
Associates floaters or JJ Kenney Index floaters.
The California Tax-Free Money Market Fund is classified as non-diversified under
the 1940 Act. The Money Market and U.S. Treasury Money Market Funds are
classified as diversified portfolios. Investment return on a non-diversified
portfolio typically is dependent upon the performance of a smaller number of
securities relative to the number held in a diversified portfolio. Consequently,
the change in value of any one security may affect the overall value of a
non-diversified portfolio more than it would a diversified portfolio, and
thereby subject the market-based net asset value per share of the
non-diversified portfolio to greater fluctuations. In addition, a
non-diversified portfolio may be more susceptible to economic, political and
regulatory developments than a diversified investment portfolio with a similar
objective may be.
The concentration of the California Tax-Free Money Market Fund in municipal
obligations of California raises additional considerations. Payment of the
interest on and the principal of these obligations is dependent upon the
continuing ability of state issuers and/or obligors of state, municipal and
public authority debt obligations to meet their obligations thereunder.
Investors should consider the greater risk inherent in this Fund's concentration
in such obligations versus the safety that comes with a less geographically
concentrated investment portfolio and should compare the yield available on a
portfolio of state-specific issues with the yield of a more diversified
portfolio including issues of other states before making an investment decision.
California experienced recurring budget deficits for four of its five fiscal
years ended June 30, 1992, caused by lower than anticipated
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tax revenues and increased expenditures for certain programs. The budget
deficits of the early 1990's depleted the state's available cash resources, and
the state had to use a series of external borrowings to meet its cash needs. As
a consequence, between 1991 and 1994, three of the agencies rating California's
long-term debt lowered their rating of the state's general obligation bonds. In
particular, on July 15, 1994, Moody's Investors Service, Inc. ("Moody's")
lowered its rating from "Aa" to "A1," Standard & Poor's Ratings Group ("S&P")
lowered its rating from "A+" to "A" and termed its outlook as "stable," and
Fitch Investors Service lowered its rating from "AA" to "A." Such downgrading
may impair issuers of California municipal obligations from paying interest on
or repaying the principal of such California municipal obligations. Although
further downgrading and other factors may impact the availability of securities
that meet a Fund's investment policies and restrictions, California has had
operating surpluses for its past four fiscal years ended June 30, 1996 and has
forecast a balanced 1996-1997 fiscal year budget. On July 30, 1996, Standard &
Poor's upgraded its rating of California municipal obligations back to "A+,"
reflecting California's economic improvement. However, the rating agencies
continue to monitor events in the state and the state and local governments'
responses to budget shortfalls. The Funds' investment adviser continues to
monitor and evaluate the Fund's investments in light of the events in California
and the Fund's investment objective and investment policies. See "Special
Considerations Affecting California Municipal Obligations" in the SAI.
INVESTMENT ACTIVITIES
Set forth below is a more detailed description of the Funds' permissible
investments. For additional information, see "Additional Permitted Investment
Activities" in each Fund's SAI.
MONEY MARKET INSTRUMENTS
Money market instruments consist of: (a) short-term securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities (including
government-sponsored enterprises) ("U.S. Government obligations"); (b)
negotiable certificates of deposit, bankers' acceptances and fixed time deposits
and other short-term obligations of domestic banks (including foreign branches)
that have more than $1 billion in total assets at the time of the 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; (c) commercial paper
rated at the date of purchase "Prime-1" by Moody's or "A-1+" or "A-1" by S&P,
or, if unrated, of comparable quality as determined by Wells Fargo Bank; (d)
certain repurchase agreements; and (e) short-term U.S. dollar-denominated
obligations of foreign banks (including U.S. branches) that at the time of
investment: (i) have more than $10 billion, or the equivalent in other
currencies, in total assets; (ii) are among the 75 largest foreign banks in the
world as determined on the basis of assets; and (iii) have branches or agencies
in the United States.
U.S. GOVERNMENT OBLIGATIONS
The Money Market and California Tax-Free Money Market Funds may invest in
various types of U.S. Government obligations. The U.S. Treasury Money Market
Fund invests exclusively in U.S. Treasury securities (and repurchase agreements
collateralized by U.S. Treasury Securities). Payment of principal and interest
on U.S. Government obligations may be backed by the full faith and credit of the
United States, as with U.S. Treasury Securities, or may be backed solely by the
issuing or guaranteeing agency or instrumentality itself. In the latter case
investors must look principally to the agency or instrumentality issuing or
guaranteeing the obligation for ultimate repayment, which agency or
instrumentality may be privately owned. There can be no assurance that the U.S.
Government will provide financial support to its agencies or instrumentalities
where it is not obligated to do so. In addition, U.S. Government obligations are
subject to fluctuations in market value due to fluctuations in market interest
rates. As a general matter, the value of debt instruments, including U.S.
Government obligations, declines when market interest rates increase and rises
when market interest rates decrease. Certain types of U.S. Government
obligations are subject to fluctuations in yield or value due to their structure
or contract terms.
FLOATING- AND VARIABLE-RATE INSTRUMENTS
Certain of the debt instruments in which the Funds may invest bear interest
rates that are periodically adjusted at specified intervals or whenever a
benchmark rate or index change. These adjustments generally limit the increase
or decrease in the amount of interest received on debt instruments. The
floating-and variable-rate instruments that the Funds may purchase, include
certificates of participation in pools of floating- and variable-rate
instruments. Floating- and variable-rate instruments are subject to interest
rate and credit risk.
REPURCHASE AGREEMENTS
The Funds may enter into repurchase transactions in which the seller of a
security to a Fund agrees to repurchase that security from such Fund at a
mutually agreed-upon time and price. The period of maturity is usually quite
short, often overnight or a few days, although it may extend over a number of
months. The Funds may enter into repurchase agreements only with respect to
securities that are permissible investments for the Funds. The U.S. Treasury
Money Market Fund may only enter into repurchase agreements that are fully
collateralized by U.S. Treasury Securities. A Fund may incur a loss on a
repurchase agreement transaction if the seller defaults and the value of the
underlying collateral declines or is otherwise limited or if receipt of the
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security is delayed or limited. The Funds may participate in pooled repurchase
agreement transactions with other funds advised by Wells Fargo Bank.
FOREIGN OBLIGATIONS
The California Tax-Free Money Market and Money Market Funds each may invest up
to 25% of its assets in high-quality, short-term debt obligations of foreign
branches of U.S. banks or U.S. branches of foreign banks that are denominated in
and pay interest in U.S. dollars. Investments in foreign obligations involve
certain considerations that are not typically associated with investing in
domestic obligations. There may be less publicly available information about a
foreign issuer than about a domestic issuer. Foreign issuers also are not
subject to the same accounting, auditing and financial reporting standards or
governmental supervision as domestic issuers. In addition, with respect to
certain foreign countries, taxes may be withheld at the source under foreign tax
laws, and there is a possibility of expropriation or confiscatory taxation,
political or social instability or diplomatic developments that could adversely
affect investments in, the liquidity of, and the ability to enforce contractual
obligations with respect to, securities of issuers located in those countries.
LETTERS OF CREDIT
Certain of the debt obligations, certificates of participation, commercial paper
and other short-term obligations in which the Money Market and California
Tax-Free Money Market Funds are permitted to purchase may be backed by an
unconditional and irrevocable letter of credit of a bank, savings and loan
association or insurance company that assumes the obligation for payment of
principal and interest in the event of default by the issuer. Letter of
credit-backed investments must, in the opinion of Wells Fargo Bank, be of
investment quality comparable to other permitted high-quality investments of the
Fund.
ILLIQUID SECURITIES
The Funds may invest in securities not registered under the Securities Act of
1933 and other securities subject to legal or other restrictions on resale.
Because such securities may be less liquid than other investments, they may be
difficult to sell promptly at an acceptable price. Delay or difficulty in
selling securities may result in a loss or be costly to the Fund.
MUNICIPAL SECURITIES
The California Tax-Free Money Market Fund may invest in the municipal securities
listed below:
- - Long-term municipal bonds rated at the date of purchase "Aa" or better by
Moody's or "AA" or better by S&P;
- - Medium-term 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" or better by S&P; and
- - Short-term municipal commercial paper rated at the date of purchase "Prime-1"
by Moody's or "A-1" or better by S&P.
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 Fund may invest 25% or more of the current value of its total assets in
municipal obligations that are related in such a way that an economic, business
or political development or change affecting one such obligation also would
affect the other obligations; for example, municipal obligations the interest on
which is paid from revenues of similar type projects. Furthermore, from time to
time, the Fund may invest 25% or more of the current value of its total assets
in certain "private activity bonds," the interest on which may be subject to
federal alternative minimum tax, such as pollution control bonds; provided,
however, that such investments will be made only to the extent they are
consistent with the Fund's fundamental policy, described above, of investing,
under normal circumstances, at least 80% of its net assets in municipal
obligations that are exempt from federal income taxes and are not subject to the
alternative minimum tax. In addition, because the Fund intends to invest at
least 25% of its total assets in obligations issued by or on behalf of the State
of California, its cities, municipalities and other public authorities, the Fund
is particularly dependent on, and may be adversely affected by, general economic
conditions in California. In this regard, certain of the municipal securities in
which the California Tax-Free Money Market Fund may invest may be bonds or other
types of obligations of California issuers that rely in whole or in part,
directly or indirectly, on ad valorem real property taxes as a source of
revenue. The California Constitution limits the powers of municipalities to
impose and collect ad valorem taxes on real property, which, in turn, restricts
the ability of municipalities to service their debt or lease obligations from
such taxes.
OTHER TAX-EXEMPT MUTUAL FUNDS
The California Tax-Free Money Market Fund may invest in shares of other open-end
investment companies that invest exclusively in high-quality, short-term
securities, provided, however, that such company is a tax-free money market fund
with a fundamental policy of investing, under normal circumstances, at least 80%
of its net assets in obligations that are exempt from federal income
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taxes and are not subject to the 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. However, the investment
adviser has undertaken to waive its advisory fees with respect to assets so
invested. In no event may this Fund, together with any company or companies
controlled by it, own more than 3% of the total outstanding voting stock of any
such company, nor may the Fund, together with any such company or companies,
invest more than 5% of its assets in any one such company or invest more than
10% of its assets in securities of all such companies combined.
MANAGEMENT OF THE FUNDS
The Company's Board of Directors supervises the Funds' activities, monitors
their contractual arrangements with service providers and decides upon matters
of general policy.
INVESTMENT ADVISER
Each of the Funds is advised by Wells Fargo Bank. 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 April 1, 1997, Wells Fargo Bank and its
affiliates provided investment advisory services for approximately $57 billion
of assets of individuals, trusts, estates and institutions. Wells Fargo Bank is
the investment adviser to other separately managed portfolios of the Company and
serves as investment adviser or sub-adviser to five other registered open-end
management investment companies, each of which consist of several separately
managed investment portfolios. Wells Fargo Bank, a wholly-owned subsidiary of
Wells Fargo & Company, is located at 420 Montgomery Street, San Francisco,
California 94104.
Wells Fargo Bank provides investment guidance and policy direction in connection
with the daily portfolio management of the Funds. Wells Fargo Bank furnishes to
the Board of Directors periodic reports on the investment strategy and
performance of each Fund.
For its services as investment adviser, Wells Fargo Bank is entitled to receive
monthly advisory fees at the annual rates of 0.45% of the average daily net
assets of the California Tax-Free Money Market Fund and 0.25% of the average
daily net assets of each of the Money Market and U.S. Treasury Money Market
Funds. For the year ended December 31, 1996, Wells Fargo Bank received 0.45%,
0.25% and 0.25% of the average daily net assets of the California Tax-Free Money
Market, Money Market and U.S. Treasury Money Market Funds, respectively, as
compensation for its services as investment adviser.
Wells Fargo Bank deals, trades and invests for its own account in the types of
securities in which the Fund's may invest and may have deposit, loan and
commercial banking relationships with the issuers of securities purchased by a
Fund. Wells Fargo Bank has informed the Company that in making its investment
decisions it does not obtain or use material inside information in its
possession. Purchase and sale orders of the securities held by each of the Funds
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 any of the Funds and other
accounts managed by Wells Fargo Bank, Wells Fargo Bank undertakes to allocate
those transaction costs among the participants equitably. From time to time,
each of the Funds, to the extent consistent with its investment objective,
policies and restrictions, may invest in securities of companies with which
Wells Fargo Bank has a lending relationship.
Morrison & Foerster LLP, counsel to the Company and special counsel to Wells
Fargo Bank, has advised the Company and Wells Fargo Bank that Wells Fargo Bank
and its affiliates may perform the services contemplated by the Advisory
Contracts and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such statutes, regulations and judicial or
administrative decisions or interpretations, could prevent such entities from
continuing to perform, in whole or in part, such services. If any such entity
were prohibited from performing any such services, it is expected that new
agreements would be proposed or entered into with another entity or entities
qualified to perform such services.
ADMINISTRATOR AND CO-ADMINISTRATOR
Wells Fargo Bank as administrator and Stephens as co-administrator, provide the
Funds with administrative services, including supervision of each Fund's
operation, coordination of other services provided to the Funds, compilation of
information for reports to the SEC and state securities commissions, preparation
of proxy statements and shareholder reports, and general supervision of data
compilation in connection with preparing periodic reports to the Company's
Directors and officers. Wells Fargo Bank and Stephens also furnish office space
and certain facilities to conduct each Fund's business and Stephens compensates
the Company's Directors and officers who are affiliated with Stephens. For these
administrative services, Wells Fargo Bank and Stephens are entitled to receive
monthly fees at annual rates of 0.04% and 0.02%, respectively, of each Fund's
average daily net assets. Wells Fargo Bank and Stephens may delegate certain of
their respective administrative duties to sub-administrators.
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Stephens previously provided substantially the same services as sole
administrator to the Funds for which Stephens was entitled to receive a monthly
fee from each Fund at the annual rate of 0.10% of its average daily net assets.
For the California Tax-Free Money Market Fund and the U.S. Treasury Money Market
Fund, such annual rate decreased to 0.05% of the average daily net assets of
each Fund in excess of $200 million.
SPONSOR AND DISTRIBUTOR
Stephens is the Funds' sponsor and distributes the Funds' shares. Stephens is a
full service broker/dealer and investment advisory firm located at 111 Center
Street, Little Rock, Arkansas 72201. Stephens and its predecessor have been
providing securities and investment services for more than 60 years.
Additionally, they have been providing discretionary portfolio management
services since 1983. Stephens currently manages investment portfolios for
pension and profit sharing plans, individuals investors, foundations, insurance
companies and university endowments.
The Company has adopted a Distribution Plan on behalf of each Fund. Under the
Plan for the California Tax-Free Money Market Fund, the Fund may defray all or
part of the cost of preparing and printing prospectuses and other promotional
materials and of delivering prospectuses and those materials to prospective
shareholders of the Fund, by paying Stephens on an annual basis up to the
greater of $100,000 or 0.05% of the Fund's average daily net assets. The Plan
for the California Tax-Free Money Market Fund provides only for the
reimbursement of actual expenses.
Under the Plans for Class A shares of the Money Market and U.S. Treasury Money
Market Funds, Stephens is entitled to receive, as compensation for
distribution-related services, a monthly fee at an annual rate of up to 0.25% of
each Fund's average daily net assets attributable to Class A shares.
The Company has entered into a Distribution Agreement with Stephens pursuant to
which Stephens is responsible for distributing the Funds' shares. Stephens is
paid for its services pursuant to the Plans described above and bears the cost
of printing and mailing prospectuses to potential investors and any advertising
expenses incurred by it in connection with the distribution of Fund shares.
Stephens may enter into selling agreements with one or more selling agents under
which such agents may receive compensation for distribution-related services
from Stephens, including, but not limited to, commissions or other payments to
such agents based on the average daily net assets of the Class A shares of the
Money Market and U.S. Treasury Money Market Funds attributable to them.
In addition, Stephens has established a non-cash compensation program, pursuant
to which broker/dealers or financial institutions that sell shares of the Funds
may earn additional compensation in the form of trips to sales seminars or
vacation destinations, tickets to sporting events, theater or other
entertainment, opportunities to participate in golf or other outings and gift
certificates for meals or merchandise.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
Wells Fargo Bank has been retained to act as the Funds' custodian and transfer
and dividend disbursing agent. Wells Fargo Bank performs the custodial, transfer
and dividend disbursing agency activities at 525 Market Street, San Francisco,
California 94105.
FUND EXPENSES
From time to time, Wells Fargo Bank and Stephens may waive their respective fees
in whole or in part and reimburse expenses payable to others. Any such waivers
or reimbursements will reduce a Fund's expenses and accordingly, have a
favorable impact on such Fund's performance. Except for the expenses borne by
Wells Fargo Bank and Stephens, each Fund bears all costs of its operations,
including its pro rata portion of Company expenses such as fees and expenses of
its independent auditors and legal counsel, and compensation of the Company's
directors who are not affiliated with the adviser, administrators or any of
their affiliates; advisory, shareholder servicing, transfer agency, custody and
administration fees, payments pursuant to any Plans, interest and any
extraordinary expenses. Expenses attributable to each Fund or class are charged
against the assets of the Fund or class. General expenses of the Company are
allocated among all of the funds of the Company in a manner proportionate the
net assets of each fund, on a transactional basis, or on such other basis as the
Company's Board of Directors deems equitable.
DETERMINATION OF NET ASSET VALUE
The price of each Fund share is its net asset value. Net asset value per share
of each Fund is determined by Wells Fargo Bank on each day that the Fund is open
for trading (a "Business Day"). The Funds are open Monday through Friday and are
closed weekends and standard New York Stock Exchange holidays.
The net asset value of a share of a class of the Funds is the value of total net
assets attributable to such class divided by the number of outstanding shares of
that class.
The net asset value for shares of the California Tax-Free Money Market Fund is
determined as of 9:00 a.m. and 1:00 p.m. (Pacific time). The net asset value for
shares of the Money Market and U.S. Treasury Money Market Funds is calculated as
of 12:00 noon and 1:00 p.m. (Pacific time). On any day the trading markets for
both U.S. government securities and money market instruments close early, the
Money Market and U.S. Treasury Money Market Funds may close early. On these
days, the net asset value calculation time and the dividend, purchase and
redemption cut-off times for
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each such Fund may be earlier than 12:00 noon (Pacific time). Each of the Funds
uses the amortized cost method to value its portfolio securities and attempts to
maintain a constant net asset value of $1.00 per share. 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.
PERFORMANCE DATA
From time to time, the Company may advertise yield information for a Fund or
class. Yield information is based on the historical earnings and performance of
a Fund or class and should not be considered representative of future
performance. From time to time, each of the Funds may advertise its current
yield and its effective yield for a class of shares. The California Tax-Free
Money Market Fund also may advertise its current tax-equivalent yield and its
effective tax-equivalent yield.
Current yield for a Fund or class is computed by dividing net investment income
per share of a class earned during a specified period by its net asset value per
share on the last day of such period and annualizing the result. The current
yield of each class of shares of a Fund will show the annualized income per
share generated by an investment in such a class of shares of the Fund over a
stated period.
The current tax-equivalent yield of the California Tax-Free Money Market Fund
will be calculated in a similar manner, but will assume that a stated income tax
rate has been applied to non-exempt income to derive the tax-exempt portion of
this Fund's yield. The effective yield and effective tax-equivalent yield are
calculated similarly but, when annualized, the income earned, or the
tax-equivalent income assumed to have been earned, per share of a class of
shares will be assumed to have been reinvested. The effective yield and
effective tax-equivalent yield will be slightly higher than the current yield
and current tax-equivalent yield, respectively, because of the compounding
effect of this assumed reinvestment.
Additional performance information is contained in the Company's Annual Report
which is available upon request without charge by calling the Company at (800)
552-9612.
PURCHASE OF SHARES
The minimum initial purchase amount for each Fund is generally $1,000. The
minimum initial purchase amount is $100 for shares purchased through the
Systematic Purchase Plan. The minimum subsequent purchase amount is generally
$100. The minimum initial or subsequent purchase amount requirements may be
waived or lowered for investments effected on a group basis by certain entities
and their employees, such as pursuant to a payroll deduction or other
accumulation plan. In addition, the minimum initial purchase amount does not
apply to investors who purchase Fund shares as customers of a financial
institution which has established a cash sweep arrangement with respect to the
Funds. The Company reserves the right to reject any purchase order. All funds
will be invested in full and fractional shares. Checks will be accepted for the
purchase of Fund shares subject to collection at full face value in U.S.
dollars. Inquiries concerning purchases may be directed to the Company at (800)
572-7797 or at the address on the back cover of the Prospectus.
Shares of each Fund may be purchased on any Business Day through Stephens, the
Transfer Agent, or any authorized broker/dealer or financial institution with
which Stephens has entered into agreements. Such broker/dealers or financial
institutions are responsible for the prompt transmission of purchase, exchange
or redemption orders, and may independently establish and charge additional fees
to their clients for such services, other than services related to purchase
orders, which would reduce the clients' overall yield or return. By investing in
Fund shares, a shareholder appoints the Transfer Agent to establish an account
to which all shares purchased will be credited, together with any dividends and
capital gain distributions that are paid in additional shares. Shares of the
Funds are offered continuously at the net asset value next determined after a
purchase order is effective. No sales load is imposed.
Account Applications for shares of any of the Funds will become effective when
an investor's bank wire order or check is converted into federal funds. If
payment is transmitted by the Federal Reserve Wire System, the Account
Application will become effective upon receipt. Wire transmissions may, however,
be subject to delays of several hours, in which event the effectiveness of the
order will be delayed. Payments transmitted by a bank wire other than the
Federal Reserve Wire System may take longer to be converted into federal funds.
In addition, if investors, with the prior approval of the Company, notify the
Company at or before 9:00 a.m. (Pacific time) on any Business Day that they
intend to wire federal funds to purchase shares of the California Tax-Free Money
Market Fund, the Account Application will be executed at the net asset value per
share determined at 9:00 a.m. the same day. If investors, with the prior
approval of the Company, notify the Company at or before 12:00 noon (Pacific
time) on any Business Day that they intend to wire federal funds to purchase
shares of the Money Market or U.S. Treasury Money Market Funds, the Account
Application will be executed at the net asset value per share determined at
12:00 noon the same day.
A salesperson or any other person or entity entitled to receive compensation for
selling or servicing shares of any of the Funds may receive different
compensation with respect to one class of shares over another.
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When payment for shares of any of the Funds is by a check that is drawn on any
member bank of the Federal Reserve System, federal funds normally become
available to the Fund on the business day after the day the check is deposited.
Checks drawn on a non-member bank or a foreign bank may take substantially
longer to be converted into federal funds and, accordingly, may delay the
execution of an order.
Fund shares may be purchased by any of the methods described below.
INITIAL PURCHASES BY WIRE
1. Telephone toll free (800) 572-7797. Give the name of the Fund and class of
shares, the name(s) in which the shares are to be registered, the address and
social security number (or tax identification number, where applicable) of the
person or entity in whose name(s) the shares will be registered, dividend
payment election, amount to be wired, name of the wiring bank and name and
telephone number of the person to be contacted in connection with the order. An
account number will be assigned.
2. Instruct the wiring bank, which may charge a separate fee, to transmit the
specified amount in federal funds ($1,000 or more) to:
Wells Fargo Bank, N.A.
San Francisco, California
Bank Routing Number: 121000248
Wire Purchase Account Number: 4068-000462
Attention: Overland Express (name of Fund -- designate Class, if applicable)
Account Name(s): (name(s) in which the account is to be registered)
Account Number: (as assigned by telephone)
3. A completed Account Application should be mailed, or sent by telefacsimile
with the original subsequently mailed, to the following address immediately
after the funds are wired and must be received and accepted by the Transfer
Agent before an account can be opened. An original Application must be received
by the Transfer Agent within thirty (30) days of purchase or you may be subject
to backup withholding taxes.
Wells Fargo Bank, N.A.
Overland Express Shareholder Services
P.O. Box 63084
San Francisco, California 94163
Telefacsimile: 1-415-781-4082
4. Share purchases are effected at the net asset value next determined after the
Account Application is received and accepted.
INITIAL PURCHASES BY MAIL
1. Complete an Account Application. Indicate the services to be used.
2. Mail the Account Application and a check for $1,000 or more, payable to
"Overland Express (Name of Fund -- designate Class, if applicable)" to the
address set forth above.
ADDITIONAL PURCHASES
Additional purchases of $100 or more may be made by instructing the Funds'
Transfer Agent to debit the Wells Fargo Bank account designated in your Account
Application, by wire by instructing the wiring bank to transmit the specified
amount as directed above for initial purchases, or by mail with a check payable
to "Overland Express (Name of Fund, designate Class, if applicable)" sent to the
above address. Write the Fund account number on the check and include the
detachable stub from a Statement of Account or a letter providing the account
number.
SYSTEMATIC PURCHASE PLAN
The Company's Systematic Purchase Plan provides you with a convenient way to
establish and add to your existing accounts on a monthly basis. If you elect to
participate in this plan, specify an amount ($100 or more) to be withdrawn
automatically by the Transfer Agent on a monthly basis from an approved bank
account designated in your Account Application (an "Approved Bank Account"). The
Transfer Agent withdraws and uses this amount to purchase shares of the
designated Fund on or about the fifth Business Day of each month. The Transfer
Agent requires a minimum of ten (10) Business Days to implement your Systematic
Purchase Plan purchases. There are no additional fees charged for participating
in this plan.
You may change the investment amount, the date on which your Systematic Purchase
is effected, suspend purchases or terminate your participation in the Systematic
Purchase Plan at any time by providing written notice to the Transfer Agent at
least ten (10) Business Days prior to any scheduled transaction. An election
will be terminated automatically if your Approved Bank Account balance is
insufficient to make a scheduled withdrawal, or if either your Approved Bank
Account or your Fund account is closed.
PURCHASES THROUGH AUTHORIZED BROKER/DEALERS AND FINANCIAL INSTITUTIONS
Purchase orders for shares of the California Tax-Free Money Market Fund placed
through authorized broker/dealers and financial institutions 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 held by a dealer,
generally will be executed on the same day the order is placed if notice is
provided to the Transfer Agent by 9:00 a.m. and federal funds are received by
the Transfer Agent before the close of business.
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Purchase orders for shares of the Money Market or U.S. Treasury Money Market
Fund placed through broker/dealers and financial institutions by 12:00 noon
(Pacific time) on any Business Day, including orders for which payment is to be
made from free cash credit balances in securities accounts, generally will be
executed on the same day the order is placed if notice is provided to the
Transfer Agent by 12:00 noon and federal funds are received by the Transfer
Agent before the close of business.
Purchase orders for shares of the California Tax-Free Money Market Fund that are
received by a broker/dealer or financial institution after 9:00 a.m. (Pacific
time) on any Business Day or that are not received by the Transfer Agent before
the close of business, generally will be executed on the next Business Day
following the day the order is placed. Purchase order for shares of the Money
Market or U.S. Treasury Money Market Fund that are received by a broker/dealer
or financial institution after 12:00 noon (Pacific time) on any Business Day or
that are not received by the Transfer Agent before the close of business,
generally will be executed on the next Business Day following the day the order
is placed.
The broker/dealer or financial institution is responsible for the prompt
transmission of purchase orders to the Transfer Agent. A broker/dealer or
financial institution that is involved in a purchase transaction may charge
separate account, service or transaction fees. Financial institutions may be
required to register as dealers pursuant to applicable state securities laws,
which may differ from federal law and any interpretations expressed herein.
EXCHANGE PRIVILEGES
Shares of any of the Funds may be exchanged for shares of another Fund or for
Class A shares of any other fund of the Company in an identically registered
account (provided that shares of the fund to be acquired are registered for sale
in your state of residence) at respective net asset values if the shares being
acquired carry no sales load or the shares being exchanged were acquired in
exchange for shares on which an equivalent sales load was paid. Otherwise,
applicable sales loads or sales load differentials will be charged on an
exchange. Before making an exchange from a Fund an investor should observe the
following:
- - You will need to read the prospectus of the fund into which you want to
exchange.
- - Every exchange is a redemption of shares of one fund and the purchase of
shares of another fund.
- - You must exchange at least the minimum initial purchase amount of the Fund you
are redeeming unless you have already met the minimum initial purchase amount
of the fund you are purchasing.
- - You will need to pay the difference between any load you have already paid and
the load you are subject to in the new fund.
- - The Company may limit the number of times shares may be exchanged or may
reject any telephone exchange order. Subject to limited exceptions, the
Company will notify you 60 days before discontinuing or modifying 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.
You may exchange shares by writing the Transfer Agent as indicated below under
Redemption by Mail, or by calling the Transfer Agent or your authorized
broker/dealer or financial institution, unless you have elected not to authorize
telephone exchanges in your Account Application (in which case you may
subsequently authorize such telephone exchanges by completing a Telephone
Exchange Authorization Form and submitting it to the Transfer Agent in advance
of the first such exchange). The Transfer Agent's telephone number for exchanges
is (800) 572-7797.
Telephone redemption or exchange privileges are made available to you
automatically upon opening an account, unless you specifically decline such
privileges. These privileges authorize the Transfer Agent to act on telephone
instructions from any person representing himself or herself to be the investor
and reasonably believed by the Transfer Agent to be genuine. The Company will
require the Transfer Agent to employ reasonable procedures, such as requiring a
form of personal identification, to confirm that instructions are genuine. If
the Transfer Agent does not follow such procedures, the Company and the Transfer
Agent may be liable for any losses attributable to unauthorized or fraudulent
instructions. Neither the Company nor the Transfer Agent will be liable for
following telephone instructions reasonably believed to be genuine.
REDEMPTION OF SHARES
Shares may be redeemed at their next determined net asset value after receipt of
a request in proper form by the Transfer Agent directly or through any
authorized broker/dealer or financial institution. The Company does not charge
for redemption transactions. However, a broker/dealer or financial institution
that is involved in a redemption transaction may charge separate account,
service or transaction fees.
Redemption orders for shares of the California Tax-Free Money Market Fund
received by an authorized broker/dealer or financial institution on any Business
Day and received by the Transfer Agent before 9:00 a.m. (Pacific time) on the
same day will be executed at the net asset value determined at 9:00 a.m. on that
PROSPECTUS
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day. Redemption orders for shares of the Money Market or U.S. Treasury Money
Market Fund received by an authorized broker/dealer or financial institution on
any Business Day and received by the Transfer Agent before 12:00 noon (Pacific
time) on the same day will be executed at the net asset value determined at
12:00 noon on that day.
Redemption orders for shares of the California Tax-Free Money Market Fund
received by an authorized broker/dealer or financial institution on any Business
Day and received by the Transfer Agent after 9:00 a.m. (Pacific time) will be
executed at the net asset value determined at 9:00 a.m. on the next Business
Day. Redemption orders for shares of the Money Market or U.S. Treasury Money
Market Fund received by an authorized broker/dealer or financial institution on
any Business Day and received by the Transfer Agent after 12:00 noon (Pacific
time) will be executed at the net asset value determined at 12:00 noon on the
next Business Day.
Redemption proceeds ordinarily will be remitted within seven days after the
order is received in proper form, except proceeds may be remitted over a longer
period to the extent permitted by the SEC under extraordinary circumstances. If
an expedited redemption is requested, redemption proceeds will be distributed
only if the check used for investment is deemed to be cleared for payment by
your bank, currently considered by the Company to be a period of ten (10)
Business Days after investment. The redemption proceeds, of course, may be more
or less than cost. Payment of redemption proceeds may be made in securities,
subject to regulation by some state securities commissions.
REDEMPTION BY MAIL
1. Write a letter of instruction. Indicate the dollar amount or number of shares
to be redeemed. Refer to your Fund account number and provide either a social
security number or a tax identification number (where applicable).
2. Sign the letter in exactly the same way the account is registered. If there
is more than one owner of the shares, all must sign.
3. If shares to be redeemed have a value of $5,000 or more or redemption
proceeds are to be made to someone other than yourself at your address of
record, the signature(s) must be guaranteed by an "eligible guarantor
institution," which includes a commercial bank that is a member of the FDIC, a
trust company, a member firm of a domestic stock exchange, a savings
association, or a credit union that is authorized by its charter to provide a
signature guarantee. Signature guarantees by notaries public are not acceptable.
Further documentation may be requested from corporations, administrators,
executors, personal representatives, trustees or custodians.
4. Mail the letter to the Transfer Agent at the mailing address set forth under
"Purchase of Shares -- Initial Purchases by Wire."
Unless other instructions are given in proper form, a check for the proceeds of
a redemption will be sent to your address of record.
SYSTEMATIC WITHDRAWAL PLAN
The Company's Systematic Withdrawal Plan provides a way for you to have shares
redeemed from your accounts and the proceeds distributed to you on a monthly
basis. You may elect to participate in this plan if you have a shareholder
account valued at $10,000 or more as of your date of the election to participate
and are not also a participant in the Company's Systematic Purchase Plan at any
time while participating in this plan. To participate in the plan you must
specify an amount ($100 or more) to be distributed by check to your address of
record or deposited in your Approved Bank Account. The Transfer Agent redeems
sufficient shares and mails or deposits the proceeds of the redemption as
instructed on or about the fifth Business Day prior to the end of each month.
There are no additional fees charged for participating in this plan.
It may take up to ten (10) Business Days to establish your participation in the
Systematic Withdrawal Plan. You may change the withdrawal amount, suspend
withdrawals or terminate your participation in the Systematic Withdrawal Plan at
any time by providing written notice to the Transfer Agent at least ten (10)
Business Days prior to any scheduled transaction. Participation in the
Systematic Withdrawal Plan may be terminated automatically if your Fund account
balance is insufficient to make a scheduled withdrawal or if your Fund account
or Approved Bank Account is closed.
EXPEDITED REDEMPTIONS BY LETTER AND TELEPHONE
If shares are not held in certificated form, you may request an expedited
redemption of shares by letter or telephone (unless you have elected not to
authorize telephone redemptions on your Account Application or other form that
is on file with the Transfer Agent) on any Business Day. See "Exchange
Privileges" for additional information regarding telephone redemption
privileges. To request expedited redemption by telephone call the Transfer Agent
at (800) 572-7797. To request expedited redemption by mail, mail the expedited
redemption request to the Transfer Agent at the mailing address set forth under
"Purchase of Shares -- Initial Purchases by Wire."
Upon request, proceeds of expedited redemptions of $5,000 or more will be wired
or credited to your Approved Bank Account or wired to an authorized
broker/dealer or financial institution designated in your Account Application.
The Company reserves the right to impose charges for wiring redemption proceeds.
When proceeds of an expedited redemption are to be paid to
PROSPECTUS
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someone other than yourself, to an address other than that of record, or to a
bank, broker/dealer or other financial institution that has not been
predesignated, the expedited redemption request must be made by letter and the
signature(s) on the letter must be guaranteed, regardless of the amount of the
redemption.
If an expedited redemption request is received by the Transfer Agent by 9:00
a.m. (Pacific time) for the California Tax-Free Money Market Fund or by 12:00
noon (Pacific time) for the Money Market and U.S. Treasury Money Market Funds on
any Business Day, the redemption proceeds will be transmitted to your bank or
predesignated broker/dealer or financial institution on the same day (assuming
the investment check has cleared as described above), absent extraordinary
circumstances. A check for proceeds of less than $5,000 will be mailed to your
address of record, except that, in the case of investments in the Company that
have been effected through broker/dealers, banks and other institutions that
have entered into special arrangements with the Company, the full amount of the
redemption proceeds may be transmitted by wire or credited to a designated
account.
REDEMPTIONS THROUGH AUTHORIZED BROKER/DEALERS AND FINANCIAL INSTITUTIONS
Unless you have made other arrangements, and have informed the Transfer Agent of
such arrangements, proceeds of redemptions made through authorized
broker/dealers and financial institutions will be credited to your account with
such broker/dealer or institution. You may request a check from the
broker/dealer or financial institution or may elect to retain the redemption
proceeds in your account. The broker/dealer or financial institution may benefit
from the use of the redemption proceeds prior to the clearance of a check issued
to you for such proceeds or prior to disbursement or reinvestment of such
proceeds on your behalf.
The proceeds of a redemption may be more or less than the amount invested and,
therefore, a redemption may result in a gain or loss for federal and state
income tax purposes. Due to the high cost of maintaining small accounts, the
Company reserves the right to redeem accounts that fall below $1,000. Prior to
such a redemption, you will be notified in writing and permitted 30 days to make
additional investments to raise the account balance to the applicable minimum.
DIVIDENDS AND DISTRIBUTIONS
The California Tax-Free Money Market Fund intends to declare as a dividend
substantially all of its net investment income at the close of each Business Day
to shareholders of record at 9:00 a.m. (Pacific time) on the day of declaration.
The Money Market and U.S. Treasury Money Market Funds intend to declare as a
dividend substantially all of its net investment income for each class at the
close of each Business Day to shareholders of record at 12:00 noon (Pacific
time) on the day of declaration. Shares purchased will begin earning dividends
on the day the purchase order settles and shares redeemed will earn dividends
through the day prior to the date of redemption. Net investment income for a
Saturday, Sunday or holiday will be declared as a dividend to shareholders of
record at 9:00 a.m. for the California Tax-Free Money Market Fund and 12:00 noon
for the Money Market and U.S. Treasury Money Market Funds on the previous
Business Day.
Dividends of each Fund declared in, and attributable to, any month are paid on
the last Business Day of the month and generally are mailed early in the
following month. Shareholders of any of the Funds who redeem shares prior to a
dividend payment date will be entitled to all dividends declared but unpaid
prior to redemption on such shares on the next dividend payment date. Net
capital gains of each class of each Fund, if any, will be distributed at least
annually.
Dividends and/or capital gain distributions paid by each of the Funds will be
invested in additional shares of the same Fund at net asset value and credited
to your account on the payment date or, at your election, paid by check.
Dividend checks and Statements of Account will be mailed approximately three
Business Days after the payment date.
The net investment income of the Money Market Fund and the U.S. Treasury Money
Market Fund available for distribution to holders of Class A shares will be
reduced by the amount of the distribution-related expenses payable under the
Plans. There may be certain other differences in fees (e.g. transfer agency
fees) between Class A shares and Institutional Class shares of the Money Market
and U.S. Treasury Money Market Funds that would affect their relative dividends.
DIVIDEND AND DISTRIBUTION OPTIONS
When you fill out an Account Application, you can choose from three dividend and
distribution options:
A. The AUTOMATIC REINVESTMENT OPTION provides for the reinvestment of dividends
and capital gain distributions in additional shares of the same class of the
Fund. Dividends and distributions declared in a month are reinvested at net
asset value early in the following month. You are assigned this option
automatically if you make no choice on your Account Application.
B. The AUTOMATIC CLEARING HOUSE OPTION permits you to have dividends and capital
gain distributions deposited in your Approved Bank Account. In the event your
Approved Bank Account is closed, and such distribution is returned to the Funds'
dividend disbursing agent, the distribution will be reinvested in your Fund
account at the net asset value next determined after the distribution has been
returned. If this happens, your Automatic Clearing
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House Option will be converted to the Automatic Reinvestment Option.
C. The CHECK PAYMENT OPTION allows you to receive a check for a dividend or
capital gain distribution, which is mailed either to the designated address, or
your Approved Bank Account, early in the month following declaration. If the
U.S. Postal Service cannot deliver such checks, or if such checks remain
uncashed for six months, those checks will be reinvested in your Fund account at
the net asset value next determined after the earlier of the date the checks
have been returned to the dividend disbursing agent or the date six months after
the payment of such dividend or distribution. If this happens, your Check
Payment Option will be converted to the Automatic Reinvestment Option.
The Company takes reasonable efforts to locate investors whose checks are
returned or uncashed after six months. The Company forwards moneys to the
dividend disbursing agent so that it may issue investors dividend checks under
the Check Payment Option. The dividend disbursing agent may benefit from the
temporary use of such moneys until these checks clear.
TAXES
Dividends distributed from the California Tax-Free Money Market Fund's net
interest income from tax-exempt securities will not be subject to federal income
taxes. Dividends from the California Tax-Free Money Market Fund will be exempt
from California personal income tax to the extent such dividends are
attributable to instruments that pay interest which would be exempt from
California personal income taxes, if such instruments were held directly by an
individual. Dividends attributable to the California Tax-Free Money Market
Fund's interest income from taxable securities and short-term capital gains are
taxable to the Fund's shareholders as ordinary income.
Dividends from the net investment income and net short-term capital gains, if
any, of the Money Market and U.S. Treasury Money Market Funds are taxable to the
Funds' shareholders as ordinary income. Distributions from the Funds' net
long-term capital gains, if any, are designated as capital gain distributions
and taxable to the Funds' shareholders as long-term capital gains. Dividend and
capital gain distributions will be taxable when paid, whether you take such
distributions in cash or have them automatically reinvested in additional Fund
shares. Distributions declared in October, November and December and distributed
in the following January will be treated as if they were paid by December 31.
Foreign shareholders may be subject to different tax treatment, including
withholding taxes. See "Federal Income Taxes -- Foreign Shareholders" in the
SAIs. In certain circumstances, U.S. residents may also be subject to
withholding taxes. See "Federal Income Taxes -- Backup Withholding" in the SAIs.
The foregoing discussion regarding taxes is based on tax laws which were in
effect as of the date of this Prospectus and summarizes only some of the
important federal tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning; you
should consult your tax advisor with respect to your specific tax situation as
well as with respect to foreign, state and local taxes. Additional tax
considerations, including the federal alternative minimum tax, where applicable,
are discussed in the SAI for each Fund.
ORGANIZATION AND CAPITAL STOCK
The Company, an open-end, management investment company, was incorporated in
Maryland on April 27, 1987. 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.
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<TABLE>
<S> <C>
---------------------
BULK RATE
U.S. POSTAGE
PAID
DALLAS, TEXAS
Permit No. 1808
---------------------
</TABLE>
NOT FDIC INSURED
For Customer Service or questions about
your account, call (800) 572-7797
For more information about the Funds,
simply call (800) 552-9612.
You may also write to the Funds at:
OVERLAND EXPRESS FUNDS, INC.
c/o Overland Express
Shareholder Services
Wells Fargo Bank, N.A.
P.O. Box 63084
San Francisco, California 94163
MM P 5/97 [OVERLAND EXPRESS LOGO]
<PAGE> 168
OVERLAND EXPRESS FUNDS, INC.
Telephone: (800) 552-9612
STATEMENT OF ADDITIONAL INFORMATION
Dated May 1, 1997
VARIABLE RATE GOVERNMENT FUND
----------------------------------
Overland Express Funds, Inc. (the "Company") is an open-end
series investment company. This Statement of Additional Information ("SAI")
contains information about one of the Company's funds -- the VARIABLE RATE
GOVERNMENT FUND (the "Fund"). The Variable Rate Government Fund offers two
classes of shares -- Class A Shares and Class D Shares. This SAI relates to
both such classes of shares of the Fund. The investment objective of the Fund
is described in its Prospectus under "Investment Objectives and Policies."
This SAI is not a Prospectus and should be read in conjunction
with the Fund's Prospectus dated May 1, 1997. All terms used in this SAI that
are defined in the Prospectus will have the meanings assigned in the
Prospectus. A copy of the Prospectus may be obtained without charge by writing
Stephens Inc. ("Stephens"), the Company's sponsor, co-administrator and
distributor, at 111 Center Street, Little Rock, Arkansas 72201, or calling the
Transfer Agent at the telephone number indicated above.
----------------------------------
1
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<PAGE> 170
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
Investment Restrictions ............................................ 3
Additional Permitted Investment Activities ......................... 5
Investment by Federal Credit Unions in the Fund .................... 6
Management ......................................................... 6
Distribution Plans ................................................. 11
Class A Administrative Servicing Plan .............................. 12
Class D Servicing Plan ............................................. 12
Performance Calculations ........................................... 13
Determination of Net Asset Value ................................... 18
Additional Purchase and Redemption Information ..................... 18
Portfolio Transactions ............................................. 19
Fund Expenses ...................................................... 21
Federal Income Taxes ............................................... 22
Capital Stock ...................................................... 25
Other .............................................................. 27
Independent Auditors ............................................... 27
Financial Information ............................................. 27
Appendix ........................................................... A-1
</TABLE>
2
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INVESTMENT RESTRICTIONS
Fundamental Investment Policies. The Fund is subject to the
following investment restrictions, all of which are fundamental policies:
The Fund may not:
(1) purchase the securities of issuers conducting their principal
business activity in the same industry if, immediately after the purchase and
as a result thereof, the value of the Fund's investments in that industry would
exceed 25% of the current value of the Fund's total assets, provided that there
is no limitation with respect to investments in securities issued or guaranteed
by the United States Government, its agencies or instrumentalities;
(2) purchase or sell real estate (other than securities secured
by real estate or interests therein or securities issued by companies that
invest in real estate or interests therein), commodities or commodity contracts
or interests, in oil, gas, or other mineral exploration or development
programs;
(3) purchase securities on margin (except for short-term credits
necessary for the clearance of transactions) or make short sales of securities;
(4) underwrite securities of other issuers, except to the extent
that the purchase of permitted investments directly from the issuer thereof or
from an underwriter for an issuer and the later disposition of such securities
in accordance with the Fund's investment program may be deemed to be an
underwriting;
(5) invest more than 10% of the current value of its net assets
in repurchase agreements maturing in more than seven days, restricted
securities, which are securities that must be registered under the Securities
Act of 1933 (the "1933 Act") before they may be offered or sold to the public,
and illiquid securities;
(6) make investments for the purpose of exercising control or
management;
(7) purchase puts, calls, straddles, spreads, or any combination
thereof, except that the Fund may purchase securities with put rights in order
to maintain liquidity;
(8) issue senior securities, except that the Fund may borrow from
banks up to 10% of the current value of its net assets for temporary purposes
only in order to meet redemptions, and these borrowings may be secured by the
pledge of up to 10% of the current value of its net assets (but investments may
not be purchased by the Fund while any such outstanding borrowing exists);
(9) invest more than 10% of the current value of its net assets
in fixed time deposits that are subject to withdrawal penalties and that have
maturities of more than seven days;
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<PAGE> 172
(10) purchase securities of any issuer (except securities issued
or guaranteed by the U.S. Government, its agencies and instrumentalities) if,
as a result, with respect to 75% of the total assets of the Fund, more than 5%
of the value of the Fund's total assets would be invested in the securities of
any one issuer or, with respect to 100% of the Fund's total assets, the Fund
would own more than 10% of the outstanding voting securities of such issuer;
and
(11) lend its portfolio securities having a value that exceeds 50%
of the current value of its total assets, provided that, for purposes of this
restriction, loans will not include the purchase of fixed time deposits,
repurchase agreements, commercial paper and other types of debt instruments
commonly sold in a public or private offering.
With respect to fundamental investment restriction (5), the Fund
does not intend to invest, during the coming year, in repurchase agreements
maturing in more than seven days, restricted securities, which are securities
that must be registered under the 1933 Act before they may be offered or sold
to the public or illiquid securities. With respect to fundamental investment
restriction (7), the Fund does not intend to purchase, during the coming year,
puts, calls, straddles, spreads, or purchase securities with put rights in
order to maintain liquidity. With respect to fundamental investment restriction
(9), the Fund does not intend to invest, during the coming year, in fixed time
deposits that are subject to withdrawal penalties and that have maturities of
more than seven days. With respect to fundamental investment restriction (11),
the Fund does not intend to make loans of its portfolio securities during the
coming year.
Non-Fundamental Investment Policies. The Fund is subject to the
following non-fundamental policies:
The Fund may not:
(1) invest in warrants, and not more than 2% of its net assets in
warrants which are not listed on the New York or American Stock Exchange;
(2) purchase or retain securities of any issuer if the officers
or Directors of the Company or its Investment Adviser owning beneficially more
than one-half of one percent (0.5%) of the securities of the issuer together
own beneficially more than 5% of such securities;
(3) invest in securities of issuers who, with their predecessors,
have been in existence less than three years, unless the securities are fully
guaranteed or insured by the U.S. Government if, by reason thereof, the value
of its aggregate investment in such securities will exceed 5% of its total
assets;
(4) write, purchase or sell options; and
(5) purchase or sell real estate limited partnership interests.
In addition, the Fund will not invest in commercial paper or
equity securities.
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<PAGE> 173
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
The following information supplements and should be read in
conjunction with the sections in the prospectus entitled: "Investment
Objectives and Policies" and "Investment Activities."
When-Issued Securities. The Fund may purchase securities on a
when-issued basis, in which case delivery and payment normally take place
within 45 days after the date of the commitment to purchase. However, the Fund
does not intend to invest more than 5% of its net assets in when-issued
securities during the coming year. The Fund only will make commitments to
purchase securities on a when-issued basis with the intention of actually
acquiring the securities, but may sell them before the settlement date if it is
deemed advisable. When-issued securities are subject to market fluctuation, and
no income accrues to the purchaser during the period prior to issuance. The
purchase price and the interest rate that will be received on debt securities
are fixed at the time the purchaser enters into the commitment. Purchasing a
security on a when-issued basis can involve a risk that the market price at the
time of delivery may be lower than the agreed-upon purchase price, in which
case there could be an unrealized loss at the time of delivery.
The Fund will establish a segregated account in which it will
maintain cash, U.S. Government obligations or other high-quality debt
instruments in an amount at least equal in value to the Fund's commitments to
purchase when-issued securities. If the value of these assets declines, the
Fund will place additional liquid assets in the account on a daily basis so
that the value of the assets in the account is equal to the amount of such
commitments.
High-Risk Mortgage Securities. The Fund will not invest in
Collateralized Mortgage Obligations ("CMOs") that, at the time of purchase, are
"high-risk mortgage securities" as defined in the then current Federal Financial
Institutions Examination Council Supervisory Policy Statement on Securities
Activities (the "FFIEC Policy Statement"). Under the FFIEC Policy Statement, a
CMO qualifies as a "high-risk mortgage security" if it meets an Average Life
Test, an Average Life Sensitivity Test, or a Price Sensitivity Test. A CMO meets
the Average Life Test if it has an expected weighted average life greater than
10 years. A CMO meets the Average Life Sensitivity Test if the expected weighted
average life of the CMO either (i) extends by more than 4 years, assuming an
immediate and sustained parallel shift in the yield curve of plus 300 basis
points, or (ii) shortens by more than 6 years, assuming an immediate and
sustained parallel shift in the yield curve of minus 300 basis points. A CMO
meets the Price Sensitivity Test if an immediate and sustained parallel shift in
the yield curve of plus or minus 300 basis points would result in an estimated
change in the price of the CMO of more than 17 percent. Under the FFIEC Policy
Statement, a CMO floating-rate debt class, i.e., a CMO the rate of which adjusts
at least annually on a one-for-one basis with a conventional, widely used market
interest rate index (such as the London Interbank Offered Rate), will not be
subject to the Average Life and Average Life Sensitivity Tests if it bears a
rate that is below the contractual cap on the instrument.
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<PAGE> 174
INVESTMENT BY FEDERAL CREDIT UNIONS IN THE FUND
The Fund will invest only in investments that are permissible for
federal credit unions under the regulations of the National Credit Union
Administration ("NCUA"). Federal credit unions may invest in CMOs that do
constitute "high-risk mortgage securities" for purposes of the FFIEC Policy
Statement. The Fund will enter into repurchase transactions and cash forward
agreements (i.e., "when-issued" securities) only to the extent permissible for
federal credit unions. Specifically, the Fund will enter into repurchase
transactions only where the purchase price of the security obtained in the
transaction will be at or below the market price and either: (1) the repurchase
transaction will be with another financial institution or (2) the Fund will
take physical possession of the security or receive written confirmation of the
purchase and a custodial or safekeeping receipt from a third party under a
written bailment for hire contract, or be recorded as the owner of the security
through the Federal Reserve Book-Entry System. In addition, the Fund will enter
into a cash forward agreement to purchase a security only where: (1) the period
from the trade date to the settlement date does not exceed 120 days; (2) the
Fund has written cash flow projections evidencing its ability to purchase the
security; and (3) the cash forward agreement is settled on a cash basis at the
settlement date.
MANAGEMENT
The following information supplements and should be read in
conjunction with the section in the Prospectus entitled "Management of the
Funds." The principal occupations during the past five years of the Directors
and principal executive Officer of the Company are listed below. The address of
each, unless otherwise indicated, is 111 Center Street, Little Rock, Arkansas
72201. Directors deemed to be "interested persons" of the Company for purposes
of the 1940 Act are indicated by an asterisk.
6
<PAGE> 175
<TABLE>
<CAPTION>
<S> <C> <C>
Principal Occupation
Name, Address And Age Position During Past 5 Years
- --------------------- -------- --------------------
Jack S. Euphrat, 74 Director Private Investor.
415 Walsh Road
Atherton, CA 94207
*R. Greg Feltus, 45 Director, Chairman and Senior Vice President of Stephens;
President Manager of Financial Services Group;
President of Stephens Insurance
Services Inc.; Senior Vice President
of Stephens Sports Management Inc.;
and President of Investor Brokerage
Insurance Inc.
Thomas S. Goho, 54 Director T.B. Rose Faculty Fellow Business,
321 Beechcliff Court Wake Forest University Calloway
Winston-Salem, NC 27104 School of Business and Accountancy;
Associate Professor of Finance of the
School of Business and Accounting at
Wake Forest University since 1983.
Director N. Hankin, 55 Director President Westchester Community
75 Grasslands Road College since 1971; President of Hartford
Valhalla, NY 10595 Junior College from 1967 to 1971;
Adjunct Professor of Columbia University
Teachers College since 1976.
*W. Rodney Hughes, 70 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Robert M. Joses, 78 Director Private Investor.
47 Dowitcher Way
San Rafael, CA 94901
*J. Tucker Morse, 52 Director Private Investor; Real Estate
10 Legrae Street Developer; Chairman of Renaissance
Charleston, SC 29401 Properties Ltd.; President of Morse
Investment Corporation; and
Co-Managing Partner of Main Street
Ventures.
Richard H. Blank, Jr., 40 Chief Operating Associate of Financial Services Group
Officer, Secretary and of Stephens; Director of Stephens
Treasurer Sports Management Inc.; and Director
of Capo Inc.
</TABLE>
7
<PAGE> 176
COMPENSATION TABLE
For the Year Ended December 31, 1996
<TABLE>
<CAPTION>
Aggregate Compensation Total Compensation from
Name and Position from Registrant Registrant and Fund Complex
- ----------------- ---------------------- ----------------------------
<S> <C> <C>
Jack S. Euphrat $10,500 $31,500
Director
*R. Greg Feltus 0 0
Director
Thomas S. Goho 10,500 31,500
Director
*Zoe Ann Hines 0 0
Director
(resigned September 6, 1996)
Joseph N. Hankin 500 1,500
Director
*W. Rodney Hughes 8,750 26,250
Director
Robert M. Joses 10,500 31,500
Director
*J. Tucker Morse 8,750 26,250
Director
</TABLE>
Directors of the Company are compensated annually by the Company
and by all the registrants in each fund complex they serve as indicated above
and also are reimbursed for all out-of-pocket expenses relating to attendance
at board meetings. The Company, Stagecoach Funds, Inc., Stagecoach Trust, Life
& Annuity Trust and Master Investment Trust are considered to be members of the
same fund complex as such term is defined in Form N-1A under the 1940 Act (the
"Wells Fargo Fund Complex"). MasterWorks Funds Inc., Master Investment
Portfolio, and Managed Series Investment Trust together form a separate fund
complex (the "BGFA Fund Complex"). Each of the Directors and Officers of the
Company serves in the identical capacity as directors and officers or as
trustees and/or officers of each registered open-end management investment
company in both the Wells Fargo and BGFA Fund Complexes, except for Joseph N.
Hankin, who only serves the aforementioned members of the Wells Fargo Fund
Complex, and Zoe Ann Hines who, after September 6, 1996, only serves the
aforementioned members of the BGFA Fund Complex. The Directors are compensated
by other companies and trusts within a fund complex for their services as
directors/trustees to such companies and trusts. Currently the Directors do not
receive any retirement benefits or deferred compensation from the Company or
any other member of each fund complex.
8
<PAGE> 177
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 is advised by Wells Fargo Bank.
Wells Fargo Bank furnishes to the Fund investment guidance and policy direction
in connection with the daily portfolio management of the Fund. Wells Fargo also
Bank also furnishes to the Board of Directors periodic reports on the
investment strategy and performance of the Fund.
Wells Fargo Bank has agreed to provide to the Fund, 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 Fund.
For the years ended December 31, 1994, 1995 and 1996, the Fund
paid Wells Fargo Bank the advisory fees indicated below and Wells Fargo Bank
waived the following amounts:
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C> <C> <C>
Fees Fees Fees Fees Fees Fees
Paid Waived Paid Waived Paid Waived
$6,929,600 $1,622,859 $3,561,101 $554,480 $2,696,450 $0
</TABLE>
The Advisory Contract will continue in effect for more than two
years from the effective date provided the continuance is approved annually (i)
by the holders of a majority of the Fund's outstanding voting securities or by
the Company's Board of Directors and (ii) by a majority of the Directors of the
Company who are not parties to the Advisory Contract or "interested persons"
(as defined in the 1940 Act) of any such party. The Advisory Contract may be
terminated on 60 days' written notice by either party and will terminate
automatically if assigned.
ADMINISTRATOR AND CO-ADMINISTRATOR. The Company has retained
Wells Fargo Bank as administrator and Stephens as co-administrator on behalf of
the Fund. The Administration Agreement between Wells Fargo and the Fund, and
the Co-Administration Agreement among Wells Fargo Bank, Stephens and the Fund,
state that Wells Fargo Bank and Stephens shall provide as administration
services, among other things: (i) general supervision of the operation of the
Fund, including coordination of the services performed by the Fund's investment
adviser, transfer agent, custodian, shareholder servicing agent(s), independent
public accountants and legal counsel, regulatory compliance, including the
compilation of information for documents such as reports to, and filings with,
the SEC and state securities commissions; and preparation of proxy statements
and shareholder reports for the Fund; and (ii) general supervision relative to
the compilation of data required for the preparation of periodic reports
distributed to the Company's officers and Board of Directors. Wells Fargo Bank
and Stephens also furnish office space and certain facilities required for
conducting the business of each Fund together with ordinary clerical and
bookkeeping services. Stephens pays the compensation of the Company's
Directors, officers and employees who are affiliated with Stephens. The
administrator and co-
9
<PAGE> 178
administrator are entitled to receive a monthly fee of 0.04% and 0.02%,
respectively, of the Fund's average daily net assets.
For the periods shown, Stephens served as sole administrator to
the Fund and provided the Fund with essentially the same services described
above. Stephens was entitled to receive a monthly fee from the Fund at the
annual rate of 0.15% of the Fund's average daily net assets up to $200 million
and 0.10% in excess of $200 million. For the years ended December 31, 1994,
1995 and 1996, Stephens received administration fees as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C>
$1,810,492 $923,116 $400,616
</TABLE>
SPONSOR AND DISTRIBUTOR. As discussed in the Fund's Prospectus
under the heading "Management of the Funds," Stephens serves as the Fund's
sponsor and distributor.
SHAREHOLDER SERVICING AGENT. The Fund has entered into a
shareholder servicing agreement with Wells Fargo Bank. For the year ended
December 31, 1996, the Fund paid $17,944 in shareholder servicing fees for
Class D Shares.
CUSTODIAN. Wells Fargo Bank has been retained to act as Custodian
for the Fund. The Custodian, among other things, maintains a custody account or
accounts in the name of the Fund, receives and delivers all assets for the Fund
upon purchase and upon sale or maturity, collects and receives all income and
other payments and distributions on account of the assets of the Fund, and pays
all expenses of the Fund. For its services as Custodian, Wells Fargo Bank
receives an asset-based fee and transaction charges from the Fund. For the year
ended December 31, 1996, the Fund did not pay any custody fees.
TRANSFER AND DIVIDEND DISBURSING AGENT. Wells Fargo Bank has been
retained to act as Transfer and Dividend Disbursing Agent for the Fund. For its
services as transfer and dividend disbursing agent for the Fund, Wells Fargo
Bank is entitled to receive monthly payments at the annual rate of 0.14% of the
average daily net assets of each class of shares. Under the prior transfer
agency agreement for the Fund, Wells Fargo Bank received a base fee and
per-account fees from the Fund paid without regard to class. For the year ended
December 31, 1996, the Fund paid Wells Fargo Bank $63,299 in transfer and
dividend disbursing agency fees.
UNDERWRITING COMMISSIONS. For the year ended December 31, 1994,
the aggregate dollar amount of underwriting commissions paid to Stephens on
sales/redemptions of the Company's shares was $1,408,759 and Stephens retained
$1,351,388 of such commissions. WFSI and its registered representatives
received $57,371 of such commissions.
For the year ended December 31, 1995, the aggregate dollar amount
of underwriting commissions paid to Stephens on sales/redemptions of the
Registrant's shares was $1,478,541 and Stephens retained $1,447,175 of such
commissions. WFSI and its registered representatives received $31,366 of such
commissions.
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<PAGE> 179
For the year ended December 31, 1996, the aggregate dollar amount
of underwriting commissions paid to Stephens on sales/redemptions of the
Registrant's shares was $1,777,985 and Stephens retained $195,639 of such
commissions. WFSI and its registered representatives received $255,147 and
$1,327,199 respectively of such commissions.
DISTRIBUTION PLANS
As indicated in the Prospectus, the Fund, on behalf of each of
its classes of shares, has adopted a Plan under Section 12(b) of the 1940 Act
and Rule 12b-1 thereunder (the "Rule").
Pursuant to the Plan for Class A Shares, the Fund may defray all or
part of the actual cost of preparing and printing prospectuses and other
promotional materials and of providing such prospectuses and other promotional
materials to prospective shareholders of the Fund and may compensate personnel
of the distributor or reimburse the distributor for compensation paid to selling
agents for distribution-related or sales support services and may pay for any
other activities primarily intended to result in the sale of Class A Shares of
the Fund. Payments also may be used to compensate or reimburse servicing agents
for shareholder liaison services provided by entities that are dealers of record
or which have a servicing relationship with the beneficial owners of Class A
Shares of the Fund under a servicing agreement in substantially the form
approved by the Board of Directors. Total payments under the Plan may not exceed
0.25% of the average daily net assets of the Class A Shares of the Fund on an
annual basis.
Pursuant to the Plan for Class D Shares, the Company may pay to
Stephens Inc. ("Distributor"), as compensation for distribution-related
services provided, or reimbursement for distribution-related expenses incurred,
a monthly fee at an annual rate of up to 0.50% of the Fund's average daily net
assets attributable to Class D Shares. The actual fee payable to the
Distributor shall, within such limit, be determined from time to time by
mutual agreement between the Company and the Distributor. The Distributor may
enter into selling agreements with one or more selling agents under which such
agents may receive compensation for distribution-related services from the
Distributor, including, but not limited to, commissions or other payments to
such agents based on the average daily net assets of Fund shares attributable
to them. The Distributor may retain any portion of the total distribution fee
payable hereunder to compensate it for distribution-related services provided
by it or to reimburse it for other distribution-related expenses.
For the year ended December 31, 1996, the Funds' distributor
received the following amounts of 12b-1 fees for the specified purposes set
forth below under the Fund's Plan.
<TABLE>
<CAPTION>
Printing &
Variable Rate Mailing Marketing Compensation
Government Fund Total Prospectus Brochures to Underwriters
- --------------- ----- ---------- --------- ---------------
<S> <C> <C> <C> <C>
Class A $1,330,313 N/A N/A $1,330,313
Class D $35,887 N/A N/A $35,887
</TABLE>
For the year ended December 31, 1996, WFSI and its registered
representatives did not receive any compensation under the Plans.
Each Plan will continue in effect from year to year if such
continuance is approved by a majority vote of both the Directors of the Company
and the Qualified Directors. Any Distribution Agreement related to the Plan
also must be approved by such vote of the Directors and the Qualified
Directors. Such Agreement will terminate automatically if assigned, and may
11
<PAGE> 180
be terminated at any time, without payment of any penalty, by a vote of a
majority of the outstanding voting securities of the Fund. The Plans may not be
amended to increase materially the amounts payable thereunder without the
approval of a majority of the outstanding voting securities of the Fund, and no
material amendment to the Plans may be made except by a majority of both the
Directors of the Company and the Qualified Directors.
The Plans requires that the Treasurer of the Company shall provide
to the Directors, and the Directors shall review, at least quarterly, a written
report of the amounts expended (and purposes therefor) under the Plans. The Rule
also requires that the selection and nomination of Directors who are not
"interested persons" of the Company be made by such disinterested Directors.
CLASS A ADMINISTRATIVE SERVICING PLAN
As indicated in the Fund's Prospectus, the Fund has adopted a
Shareholder Administrative Servicing Plan (the "Administrative Servicing Plan")
with respect to its Class A shares. Pursuant to the Administrative Servicing
Plan, the Fund may enter into administrative servicing agreements with
administrative servicing agents (which may include Wells Fargo and its
affiliates) who are dealers/holders of record, or that otherwise have a
servicing relationship with the beneficial owners, of the Fund's Class A
shares. Administrative servicing agents agree to perform administrative
shareholder services which may include, among other things, maintaining an
omnibus account with the Fund, aggregating and transmitting purchase, exchange
and redemption orders to the Fund's Transfer Agent, answering customer
inquiries regarding a shareholder's accounts in the Fund, and providing such
other services as the Company or a customer may reasonably request.
Administrative servicing agents are entitled to a fee which will not exceed
0.25%, on an annualized basis, of the average daily net assets of the Class A
shares represented by the shares owned of record or beneficially by the
customers of the administrative servicing agent during the period for which
payment is being made. In no case shall shares be sold pursuant to the Class A
Rule 12b-1 Plan while being sold pursuant to its Administrative Servicing Plan.
CLASS D SERVICING PLAN
As indicated in the Prospectus, the Fund has adopted a Servicing
Plan ("Servicing Plan") with respect to its Class D Shares. Under the Servicing
Plan and pursuant to any related Shareholder Servicing Agreements, the Fund may
pay one or more servicing agents, as compensation for performing certain
services, a fee at an annual rate of up to 0.25% of the average daily net
assets of the Fund attributable to its Class D Shares. The actual fee payable
to servicing agents is determined, within such limit, from time to time by
mutual agreement between the Company and each servicing agent and will not
exceed the maximum service fees payable by mutual funds sold by members of the
NASD under the NASD Rules of Fair Practice.
The Servicing Plan will continue in effect from year to year if
such continuance is approved by a majority vote of both the Directors of the
Company and the Servicing Plan Qualified Directors. Any form of Shareholder
Servicing Agreement related to the Servicing Plan
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<PAGE> 181
also must be approved by such vote of the Directors and the Servicing Plan
Qualified Directors. Shareholder Servicing Agreements will terminate
automatically if assigned, and may be terminated at any time, without payment
of any penalty, by a vote of a majority of the outstanding Class D Shares of
the Fund. The Servicing Plan may not be amended to increase materially the
amount payable thereunder without the approval of a majority of the outstanding
Class D Shares of the Fund, and no material amendment to the Servicing Plan may
be made except by a majority of both the Directors of the Company and the
Qualified Directors.
The Servicing Plan requires that the Treasurer of the Company
shall provide to the Directors, and the Directors shall review, at least
quarterly, a written report of the amounts expended (and purposes therefor)
under the Servicing Plan.
PERFORMANCE CALCULATIONS
TOTAL RETURN. As indicated in the Prospectus, the Fund may
advertise certain total return information for each class of shares computed in
the manner described in the Prospectus. As and to the extent required by the
SEC, an average annual compound rate of return ("T") will be computed by using
the redeemable value at the end of a specified period ("ERV") of a hypothetical
initial investment in a Fund or a class of shares ("P") over a period of years
("n") according to the following formula: P(1+T)n = ERV. In addition, as
indicated in the Prospectus, the Fund also may at times, calculate total return
for the Fund or a class of shares based on net asset value per share (rather
than the public offering price), in which case the figures would not reflect
the effect of any sales charges that would have been paid by an investor, or
based on the assumption that a sales charge other than the maximum sales charge
(reflecting a Volume Discount) was assessed, provided that total return data
derived pursuant to the calculation described above also are presented.
In addition to the above performance information, the Fund may
also advertise cumulative total return for one-month, three-month, six-month,
and year-to-date periods. The cumulative total return for such periods is based
on the overall percentage change in value of a hypothetical investment in the
Fund, assuming all Fund dividends and capital gain distributions are
reinvested, without reflecting the effect of any sales charge that would be
paid by an investor, and is not annualized.
The average annual total return on the Class A Shares of the Fund
for the period since inception (November 1, 1990) to December 31, 1996,
assuming a 3.00% sales load and no sales load, was 4.08% and 4.59%,
respectively. The average annual total return on the Class D Shares of the Fund
for the period since inception (July 1, 1993) to December 31, 1996, assuming no
CDSC was paid, was 2.22%.
The average annual total return on the Class A Shares of the Fund
for the five-year period ended December 31, 1996, assuming a 3.00% sales load
and no sales load, was 2.78% and 3.40%, respectively.
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<PAGE> 182
The average annual total return on the Class A Shares of the Fund
for the year ended December 31, 1996, assuming a 3.00% sales load and no sales
load, was 1.27% and 4.41%, respectively. The average annual total return on the
Class D Shares of the fund for the year ended December 31, 1996, assuming a
1.00% CDSC, was 2.97%, and no CDSC, was 3.95%.
The Fund may advertise the cumulative total return on its shares.
Cumulative total return of shares is computed on a per share basis and assumes
the reinvestment of dividends and distributions. Cumulative total return of
shares generally is expressed as a percentage rate which is calculated by
combining the income and principal changes for a specified period and dividing
by the net asset value per share at the beginning of the period. Advertisements
may include the percentage rate of total return of shares or may include the
value of a hypothetical investment in shares at the end of the period which
assumes the application of the percentage rate of total return.
The cumulative total return on the Class A Shares of the Fund for
the period from inception (November 1, 1990) to December 31, 1996, assuming a
3.00% sales load and no sales load was 27.95% and 31.91%, respectively. The
cumulative total return on the Class D Shares of the Fund for the period from
inception (July 1, 1993) to December 31, 1996, was 7.98%.
The cumulative total return on the Class A Shares of the Fund for
the five-year period ended December 31, 1996, assuming a 3.00% sales load and
no sales load, was 14.70% and 18.21%, respectively.
YIELD. As indicated in the Fund's Prospectus, the Fund may
advertise certain yield information for the Fund or a class of shares. As and
to the extent required by the SEC, yield for each class of shares of the Fund
will be calculated based on a 30-day (or one month) period, computed by
dividing the net investment income per share of each class earned during the
period by the maximum offering price per share of each class on the last day of
the period, according to the following formula: YIELD = 2[((a-b divided by cd)+
1)6-1], where a = dividends and interest earned during the period; b = expenses
accrued for the period (net of reimbursements); c = the average daily number of
shares of each class outstanding during the period that were entitled to receive
dividends; and d = the maximum offering price per share each class of shares on
the last day of the period. The net investment income attributable to a class of
shares includes actual interest income, plus or minus amortized purchase
discount (which may include original issue discount) or premium, less accrued
expenses. Realized and unrealized gains and losses on portfolio securities are
not included in net investment income. For purposes of sales literature, yield
also may be calculated on the basis of the net asset value per share of each
class rather than the public offering price, or based on the assumption that a
sales charge other than the maximum sales charge (reflecting a Volume Discount)
was assessed, provided that the yield data derived pursuant to the calculation
described above also are presented.
The yield on the Class A Shares of the Fund for the 30-day period
ended December 31, 1996, assuming the maximum 3.00% sales charge and no sales
charge, was 5.01%
14
<PAGE> 183
and 5.17%, respectively. The yield for the Class D Shares of the Fund for the
thirty-day period ended December 31, 1996, and assuming no CDSC, was 4.67%.
The yields for each class of shares will fluctuate from time to
time, unlike bank deposits or other investments that pay a fixed yield for a
stated period of time, and do not provide a basis for determining future yields
since they are based on historical data. Yield is a function of portfolio
quality, composition, maturity and market conditions as well as the expenses
allocated to the Fund or to a particular class of the Fund.
In addition, investors should recognize that changes in the net
asset values of shares of each class of the Fund will affect the yield of the
respective class of shares for any specified period, and such changes should be
considered together with such class' yield in ascertaining such class' total
return to shareholders for the period. Yield information for each class of
shares may be useful in reviewing the performance of the class of shares and
for providing a basis for comparison with investment alternatives. The yield of
each class of shares, however, may not be comparable to the yields from
investment alternatives because of differences in the foregoing variables and
differences in the methods used to value portfolio securities, compute expenses
and calculate yield.
OTHER. The Company may disclose in sales literature, information
and statements, the distribution rate of Fund shares. Distribution rate, which
may be annualized, is the amount determined by dividing the dollar amount per
share of the most recent dividend by the most recent NAV or maximum offering
price per share as of a date specified in the sales literature. Distribution
rate will be accompanied by the standard 30-day yield as required by the SEC.
The Company also may disclose in advertising and other types of
literature, information and statements, the average credit quality of each
Fund's portfolio or categories of investments therein, as of a specified date
or period. Average credit quality is calculated on a dollar weighted average
basis based on ratings assigned each issue or issuer, as the case may be, by
S&P and/or Moody's. In the event one rating agency does not rate the issue or
issuer, as the case may be, in the same tier as the other agency, the highest
rating is used in the calculation.
From time to time and only to the extent the comparison is
appropriate for each class of shares of the Fund, the Company may quote the
performance or price-earning ratio of each class of shares of the Fund in
advertising and other types of literature as compared to the performance of the
Lehman Brothers Municipal Bond Index, 1-Year Treasury Bill Rate, S&P Index, the
Dow Jones Industrial Average, the Lehman Brothers 20+ Treasury Index, the
Lehman Brothers 5-7 Year Treasury Index, Donoghue's Money Fund Averages, Real
Estate Investment Averages (as reported by the National Association of Real
Estate Investment Trusts), Gold Investment Averages (provided by the World Gold
Council), Bank Averages (which is calculated from figures supplied by the U.S.
League of Savings Institutions based on effective annual rates of interest on
both passbook and certificate accounts), average annualized certificate of
deposit rates (from the Federal Reserve G-13 Statistical Releases or the Bank
Rate Monitor), the Salomon One Year Treasury Benchmark Index, the Consumer
Price Index (as published by the U.S. Bureau of Labor Statistics), Ten Year
U.S. Government Bond Average, S&P's Corporate
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Bond Yield Averages, Schabacter Investment Management Indices, Salomon Brothers
High Grade Bond Index, Lehman Brothers Long-Term High Quality
Government/Corporate Bond Index, other managed or unmanaged indices or
performance data of bonds, stocks or government securities (including data
provided by Ibbotson Associates), or by other services, companies, publications
or persons who monitor mutual funds on overall performance or other criteria.
The S&P Index and the Dow Jones Industrial Average are unmanaged indices of
selected common stock prices. The performance of each class of shares of the
Fund also may be compared to the performance of other mutual funds having
similar objectives. This comparative performance could be expressed as a
ranking prepared by Lipper Analytical Services, Inc., CDA Investment
Technologies, Inc., Bloomberg Financial Markets or Morningstar, Inc.,
independent services which monitor the performance of mutual funds. The
performance of each class of shares of the Fund will be calculated by relating
net asset value per share of each class at the beginning of a stated period to
the net asset value of the investment, assuming reinvestment of all capital
gains distributions and dividends paid, at the end of the period. Any such
comparisons may be useful to investors who wish to compare the past performance
of each class of shares of the Fund with the performance of the Fund's
competitors. Of course, past performance cannot be a guarantee of future
results. The Company also may include, from time to time, a reference to
certain marketing approaches of the Distributor, including, for example, a
reference to a potential shareholder being contacted by a selected broker or
dealer. General mutual fund statistics provided by the Investment Company
Institute may also be used.
In addition, the Company also may use, in advertisements and
other types of literature, information and statements: (1) showing that bank
savings accounts offer a guaranteed return of principal and a fixed rate of
interest, but no opportunity for capital growth; and (2) describing Wells Fargo
Bank, and its affiliates and predecessors, as one of the first investment
managers to advise investment accounts using asset allocation and index
strategies. The Company also may include in advertising and other types of
literature information and other data from reports and studies prepared by the
Tax Foundation, including information regarding federal and state tax levels
and the related "Tax Freedom Day."
From time to time the Company may reprint, reference or otherwise
use material from magazines, newsletters, newspapers and books including, but
not limited to the Wall Street Journal, Money Magazine, Barrons, Kiplingers,
Business Week, Fortune, Forbes, the San Francisco Chronicle, the San Jose
Mercury News, The New York Times, the Los Angeles Times, the Boston Globe, the
Washington Post, the Chicago Sun-Times, Investor Business Daily, Worth, Bank
Investor, American Banker, Smart Money, the 100 Best Mutual Funds (Adams
Publishing), Morningstar or Value Line.
The Company also may use the following information in
advertisements and other types of literature, only to the extent the
information is appropriate for each class of shares of the Fund: (i) the
Consumer Price Index may be used to assess the real rate of return from an
investment in each class of shares of the Fund; (ii) other government
statistics, including, but not limited to, The Survey of Current Business, may
be used to illustrate investment attributes of each class of shares of 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
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investment returns of each class of shares of the Fund or on returns in
general, may be illustrated by graphs, charts, etc., where such graphs or
charts would compare, at various points in time, the return from an investment
in each class of shares of the Fund (or returns in general) on a tax-deferred
basis (assuming reinvestment of capital gains and dividends and assuming one or
more tax rates) with the return on a taxable basis; and (iv) the sectors or
industries in which the Fund invests may be compared to relevant indices of
stocks or surveys (e.g., S&P Industry Surveys) to evaluate the historical
performance or current or potential value of each class of shares of the Fund
with respect to the particular industry or sector.
The Company also may discuss in advertising and other types of
literature that the Fund has been assigned a rating by a nationally recognized
statistical rating organization ("NRSRO"), such as Standard & Poor's Rating
Group ("S&P") or Moody's Investors Service, Inc. ("Moody's"). Such rating would
assess the creditworthiness of the investments held by the Fund. The assigned
rating would not be a recommendation to purchase, sell or hold the Fund's
shares since the rating would not comment on the market price of the Fund's
shares or the suitability of the Fund for a particular investor. In addition,
the assigned rating would be subject to change, suspension or withdrawal as a
result of changes in, or unavailability of, information relating to the Fund or
its investments. The Company may compare the performance of each class of
shares of the Fund with other investments which are assigned ratings by NRSROs.
Any such comparisons may be useful to investors who wish to compare each class'
past performance with other rated investments.
The Company also may disclose, in advertising and other types of
literature, information and statements that Wells Capital Management, Inc.
("WCM" formerly, Wells Fargo Investment Management) a subsidiary of Wells Fargo
Bank, is listed in the top 100 by Institutional Investor magazine in its July
1996 survey "America's Top 300 Money Managers." This survey ranks money
managers in several asset categories. The Company also may disclose in
advertising and other types of sales literature the assets and categories of
assets under management by the Company's investment adviser and the total
amount of assets and mutual fund assets managed by Wells Fargo Bank. As of
April 1, 1997, Wells Fargo Bank and its affiliates provided investment advisory
services for approximately $57 billion of assets of individuals, trusts,
estates and institutions and $20 billion of mutual fund assets.
The Company may disclose in advertising and other types of
literature that investors can open and maintain Sweep Accounts over the
Internet or through other electronic channels (collectively, "Electronic
Channels"). Such advertising and other literature may discuss the investment
options available to investors, including the types of accounts and any
applicable fees. Such advertising and other literature may disclose that Wells
Fargo Bank is the first major bank to offer an on-line application for a mutual
fund account that can be filled out completely through Electronic Channels.
Advertising and other literature may disclose that Wells Fargo Bank may
maintain Web sites, pages or other information sites accessible through
Electronic Channels (an "Information Site") and may describe the contents and
features of the Information Site and instruct investors on how to access the
Information Site and open a Sweep Account. Advertising and other literature may
also disclose the procedures employed by Wells Fargo Bank to secure information
provided by investors, including disclosure and discussion of the tools and
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services for accessing Electronic Channels. Such advertising or other
literature may include discussions of the advantages of establishing and
maintaining a Sweep Account through Electronic Channels and testimonials from
Wells Fargo Bank customers or employees and may also include descriptions of
locations where product demonstrations may occur. The Company may also disclose
the ranking of Wells Fargo Bank as one of the largest money managers in the
United States.
DETERMINATION OF NET ASSET VALUE
Net asset value per share for each class of the Fund is
determined on each day the Fund is open.
Securities of the Fund for which market quotations are available
are valued at latest prices. In the absence of any sale of such securities on
the valuation date and in the case of other securities, including U.S.
Government securities but excluding money market instruments maturing in 60
days or less, the valuations are based on latest quoted bid prices. Money
market instruments maturing in 60 days or less are valued at amortized cost.
The assets of the Fund other than money market instruments maturing in 60 days
or less are valued at latest quoted bid prices. In all cases, bid prices will
be furnished by a reputable independent pricing service approved by the Board
of Directors. Prices provided by an independent pricing service may be
determined without exclusive reliance on quoted prices and may take into
account appropriate factors such as institutional-size trading in similar
groups of securities, yield, quality, coupon rate, maturity, type of issue,
trading characteristics and other market data. All other securities and other
assets of the Fund for which current market quotations are not readily
available are valued at fair value as determined in good faith by the Company's
Directors and in accordance with procedures adopted by the Directors.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares may be purchased on any day the Fund is open for business.
The Fund is open for business each day the New York Stock Exchange ("NYSE") is
open for trading (a "Business Day"). Currently, the NYSE is closed on New
Year's Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day (each a "Holiday"). When any Holiday
falls on a weekend, the NYSE typically is closed on the weekday immediately
before or after such Holiday.
Payment for shares may, in the discretion of the adviser, be made
in the form of securities that are permissible investments for the Fund as
described in the Prospectus. For further information about this form of payment
please contact Stephens. In connection with an in-kind securities payment, the
Fund will require, among other things, that the securities be valued on the day
of purchase in accordance with the pricing methods used by the Fund and that
the Fund receives satisfactory assurances that (i) it will have good and
marketable title to the securities received by it; (ii) that the securities are
in proper form for transfer to the Fund; and
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(iii) adequate information will be provided concerning the basis and other
matters relating to the securities.
Under the 1940 Act, the Fund may suspend the right of redemption
or postpone the date of payment upon redemption for any period during which the
NYSE is closed (other than customary weekend and holiday closings, or during
which trading is restricted, or during which as determined by the SEC by rule
or regulation) an emergency exists as a result of which disposal or valuation
of portfolio securities is not reasonably practicable, or for such periods as
the SEC may permit.
The Company may suspend redemption rights or postpone redemption
payments for such periods as are permitted under the 1940 Act. The Company may
also redeem shares involuntarily or make payment for redemption in securities
or other property if it appears appropriate to do so in light of the Company's
responsibilities under the 1940 Act.
In addition, the Company may redeem shares involuntarily to
reimburse the Fund for any losses sustained by reason of the failure of a
shareholders to make full payment for shares purchased or to collect any charge
relating to a transaction effected for the benefit of a shareholder which is
applicable to shares of the Fund as provided from time to time in the
Prospectus.
PORTFOLIO TRANSACTIONS
Purchases and sales of debt securities generally are principal
transactions. Debt securities normally are purchased or sold from or to dealers
serving as market makers for the securities at a net price. Debt securities may
also be purchased in underwritten offerings or directly from the issuer.
Generally, ARMS and CMOs are traded on a net basis and do not involve brokerage
commissions. The cost of executing transactions in debt securities consists
primarily of dealer spreads and underwriting commissions. Under the 1940 Act,
persons affiliated with the Company are prohibited from dealing with the
Company as a principal in the purchase and sale of securities unless an
exemptive order allowing such transactions is obtained from the SEC or an
exemption is otherwise available. The Fund may purchase securities from
underwriting syndicates of which Stephens or Wells Fargo Bank is a member under
certain conditions in accordance with the provisions of a rule adopted under
the 1940 Act and in compliance with procedures adopted by the Board of
Directors.
The Company has no obligation to deal with any dealer or group of
dealers in the execution of transactions in portfolio securities. Subject to
policies established by the Company's Board of Directors, Wells Fargo Bank is
responsible for the Fund's investment decisions and the placing of portfolio
transactions. In placing orders, it is the policy of the Company to obtain the
best overall terms taking into account the dealer's general execution and
operational facilities, the type of transaction involved and other factors such
as the dealer's risk in positioning the securities involved. Wells Fargo Bank
generally seeks reasonably competitive spreads or commissions.
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In assessing the best overall terms available for any transaction,
Wells Fargo Bank considers factors deemed relevant, including the breadth of the
market in the security, the price of the security, the financial condition and
execution capability of the broker or dealer, and the reasonableness of the
commission, if any, both for the specific transaction and on a continuing basis.
Wells Fargo Bank may cause the Master Portfolio to pay a broker/dealer which
furnishes brokerage and research services a higher commission than that which
might be charged by another broker/dealer for effecting the same transaction,
provided that Wells Fargo Bank determines in good faith that such commission is
reasonable in relation to the value of the brokerage and research services
provided by such broker/dealer, viewed in terms of either the particular
transaction or the overall responsibilities of Wells Fargo Bank. Such brokerage
and research services might consist of reports and statistics relating to
specific companies or industries, general summaries of groups of stocks or bonds
and their comparative earnings and yields, or broad overviews of the stock,
bond, and government securities markets and the economy.
Supplementary research information so received is in addition to, and
not in lieu of, services required to be performed by Wells Fargo Bank and does
not reduce the advisory fees payable by the Fund. The Board of Directors will
periodically review the commissions paid by the Fund to consider whether the
commissions paid over representative periods of time appear to be reasonable in
relation to the benefits inuring to the Fund. It is possible that certain of
the supplementary research or other services received will primarily benefit
one or more other investment companies or other accounts for which Wells Fargo
Bank exercises investment discretion. Conversely, the Fund may be the primary
beneficiary of the research or services received as a result of portfolio
transactions effected for such other account or investment company.
Under Section 28(e) of the Securities Exchange Act of 1934, an adviser
shall not be "deemed to have acted unlawfully or to have breached its fiduciary
duty" solely because under certain circumstances it has caused the account to
pay a higher commission than the lowest available. To obtain the benefit of
Section 28(e), an adviser must make a good faith determination that the
commissions paid are "reasonable in relation to the value of the brokerage and
research services provided . . . viewed in terms of either that particular
transaction or its overall responsibilities with respect to the accounts as to
which it exercises investment discretion and that the services provided by a
broker provide an adviser with lawful and appropriate assistance in the
performance of its investment decision-making responsibilities." Accordingly,
the price to the Fund in any transaction may be less favorable than that
available from another broker/dealer if the difference is reasonably justified
by other aspects of the portfolio execution services offered.
Broker/dealers utilized by Wells Fargo Bank may furnish statistical,
research and other information or services which are deemed by Wells Fargo Bank
to be beneficial to the Fund investment programs. Research services received
from brokers supplement Wells Fargo Bank's own research and may include the
following types of information: statistical and background information on
industry groups and individual companies; forecasts and interpretations with
respect to U.S. and foreign economies, securities, markets, specific industry
groups and
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individual companies; information on political developments; portfolio
management strategies; performance information on securities and information
concerning prices of securities; and information supplied by specialized
services to Wells Fargo Bank and to the Company's Directors with respect to the
performance, investment activities and fees and expenses of other mutual Funds.
Such information may be communicated electronically, orally or in written form.
Research services may also include the providing of equipment used to
communicate research information, the arranging of meetings with management of
companies and the providing of access to consultants who supply research
information.
The outside research assistance is useful to Wells Fargo Bank since the
brokers utilized by Wells Fargo Bank as a group tend to follow a broader
universe of securities and other matters than the staff of Wells Fargo Bank can
follow. In addition, this research provides Wells Fargo Bank with a diverse
perspective on financial markets. Research services which are provided to Wells
Fargo Bank by brokers are available for the benefit of all accounts managed or
advised by Wells Fargo Bank. It is the opinion of Wells Fargo Bank that this
material is beneficial in supplementing their research and analysis; and,
therefore, it may benefit the Fund by improving the quality of Wells Fargo
Bank's investment advice.
BROKERAGE COMMISSIONS. For the year ended December 31, 1996, the
Fund did not pay any brokerage commissions.
SECURITIES OF REGULAR BROKER/DEALERS. On December 31, 1996, the
Fund owned securities (pooled repurchase agreements) of its "regular brokers or
dealers" as defined in the 1940 Act or their parents as follows: $673,000 of
Goldman Sachs & Co. and $12,000,000 of JP Morgan.
PORTFOLIO TURNOVER. The portfolio turnover rate is not a limiting
factor when Wells Fargo Bank deems portfolio changes appropriate.
FUND EXPENSES
Except for the expenses borne by Wells Fargo Bank and Stephens,
the Company bears all costs of its operations, including the compensation of
its Directors who are not affiliated with Stephens or Wells Fargo Bank or any
of their affiliates; advisory, shareholder servicing and administration fees;
payments pursuant to any Plan; interest charges; taxes; fees and expenses of
its independent accountants, legal counsel, transfer agent and dividend
disbursing agent; expenses of redeeming shares; expenses of preparing and
printing Prospectuses (except the expense of printing and mailing Prospectuses
used for promotional purposes, unless otherwise payable pursuant to a Plan),
shareholders' reports, notices, proxy statements and reports to regulatory
agencies; insurance premiums and certain expenses relating to insurance
coverage; trade association membership dues; brokerage and other expenses
connected with the execution of portfolio transactions; fees and expenses of
its custodian, including those for keeping books and accounts and calculating
the NAV per share of the Fund; expenses of shareholders' meetings; expenses
relating to the issuance, registration and qualification of the Fund's shares;
pricing services, and any extraordinary expenses. Expenses attributable to the
Fund are charged against
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Fund assets. General expenses of the Company are allocated among all of the
funds of the Company, including the Fund, in a manner proportionate to the net
assets of the Fund, on a transactional basis, or on such other basis as the
Company's Board of Directors deems equitable.
FEDERAL INCOME TAXES
In General. The following information supplements and should be
read in conjunction with the Prospectus section entitled "Taxes." The
Prospectus describes generally the tax treatment of distributions by the Fund.
This section of the SAI includes additional information concerning federal
income taxes.
The Company intends to qualify the Fund as a regulated investment
company under Subchapter M of the Code as long as such qualification is in the
best interest of the Fund's 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 will generally 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.
Qualification as a regulated investment company under the Code
requires, among other things, that (a) the Fund derive at least 90% of its
annual gross income from interest, payments with respect to securities loans,
dividends and gains from the sale or other disposition of securities or options
thereon; (b) the Fund derive less than 30% of its gross income from gains from
the sale or other disposition of securities or options thereon held for less
than three months; and (c) the Fund diversify its holdings so that, at the end
of each quarter of the taxable year, (i) at least 50% of the market value of
the Fund's assets is represented by cash, government securities and other
securities limited in respect of any one issuer to an amount not greater than
5% of the Fund's assets and 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of its assets is invested in
the securities of any one issuer (other than U.S. Government securities and the
securities of other regulated investment companies), or in two or more issuers
which the Fund controls and which are determined to be engaged in the same or
similar trades or businesses. For purposes of complying with these
qualification requirements, the Fund will be deemed to own a proportionate
share of the Master Portfolio's assets. 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, including net
tax-exempt income, earned in each year. The Fund intends to pay out
substantially all of its net investment income and net realized capital gains
(if any) for each year.
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 substantially
all of its net investment income and net capital gains by the end of each
calendar year and, thus, expects not to be subject to the excise tax.
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The Fund seeks to qualify as a regulated investment company by
investing substantially 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. 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 the
Master Portfolio's other investors) in proportion to the Fund's ownership
interest in the Master Portfolio. Therefore, to the extent the Master Portfolio
were to accrue but not distribute any interest, dividends or gains, the Fund
would be deemed to have realized and recognized its proportionate share of
interest, dividends or gains without receipt of any corresponding distribution.
However, the Master Portfolio will seek to minimize recognition by investors of
interest, dividends, gains or losses without a corresponding distribution.
Corporate shareholders of the Fund may be eligible for the
dividends-received deduction on dividends distributed out of the Fund's net
investment income attributable to dividends received from domestic
corporations, which, if received directly by the corporate shareholder, would
qualify for such deduction. In order to qualify for the dividends-received
deduction, a corporate shareholder must hold the Fund shares paying the
dividends upon which the deduction is based for at least 46 days.
Federal Income Tax Rates. 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 marginal tax rate applicable
to net capital gains is 28%; the maximum corporate tax rate applicable to
ordinary income and net capital gains is 35% (except that to eliminate the
benefit of lower marginal corporate income tax rates, corporations which have
taxable income in excess of $100,000 for a taxable year will be required to pay
an additional amount of income tax 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 tax of up to $100,000). Naturally, the amount of tax
payable by an individual or corporation will be affected by a combination of tax
laws covering, for example, deductions, credits, deferrals, exemptions, sources
of income and other matters.
Capital Gain Distributions. To the extent that 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 the shareholders not later than 60 days after the
close of the Fund's taxable year.
Other Distributions. Although dividends will be declared daily
based on the Fund's daily 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
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that portion of the year's distributions which equals the year's earnings and
profits will be deemed to have constituted a dividend. It is expected that the
Fund's net income, on an annual basis, will equal the dividends declared during
the year.
Disposition of Fund Shares. If a shareholder receives a
designated capital gain distribution (to be treated by the shareholder as a
long-term capital gain) with respect to any Fund share and such Fund share is
held for six months or less, then (unless otherwise disallowed) any loss on the
sale or exchange of that Fund share will be treated as a long-term capital loss
to the extent of the designated capital gain distribution. In addition, 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 exempt-interest
dividends received thereon by the shareholder. These rules shall not apply,
however, to losses incurred under a periodic redemption plan.
If a shareholder exchanges or otherwise disposes of Fund shares
within 90 days of having acquired such shares and if, as a result of having
acquired those shares, the shareholder subsequently pays a reduced sales charge
on a new purchase of shares of the Fund or of a different regulated investment
company, the sales charge previously incurred acquiring the Fund's shares shall
not be taken into account (to the extent such previous sales charges do not
exceed the reduction in sales charges on the new purchase) for the purpose of
determining the amount of gain or loss on the disposition, but will be treated
as having been incurred in the acquisition of such other shares. Also, any loss
realized on a redemption or exchange of shares of the Fund will be disallowed
to the extent that substantially identical shares are reacquired within the
61-day period beginning 30 days before and ending 30 days after the shares are
disposed of.
Taxation of Fund Investments. Gains or losses on sales of
portfolio securities by the Master Portfolio will generally be long-term
capital gains or losses if the securities have been held by it for more than
one year, except in certain cases such as where the Master Portfolio acquires a
put or writes a call thereon. Gains recognized on the disposition of a debt
obligation (including tax-exempt obligations purchased after April 30, 1993)
purchased by the Master Portfolio at a market discount (generally at a price
less than its principal amount) will generally be treated as ordinary income to
the extent of the portion of market discount which accrued during the period of
time the Master Portfolio held the debt obligation. Other gains or losses on
the sale of portfolio securities will be short-term capital gains or losses.
Foreign Shareholders. Under the Code, distributions of net
investment income by the Fund to a nonresident alien individual, nonresident
alien fiduciary of a trust or estate, foreign corporation, or foreign
partnership (a "foreign shareholder") will be subject to U.S. withholding tax
(at a rate of 30% or a lower treaty rate). Withholding will not apply if a
dividend paid by the Fund to a foreign shareholder is "effectively connected"
with a U.S. trade or business, in which case the reporting and withholding
requirements applicable to U.S. citizens, U.S. residents or domestic
corporations will apply. Distributions of net long-term capital gains are not
subject to tax withholding, but in the case of a foreign shareholder who is a
nonresident alien individual, such distributions ordinarily will be subject to
U.S. income tax at a rate of 30% if the individual is physically present in the
U.S. for more than 182 days during the taxable year.
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Backup Withholding. The Company may be required to withhold,
subject to certain exemptions, at a rate of 31% ("backup withholding") on
dividends, capital gain distributions, and redemption proceeds (including
proceeds from exchanges) paid or credited to an individual Fund shareholder,
unless a shareholder certifies that the Taxpayer Identification Number ("TIN")
provided is correct and that the shareholder is not subject to backup
withholding, or the IRS notifies the Company that the shareholder's TIN is
incorrect or the shareholder is subject to backup withholding. Such tax
withheld does not constitute any additional tax imposed on the shareholder, and
may be claimed as a tax payment on the shareholder's federal income tax return.
An investor must provide a valid TIN upon opening or reopening an account.
Failure to furnish a valid TIN to the Company could subject the investor to
penalties imposed by the IRS.
Other Matters. Investors should be aware that the investments to
be made by the Master Portfolio may involve sophisticated tax rules that may
result in income or gain recognition by the Fund without corresponding current
cash receipts. Although the Master Portfolio will seek to avoid significant
noncash income, such noncash income could be recognized by the Master
Portfolio, in which case the Fund may distribute cash derived from other
sources in order to meet the minimum distribution requirements described above.
The foregoing discussion and the discussions in the Prospectus
address only some of the federal tax considerations generally affecting
investments in the Fund. Each investor is urged to consult his or her tax
advisor regarding specific questions as to federal, state or local taxes and
foreign taxes.
CAPITAL STOCK
The following information supplements and should be read in
conjunction with the section in the Prospectus entitled "Organization and
Capital Stock."
The Fund is comprised of two classes of shares, Class A Shares
and Class D Shares. With respect to matters that affect one class but not
another, shareholders vote as a class; for example, the approval of a Plan.
Subject to the foregoing, on any matter submitted to a vote of shareholders,
all shares then entitled to vote will be voted separately by Fund or portfolio
of the Company unless otherwise required by the 1940 Act, in which case all
shares will be voted in the aggregate. For example, a change in one of the
Fund's fundamental investment policies would be voted upon only by shareholders
of such Fund and not shareholders of the Company's other investment portfolios.
Additionally, approval of an advisory contract is a matter to be determined
separately by portfolio. Approval by the shareholders of one portfolio is
effective as to that portfolio whether or not sufficient votes are received
from the shareholders of the other portfolios to approve the proposal as to
those portfolios. As used in the Prospectus and in this SAI, the term
"majority," when referring to approvals to be obtained from shareholders of the
Fund or a class, means the vote of the lesser of (i) 67% of the shares of the
Fund or class represented at a meeting if the holders of more than 50% of the
outstanding shares of the Fund or class are present in person or by proxy, or
(ii) more than 50% of the outstanding shares of the Fund or class. The term
"majority," when referring to the approvals to be obtained from
25
<PAGE> 194
shareholders of the Company as a whole, means the vote of the lesser of (i) 67%
of the Company's shares represented at a meeting if the holders of more than
50% of the Company's outstanding shares are present in person or by proxy, or
(ii) more than 50% of the Company's outstanding shares. Shareholders are
entitled to one vote for each full share held and fractional votes for
fractional shares held. The Company may dispense with annual meetings of
shareholders in any year in which it is not required to elect Directors under
the 1940 Act.
Each share of a class of the Fund represents an equal
proportional interest in the Fund with each other share of the same class and
is entitled to such dividends and distributions out of the income earned on the
assets belonging to the Fund as are declared 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
that Fund that are available for distribution, and a distribution of any
general assets not attributable to a particular Fund or portfolio that are
available for distribution in such manner and on such basis as the Directors in
their sole discretion may determine.
Shareholders are not entitled to any preemptive rights. All
shares, when issued, will be fully paid and non-assessable by the Company.
Set forth below is the name, address and share ownership of each
person known by the Company to have beneficial or record ownership of 5% or
more of a class of the Fund or 5% or more of the voting securities of the Fund
as a whole.
5% OWNERSHIP AS OF APRIL 1, 1997
<TABLE>
<CAPTION>
Name and Class; Type Percentage Percentage
Fund Address of Ownership of Class of Fund
---- -------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
VARIABLE San Bernadino County Class A 27.08% 26.57%
RATE GOVT. 172 West 3rd St., 1st Floor Beneficial
CLASS A San Bernadino, CA 92415-0360
APCO Employees Credit Union Class A 9.37% 9.19%
1608 7th Ave. Beneficial
Birmingham, AL 35203
VARIABLE Merrill Lynch Pierce Class D 14.68% 0.28%
RATE GOVT. Fenner & Smith, Inc. Record Holder
CLASS D for the Sole Benefit of its
Customers
Attn: Fund Administration
4800 Deer Lake East, 3rd Floor
Jacksonville, FL 32246
City of Waterville Class D 5.48% 0.10%
P.O. Box 9 Beneficial
Waterville, MN 56096
VARIABLE J.C. Bradford & Co. Cust FBO Class D 49.58% 0.94%
RATE GOVT. DCIP Limited Partner Beneficial
CLASS D 330 Comerce St.
Nashville, TN 37201
City of Mountain Lake Class D 5.13% 0.10%
Mountain Lake City Hall Beneficial
Mountain Lake, MN 56159
</TABLE>
26
<PAGE> 195
For purposes of the 1940 Act, any person who owns directly or
through one or more controlled companies more than 25% of the voting securities
of a company is presumed to "control" such company. Accordingly, to the extent
that a shareholder identified in the foregoing table is identified as the
beneficial holder of more than 25% of a class (or Fund), or is identified as
the holder of record of more than 25% of a class (or Fund) and has voting
and/or investment powers, it may be presumed to control such class (or Fund).
OTHER
The Registration Statement, including the 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 Statement, each such statement being qualified in all respects by
such reference.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP has been selected as the independent
auditors for the Company. 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.
FINANCIAL INFORMATION
The portfolio of investments, audited financial statements and
independent auditors' reports for the Fund for the year ended December 31, 1996
are hereby incorporated by reference to the Company's Annual Report as filed
with the SEC on March 11, 1997. The portfolio of investments, audited financial
statements and independent auditors' report are attached to all SAIs delivered
to current or prospective shareholders.
27
<PAGE> 196
APPENDIX
The following is a description of the ratings given by Moody's and S&P
to corporate and municipal bonds, municipal notes, and corporate and municipal
commercial paper.
Corporate Bonds
Moody's: The four highest ratings for corporate bonds are "Aaa," "Aa,"
"A" and "Baa." Bonds rated "Aaa" are judged to be of the "best quality" and
carry the smallest amount of investment risk. Bonds rated "Aa" are of "high
quality by all standards," but margins of protection or other elements make
long-term risks appear somewhat greater than "Aaa" rated bonds. Bonds rated "A"
possess many favorable investment attributes and are considered to be upper
medium grade obligations. Bonds rated "Baa" are considered to be medium grade
obligations; interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Moody's also applies numerical modifiers in its rating
system: 1, 2 and 3 in each rating category from "Aa" through "Baa" in its
rating system. The modifier 1 indicates that the security ranks in the higher
end of its category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end.
S&P: The four highest ratings for corporate and municipal bonds are
"AAA," "AA," "A" and "BBB." Bonds rated "AAA" have the "highest rating"
assigned by S&P and have "an extremely strong capacity" to pay interest and
repay principal. Bonds rated "AA" have a "very strong capacity" to pay interest
and repay principal and "differ from the highest rated obligations only in
small degree." Bonds rated "A" have a "strong capacity" to pay interest and
repay principal, but are "somewhat more susceptible" to adverse effects of
changes in economic conditions or other circumstances than bonds in higher
rated categories. Bonds rated "BBB" are regarded as having "adequate protection
parameters" to pay interest and repay principal, but changes in economic
conditions or other circumstances are more likely to lead to a "weakened
capacity" to make such repayments. The ratings from "AA" to "BBB" may be
modified by the addition of a plus or minus sign to show relative standing
within the category.
Commercial Paper
Moody's: The highest rating for commercial paper is "P-1" (Prime-1).
Issuers rated "P-1" have a "superior ability for repayment of senior short-term
debt obligations." Issuers rated "P-2" (Prime-2) "have a strong capacity for
repayment of senior short-term debt obligations," but earnings trends, while
sound, will be subject to more variation.
S&P: The "A-1" rating for commercial paper is rated "in the highest
category" by S&P and "the obligor's capacity to meet its financial commitment
on the obligation is strong." The "A-1+" rating indicates that said capacity is
"extremely strong." The A-2 rating indicates that said capacity is
"satisfactory," but that corporate and municipal commercial paper rated "A-2"
is "more susceptible" to the adverse effects of changes in economic conditions
or other circumstances than commercial paper rated in higher rating categories.
A-1
<PAGE> 197
OVERLAND EXPRESS FUNDS, INC.
Telephone: (800) 552-9612
STATEMENT OF ADDITIONAL INFORMATION
Dated May 1, 1997
STRATEGIC GROWTH FUND
----------------------------------
Overland Express Funds, Inc. (the "Company") is a professionally
managed, open-end series investment company. This Statement of Additional
Information ("SAI") contains information about one of the Company's funds --
the STRATEGIC GROWTH FUND (the "Fund"). The Fund offers two classes of shares
- -- Class A Shares and Class D Shares. This SAI relates to both classes of
shares. The investment objective of the Fund is described in the Prospectus
under the heading "Investment Objectives and Policies."
