Rule 497(e)
File No. 33-66840
AMT CAPITAL FUND, INC.
INTERNATIONAL EQUITY PORTFOLIO
Supplement Dated March 16, 1995
To Prospectus Dated January 10, 1995
On February 22, 1995, the Board of Directors of AMT
Capital Fund, Inc. (the "Fund") voted to approve a new investment
advisory agreement (the "Proposed Advisory Agreement") with
Harding, Loevner Management, L.P. ("HLM") on behalf of the Fund's
International Equity Portfolio (the "Portfolio"). The Directors
also voted to submit the Proposed Advisory Agreement for approval
of the Portfolio's shareholders at a Special Meeting of
Shareholders of the Portfolio to be held on May 17, 1995. HLM
currently serves as sub-adviser to the Portfolio.
If approved by shareholders of the Portfolio, HLM would
serve as investment adviser to the Portfolio and would receive
from the Portfolio pursuant to the Proposed Advisory Agreement a
monthly investment advisory fee at an annual rate of 0.75% of the
average daily net assets of the Portfolio. Under the Proposed
Advisory Agreement, HLM would manage the securities held by the
Portfolio, subject to the supervision and stated direction of the
Fund_s Board of Directors, in accordance with the Portfolio_s
investment objective and policies, make investment decisions for
the Portfolio, and place orders to purchase and sell securities
on behalf of the Portfolio. These are substantially the same
services HLM currently provides to the Portfolio, subject to the
supervision of the Portfolio's investment adviser, AMT Capital
Advisers, Inc, and the Proposed Advisory Agreement is not
expected to result in any change in the day-to-day investment
decisions currently provided to the Portfolio.
If the Proposed Advisory Agreement is approved by
shareholders of the Portfolio, HLM has agreed that the ordinary
operating expenses of the Portfolio, with respect to any fiscal
year, would not exceed 1.00% of the Portfolio's average daily net
assets for the year.
THIS DOCUMENT MUST BE DONE IN 5.1SUBJECT TO COMPLETION -
OCTOBER 3, 1994
AMT CAPITAL FUND, INC.
Prospectus - December 2, 1994January 10, 1995
AMT Capital Fund, Inc. (the "Fund") is a no-load, open-end management
investment company (a "mutual fund") that currently has fivetwo separate
diversified portfolios (each a "Portfolio"), each of which has distinct
investment objectives and policies. There areis no sales charges for purchase
of shares. Shares of each Portfolio may be purchased through AMT Capital
Services, Inc. ("AMT Capital"), the exclusive distributor. The minimum
initial investment in any Portfolio is $100,000; additional investments or
redemptions may be of any amount. The Portfolios and their investment
objectives are:
National Municipal Money Market Portfolio - to seek current income
exempt from regular federal income tax, liquidity, and the maintenance of a
stable net asset value per share through investments in high quality, short-
term municipal obligations. (See page __.)
Large Cap Index Portfolio - to seek to provide investment results that
correspond to the total return performance of publicly traded common stocks
in the aggregate, as represented by the Standard & Poor's 500 Composite
Stock Index ("S&P Index"). Unlike other investment companies that directly
acquire and manage their own portfolios of securities, the Portfolio will seek
to achieve its investment objective by investing all of its assets in the S&P
5300 Index Master Series ("S&P Master Series") of the Master Investment
Portfolio ("Master Trust"), a separate, open-end series investment company. The
S&P Master Series has the same investment objective as the Large Cap Index
Portfolio. Therefore, the Large Cap Index Portfolio's investment experience
will correspond directly with the investment experience of the S&P Master
Series. Shares of the S&P Master Series may be purchased only by other
investment companies or other accredited investors. (See page __.)
Small/Mid Cap Index Portfolio - to seek to provide investment results
that correspond to the total return performance of predominantly medium- and
small-capitalization common stocks in the aggregate, as represented by the
Wilshire 4500 Index. Unlike other investment companies that directly acquire
and manage their own portfolios of securities, the Portfolio will seek to
achieve its investment objective by investing all of its assets in the
Small/Medium Stock Index Master Series ("Small/Medium Master Series") of
the Master Trust, a separate, open-end series investment company. The
Small/Medium Master Series has the same investment objective as the
Small/Mid Cap Index Portfolio. Therefore, the Small/Mid Cap Index
Portfolio's investment experience will correspond directly with the investment
experience of the Small/Medium Master Series. Shares of the Small/Medium
Master Series may be purchased only by other investment companies or other
accredited investors. (See page __.)
International Equity Portfolio - to seek long-term capital appreciation
through investments in equity securities of companies based outside the United
States. (See page __.)
Money Market Portfolio - to seek current income, liquidity, and the
maintenance of a stable net asset value per share through investments in high
quality, short-term obligations. (See page __.)
No assurance can be given that a Portfolio's investment objectives will be
attained. Investments in the Money Market Portfolio and National Municipal
Money Market Portfolio are neither guaranteed nor insured by the United
States Government. There is also no assurance that the Money Market
Portfolio or National Municipal Money Market Portfolio will maintain a
stable net asset value of $1.00 per share.
This Prospectus sets forth concisely the information that a prospective investor
should know before investing. It should be read and retained for future
reference. A Statement of Additional Information dated December 2,
1994January 10, 1995, containing additional information about the Fund (the
"Statement of Additional Information"), has been filed with the Securities and
Exchange Commission (the "Commission") and is incorporated by reference
into this Prospectus. It is available without charge and can be obtained by
calling or writing AMT Capital Services, Inc. at the telephone numbers or
address listed on the cover of this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
TABLE OF CONTENTS
Prospectus Highlights 3
Fund Expenses 5
Financial Highlights 6
The Fund 8
Investment Objectives and Policies 8
Descriptions of Investments 13
Risks Associated with the Fund's Investment Policies and Investment
Techniques 17
Additional Investment Activities 20
Investment Restrictions 20
Brokerage Practices 21
Yields and Total Return 22
Distribution of Fund Shares 22
Determination of Net Asset Value 23
Purchases and Redemptions 24
Dividends 26
Management of the Fund 26
Tax Considerations 32
Shareholder Information 33
Control Person 35
PROSPECTUS HIGHLIGHTS
AMT Capital Fund, Inc. is a no-load, open-end management investment
company that currently has fivetwo separate diversified portfolios, each of
which has distinct investment objectives and policies. There is no assurance
that a Portfolio will achieve its investment objectives.
Investment Objectives
Name of Portfolio Investment Objective
International Equity Portfolio To seek long-term capital
appreciation through investments in equity securities of companies based
outside the United States.
Money Market Portfolio To seek current income, liquidity, and the
maintenance of a
National Municipal To seek current
income exempt from regular federal
Money Market Portfolio income tax, liquidity, and the maintenance
of a stable net asset value per share through investments in high quality,
short-term municipal obligations.
Large Cap Index Portfolio To seek to provide investment results that
correspond to the total return performance of publicly traded common stocks
in the aggregate, as represented by the Standard & Poor's 500 Stock Index.
Unlike other investment companies that directly acquire and manage their
own portfolios of securities, the Portfolio will seek to achieve its investment
objective by investing all of its assets in the S&P Master Series of the Master
Trust, a separate, open-end series investment company. The S&P Master
Series has the same investment objective as the Large Cap Index Portfolio.
Therefore, the Large Cap Index Portfolio's investment experience will
correspond directly with the investment experience of the S&P Master Series.*
Small/Mid Cap Index Portfolio To seek to provide investment results that
correspond to the total return performance of predominantly medium- and
small-capitalization common stocks in the aggregate, as represented by the
Wilshire 4500 Index. Unlike other investment companies that directly acquire
and manage their own portfolios of securities, the Portfolio will seek to
achieve its investment objective by investing all of its assets in the
Small/Medium Master Series of the Master Trust, a separate, open-end series
investment company. The Small/Medium Master Series has the same
investment objective as the Small/Mid Cap Index Portfolio. Therefore, the
Small/Mid Cap Index Portfolio's investment experience will correspond
directly with the investment experience of the Small/Medium Master Series.
stable net asset value per share through investments in high quality, short-
term obligations.
* "Standard & Poor's 500", "S&P" and "S&P 500" are trademarks of Standard
& Poor's Corporation and have been licensed for use by the S&P Master Series
of the Master Trust.
The AMT Capital Concept
AMT Capital offers smaller institutions and substantial private investors an
opportunity to gain access to the money management expertise of what AMT
Capital believes are some of the top investment advisers in the country at fees
which, until now, have been available only to larger institutions. AMT
Capital believes that our sub-advisers have strong track records of competing
successfully in domestic and global markets and have created some of the most
innovative products currently available.
AMT Capital Fund, Inc. provides a number of ptwo Portfolios managed by
these investment advisers, as do the other investment funds available through
AMT Capital. For more information on the fund products we offer, please
contact your AMT Capital account executive.
Investment Adviser and Sub-Advisers
AMT Capital Advisers, Inc. (the "Investment Adviser") serves as investment
adviser to the Fund (except for the Large Cap and Small/Mid Cap Index
Portfolios). The Investment Adviser provides the Fund with business and
asset management services, including selection, evaluation, and monitoring of
the sub-advisers to the Fund. The sub-advisers are employed and supervised
by the Investment Adviser, subject to approval by the Board of Directors of the
Fund and shareholders. See "Management of the Fund."
Sub-Adviser Portfolio
Salomon Brothers Asset Management Inc National
Municipal Money
("SBAM") Over $9.1 billion under management, Market
Portfolio
including $1.1 billion in tax-exempt investment
strategies.
Wells Fargo Nikko Investment Advisors, Inc. Large
Cap Index Portfolio,
("WFNIA") is sub-adviser and Wells Fargo Bank, N.A. is
Small/Mid Cap Index Portfolio
investment adviser of the S&P Master Series and Small/Medium
(through their investments in
Master Series. WFNIA is the world leader in passive index-based
the S&P and Small/Medium
investment funds with more than $150 billion under management.
Master Series)
Harding, Loevner Management, L.P.
International Equity Portfolio
("HLM") Global equity specialist managing $3050
million for private investors, foundations, and
endowments.
Fischer Francis Trees & Watts, Inc. Money
Market Portfolio
("FFTW") Fixed income specialist with nearly $20 billion
in assets under management.
Administrator and Distributor
AMT Capital Services, Inc. serves as Administrator to the Fund, supervising
the general day-to-day business activities and operations of the Fund other
than investment advisory activities. AMT Capital also serves as the exclusive
distributor of shares of each of the Fund's Portfolios.
How to Invest
Shares of each Portfolio may be purchased without any sales charges at their
net asset value next determined after receipt of the order by submitting an
Account Application to AMT Capital and wiring federal funds to AMT
Capital's "Fund Purchase Account" at Investors Bank & Trust Company (the
"Transfer Agent"). The Portfolios are not available for sale in all states.
For information about the Fund's availability, contact an account representative
at AMT Capital.
The minimum initial investment per Portfolio is $100,000, although this
minimum may be waived from time to time at the discretion of the Investment
Adviser. There is no minimum amount for subsequent investments. There
are no sales commissions (loads) or 12b-1 fees. For more information, refer to
"Purchase and Redemption of Shares."
How to Redeem Shares
Shares of each Portfolio may be redeemed, without charge, at their next
determined net asset value after receipt by either the Transfer Agent or AMT
Capital of the redemption request.
Risks
Prospective investors should consider certain risks associated with an
investment in any Portfolio. There is no assurance that a Portfolio will
achieve its investment objective. The returns that the Money Market and
National Municipal Money Market Portfolios providePortfolio provides to
investors will be influenced by changes in prevailing interest rates. The
Money Market Portfolio may, at times, concentrate its investments in bank
obligations and may, therefore, have greater exposure to certain risks
associated with the banking industry. The Large Cap Index and Small/Mid
Cap Index Portfolios may engage in various investment techniques, the use of
which may involve risks. The International Equity Portfolio invests primarily
in equity securities of companies based outside of the United States.
Investments in foreign securities involve risks not associated with investments
in securities issued by United States entities. See "Investment Objectives and
Policies", "Descriptions of Investments", "Risks Associated with the Fund's
Investment Policies and Investment Techniques", and "Additional Investment
Activities".
Tax Considerations
A portion of the National Municipal Money Market Portfolio's dividends may
be subject to the federal alternative minimum tax.
FUND EXPENSES
The following table illustrates the expenses and fees that a shareholder of the
Fund can expect to incur. The purpose of this table is to assist the investor in
understanding the various expenses that an investor in the Fund will bear
directly or indirectly.
Shareholder Transaction Expenses
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fees None
Annual Fund Operating Expenses (after expense reimbursements, shown as a
percentage of average net assets)
Advisory Fees12b-1Fees Administration Fees
OtherExpensesTotalOperatingExpensesMoney Market Portfolio 0.25%None
0.10% 0.05% (a) 0.40% (a) 0.05% (b) 0.10% (b)NoneNone 0.10%
0.10% 0.05% (c) 0.15% (c)0.20% (c)0.35% (c)International Equity Portfolio
0.74% (b)None 0.10% 0.11% (c) 0.95% (c) (a) The Investment
Adviser, Administrator and Sub-Advisers have voluntarily agreed to cap the
total annual operating expenses at 0.40% (on an annualized basis) of the
Portfolio's average daily net assets. Without such cap, the total annual
operating expenses (on an annualized basis) for the Money Market Portfolio
for the period ended December 31, 1993 was 25.94% (of which 25.59June 30,
1994 was 1.50% (of which 1.15% was "other expenses") of its average daily
net assets. Without such cap, the total annual operating expenses (on an
annualized basis) for the National Municipal Money Market Portfolio for the
period ending December 31, 1994 is estimated to be 1.00% (of which 0.60%
would be "other expenses") of its average daily net assets.