The Fund seeks to achieve its investment objective by investing
all of its assets in the Capital Appreciation Master Portfolio (at times, the
"Master Portfolio") of Master Investment Trust ("MIT"), which has the same
investment objective as the Fund. The Fund may withdraw its investment in the
Capital Appreciation Master Portfolio at any time, if the Board of Directors of
the Company determines that such action is in the best interests of the Fund
and its shareholders. Upon such withdrawal, the Company's Board would consider
alternative investments, including investing all of the Fund's assets in
another investment company with the same investment objective as the Fund or
hiring an investment adviser to manage the Fund's assets in accordance with the
investment policies and restrictions described in the Prospectus and below with
respect to MIT.
This SAI is not a prospectus and should be read in conjunction
with the Fund's Prospectus, dated May 1, 1997. All terms used in this SAI that
are defined in the Prospectus will have the meanings assigned in the
Prospectus. A copy of the Prospectus may be obtained without charge by writing
Stephens Inc. ("Stephens"), the Company's sponsor, co-administrator and
distributor, at 111 Center Street, Little Rock, Arkansas 72201, or calling the
Transfer Agent at the telephone number indicated above.
----------------------------------
1
<PAGE> 198
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Investment Restrictions ................................................... 3
Additional Permitted Investment Activities ................................ 5
Management ................................................................ 5
Distribution Plans ........................................................ 11
Class A Administrative Servicing Plan ..................................... 12
Class D Servicing Plan .................................................... 13
Performance Calculations .................................................. 13
Determination of Net Asset Value .......................................... 16
Additional Purchase and Redemption Information ............................ 17
Portfolio Transactions .................................................... 18
Fund Expenses ............................................................. 20
Federal Income Taxes ...................................................... 21
Capital Stock ............................................................. 25
Other ..................................................................... 28
Independent Auditors ...................................................... 28
Financial Information ..................................................... 28
Appendix ..................................................................A-1
</TABLE>
2
<PAGE> 199
INVESTMENT RESTRICTIONS
Fundamental Investment Policies. The Fund and the Master
Portfolio are subject to the following investment restrictions, all of which
are fundamental policies. These restrictions cannot be changed, as to either
the Fund or the Master Portfolio, without approval by the holders of a majority
(as defined by the 1940 Act) of the outstanding voting securities of the Fund
or the Master Portfolio, as appropriate. Whenever the Fund is requested to vote
on a fundamental policy of the Master Portfolio, the Fund will hold a meeting
of Fund shareholders and it will cast its votes as instructed by such
shareholders.
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 investments in that industry would
equal or exceed 25% of the current value of the Fund's total assets, provided
that there is no limitation with respect to investments in securities issued or
guaranteed by the United States Government, its agencies or instrumentalities;
and provided further, that the Fund may invest all its assets in a diversified,
open-end management investment company, or a series thereof, with substantially
the same investment objective, policies and restrictions as such Fund, without
regard to the limitations set forth in this paragraph (1);
(2) purchase or sell real estate (other than securities secured
by real estate or interests therein or securities issued by companies that
invest in real estate or interests therein), commodities or commodity contracts
or interests in oil, gas, or other mineral exploration or development programs;
(3) purchase securities on margin (except for short-term credits
necessary for the clearance of transactions) or make short sales of securities;
(4) underwrite securities of other issuers, except to the extent
that the purchase of permitted investments directly from the issuer thereof or
from an underwriter for an issuer and the later disposition of such securities
in accordance with the Fund's investment program may be deemed to be an
underwriting; and provided further, that the purchase by the Fund of securities
issued by a diversified, open-end management investment company, or a series
thereof, with substantially the same investment objective, policies and
restrictions as such Fund shall not constitute an underwriting for purposes of
this paragraph (4);
(5) make investments for the purpose of exercising control or
management; provided that the Fund may invest all its assets in a diversified,
open-end management company, or a series thereof, with substantially the same
investment objective, policies and restrictions as such Fund, without regard to
the limitations set forth in this paragraph (5);
(6) issue senior securities, except that the Fund may borrow from
banks up to 10% of the current value of its net assets for temporary purposes
only in order to meet redemptions,
3
<PAGE> 200
and these borrowings may be secured by the pledge of up to 10% of the current
value of its net assets (but investments may not be purchased while any such
outstanding borrowings exceed 5% of its net assets);
(7) make loans of portfolio securities having a value that
exceeds 50% of the current value of its total assets, provided that this
restriction does not apply to the purchase of fixed time deposits, repurchase
agreements, commercial paper and other types of debt instruments commonly sold
in a public or private offering; nor
(8) purchase securities of any issuer (except securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities) if, as
a result, with respect to 75% of its total assets, more than 5% of the value of
its total assets would be invested in the securities of any one issuer or, with
respect to 100% of its total assets, the Fund's ownership would be more than
10% of the outstanding voting securities of such issuer, provided that the Fund
may invest all its assets in a diversified, open-end management investment
company, or a series thereof, with substantially the same investment objective,
policies and restrictions as such Fund, without regard to the limitations set
forth in this paragraph (8).
With respect to fundamental investment policy (7), the Fund and
the Master Portfolio do not intend to loan their portfolio securities during
the coming year.
Non-Fundamental Investment Policies. The Fund and the Master
Portfolio are subject to the following non-fundamental policies. These
restrictions may be changed by a vote of a majority of the Directors of the
Company or the Trustees of MIT, as the case may be, at any time.
The Fund and the Master Portfolio may not:
(1) purchase or retain securities of any issuer if the officers
or directors of the Fund or its Investment Adviser owning beneficially more
than one-half of one percent (0.5%) of the securities of the issuer together
own beneficially more than 5% of such securities;
(2) purchase or sell real estate limited partnership interests;
nor
(3) write, purchase or sell puts, calls or options or any
combination thereof, except to the extent described in the Prospectus and
except that the Master Portfolio may purchase securities with put rights in
order to maintain liquidity;
(4) invest in securities of issuers who, with their predecessors,
have been in existence less than three years, unless the securities are fully
guaranteed or insured by the U.S. Government if, by reason thereof, the value
of its aggregate investment in such securities will exceed 5% of its total
assets;
4
<PAGE> 201
(5) purchase securities of any issuer (except securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities) if, as
a result, more than 5% of the value of the Fund's total assets would be
invested in the securities of any one issuer; nor
(6) invest more than 15% of the Fund's net assets in illiquid
securities. For this purpose, illiquid securities include, among others, (a)
securities that are illiquid by virtue of the absence of a readily available
market or legal or contractual restrictions on resale, (b) fixed time deposits
that are subject to withdrawal penalties and that have maturities of more than
seven days, and (c) repurchase agreements not terminable within seven days.
(7) In addition, as a matter of non-fundamental policy, the Fund
may invest in shares of other open-end, management investment companies,
subject to the limitations of Section 12(d)(1) of the Act, provided that any
such purchases will be limited to temporary investments in shares of
unaffiliated investment companies and the Investment Adviser will waive its
advisory fees for that portion of the Fund's assets so invested, except when
such purchase is part of a plan of merger, consolidation, reorganization or
acquisition. The Fund does not intend to invest more than 5% of its net assets
in such securities during the coming year. Notwithstanding any other investment
policy or limitation (whether or not fundamental), as a matter of fundamental
policy, the Fund may invest all of its assets in the securities of a single
open-end management investment company with substantially the same fundamental
investment objective, policies and limitations as the Fund. A decision to so
invest all of its assets may, depending on the circumstances applicable at the
time, require approval of shareholders.
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
Warrants. The Strategic Growth Fund may invest no more than 5% of
its net assets at the time of purchase in warrants (other than those that have
been acquired in units or attached to other securities) and not more than 2% of
its net assets in warrants which are not listed on the NYSE or American Stock
Exchange. Warrants represent rights to purchase securities at a specific price
valid for a specific period of time. The prices of warrants do not necessarily
correlate with the prices of the underlying securities. The Funds may only
purchase warrants on securities in which such Fund may invest directly.
Custodial Receipts for Treasury Securities. The Fund may purchase
participations in trusts that hold U.S. Treasury securities (such as TIGRs and
CATS) or other obligations where the trust participations evidence ownership in
either the future interest payments or the future principal payments on the
obligations. These participations are normally issued at a discount to their
"face value," and can exhibit greater price volatility than ordinary debt
securities because of the way in which their principal and interest are
returned to investors. Investments by a Fund in such participations will not
exceed 5% of the value of the Fund's total assets.
MANAGEMENT
The following information supplements and should be read in
conjunction with the section in the Prospectus entitled "Management of the
Funds." The principal occupations during the past five years of the directors
and executive officers 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
Act are indicated by an asterisk.
5
<PAGE> 202
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME, ADDRESS AND AGE POSITION DURING PAST 5 YEARS
- --------------------- --------------------- ---------------------------
<S> <C> <C>
Jack S. Euphrat, 74 Director Private Investor.
415 Walsh Road
Atherton, CA 94207
*R. Greg Feltus, 45 Director, Chairman and Senior Vice President of
President Stephens; Manager of
Financial Services Group;
President of Stephens
Insurance Services Inc.;
Senior Vice President of
Stephens Sports Management
Inc.; and President of
Investor Brokerage Insurance
Inc.
Thomas S. Goho, 54 Director T.B. Rose Faculty Fellow
321 Beechcliff Court Business, Wake Forest
Winston-Salem, NC 27104 University Calloway School
of Business and Accountancy;
Associate Professor of
Finance of the School of
Business and Accounting at
Wake Forest University since
1983.
Joseph N. Hankin, 55 Director President Westchester
75 Grasslands Road Community College since
Valhalla, NY 10595 1971; President of Hartford
Junior College from 1967 to
1971; Adjunct Professor of
Columbia University Teachers
College since 1976.
*W. Rodney Hughes, 70 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Robert M. Joses, 78 Director Private Investor.
47 Dowitcher Way
San Rafael, CA 94901
*J. Tucker Morse, 52 Director Private Investor; Real
10 Legrae Street Estate 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., Chief Operating Associate of Financial
40 Officer, Secretary Services Group of Stephens;
and Treasurer Director of Stephens Sports
Management Inc.; and
Director of Capo Inc.
</TABLE>
6
<PAGE> 203
COMPENSATION TABLE
For the Year Ended December 31, 1996
<TABLE>
<CAPTION>
Aggregate Compensation Total Compensation from
Name and Position from Registrant Registrant and Fund Complex
----------------- ---------------------- ---------------------------
<S> <C> <C>
Jack S. Euphrat $10,500 $31,500
Director
*R. Greg Feltus 0 0
Director
Thomas S. Goho 10,500 31,500
Director
*Zoe Ann Hines 0 0
Director
(resigned September 6, 1996)
Joseph N. Hankin 500 1,500
Director
*W. Rodney Hughes 8,750 26,250
Director
Robert M. Joses 10,500 31,500
Director
*J. Tucker Morse 8,750 26,250
Director
</TABLE>
Directors of the Company are compensated annually by the Company
and by all the registrants in each fund complex they serve as indicated above
and also are reimbursed for all out-of-pocket expenses relating to attendance
at board meetings. The Company, Stagecoach Funds, Inc., Stagecoach Trust, Life
& Annuity Trust and Master Investment Trust are considered to be members of the
same fund complex as such term is defined in Form N-1A under the 1940 Act (the
"Wells Fargo Fund Complex"). MasterWorks Funds Inc., Master Investment
Portfolio, and Managed Series Investment Trust together form a separate fund
complex (the "BGFA Fund Complex"). Each of the Directors and Officers of the
Company serves in the identical capacity as directors and officers or as
trustees and/or officers of each registered open-end management investment
company in both the Wells Fargo and BGFA Fund Complexes, except for Joseph N.
Hankin, who only serves the aforementioned members of the Wells Fargo Fund
Complex, and Zoe Ann Hines who, after September 6, 1996, only serves the
aforementioned members of the BGFA Fund Complex. The Directors are compensated
by other companies and trusts within a fund complex for their services as
directors/trustees to such companies and trusts. Currently the Directors do not
receive any retirement benefits or deferred compensation from the Company or
any other member of each fund complex.
7
<PAGE> 204
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.
MASTER/FEEDER STRUCTURE. The Fund seeks to achieve its investment
objective by investing all of its assets in the Capital Appreciation Master
Portfolio of MIT. The Fund and other entities investing in the Master Portfolio
are each liable for all obligations of the Master Portfolio. However, the risk
of the Fund incurring financial loss on account of such liability is limited to
circumstances in which both inadequate insurance existed and MIT itself is
unable to meet its obligations. Accordingly, the Company's Board of Directors
believes that neither the Fund nor its shareholders will be adversely affected
by investing Fund assets in the Master Portfolio. However, if a mutual fund or
other investor withdraws its investment from the Master Portfolio, the economic
efficiencies (e.g., spreading fixed expenses among a larger asset base) that
the Company's Board believes may be available through investment in the Master
Portfolio may not be fully achieved. In addition, given the relative novelty of
the master/feeder structure, accounting or operational difficulties, although
unlikely, could arise. See "Management of the Funds" in the Prospectus for
additional description of the Fund's and Master Portfolio's expenses and
management.
The Fund may withdraw its investment in the Master Portfolio only
if the Company's Board of Directors determines that such action is in the best
interests of the Fund and its shareholders. Upon such withdrawal, the Company's
Board would consider alternative investments, including investing all of the
Fund's assets in another investment company with the same investment objective
as the Fund or hiring an investment adviser to manage the Fund's assets in
accordance with the investment policies described below with respect to the
Master Portfolio.
The investment objective and other fundamental policies of the
Master Portfolio cannot be changed without approval by the holders of a
majority (as defined in the 1940 Act) of the Master Portfolio's outstanding
interests. See "Investment Objectives and Policies" in the Prospectus. Whenever
the Fund, as an interestholder of the Master Portfolio, is requested to vote on
any matter submitted to interestholders of the Master Portfolio, the Fund will
hold a meeting of its shareholders to consider such matters. The Fund will cast
its votes in proportion to the votes received from its shareholders. Shares for
which the Fund receives no voting instructions will be voted in the same
proportion as the votes received from the other Fund shareholders.
Certain policies of the Master Portfolio which are
non-fundamental may be changed by vote of a majority of MIT's Trustees without
interestholder approval. If the Master Portfolio's investment objective or
fundamental or non-fundamental policies are changed, the Fund may elect to
change its objective or policies to correspond to those of the Master
Portfolio. The Fund may also elect to redeem its interests in the Master
Portfolio and either seek a new investment company with a matching objective in
which to invest or retain its own investment adviser to manage the Fund's
portfolio in accordance with its objective. In the latter case, the Fund's
inability to find a substitute investment company in which to invest or
equivalent management services could adversely affect shareholders' investments
in the Fund. The Fund will provide shareholders with 30 days' written notice
prior to the implementation of any change in the
8
<PAGE> 205
investment objective of the Fund or the Master Portfolio, to the extent
possible. See "Investment Objectives and Policies" in the Prospectus for
additional information regarding the Fund's and the Master Portfolio's
investment objectives and policies.
INVESTMENT ADVISER. The Fund has not engaged an investment
adviser. The Master Portfolio (which has the same investment objective as the
Fund, and in which the Fund invests all its assets) is advised by Wells Fargo
Bank. Wells Fargo Bank furnishes to the Master Portfolio investment guidance
and policy direction in connection with the daily portfolio management of the
Master Portfolio. Wells Fargo Bank furnishes to the Board of Trustees of MIT
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.
The Master Portfolio's 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 MIT's Board of Trustees and (ii) by a majority of the Trustees
of MIT who are not parties to the Advisory Contract or "interested persons" (as
defined in the 1940 Act) of any such party. The Advisory Contract may be
terminated on 60 days' written notice by either party and will terminate
automatically if assigned.
For the period from inception (January 20, 1993) to February 20,
1996, the Fund operated on a stand-alone basis, did not participate in a
master/feeder structure and retained the services of Wells Fargo Bank as
investment adviser for the Fund. For the year ended December 31, 1994, the Fund
incurred $197,689 in advisory fees payable to Wells Fargo Bank, and $9,550 of
such fees were waived. For the year ended December 31, 1995, the Fund incurred
$302,821 in advisory fees payable to Wells Fargo Bank. For the period beginning
January 1, 1996 and ended February 20, 1996, the Fund incurred $59,742 in
advisory fees payable to Wells Fargo Bank. For the period begun February 20,
1996 and ended December 31, 1996, the Master Portfolio incurred $674,014 in
advisory fees payable to Wells Fargo Bank and attributable to the Fund. Wells
Fargo did not waive advisory fees in 1995 and 1996.
ADMINISTRATOR AND CO-ADMINISTRATOR. The Company has retained
Wells Fargo Bank as administrator and Stephens as co-administrator on behalf of
the Fund. In addition, MIT has retained Wells Fargo Bank as administrator and
Stephens as co-administrator on behalf of the Master Portfolio. Under the
respective Administration and Co-Administration Agreements, Wells Fargo Bank
and Stephens provide as administration 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), 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
9
<PAGE> 206
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. Wells Fargo Bank and Stephens also
furnish office space and certain facilities required for conducting the Fund's
and the Master Portfolio's business together with ordinary clerical and
bookkeeping services. Stephens pays the compensation of MIT's and the Company's
Directors/Trustees, Officers and employees who are affiliated with Stephens.
The administrator and co-administrator are entitled to receive from the Fund a
monthly fee at the annual rate of 0.04% and 0.02%, respectively, of the Fund's
average daily net assets.
For the periods shown, Stephens served as sole administrator to
the Fund and Master Portfolio and provided the Fund and Master Portfolio with
essentially the same services described above. Stephens was entitled to receive
a monthly fee from the Fund at the annual rate of 0.15% of the Fund's average
daily net assets up to $200 million and 0.10% in excess of $200 million. For
the years ended December 31, 1994, 1995 and 1996, Stephens received
administration fees from the Fund as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C>
$62,623 $91,128 $211,420
</TABLE>
SPONSOR AND DISTRIBUTOR. As discussed in the Fund's prospectus
under the heading "Management of the Funds," Stephens serves as the Fund's
sponsor and distributor.
SHAREHOLDER SERVICING AGENT. The Fund has entered into a
shareholder servicing agreement with Wells Fargo Bank. For the year ended
December 31, 1996, the Fund paid $110,673 in shareholder servicing fees for
Class D Shares.
CUSTODIAN. 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. For its services as Custodian, Wells Fargo Bank receives an
asset-based fee and transaction charges from the Master Portfolio. For the
period begun January 1 and ended February 20, 1996, the Fund paid directly to
Wells Fargo Bank $3,539 in custody fees. For the period begun February 20 and
ended December 31, 1996, the Master Portfolio paid to Wells Fargo Bank $28,623
in custody fees attributable to the Fund.
TRANSFER AND DIVIDEND DISBURSING AGENT. Wells Fargo Bank has been
retained to act as transfer and dividend disbursing agent for both the Fund and
the Master Portfolio. For its services as transfer and dividend disbursing
agent for the Fund, Wells Fargo Bank is entitled to receive monthly payments at
the annual rate of 0.14% of the average daily net assets of each class of
shares. Under the prior transfer agency agreement for the Fund, Wells Fargo
Bank was entitled to receive a base fee and per-account fees paid without
regard to class. For the year ended
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December 31, 1996, the Fund paid to Wells Fargo Bank $166,001 in transfer and
dividend disbursing agency fees.
UNDERWRITING COMMISSIONS. For the year ended December 31, 1994,
the aggregate dollar amount of underwriting commissions paid on
sales/redemption of the company's shares was $1,408,759, and Stephens retained
$1,351,388 of such commissions. WFSI and its registered representatives
received $57,371 of such commissions.
For the year ended December 31, 1995, the aggregate dollar amount
of underwriting commissions paid on sales/redemptions of the Company's shares
was $1,424,127, and Stephens retained $152,656 of such commissions. WFSI and
its registered representatives received $31,366 of such commissions.
For the year ended December 31, 1996, the aggregate dollar amount
of underwriting commissions paid on sales/redemptions of the Company's shares
was $1,777,985, and Stephens retained $152,656 of such commissions. WFSI and
its registered representatives received $255,147 and $1,327,199 respectively of
such commissions.
DISTRIBUTION PLANS
The following information supplements and should be read in
conjunction with the Prospectus section entitled "Management of the Funds." As
indicated in the Prospectus, the Fund, on behalf of each of its classes of
shares, has adopted a Plan under Section 12(b) of the Act and Rule 12b-1
thereunder (the "Rule").
Pursuant to the Plan for Class A Shares, the Fund may defray all
or part of the actual cost of preparing and printing prospectuses and other
promotional materials and of providing such prospectuses and other promotional
materials to prospective shareholders of the Fund and may compensate personnel
of the distributor or reimburse the distributor for compensation paid to selling
agents for distribution-related or sales support services and may pay for any
other activities primarily intended to result in the sale of Class A Shares of
the Fund. Payments also may be used to compensate or reimburse servicing agents
for shareholder liaison services provided by entities that are dealers of record
or which have a servicing relationship with the beneficial owners of Class A
Shares of the Fund under a servicing agreement in substantially the form
approved by the Board of Directors. Total payments under the Plan may not exceed
0.25% of the average daily net assets of the Class A Shares of the Fund on an
annual basis.
Pursuant to the Plan for Class D Shares, the Company may pay to
Stephens Inc. ("Distributor"), as compensation for distribution-related services
provided, or reimbursement for distribution-related expenses incurred, a monthly
fee at an annual rate of up to 0.75% of the Fund's average daily net assets
attributable to Class D Shares. The actual fee payable to the Distributor shall,
within such limit, be determined from time to time by mutual agreement between
the Company and the Distributor. The Distributor may enter into selling
agreements with one or more selling agents under which such agents may receive
compensation for distribution-related services from the Distributor, including,
but not limited to, commissions or other payments to such agents based on the
average daily net assets of Fund shares attributable to them. The Distributor
may retain any portion of the total distribution fee payable hereunder to
compensate it for distribution-related services provided by it or to reimburse
it for other distribution-related expenses.
For the year ended December 31, 1996, the Fund's distributor
received the following amounts of 12b-1 fees for the specified purposes set
forth below under each Plan.
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<PAGE> 208
<TABLE>
<CAPTION>
Printing &
Mailing Marketing Compensation to
Total Prospectus Brochures Underwriters
----- ---------- --------- ---------------
<S> <C> <C> <C> <C>
Class A $219,637 N/A N/A $219,637
Class D $332,019 N/A N/A $332,019
</TABLE>
The Plans will continue in effect from year to year if such
continuance is approved by a majority vote of both the directors of the Company
and the Qualified Directors. Agreements related to the Plans also must be
approved by such vote of the directors and the Qualified Directors. Such
agreements will terminate automatically if assigned, and may be terminated at
any time, without payment of any penalty, by a vote of a majority of the
outstanding voting securities of the Fund. The Plans may not be amended to
increase materially the amounts payable thereunder without the approval of a
majority of the outstanding voting securities of the Fund, and no material
amendment to the Plans may be made except by a majority of both the directors
of the Company and the Qualified Directors.
The Plans require that the Treasurer of the Fund shall provide to
the directors, and the directors shall review, at least quarterly, a written
report of the amounts expended (and purposes therefore) under the Plans. The
Rule also requires that the selection and nomination of directors who are not
"interested persons" of the Company be made by such disinterested directors.
CLASS A ADMINISTRATIVE SERVICING PLAN
As indicated in the Fund's Prospectus, the Fund has adopted a
Shareholder Administrative Servicing Plan (the "Administrative Servicing Plan")
with respect to its Class A shares. Pursuant to the Administrative Servicing
Plan, the Fund may enter into administrative servicing agreements with
administrative servicing agents (which may include Wells Fargo Bank and its
affiliates) who are dealers/holders of record, or that otherwise have a
servicing relationship with the beneficial owners of the Fund's Class A shares.
Administrative servicing agents agree to perform administrative shareholder
services which may include, among other things, maintaining an omnibus account
with the Fund, aggregating and transmitting purchase, exchange and redemption
orders to the Fund's Transfer Agent, answering customer inquiries regarding a
shareholder's accounts in the Fund, and providing such other services as the
Company or a customer may reasonably request. Administrative servicing agents
are entitled to a fee which will not exceed 0.25%, on an annualized basis, of
the average daily net assets of the Class A shares represented by the shares
owned of record or beneficially by the customers of the administrative
servicing agent during the period for which payment is being made. In no case
shall shares be sold pursuant to a Class A Rule 12b-1 Plan while being sold
pursuant to its Administrative Servicing Plan.
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<PAGE> 209
CLASS D SERVICING PLAN
As indicated in the Fund's Prospectus, the Fund has adopted a
Servicing Plan ("Servicing Plan") with respect to its Class D Shares.
Under the Servicing Plan and pursuant to the Servicing
Agreements, the Fund may pay one or more servicing agents, as compensation for
performing certain services, a fee at an annual rate of up to 0.25% of the
average daily net assets of the Fund attributable to its Class D Shares. The
actual fee payable to servicing agents is determined, within such limit, from
time to time by mutual agreement between the Company and each servicing agent
and will not exceed the maximum service fees payable by mutual funds sold by
members of the NASD under the Conduct Rules of the NASD.
The Servicing Plan will continue in effect from year to year if
such continuance is approved by a majority vote of both the Directors of the
Company and the Servicing Plan Qualified Directors. Any form of Servicing
Agreement related to the Servicing Plan also must be approved by such vote of
the Directors and the Servicing Plan Qualified Directors. Servicing Agreements
will terminate automatically if assigned, and may be terminated at any time,
without payment of any penalty, by a vote of a majority of the outstanding
Class D Shares of the Fund. The Servicing Plan may not be amended to increase
materially the amount payable thereunder without the approval of a majority of
the outstanding Class D Shares of the Fund, and no material amendment to the
Servicing Plan may be made except by a majority of both the Directors of the
Company and the Qualified Directors.
The Servicing Plan requires that the Company's Directors shall
review, at least quarterly, a written report of the amounts expended (and
purposes therefor) under the Servicing Plan.
PERFORMANCE CALCULATIONS
The following information supplements and should be read in
conjunction with the sections in the Prospectus entitled "Determination of Net
Asset Value."
TOTAL RETURN. As indicated in the Prospectus, the Fund may
advertise certain total return information for a class of shares, computed in
the manner described in the Prospectus. As and to the extent required by the
Commission, an average annual compound rate of return ("T") will be computed by
using the redeemable value at the end of a specified period ("ERV") of a
hypothetical initial investment in a class of shares ("P") over a period of
years ("n") according to the following formula: P(1+T)n = ERV. In addition, as
indicated in the Prospectus, the Fund also may, at times, calculate total
return for a class of shares based on net asset value per share (rather than
the public offering price), in which case the figures would not reflect the
effect of any sales charges that would have been paid by an investor, or would
be based on the assumption that a sales charge other than the maximum sales
charge (reflecting a Volume Discount) was
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<PAGE> 210
assessed, provided that total return data derived pursuant to the calculation
described above also are presented.
The average annual total returns on the Class A Shares for the
period from the Fund's commencement of operations (January 20, 1993) to
December 31, 1996, assuming a 4.50% sales load and no sales load, were 21.15%
and 22.57%, respectively. The average annual total return on the Class D Shares
of the Fund for the period from inception (July 1, 1993) to December 31, 1996
was 18.75%. The annual total returns on the Class A Shares of the Fund for the
one year ended December 31, 1996, assuming a 4.50% sales load and no sales
load, were 5.37% and 10.32%, respectively. The annual total return on the Class
D Shares of the Fund for the one year ended December 31, 1996 was 8.46%,
assuming payment of the 1% CDSC.
From time to time and only to the extent the comparison is
appropriate for a class of shares of the Fund, the Company may quote the
performance or price-earning ratio of a class of shares of the Fund in
advertising and other types of literature as compared to the performance of the
1-Year Treasury Bill Rate, the S&P Index, the Dow Jones Industrial Average, the
Lehman Brothers 20+ Years Treasury Index, the Lehman Brothers 5-7 Year Treasury
Index, Donoghue's Money Fund Averages, Real Estate Investment Averages (as
reported by the National Association of Real Estate Investment Trusts), Gold
Investment Averages (provided by the World Gold Council), Bank Averages (which
is calculated from figures supplied by the U.S. League of Savings Institutions
based on effective annual rates of interest on both passbook and certificate
accounts), average annualized certificate of deposit rates (from the Federal
Reserve G-13 Statistical Releases or the Bank Rate Monitor), the Salomon One
Year Treasury Benchmark Index, the Consumer Price Index (as published by the
U.S. Bureau of Labor Statistics), Ten Year U.S. Government Bond Average, S&P's
Corporate Bond Yield Averages, Schabacter Investment Management Indices,
Salomon Brothers High Grade Bond Index, Lehman Brothers Long-Term High Quality
Government/Corporate Bond Index, other managed or unmanaged indices or
performance data of bonds, stocks or government securities (including data
provided by Ibbotson Associates), or by other services, companies, publications
or persons who monitor mutual funds on overall performance or other criteria.
The S&P Index and the Dow Jones Industrial Average are unmanaged indices of
selected common stock prices. The performance of a class of shares of the Fund
also may be compared to the performance of other mutual funds having similar
objectives. This comparative performance could be expressed as a ranking
prepared by Lipper Analytical Services, Inc., CDA Investment Technologies,
Inc., Bloomberg Financial Markets or Morningstar, Inc., independent services
which monitor the performance of mutual funds. The performance of a class of
shares of the Fund will be calculated by relating net asset value per share at
the beginning of a stated period to the net asset value of the investment,
assuming reinvestment of all gains distributions and dividends paid, at the end
of the period. Any such comparisons may be useful to investors who wish to
compare the class' past performance with that of its competitors. Of course,
past performance cannot be a guarantee of future results. The Company also may
include, from time to time, a reference to certain marketing approaches of the
Distributor, including, for example, a reference to a potential shareholder
being contacted by a selected broker or dealer. General mutual fund statistics
provided by the Investment Company Institute may also be used.
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<PAGE> 211
In addition, the Company also may use, in advertisements and
other types of literature, information and statements: (1) showing that bank
savings accounts offer a guaranteed return of principal and a fixed rate of
interest, but no opportunity for capital growth; and (2) describing Wells Fargo
Bank, and its affiliates and predecessors, as one of the first investment
managers to advise investment accounts using asset allocation and index
strategies. The Company also may include in advertising and other types of
literature information and other data from reports and studies prepared by the
Tax Foundation, including information regarding federal and state tax levels
and the related "Tax Freedom Day."
The Company also may use the following information in
advertisements and other types of literature, only to the extent the
information is appropriate for a class of shares of the Fund: (i) the Consumer
Price Index may be used to assess the real rate of return from an investment in
a class of shares of the Fund; (ii) other government statistics, including, but
not limited to, The Survey of Current Business, may be used to illustrate
investment attributes of a class of shares of the Fund or the general economic,
business, investment, or financial environment in which the Fund operates;
(iii) the effect of tax-deferred compounding on the investment returns of a
class of shares of the Fund, or on returns in general, may be illustrated by
graphs, charts, etc., where such graphs or charts would compare, at various
points in time, the return from an investment in a class of shares of the Fund
(or returns in general) on a tax-deferred basis (assuming reinvestment of
capital gains and dividends and assuming one or more tax rates) with the return
on a taxable basis; and (iv) the sectors or industries in which the Fund
invests may be compared to relevant indices of stocks or surveys (e.g., S&P
Industry Surveys) to evaluate the historical performance or current or
potential value of a class of shares of the Fund with respect to the particular
industry or sector.
The Company may also disclose in advertising and other types of
literature, information and statements the distribution rate on the shares of
each class of the Fund. Distribution rate is the amount determined by dividing
the dollar amount per share of the most recent dividend by the most recent NAV
per share.
The Company also may discuss in advertising and other types of
literature that the Fund has been assigned a rating by an NRSRO, such as S&P or
Moody's. Such rating would assess the creditworthiness of the investments held
by the Fund. The assigned rating would not be a recommendation to purchase,
sell or hold the Fund's shares since the rating would not comment on the market
price of the Fund's shares or the suitability of the Fund for a particular
investor. In addition, the assigned rating would be subject to change,
suspension or withdrawal as a result of changes in, or the inavailability of,
information relating to the Fund or its investments. The Company may compare
the performance of the Fund with other investments that are assigned ratings by
the NRSROs. Any such comparisons may be useful to investors who wish to compare
the Fund's past performance with other rated investments.
From time to time the Company may reprint, reference or otherwise
use material from magazines, newsletters, newspapers and books including, but
not limited to the Wall Street Journal, Money Magazine, Barrons, Kiplingers,
Business Week, Fortune, Forbes, the San Francisco Chronicle, the San Jose
Mercury News, The New York Times, the Los Angeles Times,
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<PAGE> 212
the Boston Globe, the Washington Post, the Chicago Sun-Times, Investor Business
Daily, Worth, Bank Investor, American Banker, Smart Money, the 100 Best Mutual
Funds (Adams Publishing), Morningstar or Value Line.
The Company also may disclose, in advertising and other types of
literature, information and statements that Wells Capital Management, Inc.
("WCM" formerly, Wells Fargo Investment Management) a subsidiary of Wells Fargo
Bank, is listed in the top 100 by Institutional Investor magazine in its July
1996 survey "America's Top 300 Money Managers." This survey ranks money
managers in several asset categories. The Company also may disclose in
advertising and other types of sales literature the assets and categories of
assets under management by its investment adviser or sub-adviser and the total
amount of assets and mutual fund assets managed by Wells Fargo Bank. As of
April 1, 1997, Wells Fargo Bank and its affiliates provided investment advisory
services for approximately $57 billion of assets of individuals, trusts,
estates and institutions and $20 billion of mutual fund assets.
The Company may disclose in advertising and other types of
literature that investors can open and maintain Sweep Accounts over the
Internet or through other electronic channels (collectively, "Electronic
Channels"). Such advertising and other literature may discuss the investment
options available to investors, including the types of accounts and any
applicable fees. Such advertising and other literature may disclose that Wells
Fargo Bank is the first major bank to offer an on-line application for a mutual
fund account that can be filled out completely through Electronic Channels.
Advertising and other literature may disclose that Wells Fargo Bank may
maintain Web sites, pages or other information sites accessible through
Electronic Channels (an "Information Site") and may describe the contents and
features of the Information Site and instruct investors on how to access the
Information Site and open a Sweep Account. Advertising and other literature may
also disclose the procedures employed by Wells Fargo Bank to secure information
provided by investors, including disclosure and discussion of the tools and
services for accessing Electronic Channels. Such advertising or other
literature may include discussions of the advantages of establishing and
maintaining a Sweep Account through Electronic Channels and testimonials from
Wells Fargo Bank customers or employees and may also include descriptions of
locations where product demonstrations may occur. The Company may also disclose
the ranking of Wells Fargo Bank as one of the largest money managers in the
United States.
DETERMINATION OF NET ASSET VALUE
Net asset value per share for each class of the Fund and net
asset value per unit of the Master Portfolio are each determined on each day
the Fund is open as of 1:00 p.m. (Pacific time).
Securities of the Master Portfolio for which market quotations
are available are valued at latest prices. Any security for which the primary
market is an exchange is valued at the last sale price on such exchange on the
day of valuation or, if there was no sale on such day, the latest bid price
quoted on such day. In the case of other securities, including U.S. Government
securities but excluding money market instruments maturing in 60 days or less,
the valuations are
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<PAGE> 213
based on latest quoted bid prices. Money market instruments maturing in 60 days
or less are valued at amortized cost. The assets of the Master Portfolio other
than money market instruments maturing in 60 days or less are valued at latest
quoted bid prices. Prices may be furnished by a reputable independent pricing
service approved by the Board of Trustees. Prices provided by an independent
pricing service may be determined without exclusive reliance on quoted prices
and may take into account appropriate factors such as institutional-size
trading in similar groups of securities, yield, quality, coupon rate, maturity,
type of issue, trading characteristics and other market data. All other
securities and other assets of the Master Portfolio for which current market
quotations are not readily available are valued at fair value as determined in
good faith by MIT's Trustees and in accordance with procedures adopted by the
Trustees.
Expenses and fees, including advisory fees are accrued daily and
are taken into account for the purpose of determining the net asset value of
the Master Portfolio's interests and the Fund's shares.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares may be purchased on any day the Fund is open for business.
The Fund is open for business each day the NYSE is open for trading (a
"Business Day"). Currently, the NYSE is closed on New Year's Day, President's
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day (each a "Holiday"). When any Holiday falls on a weekend, the
NYSE typically is closed on the weekday immediately before or after such
Holiday.
Payment for shares may, in the discretion of the adviser, be made
in the form of securities that are permissible investments for the Fund as
described in the Prospectus. For further information about this form of payment
please contact Stephens. In connection with an in-kind securities payment, the
Fund will require, among other things, that the securities be valued on the day
of purchase in accordance with the pricing methods used by the Fund and that
the Fund receives satisfactory assurances that (i) it will have good and
marketable title to the securities received by it; (ii) that the securities are
in proper form for transfer to the Fund; and (iii) adequate information will be
provided concerning the basis and other matters relating to the securities.
Under the 1940 Act, the Fund may suspend the right of redemption
or postpone the date of payment upon redemption for any period during which the
NYSE is closed (other than customary weekend and holiday closings, or during
which trading is restricted, or during which as determined by the SEC by rule
or regulation) an emergency exists as a result of which disposal or valuation
of portfolio securities is not reasonably practicable, or for such periods as
the SEC may permit.
The Company may suspend redemption rights or postpone redemption
payments for such periods as are permitted under the 1940 Act. The Company may
also redeem shares
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<PAGE> 214
involuntarily or make payment for redemption in securities or other property if
it appears appropriate to do so in light of the Company's responsibilities
under the 1940 Act.
In addition, the Company may redeem shares involuntarily to
reimburse the Fund for any losses sustained by reason of the failure of a
shareholders to make full payment for shares purchased or to collect any charge
relating to a transaction effected for the benefit of a shareholder which is
applicable to shares of the Fund as provided from time to time in the
Prospectus.
PORTFOLIO TRANSACTIONS
Purchases and sales of equity securities on a securities exchange
usually are effected through brokers who charge a negotiated commission for
their services. Commission rates are established pursuant to negotiations with
the broker based on the quality and quantity of execution services provided by
the broker in light of generally prevailing rates. Orders may be directed to
any broker including, to the extent and in the manner permitted by applicable
law, Stephens or Wells Fargo Securities Inc. In the over- the-counter-market,
securities are generally traded on a "net" basis with dealers acting as
principal for their own accounts without a stated commission, although the
price of the security usually includes a profit to the dealer. In underwritten
offerings, securities are purchased at a fixed price that includes an amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount.
Purchases of debt securities generally are principal
transactions. Debt securities normally are purchased or sold from or to dealers
serving as market makers for the securities at a net price. Debt securities
also may be purchased in underwritten offerings or directly from an issuer.
Generally debt obligations are traded on a net basis and do not involve
brokerage commissions. The cost of executing transactions in debts securities
consists primarily of dealer spreads and underwriting commissions. Under the
1940 Act, persons affiliated with MIT are prohibited from dealing with MIT as a
principal in the purchase and sale of portfolio securities unless an exemptive
order allowing such transactions is obtained from the Commission or an
exemption is otherwise available. The Master Portfolio may purchase securities
from underwriting syndicates of which Stephens or Wells Fargo Bank is a member
under certain conditions in accordance with the provisions of a rule adopted
under the Act and in compliance with procedures adopted by MIT's Board of
Trustees.
MIT 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 MIT's Board of Trustees, Wells Fargo Bank is responsible for the
Master Portfolio's investment decisions and the placing of portfolio
transactions. In placing orders, it is the policy of MIT to obtain the best
overall terms taking into account the dealer's general execution and
operational facilities, the type of transaction involved and other factors such
as the dealer's risk in positioning the securities involved. Wells Fargo Bank
generally seeks reasonably competitive spreads or commissions.
In assessing the best overall terms available for any
transaction, Wells Fargo Bank considers factors deemed relevant, including the
breadth of the market in the security, the price of the security, the financial
condition and execution capability of the broker or dealer, and the
reasonableness of the commission, if any, both for the specific transaction and
on a continuing basis. Wells Fargo Bank may cause the Master Portfolio to pay a
broker/dealer which furnishes brokerage and research services a higher
commission than that which might be charged by another broker/dealer for
effecting the same transaction, provided that Wells Fargo Bank
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<PAGE> 215
determines in good faith that such commission is reasonable in relation to the
value of the brokerage and research services provided by such broker/dealer,
viewed in terms of either the particular transaction or the overall
responsibilities of Wells Fargo Bank. Such brokerage and research services
might consist of reports and statistics relating to specific companies or
industries, general summaries of groups of stocks or bonds and their
comparative earnings and yields, or broad overviews of the stock, bond, and
government securities markets and the economy.
Supplementary research information so received is in addition to,
and not in lieu of, services required to be performed by Wells Fargo Bank and
does not reduce the advisory fees payable by the Master Portfolio. The Board of
Trustees will periodically review the commissions paid by the Master Portfolio
to consider whether the commissions paid over representative periods of time
appear to be reasonable in relation to the benefits inuring to the Master
Portfolio. It is possible that certain of the supplementary research or other
services received will primarily benefit one or more other investment companies
or other accounts for which Wells Fargo Bank exercises investment discretion.
Conversely, the Master Portfolio may be the primary beneficiary of the research
or services received as a result of portfolio transactions effected for such
other account or investment company.
Under Section 28(e) of the Securities Exchange Act of 1934, an
adviser shall not be "deemed to have acted unlawfully or to have breached its
fiduciary duty" solely because under certain circumstances it has caused the
account to pay a higher commission than the lowest available. To obtain the
benefit of Section 28(e), an adviser must make a good faith determination that
the commissions paid are "reasonable in relation to the value of the brokerage
and research services provided . . . viewed in terms of either that particular
transaction or its overall responsibilities with respect to the accounts as to
which it exercises investment discretion and that the services provided by a
broker provide an adviser with lawful and appropriate assistance in the
performance of its investment decision-making responsibilities." Accordingly,
the price to the Master Portfolio in any transaction may be less favorable than
that available from another broker/dealer if the difference is reasonably
justified by other aspects of the portfolio execution services offered.
Broker/dealers utilized by Wells Fargo Bank may furnish
statistical, research and other information or services which are deemed by
Wells Fargo Bank to be beneficial to the Master Portfolio's investment
programs. Research services received from brokers supplement Wells Fargo Bank's
own research and may include the following types of information: statistical
and background information on industry groups and individual companies;
forecasts and interpretations with respect to U.S. and foreign economies,
securities, markets, specific industry groups and individual companies;
information on political developments; portfolio management strategies;
performance information on securities and information concerning prices of
securities; and information supplied by specialized services to Wells Fargo
Bank and to MIT's Trustees with respect to the performance, investment
activities and fees and expenses of other mutual Funds. Such information may be
communicated electronically, orally or in written form. Research services may
also include the providing of equipment used to communicate research
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<PAGE> 216
information, the arranging of meetings with management of companies and the
providing of access to consultants who supply research information.
The outside research assistance is useful to Wells Fargo Bank
since the brokers utilized by Wells Fargo Bank as a group tend to follow a
broader universe of securities and other matters than the staff of Wells Fargo
Bank can follow. In addition, this research provides Wells Fargo Bank with a
diverse perspective on financial markets. Research services which are provided
to Wells Fargo Bank by brokers are available for the benefit of all accounts
managed or advised by Wells Fargo Bank. It is the opinion of Wells Fargo Bank
that this material is beneficial in supplementing their research and analysis;
and, therefore, it may benefit the Master Portfolio by improving the quality of
Wells Fargo Bank's investment advice.
BROKERAGE COMMISSIONS. For the year ended December 31, 1996, the
Fund paid brokerage commissions in the amount of $27,405.
SECURITIES OF REGULAR BROKER/DEALERS. On December 31, 1996, the
Master Portfolio owned securities (pooled repurchase agreements) of its
"regular brokers or dealers," as defined in the 1940 Act, or their parents as
follows: $9,648,000 of JP Morgan, $5,000,000 of HSBC Securities and $4,659,000
of Goldman Sachs.
PORTFOLIO TURNOVER. Portfolio turnover generally involves some
expenses to the Master Portfolio, including brokerage commissions or dealer
mark-ups and other transactions costs on the sale of securities and the
reinvestment in other securities. Portfolio turnover also can generate
short-term capital gains tax consequences. The portfolio turnover rate will not
be a limiting factor when Wells Fargo Bank deems portfolio changes appropriate.
FUND EXPENSES
From time to time, Wells Fargo Bank and Stephens may waive fees
from the Fund in whole or in part. Any such waiver will reduce expenses of a
Fund and accordingly, have a favorable impact on the Fund's performance. Except
for the expenses borne by Wells Fargo Bank and Stephens, the Company bears all
costs of its operations, including the compensation of its Directors who are
not affiliated with Stephens or Wells Fargo Bank or any of their affiliates;
advisory, shareholder servicing and administration fees; payments pursuant to
any Plan; interest charges; taxes; fees and expenses of its independent
accountants, legal counsel, transfer agent and dividend disbursing agent;
expenses of redeeming shares; expenses of preparing and printing prospectuses
(except the expense of printing and mailing prospectuses used for promotional
purposes, unless otherwise payable pursuant to a Plan), shareholders' reports,
notices, proxy statements and reports to regulatory agencies; insurance
premiums and certain expenses relating to insurance coverage; trade association
membership dues; brokerage and other expenses connected with the execution of
portfolio transactions; fees and expenses of its custodian, including those for
keeping books and accounts and calculating the NAV per share of the Fund;
expenses of shareholders' meetings; expenses relating to the issuance,
registration and qualification of the Fund's shares; pricing services, and any
extraordinary expenses. Expenses
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<PAGE> 217
attributable to the Fund are charged against Fund assets. General expenses of
the Company are allocated among all of the funds of the Company, including the
Fund, in a manner proportionate to the net assets of the Fund, on a
transactional basis, or on such other basis as the Company's Board of Directors
deems equitable.
FEDERAL INCOME TAXES
In General. The following information supplements and should be
read in conjunction with the Prospectus sections entitled "Dividend
Distributions" and "Taxes." The Prospectus of the Fund 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.
The Company intends to qualify the Fund as a regulated investment
company under Subchapter M of the Code as long as such qualification is in the
best interest of the Fund's 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 will generally 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.
Qualification as a regulated investment company under the Code
requires, among other things, that (a) the Fund derive at least 90% of its
annual gross income from interest, payments with respect to securities loans,
dividends and gains from the sale or other disposition of securities or options
thereon; (b) the Fund derive less than 30% of its gross income from gains from
the sale or other disposition of securities or options thereon held for less
than three months; and (c) the Fund diversify its holdings so that, at the end
of each quarter of the taxable year, (i) at least 50% of the market value of
the Fund's assets is represented by cash, government securities and other
securities limited in respect of any one issuer to an amount not greater than
5% of the Fund's assets and 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of its assets is invested in
the securities of any one issuer (other than U.S. Government securities and the
securities of other regulated investment companies), or in two or more issuers
which the Fund controls and which are determined to be engaged in the same or
similar trades or businesses. For purposes of complying with these
qualification requirements, the Fund will be deemed to own a proportionate
share of the Master Portfolio's assets. 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% its net investment income, including net
tax-exempt income, earned in each year. The Fund intends to pay out
substantially all of its net investment income and net realized capital gains
(if any) for each year.
A 4% nondeductible excise tax will be imposed on the Fund to the
extent it does not meet certain minimum distribution requirements by the end of
each calendar year. 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.
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<PAGE> 218
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. Although in some circumstances a regulated
investment company can elect to "pass through" foreign tax credits to its
shareholders, the Fund does not expect to be eligible to make such an election.
The Fund seeks to qualify as a regulated investment company by
investing substantially 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. 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 the
Master Portfolio's other investors) in proportion to the Fund's ownership
interest in the Master Portfolio. Therefore, to the extent the Master Portfolio
were to accrue but not distribute any interest, dividends or gains, the Fund
would be deemed to have realized and recognized its proportionate share of
interest, dividends or gains without receipt of any corresponding distribution.
However, the Master Portfolio will seek to minimize recognition by investors of
interest, dividends, gains or losses without a corresponding distribution.
Corporate shareholders of the Fund may be eligible for the
dividends-received deduction on dividends distributed out of the Fund's net
investment income attributable to dividends received from domestic
corporations, which, if received directly by the corporate shareholder, would
qualify for such deduction. In order to qualify for the dividends-received
deduction, a corporate shareholder must hold the Fund shares paying the
dividends upon which the deduction is based for at least 46 days.
Federal Income Tax Rates. As of the printing of this SAI, the
maximum individual tax rate applicable to ordinary income is 39.60% (marginal
rates may be higher for some individuals due to phase out of exemptions and
elimination of deductions); the maximum individual tax rate applicable to net
capital gains is 28.00%; and the maximum corporate tax rate applicable to
ordinary income and net capital gains is 35.00% (except that to eliminate the
benefit of lower marginal corporate income tax rates, corporations which have
taxable income in excess of $100,000 for a taxable year will be required to pay
an additional amount of income tax 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 tax of up to $100,000). Naturally, the amount of
tax payable by an individual or corporation will be affected by a combination
of tax laws covering, for example, deductions, credits, deferrals, exemptions,
sources of income and other matters.
Capital Gain Distributions. To the extent that 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.
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Disposition of Fund Shares. If a shareholder receives a
designated capital gain distribution (to be treated by the shareholder as a
long-term capital gain) with respect to any Fund share and such Fund share is
held for six months or less, then (unless otherwise disallowed) any loss on the
sale or exchange of that Fund share will be treated as a long-term capital loss
to the extent of the designated capital gain distribution.
If a shareholder exchanges or otherwise disposes of Fund shares
within 90 days of having acquired such shares and if, as a result of having
acquired those shares, the shareholder subsequently pays a reduced sales charge
on a new purchase of shares of the Fund or of a different regulated investment
company, the sales charge previously incurred acquiring the Fund's shares shall
not be taken into account (to the extent such previous sales charges do not
exceed the reduction in sales charges on the new purchase) for the purpose of
determining the amount of gain or loss on the disposition, but will be treated
as having been incurred in the acquisition of such other shares. Also, any loss
realized on a redemption or exchange of shares of the Fund will be disallowed
to the extent that substantially identical shares are reacquired within the
61-day period beginning 30 days before and ending 30 days after the shares are
disposed of.
Taxation of Fund Investments. Gains or losses on sales of
portfolio securities by the Master Portfolio will generally be long-term
capital gains or losses if the securities have been held by it for more than
one year, except in certain cases such as where the Master Portfolio acquires a
put or writes a call thereon. Gains recognized on the disposition of a debt
obligation (including tax-exempt obligations purchased after April 30, 1993)
purchased by the Master Portfolio at a market discount (generally at a price
less than its principal amount) will be treated as ordinary income to the
extent of the portion of market discount which accrued during the period of
time the Master Portfolio held the debt obligation. Other gains or losses on
the sale of portfolio securities will be short-term capital gains or losses.
If an option written by the Master Portfolio lapses or is
terminated through a closing transaction, such as a repurchase by the Master
Portfolio of the option from its holder, the Master Portfolio will realize a
short-term capital gain or loss, depending on whether the premium income is
greater or less than the amount paid by the Master Portfolio in the closing
transaction. Some realized capital losses may be deferred if they result from a
position which is part of a "straddle," discussed below. If securities are sold
by the Master Portfolio pursuant to the exercise of a call option written by
it, the Master Portfolio will add the premium received to the sale price of the
securities delivered in determining the amount of gain or loss on the sale. If
securities are purchased by the Master Portfolio pursuant to the exercise of a
put option written by it, the Master Portfolio will subtract the premium
received from its cost basis in the securities purchased. The requirement that
the Fund derive less than 30% of its gross income from gains from the sale of
securities held for less than three months may limit the Master Portfolio's
ability to write options.
The amount of any gain or loss realized by a Fund on closing out
a futures contract will generally result in a realized capital gain or loss for
tax purposes. Futures contracts held at
23
<PAGE> 220
the end of each fiscal year will be required to be "marked to market" for
federal income tax purposes pursuant to Section 1256 of the Code. In this
regard, they will be deemed to have been sold at market value. Sixty percent
(60%) of any net gain or loss recognized on these deemed sales and sixty
percent (60%) of any net realized gain or loss from any actual sales, generally
will be treated as long-term capital gain or loss, and the remaining forty
percent (40%) will be treated as short-term capital gain or loss. Transactions
that qualify as designated hedges are excepted from the "marked to market" and
"60%/40%" rules. Currency transactions may be subject to Section 988 of the
Code, under which foreign currency gains or losses would generally be computed
separately and treated as ordinary income or losses. The Funds will attempt to
monitor Section 988 transactions to avoid an adverse tax impact.
Offsetting positions held by a regulated investment company
involving certain financial forward, futures or options contracts may be
considered, for tax purposes, to constitute "straddles." "Straddles" are
defined to include "offsetting positions" in actively traded personal property.
The tax treatment of "straddles" is governed by Section 1092 of the Code which,
in certain circumstances, overrides or modifies the provisions of Section 1256.
If a regulated investment company were treated as entering into
"straddles" by reason of its engaging in certain financial forward, futures or
option contracts, such straddles could be characterized as "mixed straddles" if
the futures, forwards, or options comprising a part of such straddles were
governed by Section 1256 of the Code. The regulated investment company may make
one or more elections with respect to "mixed straddles." Depending upon which
election is made, if any, the results with respect to the regulated investment
company may differ. Generally, to the extent the straddle rules apply to
positions established by the regulated investment company, losses realized by
the regulated investment company may be deferred to the extent of unrealized
gain in any offsetting positions. Moreover, as a result of the straddle and the
conversion transaction rules, short-term capital loss on straddle positions may
be recharacterized as long-term capital loss, and long-term capital gain may be
characterized as short-term capital gain or ordinary income.
If the Master Portfolio purchases shares in a "passive foreign
investment company" ("PFIC"), the Fund may be subject to federal income tax and
an interest charge imposed by the IRS upon certain distributions from the PFIC
or the Master Portfolio's disposition of its PFIC shares. If the Master
Portfolio invests in a PFIC, the Fund intends to make an available election to
mark-to-market its interest in PFIC shares (through the Master Portfolio).
Under the election, the Fund will be treated as recognizing at the end of each
taxable year the excess, if any, of the fair market value of its interest in
PFIC shares over its basis in such shares. Although such excess will be taxable
to the Fund as ordinary income notwithstanding any distributions by the PFIC,
the Fund will not be subject to federal income tax or the interest charge with
respect to its interest in the PFIC.
Foreign Shareholders. Under the Code, distributions of net
investment income by the Fund to a nonresident alien individual, nonresident
alien fiduciary of a trust or estate, foreign corporation, or foreign
partnership (a "foreign shareholder") will be subject to U.S. withholding tax
(at a rate of 30% or a lower treaty rate). Withholding will not apply if a
dividend paid by the
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<PAGE> 221
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.
Backup Withholding. The Company may be required to withhold,
subject to certain exemptions, at a rate of 31% ("backup withholding") on
dividends, capital gain distributions, and redemption proceeds (including
proceeds from exchanges) paid or credited to an individual Fund shareholder,
unless a shareholder certifies that the Taxpayer Identification Number ("TIN")
provided is correct and that the shareholder is not subject to backup
withholding, or the IRS notifies the Company that the shareholder's TIN is
incorrect or the shareholder is subject to backup withholding. Such tax
withheld does not constitute any additional tax imposed on the shareholder, and
may be claimed as a tax payment on the shareholder's federal income tax return.
An investor must provide a valid TIN upon opening or reopening an account.
Failure to furnish a valid TIN to the Company could subject the investor to
penalties imposed by the IRS.
Other Matters. Investors should be aware that the investments to
be made by the Master Portfolio may involve sophisticated tax rules that may
result in income or gain recognition by the Fund without corresponding current
cash receipts. Although the Master Portfolio will seek to avoid significant
noncash income, such noncash income could be recognized by the Master
Portfolio, in which case the Fund may distribute cash derived from other
sources in order to meet the minimum distribution requirements described above.
The foregoing discussion and the discussions in the Prospectus
address only some of the federal tax considerations generally affecting
investments in a Fund. Each investor is urged to consult his or her tax advisor
regarding specific questions as to federal, state or local taxes and foreign
taxes.
CAPITAL STOCK
The following information supplements and should be read in
conjunction with the section in the Prospectus entitled "Organization and
Capital Stock."
The Fund is comprised of two classes of shares, Class A and Class
D shares. With respect to matters that affect one class but not another,
shareholders vote as a class; for example, the approval of a Plan. Subject to
the foregoing, on any matter submitted to a vote of shareholders, all shares
then entitled to vote will be voted separately by portfolio unless otherwise
required by the Act, in which case all shares will be voted in the aggregate.
For example, a change in the Fund's fundamental investment policies would be
voted upon only by shareholders of the Fund and not shareholders of the
Company's other investment portfolios. Additionally, approval of an advisory
contract is a matter to be determined separately by the Fund. Approval by the
shareholders of one portfolio is effective as to that portfolio whether or
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<PAGE> 222
not sufficient votes are received from the shareholders of the other portfolios
to approve the proposal as to those portfolios. As used in the Prospectus and
in this Statement of Additional Information, the term "majority," when
referring to approvals to be obtained from shareholders of a class of the Fund,
means the vote of the lesser of (i) 67% of the shares of such class of the Fund
represented at a meeting if the holders of more than 50% of the outstanding
shares of such class of the Fund are present in person or by proxy, or (ii)
more than 50% of the outstanding shares of such class of the Fund. The term
"majority," when referring to the approvals to be obtained from shareholders of
the Company as a whole, means the vote of the lesser of (i) 67% of the
Company's shares represented at a meeting if the holders of more than 50% of
the Company's outstanding shares are present in person or by proxy, or (ii)
more than 50% of the Company's outstanding shares. Shareholders are entitled to
one vote for each full share held and fractional votes for fractional shares
held.
The Company may dispense with annual meetings of shareholders in
any year in which it is not required to elect directors under the Act. However,
the Company undertakes to hold a special meeting of its shareholders for the
purpose of voting on the question of removal of a director or directors if
requested in writing of the holders of at least 10% of the Company's
outstanding voting securities, and to assist in communicating with other
shareholders as required by Section 16(c) of the Act.
Each share of a class of the Fund represents an equal
proportional interest in the Fund with each other share of the same class and
is entitled to such dividends and distributions out of the income earned on the
assets belonging to the Fund as are declared in the discretion of the
Directors. In the event of the liquidation or dissolution of the Company,
shareholders of the Fund are entitled to receive the assets attributable to the
Fund that are available for distribution, and a distribution of any general
assets not attributable to the Fund that are available for distribution in such
manner and on such basis as the Directors in their sole discretion may
determine.
Shareholders are not entitled to any preemptive rights. All
shares, when issued, will be fully paid and non-assessable by the Company.
MIT is a business trust organized under the laws of Delaware. In
accordance with Delaware law and in connection with the tax treatment sought by
MIT, MIT's Declaration of Trust provides that its investors would be personally
responsible for Trust liabilities and obligations, but only to the extent MIT
property is insufficient to satisfy such liabilities and obligations. The
Declaration of Trust also provides that MIT shall maintain appropriate
insurance (e.g., fidelity bonding and errors and omissions insurance) for the
protection of MIT, its investors, Trustees, officers, employees and agents
covering possible tort and other liabilities, and that investors will be
indemnified to the extent they are held liable for a disproportionate share of
Trust obligations. Thus, the risk of an investor incurring financial loss on
account of investor liability is limited to circumstances in which both
inadequate insurance existed and MIT itself was unable to meet its obligations.
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The Declaration of Trust further provides that obligations of MIT
are not binding upon the Trustees individually but only upon the property of
MIT and that the Trustees will not be liable for any action or failure to act.
However, nothing in the Declaration of Trust protects a Trustee against any
liability to which the Trustee would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of the Trustee's office.
The interests in the Master Portfolio have substantially
identical voting and other rights as those rights enumerated above for Fund
shares. MIT also intends to dispense with annual meetings, but will hold a
special meeting and assist investor communications under the circumstances
described above with respect to the Company in accord with provisions under
Section 16(c) of the Act. Whenever the Fund is requested to vote on a matter
with respect to the Master Portfolio, the Fund will hold a meeting of Fund
shareholders and will cast its votes as instructed by such shareholders. In a
situation where the Fund does not receive instruction from certain of its
shareholders on how to vote the corresponding shares of the Master Portfolio,
the Fund will vote such shares in the same proportion as the shares for which
the Fund does receive voting instructions.
Set forth below is the name, address and share ownership of each
person known by the Company to have beneficial or record ownership of 5% or
more of a class of the Fund or 5% or more of the voting securities of the Fund
as a whole.
5% OWNERSHIP AS OF APRIL 1, 1997
<TABLE>
<CAPTION>
NAME AND CLASS; TYPE PERCENTAGE PERCENTAGE
FUND ADDRESS OF OWNERSHIP OF CLASS OF FUND
---- -------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
STRATEGIC Wells Fargo Bank Class A 40.16% 31.09%
GROWTH FUND For the Exclusive Benefit of Record Holder
CLASS A Customers
P.O. Box 63015
San Francisco, CA 94120
Merrill Lynch Pierce Class A 14.63% 11.33%
Fenner & Smith, Inc. Record Holder
Attn: Fund Administration
4800 Deer Lake East, 3rd Floor
Jacksonville, FL 32246
STRATEGIC Merrill Lynch Pierce Class D 42.78% 9.65%
GROWTH FUND Fenner & Smith, Inc. Record Holder
CLASS D Attn: Fund Administration
4800 Deer Lake East, 3rd Floor
Jacksonville, FL 32246
</TABLE>
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For purposes of the 1940 Act, any person who owns directly or
through one or more controlled companies more than 25% of the voting securities
of a company is presumed to "control" such company. Accordingly, to the extent
that a shareholder identified in the foregoing table is identified as the
beneficial holder of more than 25% of a class (or Fund), or is identified as
the holder of record of more than 25% of a class (or Fund) and has voting
and/or investment powers, it may be presumed to control such class (or Fund).
OTHER
The Registration Statements of MIT and the Company, including the
Fund's Prospectus, the SAI and the exhibits filed therewith, may be examined at
the office of the Commission in Washington, D.C. Statements contained in the
Prospectus or the SAI as to the contents of any contract or other document
referred to herein or in the Prospectus are not necessarily complete, and, in
each instance, reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP has been selected as the independent
auditors for the Company and MIT. KPMG Peat Marwick LLP provides audit
services, tax return preparation and assistance and consultation in connection
with review of certain Securities & Exchange Commission filings. KPMG Peat
Marwick LLP's address is Three Embarcadero Center, San Francisco, California
94111.
FINANCIAL INFORMATION
The portfolio of investments, audited financial statements and
independent auditors' reports for the Fund and Master Portfolio for the year
ended December 31, 1996 are hereby incorporated by reference to the Company's
Annual Report as filed with the SEC on March 11, 1997. The portfolio of
investments, audited financial statements and independent auditors' report are
attached to all SAIs delivered to current or prospective shareholders.
28
<PAGE> 225
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 lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Moody's also applies numerical modifiers in its rating
system: 1, 2 and 3 in each rating category from "Aa" through "Baa" in its rating
system. The modifier 1 indicates that the security ranks in the higher end of
its category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end.
S&P: The four highest ratings for corporate and municipal bonds
are "AAA," "AA," "A" and "BBB." A Bond rated "AAA" has the "highest rating"
assigned by S&P and has "an extremely strong capacity" to pay interest and repay
principal. Bonds rated "AA" have a "very strong capacity" to pay interest and
repay principal and "differ from the highest rated obligations only in small
degree." Bonds rated "A" have a "strong capacity" to pay interest and repay
principal, but are "somewhat more susceptible" to adverse effects of changes in
economic conditions or other circumstances than bonds in higher rated
categories. Bonds rated "BBB" are regarded as having "adequate protection
parameters" to pay interest and repay principal, but changes in economic
conditions or other circumstances are more likely to lead to a "weakened
capacity" to make such repayments. The ratings from "AA" to "BBB" may be
modified by the addition of a plus or minus sign to show relative standing
within the category.
Corporate and 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> 226
S&P: The two highest ratings for corporate, state and municipal 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.
Corporate and Municipal Commercial Paper
Moody's: The highest rating for corporate, state and municipal
commercial paper is "P-1" (Prime-1). Issuers rated "P-1" have a "superior
ability for repayment of senior short-term debt obligations." Issuers rated
"P-2" (Prime-2) "have a strong capacity for repayment of senior short-term debt
obligations," but earnings trends, while sound, will be subject to more
variation.
S&P: The "A-1" rating for corporate, state and municipal commercial
paper is rated "in the highest category" by S&P and "the obligor's capacity to
meet its financial commitment on the obligation is strong." The "A-1+" rating
indicates that said capacity is "extremely strong." The A-2 rating indicates
that said capacity is "satisfactory," but that corporate and municipal
commercial paper rated "A-2" is "more susceptible" to the adverse effects of
changes in economic conditions or other circumstances than commercial paper
rated in higher rating categories.
A-2
<PAGE> 227
OVERLAND EXPRESS FUNDS, INC.
Telephone: (800) 552-9612
STATEMENT OF ADDITIONAL INFORMATION
Dated May 1, 1997
SHORT-TERM MUNICIPAL INCOME FUND
SHORT-TERM GOVERNMENT-CORPORATE INCOME FUND
------------------------------
Overland Express Funds, Inc. (the "Company") is an open-end series
investment company. This Statement of Additional Information ("SAI") contains
information about two of the Company's funds -- the SHORT-TERM MUNICIPAL INCOME
FUND and the SHORT-TERM GOVERNMENT-CORPORATE INCOME FUND (the "Funds"). The
investment objective of each Fund is described in its Prospectus under
"Investment Objectives and Policies."
Each Fund seeks to achieve its investment objective by investing
all of its assets in a separate Master Portfolio (each, a "Master Portfolio"
and collectively, the "Master Portfolios") of Master Investment Trust (the
"Trust") with the same investment objective as the Fund bearing the
corresponding name. Each Fund may withdraw its investment in the corresponding
Master Portfolio at any time, if the Board of Directors of the Company
determines that such action is in the best interests of the Fund and its
shareholders. Upon such withdrawal, the Company's Board would consider
alternative investments, including investing all of a Fund's assets in another
investment company with the same investment objective as the Fund or hiring an
investment adviser to manage the Fund's assets in accordance with the
investment policies and restrictions described in the Prospectus and below with
respect to the Trust.
This SAI is not a Prospectus and should be read in conjunction
with the Funds' Prospectus, dated May 1, 1997. All terms used in this SAI that
are defined in the Prospectus have the meanings as assigned in the Prospectus.
A copy of the Prospectus may be obtained without charge by writing Stephens
Inc. ("Stephens"), the Company's sponsor, co--administrator and distributor, at
111 Center Street, Little Rock, Arkansas 72201, or calling the Transfer Agent
at the telephone number indicated above.
------------------------------
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<PAGE> 228
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . 3
Additional Permitted Investment Activities . . . . . . . . . . . . . . . . 5
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Distribution Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Administrative Servicing Plans . . . . . . . . . . . . . . . . . . . . . . 14
Performance Calculations . . . . . . . . . . . . . . . . . . . . . . . . . 15
Determination of Net Asset Value . . . . . . . . . . . . . . . . . . . . . 19
Additional Purchase and Redemption Information . . . . . . . . . . . . . . 20
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Fund Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Federal Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
</TABLE>
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<PAGE> 229
INVESTMENT RESTRICTIONS
The following information supplements and should be read in
conjunction with the section in the Prospectus entitled "Investment Objectives
and Policies."
Fundamental Investment Policies. The Funds and the Master
Portfolios are subject to the following investment restrictions, all of which
are fundamental policies. These restrictions cannot be changed, as to a Fund
or a Master Portfolio, without approval by the holders of a majority (as
defined in the 1940 Act) of the outstanding voting securities of such Fund or
such Master Portfolio, as the case may be. Whenever a Fund is requested to
vote on a fundamental policy of the Master Portfolio in which it invests, such
Fund will hold a meeting of Fund shareholders and will cast its votes as
instructed by such Fund's shareholders.
The Funds and the Master Portfolios 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 a Fund's or a Master Portfolio's
investments in that industry would exceed 25% of the current value of the
Fund's or the Master Portfolio's total assets, provided that there is no
limitation with respect to: (1) investments in securities issued or guaranteed
by the U.S. Government, its agencies or instrumentalities; and (2) 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 issuers); and provided further that there is no limitation
with respect to investments by the Fund in securities issued by registered
investment companies.
(2) purchase or sell real estate (other than securities secured
by real estate or interests therein or securities issued by companies that
invest in real estate or interests therein), commodities or commodity
contracts, or interests in oil, gas, or other mineral exploration or
development programs.
(3) purchase securities on margin (except for short-term
credits necessary for the clearance of transactions) or make short sales of
securities.
(4) underwrite securities of other issuers, except to the
extent that the purchase of permitted investments directly from the issuer
thereof or from an underwriter for an issuer and the later disposition of such
securities in accordance with a Fund's or a Master Portfolio's investment
program may be deemed to be an underwriting.
(5) make investments for the purpose of exercising control or
management.
(6) purchase puts, calls, straddles, spreads, or any
combination thereof, except that a Fund or a Master Portfolio may purchase
securities with put rights in order to maintain liquidity.
3
<PAGE> 230
(7) issue senior securities, except that a Fund or a Master
Portfolio may borrow from banks up to 10% of the current value of its net
assets for temporary purposes only in order to meet redemptions, and these
borrowings may be secured by the pledge of up to 10% of the current value of
its net assets (but investments may not be purchased by the Fund or the Master
Portfolio while any such outstanding borrowing in excess of 5% of its net
assets exists).
(8) purchase securities of any issuer (except securities issued
or guaranteed by the U.S. Government, its agencies and instrumentalities) if,
as a result, with respect to 75% of the total assets, more than 5% of the value
of a Fund's or a Master Portfolio's total assets would be invested in the
securities of any one issuer or the Fund or the Master Portfolio would own more
than 10% of the outstanding voting securities of such issuer.
(9) lend their portfolio securities having a value that exceeds
50% of the current value of their total assets, provided that, for purposes of
this restriction, the purchase of fixed time deposits, repurchase agreements,
commercial paper and other types of debt instruments commonly sold in a public
or private offering will not be subject to this restriction. The Funds and the
Master Portfolios do not intend to make loans of their portfolio securities
during the coming year.
Non-Fundamental Investment Policies. The Funds and the Master
Portfolios are subject to the following non-fundamental policies. These
restrictions may be changed by vote of a majority of the Directors of the
Company or the Trustees of the Trust, as the case may be, at any time.
The Funds and the Master Portfolios may not:
(1) invest more than 5% of their net assets at the time of
purchase in warrants, or more than 2% of their net assets in warrants which are
not listed on the New York or American Stock Exchange.
(2) purchase or retain securities of any issuer if the
officers, directors or trustees of the Company, the 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.
(3) invest in securities of issuers who, with their
predecessors, have been in existence less than three years, unless the
securities are guaranteed or insured by the U.S. Government, or a state or
municipality, or an agency or instrumentality thereof, if, by reason thereof,
the value of a Fund's or a Master Portfolio's aggregate investment in such
securities will exceed 5% of its total assets.
(4) write, purchase or sell options.
(5) invest more than 15% of the current value of their net
assets in repurchase agreements maturing in more than seven days, fixed time
deposits that are subject to withdrawal penalties and that have maturities of
more than seven days and other illiquid securities.
4
<PAGE> 231
(6) purchase, hold or deal in real estate limited partnerships.
(7) engage in any short sales other than short sales against
the box.
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
The following information supplements and should be read in
conjunction with the sections in the Prospectus entitled "Investment Objectives
and Policies" and "Investment Activities."
When-Issued Securities. The Master Portfolios may purchase
securities on a when-issued basis, in which case delivery and payment normally
take place within 120 days after the date of the commitment to purchase.
However, the Short-Term Government-Corporate Income Master Portfolio does not
intend to invest more than 5% of its net assets in when-issued securities
during the coming year. The Master Portfolio makes commitments to purchase
securities on a when-issued basis only with the intention of actually
acquiring the securities, but may sell them before the settlement date if it is
deemed advisable. When-issued securities are subject to market fluctuation,
and no income accrues to the purchaser during the period prior to issuance.
The purchase price and the interest rate that will be received on debt
securities are fixed at the time the purchaser enters into the commitment.
Purchasing a security on a when-issued basis can involve a risk that the market
price at the time of delivery may be lower than the agreed-upon purchase price,
in which case there could be an unrealized loss at the time of delivery.
The Master Portfolios have established segregated accounts in
which each Master Portfolio maintains liquid assets in an amount at least equal
in value to each Master Portfolio's commitments to purchase when-issued
securities. If the value of these assets declines, the Master Portfolios will
place additional liquid assets in the account on a daily basis so that the
value of the assets in the account is equal to the amount of such commitments.
Municipal Bonds. As discussed in the Prospectus, the two
principal classifications of municipal bonds in which the Short-Term Municipal
Income Master Portfolio may invest 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 public 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. 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,
5
<PAGE> 232
of course, other variations in the types of municipal bonds, both within a
particular classification and between classifications, depending on numerous
factors. Subject to its investment objective and policies, the Master
Portfolio is not limited with respect to which category of municipal bond it
may acquire. Some or all of these bonds may be considered "private activity
bonds" for federal income tax purposes.
Municipal Notes. The Short-Term Municipal Income Master Portfolio
may invest in 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. An uncertainty in a municipal issuer's capacity to raise
taxes as a result of such things as a decline in its tax base or a rise in
delinquencies could adversely affect the issuer's ability to meet its
obligations on outstanding TANs. Furthermore, some municipal issuers mix
various tax proceeds into a general fund that is used to meet obligations other
than those of the outstanding TANs. Use of such a general fund to meet various
obligations could affect the likelihood of making payments on TANs.
BANs. The ability of a municipal issuer to meet its obligations
on its BANs is primarily dependent on the issuer's adequate access to the
longer term municipal bond market and the likelihood that the proceeds of such
bond sales will be used to pay the principal of, and interest on, BANs.
RANs. A decline in the receipt of certain revenues, such as
anticipated revenues from another level of government, could adversely affect
an issuer's ability to meet its obligations on outstanding RANs. In addition,
the possibility that the revenues would, when received, be used to meet other
obligations could affect the ability of the issuer to pay the principal of, and
interest on, RANs.
The values of outstanding municipal securities will vary as a
result of changing market evaluations of the ability of their issuers to meet
the interest and principal payments (i.e., credit risk). Such values will also
change in response to changes in the interest rates payable on new issues of
municipal securities (i.e., market risk). Should such interest rates rise, the
value of outstanding securities, including those held by the Short-Term
Municipal Income Master Portfolio, will generally decline and (if purchased at
par value) will sell at a discount. If interest rates fall, the values of
outstanding securities will generally increase and (if purchased at par value)
will sell at a premium. Changes in the value of municipal securities held by
the Master Portfolio arising from these or other factors will cause changes in
the net asset value per share of the Portfolio.
Unrated Investments. Each Fund may purchase instruments that are
not rated if, in the opinion of Wells Fargo Bank as Investment Adviser, such
obligations are of comparable quality to other high-quality investments that
are permitted to be purchased by such Fund. After purchase by any of the
Funds, a security may cease to be rated or its rating may be reduced below the
minimum required for purchase by such Fund. Neither event requires an
immediate sale of such
6
<PAGE> 233
security by such Fund. To the extent the ratings given by Moody's or S&P may
change as a result of changes in such organizations or their rating systems,
the Funds will attempt to use comparable ratings as standards for investments
in accordance with the investment policies contained in their Prospectuses and
in this SAI. The ratings of Moody's and S&P are more fully described in the
Appendix to this SAI.
MANAGEMENT
The following information supplements and should be read in
conjunction with the section in the Prospectus entitled "Management of the
Funds." The principal occupations during the past five years of the Directors
and principal executive Officer of the Company are listed below. The address
of each, unless otherwise indicated, is 111 Center Street, Little Rock,
Arkansas 72201. Directors deemed to be "interested persons" of the Company
for purposes of the 1940 Act are indicated by an asterisk.
7
<PAGE> 234
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME, ADDRESS AND AGE POSITION DURING PAST 5 YEARS
- --------------------- -------------------- -------------------------------
<S> <C> <C>
Jack S. Euphrat, 74 Director Private Investor.
415 Walsh Road
Atherton, CA 94207
*R. Greg Feltus, 45 Director, Chairman and Senior Vice President of Stephens;
President Manager of Financial Services Group;
President of Stephens Insurance
Services Inc.; Senior Vice President
of Stephens Sports Management Inc.;
and President of Investor Brokerage
Insurance Inc.
Thomas S. Goho, 54 Director T.B. Rose Faculty Fellow Business,
321 Beechcliff Court Wake Forest University Calloway
Winston-Salem, NC 27104 School of Business and Accountancy;
Associate Professor of Finance of the
School of Business and Accounting at
Wake Forest University since 1983.
Joseph N. Hankin, 55 Director President Westchester Community College
75 Grasslands Road since 1971; President of Hartford Junior
Valhalla, NY 10595 College from 1967 to 1971; Adjunct
Professor of Columbia University
Teachers College since 1976.
*W. Rodney Hughes, 70 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Robert M. Joses, 78 Director Private Investor.
47 Dowitcher Way
San Rafael, CA 94901
*J. Tucker Morse, 52 Director Private Investor; Real Estate
10 Legrae Street Developer; Chairman of Renaissance
Charleston, SC 29401 Properties Ltd.; President of Morse
Investment Corporation; and
Co-Managing Partner of Main Street
Ventures.
Richard H. Blank, Jr., 40 Chief Operating Associate of Financial Services Group
Officer, of Stephens; Director of Stephens
Secretary and Treasurer Sports Management Inc.; and Director
of Capo Inc.
</TABLE>
8
<PAGE> 235
COMPENSATION TABLE
For the Fiscal Year Ended December 31, 1996
<TABLE>
<CAPTION>
Aggregate Compensation Total Compensation from
Name and Position from Registrant Registrant and Fund Complex
----------------- --------------- ---------------------------
<S> <C> <C>
Jack S. Euphrat $10,500 $31,500
Director
*R. Greg Feltus 0 0
Director
Thomas S. Goho 10,500 31,500
Director
*Zoe Ann Hines 0 0
Director
(resigned September 6, 1996)
Joseph N. Hankin 500 1,500
Director
*W. Rodney Hughes 8,750 26,250
Director
Robert M. Joses 10,500 31,500
Director
*J. Tucker Morse 8,750 26,250
Director
</TABLE>
Directors of the Company are compensated annually by the Company
and by all the registrants in each fund complex they serve as indicated above
and also are reimbursed for all out-of-pocket expenses relating to attendance
at board meetings. The Company, Stagecoach Funds, Inc., Stagecoach Trust, Life
& Annuity Trust and Master Investment Trust are considered to be members of the
same fund complex as such term is defined in Form N-1A under the 1940 Act (the
"Wells Fargo Fund Complex"). MasterWorks Funds Inc., Master Investment
Portfolio, and Managed Series Investment Trust together form a separate fund
complex (the "BGFA Fund Complex"). Each of the Directors and Officers of the
Company serves in the identical capacity as directors and officers or as
trustees and/or officers of each registered open-end management investment
company in both the Wells Fargo and BGFA Fund Complexes, except for Joseph N.
Hankin, who only serves the aforementioned members of the Wells Fargo Fund
Complex, and Zoe Ann Hines who, after September 6, 1996, only serves the
aforementioned members of the BGFA Fund Complex. The Directors are compensated
by other companies and trusts within a fund complex for their services as
directors/trustees to such companies and trusts. Currently the Directors do
not receive any retirement benefits or deferred compensation from the Company
or any other member of each fund complex.
9
<PAGE> 236
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.
MASTER/FEEDER STRUCTURE. Each Fund seeks to achieve its
investment objective by investing all of its assets in the corresponding Master
Portfolio of MIT. The Funds and other entities investing in a Master Portfolio
are each liable for all obligations of the Master Portfolio. However, the risk
of a Fund incurring financial loss on account of such liability is limited to
circumstances in which both inadequate insurance existed and MIT itself is
unable to meet its obligations. Accordingly, the Company's Board of Directors
believes that neither a Fund nor its shareholders will be adversely affected by
investing Fund assets in a Master Portfolio. However, if a mutual fund or other
investor withdraws its investment from a Master Portfolio, the economic
efficiencies (e.g., spreading fixed expenses among a larger asset base) that
the Company's Board believes may be available through investment in the Master
Portfolio may not be fully achieved. In addition, given the relative novelty of
the master/feeder structure, accounting or operational difficulties, although
unlikely, could arise. See "Management of the Funds" in the Prospectus for
additional description of each Fund's and Master Portfolio's expenses and
management.
Each Fund may withdraw its investment in the corresponding Master
Portfolio only if the Company's Board of Directors determines that such action
is in the best interests of the Fund and its shareholders. Upon such
withdrawal, the Company's Board would consider alternative investments,
including investing all of a Fund's assets in another investment company with
the same investment objective as the Fund or hiring an investment adviser to
manage the Fund's assets in accordance with the investment policies described
below with respect to the Master Portfolio.
The investment objective and other fundamental policies of a
Master Portfolio cannot be changed without approval by the holders of a
majority (as defined in the 1940 Act) of the Master Portfolio's outstanding
interests. See "Investment Objectives and Policies" in the Prospectus.
Whenever a Fund, as an interestholder of a Master Portfolio, is requested to
vote on any matter submitted to interestholders of the Master Portfolio, the
Fund will hold a meeting of its shareholders to consider such matters. A Fund
will cast its votes in proportion to the votes received from its shareholders.
Shares for which a Fund receives no voting instructions will be voted in the
same proportion as the votes received from the other Fund shareholders.
Certain policies of a Master Portfolio which are non-fundamental
may be changed by vote of a majority of MIT's Trustees without interestholder
approval. If a Master Portfolio's investment objective or fundamental or non-
fundamental policies are changed, the corresponding Fund may elect to change
its objective or policies to correspond to those of the Master Portfolio. A
Fund may also elect to redeem its interests in a Master Portfolio and either
seek a new investment company with a matching objective in which to invest or
retain its own investment adviser to manage the Fund's portfolio in accordance
with its objective. In the latter case, the Fund's inability to find a
substitute investment company in which to invest or equivalent management
services could adversely affect shareholders' investments in the Fund. The
Funds will provide shareholders with 30 days' written notice prior to the
implementation of any change in the investment objective of the Funds or the
Master Portfolios, to the extent possible. See
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<PAGE> 237
"Investment Objectives and Policies" in the Prospectus for additional
information regarding each Fund's and Master Portfolio's investment objectives
and policies.
INVESTMENT ADVISER. The Funds have not engaged an investment
adviser. The Master Portfolios are advised by Wells Fargo Bank. Wells Fargo
Bank furnishes to the Master Portfolio investment guidance and policy direction
in connection with the daily portfolio management of the Master Portfolio.
Wells Fargo Bank furnishes to the Board of Trustees of the Trust periodic
reports on the investment strategy and performance of the Master Portfolios.
For its services as investment adviser to the Short-Term Municipal Income and
the Short-Term Government-Corporate Income Master Portfolios, Wells Fargo Bank
is entitled to receive a monthly fee at the annual rate of 0.50% of each Master
Portfolio's average daily net assets.
For the period ended December 31, 1994 and the years ended
December 31, 1995 and 1996, the Master Portfolios paid to Wells Fargo Bank the
following advisory fees and Wells Fargo Bank waived the indicated amounts:
<TABLE>
<CAPTION>
1994* 1995 1996
FEES PAID FEES WAIVED FEES PAID FEES WAIVED FEES PAID FEES WAIVED
--------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Short-Term $0 $7,879 $0 $62,512 $0 $104,623
Municipal Income
Short-Term Gov't- $0 $131 $0 $11,944 $0 $55,285
Corporate Income
</TABLE>
- ------------------
* The Short-Term Municipal Income and Short-Term Government-Corporate Income
Master
Portfolios commenced operations on June 3, 1994 and September 19, 1994,
respectively.
Wells Fargo Bank has agreed to provide to the Master Portfolios,
among other things, money market 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 investments of the Master Portfolios. Each Fund, and
indirectly each Fund's shareholders, would bear a pro rata portion of any
advisory fees paid by its corresponding Master Portfolio, respectively.
Each Advisory Contract will continue in effect for more than two
years from the effective date provided the continuance is approved annually (i)
by the holders of a majority of the respective Master Portfolio's outstanding
voting securities or by the Trust's Board of Trustees and (ii) by a majority of
the Trustees of the Trust who are not parties to the Advisory Contracts or
"interested persons" (as defined in the 1940 Act) of any such party. The
Advisory Contracts may be terminated on 60 days' written notice by either party
and will terminate automatically if assigned.
ADMINISTRATOR AND CO-ADMINISTRATOR. The Company has retained
Wells Fargo Bank as administrator and Stephens as co-administrator on behalf of
the Funds. In addition, MIT has retained Wells Fargo Bank as administrator and
Stephens as co-administrator on behalf of the Master Portfolio. Under the
respective Administration and Co-Administration Agreements, Wells Fargo Bank
and Stephens provide as administration services, among other things: (i)
general
11
<PAGE> 238
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), 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. Wells Fargo Bank and Stephens also
furnish office space and certain facilities required for conducting the Fund's
and the Master Portfolio's business together with ordinary clerical and
bookkeeping services. Stephens pays the compensation of MIT's and the
Company's Directors/Trustees, Officers and employees who are affiliated with
Stephens. The administrator and co-administrator are entitled to receive a
monthly fee at the annual rate of 0.04% and 0.02%, respectively, of the Fund's
average daily net assets.
For the periods shown, Stephens served as sole administrator to
the Funds and Master Portfolios and provided the Fund and Master Portfolio with
essentially the same services described above. Stephens was entitled to
receive a monthly fee from each Fund at the annual rate of 0.15% of the Fund's
average daily net assets up to $200 million and 0.10% in excess of $200
million. For the period ended December 31, 1994, and the years ended December
31, 1995 and 1996, the Fund paid administration fees to Stephens as follows:
<TABLE>
<CAPTION>
FUND 1994* 1995 1996
---- ----- ---- ----
<S> <C> <C> <C>
Short-Term Municipal Income Fund $2,497 $19,436 $19,941
Short-Term Government-Corporate $39 $3,560 $10,073
Income Fund
</TABLE>
- --------------------
* The Short-Term Municipal Income Fund and the Short-Term Government-Corporate
Income Fund commenced operations on June 3, 1994 and September 19, 1994,
respectively.
CUSTODIAN. Wells Fargo Bank has been retained to act as Custodian
for the Funds and the Master Portfolios. The Custodian, among other things,
maintains a custody account or accounts in the name of each Fund and each
Master Portfolio, receives and delivers all assets for each Fund and each
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
each Fund and each Master Portfolio, and pays all expenses of each Fund and
each Master Portfolio. For its services as Custodian, Wells Fargo Bank
receives an asset-based fee and transaction charges from each Master Portfolio.
For the year ended December 31, 1996, the Funds did not pay any custody fees.
TRANSFER AND DIVIDEND DISBURSING AGENT. Wells Fargo Bank has been
retained to act as Transfer and Dividend Disbursing Agent for the Funds and the
Master Portfolios. For its services as transfer and dividend disbursing agent
for the Funds, Wells Fargo Bank is entitled to receive monthly payments at the
annual rate of 0.14% of each Fund's average daily net assets. Under the prior
transfer agency agreement for the Funds, Wells Fargo Bank was entitled to
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<PAGE> 239
receive a base fee and per-account fees from each Fund. For the year ended
December 31, 1996, the Funds did not pay any transfer and dividend disbursing
agency fees.
SPONSOR AND DISTRIBUTOR. As discussed in each Fund's Prospectus
under the heading "Management of the Funds," Stephens serves as the Funds'
sponsor and distributor.
UNDERWRITING COMMISSIONS. For the year ended December 31, 1994,
the aggregate dollar amount of underwriting commissions paid to Stephens on
sales/redemptions of the Company's shares was $1,408,759 and Stephens retained
$1,351,388 of such commissions. WFSI and its registered representatives
received $57,371 of such commissions.
For the year ended December 31, 1995, the aggregate dollar amount
of underwriting commissions paid to Stephens on sales/redemptions of the
Company's shares was $1,478,541. Stephens retained $1,447,175 of such
commissions. WFSI and its registered representatives retained $31,366 of such
commissions.
For the year ended December 31, 1996, the aggregate dollar amount
of underwriting commissions paid to Stephens on sales/redemptions of the
Company's shares was $1,777,985. Stephens retained $195,639 of such
commissions. WFSI and its registered representatives retained $255,147 and
$1,327,199 respectively of such commissions.
DISTRIBUTION PLANS
As indicated in the Prospectus of the Funds, each Fund has adopted
a Plan under Section 12(b) of the 1940 Act and Rule 12b-1 thereunder (the
"Rule").
Pursuant to the Plans, each Fund may defray all or part of the
actual cost of preparing and printing prospectuses and other promotional
materials and of providing such prospectuses and other promotional materials to
prospective shareholders of the Fund and may compensate personnel of the
distributor or reimburse the distributor for compensation paid to selling agents
for distribution-related or sales support services and may pay for any other
activities primarily intended to result in the sale of shares of the Fund.
Payments also may be used to compensate or reimburse servicing agents for
shareholder liaison services provided by entities that are dealers of record or
have a servicing relationship with the beneficial owners of shares of the Funds
under a servicing agreement in substantially the form approved by the Board of
Directors. Total payments under the Plans may not exceed 0.25% of the average
daily net assets of each Fund on an annual basis.
Each of the Plans will continue in effect from year to year if
such continuance is approved by a majority vote of both the Directors of the
Company and the Qualified Directors. Any Distribution Agreement related to the
Plans also must be approved by such vote of the Directors and the Qualified
Directors. The Distribution Agreement terminates automatically if assigned,
and may be terminated at any time, without payment of any penalty, by a vote of
a majority of the outstanding voting securities of the Fund involved. The
Plans may not be
13
<PAGE> 240
amended to increase materially the amounts payable thereunder without the
approval of a majority of the outstanding voting securities of the Fund
involved, and no material amendments to the Plans may be made except by a
majority of both the Directors of the Company and the Qualified Directors.
Each of the Plans requires that the Treasurer of the Company shall
provide to the Directors, and the Directors shall review, at least quarterly, a
written report of the amounts expended (and purposes therefor) under the Plans.
The Rule also requires that the selection and nomination of Directors who are
not "interested persons" of the Company be made by such disinterested
Directors.
For the year ended December 31, 1996, the Funds' distributor
received the following amounts of 12b-1 fees for the specified purposes set
forth below under each Fund's Plan.
<TABLE>
<CAPTION>
PRINTING &
MAILING MARKETING COMPENSATION
FUND TOTAL PROSPECTUS BROCHURES TO UNDERWRITERS
---- ----- ---------- --------- ---------------
<S> <C> <C> <C> <C>
Short-Term Government
Corporate Income $27,719 N/A N/A $27,719
Short-Term Municipal Income
$54,276 N/A N/A $54,276
</TABLE>
For the year ended December 31, 1996, WFSI and its registered
representatives did not receive any compensation under either Fund's Plans.
ADMINISTRATIVE SERVICING PLAN
The Company has adopted a Shareholder Administrative Servicing Plan
(the "Administrative Servicing Plan") with respect to each Fund. Pursuant to
the Administrative Servicing Plan, the Funds may enter into administrative
servicing agreements with administrative servicing agents (which may include
Wells Fargo Bank and its affiliates) who are dealers/holders of record, or that
otherwise have a servicing relationship with the beneficial owners of the
shares. Administrative servicing agents agree to perform administrative
shareholders services which may include, among other things, maintaining an
omnibus account with the Funds, aggregating and transmitting purchase, exchange
and redemption orders to a Fund's Transfer Agent, answering customer inquiries
regarding a shareholder's account in a Fund, and providing other services the
Company or a customer may reasonably request. Administrative servicing agents
are entitled to a fee which will not exceed 0.25%, on an annualized basis, of
the average daily net assets of the shares represented by the shares owned of
record or beneficially by the customers of the administrative servicing agent
during the period for which payment is being made. In no case shall shares be
sold pursuant to a Fund's Rule 12b-1 Plan while being sold pursuant to its
Administrative Servicing Plan.
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<PAGE> 241
PERFORMANCE CALCULATIONS
TOTAL RETURN. As indicated in the Funds' Prospectus, the Funds
may advertise certain total return information computed in the manner described
in the Prospectus. As and to the extent required by the SEC, an average annual
compound rate of return ("T") is computed by using the redeemable value at the
end of a specified period ("ERV") of a hypothetical initial investment in a
Fund ("P") over a period of years ("n") according to the following formula:
P(1+T)n = ERV. In addition, as indicated in the Prospectus, the Funds also may
at times, calculate total return based on net asset value per share (rather
than the public offering price), in which case the figures would not reflect
the effect of any sales charges that would have been paid by an investor, or
might be based on the assumption that a sales charge other than the maximum
sales charge (reflecting a Volume Discount) was assessed, provided that total
return data derived pursuant to the calculation described above also are
presented.
In addition to the above performance information, the Funds may
also advertise the cumulative total return of a Fund for one-month,
three-month, six-month and year-to-date periods. The cumulative total return
for such periods is based on the overall percentage change in value of a
hypothetical investment in a Fund, assuming all Fund dividends and capital gain
distributions are reinvested, without reflecting the effect of any sales charge
that would be paid by an investor, and is not annualized.
<TABLE>
<CAPTION>
Average Annual Total Return for the Year Ended December 31, 1996
----------------------------------------------------------------
Inception(1) Inception One Year One Year
With Sales No Sales With Sales No Sales
Fund Charge(2) Charge Charge(2) Charge -
---- ------ ------ ------ ------
<S> <C> <C> <C> <C>
ST Muni. Income 2.61% 3.79% 0.59% 3.62%
ST Gov-Corp.
Income 4.36% 5.72% 1.59% 4.83%
</TABLE>
- ---------------------------
(1) The Short-Term Government-Corporate Income Fund and Short-Term Municipal
Income Fund commenced operations on September 19, 1994 and June 3, 1994,
respectively.
(2) The term "Sales Charge" reflects a front-end sales load of 3.00%.
YIELD. As indicated in the Funds' Prospectus, the Funds may also
advertise certain yield information. As and to the extent required by the SEC,
yield for each Fund's shares is calculated based on a 30-day (or one-month)
period, computed by dividing the net investment income per share earned during
the period by the maximum offering price per share of the Fund on the last day
of the period, according to the following formula: YIELD = 2[((a-b divided by
cd)+1)6-1], where a = dividends and interest earned during the period;
b = expenses accrued for the period (net of reimbursements); c = the average
daily number of shares of the Fund outstanding during the period that were
entitled to receive dividends; and d = the maximum offering price per share of
the Fund on the last day of the period. The net investment income of a Fund
includes actual interest income, plus or minus amortized purchase discount
(which may include original issue discount) or premium, less accrued expenses.
Realized and unrealized gains and losses on portfolio securities are not
included in net investment income. For purposes of sales literature, yield also
may be calculated on the basis of the net asset value per share rather than the
public
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<PAGE> 242
offering price, or based on the assumption that a sales charge other than the
maximum sales charge (reflecting a Volume Discount) was assessed, provided that
the yield data derived pursuant to the calculation described above also are
presented.
Yield Calculations for the Applicable Period Ended December 31, 1996(1)
<TABLE>
<CAPTION>
Thirty Day Yield Thirty-Day Tax-Equivalent Yield(2)
---------------- -------------------------------
Fund With Without With Without
- ---- Sales Charge Sales Charge Sales Charge Sales Charge
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Short-Term Municipal
Income 3.77% 3.89% 6.24% 6.44%
Short-Term Govt.-
Corporate Income 5.13% 5.29% N/A N/A
</TABLE>
- ----------------------
(1) Each Fund has a 3.00% front-end sales charge.
(2) Assumes the 1996 maximum rate of 39.6%
The tax-equivalent yield for the Short-Term Municipal Income Fund
is computed by dividing that portion of the yield which is tax-exempt by one
minus a stated income tax rate and adding the product to that portion, if any,
of the yield of the Fund that is not tax-exempt. This yield figure may not
reflect the applicability of the alternative minimum tax.
The yield for the Funds' shares will fluctuate from time to time,
unlike fixed-rate bank deposits or other investments that pay a fixed yield for
a stated period of time. Past yields are based on historical data and do not
provide a basis for determining future yields, since yield is a function of
portfolio quality, composition, maturity and market conditions as well as the
expenses allocated to the Funds.
In addition, investors should recognize that changes in the net
asset values of shares of the Funds will affect the yield of the Funds' shares
for any specified period, and such changes should be considered together with
the Funds' yield in ascertaining the Funds' total return to shareholders for
the period. Yield information for the Funds' shares may be useful in reviewing
the performance of the Funds' shares and for providing a basis for comparison
with investment alternatives. The yield of the Funds' shares, however, may not
be comparable to the yields from investment alternatives because of differences
in the foregoing variables and differences in the methods used to value
portfolio securities, compute expenses and calculate yield.
From time to time and only to the extent the comparison is
appropriate for the Funds, the Company may quote the performance or
price-earning ratio of the Funds' shares in advertising and other types of
literature as compared to the performance of the Lehman Brothers Municipal Bond
Index, 1-Year Treasury Bill Rate, S&P Index, the Dow Jones Industrial Average,
the Lehman Brothers 20+ Treasury Index, the Lehman Brothers 5-7 Year Treasury
Index, IBC/Donoghue's Money Fund Averages, Real Estate Investment Averages (as
reported by the National Association of Real Estate Investment Trusts), Gold
Investment Averages (provided by the World Gold Council), Bank Averages (which
is calculated from figures supplied by the U.S. League of Savings Institutions
based on effective annual rates of interest on both passbook and
16
<PAGE> 243
certificate accounts), average annualized certificate of deposit rates (from
the Federal Reserve G-13 Statistical Releases or the Bank Rate Monitor), the
Salomon One Year Treasury Benchmark Index, the Consumer Price Index (as
published by the U.S. Bureau of Labor Statistics), Ten Year U.S. Government
Bond Average, S&P's Corporate Bond Yield Averages, Schabacter Investment
Management Indices, Salomon Brothers High Grade Bond Index, Lehman Brothers
Long-Term High Quality Government/Corporate Bond Index, other managed or
unmanaged indices or performance data of bonds, stocks or government securities
(including data provided by Ibbotson Associates), or by other services,
companies, publications or persons who monitor mutual funds on overall
performance or other criteria. The S&P Index and the Dow Jones Industrial
Average are unmanaged indices of selected common stock prices. The performance
of the Funds also may be compared to those of other mutual funds having similar
objectives. This comparative performance could be expressed as a ranking
prepared by Lipper Analytical Services, Inc., CDA Investment Technologies,
Inc., Bloomberg Financial Markets or Morningstar, Inc., independent services
which monitor the performance of mutual funds. The performance of the Funds is
calculated by relating net asset value per share at the beginning of a stated
period to the net asset value of the investment at the end of the period,
assuming reinvestment of all capital gain distributions and dividends paid at
net asset value. Any such comparisons may be useful to investors who wish to
compare the past performance of the Funds with that of their competitors. Of
course, past performance cannot be a guarantee of future results. The Company
also may include, from time to time, a reference to certain marketing
approaches of the Distributor, including, for example, a reference to a
potential shareholder being contacted by a selected broker or dealer. General
mutual fund statistics provided by the Investment Company Institute may also be
used.
In addition, the Company also may use, in advertisements and other
types of literature, information and statements: (1) showing that bank savings
accounts offer a guaranteed return of principal and a fixed rate of interest,
but no opportunity for capital growth; and (2) describing Wells Fargo Bank, and
its affiliates and predecessors, as one of the first investment managers to
advise investment accounts using asset allocation and index strategies. The
Company also may include in advertising and other types of literature,
information and other data from reports and studies prepared by the Tax
Foundation, including information regarding federal and state tax levels and
the related "Tax Freedom Day."
From time to time the Company may reprint, reference or otherwise
use material from magazines, newsletters, newspapers and books including, but
not limited to the Wall Street Journal, Money Magazine, Barrons, Kiplingers,
Business Week, Fortune, Forbes, the San Francisco Chronicle, the San Jose
Mercury News, The New York Times, the Los Angeles Times, the Boston Globe, the
Washington Post, the Chicago Sun-Times, Investor Business Daily, Worth, Bank
Investor, American Banker, Smart Money, the 100 Best Mutual Funds (Adams
Publishing), Morningstar or Value Line.
The Company also may use the following information in
advertisements and other types of literature, only to the extent the
information is appropriate for the Funds: (i) the Consumer Price Index may be
used to assess the real rate of return from an investment in the Funds; (ii)
other government statistics, including, but not limited to, The Survey of
Current Business, may be used to illustrate investment attributes of the Funds
or the general economic,
17
<PAGE> 244
business, investment, or financial environment in which the Funds operate;
(iii) the effect of tax-deferred compounding on the investment returns of the
Funds or on returns in general, may be illustrated by graphs, charts, etc.,
where such graphs or charts would compare, at various points in time, the
return from an investment in the Funds (or returns in general) on a
tax-deferred basis (assuming reinvestment of capital gains and dividends at net
asset value and assuming one or more tax rates) with the return on a taxable
basis; and (iv) the sectors or industries in which the Funds invest may be
compared to relevant indices of stocks or surveys (e.g., S&P Industry Surveys)
to evaluate the historical performance or current or potential value of the
Funds with respect to the particular industry or sector.
The Company also may discuss in advertising and other types of
literature that the Funds have been assigned a rating by an NRSRO, such as S&P
or Moody's. Such rating would assess the creditworthiness of the investments
held by the Funds. The assigned rating would not be a recommendation to
purchase, sell or hold the Funds' shares since the rating would not comment on
the market price of the Funds' shares or the suitability of the Funds 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 Funds or their investments. The Company may
compare the performance of the Funds with other investments that are assigned
ratings by NRSROs. Any such comparisons may be useful to investors who wish to
compare the Funds' past performance with other rated investments.
From time to time, the Funds may use the following statements, or
variations thereof, in advertisements and other promotional materials: "Wells
Fargo Bank, as a Shareholder Servicing Agent for the Stagecoach Funds, provides
various services to its customers that are also shareholders of the Funds.
These services may include access to Stagecoach Funds' account information
through Automated Teller Machines (ATMs), the placement of purchase and
redemption requests for shares of the Funds through ATMs and the availability
of combined Wells Fargo Bank and Stagecoach Funds account statements."
The Company may disclose in sales literature, information and
statements the distribution rate on the Fund's shares. Distribution rate,
which may be annualized, is the amount determined by dividing the dollar amount
per share of the most recent dividend by the most recent NAV or maximum
offering price per share as of a date specified in the sales literature.
Distribution rate will be accompanied by the standard 30-day yield as required
by the SEC.
The Company also may disclose in advertising and other types of
literature, information and statements, the average credit quality of each
Fund's portfolio or categories of investments therein, as of a specified date
or period. Average credit quality is calculated on a dollar weighted average
basis based on ratings assigned each issue or issuer, as the case may be, by
S&P and/or Moody's. In the event one rating agency does not rate the issue or
issuer, as the case may be, in the same tier as the other agency, the highest
rating is used in the calculation.
The Company also may disclose, in advertising and other types of
literature, information and statements that Wells Fargo Investment Management
("WFIM"), a division of Wells Fargo, is listed in the top 100 by Institutional
Investor magazine in its July 1996 survey "America's Top 300 Money Managers."
This survey ranks money managers in several asset
18
<PAGE> 245
categories. The Company may also disclose in advertising and other types of
sales literature the assets and categories of assets under management by the
Company's investment adviser and the total amount of assets under management by
Wells Fargo Bank. As of April 1, 1997, Wells Fargo Bank and its affiliates
provided investment advisory services for approximately $57 billion of assets
of individuals, trusts, estates and institutions and $20 billion of mutual fund
assets.
The Company may disclose in advertising and other types of
literature that investors can open and maintain Sweep Accounts over the
Internet or through other electronic channels (collectively, "Electronic
Channels"). Such advertising and other literature may discuss the investment
options available to investors, including the types of accounts and any
applicable fees. Such advertising and other literature may disclose that Wells
Fargo Bank is the first major bank to offer an on-line application for a mutual
fund account that can be filled out completely through Electronic Channels.
Advertising and other literature may disclose that Wells Fargo Bank may
maintain Web sites, pages or other information sites accessible through
Electronic Channels (an "Information Site") and may describe the contents and
features of the Information Site and instruct investors on how to access the
Information Site and open a Sweep Account. Advertising and other literature
may also disclose the procedures employed by Wells Fargo Bank to secure
information provided by investors, including disclosure and discussion of the
tools and services for accessing Electronic Channels. Such advertising or
other literature may include discussions of the advantages of establishing and
maintaining a Sweep Account through Electronic Channels and testimonials from
Wells Fargo Bank customers or employees and may also include descriptions of
locations where product demonstrations may occur. The Company may also
disclose the ranking of Wells Fargo Bank as one of the largest money managers
in the United States.