(b) Represents 0.05% and 0.10% annual investment advisory fee for the S&P
Master Series and Small/Medium Master Series, respectively, paid to Wells
Fargo Bank by the Master Trust under the terms of its Investment Advisory
Agreement. Wells Fargo Bank subsequently remits an annual fee of 0.04%
and 0.09% to Wells Fargo Nikko Investment Advisors as sub-adviser to the
underlying S&P Master Series and Small/Medium Master Series, respectively.
The additional 0.01% covers custody fees and other direct expenses of the
S&P and Small/Medium Master Series. A description of the expenses of the
S&P and Small/Medium Master Series are disclosed in its prospectus. There
are no additional advisory fees charged to either Portfolio.
(c) The Administrator has voluntarily agreed to cap the total annual operating
expenses for the Large Cap Index and Small/Mid Cap Index Portfolios at
0.20% and 0.35%, respectively, on an annualized basis of each Portfolio's
average daily net assets. Without such cap, the total annual operating
expenses (on an annualized basis) for the Large Cap Index Portfolio and the
Small/Mid Cap Index Portfolio for the period ending December 31, 1994 are
estimated to be 1.00% and 1.05%, respectively, (of which 0.85% would be
"other expenses") of each Portfolio's average daily net assets.
(d) This denotes the average annualized investment advisory fee that will be
paid to the Investment Adviser. For the first two months after commencement
of the Portfolio, the Investment Adviser will be paid at a rate of 0.70% (on an
annualized basis) of the Portfolio's average daily net assets; and for the next
twelve months, the Investment Adviser will be paid at a rate of 0.75% (on an
annualized basis) of the Portfolio's average daily net assets. Subsequently, the
Investment Adviser's base fee will be adjusted in month fourteen for the
Performance Adjustment Fee as described in "Management of the Fund" and
will vary from that point forward., between a minimum rate of .65% and a
maximum rate of .85%
(ec) The Investment Adviser, Administrator and Sub-Adviser have voluntarily
agreed to cap the total annual operating expenses at 0.95% (on an annualized
basis) of the International Equity Portfolio's average daily net assets.
Without such cap, the total annual operating expenses (on an annualized basis)
for International Equity Portfolio for the period ending December 31, 1994 areed
June 30, 1994 was 3.57% estimated to be 1.25% (of which 0.41% would be(of
which 2.72% was "other expenses") of its average daily net assets. The cap
will be increased by the amount of any positive performance adjustment to the
investment advisory fee. The cap will not be decreased in the event of any
negative performance adjustment. Thus, the cap can range between 0.95%
and 1.05% of the Portfolio's average daily net assets.
The following table illustrates the expenses that an investor would pay on each
$1,000 increment of its investment over various time periods, assuming a 5%
annual return. As noted in the table above, the Fund charges no redemption
fees of any kind.
Expenses Per $1,000 Investment
1 Year 3 Years
Money Market Portfolio $ 4 $13
National Municipal Money Market Portfolio $4 $13
Large Cap Index Portfolio $2 $ 6
Small/Mid Cap Index Portfolio $4 $12
International Equity Portfolio $10 $31
These examples should not be considered a representation of future expenses
or performance. Actual operating expenses and annual returns may be greater
or less than those shown.
At the discretion of and until further notice from the Fund, expenses of the
Money Market, National Municipal Money Market, Large Cap Index,
Small/Mid Cap Index and International Equity Portfolios will not exceed
0.40%, 0.40%, 0.20%, 0.35%, and 0.95% (not including the performance fee
adjustment, if any), respectively, of each such Portfolio's average daily net
assets for any fiscal year. The Money Market and National Municipal Money
Market Portfolios'Portfolio's active management approaches could lead to
higher portfolio transaction expenses as a result of a higher volume of such
transactions. Certain portions of the transaction expenses (i.e., brokerage
commissions) are not included in the expenses subject to the cap described
above. See "Investment Techniques - Portfolio Turnover".
With regard to the combined fees and expenses of the Large Cap and
Small/Mid Cap Index Portfolios and the Master Series, the Board of Directors
of the Fund has considered whether various costs and benefits of investing all
such Portfolios' assets in the Master Series rather than directly in portfolio
securities would be more or less than is the Portfolios invested in securities
directly and believes that the Portfolios should achieve economies of scale by
investing in the Master Series. Additionally, the Baord of Directors has
determined that the aggregate fees assessed by the Portfolios and the Master
Series should be less than those expenses that the Directors believe would be
incurred had the Portfolios invested directly in the securities held by the
Master Series. See the Prospectus section captioned "Management of the
Fund" for more complete descriptions of the various costs and expenses
applicable to investors in the Portfolios. In addition, if the Portfolios were
to change their investment strategy and no longer invest in the Master Series,
these expenses may change.
FINANCIAL HIGHLIGHTS
The financial information for the period ended June 30, 1994 in the following
table has been audited in conjunction with the audit of the financial statements
of the Fund by Ernst & Young, LLP,. independent auditors. The audited
financial statements for the period ended December 31, 1993 and the semi-
annual unaudited financial statements for the period ended June 30, 1994 are
incorporated by reference in the Statement of Additional Information. Money
Market Portfolio commenced operations on November 1, 1993 and the
International Equity Portfolio commenced operations on May 11, 1994.
National Municipal Money Market, Large Cap Index, and Small/Mid Cap
Index Portfolios have not yet begun operations. The financial information
should be read in conjunction with the financial statements which can be
obtained upon request.
insert financials here
AMT CAPITAL FUND, INC.
AMT Capital offers smaller institutions and substantial private investors an
opportunity to gain access to the money management expertise of some of the
top investment advisers in the country at fees which, until now, have been
available only to larger institutions.
Prior to founding AMT Capital in early 1992, its senior managers were former
officers of Morgan Stanley and tThe Vanguard Group. Having worked with
top investment advisers for many years, AMT Capital has now been able to
assemble those advisers' products in a format that is accessible to and
inexpensive for smaller institutions and substantial private investors. AMT
Capital believes its sub-advisers have strong track records of competing
successfully in domestic and global markets and have created some of the most
innovative products currently available.
AMT Capital Fund, Inc. provides a number oftwo Portfolios managed by these
investment advisers, as do the other investment funds available through AMT
Capital. For more information on the fund products we offer, please contact
your AMT Capital account executive.
INVESTMENT OBJECTIVES
AMT Capital Fund, Inc. is a no-load, open-end management investment
company that currently has fivetwo separate diversified portfolios, each of
which has distinct investment objectives and policies. There is no assurance
that a Portfolio will achieve its investment objectives.
The investment objectives and policies of each Portfolio are described below.
Except as otherwise indicated, the investment policies may be changed at any
time by the Fund's Board of Directors to the extent that such changes are
consistent with the investment objectives of the applicable Portfolio. However,
each Portfolio's investment objectives are fundamental and may not be
changed without a majority vote of the Portfolio's outstanding shares, which is
defined as the lesser of (a) 67% of the shares of the applicable Portfolio
present or represented if the holders of more than 50% of the shares are
present or represented at the shareholders' meeting, or (b) more than 50% of
the shares of the applicable Portfolio (hereinafter, "majority vote"). The
investment objective of each of the Portfolios isare:
Portfolio Investment Objective
International Equity Portfolio To seek long-term
capital appreciation through investments in equity securities of companies
based outside the United States.Money Market Portfolio
To seek current income, liquidity, and the maintenance of a stable
$1.00 net asset value per share by investing in high quality, short-term
obligations. which are determined to present minimal credit risks.National
Municipal To seek current income exempt
from regular federal
Money Market Portfolio income tax, liquidity, and the
maintenance of stable net asset value per share through investments in high
quality, short-term obligations.
Large Cap Index Portfolio To seek to provide investments
results that correspond to the total return performance of publicly traded
common stocks in the aggregate, as represented by the S&P Index. Unlike
other investment companies that directly acquire and manage their own
portfolios of securities, the Portfolio will seek to achieve its investment
objective by investing in the S&P Master Series of the Master Trust, a
separate, open-end series investment company the S&P Master Series has the
same investment objective as the Portfolio. The S&P Master Series seeks to
achieve its objective by investing substantially all its assets in the same
stocks and in substantially the same percentages as the S&P Index.
Portfolio investments in the Money Market and National Municipal Money
Market Portfolios (collectively, the "Money Market Portfolios")Portfolio are
valued based on the amortized cost valuation technique pursuant to Rule 2a-7
under the Investment Company Act of 1940 (the "1940 Act"). See the
Statement of Additional Information for an explanation of the amortized cost
valuation method. All obligations in which the Money Market Portfolios
invest invests generally have remaining maturities of 397 days or less,
although obligations subject to repurchase agreements and certain variable
and floating rate obligations may bear longer final maturities.
INVESTMENT POLICIES
Money Market Portfolio
The Money Market Portfolio invests at least 80% of its assets in the following
high quality short-term instruments:
(a) obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities;
(b) commercial paper, loan participation interests, medium term
notes, asset-backed securities and other promissory notes, including floating or
variable rate obligations;
(c) domestic, Yankee dollar (U.S. branches or subsidiaries of foreign
depository institutions) and Eurodollar (foreign branches or subsidiaries of
U.S. depository institutions) certificates of deposit, time deposits, bankers'
acceptances, commercial paper, bearer deposit notes and other promissory
notes including floating or variable rate obligations issued by U.S. or foreign
bank holding companies and their bank subsidiaries, branches and agencies;
and
(d) repurchase and reverse repurchase agreements; and
(e) municipal obligations described in the eligible list of assets for the
National Municipal Money Market Portfolio.of the type described in the
Statement of Additional Information in the Section entitled "Supplemental
Descriptions of Investments."
The Money Market Portfolio will invest only in issuers or instruments that at
the time of purchase:
(a) are issued or guaranteed by the U.S. Government, its agencies, or
instrumentalities;
(b) have received the highest short-term rating by at least two
nationally recognized statistical rating organizations ("NRSROs") such as "A-
1" by Standard & Poor's and "P-1" by Moody's Investor Services ("Moody's"),
or are single rated and have received the highest short-term rating by the
NRSRO ("First Tier Securities");
(c) are rated by two NRSROs in the second highest category, or rated
by one agency in the highest category and by another agency in the second
highest category or by one agency in the second highest category ("Second
Tier Securities"), provided that Second Tier Securities are limited in total to
5% of thea Portfolio's total assets and on a per issuer basis, to no more than
the greater of 1% of thea Portfolio's total assets or $1,000,000; or
(d) are unrated, but are determined to be of comparable quality by
the Investment Adviser and sub-adviser pursuant to guidelines approved by
the Board of Directors.
Single rated and unrated securities are subject to ratification by the Board of
Directors. See "Descriptions of Investments" and the Statement of Additional
Information for definitions of the foregoing instruments and rating systems.
Investments in foreign obligations involve additional risks. Most notably,
there generally is less publicly available information about foreign companies;
there may be less governmental regulation and supervision; there may be
different accounting and financial standards, and the adoption of foreign
governmental restrictions may adversely affect the payment of principal and
interest on foreign investments. Further, the income associated with such
obligations may be subject to foreign taxes. To the extent that the Money
Market Portfolio purchases Eurodollar and Yankee dollar obligations,
consideration will be given to their marketability and possible restrictions on
international currency transactions. The Money Market Portfolio's
investments in foreign obligations will be limited to U.S. dollar- denominated
obligations. In addition, not all foreign branches of U.S. banks are supervised
or examined by regulatory authorities as are U.S. banks, and such branches
may not be subject to reserve requirements.
Variable amount master demand notes in which the Money Market Portfolio
may invest are unsecured demand notes that permit the indebtedness
thereunder to vary, and provide for periodic adjustments in the interest rate.
Because master demand notes are direct lending arrangements between the
Money Market Portfolio and the issuer, they are not normally traded. There is
no secondary market for the notes; however, the period of time remaining
until payment of principal and accrued interest can be recovered under a
variable amount master demand note generally shall not exceed seven days.
To the extent this period is exceeded, the note in question would be considered
illiquid. Issuers of variable amount master demand notes must satisfy the
same criteria as set forth for other promissory notes (e.g., commercial paper).
The Money Market Portfolio will invest in variable amount master demand
notes only when such notes are determined by the Investment Adviser and/or
sub-adviser, pursuant to guidelines established by the Board of Directors, to be
of comparable quality to rated issuers or instruments eligible for investment by
the Portfolio. In determining average weighted portfolio maturity, a variable
amount master demand note will be deemed to have a maturity equal to the
longer of the period of time remaining until the next readjustment of the
interest rate or the period of time remaining until the principal amount can be
recovered from the issuer on demand.
Repurchase and Reverse Repurchase Agreements. Repurchase agreements are
agreements under which securities are acquired by the Money Market
Portfolio from a securities dealer or bank subject to resale at an agreed upon
price on a later date. The Portfolio bears a risk of loss in the event that the
other party to a repurchase agreement defaults on its securities. However, the
sub-adviser will enter into repurchase agreements only with financial
institutions which are deemed by the Investment Adviser and sub-adviser to be
in good financial standing and which have been approved by the Board of
Directors. See the Statement of Additional Information for more information
regarding repurchase agreements.