DETERMINATION OF NET ASSET VALUE
Net asset value per share for each Fund and net asset value per
unit of the Master Portfolio is determined on each day the Fund is open.
Securities of the Master Portfolios for which market quotations
are available are valued at latest prices. In the absence of any sale of such
securities on the valuation date and in the case of other securities, including
U.S. Government securities but excluding debt instruments maturing in 60 days
or less, the valuations are based on latest quoted bid prices. Debt
instruments maturing in 60 days or less are valued at amortized cost. In all
cases, bid prices will be furnished by a reputable independent pricing service
approved by the Trust's Board of Trustees. Prices provided by an independent
pricing service may be determined without exclusive reliance on quoted prices
and may take into account appropriate factors such as institutional-size
trading in similar groups of securities, yield, quality, coupon rate, maturity,
type of issue, trading characteristics and other market data. All other
securities and other assets of the Master Portfolios for which current market
quotations are not readily available are valued at fair value as determined in
good faith by the Trust's Trustees and in accordance with procedures adopted by
the Trustees.
Expenses and fees, including advisory fees, are accrued daily and
are taken into account for the purpose of determining the net asset value of
each Master Portfolio's shares.
19
<PAGE> 246
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares may be purchased on any day a Fund is open. The Funds are
open for business each day the New York Stock Exchange ("NYSE") is open for
trading (a "Business Day"). Currently, the NYSE is closed on New Year's Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day (each a "Holiday"). When any Holiday falls
on a weekend, the NYSE typically is closed on the weekday immediately before or
after such Holiday.
Payment for shares may, in the discretion of the adviser, be made
in the form of securities that are permissible investments for the Funds as
described in the Prospectuses. For further information about this form of
payment please contact Stephens. In connection with an in-kind securities
payment, each Fund will require, among other things, that the securities be
valued on the day of purchase in accordance with the pricing methods used by
the Fund and that the Fund receives satisfactory assurances that (i) it will
have good and marketable title to the securities received by it; (ii) that the
securities are in proper form for transfer to the Fund; and (iii) adequate
information will be provided concerning the basis and other matters relating to
the securities.
Under the 1940 Act, the Funds may suspend the right of redemption
or postpone the date of payment upon redemption for any period during which the
NYSE is closed (other than customary weekend and holiday closings, or during
which trading is restricted, or during which as determined by the SEC by rule
or regulation), an emergency exists as a result of which disposal or valuation
of portfolio securities is not reasonably practicable, or for such periods as
the SEC may permit.
The Company may suspend redemption rights or postpone redemption
payments for such periods as are permitted under the 1940 Act. The Company may
also redeem shares involuntarily or make payment for redemption in securities
or other property if it appears appropriate to do so in light of the Company's
responsibilities under the 1940 Act.
In addition, the Company may redeem shares involuntarily to
reimburse the Funds for any losses sustained by reason of the failure of a
shareholders to make full payment for shares purchased or to collect any charge
relating to a transaction effected for the benefit of a shareholder which is
applicable to shares of a Fund as provided from time to time in the Prospectus.
PORTFOLIO TRANSACTIONS
Purchases and sales of securities by the Master Portfolios are
usually principal transactions. Portfolio securities normally are purchased or
sold from or to dealers serving as market makers for the securities at a net
price. The Master Portfolios also may purchase portfolio securities in
underwritten offerings and may purchase securities directly from the issuer.
The cost
20
<PAGE> 247
of executing the Master Portfolios' portfolio securities transactions consists
primarily of dealer spreads and underwriting commissions. Under the 1940 Act,
persons affiliated with the Trust are prohibited from dealing with the Trust as
a principal in the purchase and sale of securities unless an exemptive order or
other relief allowing such transactions is obtained from the SEC or an
exemption is otherwise available. The Master Portfolios may purchase
securities from underwriting syndicates of which Stephens or Wells Fargo Bank
is a member under certain conditions in accordance with the provisions of a
rule adopted under the 1940 Act and in compliance with procedures adopted by
the Board of Trustees.
MIT 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 MIT's Board of Trustees, Wells Fargo Bank is responsible for the
Master Portfolios' investment decisions and the placing of portfolio
transactions. In placing orders, it is the policy of MIT to obtain the best
overall terms taking into account the dealer's general execution and
operational facilities, the type of transaction involved and other factors such
as the dealer's risk in positioning the securities involved. Wells Fargo Bank
generally seeks reasonably competitive spreads or commissions.
In assessing the best overall terms available for any transaction,
Wells Fargo Bank considers factors deemed relevant, including the breadth of
the market in the security, the price of the security, the financial condition
and execution capability of the broker or dealer, and the reasonableness of the
commission, if any, both for the specific transaction and on a continuing
basis. Wells Fargo Bank may cause the Master Portfolios to pay a broker/dealer
which furnishes brokerage and research services a higher commission than that
which might be charged by another broker/dealer for effecting the same
transaction, provided that Wells Fargo Bank determines in good faith that such
commission is reasonable in relation to the value of the brokerage and research
services provided by such broker/dealer, viewed in terms of either the
particular transaction or the overall responsibilities of Wells Fargo Bank.
Such brokerage and research services might consist of reports and statistics
relating to specific companies or industries, general summaries of groups of
stocks or bonds and their comparative earnings and yields, or broad overviews
of the stock, bond, and government securities markets and the economy.
Supplementary research information so received is in addition to,
and not in lieu of, services required to be performed by Wells Fargo Bank and
does not reduce the advisory fees payable by the Master Portfolios. The Board
of Trustees will periodically review the commissions paid by the Master
Portfolios to consider whether the commissions paid over representative periods
of time appear to be reasonable in relation to the benefits inuring to the
Master Portfolios. It is possible that certain of the supplementary research
or other services received will primarily benefit one or more other investment
companies or other accounts for which Wells Fargo Bank exercises investment
discretion. Conversely, the Master Portfolios may be the primary beneficiary
of the research or services received as a result of portfolio transactions
effected for such other account or investment company.
Under Section 28(e) of the Securities Exchange Act of 1934, an
adviser shall not be "deemed to have acted unlawfully or to have breached its
fiduciary duty" solely because under certain circumstances it has caused the
account to pay a higher commission than the lowest available. To obtain the
benefit of Section 28(e), an adviser must make a good faith determination that
the commissions paid are "reasonable in relation to the value of the brokerage
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<PAGE> 248
and research services provided . . . viewed in terms of either that particular
transaction or its overall responsibilities with respect to the accounts as to
which it exercises investment discretion and that the services provided by a
broker provide an adviser with lawful and appropriate assistance in the
performance of its investment decision-making responsibilities." Accordingly,
the price to the Master Portfolios in any transaction may be less favorable
than that available from another broker/dealer if the difference is reasonably
justified by other aspects of the portfolio execution services offered.
Broker/dealers utilized by Wells Fargo Bank may furnish
statistical, research and other information or services which are deemed by
Wells Fargo Bank to be beneficial to the Master Portfolios' investment
programs. Research services received from brokers supplement Wells Fargo
Bank's own research and may include the following types of information:
statistical and background information on industry groups and individual
companies; forecasts and interpretations with respect to U.S. and foreign
economies, securities, markets, specific industry groups and individual
companies; information on political developments; portfolio management
strategies; performance information on securities and information concerning
prices of securities; and information supplied by specialized services to Wells
Fargo Bank and to MIT's Trustees with respect to the performance, investment
activities and fees and expenses of other mutual funds. Such information may
be communicated electronically, orally or in written form. Research services
may also include the providing of equipment used to communicate research
information, the arranging of meetings with management of companies and the
providing of access to consultants who supply research information.
The outside research assistance is useful to Wells Fargo Bank
since the brokers utilized by Wells Fargo Bank as a group tend to follow a
broader universe of securities and other matters than the staff of Wells Fargo
Bank can follow. In addition, this research provides Wells Fargo Bank with a
diverse perspective on financial markets. Research services which are provided
to Wells Fargo Bank by brokers are available for the benefit of all accounts
managed or advised by Wells Fargo Bank. It is the opinion of Wells Fargo Bank
that this material is beneficial in supplementing their research and analysis;
and, therefore, it may benefit the Master Portfolios by improving the quality
of Wells Fargo Bank's investment advice.
BROKERAGE COMMISSIONS. For the year ended December 31, 1996,
neither the Funds nor the Master Portfolios paid any brokerage commissions.
SECURITIES OF REGULAR BROKER DEALERS. As of December 31, 1996,
only the Short-Term Government-Corporate Income Master Portfolio owned
securities (pooled repurchase agreements) of its "regular brokers or dealers"
as defined in the 1940 Act or their parents: $378,000 of Goldman Sachs and
$300,000 of JP Morgan.
PORTFOLIO TURNOVER. For the year ended December 31, 1996, the
portfolio turnover rates were 247% and 47%, respectively, for the Short-Term
Government-Corporate Income Master Portfolio and the Short-Term Municipal
Income Master Portfolio. Portfolio turnover generally involves some expense to
a Master Portfolio, including brokerage commissions or dealer mark-ups and
other transaction costs on the sale of securities and the reinvestment in other
securities. A high portfolio turnover rate should not result in the Master
Portfolios paying substantially more brokerage commissions, since most
transactions in government securities and
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<PAGE> 249
municipal securities are effected on a principal basis. Portfolio turnover
also can generate short-term capital gains tax consequences. The portfolio
turnover rate will not be a limiting factor when Wells Fargo Bank deems
portfolio changes appropriate.
FUND EXPENSES
From time to time, Wells Fargo Bank and Stephens may waive fees from the
Funds in whole or in part. Any such waiver will reduce Fund expenses and,
accordingly, have a favorable impact on a Fund's performance. Except for the
expenses borne by Wells Fargo Bank and Stephens, each Fund bears all costs of
its operations, including the compensation of the Company's directors and the
Trust's trustees who are not officers or employees of Wells Fargo Bank or
Stephens or any of their affiliates; advisory, shareholder servicing, and
administration fees; payments pursuant to any Plans; interest charges; taxes;
fees and expenses of independent auditors; legal counsel, transfer agent and
dividend disbursing agent; expenses of redeeming Fund shares; expenses of
preparing and printing Prospectuses (except the expense of printing and mailing
Prospectuses used for promotional purposes, unless otherwise payable pursuant
to a Plan), shareholders' or investors' reports, notices, proxy statements and
reports to regulatory agencies; insurance premiums and certain expenses
relating to insurance coverage; trade association membership dues; brokerage
and other expenses connected with the execution of portfolio transactions; fees
and expenses of the custodian, including those of keeping books and accounts
and calculating the net asset value of the Fund; expenses of shareholders' or
investors' meetings; expenses relating to the issuance, registration and
qualification of shares of the Fund; pricing services; organizational expenses;
and any extraordinary expenses. Expenses attributable to a Fund are charged
against the respective assets of the Fund. A pro rata portion of the expenses
of the Company are charged against the assets of each Fund.
FEDERAL INCOME TAXES
In General. The following information supplements and should be
read in conjunction with the Prospectus section entitled "Taxes." The
Prospectus describes generally the tax treatment of distributions by the Fund.
This section of the SAI includes additional information concerning federal
income taxes.
The Company intends to qualify each Fund as a regulated investment
company under Subchapter M of the Code as long as such qualification is in the
best interest of the Fund's 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 will generally 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.
Qualification as a regulated investment company under the Code
requires, among other things, that (a) the Fund derive at least 90% of its
annual gross income from interest, payments with respect to securities loans,
dividends and gains
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<PAGE> 250
from the sale or other disposition of securities or options thereon; (b) the
Fund derive less than 30% of its gross income from gains from the sale or other
disposition of securities or options thereon held for less than three months;
and (c) the Fund diversify its holdings so that, at the end of each quarter of
the taxable year, (i) at least 50% of the market value of the Fund's assets is
represented by cash, government securities and other securities limited in
respect of any one issuer to an amount not greater than 5% of the Fund's assets
and 10% of the outstanding voting securities of such issuer, and (ii) not more
than 25% of the value of its assets is invested in the securities of any one
issuer (other than U.S. Government securities and the securities of other
regulated investment companies), or in two or more issuers which the Fund
controls and which are determined to be engaged in the same or similar trades
or businesses. For purposes of complying with these qualification requirements,
the Fund will be deemed to own a proportionate share of the Master Portfolio's
assets. 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, including net
tax-exempt income, earned in each year. The Fund intends to pay out
substantially all of its net investment income and net realized capital gains
(if any) for each year.
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 substantially
all of its net investment income and net capital gains by the end of each
calendar year and, thus, expects not to be subject to the excise tax.
The Fund seeks to qualify as a regulated investment company by
investing substantially 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. 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 the Master Portfolio's other investors) in proportion to the Fund's
ownership interest in the Master Portfolio. Therefore, to the extent the
Master Portfolio were to accrue but not distribute any interest, dividends or
gains, the Fund would be deemed to have realized and recognized its
proportionate share of interest, dividends or gains without receipt of any
corresponding distribution. However, the Master Portfolio will seek to
minimize recognition by investors of interest, dividends, gains or losses
without a corresponding distribution.
Corporate shareholders of the Fund may be eligible for the
dividends-received deduction on dividends distributed out of the Fund's net
investment income attributable to dividends received from domestic
corporations, which, if received directly by the corporate shareholder, would
qualify for such deduction. In order to qualify for the dividends-received
deduction, a corporate shareholder must hold the Fund shares paying the
dividends upon which the deduction is based for at least 46 days.
Federal Income Tax Rates. 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 marginal tax rate applicable
to net capital gains is 28%; the maximum corporate tax rate applicable to
ordinary income and net capital gains is 35% (except that to eliminate the
benefit of lower
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<PAGE> 251
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 tax of up to $100,000). Naturally, the amount of tax
payable by an individual or corporation will be affected by a combination of
tax laws covering, for example, deductions, credits, deferrals, exemptions,
sources of income and other matters.
Capital Gain Distributions. To the extent that 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 the shareholders not later than 60 days after the
close of the Fund's taxable year.
Other Distributions. Although dividends will be declared daily
based on the Fund's daily 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. It is expected that the Fund's net income, on an annual basis, will
equal the dividends declared during the year.
Disposition of Fund Shares. If a shareholder receives a
designated capital gain distribution (to be treated by the shareholder as a
long-term capital gain) with respect to any Fund share and such Fund share is
held for six months or less, then (unless otherwise disallowed) any loss on the
sale or exchange of that Fund share will be treated as a long-term capital loss
to the extent of the designated capital gain distribution. In addition, 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 exempt-interest
dividends received thereon by the shareholder. These rules shall not apply,
however, to losses incurred under a periodic redemption plan.
If a shareholder exchanges or otherwise disposes of Fund shares
within 90 days of having acquired such shares and if, as a result of having
acquired those shares, the shareholder subsequently pays a reduced sales charge
on a new purchase of shares of the Fund or of a different regulated investment
company, the sales charge previously incurred acquiring the Fund's shares shall
not be taken into account (to the extent such previous sales charges do not
exceed the reduction in sales charges on the new purchase) for the purpose of
determining the amount of gain or loss on the disposition, but will be treated
as having been incurred in the acquisition of such other shares. Also, any
loss realized on a redemption or exchange of shares of the Fund will be
disallowed to the extent that substantially identical shares are reacquired
within the 61-day period beginning 30 days before and ending 30 days after the
shares are disposed of.
Taxation of Fund Investments. Gains or losses on sales of
portfolio securities by the Master Portfolio will generally be long-term
capital gains or losses if the securities have been held
25
<PAGE> 252
by it for more than one year, except in certain cases such as where the Master
Portfolio acquires a put or writes a call thereon. Gains recognized on the
disposition of a debt obligation purchased by the Master Portfolio at a market
discount (generally at a price less than its principal amount) will generally
be treated as ordinary income to the extent of the portion of market discount
which accrued during the period of time the Master Portfolio held the debt
obligation. Other gains or losses on the sale of portfolio securities will be
short-term capital gains or losses.
Foreign Shareholders. Under the Code, distributions of net
investment income by the Fund to a nonresident alien individual, nonresident
alien fiduciary of a trust or estate, foreign corporation, or foreign
partnership (a "foreign shareholder") will be subject to U.S. withholding tax
(at a rate of 30% or a lower treaty rate). Withholding will not apply if a
dividend paid by the Fund to a foreign shareholder is "effectively connected"
with a U.S. trade or business, in which case the reporting and withholding
requirements applicable to U.S. citizens, U.S. residents or domestic
corporations will apply. Distributions of net long-term capital gains are not
subject to tax withholding, but in the case of a foreign shareholder who is a
nonresident alien individual, such distributions ordinarily will be subject to
U.S. income tax at a rate of 30% if the individual is physically present in the
U.S. for more than 182 days during the taxable year.
Backup Withholding. The Company may be required to withhold,
subject to certain exemptions, at a rate of 31% ("backup withholding") on
dividends, capital gain distributions, and redemption proceeds (including
proceeds from exchanges) paid or credited to an individual Fund shareholder,
unless a shareholder certifies that the Taxpayer Identification Number ("TIN")
provided is correct and that the shareholder is not subject to backup
withholding, or the IRS notifies the Company that the shareholder's TIN is
incorrect or the shareholder is subject to backup withholding. Such tax
withheld does not constitute any additional tax imposed on the shareholder, and
may be claimed as a tax payment on the shareholder's federal income tax return.
An investor must provide a valid TIN upon opening or reopening an account.
Failure to furnish a valid TIN to the Company could subject the investor to
penalties imposed by the IRS.
Other Matters. Investors should be aware that the investments to
be made by the Master Portfolio may involve sophisticated tax rules that may
result in income or gain recognition by the Fund without corresponding current
cash receipts. Although the Master Portfolio will seek to avoid significant
noncash income, such noncash income could be recognized by the Master
Portfolio, in which case the Fund may distribute cash derived from other
sources in order to meet the minimum distribution requirements described above.
The foregoing discussion and the discussions in the Prospectus
address only some of the federal tax considerations generally affecting
investments in the Fund. Each investor is urged to consult his or her tax
advisor regarding specific questions as to federal, state or local taxes and
foreign taxes.
CAPITAL STOCK
The following information supplements and should be read in
conjunction with the section in the Prospectus entitled "Organization and
Capital Stock."
26
<PAGE> 253
The Funds have only one class of shares, but other of the
Company's portfolios are comprised of two or more classes of shares. With
respect to matters that affect one class but not another, shareholders vote as
a class; for example, the approval of a Plan. Subject to the foregoing, on any
matter submitted to a vote of shareholders, all shares then entitled to vote
will be voted separately by portfolio of the Company unless otherwise required
by the 1940 Act, in which case all shares will be voted in the aggregate. For
example, a change in one of the Funds' fundamental investment policies would be
voted upon only by shareholders of such Fund and not by shareholders of the
Company's other investment portfolios. Additionally, approval of an advisory
contract is a matter to be determined separately by portfolio. Approval by the
shareholders of one portfolio is effective as to that portfolio whether or not
sufficient votes are received from the shareholders of the other portfolios to
approve the proposal as to those portfolios. As used in the Prospectus and in
this SAI, the term "majority," when referring to approvals to be obtained from
shareholders of a Fund, means the vote of the lesser of (i) 67% of the shares
of 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 annual meetings of shareholders in any year in which
it is not required to elect Directors under the 1940 Act.
Each share of a class of a Fund represents an equal proportional
interest in the Fund and is entitled to such dividends and distributions out of
the income earned on the assets belonging to the Fund as are declared in the
discretion of the Directors. In the event of the liquidation or dissolution of
the Company, shareholders of a Fund are entitled to receive the assets
attributable to the Fund that are available for distribution, and a
distribution of any general assets not attributable to the Fund or a portfolio
that are available for distribution in such manner and on such basis as the
Directors in their sole discretion may determine.
Shares have no preemptive rights. All shares, when issued in
accord with the Prospectus and for the consideration described therein, will be
fully paid and non-assessable by the Company.
The Trust is a business trust organized under the laws of
Delaware. In accordance with Delaware law and in connection with the tax
treatment sought by the Trust, the Trust's Declaration of Trust provides that
its investors would be personally responsible for Trust liabilities and
obligations, but only to the extent the Trust property is insufficient to
satisfy such liabilities and obligations. The Declaration of Trust also
provides that the Trust shall maintain appropriate insurance (e.g., fidelity
bonding and errors and omissions insurance) for the protection of the Trust,
its investors, Trustees, officers, employees and agents covering possible tort
and other liabilities, and that investors will be indemnified to the extent
they are held liable for a disproportionate share of Trust obligations. Thus,
the risk of an investor incurring financial loss on account of investor
liability is limited to circumstances in which both inadequate insurance
existed and the Trust itself was unable to meet its obligations.
27
<PAGE> 254
The Declaration of Trust further provides that obligations of the
Trust are not binding upon the Trustees individually but only upon the property
of the Trust and that the Trustees will not be liable for any action or failure
to act, 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 Portfolios have substantially
identical voting and other rights as those rights enumerated above for Fund
shares. The Trust also intends to dispense with annual meetings, but will hold
a special meeting and assist investor communications under the circumstances
described above with respect to the Company in accord with provisions under
Section 16(c) of the Act. Whenever a Fund is requested to vote on a matter
with respect to a Master Portfolio, the Fund will hold a meeting of Fund
shareholders and will cast its votes as instructed by such shareholders.
In a situation where a Fund does not receive instruction from
certain of its shareholders on how to vote the corresponding shares of a Master
Portfolio, the Fund will vote such shares in the same proportion as the shares
for which the Fund does receive voting instructions.
Set forth below is the name, address and share ownership of each
person known by the Company to have beneficial or record ownership of 5% or
more of a class of the Fund or 5% or more of the voting securities of the Fund
as a whole.
28
<PAGE> 255
5% OWNERSHIP AS OF APRIL 1, 1997
<TABLE>
<CAPTION>
NAME AND TYPE PERCENTAGE
FUND ADDRESS OF OWNERSHIP OF FUND
---- ------- ------------ -------
<S> <C> <C> <C>
SHORT-TERM MUNICIPAL Wells Fargo Bank Agent FBO Record 5.98%
INCOME FUND Alma Properties
201 3rd Street, 11th Floor
San Francisco, CA 94163
Wells Fargo Bank Agent FBO Record 6.26%
for LTP
c/o SSP MAC 0187-112
201 3rd Street, 11th Floor
San Francisco, CA 94163
Richard M. Jacobsen & Record 5.83%
Susan P. Jacobsen TTEES
Richard & Susan Jacobsen Family TR
3201 Ash Street
Palo Alto, CA 94306
Herman & Raymond Christensen Beneficial 21.13%
801 American Street
San Carlos, CA 94070
JJ & W Beneficial 12.57%
P.O. Box 5807
Redwood City, CA 94063
SHORT-TERM GOVERNMENT- Wells Fargo Bank Agent FBO Record 9.12%
CORPORATE INCOME FUND Victoria Partnership
201 3rd Street, 11th Floor
San Francisco, CA 94163
Wells Fargo Bank Agent FBO Record 19.37%
Xeruco
201 3rd Street, 11th Floor
San Francisco, CA 94163
Wells Fargo Bank Agent FBO Record 10.78%
Hiller Museum
201 3rd Street, 11th Floor
San Francisco, CA 94163
</TABLE>
29
<PAGE> 256
<TABLE>
<CAPTION>
NAME AND TYPE PERCENTAGE
FUND ADDRESS OF OWNERSHIP OF FUND
---- ------- ------------ -------
<S> <C> <C> <C>
SHORT-TERM GOVERNMENT Kimball Medical Center Beneficial 14.75%
CORPORATE INCOME FUND 600 River Avenue
Lakewood, NJ 08701
Wells Fargo Bank Agent FBO Beneficial 26.32%
for Cable SAT System
201 3rd Street, 11th Floor
San Francisco, CA 94163
</TABLE>
For purposes of the 1940 Act, any person who owns directly or
through one or more controlled companies more than 25% of the voting securities
of a company is presumed to "control" such company. Accordingly, to the extent
that a shareholder identified in the foregoing table is identified as the
beneficial holder of more than 25% of a class (or Fund), or is identified as
the holder of record of more than 25% of a class (or Fund) and has voting
and/or investment powers, it may be presumed to control such class (or Fund).
OTHER
The Registration Statements of the Trust and the Company,
including the Funds' 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 Statement, each such statement
being qualified in all respects by such reference.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP has been selected as the independent
auditors for the Company and the Trust. KPMG Peat Marwick LLP provides audit
services, tax return preparation and assistance and consultation in connection
with review of certain SEC filings. KPMG Peat Marwick LLP's address is Three
Embarcadero Center, San Francisco, California 94111.
30
<PAGE> 257
FINANCIAL INFORMATION
The portfolio of investments, audited financial statements and
independent auditors' reports for each Fund for the year ended December 31,
1996, are incorporated into this SAI by reference to the Company's Annual
Report as filed with the SEC on March 11, 1997. The portfolio of investments,
audited financial statements and independent auditors' reports are attached to
all SAIs delivered to shareholders or prospective shareholders.
31
<PAGE> 258
APPENDIX
The following is a description of the ratings given by Moody's and
S&P to corporate bonds 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 lack
outstanding investment characteristics and in face 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 bonds are "AAA,"
"AA," "A" and "BBB." Bonds rated "AAA" have the "highest rating" assigned by
S&P and have "an extremely strong capacity" to pay interest and repay principal.
Bonds rated "AA" have a "very strong capacity" to pay interest and repay
principal and "differ from the highest rated obligations only in small degree."
Bonds rated "A" have a "strong capacity" to pay interest and repay principal,
but are "somewhat more susceptible" to adverse effects of changes in economic
conditions or other circumstances than bonds in higher rated categories. Bonds
rated "BBB" are regarded as having an "adequate protection parameters" to pay
interest and repay principal, but changes in economic conditions or other
circumstances are more likely to lead to a "weakened capacity" to make such
repayments. The ratings from "AA" to "BBB" may be modified by the addition of a
plus or minus sign to show relative standing within the category.
Commercial and Municipal Notes
Moody's: The highest ratings for state and municipal short-term
obligations are "MIG 1," "MIG 2," and "MIG 3" (or "VMIG 1," "VMIG 2" and "VMIG
3" in the case of an issue having a variable rate demand feature). Notes rated
"MIG 1" or VMIG 1" are judged to be of the "best quality." Notes rated "MIG 2"
or "VMIG 2" are of "high quality," with margins of protections "ample although
not as large as in the preceding group." Notes rated "MIG 3" or VMIG 3" are of
"favorable quality," with all security elements accounted for, but lacking the
strength of the preceding grades.
S&P: The two highest ratings for corporate, state and municipal
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.
Corporate and Municipal Commercial Paper
Moody's: The highest rating for corporate, state and municipal
commercial paper is "P-1" (Prime-1). Issuers rated "P-1" have a "superior
ability for repayment of short-term debt obligations." Issuers rated "P-2"
(Prime-2) "have a strong capacity for repayment of senior short-term debt
obligations," but earnings trends, while sound, will be subject to more
variation.
S&P: The "A-1" rating for corporate, state and municipal
commercial paper is rated "in the highest category" by S&P and "the obligor's
capacity to meet its financial commitment on the obligation is strong." The
"A-1+" rating indicates that said capacity is "extremely strong." The A-2 rating
indicates that said capacity is "satisfactory," but that corporate and municipal
commercial paper rated "A-2" is "more susceptible" to the adverse effects of
changes in economic conditions or other circumstances than commercial paper
rated in higher rating categories.
A-1
<PAGE> 259
OVERLAND EXPRESS FUNDS, INC.
Telephone: (800) 552-9612
STATEMENT OF ADDITIONAL INFORMATION
Dated May 1, 1997
SMALL CAP STRATEGY FUND
----------------------------------
Overland Express Funds, Inc. (the "Company") is an open-end,
series investment company. This Statement of Additional Information ("SAI")
contains information about one of the Company's funds -- the SMALL CAP STRATEGY
FUND (the "Fund"). The Fund is authorized to issue three classes of shares --
Class A Shares, Class B Shares and Class D Shares. Class A and Class D Shares
are currently being offered and Class B Shares will be offered at a later date.
This SAI relates to all three classes of shares. The investment objective of
the Fund is described in the Prospectus under the heading "Investment
Objective, Policies and Restrictions."
The Fund seeks to achieve its investment objective by investing
all of its assets in the Small Cap Master Portfolio (at times, the "Master
Portfolio") of Master Investment Trust ("MIT"), which has the same investment
objective as the Fund. The Fund may withdraw its investment in the Small Cap
Master Portfolio at any time, if the Board of Directors of the Company
determines that such action is in the best interests of the Fund and its
shareholders. Upon such withdrawal, the Company's Board would consider
alternative investments, including investing all of the Fund's assets in
another investment company with the same investment objective as the Fund or
hiring an investment adviser to manage the Fund's assets in accordance with the
investment policies and restrictions described in the Prospectus and below with
respect to MIT.
This SAI is not a Prospectus and should be read in conjunction
with the Fund's Prospectus, dated May 1, 1997. All terms used in this SAI that
are defined in the Prospectus will have the meanings assigned in the
Prospectus. A copy of the Prospectus may be obtained without charge by writing
Stephens Inc. ("Stephens"), the Company's sponsor, co-administrator and
distributor, at 111 Center Street, Little Rock, Arkansas 72201, or calling the
Transfer Agent at the telephone number indicated above.
----------------------------------
1
<PAGE> 260
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
Investment Restrictions............................................... 3
Additional Permitted Investment Activities............................ 5
Management............................................................ 5
Distribution Plans.................................................... 11
Class A Administrative Servicing Plan................................. 12
Class B and D Servicing Plans......................................... 12
Performance Calculations.............................................. 13
Determination of Net Asset Value...................................... 17
Additional Purchase and Redemption Information........................ 17
Portfolio Transactions................................................ 18
Fund Expenses......................................................... 20
Federal Income Taxes.................................................. 21
Capital Stock......................................................... 25
Other................................................................. 29
Independent Auditors.................................................. 29
Financial Information................................................. 29
Appendix.............................................................. A-1
</TABLE>
2
<PAGE> 261
INVESTMENT RESTRICTIONS
The following information supplements and should be read in
conjunction with the section in the Prospectus entitled "Investment Objectives
and Policies."
Fundamental Investment Policies. The Fund and the Master
Portfolio are subject to the following investment restrictions, all of which
are fundamental policies. These restrictions cannot be changed, as to either
the Fund or the Master Portfolio, without approval by the holders of a majority
(as defined by the 1940 Act) of the outstanding voting securities of the Fund
or the Master Portfolio, as appropriate. Whenever the Fund is requested to vote
on a fundamental policy of the Master Portfolio, the Fund will hold a meeting
of Fund shareholders and it will cast its votes as instructed by such
shareholders.
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 investments in that industry would
equal or exceed 25% of the current value of the Fund's total assets, provided
that there is no limitation with respect to investments in securities issued or
guaranteed by the United States Government, its agencies or instrumentalities;
and provided further, that the Fund may invest all its assets in a diversified,
open-end management investment company, or a series thereof, with substantially
the same investment objective, policies and restrictions as such Fund, without
regard to the limitations set forth in this paragraph (1);
(2) purchase or sell real estate (other than securities secured
by real estate or interests therein or securities issued by companies that
invest in real estate or interests therein, including mortgage pass through
securities), commodities or commodity contracts or interests in oil, gas, or
other mineral exploration or development programs;
(3) purchase securities on margin (except for short-term credits
necessary for the clearance of transactions) or make short sales of securities;
(4) underwrite securities of other issuers, except to the extent
that the purchase of permitted investments directly from the issuer thereof or
from an underwriter for an issuer and the later disposition of such securities
in accordance with the Fund's investment program may be deemed to be an
underwriting; and provided further, that the purchase by the Fund of securities
issued by a diversified, open-end management investment company, or a series
thereof, with substantially the same investment objective, policies and
restrictions as such Fund shall not constitute an underwriting for purposes of
this paragraph (4);
(5) make investments for the purpose of exercising control or
management; provided that the Fund may invest all its assets in a diversified,
open-end management company, or a series thereof, with substantially the same
investment objective, policies and restrictions as such Fund, without regard to
the limitations set forth in this paragraph (5);
3
<PAGE> 262
(6) issue senior securities, except that the Fund may borrow from
banks up to 10% of the current value of its net assets for temporary purposes
only in order to meet redemptions, and these borrowings may be secured by the
pledge of up to 10% of the current value of its net assets (but investments may
not be purchased while any such outstanding borrowings exceed 5% of its net
assets);
(7) make loans of portfolio securities having a value that
exceeds 33 1/3% of the current value of its total assets, provided that, this
restriction does not apply to the purchase of fixed time deposits, repurchase
agreements, commercial paper and other types of debt instruments commonly sold
in a public or private offering; nor
(8) purchase securities of any issuer (except securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities) if, as
a result, with respect to 75% of its total assets, more than 5% of the value of
its total assets would be invested in the securities of any one issuer or, with
respect to 100% of its total assets, the Fund's ownership would be more than
10% of the outstanding voting securities of such issuer, provided that the Fund
may invest all its assets in a diversified, open-end management investment
company, or a series thereof, with substantially the same investment objective,
policies and restrictions as such Fund, without regard to the limitations set
forth in this paragraph (8).
With respect to fundamental investment policy (7), the Fund and
the Master Portfolio do not intend to loan their portfolio securities during
the coming year.
Non-Fundamental Investment Policies. The Fund and the Master
Portfolio are subject to the following investment restrictions, all of which
are non-fundamental policies. These restrictions may be changed by a vote of a
majority of the Directors of the Company or the Trustees of MIT, as the case
may be, at any time.
The Fund and the Master Portfolio may not:
(1) purchase or retain securities of any issuer if the officers
or directors of the Fund or its Investment Adviser owning beneficially more
than one-half of one percent (0.5%) of the securities of the issuer together
own beneficially more than 5% of such securities;
(2) purchase or sell real estate limited partnership interests;
(3) invest in securities of issuers who, with their predecessors,
have been in existence less than three years, unless the securities are fully
guaranteed or insured by the U.S. Government if, by reason thereof, the value
of its aggregate investment in such securities will exceed 5% of its total
assets;
(4) purchase securities of any issuer (except securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities) if, as
a result, more than 5% of the value of the Fund's total assets would be
invested in the securities of any one issuer;
4
<PAGE> 263
(5) invest more than 15% of the Fund's net assets in illiquid
securities. For this purpose, illiquid securities include, among others, (a)
securities that are illiquid by virtue of the absence of a readily available
market or legal or contractual restrictions on resale, (b) fixed time deposits
that are subject to withdrawal penalties and that have maturities of more than
seven days, and (c) repurchase agreements not terminable within seven days;
(6) In addition, as a matter of non-fundamental policy, the Fund
may invest in shares of other open-end, management investment companies,
subject to the limitations of Section 12(d)(1) of the Act, provided that any
such purchases will be limited to temporary investments in shares of
unaffiliated investment companies and the Investment Adviser will waive its
advisory fees for that portion of the Fund's assets so invested, except when
such purchase is part of a plan of merger, consolidation, reorganization or
acquisition; nor
(7) invest more than 25% of their respective net assets in
securities of foreign governmental and foreign private issues that are
denominated in and pay interest in U.S. dollars.
Notwithstanding any other investment policy or limitation
(whether or not fundamental), the Fund may invest all of its assets in the
securities of a single open-end management investment company with
substantially the same fundamental investment objective, policies and
limitations as the Fund. A decision to so invest all of its assets may,
depending on the circumstances applicable at the time, require approval of
shareholders.
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
Warrants. The Small Cap Fund may invest no more than 5% of its
net assets at the time of purchase in warrants (other than those that have been
acquired in units or attached to other securities) and not more than 2% of its
net assets in warrants which are not listed on the NYSE or American Stock
Exchange. Warrants represent rights to purchase securities at a specific price
valid for a specific period of time. The prices of warrants do not necessarily
correlate with the prices of the underlying securities. The Funds may only
purchase warrants on securities in which such Fund may invest directly.
Custodial Receipts for Treasury Securities. The Fund may purchase
participations in trusts that hold U.S. Treasury securities (such as TIGRs and
CATS) or other obligations where the trust participations evidence ownership in
either the future interest payments or the future principal payments on the
obligations. These participations are normally issued at a discount to their
"face value," and can exhibit greater price volatility than ordinary debt
securities because of the way in which their principal and interest are
returned to investors. Investments by the Fund in such participations will not
exceed 5% of the value of the Fund's total assets.
MANAGEMENT
The following information supplements and should be read in
conjunction with the section in the Prospectus entitled "Management of the
Funds." The principal occupations during the past five years of the Directors
and principal executive Officer of the Company are listed below. The address of
each, unless otherwise indicated, is 111 Center Street, Little Rock, Arkansas
72201. Directors deemed to be "interested persons" of the Company for purposes
of the 1940 Act are indicated by an asterisk.
5
<PAGE> 264
<TABLE>
<CAPTION>
Principal Occupation
Name, Address And Age Position During Past 5 Years
- --------------------- -------- --------------------
<S> <C> <C>
Jack S. Euphrat, 74 Director Private Investor.
415 Walsh Road
Atherton, CA 94207
*R. Greg Feltus, 45 Director, Chairman and Senior Vice President of Stephens;
President Manager of Financial Services Group;
President of Stephens Insurance
Services Inc.; Senior Vice President
of Stephens Sports Management Inc.;
and President of Investor Brokerage
Insurance Inc.
Thomas S. Goho, 54 Director T.B. Rose Faculty Fellow Business,
321 Beechcliff Court Wake Forest University Calloway
Winston-Salem, NC 27104 School of Business and Accountancy;
Associate Professor of Finance of the
School of Business and Accounting at
Wake Forest University since 1983.
Joseph N. Hankin, 55 Director President Westchester Community
75 Grasslands Road College since 1971; President of Hartford
Valhalla, NY 10595 Junior College from 1967 to 1971;
Adjunct Professor of Columbia University
Teachers College since 1976.
*W. Rodney Hughes, 70 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Robert M. Joses, 78 Director Private Investor.
47 Dowitcher Way
San Rafael, CA 94901
*J. Tucker Morse, 52 Director Private Investor; Real Estate
10 Legrae Street Developer; Chairman of Renaissance
Charleston, SC 29401 Properties Ltd.; President of Morse
Investment Corporation; and
Co-Managing Partner of Main Street
Ventures.
Richard H. Blank, Jr., 40 Chief Operating Officer, Associate of Financial Services Group
Secretary and Treasurer of Stephens; Director of Stephens
Sports Management Inc.; and Director
of Capo Inc.
</TABLE>
6
<PAGE> 265
COMPENSATION TABLE
For the Year Ended December 31, 1996
<TABLE>
<CAPTION>
Aggregate Compensation Total Compensation from
Name and Position from Registrant Registrant and Fund Complex
----------------- ---------------------- ---------------------------
<S> <C> <C>
Jack S. Euphrat $10,500 $31,500
Director
*R. Greg Feltus 0 0
Director
Thomas S. Goho 10,500 31,500
Director
*Zoe Ann Hines 0 0
Director
(resigned September 6, 1996)
Joseph N. Hankin 500 1,500
Director
*W. Rodney Hughes 8,750 26,250
Director
Robert M. Joses 10,500 31,500
Director
*J. Tucker Morse 8,750 26,250
Director
</TABLE>
Directors of the Company are compensated annually by the Company
and by all the registrants in each fund complex they serve as indicated above
and also are reimbursed for all out-of-pocket expenses relating to attendance
at board meetings. The Company, Stagecoach Funds, Inc., Stagecoach Trust, Life
& Annuity Trust and Master Investment Trust are considered to be members of the
same fund complex as such term is defined in Form N-1A under the 1940 Act (the
"Wells Fargo Fund Complex"). MasterWorks Funds Inc., Master Investment
Portfolio, and Managed Series Investment Trust together form a separate fund
complex (the "BGFA Fund Complex"). Each of the Directors and Officers of the
Company serves in the identical capacity as directors and officers or as
trustees and/or officers of each registered open-end management investment
company in both the Wells Fargo and BGFA Fund Complexes, except for Joseph N.
Hankin, who only serves the aforementioned members of the Wells Fargo Fund
Complex, and Zoe Ann Hines who, after September 6, 1996, only serves the
aforementioned members of the BGFA Fund Complex. The Directors are compensated
by other companies and trusts within a fund complex for their services as
directors/trustees to such companies and trusts. Currently the Directors do not
receive any retirement benefits or deferred compensation from the Company or
any other member of each fund complex.
7
<PAGE> 266
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.
MASTER/FEEDER STRUCTURE. The Fund seeks to achieve its investment
objective by investing all of its assets in the Small Cap Master Portfolio of
MIT. The Fund and other entities investing in the Master Portfolio are each
liable for all obligations of the Master Portfolio. However, the risk of the
Fund incurring financial loss on account of such liability is limited to
circumstances in which both inadequate insurance existed and MIT itself is
unable to meet its obligations. Accordingly, the Company's Board of Directors
believes that neither the Fund nor its shareholders will be adversely affected
by investing Fund assets in the Master Portfolio. However, if a mutual fund or
other investor withdraws its investment from the Master Portfolio, the economic
efficiencies (e.g., spreading fixed expenses among a larger asset base) that
the Company's Board believes may be available through investment in the Master
Portfolio may not be fully achieved. In addition, given the relative novelty of
the master/feeder structure, accounting or operational difficulties, although
unlikely, could arise. See "Management of the Funds" in the Prospectus for
additional description of the Fund's and Master Portfolio's expenses and
management.
The Fund may withdraw its investment in the Master Portfolio only
if the Company's Board of Directors determines that such action is in the best
interests of the Fund and its shareholders. Upon such withdrawal, the Company's
Board would consider alternative investments, including investing all of the
Fund's assets in another investment company with the same investment objective
as the Fund or hiring an investment adviser to manage the Fund's assets in
accordance with the investment policies described below with respect to the
Master Portfolio.
The investment objective and other fundamental policies of the
Master Portfolio cannot be changed without approval by the holders of a
majority (as defined in the 1940 Act) of the Master Portfolio's outstanding
interests. See "Investment Objectives and Policies" in the Prospectus. Whenever
the Fund, as an interestholder of the Master Portfolio, is requested to vote on
any matter submitted to interestholders of the Master Portfolio, the Fund will
hold a meeting of its shareholders to consider such matters. The Fund will cast
its votes in proportion to the votes received from its shareholders. Shares for
which the Fund receives no voting instructions will be voted in the same
proportion as the votes received from the other Fund shareholders.
Certain policies of the Master Portfolio which are
non-fundamental may be changed by vote of a majority of MIT's Trustees without
interestholder approval. If the Master Portfolio's investment objective or
fundamental or non-fundamental policies are changed, the Fund may elect to
change its objective or policies to correspond to those of the Master
Portfolio. The Fund may also elect to redeem its interests in the Master
Portfolio and either seek a new investment company with a matching objective in
which to invest or retain its own investment adviser to manage the Fund's
portfolio in accordance with its objective. In the latter case, the Fund's
inability to find a substitute investment company in which to invest or
equivalent management services could adversely affect shareholders' investments
in the Fund. The Fund will provide shareholders with 30 days' written notice
prior to the implementation of any change in the investment objective of the
Fund or the Master Portfolio, to the extent possible. See "Investment Objective
and
8
<PAGE> 267
Policies" in the Prospectus for additional information regarding the Fund's and
the Master Portfolio's investment objectives and policies.
INVESTMENT ADVISER. The Fund has not engaged an investment
adviser. The Master Portfolio (which has the same investment objective as the
Fund, and in which the Fund invests all its assets) is advised by Wells Fargo
Bank. Wells Fargo Bank furnishes to the Master Portfolio investment guidance
and policy direction in connection with the daily portfolio management of the
Master Portfolio. Wells Fargo Bank furnishes to the Board of Trustees of MIT
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. For its services as investment adviser to
the Master Portfolio, Wells Fargo Bank is entitled to receive a monthly fee at
the annual rate of 0.60% of the Master Portfolio's average daily net assets.
For the period begun September 16, 1996 (commencement of
operations) and ended December 31, 1996, the Master Portfolio paid to Wells
Fargo Bank $5,368 in advisory fees attributable to the Fund. No fees were
waived.
The Master Portfolio's 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 MIT's Board of Trustees and (ii) by a majority of the Trustees
of MIT who are not parties to the Advisory Contract or "interested persons" (as
defined in the Act) of any such party. The Advisory Contract may be terminated
on 60 days' written notice by either party and will terminate automatically if
assigned.
ADMINISTRATOR AND CO-ADMINISTRATOR. The Company has retained
Wells Fargo Bank as administrator and Stephens as co-administrator on behalf of
the Fund. In addition, MIT has retained Wells Fargo Bank as administrator and
Stephens as co-administrator on behalf of the Master Portfolio. Under the
respective Administration and Co-Administration Agreements, Wells Fargo Bank
and Stephens provide as administration 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), 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 MIT's Officers, Directors and Trustees. Wells Fargo Bank and
Stephens also furnish office space and certain facilities required for
conducting the Fund's and the Master Portfolio's business together with
ordinary clerical and bookkeeping services. Stephens pays the compensation of
MIT's and the Company's Directors/Trustees, Officers and employees who are
affiliated with Stephens. The administrator and co-administrator are entitled
to receive from the Fund a monthly fee of 0.04% and 0.02%, respectively, of the
average daily net assets of the Fund.
9
<PAGE> 268
For the period begun September 16 and ended December 31, 1996,
Stephens served as sole administrator to the Fund and provided the Fund with
essentially the same services described above, Stephens was entitled to receive
a monthly fee at the annual rate of 0.05% of the Fund's average daily net
assets. For this period Stephens received $907 in administration fees from the
Fund.
SPONSOR AND DISTRIBUTOR. As discussed in the Fund's Prospectus
under the heading "Management of the Funds," Stephens serves as the Fund's
sponsor and distributor.
SHAREHOLDER SERVICING AGENT. The Fund has entered into a
shareholder servicing agreement with Wells Fargo Bank. For the period begun
September 16 and ended December 31, 1996, the Fund paid $754 in shareholder
servicing fees for Class D Shares.
CUSTODIAN. Wells Fargo has been retained to act as custodian for
the Fund and the Master Portfolio. The custodian, among other things, maintains
a custody account or accounts in the name of the Fund and the Master Portfolio,
receives and delivers all assets for the Fund and the Master Portfolio upon
purchase and upon sale or maturity, collects and receives all income and other
payments and distributions on account of the assets of the Fund and the Master
Portfolio and pays all expenses of the Fund and the Master Portfolio. For its
services as custodian, Wells Fargo receives an asset-based fee and transaction
charges from the Master Portfolio. For the period begun September 16 and ended
December 31, 1996, the Master Portfolio paid $298 in custody fees attributable
to the Fund.
TRANSFER AND DIVIDEND DISBURSING AGENT. Wells Fargo Bank has been
retained to act as transfer and dividend disbursing agent for the Fund and the
Master Portfolio. For its services as transfer and dividend disbursing agent
for the Fund, Wells Fargo Bank is entitled to receive monthly payments at the
annual rate of 0.14% of the average daily net assets of each class of shares.
Under the prior transfer agency agreement for the Fund, Wells Fargo Bank was
entitled to receive monthly payments at the annual rate of 0.07% of the Fund's
average daily net assets, regardless of Class, as well as reimbursement for all
reasonable out-of-pocket expenses. For the period begun September 16 and ended
December 31, 1996, the Fund did not pay any transfer and dividend disbursing
agency fees.
UNDERWRITING COMMISSIONS. For the year ended December 31, 1994,
the aggregate dollar amount of underwriting commissions paid on
sales/redemptions of the Company's shares to Stephens was $1,408,759, and
Stephens retained $1,351,388 of such commissions. WFSI and its registered
representatives received $57,371 of such commissions.
For the year ended December 31, 1995, the aggregate dollar amount
of underwriting commissions paid on sales/redemptions of the Company's shares
was $1,424,127, and Stephens retained $152,656 of such commissions. WFSI and
its registered representatives received $31,366 of such commissions.
10
<PAGE> 269
For the year ended December 31, 1996, the aggregate dollar amount
of underwriting commissions paid on sales/ redemptions of the Company's shares
was $1,777,985, and Stephens retained $152,656 of such commissions. WFSI and
its registered representatives received $255,147 and $1,327,199 respectively of
such commissions for the year.
COLLECTIVE INVESTMENT FUND MANAGEMENT FEES. Prior to September
16, 1996, Wells Fargo Bank provided management and administrative services to
the Collective Investment Fund. For these services Wells Fargo Bank charged
fees at an annual rate of 0.75% of the Collective Investment Fund's average net
assets. Wells Fargo was also entitled to be reimbursed by the Collective
Investment Fund for expenses incurred on its behalf, excluding costs incurred
in establishing and organizing the Fund. The Collective Investment Fund was
entitled to pay up to 0.10% of its net assets for "Audit Expenses." There were
no sales charges. The Collective Investment Fund paid all brokerage commissions
incurred on its portfolio transactions.
DISTRIBUTION PLANS
As indicated in the Prospectus, the Fund, on behalf of each
class of its shares, has adopted a Plan under Section 12(b) of the Act and Rule
12b-1 thereunder (the "Rule"). Pursuant to the Plan for Class A Shares, the Fund
may defray all or part of the actual cost of preparing and printing prospectuses
and other promotional materials and of providing such prospectuses and other
promotional materials to prospective shareholders of the Fund and may compensate
personnel of the distributor or reimburse the distributor for compensation paid
to selling agents for distribution-related or sales support services and may pay
for any other activities primarily intended to result in the sale of Class A
shares of the Fund. Payments also may be used to compensate or reimburse
servicing agents for shareholder liaison services provided by entities that are
dealers of record or that have a servicing relationship with the beneficial
owners of Class A shares of the Fund under a shareholder servicing agreement in
substantially the form approved by the Board of Directors. Total payments under
the Plan may not exceed 0.25% of the average daily net assets of the Class A
shares of the Fund on an annual basis.
Pursuant to the Plan for Class D Shares, the Company may pay to
Stephens Inc. ("Distributor"), as compensation for distribution-related
services provided, or reimbursement for distribution-related expenses
incurred, a monthly fee at an annual rate of up to 0.75% of the Fund's average
daily net assets attributable to Class D shares. The actual fee payable to the
Distributor shall, within such limit, be determined from time to time by
mutual agreement between the Company and the Distributor. The Distributor may
enter into selling agreements with one or more selling agents under which such
agents may receive compensation for distribution-related services from the
Distributor, including, but not limited to, commissions or other payments to
such agents based on the average daily net assets of Fund shares attributable to
them. The Distributor may retain any portion of the total distribution fee
payable hereunder to compensate it for distribution-related services provided by
it or to reimburse it for other distribution-related expenses.
For the period begun September 16 and ended December 31, 1996,
the Fund's distributor received the following amounts of 12b-1 fees for the
specified purposes set forth below under each Plan.
<TABLE>
<CAPTION>
Printing &
Mailing Marketing Compensation to
Total Prospectus Brochures Underwriters
----- ---------- --------- ---------------
<S> <C> <C> <C> <C>
Class A $1,498 N/A N/A $1,498
Class D $2,310 N/A N/A $2,310
</TABLE>
Each Plan will continue in effect from year to year if its
continuance is approved by a majority vote of both the directors of the Company
and the Qualified Directors. Agreements related to the Plans also must be
approved by such vote of the directors and the Qualified Directors. Such
agreements will terminate automatically if assigned, and may be terminated at
any time, without payment of any penalty, by a vote of a majority of the
outstanding voting securities of the Fund. The Plans may not be amended to
increase materially the amounts payable thereunder without the approval of a
majority of the outstanding voting securities of the Fund, and no material
amendment to a Plan may be made except by a majority of both the directors of
the Company and the Qualified Directors.
11
<PAGE> 270
The Plans require that the Treasurer of the Fund shall provide to
the directors, and the directors shall review, at least quarterly, a written
report of the amounts expended (and purposes therefore) under such Plan. The
Rule also requires that the selection and nomination of directors who are not
"interested persons" of the Company be made by such disinterested directors.
CLASS A ADMINISTRATIVE SERVICING PLAN
As indicated in the Fund's Prospectus, the Fund has adopted a
Shareholder Administrative Servicing Plan (the "Administrative Servicing Plan")
with respect to its Class A shares. Pursuant to the Administrative Servicing
Plan, the Fund may enter into administrative servicing agreements with
administrative servicing agents (which may include Wells Fargo and its
affiliates) who are dealers/holders of record, or that otherwise have a
servicing relationship with the beneficial owners, of the Fund's Class A
shares. Administrative servicing agents agree to perform administrative
shareholder services which may include, among other things, maintaining an
omnibus account with the Fund, aggregating and transmitting purchase, exchange
and redemption orders to the Fund's Transfer Agent, answering customer
inquiries regarding a shareholder's accounts in the Fund, and providing such
other services as the Company or a customer may reasonably request.
Administrative servicing agents are entitled to a fee which will not exceed
0.25%, on an annualized basis, of the average daily net assets of the Class A
shares represented by the shares owned of record or beneficially by the
customers of the administrative servicing agent during the period for which
payment is being made. In no case shall shares be sold pursuant to the Class A
Rule 12b-1 Plan while being sold pursuant to its Administrative Servicing Plan.
CLASS B AND D SERVICING PLANS
As indicated in the Fund's Prospectus, the Fund has adopted
Servicing Plans ("Servicing Plans") with respect to each of its Class B and
Class D shares.
Under the Servicing Plans and pursuant to the Servicing
Agreements, the Fund may pay one or more servicing agents, as compensation for
performing shareholder administrative and liaison services, a fee at an annual
rate of up to 0.25% of the average daily net assets of the Fund attributable to
its Class B and Class D Shares. The actual fee payable to servicing agents is
determined, within such limit, from time to time by mutual agreement between
the Company and each servicing agent and will not exceed the maximum service
fees payable by mutual funds sold by members of the NASD under the Conduct
Rules of the NASD.
The Servicing Plans will continue in effect for successive annual
periods provided that such Plans are not specifically terminated by a majority
vote of both the Directors of the Company and the Servicing Plans Qualified
Directors. Any form of Servicing Agreement related to the Servicing Plans also
must be approved by such vote of the Directors and the Servicing Plans Qualified
Directors. Servicing Agreements will terminate automatically if assigned, and
may be
12
<PAGE> 271
terminated at any time, without payment of any penalty, by a vote of a
majority of the outstanding Class B or Class D Shares of the Fund. The Servicing
Plans may not be amended to increase materially the amount payable thereunder
without the approval of a majority of the outstanding Class B or Class D Shares
of the Fund, and no material amendment to the Servicing Plans may be made except
by a majority of both the Directors of the Company and the Qualified Directors.
The Servicing Plans require that the Company's Directors shall
review, at least quarterly, a written report of the amounts expended (and
purposes therefor) under the Servicing Plans.
PERFORMANCE CALCULATIONS
TOTAL RETURN. As indicated in the Prospectus, the Fund may
advertise certain total return information for a class of shares, computed in
the manner described in the Prospectus. As and to the extent required by the
Commission, an average annual compound rate of return ("T") will be computed by
using the redeemable value at the end of a specified period ("ERV") of a
hypothetical initial investment in a class of shares ("P") over a period of
years ("n") according to the following formula: P(1+T)n = ERV. In addition, as
indicated in the Prospectus, the Fund also may, at times, calculate total
return for a class of shares based on net asset value per share (rather than
the public offering price), in which case the figures would not reflect the
effect of any sales charges that would have been paid by an investor, or would
be based on the assumption that a sales charge other than the maximum sales
charge (reflecting a Volume Discount) was assessed, provided that total return
data derived pursuant to the calculation described above also are presented.
In addition to the above performance information, the Fund may
also advertise the cumulative total return of a class. The cumulative total
return for such periods is based on the overall percentage change in value of a
hypothetical investment in a class of shares, assuming all dividends and
capital gain distributions are reinvested in shares of that class, without
reflecting the effect of any sales charge that would be paid by an investor,
and is not annualized.
Performance information may be advertised for non-standardized
periods, including year-to-date and other periods less than a year.
The total return information presented below and advertised by
the Fund prior to September 16, 1996, the date the Fund commenced operations, is
based upon the prior performance of the Collective Investment Fund. The
performance information is adjusted to reflect each class' current level of
operating expenses.
13
<PAGE> 272
For the Applicable Period Ended December 31, 1996
<TABLE>
<CAPTION>
Average Annual Total Return Cumulative Total Return
----------------------------------- --------------------------------
Inception(1) Inception One Year One Year Inception Inception
With Sales No Sales With Sales No Sales With Sales No Sales
CLASS Charge(2) Charge Charge Charge Charge Charge
- ----- ------------ --------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
A 39.20% 42.18% 15.06% 20.49% 15.06% 20.49%
D 41.09% 41.09% 19.01% 19.57% 19.01% 19.57%
</TABLE>
- -------------
(1) The Small Cap Strategy Fund commenced operations on September 16, 1996, as
the successor to Small Capitalization Growth Fund for BRP Employment
Retirement Plans, an unregistered bank collective investment fund (the
"Predecessor Fund") which, in turn, commenced operations on November 2,
1994.
(2) For Class A Shares, there is a front-end sales charge of 4.50%. For Class D
Shares, there is a maximum contingent deferred sales charge ("CDSC") of
3.00%.
OTHER. From time to time and only to the extent the comparison is
appropriate for a class of shares of the Fund, the Company may quote the
performance or price-earning ratio of a class of shares of the Fund in
advertising and other types of literature as compared to the performance of the
1-year Treasury Bill Rate, the S&P Index, the Dow Jones Industrial Average, the
Lehman Brothers 20+ Years Treasury Index, the Lehman Brothers 5-7 Year Treasury
Index, Donoghue's Money Fund Averages, Real Estate Investment Averages (as
reported by the National Association of Real Estate Investment Trusts), Gold
Investment Averages (provided by the World Gold Council), Bank Averages (which
is calculated from figures supplied by the U.S. League of Savings Institutions
based on effective annual rates of interest on both passbook and certificate
accounts), average annualized certificate of deposit rates (from the Federal
Reserve G-13 Statistical Releases or the Bank Rate Monitor), the Salomon One
Year Treasury Benchmark Index, the Consumer Price Index (as published by the
U.S. Bureau of Labor Statistics), Ten Year U.S. Government Bond Average, S&P's
Corporate Bond Yield Averages, Schabacter Investment Management Indices,
Salomon Brothers High Grade Bond Index, Lehman Brothers Long-Term High Quality
Government/Corporate Bond Index, other managed or unmanaged indices or
performance data of bonds, stocks or government securities (including data
provided by Ibbotson Associates), or by other services, companies, publications
or persons who monitor mutual funds on overall performance or other criteria.
The S&P Index and the Dow Jones Industrial Average are unmanaged indices of
selected common stock prices. The performance of a class of shares of
the Fund also may be compared to the performance of other mutual funds having
similar objectives. This comparative performance could be expressed as a
ranking prepared by Lipper Analytical Services, Inc., CDA Investment
Technologies, Inc., Bloomberg Financial Markets or Morningstar, Inc.,
independent services which monitor the performance of mutual funds. The
performance of a class of shares of the Fund will be calculated by relating net
asset value per share at the beginning of a stated period to the net asset
value of the investment, assuming reinvestment of all gains distributions and
dividends paid, at the end of the period. Any such comparisons may be useful to
investors who wish to compare the class' past performance with that of its
competitors. Of course, past performance cannot be a guarantee of future
results. The
14
<PAGE> 273
Company also may include, from time to time, a reference to certain marketing
approaches of the Distributor, including, for example, a reference to a
potential shareholder being contacted by a selected broker or dealer. General
mutual fund statistics provided by the Investment Company Institute may also be
used.
From time to time, the Company may quote in advertising and other
types of literature, the average market capitalization and the weighted market
capitalization of the Fund's portfolio, as well as the portfolio's beta
coefficient ("beta") and may compare such quotations to similar quotations from
a benchmark index such as the Russell 2000 or Russell 3000 Index or other
managed or unmanaged indices and mutual funds having similar objectives. The
market capitalization of a company is an amount equal to the market price per
share multiplied by the number of shares outstanding. The average market
capitalization of the Fund's portfolio is the average of the market
capitalizations of the companies in which the Fund invests. The weighted market
capitalization of the Fund's portfolio is the total of the market
capitalizations of the companies in which the Fund invests, adjusted to reflect
the percentage of the Fund's portfolio invested in each such company. The
"beta" is a coefficient measuring the volatility of a stock or portfolio
relative to the rest of the market for such stocks or portfolios. For example,
if an index has a beta coefficient of 1, then stocks or portfolios represented
in that index with a beta higher than 1 are more volatile than the market
represented by that index, and those with a beta lower than 1 will rise and
fall more slowly than such market.
In addition, the Company also may use, in advertisements and
other types of literature, information and statements: (1) showing that bank
savings accounts offer a guaranteed return of principal and a fixed rate of
interest, but no opportunity for capital growth; and (2) describing Wells
Fargo, and its affiliates and predecessors, as one of the first investment
managers to advise investment accounts using asset allocation and index
strategies. The Company also may include in advertising and other types of
literature information and other data from reports and studies prepared by the
Tax Foundation, including information regarding federal and state tax levels
and the related "Tax Freedom Day."
The Company also may use the following information in
advertisements and other types of literature, only to the extent the
information is appropriate for a class of shares of the Fund: (i) the Consumer
Price Index may be used to assess the real rate of return from an investment in
a class of shares of the Fund; (ii) other government statistics, including, but
not limited to, The Survey of Current Business, may be used to illustrate
investment attributes of a class of shares of the Fund or the general economic,
business, investment, or financial environment in which the Fund operates;
(iii) the effect of tax-deferred compounding on the investment returns of a
class of shares of the Fund, or on returns in general, may be illustrated by
graphs, charts, etc., where such graphs or charts would compare, at various
points in time, the return from an investment in a class of shares of the Fund
(or returns in general) on a tax-deferred basis (assuming reinvestment of
capital gains and dividends and assuming one or more tax rates) with the return
on a taxable basis; and (iv) the sectors or industries in which the Fund invests
may be compared to relevant indices of stocks or surveys (e.g., S&P Industry
Surveys) to evaluate the historical performance or current or potential value of
a class of shares of the Fund with respect to the particular industry or sector.
15
<PAGE> 274
The Company also may discuss in advertising and other types of
literature that the Fund has been assigned a rating by an NRSRO, such as S&P or
Moody's. Such rating would assess the creditworthiness of the investments held
by the Fund. The assigned rating would not be a recommendation to purchase,
sell or hold the Fund's shares since the rating would not comment on the market
price of the Fund's shares or the suitability of the Fund for a particular
investor. In addition, the assigned rating would be subject to change,
suspension or withdrawal as a result of changes in, or the unavailability of,
information relating to the Fund or its investments. The Company may compare
the performance of the Fund with other investments that are assigned ratings by
the NRSROs. Any such comparisons may be useful to investors who wish to compare
the Fund's past performance with other rated investments.
The Company also may disclose, in advertising and other types of
literature, information and statements that Wells Capital Management, Inc.
("WCM" formerly, Wells Fargo Investment Management) a subsidiary of Wells Fargo
Bank, is listed in the top 100 by Institutional Investor magazine in its July
1996 survey "America's Top 300 Money Managers." This survey ranks money
managers in several asset categories. The Company may also disclose in
advertising and other types of sales literature the assets and categories of
assets under management by the Company's investment adviser and the total
amount of assets under management by Wells Fargo Bank. As of April 1, 1997,
Wells Fargo Bank and its affiliates provided investment advisory services for
approximately $57 billion of assets of individuals, trusts, estates and
institutions and $20 billion of mutual fund assets.
The Company may disclose in advertising and other types of
literature that investors can open and maintain Sweep Accounts over the
Internet or through other electronic channels (collectively, "Electronic
Channels"). Such advertising and other literature may discuss the investment
options available to investors, including the types of accounts and any
applicable fees. Such advertising and other literature may disclose that Wells
Fargo Bank is the first major bank to offer an on-line application for a mutual
fund account that can be filled out completely through Electronic Channels.
Advertising and other literature may disclose that Wells Fargo Bank may
maintain Web sites, pages or other information sites accessible through
Electronic Channels (an "Information Site") and may describe the contents and
features of the Information Site and instruct investors on how to access the
Information Site and open a Sweep Account. Advertising and other literature may
also disclose the procedures employed by Wells Fargo Bank to secure information
provided by investors, including disclosure and discussion of the tools and
services for accessing Electronic Channels. Such advertising or other
literature may include discussions of the advantages of establishing and
maintaining a Sweep Account through Electronic Channels and testimonials from
Wells Fargo Bank customers or employees and may also include descriptions of
locations where product demonstrations may occur. The Company may also disclose
the ranking of Wells Fargo Bank as one of the largest money managers in the
United States.
16
<PAGE> 275
DETERMINATION OF NET ASSET VALUE
Net asset value per share for each class of the Fund and net
asset value per unit of the Master Portfolio are each determined on each day
the Fund is open as of 1:00 p.m. (Pacific time).
Securities of the Master Portfolio for which market quotations
are available are valued at latest prices. Any security for which the primary
market is an exchange is valued at the last sale price on such exchange on the
day of valuation or, if there was no sale on such day, the latest bid price
quoted on such day. In the case of other securities, including U.S. Government
securities but excluding money market instruments maturing in 60 days or less,
the valuations are based on latest quoted bid prices. Money market instruments
maturing in 60 days or less are valued at amortized cost. The assets of the
Master Portfolio other than money market instruments maturing in 60 days or
less are valued at latest quoted bid prices. Prices may be furnished by a
reputable independent pricing service approved by the Board of Trustees. Prices
provided by an independent pricing service may be determined without exclusive
reliance on quoted prices and may take into account appropriate factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data. All other securities and other assets of the Master Portfolio for which
current market quotations are not readily available are valued at fair value as
determined in good faith by MIT's Trustees and in accordance with procedures
adopted by the Trustees.
Expenses and fees, including advisory fees are accrued daily and
are taken into account for the purpose of determining the net asset value of
the Master Portfolio's interests and the Fund's shares.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares may be purchased on any day the Fund is open. The Fund is
open for business each day the New York Stock Exchange ("NYSE") is open for
trading (a "Business Day"). Currently, the NYSE is closed on New Year's Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day (each a "Holiday"). When any Holiday falls
on a weekend, the NYSE typically is closed on the weekday immediately before or
after such Holiday.
Payment for shares may, in the discretion of the adviser, be made
in the form of securities that are permissible investments for the Fund as
described in the Prospectuses. For further information about this form of
payment please contact Stephens. In connection with an in-kind securities
payment, the Fund will require, among other things, that the securities be
valued on the day of purchase in accordance with the pricing methods used by
the Fund and that the Fund receives satisfactory assurances that (i) it will
have good and marketable title to the securities received by it; (ii) that the
securities are in proper form for transfer to the Fund; and (iii) adequate
information will be provided concerning the basis and other matters relating to
the securities.
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Under the 1940 Act, the Fund may suspend the right of redemption
or postpone the date of payment upon redemption for any period during which the
NYSE is closed (other than customary weekend and holiday closings, or during
which trading is restricted, or during which as determined by the SEC by rule
or regulation), an emergency exists as a result of which disposal or valuation
of portfolio securities is not reasonably practicable, or for such periods as
the SEC may permit.
The Company may suspend redemption rights or postpone redemption
payments for such periods as are permitted under the 1940 Act. The Company may
also redeem shares involuntarily or make payment for redemption in securities
or other property if it appears appropriate to do so in light of the Company's
responsibilities under the 1940 Act.
In addition, the Company may redeem shares involuntarily to
reimburse the Fund for any losses sustained by reason of the failure of a
shareholders to make full payment for shares purchased or to collect any charge
relating to a transaction effected for the benefit of a shareholder which is
applicable to shares of the Fund as provided from time to time in the
Prospectus.
PORTFOLIO TRANSACTIONS
Purchases and sales of equity securities on a securities exchange
Portfolio usually are effected through brokers who charge a negotiated
commission for their services. Commission rates are established pursuant to
negotiations with the broker based on the quality and quantity of execution
services provided by the broker in light of generally prevailing rates. Orders
may be directed to any broker including, to the extent and in the manner
permitted by applicable law, Stephens or Wells Fargo Securities Inc. In the
over- the-counter-market, securities are generally traded on a "net" basis with
dealers acting as principal for their own accounts without a stated commission,
although the price of the security usually includes a profit to the dealer. In
underwritten offerings, securities are purchased at a fixed price that includes
an amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount.
Purchases of debt securities generally are principal
transactions. Debt securities normally are purchased or sold from or to dealers
serving as market makers for the securities at a net price. Debt securities also
may be purchased in underwritten offerings or directly from an issuer.
Generally debt obligations are traded on a net basis and do not involve
brokerage commissions. The cost of executing transactions in debt securities
consists primarily of dealer spreads and underwriting commissions.
Under the 1940 Act, persons affiliated with MIT are prohibited
from dealing with MIT as a principal in the purchase and sale of portfolio
securities unless an exemptive order allowing such transactions is obtained
from the Commission or an exemption is otherwise available. The Master
Portfolio may purchase securities from underwriting syndicates of which
Stephens or Wells Fargo Bank is a member under certain conditions in
accordance with the provisions of a rule adopted under the Act and in
compliance with procedures adopted by MIT's Board of Trustees.
MIT 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 MIT's Board of Trustees, Wells Fargo is responsible for the
Master Portfolio's investment decisions and the placing of portfolio
transactions. In placing orders, it is the policy of MIT to obtain the best
overall terms taking into account the dealer's general execution and
operational facilities, the type of transaction involved and other factors such
as the dealer's risk in positioning the securities involved. Wells Fargo Bank
generally seeks reasonably competitive spreads or commissions.
In assessing the best overall terms available for any
transaction, Wells Fargo Bank considers factors deemed relevant, including the
breadth of the market in the security, the price of the security, the financial
condition and execution capability of the broker or dealer, and the
reasonableness of the commission, if any, both for the specific transaction and
on a continuing basis. Wells Fargo Bank may cause the Master Portfolio to pay a
broker/dealer which furnishes brokerage and research services a higher
commission than that which might be charged by another
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broker/dealer for effecting the same transaction, provided that Wells Fargo Bank
determines in good faith that such commission is reasonable in relation to the
value of the brokerage and research services provided by such broker/dealer,
viewed in terms of either the particular transaction or the overall
responsibilities of Wells Fargo Bank. Such brokerage and research services might
consist of reports and statistics relating to specific companies or industries,
general summaries of groups of stocks or bonds and their comparative earnings
and yields, or broad overviews of the stock, bond, and government securities
markets and the economy.
Supplementary research information so received is in addition to,
and not in lieu of, services required to be performed by Wells Fargo Bank and
does not reduce the advisory fees payable by the Master Portfolio. MIT's Board
of Trustees will periodically review the commissions paid by the Master
Portfolio to consider whether the commissions paid over representative periods
of time appear to be reasonable in relation to the benefits inuring to the
Master Portfolio. It is possible that certain of the supplementary research or
other services received will primarily benefit one or more other investment
companies or other accounts for which Wells Fargo Bank exercises investment
discretion. Conversely, the Master Portfolio may be the primary beneficiary of
the research or services received as a result of portfolio transactions
effected for such other account or investment company.
Under Section 28(e) of the Securities Exchange Act of 1934, an
adviser shall not be "deemed to have acted unlawfully or to have breached its
fiduciary duty" solely because under certain circumstances it has caused the
account to pay a higher commission than the lowest available. To obtain the
benefit of Section 28(e), an adviser must make a good faith determination that
the commissions paid are "reasonable in relation to the value of the brokerage
and research services provided . . . viewed in terms of either that particular
transaction or its overall responsibilities with respect to the accounts as to
which it exercises investment discretion and that the services provided by a
broker provide an adviser with lawful and appropriate assistance in the
performance of its investment decision-making responsibilities." Accordingly,
the price to the Master Portfolio in any transaction may be less favorable than
that available from another broker/dealer if the difference is reasonably
justified by other aspects of the portfolio execution services offered.
Broker/dealers utilized by Wells Fargo Bank may furnish
statistical, research and other information or services which are deemed by
Wells Fargo Bank to be beneficial to the Master Portfolio's investment
programs. Research services received from brokers supplement Wells Fargo Bank's
own research and may include the following types of information: statistical
and background information on industry groups and individual companies;
forecasts and interpretations with respect to U.S. and foreign economies,
securities, markets, specific industry groups and individual companies;
information on political developments; portfolio management strategies;
performance information on securities and information concerning prices of
securities; and information supplied by specialized services to Wells Fargo
Bank and to MIT's Trustees with respect to the performance, investment
activities and fees and expenses of other mutual funds. Such information may be
communicated electronically, orally or in written form. Research services may
also include the providing of equipment used to communicate research
information, the arranging of meetings with management of companies and the
providing of access to consultants who supply research information.
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The outside research assistance is useful to Wells Fargo Bank
since the brokers utilized by Wells Fargo Bank as a group tend to follow a
broader universe of securities and other matters than the staff of Wells Fargo
Bank can follow. In addition, this research provides Wells Fargo Bank with a
diverse perspective on financial markets. Research services which are provided
to Wells Fargo Bank by brokers are available for the benefit of all accounts
managed or advised by Wells Fargo Bank. It is the opinion of Wells Fargo Bank
that this material is beneficial in supplementing their research and analysis;
and, therefore, it may benefit the Master Portfolio by improving the quality of
Wells Fargo Bank's investment advice.
BROKERAGE COMMISSIONS. For the period ended December 31, 1996,
the Master Portfolio paid brokerage commissions in the amount of $10,840.
SECURITIES OF REGULAR BROKER/DEALERS. As of December 31, 1996,
the Master Portfolio owned securities (pooled repurchase agreements) of its
"regular brokers or dealers" or their parents as defined in the Act, as
follows: $800,000 of JP Morgan, $1,200,000 of HSBC Securities and $1,223,000 of
Goldman Sachs.
PORTFOLIO TURNOVER. Portfolio turnover generally involves some
expenses to the Master Portfolio, including brokerage commissions or dealer
mark-ups and other transactions costs on the sale of securities and the
reinvestment in other securities. Portfolio turnover also can generate
short-term capital gains tax consequences. The portfolio turnover rate will not
be a limiting factor when Wells Fargo deems portfolio changes appropriate.
FUND EXPENSES
From time to time, Wells Fargo Bank and Stephens may waive fees
from the Fund in whole or in part. Any such waiver will reduce Fund expenses
and, accordingly, have a favorable impact on the Fund's performance. Except for
the expenses borne by Wells Fargo Bank and Stephens, the Fund bears all costs
of its operations, including the compensation of the Company's directors and
the Trust's trustees who are not officers or employees of Wells Fargo Bank or
Stephens or any of their affiliates; advisory, shareholder servicing, and
administration fees; payments pursuant to any Plans; interest charges; taxes;
fees and expenses of independent auditors; legal counsel, transfer agent and
dividend disbursing agent; expenses of redeeming Fund shares; expenses of
preparing and printing Prospectuses (except the expense of printing and mailing
Prospectuses used for promotional purposes, unless otherwise payable pursuant
to a Plan), shareholders' or investors' reports, notices, proxy statements and
reports to regulatory agencies; insurance premiums and certain expenses
relating to insurance coverage; trade association membership dues; brokerage
and other expenses connected with the execution of portfolio transactions; fees
and expenses of the custodian, including those of keeping books and accounts
and calculating the net asset value of the Fund; expenses of shareholders' or
investors' meetings; expenses relating to the issuance, registration and
qualification of shares of the Fund; pricing services; organizational expenses;
and any extraordinary expenses. Expenses attributable to the Fund are charged
against the respective assets of the Fund. A pro rata portion of the expenses of
the Company are charged against the assets of the Fund.
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FEDERAL INCOME TAXES
In General. The following information supplements and should be
read in conjunction with the Prospectus sections entitled "Dividend and Capital
Gain Distributions" and "Taxes." The Prospectus of the Fund 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.
The Company intends to qualify the Fund as a regulated investment
company under Subchapter M of the Code as long as such qualification is in the
best interest of the Fund's 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 will generally 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.
Qualification as a regulated investment company under the Code
requires, among other things, that (a) the Fund derive at least 90% of its
annual gross income from interest, payments with respect to securities loans,
dividends and gains from the sale or other disposition of securities or options
thereon; (b) the Fund derive less than 30% of its gross income from gains from
the sale or other disposition of securities or options thereon held for less
than three months; and (c) the Fund diversify its holdings so that, at the end
of each quarter of the taxable year, (i) at least 50% of the market value of
the Fund's assets is represented by cash, government securities and other
securities limited in respect of any one issuer to an amount not greater than
5% of the Fund's assets and 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of its assets is invested in
the securities of any one issuer (other than U.S. Government securities and the
securities of other regulated investment companies), or in two or more issuers
which the Fund controls and which are determined to be engaged in the same or
similar trades or businesses. For purposes of complying with these
qualification requirements, the Fund will be deemed to own a proportionate
share of the Master Portfolio's assets. 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% its net investment income, including net
tax-exempt income, earned in each year. The Fund intends to pay out
substantially all of its net investment income and net realized capital gains
(if any) for each year.
A 4% nondeductible excise tax will be imposed on the Fund to the
extent it does not meet certain minimum distribution requirements by the end of
each calendar year. 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. Although in some
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circumstances a regulated investment company can elect to "pass through" foreign
tax credits to its shareholders, the Fund does not expect to be eligible to make
such an election.
The Fund seeks to qualify as a regulated investment company by
investing substantially 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. 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 the
Master Portfolio's other investors) in proportion to the Fund's ownership
interest in the Master Portfolio. Therefore, to the extent the Master Portfolio
were to accrue but not distribute any interest, dividends or gains, the Fund
would be deemed to have realized and recognized its proportionate share of
interest, dividends or gains without receipt of any corresponding distribution.
However, the Master Portfolio will seek to minimize recognition by investors of
interest, dividends, gains or losses without a corresponding distribution.
Corporate shareholders of the Fund may be eligible for the
dividends-received deduction on dividends distributed out of the Fund's net
investment income attributable to dividends received from domestic
corporations, which, if received directly by the corporate shareholder, would
qualify for such deduction. In order to qualify for the dividends-received
deduction, a corporate shareholder must hold the Fund shares paying the
dividends upon which the deduction is based for at least 46 days.
Federal Income Tax Rates. As of the printing of this SAI, the
maximum individual tax rate applicable to ordinary income is 39.60% (marginal
rates may be higher for some individuals due to phase out of exemptions and
elimination of deductions); the maximum individual tax rate applicable to net
capital gains is 28.00%; and the maximum corporate tax rate applicable to
ordinary income and net capital gains is 35.00% (except that to eliminate the
benefit of lower marginal corporate income tax rates, corporations which have
taxable income in excess of $100,000 for a taxable year will be required to pay
an additional amount of income tax 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 tax of up to $100,000). Naturally, the amount of
tax payable by an individual or corporation will be affected by a combination
of tax laws covering, for example, deductions, credits, deferrals, exemptions,
sources of income and other matters.
Capital Gain Distributions. To the extent that 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.
Disposition of Fund Shares. If a shareholder receives a
designated capital gain distribution (to be treated by the shareholder as a
long-term capital gain) with respect to any Fund share and such Fund share is
held for six months or less, then (unless otherwise disallowed) any
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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.
If a shareholder exchanges or otherwise disposes of Fund shares
within 90 days of having acquired such shares and if, as a result of having
acquired those shares, the shareholder subsequently pays a reduced sales charge
on a new purchase of shares of the Fund or of a different regulated investment
company, the sales charge previously incurred acquiring the Fund's shares shall
not be taken into account (to the extent such previous sales charges do not
exceed the reduction in sales charges on the new purchase) for the purpose of
determining the amount of gain or loss on the disposition, but will be treated
as having been incurred in the acquisition of such other shares. Also, any loss
realized on a redemption or exchange of shares of the Fund will be disallowed
to the extent that substantially identical shares are reacquired within the
61-day period beginning 30 days before and ending 30 days after the shares are
disposed of.
Taxation of Fund Investments. Gains or losses on sales of
portfolio securities by the Master Portfolio will generally be long-term
capital gains or losses if the securities have been held by it for more than
one year, except in certain cases such as where the Master Portfolio acquires a
put or writes a call thereon. Gains recognized on the disposition of a debt
obligation (including tax-exempt obligations purchased after April 30, 1993)
purchased by the Master Portfolio at a market discount (generally at a price
less than its principal amount) will be treated as ordinary income to the
extent of the portion of market discount which accrued during the period of
time the Master Portfolio held the debt obligation. Other gains or losses on
the sale of portfolio securities will be short-term capital gains or losses.
If an option written by the Master Portfolio lapses or is
terminated through a closing transaction, such as a repurchase by the Master
Portfolio of the option from its holder, the Master Portfolio will realize a
short-term capital gain or loss, depending on whether the premium income is
greater or less than the amount paid by the Master Portfolio in the closing
transaction. Some realized capital losses may be deferred if they result from a
position which is part of a "straddle," discussed below. If securities are sold
by the Master Portfolio pursuant to the exercise of a call option written by
it, the Master Portfolio will add the premium received to the sale price of the
securities delivered in determining the amount of gain or loss on the sale. If
securities are purchased by the Master Portfolio pursuant to the exercise of a
put option written by it, the Master Portfolio will subtract the premium
received from its cost basis in the securities purchased. The requirement that
the Fund derive less than 30% of its gross income from gains from the sale of
securities held for less than three months may limit the Master Portfolio's
ability to write options.
The amount of any gain or loss realized by a Fund on closing out
a futures contract will generally result in a realized capital gain or loss for
tax purposes. Futures contracts held at the end of each fiscal year will be
required to be "marked to market" for federal income tax purposes pursuant to
Section 1256 of the Code. In this regard, they will be deemed to have been sold
at market value. Sixty percent (60%) of any net gain or loss recognized on these
deemed sales and sixty percent (60%) of any net realized gain or loss from any
actual sales, generally will be treated as long-term capital gain or loss, and
the remaining forty percent (40%) will be treated
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as short-term capital gain or loss. Transactions that qualify as designated
hedges are excepted from the "marked to market" and "60%/40%" rules. Currency
transactions may be subject to Section 988 of the Code, under which foreign
currency gains or losses would generally be computed separately and treated as
ordinary income or losses. The Funds will attempt to monitor Section 988
transactions to avoid an adverse tax impact.
Offsetting positions held by a regulated investment company
involving certain financial forward, futures or options contracts may be
considered, for tax purposes, to constitute "straddles." "Straddles" are
defined to include "offsetting positions" in actively traded personal property.
The tax treatment of "straddles" is governed by Section 1092 of the Code which,
in certain circumstances, overrides or modifies the provisions of Section 1256.
If a regulated investment company were treated as entering into
"straddles" by reason of its engaging in certain financial forward, futures or
option contracts, such straddles could be characterized as "mixed straddles" if
the futures, forwards, or options comprising a part of such straddles were
governed by Section 1256 of the Code. The regulated investment company may make
one or more elections with respect to "mixed straddles." Depending upon which
election is made, if any, the results with respect to the regulated investment
company may differ. Generally, to the extent the straddle rules apply to
positions established by the regulated investment company, losses realized by
the regulated investment company may be deferred to the extent of unrealized
gain in any offsetting positions. Moreover, as a result of the straddle and the
conversion transaction rules, short-term capital loss on straddle positions may
be recharacterized as long-term capital loss, and long-term capital gain may be
characterized as short-term capital gain or ordinary income.
If the Master Portfolio purchases shares in a "passive foreign
investment company" ("PFIC"), the Fund may be subject to federal income tax and
an interest charge imposed by the IRS upon certain distributions from the PFIC
or the Master Portfolio's disposition of its PFIC shares. If the Master
Portfolio invests in a PFIC, the Fund intends to make an available election to
mark-to-market its interest in PFIC shares (through the Master Portfolio).
Under the election, the Fund will be treated as recognizing at the end of each
taxable year the excess, if any, of the fair market value of its interest in
PFIC shares over its basis in such shares. Although such excess will be taxable
to the Fund as ordinary income notwithstanding any distributions by the PFIC,
the Fund will not be subject to federal income tax or the interest charge with
respect to its interest in the PFIC.
Foreign Shareholders. Under the Code, distributions of net
investment income by the Fund to a nonresident alien individual, nonresident
alien fiduciary of a trust or estate, foreign corporation, or foreign
partnership (a "foreign shareholder") will be subject to U.S. withholding tax
(at a rate of 30% or a lower treaty rate). Withholding will not apply if a
dividend paid by the Fund to a foreign shareholder is "effectively connected"
with a U.S. trade or business, in which case the reporting and withholding
requirements applicable to U.S. citizens, U.S. residents or domestic
corporations will apply. Distributions of net long-term capital gains are not
subject to tax withholding, but in the case of a foreign shareholder who is a
nonresident alien individual,
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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.
Backup Withholding. The Company may be required to withhold,
subject to certain exemptions, at a rate of 31% ("backup withholding") on
dividends, capital gain distributions, and redemption proceeds (including
proceeds from exchanges) paid or credited to an individual Fund shareholder,
unless a shareholder certifies that the Taxpayer Identification Number ("TIN")
provided is correct and that the shareholder is not subject to backup
withholding, or the IRS notifies the Company that the shareholder's TIN is
incorrect or the shareholder is subject to backup withholding. Such tax
withheld does not constitute any additional tax imposed on the shareholder, and
may be claimed as a tax payment on the shareholder's federal income tax return.
An investor must provide a valid TIN upon opening or reopening an account.
Failure to furnish a valid TIN to the Company could subject the investor to
penalties imposed by the IRS.
Other Matters. Investors should be aware that the investments to
be made by the Master Portfolio may involve sophisticated tax rules that may
result in income or gain recognition by the Fund without corresponding current
cash receipts. Although the Master Portfolio will seek to avoid significant
noncash income, such noncash income could be recognized by the Master
Portfolio, in which case the Fund may distribute cash derived from other
sources in order to meet the minimum distribution requirements described above.
The foregoing discussion and the discussions in the Prospectus
address only some of the federal tax considerations generally affecting
investments in a Fund. Each investor is urged to consult his or her tax advisor
regarding specific questions as to federal, state or local taxes and foreign
taxes.
CAPITAL STOCK
The following information supplements and should be read in
conjunction with the section in the Prospectus entitled "Organization and
Capital Stock."
The Fund is comprised of three classes of shares, Class A shares,
Class B shares and Class D shares. Currently, Class B shares are not offered to
investors. With respect to matters that affect one class but not another,
shareholders vote as a class; for example, the approval of a Plan. Subject to
the foregoing, on any matter submitted to a vote of shareholders, all shares
then entitled to vote will be voted separately by portfolio unless otherwise
required by the Act, in which case all shares will be voted in the aggregate.
For example, a change in the Fund's fundamental investment policies would be
voted upon only by shareholders of the Fund and not shareholders of the
Company's other investment portfolios. Additionally, approval of an advisory
contract is a matter to be determined separately by the Fund. Approval by the
shareholders of one portfolio is effective as to that portfolio whether or not
sufficient votes are received from the shareholders of the other portfolios to
approve the proposal as to those portfolios. As used in the Prospectus and in
this Statement of Additional Information, the term "majority," when referring
to approvals to be obtained from shareholders of a class of the Fund, means the
vote of the lesser
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of (i) 67% of the shares of such class of the Fund represented at a meeting if
the holders of more than 50% of the outstanding shares of such class of the
Fund are present in person or by proxy, or (ii) more than 50% of the
outstanding shares of such class of the Fund. The term "majority," when
referring to the approvals to be obtained from shareholders of the Company as a
whole, means the vote of the lesser of (i) 67% of the Company's shares
represented at a meeting if the holders of more than 50% of the Company's
outstanding shares are present in person or by proxy, or (ii) more than 50% of
the Company's outstanding shares. Shareholders are entitled to one vote for
each full share held and fractional votes for fractional shares held.
The Company may dispense with annual meetings of shareholders in
any year in which it is not required to elect directors under the Act. However,
the Company undertakes to hold a special meeting of its shareholders for the
purpose of voting on the question of removal of a director or directors if
requested in writing of the holders of at least 10% of the Company's
outstanding voting securities, and to assist in communicating with other
shareholders as required by Section 16(c) of the Act.
Each share of a class of the Fund represents an equal
proportional interest in the Fund with each other share of the same class and
is entitled to such dividends and distributions out of the income earned on the
assets belonging to the Fund as are declared in the discretion of the
Directors. In the event of the liquidation or dissolution of the Company,
shareholders of the Fund are entitled to receive the assets attributable to the
Fund that are available for distribution, and a distribution of any general
assets not attributable to the Fund that are available for distribution in such
manner and on such basis as the Directors in their sole discretion may
determine.
Shareholders are not entitled to any preemptive rights. All
shares, when issued, will be fully paid and non-assessable by the Company.
MIT is a business trust organized under the laws of Delaware. In
accordance with Delaware law and in connection with the tax treatment sought by
MIT, MIT's Declaration of Trust provides that its investors would be personally
responsible for Trust liabilities and obligations, but only to the extent MIT
property is insufficient to satisfy such liabilities and obligations. The
Declaration of Trust also provides that MIT shall maintain appropriate
insurance (for example, fidelity bonding and errors and omissions insurance)
for the protection of MIT, its investors, Trustees, officers, employees and
agents covering possible tort and other liabilities, and that investors will be
indemnified to the extent they are held liable for a disproportionate share of
Trust obligations. Thus, the risk of an investor incurring financial loss on
account of investor liability is limited to circumstances in which both
inadequate insurance existed and MIT itself was unable to meet its obligations.
The Declaration of Trust further provides that obligations of MIT
are not binding upon the Trustees individually but only upon the property of
MIT and that the Trustees will not be liable for any action or failure to act.
However, nothing in the Declaration of Trust protects a Trustee against any
liability to which the Trustee would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of the Trustee's office.
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The interests in the Master Portfolio have substantially
identical voting and other rights as those rights enumerated above for Fund
shares. MIT also intends to dispense with annual meetings, but will hold a
special meeting and assist investor communications under the circumstances
described above with respect to the Company in accord with provisions under
Section 16(c) of the Act. Whenever the Fund is requested to vote on a matter
with respect to the Master Portfolio, the Fund will hold a meeting of Fund
shareholders and will cast its votes as instructed by such shareholders. In a
situation where the Fund does not receive instruction from certain of its
shareholders on how to vote the corresponding shares of the Master Portfolio,
the Fund will vote such shares in the same proportion as the shares for which
the Fund does receive voting instructions.
Set forth below is the name, address and share ownership of
each person known by the Company to have beneficial or record ownership of 5%
or more of a class of the Fund or 5% or more of the voting securities of the
Fund as a whole.
27
<PAGE> 286
5% OWNERSHIP AS OF APRIL 1, 1997
<TABLE>
<CAPTION>
Name and Class; Type Percentage Percentage
Fund Address of Ownership of Class of Fund
---- -------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
SMALL CAP Stephens Inc. Class A 21.02% 12.63%
STRATEGY for Exclusive Benefit of Customers Record Holder
CLASS A P.O. Box 34127
Little Rock, AR 72203
Merrill Lynch Pierce Class A 27.90% 16.76%
Fenner & Smith, Inc. Record Holder
for Exclusive Benefit of Customers
Attn: Fund Administration
4800 Deer Lake East, 3rd Floor
Jacksonville, FL 32246
SMALL CAP Stephens Inc. Class D 12.79% 5.11%
STRATEGY for Exclusive Benefit of Customers Record Holder
CLASS D P.O. Box 34127
Little Rock, AR 72203
Merrill Lynch Pierce Class D 28.70% 11.46%
Fenner & Smith, Inc. Record Holder
for Exclusive Benefit of Customers
Attn: Fund Administration
4800 Deer Lake East, 3rd Floor
Jacksonville, FL 32246
Painewebber for the benefit Class D 12.53% 5.01%
of Joseph P. Kiernan Record Holder
28 Stony Corners
Avon, CT 06001
</TABLE>
For purposes of the 1940 Act, any person who owns directly or
through one or more controlled companies more than 25% of the voting securities
of a company is presumed to "control" such company. Accordingly, to the extent
that a shareholder identified in the foregoing table is identified as the
beneficial holder of more than 25% of a class (or Fund), or is identified as
the holder of record of more than 25% of a class (or Fund) and has voting
and/or investment powers, it may be presumed to control such class (or Fund).
28
<PAGE> 287
OTHER
The Registration Statements of MIT and the Company, including the
Fund's Prospectus, the SAI and the exhibits filed therewith, may be examined at
the office of the Commission in Washington, D.C. Statements contained in the
Prospectus or the SAI as to the contents of any contract or other document
referred to herein or in the Prospectus are not necessarily complete, and, in
each instance, reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP has been selected as the independent
auditors for the Company and MIT. KPMG Peat Marwick LLP provides audit
services, tax return preparation and assistance and consultation in connection
with review of certain Securities & Exchange Commission filings. KPMG Peat
Marwick LLP's address is Three Embarcadero Center, San Francisco, California
94111.
FINANCIAL INFORMATION
The portfolio of investments, audited financial statements and
independent auditors' reports for the Fund and Master Portfolio for the period
begun September 16, 1996 and ended December 31, 1996 are hereby incorporated by
reference to the Company's Annual Report as filed with the SEC on March 11,
1997. The portfolio of investments, audited financial statements and
independent auditors' report are attached to all SAIs delivered to current or
prospective shareholders.
29
<PAGE> 288
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 lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Moody's also applies numerical modifiers in its rating
system: 1, 2 and 3 in each rating category from "Aa" through "Baa" in its
rating system. The modifier 1 indicates that the security ranks in the higher
end of its category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end.
S&P: The four highest ratings for corporate and municipal bonds
are "AAA, "AA," "A" and "BBB." Bonds rated "AAA" have the "highest rating"
assigned by S&P and have "an extremely strong capacity" to pay interest and
repay principal. Bonds rated "AA" have a "very strong capacity" to pay
interest and repay principal and "differ from the highest rated obligations
only in small degree." Bonds rated "A" have a "strong capacity" to pay interest
and repay principal, but are "somewhat more susceptible" to adverse effects of
changes in economic conditions or other circumstances than bonds in higher rated
categories. Bonds rated "BBB" are regarded as having "adequate protection
parameters" to pay interest and repay principal, but changes in economic
conditions or other circumstances are more likely to lead to a "weakened
capacity" to make such repayments. The ratings from "AA" to "BBB" may be
modified by the addition of a plus or minus sign to show relative standing
within the category.
Corporate and Municipal Notes
Moody's: The highest ratings for state and municipal short-term
obligations are "MIG 1," "MIG 2," and "MIG 3" (or "VMIG 1," "VMIG 2" and "VMIG
3" in the case of an issue having a variable rate demand feature). Notes rated
"MIG 1" or "VMIG 1" are judged to be of the "best quality." Notes rated "MIG 2"
or "VMIG 2" are of "high quality," with margins of protections "ample although
not as large as in the preceding group." Notes rated "MIG 3" or "VMIG 3" are of
"favorable quality," with all security elements accounted for, but lacking the
strength of the preceding grades.
S&P: The two highest ratings for corporate, state and municipal
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.
Corporate and Municipal Commercial Paper
Moody's: The highest rating for corporate, state and municipal
commercial paper is "P-1" (Prime-1). Issuers rated "P-1" have a "superior
ability for repayment of senior short-term debt obligations." Issuers rated
"P-2" (Prime-2) "have a strong capacity for repayment of senior short-term debt
obligations," but earnings trends, while sound, will be subject to more
variation.
S&P: The "A-1" rating for corporate, state and municipal
commercial paper is rated "in the highest category" by S&P and "the obligor's
capacity to meet its financial commitment on the obligation is strong." The
"A-1+" rating indicates that said capacity is "extremely strong." The A-2
rating indicates that said capacity is "satisfactory," but that corporate and
municipal commercial paper rated "A-2" is "more susceptible" to the adverse
effects of changes in economic conditions or other circumstances than
commercial paper rated in higher rating categories.
A-1
<PAGE> 289
OVERLAND EXPRESS FUNDS, INC.
Telephone: (800) 552-9612
STATEMENT OF ADDITIONAL INFORMATION
Dated May 1, 1997
OVERLAND SWEEP FUND
-----------------------------------
Overland Express Funds, Inc. (the "Company") is an open-end,
series investment company. This Statement of Additional Information ("SAI")
contains information about one of the Company's funds -- the OVERLAND SWEEP
FUND (the "Fund"). The investment objective of the Fund is described in the
Prospectus. See "Investment Objective and Policies."
The Fund seeks to achieve its investment objective by investing
all of its assets in the Cash Investment Trust Master Portfolio (the "Master
Portfolio"), a professionally managed diversified portfolio offered by Master
Investment Trust ("MIT"), which 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 would consider alternative investments, including investing all
of the Fund's assets in another investment company with the same investment
objective as the Fund or hiring an investment adviser to manage the Fund's
assets in accordance with the investment policies and restrictions described in
the Prospectus and below with respect to MIT.
This SAI is not a prospectus and should be read in conjunction
with the Fund's Prospectus, dated May 1, 1997. All terms used in this SAI that
are defined in the Prospectus will have the meanings assigned in the
Prospectus. A copy of the Prospectus may be obtained without charge by writing
Stephens Inc. ("Stephens"), the Company's sponsor, co-administrator and
distributor, at 111 Center Street, Little Rock, Arkansas 72201, or calling the
Transfer Agent at the telephone number indicated above.
-----------------------------------
1
<PAGE> 290
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . 3
Additional Permitted Investment Activities . . . . . . . . . . . . . . 5
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Distribution Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Calculation of Yield . . . . . . . . . . . . . . . . . . . . . . . . . 12
Determination of Net Asset Value . . . . . . . . . . . . . . . . . . . 16
Additional Purchase and Redemption Information . . . . . . . . . . . . 17
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . 18
Fund Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Federal Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 20
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . 26
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
</TABLE>
2
<PAGE> 291
INVESTMENT RESTRICTIONS
The Fund and the Master Portfolio are subject to the following
investment restrictions, all of which are fundamental policies; that is, they
may not be changed without approval by a vote of the holders of a majority of
the Fund's outstanding voting securities, as described under "Capital Stock."
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 exceed 25% of the current value
of its respective total assets, provided that there is no limitation with
respect to investments in (i) obligations of the United States Government, its
agencies or instrumentalities, and (ii) 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 provided further that this investment restriction
does not affect the Fund's ability to invest a portion or all of its assets in
the Master Portfolio;
(2) purchase or sell real estate or real estate limited
partnership interests (other than money market 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;
(3) purchase securities on margin (except for short-term
credits necessary for the clearance of transactions) or make short sales of
securities;
(4) underwrite securities of other issuers, except to the
extent that the purchase of permitted investments directly from the issuer
thereof or from an underwriter for an issuer and the later disposition of such
securities in accordance with the Fund's or the Master Portfolio's investment
program (including the Fund's investment in MIT) 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 a portion or all of its assets in the Master Portfolio;
(6) issue senior securities, except that the Fund and the
Master Portfolio may borrow from banks up to 10% of the current value of their
respective 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 their respective net assets (but investments may not be purchased
while any such borrowing in excess of 5% of their respective net assets
exists);
(7) write, purchase or sell puts, calls, warrants or options or
any combination thereof, except that the Fund and the Master Portfolio may
purchase securities with put rights in order to maintain liquidity; or
3
<PAGE> 292
(8) make loans of portfolio securities or other assets, except
that loans for purposes of this restriction will not include the purchase of
fixed time deposits, repurchase agreements, commercial paper and other
short-term obligations, and other types of debt instruments commonly sold in a
public or private offering, and will not include the Fund's purchase of
interests in the Master Portfolio.
Whenever the Fund is requested to vote on a change in a
fundamental investment restriction of the Master Portfolio, the Fund will hold
a meeting of its shareholders and will cast its vote as instructed by such
shareholders.
Non-Fundamental Investment Policies. The Fund and the Master
Portfolio are subject to the following non-fundamental policies:
The Fund and the Master Portfolio may not:
(1) purchase or retain securities of any issuer if the
officers, directors or trustees of the Company, the Master Portfolio or the
Investment Adviser owning beneficially more than one-half of one percent (0.5%)
of the securities of the issuer together owned 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) invest in securities of issuers who, with their
predecessors, have been in existence less than three years, unless the
securities are fully guaranteed or insured by the U.S. Government, 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 a
portion or all of its assets in the Master Portfolio; or
(4) invest more than 10% of the current value of its net assets
in repurchase agreements maturing in more than seven days, fixed time deposits
that are subject to withdrawal penalties and that have maturities of more than
seven days, restricted securities (which are securities that must be registered
under the Securities Act of 1933 before they may be offered or sold to the
public), and illiquid securities, provided that this restriction does not
affect the Fund's ability to invest a portion or all of its assets in the
Master Portfolio.
As provided in Rule 2a-7 under the Act, the Master Portfolio may
only purchase "Eligible Securities" (as defined in Rule 2a-7) and only if,
immediately after such purchase, the Master Portfolio would have no more than
5% of its total assets in "First Tier Securities" (as defined in Rule 2a-7) of
any one issuer, excluding government securities and except as otherwise
permitted for temporary purposes and for certain guarantees and unconditional
puts; the Master Portfolio would own no more than 10% of the voting securities
of any one issuer; the Master
4
<PAGE> 293
Portfolio would have no more than 5% of its total assets in "Second Tier
Securities" (as defined in Rule 2a-7); and the Master Portfolio would have no
more than the greater of $1 million or 1% of its total assets in Second Tier
Securities of any one issuer.
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
Foreign Obligations. The Master Portfolio may invest a portion of
its assets (no more than 5%) in 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 subject to
the same accounting, auditing and financial reporting standards or governmental
supervision as domestic issuers. In addition, with respect to certain foreign
countries, taxes may be withheld at the source under foreign 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.
Unrated Investments. The Master Portfolio may purchase
instruments that are not rated if, in the opinion of Wells Fargo Bank as
investment adviser, such obligations are of comparable quality to other
high-quality investments that are permitted to be purchased by the Master
Portfolio. 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. Neither event requires an immediate sale of such
security by the Master Portfolio. To the extent the ratings given by Moody's
Investors Service ("Moody's") or Standard and Poor's Rating Group ("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 the
Prospectus and in this SAI. The ratings of Moody's and S&P are more fully
described in the Appendix to this SAI.
Repurchase Agreements. The Master Portfolio may enter into
repurchase agreements wherein the seller of a security to the Master Portfolio
agrees to repurchase that security from the Master Portfolio at a mutually
agreed-upon time and price. The period of maturity is usually quite short,
often overnight or a few days, although it may extend over a number of months.
The Master Portfolio may enter into repurchase agreements only with respect to
U.S. Government obligations and other securities that are permissible
investments for the Master Portfolio. All repurchase agreements will be fully
collateralized at 102% based on values that are marked to market daily. The
maturities of the underlying securities in a repurchase agreement transaction
may be greater than twelve months. However, 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 has
declined, the Master Portfolio may incur a loss. In addition, if bankruptcy
proceedings are commenced with respect to the seller of the security, the
Master Portfolio's disposition of the security may be delayed or limited.
5
<PAGE> 294
The Master Portfolio may not enter into a repurchase agreement with a
maturity of more than seven days if, as a result, more than 10% of the market
value of the Master Portfolio's total net assets would be invested in
repurchase agreements with maturities of more than seven days, restricted
securities and/or illiquid securities. The Master Portfolio will enter into
repurchase agreements only with primary broker/dealers and commercial banks
that meet guidelines established by the Board of Trustees of the Trust and that
are not affiliated with Wells Fargo Bank. The Master Portfolio, subject to the
conditions described above, may participate in pooled repurchase agreement
transactions with other funds advised by Wells Fargo Bank.
MANAGEMENT
The following information supplements and should be read in
conjunction with the section in the Prospectus entitled "Management of the
Fund." The principal occupations during the past five years of the Directors
and principal executive Officer of the Company are listed below. The address
of each, unless otherwise indicated, is 111 Center Street, Little Rock,
Arkansas 72201. Directors deemed to be "interested persons" of the Company
for purposes of the 1940 Act are indicated by an asterisk.
6
<PAGE> 295
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME, ADDRESS AND AGE POSITION DURING PAST 5 YEARS
- --------------------- -------------------- -------------------------------
<S> <C> <C>
Jack S. Euphrat, 74 Director Private Investor.
415 Walsh Road
Atherton, CA 94207
*R. Greg Feltus, 45 Director, Chairman and Senior Vice President of Stephens;
President Manager of Financial Services Group;
President of Stephens Insurance
Services Inc.; Senior Vice President
of Stephens Sports Management Inc.;
and President of Investor Brokerage
Insurance Inc.
Thomas S. Goho, 54 Director T.B. Rose Faculty Fellow Business,
321 Beechcliff Court Wake Forest University Calloway
Winston-Salem, NC 27104 School of Business and Accountancy;
Associate Professor of Finance of the
School of Business and Accounting at
Wake Forest University since 1983.
Joseph N. Hankin, 55 Director President Westchester Community College
President, Westchester since 1971; President of Hartford Junior
75 Grasslands Road College from 1967 to 1971; Adjunct
Valhalla, NY 10595 Professor of Columbia University
Teachers College since 1976.
*W. Rodney Hughes, 70 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Robert M. Joses, 78 Director Private Investor.
47 Dowitcher Way
San Rafael, CA 94901
*J. Tucker Morse, 52 Director Private Investor; Real Estate
10 Legrae Street Developer; Chairman of Renaissance
Charleston, SC 29401 Properties Ltd.; President of Morse
Investment Corporation; and
Co-Managing Partner of Main Street
Ventures.
Richard H. Blank, Jr., 40 Chief Operating Officer, Associate of Financial Services Group
Secretary and Treasurer of Stephens; Director of Stephens
Sports Management Inc.; and Director
of Capo Inc.
</TABLE>
7
<PAGE> 296
COMPENSATION TABLE
For the Year Ended December 31, 1996
<TABLE>
<CAPTION>
Aggregate Compensation Total Compensation from
Name and Position from Registrant Registrant and Fund Complex
----------------- --------------- ---------------------------
<S> <C> <C>
Jack S. Euphrat $10,500 $31,500
Director
*R. Greg Feltus 0 0
Director
Thomas S. Goho 10,500 31,500
Director
*Zoe Ann Hines 0 0
Director
(resigned September 6, 1996)
Joseph N. Hankin 500 1,500
Director
*W. Rodney Hughes 8,750 26,250
Director
Robert M. Joses 10,500 31,500
Director
*J. Tucker Morse 8,750 26,250
Director
</TABLE>
Directors of the Company are compensated annually by the Company
and by all the registrants in each fund complex they serve as indicated above
and also are reimbursed for all out-of-pocket expenses relating to attendance
at board meetings. The Company, Stagecoach Funds, Inc., Stagecoach Trust, Life
& Annuity Trust and Master Investment Trust are considered to be members of the
same fund complex as such term is defined in Form N-1A under the 1940 Act (the
"Wells Fargo Fund Complex"). MasterWorks Funds Inc., Master Investment
Portfolio, and Managed Series Investment Trust together form a separate fund
complex (the "BGFA Fund Complex"). Each of the Directors and Officers of the
Company serves in the identical capacity as directors and officers or as
trustees and/or officers of each registered open-end management investment
company in both the Wells Fargo and BGFA Fund Complexes, except for Joseph N.
Hankin, who only serves the aforementioned members of the Wells Fargo Fund
Complex, and Zoe Ann Hines who, after September 6, 1996, only serves the
aforementioned members of the BGFA Fund Complex. The Directors are compensated
by other companies and trusts within a fund complex for their services as
directors/trustees to such companies and trusts. Currently the Directors do
not receive any retirement benefits or deferred compensation from the Company
or any other member of each fund complex.
8
<PAGE> 297
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.
MASTER/FEEDER STRUCTURE. The Fund seeks to achieve its investment
objective by investing all of its assets in the Cash Investment Trust Master
Portfolio of MIT. The Fund and any other entities investing in the Master
Portfolio are each liable for all obligations of the Master Portfolio. However,
the risk of the Fund incurring financial loss on account of such liability is
limited to circumstances in which both inadequate insurance existed and MIT
itself is unable to meet its obligations. Accordingly, the Company's Board of
Directors believes that neither the Fund nor its shareholders will be adversely
affected by investing Fund assets in the Master Portfolio. Given the relative
novelty of the master/feeder structure, accounting or operational difficulties,
although unlikely, could arise. See "Management of the Fund" in the Prospectus
for additional description of the Fund's and Master Portfolio's expenses and
management.
The Fund may withdraw its investment in the Master Portfolio only
if the Company's Board of Directors determines that such action is in the best
interests of the Fund and its shareholders. Upon such withdrawal, the Company's
Board would consider alternative investments, including investing all of the
Fund's assets in another investment company with the same investment objective
as the Fund or hiring an investment adviser to manage the Fund's assets in
accordance with the investment policies described below with respect to the
Master Portfolio.
The investment objective and other fundamental policies of the
Master Portfolio cannot be changed without approval by the holders of a
majority (as defined in the 1940 Act) of the Master Portfolio's outstanding
interests. See "Investment Objective and Policies" in the Prospectus. Whenever
the Fund, as an interestholder of the Master Portfolio, is requested to vote on
any matter submitted to interestholders of the Master Portfolio, the Fund will
hold a meeting of its shareholders to consider such matters. The Fund will cast
its votes in proportion to the votes received from its shareholders. Shares for
which the Fund receives no voting instructions will be voted in the same
proportion as the votes received from the other Fund shareholders.
Certain policies of the Master Portfolio which are non-fundamental
may be changed by vote of a majority of MIT's Trustees without interestholder
approval. If the Master Portfolio's investment objective or fundamental or non-
fundamental policies are changed, the Fund may elect to change its objective or
policies to correspond to those of the Master Portfolio. The Fund may also
elect to redeem its interests in the Master Portfolio and either seek a new
investment company with a matching objective in which to invest or retain its
own investment adviser to manage the Fund's portfolio in accordance with its
objective. In the latter case, the Fund's inability to find a substitute
investment company in which to invest or equivalent management services could
adversely affect shareholders' investments in the Fund. The Fund will provide
shareholders with 30 days' written notice prior to the implementation of any
change in the investment objective of the Fund or the Master Portfolio, to the
extent possible. See "Investment Objective and Policies" in the Prospectus for
additional information regarding the Fund's and the Master Portfolio's
investment objectives and policies.
9
<PAGE> 298
INVESTMENT ADVISER. The Fund has not engaged an investment
adviser. MIT has engaged Wells Fargo Bank to advise the Master Portfolio.
Wells Fargo Bank furnishes to the Master Portfolio investment guidance and
policy direction in connection with the daily portfolio management of the
Master Portfolio. Wells Fargo Bank furnishes to the Board of Trustees of MIT
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 investments of the Master Portfolio. For its services as
investment adviser to the Master Portfolio, Wells Fargo is entitled to receive
a monthly fee at the annual rate of 0.25% of the Master Portfolio's average
daily net assets.
For the years ended December 31, 1994, 1995 and 1996, the Master
Portfolio paid to Wells Fargo Bank the advisory fees indicated below and Wells
Fargo Bank waived the indicated amounts:
<TABLE>
<CAPTION>
1994 1995 1996
PAID WAIVED PAID WAIVED PAID WAIVED
---- ------ ---- ------ ---- ------
<S> <C> <C> <C> <C> <C>
$1,426,685 $0 $1,902,572 $255,082 $3,310,083 $0
</TABLE>
The Advisory Contract will continue in effect for more than two
years provided the continuance is approved annually (i) by the holders of a
majority of the Master Portfolio's outstanding voting securities or by the
Board of Trustees of MIT and (ii) by a majority of the Trustees of MIT who are
not parties to the Advisory Contract or "interested persons" (as defined in the
1940 Act) of any such party. The Advisory Contract may be terminated on 60
days' written notice by either party and will terminate automatically if
assigned.
ADMINISTRATOR AND CO-ADMINISTRATOR. The Company has retained
Wells Fargo Bank as administrator and Stephens as co-administrator on behalf of
the Fund. In addition, MIT has retained Wells Fargo Bank as administrator and
Stephens as co-administrator on behalf of the Master Portfolio. Under the
respective Administration and Co- Administration Agreements, Wells Fargo Bank
and Stephens provide as administration 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), 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 MIT's Officers, Directors and Trustees. Wells Fargo Bank and
Stephens also furnish office space and certain facilities required for
conducting the Fund's and the Master Portfolio's business together with
ordinary clerical and bookkeeping services. Stephens pays the compensation of
MIT's and Company's Directors/Trustees, Officers and employees who are
10
<PAGE> 299
affiliated with Stephens. The administrator and co-administrator are entitled
to receive from the Fund a monthly fee of 0.04% and 0.02%, respectively, of the
average daily net assets of the Fund.
For the periods shown, Stephens served as sole administrator to
the Fund and the Master Portfolio, and provided the Fund and Master Portfolio
with essentially the same services described above. Stephens was entitled to
receive a monthly fee at the annual rate of 0.05% and 0.025%, respectively, of
the Fund's and Master Portfolio's average daily net assets. For the years
ended December 31, 1994, 1995 and 1996, the Fund paid administration fees to
Stephens as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Overland Sweep Fund $142,613 $215,624 $317,668
</TABLE>
SPONSOR AND DISTRIBUTOR. As discussed in the Fund's Prospectus
under the heading "Management of the Fund," Stephens serves as the Fund's
sponsor and distributor.
SHAREHOLDER SERVICING AGENT. The Fund has entered into a
shareholder servicing agreement with Wells Fargo Bank. For the year ended
December 31, 1996, the Fund did not pay any shareholder servicing fees to Wells
Fargo Bank.
CUSTODIAN. Wells Fargo Bank has been retained to act as custodian
for the Fund and the Master Portfolio. The custodian, among other things,
maintains a custody account or accounts in the name of the Fund and the Master
Portfolio; receives and delivers all assets for the Fund and the Master
Portfolio upon purchase and upon sale or maturity; collects and receives all
income and other payments and distributions on account of the assets of the
Fund and the Master Portfolio; and pays all expenses of the Fund and the Master
Portfolio. For its services as Custodian, Wells Fargo Bank receives an
asset-based fee and transaction charges. For the year ended December 31, 1996,
neither the Fund nor the Master Portfolio paid any custody fees.
TRANSFER AND DIVIDEND DISBURSING AGENT. Wells Fargo Bank has been
retained to act as transfer and dividend disbursing agent for the Fund and the
Master Portfolio. For its services as transfer and dividend disbursing agent
for the Fund, Wells Fargo Bank is entitled to receive monthly payments at the
annual rate of 0.14% of the Fund's average daily net assets. Under the prior
transfer agency agreement for the Fund, Wells Fargo Bank was entitled to
receive a base fee and per-account fees. For the year ended December 31, 1996,
the Fund paid $4,637,643 to Wells Fargo Bank for transfer and dividend
disbursing agency services and the Master Portfolio did not pay any such fees.
UNDERWRITING COMMISSIONS. For the year ended December 31, 1994,
the aggregate dollar amount of underwriting commissions paid to Stephens on
sales/retirement of the Company's shares was $1,408,759 and Stephens retained
$1,351,388 of such commissions. WFSI and its registered representatives
received $57,371 of such commissions.
For the year ended December 31, 1995, the aggregate dollar amount
of underwriting commissions paid to Stephens on sales/redemptions of the
Company's shares was $1,478,541 and
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<PAGE> 300
Stephens retained $1,447,175 of such commissions. WFSI and its registered
representatives received $31,366 of such commissions.
For the year ended December 31, 1996, the aggregate dollar amount
of underwriting commissions paid to Stephens on sales/redemptions of the
Company's shares was $1,777,985 and Stephens retained $195,639 of such
commissions. WFSI and its registered representatives received $255,147 and
$1,327,199 respectively of such commissions.
DISTRIBUTION PLAN
As indicated in the Prospectus, the Fund has adopted a Plan under
Section 12(b) of the Act and Rule 12b-1 thereunder.
Pursuant to the Plan, the Company may pay to Stephens Inc.
("Distributor"), as compensation for distribution-related services, a monthly
fee at an annual rate of up to 0.55% of the Fund's average daily net assets or
the maximum amount payable under applicable laws, regulations and rules,
whichever is less. The actual fee payable to the Distributor shall, within such
limit, be determined from time to time by mutual agreement between the Company
and the Distributor. The Distributor may enter into selling agreements with one
or more selling agents under which such agents may receive compensation for
distribution-related services from the Distributor, including, but not limited
to, commissions or other payments to such agents based on the average daily net
assets of Fund shares attributable to them. The Distributor may retain any
portion of the total distribution fee payable hereunder to compensate it for
distribution-related services provided by it or to reimburse it for other
distribution-related expenses.
The Plan will continue in effect from year to year if such
continuance is approved by a majority vote of both the Directors of the Company
and the Qualified Directors. Agreements related to the Plan must also be
approved by such vote of the Directors and the Qualified Directors. Such
agreements will terminate automatically if assigned, and may be terminated at
any time, without payment of any penalty, by a vote of a majority of the
outstanding voting securities of the Fund. The Plan may not be amended to
increase materially the amounts payable thereunder without the approval of a
majority of the outstanding voting securities of the Fund, and no material
amendment to the Plan may be made except by a majority of both the Directors of
the Company and the Qualified Directors.
The Plan requires that the Treasurer of the Fund shall provide to
the Directors, and the Directors shall review, at least quarterly, a written
report of the amounts expended (and purposes therefor) under the Plan. The
Rule also requires that the selection and nomination of Directors who are not
"interested persons" of the Company be made by such disinterested Directors.
For the year ended December 31, 1996, the Fund's distributor
received the following amount of 12b-1 fees for the specified purposes set
forth below under the Fund's Plan.
<TABLE>
<CAPTION>
Printing & Mailing Marketing Compensation
Total Prospectus Brochures to Underwriters
----- ---------- --------- ---------------
<S> <C> <C> <C>
$7,290,299 N/A N/A $7,290,299
</TABLE>
For the year ended December 31, 1996, WFSI and its registered
representatives did not receive any compensation under the Plan.
CALCULATION OF YIELD
YIELD. As indicated in the Prospectus, the Fund may advertise
certain yield information. Current yield for the Fund is calculated based on
the net changes, exclusive of capital changes, over a seven-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
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<PAGE> 301
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) with the
resulting yield figure carried to at least the nearest hundredth of one
percent. The yield for the Fund for the seven-day period ended December 31,
1996 was 4.22%.
Effective yield for the Fund is calculated by determining the 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, and subtracting one from the result. The
effective yield for the Fund for the seven-day period ended December 31, 1996
was 4.31%.
The Fund's yield will fluctuate 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 incurred by
or allocated to the Fund and the Master Portfolio.
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.
In addition to the above performance information, the Fund may
advertise average annual total return information. Average annual total return
refers to the average annual compounded rates of return over one-, five-, and
ten-year periods (or the life of the Fund, which periods are stated in the
advertisement), and is measured by comparing the value of an investment in the
Fund at the beginning of the relevant period to the redemption value at the end
of the period and annualizing the result, assuming that all Fund dividends and
capital gains distributions are reinvested.
OTHER. 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 Lehman Brothers Municipal Bond Index, 1-Year Treasury
Bill Rate, the S&P Index, the Dow Jones Industrial Average, the Lehman Brothers
20+ Treasury Index, the Lehman Brothers 5-7 Year Treasury Index, Donoghue's
Money Fund Averages, Real Estate Investment Averages (as reported by the
National Association of Real Estate Investment Trusts), Gold Investment
Averages (provided by the World Gold Council), Bank Averages (which is
calculated from figures supplied by the U.S. League of Savings Institutions
based on effective annual rates of interest on both passbook and certificate
accounts), average annualized certificate of deposit rates (from the Federal
Reserve G-13
13
<PAGE> 302
Statistical Releases or the Bank Rate Monitor), the Salomon One Year Treasury
Benchmark Index, the Consumer Price Index (as published by the U.S. Bureau of
Labor Statistics), Ten Year U.S. Government Bond Average, S&P's Corporate Bond
Yield Averages, Schabacter Investment Management Indices, Salomon Brothers High
Grade Bond Index, Lehman Brothers Long-Term High Quality Government/Corporate
Bond Index, other managed or unmanaged indices or performance data of bonds,
stocks or government securities (including data provided by Ibbotson
Associates), or by other services, companies, publications or persons who
monitor mutual funds on overall performance or other criteria. The S&P Index
and the Dow Jones Industrial Average are unmanaged indices of selected common
stock prices. The Fund's performance also may be compared to those of other
mutual funds having similar objectives. This comparative performance could be
expressed as a ranking prepared by Lipper Analytical Services, Inc., CDA
Investment Technologies, Inc., Bloomberg Financial Markets or Morningstar,
Inc., independent services which monitor the performance of mutual funds. The
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, from time to time, a reference to certain marketing approaches of the
Distributor, including, for example, a reference to a potential shareholder
being contacted by a selected broker or dealer. General mutual fund statistics
provided by the Investment Company Institute may also be used.
In addition, the Company also may use, in advertisements and other
types of literature, information and statements: (1) showing that bank savings
accounts offer a guaranteed return of principal and a fixed rate of interest,
but no opportunity for capital growth; and (2) describing Wells Fargo Bank,
and its affiliates and predecessors, as one of the first investment managers to
advise investment accounts using asset allocation and index strategies. The
Company also may include in advertising and other types of literature
information and other data from reports and studies prepared by the Tax
Foundation, including information regarding federal and state tax levels and
the related "Tax Freedom Day."
From time to time the Company may reprint, reference or otherwise
use material from magazines, newsletters, newspapers and books including, but
not limited to the Wall Street Journal, Money Magazine, Barrons, Kiplingers,
Business Week, Fortune, Forbes, the San Francisco Chronicle, the San Jose
Mercury News, The New York Times, the Los Angeles Times, the Boston Globe, the
Washington Post, the Chicago Sun-Times, Investor Business Daily, Worth, Bank
Investor, American Banker, Smart Money, the 100 Best Mutual Funds (Adams
Publishing), Morningstar or Value Line.
The 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-
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<PAGE> 303
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 (assuming
reinvestment of capital gains and dividends and assuming one or more tax rates)
with the return on a taxable basis; and (iv) the sectors or industries in which
the Fund invests may be compared to relevant indices of stocks or surveys
(e.g., S&P Industry Surveys) to evaluate the Fund's historical performance or
current or potential value with respect to the particular industry or sector.
The Company also may discuss in advertising and other types of
literature that the Fund has been assigned a rating by a nationally recognized
statistical rating organization ("NRSRO"), such as S&P or Moody's. Such rating
would assess the creditworthiness of the investments held by the Fund. The
assigned rating would not be a recommendation to purchase, sell or hold the
Fund's shares since the rating would not comment on the market price of the
Fund's shares or the suitability of the Fund for a particular investor. In
addition, the assigned rating would be subject to change, suspension or
withdrawal as a result of changes in, or 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 disclose, in advertising and other types
of literature, information and statements that Wells Capital Management, Inc.
("WCM" formerly, Wells Fargo Investment Management) a subsidiary of Wells Fargo
Bank, is listed in the top 100 by Institutional Investor magazine in its July
1996 survey "America's Top 300 Money Managers." This survey ranks money
managers in several asset categories. The Company also may disclose in
advertising and other types of sales literature the assets and categories of
assets under management by its investment adviser or sub-adviser and the total
amount of assets and mutual fund assets managed by Wells Fargo Bank. As of
April 1, 1997, Wells Fargo Bank and its affiliates provided investment advisory
services for approximately $57 billion of assets of individuals, trusts,
estates and institutions and $20 billion of mutual fund assets.
The Company may disclose in advertising and other types of
literature that investors can open and maintain Sweep Accounts over the
Internet or through other electronic channels (collectively, "Electronic
Channels"). Such advertising and other literature may discuss the investment
options available to investors, including the types of accounts and any
applicable fees. Such advertising and other literature may disclose that Wells
Fargo Bank is the first major bank to offer an on-line application for a mutual
fund account that can be filled out completely through Electronic Channels.
Advertising and other literature may disclose that Wells Fargo Bank may
maintain Web sites, pages or other information sites accessible through
Electronic Channels (an "Information Site") and may describe the contents and
features of the Information Site and instruct investors on how to access the
Information Site and open a Sweep Account. Advertising and other literature
may also disclose the procedures employed by Wells Fargo Bank to secure
information provided by investors, including disclosure and discussion of the
tools and services for accessing Electronic Channels. Such advertising or
other literature may include discussions of
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<PAGE> 304
the advantages of establishing and maintaining a Sweep Account through
Electronic Channels and testimonials from Wells Fargo Bank customers or
employees and may also include descriptions of locations where product
demonstrations may occur. The Company may also disclose the ranking of Wells
Fargo Bank as one of the largest money managers in the United States.
DETERMINATION OF NET ASSET VALUE
Net asset value per share for the Fund is determined on each day
the Fund is open.
As indicated under "Determination of Net Asset Value, Dividends
and Distributions" in the Prospectus, the Master Portfolio uses the amortized
cost method to determine the value of its portfolio securities pursuant to Rule
2a-7 under the 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 investors 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 investments 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 investors would receive correspondingly less income. The
converse would apply during periods of rising interest rates. Since the Fund
expects to invest all of its assets in the Master Portfolio, Fund shareholders
can expect that their investments in the Fund will correspond similarly.
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 Eligible Securities determined by MIT'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 Board is
required to establish procedures designed to stabilize, to the extent
reasonably possible, the Master Portfolio's net asset value. Such procedures
include review of MIT's portfolio by the Board of Trustees, at such intervals
as it may deem appropriate, to determine whether the Master Portfolio's net
asset value calculated by using available market quotations deviates within 1/2
of 1% of the value based on amortized cost. The extent of any deviation will
be examined by the Board of Trustees. If such deviation exceeds 1/2 of 1%, the
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, the Board will take such
corrective action as it regards as necessary and appropriate, including the
sale of portfolio instruments prior to maturity to
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<PAGE> 305
realize capital gains or losses or to shorten average portfolio maturity,
withholding dividends or establishing a net asset value by using available
market quotations.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares may be purchased on any day the Fund is open. The Fund is
open for business each day the New York Stock Exchange ("NYSE") is open for
trading (a "Business Day"). Currently, the NYSE is closed on New Year's Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day (each a "Holiday"). When any Holiday falls
on a weekend, the NYSE typically is closed on the weekday immediately before or
after such Holiday.
Payment for shares may, in the discretion of the adviser, be made
in the form of securities that are permissible investments for the Fund as
described in the Prospectuses. For further information about this form of
payment please contact Stephens. In connection with an in-kind securities
payment, the Fund will require, among other things, that the securities be
valued on the day of purchase in accordance with the pricing methods used by
the Fund and that the Fund receives satisfactory assurances that (i) it will
have good and marketable title to the securities received by it; (ii) that the
securities are in proper form for transfer to the Fund; and (iii) adequate
information will be provided concerning the basis and other matters relating to
the securities.
Under the 1940 Act, the Fund may suspend the right of redemption
or postpone the date of payment upon redemption for any period during which the
NYSE is closed (other than customary weekend and holiday closings, or during
which trading is restricted, or during which as determined by the SEC by rule
or regulation), an emergency exists as a result of which disposal or valuation
of portfolio securities is not reasonably practicable, or for such periods as
the SEC may permit.
The Company may suspend redemption rights or postpone redemption
payments for such periods as are permitted under the 1940 Act. The Company may
also redeem shares involuntarily or make payment for redemption in securities
or other property if it appears appropriate to do so in light of the Company's
responsibilities under the 1940 Act.
In addition, the Company may redeem shares involuntarily to
reimburse the Fund for any losses sustained by reason of the failure of a
shareholders to make full payment for shares purchased or to collect any charge
relating to a transaction effected for the benefit of a shareholder which is
applicable to shares of the Fund as provided from time to time in the
Prospectus.
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<PAGE> 306
PORTFOLIO TRANSACTIONS
Purchases and sales of debt securities generally are principal
transactions. Debt securities normally are purchased or sold from or to
dealers serving as market makers for the securities at a net price. Debt
securities also may be purchased in underwritten offerings and may be purchased
directly from the issuer. Generally, U.S. Government Obligations, municipal
obligations and taxable money market securities are traded on a net basis and
do not involve brokerage commissions. The cost of executing transactions in
debt securities consists primarily of dealer spreads and underwriting
commissions. Under the 1940 Act, persons affiliated with the Company are
prohibited from dealing with the Company as a principal in the purchase and
sale of securities unless an exemptive order allowing such transactions is
obtained from the SEC or an exemption is otherwise available. The Fund may
purchase municipal or other 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 Board of Directors.
MIT 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 MIT's Board of Trustees, Wells Fargo Bank is responsible for
the Master Portfolio's investment decisions and the placing of portfolio
transactions. In placing orders, it is the policy of MIT to obtain the best
overall terms taking into account the dealer's general execution and
operational facilities, the type of transaction involved and other factors such
as the dealer's risk in positioning the securities involved. While Wells Fargo
Bank generally seeks reasonably competitive spreads or commissions, the Master
Portfolio will not necessarily be paying the lowest spread or commission
available.
In assessing the best overall terms available for any transaction,
Wells Fargo Bank considers factors deemed relevant, including the breadth of
the market in the security, the price of the security, the financial condition
and execution capability of the broker or dealer, and the reasonableness of the
commission, if any, both for the specific transaction and on a continuing
basis. Wells Fargo Bank may cause the Master Portfolio to pay a broker/dealer
which furnishes brokerage and research services a higher commission than that
which might be charged by another broker/dealer for effecting the same
transaction, provided that Wells Fargo Bank determines in good faith that such
commission is reasonable in relation to the value of the brokerage and research
services provided by such broker/dealer, viewed in terms of either the
particular transaction or the overall responsibilities of Wells Fargo Bank.
Such brokerage and research services might consist of reports and statistics
relating to specific companies or industries, general summaries of groups of
stocks or bonds and their comparative earnings and yields, or broad overviews
of the stock, bond, and government securities markets and the economy.
Supplementary research information so received is in addition to, and
not in lieu of, services required to be performed by Wells Fargo Bank and does
not reduce the advisory fees payable by the Master Portfolio. The Board of
Trustees will periodically review the commissions paid by the Master Portfolio
to consider whether the commissions paid over representative periods of time
appear to be reasonable in relation to the benefits inuring to the Master
Portfolio. It is possible that certain of the supplementary research or other
services received will primarily
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<PAGE> 307
benefit one or more other investment companies or other accounts for which
Wells Fargo Bank exercises investment discretion. Conversely, the Master
Portfolio may be the primary beneficiary of the research or services received
as a result of portfolio transactions effected for such other account or
investment company.
Under Section 28(e) of the Securities Exchange Act of 1934, an adviser
shall not be "deemed to have acted unlawfully or to have breached its fiduciary
duty" solely because under certain circumstances it has caused the account to
pay a higher commission than the lowest available. To obtain the benefit of
Section 28(e), an adviser must make a good faith determination that the
commissions paid are "reasonable in relation to the value of the brokerage and
research services provided . . . viewed in terms of either that particular
transaction or its overall responsibilities with respect to the accounts as to
which it exercises investment discretion and that the services provided by a
broker provide an adviser with lawful and appropriate assistance in the
performance of its investment decision-making responsibilities." Accordingly,
the price to the Master Portfolio in any transaction may be less favorable than
that available from another broker/dealer if the difference is reasonably
justified by other aspects of the portfolio execution services offered.
Broker/dealers utilized by Wells Fargo Bank may furnish statistical,
research and other information or services which are deemed by Wells Fargo Bank
to be beneficial to the Master Portfolio investment programs. Research
services received from brokers supplement Wells Fargo Bank's own research and
may include the following types of information: statistical and background
information on industry groups and individual companies; forecasts and
interpretations with respect to U.S. and foreign economies, securities,
markets, specific industry groups and individual companies; information on
political developments; portfolio management strategies; performance
information on securities and information concerning prices of securities; and
information supplied by specialized services to Wells Fargo Bank and to MIT
Trustees with respect to the performance, investment activities and fees and
expenses of other mutual funds. Such information may be communicated
electronically, orally or in written form. Research services may also include
the providing of equipment used to communicate research information, the
arranging of meetings with management of companies and the providing of access
to consultants who supply research information.
The outside research assistance is useful to Wells Fargo Bank since the
brokers utilized by Wells Fargo Bank as a group tend to follow a broader
universe of securities and other matters than the staff of Wells Fargo Bank can
follow. In addition, this research provides Wells Fargo Bank with a diverse
perspective on financial markets. Research services which are provided to
Wells Fargo Bank by brokers are available for the benefit of all accounts
managed or advised by Wells Fargo Bank. It is the opinion of Wells Fargo Bank
that this material is beneficial in supplementing their research and analysis;
and, therefore, it may benefit the Master Portfolio by improving the quality of
Wells Fargo Bank's investment advice.
BROKERAGE COMMISSIONS. For the year ended December 31, 1996, the
Fund and the Master Portfolio did not pay brokerage commissions.
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SECURITIES OF REGULAR BROKER/DEALERS. On December 31, 1996, the
Master Portfolio owned securities (pooled repurchase agreements) of its
"regular brokers or dealers" or their parents, as defined in the 1940 Act as
follows: $45,507,000 in Goldman Sachs & Co., $13,000,000 in Morgan Stanley,
$68,637,000 in JP Morgan, and $9,319,000.
PORTFOLIO TURNOVER. Because the investments of the Master
Portfolio consist 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
usually will not incur brokerage expenses. No underwriting or brokerage
commissions or sales load will be incurred by the Fund when investing in the
Master Portfolio.
FUND EXPENSES
From time to time, Wells Fargo Bank and Stephens may waive fees
from the Fund or Master Portfolio in whole or in part. Any such waiver will
reduce the Fund's expenses and, accordingly, have a favorable impact on the
Fund's performance. Except for the expenses borne by Wells Fargo Bank and
Stephens, the Company bears all costs of its operations, including the
compensation of its Directors who are not affiliated with Stephens or Wells
Fargo Bank or any of their affiliates; advisory, shareholder servicing and
administration fees; payments pursuant to any Plan; interest charges; taxes;
fees and expenses of its independent accountants, legal counsel, transfer agent
and dividend disbursing agent; expenses of redeeming shares; expenses of
preparing and printing Prospectuses (except the expense of printing and mailing
Prospectuses used for promotional purposes, unless otherwise payable pursuant
to a Plan), shareholders' reports, notices, proxy statements and reports to
regulatory agencies; insurance premiums and certain expenses relating to
insurance coverage; trade association membership dues; brokerage and other
expenses connected with the execution of portfolio transactions; fees and
expenses of its custodian, including those for keeping books and accounts and
calculating the NAV per share of the Fund; expenses of shareholders' meetings;
expenses relating to the issuance, registration and qualification of the Fund's
shares; pricing services and any extraordinary expenses. Expenses attributable
to the Fund are charged against Fund assets. General expenses of the Company
are allocated among all of the funds of the Company, including the Fund, in a
manner proportionate to the net assets of the Fund, on a transactional basis,
or on such other basis as the Company's Board of Directors deems equitable.
FEDERAL INCOME TAXES
In General. The following information supplements and should be
read in conjunction with the Prospectus section entitled "Taxes." The
Prospectus describes generally the tax treatment of distributions by the Fund.
This section of the SAI includes additional information concerning federal
income taxes.
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The Company intends to qualify the Fund as a regulated investment
company under Subchapter M of the Code as long as such qualification is in the
best interest of the Fund's 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 will generally 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.
Qualification as a regulated investment company under the Code
requires, among other things, that (a) the Fund derive at least 90% of its
annual gross income from interest, payments with respect to securities loans,
dividends and gains from the sale or other disposition of securities or options
thereon; (b) the Fund derive less than 30% of its gross income from gains from
the sale or other disposition of securities or options thereon held for less
than three months; and (c) the Fund diversify its holdings so that, at the end
of each quarter of the taxable year, (i) at least 50% of the market value of
the Fund's assets is represented by cash, government securities and other
securities limited in respect of any one issuer to an amount not greater than
5% of the Fund's assets and 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of its assets is invested in
the securities of any one issuer (other than U.S. Government securities and the
securities of other regulated investment companies), or in two or more issuers
which the Fund controls and which are determined to be engaged in the same or
similar trades or businesses. For purposes of complying with these
qualification requirements, the Fund will be deemed to own a proportionate
share of the Master Portfolio's assets. 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, including net
tax-exempt income, earned in each year. The Fund intends to pay out
substantially all of its net investment income and net realized capital gains
(if any) for each year.
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 substantially
all of its net investment income and net capital gains by the end of each
calendar year and, thus, expects not to be subject to the excise tax.
The Fund seeks to qualify as a regulated investment company by
investing substantially 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. 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 the Master Portfolio's other investors) in proportion to the Fund's
ownership interest in the Master Portfolio. Therefore, to the extent the
Master Portfolio were to accrue but not distribute any interest, dividends or
gains, the Fund would be deemed to have realized and recognized its
proportionate share of interest, dividends or gains without receipt of any
corresponding distribution. However, the Master Portfolio will seek to
minimize recognition by investors of interest, dividends, gains or losses
without a corresponding distribution.
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Corporate shareholders of the Fund may be eligible for the
dividends-received deduction on dividends distributed out of the Fund's net
investment income attributable to dividends received from domestic
corporations, which, if received directly by the corporate shareholder, would
qualify for such deduction. In order to qualify for the dividends-received
deduction, a corporate shareholder must hold the Fund shares paying the
dividends upon which the deduction is based for at least 46 days.
Federal Income Tax Rates. 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 marginal tax rate applicable
to net capital gains is 28%; the maximum corporate tax rate applicable to
ordinary income and net capital gains is 35% (except that to eliminate the
benefit of lower marginal corporate income tax rates, corporations which have
taxable income in excess of $100,000 for a taxable year will be required to pay
an additional amount of income tax 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 tax of up to $100,000). Naturally, the amount of
tax payable by an individual or corporation will be affected by a combination
of tax laws covering, for example, deductions, credits, deferrals, exemptions,
sources of income and other matters.
Capital Gain Distributions. To the extent that 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 the shareholders not later than 60 days after the
close of the Fund's taxable year.
Other Distributions. Although dividends will be declared daily
based on the Fund's daily 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. It is expected that the Fund's net income, on an annual basis, will
equal the dividends declared during the year.
Disposition of Fund Shares. If a shareholder receives a
designated capital gain distribution (to be treated by the shareholder as a
long-term capital gain) with respect to any Fund share and such Fund share is
held for six months or less, then (unless otherwise disallowed) any loss on the
sale or exchange of that Fund share will be treated as a long-term capital loss
to the extent of the designated capital gain distribution. In addition, 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 exempt-interest
dividends received thereon by the shareholder. These rules shall not apply,
however, to losses incurred under a periodic redemption plan.
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If a shareholder exchanges or otherwise disposes of Fund shares
within 90 days of having acquired such shares and if, as a result of having
acquired those shares, the shareholder subsequently pays a reduced sales charge
on a new purchase of shares of the Fund or of a different regulated investment
company, the sales charge previously incurred acquiring the Fund's shares shall
not be taken into account (to the extent such previous sales charges do not
exceed the reduction in sales charges on the new purchase) for the purpose of
determining the amount of gain or loss on the disposition, but will be treated
as having been incurred in the acquisition of such other shares. Also, any
loss realized on a redemption or exchange of shares of the Fund will be
disallowed to the extent that substantially identical shares are reacquired
within the 61-day period beginning 30 days before and ending 30 days after the
shares are disposed of.
Taxation of Fund Investments. Gains or losses on sales of
portfolio securities by the Master Portfolio will generally be long-term
capital gains or losses if the securities have been held by it for more than
one year, except in certain cases such as where the Master Portfolio acquires a
put or writes a call thereon. Gains recognized on the disposition of a debt
obligation (including tax-exempt obligations purchased after April 30, 1993)
purchased by the Master Portfolio at a market discount (generally at a price
less than its principal amount) will generally be treated as ordinary income to
the extent of the portion of market discount which accrued during the period of
time the Master Portfolio held the debt obligation. Other gains or losses on
the sale of portfolio securities will be short-term capital gains or losses.
Foreign Shareholders. Under the Code, distributions of net
investment income by the Fund to a nonresident alien individual, nonresident
alien fiduciary of a trust or estate, foreign corporation, or foreign
partnership (a "foreign shareholder") will be subject to U.S. withholding tax
(at a rate of 30% or a lower treaty rate). Withholding will not apply if a
dividend paid by the Fund to a foreign shareholder is "effectively connected"
with a U.S. trade or business, in which case the reporting and withholding
requirements applicable to U.S. citizens, U.S. residents or domestic
corporations will apply. Distributions of net long-term capital gains are not
subject to tax withholding, but in the case of a foreign shareholder who is a
nonresident alien individual, such distributions ordinarily will be subject to
U.S. income tax at a rate of 30% if the individual is physically present in the
U.S. for more than 182 days during the taxable year.
Backup Withholding. The Company may be required to withhold,
subject to certain exemptions, at a rate of 31% ("backup withholding") on
dividends, capital gain distributions, and redemption proceeds (including
proceeds from exchanges) paid or credited to an individual Fund shareholder,
unless a shareholder certifies that the Taxpayer Identification Number ("TIN")
provided is correct and that the shareholder is not subject to backup
withholding, or the IRS notifies the Company that the shareholder's TIN is
incorrect or the shareholder is subject to backup withholding. Such tax
withheld does not constitute any additional tax imposed on the shareholder, and
may be claimed as a tax payment on the shareholder's federal income tax return.
An investor must provide a valid TIN upon opening or reopening an account.
Failure to furnish a valid TIN to the Company could subject the investor to
penalties imposed by the IRS.
Other Matters. Investors should be aware that the investments to
be made by the Master Portfolio may involve sophisticated tax rules that may
result in income or gain recognition
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by the Fund without corresponding current cash receipts. Although the Master
Portfolio will seek to avoid significant noncash income, such noncash income
could be recognized by the Master Portfolio, in which case the Fund may
distribute cash derived from other sources in order to meet the minimum
distribution requirements described above.
The foregoing discussion and the discussions in the Prospectus
address only some of the federal tax considerations generally affecting
investments in the Fund. Each investor is urged to consult his or her tax
advisor regarding specific questions as to federal, state or local taxes and
foreign taxes.
CAPITAL STOCK
The following information supplements and should be read in
conjunction with the section in the Prospectus entitled "Organization and
Capital Stock."
On any matter submitted to a vote of shareholders, all shares then
entitled to vote will be voted by the Fund unless otherwise required by the
1940 Act, in which case all shares will be voted in the aggregate. For
example, a change in the Fund's fundamental investment policies would be voted
upon only by shareholders of the Fund, as would the approval of any advisory
contract for the Fund. However, all shares of the Company may vote together in
the election or selection of Directors, principal underwriters and accountants
for the Company. Approval by the shareholders of the Fund is effective whether
or not sufficient votes are received from the shareholders of the Company's
other investment portfolios to approve the proposal as to those investment
portfolios. As used in the Prospectus and in this Statement of Additional
Information, the term "majority," when referring to approvals to be obtained
from shareholders of 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 annual meetings of shareholders in any year in which
it is not required to elect Directors under 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.
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Shareholders are not entitled to any preemptive rights. All
shares, when issued, will be fully paid and non-assessable by the Company.
MIT is a business trust organized under the laws of Delaware. In
accordance with Delaware law and in connection with the tax treatment sought by
MIT, MIT's Declaration of Trust provides that its investors would be personally
responsible for Trust liabilities and obligations, but only to the extent MIT
property is insufficient to satisfy such liabilities and obligations. The
Declaration of Trust also provides that MIT shall maintain appropriate
insurance (e.g., fidelity bonding and errors and omissions insurance) for the
protection of MIT, its investors, Trustees, officers, employees and agents
covering possible tort and other liabilities, and that investors will be
indemnified to the extent they are held liable for a disproportionate share of
Trust obligations. Thus, the risk of an investor incurring financial loss on
account of investor liability is limited to circumstances in which both
inadequate insurance existed and MIT itself was unable to meet its obligations.
The Declaration of Trust further provides that obligations of MIT
are not binding upon the Trustees individually but only upon the property of
MIT 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 Fund shares. The
Master Portfolio 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.
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, 1997, no shareholders were known by the Company to
own 5% or more of the Fund's outstanding shares.
OTHER
The Registration Statement of MIT and the Company, including the
Fund's Prospectus, the SAI and the exhibits filed therewith, may be examined at
the office of the Commission in Washington, D.C. Statements contained in the
Fund's 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
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<PAGE> 314
other document filed as an exhibit to these Registration Statements, each such
statement being qualified in all respects by such reference.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP has been selected as the independent
auditors for the Company and MIT. KPMG Peat Marwick LLP provides audit
services, tax return preparation and assistance and consultation in connection
with review of certain Securities and Exchange Commission filings. KPMG Peat
Marwick LLP's address is Three Embarcadero Center, San Francisco, California
94111.
FINANCIAL INFORMATION
The portfolio of investments, audited financial statements and
independent auditors' reports for the Fund for the year ended December 31, 1996
are hereby incorporated by reference to the Company's Annual Report as filed
with the SEC on March 7, 1997. The portfolio of investments, audited financial
statements and independent auditors' report are attached to all SAIs delivered
to current or prospective shareholders.
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APPENDIX
The following is a description of the ratings given by Moody's and
S&P to corporate bonds and commercial paper.
Corporate Bonds
Moody's: The two highest ratings for corporate bonds are "Aaa"
and "Aa." 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. Moody's applies
numerical modifiers: 1, 2 and 3 in the "Aa" category 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 two highest ratings for corporate bonds are "AAA" and
"AA." 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 obligations only in small degree." The ratings
in the "AA" category may be modified by the addition of a plus or minus sign to
show relative standing within the category.
Commercial Paper
Moody's: The highest rating for corporate commercial paper is
"P-1" (Prime-1). Issuers rated "P-1" have a "superior ability for repayment
of senior short-term debt obligations."
S&P: The "A-1" rating for corporate commercial paper is rated "in
the highest category" by S&P and "the obligor's capacity to meet its financial
commitment on the obligation is strong." The "A-1+" rating indicates that said
capacity is "extremely strong." The A-2 rating indicates that said capacity is
"satisfactory," but that corporate and municipal commercial paper rated "A-2"
is "more susceptible" to the adverse effects of changes in economic conditions
or other circumstances than commercial paper rated in higher rating categories.
A-1
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OVERLAND EXPRESS FUNDS, INC.
Telephone: (800) 552-9612
STATEMENT OF ADDITIONAL INFORMATION
Dated May 1, 1997
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 ("MIT"). 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 May 1, 1997. 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. ("Stephens"), the Company's sponsor, co-administrator and distributor, at
111 Center Street, Little Rock, Arkansas 72201, or by calling Wells Fargo Bank,
N.A. ("Wells Fargo Bank") at (800) 222-8222.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Introduction......................................................... 3
Investment Restrictions.............................................. 3
Additional Permitted Investment Activities........................... 6
Management........................................................... 9
Performance Calculations............................................. 15
Determination of Net Asset Value..................................... 19
Additional Purchase and Redemption Information....................... 20
Portfolio Transactions............................................... 21
Fund Expenses........................................................ 24
Federal Income Taxes................................................. 24
Capital Stock........................................................ 28
Other................................................................ 30
Independent Auditors................................................. 30
Financial Information................................................ 31
Appendix............................................................. A-1
</TABLE>
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INTRODUCTION
MIT is a registered, open-end, management investment company. MIT is a
"series fund," which is a mutual fund divided into separate portfolios. MIT
currently offers nine diversified portfolios: the Asset Allocation, Capital
Appreciation, Cash Investment Trust, Corporate Stock, Short-Term Municipal
Income, Short-Term Government-Corporate Income, Small Cap, 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
Fundamental Investment Policies. 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;
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<PAGE> 319
(4) underwrite securities of other issuers, except to the extent that the
purchase of municipal securities or other permitted investments directly from
the issuer thereof or from an underwriter for an issuer and the later
disposition of such securities in accordance with the Fund's 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.
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<PAGE> 320
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.
Non-Fundamental Investment Policies. The Fund and the Master Portfolio are
subject to the following non-fundamental policies.
The Fund and the Master Portfolio may not:
(1) purchase or retain securities of any issuer if the Officers or
Directors/Trustees of the Company, MIT 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
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more than seven days, illiquid securities and restricted securities. However,
as long as the Fund's 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 MIT'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 MIT'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
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institution, the Master Portfolio's investment adviser considers all relevant
facts and 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 MIT, 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> 323
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
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<PAGE> 324
risk). Such values also change in response to changes in the interest rates
payable on new issues of municipal securities (i.e., market risk). Should such
interest rates rise, the values of outstanding securities, including those held
in 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 Funds." The principal occupations during the past five years of the
Directors and principal executive Officer of the Company are listed below. The
address of each, unless otherwise indicated, is 111 Center Street, Little Rock,
Arkansas 72201. Directors deemed to be "interested persons" of the Company
for purposes of the 1940 Act are indicated by an asterisk.
- 9 -
<PAGE> 325
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME, ADDRESS AND AGE POSITION DURING PAST 5 YEARS
- --------------------- -------- -------------------
<S> <C> <C>
Jack S. Euphrat, 74 Director Private Investor.
415 Walsh Road
Atherton, CA 94207
*R. Greg Feltus, 45 Director, Chairman and Senior Vice President of Stephens;
President Manager of Financial Services Group;
President of Stephens Insurance
Services Inc.; Senior Vice President
of Stephens Sports Management Inc.;
and President of Investor Brokerage
Insurance Inc.
Thomas S. Goho, 54 Director T.B. Rose Faculty Fellow Business,
321 Beechcliff Court Wake Forest University Calloway
Winston-Salem, NC 27104 School of Business and Accountancy;
Associate Professor of Finance of the
School of Business and Accounting at
Wake Forest University since 1983.
Joseph N. Hankin, 55 Director President Westchester Community
75 Grasslands Road College since 1971; President of
Valhalla, NY 10595 Hartford Junior College from 1967 to
1971; Adjunct Professor of Columbia
University Teachers College since
1976.
*W. Rodney Hughes, 70 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Robert M. Joses, 78 Director Private Investor.
47 Dowitcher Way
San Rafael, CA 94901
*J. Tucker Morse, 52 Director Private Investor; Real Estate
10 Legrae Street Developer; Chairman of Renaissance
Charleston, SC 29401 Properties Ltd.; President of Morse
Investment Corporation; and
Co-Managing Partner of Main Street
Ventures.
Richard H. Blank, Jr., 40 Chief Operating Associate of Financial Services Group
Officer, of Stephens; Director of Stephens
Secretary and Treasurer Sports Management Inc.; and Director
of Capo Inc.
</TABLE>
- 10 -
<PAGE> 326
COMPENSATION TABLE
For the Year Ended December 31, 1996
<TABLE>
<CAPTION>
Aggregate Compensation Total Compensation from
Name and Position from Registrant Registrant and Fund Complex
- ---------------------------- ---------------------- ---------------------------
<S> <C> <C>
Jack S. Euphrat $10,500 $31,500
Director
*R. Greg Feltus 0 0
Director
Thomas S. Goho 10,500 31,500
Director
*Zoe Ann Hines
Director 0 0
(resigned September 6, 1996)
Joseph N. Hankin 500 1,500
Director
*W. Rodney Hughes 8,750 26,250
Director
Robert M. Joses 10,500 31,500
Director
*J. Tucker Morse 8,750 26,250
Director
</TABLE>
Directors of the Company are compensated annually by the Company and by
all the registrants in each fund complex they serve as indicated above and also
are reimbursed for all out-of-pocket expenses relating to attendance at board
meetings. The Company, Stagecoach Funds, Inc., Stagecoach Trust, Life &
Annuity Trust and Master Investment Trust are considered to be members of the
same fund complex as such term is defined in Form N-1A under the 1940 Act (the
"Wells Fargo Fund Complex"). MasterWorks Funds Inc., Master Investment
Portfolio and Managed Series Investment Trust together form a separate fund
complex (the "BGFA Fund Complex"). Each of the Directors and Officers of the
Company serves in the identical capacity as directors and officers or as
trustees and/or officers of each registered open-end management investment
company in both the Wells Fargo and BGFA Fund Complexes, except for Joseph N.
Hankin, who only serves the aforementioned members of the Wells Fargo Fund
Complex, and Zoe Ann Hines who, after September 6, 1996, only serves the
aforementioned members of the BGFA Fund Complex. The Directors are compensated
by other companies and trusts within a fund complex for their services as
directors/trustees to such companies and trusts. Currently the Directors do
not receive any retirement benefits or deferred compensation from the Company
or any other member of each fund complex.
- 11 -
<PAGE> 327
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.
MASTER/FEEDER STRUCTURE. The Fund seeks to achieve its investment
objective by investing all of its assets in the Tax-Free Money Market Master
Portfolio of MIT. The Fund and other entities investing in the Master
Portfolio are each liable for all obligations of the Master Portfolio. However,
the risk of the Fund incurring financial loss on account of such liability is
limited to circumstances in which both inadequate insurance existed and MIT
itself is unable to meet its obligations. Accordingly, the Company's Board of
Directors believes that neither the Fund nor its shareholders will be adversely
affected by investing Fund assets in the Master Portfolio. However, if a mutual
fund or other investor withdraws its investment from the Master Portfolio, the
economic efficiencies (e.g., spreading fixed expenses among a larger asset
base) that the Company's Board believes may be available through investment in
the Master Portfolio may not be fully achieved. In addition, given the relative
novelty of the master/feeder structure, accounting or operational difficulties,
although unlikely, could arise. See "Management of the Funds" in the Prospectus
for additional description of the Fund's and Master Portfolio's expenses and
management.
The Fund may withdraw its investment in the Master Portfolio only if the
Company's Board of Directors determines that such action is in the best
interests of the Fund and its shareholders. Upon such withdrawal, the Company's
Board would consider alternative investments, including investing all of the
Fund's assets in another investment company with the same investment objective
as the Fund or hiring an investment adviser to manage the Fund's assets in
accordance with the investment policies described below with respect to the
Master Portfolio.
The investment objective and other fundamental policies of the Master
Portfolio cannot be changed without approval by the holders of a majority (as
defined in the 1940 Act) of the Master Portfolio's outstanding interests. See
"Investment Objectives and Policies" in the Prospectus. Whenever the Fund, as
an interestholder of the Master Portfolio, is requested to vote on any matter
submitted to interestholders of the Master Portfolio, the Fund will hold a
meeting of its shareholders to consider such matters. The Fund will cast its
votes in proportion to the votes received from its shareholders. Shares for
which the Fund receives no voting instructions will be voted in the same
proportion as the votes received from the other Fund shareholders.
Certain policies of the Master Portfolio which are non-fundamental may be
changed by vote of a majority of MIT's Trustees without interestholder
approval. If the Master Portfolio's investment objective or fundamental or
non-fundamental policies are changed, the Fund may elect to change its
objective or policies to correspond to those of the Master Portfolio. The Fund
may also elect to redeem its interests in the Master Portfolio and either seek
a new investment company with a matching objective in which to invest or retain
its own investment adviser to manage the Fund's portfolio in accordance with
its objective. In the latter case, the Fund's inability to find a substitute
investment company in which to invest or equivalent management services could
adversely affect shareholders' investments in the Fund. The Fund will provide
shareholders with 30 days' written notice prior to the implementation of any
change in the
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<PAGE> 328
investment objective of the Fund or the Master Portfolio, to the extent
possible. See "Investment Objectives and Policies" in the Prospectus for
additional information regarding the Fund's and the Master Portfolio's
investment objectives and policies.
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 MIT. Wells Fargo Bank
furnishes to the Master Portfolio investment guidance and policy direction in
connection with the daily portfolio management of the Master Portfolio. Wells
Fargo Bank also furnishes to MIT'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 Fund and, indirectly, its shareholders, would bear
a pro rata portion of any advisory fees paid by the Master Portfolio. For its
services as investment adviser 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.
For the period begun April 2, 1996 (commencement of operations) and ending
December 31, 1996, the Master Portfolio paid to Wells Fargo Bank $87,467 in
advisory fees allocable to the Fund. $53,098 in advisory fees allocable to the
Fund were waived during this period.
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 MIT's
Board of Trustees and (ii) by a majority of the Trustees of MIT 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 CO-ADMINISTRATOR. The Company has retained Wells Fargo
Bank as administrator and Stephens as co-administrator on behalf of the Fund.
In addition, MIT has retained Wells Fargo Bank as administrator and Stephens as
co-administrator on behalf of the Master Portfolio. Under the respective
Administration and Co-Administration Agreements, Wells Fargo Bank and 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), 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. Wells Fargo Bank and Stephens also
furnish office space and certain facilities required for conducting the
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<PAGE> 329
Fund's and the Master Portfolio's business together with ordinary clerical and
bookkeeping services. Stephens pays the compensation of MIT's and the
Company's Directors/Trustees, Officers and employees who are affiliated with
Stephens. The administrator and co-administrator are entitled to receive a
monthly fee at the annual rate of 0.04% and 0.02%, respectively, of the Fund's
average daily net assets.
For the period begun April 2 and ended December 31, 1996, Stephens served
as sole administrator to the Fund and the Master Portfolio and provided the
Fund and Master Portfolio with essentially the same services as described above
and was paid $23,514 in administration fees by the Fund. No administration
fees were waived during this period. Stephens was entitled to receive a monthly
fee at the annual rate of 0.05% of the Fund's average daily net assets.
SPONSOR AND DISTRIBUTOR. As discussed in the Fund's Prospectus under the
heading "Management of the Funds," Stephens serves as the Fund's sponsor and
distributor.
CUSTODIAN. 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. The custodian shall not be entitled to compensation for providing
custody services to the Fund so long as the custodian receives fees for
providing agency services to the Fund.
TRANSFER AND DIVIDEND DISBURSING AGENT. Wells Fargo Bank has been
retained to act as transfer and dividend disbursing agent for both the Fund and
the Master Portfolio. For its services as transfer and dividend disbursing
agent for the Fund, Wells Fargo Bank is entitled to receive monthly payments at
the annual rate of 0.10% of the Fund's average daily net assets. Under the
prior transfer agency agreement for the Fund, Wells Fargo Bank was not entitled
to receive a fee for such services so long as it was entitled to receive fees
for providing advisory services to the Master Portfolio.
For the period begun April 2 and ended December 31, 1996, neither the Fund
nor the Master Portfolio paid any compensation for custodial services or
transfer and dividend disbursing agency services to Wells Fargo Bank.
UNDERWRITING COMMISSIONS. For the year ended December 31, 1994, the
aggregate dollar amount of underwriting commissions paid to Stephens on
sales/redemptions of the Company's shares was $1,408,759 and Stephens retained
$1,351,388 of such commissions. WFSI and its registered representatives
received $57,371 of such commissions.
For the year ended December 31, 1995, the aggregate dollar amount of
underwriting commissions paid to Stephens on sales/redemptions of the Company's
shares was $1,478,541 and Stephens retained $1,447,175 of such commissions.
WFSI and its registered representatives received $31,366 of such commissions.
- 14 -
<PAGE> 330
For the year ended December 31, 1996, the aggregate dollar amount of
underwriting commissions paid to Stephens on sales/redemptions of the Company's
shares was $1,777,985 and Stephens retained $195,639 of such commissions. WFSI
and its registered representatives received $255,147 and $1,327,199
respectively of such commissions.
PERFORMANCE CALCULATIONS
TOTAL RETURN. The Fund may advertise certain total return information for
a class of shares, computed in the manner described in the Prospectus. As and
to the extent required by the Commission, an average annual compound rate of
return ("T") will be computed by using the redeemable value at the end of a
specified period ("ERV") of a hypothetical initial investment in a class of
shares ("P") over a period of years ("n") according to the following formula:
P(1+T)n = ERV. In addition, as indicated in the Prospectus, the Fund also may,
at times, calculate total return for a class of shares based on net asset value
per share (rather than the public offering price), in which case the figures
would not reflect the effect of any sales charges that would have been paid by
an investor, or would be based on the assumption that a sales charge other than
the maximum sales charge (reflecting a Volume Discount) was assessed, provided
that total return data derived pursuant to the calculation described above also
are presented.
In addition to the above performance information, the Fund may also
advertise the cumulative total return of a class. The cumulative total return
for such periods is based on the overall percentage change in value of a
hypothetical investment in a class of shares, assuming all dividends and
capital gain distributions are reinvested in shares of that class, without
reflecting the effect of any sales charge that would be paid by an investor,
and is not annualized.
Performance information may be advertised for non-standardized periods,
including year-to-date and other periods less than a year.
<TABLE>
<CAPTION>
Average Annual Total Return(1) Cumulative Total Return
Inception to December 31, 1996 Inception to December 31, 1996
- ------------------------------ ------------------------------
<S> <C>
2.27% 2.27%
</TABLE>
(1) The Fund commenced operations on April 2, 1996 and does not assess sales
charges.
YIELD. 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
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<PAGE> 331
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 for the Fund is calculated by determining the 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, 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.
Yield for the Applicable Period Ended December 31, 1996(1)
<TABLE>
<CAPTION>
Thirty-Day
Tax-Equivalent Seven-Day
Fund Thirty-Day Yield Yield(2) Seven-Day Yield Effective Yield
- ------------------------------ ---------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
National Tax-Free Money Market 3.10% 5.66% 3.42% 3.47%
</TABLE>
(1) The Fund commenced operations on April 2, 1996 and does not assess sales
charges.
(2) Based on a federal income tax rate of 28.00%.
OTHER. 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,
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<PAGE> 332
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.
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
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<PAGE> 333
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
(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 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,
including, without limitation, through investments in a Managed Sweep Account,
National Tax-Free Money Market Checking Account or National Tax-Free Money
Market Access Account (collectively, the "Sweep Accounts"). Such
advertisements and other literature may include, without limitation,
discussions of such
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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, a description of any automated teller machine ("ATM") or check
privileges offered in connection with a Sweep Account and any other terms,
conditions, features or plans offered in connection with a Sweep Account. Such
advertising or other literature may also include a discussion of the advantages
of establishing and maintaining a Sweep Account, and may include statements
from customers as to the reasons why such customers have established and
maintained a Sweep Account.
The Company also may disclose, in advertising and other types of
literature, information and statements that Wells Capital Management, Inc.
("WCM" formerly, Wells Fargo Investment Management) a subsidiary of Wells Fargo
Bank, is listed in the top 100 by Institutional Investor magazine in its July
1996 survey "America's Top 300 Money Managers." This survey ranks money
managers in several asset categories. The Company may also disclose in
advertising and other types of sales literature the assets and categories of
assets under management by its investment adviser or sub-adviser and the total
amount of assets and mutual fund assets managed by Wells Fargo Bank. As of
April 1, 1997, Wells Fargo Bank and its affiliates provided investment advisory
services for approximately $57 billion of assets of individuals, trusts,
estates and institutions and $20 billion of mutual fund assets.
The Company may disclose in advertising and other types of literature that
investors can open and maintain Sweep Accounts over the Internet or through
other electronic channels (collectively, "Electronic Channels"). Such
advertising and other literature may discuss the investment options available
to investors, including the types of accounts and any applicable fees. Such
advertising and other literature may disclose that Wells Fargo Bank is the
first major bank to offer an on-line application for a mutual fund account that
can be filled out completely through Electronic Channels. Advertising and
other literature may disclose that Wells Fargo Bank may maintain Web sites,
pages or other information sites accessible through Electronic Channels (an
"Information Site") and may describe the contents and features of the
Information Site and instruct investors on how to access the Information Site
and open a Sweep Account. Advertising and other literature may also disclose
the procedures employed by Wells Fargo Bank to secure information provided by
investors, including disclosure and discussion of the tools and services for
accessing Electronic Channels. Such advertising or other literature may
include discussions of the advantages of establishing and maintaining a Sweep
Account through Electronic Channels and testimonials from Wells Fargo Bank
customers or employees and may also include descriptions of locations where
product demonstrations may occur. The Company may also disclose the ranking of
Wells Fargo Bank as one of the largest money managers in the United States.
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DETERMINATION OF NET ASSET VALUE
Net asset value per share of the Fund is determined on each day the Fund
is open. The Fund's investments in the Master Portfolio are valued at the net
asset value of the Master Portfolio's units.
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 MIT'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,
MIT'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 MIT'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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ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
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.
Payment for shares may, in the discretion of the adviser, be made in the
form of securities that are permissible investments for the Fund as described
in the Prospectuses. For further information about this form of payment please
contact Stephens. In connection with an in-kind securities payment, the Fund
will require, among other things, that the securities be valued on the day of
purchase in accordance with the pricing methods used by the Fund and that the
Fund receives satisfactory assurances that (i) it will have good and marketable
title to the securities received by it; (ii) that the securities are in proper
form for transfer to the Fund; and (iii) adequate information will be provided
concerning the basis and other matters relating to the securities.
Under the 1940 Act, the Fund may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the
NYSE is closed (other than customary weekend and holiday closings, or during
which trading is restricted, or during which as determined by the SEC by rule
or regulation), an emergency exists as a result of which disposal or valuation
of portfolio securities is not reasonably practicable, or for such periods as
the SEC may permit.
The Company may suspend redemption rights or postpone redemption payments
for such periods as are permitted under the 1940 Act. The Company may also
redeem shares involuntarily or make payment for redemption in securities or
other property if it appears appropriate to do so in light of the Company's
responsibilities under the 1940 Act.
In addition, the Company may redeem shares involuntarily to reimburse the
Fund for any losses sustained by reason of the failure of a shareholders to
make full payment for shares purchased or to collect any charge relating to a
transaction effected for the benefit of a shareholder which is applicable to
shares of a Fund as provided from time to time in the Prospectus.
PORTFOLIO TRANSACTIONS
Purchases and sales of debt securities generally are principal
transactions. Debt securities normally are purchased or sold from or to
dealers serving as market makers for the securities at a net price. Debt
securities may also be purchased in underwritten offerings or
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<PAGE> 337
directly from the issuer. Generally, municipal obligations and taxable money
market securities are traded on a net basis and do not involve brokerage
commissions. The cost of executing transactions in debt securities 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 MIT's Board of Trustees.
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.
MIT 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 MIT's Board of Trustees, Wells Fargo is responsible for the
Master Portfolio's investment decisions and the placing of portfolio
transactions. In placing orders, it is the policy of MIT to obtain the best
overall terms taking into account the dealer's general execution and
operational facilities, the type of transaction involved and other factors such
as the dealer's risk in positioning the securities involved. Wells Fargo Bank
generally seeks reasonably competitive spreads or commissions.
In assessing the best overall terms available for any transaction, Wells
Fargo Bank considers factors deemed relevant, including the breadth of the
market in the security, the price of the security, the financial condition and
execution capability of the broker or dealer, and the reasonableness of the
commission, if any, both for the specific transaction and on a continuing
basis. Wells Fargo Bank may cause the Master Portfolio to pay a broker/dealer
which furnishes brokerage and research services a higher commission than that
which might be charged by another broker/dealer for effecting the same
transaction, provided that Wells Fargo Bank determines in good faith that such
commission is reasonable in relation to the value of the brokerage and research
services provided by such broker/dealer, viewed in terms of either the
particular transaction or the overall responsibilities of Wells Fargo Bank.
Such brokerage and research services might consist of reports and statistics
relating to specific companies or industries, general summaries of groups of
stocks or bonds and their comparative earnings and yields, or broad overviews
of the stock, bond, and government securities markets and the economy.
Supplementary research information so received is in addition to, and not
in lieu of, services required to be performed by Wells Fargo Bank and does not
reduce the advisory fees payable by the Master Portfolio. MIT's Board of
Trustees will periodically review the
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<PAGE> 338
commissions paid by the Master Portfolio to consider whether the commissions
paid over representative periods of time appear to be reasonable in relation to
the benefits inuring to the Master Portfolio. It is possible that certain of
the supplementary research or other services received will primarily benefit
one or more other investment companies or other accounts for which Wells Fargo
Bank exercises investment discretion. Conversely, the Master Portfolio may be
the primary beneficiary of the research or services received as a result of
portfolio transactions effected for such other account or investment company.
Under Section 28(e) of the Securities Exchange Act of 1934, an adviser
shall not be "deemed to have acted unlawfully or to have breached its fiduciary
duty" solely because under certain circumstances it has caused the account to
pay a higher commission than the lowest available. To obtain the benefit of
Section 28(e), an adviser must make a good faith determination that the
commissions paid are "reasonable in relation to the value of the brokerage and
research services provided . . . viewed in terms of either that particular
transaction or its overall responsibilities with respect to the accounts as to
which it exercises investment discretion and that the services provided by a
broker provide an adviser with lawful and appropriate assistance in the
performance of its investment decision-making responsibilities." Accordingly,
the price to the Master Portfolio in any transaction may be less favorable than
that available from another broker/dealer if the difference is reasonably
justified by other aspects of the portfolio execution services offered.
Broker/dealers utilized by Wells Fargo Bank may furnish statistical,
research and other information or services which are deemed by Wells Fargo Bank
to be beneficial to the Master Portfolio's investment programs. Research
services received from brokers supplement Wells Fargo Bank's own research and
may include the following types of information: statistical and background
information on industry groups and individual companies; forecasts and
interpretations with respect to U.S. and foreign economies, securities,
markets, specific industry groups and individual companies; information on
political developments; portfolio management strategies; performance
information on securities and information concerning prices of securities; and
information supplied by specialized services to Wells Fargo Bank and to MIT's
Trustees with respect to the performance, investment activities and fees and
expenses of other mutual funds. Such information may be communicated
electronically, orally or in written form. Research services may also include
the providing of equipment used to communicate research information, the
arranging of meetings with management of companies and the providing of access
to consultants who supply research information.
The outside research assistance is useful to Wells Fargo Bank since the
brokers utilized by Wells Fargo Bank as a group tend to follow a broader
universe of securities and other matters than the staff of Wells Fargo Bank can
follow. In addition, this research provides Wells Fargo Bank with a diverse
perspective on financial markets. Research services which are provided to
Wells Fargo Bank by brokers are available for the benefit of all accounts
managed or advised by Wells Fargo Bank. It is the opinion of Wells Fargo Bank
that this material is beneficial in supplementing their research and analysis;
and, therefore, it may benefit the Master Portfolio by improving the quality of
Wells Fargo Bank's investment advice.
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<PAGE> 339
BROKERAGE COMMISSIONS. For the years ended December 31, 1996, the Fund
did not pay any Brokerage Commissions.
SECURITIES OF REGULAR BROKER DEALERS. As of December 31, 1996, neither
the Fund nor the Master Portfolio held any debt securities of their "regular
brokers or dealers," as defined in the 1940 Act, or their parents.
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.
FUND EXPENSES
Except for the expenses borne by Wells Fargo Bank and Stephens, the
Company and the Master Portfolio each bear the costs of its respective
operations, including the compensation of its Directors/Trustees who are not
affiliated with Stephens or Wells Fargo Bank or any of their affiliates;
advisory, shareholder servicing and administration fees; payments pursuant to
any Plan; interest charges; taxes; fees and expenses of its independent
accountants, legal counsel, transfer agent and dividend disbursing agent;
expenses of redeeming shares; expenses of preparing and printing Prospectuses
(except the expense of printing and mailing Prospectuses used for promotional
purposes, unless otherwise payable pursuant to a Plan), shareholders' reports,
notices, proxy statements and reports to regulatory agencies; insurance
premiums and certain expenses relating to insurance coverage; trade association
membership dues; brokerage and other expenses connected with the execution of
portfolio transactions; fees and expenses of its custodian, including those for
keeping books and accounts and calculating the NAV per share of the Fund;
expenses of shareholders' meetings; expenses relating to the issuance,
registration and qualification of the Fund's shares; pricing services, and any
extraordinary expenses. Expenses attributable to the Fund are charged against
Fund assets. General expenses of the Company are allocated among all of the
funds of the Company, including the Fund, in a manner proportionate to the net
assets of the Fund, on a transactional basis, or on such other basis as the
Company's Board of Directors deems equitable.
FEDERAL INCOME TAXES
In General. The following information supplements and should be read in
conjunction with the Prospectus. The Prospectus of the Fund describes
generally the tax treatment of distributions by the Fund within the section
entitled "Taxes." This section of the SAI includes additional information
concerning federal income taxes.
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<PAGE> 340
The Company intends to qualify the Fund as a regulated investment company
under Subchapter M of the Code as long as such qualification is in the best
interest of the Fund's 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 will generally 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.
Qualification as a regulated investment company under the Code requires,
among other things, that (a) the Fund derive at least 90% of its annual gross
income from interest, payments with respect to securities loans, dividends and
gains from the sale or other disposition of securities or options thereon; (b)
the Fund derive less than 30% of its gross income from gains from the sale or
other disposition of securities or options thereon held for less than three
months; and (c) the Fund diversify its holdings so that, at the end of each
quarter of the taxable year, (i) at least 50% of the market value of the Fund's
assets is represented by cash, government securities and other securities
limited in respect of any one issuer to an amount not greater than 5% of the
Fund's assets and 10% of the outstanding voting securities of such issuer, and
(ii) not more than 25% of the value of its assets is invested in the securities
of any one issuer (other than U.S. Government obligations and the securities of
other regulated investment companies), or in two or more issuers which the Fund
controls and which are determined to be engaged in the same or similar trades
or businesses. 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, including net
tax-exempt income, earned in each year. The Fund intends to pay out
substantially all of its net investment income and net realized capital gains
(if any) for each year.
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 substantially all of
its net investment income and net capital gains by the end of each calendar
year and, thus, expects not to be subject to the excise tax.
Federal Income Tax Rates. 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 marginal tax rate applicable to net
capital gains is 28%; the maximum corporate tax rate applicable to ordinary
income and net capital gains is 35% (except that to eliminate the benefit of
lower marginal corporate income tax rates, corporations which have taxable
income in excess of $100,000 for a taxable year will be required to pay an
additional amount of income tax 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 tax of up to $100,000). Naturally, the amount of
tax payable by an individual or corporation will be affected by a combination
of tax laws covering, for example, deductions, credits, deferrals, exemptions,
sources of income and other matters.
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<PAGE> 341
Capital Gain Distributions. To the extent that 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 the shareholders not later than 60 days after the close of the
Fund's taxable year.
Other Distributions. Although dividends will be declared daily based on
the Fund's daily 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. It
is expected that the Fund's net income, on an annual basis, will equal the
dividends declared during the year.
Disposition of Fund Shares. If a shareholder receives a designated
capital gain distribution (to be treated by the shareholder as a long-term
capital gain) with respect to any Fund share and such Fund share is held for
six months or less, then (unless otherwise disallowed) any loss on the sale or
exchange of that Fund share will be treated as a long-term capital loss to the
extent of the designated capital gain distribution. In addition, 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 exempt-interest dividends
received thereon by the shareholder. These rules shall not apply, however, to
losses incurred under a periodic redemption plan.
If a shareholder exchanges or otherwise disposes of Fund shares within 90
days of having acquired such shares and if, as a result of having acquired
those shares, the shareholder subsequently pays a reduced sales charge on a new
purchase of shares of the Fund or of a different regulated investment company,
the sales charge previously incurred acquiring the Fund's shares shall not be
taken into account (to the extent such previous sales charges do not exceed the
reduction in sales charges on the new purchase) for the purpose of determining
the amount of gain or loss on the disposition, but will be treated as having
been incurred in the acquisition of such other shares. Also, any loss realized
on a redemption or exchange of shares of the Fund will be disallowed to the
extent that substantially identical shares are reacquired within the 61-day
period beginning 30 days before and ending 30 days after the shares are
disposed of.
Taxation of Fund Investments. Gains or losses on sales of portfolio
securities by the Fund will generally be long-term capital gains or losses if
the securities have been held by it for more than one year, except in certain
cases such as where the Fund acquires a put or writes a call thereon. Gains
recognized on the disposition of a debt obligation purchased by the Fund at a
market discount (generally at a price less than its principal amount) will
generally be treated as ordinary income to the extent of the portion of market
discount which accrued during the period
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<PAGE> 342
of time the Fund held the debt obligation. Other gains or losses on the sale
of portfolio securities will be short-term capital gains or losses.
Foreign Shareholders. Under the Code, distributions of net investment
income by the Fund to a nonresident alien individual, nonresident alien
fiduciary of a trust or estate, foreign corporation, or foreign partnership (a
"foreign shareholder") will be subject to U.S. withholding tax (at a rate of
30% or a lower treaty rate). Withholding will not apply if a dividend paid by
the Fund to a foreign shareholder is "effectively connected" with a U.S. trade
or business, in which case the reporting and withholding requirements
applicable to U.S. citizens, U.S. residents or domestic corporations will
apply. Distributions of net long-term capital gains are not subject to tax
withholding, but in the case of a foreign shareholder who is a nonresident
alien individual, such distributions ordinarily will be subject to U.S. income
tax at a rate of 30% if the individual is physically present in the U.S. for
more than 182 days during the taxable year.
Backup Withholding. The Company may be required to withhold, subject to
certain exemptions, at a rate of 31% ("backup withholding") on dividends,
capital gain distributions and redemption proceeds (including redemptions in
kind and proceeds from exchanges) paid or credited to an individual Fund
shareholder, unless a shareholder certifies that the Taxpayer Identification
Number ("TIN") provided is correct and that the shareholder is not subject to
backup withholding, or the IRS notifies the Company that the shareholder's TIN
is incorrect or the shareholder is subject to backup withholding. Such tax
withheld does not constitute any additional tax imposed on the shareholder, and
may be claimed as a tax payment on the shareholder's federal income tax return.
An investor must provide a valid TIN upon opening or reopening an account.
Failure to furnish a valid TIN to the Company could subject the investor to
penalties imposed by the IRS.
Special Tax Considerations for the Fund. The Fund intends that at least
50% of the value of its total assets at the close of each quarter of its
taxable year will consist of obligations the interest on which is exempt from
federal income tax, so that it will qualify under the Code to pay
"exempt-interest dividends." The portion of total dividends paid by the Fund
with respect to any taxable year that constitutes exempt-interest dividends
will be the same for all shareholders receiving dividends during such year.
Long-term and/or short-term capital gain distributions will not constitute
exempt-interest dividends and will be taxed as capital gain or ordinary income
dividends, respectively. The exemption of interest income derived from
investments in tax-exempt obligations for federal income tax purposes may not
result in a similar exemption under the laws of a particular state or local
taxing authority.
Not later than 60 days after the close of its taxable year, the 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. Finally, interest on
indebtedness incurred to purchase or carry shares of the Fund will not be
deductible to the extent that the Fund's distributions are exempt from federal
income tax.
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<PAGE> 343
In addition, the federal alternative minimum tax ("AMT") rules ensure that
at least a minimum amount of tax is paid by taxpayers who obtain significant
benefit from certain tax deductions and exemptions. Some of these deductions
and exemptions have been designated "tax preference items" which must be added
back to taxable income for purposes of calculating AMT. Among the tax
preference items is tax-exempt interest from "private activity bonds," issued
after August 7, 1986. To the extent that the Fund invests in private activity
bonds, its shareholders who pay AMT will be required to report that portion of
Fund dividends attributable to income from the bonds as a tax preference item
in determining their AMT. Shareholders will be notified of the tax status of
distributions made by the Fund. Persons who may be "substantial users" (or
"related persons" of substantial users) of facilities financed by private
activity bonds should consult their tax advisors before purchasing shares in
the Fund. Furthermore, shareholders will not be permitted to deduct any of
their share of the Fund's expenses in computing their AMT. With respect to a
corporate shareholder of the Fund, exempt-interest dividends paid by the Fund
are included in the corporate shareholder's "adjusted current earnings" as part
of its AMT calculation, and may also affect its federal "environmental tax"
liability. As of the printing of this SAI, individuals are subject to an AMT
at a maximum rate of 28% and corporations at a maximum rate of 20%.
Shareholders with questions or concerns about AMT should consult their tax
advisors.
Shares of the Fund would not be suitable for tax-exempt institutions and
may not be suitable for retirement plans qualified under Section 401 of the
Code, H.R. 10, plans and IRAs 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.
Other Matters. Investors should be aware that the investments to be made
by the Fund may involve sophisticated tax rules that may result in income or
gain recognition by the Fund without corresponding current cash receipts.
Although the Fund will seek to avoid significant noncash income, such noncash
income could be recognized by the Fund, in which case the Fund may distribute
cash derived from other sources in order to meet the minimum distribution
requirements described above.
The foregoing discussion and the discussions in the Prospectus address
only some of the federal tax considerations generally affecting investments in
the Fund. Each investor is urged to consult his or her tax advisor regarding
specific questions as to federal, state or local taxes and foreign taxes.
CAPITAL STOCK
The following information supplements and should be read in conjunction
with the section in the Prospectus entitled "Organization and Capital Stock."
Most of the Company's funds are authorized to issue multiple classes of
shares, one class generally subject to a front-end sales charge and, in some
cases, a class subject to a
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<PAGE> 344
contingent-deferred sales charge, that are offered to retail investors.
Certain of the Company's funds also are authorized to issue other classes of
shares, which are sold primarily to institutional investors. Each class of
shares in a fund represents an equal, proportionate interest in a fund with
other shares of the same class. Shareholders of each class bear their pro rata
portion of the fund's operating expenses, except for certain class-specific
expenses (e.g., any state securities registration fees, shareholder servicing
fees or distribution fees that may be paid under Rule 12b-1) that are allocated
to a particular class. Please contact Overland Shareholder Services at (800)
552-9612 if you would like additional information about other funds or classes
of shares offered.
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
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 pre-emptive rights. All shares, when
issued, will be fully paid and non-assessable by the Company.
MIT, 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
- 29 -
<PAGE> 345
in connection with the tax treatment sought by MIT, MIT's Declaration of Trust
provides that its investors would be personally responsible for Master Trust
liabilities and obligations, but only to the extent MIT property is
insufficient to satisfy such liabilities and obligations. The Declaration of
Trust also provides that MIT shall maintain appropriate insurance (e.g.,
fidelity bonding and errors and omissions insurance) for the protection of MIT,
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 MIT itself was unable to meet its obligations.
The Declaration of Trust further provides that obligations of MIT are not
binding upon the Trustees individually but only upon the property of MIT 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. MIT
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.
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, 1997, 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>
Wells Fargo Bank 98.18% Record
Quality Control
525 Market St, MAC 0103-174
San Francisco, CA 94163
</TABLE>
- 30 -
<PAGE> 346
OTHER
The Registration Statements of the Company and MIT, 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 MIT. 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.
FINANCIAL INFORMATION
The portfolio of investments, audited financial statements and independent
auditors' report for the Fund and Master Portfolio for the year ended December
31, 1996 are hereby incorporated into this SAI by reference to the Company's
Annual Report for Institutional Class shares as filed with the SEC on March 7,
1997. 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.
- 31 -
<PAGE> 347
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 lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Moody's also applies numerical modifiers in its rating
system: 1, 2 and 3 in each rating category from "Aa" through "Baa" in its rating
system. The modifier 1 indicates that the security ranks in the higher end of
its category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end.
S&P: The four highest ratings for corporate and municipal bonds are
"AAA," "AA," "A" and "BBB." Bonds rated "AAA" have the "highest rating" assigned
by S&P and have "an extremely strong capacity" to pay interest and repay
principal. Bonds rated "AA" have a "very strong capacity" to pay interest and
repay principal and "differ from the highest rated obligations only in small
degree." Bonds rated "A" have a "strong capacity" to pay interest and repay
principal, but are "somewhat more susceptible" to adverse effects of changes in
economic conditions or other circumstances than bonds in higher rated
categories. Bonds rated "BBB" are regarded as having "adequate protection
parameters" to pay interest and repay principal, but changes in economic
conditions or other circumstances are more likely to lead to a "weakened
capacity" to make such repayments. The ratings from "AA" to "BBB" may be
modified by the addition of a plus or minus sign to show relative standing
within the category.
Corporate and 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> 348
S&P: The two highest ratings for corporate, state and municipal notes
are "SP-1" and "SP-2." The "SP-1" ratings reflects a "very strong or strong
capacity to pay principal and interests." 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, state and municipal
commercial paper is "P-1" (Prime-1). Issuers rated "P-1" have a "superior
ability for repayment of senior short-term debt obligations." Issuers rated
"P-2" (Prime-2) "have a strong capacity for repayment of senior short-term debt
obligations," but earnings trends, while sound, will be subject to more
variation.
S&P: The "A-1" rating for corporate, state and municipal commercial
paper is rated "in the highest category" by S&P and "the obligor's capacity to
meet its financial commitment on the obligation is strong." The "A-1+" rating
indicates that said capacity is "extremely strong." The A-2 rating indicates
that said capacity is "satisfactory," but that corporate and municipal
commercial paper rated "A-2" is "more susceptible" to the adverse effects of
changes in economic conditions or other circumstances than commercial paper
rated in higher rating categories.
A-2
<PAGE> 349
OVERLAND EXPRESS FUNDS, INC.
Telephone: (800) 552-9612
STATEMENT OF ADDITIONAL INFORMATION
Dated May 1, 1997
MUNICIPAL INCOME FUND
__________________________________
Overland Express Funds, Inc. (the "Company") is an open-end series
investment company. This Statement of Additional Information ("SAI") contains
information about one of the Company's funds -- the MUNICIPAL INCOME FUND (the
"Fund"). The Fund offers two classes of shares -- Class A Shares and Class D
Shares. This SAI relates to both classes of shares. The investment objective
of the Fund is described in the Prospectus under "Investment Objectives and
Policies."
This SAI is not a prospectus and should be read in conjunction with the
Fund's Prospectus, dated May 1, 1997. All terms used in this SAI that are
defined in the Prospectus will have the meanings assigned in the Prospectus. A
copy of the Prospectus may be obtained without charge by writing Stephens Inc.
("Stephens"), the Company's sponsor, co-administrator and distributor, at 111
Center Street, Little Rock, Arkansas 72201 or calling the Transfer Agent at
the telephone number indicated above.
__________________________________
1
<PAGE> 350
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Investment Restrictions ............................. 3
Additional Permitted Investment Activities .......... 5
Management .......................................... 6
Distribution Plans .................................. 11
Class A Administrative Servicing Plan ............... 12
Class D Servicing Plan .............................. 12
Performance Calculations ............................ 13
Determination of Net Asset Value .................... 18
Additional Purchase and Redemption Information.... .. 18
Portfolio Transactions .............................. 19
Fund Expenses ....................................... 21
Federal Income Taxes ................................ 21
Capital Stock ....................................... 25
Other ............................................... 27
Independent Auditors ................................ 28
Financial Information ............................... 28
Appendix ............................................ A-1
</TABLE>
2
<PAGE> 351
INVESTMENT RESTRICTIONS
Fundamental Investment Policies. The Fund is subject to the following
investment restrictions, all of which are fundamental policies:
The Fund may not:
(1) purchase the securities of issuers conducting their principal business
activity in the same industry if, immediately after the purchase and as a
result thereof, the value of the Fund's investments in that industry would
exceed 25% of the current value of the Fund's total assets, provided that there
is no limitation with respect to investments in (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 issuers), and
(ii) securities issued or guaranteed by the United States Government, its
agencies or instrumentalities;
(2) purchase or sell real estate limited partnership interests or real
estate (other than securities secured by real estate or interests therein or
securities issued by companies that invest in real estate or interests
therein), commodities or commodity contracts or interests, leases or limited
partnership interests in oil, gas, or other mineral exploration or development
programs;
(3) purchase securities on margin (except for short-term credits
necessary for the clearance of transactions) or make short sales of securities;
(4) underwrite securities of other issuers, except to the extent that the
purchase of permitted investments directly from the issuer thereof or from an
underwriter for an issuer and the later disposition of such securities in
accordance with the Fund's investment program may be deemed to be an
underwriting;
(5) make investments for the purpose of exercising control or management;
(6) purchase puts, calls, straddles, spreads, or any combination thereof
if by reason thereof the value of the aggregate investment of such classes of
securities will exceed 5% of the Fund's total assets;
(7) issue senior securities, except that the Fund may borrow from banks up
to 10% of the current value of its net assets for temporary purposes only in
order to meet redemptions, and these borrowings may be secured by the pledge of
up to 10% of the current value of its net assets (but investments may not be
purchased while any such outstanding borrowing in excess of 5% of the Fund's
net assets exists);
(8) make loans of portfolio securities or other assets, except that loans
for purposes of this restriction will not include the purchase of fixed time
deposits, repurchase agreements, commercial paper and other short-term
obligations, and other types of debt instruments commonly sold in a public or
private offering; or
3
<PAGE> 352
(9) invest more than 25% of its assets in municipal securities of any
single state, possession, commonwealth or territory or in the District of
Columbia.
The Fund may not purchase securities of any issuer (except securities
issued or guaranteed by the U.S. Government, its agencies and
instrumentalities) if, as a result, with respect to 75% of its total assets,
more than 5% of the value of its total assets would be invested in the
securities of any one issuer or, with respect to 100% of its total assets, the
Fund's ownership would be more than 10% of the outstanding voting securities of
such issuer. For purposes of this policy, each state, possession,
commonwealth, territory and the District of Columbia, and each political
subdivision, authority, agency and instrumentality and multi-state agency or
authority thereof is a separate issuer provided that the securities are backed
only by the assets and revenues of the particular issuer. In addition, for
these purposes, a guarantee of a security shall not deemed to be a security
issued by the guarantor, provided that the Fund shall not invest more than 10%
of its total assets in all securities issued or guaranteed by that guarantor.
Non-Fundamental Investment Policies. The Fund is subject to the following
non-fundamental policies:
(1) The Fund may not invest more than 5% of its net assets at the time of
purchase in warrants, and not more than 2% of its net assets in warrants which
are not listed on the New York or American Stock Exchange.
(2) The Fund will not purchase or retain securities of any issuer if the
officers or directors of the Fund or its investment adviser owning beneficially
more than one-half of one percent (0.5%) of the securities of the issuer
together own beneficially more than 5% of such securities.
(3) The Fund will not invest in securities of issuers who, with their
predecessors, have been in existence less than three years, unless the
securities are fully guaranteed, insured or issued by the U.S. Government, a
state, commonwealth, possession, territory, the District of Columbia, or their
political subdivisions, authorities, agencies or instrumentalities, 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 investment in such securities will exceed 5% of its total assets.
(4) The Fund may not invest more than 10% of the current value of its net
assets in repurchase agreements maturing in more than seven days, fixed time
deposits that are subject to withdrawal penalties and that have maturities of
more than seven days, restricted securities which must be registered under the
Securities Act of 1933 before they may be offered or sold to the public, and
illiquid securities.
With respect to fixed time deposits, repurchase agreements, and the
investments described in fundamental restriction (7) and non-fundamental
restriction (1), the Fund does not currently intend to engage in these
activities.
4
<PAGE> 353
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
When-Issued Securities. The Fund may purchase portfolio securities on a
when-issued basis, in case delivery and payment normally take place within 45
days after the date of the commitment purchase. The Fund will only make
commitments to purchase securities on a when-issued basis with intention of
actually acquiring the securities, but may sell them before the settlement date
if it is deemed advisable. When-issued securities are subject to market
fluctuation, and no income accrues to purchaser during the period prior to
issuance. The purchase price interest rate that will be received on debt
securities are fixed at the time the purchaser enters into commitment.
Purchases on a when-issued basis are subject to the risk that the market price
at the time of delivery may be lower than the agreed upon purchase price in
which case there may be an unrealized loss at the time of delivery.
The Fund will establish a segregated account in which it will maintain
liquid assets in an amount at least equal in value to the Fund's commitment to
purchase when-issued securities. If the value of these assets declines, the
Fund will place additional liquid assets in the account on a daily basis so
that the value of the assets in the account is equal to the amount of such
commitments.
Municipal Bonds. As discussed in the Prospectus, 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 public 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. 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. Subject to its investment objective and policies, the Fund is not
limited with respect to which category of municipal bond it may acquire. Some
or all of these bonds may be considered "private activity bonds" for federal
income tax purposes.
5
<PAGE> 354
Municipal Notes. The Fund may invest in 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. An uncertainty in a municipal issuer's capacity to raise taxes as a
result of such things as a decline in its tax base or a rise in delinquencies
could adversely affect the issuer's ability to meet its obligations on
outstanding TANs. Furthermore, some municipal issuers mix various tax proceeds
into a general fund that is used to meet obligations other than those of the
outstanding TANs. Use of such a general fund to meet various obligations could
affect the likelihood of making payments on TANs.
BANs. The ability of a municipal issuer to meet its obligations on its
BANs is primarily dependent on the issuer's adequate access to the longer term
municipal bond market and the likelihood that the proceeds of such bond sales
will be used to pay the principal of, and interest on, BANs.
RANs. A decline in the receipt of certain revenues, such as anticipated
revenues from another level of government, could adversely affect an issuer's
ability to meet its obligations on outstanding RANs. In addition, the
possibility that the revenues would, when received, be used to meet other
obligations could affect the ability of the issuer to pay the principal of, and
interest on, RANs.
The values of outstanding municipal securities will vary as a result of
changing market evaluations of the ability of their issuers to meet the
interest and principal payments (i.e., credit risk). Such values will also
change in response to changes in the interest rates payable on new issues of
municipal securities (i.e., market risk). Should such interest rates rise, the
values of outstanding securities, including those held in the Fund's portfolio,
will decline and (if purchased at par value) they would sell at a discount. If
interest rates fall, the values of outstanding securities will generally
increase and (if purchased at par value) they would sell at a premium. Changes
in the value of municipal securities held in the Fund's portfolio arising from
these or other factors will cause changes in the net asset value per share of
the Fund.
MANAGEMENT
The following information supplements and should be read in conjunction
with the section in the Prospectus entitled "Management of the Funds." The
principal occupations during the past five years of the Directors and principal
executive Officer of the Company are listed below. The address of each, unless
otherwise indicated, is 111 Center Street, Little Rock, Arkansas 72201.
Directors deemed to be "interested persons" of the Company for purposes of the
1940 Act are indicated by an asterisk.
6
<PAGE> 355
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME, ADDRESS AND AGE POSITION DURING PAST 5 YEARS
- --------------------- -------- -------------------
<S> <C> <C>
Jack S. Euphrat, 74 Director Private Investor.
415 Walsh Road
Atherton, CA 94207
*R. Greg Feltus, 45 Director, Chairman and Senior Vice President of Stephens;
President Manager of Financial Services Group;
President of Stephens Insurance
Services Inc.; Senior Vice President
of Stephens Sports Management Inc.;
and President of Investor Brokerage
Insurance Inc.
Thomas S. Goho, 54 Director T.B. Rose Faculty Fellow Business,
321 Beechcliff Court Wake Forest University Calloway
Winston-Salem, NC 27104 School of Business and Accountancy;
Associate Professor of Finance of the
School of Business and Accounting at
Wake Forest University since 1983.
Joseph N. Hankin, 55 Director President, Westchester Community
75 Grasslands Road College since 1971; President
Valhalla, NY 10595 of Hartford Junior College from 1967
to 1971; Adjunct Professor of
Columbia University Teachers
College since 1976.
*W. Rodney Hughes, 70 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Robert M. Joses, 78 Director Private Investor.
47 Dowitcher Way
San Rafael, CA 94901
*J. Tucker Morse, 52 Director Private Investor; Real Estate
10 Legrae Street Developer; Chairman of Renaissance
Charleston, SC 29401 Properties Ltd.; President of Morse
Investment Corporation; and
Co-Managing Partner of Main Street
Ventures.
Richard H. Blank, Jr., 40 Chief Operating Associate of Financial Services Group
Officer,
Secretary and Treasurer of Stephens; Director of Stephens
Sports Management Inc.; and Director
of Capo Inc.
</TABLE>
7
<PAGE> 356
COMPENSATION TABLE
For the Year Ended December 31, 1996
<TABLE>
<CAPTION>
Aggregate Compensation Total Compensation from
Name and Position from Registrant Registrant and Fund Complex
- ---------------------------- ---------------------- ---------------------------
<S> <C> <C>
Jack S. Euphrat
Director $10,500 $31,500
*R. Greg Feltus
Director 0 0
Thomas S. Goho
Director 10,500 31,500
*Zoe Ann Hines
Director
(resigned September 6, 1996) 0 0
Joseph N. Hankin
Director 500 1,500
*W. Rodney Hughes
Director 8,750 26,250
Robert M. Joses
Director 10,500 31,500
*J. Tucker Morse
Director 8,750 26,250
</TABLE>
Directors of the Company are compensated annually by the Company and by
all the registrants in each fund complex they serve as indicated above and also
are reimbursed for all out-of-pocket expenses relating to attendance at board
meetings. The Company, Stagecoach Funds, Inc., Stagecoach Trust, Life &
Annuity Trust and Master Investment Trust are considered to be members of the
same fund complex as such term is defined in Form N-1A under the 1940 Act (the
"Wells Fargo Fund Complex"). MasterWorks Funds Inc., Master Investment
Portfolio, and Managed Series Investment Trust together form a separate fund
complex (the "BGFA Fund Complex"). Each of the Directors and Officers of the
Company serves in the identical capacity as directors and officers or as
trustees and/or officers of each registered open-end management investment
company in both the Wells Fargo and BGFA Fund Complexes, except for Joseph N.
Hankin, who only serves the aforementioned members of the Wells Fargo Fund
Complex, and Zoe Ann Hines who, after September 6, 1996, only serves the
aforementioned members of the BGFA Fund Complex. The Directors are compensated
by other companies and trusts within a fund complex for their services as
directors/trustees to such companies and trusts. Currently the Directors do
not receive any retirement benefits or deferred compensation from the Company
or any other member of each fund complex.
8
<PAGE> 357
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 is advised by Wells Fargo Bank. Wells Fargo
Bank shall furnishes the Fund with investment guidance and policy direction in
connection with the daily portfolio management of the Fund. Wells Fargo Bank
furnishes to the Board of Directors periodic reports on the investment strategy
and performance of the Fund. Wells Fargo Bank has agreed to provide to the
Fund, 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 Fund. For its services as investment adviser to the
Fund, Wells Fargo is entitled to receive a monthly fee at the annual rate of
0.50% of the Fund's average daily net assets.
For the years ended December 31, 1994, 1995 and 1996, the Fund paid to
Wells Fargo Bank the advisory fees indicated below and Wells Fargo Bank waived
the indicated amounts:
<TABLE>
<CAPTION>
1994 1995 1996
PAID WAIVED PAID WAIVED PAID WAIVED
- -------- -------- -------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
$207,309 $334,766 $224,053 $184,199 $210,444 $99,403
</TABLE>
The Fund's 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 Fund's outstanding voting securities or by the Company's Board
of Directors and (ii) by a majority of the directors of the Company who are not
parties to the Advisory Contract or "interested persons" (as defined in the
1940 Act) of any such party. The Advisory Contract may be terminated on 60
days' written notice by either party and will terminate automatically if
assigned.
ADMINISTRATOR AND CO-ADMINISTRATOR. The Company has retained Wells Fargo
Bank as administrator and Stephens as co-administrator on behalf of the Fund.
The Administration Agreement between Wells Fargo and the Fund, and the
Co-Administration Agreement among Wells Fargo Bank, Stephens and the Fund,
state that Wells Fargo Bank and Stephens shall provide as administration
services, among other things: (i) general supervision of the operation of the
Fund, including coordination of the services performed by the Fund's investment
adviser, transfer agent, custodian, shareholder servicing agent(s), independent
public accountants and legal counsel, regulatory compliance, including the
compilation of information for documents such as reports to, and filings with,
the SEC and state securities commissions; and preparation of proxy statements
and shareholder reports for the Fund; and (ii) general supervision relative to
the compilation of data required for the preparation of periodic reports
distributed to the Company's officers and Board of Directors. Wells Fargo Bank
and Stephens also furnish office space and certain facilities required for
conducting the business of each Fund together with ordinary clerical and
bookkeeping services. Stephens pays the compensation of the Company's
Directors, officers and employees who are affiliated with Stephens. The
administrator and co-administrator are entitled to receive a monthly fee of
0.04% and 0.02%, respectively, of the Fund's average daily net assets.
9
<PAGE> 358
For the periods shown, Stephens served as sole administrator to the Fund
and provided the Funds with essentially the same services described above.
Stephens was entitled to receive a monthly fee at the annual rate of 0.10% of
the Fund's average daily net assets. For the years ended December 31, 1994,
1995 and 1996, Stephens received administration fees as follows:
<TABLE>
<CAPTION>
1994 1995 1996
-------- ------- -------
<S> <C> <C>
$109,157 $82,019 $43,725
</TABLE>
SPONSOR AND DISTRIBUTOR. As discussed in the Fund's Prospectus under the
heading "Management of the Funds," Stephens serves as the Fund's sponsor and
distributor.
SHAREHOLDER SERVICING AGENT. The Fund has entered into a shareholder
servicing agreement with Wells Fargo Bank. For the years ended December 31,
1994, 1995 and 1996, the Fund paid the following amounts in servicing fees
pursuant to the Servicing Plan for its Class D Shares:
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
<S> <C> <C>
$43,503 $35,700 $27,580
</TABLE>
CUSTODIAN. Wells Fargo Bank has been retained to act as Custodian for the
Fund. The Custodian, among other things, maintains a custody account or
accounts in the name of the Fund; receives and delivers all assets for the Fund
upon purchase and upon sale or maturity; collects and receives all income and
other payments and distributions on account of the assets of the Fund; and pays
all expenses of the Fund. For its services as Custodian, Wells Fargo Bank
receives an asset-based fee and transaction charges. For the year ended
December 31, 1996, the Fund did not pay any custody fees.
TRANSFER AND DIVIDEND DISBURSING AGENT. Wells Fargo Bank has been
retained to act as Transfer and Dividend Disbursing Agent for the Fund. For
its services as transfer and dividend disbursing agent for the Fund, Wells
Fargo Bank is entitled to receive monthly payments at the annual rate of 0.14%
of the average daily net assets of each class of shares. Under the prior
transfer agency agreement for the Fund, Wells Fargo Bank was entitled to
receive a base fee and per-account fees paid without regard to class. For the
year ended December 31, 1996, the Fund did not pay any transfer and dividend
disbursing agency fees.
UNDERWRITING COMMISSIONS. For the year ended December 31, 1994, the
aggregate dollar amount of underwriting commissions paid to Stephens on
sales/redemptions of the Company's shares was $1,408,759 and Stephens retained
$1,351,388 of such commissions. WFSI and its registered representatives
received $57,371 of such commissions.
For the year ended December 31, 1995, the aggregate dollar amount of
underwriting commissions paid to Stephens on sales/redemptions of the Company's
shares was $1,478,541 and Stephens retained $1,447,175 of such commissions.
WFSI and its registered representatives received $31,366 of such commissions.
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<PAGE> 359
For the year ended December 31, 1996, the aggregate dollar amount of
underwriting commissions paid to Stephens on sales/redemptions of the Company's
shares was $1,777,985 and Stephens retained $195,639 of such commissions. WFSI
and its registered representatives received $255,147 and $1,327,199
respectively of such commissions.
DISTRIBUTION PLANS
As indicated in the Prospectus, the Fund, on behalf of each of its classes
of shares, has adopted a Plan under Section 12(b) of the 1940 Act and Rule
12b-1 thereunder (the "Rule").
Pursuant to the Plan for Class A Shares, the Fund may defray all
or part of the actual cost of preparing and printing prospectuses and other
promotional materials and of providing such prospectuses and other promotional
materials to prospective shareholders of the Fund and may compensate personnel
of the distributor or reimburse the distributor for compensation paid to selling
agents for distribution-related or sales support services and may pay for any
other activities primarily intended to result in the sale of Class A Shares of
the Fund. Payments also may be used to compensate or reimburse servicing agents
for shareholder liaison services provided by entities that are dealers of record
or which have a servicing relationship with the beneficial owners of Class A
Shares of the Fund under a servicing agreement in substantially the form
approved by the Board of Directors. Total payments under the Plan may not exceed
0.25% of the average daily net assets of the Class A Shares of the Fund on an
annual basis.
Pursuant to the Plan for Class D Shares of the Fund, the Company
may pay to Stephens Inc. ("Distributor"), as compensation for distribution-
related services provided, or reimbursement for distribution-related expenses
incurred, a monthly fee at an annual rate of up to 0.50% of Fund's average
daily net assets attributable to Class D Shares. The actual fee payable to the
Distributor shall, within such limit, be determined from time to time by mutual
agreement between the Company and the Distributor. The Distributor may enter
into selling agreements with one or more selling agents under which such agents
may receive compensation for distribution-related services from the Distributor,
including, but not limited to, commissions or other payments to such agents
based on the average daily net assets of Fund shares attributable to them. The
Distributor may retain any portion of the total distribution fee payable
hereunder to compensate it for distribution-related serviced provided by it or
to reimburse it for other distribution-related expenses.
For the year ended December 31, 1996, the Funds' distributor received the
following amounts of 12b-1 fees for the specified purposes set forth below
under each Fund's Plan.
<TABLE>
<CAPTION>
Printing & Mailing Compensation to
Fund Total Prospectus Marketing Brochures Underwriters
- ---------------- ------- -------------------- ------------------- ----------------
<S> <C> <C> <C> <C>
Municipal Income
Class A $77,995 N/A N/A $77,995
Class D $55,160 N/A N/A $55,160
</TABLE>
For the year ended December 31, 1996, WFSI and its registered
representatives received no compensation under each Fund's Plans.
The Plan will continue in effect from year to year if such continuance is
approved by a majority vote of both the directors of the Company and the
Qualified Directors. Agreements related to the Plan must also be approved by
such vote of the directors and the Qualified
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<PAGE> 360
Directors. Such agreements will terminate automatically if assigned, and may be
terminated at any time, without payment of any penalty, by a vote of a majority
of the outstanding voting securities of the Fund. The Plan may not be amended
to increase materially the maximum amounts payable thereunder without the
approval of a majority of the outstanding voting securities of the Fund, and no
material amendment to the Plan may be made except by a majority of both the
directors of the Company and the Qualified Directors.
The Plan requires that the Treasurer of the Fund shall provide to the
directors, and the directors shall review, at least quarterly, a written report
of the amounts expended (and purposes therefor) under the Plan. The Rule also
requires that the selection and nomination of directors who are not "interested
persons" of the Company be made by such disinterested directors.
CLASS A ADMINISTRATIVE SERVICING PLAN
As indicated in the Fund's Prospectus, the Fund has adopted a Shareholder
Administrative Servicing Plan (the "Administrative Servicing Plan") with
respect to its Class A shares. Pursuant to the Administrative Servicing Plan,
the Fund may enter into administrative servicing agreements with administrative
servicing agents (which may include Wells Fargo and its affiliates) who are
dealers/holders of record, or that otherwise have a servicing relationship with
the beneficial owners, of the Fund's Class A shares. Administrative servicing
agents agree to perform administrative shareholder services which may include,
among other things, maintaining an omnibus account with the Fund, aggregating
and transmitting purchase, exchange and redemption orders to the Fund's
Transfer Agent, answering customer inquiries regarding a shareholder's accounts
in the Fund, and providing such other services as the Company or a customer may
reasonably request. Administrative servicing agents are entitled to a fee which
will not exceed 0.25%, on an annualized basis, of the average daily net assets
of the Class A shares represented by the shares owned of record or beneficially
by the customers of the administrative servicing agent during the period for
which payment is being made. In no case shall shares be sold pursuant to the
Class A Rule 12b-1 Plan while being sold pursuant to its Administrative
Servicing Plan.
CLASS D SERVICING PLAN
As indicated in the Fund's Prospectus, the Fund has adopted a Servicing
Plan ("Servicing Plan") with respect to its Class D Shares.
Under the Servicing Plan and pursuant to the Servicing Agreement, the Fund
may pay one or more servicing agents, as compensation for performing certain
services, a fee at an annual rate of up to 0.25% of the average daily net
assets of the Fund attributable to its Class D Shares. The actual fee payable
to servicing agents is determined, within such limit, from time to time by
mutual agreement between the Company and each servicing agent and will not
exceed the maximum service fees payable by mutual funds sold by members of the
NASD under the Conduct Rules of the NASD.
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<PAGE> 361
The Servicing Plan will continue in effect from year to year if such
continuance is approved by a majority vote of both Directors of the Company and
the Servicing Plan Qualified Directors. Any form of Servicing Agreement
related to the Servicing Plan also must be approved by such vote of the
Directors and the Servicing Plan Qualified Directors. Servicing Agreements
will terminate automatically if assigned, and may be terminated at any time,
without payment of any penalty, by a vote of a majority of the outstanding
Class D Shares of the Fund. The Servicing Plan may not be amended to increase
materially the amount payable thereunder without the approval of a majority of
the outstanding Class D Shares of the Fund, and no material amendment to the
Servicing Plan may be made except by a majority of both the Directors of the
Company and the Qualified Directors.
The Servicing Plan requires that the Company's Directors shall review, at
least quarterly, a written report of the amounts expended (and purposes
therefor) under the Servicing Plan.
PERFORMANCE CALCULATIONS
TOTAL RETURN. As indicated in the Prospectus, the Fund may advertise
certain total return information for a class of shares computed in the manner
described in the Prospectus. As and to the extent required by the Commission,
an average annual compound rate of return ("T") will be computed by using the
value at the end of a specified period ("ERV") of a hypothetical initial
investment in a class of shares ("P") over a period of years ("n") according to
the following formula: P(1+T)n = ERV. In addition, as indicated in the
Prospectus, the Fund may also, at times, calculate total return for a class of
shares based on net asset value per share (rather than the public offering
price), in which case the figures would not reflect the effect of any sales
charges that would have been paid by an investor, or based on the assumption
that a sales charge other than the maximum sales charge (reflecting a Volume
Discount) was assessed, provided that total return data derived pursuant to the
calculation described above are also presented.
In addition to the above performance information, the Fund may also
advertise cumulative total return for one-month, three-month, six-month and
year-to-date periods. The cumulative total return for such periods is based on
the overall percentage change in value of a hypothetical investment in the
Fund, assuming all Fund dividends and capital gain distributions are
reinvested, without reflecting the effect of any sales charge that would be
paid by an investor, and is not annualized.