The Money Market Portfolio may enter into reverse repurchase agreements
under which a primary or reporting dealer in U.S. Government Securities
purchases U.S. Government Securities from the Portfolio and the Portfolio
agrees to repurchase the securities at an agreed-upon price and date.
Regulations of the Commission require either that securities sold by the
Portfolio under a reverse repurchase agreement be segregated pending
repurchase or that the proceeds be segregated on the Portfolio's books and
records pending repurchase. The Fund will maintain for the Money Market
Portfolio a segregated custodial account containing cash, U.S. Government
Securities or other appropriate high-grade debt securities having an aggregate
value at least equal to the amount of such commitments to repurchase,
including accrued interest, until payment is made. Repurchase and reverse
repurchase agreements will generally be restricted to those that mature within
seven days. The Money Market Portfolio will engage in such transactions
with parties selected on the basis of such party's creditworthiness.
Active trading is employed by the Money Market Portfolio when consistent
with its investment objective. Active trading involves a number of
professional money management techniques in anticipation of or response to
changing economic and market conditions and shifts in fiscal and monetary
policy. These techniques include varying the composition of the Money
Market Portfolios''s investments and the average maturity of the Money
Market Portfolio's portfolio based upon an assessment of the relative values of
various money market instruments and future interest rate patterns. As a result
of the implementation of these techniques, the Money Market Portfolio may
engage in more active portfolio trading and experience more volatility in its
distributions than many other money market funds. Such techniques will be
employed by the Money Market Portfolio only to the extent that they are
consistent with its investment objective.
National Municipal Money Market Portfolio
The National Municipal Money Market Portfolio, as a matter of fundamental
policy, under normal market conditions, invests at least 80% of its assets in
municipal obligations issued by or on behalf of the governments of states,
territories, or possessions of the United States, the District of Columbia, and
their political subdivisions, agencies and instrumentalities if the interest
these obligations provide is generally exempt from regular federal income
tax.
The National Municipal Money Market Portfolio will only invest in issuers or
instruments that at the time of purchase:
(a) are issued or guaranteed by the U.S. Government, its agencies, or
instrumentalities;
(b) have received the highest short-term rating by at least two
NRSROs such as "A-1" by Standard & Poor's and "P-1" by Moody's, or are
single rated and have received the highest short-term rating by the NRSRO;
(c) are rated by two NRSROs in the second highest category, or rated
by one agency in the highest category and by another agency in the second
highest category or rated by one agency in the second highest category; or
(d) are unrated, but are determined to be of comparable quality by the
Investment Adviser and sub-adviser pursuant to guidelines approved by the
Board of Directors.
See the Statement of Additional Information for definitions of the foregoing
instruments and rating systems.
Ordinarily at least 80% of the National Municipal Money Market Portfolio's
assets will be invested in municipal obligations exempt from regular federal
income tax. However, should market conditions warrant, the Portfolio may
invest up to 20% (or for temporary defensive purposes, more than 20%) of its
assets in obligations subject to federal income tax which are eligible
investments for the Money Market Portfolio.
Municipal obligations are issued 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 obligations may
be backed by the full taxing power of a municipality ("general obligations"), or
by the revenues from a specific project or the credit of a private organization
("revenue obligations").
Some municipal obligations are collateralized as to payment of principal and
interest by an escrow of U.S. Government or federal agency obligations, while
others are insured by private insurance companies, while still others may be
supported by letters of credit furnished by domestic or foreign banks. The
National Municipal Money Market Portfolio's investment in municipal
obligations may include fixed, variable, or floating rate general obligations
and revenue obligations (including rated municipal lease obligations and
resource recovery obligations); zero coupon obligations and asset-backed
obligations; variable rate auction obligations; tax, revenue, or bond
anticipation notes; and tax-exempt commercial paper. The Portfolio may
purchase obligations on a "when-issued" basis, purchase or sell obligations on
a "forward commitment" basis, and purchase obligations that are subject to
restrictions on resale. See the Statement of Additional Information for further
discussion of the foregoing obligations and rating systems.
Private activity obligations may also be used by the National Municipal Money
Market Portfolio. These include obligations that finance student loans,
residential rental projects, and solid waste disposal facilities. To the extent
that the Portfolio invests in private activity obligations, shareholders will be
required to report a portion of the Portfolio's distributions attributable to
these obligations as a "tax preference item" for purposes of determining their
liability for the federal alternative minimum tax and, as a result, may become
subject to (or increase their liability for) the alternative minimum tax.
Shareholders should consult with their own tax advisers to determine whether
they may be subject to the alternative minimum tax. The Portfolio may invest
in private activity obligations without limitation and it is anticipated that
from time to time a substantial portion of the Portfolio's assets may be
invested in these obligations. As a result, a substantial portion of the
Portfolio's distributions may be a tax preference item for purposes of the
alternative minimum tax, which will reduce the net returns of the Portfolio for
those taxpayers subject to the tax. Interest received by shareholders on
private activity obligations is exempt from regular federal income tax.
Moral obligation securities which are normally issued by special purpose
public authorities, may also be purchased by the National Municipal Money
Market Portfolio. If the issuer of moral obligation securities is unable to
meet its debt service obligations from current revenues, it may draw on a
reserve fund, the restoration of which is a moral commitment but not a legal
obligation of the state or municipality that created the issuer.
Concentration. The National Municipal Money Market Portfolio does not
intend to concentrate its investments in any one industry. This limitation,
however, is not applicable to investments by the Portfolio in tax-exempt
municipal obligations where the issuer is regarded as a state, city,
municipality or other public authority since such entities are not members of
any industry. Thus, from time to time (although there is no current intention
to do so) the National Municipal Money Market Portfolio may invest 25% or
more of its assets in tax-exempt municipal obligations which 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, municipal obligations the interest on which is paid from revenues of
similar types of projects or municipal obligations whose issuers are located in
the same state.
Tax opinions relating to the validity of municipal obligations and to the
exemption of interest thereon from federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the Fund,
the Investment Adviser or the sub-adviser will review the proceedings relating
to the issuance of municipal obligations or the basis for such opinions.
Large Cap Index Portfolio
The Large Cap Index Portfolio invests all of its assets in the S&P Master
Series of the Master Trust, a separate, open-end series investment company
which is advised by Wells Fargo Bank and sub-advised by WFNIA. The S&P
Master Series seeks to replicate the total return performance of the S&P Index,
which is composed of 500 selected common stocks, most of which are listed
on the New York Stock Exchange. The weightings of stocks in the S&P Index
are based on each stock's relative total market capitalization; that is, its
market price per share times the number of shares outstanding. Because of this
weighting, as of June 30, 1994, 45% of the S&P Index was composed of the
50 largest companies. The percentage of the S&P Master Series' assets
invested in each stock will be approximately the same as the percentage such
stock represents in the S&P Index.
Small/Mid Cap Index Portfolio
The Small/Mid Cap Index Portfolio invests all of its assets in the
Small/Medium Master Series of the Master Trust, a separate, open-end series
investment company which is advised by Wells Fargo Bank and sub-advised
by WFNIA. The Small/Medium Master Series seeks to replicate the total
return performance of the Wilshire 4500 Index, which is composed of
common stocks of approximately 5,000 predominantly medium- and small-
capitalization companies that are not included in the S&P Index. The
Small/Medium Master Series will invest in a sample of these stocks and
expects, ordinarily, to invest in approximately 500 to 3,000 of these stocks.
Stocks will be selected for investment by the Small/Medium Master Series
based primarily on market capitalization and industry weightings, as described
below.
Master/Feeder Structure
The structure of the Large Cap Index and Small/Mid Cap Index Portfolios,
allowing them to invest all of their assets in the underlying S&P and
Small/Medium Master Series, which have the same investment objectives as
the corresponding Portfolio, has been approved by the Fund's Board of
Directors. The Master Trust is organized as a business trust under the laws of
the State of Delaware. In addition to selling its shares to the Portfolios, the
Master Trust may sell its shares to certain other mutual funds or institutional
investors. The expenses and, correspondingly, the returns of other investment
options in the Master Trust may differ from those of the Portfolios.
The Board of Directors believes that, if other mutual funds or institutional
investors invest their assets in the Master Series, certain economies of scale
may be realized with respect to the Master Series. For example, fixed
expenses that otherwise would have been borne solely by the Portfolios would
be spread among a larger asset base provided by more than one fund investing
in the Master Series. The Portfolios and other entities investing in the Master
Series will each be liable for all obligations of the Master Series. However,
the risk of the Large Cap Index and Small/Mid Cap Index Portfolios incurring
financial loss on account of such liability is limited to circumstances in which
both inadequate insurance existed and the Master Trust itself was unable to
meet its obligations. Accordingly, the Fund's Board of Directors believes that
neither the Portfolios nor their shareholders will be adversely affected by
reason of investing the Portfolios' assets in the Master Series. However, if a
mutual fund or institutional investor with a larger pro rata ownership of the
Master Series' securities than the Portfolios withdraws its investment from the
Master Series, the economies of scale (e.g., spreading fixed expenses among a
larger asset base) that the Fund's Board of Directors believes should be
available through investment in the Master Series may not be fully achieved.
In addition, given the relatively novel nature of the master/feeder structure,
accounting and operational difficulties could occur.
The Master Series' investment objective and other fundamental policies, which
are substantially the same as those of the Portfolios, cannot be changed
without approval by the holders of a majority (as defined in the 1940 Act) of
the Master Series' outstanding voting shares. Whenever the Portfolios, as
Master Series shareholders, are requested to vote on matters pertaining to any
fundamental policy of the Master Series, the Portfolios will hold a meeting of
their shareholders to consider such matters and the Portfolios will cast their
votes in proportion to the votes received from Portfolio shareholders. The
Portfolios will vote Master Series shares for which they receive no voting
instructions in the same proportion as the votes received from Portfolio
shareholders. In addition, certain policies of the Master Series which are non-
fundamental could be changed by vote of a majority of the Trustees of the
Master Trust without shareholder vote. If the Master Series' investment
objective or fundamental or non-fundamental policies are changed, the
Portfolios could subsequently change their objectives or policies to correspond
to those of the Master Series or the Portfolios could redeem their Master Series
shares and either seek a new investment company in which to invest with a
substantially matching objective or retain their own investment adviser to
manage the Portfolios in accordance with their objectives. In the latter case,
the Portfolios' inability to find a substitute investment company in which to
invest or equivalent management services could adversely affect shareholders'
investment in the Portfolios. The Portfolios will provide shareholders with 30
days' written notice prior to the implementation of any change in the
investment objective of the Portfolios or Master Series, to the extent possible.
Additional Investment Policies of the S&P and Small/Medium Master Series
Passive, Index-based Management. No attempt is made to manage the
portfolios of the Master Series using economic, financial and market analysis.
Each Master Series is managed by determining which securities are to be
purchased or sold to replicate, to the extent feasible, the investment
characteristics of its respective benchmark index. Under normal market
conditions, at least 90% of the value of a Master Series' total assets will be
invested in securities comprising such Master Series' index. Each Master
Series will attempt to achieve, in both rising and falling markets, a
correlation of at least 95% between the total return of its net assets before
expenses and the total return of such Master Series' benchmark index. Perfect
(100%) correlation would be achieved if the total return of a Master Series' net
assets increased or decreased exactly as the total return of such Master Series'
benchmark index increased or decreased. A Master Series' ability to match its
investment performance to the investment performance of its respective
benchmark index may be affected by: Master Series expenses; the amount of
cash and cash equivalents held in the Master Series' portfolio; the manner in
which the total return of the Master Series' benchmark index is calculated; the
size of the Master Series' portfolio; and the timing, frequency and size of
shareholder purchases and redemptions. Each Master Series will use cash
flows from shareholder purchase and redemption activity to maintain, to the
extent feasible, the similarity of its portfolio to the securities comprising
such master Series' benchmark index. WFNIA will regularly monitor each Master
Series' correlation to its respective benchmark index and will adjust the
portfolio of a Master Series to the extent necessary to enable such Master
Series to achieve a correlation of at least 95% with its respective index.
Inclusion of a security in an index in no way implies an opinion by the
sponsor of the index as to its attractiveness as an investment. In the future,
subject to the approval of the relevant Master Series' shareholders, one or
more indices for a Master Series may be selected if such standard of
comparison is deemed to be more representative of the performance of the
securities such Master Series seeks to replicate. Neither of the Master Series
is sponsored, endorsed, sold or promoted by the sponsor of its respective
index.
Sampling. The Small/Medium Master Series will not hold all of the issues
that comprise its benchmark index because of the costs involved and the
illiquidity of certain of the securities which comprise such index. Instead,
the Small/Medium Master Series will attempt to hold a representative sample of
the securities in its index so that, in the aggregate, the investment
characteristics of the Small/Medium Master Series portfolio resembles those of
its index. The Small/Medium Master Series will use a statistical process
known as "sampling" to construct its portfolio. This process will be used to
select stocks so that the market capitalizations, industry weightings, dividend
yield, and beta closely approximate those of its index. The sampling
techniques utilized by the Small/Medium Master Series are expected to be an
effective means of substantially duplicating the investment performance of the
index; however, the Small/Medium Master Series is not expected to track its
benchmark index with the same degree of accuracy that complete replication
of such index would have provided. Over time, the portfolio composition of
the Master Series will be altered (or "rebalanced") to reflect changes in the
characteristics of its index.