The average annual total return on the Class A Shares of the Fund from
inception (July 17, 1991) to December 31, 1996, assuming a 3.00% sales load and
no sales load, was 6.82% and 7.41%, respectively. The total return on the
Class A Shares of the Fund for the year ended December 31, 1996, assuming a
3.00% sales load and no sales load, was 0.37% and 3.49%, respectively.
The average annual return on the Class D Shares of the Fund for the period
from inception (July 1, 1993) to December 31, 1996, was 4.06%. The total
return on the Class D Shares of the Fund for the year ended December 31, 1996,
assuming the maximum CDSC, was 1.93% and no CDSC, was 2.90%.
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<PAGE> 362
The Fund may advertise the cumulative total return on its shares.
Cumulative total return of shares is computed on a per share basis and assumes
the reinvestment of dividends and distributions. Cumulative total return of
shares generally is expressed as a percentage rate which is calculated by
combining the income and principal charges for a specified period and dividing
by the net asset value per share at the beginning of the period.
Advertisements may include the percentage rate of total return of shares or may
include the value of a hypothetical investment in shares at the end of the
period which assumes the application of the percentage rate of total return.
The cumulative total return on the Class A Shares of the Fund for the
period from inception (July 17, 1991) to December 31, 1996, assuming a 3.00%
sales charge, was 43.32%. The cumulative total return for the same period,
assuming no sales charge, was 47.76%.
The cumulative total return on the Class D Shares of the Fund for the
period from inception (July 1, 1993) to December 31, 1996, assuming no CDSC,
was 14.95%.
YIELD. As indicated in the Prospectus, the Fund may advertise certain
yield information for a class of shares. As and to the extent required by the
Commission, yield for a class of shares will be calculated based on a 30-day
(or one month) period, computed by dividing the net investment income per share
of a class of shares earned during the period by the maximum offering price per
share of a class of shares on the last day of the period, according to the
following formula: YIELD = 2[((a-b divided by cd)+1)6-1], where a = dividends
and interest earned during the period; b = expenses accrued for the
period (net of reimbursements); c = the average daily number of shares of a
class of shares outstanding during the period that were entitled to receive
dividends; and d = the maximum offering price per share of a class of shares on
the last day of the period. The net investment income of a class of shares
includes actual interest income, plus or minus amortized purchase discount
(which may include original issue discount) or premium, less accrued expenses.
Realized and unrealized gains and losses on portfolio securities are not
included in the net investment income. For purposes of sales literature, yield
may also be calculated on the basis of the net asset value per share rather
than the public offering price, or based on the assumption that a sales charge
other than the maximum sales charge (reflecting a Volume Discount) was
assessed, provided that the yield data derived pursuant to the calculation
described above are also presented.
The yield on the Class A Shares of the Fund for the 30-day period ended
December 31, 1996, assuming a 3.00% sales load and no sales load was 5.04% and
5.19%, respectively. The yield on the Class D Shares of the Fund for the
thirty-day period ended December 31, 1996, assuming the maximum CDSC, was 4.59.
The tax-equivalent yield for the Fund will be computed by dividing that
portion of the yield of a class of shares which is tax-exempt by one minus a
stated income tax rate and adding the product to that portion, if any, of the
yield of the Fund that is not tax-exempt. This yield figure may not reflect
the applicability of the alternative minimum tax. The yield for a class of
shares will fluctuate from time to time, unlike bank deposits or other
investments that pay a fixed
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<PAGE> 363
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.
The tax-equivalent yield for the thirty-day period ended December 31, 1996
on the Class A Shares of the Fund, assuming a 3.00% sales load and no load, was
8.34% and 8.59%, respectively, based on a 39.6% assumed federal income tax
rate. The tax-equivalent yield for the thirty-day period ended December 31,
1996 on the Class D Shares of the Fund, assuming no CDSC, was 7.60%, based on a
39.6% assumed federal income tax rate.
In addition, investors should recognize that changes in the net asset
values of a class of shares of the Fund will affect the yield of the class of
shares for any specified period, and such changes should be considered together
with such class's yield in ascertaining such class's total return to
shareholders for the period. Yield information for a class of shares may be
useful in reviewing the performance of the Fund and for providing a basis for
comparison with investment alternatives. The yield of a class of shares,
however, may not be comparable to the yields from investment alternatives
because of differences in the foregoing variables and differences in the
methods used to value portfolio securities, compute expenses and calculate
yield.
OTHER. The Company may disclose in sales literature, information and
statements, the distribution rate of Fund shares. Distribution rate, which may
be annualized, is the amount determined by dividing the dollar amount per share
of the most recent dividend by the most recent NAV or maximum offering price
per share as of a date specified in the sales literature. Distribution rate
will be accompanied by the standard 30-day yield as required by the SEC.
The Company also may disclose in advertising and other types of
literature, information and statements, the average credit quality of the
Fund's portfolio or categories of investments therein, as of a specified date
or period. Average credit quality is calculated on a dollar weighted average
basis based on ratings assigned each issue or issuer, as the case may be, by
S&P and/or Moody's. In the event one rating agency does not rate the issue or
issuer, as the case may be, in the same tier as the other agency, the highest
rating is used in the calculation.
From time to time and only to the extent the comparison is applicable to a
class of shares of the Fund, the Company may quote the performance or
price-earning ratio of a class of shares of the Fund in advertising and other
types of literature as compared to the performance of unmanaged indices of
municipal securities, or to performance of the Lehman Brothers Municipal Bond
Index, 1-Year Treasury Bill Rate, S&P Index, the Dow Jones Industrial Average,
the Lehman Brothers 20+ Treasury Index, the Lehman Brothers 5-7 Year Treasury
Index, Donoghue's Money Fund Averages, Real Estate Investment Averages (as
reported by the National Association of Real Estate Investment Trusts), Gold
Investment Averages (provided by the World Gold Council), Bank Averages (which
is calculated from figures supplied by the U.S. League of Savings Institutions
based on effective annual rates of interest on both passbook and certificate
accounts), average annualized certificate of deposit rates (from the Federal
Reserve G-13 Statistical Releases or the Bank Rate Monitor), the Salomon One
Year Treasury Benchmark Index, the Consumer Price Index (as published by the
U.S. Bureau of Labor Statistics), Ten Year
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<PAGE> 364
U.S. Government Bond Average, S&P's Corporate Bond Yield Averages, Schabacter
Investment Management Indices, Salomon Brothers High Grade Bond Index, Lehman
Brothers Long-Term High Quality Government/Corporate Bond Index, other managed
or unmanaged indices or performance data of bonds, stocks or government
securities (including data provided by Ibbotson Associates), or by other
services, companies, publications or persons who monitor mutual funds on overall
performance or other criteria. The S&P Index and the Dow Jones Industrial
Average are unmanaged indices of selected common stock prices. The performance
of a class of shares of the Fund also may be compared to those of other mutual
funds having similar objectives. This comparative performance could be
expressed as a ranking prepared by Lipper Analytical Services, Inc., CDA
Investment Technologies, Inc., Bloomberg Financial Markets or Morningstar, Inc.,
independent services which monitor the performance of mutual funds. The
performance of a class of shares of the Fund will be calculated by relating net
asset value per share at the beginning of a stated period to the net asset value
of the investment, assuming reinvestment of all gains distributions and
dividends paid, at the end of the period. Any such comparisons may be useful to
investors who wish to compare the class' past performance with that of its
competitors. Of course, past performance cannot be a guarantee of future
results. The Company also may include, from time to time, a reference to
certain marketing approaches of the Distributor, including, for example, a
reference to a potential shareholder being contacted by a selected broker or
dealer. General mutual fund statistics provided by the Investment Company
Institute may also be used.
In addition, the Company also may use, in advertisements and other types
of literature, information and statements: (1) showing that bank savings
accounts offer a guaranteed return of principal and a fixed rate of interest,
but no opportunity for capital growth; and (2) describing Wells Fargo Bank,
and its affiliates and predecessors, as one of the first investment managers to
advise investment accounts using asset allocation and index strategies. The
Company also may include in advertising and other types of literature
information and other data from reports and studies prepared by the Tax
Foundation, including information regarding federal and state tax levels and
the related "Tax Freedom Day."
From time to time the Company may reprint, reference or otherwise use
material from magazines, newsletters, newspapers and books including, but not
limited to the Wall Street Journal, Money Magazine, Barrons, Kiplingers,
Business Week, Fortune, Forbes, the San Francisco Chronicle, the San Jose
Mercury News, The New York Times, the Los Angeles Times, the Boston Globe, the
Washington Post, the Chicago Sun-Times, Investor Business Daily, Worth, Bank
Investor, American Banker, Smart Money, the 100 Best Mutual Funds (Adams
Publishing), Morningstar or Value Line.
The Company also may use the following information in advertisements and
other types of literature, only to the extent the information is appropriate
for a class of shares of the Fund: (i) the Consumer Price Index may be used to
assess the real rate of return from an investment in a class of shares of the
Fund; (ii) other government statistics, including, but not limited to, The
Survey of Current Business, may be used to illustrate investment attributes of a
class of shares of the Fund or the general economic, business, investment, or
financial environment in which the Fund operates; (iii) the effect of
tax-deferred compounding on the investment returns of a class of shares of the
Fund, or on returns in general, may be illustrated by
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<PAGE> 365
graphs, charts, etc., where such graphs or charts would compare, at various
points in time, the return from an investment in a class of shares of the Fund
(or returns in general) on a tax-deferred basis (assuming reinvestment of
capital gains and dividends and assuming one or more tax rates) with the return
on a taxable basis; and (iv) the sectors or industries in which the Fund invests
may be compared to relevant indices of stocks or surveys (e.g., S&P Industry
Surveys) to evaluate the historical performance or current or potential value of
a class of shares of the Fund with respect to the particular industry or sector.
The Company also may discuss in advertising and other types of literature
that the Fund has been assigned a rating by a nationally recognized statistical
rating organization ("NRSRO"), such as Standard & Poor's Corporation ("S&P") or
Moody's Investors Service, Inc. ("Moody's"). Such rating would assess the
creditworthiness of the investments held by the Fund. The assigned rating
would not be a recommendation to purchase, sell or hold the Fund's shares since
the rating would not comment on the market price of the Fund's shares or the
suitability of the Fund for a particular investor. In addition, the assigned
rating would be subject to change, suspension or withdrawal as a result of
changes in, or unavailability of, information relating to the Fund or its
investments. The Company may compare the performance of a class of shares of
the Fund with other investments which are assigned ratings by NRSROs. Any such
comparisons may be useful to investors who wish to compare the class's past
performance with other rated investments.
The Company also may disclose, in advertising and other types of
literature, information and statements that Wells Capital Management, Inc.
("WCM" formerly, Wells Fargo Investment Management) a subsidiary of Wells Fargo
Bank, is listed in the top 100 by Institutional Investor magazine in its July
1996 survey "America's Top 300 Money Managers." This survey ranks money
managers in several asset categories. The Company also may disclose in
advertising and other types of sales literature the assets and categories of
assets under management by the Company's investment adviser and the total
amount of assets and mutual fund assets managed by Wells Fargo Bank. As of
April 1, 1997, Wells Fargo Bank and its affiliates provided investment advisory
services for approximately $57 billion of assets of individuals, trusts,
estates and institutions and $20 billion of mutual fund assets.
The Company may disclose in advertising and other types of literature that
investors can open and maintain Sweep Accounts over the Internet or through
other electronic channels (collectively, "Electronic Channels"). Such
advertising and other literature may discuss the investment options available
to investors, including the types of accounts and any applicable fees. Such
advertising and other literature may disclose that Wells Fargo Bank is the
first major bank to offer an on-line application for a mutual fund account that
can be filled out completely through Electronic Channels. Advertising and
other literature may disclose that Wells Fargo Bank may maintain Web sites,
pages or other information sites accessible through Electronic Channels (an
"Information Site") and may describe the contents and features of the
Information Site and instruct investors on how to access the Information Site
and open a Sweep Account. Advertising and other literature may also disclose
the procedures employed by Wells Fargo Bank to secure information provided by
investors, including disclosure and discussion of the tools and services for
accessing Electronic Channels. Such advertising or other literature may include
discussions of
17
<PAGE> 366
the advantages of establishing and maintaining a Sweep Account through
Electronic Channels and testimonials from Wells Fargo Bank customers or
employees and may also include descriptions of locations where product
demonstrations may occur. The Company may also disclose the ranking of Wells
Fargo Bank as one of the largest money managers in the United States.
DETERMINATION OF NET ASSET VALUE
Net asset value per share for each class of the Fund is determined on each
day the Fund is open as of 1:00 p.m. (Pacific time).
Securities of the Fund for which market quotations are available are
valued at latest prices. In the absence of any sale of such securities on the
valuation date and in the case of other securities, including U.S. Government
securities but excluding money market instruments maturing in 60 days or less,
the valuations are based on latest quoted bid prices. Money market instruments
maturing in 60 days or less are valued at amortized cost. The assets of the
Fund other than money market instruments maturing in 60 days or less are valued
at latest quoted bid prices. In all cases, bid prices will be furnished by a
reputable independent pricing service approved by the Board of Directors.
Prices provided by an independent pricing service may be determined without
exclusive reliance on quoted prices and may take into account appropriate
factors such as institutional-size trading in similar groups of securities,
yield, quality, coupon rate, maturity, type of issue, trading characteristics
and other market data. All other securities and other assets of the Fund for
which current market quotations are not readily available are valued at fair
value as determined in good faith by the Company's directors and in accordance
with procedures adopted by the directors.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares may be purchased on any day the Fund is open. The Fund is open for
business each day the NYSE is open for trading (a "Business Day"). Currently,
the NYSE is closed on New Year's Day, President's Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day (each a
"Holiday"). When any Holiday falls on a weekend, the NYSE typically is closed
on the weekday immediately before or after such Holiday.
Payment for shares may, in the discretion of the adviser, be made in the
form of securities that are permissible investments for the Fund as described
in the Prospectuses. For further information about this form of payment please
contact Stephens. In connection with an in-kind securities payment, the Fund
will require, among other things, that the securities be valued on the day of
purchase in accordance with the pricing methods used by the Fund and that the
Fund receives satisfactory assurances that (i) it will have good and marketable
title to the securities received by it; (ii) that the securities are in proper
form for transfer to the Fund; and (iii) adequate information will be provided
concerning the basis and other matters relating to the securities.
Under the 1940 Act, the Fund may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the
NYSE is closed (other than
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<PAGE> 367
customary weekend and holiday closings, or during which trading is restricted,
or during which as determined by the SEC by rule or regulation), an emergency
exists as a result of which disposal or valuation of portfolio securities is not
reasonably practicable, or for such periods as the SEC may permit.
The Company may suspend redemption rights or postpone redemption payments
for such periods as are permitted under the 1940 Act. The Company may also
redeem shares involuntarily or make payment for redemption in securities or
other property if it appears appropriate to do so in light of the Company's
responsibilities under the 1940 Act.
In addition, the Company may redeem shares involuntarily to reimburse the
Fund for any losses sustained by reason of the failure of a shareholders to
make full payment for shares purchased or to collect any charge relating to a
transaction effected for the benefit of a shareholder which is applicable to
shares of the Fund as provided from time to time in the Prospectus.
PORTFOLIO TRANSACTIONS
Purchases and sales of debt securities generally are principal
transactions. Debt securities normally are purchased or sold from or to
dealers serving as market makers for the securities at a net price. Debt
securities also may be purchased in underwritten offerings or directly from the
issuer. Generally, ARMS and CMOs are traded on a net basis and do not involve
brokerage commissions. The cost of executing transactions in debt securities
consists primarily of dealer spreads and underwriting commissions. Under the
1940 Act, persons affiliated with the Company are prohibited from dealing with
the Company as a principal in the purchase and sale of securities unless an
exemptive order allowing such transactions is obtained from the SEC or an
exemption is otherwise available. The Fund may purchase securities from
underwriting syndicates of which Stephens or Wells Fargo Bank is a member under
certain conditions in accordance with the provisions of a rule adopted under
the 1940 Act and in compliance with procedures adopted by the Board of
Directors.
The Company has no obligation to deal with any dealer or group of dealers
in the execution of transactions in portfolio securities. Subject to policies
established by Company's Board of Directors, Wells Fargo Bank is responsible
for the Fund's investment decisions and the placing of portfolio transactions.
In placing orders, it is the policy of the Company to obtain the best overall
terms taking into account the dealer's general execution and operational
facilities, the type of transaction involved and other factors such as the
dealer's risk in positioning the securities involved. Wells Fargo Bank
generally seeks reasonably competitive spreads or commissions.
In assessing the best overall terms available for any transaction, Wells
Fargo Bank considers factors deemed relevant, including the breadth of the
market in the security, the price of the security, the financial condition and
execution capability of the broker or dealer, and the reasonableness of the
commission, if any, both for the specific transaction and on a continuing
basis. Wells Fargo Bank may cause the Fund to pay a broker/dealer which
furnishes brokerage and research services a higher commission than that which
might be charged by another
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broker/dealer for effecting the same transaction, provided that Wells Fargo Bank
determines in good faith that such commission is reasonable in relation to the
value of the brokerage and research services provided by such broker/dealer,
viewed in terms of either the particular transaction or the overall
responsibilities of Wells Fargo Bank. Such brokerage and research services
might consist of reports and statistics relating to specific companies or
industries, general summaries of groups of stocks or bonds and their comparative
earnings and yields, or broad overviews of the stock, bond, and government
securities markets and the economy.
Supplementary research information so received is in addition to, and not
in lieu of, services required to be performed by Wells Fargo Bank and does not
reduce the advisory fees payable by the Fund. The Board of Directors will
periodically review the commissions paid by the Fund to consider whether the
commissions paid over representative periods of time appear to be reasonable in
relation to the benefits inuring to the Fund. It is possible that certain of
the supplementary research or other services received will primarily benefit
one or more other investment companies or other accounts for which Wells Fargo
Bank exercises investment discretion. Conversely, the Fund may be the primary
beneficiary of the research or services received as a result of portfolio
transactions effected for such other account or investment company.
Under Section 28(e) of the Securities Exchange Act of 1934, an adviser
shall not be "deemed to have acted unlawfully or to have breached its fiduciary
duty" solely because under certain circumstances it has caused the account to
pay a higher commission than the lowest available. To obtain the benefit of
Section 28(e), an adviser must make a good faith determination that the
commissions paid are "reasonable in relation to the value of the brokerage and
research services provided . . . viewed in terms of either that particular
transaction or its overall responsibilities with respect to the accounts as to
which it exercises investment discretion and that the services provided by a
broker provide an adviser with lawful and appropriate assistance in the
performance of its investment decision-making responsibilities." Accordingly,
the price to the Fund in any transaction may be less favorable than that
available from another broker/dealer if the difference is reasonably justified
by other aspects of the portfolio execution services offered.
Broker/dealers utilized by Wells Fargo Bank may furnish statistical,
research and other information or services which are deemed by Wells Fargo Bank
to be beneficial to the Fund's investment programs. Research services received
from brokers supplement Wells Fargo Bank's own research and may include the
following types of information: statistical and background information on
industry groups and individual companies; forecasts and interpretations with
respect to U.S. and foreign economies, securities, markets, specific industry
groups and individual companies; information on political developments;
portfolio management strategies; performance information on securities and
information concerning prices of securities; and information supplied by
specialized services to Wells Fargo Bank and to the Company's Directors with
respect to the performance, investment activities and fees and expenses of other
mutual Funds. Such information may be communicated electronically, orally or in
written form. Research services may also include the providing of equipment
used to communicate research information, the
20
<PAGE> 369
arranging of meetings with management of companies and the providing of access
to consultants who supply research information.
The outside research assistance is useful to Wells Fargo Bank since the
brokers utilized by Wells Fargo Bank as a group tend to follow a broader
universe of securities and other matters than the staff of Wells Fargo Bank can
follow. In addition, this research provides Wells Fargo Bank with a diverse
perspective on financial markets. Research services which are provided to
Wells Fargo Bank by brokers are available for the benefit of all accounts
managed or advised by Wells Fargo Bank. It is the opinion of Wells Fargo Bank
that this material is beneficial in supplementing their research and analysis;
and, therefore, it may benefit the Fund by improving the quality of Wells Fargo
Bank's investment advice.
BROKERAGE COMMISSIONS. For the year ended December 31, 1996, the Fund did
not pay any brokerage commissions.
SECURITIES OF REGULAR BROKER/DEALERS. As of December 31, 1996, the Fund
did not own any securities of its "regular broker or dealers," as defined in
the 1940 Act, or their parents.
FUND EXPENSES
From time to time, Wells Fargo Bank and Stephens may waive fees from the
Fund in whole or in part. Any such waiver will reduce Fund expenses and,
accordingly, have a favorable impact on the Fund's performance. Except for the
expenses borne by Wells Fargo Bank and Stephens, the Fund bears all costs of
its operations, including the compensation of the Company's directors who are
not officers or employees of Wells Fargo Bank or Stephens or any of their
affiliates; advisory, shareholder servicing, and administration fees; payments
pursuant to any Plans; interest charges; taxes; fees and expenses of
independent auditors; legal counsel, transfer agent and dividend disbursing
agent; expenses of redeeming Fund shares; expenses of preparing and printing
Prospectuses (except the expense of printing and mailing Prospectuses used for
promotional purposes, unless otherwise payable pursuant to a Plan),
shareholders' or investors' reports, notices, proxy statements and reports to
regulatory agencies; insurance premiums and certain expenses relating to
insurance coverage; trade association membership dues; brokerage and other
expenses connected with the execution of portfolio transactions; fees and
expenses of the custodian, including those of keeping books and accounts and
calculating the net asset value of the Fund; expenses of shareholders' or
investors' meetings; expenses relating to the issuance, registration and
qualification of shares of the Fund; pricing services; organizational expenses;
and any extraordinary expenses. Expenses attributable to the Fund are charged
against the respective assets of the Fund. A pro rata portion of the expenses
of the Company are charged against the assets of the Fund.
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<PAGE> 370
FEDERAL INCOME TAXES
In General. The following information supplements and should be read in
conjunction with the Prospectus. The Prospectus of the Fund describes
generally the tax treatment of distributions by the Fund. This section of the
SAI includes additional information concerning federal income taxes.
The Company intends to qualify the Fund as a regulated investment company
under Subchapter M of the Code as long as such qualification is in the best
interest of the Fund's 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 will generally 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.
Qualification as a regulated investment company under the Code requires,
among other things, that (a) the Fund derive at least 90% of its annual gross
income from interest, payments with respect to securities loans, dividends and
gains from the sale or other disposition of securities or options thereon; (b)
the Fund derive less than 30% of its gross income from gains from the sale or
other disposition of securities or options thereon held for less than three
months; and (c) the Fund diversify its holdings so that, at the end of each
quarter of the taxable year, (i) at least 50% of the market value of the Fund's
assets is represented by cash, government securities and other securities
limited in respect of any one issuer to an amount not greater than 5% of the
Fund's assets and 10% of the outstanding voting securities of such issuer, and
(ii) not more than 25% of the value of its assets is invested in the securities
of any one issuer (other than U.S. Government obligations and the securities of
other regulated investment companies), or in two or more issuers which the Fund
controls and which are determined to be engaged in the same or similar trades
or businesses. 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, including net
tax-exempt income, earned in each year. The Fund intends to pay out
substantially all of its net investment income and net realized capital gains
(if any) for each year.
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 substantially all of
its net investment income and net capital gains by the end of each calendar
year and, thus, expects not to be subject to the excise tax.
Federal Income Tax Rates. 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 marginal tax rate applicable to net
capital gains is 28%; the maximum corporate tax rate applicable to ordinary
income and net capital gains is 35% (except that to eliminate the benefit of
lower marginal corporate income tax rates, corporations which have taxable
income in excess of $100,000 for a taxable year will be required to pay an
additional amount of income tax 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 tax of up to $100,000). Naturally, the amount of
22
<PAGE> 371
tax payable by an individual or corporation will be affected by a combination of
tax laws covering, for example, deductions, credits, deferrals, exemptions,
sources of income and other matters.
Capital Gain Distributions. To the extent that 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 the shareholders not later than 60 days after the close of the
Fund's taxable year.
Other Distributions. Although dividends will be declared daily based on
the Fund's daily 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. It
is expected that the Fund's net income, on an annual basis, will equal the
dividends declared during the year.
Disposition of Fund Shares. If a shareholder receives a designated
capital gain distribution (to be treated by the shareholder as a long-term
capital gain) with respect to any Fund share and such Fund share is held for
six months or less, then (unless otherwise disallowed) any loss on the sale or
exchange of that Fund share will be treated as a long-term capital loss to the
extent of the designated capital gain distribution. In addition, 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 exempt-interest dividends
received thereon by the shareholder. These rules shall not apply, however, to
losses incurred under a periodic redemption plan.
If a shareholder exchanges or otherwise disposes of Fund shares within 90
days of having acquired such shares and if, as a result of having acquired
those shares, the shareholder subsequently pays a reduced sales charge on a new
purchase of shares of the Fund or of a different regulated investment company,
the sales charge previously incurred acquiring the Fund's shares shall not be
taken into account (to the extent such previous sales charges do not exceed the
reduction in sales charges on the new purchase) for the purpose of determining
the amount of gain or loss on the disposition, but will be treated as having
been incurred in the acquisition of such other shares. Also, any loss realized
on a redemption or exchange of shares of the Fund will be disallowed to the
extent that substantially identical shares are reacquired within the 61-day
period beginning 30 days before and ending 30 days after the shares are disposed
of.
Taxation of Fund Investments. Gains or losses on sales of portfolio
securities by the Fund will generally be long-term capital gains or losses if
the securities have been held by it for more than one year, except in certain
cases such as where the Fund acquires a put or writes a call thereon. Gains
recognized on the disposition of a debt obligation (including tax-exempt
obligations purchased after April 30, 1993) purchased by the Fund at a market
discount (generally
23
<PAGE> 372
at a price less than its principal amount) will generally be treated as ordinary
income to the extent of the portion of market discount which accrued during the
period of time the Fund held the debt obligation. Other gains or losses on the
sale of portfolio securities will be short-term capital gains or losses.
Foreign Shareholders. Under the Code, distributions of net investment
income by the Fund to a nonresident alien individual, nonresident alien
fiduciary of a trust or estate, foreign corporation, or foreign partnership (a
"foreign shareholder") will be subject to U.S. withholding tax (at a rate of
30% or a lower treaty rate). Withholding will not apply if a dividend paid by
the Fund to a foreign shareholder is "effectively connected" with a U.S. trade
or business, in which case the reporting and withholding requirements
applicable to U.S. citizens, U.S. residents or domestic corporations will
apply. Distributions of net long-term capital gains are not subject to tax
withholding, but in the case of a foreign shareholder who is a nonresident
alien individual, such distributions ordinarily will be subject to U.S. income
tax at a rate of 30% if the individual is physically present in the U.S. for
more than 182 days during the taxable year.
Backup Withholding. The Company may be required to withhold, subject to
certain exemptions, at a rate of 31% ("backup withholding") on dividends,
capital gain distributions, and redemption proceeds (including redemptions in
kind and proceeds from exchanges) paid or credited to an individual Fund
shareholder, unless a shareholder certifies that the Taxpayer Identification
Number ("TIN") provided is correct and that the shareholder is not subject to
backup withholding, or the IRS notifies the Company that the shareholder's TIN
is incorrect or the shareholder is subject to backup withholding. Such tax
withheld does not constitute any additional tax imposed on the shareholder, and
may be claimed as a tax payment on the shareholder's federal income tax return.
An investor must provide a valid TIN upon opening or reopening an account.
Failure to furnish a valid TIN to the Company could subject the investor to
penalties imposed by the IRS.
Special Tax Considerations for the Fund. The Fund intends that at least
50% of the value of its total assets at the close of each quarter of its
taxable year will consist of obligations the interest on which is exempt from
federal income tax, so that it will qualify under the Code to pay
"exempt-interest dividends." The portion of total dividends paid by the Fund
with respect to any taxable year that constitutes exempt-interest dividends
will be the same for all shareholders receiving dividends during such year.
Long-term and/or short-term capital gain distributions will not constitute
exempt-interest dividends and will be taxed as capital gain or ordinary income
dividends, respectively. The exemption of interest income derived from
investments in tax-exempt obligations for federal income tax purposes may not
result in a similar exemption under the laws of a particular state or local
taxing authority.
Not later than 60 days after the close of its taxable year, the 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. Finally, interest on
indebtedness incurred to
24
<PAGE> 373
purchase or carry shares of the Fund will not be deductible to the extent that
the Fund's distributions are exempt from federal income tax.
In addition, the federal alternative minimum tax ("AMT") rules ensure that
at least a minimum amount of tax is paid by taxpayers who obtain significant
benefit from certain tax deductions and exemptions. Some of these deductions
and exemptions have been designated "tax preference items" which must be added
back to taxable income for purposes of calculating AMT. Among the tax
preference items is tax-exempt interest from "private activity bonds,"
including Mortgage Revenue Bonds ("MRBs"), issued after August 7, 1986. To the
extent that the Fund invests in private activity bonds, its shareholders who
pay AMT will be required to report that portion of Fund dividends attributable
to income from the bonds as a tax preference item in determining their AMT.
Shareholders will be notified of the tax status of distributions made by the
Fund. Persons who may be "substantial users" (or "related persons" of
substantial users) of facilities financed by private activity bonds should
consult their tax advisors before purchasing shares in the Fund. Furthermore,
shareholders will not be permitted to deduct any of their share of the Fund's
expenses in computing their AMT. With respect to a corporate shareholder of
the Fund, exempt-interest dividends paid by the Fund are included in the
corporate shareholder's "adjusted current earnings" as part of its AMT
calculation, and may also affect its federal "environmental tax" liability. As
of the printing of this SAI, individuals are subject to an AMT at a maximum
rate of 28% and corporations at a maximum rate of 20%. Shareholders with
questions or concerns about AMT should consult their tax advisors.
Shares of the Fund would not be suitable for tax-exempt institutions and
may not be suitable for retirement plans qualified under Section 401 of the
Code, H.R. 10 plans and IRAs 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.
Other Matters. Investors should be aware that the investments to be made
by the Fund may involve sophisticated tax rules that may result in income or
gain recognition by the Fund without corresponding current cash receipts.
Although the Fund will seek to avoid significant noncash income, such noncash
income could be recognized by the Fund, in which case the Fund may distribute
cash derived from other sources in order to meet the minimum distribution
requirements described above.
The foregoing discussion and the discussions in the Prospectus address
only some of the federal tax considerations generally affecting investments in
the Fund. Each investor is urged to consult his or her tax advisor regarding
specific questions as to federal, state or local taxes and foreign taxes.
CAPITAL STOCK
The following information supplements and should be read in conjunction
with the section in the Prospectus entitled "Organization and Capital Stock."
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The Fund is comprised of two classes of shares, Class A shares and Class D
shares. With respect to matters that affect one class but not another,
shareholders vote as a class; for example, the approval of a Plan. Subject to
the foregoing, on any matter submitted to a vote of shareholders, all shares
then entitled to vote will be voted separately by Fund or portfolio unless
otherwise required by the 1940 Act, in which case all shares will be voted in
the aggregate. For example, a change in the Fund's fundamental investment
policies would be voted upon only by shareholders of the Fund and not
shareholders of the Company's other investment portfolios. Additionally,
approval of the advisory contract is a matter to be determined separately by
portfolio. Approval by the shareholders of one portfolio is effective as to
that portfolio whether or not sufficient votes are received from the
shareholders of the other portfolios to approve the proposal as to those
portfolios. As used in the Prospectus and in this Statement of Additional
Information, the term "majority", when referring to approvals to be obtained
from shareholders of a class of shares of the Fund means the vote of the lesser
of (i) 67% of the shares of such class represented at a meeting if the holders
of more than 50% of the outstanding shares of such class are present in person
or by proxy, or (ii) more than 50% of the outstanding shares of such class.
The term "majority," when referring to the approvals to be obtained from
shareholders of the Company as a whole means the vote of the lesser of (i) 67%
of the Company's shares represented at a meeting if the holders of more than
50% of the Company's outstanding shares are present in person or by proxy, or
(ii) more than 50% of the Company's outstanding shares. Shareholders are
entitled to one vote for each full share held and fractional votes for
fractional shares held. The Company may dispense with annual meetings of
shareholders in any year in which it is not required to elect directors under
the 1940 Act.
Each share of a class of shares represents an equal proportional interest
in the Fund or portfolio with each other share of the same class and is
entitled to such dividends and distributions out of the income earned on the
assets belonging to the Fund as are declared in the discretion of the
Directors. In the event of the liquidation or dissolution of the Company,
shareholders of 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 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.
Set forth below is the name, address and share ownership of each person
known by the Company to have beneficial or record ownership of 5% or more of a
class of the Fund or 5% or more of the voting securities of the Fund as a
whole.
26
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5% OWNERSHIP AS OF APRIL 1, 1997
<TABLE>
<CAPTION>
CLASS; TYPE PERCENTAGE PERCENTAGE
FUND NAME AND ADDRESS OF OWNERSHIP OF CLASS OF FUND
- ---------------- ---------------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Merrill Lynch Pierce
Fenner & Smith Inc.
for the sole benefit of it's
customers Attn: Fund Administration
MUNICIPAL INCOME 4800 Deer Lake Drive East, 3rd floor Class A
CLASS A Jacksonville, FL 32246 Record 11.77% 10.11%
Stephens Inc. Class A 9.17% 7.87%
for the Exclusive Record
Benefit of Customers
P.O. Box 34127
Little Rock, AR 72203
Merrill Lynch Pierce
Fenner & Smith Inc.
for the sole benefit of it's
customers Attn: Fund Administration
MUNICIPAL INCOME 4800 Deer Lake Drive East, 3rd floor Class D
CLASS D Jacksonville, FL 32246 Record 41.23% 5.84%
Sam Buchanan Class D 7.32% 1.04%
& Frances Buchanan Record
P.O. Box 7525
Little Rock, AR 72217-7252
NFSC FBO
Dr. Lawrence E. Sirna
Yolanda V. Sirna
MUNICIPAL INCOME 2228 Jwedish Dr. Apt. 16 Class D
CLASS D Clearwater, FL 34623 Record 6.02% 0.85%
</TABLE>
For purposes of the 1940 Act, any person who owns directly or through one
or more controlled companies more than 25% of the voting securities of a
company is presumed to "control" such company. Accordingly, to the extent that
a shareholder identified in the foregoing table is identified as the beneficial
holder of more than 25% of a class (or Fund), or is identified as the holder of
record of more than 25% of a class (or Fund) and has voting and/or investment
powers, it may be presumed to control such class (or Fund).
OTHER
The Registration Statement, including the Prospectus, the SAI and the
exhibits filed therewith, may be examined at the office of the Commission in
Washington, D.C. Statements contained in the Prospectus or the SAI as to the
contents of any contract or other document referred to herein or in the
Prospectus are not necessarily complete, and, in each instance,
27
<PAGE> 376
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP has been selected as the independent auditors for
the Company. KPMG Peat Marwick LLP provides audit services, tax return
preparation and assistance and consultation in connection with review of
certain Commission filings. KPMG Peat Marwick LLP's address is Three
Embarcadero Center, San Francisco, California 94111.
FINANCIAL INFORMATION
The portfolio of investments, audited financial statements and independent
auditors' report for the Fund for the year ended December 31, 1996 are hereby
incorporated by reference to the Company's Annual Report as filed with the SEC
on March 11, 1997. The portfolio of investments, audited financial statements
and independent auditors' report are attached to all SAIs delivered to current
or prospective shareholders.
28
<PAGE> 377
APPENDIX
The following is a description of the ratings given by Moody's and S&P to
state and municipal bonds, notes and commercial paper.
Municipal Bonds
Moody's: The two highest ratings for state and municipal bonds are "Aaa"
and "Aa." 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. Moody's applies
numerical modifiers: 1, 2 and 3 in rating category "Aa" 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 two highest ratings for state and municipal bonds are "AAA" and
"AA." Bonds rated "AAA" have the "highest rating" assigned by S&P and have "an
extremely strong capacity" to pay interest and repay principal. Bonds rated
"AA" have a "very strong capacity" to pay interest and repay principal and
"differ from the highest rated obligations only in small degree." The rating
"AA" 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 notes are "MIG 1"
and "MIG 2" (or "VMIG 1" and "VMIG 2" 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."
S&P: The two highest ratings for municipal 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.
Municipal Commercial Paper
Moody's: The highest rating for state and municipal commercial paper is
"P-1" (Prime-1). Issuers rated "P-1" have a "superior ability for repayment of
senior short-term debt obligations." Issuers rated "P-2" (Prime-2) "have a
strong capacity for repayment of senior short-term debt obligations," but
earnings trends, while sound, will be subject to more variation.
S&P: the "A-1" rating for state and municipal commercial paper is rated
"in the highest category" by S&P and "the obligor's capacity to meet its
financial commitment on the obligation is strong." The "A-1+" rating indicates
that said capacity is "extremely strong." The A-2 rating indicates that said
capacity is "satisfactory," but that municipal commercial paper rated "A-2" is
"more susceptible" to the adverse effects of changes in economic conditions or
other circumstances than commercial paper rated in higher rating categories.
A-1
<PAGE> 378
A-2
<PAGE> 379
OVERLAND EXPRESS FUNDS, INC.
Telephone: (800) 552-9612
STATEMENT OF ADDITIONAL INFORMATION
Dated May 1, 1997
INDEX ALLOCATION FUND
U.S. GOVERNMENT INCOME FUND
CALIFORNIA TAX-FREE BOND FUND
-----------------------------
Overland Express Funds, Inc. is an open-end series investment
company. This Statement of Additional Information ("SAI") contains information
about three of the Company's funds -- the INDEX ALLOCATION FUND (formerly, the
"Asset Allocation Fund"), the U.S. GOVERNMENT INCOME FUND and the CALIFORNIA
TAX-FREE BOND FUND (each, a "Fund" and collectively, the "Funds"). Each Fund
offers two classes of shares -- Class A Shares and Class D Shares. This SAI
relates to both Class A Shares and Class D Shares of each Fund. The investment
objective of each Fund is described in each Fund's Prospectus under "Investment
Objectives and Policies."
This SAI is not a Prospectus and should be read in conjunction
with each Fund's Prospectus, dated May 1, 1997, as supplemented from time to
time. All terms used in this SAI that are defined in a Fund's Prospectus will
have the meanings assigned in such Prospectus. A copy of the Prospectus for
each Fund may be obtained without charge by writing Stephens Inc. ("Stephens"),
the Company's sponsor, co-administrator and distributor, at 111 Center Street,
Little Rock, Arkansas 72201 or by calling the Transfer Agent at the telephone
number indicated above.
-----------------------------
1
<PAGE> 380
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . 3
Additional Permitted Investment Activities . . . . . . . . . . . . . 5
Special Factors Affecting the California Tax-Free Bond Fund . . . . . . 16
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Distribution Plans . . . . . . . . . . . . . . . . . . . . . . . . . 25
Class A Administrative Servicing Plan . . . . . . . . . . . . . . . . . 26
Class D Servicing Plans . . . . . . . . . . . . . . . . . . . . . . . . 27
Performance Calculations . . . . . . . . . . . . . . . . . . . . . . . 27
Determination of Net Asset Value . . . . . . . . . . . . . . . . . . 34
Additional Purchase and Redemption Information . . . . . . . . . . . 34
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . 35
Fund Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Federal Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . 37
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . 47
Financial Information . . . . . . . . . . . . . . . . . . . . . . . . 47
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>
2
<PAGE> 381
INVESTMENT RESTRICTIONS
Fundamental Investment Policies. The Funds are subject to the
following investment restrictions, all of which are fundamental policies:
The Funds 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 any Fund's investments in that
industry would exceed 25% of the current value of such Fund's total assets,
provided that there is no limitation with respect to investments in (i)
municipal securities (for the purpose of this restriction, private activity
bonds and notes shall not be deemed municipal securities if the payments of
principal and interest on such bonds or notes is the ultimate responsibility of
non-governmental issuers), (ii) obligations of the United States Government,
its agencies or instrumentalities, (iii) in the case of the Index Allocation
Fund, any industry in which the S&P Index becomes concentrated to the same
degree during the same period, (iv) securities that are exempt from personal
income taxes of the State of California, and (v) the obligations of domestic
banks;
(2) purchase or sell real estate (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; except that the U.S. Government
Income Fund may enter into interest rate futures contracts and may write call
options and purchase call and put options on interest rate futures contracts
and the Index Allocation Fund may purchase and sell (i.e., write) options,
forward contracts, futures contracts, including those relating to indices, and
options on futures contracts or indices, and may participate in interest rate
swaps and index swaps;
(3) purchase securities on margin or make short sales of
securities (except for short-term credits necessary for the clearance of
transactions and except that the U.S. Government Income Fund and the California
Tax-Free Bond Fund may make margin payments in connection with options, futures
and options on futures and the Index Allocation Fund may make margin payments
in connection with transactions in options, forward contracts, futures
contracts, including those relating to indices, and options on futures
contracts or indices);
(4) underwrite securities of other issuers, except to the
extent that the purchase of municipal securities or other permitted investments
directly from the issuer thereof or from an underwriter for an issuer and the
later disposition of such securities in accordance with the Fund's investment
program may be deemed to be an underwriting;
(5) invest more than 10% of the current value of its net assets
in repurchase agreements maturing in more than seven days, restricted
securities, which are securities that must be registered under the Securities
Act of 1933 before they may be offered or sold to the public, and illiquid
securities;
3
<PAGE> 382
(6) make investments for the purpose of exercising control or
management;
(7) issue senior securities, except to the extent the
activities of the Index Allocation Fund permitted in Investment Restrictions
Nos. 2 and 3 may be deemed to give rise to a senior security but do not violate
the provisions of section 18 of the 1940 Act, and except that each Fund may
borrow from banks up to 10% of the current value of its net assets for
temporary purposes only in order to meet redemptions, and these borrowings may
be secured by the pledge of up to 10% of the current value of its net assets
(but investments may not be purchased while any such borrowing exists); or
(8) invest more than 10% of the current value of its net assets
in fixed time deposits that are subject to withdrawal penalties and that have
maturities of more than seven days.
In addition, the Index Allocation Fund may not write, purchase or
sell puts, calls, warrants or options or any combination thereof, except that
such Fund may purchase securities with put rights in order to maintain
liquidity, and except that such Fund may engage in options transactions to the
extent permitted in Investment Restrictions Nos. 2 and 3.
None of the Funds may, as to 75% of its total assets, purchase
securities of any issuer (except securities issued or guaranteed by the U.S.
Government, its agencies and instrumentalities) if, as a result, more than 5%
of the value of its total assets would be invested in the securities of any one
issuer or, with respect to 100% of its assets, the Fund's ownership would be
more than 10% of the outstanding voting securities of such issuer.
Non-Fundamental Investment Policies. The Funds are subject to the
following non-fundamental policies:
(1) None of the Funds will purchase or retain securities of any
issuer if the officers or directors of the Fund or its Investment Adviser
owning beneficially more than one-half of one percent (0.5%) of the securities
of the issuer together owned beneficially more than 5% of such securities.
(2) The Funds may not purchase interests, leases, or limited
partnership interests in oil, gas, or other mineral exploration or development
programs.
(3) None of the Funds will invest in securities of issuers who,
with their predecessors, have been in existence less than three years, unless
the securities are fully guaranteed or insured by the U.S. Government, 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.
(4) Each of the Funds may invest in shares of other open-end,
management investment companies, subject to the limitations of Section 12(d)(1)
of the 1940 Act, provided that any such purchases will be limited to temporary
investments in shares of unaffiliated
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investment companies and the Investment Adviser will waive its advisory fees
for that portion of the Fund's assets so invested, except when such purchase is
part of a plan of merger, consolidation, reorganization or acquisition.
(5) The Index Allocation Fund will not 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 such Fund's aggregate
investment in such classes of securities will exceed 5% of its total assets.
(6) The U.S. Government Income Fund will not purchase puts,
calls, straddles, spreads or any combination thereof.
(7) The U.S. Government Income Fund will not invest any part of
its total assets in commodities or commodity futures contracts, provided that
such Fund may enter into interest rate futures contracts and may write call
options and purchase call and put options on interest rate futures contracts
that are "covered" (i.e., the Fund maintains segregated liquid assets in an
amount at least equal to the value to the Fund's obligations and marks to
market daily such collateral).
(8) None of the Funds may purchase or sell real estate limited
partnership interests.
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
Unrated Investments. Each of the Index Allocation Fund and the
California Tax-Free Bond Fund may purchase instruments that are not rated if,
in the opinion of Wells Fargo Bank, such obligations are of investment quality
comparable to other rated investments that are permitted to be purchased by
such Fund. After purchase by a Fund, a security may cease to be rated or its
rating may be reduced below the minimum required for purchase by such Fund.
Neither event will require an immediate sale of such security by such Fund. To
the extent the ratings given by Moody's or S&P may change as a result of
changes in such organizations or their rating systems, each Fund will attempt
to use comparable ratings as standards for investments in accordance with the
investment policies contained in such Fund's Prospectus and in this SAI. The
ratings of Moody's and S&P are more fully described in the Appendix to this
SAI.
Letters of Credit. The Funds may purchase debt obligations,
including municipal securities, certificates of participation, commercial paper
and other short-term obligations, backed by an 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 investment quality comparable to
other permitted investments of such Fund may be used for letter of credit-backed
investments.
Pass-Through Obligations. The U.S. Government Income Fund and the
California Tax-Free Bond Fund may invest in pass-through obligations that
represent an ownership interest
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in a pool of mortgages and the resultant cash flow from those mortgages.
Payments by homeowners on the loans in the pool flow through to certificate
holders in amounts sufficient to repay principal and to pay interest at the
pass- through rate. The stated maturities of pass-through obligations may be
shortened by unscheduled prepayments of principal on the underlying mortgages.
Therefore, it is not possible to predict accurately the average maturity of a
particular pass-through obligation. Variations in the maturities of
pass-through obligations will affect the yield of the U.S. Government Income
Fund and the California Tax-Free Bond Fund. Furthermore, as with any debt
obligation, fluctuations in interest rates will inversely affect the market
value of pass-through obligations. The U.S. Government Income Fund and the
California Tax-Free Bond Fund may invest in pass-through obligations that are
supported by the full faith and credit of the U.S. Government (such as those
issued by the Government National Mortgage Association) or those that are
guaranteed by an agency or instrumentality of the U.S. Government (such as the
Federal National Mortgage Association or the Federal Home Loan Mortgage
Corporation) or bonds collateralized by any of the foregoing.
When-Issued Securities. Each Fund may purchase securities on a
when-issued basis, in which case delivery and payment normally take place
within 45 days after the date of the commitment to purchase. However, none of
the Funds intends to invest more than 5% of its net assets in when-issued
securities during the coming year. The Funds only will make commitments to
purchase securities on a when-issued basis with the intention of actually
acquiring the securities, but may sell them before the settlement date if it is
deemed advisable. When-issued securities are subject to market fluctuation,
and no income accrues to the purchaser during the period prior to issuance.
The purchase price and the interest rate that will be received on debt
securities are fixed at the time the purchaser enters into the commitment.
Purchasing a security on a when-issued basis can involve a risk that the market
price at the time of delivery may be lower than the agreed-upon purchase price,
in which case there could be an unrealized loss at the time of delivery.
Each Fund will establish a segregated account in which it will
maintain cash, U.S. Government obligations and other high-quality debt
instruments in an amount at least equal in value to the Fund's commitments to
purchase when- issued securities. If the value of these assets declines, the
Fund will place additional liquid assets in the account on a daily basis so
that the value of the assets in the account is equal to the amount of such
commitments.
Loans of Portfolio Securities. The Index Allocation Fund may lend
securities from its portfolio to brokers, dealers and financial institutions
(but not individuals) if cash, U.S. Government securities or other high grade
debt instruments equal to at least 100% of the current market value of the
securities loaned (including accrued interest thereon) plus the interest
payable to the Fund with respect to the loan is maintained with the Fund. In
determining whether to lend a security to a particular broker, dealer or
financial institution, the Fund's investment adviser will consider all relevant
facts and circumstances, including the creditworthiness of the broker, dealer
or financial institution. Any loans of portfolio securities will be fully
collateralized based on values that are marked to market daily. The Index
Allocation Fund will not enter into any portfolio security lending arrangement
having a duration of longer than one year. Any securities that the Fund may
receive as collateral will not become part of the Fund's portfolio at the time
of
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the loan and, in the event of a default by the borrower, the Fund will, if
permitted by law, dispose of such collateral except for such part thereof that
is a security in which the Fund is permitted to invest. During the time
securities are on loan, the borrower will pay the Fund any accrued income on
those securities, and the Fund may invest the cash collateral in U.S.
Government securities or other high grade debt obligations and earn additional
income or receive an agreed-upon fee from a borrower that has delivered
cash-equivalent collateral. The Index Allocation Fund will not lend securities
having a value that exceeds one-third of the current value of its total assets.
Loans of securities by the Fund will be subject to termination at the Fund's or
the borrower's option. The Fund may pay reasonable administrative and
custodial fees in connection with a securities loan and may pay a negotiated
portion of the interest or fee earned with respect to the collateral to the
borrower or the placing broker. Borrowers and placing brokers may not be
affiliated, directly or indirectly, with the Company, its investment adviser,
or its distributor.
Floating- and Variable-Rate Instruments. Certain of the debt
instruments in which the Funds may invest bear interest rates that are
periodically adjusted at specified intervals or whenever a benchmark rate or
index change. These adjustments generally limit the increase or decrease in
the amount of interest received on debt instruments. The Funds may purchase
certificates of participation in pools of floating- and variable-rate
instruments from banks and other financial institutions. With respect to the
tax-exempt status of these certificates, the investment adviser may rely upon
either the opinion of counsel or Internal Revenue Service rulings thereto.
Wells Fargo Bank, as investment adviser to each of the Funds, monitors on an
ongoing basis the ability of an issuer of a demand instrument to pay principal
and interest on demand. Events occurring between the date a Fund elects to
demand payment on a floating- or variable-rate instrument and the date payment
is due may affect the ability of the issuer of the instrument to make payment
when due, and unless such demand instrument permits same-day settlement, such
events may affect a Fund's ability to obtain payment at par. Demand
instruments whose demand feature is not exercisable within seven days may be
treated as liquid, provided that an active secondary market exists.
Repurchase Agreements. The U.S. Government Income Fund may enter
into repurchase transactions in which the seller of a security to the Fund
agrees to repurchase that security from the Fund at a mutually agreed-upon time
and price. The period of maturity is usually quite short, often overnight or a
few days, although it may extend over a number of months. Each Fund may enter
into repurchase agreements only with respect to U.S. Government obligations and
other securities that are permissible investments for the Fund. All repurchase
agreements will be fully collateralized at 102% based on values that are marked
to market daily. The maturities of the underlying securities in a repurchase
agreement transaction may be greater than twelve months, although the maximum
term of a repurchase agreement will always be less than twelve months. If the
seller defaults and the value of the underlying securities has declined, the
Fund may incur a loss. In addition, if bankruptcy proceedings are commenced
with respect to the seller of the security, the Fund's disposition of the
security may be delayed or limited.
A Fund may not enter into a repurchase agreement with a maturity
of more than seven days, if, as a result, more than 10% of the market value of
the Fund's total net assets would be invested in repurchase agreements with
maturities of more than seven
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days, restricted securities and illiquid securities. The Funds will only enter
into repurchase agreements with primary broker/dealers and commercial banks
that meet guidelines established by the Board of Directors and are not
affiliated with the investment adviser. The Fund may participate in pooled
repurchase agreement transactions with other funds advised by Wells Fargo Bank.
Derivative Securities. Some of the permissible investments
described herein are considered "derivative" securities because their value is
derived, at least in part, from the price of another security or a specified
asset, index or rate. For example, the futures contracts and options on
futures contracts that the Index Allocation Fund may purchase are considered
derivatives. The Fund may only purchase or sell these contracts or options as
substitutes for comparable market positions in the underlying securities.
Also, asset-backed securities issued or guaranteed by U.S. Government agencies
or instrumentalities and certain floating- and variable-rate instruments can be
considered derivatives. Some derivatives may be more sensitive than direct
securities to changes in interest rates or sudden market moves. Some
derivatives also may be susceptible to fluctuations in yield or value due to
their structure or contract terms. Wells Fargo Bank and BGFA use a variety of
internal risk management procedures to ensure that derivatives use is
consistent with a Fund's investment objective, does not expose the Fund to
undue risk and is closely monitored. These procedures include providing
periodic reports to the Board of Directors concerning the use of derivatives.
The use of derivatives by the Funds also is subject to broadly applicable
investment policies. For example, each Fund may not invest more than a
specified percentage of its assets in "illiquid securities," including those
derivatives that do not have active secondary markets. Nor may the Fund use
certain derivatives without establishing adequate "cover" in compliance with
Securities and Exchange Commission rules limiting the use of leverage.
Municipal Bonds. The California Tax-Free Bond Fund and the Index
Allocation Fund may invest in municipal bonds. As discussed in the Prospectus,
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. Assessment bonds, wherein a specially created
district or project area levies a tax (generally on its taxable property) to
pay for an improvement or project may be considered a variant of either
category. There are, of course, other variations in the types of municipal
bonds, both within a particular classification and between classifications,
depending on numerous factors. Some or all of these bonds may be considered
"private activity bonds" for federal income tax purposes.
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Municipal Notes. The California Tax-Free Bond Fund and the Index
Allocation Fund may invest in 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. An uncertainty in a municipal issuer's capacity to raise
taxes as a result of such things as a decline in its tax base or a rise in
delinquencies could adversely affect the issuer's ability to meet its
obligations on outstanding TANs. Furthermore, some municipal issuers mix
various tax proceeds into a general fund that is used to meet obligations other
than those of the outstanding TANs. Use of such a general fund to meet various
obligations could affect the likelihood of making payments on TANs.
BANs. The ability of a municipal issuer to meet its obligations
on its BANs is primarily dependent on the issuer's adequate access to the
longer term municipal bond market and the likelihood that the proceeds of such
bond sales will be used to pay the principal of, and interest on, BANs.
RANs. A decline in the receipt of certain revenues, such as
anticipated revenues from another level of government, could adversely affect
an issuer's ability to meet its obligations on outstanding RANs. In addition,
the possibility that the revenues would, when received, be used to meet other
obligations could affect the ability of the issuer to pay the principal of, and
interest on, RANs.
The values of outstanding municipal securities will vary as a
result of changing market evaluations of the ability of their issuers to meet
the interest and principal payments (i.e., credit risk). Such values will also
change in response to changes in the interest rates payable on new issues of
municipal securities (i.e., market risk). Should such interest rates rise, the
values of outstanding securities, including those held in the Fund's portfolio,
will decline and (if purchased at par value) they would sell at a discount. If
interests rates fall, the values of outstanding securities will generally
increase and (if purchased at par value) they would sell at a premium. Changes
in the value of municipal securities held in the Fund's portfolio arising from
these or other factors will cause changes in the net asset value per share of
the Fund.
Futures Contracts and Options Transactions. The Index Allocation
Fund may engage in futures transactions as discussed below. In general, a
futures transaction involves a firm agreement to buy or sell a commodity or
financial instrument at a particular price on a specified future date, while an
option transaction generally involves a right, which may or may not be
exercised, to buy or sell a commodity or financial instrument at a particular
price on a specified future date. Futures contracts and options are
standardized and exchange-traded, where the exchange serves as the ultimate
counterparty for all contracts. Consequently, the only credit risk on futures
contracts is the creditworthiness of the exchange. Futures contracts, however,
are subject to market risk (i.e., exposure to adverse price changes).
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The Index Allocation Fund may trade futures contracts and options
on futures contracts in U.S. domestic markets, such as the Chicago Board of
Trade and the International Monetary Market of the Chicago Mercantile Exchange.
The Index Allocation Fund's futures transactions must constitute
permissible transactions pursuant to regulations promulgated by the Commodity
Futures Trading Commission. In addition, the Fund may not engage in futures
transactions if the sum of the amount of initial margin deposits and premiums
paid for unexpired options on futures contracts, other than those contracts
entered into for bona fide hedging purposes, would exceed 5% of the liquidation
value of the Fund's assets, after taking into account unrealized profits and
unrealized losses on such contracts; provided, however, that in the case of an
option on a futures contract that is in-the money at the time of purchase, the
in-the money amount may be excluded in calculating the 5% liquidation amount.
Pursuant to regulations and/or published positions of the SEC, the Fund may be
required to segregate cash or high-quality money-market instruments in
connection with its futures transactions in an amount generally equal to the
entire value of the underlying security.
Initially, when purchasing or selling futures contracts the Index
Allocation Fund will be required to deposit with its custodian in the broker's
name an amount of cash or cash equivalents up to approximately 10% of the
contract amount. This amount is subject to change by the exchange or board of
trade on which the contract is traded, and members of such exchange or board of
trade may impose their own higher requirements. This amount is known as
"initial margin" and is in the nature of a performance bond or good faith
deposit on the contract that is returned to the Fund upon termination of the
futures position, assuming all contractual obligations have been satisfied.
Subsequent payments, known as "variation margin", to and from the broker will
be made daily as the price of the index or securities underlying the futures
contract fluctuates, making the long and short positions in the futures
contract more or less valuable. At any time prior to the expiration of a
futures contract, the Fund may elect to close the position by taking an
opposite position, at the then prevailing price, thereby terminating its
existing position in the contract.
Although the Index Allocation Fund intends to purchase or sell
futures contracts only if there is an active market for such contracts, no
assurance can be given that a liquid market will exist for any particular
contract at any particular time. Many futures exchanges and boards of trade
limit the amount of fluctuation permitted in futures contract prices during a
single trading day. Once the daily limit has been reached in a particular
contract, no trades may be made that day at a price beyond that limit or
trading may be suspended for specified periods during the trading day. Futures
contracts prices could move to the limit for several consecutive trading days
with little or no trading, thereby preventing prompt liquidation of futures
positions and potentially subjecting the Fund to substantial losses. If it is
not possible, or the Fund determines not to close a futures position in
anticipation of adverse price movements, the Fund will be required to make
daily cash payments of variation margin.
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An option on a futures contract gives the purchaser the right, in
return for the premium paid, to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put)
at a specified exercise price at any time during the option exercise period.
The writer (i.e., seller) of the option is required upon exercise to assume an
offsetting futures position (a short position if the option is a call and a
long position if the option is a put). Upon exercise of the option, the
assumption of offsetting futures positions by both the writer and the holder of
the option will be accompanied by delivery of the accumulated cash balance in
the writer's futures margin account in the amount by which the market price of
the futures contract, at exercise, exceeds (in the case of a call) or is less
than (in the case of a put) the exercise price of the option on the futures
contract.
Stock Index Options. The Index Allocation Fund may purchase and
write (i.e., sell) put and call options on stock indices as a substitute for
comparable market positions in the underlying securities. A stock index
fluctuates with changes in the market values of the stocks included in the
index. The aggregate premiums paid on all options purchased may not exceed 20%
of the Fund's total assets and the value of the options written may not exceed
10% of the value of the Fund's total assets.
The effectiveness of purchasing or writing stock index options will
depend upon the extent to which price movements in the Index Allocation Fund's
portfolio correlate with price movements of the stock index selected. Because
the value of an index option depends upon movements in the level of the index
rather than the price of a particular stock, whether the Fund will realize a
gain or loss from purchasing or writing stock index options depends upon
movements in the level of stock prices in the stock market generally or, in the
case of certain indices, in an industry or market segment, rather than
movements in the price of particular stock.
When the Index Allocation Fund writes an option on a stock index,
the Fund will place in a segregated account with the Fund's custodian cash or
liquid securities in an amount at least equal to the market value of the
underlying stock index and will maintain the account while the option is open
or otherwise will cover the transaction.
Stock Index Futures and Options on Stock Index Futures. The Index
Allocation Fund may invest in stock index futures and options on stock index
futures as a substitute for a comparable market position in the underlying
securities. A stock index future obligates the seller to deliver (and the
purchaser to take), effectively, an amount of cash equal to a specific dollar
amount times the difference between the value of a specific stock index at the
close of the last trading day of the contract and the price at which the
agreement is made. No physical delivery of the underlying stocks in the index
is made. With respect to stock indices that are permitted investments, the
Fund intends to purchase and sell futures contracts on the stock index for
which it can obtain the best price with consideration also given to liquidity.
Interest Rate Futures Contracts and Options Thereon. The Index
Allocation Fund may invest in interest- rate futures contracts and options on
interest-rate futures contracts as a substitute for a comparable market
position in the underlying securities. The Fund also may sell options on
interest-rate futures contracts as part of closing purchase transactions to
terminate its options positions. No assurance can be given that such closing
transactions can be effected or as
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to the degree of correlation between price movements in the options on interest
rate futures and price movements in the Fund's portfolio securities which are
the subject of the transaction.
The U.S. Government Income Fund may use interest rate futures
contracts ("futures contracts") principally as a hedge against the effects of
interest rate changes. A futures contract is an agreement to purchase or sell
a specified amount of designated debt securities for a set price at a specified
future time. At the time it enters into a futures transaction, the U.S.
Government Income Fund is required to make a performance deposit (initial
margin) of cash or liquid securities with its custodian in a segregated account
in the name of the futures broker. Subsequent payments of "variation margin"
are then made on a daily basis, depending on the value of the futures position
which is continually "marked to market."
The U.S. Government Income Fund may engage only in interest rate
futures contract transactions involving (i) the sale of the designated debt
securities underlying the futures contract (i.e., short positions) to hedge the
value of securities held by the Fund; (ii) the purchase of the designated debt
securities underlying the futures contract when the Fund holds a short position
having the same delivery month (i.e., a long position offsetting a short
position); or (iii) activities that are incidental to the Fund's activities in
the cash market in which the Fund has determined to invest. If the market
moves favorably after the Fund enters into an interest rate futures contract as
a hedge against anticipated adverse market movements, the benefits from such
favorable market movements on the value of the securities so hedged will be
offset in whole or in part, by a loss on the futures contract.
The Index Allocation and U.S. Government Income Funds may engage
in futures contracts sales to maintain the income advantage from continued
holding of a long-term security while endeavoring to avoid part or all of the
loss in market value that would otherwise accompany a decline in long-term
security prices. If, however, securities prices rise, such Funds would realize
a loss in closing out their futures contract sales that would offset any
increases in prices of the long-term securities they hold.
An option on a futures contract gives the purchaser the right, but
not the obligation, in return for the premium paid, to assume (in the case of a
call) or sell (in the case of a put) a position in a specified underlying
futures contract (which position may be a long or short position) at a
specified exercise price at any time during the option exercise period.
Sellers of options on future contracts, like buyers and sellers of futures
contracts, make an initial performance deposit and are subject to calls for
variation margin.
Transactions by the Index Allocation Fund and U.S. Government
Income Fund in futures contracts and options thereon involve certain risks.
One risk in employing futures contracts and options thereon to protect against
cash market price volatility is the possibility that futures prices will
correlate imperfectly with the behavior of the prices of the securities in such
a Fund's portfolio (the portfolio securities will not be identical to the debt
instruments underlying the futures contracts). In addition, commodity
exchanges generally limit the amount of fluctuation permitted in futures
contract and option prices during a single trading day, and the existence of
such limits may prevent the prompt liquidation of futures and option positions
in
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certain cases. Inability to liquidate positions in a timely manner could
result in these Funds incurring larger losses than would otherwise be the case.
The Index Allocation Fund and U.S. Government Income Fund may
enter into futures contracts and may purchase call and put options on futures
contracts that are traded on U.S. commodity exchanges and write call options on
such futures contracts.
Investment in Bond Options by the U.S. Government Income Fund.
The U.S. Government Income Fund may purchase put and call options and write
covered put and call options on securities in which such Fund may invest
directly and that are traded on registered domestic securities exchanges or
that result from separate, privately negotiated transactions with primary U.S.
Government securities dealers recognized by the Board of Governors of the
Federal Reserve System (i.e., over-the-counter ("OTC") options). The writer of
a call option, who receives a premium, has the obligation, upon exercise, to
deliver the underlying security against payment of the exercise price during
the option period. The writer of a put, who receives a premium, has the
obligation to buy the underlying security, upon exercise, at the exercise price
during the option period.
The U.S. Government Income Fund may write put and call options on
bonds only if they are "covered," and such options must remain "covered" as
long as the Fund is obligated as a writer. A call option is covered if the
U.S. Government Income Fund owns the underlying security covered by the call
or has an absolute and immediate right to acquire that security without
additional cash consideration (or for additional cash consideration if the
underlying security is held in a segregated account by its custodian) upon
conversion or exchange of other securities held in its portfolio. A put option
is covered if the U.S. Government Income Fund maintains cash, U.S. Treasury
bills or other high grade short-term obligations with a value equal to the
exercise price in a segregated account with its custodian.
The principal reason for writing put and call options is to
attempt to realize, through the receipt of premiums, a greater current return
than would be realized on the underlying securities alone. In return for the
premium received for a call option, the U.S. Government Income Fund foregoes
the opportunity for profit from a price increase in the underlying security
above the exercise price so long as the option remains open, but retains the
risk of loss should the price of the security decline. In return for the
premium received for a put option, the U.S. Government Income Fund assumes the
risk that the price of the underlying security will decline below the exercise
price, in which case the put would be exercised and the Fund would suffer a
loss. The U.S. Government Income Fund may purchase put options in an effort to
protect the value of a security it owns against a possible decline in market
value.
Writing of options involves the risk that there will be no market
in which to effect a closing transaction. An exchange-traded option may be
closed out only on an exchange that provides a secondary market for an option
of the same series. OTC options are not generally terminable at the option of
the writer and may be closed out only by negotiation with the holder. There is
also no assurance that a liquid secondary market on an exchange will exist. In
addition, because OTC options are issued in privately negotiated transactions
exempt from registration
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under the Securities Act of 1933, there is no assurance that the U.S.
Government Income Fund will succeed in negotiating a closing out of a
particular OTC option at any particular time. If the U.S. Government Income
Fund as covered call option writer is unable to effect a closing purchase
transaction in the secondary market or otherwise, it will not be able to sell
the underlying security until the option expires or it delivers the underlying
security upon exercise.
The staff of the Commission has taken the position that purchased
options not traded on registered domestic securities exchanges and the assets
used as cover for written options not traded on such exchanges are generally
illiquid securities. However, the staff has also opined that, to the extent a
mutual fund sells an OTC option to a primary dealer that it considers
creditworthy and contracts with such primary dealer to establish a formula
price at which the fund would have the absolute right to repurchase the option,
the fund would only be required to treat as illiquid the portion of the assets
used to cover such option equal to the formula price minus the amount by which
the option is "in-the-money." Pending resolution of the issue, the U.S.
Government Income Fund will treat such options and, except to the extent
permitted through the procedure described in the preceding sentence, assets as
subject to such Fund's limitation on investments in securities that are not
readily marketable.
Additional Limitations on Interest Rate Futures and Related
Options. In order to comply with undertakings made by the Index Allocation
Fund and U.S. Government Income Fund pursuant to Commodity Futures Trading
Commission ("CFTC") Regulation 4.5, the Index Allocation Fund will use futures
and option contracts, and the Index Allocation and U.S. Government Income Funds
will use interest rate futures and option contracts, solely for bona fide
hedging purposes within the meaning and intent of CFTC Reg. 1.3(z)(1);
provided, however, that with respect to each long position in an interest rate
futures or option contract that will be used as part of a portfolio management
strategy and that is incidental to the Index Allocation Fund's and U.S.
Government Income Fund's activities in the underlying cash market but would not
come within the meaning and intent of Reg. 1.3(z)(1), the "underlying commodity
value" (the size of the contract multiplied by its current settlement price) of
each such long position with respect to the U.S. Government Income Fund will
not at any time exceed the sum of:
(1) The value of short-term United States debt obligations or
other United States dollar-denominated high quality short-term
money market instruments and cash set aside in an identifiable
manner, plus any funds deposited as margin on such contract;
(2) Unrealized appreciation on the contract held at the broker;
and
(3) Cash proceeds from existing investments due in not more
than 30 days.
The Index Allocation Fund and U.S. Government Income Fund will not
enter into interest rate futures contracts and options thereon, for which the
aggregate initial margin and premiums exceed 5% of the fair market value of
their respective assets, after taking into account unrealized profits and
unrealized losses on any such contracts into which they have entered; provided,
however, that the "in-the-money" amount of an option that was in-the-money at
the time of purchase will be excluded in computing such 5%.
14
<PAGE> 393
Future Developments. The Index Allocation Fund may take advantage
of opportunities in the areas of options and futures contracts and options on
futures contracts and any other derivative investments which are not presently
contemplated for use by the Fund or which are not currently available but which
may be developed, to the extent such opportunities are both consistent with the
Fund's investment objective and legally permissible for the Fund. Before
entering into such transactions or making any such investment, the Fund would
provide appropriate disclosure in its Prospectus or this SAI.
Investment in Warrants. The U.S. Government Income Fund and the
California Tax-Free Bond Fund each may invest no more than 5% of its net assets
at the time of purchase in warrants (other than those that have been acquired
in units or attached to other securities), and not more than 2% of its net
assets in warrants which are not listed on the New York or American Stock
Exchange. Warrants represent rights to purchase securities at a specific price
valid for a specific period of time. The prices of warrants do not necessarily
correlate with the prices of the underlying securities. The U.S. Government
Income Fund and the California Tax-Free Bond Fund each may only purchase
warrants on securities in which the Fund may invest directly.
Interest-Rate and Index Swaps. The Index Allocation Fund may
enter into interest-rate and index swaps in pursuit of its investment
objective. Interest-rate swaps involve the exchange by the Fund with another
party of its commitments to pay or receive interest (e.g., an exchange of
floating-rate payments for fixed-rate payments). Index swaps involve the
exchange by the Fund with another party of cash flows based upon the
performance of an index of securities or a portion of an index of securities
that usually include dividends or income. In each case, the exchange
commitments can involve payments to be made in the same currency or in
different currencies. The Fund will usually enter into swaps on a net basis.
In so doing, the two payment streams are netted out, with the Fund receiving or
paying, as the case may be, only the net amount of the two payments. If the
Fund enters into a swap, it will maintain a segregated account on a gross
basis, unless the contract provides for a segregated account on a net basis.
If there is a default by the other party to such a transaction, the Fund will
have contractual remedies pursuant to the agreements related to the
transaction.
The use of interest-rate and index swaps is a highly specialized
activity which involves investment techniques and risks different from those
associated with ordinary portfolio security transactions. There is no limit,
except as provided below, on the amount of swap transactions that may be
entered into by the Index Allocation Fund. These transactions generally do not
involve the delivery of securities or other underlying assets or principal.
Accordingly, the risk of loss with respect to swaps generally is limited to the
net amount of payments that the Fund is contractually obligated to make. There
is also a risk of a default by the other party to a swap, in which case the
Fund may not receive net amount of payments that the Index Allocation Fund
contractually is entitled to receive.
Some of the permissible investments described herein are considered
"derivative" securities because their value is derived, at least in part, from
the price of another security or a specified asset, index or rate. For
example, the futures contracts and options on futures contracts
15
<PAGE> 394
that the Index Allocation Fund may purchase are considered derivatives. The
Fund may only purchase or sell these contracts or options as substitutes for
comparable market positions in the underlying securities. Also, asset-backed
securities issued or guaranteed by U.S. Government agencies or
instrumentalities and certain floating- and variable-rate instruments can be
considered derivatives. Some derivatives may be more sensitive than direct
securities to changes in interest rates or sudden market moves. Some
derivatives also may be susceptible to fluctuations in yield or value due to
their structure or contract terms.
Wells Fargo Bank and BGFA use a variety of internal risk management
procedures to ensure that derivatives use is consistent with the investment
objective of each of the Index Allocation and U.S. Government Income Funds,
does not expose such Funds to undue risk and is closely monitored. These
procedures include providing periodic reports to the Board of Directors
concerning the use of derivatives. Also, cash maintained by the Fund for
short-term liquidity needs (e.g., to meet anticipated redemption requests)
will, as a general matter, only be invested in U.S. Treasury bills, shares of
other mutual funds and repurchase agreements.
The use of derivatives by the Index Allocation and U.S. Government
Income Funds also is subject to broadly applicable investment policies. For
example, the Funds may not invest more than a specified percentage of their
respective assets in "illiquid securities," including those derivatives that do
not have active secondary markets. Nor may the Funds use certain derivatives
without establishing adequate "cover" in compliance with Securities and
Exchange Commission rules limiting the use of leverage.
SPECIAL FACTORS AFFECTING
THE CALIFORNIA TAX-FREE BOND FUND
Certain debt obligations held by the California Tax-Free Bond Fund
may be obligations of issuers which rely in whole or in substantial part on
California state revenues for the continuance of their operations and the
payment of their obligations. Certain California constitutional amendments,
legislative measures, executive orders, civil actions and voter initiatives, as
well as the general financial condition of the state, could adversely affect
the ability of issuers of California municipal obligations to pay interest and
principal on such obligations. The following information constitutes only a
brief summary, does not purport to be a complete description, and is based on
information drawn from official statements relating to securities offerings of
the State of California and various local agencies, available as of the date of
this SAI. While the Company has not independently verified such information,
it has no reason to believe that such information is incorrect in any material
respect.
The California Economy and General Information. From mid-1990 to
late 1993, the State suffered a recession with the worst economic, fiscal and
budget conditions since the 1930s. Construction, manufacturing (particularly
related to defense), exports and financial services, among others, were all
severely affected. Job losses had been the worst of any post-war recession.
Unemployment reached 10.1% in January 1994, but fell sharply to 7.7% in October
and November 1994, reflecting the state's recovery from the recession.
16
<PAGE> 395
The recession seriously affected California tax revenues, which
basically mirror economic conditions. It also caused increased expenditures
for health and welfare programs. In addition, the state has been facing a
structural imbalance in its budget with the largest programs supported by the
General Fund (e.g., K-12 schools and community colleges--also known as "K-14
schools," health and welfare, and corrections) growing at rates higher than the
growth rates for the principal revenue sources of the General Fund. As a
result, the state experienced recurring budget deficits in the late 1980s and
early 1990s. The state's Controller reported that expenditures exceeded
revenues for four of the five fiscal years ending with 1991-92. Moreover,
California accumulated and sustained a budget deficit in its Special Fund for
Economic Uncertainties ("SFEU") approaching $2.8 billion at its peak at June
30, 1993.
The accumulated budget deficits during the early 1990's, together
with expenditures for school funding which are not reflected in the state's
budget, and reduction of available internal borrowable funds, combined to
significantly deplete the state's cash resources to pay its ongoing expenses.
In order to meet its cash needs, the state has had to rely for several years on
a series of external borrowings, including borrowings past the end of a fiscal
year. Such borrowings are expected to continue in future fiscal years. To
meet its cash flow needs in the 1995-96 fiscal year, California issued $2
billion of revenue anticipation warrants which matured on June 28, 1996.
Because of the state's deteriorating budget and cash situation, the rating
agencies reduced the state's credit ratings between October 1991 and July 1994.
Moody's Investors Service lowered its rating from "Aa" to "A1," Standard &
Poor's Ratings Group lowered its rating from "AAA" to "A" and termed its
outlook as "stable," and Fitch Investors Service lowered its rating from "AA"
to "A."
However, since the start of 1994, California's economy has been
recovering steadily. Employment has grown in excess of 500,000 during 1994,
1995 and 1996, and is expected to continue to grow in 1997. Because of the
improving economy and the California's fiscal austerity, the state has had
operating surpluses for its past four consecutive fiscal years through 1996-97
and has forecast a balanced 1996-97 fiscal year budget. In addition, the SFEU
was projected to have a small negative balance of approximately $70 million as
of June 30, 1996, all but eliminating the accumulated budget deficit of the
early 1990's, and a modest reserve of $305 million, as of June 30, 1997. For
these and other reasons, Standard & Poors upgraded its rating of California
municipal obligations back to "A+" on July 30, 1996.
Local Governments. On December 6, 1994, Orange County, California
became the largest municipality in the United States to file for protection
under the Federal Bankruptcy laws. The filing stemmed from approximately $1.7
billion in losses suffered by the county's investment pool because of
investments in high risk "derivative" securities. In September 1995,
California's legislature approved legislation permitting the county to use for
bankruptcy recovery $820 million over 20 years in sales taxes previously
earmarked for highways, transit, and development. In June 1996, the county
completed an $880 million bond offering secured by real property owned by the
county. In June 1996, the county emerged from bankruptcy.
On January 17, 1994, an earthquake of the magnitude of an estimated
6.8 on the Richter Scale struck Los Angeles County, California causing
significant damage to public and private structures and facilities. While
county residents and businesses suffered losses totaling in
17
<PAGE> 396
the billions of dollars, the overall effect of the earthquake on the county's
and California's economy is not expected to be serious. However, Los Angeles
County is experiencing financial difficulty due in part to the severe operating
deficits for the county's health care system. In August 1995, the credit
rating of the county's long term bonds was downgraded for the third time since
1992. Although the county has received federal and state assistance, it is
still facing a potential budget gap of approximately $1 billion in the 1996-97
fiscal year. Even though the state has no existing obligations with respect to
either Orange County or Los Angeles County, the state may be required to
intervene and provide funding if the counties cannot maintain certain programs
because of insufficient resources.
State Finances. The moneys of California are segregated into the
General Fund and approximately 600 Special Funds. The General Fund consists of
the revenues received by the state's Treasury and not required by law to be
credited to any other fund, as well as earnings from state moneys not allocable
to another fund. The General Fund is the principal operating fund for the
majority of governmental activities and is the depository of most major revenue
sources of the state. The General Fund may be expended as the result of
appropriation measures by California's Legislature and approved by the
Governor, as well as appropriations pursuant to various constitutional
authorizations and initiative statutes.
The SFEU is funded with General Fund revenues and was established
to protect California from unforeseen revenue reductions and/or unanticipated
expenditure increases. Amounts in the SFEU may be transferred by the state's
Controller to meet cash needs of the General Fund. The Controller is required
to return moneys so transferred without payment of interest as soon as there
are sufficient moneys in the General Fund. Any appropriation made from the
SFEU is deemed an appropriation from the General Fund, for budgeting and
accounting purposes. For year-end reporting purposes, the Controller is
required to add the balance in the SFEU to the balance in the General Fund so
as to show the total moneys then available for General Fund purposes.
Inter-fund borrowing has been used for several years to meet
temporary imbalances of receipts and disbursements in the General Fund. As of
June 30, 1996, the General Fund had outstanding loans from the SFEU and other
Special Funds of approximately $1.5 billion.
Changes in California Constitutional and Other Laws. In 1978,
California voters approved an amendment to the California Constitution known as
"Proposition 13," which added Article XIIIA to the California Constitution.
Article XIIIA limits ad volorem taxes on real property and restricts the
ability of taxing authorities to increase real property taxes. However,
legislation passed subsequent to Proposition 13 provided for the redistribution
of California's General Fund surplus to local agencies, the reallocation of
revenues to local agencies and the assumption of certain local obligations by
the state so as to assist California municipal issuers to raise revenue to pay
their bond obligations. It is unknown whether additional revenue
redistribution legislation will be enacted in the future and whether, if
enacted, such legislation will provide sufficient revenue for such California
issuers to pay their obligations. California is also subject to another
Constitutional Amendment, Article XIIIB, which may have an adverse impact on
California state and municipal issuers. Article XIIIB restricts the state from
spending certain appropriations in excess of an appropriation's limit imposed
for each state and local government
18
<PAGE> 397
entity. If revenues exceed such appropriation's limit, such revenues must be
returned either as revisions in the tax rates or fee schedules.
In 1988, California voters approved "Proposition 98," which amended
Article XIIIB and Article XVI of the state's Constitution. Proposition 98 (as
modified by "Proposition 111," which was enacted in 1990), changed state
funding of public education below the university level and the operation of the
state's appropriations limit, primarily by guaranteeing K-14 schools a minimum
share of General Fund revenues. In 1986, California voters approved
"Proposition 62," which provided in part that any tax for general governmental
purposes imposed by a local government be approved by a two-thirds vote of the
governmental entity's legislative body and by a majority of its electorate and
that any special tax imposed by a local government be approved by a two-thirds
vote of the electorate. In September 1995, the California Supreme Court upheld
the constitutionality of Proposition 62, creating uncertainty as to the
legality of certain local taxes enacted by nonchartered cities in California
without voter approval.
Other Information. Certain debt obligations held by the California
Tax-Free Funds may be obligations payable solely from lease payments on real or
personal property leased to the state, cities, counties or their various public
entities. California law provides that a lessor may not be required to make
payments during any period that it is denied use and occupancy of the property
in proportion to such loss. Moreover, the lessor only agrees to appropriate
funding for lease payments in its annual budget for each fiscal year. In case
of a default under the lease, the only remedy available against the lessor is
that of reletting the property; no acceleration of lease payments is permitted.
Each of these factors presents a risk that the lease financing obligations held
by a California Tax-Free Fund would not be paid in a timely manner.
Certain debt obligations held by the California Tax-Free Funds may
be obligations payable solely from the revenues of health care institutions.
The method of reimbursement for indigent care, California's selective
contracting with health care providers for such care and selective contracting
by health insurers for care of its beneficiaries now in effect under California
and federal law may adversely affect these revenues and, consequently, payment
on those debt obligations.
There can be no assurance that general economic difficulties or the
financial circumstances of California or its towns and cities will not
adversely affect the market value of California municipal securities or the
ability of obligors to continue to make payments on such securities.
* * *
The taxable securities market is a broader and more liquid market
with a greater number of investors, issuers and market makers than the market
for municipal securities. The more limited marketability of municipal
securities may make it difficult in certain circumstances to dispose of large
investments advantageously.
19
<PAGE> 398
MANAGEMENT
The following information supplements and should be read in
conjunction with the section in the Prospectus entitled "Management of the
Funds." The principal occupations during the past five years of the Directors
and principal executive Officer of the Company are listed below. The address
of each, unless otherwise indicated, is 111 Center Street, Little Rock,
Arkansas 72201. Directors deemed to be "interested persons" of the Company
for purposes of the 1940 Act are indicated by an asterisk.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME, ADDRESS AND AGE POSITION DURING PAST 5 YEARS
--------------------- -------------------- -------------------------------
<S> <C> <C>
Jack S. Euphrat, 74 Director Private Investor.
415 Walsh Road
Atherton, CA 94207
*R. Greg Feltus, 45 Director, Chairman and Senior Vice President of Stephens;
President Manager of Financial Services Group;
President of Stephens Insurance
Services Inc.; Senior Vice President
of Stephens Sports Management Inc.;
and President of Investor Brokerage
Insurance Inc.
Thomas S. Goho, 54 Director T.B. Rose Faculty Fellow Business,
321 Beechcliff Court Wake Forest University Calloway
Winston-Salem, NC 27104 School of Business and Accountancy;
Associate Professor of Finance of the
School of Business and Accounting at
Wake Forest University since 1983.
Joseph N. Hankin, 55 Director President Westchester Community College
75 Grasslands Road since 1971; President of Hartford Junior
Valhalla, NY 10595 College from 1967 to 1971; Adjunct
Professor of Columbia University
Teachers College since 1976.
*W. Rodney Hughes, 70 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Robert M. Joses, 78 Director Private Investor.
47 Dowitcher Way
San Rafael, CA 94901
*J. Tucker Morse, 52 Director Private Investor; Real Estate
10 Legrae Street Developer; Chairman of Renaissance
Charleston, SC 29401 Properties Ltd.; President of Morse
Investment Corporation; and
Co-Managing Partner of Main Street
Ventures.
Richard H. Blank, Jr., 40 Chief Operating Associate of Financial Services Group
Officer,
Secretary and Treasurer of Stephens; Director of Stephens
Sports Management Inc.; and Director
of Capo Inc.
</TABLE>
20
<PAGE> 399
COMPENSATION TABLE
For the Fiscal Year Ended December 31, 1996
<TABLE>
<CAPTION>
Aggregate Compensation Total Compensation from
Name and Position from Registrant Registrant and Fund Complex
----------------- --------------- ---------------------------
<S> <C> <C>
Jack S. Euphrat $10,500 $31,500
Director
*R. Greg Feltus 0 0
Director
Thomas S. Goho 10,500 31,500
Director
*Zoe Ann Hines 0 0
Director
(resigned September 6, 1996)
Joseph N. Hankin 500 1,500
Director
*W. Rodney Hughes 8,750 26,250
Director
Robert M. Joses 10,500 31,500
Director
*J. Tucker Morse 8,750 26,250
Director
</TABLE>
Directors of the Company are compensated annually by the Company
and by all the registrants in each fund complex they serve as indicated above
and also are reimbursed for all out-of-pocket expenses relating to attendance
at board meetings. The Company, Stagecoach Funds, Inc., Stagecoach Trust, Life
& Annuity Trust and Master Investment Trust are considered to be members of the
same fund complex as such term is defined in Form N-1A under the 1940 Act (the
"Wells Fargo Fund Complex"). MasterWorks Funds Inc., Master Investment
Portfolio, and Managed Series Investment Trust together form a separate fund
complex (the "BGFA Fund Complex"). Each of the Directors and Officers of the
Company serves in the identical capacity as directors and officers or as
trustees and/or officers of each registered open-end management investment
company in both the Wells Fargo and BGFA Fund Complexes, except for Joseph N.
Hankin, who only serves the aforementioned members of the Wells Fargo Fund
Complex, and Zoe Ann Hines who, after September 6, 1996, only serves the
aforementioned members of the BGFA Fund Complex. The Directors are compensated
by other companies and trusts within a fund complex for their services as
directors/trustees to such companies and trusts. Currently the Directors do
not receive any retirement benefits or deferred compensation from the Company
or any other member of each fund complex.
21
<PAGE> 400
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. Each of the Funds is advised by Wells
Fargo Bank. Wells Fargo Bank furnishes the Funds with investment guidance and
policy direction in connection with the daily portfolio management of each
Fund. Wells Fargo Bank furnishes to the Board of Directors periodic reports on
the investment strategy and performance of each Fund. For its services as
investment adviser to the California Tax-Free Bond, Index Allocation, and U.S.
Government Income Funds, Wells Fargo Bank is entitled to receive a monthly fee
at the annual rate of 0.50%, 0.70% and 0.50%, respectively, of each Fund's
average daily net assets.
For the years ended December 31, 1994, 1995 and 1996, the Funds
paid to Wells Fargo Bank the advisory fees indicated below and Wells Fargo Bank
waived the indicated amounts:
<TABLE>
<CAPTION>
1994 1995 1996
FUND PAID WAIVED PAID WAIVED PAID WAIVED
---- ---- ------ ---- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C>
Index Allocation $424,899 $0 $424,416 $0 $525,093 $1,324
Fund
U.S. Government $230,619 $28,872 $175,052 $13,667 $167,516 $46,101
Income Fund
California Tax- $896,680 $748,655 $1,165,967 $248,047 $1,276,667 $0
Free
Bond Fund
</TABLE>
Wells Fargo Bank has agreed to provide to the Funds, 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, in the
case of the U.S. Government Income Fund and the California Tax-Free Bond Fund,
average maturities of the portfolios of each of those Funds.
Each Fund's 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 respective Fund's outstanding voting securities or by the
Company's Board of Directors and (ii) by a majority of the directors of the
Company who are not parties to the Advisory Contract or "interested persons"
(as defined in the 1940 Act) of any such party. Each Advisory Contract may be
terminated on 60 days' written notice by either party and will terminate
automatically if assigned.
SUB-INVESTMENT ADVISER. Barclays Global Fund Advisors ("BGFA")
serves as Sub-Investment Adviser to the Index Allocation Fund. Subject to the
direction of the Company's Board of Directors and the overall supervision and
control of Wells Fargo Bank and the Company, BGFA makes recommendations
regarding the investment and reinvestment of the Fund's assets. BGFA is
responsible for implementing and monitoring the performance of the asset
allocation model employed with respect to the Fund in accordance with the
investment objectives, policies and restrictions set forth in the Fund's
Prospectus. BGFA furnishes to Wells Fargo Bank
22
<PAGE> 401
periodic reports on the investment activity and performance of the Fund and
will also furnish such additional reports and information as Wells Fargo Bank
and the Company's Board of Directors and officers may reasonably request. BGFA
was created by the reorganization of Wells Fargo Nikko Investment Advisors
("WFNIA"), a former affiliate of Wells Fargo Bank, with and into an affiliate
of Wells Fargo Institutional Trust Company, N.A. ("WFITC"). Prior to January
1, 1996, WFNIA provided sub-advisory services directly to the Index Allocation
Fund. For the years ended December 31, 1994, 1995 and 1996, Wells Fargo Bank
paid to WFNIA / BGFA on behalf of the Index Allocation Fund the sub-advisory
fees indicated below:
<TABLE>
<CAPTION>
1994 1995 1996
FEES FEES FEES FEES FEES FEES
PAID WAIVED PAID WAIVED PAID WAIVED
---- ------ ---- ------ ---- ------
<S> <C> <C> <C> <C> <C>
$424,899 $-0- $177,707 $-0- $210,226 $-0-
</TABLE>
ADMINISTRATOR AND CO-ADMINISTRATOR . The Company has retained Wells
Fargo Bank as administrator and Stephens as co-administrator on behalf of each
Fund. The Administration Agreement between Wells Fargo and each Fund, and the
Co- Administration Agreement among Wells Fargo Bank, Stephens and each Fund,
state that Wells Fargo Bank and Stephens shall provide as administration
services, among other things: (i) general supervision of the operation of each
Fund, including coordination of the services performed by the Fund's investment
adviser, transfer agent, custodian, shareholder servicing agent(s), independent
public accountants and legal counsel, regulatory compliance, including the
compilation of information for documents such as reports to, and filings with,
the SEC and state securities commissions; and preparation of proxy statements
and shareholder reports for the Fund; and (ii) general supervision relative to
the compilation of data required for the preparation of periodic reports
distributed to the Company's officers and Board of Directors. Wells Fargo Bank
and Stephens also furnish office space and certain facilities required for
conducting the business of each Fund together with ordinary clerical and
bookkeeping services. Stephens pays the compensation of the Company's
Directors, officers and employees who are affiliated with Stephens. The
Administrator and Co-Administrator are entitled to receive a monthly fee of
0.04% and 0.02%, respectively, of the average daily net assets of each Fund.
For the periods shown, Stephens served as sole administrator to
the Funds and provided the Funds with essentially the same services described
above. Stephens was entitled to receive a monthly fee from the California Tax-
Free Bond Fund at the annual rate of 0.15% of the Fund's average daily net
assets up to $200 million and 0.10% in excess of $200 million, and for the
other Funds at the annual rate of 0.10% of the Fund's average daily net assets
up to $200 million and 0.05% in excess of $200 million.
For the years ended December 31, 1994, 1995 and 1996, Stephens
received administration fees as follows:
<TABLE>
<CAPTION>
FUND 1994 1995 1996
- ---- ---- ---- ----
<S> <C> <C> <C>
California Tax-Free Bond Fund $431,734 $384,015 $357,423
Index Allocation Fund $ 66,524 $ 60,627 $ 75,203
U.S. Government Income Fund $ 51,898 $ 37,744 $ 42,274
</TABLE>
23
<PAGE> 402
SPONSOR AND DISTRIBUTOR. As discussed in each Fund's Prospectus
under the heading "Management of the Funds," Stephens serves as each Fund's
sponsor and distributor.
SHAREHOLDER SERVICING AGENT The Funds have entered into
shareholder servicing agreements with Wells Fargo Bank. For the years ended
December 31, 1994, 1995 and 1996 the Funds paid the following amounts in
servicing fees pursuant to the Servicing Plans for the Class D Shares of the
Funds:
<TABLE>
<CAPTION>
FUND 1994 1995 1996
- ---- ---- ---- ----
<S> <C> <C> <C>
Index Allocation Fund $28,377 $31,150 $50,525
U.S. Government Income Fund $17,454 $8,291 $6,135
California Tax-Free Bond Fund $20,828 $18,322 $16,686
</TABLE>
CUSTODIAN. Wells Fargo Bank has been retained to act as custodian
for the U.S. Government Income Fund and the California Tax-Free Bond Fund.
Barclays Global Investors, N.A. ("BGI"; formerly, WFITC) acts as Custodian for
the Index Allocation Fund. The Custodian, among other things, maintains a
custody account or accounts in the name of each Fund; receives and delivers all
assets for each Fund upon purchase and upon sale or maturity; collects and
receives all income and other payments and distributions on account of the
assets of each Fund and pays all expenses of each Fund. For its services as
Custodian to the U.S. Government Income and California Tax-Free Bond Funds,
Wells Fargo Bank receives an asset-based fee and transaction charges. However,
BGI is not entitled to receive compensation for its services as Custodian to
the Index Allocation Fund so long as its subsidiary, BGFA, is entitled to
receive fees for providing investment advisory services to such Fund. For the
year ended December 31, 1996, none of the Funds paid any custody fees.
TRANSFER AND DIVIDEND DISBURSING AGENT. Wells Fargo Bank has been
retained to act as transfer and dividend disbursing agent. For its services as
transfer and dividend disbursing agent to the Funds, Wells Fargo Bank is
entitled to receive monthly payments at the annual rate of 0.14% of the average
daily net assets of each class of shares. Under the prior transfer agency
agreement for the Fund, Wells Fargo Bank was entitled to receive a base fee and
per-account fees paid without regard to class. For the year ended December 31,
1996, the Funds paid transfer and dividend disbursing agency fees to Wells
Fargo Bank, as follows:
<TABLE>
<CAPTION>
FUND 1996
- ---- ----
<S> <C>
California Tax-Free Bond Fund $252,000
Index Allocation Fund $0
U.S. Government Income Fund $0
</TABLE>
UNDERWRITING COMMISSIONS. For the year ended December 31, 1994,
the aggregate dollar amount of underwriting commissions paid to Stephens was
$1,408,759 and Stephens
24
<PAGE> 403
retained $1,351,388 of such commissions. WFSI and its registered
representatives received $57,371 of such commissions.
For the year ended December 31, 1995, the aggregate dollar amount
of underwriting commissions paid to Stephens was $1,478,541 and Stephens
retained $1,447,175 of such commissions. WFSI and its registered
representatives received $31,366 of such commissions.
For the year ended December 31, 1996, the aggregate dollar amount
of underwriting commissions paid to Stephens on sales/redemptions of the
Company's shares was $1,777,985 and Stephens retained $193,639 of such
commissions. WFSI and its registered representatives received $255,147 and
$1,327,199 respectively of such commissions.
DISTRIBUTION PLANS
As indicated in the Prospectus, each of the Funds, on behalf of
each of its classes of shares, has adopted a Plan under Section 12(b) of the
1940 Act and Rule 12b-1 thereunder (the "Rule").
Under the Plans for the Class A Shares of the U.S. Government
Income Fund and the California Tax-Free Bond Fund, these may defray all or part
of the cost of preparing and printing Prospectuses and other promotional
materials and of delivering Prospectuses and those materials to prospective
shareholders by paying on an annual basis up to the greater of $100,000 or 0.05%
of each Fund's average daily net assets. These Plans provide only for the
reimbursement of actual expenses.
Pursuant to the Plans for Class D Shares of the California
Tax-Free Bond and the U.S. Government Income Funds, the Company may pay to
Stephens Inc. ("Distributor"), as compensation for distribution-related services
provided, or reimbursement for distribution-related expenses incurred, a monthly
fee at an annual rate of up to 0.50% of each such Fund's average daily net
assets attributable to Class D shares. The actual fee payable to the Distributor
shall, within such limit, be determined from time to time by mutual agreement
between the Company and the Distributor. The Distributor may enter into selling
agreements with one or more selling agents under which such agents may receive
compensation for distribution-related services from the Distributor, including,
but not limited to, commissions or other payments to such agents based on the
average daily net assets of Fund shares attributable to them. The Distributor
may retain any portion of the total distribution fee payable hereunder to
compensate it for distribution-related services provided by it or to reimburse
it for other distribution-related expenses.
Pursuant to the Plan for Class A Shares, the Index Allocation
Fund may defray all or part of the actual cost of preparing and printing
prospectuses and other promotional materials and of providing such prospectuses
and other promotional materials to prospective shareholders of the Fund and may
compensate personnel of the distributor or reimburse the distributor for
compensation paid to selling agents for distribution-related or sales support
services and may pay for any other activities primarily intended to result in
the sale of Class A Shares of the Fund. Payments also may be used to compensate
or reimburse servicing agents for shareholder liaison services provided by
entities that are dealers of record or which have a servicing relationship with
the beneficial owners of Class A Shares of the Index Allocation Fund under a
servicing agreement in substantially the form approved by the Board of
Directors. Total payments under the Plan may not exceed 0.25% of the average
daily net assets of the Class A Shares of the Index Allocation Fund on an annual
basis.
Pursuant to the Plan for Class D Shares of the Index Allocation
Fund, the Company may pay to Stephens Inc. ("Distributor"), as compensation for
distribution-related services provided, or reimbursement for distribution-
related expenses incurred, a monthly fee at an annual rate of up to 0.75% of
Fund's average daily net assets attributable to its Class D Shares. The actual
fee payable to the Distributor shall, within such limit, be determined from time
to time by mutual agreement between the Company and the Distributor. The
Distributor may enter into selling agreements with one or more selling agents
under which such agents may receive compensation for distribution-related
services from the Distributor, including, but not limited to, commissions or
other payments to such agents based on the average daily net assets of Index
Allocation Fund shares attributable to them. The Distributor may retain any
portion of the total distribution fee payable hereunder to compensate it for
distribution-related services provided by it or to reimburse it for other
distribution-related expenses.
For the year ended December 31, 1996, the Funds' distributor
received the following amounts of 12b-1 fees for the specified purposes set
forth below under each Fund's Plan.
<TABLE>
<CAPTION>
Printing &
Mailing Marketing Compensation to
Fund Total Prospectus Brochures Underwriters
---- ----- ---------- --------- ------------
<S> <C> <C> <C> <C>
Index Allocation
Class A $137,481 N/A N/A $137,481
Class D $151,575 N/A N/A $151,575
U.S. Government Income
Class A $ 0 N/A N/A $ 0
Class D $ 11,986 N/A N/A $ 11,986
California Tax-Free Bond
Class A $ 0 N/A N/A $ 0
Class D $ 33,376 N/A N/A $ 33,376
</TABLE>
For the year ended December 31, 1996, WFSI and its registered
representatives received no compensation under each Fund's Plans.
Each Plan will continue in effect from year to year if such
continuance is approved by a majority vote of both the directors of the Company
and the Qualified Directors. Agreements related to the Plans also must be
approved by such vote of the directors and the Qualified Directors. Such
agreements will terminate automatically if assigned, and may be terminated at
25
<PAGE> 404
any time, without payment of any penalty, by a vote of a majority of the
outstanding voting securities of the proper Fund. No Plan may be amended to
increase materially the amounts payable thereunder without the approval of a
majority of the outstanding voting securities of the proper Fund, and no
material amendment to a Plan may be made except by a majority of both the
directors of the Company and the Qualified Directors.
Each Plan requires that the Treasurer of the Fund shall provide to
the directors, and the directors shall review, at least quarterly, a written
report of the amounts expended (and purposes therefor) under the Plan. The
Rule also requires that the selection and nomination of directors who are not
"interested persons" of the Company be made by such disinterested directors.
CLASS A ADMINISTRATIVE SERVICING PLAN
As indicated in the Index Allocation Fund's Prospectus, the Fund
has adopted a Shareholder Administrative Servicing Plan (the "Administrative
Servicing Plan") on behalf of its Class A shares. Pursuant to the
Administrative Servicing Plan, the Fund may enter into administrative servicing
agreements with administrative servicing agents (which may include Wells Fargo
and its affiliates) who are dealers/holders of record, or that otherwise have a
servicing relationship with the beneficial owners, of the Fund's Class A
shares. Administrative servicing agents agree to perform administrative
shareholder services which may include, among other things, maintaining an
omnibus account with the Fund, aggregating and transmitting purchase, exchange
and redemption orders to the Fund's Transfer Agent, answering customer
inquiries regarding a shareholder's accounts in the Fund, and providing such
other services as the Company or a customer may reasonably request.
Administrative servicing agents are entitled to a fee which
26
<PAGE> 405
will not exceed 0.25%, on an annualized basis, of the average daily net assets
of the Class A shares represented by the shares owned of record or beneficially
by the customers of the administrative servicing agent during the period for
which payment is being made. In no case shall shares be sold pursuant to the
Class A Rule 12b-1 Plan while being sold pursuant to its Administrative
Servicing Plan.
CLASS D SERVICING PLANS
As indicated in the Prospectus of each Fund, each of the Funds has
adopted a Servicing Plan (each, a "Servicing Plan" and collectively, the
"Servicing Plans") with respect to its Class D Shares.
Under each Servicing Plan and pursuant to the Servicing
Agreements, the Fund may pay one or more servicing agents, as compensation for
performing certain services, a fee at an annual rate of up to 0.25% of the
average daily net assets of the Fund attributable to its Class D Shares. The
actual fee payable to servicing agents is determined, within such limit, from
time to time by mutual agreement between the Company and each servicing agent
and will not exceed the maximum service fees payable by mutual funds sold by
members of the NASD under the Conduct Rules of the NASD.
The Servicing Plans will continue in effect from year to year if
such continuance is approved by a majority vote of both the Directors of the
Company and the Servicing Plan Qualified Directors. Any form of Servicing
Agreement related to the Servicing Plans also must be approved by such vote of
the Directors and the Servicing Plan Qualified Directors. Servicing Agreements
will terminate automatically if assigned, and may be terminated at any time,
without payment of any penalty, by a vote of a majority of the outstanding
Class D Shares of each of the Funds. The Servicing Plans may not be amended to
increase materially the amount payable thereunder without the approval of a
majority of the outstanding Class D Shares of each Fund, and no material
amendment to the Servicing Plans may be made except by a majority of both the
Directors of the Company and the Qualified Directors.
The Servicing Plans require that the Company's Directors shall
review, at least quarterly, a written report of the amounts expended (and
purposes therefor) under each of the Servicing Plans.
PERFORMANCE CALCULATIONS
TOTAL RETURN. As indicated in the Prospectus, the Funds may
advertise certain total return information for a class of shares computed in
the manner described in the Prospectus. As and to the extent required by the
Commission, an average annual compound rate of return ("T") will be computed by
using the value at the end of a specified period ("ERV") of a hypothetical
initial investment in a class of shares ("P") over a period of years ("n")
according to the following formula: P(1+T)n = ERV. In addition, as indicated
in the Prospectus, the Funds may also, at
27
<PAGE> 406
times, calculate total return for a class of shares based on net asset value
per share (rather than the public offering price), in which case the figures
would not reflect the effect of any sales charges that would have been paid by
an investor, or based on the assumption that a sales charge other than the
maximum sales charge (reflecting a Volume Discount) was assessed, provided that
total return data derived pursuant to the calculation described above also are
presented.
<TABLE>
<CAPTION>
Average Annual Total Return for the Year Ended December 31, 1996
----------------------------------------------------------------
Inception(1) Inception Five Year Five Year One Year One Year
With Sales No Sales With Sales No Sales With Sales No Sales
Fund Charge(2) Charge Charge Charge Charge(2) Charge
---- ------ ------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Index Allocation
Class A 11.99% 12.58% 12.58% 13.62% 11.76% 17.04%
Class D N/A 14.47% N/A N/A 15.38% 16.37%
CA Tax -Free Bond
Class A 7.65% 8.25% 6.38% 7.37% -0.64% 4.03%
Class D N/A 4.79% N/A N/A 2.28% 3.24%
U.S. Govt. Income
Class A 8.03% 8.60% 4.96% 5.94% -4.92% -0.11%
Class D N/A 3.73% N/A N/A -1.73% -0.79%
- ---------------------------
</TABLE>
(1) Each Fund's Class A Shares commenced operations as follows: California
Tax-Free Bond-October 6, 1988; Index Allocation and U.S. Government Income
- both, April 7, 1988. Each Fund's Class D Shares commenced operations on
July 1, 1993.
(2) The term "Sales Charge" for Class A Shares reflects a front-end sales load
of 4.50%, and for Class D Shares reflects the maximum applicable Contingent
Deferred Sales Charge ("CDSC") of 1.00% if shares are redeemed in the first
year.
In addition to the above performance information, the Funds may
also advertise the cumulative total return of a Fund for one-month,
three-month, six-month and year-to-date periods. The cumulative total return
for such periods is based on the overall percentage change in value of a
hypothetical investment in a Fund, assuming all Fund dividends and capital gain
distributions are reinvested, without reflecting the effect of any sales charge
that would be paid by an investor, and is not annualized.
The Funds may advertise the cumulative total return on their
respective shares. Cumulative total return of shares is computed on a per
share basis and assumes the reinvestment of dividends and distributions.
Cumulative total return of shares generally is expressed as a percentage rate
which is calculated by combining the income and principal charges for a
specified period and dividing by the net asset value per share at the beginning
of the period. Advertisements may include the percentage rate of total return
of shares or may include the value of a hypothetical investment in shares at
the end of the period which assumes the application of the percentage rate of
total return.
<TABLE>
<CAPTION>
Cumulative Total Return for the Year Ended December 31, 1996
--------------------------------------------------------------------
Inception(1) Inception Five Year Five Year
With Sales No Sales With Sales No Sales
Fund Charge(2) Charge Charge Charge
---- ------------ --------- ---------- ---------
<S> <C> <C> <C> <C>
Index Allocation
Class A 169.64% 182.11% 80.85% 89.32%
Class D N/A 60.47% N/A N/A
CA Tax-Free Bond
Class A 83.72% 92.36% 36.21% 42.69%
Class D N/A 17.18% N/A N/A
U.S. Govt. Income
Class A 96.52% 105.76% 27.38% 33.42%
Class D N/A 13.69% N/A N/A
- ----------------------
</TABLE>
(1) Each Fund's Class A Shares commenced operations as follows: California
Tax-Free Bond - October 6, 1988; Index Allocation and U.S. Government
Income - both, April 7, 1988. Each Fund's Class D Shares commenced
operations on July 1, 1993.
(2) The term "Sales Charge" for Class A Shares reflects a front-end sales load
of 4.50%, and for Class D Shares reflects the maximum applicable Contingent
Deferred Sales Charge ("CDSC") of 1.00% if shares are redeemed in the
first year.
28
<PAGE> 407
Yield. As indicated in the Prospectus, the U.S. Government Income
Fund and the California Tax-Free Bond Fund may advertise certain yield
information for a class of shares. As and to the extent required by the
Commission, yield for a class of shares will be calculated based on a 30-day (or
one month) period, computed by dividing the net investment income per share of a
class of shares earned during the period by the maximum offering price per share
of a class of shares on the last day of the period, according to the following
formula: YIELD = 2[((a-b divided by cd)+1)6-1], where a = dividends and
interest earned during the period; b = expenses accrued for the period (net of
reimbursements); c = the average daily number of shares of a class of shares
outstanding during the period that were entitled to receive dividends; and d =
the maximum offering price per share of a class of shares on the last day of the
period. The net investment income of a class of shares of either Fund includes
actual interest income, plus or minus amortized purchase discount (which may
include original issue discount) or premium, less accrued expenses. Realized
and unrealized gains and losses on portfolio securities are not included in net
investment income. For purposes of sales literature, yield also may be
calculated on the basis of the net asset value per share rather than the public
offering price, provided that the yield data derived pursuant to the calculation
described above also are presented.
29
<PAGE> 408
<TABLE>
<CAPTION>
Yield Calculations for the Applicable Period Ended December 31, 1996(1)
Thirty Day Yield Thirty-Day Tax-Equivalent Yield (2)
---------------- -----------------------------------
With Sales No Sales With Sales No Sales
Fund Charge Charge Charge Charge
---- ---------- -------- ---------- --------
<S> <C> <C> <C> <C>
CA Tax-Free Bond
Class A 4.62% 4.64% 8.43% 8.83%
Class D 4.09% N/A 7.46% N/A
U.S. Govt. Income
Class A 5.62% 5.89% N/A N/A
Class D 5.13% N/A N/A N/A
</TABLE>
- ------------------
(1) "Sales Charges" for the U.S. Government Income and California Tax-Free
Bond Funds means a maximum 4.50% front-end sales load for Class A Shares
and a maximum CDSC of 1.0% for Class D Shares.
(2) Based on a 45.20% assumed federal and state tax rate.
The yields for the classes of shares of the U.S. Government Income
Fund and the California Tax-Free Bond Fund will fluctuate from time to time,
unlike bank deposits or other investments that pay a fixed yield for a stated
period of time, and do not provide a basis for determining future yields since
they are based on historical data. Yield is a function of portfolio quality,
composition, maturity and market conditions as well as the expenses allocated
to a particular class of shares.
In addition, investors should recognize that changes in the net
asset values of shares of the U.S. Government Income Fund and the California
Tax-Free Bond Fund will affect the yield of the respective class of shares for
any specified period, and such changes should be considered together with such
class' yield in ascertaining such class' total return to shareholders for the
period. Yield information for a class of shares may be useful in reviewing the
performance of the Fund and for providing a basis for comparison with
investment alternatives. The yield of a class of shares, however, may not be
comparable to the yields from investment alternatives because of differences in
the foregoing variables and differences in the methods used to value portfolio
securities, compute expenses and calculate yield.
Other. The Company may disclose in sales literature, information
and statements, the distribution rate of the California Tax-Free Bond Fund
shares. Distribution rate, which may be annualized, is the amount determined by
dividing the dollar amount per share of the most recent dividend by the most
recent NAV or maximum offering price per share as of a date specified in the
sales literature. Distribution rate will be accompanied by the standard 30-day
yield as required by the SEC.
The Company also may disclose in advertising and other types of
literature, information and statements, the average credit quality of each
Fund's portfolio or categories of investments therein, as of a specified date
or period. Average credit quality is calculated on a dollar weighted average
basis based on ratings assigned each issue or issuer, as the case may be, by
S&P and/or Moody's. In the event one rating agency does not rate the issue or
issuer, as the case may be, in the same tier as the other agency, the highest
rating is used in the calculation.
From time to time and only to the extent the comparison is
appropriate for a class of shares of a Fund, the Company may quote the
performance or price-earning ratio of a class of shares of a Fund in
advertising and other types of literature as compared to the performance of the
30
<PAGE> 409
1-Year Treasury Bill Rate, S&P Index, the Dow Jones Industrial Average, the
Lehman Brothers 20+ Treasury Index, the Lehman Brothers 5-7 Year Treasury
Index, Donoghue's Money Fund Averages, Real Estate Investment Averages (as
reported by the National Association of Real Estate Investment Trusts), Gold
Investment Averages (provided by the World Gold Council), Bank Averages (which
is calculated from figures supplied by the U.S. League of Savings Institutions
based on effective annual rates of interest on both passbook and certificate
accounts), average annualized certificate of deposit rates (from the Federal
Reserve G-13 Statistical Releases or the Bank Rate Monitor), the Salomon One
Year Treasury Benchmark Index, the Consumer Price Index (as published by the
U.S. Bureau of Labor Statistics), Ten Year U.S. Government Bond Average, S&P's
Corporate Bond Yield Averages, Schabacter Investment Management Indices,
Salomon Brothers High Grade Bond Index, Lehman Brothers Long-Term High Quality
Government/Corporate Bond Index, other managed or unmanaged indices or
performance data of bonds, stocks or government securities (including data
provided by Ibbotson Associates), or by other services, companies, publications
or persons who monitor mutual funds on overall performance or other criteria.
The S&P Index and the Dow Jones Industrial Average are unmanaged indices of
selected common stock prices. The performance of a class of shares of a Fund
also may be compared to those of other mutual funds having similar objectives.
This comparative performance could be expressed as a ranking prepared by Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc., Bloomberg
Financial Markets or Morningstar, Inc., independent services which monitor the
performance of mutual funds. The performance of a class of shares of a Fund
will be calculated by relating net asset value per share at the beginning of a
stated period to the net asset value of the investment, assuming reinvestment
of all gains distributions and dividends paid, at the end of the period. Any
such comparisons may be useful to investors who wish to compare the class' past
performance with that of its competitors. Of course, past performance cannot
be a guarantee of future results. The Company also may include, from time to
time, a reference to certain marketing approaches of the Distributor,
including, for example, a reference to a potential shareholder being contacted
by a selected broker or dealer. General mutual fund statistics provided by the
Investment Company Institute may also be used.
In addition, the Company also may use, in advertisements and other
types of literature, information and statements: (1) showing that bank savings
accounts offer a guaranteed return of principal and a fixed rate of interest,
but no opportunity for capital growth; and (2) describing Wells Fargo Bank, and
its affiliates and predecessors, as one of the first investment managers to
advise investment accounts using asset allocation and index strategies. The
Company also may include in advertising and other types of literature
information and other data from reports and studies prepared by the Tax
Foundation, including information regarding federal and state tax levels and
the related "Tax Freedom Day."
From time to time the Company may reprint, reference or otherwise
use material from magazines, newsletters, newspapers and books including, but
not limited to the Wall Street Journal, Money Magazine, Barrons, Kiplingers,
Business Week, Fortune, Forbes, the San Francisco Chronicle, the San Jose
Mercury News, The New York Times, the Los Angeles Times, the Boston Globe, the
Washington Post, the Chicago Sun-Times, Investor Business Daily, Worth, Bank
Investor, American Banker, Smart Money, the 100 Best Mutual Funds (Adams
Publishing), Morningstar or Value Line.
31
<PAGE> 410
The Company also may use the following information in
advertisements and other types of literature, only to the extent the
information is appropriate for a class of shares of a Fund: (i) the Consumer
Price Index may be used to assess the real rate of return from an investment in
a class of shares of a Fund; (ii) other government statistics, including, but
not limited to, The Survey of Current Business, may be used to illustrate
investment attributes of a class of shares of a Fund or the general economic,
business, investment, or financial environment in which a Fund operates; (iii)
the effect of tax-deferred compounding on the investment returns of a class of
shares of a Fund, or on returns in general, may be illustrated by graphs,
charts, etc., where such graphs or charts would compare, at various points in
time, the return from an investment in a class of shares of a Fund (or returns
in general) on a tax-deferred basis (assuming reinvestment of capital gains and
dividends and assuming one or more tax rates) with the return on a taxable
basis; and (iv) the sectors or industries in which a Fund invests may be
compared to relevant indices of stocks or surveys (e.g., S&P Industry Surveys)
to evaluate the historical performance or current or potential value of a class
of shares of a Fund with respect to the particular industry or sector.
In addition, performance information for a class of shares of the
Index Allocation Fund may be compared, in reports and promotional literature,
to the S&P 500 Index, the Wilshire 5000 Equity Index, the Lehman Brothers 20+
Treasury Index, Donoghue's Money Fund Averages, the Lehman Brothers 5-7 Year
Treasury Index, or other appropriate managed or unmanaged indices of the
performance of various types of investments, so that investors may compare the
results of a class of shares of the Fund with those of indices widely regarded
by investors as representative of the security markets in general. Unmanaged
indices may assume the reinvestment of dividends, but generally do not reflect
deductions for administrative and management costs and expenses. Managed
indices generally do reflect such deductions.
From time to time, the Company also may include in advertisements
or other marketing materials a discussion of certain of the objectives of the
Index Allocation Fund's investment strategy and a comparison of this strategy
with other investment strategies. In particular, the responsiveness of the
Fund to changing market conditions may be discussed. For example, the Company
may describe the benefits derived by having Wells Fargo Bank, as Investment
Adviser, or BGFA, as Sub-Adviser, monitor and reallocate investments among the
three asset categories described above and in the Prospectus. The Company's
advertising or other marketing materials also might set forth illustrations
depicting examples of recommended allocations in different market conditions.
It may state, for example, that when the model indicates that stocks represent
a better value than bonds or money market instruments, the Index Allocation
Fund might consist of 70% stocks, 25% bonds and 5% money market instruments and
that when the model indicates that bonds represent a better value than stocks
or money market instruments, the balance of assets might shift to 60% bonds,
20% stocks and 20% money market instruments.
The Company also may include, from time to time, a reference to
certain marketing approaches of the Distributor, including, for example, a
reference to a potential shareholder being contacted by a selected broker or
dealer.
32
<PAGE> 411
The Company also may discuss in advertising and other types of
literature that one of the Funds has been assigned a rating by a nationally
recognized statistical rating organization ("NRSRO"), such as Moody's Investors
Service, Inc. ("Moody's") and Standard & Poor's Corporation ("S&P"). 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
performance of a class of shares of a Fund with other investments which are
assigned ratings by NRSROs. Any such comparisons may be useful to investors
who wish to compare a class' past performance with other rated investments.
The Company also may disclose in sales literature the distribution
rate on the shares of each class of a Fund. Distribution rate, which may be
annualized, is the amount determined by dividing the dollar amount per share of
the most recent dividend by the most recent NAV or maximum offering price per
share as of a date specified in the sales literature. Distribution rate will
be accompanied by the standard 30-day yield as required by the SEC.
The Company also may disclose, in advertising and other types of
literature, information and statements that Wells Capital Management, Inc.
("WCM" formerly, Wells Fargo Investment Management) a subsidiary of Wells Fargo
Bank, is listed in the top 100 by Institutional Investor magazine in its July
1996 survey "America's Top 300 Money Managers." This survey ranks money
managers in several asset categories. The Company may also disclose in
advertising and other types of sales literature the assets and categories of
assets under management by its investment adviser or sub-adviser and the total
amount of assets and mutual fund assets managed by Wells Fargo Bank. As of
April 1, 1997, Wells Fargo Bank and its affiliates provided investment advisory
services for approximately $57 billion of assets of individuals, trusts,
estates and institutions and $20 billion of mutual fund assets.
The Company may disclose in advertising and other types of
literature that investors can open and maintain Sweep Accounts over the
Internet or through other electronic channels (collectively, "Electronic
Channels"). Such advertising and other literature may discuss the investment
options available to investors, including the types of accounts and any
applicable fees. Such advertising and other literature may disclose that Wells
Fargo Bank is the first major bank to offer an on-line application for a mutual
fund account that can be filled out completely through Electronic Channels.
Advertising and other literature may disclose that Wells Fargo Bank may
maintain Web sites, pages or other information sites accessible through
Electronic Channels (an "Information Site") and may describe the contents and
features of the Information Site and instruct investors on how to access the
Information Site and open a Sweep Account. Advertising and other literature
may also disclose the procedures employed by Wells Fargo Bank to secure
information provided by investors, including disclosure and discussion of the
tools and services for accessing Electronic Channels. Such advertising or
other literature may include discussions of the advantages of establishing and
maintaining a Sweep Account through Electronic Channels and testimonials from
Wells Fargo Bank customers or employees and may also include descriptions of
33
<PAGE> 412
locations where product demonstrations may occur. The Company may also
disclose the ranking of Wells Fargo Bank as one of the largest money managers
in the United States.
DETERMINATION OF NET ASSET VALUE
Net asset value per share for each class of a Fund is determined
by Wells Fargo Bank on each day the Fund is open as of 1:00 p.m. (Pacific
time).
Securities of the Funds for which market quotations are available
are valued at latest prices. Securities of the Index Allocation Fund for which
the primary market is a national securities exchange or the National
Association of Securities Dealers Automated Quotations National Market System
are valued at last sale prices. In the absence of any sale of such securities
on the valuation date and in the case of other securities, including U.S.
Government securities but excluding money market instruments maturing in 60
days or less, the valuations are based on latest quoted bid prices. Money
market instruments maturing in 60 days or less are valued at amortized cost.
The assets of the U.S. Government Income Fund and the California Tax-Free Bond
Fund, other than debt securities maturing in 60 days or less, are valued at
latest quoted bid prices. Futures contracts and options listed on a national
exchange are valued at the last sale price on the exchange on which they are
traded at the close of the Exchange, or, in the absence of any sale on the
valuation date, at latest quoted bid prices. Options not listed on a national
exchange are valued at latest quoted bid prices. Debt securities maturing in
60 days or less are valued at amortized cost. In all cases, bid prices will be
furnished by a reputable independent pricing service approved by the Board of
Directors. Prices provided by an independent pricing service may be determined
without exclusive reliance on quoted prices and may take into account
appropriate factors such as institutional-size trading in similar groups of
securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics and other market data. All other securities and other assets
of the Funds for which current market quotations are not readily available are
valued at fair value as determined in good faith by the Company's Directors and
in accordance with procedures adopted by the Directors.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares may be purchased on any day the Funds are open for business.
The Funds are open for business each day the NYSE is open for trading (a
"Business Day"). Currently, 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 weekend, the
NYSE typically is closed on the weekday immediately before or after such
Holiday.
Payment for shares may, in the discretion of the adviser, be made in
the form of securities that are permissible investments for the Funds as
described in the Prospectuses. For further information about this form of
payment please contact Stephens. In connection with an in-kind securities
payment, the Funds will require, among other things, that the securities be
valued on the
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day of purchase in accordance with the pricing methods used by a Fund and that
such Fund receives satisfactory assurances that (i) it will have good and
marketable title to the securities received by it; (ii) that the securities are
in proper form for transfer to the Fund; and (iii) adequate information will be
provided concerning the basis and other matters relating to the securities.
Under the 1940 Act, the Funds may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the
NYSE is closed (other than customary weekend and holiday closings, or during
which trading is restricted, or during which as determined by the SEC by rule
or regulation) an emergency exists as a result of which disposal or valuation
of portfolio securities is not reasonably practicable, or for such periods as
the SEC may permit.
The Company may suspend redemption rights or postpone redemption
payments for such periods as are permitted under the 1940 Act. The Company may
also redeem shares involuntarily or make payment for redemption in securities
or other property if it appears appropriate to do so in light of the Company's
responsibilities under the 1940 Act.
In addition, the Company may redeem shares involuntarily to reimburse
the Funds for any losses sustained by reason of the failure of a shareholders
to make full payment for shares purchased or to collect any charge relating to
a transaction effected for the benefit of a shareholder which is applicable to
shares of a Fund as provided from time to time in the Prospectus.
PORTFOLIO TRANSACTIONS
Purchases and sales of equity securities on a securities exchange
usually are effected through brokers who charge a negotiated commission for
their services. Commission rates are established pursuant to negotiations with
the broker based on the quality and quantity of execution services provided by
the broker in light of generally prevailing rates. Orders may be directed to
any broker including, to the extent and in the manner permitted by applicable
law, Stephens or Wells Fargo Securities Inc. In the over-the-counter market,
securities are generally traded on a "net" basis with dealers acting as
principal for their own accounts without a stated commission, although the
price of the security usually includes a profit to the dealer. In underwritten
offerings, securities are purchased at a fixed price that includes an amount
of compensation to the underwriter, generally referred to as the underwriter's
concession or discount.
Purchases of debt securities generally are principal transactions. Debt
securities normally are purchased or sold from or to dealers serving as market
makers for the securities at a net price. Debt securities may also be purchased
in underwritten offerings or directly from an issuer. Generally debt
obligations are traded on a net basis and do not involve brokerage commissions.
The cost of executing transactions in debt securities consists primarily of
dealer spreads and underwriting commissions. Under the 1940 Act, persons
affiliated with the Company are prohibited from dealing with the Company as a
principal in the purchase and sale of portfolio securities unless an exemptive
order allowing such transactions is obtained from the Commission or an
exemption is otherwise available. The Funds may purchase securities from
underwriting syndicates of which Stephens, Wells Fargo Bank or BGFA is a member
under certain conditions in accordance with the provisions of a rule adopted
under the Act and in compliance with procedures adopted by the Company's Board
of Directors.
The Company has no obligation to deal with any dealer or group of
dealers in the execution of transactions in portfolio securities. Subject to
policies established by the Company's Board of Directors, Wells Fargo Bank, as
adviser, or BGFA, as sub-adviser, is responsible for the Funds' investment
decisions and the placing of portfolio transactions. In placing orders, it is
the policy of the Company to obtain the best overall terms taking into account
the dealer's general execution and operational facilities, the type of
transaction involved and other factors such as the dealer's risk in positioning
the securities involved. Wells Fargo and BGFA generally seek reasonably
competitive spreads or commissions.
In assessing the best overall terms available for any transaction,
Wells Fargo Bank and BGFA considers factors deemed relevant, including the
breadth of the market in the security, the price of the security, the financial
condition and execution capability of the broker or dealer, and the
reasonableness of the commission, if any, both for the specific transaction and
on a continuing basis. As a result, a Fund may pay a broker/dealer which
furnishes brokerage and research services a higher commission than that which
might be charged by another broker/dealer for effecting the same transaction,
provided that such commission is determined to be reasonable in relation to the
value of the brokerage and research services provided by such broker/dealer.
Such brokerage and research services might consist of reports and statistics
relating to specific companies or industries, general summaries of groups of
stocks or bonds and their comparative earnings and yields, or broad overviews
of the stock, bond, and government securities markets and the economy.
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<PAGE> 414
Supplementary research information so received is in addition to, and
not in lieu of, services required to be performed by Wells Fargo Bank and BGFA
and does to reduce the advisory fees payable by the Funds. The Board of
Directors will periodically review the commissions paid by the Funds to
consider whether the commissions paid over representative periods of time
appear to be reasonable in relation to the benefits inuring to the Funds. It is
possible that certain of the supplementary research or other services received
will primarily benefit one or more other investment companies or other accounts
for which Wells Fargo Bank exercises investment discretion. Conversely, the
Funds may be the primary beneficiary of the research or services received as a
result of portfolio transactions effected for such other account or investment
company.
Under Section 28(e) of the Securities Exchange Act of 1934, an adviser
shall not be "deemed to have acted unlawfully or to have breached its fiduciary
duty" solely because under certain circumstances it has caused the account to
pay a higher commission than the lowest available. To obtain the benefit of
Section 28(e), an adviser must make a good faith determination that the
commissions paid are "reasonable in relation to the value of the brokerage and
research services provided . . . viewed in terms of either that particular
transaction or its overall responsibilities with respect to the accounts as to
which it exercises investment discretion and that the services provided by a
broker provide an adviser with lawful and appropriate assistance in the
performance of its investment decision-making responsibilities." Accordingly,
the price to a Fund in any transaction may be less favorable than that
available from another broker/dealer if the difference is reasonably justified
by other aspects of the portfolio execution services offered.
Broker/dealers may furnish statistical, research and other information
or services which are deemed to be beneficial a Fund's investment programs.
Research services received from brokers supplement the advisers' own research
and may include the following types of information: statistical and background
information on industry groups and individual companies; forecasts and
interpretations with respect to U.S. and foreign economies, securities,
markets, specific industry groups and individual companies; information on
political developments; portfolio management strategies; performance
information on securities and information concerning prices of securities; and
information supplied by specialized services with respect to the performance,
investment activities and fees and expenses of other mutual funds. Such
information may be communicated electronically, orally or in written form.
Research services may also include the providing of equipment used to
communicate research information, the arranging of meetings with management of
companies and the providing of access to consultants who supply research
information.
The outside research assistance is useful since the brokers utilized
by the Funds as a group may follow a broader universe of securities and other
matters than the staff of Wells Fargo Bank and/or BGFA can follow. In addition,
this research provides Wells Fargo Bank and/or BGFA with a diverse perspective
on financial markets. Research services which are provided to Wells Fargo Bank
and/or BGFA by brokers are available for the benefit of all accounts managed or
advised by Wells Fargo Bank and/or BGFA. It is the opinion of Wells Fargo Bank
that this material is beneficial in supplementing their research and analysis;
and, therefore, it may benefit the Funds by improving the quality of Wells
Fargo Bank's investment advice.
BROKERAGE COMMISSIONS. For the year ended December 31, 1996, the
Index Allocation Fund paid brokerage commissions in the amount of $2,317. The
other Funds did not pay any brokerage commissions for the year ended December
31, 1996.
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SECURITIES OF REGULAR BROKER/DEALERS. As of December 31, 1996,
the U.S. Government Income Fund owned securities of its "regular brokers or
dealers," as defined in the 1940 Act, or their parents as follows: $1,142,000
of pooled repurchase agreements of Goldman Sachs & Co. The other Funds did not
own securities of their "regular brokers or dealers" as of December 31, 1996.
FUND EXPENSES
From time to time, Wells Fargo Bank and Stephens may waive fees
from the Funds in whole or in part. Any such waiver will reduce expenses of a
Fund and, accordingly, have a favorable impact on such Fund's performance.
Except for the expenses borne by Wells Fargo Bank and Stephens, the Funds bear
all costs of their respective operations, including the compensation of the
Company's directors and the Trust's trustees who are not officers or employees
of Wells Fargo Bank or Stephens or any of their affiliates; advisory,
shareholder servicing, and administration fees; payments pursuant to any Plans;
interest charges; taxes; fees and expenses of independent auditors; legal
counsel, transfer agent and dividend disbursing agent; expenses of redeeming
Fund shares; expenses of preparing and printing Prospectuses (except the
expense of printing and mailing Prospectuses used for promotional purposes,
unless otherwise payable pursuant to a Plan), shareholders' or investors'
reports, notices, proxy statements and reports to regulatory agencies;
insurance premiums and certain expenses relating to insurance coverage; trade
association membership dues; brokerage and other expenses connected with the
execution of portfolio transactions; fees and expenses of the custodian,
including those of keeping books and accounts and calculating the net asset
value of each Fund; expenses of shareholders' or investors' meetings; expenses
relating to the issuance, registration and qualification of shares of the
Funds; pricing services; organizational expenses; and any extraordinary
expenses. Expenses attributable to a Fund are charged against the respective
assets of the Fund. A pro rata portion of the expenses of the Company are
charged against the assets of a Fund.
FEDERAL INCOME TAXES
In General. The following information supplements and should be
read in conjunction with the Prospectus. The Prospectus of the Funds generally
describes the tax treatment of distributions by the Funds. This section of the
SAI includes additional information concerning federal income taxes.
The Company intends to qualify each Fund as a regulated investment
company under Subchapter M of the Code as long as such qualification is in the
best interest of the Fund's shareholders. Each Fund will be treated as a
separate entity for tax purposes and thus the provisions of the Code applicable
to regulated investment companies will generally be applied to 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 each Fund.
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Qualification as a regulated investment company under the Code
requires, among other things, that (a) each Fund derive at least 90% of its
annual gross income from interest, payments with respect to securities loans,
dividends and gains from the sale or other disposition of securities or options
thereon; (b) each Fund derive less than 30% of its gross income from gains from
the sale or other disposition of securities or options thereon held for less
than three months; and (c) each Fund diversify its holdings so that, at the end
of each quarter of the taxable year, (i) at least 50% of the market value of
each Fund's assets is represented by cash, government securities and other
securities limited in respect of any one issuer to an amount not greater than
5% of the Fund's assets and 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of its assets is invested in
the securities of any one issuer (other than U.S. Government obligations and
the securities of other regulated investment companies), or in two or more
issuers which the Fund controls and which are determined to be engaged in the
same or similar trades or businesses. As a regulated investment company, each
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, including net
tax-exempt income, earned in each year. Each Fund intends to pay out
substantially all of its net investment income and net realized capital gains
(if any) for each year.
A 4% nondeductible excise tax will be imposed on each 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. Each Fund will either actually or be deemed to distribute substantially
all of its net investment income and net capital gains by the end of each
calendar year and, thus, expects not to be subject to the excise tax.
Corporate shareholders of a Fund may be eligible for the
dividends-received deduction on dividends distributed out of the Fund's net
investment income attributable to dividends received from domestic
corporations, which, if received directly by the corporate shareholder, would
qualify for such deduction. In order to qualify for the dividends-received
deduction, a corporate shareholder must hold the Fund shares paying the
dividends upon which the deduction is based for at least 46 days.
Federal Income Tax Rates. 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 marginal tax rate applicable
to net capital gains is 28%; the maximum corporate tax rate applicable to
ordinary income and net capital gains is 35% (except that to eliminate the
benefit of lower marginal corporate income tax rates, corporations which have
taxable income in excess of $100,000 for a taxable year will be required to pay
an additional amount of income tax 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 tax of up to $100,000). Naturally, the amount of
tax payable by an individual or corporation will be affected by a combination
of tax laws covering, for example, deductions, credits, deferrals, exemptions,
sources of income and other matters.
Capital Gain Distributions. To the extent that each Fund
recognizes long-term capital gains, such gains will be distributed at least
annually and these distributions will be taxable to
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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 the shareholders not
later than 60 days after the close of the Fund's taxable year.
Other Distributions. With respect to the U.S. Government Income
Fund and the California Tax Free Bond Fund, although dividends will be declared
daily based on each Fund's daily 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. It is expected that each Fund's net income, on an annual basis, will
equal the dividends declared during the year.
Disposition of Fund Shares. If a shareholder receives a
designated capital gain distribution (to be treated by the shareholder as a
long-term capital gain) with respect to any Fund share and such Fund share is
held for six months or less, then (unless otherwise disallowed) any loss on the
sale or exchange of that Fund share will be treated as a long-term capital loss
to the extent of the designated capital gain distribution. In addition, 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 exempt-interest
dividends received thereon by the shareholder. These rules shall not apply,
however, to losses incurred under a periodic redemption plan.
If a shareholder exchanges or otherwise disposes of Fund shares
within 90 days of having acquired such shares and if, as a result of having
acquired those shares, the shareholder subsequently pays a reduced sales charge
on a new purchase of shares of the Fund or of a different regulated investment
company, the sales charge previously incurred acquiring the Fund's shares shall
not be taken into account (to the extent such previous sales charges do not
exceed the reduction in sales charges on the new purchase) for the purpose of
determining the amount of gain or loss on the disposition, but will be treated
as having been incurred in the acquisition of such other shares. Also, any
loss realized on a redemption or exchange of shares of the Fund will be
disallowed to the extent that substantially identical shares are reacquired
within the 61-day period beginning 30 days before and ending 30 days after the
shares are disposed of.
Taxation of Fund Investments. Gains or losses on sales of
portfolio securities by a Fund will generally be long-term capital gains or
losses if the securities have been held by it for more than one year, except in
certain cases such as where the Fund acquires a put or writes a call thereon.
Gains recognized on the disposition of a debt obligation (including tax-exempt
obligations purchased after April 30, 1993) purchased by the Fund at a market
discount (generally at a price less than its principal amount) will generally
be treated as ordinary income to the extent of the portion of market discount
which accrued during the period of time the Fund held the debt obligation.
Other gains or losses on the sale of portfolio securities will be short-term
capital gains or losses.
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If an option written by a Fund lapses or is terminated through a
closing transaction, such as a repurchase by the Fund of the option from its
holder, the Fund will realize a short-term capital gain or loss, depending on
whether the premium income is greater or less than the amount paid by the Fund
in the closing transaction. Some realized capital losses may be deferred if
they result from a position which is part of a "straddle," discussed below. If
securities are sold by a Fund pursuant to the exercise of a call option written
by it, the Fund will add the premium received to the sale price of the
securities delivered in determining the amount of gain or loss on the sale. If
securities are purchased by a Fund pursuant to the exercise of a put option
written by it, the Fund will subtract the premium received from its cost basis
in the securities purchased. The requirement that a Fund derive less than 30%
of its gross income from gains from the sale of securities held for less than
three months may limit the Fund's ability to write options.
The amount of any gain or loss realized by a Fund on closing out a
futures contract will generally result in a realized capital gain or loss for
tax purposes. Futures contracts held at the end of each fiscal year will be
required to be "marked to market" for federal income tax purposes pursuant to
Section 1256 of the Code. In this regard, they will be deemed to have been
sold at market value. Sixty percent (60%) of any net gain or loss recognized
on these deemed sales and sixty percent (60%) of any net realized gain or loss
from any actual sales, generally will be treated as long-term capital gain or
loss, and the remaining forty percent (40%) will be treated as short-term
capital gain or loss. Transactions that qualify as designated hedges are
excepted from the "marked to market" and "60%/40%" rules.
Offsetting positions held by a regulated investment company
involving certain financial forward, futures or options contracts may be
considered, for tax purposes, to constitute "straddles." "Straddles" are
defined to include "offsetting positions" in actively traded personal property.
The tax treatment of "straddles" is governed by Section 1092 of the Code which,
in certain circumstances, overrides or modifies the provisions of Section 1256.
If a regulated investment company were treated as entering into "straddles" by
reason of its engaging in certain financial forward, futures or option
contracts, such straddles could be characterized as "mixed straddles" if the
futures, forwards, or options comprising a part of such straddles were governed
by Section 1256 of the Code. The regulated investment company may make one or
more elections with respect to "mixed straddles." Depending upon which
election is made, if any, the results with respect to the regulated investment
company may differ. Generally, to the extent the straddle rules apply to
positions established by the regulated investment company, losses realized by
the regulated investment company may be deferred to the extent of unrealized
gain in any offsetting positions. Moreover, as a result of the straddle and
the conversion transaction rules, short-term capital loss on straddle positions
may be recharacterized as long-term capital loss, and long-term capital gain
may be characterized as short-term capital gain or ordinary income.
Foreign Shareholders. Under the Code, distributions of net
investment income by a Fund to a nonresident alien individual, nonresident
alien fiduciary of a trust or estate, foreign corporation, or foreign
partnership (a "foreign shareholder") will be subject to U.S. withholding tax
(at a rate of 30% or a lower treaty rate). Withholding will not apply if a
dividend paid by a Fund to a foreign shareholder is "effectively connected"
with a U.S. trade or business, in which
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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.
Backup Withholding. The Company may be required to withhold,
subject to certain exemptions, at a rate of 31% ("backup withholding") on
dividends, capital gain distributions, and redemption proceeds (including
redemptions in kind and proceeds from exchanges) paid or credited to an
individual Fund shareholder, unless a shareholder certifies that the Taxpayer
Identification Number ("TIN") provided is correct and that the shareholder is
not subject to backup withholding, or the IRS notifies the Company that the
shareholder's TIN is incorrect or the shareholder is subject to backup
withholding. Such tax withheld does not constitute any additional tax imposed
on the shareholder, and may be claimed as a tax payment on the shareholder's
federal income tax return. An investor must provide a valid TIN upon opening
or reopening an account. Failure to furnish a valid TIN to the Company could
subject the investor to penalties imposed by the IRS.
Special Tax Considerations for the California Tax-Free Bond Fund
Federal -- The California Tax-Free Bond Fund intends that at
least 50% of the value of its total assets at the close of each quarter of its
taxable years will consist of obligations the interest on which is exempt from
federal income tax, so that it will qualify under the Code to pay
"exempt-interest dividends." The portion of total dividends paid by the
California Tax-Free Bond Fund with respect to any taxable year that constitutes
exempt-interest dividends will be the same for all shareholders receiving
dividends during such year. Long-term and/or short-term capital gain
distributions will not constitute exempt-interest dividends and will be taxed
as capital gain or ordinary income dividends, respectively. The exemption of
interest income derived from investments in tax-exempt obligations for federal
income tax purposes may not result in a similar exemption under the laws of a
particular state or local taxing authority.
Not later than 60 days after the close of its taxable year, the
California Tax-Free Bond Fund will notify each shareholder 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.
Finally, interest on indebtedness incurred by a shareholder to purchase or
carry shares of the California Tax-Free Bond Fund will not be deductible to the
extent that the Fund's distributions are exempt from federal income tax.
In addition, the federal alternative minimum tax ("AMT") rules
ensure that at least a minimum amount of tax is paid by taxpayers who obtain
significant benefit from certain tax deductions and exemptions. Some of these
deductions and exemptions have been designated "tax preference items" which
must be added back to taxable income for purposes of calculating AMT.
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Among the tax preference items is tax-exempt interest from "private activity
bonds" issued after August 7, 1986. To the extent that the California Tax-Free
Bond Fund invests in private activity bonds, its shareholders who pay AMT will
be required to report that portion of Fund dividends attributable to income
from the bonds as a tax preference item in determining their AMT. Shareholders
will be notified of the tax status of distributions made by the Fund. Persons
who may be "substantial users" (or "related persons" of substantial users) of
facilities financed by private activity bonds should consult their tax advisors
before purchasing shares in the California Tax-Free Bond Fund. Furthermore,
shareholders will not be permitted to deduct any of their share of the
California Tax-Free Bond Fund's expenses in computing their AMT. With respect
to a corporate shareholder of the Fund, exempt-interest dividends paid by the
Fund are included in the corporate shareholder's "adjusted current earnings" as
part of its AMT calculation, and may also affect its federal "environmental
tax" liability. As of the printing of this SAI, individuals are subject to an
AMT at a maximum rate of 28% and corporations at a maximum rate of 20%.
Shareholders with questions or concerns about AMT should consult their tax
advisors.
Shares of the California Tax-Free Bond Fund would not be suitable
for tax-exempt institutions and may not be suitable for retirement plans
qualified under Section 401 of the Code, H.R. 10 plans and IRAs 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.
California -- The California Tax-Free Bond Fund expects to be
exempt from tax in California on the same basis as under Subchapter M of the
Code as described above. Moreover, if at the close of each quarter of a Fund's
taxable year, at least 50% of the value of its total assets consists of
obligations the interest on which, if such obligations were held by an
individual, would be exempt from California personal income tax (under either
the laws of California or of the United States), the Fund will be entitled to
pay dividends to its shareholders which will be exempt from California personal
income tax (referred to herein as "California exempt-interest dividends").
Under normal market conditions, the California Tax-Free Bond Fund will invest
primarily in municipal securities of the State of California, its cities,
municipalities and other political authorities so that it can pay California
exempt-interest dividends.
Not later than 60 days after the close of its taxable year, the
California Tax-Free Bond Fund will notify its shareholders of the portion of
the dividends paid which constitutes California exempt-interest dividends with
respect to such taxable year. The total amount of California exempt-interest
dividends paid by the Fund to all of its shareholders with respect to any
taxable year cannot exceed the amount of interest received by the Fund during
such year on California municipal securities and other obligations the interest
on which is tax exempt, less any expenses or expenditures (including any
expenditures attributable to the acquisition of securities of other investment
companies). Dividends paid by the Fund in excess of this limitation will be
treated as ordinary dividends subject to California personal income tax at
ordinary rates.
Long-term and/or short-term capital gain distributions will not
constitute California 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
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shares of the California Tax-Free Bond Fund is not deductible for California
personal income tax purposes to the extent the shareholder receives California
exempt-interest dividends during his or her taxable year. Exempt-interest
dividends will be tax exempt for purposes of the California personal income
tax. For corporate shareholders, dividends will be subject to the corporate
franchise taxes in California.
Other Matters. Investors should be aware that the investments to
be made by the Funds may involve sophisticated tax rules that may result in
income or gain recognition by the Funds without corresponding current cash
receipts. Although the Funds will seek to avoid significant noncash income,
such noncash income could be recognized by the Funds, in which case the Funds
may distribute cash derived from other sources in order to meet the minimum
distribution requirements described above.
The foregoing discussion and the discussions in the Prospectus
address only some of the federal tax considerations generally affecting
investments in a Fund. Each investor is urged to consult his or her tax
advisor regarding specific questions as to federal, state or local taxes and
foreign taxes.
CAPITAL STOCK
The following information supplements and should be read in
conjunction with the section in the Prospectus entitled "Management of the
Funds."
Each of the Funds is comprised of two classes of shares, Class A
shares and Class D shares. With respect to matters that affect one class but
not another, the shareholders vote as a class; for example, the approval of a
Plan. Subject to the foregoing, on any matter submitted to a vote of
shareholders, all shares then entitled to vote will be voted separately by Fund
or portfolio unless otherwise required by the 1940 Act, in which case all
shares will be voted in the aggregate. For example, a change in a Fund's
fundamental investment policies would be voted upon only by shareholders of the
Fund involved. Additionally, approval of the advisory contract is a matter to
be determined separately by Fund or portfolio. Approval by the shareholders of
one Fund or portfolio is effective as to that Fund or portfolio whether or not
sufficient votes are received from the shareholders of the other Funds or
portfolios to approve the proposal as to those Funds or portfolios. As used in
the Prospectus and in this SAI, the term "majority," when referring to
approvals to be obtained from shareholders of a class of shares of a Fund means
the vote of the lesser of (i) 67% of the shares of a class of shares
represented at a meeting if the holders of more than 50% of the outstanding
shares of such class are present in person or by proxy, or (ii) more than 50%
of the outstanding class of shares. The term "majority," when referring to the
approvals to be obtained from shareholders of the Company as a whole means the
vote of the lesser of (i) 67% of the Company's shares represented at a meeting
if the holders of more than 50% of the Company's outstanding shares are present
in person or by proxy, or (ii) more than 50% of the Company's outstanding
shares. Shareholders are entitled to one vote for each full share held and
fractional votes for fractional shares held. The Company may dispense with
annual meetings of shareholders in any year in which it is not required to
elect directors under the 1940 Act.
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Each share of a class of a Fund or portfolio represents an equal
proportional interest in that Fund or portfolio with each other share of the
same class and is entitled to such dividends and distributions out of the
income earned on the assets belonging to that Fund or portfolio as are declared
in the discretion of the Directors. In the event of the liquidation or
dissolution of the Company, shareholders of a Fund or portfolio are entitled to
receive the assets attributable to that Fund or portfolio that are available
for distribution, and a distribution of any general assets not attributable to
a particular Fund or portfolio that are available for distribution in such
manner and on such basis as the Directors in their sole discretion may
determine.
Shareholders are not entitled to any preemptive rights. All
shares, when issued, will be fully paid and non-assessable by the Company.
Set forth below is the name, address and share ownership of each
person known by the Company to have beneficial or record ownership of 5% or
more of a class of the Fund or 5% or more of the voting securities of the Fund
as a whole.
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5% OWNERSHIP AS OF APRIL 1, 1997
<TABLE>
<CAPTION>
NAME AND CLASS; TYPE PERCENTAGE PERCENTAGE
FUND ADDRESS OF OWNERSHIP OF CLASS OF FUND
---- ------- ------------ -------- -------
<S> <C> <C> <C> <C>
INDEX ALLOCATION Stephens Inc. Class A 8.20% 6.07%
CLASS A for Exclusive Benefit of Record Holder
Customers
P.O. Box 34127
Little Rock, AR 72203
Merrill Lynch Pierce Class A 10.12% 7.49%
Fenner & Smith, Inc. Record Holder
for Exclusive Benefit of
Customers
Attn: Fund Administration
4800 Deer Lake East, 3rd Floor
Jacksonville, FL 32246
INDEX ALLOCATION Merrill Lynch Pierce Class D 33.97% 8.83%
CLASS D Fenner & Smith, Inc. Record Holder
for Exclusive Benefit of
Customers
Attn: Fund Administration
4800 Deer Lake East, 3rd Floor
Jacksonville, FL 32246
U.S. GOVT. Wells Fargo Bank Class A 68.00% 97.19%
INCOME for Exclusive Benefit of Record Holder
CLASS A Customers
P.O. Box 7066
San Francisco, CA 94120
Merrill Lynch Pierce Class D 35.10% 0.99%
Fenner & Smith, Inc. Record Holder
for Exclusive Benefit of
Customers
Attn: Fund Administration
4800 Deer Lake East, 3rd Floor
Jacksonville, FL 32246
U.S. GOVT. Sisters of St. Francis Class D 11.13% 0.31%
INCOME Attn: Sis. Virginia Spiegel Record Holder
CLASS D 609 South Convert Road
Aston, PA 19014
Rocky Mountain Lions Eye Class D 13.23% 0.37%
Institute Foundation, Inc. Record Holder
c/o Harold Hein
7087 Parfet Street
Arvada, CO 80004
</TABLE>
45
<PAGE> 424
<TABLE>
<CAPTION>
NAME AND CLASS; TYPE PERCENTAGE PERCENTAGE
FUND ADDRESS OF OWNERSHIP OF CLASS OF FUND
---- ------- ------------ -------- -------
<S> <C> <C> <C> <C>
CA TAX-FREE BOND Merrill Lynch Pierce Class A 5.02% 4.92%
Fenner & Smith, Inc. Record Holder
CLASS A for Exclusive Benefit of
Customers
Attn: Fund Administration
4800 Deer Lake East, 3rd Floor
Jacksonville, FL 32246
CA TAX-FREE BOND Stephens Inc. Class D 21.19% 0.41%
for Exclusive Benefit of Record Holder
CLASS D Customers
P.O. Box 34127
Little Rock, AR 72203
Merrill Lynch Pierce Class D 42.05% 0.82%
Fenner & Smith, Inc. Record Holder
for Exclusive Benefit of
Customers
Attn: Fund Administration
4800 Deer Lake East, 3rd Floor
Jacksonville, FL 32246
</TABLE>
For purposes of the 1940 Act, any person who owns directly or
through one or more controlled companies more than 25% of the voting securities
of a company is presumed to "control" such company. Accordingly, to the extent
that a shareholder identified in the foregoing table is identified as the
beneficial holder of more than 25% of a class (or Fund), or is identified as
the holder of record of more than 25% of a class (or Fund) and has voting
and/or investment powers, it may be presumed to control such class (or Fund).
OTHER
The Registration Statement, including the Prospectus, the SAI and
the exhibits filed therewith, may be examined at the office of the Commission
in Washington, D.C. Statements contained in the Prospectus or the SAI as to
the contents of any contract or other document referred to herein or in the
Prospectus are not necessarily complete, and, in each instance, reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.
46
<PAGE> 425
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP has been selected as the independent
auditors for the Company. KPMG Peat Marwick LLP provides audit services, tax
return preparation and assistance and consultation in connection with review of
certain Securities and Exchange Commission filings. The address of KPMG Peat
Marwick LLP is Three Embarcadero Center, San Francisco, California 94111.
FINANCIAL INFORMATION
The portfolio of investments, audited financial statements and
independent auditors' reports for each Fund for the year ended December 31,
1996, are incorporated into this SAI by reference to the Company's Annual
Report as filed with the SEC on March 11, 1997. The portfolio of
investments, audited financial statements and independent auditors' reports are
attached to all SAIs delivered to shareholders or prospective shareholders.
47
<PAGE> 426
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 lack outstanding investment characteristics and in fact have
speculative characteristics as well. Moody's applies numerical modifiers in
its rating system: 1, 2 and 3 in each rating category from "Aa" through "Baa"
in its rating system. The modifier 1 indicates that the security ranks in the
higher end of its category; the modifier 2 indicates a mid-range ranking; and
the modifier 3 indicates that the issue ranks in the lower end.
S&P: The four highest ratings for corporate and municipal bonds
are "AAA," "AA," "A" and "BBB." Bonds rated "AAA" have the "highest rating"
assigned by S&P and have "an extremely strong capacity" to pay interest and
repay principal. Bonds rated "AA" have a "very strong capacity" to pay
interest and repay principal and "differ from the highest rated obligations
only in small degree." Bonds rated "A" have a "strong capacity" to pay
interest and repay principal, but are "somewhat more susceptible" to adverse
effects of changes in economic conditions or other circumstances than bonds in
higher rated categories. Bonds rated "BBB" are regarded as having "adequate
protection parameters" to pay interest and repay principal, but changes in
economic conditions or other circumstances are more likely to lead to a
"weakened capacity" to make such repayments. The ratings from "AA" to "BBB"
may be modified by the addition of a plus or minus sign to show relative
standing within the category.
Corporate and Municipal Notes
Moody's: The highest rating 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> 427
S&P: The two highest ratings for corporate, state and municipal 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.
Corporate and Municipal Commercial Paper
- ----------------------------------------
Moody's: The highest rating for corporate, state and municipal
commercial paper is "P-1" (Prime-1). Issuers rated "P-1" have a "superior
ability for repayment of senior short-term debt obligations." Issuers rated
"P-2" (Prime-2) "have a strong capacity for repayment of senior short-term debt
obligations," but earnings trends, while sound, will be subject to more
variation.
S&P: The "A-1" rating for corporate, state and municipal commercial
paper is rated "in the highest category" by S&P and "the obligor's capacity to
meet its financial commitment on the obligation is strong." The "A-1+" rating
indicates that said capacity is "extremely strong." The A-2 rating indicates
that said capacity is "satisfactory," but that corporate and municipal
commercial paper rated "A-2" is "more susceptible" to the adverse effects of
changes in economic conditions or other circumstances than commercial paper
rated in higher rating categories.
A-2
<PAGE> 428
OVERLAND EXPRESS FUNDS, INC.
Telephone: (800) 552-9612
STATEMENT OF ADDITIONAL INFORMATION
Dated May 1, 1997
CALIFORNIA TAX-FREE MONEY MARKET FUND
MONEY MARKET FUND
U.S. TREASURY 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 three of the Company's funds -- the CALIFORNIA TAX-FREE MONEY
MARKET FUND, the MONEY MARKET FUND and the U.S. TREASURY MONEY MARKET FUND
(each, a "Fund" and collectively, the "Funds"). The Money Market Fund and the
U.S. Treasury Money Market Fund offer two classes of shares -- Class A Shares
and Institutional Shares. This SAI relates to both such classes of shares of
each Fund. The California Tax-Free Money Market Fund only offers a single
class of shares. The investment objective of each Fund is described in the
Prospectus under "Investment Objectives and Policies."
This SAI is not a Prospectus and should be read in conjunction with the
Funds' Prospectus dated May 1, 1997. All terms used in this SAI that are
defined in the Prospectus will have the meanings assigned in the Prospectus. A
copy of the Prospectus may be obtained without charge by writing Stephens Inc.
("Stephens"), the Company's sponsor, co-administrator and distributor, at 111
Center Street, Little Rock, Arkansas 72201 or calling the Transfer Agent at
the telephone number indicated above.
__________________________________
1
<PAGE> 429
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Investment Restrictions .......................................................... 3
Additional Permitted Investment Activities ....................................... 5
Special Factors Affecting the California Tax-Free Money Market Fund .............. 8
Management ....................................................................... 11
Distribution Plans ............................................................... 16
Calculation of Yield ............................................................. 17
Determination of Net Asset Value ................................................. 21
Additional Purchase and Redemption Information ................................... 22
Portfolio Transactions ........................................................... 23
Fund Expenses .................................................................... 26
Federal Income Taxes ............................................................. 26
Capital Stock .................................................................... 31
Other ............................................................................ 33
Independent Auditors ............................................................. 33
Financial Information ............................................................ 34
Appendix ......................................................................... A-1
</TABLE>
2
<PAGE> 430
INVESTMENT RESTRICTIONS
Fundamental Investment Policies. The Funds are subject to the following
investment restrictions, all of which are fundamental policies:
(1) None of the Funds may purchase the securities of issuers conducting
their principal business activity in the same industry if, immediately after
the purchase and as a result thereof, the value of the Fund's investments in
that industry would exceed 25% of the current value of such Fund's total
assets, provided that there is no limitation with respect to investments in (i)
obligations of the United States Government, its agencies or instrumentalities,
(ii) the obligations of domestic banks (for purposes 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 (iii) with
respect to the California Tax-Free Money Market Fund, municipal securities (for
the purpose of this restriction, private activity bonds shall not be deemed
municipal securities if the payments of principal and interest on such bonds is
the ultimate responsibility of non-governmental users) or securities that are
exempt from personal income taxes of the State of California.
(2) None of the Funds may purchase or sell real estate (other than
municipal obligations, Money Market Instruments 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.
(3) None of the Funds may purchase securities on margin (except for
short-term credits necessary for the clearance of transactions and, with
respect to the California Tax-Free Money Market Fund, except for margin
payments in connection with options, futures and options on futures) or make
short sales of securities.
(4) None of the Funds may underwrite securities of other issuers, except
to the extent that the purchase of municipal securities or other permitted
investments directly from the issuer thereof or from an underwriter for an
issuer and the later disposition of such securities in accordance with each
Fund's investment program may be deemed to be an underwriting.
(5) The California Tax-Free Money Market Fund may not invest more than 10%
of the current value of its net assets in repurchase agreements maturing in
more than seven days, restricted securities, which are securities that must be
registered under the Securities Act of 1933 before they may be offered or sold
to the public, and illiquid securities, and the Money Market Fund may not
invest more than 10% of the current value of its net assets in repurchase
agreements maturing in more than seven days and illiquid securities.
(6) None of the Funds may make investments for the purpose of exercising
control or management.
(7) None of the Funds may issue senior securities, except that each Fund
may borrow from banks up to 10% of the current value of its net assets for
temporary purposes only in
3
<PAGE> 431
order to meet redemptions, and these borrowings may be secured by the pledge of
up to 10% of the current value of its net assets (but investments may not be
purchased by the California Tax-Free Money Market Fund or the Money Market Fund
while any such outstanding borrowing exists and investments may not be
purchased by the U.S. Treasury Money Market Fund while any such outstanding
borrowing in excess of 5% of its net assets exists).
(8) None of the Funds may invest more than 10% of the current value of its
net assets in fixed time deposits that are subject to withdrawal penalties and
that have maturities of more than seven days.
(9) The California Tax-Free Money Market Fund may not lend its portfolio
securities having a value that exceeds 50% of the current value of its total
assets. The Money Market Fund and the U.S. Treasury Money Market Fund may not
make loans of portfolio securities or other assets. However, for purposes of
this restriction, loans will not include the purchase of fixed time deposits,
repurchase agreements, commercial paper and other types of debt instruments
commonly sold in a public or private offering.
With respect to fundamental investment restriction (9) above, the
California Tax-Free Money Market Fund does not intend to lend its portfolio
securities during the coming year.
In addition, none of the Funds may write, purchase or sell puts, calls,
warrants or options or any combination thereof, except that the Funds may
purchase securities with put rights in order to maintain liquidity.
Non-Fundamental Investment Restrictions. The Funds are subject to the
following non-fundamental policies:
(1) None of the Funds may purchase or retain securities of any issuer if
the officers or Directors of the Fund or its Investment Adviser owning
beneficially more than one-half of one percent (0.5%) of the securities of the
issuer together own beneficially more than 5% of such securities.
(2) None of the Funds may purchase interests, leases, or limited
partnership interests in oil, gas, or other mineral exploration or development
programs.
(3) None of the Funds may invest in securities of issuers who, with their
predecessors, have been in existence less than three years, unless the
securities are fully guaranteed or insured by the U.S. Government, 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.
(4) None of the Funds may purchase or sell real estate limited partnership
interests.
4
<PAGE> 432
(5) The California Tax-Free Money Market Fund may not 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 aggregate
investment in such classes of securities will exceed 5% of its total assets.
(6) The U.S. Treasury Money Market Fund may not invest more than 10% of
the current value of its net assets in repurchase securities maturing in more
than seven days, fixed time deposits that are subject to withdrawal penalties
and that have maturities of more than seven days and illiquid securities
although this Fund does not intend to invest in any of these investments.
(7) As provided in Rule 2a-7 under the 1940 Act, the Money Market Fund and
the U.S. Treasury Money Market Fund each may only purchase "Eligible
Securities" (as defined in Rule 2a-7) and only if, immediately after such
purchase, the Fund would have no more than 5% of its total assets in "First
Tier Securities" (as defined in Rule 2a-7) of any one issuer, excluding
government securities and except as otherwise permitted for temporary purposes
and for certain guarantees and unconditional puts; the Fund would own no more
than 10% of the voting securities of any one issuer; the Fund would have no
more than 5% of its total assets in "Second Tier Securities" (as defined in
Rule 2a-7); and the Fund would have no more than the greater of $1 million or
1% of its total assets in Second Tier Securities of any one issuer.
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
Municipal Bonds. As discussed in the Prospectus, the two principal
classifications of municipal bonds in which the California Tax-Free Money
Market Fund may invest 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. Assessment bonds, wherein a specially created district or project
area levies a tax (generally on its taxable property) to pay for an improvement
or project may be considered a variant of either category. There are, of
course, other variations in the types of municipal bonds, both within a
particular classification and between classifications, depending on numerous
factors. Some or all of these bonds may be considered "private activity bonds"
for federal income tax purposes.
5
<PAGE> 433
Municipal Notes. The California Tax-Free Money Market Fund may invest in
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. An uncertainty in a municipal issuer's capacity to raise taxes as a
result of such things as a decline in its tax base or a rise in delinquencies
could adversely affect the issuer's ability to meet its obligations on
outstanding TANs. Furthermore, some municipal issuers mix various tax proceeds
into a general fund that is used to meet obligations other than those of the
outstanding TANs. Use of such a general fund to meet various obligations could
affect the likelihood of making payments on TANs.
BANs. The ability of a municipal issuer to meet its obligations on its
BANs is primarily dependent on the issuer's adequate access to the longer term
municipal bond market and the likelihood that the proceeds of such bond sales
will be used to pay the principal of, and interest on, BANs.
RANs. A decline in the receipt of certain revenues, such as anticipated
revenues from another level of government, could adversely affect an issuer's
ability to meet its obligations on outstanding RANs. In addition, the
possibility that the revenues would, when received, be used to meet other
obligations could affect the ability of the issuer to pay the principal of, and
interest on, RANs.
The values of outstanding municipal securities (as well as Money Market
Instruments) will vary as a result of changing market evaluations of the
ability of their issuers to meet the interest and principal payments (i.e.,
credit risk). Such values also will change in response to changes in market
interest rates, including the interest rates payable on new issues of municipal
securities (i.e., market risk). Should such interest rates rise, the values of
outstanding securities such as those held in a Fund's portfolio, will decline
and (if purchased at par value) they would sell at a discount. If such
interest rates fall, the values of outstanding securities will generally
increase and (if purchased at par value) they would sell at a premium. Since
each Fund values its assets at amortized cost and seeks to hold its portfolio
securities until their maturity, changes in the value of municipal or other
securities held in each Fund's portfolio arising from these or other factors
are not expected to cause changes in the net asset value per share of any of
the Funds.
Unrated Investments. Each Fund may purchase instruments that are not
rated if, in the opinion of Wells Fargo Bank as Investment Adviser, such
obligations are Eligible Securities of comparable quality to other rated
investments that are permitted by such Fund, if they are purchased in
accordance with the Fund's procedures adopted by the Company's Board of
Directors in accordance with Rule 2a-7 under the 1940 Act. With respect to the
Money Market Fund and the U.S. Treasury Money Market Fund, the Company's Board
of Directors are required by Rule 2a-7 under the 1940 Act to pre-approve or
ratify purchases of unrated securities.
6
<PAGE> 434
After purchase by any of the Funds, a security may cease to be rated or
its rating may be reduced below the minimum required for purchase by such Fund.
Neither event will require a sale of such security by such Fund provided that,
when a security ceases to be rated, the Company's Board of Directors determines
that such security presents minimal credit risk and, provided further that,
when a security rating is downgraded below the eligible quality for investment
or no longer presents minimal credit risks, the Board finds that the sale of
such security would not be in the Fund's best interest. To the extent the
ratings given by Moody's or S&P may change as a result of changes in such
organizations or their rating systems, the Funds will attempt to use comparable
ratings as standards for investments in accordance with the investment policies
contained in the Prospectus and in this SAI. The ratings of Moody's and S&P
are more fully described in the Appendix to this SAI.
Letters of Credit. The California Tax-Free Money Market Fund and the
Money Market Fund may purchase debt obligations, including municipal securities
(in the case of the California Tax-Free Money Market Fund), certificates of
participation, commercial paper and other short-term obligations, that are
backed by an 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 as Investment Adviser, are of investment quality comparable to
other permitted investments of such Funds may be used for letter of
credit-backed investments.
The California Tax-Free Money Market Fund may engage in the following
investment activity although it has no present intention to do so:
When-Issued Securities. The California Tax-Free Money Market Fund may
purchase securities on a when-issued basis, in which case delivery and payment
normally take place within 45 days after the date of the commitment to
purchase. However, this Fund does not intend to invest more than 5% of its net
assets in when-issued securities. This Fund only will make commitments to
purchase securities on a when-issued basis with the intention of actually
acquiring the securities, but may sell them before the settlement date if it is
deemed advisable. When-issued securities are subject to market fluctuation,
and no income accrues to the purchaser during the period prior to issuance.
The purchase price and the interest rate that will be received on debt
securities are fixed at the time the purchaser enters into the commitment.
Purchasing a security on a when-issued basis can involve a risk that the market
price at the time of delivery may be lower than the agreed upon purchase price,
in which case there could be an unrealized loss at the time of delivery.
The California Tax-Free Money Market Fund will establish a segregated
account in which it will maintain cash, U.S. Government obligations or other
high-quality debt instruments in an amount at least equal in value to its
commitments to purchase when-issued securities. If the value of these assets
declines, the Fund will place additional liquid assets in the account on a
daily basis so that the value of the assets in the account is equal to the
amount of such commitments.
7
<PAGE> 435
Repurchase Agreements. The Funds may enter into repurchase transactions
in which the seller of a security to a Fund agrees to repurchase that security
from such Fund as 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 Funds may enter into repurchase agreements
only with respect to securities that are permissible investments for the Funds.
The U.S. Treasury Money Market Fund may only enter into repurchase agreements
that are fully collateralized by U.S. Treasury securities. All repurchase
agreements will be fully collateralized at 102% based on values that are marked
to market daily. The maturities of the underlying securities in a repurchase
agreement transaction may be greater than twelve months. However, the term of
any repurchase agreement on behalf of a Fund will always be less than twelve
months. If the seller defaults and the value of the underlying securities has
declined, a Fund may incur a loss. In addition, if bankruptcy proceedings
are commenced with respect to the seller of the security, a Fund's
disposition of the security may be delayed or limited.
A Fund may not enter into a repurchase agreement with a maturity of more
than seven days if, as a result, more than 10% of the market value of the
Fund's total net assets would be invested in either repurchase agreements with
maturities of more than seven days and/or illiquid securities and, with respect
to the California Tax-Free Money Market Fund, restricted securities. The Funds
will enter into repurchase agreements only with primary broker/dealers and
commercial banks that meet guidelines established by the Company's Board of
Directors and are not affiliated with the investment adviser. The Funds may
participate in pooled repurchase agreement transactions with other funds
advised by Wells Fargo Bank.
SPECIAL FACTORS AFFECTING THE
CALIFORNIA TAX-FREE MONEY MARKET FUND
Certain California constitutional amendments, legislative measures,
executive orders, civil actions and voter initiatives, as well as the general
financial condition of the state, could adversely affect the ability of issuers
of California municipal obligations to pay interest and principal on such
obligations. The following information constitutes only a brief summary, does
not purport to be a complete description, and is based on information drawn
from official statements relating to securities offerings of the State of
California and various local agencies, available as of the date of this SAI.
While the Company has not independently verified such information, it has no
reason to believe that such information is incorrect in any material respect.
The California Economy and General Information. From mid-1990 to late
1993, the State suffered a recession with the worst economic, fiscal and budget
conditions since the 1930s. Construction, manufacturing (particularly related
to defense), exports and financial services, among others, were all severely
affected. Job losses had been the worst of any post-war recession.
Unemployment reached 10.1% in January 1994, but fell sharply to 7.7% in October
and November 1994, reflecting the state's recovery from the recession.
The recession seriously affected California tax revenues, which basically
mirror economic conditions. It also caused increased expenditures for health
and welfare programs. In addition, the state has been facing a structural
imbalance in its budget with the largest programs
8
<PAGE> 436
supported by the General Fund (e.g., K-12 schools and community colleges--also
known as "K-14 schools," health and welfare, and corrections) growing at rates
higher than the growth rates for the principal revenue sources of the General
Fund. As a result, the state experienced recurring budget deficits in the late
1980s and early 1990s. The state's Controller reported that expenditures
exceeded revenues for four of the five fiscal years ending with 1991-92.
Moreover, California accumulated and sustained a budget deficit in its Special
Fund for Economic Uncertainties ("SFEU") approaching $2.8 billion at its peak at
June 30, 1993.
The accumulated budget deficits during the early 1990's, together with
expenditures for school funding which are not reflected in the state's budget,
and reduction of available internal borrowable funds, combined to significantly
deplete the state's cash resources to pay its ongoing expenses. In order to
meet its cash needs, the state has had to rely for several years on a series of
external borrowings, including borrowings past the end of a fiscal year. Such
borrowings are expected to continue in future fiscal years. To meet its cash
flow needs in the 1995-96 fiscal year, California issued $2 billion of revenue
anticipation warrants which matured on June 28, 1996. Because of the state's
deteriorating budget and cash situation, the rating agencies reduced the
state's credit ratings between October 1991 and July 1994. Moody's Investors
Service lowered its rating from "Aa" to "A1," Standard & Poor's Ratings Group
lowered its rating from "AAA" to "A" and termed its outlook as "stable," and
Fitch Investors Service lowered its rating from "AA" to "A."
However, since the start of 1994, California's economy has been recovering
steadily. Employment has grown in excess of 500,000 during 1994 and 1995, and
is expected to continue to grow in 1996. Because of the improving economy and
the California's fiscal austerity, the state has had operating surpluses for
its past four consecutive fiscal years through 1996-97 and has forecast a
balanced 1996-97 fiscal year budget. In addition, the SFEU was projected to
have a small negative balance of approximately $70 million as of June 30, 1996,
all but eliminating the accumulated budget deficit of the early 1990's, and a
modest reserve of $305 million, as of June 30, 1997. For these and other
reasons, Standard & Poors upgraded its rating of California municipal
obligations back to "A+" on July 30, 1996.
Local Governments. On December 6, 1994, Orange County, California became
the largest municipality in the United States to file for protection under the
Federal Bankruptcy laws. The filing stemmed from approximately $1.7 billion in
losses suffered by the county's investment pool because of investments in high
risk "derivative" securities. In September 1995, California's legislature
approved legislation permitting the county to use for bankruptcy recovery $820
million over 20 years in sales taxes previously earmarked for highways,
transit, and development. In June 1996, the county completed an $880 million
bond offering secured by real property owned by the county. In June 1996, the
county emerged from bankruptcy.
On January 17, 1994, an earthquake of the magnitude of an estimated 6.8 on
the Richter Scale struck Los Angeles County, California causing significant
damage to public and private structures and facilities. While county residents
and businesses suffered losses totaling in the billions of dollars, the overall
effect of the earthquake on the county's and California's economy is not
expected to be serious. However, Los Angeles County is experiencing financial
difficulty due in part to the severe operating deficits for the county's health
care system. In
9
<PAGE> 437
August 1995, the credit rating of the county's long term bonds was downgraded
for the third time since 1992. Although the county has received federal and
state assistance, it is still facing a potential budget gap of approximately $1
billion in the 1996-97 fiscal year. Even though state has no existing
obligations with respect to either Orange County or Los Angeles County, the
state may be required to intervene and provide funding if the counties cannot
maintain certain programs because of insufficient resources.
State Finances. The moneys of California are segregated into the General
Fund and approximately 600 Special Funds. The General Fund consists of the
revenues received by the state's Treasury and not required by law to be
credited to any other fund, as well as earnings from state moneys not allocable
to another fund. The General Fund is the principal operating fund for the
majority of governmental activities and is the depository of most major revenue
sources of the state. The General Fund may be expended as the result of
appropriation measures by California's Legislature and approved by the
Governor, as well as appropriations pursuant to various constitutional
authorizations and initiative statutes.
The SFEU is funded with General Fund revenues and was established to
protect California from unforeseen revenue reductions and/or unanticipated
expenditure increases. Amounts in the SFEU may be transferred by the state's
Controller to meet cash needs of the General Fund. The Controller is required
to return moneys so transferred without payment of interest as soon as there
are sufficient moneys in the General Fund. Any appropriation made from the
SFEU is deemed an appropriation from the General Fund, for budgeting and
accounting purposes. For year-end reporting purposes, the Controller is
required to add the balance in the SFEU to the balance in the General Fund so
as to show the total moneys then available for General Fund purposes.
Inter-fund borrowing has been used for several years to meet temporary
imbalances of receipts and disbursements in the General Fund. As of June 30,
1996, the General Fund had outstanding loans from the SFEU and other Special
Funds of approximately $1.5 billion.
Changes in California Constitutional and Other Laws. In 1978, California
voters approved an amendment to the California Constitution known as
"Proposition 13," which added Article XIIIA to the California Constitution.
Article XIIIA limits ad volorem taxes on real property and restricts the
ability of taxing authorities to increase real property taxes. However,
legislation passed subsequent to Proposition 13 provided for the redistribution
of California's General Fund surplus to local agencies, the reallocation of
revenues to local agencies and the assumption of certain local obligations by
the state so as to assist California municipal issuers to raise revenue to pay
their bond obligations. It is unknown whether additional revenue
redistribution legislation will be enacted in the future and whether, if
enacted, such legislation will provide sufficient revenue for such California
issuers to pay their obligations. California is also subject to another
Constitutional Amendment, Article XIIIB, which may have an adverse impact on
California state and municipal issuers. Article XIIIB restricts the state from
spending certain appropriations in excess of an appropriation's limit imposed
for each state and local government entity. If revenues exceed such
appropriation's limit, such revenues must be returned either as revisions in the
tax rates or fee schedules.
10
<PAGE> 438
In 1988, California voters approved "Proposition 98," which amended
Article XIIIB and Article XVI of the state's Constitution. Proposition 98 (as
modified by "Proposition 111," which was enacted in 1990), changed state
funding of public education below the university level and the operation of the
state's appropriations limit, primarily by guaranteeing K-14 schools a minimum
share of General Fund revenues. In 1986, California voters approved
"Proposition 62," which provided in part that any tax for general governmental
purposes imposed by a local government be approved by a two-thirds vote of the
governmental entity's legislative body and by a majority of its electorate and
that any special tax imposed by a local government be approved by a two-thirds
vote of the electorate. In September 1995, the California Supreme Court upheld
the constitutionality of Proposition 62, creating uncertainty as to the
legality of certain local taxes enacted by nonchartered cities in California
without voter approval.
Other Information. Certain debt obligations held by the California
Tax-Free Money Market Fund may be obligations payable solely from lease
payments on real or personal property leased to the state, cities, counties or
their various public entities. California law provides that a lessor may not
be required to make payments during any period that it is denied use and
occupancy of the property in proportion to such loss. Moreover, the lessor
only agrees to appropriate funding for lease payments in its annual budget for
each fiscal year. In case of a default under the lease, the only remedy
available against the lessor is that of reletting the property; no acceleration
of lease payments is permitted. Each of these factors presents a risk that the
lease financing obligations held by the California Tax-Free Money Market Fund
would not be paid in a timely manner.
Certain debt obligations held by the California Tax-Free Money Market Fund
may be obligations payable solely from the revenues of health care
institutions. The method of reimbursement for indigent care, California's
selective contracting with health care providers for such care and selective
contracting by health insurers for care of its beneficiaries now in effect
under California and federal law may adversely affect these revenues and,
consequently, payment on those debt obligations.
There can be no assurance that general economic difficulties or the
financial circumstances of California or its towns and cities will not
adversely affect the market value of California municipal securities or the
ability of obligors to continue to make payments on such securities.
* * *
The taxable securities market is a broader and more liquid market with a
greater number of investors, issuers and market makers than the market for
municipal securities. The more limited marketability of municipal securities
may make it difficult in certain circumstances to dispose of large investments
advantageously.
MANAGEMENT
The following information supplements and should be read in conjunction
with the section in the Prospectus entitled "Management of the Funds." The
principal occupations during the past five years of the Directors and principal
executive Officer of the Company are listed
11
<PAGE> 439
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 OCCUPATION
NAME, ADDRESS AND AGE POSITION DURING PAST 5 YEARS
- --------------------- -------- -------------------
<S> <C> <C>
Jack S. Euphrat, 74 Director Private Investor.
415 Walsh Road
Atherton, CA 94207
*R. Greg Feltus, 45 Director, Chairman and Senior Vice President of Stephens;
President Manager of Financial Services Group;
President of Stephens Insurance
Services Inc.; Senior Vice President
of Stephens Sports Management Inc.;
and President of Investor Brokerage
Insurance Inc.
Thomas S. Goho, 54 Director T.B. Rose Faculty Fellow Business,
321 Beechcliff Court Wake Forest University Calloway
Winston-Salem, NC 27104 School of Business and Accountancy;
Associate Professor of Finance of the
School of Business and Accounting at
Wake Forest University since 1983.
Joseph N. Hankin, 55 Director President Westchester Community
75 Grasslands Road College since 1971; President of
Valhalla, NY 10595 Hartford Junior College from 1967 to
1971; Adjunct Professor of Columbia
University Teachers College since
1976.
*W. Rodney Hughes, 70 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Robert M. Joses, 78 Director Private Investor.
47 Dowitcher Way
San Rafael, CA 94901
*J. Tucker Morse, 52 Director Private Investor; Real Estate
10 Legrae Street Developer; Chairman of Renaissance
Charleston, SC 29401 Properties Ltd.; President of Morse
Investment Corporation; and
Co-Managing Partner of Main Street
Ventures.
Richard H. Blank, Jr., 40 Chief Operating Associate of Financial Services Group
Officer, Secretary and of Stephens; Director of Stephens
Treasurer Sports Management Inc.; and Director
of Capo Inc.
</TABLE>
12
<PAGE> 440
COMPENSATION TABLE
For the Year Ended December 31, 1996
<TABLE>
<CAPTION>
Aggregate Compensation Total Compensation from
Name and Position from Registrant Registrant and Fund Complex
- ---------------------------- ---------------------- ---------------------------
<S> <C> <C>
Jack S. Euphrat
Director $10,500 $31,500
*R. Greg Feltus
Director 0 0
Thomas S. Goho
Director 10,500 31,500
*Zoe Ann Hines
Director
(resigned September 6, 1996) 0 0
Joseph N. Hankin
Director 500 1,500
*W. Rodney Hughes
Director 8,750 26,250
Robert M. Joses
Director 10,500 31,500
*J. Tucker Morse
Director 8,750 26,250
</TABLE>
Directors of the Company are compensated annually by the Company and by
all the registrants in each fund complex they serve as indicated above and also
are reimbursed for all out-of-pocket expenses relating to attendance at board
meetings. The Company, Stagecoach Funds, Inc., Stagecoach Trust, Life &
Annuity Trust and Master Investment Trust are considered to be members of the
same fund complex as such term is defined in Form N-1A under the 1940 Act (the
"Wells Fargo Fund Complex"). MasterWorks Funds Inc., Master Investment
Portfolio, and Managed Series Investment Trust together form a separate fund
complex (the "BGFA Fund Complex"). Each of the Directors and Officers of the
Company serves in the identical capacity as directors and officers or as
trustees and/or officers of each registered open-end management investment
company in both the Wells Fargo and BGFA Fund Complexes, except for Joseph N.
Hankin, who only serves the aforementioned members of the Wells Fargo Fund
Complex, and Zoe Ann Hines who, after September 6, 1996, only serves the
aforementioned members of the BGFA Fund Complex. The Directors are compensated
by other companies and trusts within a fund complex for their services as
directors/trustees to such companies and trusts. Currently the Directors do
not receive any retirement benefits or deferred compensation from the Company
or any other member of each fund complex.
13
<PAGE> 441
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. Each of the Funds is advised by Wells Fargo Bank.
Wells Fargo Bank furnishes to the Funds investment guidance and policy
direction in connection with the daily portfolio management of the Funds.
Wells Fargo Bank furnishes to the Board of Directors periodic reports on the
investment strategy and performance of each Fund. Wells Fargo Bank has agreed
to provide to the Funds, 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 portfolios of the
Funds.
The chart below illustrates the amounts paid by the Funds to Wells Fargo
Bank in investment advisory fees and the amount Wells Fargo Bank waived of such
fees for the years ended December 31, 1994, 1995 and 1996.
<TABLE>
<CAPTION>
1994 1995 1996
FUND PAID WAIVED PAID WAIVED PAID WAIVED
- ------------------------ ---------- ------- ---------- ------- ------------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
California Tax Free
Money Market $1,493,881 $ 0 $1,330,839 $ 0 $1,571,509 $0
Money Market $ 777,719 $ 0 $1,230,778 $ 0 $2,580,811 $0
US Treasury Money Market $ 258,021 $92,259 $ 562,253 $13,004 $1,004,407 $0
</TABLE>
Each of the Advisory Contracts will continue in effect for more than two
years from their effective date provided the continuance is approved annually
(i) by the holders of a majority of the respective Fund's outstanding voting
securities or by the Company's Board of Directors and (ii) by a majority of the
Directors of the Company who are not parties to the Advisory Contract or
"interested persons" (as defined in the 1940 Act) of any such party. Each of
the Advisory Contracts may be terminated on 60 days' written notice by either
party and will terminate automatically if assigned. Wells Fargo Bank in
entitled to receive monthly fees of 0.45%, 0.25% and 0.25%, respectively, of
the average daily net assets of the California Tax-Free Money Market, Money
Market and U.S. Treasury Money Market Funds.
ADMINISTRATOR AND CO-ADMINISTRATOR . The Company has retained Wells Fargo
Bank as administrator and Stephens as co-administrator on behalf of each Fund.
The Administration Agreement between Wells Fargo and each Fund, and the
Co-Administration Agreement among Wells Fargo Bank, Stephens and each Fund,
state that Wells Fargo Bank and Stephens shall provide as administration
services, among other things: (i) general supervision of the operation of each
Fund, including coordination of the services performed by the Fund's investment
adviser, transfer agent, custodian, shareholder servicing agent(s), independent
public accountants and legal counsel, regulatory compliance, including the
compilation of information for documents such as reports to, and filings with,
the SEC and state securities commissions; and preparation of proxy statements
and shareholder reports for the Fund; and (ii) general supervision relative to
the compilation of data required for the preparation of periodic reports
distributed to the Company's officers and Board of Directors. Wells Fargo Bank
and Stephens also furnish office space and
14
<PAGE> 442
certain facilities required for conducting the business of each Fund together
with ordinary clerical and bookkeeping services. Stephens pays the
compensation of the Company's Directors, officers and employees who are
affiliated with Stephens. The Administrator and Co-Administrator are entitled
to receive a monthly fee of 0.04% and 0.02%, respectively, of the average daily
net assets of each Fund.
For the periods shown, Stephens served as sole administrator to the Funds
and provided the Funds with essentially the same services described above.
Stephens was entitled to receive a monthly fee from each Fund at the annual
rate of 0.10% of the Fund's average daily net assets. The fee decreased for
the California Tax-Free Money Market Fund to 0.05% when such Fund's average
daily net assets exceeded $200 million.
For the years ended December 31, 1994, 1995 and 1996, Stephens received
administration fees as follows:
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- ----------
<S> <C> <C> <C>
California Tax Free Money Market Fund $334,128 $297,191 $ 275,344
Money Market Fund $311,088 $492,311 $1,032,674
US Treasury Money Market Fund $141,170 $230,103 $ 401,763
</TABLE>
SPONSOR AND DISTRIBUTOR. As discussed in each Fund's Prospectus under the
heading "Management of the Funds," Stephens serves as each Fund's sponsor and
distributor. Stephens has entered into a Distribution Agreement with the
Company pursuant to which it has the responsibility of distributing Class A
Shares and Institutional Shares of the Money Market Fund and U.S. Treasury
Money Market Fund, and the single class of the California Tax-Free Money Market
Fund.
CUSTODIAN. Wells Fargo Bank has been retained to act as Custodian for
each Fund. The Custodian, among other things, maintains a custody account or
accounts in the name of each Fund; receives and delivers all assets for each
Fund upon purchase and upon sale or maturity; collects and receives all income
and other payments and distributions on account of the assets of each Fund and
pays all expenses of each Fund. For its services as Custodian, Wells Fargo
Bank receives an asset-based fee and transaction charges from each Fund. For
the year ended December 31, 1996, the California Tax-Free Money Market Fund
paid $63,884 and the Money Market Fund paid $33,764 in custody fees to Wells
Fargo Bank and the US Treasury Money Market Fund did not pay any custody fees.
TRANSFER AND DIVIDEND DISBURSING AGENT. Wells Fargo Bank has been
retained to act as Transfer and Dividend Disbursing Agent for each Fund. For
its services as transfer and dividend disbursing agent to the Funds, Wells
Fargo Bank is entitled to receive monthly payments at the annual rate of 0.10%
of each Fund's average daily net assets attributable to Class A shares (or the
single class of shares of the California Tax-Free Money Market Fund) and 0.02%
of the average daily net assets attributable to Institutional Class shares.
Under the prior transfer agency agreement for the Fund, Wells Fargo Bank was
entitled to receive a base fee and per-account fees
15
<PAGE> 443
paid without regard to class. As of December 31, 1996, the Funds paid transfer
and dividend disbursing agency fees to Wells Fargo Bank, as follows:
<TABLE>
<CAPTION>
1996
----
<S> <C>
California Tax-Free Money Market Fund $49,000
Money Market Fund $44,001
U.S. Treasury Money Market Fund $37,000
</TABLE>
UNDERWRITING COMMISSIONS. For the year ended December 31, 1994, the
aggregate dollar amount of underwriting commissions paid to Stephens on
sales/redemptions of the Company's shares was $1,408,759 and Stephens retained
$1,351,388 of such commissions. WFSI and its registered representatives
received $57,371 of such commissions.
For the year ended December 31, 1995, the aggregate dollar amount of
underwriting commissions paid to Stephens on sales/redemptions of the Company's
shares was $1,478,541 and Stephens retained $1,447,175 of such commissions.
WFSI and its registered representatives received $31,366 of such commissions.
For the year ended December 31, 1996, the aggregate dollar amount of
underwriting commissions paid to Stephens on sales/redemptions of the Company's
shares was $1,777,985 and Stephens retained $195,639 of such commissions. WFSI
and its registered representatives received $255,147 and $1,327,199
respectively of such commissions.
DISTRIBUTION PLANS
As indicated in the Prospectus, the Funds have adopted Distribution Plans
("Plans") under Section 12(b) of the 1940 Act and Rule 12b-1 thereunder. Under
the California Tax-Free Money Market Fund's Plan, the Fund may defray all or
part of the cost of preparing and printing Prospectuses and other promotional
materials and of delivering Prospectuses and those materials to prospective
shareholders of such Fund by paying on an annual basis up to the greater of
$100,000 or 0.05% of the Fund's average daily net assets. The Plans provide
only for the reimbursement of actual expenses.
Pursuant to the Plans for Class A Shares of the Money Market and U.S.
Treasury Money Market Funds each Fund may defray all or part of the actual cost
of preparing and printing prospectuses and other promotional materials and of
providing such prospectuses and other promotional materials to prospective
shareholders of the Fund and may compensate personnel of the distributor or
reimburse the distributor for compensation paid to selling agents for
distribution-related or sales support services and may pay for any other
activities primarily intended to result in the sale of Class A Shares of the
Fund. Payments also may be used primarily intended to result in the sale of
Class A Shares of the Fund. Payments also may be used to compensate or
reimburse servicing agents for shareholder liaison services provided by
entities that are dealers of record or which have a servicing relationship with
the beneficial owners of Class A Shares of these Funds under a servicing
agreement in substantially the form approved by the Board of Directors. Total
payments under the Plans may not exceed 0.25% of the average daily net assets of
the Class A Shares of each Fund on an annual basis.
16
<PAGE> 444
Each of the Plans will continue in effect from year to year thereafter if
such continuance is approved by a majority vote of both the Directors of the
Company and the Qualified Directors. Any Distribution Agreement related to the
Plans also must be approved by such vote of the Directors and the Qualified
Directors. Distribution Agreements will terminate automatically if assigned,
and may be terminated at any time, without payment of any penalty, by a vote of
a majority of the outstanding voting securities of the Fund involved. The
Plans may not be amended to increase materially the amounts payable thereunder
without the approval of a majority of the outstanding voting securities of the
Fund involved, and no material amendment to any of the Plans may be made except
by a majority of both the Directors of the Company and the Qualified Directors.
Each of the Plans requires that the Treasurer of the Company shall provide
to the Directors, and the Directors shall review, at least quarterly, a written
report of the amounts expended (and purposes therefor) under each of the Plans.
Rule 12b-1 also requires that the selection and nomination of Directors who
are not "interested persons" of the Company be made by such disinterested
Directors.
For the year ended December 31, 1996, the Funds' distributor received the
following amounts of 12b-1 fees for the specified purposes set forth below
under each Fund's Plan.
<TABLE>
<CAPTION>
Printing & Mailing Compensation
Fund Total Prospectus Marketing Brochures to Underwriters
- ---- ---------- -------------------- ------------------- ---------------
<S> <C> <C> <C> <C>
California Tax-Free Money
Market $ 5,156 $3,447 $1,709 N/A
Money Market
Class A $1,048,153 N/A N/A $1,048,153
Institutional Class -0- N/A N/A -0-
U.S. Treasury Money Market
Class A $696,968 N/A N/A $ 696,968
Institutional Class -0- N/A N/A -0-
</TABLE>
For the year ended December 31, 1996, WFSI and its registered
representatives received no compensation under each Fund's Plans.
CALCULATION OF YIELD
YIELD. As indicated in the Prospectuses, the Funds may advertise certain
yield information for a class of shares. Current yield for a class of shares
of the Funds will be
17
<PAGE> 445
calculated based on the net changes, exclusive of capital changes, over a
seven-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) with the resulting yield figure carried to at least the nearest
hundredth of one percent. Current tax-equivalent yield for each class of shares
of the California Tax-Free Money Market Fund will be computed by dividing that
portion of the yield of the class of shares of the Fund which is tax-exempt by
one minus a stated income tax rate and adding the product to that portion, if
any, of the yield of the class of shares of the Fund that is not tax-exempt.
Effective yield for the classes of shares of the Funds and effective
tax-equivalent yield for classes of shares of the California Tax-Free Money
Market Fund will be 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, and subtracting one from the
result.
Yield For The Applicable Period Ended December 31, 1996
<TABLE>
<CAPTION>
Seven-Day
Seven-Day Effective
Tax-Equivalent Seven-Day Effective Tax-Equivalent
Fund Seven-Day Yield Yield Yield Yield
- --------------------- --------------- -------------- ------------------- --------------
<S> <C> <C> <C> <C> <C>
California Tax-Free
Money Market(1) 3.34% 6.09% 3.39% 6.19%
Money Market
Class A 4.82% N/A 4.94% N/A
Institutional 5.07% N/A 5.20% N/A
U.S. Treasury Money
Markey
Class 4.32% N/A 4.42% N/A
Institutional 4.57% N/A 4.68% N/A
</TABLE>
(1) Current Tax-Equivalent Yield is based on a 45.2% assumed federal and state
tax rate. Effective Tax-Equivalent Yield is based on a 42.4% assumed
federal and state tax rate.
18
<PAGE> 446
The yield of each class of a Fund will fluctuate from time to time, unlike
bank deposits or other investments that pay a fixed yield for a stated period
of time, and do not provide a basis for determining future yields since they
are based on historical data. Yield is a function of portfolio quality,
composition, maturity and market conditions as well as the expenses allocated
to a particular class of shares.
In addition to the above performance information, the Funds may advertise
average annual total return information. Average annual total return refers to
the average annual compounded rates of return over one-, five-, and ten-year
periods (or the life of Fund, which periods are stated in the advertisement),
and is measured by comparing the value of an investment in a Fund at the
beginning of the relevant period to the redemption value at the end of the
period and annualizing the result, assuming that Fund dividends and capital
gain distributions are reinvested.
Yield information for each class of the Funds may be useful in reviewing
the performance of the Funds and for providing a basis for comparison with
investment alternatives. The yields of each class of the Funds, 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.
OTHER. From time to time and only to the extent the comparison is
appropriate for a Fund, the Company may quote the performance or price-earning
ratio of a class of shares of a Fund in advertising and other types of
literature as compared to the performance of the Lehman Brothers Municipal Bond
Index, 1-Year Treasury Bill Rate, S&P Index, the Dow Jones Industrial Average,
the Lehman Brothers 20+ Treasury Index, the Lehman Brothers 5-7 Year Treasury
Index, Donoghue's Money Fund Averages, Real Estate Investment Averages (as
reported by the National Association of Real Estate Investment Trusts), Gold
Investment Averages (provided by the World Gold Council), Bank Averages (which
is calculated from figures supplied by the U.S. League of Savings Institutions
based on effective annual rates of interest on both passbook and certificate
accounts), average annualized certificate of deposit rates (from the Federal
Reserve G-13 Statistical Releases or the Bank Rate Monitor), the Salomon One
Year Treasury Benchmark Index, the Consumer Price Index (as published by the
U.S. Bureau of Labor Statistics), Ten Year U.S. Government Bond Average, S&P's
Corporate Bond Yield Averages, Schabacter Investment Management Indices,
Salomon Brothers High Grade Bond Index, Lehman Brothers Long-Term High Quality
Government/Corporate Bond Index, other managed or unmanaged indices or
performance data of bonds, stocks or government securities (including data
provided by Ibbotson Associates), or by other services, companies, publications
or persons who monitor mutual funds on overall performance or other criteria.
The S&P Index and the Dow Jones Industrial Average are unmanaged indices of
selected common stock prices. The performance of a class of shares of a Fund
also may be compared to those of other mutual funds having similar objectives.
This comparative performance could be expressed as a ranking prepared by Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc., Bloomberg
Financial Markets or Morningstar, Inc., independent services which monitor the
performance of mutual funds. The performance of a class of shares of a Fund
will be calculated by relating net asset value per share at the beginning of a
stated period to the net asset value of the investment, assuming reinvestment
of all gains
19
<PAGE> 447
distributions and dividends paid, at the end of the period. Any such
comparisons may be useful to investors who wish to compare the past performance
of a class of a Fund with that of its competitors. Of course, past performance
cannot be a guarantee of future results. The Company also may include, from
time to time, a reference to certain marketing approaches of the Distributor,
including, for example, a reference to a potential shareholder being contacted
by a selected broker or dealer. General mutual fund statistics provided by the
Investment Company Institute may also be used.
In addition, the Company also may use, in advertisements and other types
of literature, information and statements: (1) showing that bank savings
accounts offer a guaranteed return of principal and a fixed rate of interest,
but no opportunity for capital growth; and (2) describing Wells Fargo Bank,
and its affiliates and predecessors, as one of the first investment managers to
advise investment accounts using asset allocation and index strategies. The
Company also may include in advertising and other types of literature
information and other data from reports and studies prepared by the Tax
Foundation, including information regarding federal and state tax levels and
the related "Tax Freedom Day."
From time to time the Company may reprint, reference or otherwise use
material from magazines, newsletters, newspapers and books including, but not
limited to the Wall Street Journal, Money Magazine, Barrons, Kiplingers,
Business Week, Fortune, Forbes, the San Francisco Chronicle, the San Jose
Mercury News, The New York Times, the Los Angeles Times, the Boston Globe, the
Washington Post, the Chicago Sun-Times, Investor Business Daily, Worth, Bank
Investor, American Banker, Smart Money, the 100 Best Mutual Funds (Adams
Publishing), Morningstar or Value Line.
The Company also may use the following information in advertisements and
other types of literature, only to the extent the information is appropriate
for a class of shares of a Fund: (i) the Consumer Price Index may be used to
assess the real rate of return from an investment in a class of shares of a
Fund; (ii) other government statistics, including, but not limited to, The
Survey of Current Business, may be used to illustrate investment attributes of
a class of shares of a Fund or the general economic, business, investment, or
financial environment in which Fund operates; (iii) the effect of tax-deferred
compounding on the investment returns of a class of shares of a Fund, or on
returns in general, may be illustrated by graphs, charts, etc., where such
graphs or charts would compare, at various points in time, the return from an
investment in a class of shares of a Fund (or returns in general) on a
tax-deferred basis (assuming reinvestment of capital gains and dividends and
assuming one or more tax rates) with the return on a taxable basis; and (iv)
the sectors or industries in which a Fund invests may be compared to relevant
indices of stocks or surveys (e.g., S&P Industry Surveys) to evaluate a Fund's
historical performance or current or potential value with respect to the
particular industry or sector.
The Company also may discuss in advertising and other types of literature
that one or more of the Funds has been assigned a rating by a nationally
recognized statistical rating organization ("NRSRO"), such as S&P or Moody's.
Such rating would assess the creditworthiness of the investments held by such
Fund. The assigned rating would not be a recommendation to purchase, sell or
hold the Fund's shares since the rating would not comment
20
<PAGE> 448
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 performance of a class of shares of a Fund with other investments
which are assigned ratings by NRSROs. Any such comparisons may be useful to
investors who wish to compare a class' past performance with other rated
investments.
The Company also may disclose, in advertising and other types of
literature, information and statements that Wells Capital Management, Inc.
("WCM" formerly, Wells Fargo Investment Management) a subsidiary of Wells Fargo
Bank, is listed in the top 100 by Institutional Investor magazine in its July
1996 survey "America's Top 300 Money Managers." This survey ranks money
managers in several asset categories. The Company may also disclose in
advertising and other types of sales literature the assets and categories of
assets under management by its investment adviser or sub-adviser and the total
amount of assets and mutual fund assets managed by Wells Fargo Bank. As of
April 1, 1997, Wells Fargo Bank and its affiliates provided investment advisory
services for approximately $57 billion of assets of individuals, trusts,
estates and institutions and $20 billion of mutual fund assets.
The Company may disclose in advertising and other types of literature that
investors can open and maintain Sweep Accounts over the Internet or through
other electronic channels (collectively, "Electronic Channels"). Such
advertising and other literature may discuss the investment options available
to investors, including the types of accounts and any applicable fees. Such
advertising and other literature may disclose that Wells Fargo Bank is the
first major bank to offer an on-line application for a mutual fund account that
can be filled out completely through Electronic Channels. Advertising and
other literature may disclose that Wells Fargo Bank may maintain Web sites,
pages or other information sites accessible through Electronic Channels (an
"Information Site") and may describe the contents and features of the
Information Site and instruct investors on how to access the Information Site
and open a Sweep Account. Advertising and other literature may also disclose
the procedures employed by Wells Fargo Bank to secure information provided by
investors, including disclosure and discussion of the tools and services for
accessing Electronic Channels. Such advertising or other literature may
include discussions of the advantages of establishing and maintaining a Sweep
Account through Electronic Channels and testimonials from Wells Fargo Bank
customers or employees and may also include descriptions of locations where
product demonstrations may occur. The Company may also disclose the ranking of
Wells Fargo Bank as one of the largest money managers in the United States.
DETERMINATION OF NET ASSET VALUE
Net asset value per share for each class of a Fund is determined on each
day the Fund is open for trading.
As indicated under "Determination of Net Asset Value" in the Prospectus,
the Funds use the amortized cost method to determine the value of their
portfolio securities pursuant to Rule 2a-7 under the 1940 Act. The amortized
cost method involves valuing a security at its cost
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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 Funds 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 a Fund's
portfolio on a particular day, a prospective investor in the Fund would be able
to obtain a somewhat higher yield than would result from investment in a fund
using solely market values, and existing Fund 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, each Fund 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 Eligible Securities determined by the Board of Directors 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 Board is required to establish
procedures designed to stabilize, to the extent reasonably possible, each
Fund's price per share as computed for the purpose of sales and redemptions at
$1.00. Such procedures include review of the Funds' portfolio holdings by the
Board of Directors, at such intervals as it may deem appropriate, to determine
whether the Funds' net asset values 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 the Board of Directors. If such deviation
exceeds 1/2 of 1%, the 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.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Funds may be purchased on any day the Funds are open for
business. The Funds are open for business each day the NYSE is open for
trading (a "Business Day"). Currently, 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 weekend, the NYSE typically is closed on the weekday immediately before or
after such Holiday.
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Payment for shares may, in the discretion of the adviser, be made in the
form of securities that are permissible investments for the Funds as described
in the Prospectuses. For further information about this form of payment please
contact Stephens. In connection with an in-kind securities payment, the Funds
will require, among other things, that the securities be valued on the day of
purchase in accordance with the pricing methods used by a Fund and that such
Fund receives satisfactory assurances that (i) it will have good and marketable
title to the securities received by it; (ii) that the securities are in proper
form for transfer to the Fund; and (iii) adequate information will be provided
concerning the basis and other matters relating to the securities.
Under the 1940 Act, the Funds may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the
NYSE is closed (other than customary weekend and holiday closings, or during
which trading is restricted, or during which as determined by the SEC by rule
or regulation) an emergency exists as a result of which disposal or valuation
of portfolio securities is not reasonably practicable, or for such periods as
the SEC may permit.
The Company may suspend redemption rights or postpone redemption payments
for such periods as are permitted under the 1940 Act. The Company may also
redeem shares involuntarily or make payment for redemption in securities or
other property if it appears appropriate to do so in light of the Company's
responsibilities under the 1940 Act.
In addition, the Company may redeem shares involuntarily to reimburse the
Funds for any losses sustained by reason of the failure of a shareholders to
make full payment for shares purchased or to collect any charge relating to a
transaction effected for the benefit of a shareholder which is applicable to
shares of a Fund as provided from time to time in the Prospectus.
PORTFOLIO TRANSACTIONS
Purchases and sales of debt securities generally are principal
transactions. Debt securities normally are purchased or sold from or to
dealers serving as market makers for the securities at a net price. Debt
securities also may be purchased in underwritten offerings and may be purchased
directly from the issuer. Generally, U.S. Government Obligations, municipal
obligations and taxable money market securities are traded on a net basis and
do not involve brokerage commissions. The cost of executing transactions in
debt securities consists primarily of dealer spreads and underwriting
commissions. Under the 1940 Act, persons affiliated with the Company are
prohibited from dealing with the Company as a principal in the purchase and
sale of securities unless an exemptive order allowing such transactions is
obtained from the SEC or an exemption is otherwise available. The Funds may
purchase municipal or other 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 Board of Directors.
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The Company has no obligation to deal with any dealer or group of dealers
in the execution of transactions in portfolio securities. Subject to policies
established by the Company's Board of Directors, Wells Fargo Bank is
responsible for the Funds' investment decisions and the placing of portfolio
transactions. In placing orders, it is the policy of the Company to obtain the
best overall terms taking into account the dealer's general execution and
operational facilities, the type of transaction involved and other factors such
as the dealer's risk in positioning the securities involved. While Wells Fargo
Bank generally seeks reasonably competitive spreads or commissions, the Funds
will not necessarily be paying the lowest spread or commission available.
In assessing the best overall terms available for any transaction, Wells
Fargo Bank considers factors deemed relevant, including the breadth of the
market in the security, the price of the security, the financial condition and
execution capability of the broker or dealer, and the reasonableness of the
commission, if any, both for the specific transaction and on a continuing
basis. Wells Fargo Bank may cause the Funds to pay a broker/dealer which
furnishes brokerage and research services a higher commission than that which
might be charged by another broker/dealer for effecting the same transaction,
provided that Wells Fargo Bank determines in good faith that such commission is
reasonable in relation to the value of the brokerage and research services
provided by such broker/dealer, viewed in terms of either the particular
transaction or the overall responsibilities of Wells Fargo Bank. Such
brokerage and research services might consist of reports and statistics
relating to specific companies or industries, general summaries of groups of
stocks or bonds and their comparative earnings and yields, or broad overviews
of the stock, bond, and government securities markets and the economy.
Supplementary research information so received is in addition to, and not
in lieu of, services required to be performed by Wells Fargo Bank and does not
reduce the advisory fees payable by the Funds. The Board of Directors will
periodically review the commissions paid by the Funds to consider whether the
commissions paid over representative periods of time appear to be reasonable in
relation to the benefits inuring to the Funds. It is possible that certain of
the supplementary research or other services received will primarily benefit
one or more other investment companies or other accounts for which Wells Fargo
Bank exercises investment discretion. Conversely, the Funds may be the primary
beneficiary of the research or services received as a result of portfolio
transactions effected for such other account or investment company.
Under Section 28(e) of the Securities Exchange Act of 1934, an adviser
shall not be "deemed to have acted unlawfully or to have breached its fiduciary
duty" solely because under certain circumstances it has caused the account to
pay a higher commission than the lowest available. To obtain the benefit of
Section 28(e), an adviser must make a good faith determination that the
commissions paid are "reasonable in relation to the value of the brokerage and
research services provided . . . viewed in terms of either that particular
transaction or its overall responsibilities with respect to the accounts as to
which it exercises investment discretion and that the services provided by a
broker provide an adviser with lawful and appropriate assistance in the
performance of its investment decision-making responsibilities." Accordingly,
the price to the Funds in any transaction may be less favorable than that
available from another
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<PAGE> 452
broker/dealer if the difference is reasonably justified by other aspects of the
portfolio execution services offered.
Broker/dealers utilized by Wells Fargo Bank may furnish statistical,
research and other information or services which are deemed by Wells Fargo Bank
to be beneficial to the Funds' investment programs. Research services received
from brokers supplement Wells Fargo Bank's own research and may include the
following types of information: statistical and background information on
industry groups and individual companies; forecasts and interpretations with
respect to U.S. and foreign economies, securities, markets, specific industry
groups and individual companies; information on political developments;
portfolio management strategies; performance information on securities and
information concerning prices of securities; and information supplied by
specialized services to Wells Fargo Bank and to the Company's Directors with
respect to the performance, investment activities and fees and expenses of
other mutual funds. Such information may be communicated electronically,
orally or in written form. Research services may also include the providing of
equipment used to communicate research information, the arranging of meetings
with management of companies and the providing of access to consultants who
supply research information.
The outside research assistance is useful to Wells Fargo Bank since the
brokers utilized by Wells Fargo Bank as a group tend to follow a broader
universe of securities and other matters than the staff of Wells Fargo Bank can
follow. In addition, this research provides Wells Fargo Bank with a diverse
perspective on financial markets. Research services which are provided to
Wells Fargo Bank by brokers are available for the benefit of all accounts
managed or advised by Wells Fargo Bank. It is the opinion of Wells Fargo Bank
that this material is beneficial in supplementing their research and analysis;
and, therefore, it may benefit the Funds by improving the quality of Wells
Fargo Bank's investment advice.
BROKERAGE COMMISSIONS. For the year ended December 31, 1996, the Funds
did not pay any Brokerage Commissions.
SECURITIES OF REGULAR BROKER DEALERS. On December 31, 1996, the Money
Market Fund held debt securities of its "regular brokers or dealers," as
defined in the 1940 Act, or their parents, as follows: $23,500,000 of Goldman
Sachs pooled repurchase agreements.
On December 31, 1996, the U.S. Treasury Money Market Fund and the
California Tax-Free Money Market Fund did not hold any debt securities of their
"regular brokers or dealers," as defined in the 1940 Act, or their parents.
PORTFOLIO TURNOVER. Because the portfolios of the Funds consists of
securities with relatively short-term maturities, the Funds can expect to
experience high portfolio turnover rates. A high portfolio turnover rate
should not adversely affect any of the Funds, however, because portfolio
transactions ordinarily will be made directly with principals on a net basis
and, consequently, the Funds usually will not incur brokerage expenses.
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FUND EXPENSES
Except for the expenses borne by Wells Fargo Bank and Stephens, the
Company bears all costs of its operations, including the compensation of its
Directors who are not affiliated with Stephens or Wells Fargo Bank or any of
their affiliates; advisory, shareholder servicing and administration fees;
payments pursuant to any Plan; interest charges; taxes; fees and expenses of
its independent accountants, legal counsel, transfer agent and dividend
disbursing agent; expenses of redeeming shares; expenses of preparing and
printing prospectuses (except the expense of printing and mailing prospectuses
used for promotional purposes, unless otherwise payable pursuant to a Plan),
shareholders' reports, notices, proxy statements and reports to regulatory
agencies; insurance premiums and certain expenses relating to insurance
coverage; trade association membership dues; brokerage and other expenses
connected with the execution of portfolio transactions; fees and expenses of
its custodian, including those for keeping books and accounts and calculating
the NAV per share of a Fund; expenses of shareholders' meetings; expenses
relating to the issuance, registration and qualification of a Fund's shares;
pricing services, and any extraordinary expenses. Expenses attributable to a
Fund are charged against a Fund assets. General expenses of the Company are
allocated among all of the funds of the Company, including a Fund, in a manner
proportionate to the net assets of each Fund, on a transactional basis, or on
such other basis as the Company's Board of Directors deems equitable.
FEDERAL INCOME TAXES
In General. The following information supplements and should be read in
conjunction with the applicable Prospectus. The applicable Prospectus of the
Funds describes generally the tax treatment of distributions by the Funds
within the section entitled "Taxes." This section of the SAI includes
additional information concerning federal income taxes.
The Company intends to qualify each Fund as a regulated investment company
under Subchapter M of the Code as long as such qualification is in the best
interest of the Fund's shareholders. Each Fund will be treated as a separate
entity for tax purposes and thus the provisions of the Code applicable to
regulated investment companies will generally be applied to each Fund, rather
than to the Company as a whole. In addition, net capital gains, net investment
income, and operating expenses will be determined separately for each Fund.
Qualification as a regulated investment company under the Code requires,
among other things, that (a) each Fund derive at least 90% of its annual gross
income from interest, payments with respect to securities loans, dividends and
gains from the sale or other disposition of securities or options thereon; (b)
each Fund derive less than 30% of its gross income from gains from the sale or
other disposition of securities or options thereon held for less than three
months; and (c) each Fund diversify its holdings so that, at the end of each
quarter of the taxable year, (i) at least 50% of the market value of the Fund's
assets is represented by cash, government securities and other securities
limited in respect of any one issuer to an amount not greater than 5% of the
Fund's assets and 10% of the outstanding voting securities of such issuer, and
(ii) not more than 25% of the value of its assets is invested in the securities
of any one issuer (other than
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U.S. Government securities and the securities of other regulated investment
companies), or in two or more issuers which the Fund controls and which are
determined to be engaged in the same or similar trades or businesses. As a
regulated investment company, each 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, including net tax-exempt income, earned in each
year. Each Fund intends to pay out substantially all of its net investment
income and net realized capital gains (if any) for each year.
A 4% nondeductible excise tax will be imposed on each 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.
Each Fund will either actually or be deemed to distribute substantially all of
its net investment income and net capital gains by the end of each calendar
year and, thus, expects not to be subject to the excise tax.
Federal Income Tax Rates. 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 marginal tax rate applicable to net
capital gains is 28%; the maximum corporate tax rate applicable to ordinary
income and net capital gains is 35% (except that to eliminate the benefit of
lower marginal corporate income tax rates, corporations which have taxable
income in excess of $100,000 for a taxable year will be required to pay an
additional amount of income tax 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 tax of up to $100,000). Naturally, the amount of
tax payable by an individual or corporation will be affected by a combination
of tax laws covering, for example, deductions, credits, deferrals, exemptions,
sources of income and other matters.
Capital Gain Distributions. To the extent that each 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 the shareholders not later than 60 days after the close of the
Fund's taxable year.