Other Investments. In seeking to replicate the performance of its respective
index, each Master Series may also engage in futures and options transactions
and other derivative securities transactions, such as index swaps, make short
sales against the box and lend its portfolio securities, each of which involves
risk. See "Descriptions of Investments" below for a description of these
investment techniques. Each Master Series attempts to be fully invested at all
times in securities comprising such Master Series' index and in futures and
options. When a Master Series has uninvested cash, it may invest in money
market instruments of the type in which the Money Market Portfolio invests,
as described above.
Portfolio Turnover. Because of the "passive" investment management
approach of the Master Series, the portfolio turnover rate for each Master
Series is expected to be under 100%. A portfolio turnover rate of 100% would
occur, for example, if all of a Master Series' securities were replaced within
one year. Higher portfolio turnover rates are likely to result in comparatively
greater brokerage commissions. In addition, short-term gains realized from
portfolio transactions are taxable to shareholders as ordinary income.
Portfolio turnover will not otherwise be a limiting factor in making investment
decisions.
Other Considerations. It is anticipated that the Small/Medium Master Series
initially may not have sufficient assets to implement fully its investment
strategy. WFNIA believes that the Small/Medium Master Series will require
at least $10 million in total assets to invest fully according to the Master
Series' investment strategy. Until the indicated level of total assets is
reached, such Master Series may invest primarily in U.S. Government obligations.
While so invested, such Master Series' return may be lower than if its
investment strategy was fully implemented, and the Master Series' ability to
achieve its investment objective would be impaired.
Indexing strategies are employed by Wells Fargo Bank or WFNIA for other
investment companies and accounts advised or sub-advised by Wells Fargo
Bank or WFNIA. If these strategies indicate particular securities should be
purchased or sold, at the same time, by the Master Series and one or more of
these investment companies or accounts, available investments or
opportunities for sales will be allocated equitably to each by Wells Fargo Bank
or WFNIA. In some cases, this procedure may adversely affect the size of the
position obtained for or disposed of by the Master Series or the price paid or
received by such Master Series.
International Equity Portfolio
The International Equity Portfolio invests at least 65% of its total assets in
common stocks, securities convertible into such common stocks [including
American Depositary Receipts ("ADRs") and European Depositary Receipts
("EDRs")], rights and warrants issued by companies that are based outside the
United States and securities of investment companies (subject to Commission
limits on such investments). The Portfolio may invest in forward foreign
currency exchange contracts, equity derivative securities such as options on
common stocks and options, futures and options on futures on foreign
common stock indices. The Portfolio may also invest in securities of U.S.
companies which derive, or are expected to derive, a significant portion of
their revenues from their foreign operations, although under normal
circumstances not more than 15% of the Portfolio's assets will be invested in
securities of U.S. companies. The Portfolio may also invest up to 35% of its
assets in the types of short-term securities described under the caption
"Investment Policies - Money Market Portfolio"" and in other debt securities
described under the caption "Description of Investments" below.
The Portfolio may invest up to 20% of its net assets in convertible securities
and debt securities which are rated below investment-grade, that is, rated
below Baa by Moody's or below BBB by S&P ("junk bonds") and in unrated
securities judged to be of equivalent quality as determined by HLM.
The Portfolio will invest broadly in the available universe of common stocks of
companies domiciled in one of at least three of the following: (1) Europe,
including Austria, Belgium, Denmark, Finland, France, Germany, Ireland,
Italy, Luxembourg, the Netherlands, Norway, Spain, Sweden, Switzerland,
and the United Kingdom; (2) the Pacific Rim, including Australia, Hong
Kong, Japan, Malaysia, New Zealand, and Singapore; (3) Canada; and (4)
countries with "emerging markets" as defined by Morgan Stanley Capital
International ("MSCI"). At least 65% of these securities will be denominated
in one of at least three currencies other than the U.S. dollar.
The sub-adviser's international equity investment approach is "bottom up".
The approach seeks to identify companies with excellent long-term business
prospects, and then to select from among them those whose stocks appear to
offer attractive absolute returns. HLM's investment criteria include both
growth and value considerations. HLM seeks companies that it believes have
strong balance sheets, sustainable internal growth, superior financial returns
and defensible business franchises. Typically, the sub-adviser will only invest
in companies that it has analyzed for a number of years. Country allocation
and sector weightings reflect the results of stock selection, which itself is
strongly influenced by HLM's cyclical and secular outlook for various
industries, sectors, and national economies. Explicit country or sector
allocation decisions are taken only when necessary to ensure that portfolios are
well-diversified. HLM hedges foreign currency exposure infrequently, on
those occasions when it has a strong view on the prospects for a particular
currency. Currency hedging is done through the use of forward contracts or
options.
Portfolio Turnover. Portfolio turnover will depend on factors such as
volatility in the markets that the Portfolio invests in, or the variability of
cash flows into and out of the Portfolio. Portfolio turnover is expected to be
low, generally below 50%, due to the emphasis on stock selection.
Historical Performance. Performance data for a composite of international
equity accounts managed by HLM are provided below. This performance data
is deemed relevant because the portfolios included in the composite have been
managed using substantially similar investment objectives, policies and
restrictions, and the same portfolio managers as those used by the
International Equity Portfolio. However, this performance data represents past
performance and is not necessarily indicative of the future performance of
HLM or the International Equity Portfolio.
Average Annual Total
Return for the Periods
Indicated Through
June 30, 19941
(Unaudited)
Past 3 Months 0.70.7 %
Past 12 Months 30.4 %
Since Inception (9/30/89) 13.7 %
Annual Total Returns
1990 (12.9%) 1991
21.9% 1992
9.9% 1993
46.33.57%) 1991
20.72% 1992
8.86% 1993 45.04%
1 Figures include all international equity accounts
under discretionary management from their inception dates, including
accounts no longer in existence. Composite calculations have been weighted
by account size. No alterations of the composite have occurred due to changes
in personnel or other reasons. Returns shown are time-weighted total returns,
and include reinvestment of dividends. Returns from all cash reserve and
equivalents, bonds and/or convertible securities used in place of equities are
included in performance calculations. Results are presented after brokerage
commissions and management fees but do not include fees of custodians (who
are chosen by clients) and management fees.
DESCRIPTIONS OF INVESTMENTS
The following briefly describes some of the different types of securities in
which each Portfolio, unless otherwise specified, may invest and investment
techniques in which each Portfolio may engage, subject to each Portfolio's
investment objectives and policies. The Portfolios which are permitted to
invest in each type of investment are listed in parentheses at the beginning of
the description. For a more extensive description of these assets and the risks
associated with them, see the Statement of Additional Information.
U.S. Treasury and other U.S. Government and Government Agency Securities
(Money Market, National Municipal Money Market, Large Cap Index and
Small/Mid Cap Index, through their investments in the S&P and
Small/Medium Master Series, respectively, and International Equity). The
specified Portfolios may invest in securitiesEach Portfolio may purchase
securities issued by or guaranteed as to principal and interest by the U.S.
Government, its agencies or instrumentalities and supported by the full faith
and credit of the United States ("U.S. Government Securities"). Each
Portfolio may issued or guaranteed by the U.S. Government or its agencies or
instrumentalities ("U.S. Government Securities") which include U.S. Treasury
securities that differ in their interest rates, maturities and times of
issuance. Treasury Bills have initial maturities of one year or less; Treasury
Notes have initial maturities of one to ten years; and Treasury Bonds generally
have initial maturities of greater than ten years. Some obligations issued or
guaranteed by U.S. Government agencies and instrumentalities, for example,
Government National Mortgage Association ("GNMA") pass-through
certificates, are supported by the full faith and credit of the U.S. Treasury;
others, such as those of the Federal Home Loan Banks ("FHLB"), by the right
of the issuer to borrow from the Treasury; others, such as those issued by the
Federal National Mortgage Association ("FNMA"), by discretionary authority
of the U.S. Government to purchase certain obligations of the agency or
instrumentality; and others, such as those issued by the Student Loan
Marketing Association ("SLMA"), only by the credit of the agency or
instrumentality. These securities bear fixed, floating or variable rates of
interest. Principal and interest may fluctuate based on generally recognized
reference rates or the relationship of rates. While the U.S. Government
provides financial support to such U.S. Government-sponsored agencies or
instrumentalities, no assurance can be given that it will always do so, since it
is not so obligated by law.
Foreign Government Obligations; Securities of Supranational Entities
(Large Cap Index, Small/Mid Cap Index, through their investments in the
S&P and Small/Medium Master Series, respectively). The specified
Portfolios, through their Master Series' investments in money market
instruments, may invest in obligations issued or guaranteed by one or more
foreign governments or any of their political subdivisions, agencies or
instrumentalities that are determined by WFNIA to be of comparable quality
to the other obligations in which such Master Series may invest. Such
securities also include debt obligations of supranational entities.
Supranational entities include international organizations designated or
supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government
agencies. Examples include the International Bank for Reconstruction and
Development (the World Bank), the European Coal and Steel Community, the
Asian Development Bank and the InterAmerican Development Bank. The
percentage of a Master Series' assets invested in securities issued by foreign
governments will vary depending on the relative yields of such securities, the
economic and financial markets of the countries in which the investments are
made and the interest rate climate of such countries.
Zero Coupon and Stripped Securities (Large Cap Index, Small/Mid Cap
Index, through their investments in the S&P and Small/Medium Master
Series, respectively). The specified Portfolios may invest in zero coupon U.S.
Treasury securities, which are Treasury Notes and Bonds that have been
stripped of their unmatured interest coupons, the coupons themselves and
receipts or certificates representing interests in such stripped debt
obligations and coupons. A zero coupon security pays no interest to its holder
during its life and is sold at a discount to its face value at maturity. The
amount of the discount fluctuates with the market price of the security. The
market prices of zero coupon securities generally are more volatile than the
market prices of securities that pay interest periodically and are likely to
respond to a greater degree to changes in interest rates than non-zero coupon
securities having similar maturities and credit qualities. Zero coupon
securities are not considered U.S. Government obligations for purposes of the
1940 Act unless they are part of the STRIPS (Separate Trading of Registered
Interest and Principal of Securities) program or other program which provides
for such securities to be held through the Federal Reserve Bank's book-entry
system. Also purchase securities issued by a U.S. Government-sponsored
enterprise or federal agency that is supported either by its ability to borrow
from the U.S. Treasury (e.g., Student Loan Marketing Association) or by its own
credit standing (e.g., Federal National Mortgage Association). Such securities
do not constitute direct obligations of the United States but are issued, in
general, under the authority of an Act of Congress.
Bank Obligations (Money Market, National Municipal Money Market, Large
Cap Index and Small/Mid Cap Index, through their investments in the S&P
and Small/Medium Master Series, respectively, and International Equity).
The specified PortfoliosEach Portfolio may invest in obligations of domestic
and foreign banks, including time deposits, certificates of deposit, bankers'
acceptances, letters of credit, bank notes, deposit notes, Eurodollar or
Yankeedollar time deposits, Eurodollar or Yankeedollar certificates of deposit,
variable rate notes, loan participations, variable amount master demand notes
and custodial receipts. The Money Market, National Municipal Money
Market, and International Equity Portfolios may also invest in Eurodollar or
Yankee dollar time deposits, Eurodollar or Yankee dollar certificates of
deposit. The Money Market Portfolio may, from time to time, concentrate
more than 25% of its assets in domestic bank obligations ("Domestic Bank
Obligations"). Domestic Bank Obligations are instrumentsDomestic Bank
Obligations. "Domestic Bank Obligations" are instruments: issued by U.S.
(domestic) banks,; U.S. branches of foreign banks, if such branches are subject
to the same regulation as U.S. banks,; and foreign branches of U.S. banks, if
the Investment Adviser or sub-adviser determines that the investment risk
associated with investing in instruments issued by such branches is the same
as that of investing in instruments issued by the U.S. parent bank, in that the
U.S. parent bank would be unconditionally liable in the event that the foreign
branch failed to pay on its instruments. The Large Cap Index and Small/Mid
Cap Index Portfolios, through their investment in the S&P and Small/Medium
Master Series may also invest in obligations of domestic savings and loan
associations and other banking institutions.
Corporate Debt Instruments (Money Market, National Municipal Money
Market, and International Equity). The specifiedEach Portfolio may purchase
commercial paper, notes and other obligations of U.S. and foreign corporate
issuers meeting the Portfolio's credit quality standards (including variable
rate notes).
(Large Cap Index and Small/Mid Cap Index, through their investments in the
S&P and Small/Medium Master Series, respectively). The specified Portfolios
may invest in commercial paper, which consists of short-term, unsecured
promissory notes issued to finance short-term credit needs.
Repurchase Agreements (Money Market, National Municipal Money Market,
Large Cap Index and Small/Mid Cap Index, through their investments in the
S&P and Small/Medium Master Series, respectively, and International
Equity). The specified PortfoliosEach Portfolio may enter into repurchase
agreements under which a bank or securities firm (that is a dealer in U.S.
Government Securities reporting to the Federal Reserve Bank of New York)
agrees, upon entering into the contract, to sell U.S. Government Securities to a
Portfolio and repurchase such securities from the Portfolio at a mutually
agreed-upon price and date. Repurchase agreements will generally be
restricted to those that mature within seven days. The Portfolios will engage
in such transactions with parties selected on the basis of such party's
creditworthiness.
The Large Cap Index and Small/Mid Cap Index Portfolios, through their
investments in the S&P and Small/Medium Master Series, respectively, will
enter into repurchase agreements only with federally regulated or insured
banks or primary government securities dealers reporting to the Federal
Reserve Bank of New York or under certain circumstances, banks with total
assets in excess of $5 billion or domestic broker/dealers with total equity
capital in excess of $100 million, with respect to securities of the type in
which such Master Series may invest or government securities regardless of
their remaining maturities, and will require that additional securities be
deposited with it if the value of the securities purchased should decrease below
resale price. WFNIA will monitor on an ongoing basis the value of the
collateral to assure that it always equals or exceeds the repurchase price.