Other Distributions. Although dividends will be declared daily based on
each Fund's daily 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. It is expected that the Fund's net income, on an annual basis, will
equal the dividends declared during the year.
Disposition of Fund Shares. If a shareholder receives a designated
capital gain distribution (to be treated by the shareholder as a long-term
capital gain) with respect to any Fund
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share and such Fund share is held for six months or less, then (unless otherwise
disallowed) any loss on the sale or exchange of that Fund share will be treated
as a long-term capital loss to the extent of the designated capital gain
distribution. In addition, 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 exempt-interest dividends received thereon by the shareholder. These
rules shall not apply, however, to losses incurred under a periodic redemption
plan.
If a shareholder exchanges or otherwise disposes of Fund shares within 90
days of having acquired such shares and if, as a result of having acquired
those shares, the shareholder subsequently pays a reduced sales charge on a new
purchase of shares of the Fund or of a different regulated investment company,
the sales charge previously incurred acquiring the Fund's shares shall not be
taken into account (to the extent such previous sales charges do not exceed the
reduction in sales charges on the new purchase) for the purpose of determining
the amount of gain or loss on the disposition, but will be treated as having
been incurred in the acquisition of such other shares. Also, any loss realized
on a redemption or exchange of shares of a Fund will be disallowed to the
extent that substantially identical shares are reacquired within the 61-day
period beginning 30 days before and ending 30 days after the shares are
disposed of.
Taxation of Fund Investments. Gains or losses on sales of portfolio
securities by each Fund will generally be long-term capital gains or losses if
the securities have been held by it for more than one year, except in certain
cases such as where the Fund acquires a put or writes a call thereon. Gains
recognized on the disposition of a debt obligation (including tax-exempt
obligations purchased after April 30, 1993) purchased by a Fund at a market
discount (generally at a price less than its principal amount) will generally
be treated as ordinary income to the extent of the portion of market discount
which accrued during the period of time the Fund held the debt obligation.
Other gains or losses on the sale of portfolio securities will be short-term
capital gains or losses.
Foreign Shareholders. Under the Code, distributions of net investment
income by a Fund to a nonresident alien individual, nonresident alien fiduciary
of a trust or estate, foreign corporation, or foreign partnership (a "foreign
shareholder") will be subject to U.S. withholding tax (at a rate of 30% or a
lower treaty rate). Withholding will not apply if a dividend paid by a 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.
Backup Withholding. The Company may be required to withhold, subject to
certain exemptions, at a rate of 31% ("backup withholding") on dividends,
capital gain distributions, and redemption proceeds (including proceeds from
exchanges) paid or credited to an individual Fund shareholder, unless a
shareholder certifies that the Taxpayer Identification Number ("TIN")
provided is correct and that the shareholder is not subject to backup
withholding, or the IRS notifies the Company that the shareholder's TIN is
incorrect or the shareholder is subject to
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backup withholding. Such tax withheld does not constitute any additional tax
imposed on the shareholder, and may be claimed as a tax payment on the
shareholder's federal income tax return. An investor must provide a valid TIN
upon opening or reopening an account. Failure to furnish a valid TIN to the
Company could subject the investor to penalties imposed by the IRS.
Special Tax Considerations for the California Tax-Free Money Market Fund.
Federal -- The California Tax-Free Money Market Fund intends that at least
50% of the value of its total assets at the close of each quarter of its
taxable years will consist of obligations the interest on which is exempt from
federal income tax, so that they will qualify under the Code to pay
"exempt-interest dividends." The portion of total dividends paid by the Fund
with respect to any taxable year that constitutes exempt-interest dividends
will be the same for all shareholders receiving dividends during such year.
Long-term and/or short-term capital gain distributions will not constitute
exempt-interest dividends and will be taxed as capital gain or ordinary income
dividends, respectively. The exemption of interest income derived from
investments in tax-exempt obligations for federal income tax purposes may not
result in a similar exemption under the laws of a particular state or local
taxing authority. However, see "California" below.
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. Finally, interest on
indebtedness incurred to purchase or carry shares of the Fund will not be
deductible to the extent that the Fund's distributions are exempt from federal
income tax.
In addition, the federal alternative minimum tax ("AMT") rules ensure that
at least a minimum amount of tax is paid by taxpayers who obtain significant
benefit from certain tax deductions and exemptions. Some of these deductions
and exemptions have been designated "tax preference items" which must be added
back to taxable income for purposes of calculating AMT. Among the tax
preference items is tax-exempt interest from "private activity bonds" issued
after August 7, 1986. To the extent that the Fund invests in private activity
bonds, its shareholders who pay AMT will be required to report that portion of
Fund dividends attributable to income from the bonds as a tax preference item
in determining their AMT. Shareholders will be notified of the tax status of
distributions made by the Fund. Persons who may be "substantial users" (or
"related persons" of substantial users) of facilities financed by private
activity bonds should consult their tax advisors before purchasing shares in
the Fund. Furthermore, shareholders will not be permitted to deduct any of
their share of the Fund's expenses in computing their AMT. With respect to a
corporate shareholder of such Funds, exempt-interest dividends paid by a Fund
is included in the corporate shareholder's "adjusted current earnings" as part
of its AMT calculation, and may also affect its federal "environmental tax"
liability. As of the printing of this SAI, individuals are subject to an AMT at
a maximum rate of 28% and corporations at a
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<PAGE> 457
maximum rate of 20%. Shareholders with questions or concerns about AMT should
consult their tax advisors.
Shares of the Fund would not be suitable for tax-exempt institutions and
may not be suitable for retirement plans qualified under Section 401 of the
Code, H.R. 10, plans and IRAs 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.
California -- The California Tax-Free Money Market Fund expects to be
exempt from tax in California on the same basis as under Subchapter M of the
Code as described above. Moreover, if at the close of each quarter of the
Fund's taxable year, at least 50% of the value of its total assets consists of
obligations the interest on which, if such obligations were held by an
individual, would be exempt from California personal income tax (under either
the laws of California or of the United States), the Fund will be entitled to
pay dividends to its shareholders which will be exempt from California personal
income tax (referred to herein as "California exempt-interest dividends").
Under normal market conditions, the Fund will invest primarily in municipal
securities of the State of California, its cities, municipalities and other
political authorities so that it can pay California exempt-interest dividends.
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 which constitutes
California exempt-interest dividends with respect to such taxable year. The
total amount of California exempt-interest dividends paid by the Fund to all of
its shareholders with respect to any taxable year cannot exceed the amount of
interest received by the Fund during such year on California municipal
securities and other obligations the interest on which is tax exempt, less any
expenses or expenditures (including any expenditures attributable to the
acquisition of securities of other investment companies). Dividends paid by
the Fund in excess of this limitation will be treated as ordinary dividends
subject to California personal income tax at ordinary rates.
Long-term and/or short-term capital gain distributions will not constitute
California 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 Fund is not
deductible for California personal income tax purposes to the extent the
shareholder receives California exempt-interest dividends during his or her
taxable year. Exempt-interest dividends will be tax exempt for purposes of the
California personal income tax. For corporate shareholders, dividends will be
subject to the corporate franchise taxes in California.
Other Matters. Investors should be aware that the investments to be made
by a Fund may involve sophisticated tax rules that may result in income or gain
recognition by the Fund without corresponding current cash receipts. Although
each Fund will seek to avoid significant noncash income, such noncash income
could be recognized by the Fund, in which case the Fund may distribute cash
derived from other sources in order to meet the minimum distribution
requirements described above.
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The foregoing discussion and the discussions in the Prospectuses address
only some of the federal tax considerations generally affecting investments in
a Fund. Each investor is urged to consult his or her tax advisor regarding
specific questions as to federal, state or local taxes and foreign taxes.
CAPITAL STOCK
The following information supplements and should be read in conjunction
with the section in the Prospectus entitled "Management of the Funds."
The Money Market Fund and the U.S. Treasury Money Market Fund are
comprised of two classes of shares, Class A shares and Institutional shares.
With respect to matters that affect one class, but not another, the
shareholders vote as a class; for example, the approval of a Plan with respect
to Class A shares. Subject to the foregoing, on any matter submitted to a vote
of shareholders, all shares then entitled to vote will be voted by each Fund
unless otherwise required by the 1940 Act, in which case all shares will be
voted in the aggregate. For example, a change in one of the Funds' fundamental
investment policies would be voted upon only by shareholders of such Fund.
Additionally, approval of each advisory contract is a matter to be determined
separately by each Fund. Approval by the shareholders of one of the Funds is
effective whether or not sufficient votes are received from the shareholders of
any of the other Funds or other investment portfolios of the Company to approve
the proposal as to those Funds or investment portfolios. As used in the
Prospectus and in this SAI, the term "majority," when referring to approvals to
be obtained from shareholders of a class of shares of a Fund means the vote of
the lesser of (i) 67% of the shares of a class of shares represented at a
meeting if the holders of more than 50% of the outstanding shares of such class
are present in person or by proxy, or (ii) more than 50% of the outstanding
class of shares. The term "majority," when referring to the approvals to be
obtained from shareholders of the Company as a whole means the vote of the
lesser of (i) 67% of the Company's shares represented at a meeting if the
holders of more than 50% of the Company's outstanding shares are present in
person or by proxy, or (ii) more than 50% of the Company's outstanding shares.
Shareholders are entitled to one vote for each full share held and fractional
votes for fractional shares held. The Company may dispense with annual meetings
of shareholders in any year in which it is not required to elect Directors
under the 1940 Act.
Each share of a class of a 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 a 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 Fund or 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.
31
<PAGE> 459
Set forth below is the name, address and share ownership of each person
known by the Company to have beneficial or record ownership of 5% or more of a
class of the Fund or 5% or more of the voting securities of the Fund as a
whole.
5% OWNERSHIP AS OF APRIL 1, 1997
<TABLE>
<CAPTION>
CLASS; TYPE PERCENTAGE PERCENTAGE
FUND NAME AND ADDRESS OF OWNERSHIP OF CLASS OF FUND
- ---- ---------------- -------------- ---------- ----------
<S> <C> <C> <C> <C>
California Tax-Free Omnibus Account #2 (Single Class) 27.12% 27.12%
Money Market Fund Stephens Inc. Record
111 Center Street
Little Rock, AR 72201
Wells Fargo Quality Control (Single Class) 59.16% 59.16%
525 Market St., MAC 0103-174 Record
San Francisco, CA 94163
Money Market Fund Wells Fargo Quality Control Class A 60.48% 25.93%
Class A Shares 525 Market St., MAC 0103-174 Record
San Francisco, CA 94163
Omnibus Account #2 Class A 25.88% 11.10%
Stephens Inc. Record
111 Center Street
Little Rock, AR 72201
Omnibus Account #3 Class A 10.55% 4.52%
c/o Stephens Inc. Record
P.O. Box 3507
Little Rock, AR 72203
Money Market Fund NONE
Institutional Class
U.S. Treasury Omnibus Account Class A 21.93% 154.49%
Money Market Fund Stephens Inc. Record
Class A Shares 111 Center Street
Little Rock, AR 72201
Wells Fargo Bank Funds Account Class A 67.43% 47.63%
525 Market St., MAC 0103-174 Record
San Francisco, CA 94163
WFB - Wholesale Sweep Class A 10.20% 7.20%
155 Fifth St, MAC 0106-066 Record
San Francisco, CA 94163
</TABLE>
32
<PAGE> 460
<TABLE>
<CAPTION>
CLASS; TYPE PERCENTAGE PERCENTAGE
FUND NAME AND ADDRESS OF OWNERSHIP OF CLASS OF FUND
- ---- ---------------- ------------------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury Wells Fargo Bank Agent Institutional Class 6.88% 2.02%
Money Market Fund for Orlandi Record
Institutional Class 201 Third Street
11th Floor
San Francisco, CA 94163
Wells Fargo Bank Agent for Institutional Class 7.31% 2.15%
Interink Computer Science Record
201 Third Street
11th Floor
San Francisco, CA 94163
</TABLE>
For purposes of the 1940 Act, any person who owns directly or through one
or more controlled companies more than 25% of the voting securities of a
company is presumed to "control" such company. Accordingly, to the extent that
a shareholder identified in the foregoing table is identified as the beneficial
holder of more than 25% of a class (or Fund), or is identified as the holder of
record of more than 25% of a class (or Fund) and has voting and/or investment
powers, it may be presumed to control such class (or Fund).
OTHER
The Registration Statement, including the 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 Statement, each such statement being qualified in all respects by
such reference. The Annual Reports will be sent free of charge to any
shareholder who requests the SAI.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP has been selected as the independent auditors for
the Company. 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.
33
<PAGE> 461
FINANCIAL INFORMATION
The portfolio of investments, audited financial statements and independent
auditors' reports for the Funds for the year ended December 31, 1996 are hereby
incorporated by reference to the Company's Annual Report as filed with the SEC
on March 11, 1997. The portfolio of investments, audited financial statements
and independent auditors' report are attached to all SAIs delivered to current
or prospective shareholders.
34
<PAGE> 462
APPENDIX
The following is a description of the ratings given by Moody's and S&P to
corporate and municipal bonds, notes and commercial paper.
Bonds
Moody's: The two highest ratings for corporate, state and municipal bonds
are "Aaa" and "Aa." 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. Moody's
applies numerical modifiers: 1, 2 and 3 in the "AA" category 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 two highest ratings for corporate, state and municipal bonds are
"AAA" and "AA." Bonds rated "AAA" have the "highest rating" assigned by S&P and
have an "extremely strong capacity" to pay interest and repay principal. Bonds
rated "AA" have a "very strong capacity" to pay interest and repay principal and
"differ from the highest rated obligations only in small degree." The ratings
in the "AA" category may be modified by the addition of a plus or minus sign to
show relative standing within the category.
Notes
Moody's: The two highest ratings for state and municipal short-term
obligations are "MIG 1" and "MIG 2" (or "VMIG 1" and "VMIG 2" 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."
S&P: The two highest ratings for corporate, state and municipal 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.
Commercial Paper
Moody's: highest rating for corporate, state and municipal commercial
paper is "P-1" (Prime-1). Issuers rated "P-1" have a "superior ability for
repayment of senior short-term debt obligations." Issuers rated "P-2"
(Prime-2) "have a strong capacity for repayment of senior short-term debt
obligations," but earnings trends, while sound, will be subject to more
variation.
S&P: The "A-1" rating for corporate, state and municipal commercial paper
is rated "in the highest category" by S&P and "the obligor's capacity to meet
its financial commitment on the obligation is strong." The "A-1+" rating
indicates that said capacity is "extremely strong." The "A-2" rating indicates
that said capacity is "satisfactory," but that corporate and municipal
commercial paper rated "A-2" is "more susceptible" to the adverse effects of
changes in economic conditions or other circumstances than commercial paper
rated in higher rating categories.
A-1
<PAGE> 463
OVERLAND EXPRESS FUNDS, INC.
FILE NO. 33-16296; 811-8275
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(a) Financial Statements:
The audited financial statements and independent auditors' report
for the fiscal year (or period, as applicable) ended December 31, 1996 for the
Company's California Tax-Free Bond, California Tax-Free Money Market, Index
Allocation (formerly, Asset Allocation), Money Market (Class A), Municipal
Income, Short-Term Government-Corporate Income, Short-Term Municipal Income,
Small Cap Strategy, Strategic Growth, U.S. Government Income, U.S. Treasury
Money Market (Class A) and Variable Rate Government Funds are hereby
incorporated by reference to the Company's Annual Report, as filed with the SEC
on March 11, 1997.
The portfolio of investments, audited financial statements and
independent auditors' report for the fiscal year (or period as applicable)
ended December 31, 1996 for the Capital Appreciation, Short-Term
Government-Corporate Income, Short-Term Municipal Income and Small Cap Master
Portfolios of Master Investment Trust ("MIT") are hereby incorporated by
reference to the Company's Annual Report, as filed with the SEC on March 11,
1997.
The portfolio of investments, audited financial statements and
independent auditors' report for the fiscal year ended December 31, 1996 for
the Company's Overland Sweep Fund and MIT's Cash Investment Trust Master
Portfolio are hereby incorporated by reference to the Company's Annual Report,
as filed with the SEC on March 7, 1997.
The portfolio of investments, audited financial statements and
independent auditors' report for the fiscal year ended December 31, 1996 for
the Company's Money Market Fund (Institutional Class), National Tax-Free
Institutional Money Market Fund, U.S. Treasury Money Market Fund (Institutional
Class) and for MIT's Tax-Free Money Market Master Portfolio are hereby
incorporated by reference to the Company's Annual Report, as filed with the SEC
on March 7, 1997.
(b) Exhibits:
Exhibit
Number Description
1 - Restated Articles of Incorporation, incorporated by
reference to Post-Effective Amendment No. 30 filed
on November 29, 1995.
2 - By-Laws (as amended), filed herewith.
3 - Not Applicable.
4 - Not Applicable.
C-1
<PAGE> 464
5(a)(i) - Amended Advisory Contract on behalf of the Asset
Allocation Fund, filed herewith.
5(a)(ii) - Sub-Advisory Contract with Barclays Global Fund
Advisors on behalf of the Asset Allocation Fund,
filed herewith.
(b) - Advisory Contract on behalf of the U.S. Government
Income Fund, filed herewith.
(c) - Advisory Contract on behalf of the California
Tax-Free Money Market Fund (formerly, the Tax-Free
Money Market Fund), filed herewith.
(d) - Advisory Contract on behalf of the California
Tax-Free Bond Fund, filed herewith.
(e) - Advisory Contract on behalf of the Money Market
Fund, filed herewith.
(f) - Advisory Contract on behalf of the Variable Rate
Government Fund, filed herewith.
(g) - Advisory Contract on behalf of the Municipal Income
Fund, filed herewith.
(h) - Advisory Contract on behalf of the U.S. Treasury
Money Market Fund, filed herewith.
6(a) - Distribution Agreement with Stephens Inc. (as
amended), incorporated by reference to Post-
Effective Amendment No. 18 filed on April 30, 1992.
(b) - Distribution Agreement on behalf of the Overland
Sweep Fund, incorporated by reference to
Post-Effective Amendment No. 14 filed on August 20,
1991.
(c) - Amended and Restated Distribution Agreement with
Stephens Inc., incorporated by reference to
Post-Effective Amendment No. 31 filed on December
18, 1995.
7 - Not Applicable.
8(a) - Custody Agreement with Wells Fargo Bank, N.A. on
behalf of the Asset Allocation Fund, incorporated by
reference to the Registration Statement on Form N-1A
filed on August 5, 1987.
(b) - Custody Agreement with Wells Fargo Bank, N.A. on
behalf of the U.S. Government Income Fund,
incorporated by reference to Post-Effective
Amendment No. 9 filed on February 7, 1991.
(c) - Custody Agreement with Wells Fargo Bank, N.A. on
behalf of the California Tax-Free Money Market Fund,
incorporated by reference to Post-Effective
Amendment No. 9 filed on February 7, 1991.
(d) - Custody Agreement with Wells Fargo Bank, N.A. on
behalf of the California Tax-Free Bond Fund,
incorporated by reference to Post-Effective
Amendment No. 9 filed on February 7, 1991.
C-2
<PAGE> 465
(e) - Custody Agreement with Wells Fargo Bank, N.A. on
behalf of the Money Market Fund, incorporated by
reference to Post-Effective Amendment No. 9 filed on
February 7, 1991.
(f) - Custody Agreement with Wells Fargo Bank, N.A. on
behalf of the Variable Rate Government Fund,
incorporated by reference to Post-Effective
Amendment No. 9 filed on February 7, 1991.
(g) - Custody Agreement with Wells Fargo Bank, N.A. on
behalf of the Municipal Income Fund, incorporated by
reference to Post-Effective Amendment No. 16 filed
on January 17, 1992.
(h) - Custody Agreement with Wells Fargo Bank, N.A. on
behalf of the U.S. Treasury Money Market Fund,
incorporated by reference to Post-Effective
Amendment No. 23 filed on March 2, 1994.
(i) - Custody Agreement with Wells Fargo Bank, N.A. on
behalf of the Strategic Growth Fund, incorporated by
reference to Post-Effective Amendment No. 23 filed
on March 2, 1994.
(j) - Custody Agreement on behalf of the Overland Sweep
Fund, the 1-3 Year Duration Municipal Income Fund,
the 1-3 Year Duration Government Income Fund and the
1-3 Year Duration Full Faith and Credit Government
Income Fund, incorporated by reference to
Post-Effective Amendment No. 30 filed on November
29, 1995.
(k) - Custody Agreement with Wells Fargo Bank, N.A. on
behalf of the National Tax-Free Institutional Money
Market Fund, incorporated by reference to
Post-Effective Amendment No. 33 filed on May 1,
1996.
9(a)(i) - Administration Agreement on behalf of the Asset
Allocation Fund, incorporated by reference to
Pre-Effective Amendment No. 2 filed on April 4,
1988.
(a)(ii) - Administration Agreement on behalf of the U.S.
Government Income Fund, incorporated by reference to
Pre-Effective Amendment No. 2 filed on April 4,
1988.
(a)(iii) - Administration Agreement on behalf of the California
Tax-Free Money Market Fund (as amended),
incorporated by reference to Pre-Effective Amendment
No. 2 filed on April 4, 1988.
(a)(iv) - Administration Agreement on behalf of the California
Tax-Free Bond Fund, incorporated by reference to
Post-Effective Amendment No. 3 filed on October 3,
1988.
(a)(v) - Administration Agreement on behalf of the Money
Market Fund, incorporated by reference to
Post-Effective Amendment No. 6 filed on August 2,
1989.
(a)(vi) - Administration Agreement on behalf of the Variable
Rate Government Fund, incorporated by reference to
Post-Effective Amendment No. 8 filed on August 6,
1990.
(a)(vii) - Administration Agreement on behalf of the Municipal
Income Fund, incorporated by reference to
Post-Effective Amendment No. 16 filed on January 17,
1992.
C-3
<PAGE> 466
(a)(viii) - Administration Agreement on behalf of the Overland
Sweep Fund, Short-Term Municipal Income Fund
(formerly, the 1-3 Year Duration Municipal Income
Fund), 1-3 Year Duration Government Income Fund
(liquidated) and Short-Term Government-Corporate
Income Fund (formerly, the 1-3 Year Duration Full
Faith and Credit Government Income Fund),
incorporated by reference to Post-Effective
Amendment No 30 filed on November 29, 1995.
(a)(ix) - Administration Agreement on behalf of the U.S.
Treasury Money Market Fund, incorporated by
reference to Post-Effective Amendment No. 30 filed
on November 29, 1995.
(a)(x) - Administration Agreement on behalf of the Strategic
Growth Fund, incorporated by reference to
Post-Effective Amendment No. 22 filed on May 28,
1993.
(a)(xi) - Administration Agreement with Stephens Inc. on
behalf of the National Tax-Free Institutional Money
Market Fund, incorporated by reference to
Post-Effective Amendment No. 33 filed on May 1,
1996.
9(b)(i) - Agency Agreement between the Overland Sweep Fund,
the 1-3 Year Duration Municipal Income Fund, the 1-3
Year Duration Government Income Fund, the 1-3 Year
Duration Full Faith and Credit Government Income
Fund and Wells Fargo Bank, N.A., incorporated by
reference to Post- Effective Amendment No. 24 filed
on April 29, 1994.
(b)(ii) - Agency Agreement with Wells Fargo Bank, N.A. on
behalf of the National Tax-Free Institutional Money
Market Fund, incorporated by reference to
Post-Effective Amendment No. 33 filed on May 1,
1996.
(c)(i) - Shareholder Servicing Agreement on behalf of the
Overland Sweep Fund, incorporated by reference to
Post-Effective Amendment No. 22 filed on May 28,
1993.
(c)(ii) - Servicing Agreement on behalf of Class D Shares,
incorporated by reference to Post-Effective
Amendment No. 21 filed on March 3, 1993.
(d)(i) - Servicing Plan on behalf of the Class D Shares of
the Asset Allocation Fund, incorporated by reference
to Post-Effective Amendment No. 22 filed on May 28,
1993.
(d)(ii) - Servicing Plan on behalf of the Class D Shares of
the U.S. Government Income Fund, incorporated by
reference to Post-Effective Amendment No. 22 filed
on May 28, 1993.
(d)(iii) - Servicing Plan on behalf of the Class D Shares of
the California Tax-Free Bond Fund, incorporated by
reference to Post-Effective Amendment No. 22 filed
on May 28, 1993.
(d)(iv) - Servicing Plan on behalf of the Class D Shares of
the Variable Rate Government Fund, incorporated by
reference to Post-Effective Amendment No. 22 filed
on May 28, 1993.
C-4
<PAGE> 467
(d)(v) - Servicing Plan on behalf of the Class D Shares of
the Municipal Income Fund, incorporated by reference
to Post-Effective Amendment No. 22 filed on May 28,
1993.
(d)(vi) - Servicing Plan on behalf of the Class D Shares of
the Strategic Growth Fund, incorporated by reference
to Post-Effective Amendment No. 22 filed on May 28,
1993.
(d)(vii) - Servicing Plan on behalf of the Class D Shares of
the Small Cap Strategy Fund, incorporated by
reference to Post-Effective Amendment No. 34 filed
on July 2, 1996.
10 - Opinion and Consent of Counsel, filed herewith.
11 - Auditors Consent - KPMG Peat Marwick LLP, filed
herewith.
12(a) - None.
13 - Investment Letter, incorporated by reference to
Pre-Effective Amendment No. 2 filed on April 4,
1988.
14 - Not Applicable.
15(a)(i) - Amended Distribution Plan on behalf of the Class A
Shares of the Asset Allocation Fund, incorporated by
reference to Post-Effective Amendment No. 22 filed
on May 28, 1993.
(a)(ii) - Distribution Plan on behalf of the Class D Shares of
the Asset Allocation Fund, incorporated by reference
to Post-Effective Amendment No. 23 filed on March 2,
1994.
(b)(i) - Amended Distribution Plan on behalf of the Class A
Shares of the U.S. Government Income Fund,
incorporated by reference to Post-Effective
Amendment No. 22 filed on May 28, 1993.
(b)(ii) - Distribution Plan on behalf of the Class D Shares of
the U.S. Government Income Fund ,incorporated by
reference to Post-Effective Amendment No. 23 filed
on March 2, 1994.
(c) - Distribution Plan on behalf of the California
Tax-Free Money Market Fund, incorporated by
reference to Pre-Effective Amendment No. 2 filed on
April 4, 1988.
(d)(i) - Amended Distribution Plan on behalf of the Class A
Shares of the California Tax-Free Bond Fund,
incorporated by reference to Post-Effective
Amendment No. 22 filed on May 28, 1993.
(d)(ii) - Distribution Plan on behalf of the Class D Shares of
the California Tax-Free Bond Fund, incorporated by
reference to Post-Effective Amendment No. 23 filed
on March 2, 1994.
(e) - Amended Distribution Plan on behalf of the Class A
Shares of the Money Market Fund, incorporated by
reference to Post-Effective Amendment No. 24 filed
on April 29, 1994.
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<PAGE> 468
(f)(i) - Amended Distribution Plan on behalf of the Class A
Shares of the Variable Rate Government Fund,
incorporated by reference to Post-Effective
Amendment No. 22 filed on May 28, 1993.
(f)(ii) - Distribution Plan on behalf of the Class D Shares of
the Variable Rate Government Fund ,incorporated by
reference to Post-Effective Amendment No. 23 filed
on March 2, 1994.
(g)(i) - Amended Distribution Plan on behalf of the Class A
Shares of the Municipal Income Fund, incorporated by
reference to Post-Effective Amendment No. 22 filed
on May 28, 1993.
(g)(ii) - Distribution Plan on behalf of the Class D Shares of
the Municipal Income Fund, incorporated by reference
to Post-Effective Amendment No. 23 filed on March 2,
1994.
(h) - Distribution Plan on behalf of the Overland Sweep
Fund, incorporated by reference to Post- Effective
Amendment No. 14 filed on August 20, 1991.
(i) - Amended Distribution Plan on behalf of the Class A
Shares of the U.S. Treasury Money Market Fund,
incorporated by reference to Post-Effective
Amendment No. 24 filed on April 29, 1994.
(j)(i) - Amended Distribution Plan on behalf of the Class A
Shares of the Strategic Growth Fund, incorporated by
reference to Post-Effective Amendment No. 22 filed
on May 28, 1993.
(j)(ii) - Distribution Plan on behalf of the Class D Shares of
the Strategic Growth Fund, incorporated by reference
to Post-Effective Amendment No. 23 filed on March 2,
1994.
(k) - Distribution Plan on behalf of the Short-Term
Municipal Income Fund (formerly, the 1-3 Year
Duration Municipal Income Fund), incorporated by
reference to Post-Effective Amendment No. 24 filed
on April 29, 1994.
(l) - Distribution Plan on behalf of the Short-Term
Government-Corporate Income Fund (formerly, the 1-3
Year Duration Full Faith and Credit Government
Income Fund), incorporated by reference to
Post-Effective Amendment No. 24 filed on April 29,
1994.
(m)(i) - Distribution Plan on behalf of the Class A Shares of
the Small Cap Strategy Fund, incorporated by
reference to Post-Effective Amendment No. 34 filed
on July 2, 1996.
(m)(ii) - Distribution Plan on behalf of the Class D Shares of
the Small Cap Strategy Fund, incorporated by
reference to Post-Effective Amendment No. 34 filed
on July 2, 1996.
16(a) - Schedules for Computation of Performance Quotations,
incorporated by reference to Post- Effective
Amendment No. 3 filed on October 3, 1988.
(b) - Schedule of Computation of Performance data,
incorporated by reference to Post-Effective
Amendment No. 21 filed on May 1, 1995.
C-6
<PAGE> 469
17 Powers of Attorney, incorporated by reference to Post-Effective
Amendment No. 14 to the Registration Statement filed on August 20,
1991.
18 Amended Rule 18f-3 Multi-Class Plan, incorporated by reference to
Post-Effective Amendment No. 34 filed on July 2, 1996.
27.1.1 Financial Data Schedule for Class A shares of the Asset Allocation
Fund, filed herewith.
27.1.4 Financial Data Schedule for Class D shares of the Asset Allocation
Fund, filed herewith.
27.2.1 Financial Data Schedule for Class A shares of the U.S. Government
Income Fund, filed herewith.
27.2.4 Financial Data Schedule for Class D shares of the U.S. Government
Income Fund, filed herewith.
27.3 Financial Data Schedule for Class for the California Tax-Free
Money Market Fund, filed herewith.
27.4.1 Financial Data Schedule for Class A for the California Tax-Free
Bond Fund, filed herewith.
27.4.4 Financial Data Schedule for Class D for the California Tax-Free
Bond Fund, filed herewith.
27.5.1 Financial Data Schedule for Class A shares of the Money Market
Fund, filed herewith.
27.5.9 Financial Data Schedule for Institutional Class shares of the
Money Market Fund, filed herewith.
27.6.1 Financial Data Schedule for Class A shares of the Variable Rate
Government Fund, filed herewith.
27.6.4 Financial Data Schedule for Class D shares of the Variable Rate
Government Fund, filed herewith.
27.8.1 Financial Data Schedule for Class A shares of the Municipal Income
Fund, filed herewith.
27.8.4 Financial Data Schedule for Class D shares of the Municipal Income
Fund, filed herewith
27.9 Financial Data Schedule for the Overland Sweep Fund, filed
herewith.
27.10.1 Financial Data Schedule for Class A shares of the U.S. Treasury
Money Market Fund, filed herewith.
27.10.9 Financial Data Schedule for Institutional Class shares of the
U.S. Treasury Money Market Fund, filed herewith.
27.12.1 Financial Data Schedule for Class A shares of the Strategic Growth
Fund, filed herewith.
27.12.4 Financial Data Schedule for Class D shares of the Strategic Growth
Fund, filed herewith.
27.14 Financial Data Schedule for the Short-Term Municipal Income Fund,
filed herewith.
27.16 Financial Data Schedule for the Short-Term Government-Corporate
Income Fund, filed herewith.
27.17 Financial Data Schedule for the National Tax-Free Institutional
Money Market Fund, filed herewith.
27.18.1 Financial Data Schedule for Class A shares of the Small Cap
Strategy Fund, filed herewith.
27.18.4 Financial Data Schedule for Class D shares of the Small Cap
Strategy Fund, filed herewith.
C-7
<PAGE> 470
Item 25. Persons Controlled by or under Common Control with Registrant.
As of April 1, 1997, the National Tax-Free Institutional Money
Market and Strategic Growth Funds owned approximately 68% and 78% of the
outstanding beneficial interests of the Tax-Free Money Market and Capital
Appreciation Master Portfolios, respectively, of Master Investment Trust
("MIT"). As of April 1, 1997 the Overland Sweep, Short-Term Municipal Income
and Short-Term Government-Corporate Income Funds each owned approximately 99%
of the outstanding beneficial interests of the Cash Investment Trust,
Short-Term Municipal Income and Short-Term Government-Corporate Income Master
Portfolios, respectively, of MIT. As such, each Fund could be considered a
"controlling person" (as defined in the 1940 Act) of the corresponding Master
Portfolio.
Item 26. Number of Holders of Securities.
As of April 1, 1997 the number of record holders of each class of
securities of the Registrant was as follows:
<TABLE>
<CAPTION>
Title of Class Number of Record Holders
- -------------- ------------------------
<S> <C>
California Tax-Free Bond Fund
Class A 3,397
Class D 50
California Tax-Free Money Market Fund 142
Index Allocation Fund
Class A 1,198
Class D 688
</TABLE>
C-8
<PAGE> 471
<TABLE>
<S> <C>
Money Market Fund
Class A 171
Class D 24
Institutional Class 642
Municipal Income Fund
Class A 887
Class D 179
National Tax-Free Institutional Money Market Fund 4
Overland Sweep Fund 3
Short-Term Government-Corporate Income Fund 22
Short-Term Municipal Income Fund 34
Small Cap Strategy Fund
Class A 140
Class D 87
Strategic Growth Fund
Class A 4,000
Class D 1,983
U.S. Government Income Fund
Class A 452
Class D 76
U.S. Treasury Money Market Fund
Class A 15
Institutional Class 148
Variable Rate Government Fund
Class A 920
Class D 54
</TABLE>
27. Indemnification.
Section 4 of Article VI of the Registrant's Articles of
Incorporation provides:
To the fullest extent permitted by Maryland statutory or
decisional law, as amended or interpreted, no person who is or was a
director or officer of this Corporation shall be personally liable to
the Corporation or its stockholders for money damages. No amendment of
the charter of the Corporation or repeal of any of its provisions shall
limit or eliminate the benefits provided to any person who is or was a
director or officer under this provision with respect to any act or
omission which occurred prior to such amendment or repeal. The rights
of indemnification under this provision shall neither be exclusive of,
nor be deemed in limitation of, any right to which any person may
otherwise be entitled or permitted by contract or otherwise. This
Section 4 shall not protect any person who is or was a director or
officer of the Corporation against any
C-9
<PAGE> 472
liability to the Corporation or its stockholders to which he or she
would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the
conduct of his or her office.
Item 28. Business and Other Connections of Investment Adviser.
Wells Fargo Bank, N.A. ("Wells Fargo Bank"), a wholly owned
subsidiary of Wells Fargo & Company, serves as investment adviser to all of the
Registrant's investment portfolios, other than the National Tax-Free
Institutional Money Market Fund, Overland Sweep Fund, Short-Term
Government-Corporate Income Fund, Short-Term Municipal Income Fund, Small Cap
Strategy Fund and Strategic Growth Fund, which are feeder funds in
master/feeder structures that do not currently retain an investment adviser,
and to certain other registered open-end management investment companies.
Wells Fargo Bank's business is that of a national banking association with
respect to which it conducts a variety of commercial banking and trust
activities.
To the knowledge of Registrant, none of the directors or executive
officers of Wells Fargo Bank, except those set forth below, is or has been at
any time during the past two fiscal years engaged in any other business,
profession, vocation or employment of a substantial nature, except that certain
executive officers also hold various positions with and engage in business for
Wells Fargo & Company. Set forth below are the names and principal businesses
of the directors and executive officers of Wells Fargo Bank who are or during
the past two fiscal years have been engaged in any other business, profession,
vocation or employment of a substantial nature for their own account or in the
capacity of director, officer, employee, partner or trustee. All the directors
of Wells Fargo Bank also serve as directors of Wells Fargo & Company.
<TABLE>
<CAPTION>
Name and Position Principal Business(00) and Address(es)
at Wells Fargo Bank During at Least the Last Two Fiscal Years
------------------- ------------------------------------------
<S> <C>
H. Jesse Arnelle Senior Partner of Arnelle, Hastie, McGee, Willis, & Greene
Director 455 Market Street
San Francisco, CA 94105
Director of FPL Group, Inc.
700 Universe Blvd.
P.O. Box 14000
North Palm Beach, FL 33408
Michael R. Bowlin Chairman of the Board, Chief Executive Officer, Chief
Operating Officer and President of Atlantic Richfield Co.
(ARCO)
Highway 150
Santa Paula, CA 93060
Edward Carson Chairman of the Board and Chief Executive Officer of
First Interstate Bancorp
633 West Fifth Street
Los Angeles, CA 90071
Director of Aztar Corporation
2390 East Camelback Road
Suite 400
Phoenix, AZ 85016
Director of Castle & Cook, Inc.
10900 Wilshire Blvd.
Los Angeles, CA 90024
Director of Terra Industries, Inc.
1321 Mount Pisgah Road
Walnut Creek, CA 94596
</TABLE>
C-10
<PAGE> 473
<TABLE>
<S> <C>
William S. Davila President and Director of The Vons Companies, Inc.
Director 618 Michillinda Avenue
Arcadia, CA 91007
Officer of Western Association of Food Chains
825 Colorado Blvd. #203
Los Angeles, CA 90041
Rayburn S. Dezember Director of CalMat Co.
Director 3200 San Fernando Road
Los Angeles, CA 90065
Director of Tejon Ranch Co.
P.O. Box 1000
Lebec, CA 93243
Director of Turner Casting Corp.
P.O. Box 1099
Cudahy, CA 90201
Director of The Bakersfield Californian
P.O. Box 440
1707 I Street
Bakersfield, CA 93302
Director of Kern County Economic Development Corp.
P.O. Box 1229
2700 M Street, Suite 225
Bakersfield, CA 93301
Chairman of the Board of Trustees of Whittier College
13406 East Philadelphia Avenue
P.O. Box 634
Whittier, CA 90608
</TABLE>
C-11
<PAGE> 474
<TABLE>
<S> <C>
Paul Hazen Chairman of the Board of Directors
Chairman of the and Chief Executive Officer of
Board of Directors Wells Fargo & Company
420 Montgomery Street
San Francisco, CA 94105
Director of Pacific Telesis Group
130 Kearny Street
San Francisco, CA 94108
Director of Phelps Dodge Corp.
2600 North Central Avenue
Phoenix, AZ 85004
Director of Safeway Inc.
Fourth and Jackson Streets
Oakland, CA 94660
Robert K. Jaedicke Accounting Professor and Dean Emeritus of
Director Graduate School of Business, Stanford University
MBA Admissions Office
Stanford, CA 94305
Director of Homestake Mining Co.
650 California Street
San Francisco, CA 94108
Director of California Water Service Company
1720 North First Street
San Jose, CA 95112
Director of Boise Cascade Corp.
1111 West Jefferson Street
P.O. Box 50
Boise, ID 83728
Director of Enron Corp.
1400 Smith Street
Houston, TX 77002
Director of GenCorp, Inc.
175 Ghent Road
Fairlawn, OH 44333
Thomas L. Lee Chairman and Chief Executive Officer of
The Newhall Land and Farming Company
10302 Avenue 7 1-2
Firebaugh, CA 93622
Director of Calmat Co.
501 El Charro Road
Pleasanton, CA 94588
Director of the Los Angeles Area Chamber
of Commerce
Trustee of the California Institute of
the Arts
Director of First Interstate Bancorp
633 West Fifth Street
Los Angeles, CA 90071
</TABLE>
C-12
<PAGE> 475
<TABLE>
<S> <C>
Ellen M. Newman President of Ellen Newman Associates
Director 323 Geary Street, Suite 507
San Francisco, CA 94102
Chair of Board of Trustees of
University of California at San Francisco Foundation
250 Executive Park Blvd., Suite 2000
San Francisco, CA 94143
Director of American Conservatory Theater
30 Grant Avenue
San Francisco, CA 94108
Director of California Chamber of Commerce
1201 K Street, 12th Floor
Sacramento, CA 95814
Philip J. Quigley Chairman, Chief Executive Officer and
Director Director of Pacific Telesis Group
130 Kearney Street, Rm. 3700
San Francisco, CA 94108
Director of Varian Associates
3050 Hansen Way
P.O. Box 10800
Palo Alto, CA 94303
Carl E. Reichardt Director of Ford Motor Company
Director The American Road
Dearborn, MI 48121
Director of Hospital Corporation of America,
HCA-Hospital Corp. of America
One Park Plaza
Nashville, TN 37203
Director of Pacific Gas and Electric Company
77 Beale Street
San Francisco, CA 94105
Director of Newhall Management Corporation
23823 Valencia Blvd.
Valencia, CA 91355
</TABLE>
C-13
<PAGE> 476
<TABLE>
<S> <C>
Donald B. Rice President, Chief Operating Officer and Director of
Director Teledyne, Inc.
2049 Century Park East
Los Angeles, CA 90067
Director of Vulcan Materials Company
One Metroplex Drive
Birmingham, AL 35209
Retired Secretary of the Air Force
Richard J. Stegemeier Chairman (Emeritus) of Unocal Corp
44141 Yucca Avenue
Lancaster, CA 93534
Director of Foundation Health Corporation
166 4th
Fort Irwin, CA 92310
Director of Halliburton Company
3600 Lincoln Plaza
500 North Alcard Street
Dallas, TX 75201
Director of Northrop Grumman Corp.
1840 Century Park East
Los Angeles, CA 90067
Director of Outboard Marine Corporation
100 SeaHorse Drive
Waukegan, IL 60085
Director of Pacific Enterprises
555 West Fifth Street
Suite 2900
Los Angeles, CA 90031
Director of First Interstate Bancorp
633 West Fifth Street
Los Angeles, CA 90071
Susan G. Swenson President and Chief Executive Officer of Cellular One
Director 651 Gateway Blvd.
San Francisco, CA 94080
David M. Tellep Chairman of the Board and Chief Executive Officer of
Martin Lockheed Corp
6801 Rockledge Drive
Bethesda, MD 20817
Director of Edison International and Southern
California Edison Company
2244 Walnut Grove Ave.
Rosemead, CA 91770
Director of First Interstate Bancorp
633 West Fifth Street
Los Angeles, CA 90071
Chang-Lin Tien Chancellor of University of California at Berkeley
Director UC at Berkeley
Berkeley, CA 94720
John A. Young President, Director and Chief Executive Officer of
Director Hewlett-Packard Company
3000 Hanover Street
Palo Alto, CA 94304
Director of Chevron Corporation
225 Bush Street
San Francisco, CA 94104
William F. Zuendt President and Chief Operating Officer of
President Wells Fargo & Company
420 Montgomery Street
San Francisco, CA 94105
Director of 3Com Corp.
5400 Bayfront Plaza
P.O. Box 58145
Santa Clara, CA 95052
Director of MasterCard International
888 Seventh Avenue
New York, NY 10106
Trustee of Golden Gate University
536 Mission Street
San Francisco, CA 94163
</TABLE>
Barclays Global Fund Advisors ("BGFA"), a wholly-owned subsidiary
of Barclays Global Investors, N.A. ("BGI", formerly Wells Fargo Institutional
Trust Company), serves as sub-adviser to the Index Allocation Fund (formerly,
the Asset Allocation Fund) of the Company and as adviser or sub-adviser to
certain other open-end management investment companies.
C-14
*****************
<PAGE> 477
The directors and officers of BGFA consist primarily of persons
who during the past two years have been active in the investment management
business of the former sub-adviser to the Index Allocation Fund, Wells Fargo
Nikko Investment Advisors ("WFNIA") and, in some cases, the service business of
BGI. With the exception of Irving Cohen, each of the directors and executive
officers of BGFA will also have substantial responsibilities as directors
and/or officers of BGI. To the knowledge of the Registrant, except as set
forth below, none of the directors or executive officers of BGFA is or has been
at any time during the past two fiscal years engaged in any other business,
profession, vocation or employment of a substantial nature.
<TABLE>
<CAPTION>
Name and Position Principal Business(es) During at
at BGFA Least the Last Two Fiscal Years
--------------------- --------------------------------
<S> <C>
Frederick L.A. Grauer Co- Chairman and Director of BGFA/WFNIA and BGI
Co-Chairman and Director 45 Fremont Street, San Francisco, CA 94105
Patricia Dunn Co- Chairman and Director of BGFA/WFNIA and BGI
C-Chairman and Director 45 Fremont Street, San Francisco, CA 94105
Irving Cohen Chief Financial Officer and Chief Operating Officer of Barclays Bank PLC,
Director New York Branch and Chief Operating Officer of Barclays Group, Inc.
(USA); previously, Chief Financial Officer of Barclays de Zoete Wedd
Securities Inc. (1994)
222 Broadway, New York, NY 10038
Andrea M. Zolberti Chief Financial Officer of BGFA and BGI
Chief Financial Officer 45 Fremont Street, San Francisco, CA 94105
</TABLE>
Prior to January 1, 1996, WFNIA served as sub-adviser to the
Index Allocation Fund of the Company and as adviser or sub-adviser to various
other open-end management investment companies. For additional information,
see "Management of the Funds" in the Prospectus describing the Index Allocation
Fund and "Management" in the Statement of Additional Information of such Fund.
For information as to the business, profession, vocation or employment of a
substantial nature of each of the officers and management committees of WFNIA,
reference is made to WFNIA's Form ADV and Schedules A and D filed under the
Investment Advisers Act of 1940, File No. 801-36479, incorporated herein by
reference.
Item 29. Principal Underwriters.
(a) Stephens Inc., distributor for the Registrant, does not
presently act as investment adviser for any other registered investment
companies, but does act as principal underwriter for Stagecoach Funds, Inc.,
MasterWorks Funds Inc. (formerly, Stagecoach Inc.), Stagecoach Trust; Life &
Annuity Trust and is the exclusive placement agent for Master Investment Trust,
Managed Series Investment Trust, and Master Investment Portfolio, which are
registered open- end management investment companies, and has acted as
principal underwriter for Nations Government Income Term Trust 2003, Inc.,
Nations Government Income Term Trust 2004, Inc. and Nations Managed Balanced
Target Maturity Fund, Inc., which are closed-end management investment
companies, and Nations Fund Trust, Nations Fund, Inc., Nations Fund Portfolios,
Inc., Nations LifeGoal Funds, Inc. and Nations Institutional Reserves
(formerly, the Capitol Mutual Funds), which are open-end management investment
companies.
C-15
<PAGE> 478
(b) Information with respect to each director and officer of
the principal underwriter is incorporated by reference to Form ADV and
Schedules A and D filed by Stephens Inc. with the Securities and Exchange
Commission pursuant to The Investment Advisers Act of 1940 (file no.
501-15510).
(c) Not applicable.
Item 30. Location of Accounts and Records.
(a) The Registrant maintains accounts, books and other
documents required by Section 31(a) of the Investment Company Act of 1940 and
the rules thereunder (collectively, "Records") at the offices of Stephens Inc.,
111 Center Street, Little Rock, Arkansas 72201.
(b) Wells Fargo Bank maintains all Records relating to its
services as investment adviser, administrator, and custodian and transfer and
dividend disbursing agent at 525 Market Street, San Francisco, California
94105.
(c) BGFA and BGI maintain all Records relating to their
services as sub-adviser and custodian, respectively, to the Index Allocation
Fund (formerly, the Asset Allocation Fund) at 45 Fremont Street, San Francisco,
California 94105.
(d) Stephens maintains all Records relating to its services as
sponsor, co-administrator and distributor at 111 Center Street, Little Rock,
Arkansas 72201.
Item 31. Management Services.
Other than as set forth under the captions "Management of the
Fund" in the Prospectus constituting Part A of this Registration Statement and
"Management" in the Statement of Additional Information constituting Part B of
this Registration Statement, the Registrant is not a party to any
management-related service contract.
Item 32. Undertakings.
(a) Not Applicable.
(b) Not Applicable.
(c) Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the Registrant
pursuant to the provisions set forth above in response to
Item 27, or otherwise, the registrant has been advised
that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy
as expressed in such Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of
expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection
with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issue.
C-16
<PAGE> 479
(d) Registrant undertakes to hold a special meeting of its
shareholders for the purpose of voting on the question of
removal of a director or directors if requested in writing
by the holders of at least 10% of the Company's
outstanding voting securities, and to assist in
communicating with other shareholders as required by
Section 16(c) of the Investment Company Act of 1940.
(e) Registrant undertakes to furnish each person to whom a
prospectus is delivered with a copy of its most current
annual report to shareholders, upon request and without
charge.
C-17
<PAGE> 480
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Amendment to the Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Amendment to its Registration Statement on Form N-1A to be signed
on its behalf by the undersigned, thereto duly authorized in the City of Little
Rock, State of Arkansas on the 29th day of April, 1997.
OVERLAND EXPRESS FUNDS, INC.
By: /s/ Richard H. Blank, Jr.
----------------------------------
Richard H. Blank, Jr.
Secretary and Treasurer
(Principal Financial Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C> <C>
* Director, Chairman and President
------------------------------------------- (Principal Executive Officer)
(R. Greg Feltus)
/s/ Richard H. Blank, Jr. Secretary and Treasurer
------------------------------------------- (Principal Financial Officer)
(Richard H. Blank, Jr.)
* Director
-------------------------------------------
(Jack S. Euphrat)
* Director
-------------------------------------------
(Thomas S. Goho)
* Director
-------------------------------------------
(Joseph N. Hankin)
* Director
-------------------------------------------
(W. Rodney Hughes)
* Director
-------------------------------------------
(Robert M. Joses)
* Director
-------------------------------------------
(J. Tucker Morse)
Date: April 29, 1997
*By: /s/ Richard H. Blank, Jr.
-----------------------------------------
Richard H. Blank, Jr.
As Attorney-in-Fact
</TABLE>
<PAGE> 481
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Amendment to the Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Amendment to the Registration Statement on Form N-1A to be signed
on its behalf by the undersigned, thereto duly authorized in the City of Little
Rock, State of Arkansas on the 29th day of April, 1997.
MASTER INVESTMENT TRUST
By: /s/ Richard H. Blank, Jr.
-------------------------------------
Richard H. Blank, Jr.
Secretary and Treasurer
(Principal Financial Officer)
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C> <C>
* Chairman, President (Principal
------------------------------------------- Executive Officer) and Trustee
(R. Greg Feltus)
/s/ Richard H. Blank, Jr. Chief Operating Officer,
------------------------------------------- Secretary and Treasurer
(Richard H. Blank, Jr.) (Principal Financial Officer)
* Trustee
-------------------------------------------
(Jack S. Euphrat)
* Trustee
-------------------------------------------
(Thomas S. Goho)
* Trustee
-------------------------------------------
(Joseph N. Hankin)
* Trustee
-------------------------------------------
(W. Rodney Hughes)
* Trustee
-------------------------------------------
(Robert M. Joses)
* Trustee
-------------------------------------------
(J. Tucker Morse)
Date: April 29, 1997
*By: /s/ Richard H. Blank, Jr.
-----------------------------------------
Richard H. Blank, Jr.
As Attorney-in-Fact
</TABLE>
<PAGE> 482
OVERLAND EXPRESS FUNDS, INC.
SEC FILE NOS. 33-16296; 811-8275
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
EX-27.1.1 Financial Data Schedule for Class A shares of the Asset Allocation
Fund.
EX-27.1.4 Financial Data Schedule for Class D shares of the Asset Allocation
Fund.
EX-27.2.1 Financial Data Schedule for Class A shares of the U.S. Government
Income Fund.
EX-27.2.4 Financial Data Schedule for Class D shares of the U.S. Government
Income Fund.
EX-27.3 Financial Data Schedule for Class for the California Tax-Free
Money Market Fund.
EX-27.4.1 Financial Data Schedule for Class A for the California Tax-Free
Bond Fund.
EX-27.4.4 Financial Data Schedule for Class D for the California Tax-Free
Bond Fund.
EX-27.5.1 Financial Data Schedule for Class A shares of the Money Market
Fund.
EX-27.5.9 Financial Data Schedule for Institutional Class shares of the
Money Market Fund.
EX-27.6.1 Financial Data Schedule for Class A shares of the Variable Rate
Government Fund.
EX-27.6.4 Financial Data Schedule for Class D shares of the Variable Rate
Government Fund.
EX-27.8.1 Financial Data Schedule for Class A shares of the Municipal Income
Fund.
EX-27.8.4 Financial Data Schedule for Class D shares of the Municipal Income
Fund.
EX-27.9 Financial Data Schedule for the Overland Sweep Fund.
EX-27.10.1 Financial Data Schedule for Class A shares of the U.S. Treasury
Money Market Fund.
EX-27.10.9 Financial Data Schedule for Institutional Class shares of the
U.S. Treasury Money Market Fund.
EX-27.12.1 Financial Data Schedule for Class A shares of the Strategic Growth
Fund.
EX-27.12.4 Financial Data Schedule for Class D shares of the Strategic Growth
Fund.
EX-27.14 Financial Data Schedule for the Short-Term Municipal Income Fund.
EX-27.16 Financial Data Schedule for the Short-Term Government-Corporate
Income Fund.
EX-27.17 Financial Data Schedule for the National Tax-Free Institutional
Money Market Fund.
EX-27.18.1 Financial Data Schedule for Class A shares of the Small Cap
Strategy Fund.
EX-27.18.4 Financial Data Schedule for Class D shares of the Small Cap
Strategy Fund.
EX-99.B2 o By-Laws (as amended)
EX-99.B5(a)(i) o Amended Advisory Contract on behalf of the Asset Allocation Fund
EX-99.B5(a)(ii) o Sub-Advisory Contract on behalf of the Asset Allocation Fund
EX-99.B5(b) o Advisory Contract on behalf of the U.S. Government Income Fund
EX-99.B5(c) o Advisory Contract on behalf of the California Tax-Free Money Market Fund
EX-99.B5(d) o Advisory Contract on behalf of the California Tax-Free Bond Fund
EX-99.B5(e) o Advisory Contract on behalf of the Money Market Fund
EX-99.B5(f) o Advisory Contract on behalf of the Variable Rate Government Fund
EX-99.B5(g) o Advisory Contract on behalf of the Municipal Income Fund
EX-99.B5(h) o Advisory Contract on behalf of the U.S. Treasury Money Market Fund
EX-99.B10 o Opinion and Consent of Counsel
EX-99.B11 o Auditors' Consent - KPMG Peat Marwick LLP
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> ASSET ALLOCATION FUND CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 71,696,487
<INVESTMENTS-AT-VALUE> 85,368,813
<RECEIVABLES> 374,270
<ASSETS-OTHER> 8,141
<OTHER-ITEMS-ASSETS> 6,686
<TOTAL-ASSETS> 85,757,910
<PAYABLE-FOR-SECURITIES> 13,167
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 736,967
<TOTAL-LIABILITIES> 750,134
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 46,990,292
<SHARES-COMMON-STOCK> 4,312,765
<SHARES-COMMON-PRIOR> 3,778,222
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,358,022
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 13,672,326
<NET-ASSETS> 60,352,650
<DIVIDEND-INCOME> 1,242,394
<INTEREST-INCOME> 1,290,357
<OTHER-INCOME> 0
<EXPENSES-NET> (1,130,327)
<NET-INVESTMENT-INCOME> 14,402,424
<REALIZED-GAINS-CURRENT> 10,067,335
<APPREC-INCREASE-CURRENT> 460,902
<NET-CHANGE-FROM-OPS> 11,930,661
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,128,185)
<DISTRIBUTIONS-OF-GAINS> (6,814,078)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 626,835
<NUMBER-OF-SHARES-REDEEMED> 547,890
<SHARES-REINVESTED> 455,598
<NET-CHANGE-IN-ASSETS> 16,926,149
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 872,044
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 526,417
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,236,385
<AVERAGE-NET-ASSETS> 75,030,000
<PER-SHARE-NAV-BEGIN> 13.76
<PER-SHARE-NII> 0.29
<PER-SHARE-GAIN-APPREC> 2.02
<PER-SHARE-DIVIDEND> (0.29)
<PER-SHARE-DISTRIBUTIONS> (1.79)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.99
<EXPENSE-RATIO> 1.31
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 014
<NAME> ASSET ALLOCATION FUND CLASS D
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 71,696,487
<INVESTMENTS-AT-VALUE> 85,368,813
<RECEIVABLES> 374,270
<ASSETS-OTHER> 8,141
<OTHER-ITEMS-ASSETS> 6,686
<TOTAL-ASSETS> 85,757,910
<PAYABLE-FOR-SECURITIES> 13,167
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 736,967
<TOTAL-LIABILITIES> 750,134
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 22,987,136
<SHARES-COMMON-STOCK> 1,415,178
<SHARES-COMMON-PRIOR> 939,789
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,358,022
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 13,572,326
<NET-ASSETS> 24,655,126
<DIVIDEND-INCOME> 1,242,394
<INTEREST-INCOME> 1,290,357
<OTHER-INCOME> 0
<EXPENSES-NET> (1,130,327)
<NET-INVESTMENT-INCOME> 1,402,424
<REALIZED-GAINS-CURRENT> 10,067,335
<APPREC-INCREASE-CURRENT> 460,902
<NET-CHANGE-FROM-OPS> 11,930,661
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (274,239)
<DISTRIBUTIONS-OF-GAINS> (2,767,279)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 501,829
<NUMBER-OF-SHARES-REDEEMED> 138,443
<SHARES-REINVESTED> 112,003
<NET-CHANGE-IN-ASSETS> 16,926,149
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 872,044
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 526,417
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,236,385
<AVERAGE-NET-ASSETS> 75,030,000
<PER-SHARE-NAV-BEGIN> 17.10
<PER-SHARE-NII> 0.22
<PER-SHARE-GAIN-APPREC> 2.54
<PER-SHARE-DIVIDEND> (0.22)
<PER-SHARE-DISTRIBUTIONS> (2.22)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.42
<EXPENSE-RATIO> 2.05
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 021
<NAME> U.S. GOVERNMENT INCOME FUND CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 78,925,802
<INVESTMENTS-AT-VALUE> 78,925,033
<RECEIVABLES> 8,995,967
<ASSETS-OTHER> 1,666
<OTHER-ITEMS-ASSETS> 11,879
<TOTAL-ASSETS> 87,934,545
<PAYABLE-FOR-SECURITIES> 7,877,500
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 527,929
<TOTAL-LIABILITIES> 8,405,429
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 78,754,184
<SHARES-COMMON-STOCK> 7,630,851
<SHARES-COMMON-PRIOR> 2,825,738
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,448,723)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (769)
<NET-ASSETS> 77,239,280
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,021,001
<OTHER-INCOME> 0
<EXPENSES-NET> (404,574)
<NET-INVESTMENT-INCOME> 2,616,427
<REALIZED-GAINS-CURRENT> (499,201)
<APPREC-INCREASE-CURRENT> (979,155)
<NET-CHANGE-FROM-OPS> 1,138,071
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,481,512)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,055,576
<NUMBER-OF-SHARES-REDEEMED> 1,358,313
<SHARES-REINVESTED> 107,850
<NET-CHANGE-IN-ASSETS> 46,265,260
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (1,949,521)
<OVERDISTRIB-NII-PRIOR> (12,644)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 213,617
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 591,947
<AVERAGE-NET-ASSETS> 45,354,000
<PER-SHARE-NAV-BEGIN> 10.78
<PER-SHARE-NII> 0.63
<PER-SHARE-GAIN-APPREC> (0.66)
<PER-SHARE-DIVIDEND> (0.63)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.12
<EXPENSE-RATIO> 0.89
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 024
<NAME> U.S. GOVERNMENT INCOME FUND CLASS D
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 78,925,802
<INVESTMENTS-AT-VALUE> 78,925,033
<RECEIVABLES> 8,995,967
<ASSETS-OTHER> 1,666
<OTHER-ITEMS-ASSETS> 11,879
<TOTAL-ASSETS> 87,934,545
<PAYABLE-FOR-SECURITIES> 7,877,500
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 527,929
<TOTAL-LIABILITIES> 8,405,429
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,224,424
<SHARES-COMMON-STOCK> 165,503
<SHARES-COMMON-PRIOR> 189,435
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,448,723)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (769)
<NET-ASSETS> 2,289,836
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,021,001
<OTHER-INCOME> 0
<EXPENSES-NET> (404,574)
<NET-INVESTMENT-INCOME> 2,616,427
<REALIZED-GAINS-CURRENT> (499,201)
<APPREC-INCREASE-CURRENT> (979,155)
<NET-CHANGE-FROM-OPS> 1,138,071
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (134,915)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 25,817
<NUMBER-OF-SHARES-REDEEMED> 55,042
<SHARES-REINVESTED> 5,293
<NET-CHANGE-IN-ASSETS> 46,265,260
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (1,949,521)
<OVERDISTRIB-NII-PRIOR> (12,644)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 213,617
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 591,947
<AVERAGE-NET-ASSETS> 43,354,000
<PER-SHARE-NAV-BEGIN> 14.74
<PER-SHARE-NII> 0.77
<PER-SHARE-GAIN-APPREC> (0.90)
<PER-SHARE-DIVIDEND> (0.77)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.84
<EXPENSE-RATIO> 1.62
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 03
<NAME> CALIFORNIA TAX-FREE MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 387,900,439
<INVESTMENTS-AT-VALUE> 387,900,439
<RECEIVABLES> 2,970,358
<ASSETS-OTHER> 2,038,373
<OTHER-ITEMS-ASSETS> 634
<TOTAL-ASSETS> 392,909,804
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,622,830
<TOTAL-LIABILITIES> 1,622,830
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 391,345,891
<SHARES-COMMON-STOCK> 391,345,199
<SHARES-COMMON-PRIOR> 355,939,965
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (58,917)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 391,286,974
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 11,930,401
<OTHER-INCOME> 0
<EXPENSES-NET> (2,187,670)
<NET-INVESTMENT-INCOME> 9,742,731
<REALIZED-GAINS-CURRENT> 13,211
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 9,755,942
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (9,742,731)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 989,271,083
<NUMBER-OF-SHARES-REDEEMED> 957,297,441
<SHARES-REINVESTED> 3,431,592
<NET-CHANGE-IN-ASSETS> 35,419,141
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (72,128)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,571,509
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,188,133
<AVERAGE-NET-ASSETS> 350,591,000
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.63
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 041
<NAME> CALIFORNIA TAX-FREE BOND FUND CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 235,420,333
<INVESTMENTS-AT-VALUE> 243,421,782
<RECEIVABLES> 4,073,257
<ASSETS-OTHER> 1,391
<OTHER-ITEMS-ASSETS> 185,811
<TOTAL-ASSETS> 247,682,241
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,472,712
<TOTAL-LIABILITIES> 1,472,712
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 230,531,720
<SHARES-COMMON-STOCK> 22,844,914
<SHARES-COMMON-PRIOR> 24,749,623
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 294,260
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8,001,449
<NET-ASSETS> 239,703,322
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 14,893,768
<OTHER-INCOME> 0
<EXPENSES-NET> (1,885,045)
<NET-INVESTMENT-INCOME> 13,008,723
<REALIZED-GAINS-CURRENT> 3,630,526
<APPREC-INCREASE-CURRENT> (6,951,220)
<NET-CHANGE-FROM-OPS> 9,688,029
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (12,719,724)
<DISTRIBUTIONS-OF-GAINS> (3,536,604)
<DISTRIBUTIONS-OTHER> (1,650,016)
<NUMBER-OF-SHARES-SOLD> 1,083,239
<NUMBER-OF-SHARES-REDEEMED> 3,924,454
<SHARES-REINVESTED> 935,506
<NET-CHANGE-IN-ASSETS> (29,205,271)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,994,546
<OVERDISTRIB-NII-PRIOR> (15,018)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,276,667
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,160,979
<AVERAGE-NET-ASSETS> 256,167,000
<PER-SHARE-NAV-BEGIN> 10.84
<PER-SHARE-NII> 0.54
<PER-SHARE-GAIN-APPREC> (0.12)
<PER-SHARE-DIVIDEND> (0.54)
<PER-SHARE-DISTRIBUTIONS> (0.23)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.49
<EXPENSE-RATIO> 0.71
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 044
<NAME> CALIFORNIA TAX-FREE BOND FUND CLASS D
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 235,420,333
<INVESTMENTS-AT-VALUE> 243,421,782
<RECEIVABLES> 4,073,257
<ASSETS-OTHER> 1,391
<OTHER-ITEMS-ASSETS> 185,811
<TOTAL-ASSETS> 247,682,241
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,472,712
<TOTAL-LIABILITIES> 1,472,712
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7,382,100
<SHARES-COMMON-STOCK> 474,921
<SHARES-COMMON-PRIOR> 498,931
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 294,260
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8,001,449
<NET-ASSETS> 6,506,207
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 14,893,768
<OTHER-INCOME> 0
<EXPENSES-NET> (1,885,045)
<NET-INVESTMENT-INCOME> 13,008,723
<REALIZED-GAINS-CURRENT> 3,630,526
<APPREC-INCREASE-CURRENT> (6,951,220)
<NET-CHANGE-FROM-OPS> 9,688,029
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (288,999)
<DISTRIBUTIONS-OF-GAINS> (93,922)
<DISTRIBUTIONS-OTHER> (50,270)
<NUMBER-OF-SHARES-SOLD> 115,559
<NUMBER-OF-SHARES-REDEEMED> 154,787
<SHARES-REINVESTED> 15,218
<NET-CHANGE-IN-ASSETS> (29,205,271)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,994,546
<OVERDISTRIB-NII-PRIOR> (15,018)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,276,667
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,160,979
<AVERAGE-NET-ASSETS> 256,167,000
<PER-SHARE-NAV-BEGIN> 14.16
<PER-SHARE-NII> 0.60
<PER-SHARE-GAIN-APPREC> (0.16)
<PER-SHARE-DIVIDEND> (0.60)
<PER-SHARE-DISTRIBUTIONS> (0.30)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.70
<EXPENSE-RATIO> 1.46
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 051
<NAME> MONEY MARKET FUND CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 1,141,443,424
<INVESTMENTS-AT-VALUE> 1,141,443,324
<RECEIVABLES> 2,734,100
<ASSETS-OTHER> 301,525
<OTHER-ITEMS-ASSETS> 79,852
<TOTAL-ASSETS> 1,144,558,801
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,939,332
<TOTAL-LIABILITIES> 5,939,332
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 384,607,576
<SHARES-COMMON-STOCK> 384,605,312
<SHARES-COMMON-PRIOR> 375,364,023
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (78,261)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 384,527,005
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 56,188,687
<OTHER-INCOME> 0
<EXPENSES-NET> (5,172,900)
<NET-INVESTMENT-INCOME> 51,015,787
<REALIZED-GAINS-CURRENT> 115,019
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 51,130,806
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (20,095,416)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,266,030,281
<NUMBER-OF-SHARES-REDEEMED> 2,265,443,706
<SHARES-REINVESTED> 8,654,713
<NET-CHANGE-IN-ASSETS> 439,226,293
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (193,280)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,580,811
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,316,894
<AVERAGE-NET-ASSETS> 1,034,059,000
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 059
<NAME> MONEY MARKET FUND INSTITUTIONAL CLASS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 1,141,443,324
<INVESTMENTS-AT-VALUE> 1,141,443,324
<RECEIVABLES> 2,734,100
<ASSETS-OTHER> 301,525
<OTHER-ITEMS-ASSETS> 79,852
<TOTAL-ASSETS> 1,144,558,801
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,939,332
<TOTAL-LIABILITIES> 5,939,332
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 754,090,154
<SHARES-COMMON-STOCK> 754,092,376
<SHARES-COMMON-PRIOR> 324,222,390
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (78,261)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 754,092,464
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 56,188,687
<OTHER-INCOME> 0
<EXPENSES-NET> (5,172,900)
<NET-INVESTMENT-INCOME> 51,015,787
<REALIZED-GAINS-CURRENT> 115,019
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 51,130,806
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (30,920,371)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,542,261,944
<NUMBER-OF-SHARES-REDEEMED> 2,138,796,870
<SHARES-REINVESTED> 26,404,912
<NET-CHANGE-IN-ASSETS> 439,226,293
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (193,280)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,580,811
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,316,894
<AVERAGE-NET-ASSETS> 1,034,059,000
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 061
<NAME> VARIABLE RATE GOVERNMENT CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 391,300,616
<INVESTMENTS-AT-VALUE> 392,981,298
<RECEIVABLES> 8,493,082
<ASSETS-OTHER> 504,345
<OTHER-ITEMS-ASSETS> 24,784
<TOTAL-ASSETS> 402,003,509
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,539,639
<TOTAL-LIABILITIES> 2,539,639
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 537,104,950
<SHARES-COMMON-STOCK> 42,589,355
<SHARES-COMMON-PRIOR> 69,952,079
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (145,837,154)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,680,682
<NET-ASSETS> 393,948,015
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 33,620,695
<OTHER-INCOME> 0
<EXPENSES-NET> (4,781,841)
<NET-INVESTMENT-INCOME> 28,838,854
<REALIZED-GAINS-CURRENT> (4,577,544)
<APPREC-INCREASE-CURRENT> (1,951,636)
<NET-CHANGE-FROM-OPS> 22,309,674
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (26,355,616)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (2,128,910)
<NUMBER-OF-SHARES-SOLD> 1,440,106
<NUMBER-OF-SHARES-REDEEMED> 29,451,100
<SHARES-REINVESTED> 648,270
<NET-CHANGE-IN-ASSETS> (262,163,035)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (152,047,368)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,696,450
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,339,883
<AVERAGE-NET-ASSETS> 538,373,000
<PER-SHARE-NAV-BEGIN> 9.35
<PER-SHARE-NII> 0.50
<PER-SHARE-GAIN-APPREC> (0.10)
<PER-SHARE-DIVIDEND> (0.46)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> (0.04)
<PER-SHARE-NAV-END> 9.25
<EXPENSE-RATIO> 0.88
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 064
<NAME> VARIABLE RATE GOVERNMENT CLASS D
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 391,300,616
<INVESTMENTS-AT-VALUE> 392,981,298
<RECEIVABLES> 8,493,082
<ASSETS-OTHER> 504,345
<OTHER-ITEMS-ASSETS> 24,784
<TOTAL-ASSETS> 402,003,509
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,539,639
<TOTAL-LIABILITIES> 2,539,639
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6,515,392
<SHARES-COMMON-STOCK> 398,932
<SHARES-COMMON-PRIOR> 553,192
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (145,837,154)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,680,682
<NET-ASSETS> 5,515,855
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 33,620,695
<OTHER-INCOME> 0
<EXPENSES-NET> (4,781,841)
<NET-INVESTMENT-INCOME> 28,838,854
<REALIZED-GAINS-CURRENT> (4,577,544)
<APPREC-INCREASE-CURRENT> (1,951,636)
<NET-CHANGE-FROM-OPS> 22,309,674
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (327,816)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (26,512)
<NUMBER-OF-SHARES-SOLD> 5,964,908
<NUMBER-OF-SHARES-REDEEMED> 6,132,463
<SHARES-REINVESTED> 13,296
<NET-CHANGE-IN-ASSETS> (262,163,035)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (152,047,368)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,696,450
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,339,883
<AVERAGE-NET-ASSETS> 538,373,000
<PER-SHARE-NAV-BEGIN> 13.97
<PER-SHARE-NII> 0.68
<PER-SHARE-GAIN-APPREC> (0.14)
<PER-SHARE-DIVIDEND> (0.63)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> (0.05)
<PER-SHARE-NAV-END> 13.83
<EXPENSE-RATIO> 1.38
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 081
<NAME> MUNICIPAL INCOME FUND CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 51,688,227
<INVESTMENTS-AT-VALUE> 54,066,726
<RECEIVABLES> 855,846
<ASSETS-OTHER> 1,923
<OTHER-ITEMS-ASSETS> 5,867
<TOTAL-ASSETS> 54,930,362
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 851,233
<TOTAL-LIABILITIES> 851,233
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 44,922,766
<SHARES-COMMON-STOCK> 4,134,833
<SHARES-COMMON-PRIOR> 5,347,075
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (4,004,031)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,378,499
<NET-ASSETS> 44,326,308
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,897,301
<OTHER-INCOME> 0
<EXPENSES-NET> (569,967)
<NET-INVESTMENT-INCOME> 3,327,334
<REALIZED-GAINS-CURRENT> (245,237)
<APPREC-INCREASE-CURRENT> (1,169,068)
<NET-CHANGE-FROM-OPS> 1,913,029
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,799,470)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 181,822
<NUMBER-OF-SHARES-REDEEMED> 1,514,411
<SHARES-REINVESTED> 120,347
<NET-CHANGE-IN-ASSETS> (16,631,379)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (3,758,794)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 309,847
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 860,265
<AVERAGE-NET-ASSETS> 62,958,000
<PER-SHARE-NAV-BEGIN> 10.93
<PER-SHARE-NII> 0.57
<PER-SHARE-GAIN-APPREC> (0.21)
<PER-SHARE-DIVIDEND> (0.57)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.72
<EXPENSE-RATIO> 0.80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 084
<NAME> MUNICIPAL INCOME FUND CLASS D
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 51,688,227
<INVESTMENTS-AT-VALUE> 54,066,726
<RECEIVABLES> 855,846
<ASSETS-OTHER> 1,923
<OTHER-ITEMS-ASSETS> 5,867
<TOTAL-ASSETS> 54,930,362
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 851,233
<TOTAL-LIABILITIES> 851,233
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 10,781,895
<SHARES-COMMON-STOCK> 671,800
<SHARES-COMMON-PRIOR> 829,082
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (4,004,031)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,378,499
<NET-ASSETS> 9,752,821
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,897,301
<OTHER-INCOME> 0
<EXPENSES-NET> (569,967)
<NET-INVESTMENT-INCOME> 3,327,334
<REALIZED-GAINS-CURRENT> (245,237)
<APPREC-INCREASE-CURRENT> (1,169,068)
<NET-CHANGE-FROM-OPS> 1,913,029
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (527,864)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 57,300
<NUMBER-OF-SHARES-REDEEMED> 226,734
<SHARES-REINVESTED> 12,152
<NET-CHANGE-IN-ASSETS> (16,631,379)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (3,758,794)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 309,847
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 860,265
<AVERAGE-NET-ASSETS> 62,958,000
<PER-SHARE-NAV-BEGIN> 14.80
<PER-SHARE-NII> 0.69
<PER-SHARE-GAIN-APPREC> (0.28)
<PER-SHARE-DIVIDEND> (0.69)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.52
<EXPENSE-RATIO> 1.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 09
<NAME> OVERLAND SWEEP FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 2,002,862,594
<INVESTMENTS-AT-VALUE> 2,002,862,594
<RECEIVABLES> 7,936,602
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,010,799,196
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 8,073,791
<TOTAL-LIABILITIES> 8,073,791
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,002,862,594
<SHARES-COMMON-STOCK> 2,003,291,525
<SHARES-COMMON-PRIOR> 1,209,183,101
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 2,02,725,405
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 68,375,502
<EXPENSES-NET> (12,461,985)
<NET-INVESTMENT-INCOME> 55,913,517
<REALIZED-GAINS-CURRENT> 136,401
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 56,049,918
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (55,913,517)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,856,835,054
<NUMBER-OF-SHARES-REDEEMED> 4,062,731,553
<SHARES-REINVESTED> 4,923
<NET-CHANGE-IN-ASSETS> 793,542,304
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 12,480,487
<AVERAGE-NET-ASSETS> 1,327,831,000
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.04)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 1.24
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 101
<NAME> U.S. TREASURY MONEY MARKET FUND CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 430,345,788
<INVESTMENTS-AT-VALUE> 430,345,788
<RECEIVABLES> 195,163
<ASSETS-OTHER> 6,178,453
<OTHER-ITEMS-ASSETS> 22,329
<TOTAL-ASSETS> 436,741,733
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,118,182
<TOTAL-LIABILITIES> 2,118,182
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 277,803,925
<SHARES-COMMON-STOCK> 277,807,288
<SHARES-COMMON-PRIOR> 198,782,464
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 39,724
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 277,815,962
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 20,555,308
<OTHER-INCOME> 0
<EXPENSES-NET> (2,262,509)
<NET-INVESTMENT-INCOME> 18,292,799
<REALIZED-GAINS-CURRENT> 89,127
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 18,381,926
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (12,422,629)
<DISTRIBUTIONS-OF-GAINS> (15,959)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,168,619,388
<NUMBER-OF-SHARES-REDEEMED> 2,093,452,821
<SHARES-REINVESTED> 3,858,257
<NET-CHANGE-IN-ASSETS> 172,737,190
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (25,823)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,004,407
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,476,094
<AVERAGE-NET-ASSETS> 399,507,000
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 109
<NAME> U.S. TREASURY MONEY MARKET FUND INSTITUTIONAL CLASS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 430,345,788
<INVESTMENTS-AT-VALUE> 430,345,788
<RECEIVABLES> 195,163
<ASSETS-OTHER> 6,178,453
<OTHER-ITEMS-ASSETS> 22,329
<TOTAL-ASSETS> 436,741,733
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,118,182
<TOTAL-LIABILITIES> 2,118,182
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 156,779,902
<SHARES-COMMON-STOCK> 156,779,902
<SHARES-COMMON-PRIOR> 63,129,720
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 39,724
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 156,807,589
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 20,555,308
<OTHER-INCOME> 0
<EXPENSES-NET> (2,262,509)
<NET-INVESTMENT-INCOME> 18,292,799
<REALIZED-GAINS-CURRENT> 89,127
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 18,381,926
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (5,870,170)
<DISTRIBUTIONS-OF-GAINS> (7,621)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 515,834,680
<NUMBER-OF-SHARES-REDEEMED> 427,392,856
<SHARES-REINVESTED> 5,208,358
<NET-CHANGE-IN-ASSETS> 172,737,190
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (25,823)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,004,407
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,476,094
<AVERAGE-NET-ASSETS> 399,507,000
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 121
<NAME> STRATEGIC GROWTH FUND CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 180,236,520
<INVESTMENTS-AT-VALUE> 186,959,089
<RECEIVABLES> 12,621
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 48,103
<TOTAL-ASSETS> 187,019,813
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 730,117
<TOTAL-LIABILITIES> 730,117
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 117,318,177
<SHARES-COMMON-STOCK> 7,124,331
<SHARES-COMMON-PRIOR> 3,508,125
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 13,580,859
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6,722,569
<NET-ASSETS> 131,226,263
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> (177,870)
<EXPENSES-NET> (1,273,015)
<NET-INVESTMENT-INCOME> (1,450,885)
<REALIZED-GAINS-CURRENT> 12,997,935
<APPREC-INCREASE-CURRENT> (4,523,410)
<NET-CHANGE-FROM-OPS> 7,023,640
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (941,378)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,224,812
<NUMBER-OF-SHARES-REDEEMED> 4,647,225
<SHARES-REINVESTED> 38,619
<NET-CHANGE-IN-ASSETS> 100,947,226
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,940,229
<OVERDISTRIB-NII-PRIOR> (1,105,810)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 59,742
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,312,168
<AVERAGE-NET-ASSETS> 135,683,000
<PER-SHARE-NAV-BEGIN> 16.82
<PER-SHARE-NII> (0.03)
<PER-SHARE-GAIN-APPREC> 1.77
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.14)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.42
<EXPENSE-RATIO> 1.24
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 124
<NAME> STRATEGIC GROWTH FUND CLASS D
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 180,236,520
<INVESTMENTS-AT-VALUE> 186,959,089
<RECEIVABLES> 12,621
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 48,103
<TOTAL-ASSETS> 187,019,813
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 730,117
<TOTAL-LIABILITIES> 730,117
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 48,668,091
<SHARES-COMMON-STOCK> 2,437,482
<SHARES-COMMON-PRIOR> 1,266,478
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 13,580,859
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6,722,569
<NET-ASSETS> 55,063,433
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> (177,870)
<EXPENSES-NET> (1,273,015)
<NET-INVESTMENT-INCOME> (1,450,885)
<REALIZED-GAINS-CURRENT> 12,997,935
<APPREC-INCREASE-CURRENT> (4,523,410)
<NET-CHANGE-FROM-OPS> 7,023,640
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (415,927)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,803,786
<NUMBER-OF-SHARES-REDEEMED> 3,640,411
<SHARES-REINVESTED> 7,629
<NET-CHANGE-IN-ASSETS> 100,947,226
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,940,229
<OVERDISTRIB-NII-PRIOR> (1,105,810)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 59,742
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,312,168
<AVERAGE-NET-ASSETS> 135,683,000
<PER-SHARE-NAV-BEGIN> 20.79
<PER-SHARE-NII> (0.08)
<PER-SHARE-GAIN-APPREC> 2.05
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.17)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 22.59
<EXPENSE-RATIO> 2.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 14
<NAME> SHORT-TERM MUNICIPAL INCOME FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 26,659,152
<INVESTMENTS-AT-VALUE> 26,708,324
<RECEIVABLES> 105,064
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 49,132
<TOTAL-ASSETS> 26,862,520
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 149,017
<TOTAL-LIABILITIES> 149,017
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 26,659,818
<SHARES-COMMON-STOCK> 5,372,650
<SHARES-COMMON-PRIOR> 3,301,804
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,513
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 49,172
<NET-ASSETS> 26,713,503
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 946,275
<OTHER-INCOME> 0
<EXPENSES-NET> (86,841)
<NET-INVESTMENT-INCOME> 859,434
<REALIZED-GAINS-CURRENT> 4,708
<APPREC-INCREASE-CURRENT> (81,904)
<NET-CHANGE-FROM-OPS> 782,238
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (859,434)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,213,144
<NUMBER-OF-SHARES-REDEEMED> 2,299,217
<SHARES-REINVESTED> 156,919
<NET-CHANGE-IN-ASSETS> 10,227,038
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (195)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 164,353
<AVERAGE-NET-ASSETS> 21,748,000
<PER-SHARE-NAV-BEGIN> 4.99
<PER-SHARE-NII> 0.20
<PER-SHARE-GAIN-APPREC> (0.02)
<PER-SHARE-DIVIDEND> (0.20)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 4.97
<EXPENSE-RATIO> 0.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 16
<NAME> SHORT-TERM GOVERNMENT-CORPORATE INCOME FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 14,010,454
<INVESTMENTS-AT-VALUE> 14,013,091
<RECEIVABLES> 75,849
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 55,656
<TOTAL-ASSETS> 14,144,596
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 121,971
<TOTAL-LIABILITIES> 121,971
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 14,079,827
<SHARES-COMMON-STOCK> 2,815,117
<SHARES-COMMON-PRIOR> 1,185,070
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (59,839)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,637
<NET-ASSETS> 14,022,625
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 654,198
<OTHER-INCOME> 0
<EXPENSES-NET> (40,538)
<NET-INVESTMENT-INCOME> 613,660
<REALIZED-GAINS-CURRENT> (63,690)
<APPREC-INCREASE-CURRENT> (11,931)
<NET-CHANGE-FROM-OPS> 538,039
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (613,660)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,726,783
<NUMBER-OF-SHARES-REDEEMED> 3,170,650
<SHARES-REINVESTED> 73,914
<NET-CHANGE-IN-ASSETS> 8,068,158
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 3,851
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 117,290
<AVERAGE-NET-ASSETS> 11,213,000
<PER-SHARE-NAV-BEGIN> 5.02
<PER-SHARE-NII> 0.28
<PER-SHARE-GAIN-APPREC> (0.04)
<PER-SHARE-DIVIDEND> (0.28)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 4.98
<EXPENSE-RATIO> 0.36
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 17
<NAME> NATIONAL TAX-FREE INSTITUTIONAL MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-02-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 60,273,770
<INVESTMENTS-AT-VALUE> 60,273,770
<RECEIVABLES> 227,465
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 36,211
<TOTAL-ASSETS> 60,537,446
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 245,759
<TOTAL-LIABILITIES> 245,759
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 60,298,038
<SHARES-COMMON-STOCK> 60,298,519
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (6,351)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 60,291,687
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 1,492,560
<EXPENSES-NET> (50,507)
<NET-INVESTMENT-INCOME> 1,442,053
<REALIZED-GAINS-CURRENT> (6,351)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 1,435,702
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,442,053)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 609,188,237
<NUMBER-OF-SHARES-REDEEMED> 548,991,790
<SHARES-REINVESTED> 102,072
<NET-CHANGE-IN-ASSETS> 60,291,687
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 88,544
<AVERAGE-NET-ASSETS> 63,275,000
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.02
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.02)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 181
<NAME> SMALL CAP STRATEGY FUND CLASS A
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> SEP-16-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 4,473,321
<INVESTMENTS-AT-VALUE> 4,612,947
<RECEIVABLES> 11,635
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 79,489
<TOTAL-ASSETS> 4,704,071
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 142,095
<TOTAL-LIABILITIES> 142,095
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,910,925
<SHARES-COMMON-STOCK> 292,342
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (88,195)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 139,626
<NET-ASSETS> 2,935,101
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 945
<EXPENSES-NET> (6,951)
<NET-INVESTMENT-INCOME> (6,006)
<REALIZED-GAINS-CURRENT> (88,195)
<APPREC-INCREASE-CURRENT> 139,626
<NET-CHANGE-FROM-OPS> 45,425
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 313,258
<NUMBER-OF-SHARES-REDEEMED> 20,916
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 4,561,976
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 45,811
<AVERAGE-NET-ASSETS> 3,196,000
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (0.01)
<PER-SHARE-GAIN-APPREC> 0.05
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.04
<EXPENSE-RATIO> 1.41
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 184
<NAME> SMALL CAP STRATEGY FUND CLASS D
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> SEP-16-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 4,473,321
<INVESTMENTS-AT-VALUE> 4,612,947
<RECEIVABLES> 11,635
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 79,489
<TOTAL-ASSETS> 4,704,071
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 142,095
<TOTAL-LIABILITIES> 142,095
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,599,620
<SHARES-COMMON-STOCK> 162,448
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (88,195)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 139,626
<NET-ASSETS> 1,262,875
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 945
<EXPENSES-NET> (6,951)
<NET-INVESTMENT-INCOME> (6,006)
<REALIZED-GAINS-CURRENT> (88,195)
<APPREC-INCREASE-CURRENT> 139,626
<NET-CHANGE-FROM-OPS> 45,424
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 184,164
<NUMBER-OF-SHARES-REDEEMED> 21,716
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 4,561,976
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 45,811
<AVERAGE-NET-ASSETS> 3,196,000
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (0.02)
<PER-SHARE-GAIN-APPREC> 0.03
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.01
<EXPENSE-RATIO> 2.16
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE> 1
EXHIBIT 99.B2
OVERLAND EXPRESS FUNDS, INC.
BY-LAWS
ARTICLE I.
Stockholders' Meetings.
SECTION 1. Place of Holding Meetings. Each meeting of stockholders shall
be held at such place within or without the State of Maryland as the Board of
Directors may determine.
SECTION 2. Annual Meetings. An annual meeting of the stockholders for the
election of directors and the transaction of any other business within the
power of the Corporation that may come before the meeting shall be held during
the 30-day period commencing April 1 of each year on such day and at such hour
as may be fixed by the Board of Directors. Any business of the Corporation may
be transacted at an annual meeting without being specially designated in the
notice, except as otherwise specifically required by law.
SECTION 3. Special Meetings. Special meetings of the stockholders for any
purpose or purposes may be called by the Chairman of the Board, the President,
the Board of Directors or a majority of the Executive Committee and shall be
called by the Secretary upon the written request of the holders of shares
entitled to not less than twenty-five percent of all the votes entitled to be
cast at such meeting. Such request shall state the purpose or purposes of such
meeting and the matters proposed to be acted on thereat. The Secretary shall
inform such stockholders of the reasonably estimated cost of preparing and
mailing such notice of meeting, and upon payment to the Corporation of such
costs the Secretary shall give notice stating the purposes or purposes of the
meeting, as required in this Article and by law, to all stockholders entitled
to notice of such meeting. No special meeting need be called upon the request
of the holders of shares entitled to cast less than a majority of all votes
entitled to be cast at such meeting, or to consider any matter which is
substantially the same as a matter voted upon at any special meeting of
stockholders held during the preceding twelve months.
SECTION 4. Notice of Stockholders' Meetings. Not less than ten days nor
more than ninety days before the date of every stockholders' meeting, the
Secretary shall give to each stockholder entitled to vote at or to notice of
such meeting, written or printed notice stating the time and place of the
meeting and, in the case of a special meeting, the purpose or purposes for
which the meeting is called, either by mail or by presenting it to him
personally or by leaving it at his residence or usual place of business. If
mailed, such notice shall be deemed to be given when deposited in the United
States mail addressed to the stockholder at his post office address as it
appears on the records of the Corporation, with postage thereon prepaid.
SECTION 5. Voting. All elections shall be had and all questions decided
by a majority of the votes cast, without regard to class, at a duly constituted
meeting, except as otherwise provided by law or by the Articles of
Incorporation or by these By-Laws and except that with respect to a question as
to which the holders of shares of any class or classes are entitled or required
to vote as a separate class or a combined class, as the case may be, such
question shall be decided as to such separate class or such combined class, as
the case may be, by a majority of the votes cast by shares of such separate
class or such combined class, as the case may be.
1
<PAGE> 2
With respect to all shares having voting rights (a) a stockholder may vote
the shares owned of record by him either in person or by proxy executed in
writing by the stockholder or by his duly authorized attorney-in-fact, provided
that no proxy shall be valid after eleven months from its date unless otherwise
provided in the proxy and (b) in all elections for directors every stockholder
shall have the right to vote, in person or by proxy, the shares owned of record
by him, for as many persons as there are directors to be elected and for whose
election he has a right to vote.
SECTION 6. Conduct of Stockholders' Meetings. Each meeting of
stockholders shall be presided over by the Chairman of the Board, or if he is
not present, by the President or any Vice-President, or, if none of the
foregoing is present, by a Chairman to be elected at the meeting. The
Secretary of the Corporation, or if he is not present, an Assistant Secretary,
or if neither is present, a secretary to be appointed by the chairman of the
meeting, shall act as secretary of the meeting.
ARTICLE II.
Board of Directors.
SECTION 1. Number; Term. The business and affairs of the Corporation
shall be managed under the direction of a Board of eight members, but from time
to time such number may be increased to not more than twenty-one or decreased
to not less than three, by vote of a majority of the entire Board of Directors,
provided that the tenure of office of a director shall not be affected by any
decrease in the number of directors so made by the Board.
At each annual meeting of stockholders the stockholders shall elect directors
to hold office until the next annual meeting and until their successors are
elected and qualify, subject to the right of removal granted by law. Directors
need not be stockholders.
SECTION 2. Vacancies. Subject to Section 5 of this Article II, any
vacancy occurring in the Board of Directors for any cause other than by reason
of an increase in the number of directors may be filled by the vote of a
majority of the remaining directors, although such majority is less than a
quorum. Any vacancy occurring by reason of an increase in the number of
directors may be filled by action of a majority of the entire Board of
Directors. A director elected by the Board of Directors to fill a vacancy
shall be elected to hold office until the next annual meeting of stockholders
and until his successor is elected and qualifies.
SECTION 3. Meetings. Meetings of the Board of Directors, regular or
special, may be held at any place in or out of the State of Maryland as the
Board may from time to time determine or as shall be specified or filed in the
respective notice or waivers of notice thereof.
Regular meetings of the Board shall be held at such time as the Board may
from time to time determine. No notice need be given of regular meetings of
the Board.
Special meetings of the Board may be held at any time upon call of the
Chairman of the Board, the President or a majority of the Directors. Written
notice of the time and place of any special meeting shall be delivered or
telegraphed to each Director not less than three days before the meeting. Such
notice need not include a statement of the business to be transacted at, or the
purpose of, such special meeting. A written waiver of notice, signed by the
Director entitled to such notice and filed with the records of the meeting,
whether before or after the holding thereof, or actual attendance at the
meeting, shall be deemed equivalent to the giving of notice to such director.
2
<PAGE> 3
At all meetings of the Board, one-third of the total number of directors,
but not less than two directors, shall constitute a quorum for the transaction
of business. If there be less than a quorum present at any meeting of the
Board, a majority of those present may adjourn the meeting until a quorum shall
have been obtained.
The action of a majority of the directors present at a meeting at which a
quorum is present shall be the action of the Board unless the concurrence of a
greater proportion is required for such action by statute, the Articles of
Incorporation or these By-Laws.
SECTION 4. Audit Committee. The Board of Directors may by the affirmative
vote of a majority of the entire Board appoint from its members an Audit
Committee composed of two or more directors who are not "interested persons"
(as defined in the Investment Company Act of 1940) of the Corporation, as the
Board may from time to time determine. The Audit Committee shall (a) recommend
independent public accountants for selection by the Board, (b) review the scope
of audit, accounting and financial internal controls and the quality and
adequacy of the Corporation's accounting staff with the independent public
accountants and such other persons as may be deemed appropriate, (c) review
with the accounting staff and the independent public accountants the compliance
of transactions of the Corporation with Lazard Freres & Co. or any other
manager of the affairs of the Corporation and with any affiliate of such firm
or manager with the financial terms of applicable agreements, (d) review
reports of the independent public accountants and comment to the Board when
warranted, (e) report to the Board at least once each year and at such other
times as the committee deems desirable, and (f) be directly available at all
times to independent public accountants and responsible officers of the
Corporation for consultation on audit, accounting and related financial
matters.
SECTION 5. Nominating Committee of Directors. The Board of Directors may
by the affirmative vote of a majority of the entire Board appoint from its
members a Director Nominating Committee composed of two or more directors. The
Director Nominating Committee shall recommend to the Board a slate of persons
to be nominated for election as directors by the stockholders at each annual
meeting of stockholders and a person to be elected to fill any vacancy
occurring for any reason in the Board. Notwithstanding anything in this
Section 5 to the contrary, so long as the Corporation has in effect one or more
plans pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the
"Act"), the selection and nomination of those directors who are not "interested
persons" (as defined in the Act) shall be committed to the discretion of such
disinterested directors.
SECTION 6. Executive Committee. The Board of Directors may appoint from
its members an Executive Committee composed of those directors as the Board may
from time to time determine, of which committee the Chairman of the Board shall
be a member. In the intervals between meetings of the Board, the Executive
Committee shall have the power of the Board to (a) determine the value of
securities and assets owned by the Corporation, (b) elect or appoint officers
of the Corporation to serve until the next meeting of the Board and (c) take
such action as may be necessary to manage the portfolio security loan business
of the Corporation.
All action by the Executive Committee shall be recorded and reported to the
Board at its meeting next succeeding such action.
3
<PAGE> 4
SECTION 7. Other Committees. The Board of Directors may appoint from
among its members other committees composed of two or more of its directors
which shall have such powers as may be delegated or authorized by the
resolution appointing them.
SECTION 8. Committee Procedures. The Board of Directors may at any time
change the members of any committee, fill vacancies or discharge any committee.
In the absence of any member of any committee, the member or members
thereof present at any meeting, whether or not they constitute a quorum, may
unanimously appoint to act in the place of such absent member a member of the
Board who, except in the case of the Executive Committee, is not an "interested
person" of the Corporation as the Board may from time to time determine.
Each committee may fix its own rules of procedure and may meet as and when
provided by those rules.
Two or more members of any committee shall constitute a quorum unless the
Board shall otherwise provide.
Copies of the minutes of all meetings of committees other than the
Nominating Committee and the Executive Committee shall be distributed to the
Board unless the Board shall otherwise provide.
SECTION 9. Telephone Meetings. Members of the Board of Directors or a
committee of the Board of Directors may participate in a meeting by means of a
conference telephone or similar communications equipment if all persons
participating in the meeting can hear each other at the same time.
Participation in a meeting by these means constitutes presence in person at the
meeting.
SECTION 10. Action Without a Meeting. Any action required or permitted to
be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting if a written consent to such action is signed by
all members of the Board or of such committee, as the case may be, and such
written consent is filed with the minutes of proceedings of the Board or
committee.
SECTION 11. Compensation of Directors. The Board of Directors shall have
the authority to fix the compensation of directors for services in any capacity
and to reimburse reasonable expenses incurred by the directors in connection
with rendering those services.
ARTICLE III.
Officers.
SECTION 1. Officers. As soon as practicable after each annual meeting of
stockholders, the executive officers of the Corporation shall be elected by the
Board of Directors and shall be a Chairman of the Board, who shall be the chief
executive officer of the Corporation, a President, a Secretary and a Treasurer.
The Chairman of the Board shall be selected from among the directors. The
Board may also appoint one or more Vice Presidents, Assistant Secretaries,
Assistant Treasurers and other officers, employees and agents as it may deem
appropriate. Any two or more officers, except those of President and
Vice-President, may be held by the same person but no
4
<PAGE> 5
person shall execute, acknowledge or verify any instrument in more than one
capacity, if such instrument is required by law, the Articles of Incorporation
or these By-Laws to be executed, acknowledged or verified by two or more
officers.
SECTION 2. Term. Officers shall serve for one year and until their
successors are elected and shall qualify, but any officer may be removed
(except as a director) by action of a majority of the entire Board of Directors
whenever, in the judgment of the Board, the best interests of the Corporation
will be served thereby, but such removal shall be without prejudice to the
contractual rights, if any, of the person so removed. The Board of Directors
may fill any vacancy which may occur in any office.
SECTION 3. Authority and Duties. All officers and agents of the
Corporation shall have such authority and perform such duties in the management
of the property and affairs of the Corporation as generally pertain to their
respective offices, as well as such authority and duties as may be determined
by resolution of the Board of Directors.
Without limiting the generality of the foregoing and subject to the
provisions of the Articles of Incorporation of the Corporation and to the order
of the Board of Directors, the Treasurer shall be the chief financial and
accounting officer of the Corporation and as such shall receive, or cause to be
received, and give, or cause to be given, receipts for all funds and securities
paid or delivered to, or for the account of the Corporation; shall cause such
funds and securities to be deposited for the account of the Corporation with
such custodians as may be designated by the Board of Directors; shall pay or
cause to be paid out of the funds of the Corporation all just debts of the
Corporation upon their maturity; shall maintain, or cause to be maintained,
accurate records of all receipts, disbursements, assets, liabilities and
transactions of the Corporation; shall see that adequate audits thereof are
regularly made; and shall, when required by the Board of Directors, render
accurate statements of the condition of the Corporation.
SECTION 4. Compensation of Officers. The Board of Directors may determine
what, if any, compensation shall be paid to officers of the Corporation.
ARTICLE IV.
Indemnification.
SECTION 1. The Corporation shall indemnify any person who was or is a
director, officer or employee of the Corporation to the maximum extent
permitted by the Maryland General Corporation Law.
SECTION 2. The Corporation may purchase and maintain insurance on behalf
of any person who is or was a director or officer, employee or agent of the
Corporation or who is or was serving at the request of the Corporation as a
director, officer, agent or employee of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity or arising out of his position,
whether or not the Corporation would have power to indemnify him.
SECTION 3. Notwithstanding anything in this Article IV to the contrary,
nothing herein contained shall protect or purport to protect any director or
officer of the Corporation against any liability to the Corporation or its
security holders to which he would otherwise be subject by reason
5
<PAGE> 6
of willful misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his office; and in the absence of a court
determination that such director or officer is not liable or that such director
or officer was not guilty of willful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in the conduct of his office, no
indemnification will be permitted to such director or officer (either directly
or through insurance provided by the Corporation) unless independent legal
counsel determines, based on a review of the facts, that such person was not
guilty of such willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office.
SECTION 4. The rights of indemnification provided in this Article IV shall
neither be exclusive of, nor be deemed in limitation of, any right to which any
person may otherwise be entitled or permitted by contract or otherwise.
ARTICLE V.
Capital Stock.
SECTION 1. Certificates of Stock. Each stockholder of a particular Class
shall be entitled to a certificate or certificates which shall represent and
certify the number of whole Shares of that Class of Stock owned by him in the
Corporation. Each certificate shall be signed by the Chairman of the Board,
President or a Vice-President and countersigned by the Secretary or an
Assistant Secretary or the Treasurer or an Assistant Treasurer and shall be
sealed with the corporate seal. The signatures may be either manual or
facsimile signatures and the sea may be either facsimile or any other form of
seal. In case any officer who has signed any certificate ceases to be an
officer of the Corporation before the certificate is issued, the certificate
may nevertheless be issued by the Corporation with the same effect as if the
officer had not ceased to be such officer as of the date of its issue.
SECTION 2. Lost Certificates. The Board of Directors may determine the
conditions upon which a new certificate of shares may be issued in place of a
certificate which is alleged to have been lost, destroyed or stolen. It may,
in its discretion, require the owner of such certificate to give bond, with
sufficient surety, to the Corporation to indemnify it against any loss or claim
which may arise by reason of the issuance of a new certificate.
SECTION 3. Record Dates; Closing of Transfer Books. The Board of
Directors may fix, in advance, a date as the record date for the purpose of
determining stockholders of any class entitled to notice of, or to vote at, any
meeting of stockholders of any class of stockholders entitled to receive
payment of any dividend or the allotment of any rights to that class or in
order to make a determination of stockholders of any class for any other proper
purpose. Such date in any case shall be not more than ninety days, and in case
of a meeting of stockholders, not less than ten days, prior to the date on
which the particular action, requiring such determination of stockholders, is
to be taken.
SECTION 4. Stock Ledger. The Corporation shall maintain at an office
specified by the Board of Directors an original or duplicate stock ledger
containing the names and addresses of all stockholders and the number of shares
of each class held by each stockholder. Such stock ledger may be in written
form or any other form capable of being converted into written form within a
reasonable time for visual inspection.
6
<PAGE> 7
ARTICLE VI.
Checks, Notes, Etc.
All checks and drafts on the Corporation's bank accounts and all bills of
exchange and promissory notes, and all acceptances, obligations and other
instruments for the payment of money, shall be signed by such officer or
officers, or agent or agents, as shall be thereunto authorized from time to
time by the Board of Directors.
ARTICLE VII.
Books and Records.
The books of the Corporation other than the original or duplicate stock
ledger may be kept at such place or places in or out of the State of Maryland
as the Board of Directors may from time to time determine.
ARTICLE VIII.
Seal.
The Board of Directors shall provide a suitable corporate seal, in such
form and bearing such inscriptions as it may determine.
ARTICLE IX.
Fiscal Year.
The fiscal year of the Corporation shall end on December 31 of each year,
subject, however, to change from time to time by the Board of Directors.
ARTICLE X.
Custodian.
All securities and funds of the Corporation shall be held by one or more
custodians each of which shall be a bank or trust company provided any such
custodian can be found ready and willing to act.
The terms of custody of such securities and funds shall include provisions
to the effect that the custodian shall deliver securities owned by the
Corporation only (a) upon sales of such securities for the account of the
Corporation and receipt by the custodian of payment therefor, (b) when such
securities are called, redeemed or retired or otherwise become payable, (c) in
exchange for or upon conversion into other securities alone or other securities
and cash whether pursuant to any plan or merger, consolidation, reorganization,
recapitalization or readjustment, or otherwise, (d) upon conversion of such
securities pursuant to their terms into other securities,
7
<PAGE> 8
(e) upon exercise of subscription, purchase or other similar rights represented
by such securities, (f) for the purpose of exchanging interim receipt or
temporary securities for definitive securities, (g) for the purpose of
redeeming in kind shares of the Corporation, (h) for loans of securities by the
Corporation, or (i) for other proper corporate purposes.
Such terms of custody shall also include provisions to the effect that the
custodian shall deliver funds of the Corporation only (a) upon the purchase of
securities for the portfolio of the Corporation and the delivery of such
securities to the custodian, (b) for the repurchase or redemption of shares of
the Corporation, (c) for the payment of dividends, taxes, advisory or
administration fees or operating expenses, (d) for payments in connection with
the conversion, exchange or surrender of securities owned by the Corporation,
(e) for payments in connection with the return of securities loaned by the
Corporation or the reduction of cash collateral, or (f) for other proper
corporate purposes.
Upon the resignation or inability of any such custodian to serve, the
Corporation shall (a) use its best efforts to obtain a successor custodian, (b)
require the funds and securities of the Corporation held by the custodian to be
delivered to the successor custodian, and (c) in the event that no successor
custodian can be found, submit to the stockholders of the Corporation, before
permitting delivery of such funds and securities to anyone other than a
successor custodian, the question whether the Corporation shall be dissolved or
shall function without a custodian; provided, however, that nothing herein
contained shall prevent the termination of any agreement between the
Corporation and any such custodian with respect to any Class of the
Corporation's Shares (and with respect to the assets and liabilities belonging
to such Class) by the affirmative vote of the holders of a majority of the
outstanding shares of such Class or Classes (voting as a single class) entitled
to vote.
Such terms of custody shall further provide that, pending appointment of a
successor custodian or a vote of the stockholders of the affected class or
classes to function without a custodian, a custodian shall not deliver funds
and other property of the Corporation to the Corporation, but may deliver them
to a bank or trust company of its own selection as custodian for the
Corporation to be held under terms similar to those under which they were held
by the retiring custodian.