Certain costs may be incurred by a Master Series in connection with the sale
of the securities if the seller does not repurchase them in accordance with the
repurchase agreement. In addition, if bankruptcy proceedings are commenced
with respect to the seller of the securities, realization of the securities by a
Master Series may be delayed or limited. Each Master Series will consider on
an ongoing basis the creditworthiness of the institutions with which it enters
into repurchase agreements.
Reverse Repurchase Agreements (Money Market, National Municipal Money
Market, and International Equity). Each Portfolio may enter into reverse
repurchase agreements under which a primary or reporting dealer in U.S.
Government Securities purchases U.S. Government Securities from a Portfolio
and the Portfolio agrees to repurchase the securities at an agreed-upon price
and date.
Regulations of the Commission require either that securities sold by a
Portfolio under a reverse repurchase agreement be segregated pending
repurchase or that the proceeds be segregated on that Portfolio's books and
records pending repurchase. The Fund will maintain for each Portfolio a
segregated custodial account containing cash, U.S. Government Securities or
other appropriate high-grade debt securities having an aggregate value at least
equal to the amount of such commitments to repurchase, including accrued
interest, until payment is made. Reverse repurchase agreements will generally
be restricted to those that mature within seven days. The Portfolios will
engage in such transactions with parties selected on the basis of such party's
creditworthiness.
Dollar Roll Transactions (Money Market, National Municipal Money Market,
and International Equity). The specified PortfoliosEach Portfolio may enter
into dollar roll transactions with selected banks and broker-dealers. Dollar
roll transactions consist of the sale by a Portfolio of mortgage-backed
securities, together with a commitment to purchase similar, but not identical,
securities at a future date, at the same price. In addition, the Portfolio is
paid a fee as consideration for entering into the commitment to purchase. Dollar
rolls may be renewed after cash settlement and initially involve only a firm
commitment agreement by the Portfolio to buy a security. Each Portfolio will
record the dollar roll transactions it enters into as a purchase and sale
transaction and will segregate cash, U.S. Government securities or other high
grade debt obligations in an amount sufficient to meet its purchase obligations
under the transactions.
When-Issued Securities (Money Market, National Municipal Money Market,
Large Cap Index and Small/Mid Cap Index, through their investments in the
S&P and Small/Medium Master Series, respectively, and International
Equity). Each Portfolio may purchase securities on a firm commitment basis,
including when-issued securities. Securities purchased on a firm commitment
basis are purchased for delivery beyond the normal settlement date at a stated
price and yield. Such securities are recorded as an asset and are subject to
changes in value based upon changes in the general level of interest rates. The
Portfolios will only make commitments to purchase securities on a firm
commitment basis with the intention of actually acquiring the securities but
may sell them before the settlement date if it is deemed advisable. Neither of
the Master Series will accrue income in respect of a security purchased on a
forward commitment basis prior to its stated delivery date.
Securities purchased on a when-issued or forward commitment basis and
certain other securities held in the Master Series' portfolio are subject to
changes in value (both generally changing in the same way, i.e., appreciating
when interest rates decline and depreciating when interest rates rise) based
upon the public's perception of the creditworthiness of the issuer and changes,
real or anticipated, in the level of interest rates. Securities purchased on a
when-issued or forward commitment basis may expose the relevant Master
Series to risk because they may experience such fluctuations prior to their
actual delivery. Purchasing securities on a when-issued or forward
commitment basis can involve the additional risk that the yield available in
the market when the delivery takes place actually may be higher than that
obtained in the transaction itself.
When a Portfolio purchases securities on a when-issued or forward
commitment basis, the Portfolio's custodian will maintain in a segregated
account cash and liquid high-grade debt securities having a value (determined
daily) at least equal to the amount of the Portfolio's purchase commitments.
In the case of a forward commitment to sell portfolio securities, the custodian
will hold the portfolio securities themselves in a segregated account while the
commitment is outstanding. These procedures are designed to ensure that the
Portfolio will maintain sufficient assets at all times to cover its obligations
under when-issued purchases and forward commitments.
Standby Commitments (Money Market, National Municipal Money Market,
and International Equity). The specified PortfoliosEach Portfolio may enter
into standby commitments with respect to securities held in its portfolio. Such
transactions entitle the PortfolioFund to "put" its securities at an agreed upon
price within a specified period prior to their maturity date.
Mortgage-Backed Securities (Money Market, National Municipal Money
Market, and International Equity). The specified PortfoliosEach Portfolio may
purchase securities that are secured or backed by mortgages or other
mortgage-related assets. Such securities may be issued by such entities as the
Government National Mortgage Association ("GNMA"), the Federal National
Mortgage Association ("FNMA"), the Federal Home Loan Mortgage GNMA,
FNMA, FHLMCCorporation ("FHLMC"), commercial banks, savings and
loan associations, mortgage banks or by issuers that are affiliates of or
sponsored by such entities.
Other Asset-Backed Securities (Money Market, National Municipal Money
Market, and International Equity). The specified Portfolios mayEach Portfolio
may also purchase securities that are secured or backed by assets other than
mortgage-related assets, such as automobile and credit card receivables, and
that are sponsored by such institutions as finance companies, finance
subsidiaries of industrial companies and investment banks. These
PortfoliosEach Portfolio will only purchase asset-backed securities that the
Investment Adviser or sub-adviser determines to be liquid.
Participation Interests (Large Cap Index and Small/Mid Cap Index, through
their investments in the S&P and Small/Medium Master Series, respectively).
The specified Portfolios may purchase from financial institutions participation
interests in securities in which such Master Series may invest. A participation
interest gives the Master Series an undivided interest in the security in the
proportion that the Master Series' participation interest bears to the total
principal amount of the security. These instruments may have fixed, floating
or variable rates of interest. If the participation interest is unrated, or has
been given a rating below that which is permissible for purchase by the Master
Series, the participation interest will be backed by an irrevocable letter of
credit or guarantee of a bank, or the payment obligation otherwise will be
collateralized by U.S. Government securities, or, in the case of unrated
participation interests, WFNIA must have determined that the instrument is of
comparable quality to those instruments in which such Master Series may
invest. Prior to a Master Series' purchase of any such instrument backed by a
letter of credit or guarantee of a bank, WFNIA will evaluate the
creditworthiness of the bank, considering all factors which it deems relevant,
which generally may include review of the bank's cash flow; level of short-
term debt; leverage; capitalization; the quality and depth of management;
profitability; return on assets; and economic factors relative to the banking
industry. For certain participation interests, the Master Series will have the
right to demand payment, on not more than seven days' notice, for all or any
part of the Master Series' participation interest in the security, plus accrued
interest. As to these instruments, each Master Series intends to exercise its
right to demand payment only upon a default under the terms of the security,
as needed to provide liquidity to meet redemptions, or to maintain or improve
the quality of its investment portfolio.
Unregistered Notes (Large Cap Index and Small/Mid Cap Index, through
their investments in the S&P and Small/Medium Master Series, respectively).
The Maser Series may purchase unsecured promissory notes ("Notes") which
are not readily marketable and have not been registered under the Securities
Act of 1933, as amended, provided such investments are consistent with such
Master Series' goal. Neither Master Series will invest more than 15% of the
value of its net assets in Notes and in other illiquid securities.
Floating and Variable Rate Obligations (Large Cap Index and Small/Mid
Cap Index Portfolios, through their investments in the S&P and
Small/Medium Master Series, respectively). The specified Portfolios may
purchase floating and variable rate demand notes and bonds, which are
obligations ordinarily having stated maturities in excess of 13 months, but
which permit the holder to demand payment of principal at any time, or at
specified intervals not exceeding 13 months. Variable rate demand notes
include master demand notes which are obligations that permit a Master
Series to invest fluctuating amounts, which may change daily without penalty,
pursuant to direct arrangements between the Master Series, as lender, and the
borrower. The interest rates on these notes fluctuate from time to time. The
issuer of such obligations ordinarily has a corresponding right, after a given
period, to prepay in its discretion the outstanding principal amount of the
obligations plus accrued interest upon a specified number of days' notice to the
holders of such obligations. The interest on a floating rate demand obligation
is based on a known lending rate, such as a bank's prime rate, and is adjusted
automatically each time such a rate is adjusted. The interest rate on a
variable rate demand obligation is adjusted automatically at specified
intervals. Frequently, such obligations are secured by letters of credit or
other credit support arrangements provided by banks. Because these obligations
are direct lending arrangements between the lender and borrower, it is not
contemplated that such instruments generally will be traded, and there generally
is no established secondary market for these obligations, although they are
redeemable at face value. Accordingly, where these obligations are not
secured by letters of credit or other credit support arrangements, the Master
Series' right to redeem is dependent on the ability of the borrower to pay
principal and interest on demand. Such obligations frequently are not rated by
credit rating agencies and each Master Series may invest in obligations which
are not so rated only if WFNIA determines that at the time of investment the
obligations are of comparable quality to the other obligations in which such
Master Series may invest. WFNIA, on behalf of each Master Series, will
consider on an ongoing basis the creditworthiness of the issuers of the floating
and variable rate demand obligations in such Master Series' portfolio. Neither
Master Series will invest more than 15% of the value of its net assets in
floating or variable rate demand obligations as to which it cannot exercise the
demand feature on not more than seven days' notice if there is no secondary
market available for these obligations, and in other illiquid securities.
Illiquid Securities (Large Cap Index and Small/Mid Cap Index Portfolios,
through their investments in the S&P and Small/Medium Master Series,
respectively). The specified Portfolios may invest up to 15% of the value of
their net assets in securities as to which a liquid trading market does not
exist, provided such investments are consistent with its investment objective.
Such securities may include securities that are not readily marketable, such as
certain securities that are subject to legal or contractual restrictions on
resale, participation interests that are not subject to the demand feature
described above, floating and variable rate demand obligations as to which the
Master Series cannot exercise the related demand feature described above on not
more than seven days' notice and as to which there is no secondary market and
repurchase agreements providing for settlement in more than seven days after
notice. However, if a substantial market of qualified institutional buyers
develops pursuant to Rule 144A under the Securities Act of 1933, as amended,
for certain of these securities held by a Master Series, such Master Series
intends to treat such securities as liquid securities in accordance with
procedures approved by the Master Trust's Board of Trustees. Because it is
not possible to predict with assurance how the market for restricted securities
pursuant to Rule 144A will develop, the Master Trust's Board of Trustees has
directed WFNIA to monitor carefully each Master Series' investments in such
securities with particular regard to trading activity, availability of reliable
price information and other relevant information. To the extent that for a
period of time, qualified institutional buyers cease purchasing such restricted
securities pursuant to Rule 144A, a Master Series' investing in such securities
may have the effect of increasing the level of illiquidity in such Master Series
portfolio during such period. Loan Participations Each Portfolio may
purchase loan participations. Loan participations are interests in a loan to a
U.S. corporation which is administered and sold by an intermediary bank.
Any participation purchased by a Portfolio must be issued by a bank in the
United States with assets exceeding $1 billion.
Equity Securities (Large Cap Index and Small/Mid Cap Index, through their
investments in the S&P and Small/Medium Master Series, respectively, and
International Equity). The specified Portfolios mayInternational Equity
Portfolio will invest in various types of equity securities, including growth
stocks, value stocks, rights and warrants. Growth-oriented stocks are the
stocks of companies that are believed to have internal strengths, such as good
financial resources, a satisfactory rate of return on capital, a favorable
industry position, and superior management. Value-oriented stocks have lower
price multiples (either price/earnings or price/book) than other stocks in their
industry and can sometimes also display weaker fundamentals such as growth
of earnings and dividends. Rights and warrants are instruments which give
the holder the right to purchase the issuer's securities at a stated price
during a stated term. Risks associated with investing in equity securities are
described under the caption "Risks Associated with the Fund's Investment
Policies and Investment Techniques - Equity Securities" below.
Foreign Securities (Large Cap Index and Small/Mid Cap Index, through their
investments in the S&P and Small/Medium Master Series, respectively, and
International Equity). The specified Portfolios may invest in foreign
securities, whichForeign securities include equity or derivative securities
denominated in currencies other than the U.S. dollar, including any single
currency or multi-currency units, plus sponsored and unsponsored ADRs and
EDRs. ADRs typically are issued by a U.S. bank or trust company and
evidence ownership of underlying securities issued by a foreign corporation.
Unsponsored ADRs and EDRs differ from sponsored ADRs and EDRs in that
the establishment of unsponsored ADRs and EDRs is not approved by the
issuer of the underlying securities. EDRs, which are sometimes referred to as
Continental Depositary Receipts, are receipts issued in Europe, typically by
foreign banks and trust companies, that evidence ownership of either foreign
or domestic underlying securities. Risks associated with investing in foreign
securities are described under the caption "Risks Associated with the Fund's
Investment Policies and Investment Techniques - Foreign Investments" below.
Emerging Markets Securities (International Equity). The specified Portfolio
may invest in emerging market securities, which are defined as the securities
ofFor purposes of its investment policies, the International Equity Portfolio
defines an emerging market as any country, the economy and market of which
is generally considered to be emerging or developing by MSCI or, in the
absence of an MSCI classification, by the World Bank. Under this definition,
the Portfolio considers emerging markets to include all markets except
Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany,
Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Singapore,
Spain, Sweden, Switzerland, the United Kingdom, and the United States.