Subject to such rules, regulations and orders as the Securities and
Exchange Commission may adopt, the Corporation may authorize or direct a
custodian to deposit all or any part of the securities owned by the Corporation
in a system for the central handling of securities established by a national
securities exchange or a national securities association registered with the
Securities and Exchange Commission under the Securities Exchange Act of 1934,
or such other person as may be permitted by the Commission, pursuant to which
system all securities of any particular class or series of any issuer deposited
within the system are treated as fungible and may be transferred or pledged by
bookkeeping entry without physical delivery of such securities, provided that
all such deposits shall be subject to withdrawal only upon the order of the
custodian.
The Corporation may also have such transfer agents and registrars of its
shares as the Board of Directors shall from time to time determine. The Board
of Directors may employ and fix the powers, rights, duties, responsibilities,
privileges, immunities, and compensation of any such custodian, transfer agent,
or registrar, subject, however, in the case of any such custodian, to the
foregoing provisions of this paragraph.
8
<PAGE> 9
As used herein, the term "receipt by the custodian of payment" shall
include the receipt of (a) a certified or official bank check, (b) an advice
that funds have been or will be credited to the account of the custodian at a
clearing agency registered under the Securities Exchange Act of 1934, or (c) a
bank wire from a correspondent bank of the custodian. As used herein, the term
"delivery of such securities to the custodian" shall include the receipt of (a)
securities in bearer form or in proper form for transfer, or (b) an advice that
securities have been credited to the account of the custodian at a clearing
agency registered under the Securities Exchange Act of 1934, or at the Federal
Reserve Bank of New York.
The Corporation may make such other arrangements for the custody of its
assets (including deposit arrangements) as may be required by any applicable
law, rule or regulation.
ARTICLE XI.
Amendments.
The Board of Directors is authorized and empowered to make, alter or repeal
the By-Laws of the Corporation, in any manner not inconsistent with the laws of
the State of Maryland or the Articles of Incorporation of the Corporation.
9
<PAGE> 1
EXHIBIT 99.B5(a)(i)
AMENDED ADVISORY CONTRACT
The Asset Allocation Fund
a portfolio of
OVERLAND EXPRESS FUNDS, INC.
111 Center Street
Little Rock, Arkansas 72201
September 1, 1994
Wells Fargo Bank, N.A.
420 Montgomery Street
San Francisco, California 94163
Dear Sirs:
This will confirm the agreement between the undersigned (the
"Company") on behalf of the Asset Allocation Fund (the "Fund") and Wells Fargo
Bank, N.A. (the "Adviser") as follows:
1. The Company is a registered open-end management investment
company currently consisting of 16 investment portfolios, but which may from
time to time consist of a greater or lesser number of investment portfolios
(the "Funds"). The Company proposes to engage in the business of investing and
reinvesting the assets of the Fund in the manner and in accordance with the
investment objective and restrictions specified in the Company's Registration
Statement, as amended from time to time (the "Registration Statement"), filed
by the Company under the Investment Company Act of 1940 (the "Act") and the
Securities Act of 1933. Copies of the documents referred to in the preceding
sentence have been furnished to the Adviser. Any amendments to those documents
shall be furnished to the Adviser promptly.
2. The Company is engaging the Adviser to manage the investing
and reinvesting of the assets of the Fund and to provide the advisory services
specified elsewhere in this contract, subject to the overall supervision of the
Board of Directors of the Company. Pursuant to an administration agreement
between the Company and Stephens Inc. (the "Administrator") on behalf of the
Fund, the Company has engaged the Administrator to provide the administrative
services specified therein.
3. (a) The Adviser shall make investments for the account
of the Fund in accordance with the Adviser's best judgment and consistent with
the investment objective and restrictions set forth in the Company's
Registration Statement, the Act and the provisions of the Internal Revenue Code
relating to regulated investment companies, subject to policy decisions adopted
by the Company's Board of Directors. The Adviser shall advise the Company's
officers and Board of Directors, at such times as the Company's Board of
Directors may specify, of investments made for the Fund and shall, when
requested by the Company's officers or Board of Directors, supply the reasons
for making particular investments.
(b) The Adviser shall provide to the Company investment
guidance and policy direction in connection with its daily management of the
Fund's portfolio, including oral and written research, analysis, advice,
statistical and economic data and information and judgments, and shall furnish
1
<PAGE> 2
to the Company's Board of Directors periodic reports on the investment strategy
and performance of the Fund and such additional reports and information as the
Company's Board of Directors and officers shall reasonably request.
(c) The Adviser shall pay the costs of printing and
distributing all materials relating to the Fund prepared by it, or prepared at
its request, other than such costs relating to proxy statements, prospectuses,
shareholder reports and other materials distributed to existing or prospective
shareholders on behalf of the Fund.
(d) The Adviser shall, at its expense, employ or
associate with itself such persons as the Adviser believes appropriate to
assist it in performing its obligations under this contract.
4. The Company understands that the Adviser, in rendering its
services to the Fund hereunder, has engaged Wells Fargo Nikko Investment
Advisors ("WFNIA") to provide certain sub-advisory services pursuant to a
separate Sub-Advisory Contract with WFNIA. The Adviser will not seek to amend
the Sub-Advisory Contract with WFNIA to materially alter the obligations of the
parties unless the Adviser gives the Company at least 60 days' prior written
notice thereof.
5. Except as provided in each of the Company's advisory
contracts and administration agreements, the Company shall bear all costs of
its operations, including: the compensation of its directors who are not
affiliated with the Adviser, the Administrator or any of their affiliates;
advisory and administration fees; payments of distribution-related expenses
pursuant to any Rule 12b-1 Plan, i.e., a plan of distribution of the Company
adopted on behalf of any of the Funds pursuant to Rule 12b-1 under the Act;
governmental fees; interest charges; taxes; fees and expenses of its
independent auditors, legal counsel, transfer agent and dividend disbursing
agent; expenses of redeeming shares; expenses of preparing and printing stock
certificates, prospectuses (except the expense of printing and mailing
prospectuses used for promotional purposes, unless otherwise payable pursuant
to a Rule 12b-1 Plan), shareholders' reports, notices, proxy statements and
reports to regulatory agencies; travel expenses of directors, officers and
employees; office supplies; insurance premiums and certain expenses relating to
insurance coverage; trade association membership dues; brokerage and other
expenses connected with the execution of portfolio securities transactions;
fees and expenses of any custodian, including those for keeping books and
accounts and calculating the net asset value per share of the Fund; expenses of
shareholders' meetings; expenses relating to the issuance, registration and
qualification of shares of the Fund; pricing services, if any; organizational
expenses; and any extraordinary expenses. Expenses attributable to one or
more, but not all, of the Funds are charged against the assets of the relevant
Funds. General expenses of the Company are allocated among the Funds in a
manner proportionate to the net assets of each Fund, on a transactional basis
or on such other basis as the Board of Directors deems equitable.
6. The Adviser shall give the Company the benefit of the
Adviser's best judgment and efforts in rendering services under this contract.
As an inducement to the Adviser's undertaking to render these services, the
Company agrees that the Adviser shall not be liable under this contract for any
mistake in judgment or in any other event whatsoever except for lack of good
faith, provided that nothing in this contract shall be deemed to protect or
purport to protect the Adviser against any liability to the Company or its
shareholders to which the Adviser would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of the
Adviser's duties under this contract or by reason of reckless disregard of its
obligations and duties hereunder.
7. In consideration of the services to be rendered by the
Adviser under this contract, the Company shall pay the Adviser a monthly fee on
the first business day of each month, at the annual rate of
2
<PAGE> 3
0.70% of the average daily value (as determined on each day that such value is
determined for the Fund at the time set forth in the Registration Statement for
determining net asset value per share) of the first $500,000,000 of the Fund's
net assets during the preceding month and at the annual rate of 0.60% of such
average daily value of the Fund's net assets in excess of $500,000,000. If the
fee payable to the Adviser pursuant to this paragraph 7 begins to accrue after
the beginning of any month or if this contract terminates before the end of any
month, the fee for the period from the effective date to the end of that month
or from the beginning of that month to the termination date, respectively,
shall be prorated according to the proportion that the period bears to the full
month in which the effectiveness or termination occurs. For purposes of
calculating each such monthly fee, the value of the Fund's net assets shall be
computed in the manner specified in the Registration Statement and the
Company's Articles of Incorporation for the computation of the value of the
Fund's net assets in connection with the determination of the net asset value
of Fund shares.
8. If, in any fiscal year, the total expenses incurred by, or
allocated to, the Fund, excluding taxes, interest, brokerage commissions and
other portfolio transaction expenses, other expenditures that are capitalized
in accordance with generally accepted accounting principles, extraordinary
expenses and amounts accrued or paid under a Rule 12b-1 Plan of the Fund, but
including the fees provided for in paragraph 7 and those provided for pursuant
to the Fund's Administration Agreement ("Includable Expenses"), exceed the most
restrictive expense limitation applicable to the Fund imposed by state
securities laws or regulations thereunder, as these limitations may be raised
or lowered from time to time, the Adviser shall waive or reimburse a portion of
such fees. The amount waived or reimbursed shall equal that portion of the
excess derived by multiplying the excess by a fraction, the numerator of which
shall be the percentage at which the excess portion attributable to the fee
payable pursuant to this contract is calculated under paragraph 7 hereof, and
the denominator of which shall be the sum of such percentage plus the
percentage at which the excess portion attributable to the fee payable pursuant
to the Fund's Administration Agreement is calculated (the "Applicable Ratio"),
but only to the extent of the fee hereunder for the fiscal year. If the fees
payable under this contract and/or the Fund's Administration Agreement
contributing to such excess portion are calculated at more than one percentage
rate, the Applicable Ratio shall be calculated separately on the basis of, and
applied separately to, the portions of the fees calculated at the different
rates. At the end of each month of the Company's fiscal year, the Company
shall review the includable expenses accrued during that fiscal year to the end
of the period and shall estimate the contemplated includable expenses for the
balance of that fiscal year. If as a result of that review and estimation it
appears likely that the includable expenses will exceed the limitations
referred to in this paragraph 8 for a fiscal year with respect to the Fund, the
monthly fee set forth in paragraph 7 payable to the Adviser for such month
shall be reduced, subject to a later adjustment, by an amount equal to the
Applicable Ratio times the pro rata portion (prorated on the basis of the
remaining months of the fiscal year, including the month just ended) of the
amount by which the includable expenses for the fiscal year are expected to
exceed the limitations provided for in this paragraph 8. For purposes of
computing the excess, if any, over the most restrictive applicable expense
limitation, the value of the Fund's net assets shall be computed in the manner
specified in the last sentence of paragraph 7, and any reimbursements required
to be made by the Adviser shall be made once a year promptly after the end of
the Company's fiscal year.
9. This contract shall become effective on its execution date
and shall thereafter continue in effect, provided that this contract shall
continue in effect for a period of more than two years from the date hereof
only so long as the continuance is specifically approved at least annually (a)
by the vote of a majority of the Fund's outstanding voting securities (as
defined in the Act) or by the Company's Board of Directors and (b) by the vote,
cast in person at a meeting called for the purpose, of a majority of the
Company's directors who are not parties to this contract or "interested
persons" (as defined in the Act) of any such party. This contract may be
terminated at any time by the Company, without the payment of any
3
<PAGE> 4
penalty, by a vote of a majority of the Fund's outstanding voting securities
(as defined in the Act) or by a vote of a majority of the Company's entire
Board of Directors on 60 days' written notice to the Adviser or by the Adviser,
at any time after the second anniversary of the effective date of this
contract, on 60 days' written notice to the Company. This contract shall
terminate automatically in the event of its assignment (as defined in the Act).
10. Except to the extent necessary to perform the Adviser's
obligations under this contract, nothing herein shall be deemed to limit or
restrict the right of the Adviser, or any affiliate of the Adviser, or any
employee of the Adviser, to engage in any other business or to devote time and
attention to the management or other aspects of any other business, whether of
a similar or dissimilar nature, or to render services of any kind to any other
corporation, firm, individual or association.
11. The Adviser and the Company each agree that the words
"Overland Express," which comprise a component of the Company's name, is a
property right of the parent of the Adviser. The Company agrees and consents
that: (i) it will use the words "Overland Express" as a component of its
corporate name, the name of any class, or both and for no other purpose; (ii)
it will not grant to any third party the right to use the words "Overland
Express" for any purpose; (iii) the Adviser or any corporate affiliate of the
Adviser may use or grant to others the right to use the words "Overland
Express," or any combination or abbreviation thereof, as all or a portion of a
corporate or business name or for any commercial purpose, other than a grant of
such right to another registered investment company not advised by the Adviser
or one of its affiliates; and (iv) in the event that the Adviser or an
affiliate thereof is no longer acting as investment adviser to any class, the
Company shall, upon request by the Adviser, promptly take such action as may be
necessary to change its corporate name to one not containing the words
"Overland Express" and following such change, shall not use the words "Overland
Express," or any combination thereof, as a part of its corporate name or for
any other commercial purpose, and shall use its best efforts to cause its
directors, officers, and shareholders to take any and all actions that the
Adviser may request to effect the foregoing and to reconvey to the Adviser any
and all rights to such words.
4
<PAGE> 5
12. This contract, which may be executed in counterparts, all
of which together shall constitute one original, shall be governed by and
construed in accordance with the laws of the State of California.
If the foregoing correctly sets forth the agreement between the
Company and the Adviser, please so indicate by signing and returning to the
Company the enclosed copy hereof.
Very truly yours,
OVERLAND EXPRESS FUNDS, INC.,
on behalf of
The Asset Allocation Fund
By: /s/Richard H. Blank, Jr.
-----------------------------
Title: Chief Operating Officer
ACCEPTED as of the date
set forth above:
WELLS FARGO BANK, N.A.
By: /s/Elizabeth Gottfried
-----------------------------
Title: Vice President
By: /s/Michael Niedermeyer
-----------------------------
Title: Executive Vice President
5
<PAGE> 1
EXHIBIT 99.B5(a)(ii)
SUB-ADVISORY CONTRACT
Asset Allocation Fund
a portfolio of
OVERLAND EXPRESS FUNDS, INC.
111 Center Street
Little Rock, Arkansas 72201
January 1, 1996
Barclays Global Fund Advisors
45 Fremont Street
San Francisco, California 94105
Dear Sirs:
This will confirm the agreement by and among Wells Fargo Bank, N.A.
(the "Adviser"), Overland Express Funds, Inc. (the "Company"), on behalf of the
Asset Allocation Fund (the "Fund"), and Barclays Global Fund Advisors (the
"Sub-Adviser") as follows:
1. The Company is a registered open-end management investment
company currently consisting of a number of investment portfolios, but which
may from time to time consist of a greater or lesser number of investment
portfolios. The Company proposes to engage in the business of investing and
reinvesting the assets of the Fund in the manner and in accordance with the
investment objective and restrictions specified in the Company's currently
effective Registration Statement, as amended from time to time (the
"Registration Statement"), filed by the Company under the Investment Company
Act of 1940 (the "Act") and the Securities Act of 1933. Copies of the
Registration Statement have been furnished to the Sub-Adviser. Any amendments
to the Registration Statement shall be furnished to the Sub-Adviser promptly.
2. The Company has engaged the Adviser to manage the investing
and reinvesting of the assets of the Fund and to provide the advisory services
specified elsewhere in the Amended Advisory Contract between the Company and
the Adviser, dated September 1, 1994, subject to the overall supervision of the
Board of Directors of the Company. Pursuant to an administration agreement
between the Company, on behalf of the Fund, and an administrator (the
"Administrator"), the Company has engaged the Administrator to provide the
administrative services specified therein.
3. (a) The Adviser hereby employs the Sub-Adviser to perform for
the Fund certain advisory services and the Sub-Adviser hereby accepts such
employment. The Adviser shall retain the authority to establish and modify,
from time to time, the investment strategies and approaches to be followed by
the Sub-Adviser, subject, in all respects, to the supervision and direction of
the Company's Board of Directors and subject to compliance with the investment
objectives, policies and restrictions set forth in the Registration Statement.
<PAGE> 2
(b) Subject to the overall supervision and control of the
Adviser and the Company, the Sub-Adviser shall be responsible for investing and
reinvesting the Fund's assets in a manner consistent with the investment
strategies and approaches referenced in subparagraph (a) above. In this
regard, the Sub-Adviser, in accordance with the investment objectives, policies
and restrictions set forth in the Registration Statement, the Act and the
provisions of the Internal Revenue Code of 1986 relating to regulated
investment companies, shall be responsible for implementing and monitoring the
performance of the investment model employed with respect to the Fund and shall
furnish to the Adviser periodic reports on the investment activity and
performance of the Fund. The Sub-Adviser shall also furnish such additional
reports and information as the Adviser and the Company's Board of Directors and
officers shall reasonably request.
(c) The Sub-Adviser shall, at its expense, employ or associate
with itself such persons as the Sub-Adviser believes appropriate to assist it
in performing its obligations under this contract.
4. The Adviser shall be responsible for the fees paid to the
Sub-Adviser for its services hereunder. The Sub-Adviser agrees that it shall
have no claim against the Company or the Fund respecting compensation under
this contract. In consideration of the services to be rendered by the
Sub-Adviser under this contract, the Adviser shall pay the Sub-Adviser a fee on
the first business day of each calendar month, at the annual rate of 0.20% of
the average daily value (as determined on each day that such value is
determined for the Fund at the time set forth in the Registration Statement for
determining net asset value per share) of the Fund's net assets during the
preceding month. The Sub-Adviser will also receive an annual fee from the
Adviser of $60,000 payable in monthly installments. If the fee payable to the
Sub-Adviser pursuant to this Paragraph 4 begins to accrue on a day after the
first day of any month or if this contract terminates before the end of any
month, the fee for the period from the effective date to the end of the month
or from the beginning of that month to the termination date, shall be prorated
according to the proportion that such period bears to the full month in which
the effectiveness or termination occurs. For purposes of calculating the
monthly fee, the value of the Fund's net assets shall be computed in the manner
specified in the Registration Statement and the Company's Articles of
Incorporation for the computation of the value of the Fund's net assets in
connection with the determination of the net asset value of Fund shares.
5. The Sub-Adviser shall give the Company the benefit of the
Sub-Adviser's best judgment and efforts in rendering services under this
contract. As consideration and as an inducement to the Sub-Adviser's
undertaking to render these services, the Company and the Adviser agree that
the Sub-Adviser shall not be liable under this contract for any mistake in
judgment or in any other event whatsoever except for lack of good faith,
provided that nothing in this contract shall be deemed to protect or purport to
protect the Sub-Adviser against any liability to the Adviser, the Company or
its shareholders to which the Sub-Adviser would otherwise be subject by reason
of willful misfeasance, bad faith or gross negligence in the performance of the
Sub-Adviser's duties under this contract or by reason of reckless disregard of
its obligations and duties hereunder.
6. This contract shall become effective as of its execution date
and shall thereafter continue in effect, provided that this contract shall
continue in effect for a period of more than two years from the date hereof
only so long as the continuance is specifically approved at least annually (a)
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<PAGE> 3
by the vote of a majority of the Fund's outstanding voting securities (as
defined in the Act) or by the Company's Board of Directors and (b) by the vote,
cast in person at a meeting called specifically for the purpose of continuing
this Sub-Advisory Contract, of a majority of the Company's Directors who are
not parties to this contract or "interested persons" (as defined in the Act) of
any such party. This contract may be terminated, upon 60 days' written notice
to the Sub-Adviser, by the Company, without the payment of any penalty, by a
vote of a majority of the Fund's outstanding voting securities (as defined in
the Act) or by a vote of a majority of the Company's entire Board of Directors.
The Sub-Adviser may terminate this contract on 60 days' written notice to the
Company. This contract shall terminate automatically in the event of its
assignment (as defined in the Act).
7. Except to the extent necessary to perform the Sub-Adviser's
obligations under this contract, nothing herein shall be deemed to limit or
restrict the right of the Sub-Adviser, or any affiliate of the Sub-Adviser, or
any employee of the Sub-Adviser, to engage in any other business or to devote
time and attention to the management or other aspects of any other business,
whether of a similar or dissimilar nature, or to render services of any kind to
any other corporation, firm, individual or association.
8. The Sub-Adviser and the Company each agree that the phrase
"Overland Express", which comprises a component of the Company's name, is a
property right of the parent of the Adviser. The Company and the Sub-Adviser
agree and consent that the use of such phrase is subject to the provisions set
forth in the Advisory Contract between the Adviser and the Company.
9. This contract shall be governed by and construed in accordance
with the laws of the State of California without giving effect to the choice of
law provisions thereof.
3
<PAGE> 4
If the foregoing correctly sets forth the agreement between the
Company, the Adviser and the Sub-Adviser, please so indicate by signing and
returning to the Company the enclosed copy hereof.
Very truly yours,
WELLS FARGO BANK, N.A.
By : /s /Elizabeth A. Gottfried
-----------------------------
Name: Elizabeth A. Gottfried
---------------------------
Title: Vice President
--------------------------
ACCEPTED as of the date
set forth above:
OVERLAND EXPRESS FUNDS, INC.
on behalf of the Asset Allocation Fund
By: /s/Richard H. Blank, Jr.
---------------------------------------------------
Name: Richard H. Blank, Jr.
-------------------------------------------------
Title: Chief Operating Officer, Secretary and Treasurer
------------------------------------------------
BARCLAYS GLOBAL FUND ADVISORS
Name: /s/Donald L. Luskin
-------------------------------------------------
By: Donald L. Luskin
---------------------------------------------------
Title:
By: /s/Lorcan A. Murphy
----------------------------------------------------
Name: Lorcan Murphy
-------------------------------------------------
Title: Principal
------------------------------------------------
4
<PAGE> 1
EXHIBIT 99.B5(b)
ADVISORY CONTRACT
U.S. Government Income Fund
(formerly, the "Special Income Fund")
a portfolio of
OVERLAND EXPRESS FUNDS, INC.
114 East Capitol Avenue
Little Rock, Arkansas 72201
April 1, 1988
Wells Fargo Bank, N.A.
420 Montgomery Street
San Francisco, California 94163
Dear Sirs:
This will confirm the agreement between the undersigned (the "Company") on
behalf of the U.S. Government Income Fund (formerly, the "Special Income Fund")
(the "Fund") and Wells Fargo Bank, N.A. (the "Adviser") as follows:
1. The Company is an open-end investment company currently
consisting of three investment portfolios, but which may from time to time
consist of a greater or less number of investment portfolios (the "Funds").
The Company proposes to engage in the business of investing and reinvesting the
assets of the Fund in the manner and in accordance with the investment
objective and restrictions specified in the Company's currently effective
prospectus and the currently effective statement of additional information
incorporated by reference therein relating to the Fund and the Company (such
prospectus and such statement of additional information being collectively
referred to as the "Prospectus") included in the Company's Registration
Statement, as amended from time to time (the "Registration Statement"), filed
by the Company under the Investment Company Act of 1940 (the "Act") and the
Securities Act of 1933. Copies of the documents referred to in the preceding
sentence have been furnished to the Adviser. Any amendments to those documents
shall be furnished to the Adviser promptly.
2. The Company is engaging the Adviser to manage the investing
and reinvesting of the assets of the Fund and to provide the advisory services
specified elsewhere in this contract, subject to the overall supervision of the
Board of Directors of the Company. Pursuant to an administration agreement
between the Company and Stephens Inc. (the "Administrator") on behalf of the
Fund, the Company has engaged the Administrator to provide the administrative
services specified therein.
3. (a) The Adviser shall make investments for the account of
the Fund in accordance with the Adviser's best judgment and consistent with the
investment objective and restrictions set forth in the Company's Prospectus,
the Act and the provisions of the Internal Revenue Code relating to regulated
investment companies, subject to policy decisions adopted by the Company's
Board of Directors. The Adviser shall advise the Company's officers and Board
of Directors, at such times as the Company's Board of Directors may specify, of
investments made for the Fund and shall, when requested by the Company's
officers or Board of Directors, supply the reasons for making particular
investments.
<PAGE> 2
(b) The Adviser shall provide to the Company investment
guidance and policy direction in connection with its daily management of the
Fund's portfolio, including oral, written research, analysis, advice,
statistical and economic data and information and judgments, and shall furnish
to the Company's Board of Directors periodic reports on the investment strategy
and performance of the Fund and such additional reports and information as the
Company's Board of Directors and officers shall reasonably request.
(c) The Adviser shall pay the costs of printing and
distributing all materials relating to the Fund prepared by it, or prepared at
its request, other than such costs relating to proxy statements, prospectuses,
shareholder reports and other materials distributed to existing or prospective
shareholders on behalf of the Fund.
(d) The Adviser shall, at its expense, employ or associate
with itself such persons as the Adviser believes appropriate to assist it in
performing its obligations under this contract.
4. Except as provided in each of the Company's advisory contracts
and administration agreements, the Company shall bear all costs of its
operations, including the compensation of its directors who are not affiliated
with the Adviser, the Administrator or any of their affiliates; advisory and
administration fees; payments of distribution-related expenses pursuant to any
Rule 12b-l Plan, i.e. a plan of distribution of the Company adopted on behalf
of any of the Funds pursuant to Rule 12b-1 under the Act; governmental fees;
interest charges; taxes; fees and expenses of its independent accountants,
legal counsel, transfer agent and dividend disbursing agent; expenses of
redeeming shares; expenses of preparing and printing stock certificates,
prospectuses (except the expense of printing and mailing prospectuses used for
promotional purposes, unless otherwise payable pursuant to a Rule 12b-1 Plan),
shareholders' reports, notices, proxy statements and reports to regulatory
agencies; travel expenses of directors, officers and employees; office
supplies; insurance premiums and certain expenses relating to insurance
coverage; trade association membership dues; brokerage and other expenses
connected with the execution of portfolio securities transactions; fees and
expenses of any custodian, including those for keeping books and accounts and
calculating the net asset value per share of the Fund; expenses of
shareholders' meeting; expenses relating to the issuance, registration and
qualification of shares of the Fund; pricing services, if any; organizational
expenses; and any extraordinary expenses. Expenses attributable to one or
more, but not all, of the Funds are charged against the assets of the relevant
Funds. General expenses of the Funds are allocated among the Funds in a manner
proportionate to the net assets of each Fund, on a transactional basis or on
such other basis as the Board of Directors deems equitable.
5. The Adviser shall give the Company the benefit of the
Adviser's best judgment and efforts in rendering services under this contract.
As an inducement to the Adviser's undertaking to render these services, the
Company agrees that the Adviser shall not be liable under this contract for any
mistake in judgment or in any other event whatsoever except for lack of good
faith, provided that nothing in this contract shall be deemed to protect or
purport to protect the Adviser against any liability to the Company or its
shareholders to which the Adviser would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of the
Adviser's duties under this contract or by reason of reckless disregard of its
obligations and duties hereunder.
6. In consideration of the services to be rendered by the Adviser
under this contract, the Company shall pay the Adviser a monthly fee on the
first business day of each month, at the annual rate of 0.50% of the average
daily value (as determined on each day that such value is determined for the
Fund at the time set forth in the Prospectus for determining net asset value
per share) of the Fund's net assets during the preceding month. If the fee
payable to the Adviser pursuant to this paragraph 6 begins to accrue
2
<PAGE> 3
before the end of any month or if this contract terminates before the end of
any month, the fee for the period from the effective date to the end of that
month or from the beginning of that month to the termination date,
respectively, shall be prorated according to the proportion that the period
bears to the full month in which the effectiveness or termination occurs. For
purposes of calculating each such monthly fee, the value of the Fund's net
assets shall be computed in the manner specified in the Prospectus and the
Company's Articles of Incorporation for the computation of the value of the
Fund's net assets in connection with the determination of the net asset value
of Fund shares.
7. If in any fiscal year the total expenses of the Fund incurred
by, or allocated to, the Fund excluding taxes, interest, brokerage commissions
and other portfolio transaction expenses, other expenditures that are
capitalized in accordance with generally accepted accounting principles,
extraordinary expenses and amounts accrued or paid under a Rule 12b-1 Plan of
the Fund, but including the fees provided for in paragraph 6 and those provided
for pursuant to the Fund's Administration Agreement ("includible expenses"),
exceed the most restrictive expense limitation applicable to the Fund imposed
by state securities laws or regulations thereunder, as these limitations may be
raised or lowered from time to time, the Adviser shall waive or reimburse that
portion of the excess derived by multiplying the excess by a fraction, the
numerator of which shall be the percentage at which the excess portion
attributable to the fee payable pursuant to this agreement is calculated under
paragraph 6 hereof, and the denominator of which shall be the sum of such
percentage plus the percentage at which the excess portion attributable to the
fee payable pursuant to the Fund's Administration Agreement is calculated (the
"Applicable Ratio"), but only to the extent of the fee hereunder for the fiscal
year. If the fees payable under this agreement and/or the Fund's Advisory
Agreement contributing to such excess portion are calculated at more than one
percentage rate, the Applicable Ratio shall be calculated separately on the
basis of, and applied separately to, the portions of the fees calculated at the
different rates. At the end of each month of the Company' fiscal year, the
Company shall review the includible expenses accrued during that fiscal year to
the end of the period and shall estimate the contemplated includible expenses
for the balance of that fiscal year. If as a result of that review and
estimation it appears likely that the includible expenses will exceed the
limitations referred to in this paragraph 7 for a fiscal year with respect to
the Fund, the monthly fee set forth in paragraph 6 payable to the Adviser for
such month shall be reduced, subject to a later adjustment, by an amount equal
to the Applicable Ratio times the pro rata portion (prorated on the basis of
the remaining months of the fiscal year, including the month just ended) of the
amount by which the includible expenses for the fiscal year are expected to
exceed the limitations provided for in this paragraph 7. For purposes of
computing the excess, if any, over the most restrictive applicable expense
limitation, the value of the Fund's net assets shall be computed in the manner
specified in the last sentence of paragraph 6, and any reimbursements required
to be made by the Adviser shall be made once a year promptly after the end of
the Company's fiscal year.
8. This contract shall become effective on its execution date and
shall thereafter continue in effect, provided that this contract shall continue
in effect for a period of more than two years from the date hereof only so long
as the continuance is specifically approved at least annually (a) by the vote
of a majority of the Fund's outstanding voting securities (as defined in the
Act) or by the Company's Board of Directors and (b) by the vote, cast in person
at a meeting called for the purpose, of a majority of the Company's directors
who are not parties to this contract or "interested persons" (as defined in the
Act) of any such party. This contract may be terminated at any time by the
Company, without the payment of any penalty, by a vote of a majority of the
Fund's outstanding voting securities (as defined in the Act) or by a vote of a
majority of the Company's entire Board of Directors on 60 days' written notice
to the Adviser or by the Adviser, at any time after the second anniversary of
the effective date of this contract, on 60 days' written notice to the Company.
This contract shall terminate automatically in the event of its assignment (as
defined in the Act).
3
<PAGE> 4
9. Except to the extent necessary to perform the Adviser's
obligations under this contract, nothing herein shall be deemed to limit or
restrict the right of the Adviser, or any affiliate of the Adviser, or any
employee of the Adviser, to engage in any other business or to devote time and
attention to the management or other aspects of any other business, whether of
a similar or dissimilar nature, or to render services of any kind to any other
corporation, firm, individual or association.
10. The Adviser and the Company each agree that the words
"Overland Express," which comprise a component of the Company's name , is a
property right of the parent of the Adviser. The Company agrees and consents
that: (i) it will use the words "Overland Express" as a component of its
corporate name, the name of any class, or both and for no other purpose; (ii)
it will not grant to any third party the right to use the words "Overland
Express" for any purpose; (iii) the Adviser or any corporate affiliate of the
Adviser may use or grant to others the right to use the words "Overland
Express," or any combination or abbreviation thereof, as all or a portion of a
corporate or business name or for any commercial purpose, other than a grant of
such right to another registered investment company not advised by the Adviser
or one of its affiliates; and (iv) in the event that the Adviser or an
affiliate thereof is no longer acting as investment adviser to any class, the
Company shall, upon request by the Adviser, promptly take such action as may be
necessary to change its corporate name to one not containing the words
"Overland Express" and following such change, shall not use the words "Overland
Express," or any combination thereof, as a part of its corporate name or for
any other commercial purpose, and shall use its best efforts to cause its
directors, officers, and shareholders to take any and all actions that the
Adviser may request to effect the foregoing and to reconvey to the Adviser any
and all rights to such words.
4
<PAGE> 5
11. This contract shall be governed by and construed in accordance
with the laws of the State of California.
If the foregoing correctly sets forth the agreement between the Company
and the Adviser, please so indicate by signing and returning to the Company the
enclosed copy hereof.
Very truly yours,
OVERLAND EXPRESS FUNDS, INC.,
on behalf of the U.S. Government Income Fund
By: /s/ R. Greg Feltus
----------------------------------------
Title: R. Greg Feltus
ACCEPTED as of the date
set forth above:
WELLS FARGO BANK, N.A.
By: /s/ David Demarest
---------------------------
Title: Vice President
By: /s/William F. Aldinger
---------------------------
Title: Executive Vice President.
5
<PAGE> 1
EXHIBIT 99.B 5 (c)
ADVISORY CONTRACT
The Tax-Free Money Market Fund
a portfolio of
OVERLAND EXPRESS FUNDS, INC.
114 East Capitol Avenue
Little Rock, Arkansas 72201
April 1, 1988
Wells Fargo Bank, N.A.
420 Montgomery Street
San Francisco, California 94163
Dear Sirs:
This will confirm the agreement between the undersigned (the
"Company") on behalf of the Tax-Free Money Market Fund (the "Fund") and Wells
Fargo Bank, N.A. (the "Adviser") as follows:
1. The Company is an open-end investment company currently
consisting of three investment portfolios, but which may from time to time
consist of a greater or lesser number of investment portfolios (the "Funds").
The Company proposes to engage in the business of investing and reinvesting the
assets of the Fund in the manner and in accordance with the investment
objective and restrictions specified in the Company's currently effective
prospectus and the currently effective statement of additional information
incorporated by reference therein relating to the Fund and the Company (such
prospectus and such statement of additional information being collectively
referred to as the "Prospectus") included in the Company's Registration
Statement, as amended from time to time (the "Registration Statement"), filed
by the Company under the investment Company Act of 1940 (the "Act") and the
Securities Act of 1933. Copies of the documents referred to in the preceding
sentence have been furnished to the Adviser. Any amendments to those documents
shall be furnished to the Adviser promptly.
2. The Company is engaging the Adviser to manage the investing
and reinvesting of the assets of the Fund and to provide the advisory services
specified elsewhere in this contract, subject to the overall supervision of the
Board of Directors of the Company. Pursuant to an administration agreement
between the Company and Stephens Inc. (the "Administrator") on behalf of the
Fund, the Company has engaged the Administrator to provide the administrative
services specified therein.
3. (a) The Adviser shall make investments for the account of
the Fund in accordance with the Adviser's best judgment and consistent with the
investment objective and restrictions set forth in the Company's Prospectus,
the Act and the provisions of the Internal Revenue Code relating to regulated
investment companies, subject to policy decisions adopted by the Company's
Board of Directors. The Adviser shall advise the Company's officers and Board
of
1
<PAGE> 2
Directors, at such times as the Company's Board of Directors may specify, of
investments made for the Fund and shall, when requested by the Company's
officers or Board of Directors, supply the reasons for making particular
investments.
(b) The Adviser shall provide to the Company investment
guidance and policy direction in connection with its daily management of the
Fund's portfolio, including oral and written research, analysis, advice,
statistical and economic data and information and judgments, and shall furnish
to the Company's Board of Directors periodic reports on the investment strategy
and performance of the Fund and such additional reports and information as the
Company's Board of Directors and officers shall reasonably request.
(c) The Adviser shall pay the costs of printing and
distributing all materials relating to the Fund prepared by it, or prepared at
its request, other than such costs relating to proxy statements, prospectuses,
shareholder reports and other materials distributed to existing or prospective
shareholders on behalf of the Fund.
(d) The Adviser shall, at its expense, employ or associate
with itself such persons as the Adviser believes appropriate to assist it in
performing its obligations under this contract.
4. Except as provided in each of the Company's advisory
contracts and administration agreements, the Company shall bear all costs of
its operations, including the compensation of its directors who are not
affiliated with the Adviser, the Administrator or any of their affiliates;
advisory and administration fees; payments of distribution- related expenses
pursuant to any Rule 12b-1 Plan, i.e. a plan of distribution of the Company
adopted on behalf of any of the Funds pursuant to Rule 12b-1 under the Act;
governmental fees; interest charges; taxes; fees and expenses of its
independent accountants, legal counsel, transfer agent and dividend disbursing
agent; expenses of redeeming shares; expenses of preparing and printing stock
certificates, prospectuses (except the expense of printing and mailing
prospectuses used for promotional purposes, unless otherwise payable pursuant
to a Rule 12b-1 Plan), shareholders' reports, notices, proxy statements and
reports to regulatory agencies; travel expenses of directors, officers and
employees; office supplies; insurance premiums and certain expenses relating to
insurance coverage; trade association membership dues; brokerage and other
expenses connected with the execution of portfolio securities transactions;
fees and expenses of any custodian, including those for keeping books and
accounts and calculating the net asset value per share of the Fund; expenses of
shareholders' meetings; expenses relating to the issuance, registration and
qualification of shares of the Fund; pricing services, if any; organizational
expenses; and any extraordinary expenses. Expenses attributable to one or
more, but not all, of the Funds are charged against the assets of the relevant
Funds. General expenses of the Funds are allocated among the Funds in a manner
proportionate to the net assets of each Fund, on a transactional basis or on
such other basis as the Board of Directors deems equitable.
5. The Adviser shall give the Company the benefit of the
Adviser's best judgment and efforts in rendering services under this contract.
As an inducement to the Adviser's undertaking to render these services, the
Company agrees that the Adviser shall not be liable under this contract for any
mistake in judgment or in any other event whatsoever except for lack of good
faith, provided that nothing in this contract shall be deemed to protect or
purport to protect the Adviser against any liability to the Company or its
shareholders to which the Adviser would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the
2
<PAGE> 3
performance of the Adviser's duties under this contract or by reason of
reckless disregard of its obligations and duties hereunder.
6. In consideration of the services to be rendered by the
Adviser under this contract, the Company shall pay the Adviser a monthly fee on
the first business day of each month, at the annual rate of 0.45% of the
average daily value (as determined on each day that such value is determined
for the Fund at the time set forth in the Prospectus for determining net asset
value per share) of the Fund's net assets during the preceding month. If the
fee payable to the Adviser pursuant to this paragraph 6 begins to accrue before
the end of any month or if this contract terminates before the end of any
month, the fee for the period from the effective date to the end of that month
or from the beginning of that month to the termination date, respectively,
shall be prorated according to the proportion that the period bears to the full
month in which the effectiveness or termination occurs. For purposes of
calculating each such monthly fee, the value of the Fund's net assets shall be
computed in the manner specified in the Prospectus and the Company's Articles
of Incorporation for the computation of the value of the Fund's net assets in
connection with the determination of the net asset value of Fund shares.
7. If in any fiscal year the total expenses of the Fund incurred
by, or allocated to, the Fund excluding taxes, interest, brokerage commissions
and other portfolio transaction expenses, other expenditures that are
capitalized in accordance with generally accepted accounting principles,
extraordinary expenses and amounts accrued or paid under a Rule 12b-1 Plan of
the Fund, but including the fees provided for in paragraph 6 and those provided
for pursuant to the Fund's Administration Agreement ("includible expenses"),
exceed the most restrictive expense limitation applicable to the Fund imposed
by state securities laws or regulations thereunder, as these limitations may be
raised or lowered from time to time, the Adviser shall waive or reimburse that
portion of the excess derived by multiplying the excess by a fraction, the
numerator of which shall be the percentage at which the excess portion
attributable to the fee payable pursuant to this agreement is calculated under
paragraph 6 hereof, and the denominator of which shall be the sum of such
percentage plus the percentage at which the excess portion attributable to the
fee payable pursuant to the Fund's Administration Agreement is calculated
pursuant to the Fund's Administration Agreement is calculated (the "Applicable
Ratio"), but only to the extent of the fee hereunder for the fiscal year. If
the fees payable under this agreement and/or the Fund's Advisory Agreement
contributing to such excess portion are calculated at more than one percentage
rate, the Applicable Ratio shall be calculated separately on the basis of, and
applied separately to, the portions of the fees calculated at the different
rates. At the end of each month of the Company's fiscal year, the Company
shall review the includible expenses accrued during that fiscal year to the end
of the period and shall estimate the contemplated includible expenses for the
balance of that fiscal year. If as a result of that review and estimation it
appears likely that the includible expenses will exceed the limitations
referred to in this paragraph 7 for a fiscal year with respect to the Fund, the
monthly fee set forth in paragraph 6 payable to the Adviser for such month
shall be reduced, subject to a later adjustment, by an amount equal to the
Applicable Ratio times the pro rata portion (prorated on the basis of the
remaining months of the fiscal year, including the month just ended) of the
amount by which the includible expenses for the fiscal year are expected to
exceed the limitations provided for in this paragraph 7. For purposes of
computing the excess, if any, over the most restrictive applicable expense
limitation, the value of the Fund's net assets shall be computed in the manner
specified in the last sentence of paragraph 6, and any reimbursements required
to be made by the Adviser shall be made once a year promptly after the end of
the Company's fiscal year.
3
<PAGE> 4
8. This contract shall become effective on its execution date
and shall thereafter continue in effect, provided that this contract shall
continue in effect for a period of more than two years from the date hereof
only so long as the continuance is specifically approved at least annually (a)
by the vote of a majority of the Fund's outstanding voting securities (as
defined in the Act) or by the Company's Board of Directors and (b) by the vote,
cast in person at a meeting called for the purpose, of a majority of the
Company's directors who are not parties to this contract or "interested
persons" (as defined in the Act) of any such party. This contract may be
terminated at any time by the Company, without the payment of any penalty, by a
vote of a majority of the Fund's outstanding voting securities (as defined in
the Act) or by a vote of a majority of the Company's entire Board of Directors
on 60 days' written notice to the Adviser or by the Adviser, at any time after
the second anniversary of the effective date of this contract, on 60 days'
written notice to the Company. This contract shall terminate automatically in
the event of its assignment (as defined in this Act).
9. Except to the extent necessary to perform the Adviser's
obligations under this contract, nothing herein shall be deemed to limit or
restrict the right of the Adviser, or any affiliate of the Adviser, or any
employee of the Adviser, to engage in any other business or to devote time and
attention to the management or other aspects of any other business, whether of
a similar or dissimilar nature, or to render services of any kind to any other
corporation, firm, individual or association.
10. The Adviser and the Company each agree that the words
"Overland Express," which comprise a component of the Company's name, is a
property right of the parent of the Adviser. The Company agrees and consents
that: (i) it will use the words "Overland Express" as a component of its
corporate name, the name of any class, or both and for no other purpose; (ii)
it will not grant to any third party the right to use the words "Overland
Express" for any purpose; (iii) the Adviser or any corporate affiliate of the
Adviser may use or grant to others the right to use the words "Overland
Express," or any combination or abbreviation thereof, as all or a portion of a
corporate or business name or for any commercial purpose, other than a grant of
such right to another registered investment company not advised by the Adviser
or one of its affiliates; and (iv) in the event that the Adviser or an
affiliate thereof is no longer acting as investment adviser to any class, the
Company shall, upon request by the Adviser, promptly take such action as may be
necessary to change its corporate name to one not containing the words
"Overland Express" and following such change, shall not use the words "Overland
Express," or any combination thereof, as a part of its corporate name or for
any other commercial purpose, and shall use its best efforts to cause its
directors, officers, and shareholders to take any and all actions that the
Adviser may request to effect the foregoing and to reconvey to the Adviser any
and all rights to such words.
11. This contract shall be governed by and construed in
accordance with the laws of the State of California.
4
<PAGE> 5
If the foregoing correctly sets forth the agreement between the
Company and the Adviser, please so indicate by signing and returning to the
Company the enclosed copy hereof.
Very truly yours,
OVERLAND EXPRESS FUNDS, INC.,
on behalf of
The Tax-Free Money Market Fund
By: /s/ R. GREG FELTUS
----------------------------------------
Title: President
-------------------------------------
ACCEPTED as of the date
set forth above:
WELLS FARGO BANK, N.A.
By: /s/ DAVID DEMAREST
----------------------------
Title: Vice President
-------------------------
By: /s/ WILLIAM ALDINGER
----------------------------
Title: Executive Vice President
------------------------
<PAGE> 1
EXHIBIT 99.B5(d)
ADVISORY CONTRACT
The California Tax-Free Bond Fund
a portfolio of
OVERLAND EXPRESS FUNDS, INC.
114 East Capital Avenue
Little Rock, Arkansas 72201
October 6, 1988
Wells Fargo Bank, N.A.
420 Montgomery Street
San Francisco, California 94163
Dear Sirs:
This will confirm the agreement between the undersigned (the
"Company") on behalf of the California Tax-Free Bond Fund (the "Fund") and
Wells Fargo Bank, N.A. (the "Adviser") as follows:
1. The Company is an open-end investment company currently consisting
of four investment portfolios, but which may from time to time consist of a
greater or lesser number of investment portfolios (the "Funds"). The Company
proposes to engage in the business of investing and reinvesting the assets of
the fund in the manner and in accordance with the investment objective and
restrictions specified in the Company's currently effective prospectus and the
currently effective statement of additional information incorporated by
reference therein relating to the Fund and the Company (such prospectus and
such statement of additional information being collectively referred to as the
"Prospectus") included in the Company's Registration Statement, as amended from
time to time (the "Registration Statement"), filed by the Company under the
Investment Company Act of 1940 (the "Act) and the Securities Act of 1933.
Copies of the documents referred to in the preceding sentence have been
furnished to the Adviser. Any amendments to those documents shall be furnished
to the Adviser promptly.
2. The Company is engaging the Adviser to manage the investing and
reinvesting of the assets of the Fund and to provide the advisory services
specified elsewhere in this contract, subject to the overall supervision of the
Board of Directors of the Company. Pursuant to an administrative agreement
between the Company and Stephens Inc. (the "Administrator") on behalf of the
Fund, the Company has engaged the Administrator to provide the administrative
services specified therein.
3. (a) The Adviser shall make investments for the account of the Fund
in accordance with the Adviser's best judgment and consistent with the
investment objective and restrictions set forth in the Company's Prospectus,
the Act and the provisions of the Internal Revenue Code relating to regulated
investment companies, subject to policy decisions adopted by the Company's
Board of Directors. The Adviser shall advise the Company's officers and Board
of Directors, at
1
<PAGE> 2
such times as the Company's Board of Directors may specify, of investments made
for the Fund and shall, when requested by the Company's officers or Board of
Directors, supply the reasons for making particular investments.
(b) The Advisor shall provide to the Company investment guidance
and policy direction in connection with its daily management of the Fund's
portfolio, including oral and written research, analysis, advice, statistical
and economic data and information and judgments, and shall furnish to the
Company's Board of Directors periodic reports on the investment strategy and
performance of the Fund and such additional reports and information as the
Company's Board of Directors and officers shall reasonably request.
(c) The Adviser shall pay the costs of printing and distributing
all materials relating to the Fund prepared by it, or prepared at its request,
other than such costs relating to proxy statement, prospectuses, shareholder
reports and other materials distributed to existing or prospective shareholders
on behalf of the Fund.
(d) The Adviser shall, at its expense, employ or associate with
itself such persons as the Adviser believes appropriate to assist it in
performing it obligations under this contract.
4. Except as provided in each of the Company's advisory contracts and
administration agreements, the Company shall bear all costs of its operations,
including the compensation of its directors who are not affiliated with the
Adviser, the Administrator or any of their affiliates; advisory and
administration fees; payments of distribution-related expenses pursuant to any
Rule 12b-1 Plan, i.e. a plan of distribution of the Company adopted on behalf
of any of the Funds pursuant to Rule 12b-1 under the Act; governmental fees;
interest charges; taxes; fees and expenses of its independent accountants,
legal counsel, transfer agent and dividend disbursing agent; expenses of
redeeming shares; expenses of preparing and printing stock certificates,
prospectuses (except the expense of printing and mailing prospectuses used for
promotional purposes, unless otherwise payable pursuant to a Rule 12b-1 Plan),
shareholders' reports, notices, proxy statements and reports to regulatory
agencies; travel expenses of directors, officers and employees; office
supplies; insurance premiums and certain expenses relating to insurance
coverage; trade association membership dues; brokerage and other expenses
connected with the execution of portfolio securities transactions; fees and
expenses of any custodian, including those for keeping books and accounts and
calculating the net asset value per share of the Fund; expenses of
shareholders' meetings; expenses relating to the issuance, registration and
qualification of shares of the Fund; pricing services, if any; organizational
expenses; and any extraordinary expenses. Expenses attributable to one or more,
but not all, of the Funds are charged against the assets of the relevant Funds.
General expenses of the Funds are allocated among the Funds in a manner
proportionate to the net assets of each Fund, on a transactional basis or on
such other basis as the Board of Directors deems equitable.
5. The Adviser shall give the Company the benefit of the Adviser's
best judgment and efforts in rendering services under this contract. As an
inducement to the Adviser's undertaking to render these services, the Company
agrees that the Adviser shall not be liable under this contract for any mistake
in judgment or in any other event whatsoever except for lack of good faith,
provided that nothing in this contract shall be deemed to protect or purport to
protect the Adviser against any liability to the Company or its shareholder to
which the Adviser would otherwise be subject by reason of willful misfeasance,
bad faith or gross negligence in the performance of the
2
<PAGE> 3
Adviser's duties under this contract or by reason of reckless disregard of its
obligations and duties hereunder.
6. In consideration of the services to be rendered by the Adviser
under this contract, the Company shall pay the Adviser a monthly fee on the
first business day of each month, at the annual rate of 0.50% of the average
daily value (as determined on each day that such value is determined for the
Fund at the time set forth in the Prospectus for determining net asset value
per share) of the Fund's net assets during the preceding month. If the fee
payable to the Adviser pursuant to this paragraph 6 begins to accrue before the
end of any month or if this contract terminates before the end of any month,
the fee for the period from the effective date to the end of that month or from
the beginning of that month to the termination date, respectively, shall be
prorated according to the proportion that the period bears to the full month in
which the effectiveness or termination occurs. For purposes of calculating each
such monthly fee, the value of the Fund's net assets shall be computed in the
manner specified in the Prospectus and the Company's Articles of Incorporation
for the computation of the value of the Fund's net assets in connection with
the determination of the net asset value of Fund shares.
7. If in any fiscal year the total expenses of the Fund incurred by,
or allocated to, the Fund excluding taxes, interest, brokerage commissions and
other portfolio transaction expenses, other expenditures that are capitalized
in accordance with generally accepted accounting principles, extraordinary
expenses and amounts accrued or paid under a Rule 12b-1 Plan of the Fund, but
including the fees provided for in paragraph 6 and those provided for pursuant
to the Fund's Administration Agreement ("includible expenses"), exceed the most
restrictive expense limitation applicable to the Fund imposed by state
securities laws or regulations thereunder, as these limitations may be raised
or lowered from time to time, the Adviser shall waive or reimburse that portion
of the excess derived by multiplying the excess by a fraction, the numerator of
which shall be the percentage at which the excess portion attributable to the
fee payable pursuant to this agreement is calculated under paragraph 6 hereof,
and the denominator of which shall be the sum of such percentage plus the
percentage at which the excess portion attributable to the fee payable pursuant
to the Fund's Administration Agreement is calculated (the "Applicable Ratio"),
but only to the extent of the fee hereunder for the fiscal year. If the fees
payable under this agreement and/or the Fund's Administration Agreement
contributing to such excess portion are calculated at more than one percentage
rate, the Applicable Ratio shall be calculated separately on the basis of, and
applied separately to, the portions of the fees calculated at the different
rates. At the end of each month of the Company's fiscal year, the Company shall
review the includible expenses accrued during that fiscal year to the end of
the period and shall estimate the contemplated includible expenses for the
balance of that fiscal year. If as a result of that review and estimation it
appears likely that the includible expenses will exceed the limitations
referred to in this paragraph 7 for a fiscal year with respect to the Fund, the
monthly fee set forth in paragraph 6 payable to the Adviser for such month
shall be reduced, subject to a later adjustment, by an amount equal to the
Applicable Ratio times the pro rata portion (prorated on the basis of the
remaining months of the fiscal year, including the month just ended) of the
amount by which the includible expenses for the fiscal year are expected to
exceed the limitations provided for in this paragraph 7. For purposes of
computing the excess, if any, over the most restrictive applicable expense
limitation, the value of the Fund's net assets shall be computed in the manner
specified in the last sentence of paragraph 6, and any reimbursements required
to be made by the Adviser shall be made once a year promptly after the end of
the Company's fiscal year.
3
<PAGE> 4
8. This contract shall become effective on its execution date and
shall thereafter continue in effect, provided that this contract shall continue
in effect for a period of more than two years from the date hereof only so long
as the continuance is specifically approved at least annually (a) by the vote
of a majority of the Fund's outstanding voting securities (as defined in the
Act) or by the Company's Board of Directors and (b) by the vote, cast in person
at a meeting called for the purpose, of a majority of the Company's directors
who are not parties to this contract or "interested persons" (as defined in the
Act) of any such party. This contract may be terminated at any time by the
Company, without the payment of any penalty, by a vote of a majority of the
Fund's outstanding voting securities (as defined in the Act) or by a vote of a
majority of the Company's entire Board of Directors on 60 days' written notice
to the Adviser or by the Adviser, at any time after the second anniversary of
the effective date of this contract, on 60 days' written notice to the Company.
This contract shall terminate automatically in the event of its assignment (as
defined in the Act).
9. Except to the extent necessary to perform the Adviser's obligations
under this contract, nothing herein shall be deemed to limit or restrict the
right of the Adviser, or any affiliate of the Adviser, or any employee of the
Adviser, to engage in any other business or to devote time and attention to the
management or other aspects of any other business, whether of a similar or
dissimilar nature, or to render services of any kind to any other corporation,
firm, individual or association.
10. The Adviser and the Company each agree that the words "Overland
Express," which comprise a component of the Company's name is a property right
of the parent of the Adviser. The Company agrees and consents that: (i) it will
use the words "Overland Express" as a component of its corporate name, the name
of any class, or both and for no other purpose; (ii) it will not grant to any
third party the right to use the words "Overland express" for any purpose;
(iii) the Adviser or any corporate affiliate of the Adviser may use or grant to
others the right to use the words "Overland Express," or any combination or
abbreviation thereof, as all or a portion of a corporate or business name or
for any commercial purpose, other than a grant of such right to another
registered investment company not advised by the Adviser or one of its
affiliates; and (iv) in the event that the Adviser or an affiliate thereof is
no longer acting as investment adviser to any class, the Company shall, upon
request by the Adviser, promptly take such action as may be necessary to change
its corporate name to one not containing the words "Overland Express" and
following such change, shall not use the words "Overland Express," or any
combination thereof, as a part of its corporate name or for any other
commercial purpose, and shall use its best efforts to cause its directors,
officers, and shareholders to take any and all actions that the Adviser may
request to effect the foregoing and to reconvey to the Adviser any and all
rights to such words.
11. This contract shall be governed by and construed in accordance with
the laws of the State of California.
4
<PAGE> 5
If the foregoing correctly sets forth the agreement between the Company and the
Adviser, please so indicate by signing and returning to the Company the
enclosed copy hereof.
Very truly yours,
OVERLAND EXPRESS FUNDS, INC.,
behalf of the California Tax-Free Bond Fund
By: /s/R. Greg Feltus
---------------------------
Title: President
------------------------
ACCEPTED as of the date set forth above:
WELLS FARGO BANK, N.A.
By: /s/David Demarest
------------------------------
Title: Vice President
---------------------------
By: /s/William F. Aldinger
------------------------------
Title: Executive Vice President
---------------------------
5
<PAGE> 1
EXHIBIT 99.B5(e)
ADVISORY CONTRACT
The Money Market Fund
a portfolio of
OVERLAND EXPRESS FUNDS, INC.
114 East Capitol Avenue
Little Rock, Arkansas 72201
October 2, 1989
Wells Fargo Bank, N.A.
420 Montgomery Street
San Francisco, California 94163
Dear Sirs:
This will confirm the agreement between the undersigned (the
"Company") on behalf of the Money Market Fund (the "Fund") and Wells Fargo
Bank, N.A. (the "Adviser") as follows:
1. The Company is an open-end investment company currently
consisting of five investment portfolios, but which may from time to time
consist of a greater or lesser number of investment portfolios, (the "Funds").
The Company proposes to engage in the business of investing and reinvesting the
assets of the Fund in the manner and in accordance with the investment
objective and restrictions specified in the Company's currently effective
prospectus and the currently effective statement of additional information
incorporated by reference therein relating to the Fund and the Company (such
prospectus and such statement of additional information being collectively
referred to as the "Prospectus") included in the Company's Registration
Statement, as amended from time to time (the "Registration Statement'), filed
by the Company under the Investment Company Act of 1940 (the "Act") and the
Securities Act of 1933. Copies of the documents referred to in the preceding
sentence have been furnished to the Adviser. Any amendments to those documents
shall be furnished to the Adviser promptly.
2. The Company is engaging the Adviser to manage the investing
and reinvesting of the assets of the Fund and to provide the advisory services
specified elsewhere in this contract, subject to the overall supervision of the
Board of Directors of the Company. Pursuant to an administration agreement
between the Company and Stephens Inc. (the "Administrator") on behalf of the
Fund, the Company has engaged the Administrator to provide the administrative
services specified therein.
3. (a) The Adviser shall make investments for the account of the
Fund in accordance with the Adviser's best judgment and consistent with the
investment objective and restrictions set forth in the Company's Prospectus,
the Act and the provisions of the Internal Revenue Code relating to regulated
investment companies, subject to policy decisions adopted by the Company's
Board of Directors. The Adviser shall advise the Company's officers and Board
of Directors, at such times as the Company's Board of Directors may specify, of
investments made
1
<PAGE> 2
for the Fund and shall, when requested by the Company's officers of Board of
Directors, supply the reasons for making particular investments.
(b) The Adviser shall provide to the Company investment
guidance and policy direction in connection with its daily management of the
Fund's portfolio, including oral and written research, analysis, advice,
statistical and economic data and information and judgments, and shall furnish
to the Company's Board of Directors periodic reports on the investment strategy
and performance of the Fund and such additional reports and information as the
Company's Board of Directors and officers shall reasonably request.
(c) The Adviser shall pay the costs of printing and
distributing all materials relating to the Fund prepared by it, or prepared at
its request, other than such costs relating to proxy statements, prospectuses,
shareholder reports and other materials distributed to existing or prospective
shareholders on behalf of the Fund.
(d) The Adviser shall, at its expense, employ or associate
with itself such persons as the Adviser believes appropriate to assist it in
performing its obligations under this contract.
4. Except as provided in each of the Company's advisory contracts
and administration agreements, the Company shall bear all costs of its
operations, including the compensation of its directors who are not affiliated
with the Adviser, the Administrator or any of their affiliates; advisory and
administration fees; payments of distribution-related expenses pursuant to any
Rule 12b-1 Plan, i.e., a plan of distribution of the Company adopted on behalf
of any of the Funds pursuant to Rule 12b-1 under the Act; governmental fees;
interest charges; taxes; fees and expenses of its independent accountants,
legal counsel, transfer agent and dividend disbursing agent; expenses of
redeeming shares; expenses of preparing and printing stock certificates,
prospectuses (except the expense of printing and mailing prospectuses used for
promotional purposes, unless otherwise payable pursuant to a Rule 12b-1 Plan),
shareholders' reports, notices, proxy statements and reports to regulatory
agencies; travel expenses of directors, officers and employees; office
supplies; insurance premiums and certain expenses relating to insurance
coverage; trade association membership dues; brokerage and other expenses
connected with the execution of portfolio securities transactions; fees and
expenses of any custodian, including those for keeping books and accounts and
calculating the net asset value per share of the Fund; expenses of
shareholders' meetings; expenses relating to the issuance, registration and
qualification of shares of the Fund; pricing services, if any; organizational
expenses; and any extraordinary expenses. Expenses attributable to one or more,
but not all, of the Funds are charged against the assets of the relevant Funds.
General expenses of the Funds are allocated among the Funds in a manner
proportionate to the net assets of each Fund, on a transactional basis or on
such other basis as the Board of Directors deems equitable.
5. The Adviser shall give the Company the benefit of the
Adviser's best judgment and efforts in rendering services under this contract.
As an inducement to the Adviser's undertaking to render these services, the
Company agrees that the Adviser shall not be liable under this contract for any
mistake in judgment or in any other event whatsoever except for lack of good
faith, provided that nothing in this contract shall be deemed to protect or
purport to protect the Adviser against any liability to the Company or its
shareholders to which the Adviser would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the
2
<PAGE> 3
performance of the Adviser's duties under this contract or by reason of
reckless disregard of its obligations and duties hereunder.
6. In consideration of the services to be rendered by the Adviser
under this contract, the Company shall pay the Adviser a monthly fee on the
first business day of each month, at the annual rate of 0.25% of the average
daily value (as determined on each day that such value is determined for the
Fund at the time set forth in the Prospectus for determining net asset value
per share) of the Fund's net assets during the preceding month. If the fee
payable to the Adviser pursuant to this paragraph 6 begins to accrue before the
end of any month or if this contract terminates before the end of any month,
the fee for the period from the effective date to the end of that month or from
the beginning of that month to the termination date, respectively, shall be
prorated according to the proportion that the period bears to the full month in
which the effectiveness or termination occurs. For purposes of calculating each
such monthly fee, the value of the Fund's net assets shall be computed in the
manner specified in the Prospectus and the Company's Articles of Incorporation
for the computation of the value of the Fund's net assets in connection with
the determination of the net asset value of Fund shares.
7. If in any fiscal year the total expenses of the Fund incurred
by, or allocated to, the Fund excluding taxes, interest, brokerage commissions
and other portfolio transaction expenses, other expenditures that are
capitalized in accordance with generally accepted accounting principles,
extraordinary expenses and amounts accrued or paid under a Rule 12b-1 Plan of
the Fund, but including the fees provided for in paragraph 6 and those provided
for pursuant to the Fund's Administration Agreement ("includible expenses"),
exceed the most restrictive expense limitation applicable to the Fund imposed
by state securities laws or regulations thereunder, as these limitations may be
raised or lowered from time to time, the Adviser shall waive or reimburse that
portion of the excess derived by multiplying the excess by a fraction, the
numerator of which shall be the percentage at which the excess portion
attributable to the fee payable pursuant to this agreement is calculated under
paragraph 6 hereof, and the denominator of which shall be the sum of such
percentage plus the percentage at which the excess portion attributable to the
fee payable pursuant to the Fund's Administration Agreement is calculated (the
"Applicable Ratio"), but only to the extent of the fee hereunder for the fiscal
year. If the fees payable under this agreement and/or the Fund's Administration
Agreement contributing to such excess portion are calculated at more than one
percentage rate, the Applicable Ratio shall be calculated separately on the
basis of, and applied separately to, the portions of the fees calculated at the
different rates. At the end of each month of the Company's fiscal year, the
Company shall review the includible expenses accrued during that fiscal year to
the end of the period and shall estimate the contemplated includible expenses
for the balance of that fiscal year. If as a result of that review and
estimation it appears likely that the includible expenses will exceed the
limitations referred to in this paragraph 7 for a fiscal year with respect to
the Fund, the monthly fee set forth in paragraph 6 payable to the Adviser for
such month shall be reduced, subject to a later adjustment, by an amount equal
to the Applicable Ratio times the pro rata portion (prorated on the basis of
the remaining months of the fiscal year, including the month just ended) of the
amount by which the includible expenses for the fiscal year are expected to
exceed the limitations provided for in this paragraph 7. For purposes of
computing the excess, if any, over the most restrictive applicable expense
limitation, the value of the Fund's net assets shall be computed in the manner
specified in the last sentence of paragraph 6, and any reimbursements required
to be made by the Adviser shall be made once a year promptly after the end of
the Company's fiscal year.
3
<PAGE> 4
8. This contract shall become effective on its execution date and
shall thereafter continue in effect, provided that this contract shall continue
in effect for a period of more than two years from the date hereof only so long
as the continuance is specifically approved at least annually (a) by the vote
of a majority of the Fund's outstanding voting securities (as defined in the
Act) or by the Company's Board of Directors and (b) by the vote, cast in person
at a meeting called for the purpose, of a majority of the Company's directors
who are not parties to this contract or "interested persons" (as defined in the
Act) of any such party. This contract may be terminated at any time by the
Company, without the payment of any penalty, by a vote of a majority of the
Fund's outstanding voting securities (as defined in the Act) or by a vote of a
majority of the Company's entire Board of Directors on 60 days' written notice
to the Adviser or by the Adviser, at any time after the second anniversary of
the effective date of this contract, on 60 days' written notice to the Company.
This contract shall terminate automatically in the event of its assignment (as
defined in the Act).
9. Except to the extent necessary to perform the Adviser's
obligations under this contract, nothing herein shall be deemed to limit or
restrict the right of the Adviser, or any affiliate of the Adviser, or any
employee of the Adviser, to engage in any other business or to devote time and
attention to the management or other aspects of any other business, whether of
a similar or dissimilar nature, or to render services of any kind to any other
corporation, firm, individual or association.
10. The Adviser and the Company each agree that the words
"Overland Express," which comprise a component of the Company's name, is a
property right of the parent of the Adviser. The Company agrees and consents
that: (i) it will use the words "Overland Express" as a component of its
corporate name, the name of any class, or both and for no other purpose; (ii)
it will not grant to any third party the right to use the words "Overland
Express" for any purpose; (iii) the Adviser or any corporate affiliate of the
Adviser may use or grant to others the right to use the words "Overland
Express," or any combination or abbreviation thereof, as all or a portion of a
corporate or business name or for any commercial purpose, other than a grant of
such right to another registered investment company not advised by the Adviser
or one of its affiliates; and (iv) in the event that the Adviser or an
affiliate thereof is no longer acting as investment adviser to any class, the
Company shall, upon request by the Adviser, promptly take such action as may be
necessary to change its corporate name to one not containing the words
"Overland Express" and following such change, shall not use the words "Overland
Express," or any combination thereof, as a part of its corporate name or for
any other commercial purpose, and shall use its best efforts to cause its
directors, officers, and shareholders to take any and all actions that the
Adviser may request to effect the foregoing and to reconvey to the Adviser any
and all rights to such words.
4
<PAGE> 5
11. This contract shall be governed by and construed in accordance
with the laws of the State of California.
If the foregoing correctly sets forth the agreement between the
Company and the Adviser, please so indicate by signing and returning to the
Company the enclosed copy hereof.
Very truly yours,
OVERLAND EXPRESS FUNDS, INC.,
on behalf of the Money Market Fund
By: /s/R. Greg Feltus
-------------------------------
Title: President
----------------------------
ACCEPTED as of the date set forth above:
WELLS FARGO BANK, N.A.
By: /s/David Demarest
------------------------------
Title: Vice President
---------------------------
By: /s/William Aldinger
------------------------------
Title: Executive Vice President
---------------------------
5
<PAGE> 1
EXHIBIT 99.B5(f)
ADVISORY CONTRACT
The Variable Rate Government Fund
a portfolio of
OVERLAND EXPRESS FUNDS, INC.
114 East Capitol Avenue
Little Rock, Arkansas 72201
November 1, 1990
Wells Fargo Bank, N.A.
420 Montgomery Street
San Francisco, California 94163
Dear Sirs:
This will confirm the agreement between the undersigned (the
"Company") on behalf of the Variable Rate Government Fund (the "Fund") and
Wells Fargo Bank, N.A. (the "Adviser") as follows:
1. The Company is an open-end investment company currently consisting
of seven investment portfolios, but which may from time to time consist of a
greater or lesser number of investment portfolios (the "Funds"). The Company
proposes to engage in the business of investing and reinvesting the assets of
the Fund in the manner and in accordance with the investment objective and
restrictions specified in the Company's currently effective prospectus and the
currently effective statement of additional information incorporated by
reference therein relating to the Fund and the Company (such prospectus and
such statement of additional information being collectively referred to as the
"Prospectus") included in the Company's Registration Statement, as amended from
time to time (the "Registration Statement"), filed by the Company under the
Investment Company Act of 1940 (the "Act") and the Securities Act of 1933.
Copies of the documents referred to in the preceding sentence have been
furnished to the Adviser. Any amendments to those documents shall be furnished
to the Adviser promptly.
2. The Company is engaging the Adviser to manage the investing and
reinvesting of the assets of the Fund and to provide the advisory services
specified elsewhere in this contract, subject to the overall supervision of the
Board of Directors of the Company. Pursuant to an administration agreement
between the Company and Stephens Inc. (the "Administrator") on behalf of the
Fund, the Company has engaged the Administrator to provide the administrative
services specified therein.
3. (a) The Adviser shall make investments for the account of the Fund
in accordance with the Adviser's best judgment and consistent with the
investment objective and restrictions set forth in the Company's Prospectus,
the Act and the provisions of the Internal Revenue Code relating to regulated
investment companies, subject to policy decisions adopted by
<PAGE> 2
the Company's Board of Directors. The Adviser shall advise the Company's
officers and Board of Directors, at such times as the Company's Board of
Directors may specify, of investments made for the Fund and shall, when
requested by the Company's officers or Board of Directors, supply the reasons
for making particular investments.
(b) The Adviser shall provide to the Company investment guidance and
policy direction in connection with its daily management of the Fund's
portfolio, including oral and written research, analysis, advice, statistical
and economic data and information and judgments, and shall furnish to the
Company's Board of Directors periodic reports on the investment strategy and
performance of the Fund and such additional reports and information as the
Company's Board of Directors and officers shall reasonably request.
(c) The Adviser shall pay the costs of printing and distributing all
materials relating to the Fund prepared by it, or prepared at its request,
other than such costs relating to proxy statements, prospectuses, shareholder
reports and other materials distributed to existing or prospective shareholders
on behalf of the Fund
(d) The Adviser shall, at its expense, employ or associate with
itself such persons as the Adviser believes appropriate to assist it in
performing its obligations under this contract.
4. Except as provided in each of the Company's advisory contracts and
administration agreements, the Company shall bear all costs of its operations,
including the compensation of its directors who are not affiliated with the
Adviser, the Administrator or any of their affiliates; advisory and
administration fees; payments of distribution-related expenses pursuant to any
Rule 12b-1 Plan, i.e., a plan of distribution of the Company adopted on behalf
of any of the Funds pursuant to Rule 12b-1 under the Act; governmental fees;
interest charges; taxes; fees and expenses of its independent accountants,
legal counsel, transfer agent and dividend disbursing agent; expenses of
redeeming shares; expenses of preparing and printing stock certificates,
prospectuses (except the expense of printing and mailing prospectuses used for
promotional purposes unless otherwise payable pursuant to a Rule 12b-1 Plan),
shareholders' reports, notices, proxy statements and reports to regulatory
agencies; travel expenses of directors, officers and employees; office
supplies; insurance premiums and certain expenses relating to insurance
coverage; trade association membership dues; brokerage and other expenses
connected with the execution of portfolio securities transactions; fees and
expenses of any custodian, including those for keeping books and accounts and
calculating the net asset value per share of the Fund; expenses of
shareholders' meetings; expenses relating to the issuance, registration and
qualification of shares of the Fund; pricing services, if any; organizational
expenses; and any extraordinary expenses. Expenses attributable to one or more,
but not all, of the Funds are charged against the assets of the relevant Funds.
General expenses of the Funds are allocated among the Funds in a manner
proportionate to the net assets of each Fund, on a transactional basis or on
such other basis as the Board of Directors deems equitable.
5. The Adviser shall give the Company the benefit of the Adviser's best
judgment and efforts in rendering services under this contract. As an
inducement to the Adviser's undertaking
2
<PAGE> 3
to render these services, the Company agrees that the Adviser shall not be
liable under this contract for any mistake in judgment or in any other event
whatsoever except for lack of good faith, provided that nothing in this
contract shall be deemed to protect or purport to protect the Adviser against
any liability to the Company or its shareholders to which the Adviser would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of the Adviser's duties under this contract or by
reason of reckless disregard of its obligations and duties hereunder.
6. In consideration of the services to be rendered by the Adviser
under this contract, the Company shall pay the Adviser a monthly fee on the
first business day of each month, at the annual rate of 0.50% of the average
daily value (as determined on each day that such value is determined for the
Fund at the time set forth in the Prospectus for determining net asset value
per share) of the Fund's net assets during the preceding month. If the fee
payable to the Adviser pursuant to this paragraph 6 begins to accrue before the
end of any month or if this contract terminates before the end of any month,
the fee for the period from the effective date to the end of that month or from
the beginning of that month to the termination date, respectively, shall be
prorated according to the proportion that the period bears to the full month in
which the effectiveness or termination occurs. For purposes of calculating each
such monthly fee, the value of the Fund's net assets shall be computed in the
manner specified in the Prospectus and the Company's Articles of Incorporation
for the computation of the value of the Fund's net assets in connection with
the determination of the net asset value of Fund shares.
7. If in any fiscal year the total expenses of the Fund incurred by,
or allocated to, the Fund excluding taxes, interest, brokerage commissions and
other portfolio transaction expenses, other expenditures that are capitalized
in accordance with generally accepted accounting principles, extraordinary
expenses and amounts accrued or paid under a Rule 12b-1 Plan of the Fund, but
including the fees provided for in paragraph 6 and those provided for pursuant
to the Fund's Administration Agreement ("includible expenses"), exceed the most
restrictive expense limitation applicable to the Fund imposed by state
securities laws or regulations thereunder, as these limitations may be raised
or lowered from time to time, the Adviser shall waive or reimburse that portion
of the excess derived by multiplying the excess by a fraction, the numerator of
which shall be the percentage at which the excess portion attributable to the
fee payable pursuant to this agreement is calculated under paragraph 6 hereof,
and the denominator of which shall be the sum of such percentage plus the
percentage at which the excess portion attributable to the fee payable pursuant
to the Fund's Administration Agreement is calculated (the "Applicable Ratio"),
but only to the extent of the fee hereunder for the fiscal year. If the fees
payable under this agreement and/or the Fund's Administration Agreement
contributing to such excess portion are calculated at more than one percentage
rate, the Applicable Ratio shall be calculated separately on the basis of, and
applied separately to, the portions of the fees calculated at the different
rates. At the end of each month of the Company's fiscal year, the Company shall
review the includible expenses accrued during that fiscal year to the end of
the period and shall estimate the contemplated includible expenses for the
balance of that fiscal year. If as a result of that review and estimation it
limitations referred to in this paragraph 7 for a fiscal year with respect to
the Fund, the monthly fee set forth in paragraph 6 payable to the Adviser for
such month shall be reduced, subject to a later adjustment, by anappears likely
that the includible expenses will exceed the limitations referred to in this
paragraph 7 for a fiscal year with respect to the Fund, the monthly fee set
forth in paragraph 6 payable to the Adviser for such month shall be reduced,
subject to a later adjustment, by an
3
<PAGE> 4
amount equal to the Applicable Ratio times the pro rata portion (prorated on
the basis of the remaining months of the fiscal year, including the month just
ended) of the amount by which the includible expenses for the fiscal year are
expected to exceed the limitations provided for in this paragraph 7. For
purposes of computing the excess, if any, over the most restrictive applicable
expense limitation, the value of the Fund's net assets shall be computed in the
manner specified in the last sentence of paragraph 6, and any reimbursements
required to be made by the Adviser shall be made once a yea, promptly after the
end of the Company's fiscal year.
8. This contract shall become effective on its execution date and
shall thereafter continue in effect, provided that this contract shall continue
in effect for a period of more than two years from the date hereof only so long
as the continuance is specifically approved at least annually (a) by the vote
of a majority of the Fund's outstanding voting securities (as defined in the
Act) or by the Company's Board of Directors and (b) by the vote, cast in person
at a meeting called for the purpose, of a majority of the Company's directors
who are not parties to this contract or "interested persons" (as defined in the
Act) of any such party. This contract may be terminated at any time by the
Company, without the payment of any penalty, by a vote of a majority of the
Fund's outstanding voting securities (as defined in the Act) or by a vote of a
majority of the Company's entire Board of Directors on 60 days' written notice
to the Adviser or by the Adviser, at any time after the second anniversary of
the effective date of this contract, on 60 days' written notice to the Company.
This contract shall terminate automatically in the event of its assignment (as
defined in the Act).
9. Except to the extent necessary to perform the Adviser's obligations
under this contract, nothing herein shall be deemed to limit or restrict the
right of the Adviser, or any affiliate of the Adviser, or any employee of the
Adviser, to engage in any other business or to devote time and attention to the
management or other aspects of any other business, whether of a similar or
dissimilar nature, or to render services of any kind to any other corporation,
firm, individual or association.
10. The Adviser and the Company each agree that the words "Overland
Express," which comprise a component of the Company's name, is a property right
of the parent of the Adviser. The Company agrees and consents that: (i) it will
use the words "Overland Express" as a component of its corporate name, the name
of any class, or both and for no other purpose; (ii) it will not grant to any
third party the right to use the words "Overland Express" for any purpose;
(iii) the Adviser or any corporate affiliate of the Adviser may use or grant to
others the right to use the words "overland Express," or any combination or
abbreviation thereof, as all or a portion of a corporate or business name or
for any commercial purpose, other than a grant of such right to another
registered investment company not advised by the Adviser or one of its
affiliates; and (iv) in the event that the Adviser or an affiliate thereof is
no longer acting as investment adviser to any class, the Company, upon request
by the Adviser, promptly take such action as may be necessary to change its
corporate name to one not containing the words "Overland Express" and following
such change. shall not use the words "Overland Express," or any combination
thereof, as a part of its corporate name or for any other commercial purpose,
and shall use its best efforts to cause its directors, officers, and
shareholders to take any and all actions that the Adviser may request to effect
the foregoing and to reconvey to the Adviser any and all rights to such words.
4
<PAGE> 5
11. This contract shall be governed by and construed in accordance with
the laws of the State of California.
If the foregoing correctly sets forth the agreement between the
Company and the Adviser, please so indicate by signing and returning to the
Company the enclosed copy hereof.
Very truly yours,
OVERLAND EXPRESS FUNDS, INC.,
on behalf of the Growth and Income Fund
By: /s/ R. Greg Feltus
--------------------------------
Title: President
-----------------------------
ACCEPTED as of the date set forth above:
WELLS FARGO BANK, N.A.
By: /s/ David Demarest
----------------------------------
Title: Vice President
-------------------------------
By: /s/ William Aldinger
----------------------------------
Title: Executive Vice President
------------------------------
5
<PAGE> 1
EXHIBIT 99.B5(g)
ADVISORY CONTRACT
Municipal Income Fund
a portfolio of
OVERLAND EXPRESS FUNDS, INC.
111 Center Street
Little Rock, Arkansas 72201
July 9, 1991
Wells Fargo Bank, N.A.
420 Montgomery Street
San Francisco, California 94163
Dear Sirs:
This will confirm the agreement between the undersigned (the
"Company") on behalf of the Municipal Income Fund (the "Fund") and Wells Fargo
Bank, N.A. (the "Adviser") as follows :
1. The Company is a registered open-end management investment company
currently consisting of eight investment portfolios, but which may from time to
time consist of a greater or lesser number of investment portfolios (the
"Funds"). The Company proposes to engage in the business of investing and
reinvesting the assets of the Fund in the manner and in accordance with the
investment objective and restrictions specified in the Company's currently
effective prospectus and the currently effective statement of additional
information incorporated by reference therein relating to the Fund and the
Company (such prospectus and such statement of additional information being
collectively referred to as the "Prospectus") included in the Company's
Registration Statement as amended from time to time (the "Registration
Statement"), filed by the Company under the Investment Company Act of 1940 (the
"Act") and the Securities Act of 1933. Copies of the documents referred to in
the preceding sentence have been furnished to the Adviser. Any amendments to
those documents shall be furnished to the Adviser promptly.
2. The Company is engaging the Adviser to manage the investing and
reinvesting of the assets of the Fund and to provide the advisory services
specified elsewhere in this contract, subject to the overall supervision of the
Board of Directors of the Company. Pursuant to an administration agreement
between the Company and Stephens Inc. (the "Administrator") on behalf of the
Fund, the Company has engage the Administrator to provide the administrative
services specified therein.
3. (a) The Adviser shall make investments for the account of the Fund
in accordance with the Adviser's best judgment and consistent with the
investment objective and restrictions set forth in the Company's Prospectus,
the Act and the provisions of the Internal Revenue Code relating to regulated
investment companies, subject to policy decisions adopted by the Company's
Board of Directors. The Adviser shall advise the Company's officers and Board
of Directors, at such times as the Company's Board of Directors may specify, of
investments made for the Fund and shall, when requested by the Company's
officers or Board of Directors, supply the reasons for making particular
investments
(b) The Adviser shall provide to the Company investment guidance
and policy direction in connection with its daily management of the Fund's
portfolio, including oral and written
<PAGE> 2
research, analysis, advice, statistical and economic data and information and
judgments, and shall furnish to the Company's Board of Directors periodic
reports on the investment strategy and performance of the Fund and such
additional reports and information as the Company's Board of Directors and
officers shall reasonably request.
(c) The Adviser shall pay the costs of printing and distributing all
materials relating to the Fund prepared by it, or prepared at its request,
other than such costs relating to proxy statements, prospectuses, shareholder
reports and other materials distributed to existing or prospective shareholders
on behalf of the Fund.
(d) The Adviser shall, at its expense, employ or associate with
itself such persons as the Adviser believes appropriate to assist it in
performing its obligations under this contract.
4. Except as provided in each of the Company's advisory contracts and
administration agreements, the Company shall bear all costs of its operations,
including the compensation of its directors who are not affiliated with the
Adviser, the Administrator or any of their affiliates; advisory and
administration fees; payments of distribution-related expenses pursuant to any
Rule 12b-l Plan, i.e., a plan of distribution of the Company adopted on behalf
of any of the Funds pursuant to Rule 12b-l under the Act; governmental fees;
interest charges; taxes; fees and expenses of its independent accountants,
legal counsel, transfer agent and dividend disbursing agent; expenses of
redeeming shares; expenses of preparing and printing stock certificates,
prospectuses (except the expense of printing and mailing prospectuses used for
promotional purposes, unless otherwise payable pursuant to a Rule 12b-1 Plan),
shareholders' reports, notices, proxy statements and reports to regulatory
agencies; travel expenses of directors, officers and employees; office
supplies; insurance premiums and certain expenses relating to insurance
coverage; trade association membership dues; brokerage and other expenses
connected with the execution of portfolio securities transactions: fees and
expenses of any custodian, including those for keeping books and accounts and
calculating the net asset value per share of the Fund; expenses of
shareholders' meetings; expenses relating to the issuance, registration and
qualification of shares of the Fund; pricing services, if any; organizational
expenses; and any extraordinary expenses. Expenses attributable to one or more,
but not all, of the Funds are charged against the assets of the relevant Funds
General expenses of the Funds are allocated among the Funds in a manner
proportionate to the net-assets of each Fund, on a transactional basis or on
such other basis as the Board of Directors deems equitable.
5. The Adviser shall give the Company the benefit of the Adviser's
best judgment and efforts in rendering services under this contract. As an
inducement to the Adviser's undertaking to render these services, the Company
agrees that the Adviser shall not be liable under this contract for any mistake
in judgment or in any other event whatsoever except for lack of good faith,
provided that nothing in this contract shall be deemed to protect or purport to
protect the Adviser against any liability to the Company or its shareholders to
which the Adviser would otherwise be subject by reason of willful misfeasance,
bad faith or gross negligence in the performance of the Adviser's duties under
this contract or by reason of reckless disregard of its obligations and duties
hereunder.
6. In consideration of the services to be rendered by the Adviser
under this contract, the Company shall pay the Adviser a monthly fee on the
first business day of each month, at the annual rate of 0.50% of the average
daily value (as determined on each day that such value is determined for the
Fund at the time set forth in the Prospectus for determining net asset value
per share) of the Fund's net assets during the preceding month. If the fee
payable to the Adviser pursuant to' this paragraph 6 begins to accrue before
the end of any month or if this contract terminates before the end of any
month, the fee for the period from the effective date to the end of that month
or from the beginning of that month to the termination date,
2
<PAGE> 3
respectively, shall be prorated according to the proportion that the period
bears to the full month in which the effectiveness or termination occurs. For
purposes of calculating each such monthly fee, the value of the Fund's net
assets shall be computed in the manner specified in the Prospectus and the
Company's Articles of Incorporation for the computation of the value of the
Fund's net assets in connection with the determination of the net asset value
of Fund shares.
7. If in any fiscal year the total expenses of the Fund incurred by,
or allocated to, the Fund excluding taxes, interest, brokerage commissions and
other portfolio transaction expenses, other expenditures that are capitalized
in accordance with generally accepted accounting principles, extraordinary
expenses and amounts accrued or paid under a Rule 12b-1 Plan of the Fund, but
including the fees provided for in paragraph 6 and those provided for pursuant
to the Fund's Administration Agreement ("includable expenses"), exceed the most
restrictive expense limitation applicable to the Fund imposed by state
securities laws or regulations thereunder, as these limitations may be raised
or lowered from time to time, the Adviser shall waive or reimburse that portion
of the excess derived by multiplying the excess by a fraction, the numerator of
which shall be the percentage at which the excess portion attributable to the
fee payable pursuant to this agreement is calculated under paragraph 6 hereof,
and the denominator of which shall be the sum of such percentage plus the
percentage at which the excess portion attributable to the fee payable pursuant
to the Fund's Administration Agreement is calculated (the "Applicable Ratio"),
but only to the extent of the fee hereunder for the fiscal year. If the fees
payable under this agreement and/or the Fund's Administration Agreement
contributing to such excess portion are calculated at more than one percentage
rate, the Applicable Ratio shall be calculated separately on the basis of, and
applied separately to, the portions of the fees calculated at the different
rates. At the end of each month of the Company's fiscal year, the Company shall
review the includable expenses accrued during that fiscal year to the end of
the period and shall estimate the contemplated includable expenses for the
balance of that fiscal year. If as a result of that review and estimation it
appears likely that the includable expenses will exceed the limitations
referred to in this paragraph 7 for a fiscal year with respect to the Fund, the
monthly fee set forth in paragraph 6 payable to the Adviser for such month
shall be reduced, subject to a later adjustment, by an amount equal to the
Applicable Ratio times the pro rata portion (prorated on the basis of the
remaining months of the fiscal year, including the month just ended) of the
amount by which the includable expenses for the fiscal year are expected to
exceed the limitations provided f or in this paragraph 7. For purposes of
computing the excess, it any, over the most restrictive applicable expense
limitation, the value of the Fund's net assets shall be computed in the manner
specified in the last sentence of paragraph 6, and any reimbursements required
to be made by the Adviser shall be made once a year promptly after the end of
the Company's fiscal year.
8. This contract shall become effective on its execution date and
shall thereafter continue in effect, provided that this contract shall continue
in effect for a period of more than two years from the date hereof only so long
as the continuance is specifically approved at least annually (a) by the vote
of a majority of the Fund's outstanding voting securities (as defined in the
Act) or by the Company's Board of Directors and (b) by the vote, cast in person
at a meeting called for the purpose, of a majority of the Company's directors
who are not parties to this contract or "interested persons" (as defined in the
Act) of any such party. This contract may be terminated at any time by the
Company, without the payment of any penalty, by a vote of a majority of the
Fund's outstanding voting securities (as defined in the Act) or by a vote of a
majority of the Company's entire Board of Directors on 60 days' written notice
to the Adviser or by the Adviser, at any time after the second anniversary of
the effective date of this contract, on 60 days written notice to the Company.
This contract shall terminate automatically in the event of its assignment (as
defined in the Act).
3
<PAGE> 4
9. Except to the extent necessary to perform the Adviser's obligations
under this contract, nothing herein shall be deemed to limit or restrict the
right of the Adviser, or any affiliate of the Adviser, or any employee of the
Adviser, to engage in any other business or to devote time and attention to the
management or other aspects of any other business, whether of a similar or
dissimilar nature, or to render services of any kind to any other corporation,
firm, individual or association.
10. The Adviser and the Company each agree that the words "Overland
Express," which comprise a component of the Company's name, is a property right
of the parent of the Adviser. The Company agrees and consents that: (i) it will
use the words "Overland Express" as a component of its corporate name, the name
of any class, or both and for no other purpose; (ii) it will not grant to any
third party the right to use the words "Overland Express" for any purpose;
(iii) the Adviser or any corporate affiliate of the Adviser may use or grant to
others the right to use the words "Overland Express," or any combination or
abbreviation thereof, as all or a portion of a corporate or business name or
for any commercial purposes other than a grant of such right to another
registered investment company not advised by the Adviser or one of its
affiliates; and (iv) in the event that the Adviser or an affiliate thereof is
no longer acting as investment adviser en any class, the Company shall, upon
request by the Adviser, promptly take such action as may be necessary to change
its corporate name to one not containing the words "Overland Express" and
following such change, shall not use the words "Overland Express," or any
combination thereof, as a part of its corporate name or for any other
commercial purpose, and shall use its best efforts to cause its directors,
officers, and shareholders to take any and all actions that the Adviser may
request to effect the foregoing and to reconvey to the Adviser any and all
rights to such words.
4
<PAGE> 5
11. This contract, which may be executed in counterparts, all of which
together shall constitute one original, shall be governed by and construed in
accordance with the laws of the State of California.
If the foregoing correctly sets forth the agreement between the
Company and the Adviser, please so indicate by signing and returning to the
Company the enclosed copy hereof
Very truly yours,
OVERLAND EXPRESS FUNDS, INC.,
on behalf of the Municipal Income Fund
By: /s/ Richard H. Blank, Jr.
----------------------------------
Name: Richard H. Blank, Jr.
--------------------------------
Title: Chief Operating Officer
-------------------------------
ACCEPTED as of the date set forth above:
WELLS FARGO BANK, N.A.
By: /s/ David Demarest
---------------------------------
Name: David Demarest
-------------------------------
Title: Vice President
------------------------------
By: /s/ William F. Aldinger
---------------------------------
Name: William F. Aldinger
-------------------------------
Title: Executive Vice President
------------------------------
5
<PAGE> 1
EXHIBIT 99.B5(h)
ADVISORY CONTRACT
U.S. TREASURY MONEY MARKET FUND
a portfolio of
OVERLAND EXPRESS FUNDS, INC.
111 Center Street
Little Rock, Arkansas 72201
May 1, 1992
Wells Fargo Bank, N.A.
420 Montgomery Street
San Francisco, California 94163
Dear Sirs:
This will confirm the agreement between the undersigned (the
"Company") on behalf of the U.S. Treasury Money Market Fund (the "Fund") and
Wells Fargo Bank, N.A. (the "Adviser") as follows:
1. The Company is a registered open-end management investment
company currently consisting of eleven investment portfolios, but which may
from time to time consist of a greater or lesser number of investment
portfolios (the "Funds"). The Company proposes to engage in the business of
investing and reinvesting the assets of the Fund in the manner and in
accordance with the investment objective and restrictions specified in the
Company's currently effective prospectus and the currently effective statement
of additional information incorporated by reference therein relating to the
Fund and the Company (such prospectus and such statement of additional
information being collectively referred to as the "Prospectus") included in the
Company's Registration Statement, as amended from time to time (the
"Registration Statement"), filed by the Company under the Investment Company
Act of 1940 (the "Act") and the Securities Act of 1933. Copies of the documents
referred to in the preceding sentence have been furnished to the Adviser. Any
amendments to those documents shall be furnished to the Adviser promptly.
2. The Company is engaging the Adviser to manage the investing
and reinvesting of the assets of the Fund and to provide the advisory services
specified elsewhere in this contract, subject to the overall supervision of the
Board of Directors of the Company. Pursuant to an administration agreement
between the Company and Stephens Inc. (the "Administrator") on behalf of the
Fund, the Company has engaged the Administrator to provide the administrative
services specified therein.
3. (a) The Adviser shall make investments for the account of the
Fund in accordance with the Adviser's best judgment and consistent with the
investment objective and restrictions set forth in the Company's Prospectus,
the Act and the provisions of the Internal Revenue Code relating to regulated
investment companies, subject to policy decisions adopted by the Company's
Board of Directors. The Adviser shall advise the Company's officers and Board
of Directors, at such Adviser shall advise the Company's officers and Board of
Directors, at such times as the Company's Board of Directors may specify, of
investments made for the Fund and shall, when requested by the Company's
officers or Board of Directors, supply the reasons for making particular
investments. times as the Company's Board of Directors may specify, of
investments made for the Fund and shall, when requested by the Company's
officers or Board of Directors, supply the reasons for making particular
investments.
1
<PAGE> 2
(b) The Adviser shall provide to the Company investment
guidance and policy direction in connection with its daily management of the
Fund's portfolio, including oral and written research, analysis, advice,
statistical and economic data and information and judgments, and shall furnish
to the Company's Board of Directors periodic reports on the investment strategy
and performance of the Fund and such additional reports and information as the
Company's Board of Directors and officers shall reasonably request.
(c) The Adviser shall pay the costs of printing and
distributing all materials relating to the Fund prepared by it, or prepared at
its request, other than such costs relating to proxy statements, prospectuses,
shareholder reports and other materials distributed to existing or prospective
shareholders on behalf of the Fund.
(d) The Adviser shall, at its expense, employ or associate
with itself such persons as the Adviser believes appropriate to assist it in
performing its obligations under this contract.
4. Except as provided in each of the Company's advisory contracts
and administration agreements, the Company shall bear all costs of its
operations, including the compensation of its directors who are not affiliated
with the Adviser, the Administrator or any of their affiliates; advisory and
administration fees; payments of distribution-related expenses pursuant to any
Rule 12b-1 Plan, i.e., a plan of distribution of the Company adopted on behalf
of any of the Funds pursuant to Rule 12b-1 under the Act; governmental fees;
interest charges; taxes; fees and expenses of its independent accountants,
legal counsel, transfer agent and dividend disbursing agent; expenses of
redeeming shares; expenses of preparing and printing stock certificates,
prospectuses (except the expense of printing and mailing prospectuses used for
promotional purposes, unless otherwise payable pursuant to a Rule 12b-1 Plan),
shareholders' reports, notices, proxy statements and reports to regulatory
agencies; travel expenses of directors, officers and employees; office
supplies; insurance premiums and certain expenses relating to insurance
coverage; trade association membership dues; brokerage and other expenses
connected with the execution of portfolio securities transactions; fees and
expenses of any custodian, including those for keeping books and accounts and
calculating the net asset value per share of the Fund; expenses of
shareholders' meetings; expenses relating to the issuance, registration and
qualification of shares of the Fund; pricing services, if any; organizational
expenses; and any extraordinary expenses. Expenses attributable to one or more,
but not all, of the Funds are charged against the assets of the relevant Funds.
General expenses of the Funds are allocated among the Funds in a manner
proportionate to the net assets of each Fund, on a transactional basis or on
such other basis as the Board of Directors deems equitable.
5. The Adviser shall give the Company the benefit of the Adviser's
best judgment and efforts in rendering services under this contract. As an
inducement to the Adviser's undertaking to render these services, the Company
agrees that the Adviser shall not be liable under this contract for any mistake
in judgment or in any other event whatsoever except for lack of good faith,
provided that nothing in this contract shall be deemed to protect or purport to
protect the Adviser against any liability to the Company or its shareholders to
which the Adviser would otherwise be subject by reason of willful misfeasance,
bad faith or gross negligence in the performance of the Adviser's duties under
this contract or by reason of reckless disregard of its obligations and duties
hereunder.
6. In consideration of the services to be rendered by the Adviser
under this contract, the Company shall pay the Adviser a monthly fee on the
first business day of each month, at the annual rate of 0.25% of the average
daily value (as determined on each day that such value is determined for the
Fund at the time set forth in the Prospectus for determining net asset value
per share) of the Fund's net assets during the preceding month. If the fee
payable to the Adviser pursuant to this paragraph 6 begins to accrue before
2
<PAGE> 3
the end of any month or if this contract terminates before the end of any
month, the fee for the period from the effective date to the end of that month
or from the beginning of that month to the termination date, respectively,
shall be prorated according to the proportion that the period bears to the full
month in which the effectiveness or termination occurs. For purposes of
calculating each such monthly fee, the value of the Fund's net assets shall be
computed in the manner specified in the Prospectus and the Company's Articles
of Incorporation for the computation of the value of the Fund's net assets in
connection with the determination of the net asset value of Fund shares.
7. If in any fiscal year the total expenses of the Fund incurred
by, or allocated to, the Fund excluding taxes, interest, brokerage commissions
and other portfolio transaction expenses, other expenditures that are
capitalized in accordance with generally accepted accounting principles,
extraordinary expenses and amounts accrued or paid under a Rule 12b-1 Plan of
the Fund, but including the fees provided for in paragraph 6 and those provided
for pursuant to the Fund's Administration Agreement ("includible expenses"),
exceed the most restrictive expense limitation applicable to the Fund imposed
by state securities laws or regulations thereunder, as these limitations may be
raised or lowered from time to time, the Adviser shall waive or reimburse that
portion of the excess derived by multiplying the excess by a fraction, the
numerator of which shall be the percentage at which the excess portion
attributable to the fee payable pursuant to this agreement is calculated under
paragraph 6 hereof, and the denominator of which shall be the sum of such
percentage plus the percentage at which the excess portion attributable to the
fee payable pursuant to the Fund's Administration Agreement is calculated (the
"Applicable Ratio"), but only to the extent of the fee hereunder for the fiscal
year. If the fees payable under this agreement and/or the Fund's Administration
Agreement contributing to such excess portion are calculated at more than one
percentage rate, the Applicable Ratio shall be calculated separately on the
basis of, and applied separately to, the portions of the fees calculated at the
different rates. At the end of each month of the Company's fiscal year, the
Company shall review the includible expenses accrued during that fiscal year to
the end of the period and shall estimate the contemplated includible expenses
for the balance of that fiscal year. If as a result of that review and
estimation it appears likely that the includible expenses will exceed the
limitations referred to in this paragraph 7 for a fiscal year with respect to
the Fund, the monthly fee set forth in paragraph 6 payable to the Adviser for
such month shall be reduced, subject to a later adjustment, by an amount equal
to the Applicable Ratio times the pro rata portion (prorated on the basis of
the remaining months of the fiscal year, including the month just ended) of the
amount by which the includible expenses for the fiscal year are expected to
exceed the limitations provided for in this paragraph 7. For purposes of
computing the excess, if any, over the most restrictive applicable expense
limitation, the value of the Fund's net assets shall be computed in the manner
specified in the last sentence of paragraph 6, and any reimbursements required
to be made by the Adviser shall be made once a year promptly after the end of
the Company's fiscal year.
8. This contract shall become effective on its execution date and
shall thereafter continue in effect, provided that this contract shall continue
in effect for a period of more than two years from the date hereof only so long
as the continuance is specifically approved at least annually (a) by the vote
of a majority of the Fund's outstanding voting securities (as defined in the
Act) or by the Company's Board of Directors and (b) by the vote, cast in person
at a meeting called for the purpose, of a majority of the Company's directors
who are not parties to this contract or "interested persons" (as defined in the
Act) of any such party. This contract may be terminated at any time by the
Company, without the payment of any penalty, by a vote of a majority of the
Fund's outstanding voting securities (as defined in the Act) or by a vote of a
majority of the Company's entire Board of Directors on 60 days' written notice
to the Adviser or by the Adviser, at any time after the second anniversary of
the effective date of this contract, on 60 days' written notice to the Company.
This contract shall terminate automatically in the event of its assignment (as
defined in the Act).
3
<PAGE> 4
9. Except to the extent necessary to perform the Adviser's
obligations under this contract, nothing herein shall be deemed to limit or
restrict the right of the Adviser, or any affiliate of the Adviser, or any
employee of the Adviser, to engage in any other business or to devote time and
attention to the management or other aspects of any other business, whether of
a similar or dissimilar nature, or to render services of any kind to any other
corporation, firm, individual or association.
10. The Adviser and the Company each agree that the words "Overland
Express," which comprise a component of the Company's name, is a property right
of the parent of the Adviser. The Company agrees and consents that: (i) it will
use the words "Overland Express" as a component of its corporate name, the name
of any class, or both and for no other purpose; (ii) it will not grant to any
third party the right to use the words "Overland Express" for any purpose;
(iii) the Adviser or any corporate affiliate of the Adviser may use or grant to
others the right to use the words "Overland Express," or any combination or
abbreviation thereof, as all or a portion of a corporate or business name or
for any commercial purpose, other than a grant of such right to another
registered investment company not advised by the Adviser or one of its
affiliates; and (iv) in the event that the Adviser or an affiliate thereof is
no longer acting as investment adviser to any class, the Company shall, upon
request by the Adviser, promptly take such action as may be necessary to change
its corporate name to one not containing the words "Overland Express" and
following such change, shall not use the words "Overland Express," or any
combination thereof, as a part of its corporate name or for any other
commercial purpose, and shall use its best efforts to cause its directors,
officers, and shareholders to take any and all actions that the Adviser may
request to effect the foregoing and to reconvey to the Adviser any and all
rights to such words.
4
<PAGE> 5
11. This contract shall be governed by and construed in accordance
with the laws of the State of California.
If the foregoing correctly sets forth the agreement between the
Company and the Adviser, please so indicate by signing and returning to the
Company the enclosed copy hereof.
Very truly yours,
OVERLAND EXPRESS FUNDS, INC.,
on behalf of the
U.S. Treasury Money Market Fund
By: /s/ Richard H. Blank, Jr.
--------------------------------
Richard H. Blank, Jr.
Chief Operating Officer,
Treasurer and Secretary
ACCEPTED as of the date set forth above:
WELLS FARGO BANK, N.A.
By: /s/ David E. Demarest
---------------------------
David E. Demarest
Vice President
By: /s/ William F. Aldinger
---------------------------
William F. Aldinger
Executive Vice President
5
<PAGE> 1
EXHIBIT 99.B10
[Morrison & Foerster LLP Letterhead]
April 30, 1997
Overland Express Funds, Inc.
111 Center Street
Little Rock, Arkansas 72201
Re: Shares of Common Stock of
Overland Express Funds, Inc.
Ladies/Gentlemen:
We refer to Post-Effective Amendment No. 36 and Amendment No. 38
to the Registration Statement on Form N-1A (SEC File Nos. 33-16296 and
811-8275) (the "Registration Statement") of Overland Express Funds, Inc. (the
"Company") relating to the registration of an indefinite number of shares of
common stock of the Company (collectively, the "Shares").
We have been requested by the Company to furnish this opinion as
Exhibit 10 to the Registration Statement.
We have examined documents relating to the organization of the
Company and its series and the authorization and issuance of shares of its
series. We have also verified with the Company's transfer agent the maximum
number of shares issued by the Company during the fiscal year ended December
31, 1996.
Based upon and subject to the foregoing, we are of the opinion
that:
The issuance of the Shares by the Company has been duly and
validly authorized by all appropriate corporate action, and assuming delivery
by sale or in accord with the Funds' dividend reinvestment plan in accordance
with the description set forth in the Funds' current prospectuses the Shares
will be legally issued, fully paid and nonassessable by the Company.
We consent to the inclusion of this opinion as an exhibit to the
Registration Statement. In addition, we hereby consent to the use of our name
and the description of advice rendered by our firm under the heading
"Management of the Fund(s)" in the Prospectuses, which are included as part of
the Registration Statement.
Very truly yours,
/s/Morrison & Foerster LLP
MORRISON & FOERSTER LLP
<PAGE> 1
EXHIBIT 99.B11
Independent Auditors' Consent
The Board of Directors and Shareholders
Overland Express Funds, Inc.:
We consent to incorporation by reference in the Overland Express
Funds, Inc. Post-Effective Amendment No. 36 to the Registration Statement
Number 33-16296 on Form N-1A under the Securities Act of 1933 and Amendment No.
38 to the Registration Statement Number 811-8275 on Form N-1A under the
Investment Company Act of 1940 of our reports dated February 14, 1997, on the
statement of assets and liabilities, including the portfolios of investments, of
each of the Funds comprising Overland Express Funds, Inc. as of December 31,
1996, the related statements of operations and changes in net assets, and
financial highlights for the periods indicated therein, which reports have been
incorporated by reference in each statement of additional information.
We also consent to incorporation by reference of our reports dated
February 14, 1997, on the statement of assets and liabilities, including the
portfolios of investments of Capital Appreciation Master Portfolio, Cash
Investment Trust Master Portfolio, Short-Term Government-Corporate Income
Master Portfolio, Short-Term Municipal Income Master Portfolio, Small Cap
Master Portfolio and Tax-Free Money Market Master Portfolio (six of the master
portfolios comprising Master Investment Trust) as of December 31, 1996, and the
related statements of operations and changes in net assets, and financial
highlights for the periods indicated therein, which reports have been
incorporated by reference in each statement of additional information.
We also consent to the references to our firm under the heading
"Financial Highlights" in each prospectus and "Independent Auditors" in each
statement of additional information.
/s/KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
San Francisco, California
April 30, 1997