Investment Company Securities (Money Market, National Municipal Money
Market, Large Cap Index and Small/Mid Cap Index, through their
investments in the S&P and Small/Medium Master Series, respectively, and
International Equity). The specified Portfolios may invest in securities issued
by other investment companies which principally invest in securities of the
type which such Portfolio or Master Series invests. Under the 1940 Act and/or
various state regulations, a Portfolio's or Master Series' investment in such
securities may not be equal to or exceed (i) 3% of the total voting stock of any
one investment company, (ii) 5% of such Portfolios' or Master Series' net
assets with respect to any one investment company; and (iii) 10% of such
Portfolios' or Master Series' net assets in the aggregate. Investments in the
securities of other investment companies generally will involve duplication of
advisory fees and certain other expenses.
Futures Contracts (Large Cap Index and Small/Mid Cap Index, through their
investments in the S&P and Small/Medium Master Series, respectively).
Neither of the Master Series will be a commodity pool. To the extent
permitted by applicable regulations, each Master Series is permitted to use
futures as a substitute for a comparable market position in the underlying
securities. Each Master Series 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. Each Master Series' futures transactions must constitute
permissible transactions pursuant to regulations promulgated by the
Commodity Futures Trading Commission ("CFTC"). In addition, a Master
Series may not engage in such transactions if the sum of the amount of initial
margin deposits and premiums paid for unexpired futures contract options,
other than for bona fide hedging transactions, would exceed 5% of the
liquidation value of the Master Series' assets, after taking into account
unrealized profits and unrealized losses on such contracts it has entered into;
provided, however, that in the case of an option that is in-the-money at the
time of purchase, the in-the-money amount may be excluded in calculating the
5%. Pursuant to regulations and/or published positions of the Commission, a
Master Series 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 a Master Series will be
required to deposit with the Master Trust's custodian in the broker's name an
amount of cash or cash equivalents up to approximately 10% of the contract
amount. This initial margin 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 initial margin is
returned to the Master Series upon termination of the futures position,
assuming all contractual obligations have been satisfied. Subsequent
payments, or 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, a process known as "marking-to-market." At any time prior to the
expiration of a futures contract, the Master Series may elect to close the
position by taking an opposite position, at the then prevailing price, which
will operate to terminate its existing position in the contract.
Although each Master Series 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
the relevant Master Series to substantial losses. If it is not possible, or the
Master Series determines not to close a futures position in anticipation of
adverse price movements, it will be required to make daily cash payments of
variation margin.
Options on Futures Contracts (Large Cap Index and Small/Mid Cap Index,
through their investments in the S&P and Small/Medium Master Series,
respectively, and International Equity). The specified Portfolios may purchase
or sell options on futures contracts. 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 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 the writer and holder of the
option will be accompanied by delivery of the accumulated cash balance in the
writer's futures margin account which represents 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.
Foreign Currency Transactions (International Equity). The specified
Portfolio hedges foreign currency exposure infrequently, on those occasions
when it has a strong view on the prospects for a particular currency. The
Portfolio will conduct its currency transactions either on a spot (cash) basis
at the rate prevailing in the currency exchange market, or through entering into
forward contracts to purchase or sell currency. A forward currency contract
involves an obligation to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract agreed
upon by the parties, at a price set at the time of the contract. The use of
forward currency contracts does not eliminate fluctuations in the underlying
prices of the securities, but it does establish a rate of exchange that can be
achieved in the future. In addition, although forward currency contracts limit
the risk of loss due to a decline in the value of the hedged currency, at the
same time, they also limit any potential gain that might result should the value
of the currency increase. International Equity Portfolio will segregate cash,
U.S. Government securities or other high-grade liquid debt obligations with its
custodian in an amount at all times equal to or exceeding its commitment with
respect to contracts that are not part of a designated hedge.
Stock Index Futures and Options on Stock Index Futures (Large Cap Index
and Small/Mid Cap Index Portfolios, through their investments in the S&P
and Small/Medium Master Series, respectively). The specified Portfolios may
purchase and sell stock index futures contracts and options on stock index
futures contracts. A stock index future obligates the seller to deliver (and
the purchaser to take), effectively, an amount of cash equal to a specific
dollar amount times the difference between the value of a specific stock index
at the close of the last trading day of the contract and the price at which the
agreement is made. No physical delivery of the underlying stocks in the index
is made. With respect to stock indices that are permitted investments, each of
the Master Series 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.
(International Equity). The specifiedFutures Contracts International Equity
Portfolio may use stock index futures contracts ("futures contracts") as a hedge
against the effects of changes in the market value of the stocks comprising the
relevant index. In managing its cash flows, the Portfolio may also use futures
contracts as a substitute for holding the designated securities underlying the
futures contract. A futures contract is an agreement to purchase or sell a
specified amount of designated securities for a set price at a specified future
time. At the time it enters into a futures transaction, the Portfolio is
required to make a performance deposit ("initial margin") of cash or liquid
securities in a segregated account in the name of the futures broker.
Subsequent payments of "variation margin" are then made on a daily basis,
depending on the value of the futures position which is continually marked to
market. The Portfolio will segregate cash, U.S. Government securities or other
high grade debt obligations in an amount sufficient to meet its obligations
under these transactions.
If the Portfolio enters into a short position in a futures contract as a hedge
against anticipated adverse market movements and the market then rises, the
increase in the value of the hedged securities will be offset in whole or in
part, by a loss on the futures contract. If instead the Portfolio purchases a
futures contract as a substitute for investing in the designated underlying
securities, the Portfolio will experience gains or losses that correspond
generally to gains or losses in the underlying securities. The latter type of
futures contract transactions permits the Portfolio to experience the results of
being fully invested in a particular asset class, while maintaining the
liquidity needed to manage cash flows into or out of the Portfolios (e.g.,
purchases and redemptions of Portfolio shares). Under normal market conditions,
futures contracts positions may be closed out on a daily basis.
Index Swaps (Large Cap Index and Small/Mid Cap Index Portfolios,
through their investments in the S&P and Small/Medium Master Series,
respectively). The specified Portfolios may enter into index swaps. Index
swaps involve the exchange by a Master Series with another party of cash
flows based upon the performance of an index or a portion of an index which
usually includes dividends or income. In each case, the exchange
commitments can involve payments to be made in the same currency or in
different currencies. Each Master Series usually will enter into swaps on a net
basis. In so doing, the two payment streams are netted out, with the Master
Series receiving or paying, as the case may be, only the net amount of the two
payments. If a Master Series enters into a swap, it would maintain a
segregated account on a gross basis unless the contract provided otherwise. If
there is a default by the other party to such a transaction, the Master Series
will have contractual remedies pursuant to the agreements related to the
transaction.
The use of index swaps is a highly specialized activity which involves
investment techniques and risks different from those associated with ordinary
portfolio security transactions. There is no limit, except as provided below,
on the amount of swap transactions that may be entered into by a Master Series.
These transactions generally do not involve the delivery of securities or other
underlying assets or principal. Accordingly, the risk of loss with respect to
swaps generally is limited to the net amount of payments that a Master Series
is contractually obligated to make. If the other party to a swap defaults, the
relevant Master Series' risk of loss consists of the net amount of payments that
such Master Series contractually is entitled to receive. Neither Master Series
will invest more than 15% of the value of its net assets in swaps that are
illiquid, and in other illiquid securities.
Short Selling (Small/Mid Cap Index, through its investment in the
Small/Medium Master Series). The specified Portfolio may make short sales
"against the box," a transaction in which the Master Series enters into a short
sale of a security which it owns. The proceeds of the short sale will be held
by a broker until the settlement date at which time the Master Series delivers
the security to close the short position. The Master Series receives the net
proceeds from the short sale. At no time will the Master Series have more
than 15% of the value of its net assets in deposits on short sales against the
box. The value of any one issuer in which the Master Series is short will not
exceed the lesser of 2% of the value of the Master Series' net assets or 2% of
the securities of any class of any issuer. It currently is anticipated that the
Master Series will make short sales against the box for purposes of protecting
the value of its net assets.
Options on Futures Contracts International Equity Portfolio may purchase or
sell options on futures contracts as an alternative to buying or selling futures
contracts. Options on futures contracts are similar to options on the security
underlying the futures contracts except that options on stock index futures
contracts give the purchaser the right to assume a position at a specified price
in a stock index futures contract at any time during the life of the option. The
Portfolio will segregate cash, U.S. Government securities or other high grade
debt obligations in an amount sufficient to meet its obligations under these
transactions.
Foreign Currency Transactions International Equity Portfolio hedges foreign
currency exposure infrequently, on those occasions when it has a strong view
on the prospects for a particular currency. International Equity Portfolio will
conduct its currency transactions either on a spot (cash) basis at the rate
prevailing in the currency exchange market, or through entering into forward
contracts to purchase or sell currency. A forward currency contract involves
an obligation to purchase or sell a specific currency at a future date, which
may be any fixed number of days from the date of the contract agreed upon by
the parties, at a price set at the time of the contract. The use of forward
currency contracts does not eliminate fluctuations in the underlying prices of
the securities, but it does establish a rate of exchange that can be achieved in
the future. In addition, although forward currency contracts limit the risk of
loss due to a decline in the value of the hedged currency, at the same time,
they also limit any potential gain that might result should the value of the
currency increase. International Equity Portfolio will segregate cash, U.S.
Government securities or other high-grade liquid debt obligations with its
custodian in an amount at all times equal to or exceeding its commitment with
respect to contracts that are not part of a designated hedge.
RISKS ASSOCIATED WITH THE PORTFOLIOS'FUND'S INVESTMENT
POLICIES
AND INVESTMENT TECHNIQUES
A more detailed discussion of the risks associated with the investment policies
and investment techniques of the Portfolios is provided below. The Portfolios
to which each risk applies are listed in parentheses at the beginning of the
description of the risk. A more detailed discussion of these and other risks
appears in the Statement of Additional Information.
Changes in Interest Rates (Money Market, National Municipal Money Market,
Large Cap Index and Small/Mid Cap Index, through their investments in the
S&P and Small/Medium Master Series, respectively, and International
Equity). The returns that the specified Portfolios provideMoney Market
Portfolio provides to investors will be influenced by changes in prevailing
interest rates.
Mortgage and Other Asset-Backed Securities (Money Market, National
Municipal Money Market, and International Equity). The yield characteristics
of mortgage- and other asset-backed securities differ from traditional debt
securities. A major difference is that the principal amount of the obligation
generally may be prepaid at any time because the underlying assets (i.e.,
loans) generally may be prepaid at any time. As a result, if an asset-backed
security is purchased at a premium, a prepayment rate that is faster than
expected will reduce yield to maturity, while a prepayment rate that is slower
than expected will have the opposite effect of increasing yield to maturity.
Conversely, if an asset-backed security is purchased at a discount, faster than
expected prepayments will increase, while slower than expected prepayments
will decrease, yield to maturity.
These securities may not have the benefit of any security interest in the
underlying assets and recoveries on repossessed collateral may not, in some
cases, be available to support payments on these securities. The Portfolios
will only invest in asset-backed securities that the Investment Adviser or sub-
adviser believes are liquid.
Equity Securities (Large Cap Index and Small/Mid Cap Index, through their
investments in the S&P and Small/Medium Master Series, respectively).
Investors should be aware that equity securities fluctuate in value, often based
on factors unrelated to the value of the issuer of the securities, and that
fluctuations can be pronounced. Changes in the value of such a Master Series'
portfolio securities will result in changes in the value of such Master Series'
shares and thus the Master Series' yield and total return to investors.
Smaller Companies (Small/Mid Cap Index, through its investment in the
S&P and Small/Medium Master Series). The securities of the smaller
companies in which the Small/Medium Master Series may invest may be
subject to more abrupt or erratic market movements than larger, more
established companies, both because the securities typically are traded in lower
volumes and because the issuers typically are subject to a greater degree to
changes in earnings and prospects.
Foreign Investments (Large Cap Index and Small/Mid Cap Index, through
their investments in the S&P and Small/Medium Master Series, respectively,
and International Equity). Foreign securities markets generally are not as
developed or efficient as those in the United States. Securities of some
foreign issuers are less liquid and more volatileForeign Investments Securities
issued by foreign governments, foreign corporations, international agencies and
obligations of foreign banks involve risks not associated with securities issued
by U.S. entities. With respect to certain foreign countries, there is the
possibility of expropriation of assets, confiscatory taxation and political or
social than securities of comparable U.S. issuers. Similarly, volume and
liquidity in most foreign securities markets are less than in the United States
and, at times, volatility of price can be greater than in the United States. In
addition, tinstability or diplomatic developments that could affect investment
in those countries. There may be less publicly available information about a
non-U.S. issuer, and non-U.S. issuers generally are not subject to foreign
financial instrument than about a United States instrument and foreign entities
may not be subject to accounting, auditing and financial reporting standards
and requirements comparable to those of uniform accounting and financial
reporting standards, practices and requirements comparable to those
applicable to U.S. issuers.
Because evidences of ownership of such securities usually are held outside the
United States, each Master Series will be subject to additional risks which
include possible adverse political and economic developments, possible
seizure or nationalization of foreign deposits and possible adoption of
governmental restrictions which might adversely affect the payment of
principal and interest on the foreign securities or might restrict the payment
of principal and interest to investors located outside the country of the
issuers, whether from currency blockage or otherwise. Custodial expenses for a
portfolio of non-U.S. securities generally are higher than for a portfolio of
U.S. securities.
Since foreign securities often are purchased by a Master Series with and
payable in currencies of foreign countries, the value of these assets as
measured in U.S. dollars may be affected favorably or unfavorably by changes
in currency rates and exchange control regulations. Some currency exchange
costs generally will be incurred when a Master Series changes investments
from one country to another.
Furthermore, some of these securities may be subject to brokerage or stamp
taxes levied by foreign governments, which have the effect of increasing the
cost of such investment and reducing the realized gain or increasing the
realized loss on such securities at the time of sale. Income received by a
Master Series from sources within foreign countries may be reduced by
withholding and other taxes imposed by such countries. Tax conventions
between certain countries and the United States, however, may reduce or
eliminate such taxes. All such taxes paid by a Master Series will reduce its
net income available for distribution to its shareholders.
Investors in the International Equity PortfolioUnited States entities. A
Portfolio could encounter difficulties in obtaining or enforcing a judgment
against the issuer in certain foreign countries. In addition, certain foreign
investments may be subject to foreign withholding or other taxes, although the
Fund will seek to minimize such withholding taxes whenever practical.
Investors may be able to deduct such taxes in computing their taxable income
or to use such amounts as credits against their United States income taxes if
more than 50% of a Portfolio's total assets at the close of any taxable year
consist of stock or securities of foreign corporations. Ownership of
unsponsored ADRs may not entitle the Portfolio to financial or other reports
from the issuer to which it would be entitled as the owner of sponsored ADRs.
See "Tax Considerations".
Emerging Markets Securities (International Equity). The risks of investing in
foreign securities may be intensified in the case of investments in issuers
domiciled or doing substantial business in emerging markets or countries with
limited or developing capital markets. Security prices in emerging markets
can be significantly more volatile than in the more developed nations of the
world, reflecting the greater uncertainties of investing in less established
markets and economies. In particular, countries with emerging markets may
have relatively unstable governments, present the risk of sudden adverse
government action and even nationalization of businesses, restrictions on
foreign ownership, or prohibitions of repatriation of assets, and may have less
protection of property rights than more developed countries. The economies of
countries with emerging markets may be predominantly based on only a few
industries, may be highly vulnerable to changes in local or global trade
conditions, and may suffer from extreme and volatile debt burdens or inflation
rates. Local securities markets may trade a small number of securities and may
be unable to respond effectively to increases in trading volume, potentially
making prompt liquidation of substantial holdings difficult or impossible at
times. Transaction settlement and dividend collection procedures may be less
reliable in emerging markets than in developed markets. Securities of issuers
located in countries with emerging markets may have limited marketability
and may be subject to more abrupt or erratic price movements.
Convertible Securities (International Equity). Convertible debt securities and
convertible preferred stocks, until converted, have general characteristics
similar to both debt and equity securities. Although to a lesser extent than
with debt securities generally, the market value of convertible securities tends
to decline as interest rates increase and, conversely, tends to increase as
interest rates decline. In addition, because of the conversion or exchange
feature, the market value of convertible securities typically changes as the
market value of the underlying common stocks changes, and, therefore, also
tends to follow movements in the general market for equity securities. A
unique feature of convertible securities is that as the market price of the
underlying common stock declines, convertible securities tend to trade
increasingly on a yield basis, and so may not experience market value declines
to the same extent as the underlying common stock. When the market price of
the underlying common stock increases, the prices of the convertible securities
end to rise as a reflection of the value of the underlying common stock,
although typically not as much as the underlying common stock. Convertible
securities generally offer lower yields than non-convertible securities of
similar quality because of their conversion or exchange features.
High Yield/High Risk Securities (International Equity). The specifiedThe
International Equity Portfolio may invest up to 20% of its net assets in
convertible securities and debt securities rated lower than Baa by Moody's or
BBB by S&P, or of equivalent quality as determined by HLM (commonly
referred to as "junk bonds"). The lower the ratings of such debt securities,
the greater their risks render them like equity securities. The Portfolio will
invest no more than 10% of its net assets in securities rated B or lower by
Moody's or S&P, or of equivalent quality, but may invest in securities rated C
by Moody's or D by S&P, or the equivalent, which may be in default with respect
to payment of principal or interest.
Repurchase Agreements (Money Market, National Municipal Money Market,
Large Cap Index and Small/Mid Cap Index, through their investments in the
S&P and Small/Medium Master Series, respectively, and International Equity)
and Reverse Repurchase Agreements (Money Market, National Municipal
Money Market, and International Equity). In the event the other party to a
repurchase agreement or a reverse repurchase agreement becomes subject to a
bankruptcy or other insolvency proceeding or such party fails to satisfy its
obligations thereunder, a Portfolio could (i) experience delays in recovering
cash or the securities sold (and during such delay the value of the underlying
securities may change in a manner adverse to the Portfolio) or (ii) lose all or
part of the income, proceeds or rights in the securities to which the Portfolio
would otherwise be entitled.
Dollar Roll Transactions (Money Market, National Municipal Money Market,
and International Equity). If the broker-dealer to whom a Portfolio sells the
security underlying a dollar roll transaction becomes insolvent, the Portfolio's
right to purchase or repurchase the security may be restricted, the value of the
security may change adversely over the term of the dollar roll, the security
which the Portfolio is required to repurchase may be worth less than a security
which the Portfolio originally held, and the return earned by the Portfolio with
the proceeds of a dollar roll may not exceed transaction costs.
Zero Coupon Securities (Large Cap Index and Small/Mid Cap Index, through
their investments in the S&P and Small/Medium Master Series, respectively).
Because they do not pay interest until maturity, zero coupon securities tend to
be subject to greater interim fluctuations of market value in response to
changes in interest rates than interest- interest-paying securities of similar
maturities. Additionally, for tax purposes, zero coupon securities accrue
income daily even though no cash payments are received which may require a
Master SeriesPortfolio to sell securities that would not ordinarily be sold to
provide cash for the Master Series'Portfolio's required distributions.
Concentration in Bank Obligations (Money Market). The specifiedThe
Money Market Portfolio may, at times, invest in excess of 25% of its assets in
Domestic Bank Obligations, as defined above. By concentrating investments
in the banking industry, the Portfolio may have a greater exposure to certain
risks associated with the banking industry. In particular, economic or
regulatory developments in or related to the banking industry will affect the
value of and investment return on the Portfolio's shares. As discussed above,
the Portfolio will seek to minimize its exposure to such risks by investing only
in debt securities that are determined by the Investment Adviser or sub-adviser
to be of high quality.
Futures Contracts (Large Cap Index and Small/Mid Cap Index, through their
investments in the S&P and Small/Medium Master Series, respectively, and
International Equity). The specified Portfolios Portfolio may use stock index
futures contracts as a hedge against the effects of changes in the market value
of the stocks comprising the relevant index. One risk in employing futures
contracts as a hedge against cash market price volatility is the possibility
that futures prices will correlate imperfectly with the behavior of the prices
of the securities in the portfolio. Similarly, in employing futures contracts as
a substitute for purchasing the designated underlying securities, there is a
risk that the performance of the futures contract may correlate imperfectly with
the performance of the direct investments for which the futures contract is a
substitute. In addition, commodity exchanges generally limit the amount of
fluctuation permitted in futures contract prices during a single trading day,
and the existence of such limits may prevent the prompt liquidation of futures
positions in certain cases. Limits on price fluctuations are designed to
stabilize prices for the benefit of market participants; however, there could be
cases where the Portfolios could incur a larger loss due to the delay in trading
than it would have if no limit rules have been in effect. Further, the use of
futures contracts involve the risk of default by the other party to the
transaction, illiquidity and, to the extent WFNIA'S or HLM's view as to
certain market movements is incorrect, the risk that the use of such contracts
could result in losses greater than if they had not been used. As a result of
market illiquidity, the Portfolios may not be able to close out a position
without incurring substantial losses.
ADDITIONAL INVESTMENT ACTIVITIES
Securities Lending. In addition to the investment policies described
previously, each Portfolio may also lend its securities to the extent permitted
by the 1940 Act in order to generate additional income and not for leverage
purposes. The collateral securing such loans will consist only of cash, cash
equivalents, or U.S. Government securities. In the case of the Money Market
Portfolios, such U.S. Government securities will satisfy the quality and
maturity standards applicable to each of the Money Market Portfolio's
investments allowable under Rule 2a-7.
Each Portfolio may lend securities to banks, broker-dealers or other
institutional investors pursuant to agreements requiring that the loans be
continuously secured by any combination of cash, securities of the U.S.
government and its agencies, other high quality liquid investments, and
approved bank letters of credit that at all times equal at least 100% of the
market value of the loaned securities. Such loans will not be made if, as a
result, the aggregate amount of all outstanding securities loans for any
Portfolio exceeds 33 1/3% of its total assets. A Portfolio continues to receive
interest on the securities loaned and simultaneously earns either interest on
the investment of the cash collateral or fee income if the loan is otherwise
collateralized. However, a Portfolio normally pays lending fees and related
expenses from the interest earned on invested collateral. Should the borrower
of the securities fail financially, there is a risk of delay in recovery of the
securities or loss of rights in the collateral. However, loans are made only to
borrowers which are deemed by the Investment Adviser and/or sub-advisers to
be of good financial standing. A Portfolio may invest cash collateral it
receives in connection with a loan of securities in securities of the U.S.
Government and its agencies and other high quality short-term debt
instruments. For purposes of complying with each Portfolio's investment
policies and restrictions, collateral received in connection with securities
loans will not be deemed an asset of a Portfolio unless otherwise required by
law. See the Statement of Additional Information for further information
regarding loan transactions.
INVESTMENT RESTRICTIONS
(Money Market, National Municipal Money Market, and International
Equity). The following investment restrictions apply to the specified
Portfolioseach Portfolio and may be changed with respect to a particular
Portfolio only by the majority vote of that Portfolio's outstanding shares.
Accordingly, none of the specified Portfolios Portfolio may:
(1a) invest more than 5% of theirits total assets in securities of any
one issuer, other than securities issued by the U.S. Government, its agencies
and instrumentalities, or purchase more than 10% of the voting securities of
any one issuer, with respect to 75% of a Portfolio's total assets.
(2b) invest more than 25% of theirits total assets in the securities of
companies primarily engaged in any one industry other than the U.S.
Government, its agencies and instrumentalities or, with respect to the Money
Market Portfolio, Domestic Bank Odomestic bank obligations. Finance
companies as a group are not considered a single industry for purposes of this
policy.
(3c) borrow money, except through reverse repurchase agreements or dollar
roll transactions or from a bank for temporary or emergency purposes in an
amount not exceeding one third of the value of its total assets nor will it
borrow for leveraging purposes. In addition, although not a fundamental
policy, the specified Portfolios will repay any money borrowed before any
additional portfolio securities are purchased. See the Statement of Additional
Information for a further description regarding reverse repurchase agreements.
(d) invest more than 5% of the value of its total assets in warrants, including,
but not exceeding 2% of its total assets, warrants which are not listed on the
New York or American stock exchange in accordance with Texas Rule
123.2(8).
(e) purchase or sell real estate (other than marketable securities representing
interests in, or backed by, real estate and securities of companies that deal in
real estate or mortgages) or real estate limited parnterships, or purchase or
sell physical commodities or contracts relating to physical commodities.
The following non-fundamental investment restriction applies to the specified
Portfolioseach Portfolio and may be changed with respect to a particular
Portfolio only by a vote of the Board of Directors. None of the specified
Portfolios Portfolio may invest more than 10% of theirits net assets in illiquid
securities including time deposits and repurchase agreements which mature in
more than seven days.
The above percentage limits are based upon current asset values at the time of
the applicable transaction; accordingly, a subsequent change in asset values
will not affect a transaction which was in compliance with the investment
restrictions at the time such transaction was effected. See the Statement of
Additional Information for other investment limitations.
(Large Cap Index and Small/Mid Cap Index, through their investments in the
S&P and Small/Medium Master Series, respectively). As a fundamental
policy, each such Portfolio and its corresponding Master Series may (i) borrow
money to the extent permitted under the 1940 Act, except that the Large Cap
Index Portfolio and the S&P Master Series may borrow up to 20% of the
current value of its net assets for temporary purposes only in order to meet
redemptions. For purposes of this investment restriction, a Master Series'
entry into options, forward contracts, futures contracts, including those
relating to indexes, and options on futures contracts or indexes shall not
constitute borrowing to the extent certain segregated accounts are established
and maintained by the Master Series; (ii) invest up to 5% of its total assets in
the obligations of any single issuer, except that up to 25% of the value of the
total assets of such Portfolio and Master Series may be invested, and
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities may be purchased, without regard to any such limitation
provided that this restriction shall not prevent a Portfolio from investing all
of its assets in the corresponding Master Series; and (iii) invest up to 25% of
the value of its total assets in the securities of issuers in a particular
industry or group of closely related industries, subject to certain exceptions
specified in the Statement of Additional Information, including that there is no
limitation on the purchase of obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities provided that this restriction
shall not prevent a Portfolio from investing all of its assets in the
corresponding Master Series. This paragraph describes fundamental policies that
cannot be changed as to a Portfolio or Master Series without approval by the
holders of a majority (as defined in the 1940 Act) of such Portfolio's Master
Series' outstanding voting securities. See "Investment Restrictions" in the
Statement of Additional Information.
As additional non-fundamental policies, each such Portfolio and Master Series
may (i) purchase securities of any company having less than three years'
continuous operation (including operations of any predecessors) if such
purchase does not cause the value of its investments in all such companies to
exceed 5% of the value of its total assets unless the securities are fully
guaranteed or insured by the U.S. Government, a state, a 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 such purchase could cause the value of its investments
in all such companies to exceed 5% of the value of its total assets;
(ii) pledge, hypothecate, mortgage or otherwise encumber its assets, but only to
secure permitted borrowings; and (iii) invest up to 15% of the value of its net
assets in repurchase agreements providing for settlement in more than seven days
after notice and in other illiquid securities. See "Investment Restrictions" in
the Statement of Additional Information.
BROKERAGE PRACTICES
Each sub-adviser will place its own orders to execute the securities
transactions which are designed to implement the applicable investment
objectives and policies. The sub-adviser will use its reasonable efforts to
execute all purchases and sales with brokers, dealers and banks on a best
available price and most favorable execution basis. The full range and quality
of services offered by the executing broker or dealer is considered when
making these determinations. Neither the sub-adviser nor any of its officers,
affiliates, or employees will act as principal or receive any compensation from
the Portfolio in connection with the purchase or sale of investments for the
Portfolio.
The Money Market Portfolios normally will not incur any brokerage
commissions on theirits transactions because money market and debt
instruments are generally traded on a "net" basis with dealers acting as
principal for their own accounts without a stated commission. The price of
the security, however, usually includes a profit to the dealer. Securities
purchased in underwritten offerings include a fixed amount of compensation
to the underwriter, generally referred to as the underwriter's concession or
discount. No commissions or discounts are paid when securities are
purchased directly from an issuer.
With respect to the brokerage practices of the Master Series in which each of
the Large Cap Index and Small/Mid Cap Index Portfolios invest, brokers are
selected because of their ability to handle special executions such as those
involved in large block trades or broad distributions, provided the
considerations discussed above are met. Portfolio turnover may vary from
year to year, as well as within a year. High turnover rates over 100% are
likely to result in comparatively greater brokerage expenses. The overall
reasonableness of brokerage commissions paid is evaluated by WFNIA based
on its knowledge of available information as to the general level of
commissions paid by other institutional investors for comparable services.
YIELDS AND TOTAL RETURN
From time to time the Money Market and National Municipal Money Market
Portfolios Portfolio may advertise theirits "current yield" and "effective
yield." Both yield figures are based on historical earnings and are not
intended to indicate future performance. The "current yield" refers to the
income generated by an investment in a Portfolio over a seven calendar-day
period (which period will be stated in the advertisement). This income is then
"annualized." That is, the amount of income generated by the investment
during that week is assumed to be generated each week over a one-year period
and is shown as a percentage of the investment. The "effective yield" is
calculated similarly but, when annualized, the income earned by an
investment in the Portfolio is assumed to be reinvested. The "effective yield"
will be slightly higher than the "current yield" because of the compounding
effect of this assumed reinvestment.
National Municipal Money Market Portfolio may also quote "tax equivalent
yields", which show the taxable yields a shareholder would have to earn before
federal income taxes to equal this Portfolio's tax-free yields. The tax
equivalent yield is calculated by dividing the Portfolio's tax-exempt yield by
the result of one minus a stated federal income tax rate. If only a portion of
the Portfolio's income was tax-exempt, only that portion is adjusted in the
calculation. For this purpose, the Portfolio considers interest on private
activity obligations to be exempt from federal income tax.
Large Cap Index, Small/Mid Cap Index, andThe International Equity
Portfolios''s yield for any 30-day (or one month) period areis computed by
dividing the net investment income per share earned during such period by the
maximum public offering price per share on the last day of the period, and
then annualizing such 30-day (or one month) yield in accordance with a
formula prescribed by the Commission which provides for compounding on a
semiannual basis.
The Portfolios may from time to time advertise their total return. Any total
return quotations advertised will reflect the average annual compounded rate
of return during the designated time period based on a hypothetical initial
investment and the redeemable value of that investment at the end of the
period.
The Portfolios will at times compare their performance to applicable published
indices, and may also disclose their performance as ranked by certain
analytical services. See the Statement of Additional Information for more
information about the calculation of yields and total returns.
DISTRIBUTION OF FUND SHARES
Shares of the Fund are distributed by AMT Capital pursuant to a Distribution
Agreement (the "Distribution Agreement") dated as of October 29, 1993
between the Fund and AMT Capital. The Distribution Agreement requires
AMT Capital to use its best efforts on a continuing basis to solicit purchases
of shares of the Fund. No fees are payable by the Fund pursuant to the
Distribution Agreement.
Under a sales incentive fee agreement dated October 29, 1993 between AMT
Capital and FFTW, AMT Capital has agreed to pay FFTW a monthly sales
incentive fee at an annual rate of 0.05% of the average daily value of shares of
the Money Market Portfolio purchased as a result of the efforts of FFTW.
Under a sales incentive fee agreement dated April 29, 1994 between AMT
Capital and HLM, AMT Capital has agreed to pay HLM a monthly sales
incentive fee at an annual rate of 0.05% of the average daily value of shares of
the International Equity Portfolio purchased as a result of the efforts of HLM.
Charter Atlantic Corporation, an affiliate of FFTW, has a 10% equity interest
in AMT Capital.
DETERMINATION OF NET ASSET VALUE
The "net asset value" per share of each of the Money Market and National
Municipal Money Market PortfoliosPortfolio is calculated as of 12:00 noon
(Eastern Time) on days when the Federal Reserve Bank of New York is open
for business, which is Monday through Friday, except for holidays
(hereinafter, "Business Day"). The "net asset value" per share of the Large
Cap Index, Small/Mid Cap Index, and International Equity Portfolios are is
calculated as of 4:00 p.m. (Eastern Time) on days when the New York Stock
Exchange is open for business, also a Business Day. Each Portfolio
determines its net asset value per share by subtracting that Portfolio's
liabilities (including accrued expenses and dividends payable) from the total
value of the Portfolio's investments and other assets and dividing the result by
the total outstanding shares of the Portfolio. Each of the Money Market and
National Municipal Money Market Portfolios seekThe Money Market
Portfolio seeks to maintain a stable net asset value per share of $1.00.
For purposes of calculating each of the Money Market and National Municipal
Money Market Portfolios'Portfolio's net asset values, securities are valued by
the "amortized cost" method of valuation, which does not take into account
unrealized gains or losses. This involves valuing an instrument at its cost and
thereafter assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods during which value based on amortized cost is higher or
lower than the price a Portfolio would receive if it sold the instrument.
The use of amortized cost and the maintenance of each of the Money Market
Portfolios'the Portfolio's per share net asset value at $1.00 is based on its
election to operate under the provisions of Rule 2a-7 under the 1940 Act. As
conditions of operating under Rule 2a-7, eachthe Money Market Portfolio
must maintain a dollar-weighted average portfolio maturity of 90 days of less,
purchase only instruments having remaining maturities of thirteen months or
less and invest only in U.S. dollar-denominated securities which are
determined by the Board of Directors to present minimal credit risks and
which are of eligible quality as determined under the Rule.
Each of the Large Cap Index and Small/Mid Cap Index Portfolios'
investments in the S&P and Small/Medium Master Series, respectively, are
valued at the net asset value of the applicable Master Series' shares. Each
Master Series calculates the net asset value of its shares on the same days and
at the same time as the Portfolios. Except for debt obligations with remaining
maturities of 60 days or less, which are valued at amortized cost, each Master
Series' assets are valued at current market prices, or if such prices are not
readily available, at fair value as determined by the Master Series' Board of
Trustees. Prices used for such valuations may be provided by independent
pricing services.
For purposes of calculating the NAV of the International Equity Portfolio's net
asset values, securities are valued as follows: (1) all portfolio securities
for which over-the-counter market quotations are readily available (including
asset-backed securities) are valued at the latest bid price; (2) deposits and
repurchase agreements are valued at their cost plus accrued interest unless the
Investment Adviser or sub-adviser determines in good faith, under procedures
established by and under the general supervision of the Fund's Board of
Directors, that such value does not approximate the fair value of such assets;
(3) securities listed or traded on an exchange are valued at their last sale
price on that exchange; and (4) the value of other assets for which market
quotations are not readily available will be determined in good faith by the
Investment Adviser or sub-adviser at fair value under procedures established
by and under the general supervision of the Fund's Board of Directors.
Quotations of foreign securities denominated in a foreign currency are
converted to a U.S. dollar-equivalent at exchange rates obtained from a major
bank. Prices may be obtained from automated pricing services.
PURCHASES AND REDEMPTIONS
Purchases
There is no sales charge imposed by the Fund. The minimum initial
investment in any Portfolio of the Fund is $100,000; additional purchases or
redemptions may be of any amount. The Fund reserves the right to waive the
minimum initial investment amount.
The offering of shares of the Fund is continuous and purchases of shares of the
Fund may be made on any Business Day. The Fund offers shares at a public
offering price equal to the net asset value next determined after receipt of a
purchase order.
Purchases of shares must be made by wire transfer of Federal funds. Share
purchase orders are effective on the date when AMT Capital receives a
completed Account Application Form (and other required documents) and
Federal funds become available to the Fund in the Fund's account with the
Transfer Agent as set forth below. The shareholder's bank may impose a
charge to execute the wire transfer. The wiring instructions are:
Investors Bank & Trust Company, Boston, MA
ABA#: 011-001-438
Account Name: AMT Capital Services, Inc.
- Fund Purchase Account
Account #: 933333333933333333
Reference: AMT Capital Fund - (designate Reference:
AMT Capital Fund - (designatePortfolio)
In order to purchase shares on a particular Business Day, a purchaser must
call AMT Capital at (800) 762-4848 or (212) 308-4848 prior to 12:00 noon
Eastern time for the Money Market and National Municipal Money Market
PortfoliosPortfolio and prior to 4:00 p.m. Eastern time for the Large Cap
Index, Small/Mid Cap Index, and International Equity Portfolios to inform the
Fund of the incoming wire transfer and must clearly indicate which Portfolio
is to be purchased. If Federal funds are received by the Fund that same day,
the order will be effective on that day. If the Fund receives notification
after the above-mentioned cut-off times, or if Federal funds are not received by
the Transfer Agent, such purchase order shall be executed as of the date that
Federal funds are received. Shares purchased in the Money Market and
National Municipal Money Market PortfoliosPortfolio will begin accruing
dividends on the day Federal funds are received.
Redemptions
The Fund will redeem all full and fractional shares of the Fund upon request
of shareholders. The redemption price is the net asset value per share next
determined after receipt by the Transfer Agent of proper notice of redemption
as described below. If such notice is received by the Transfer Agent by 12:00
noon Eastern time for the Money Market and National Municipal Money
Market PortfoliosPortfolio and 4:00 p.m. Eastern time for the Large Cap
Index, Small/Mid Cap Index, and International Equity Portfolios on any
Business Day, the redemption will be effective on the date of receipt. Payment
will ordinarily be made by wire the same day for the Money Market and
National Municipal Money Market PortfoliosPortfolio and on the next
Business Day for the Large Cap Index, Small/Mid Cap Index, and
International Equity Portfolios but within no more than seven business days
from the date of receipt. If the notice is received on a day that is not a
Business Day or after the above-mentioned cut-off times, the redemption
notice will be deemed received as of the next Business Day.
There is no charge imposed by the Fund to redeem shares of the Fund;
however, a shareholder's bank may impose its own wire transfer fee for receipt
of the wire. Redemptions may be executed in any amount requested by the
shareholder up to the amount such shareholder has invested in the Fund.
To redeem shares, a shareholder or any authorized agent (so designated on the
Account Application Form) must provide the Transfer Agent with the dollar
or share amount to be redeemed, the account to which the redemption
proceeds should be wired (which account shall have been previously
designated by the shareholder on its Account Application Form), the name of
the shareholder and the shareholder's account number. Shares redeemed
receive dividends up to and including the day preceding the day the
redemption proceeds are wired.
A shareholder may change its authorized agent or the account designated to
receive redemption proceeds at any time by writing to the Transfer Agent with
an appropriate signature guarantee. Further documentation may be required
when deemed appropriate by the Transfer Agent.
A shareholder may request redemption by calling the Transfer Agent at (800)
247-0473. Telephone redemption is made available to shareholders of the
Fund on the Account Application Form. The Fund or the Transfer Agent
employ reasonable procedures designed to confirm that instructions
communicated by telephone are genuine. If either the Fund or the Transfer
Agent does not employ such procedures, it may be liable for losses due to
unauthorized or fraudulent instructions. The Fund or the Transfer Agent may
require personal identification codes and will only wire funds through pre-
existing bank account instructions. No bank instruction changes will be
accepted via telephone.
Exchange Privilege
Shares of each Portfolio may be exchanged for shares of anthe other Portfolio
or for other funds distributed by AMT Capital based on the respective net asset
values of the shares involved in the exchange, assuming that shareholders
wishing to exchange shares reside in states where these mutual funds are
qualified for sale. The Fund's Portfolio minimum amounts of $100,000 would
still apply. An exchange order is treated the same as a redemption followed
by a purchase. Investors who wish to make exchange requests should
telephone AMT Capital or the Transfer Agent.
DIVIDENDS
Money Market Portfolios
Each of the Money Market and National Municipal Money Market
PortfoliosMoney Market Portfolio will declare a dividend of its net investment
income (which is composed of dividends, if applicable, and interest, less
expenses) daily and distribute such dividends monthly.
EachThe Portfolio will distribute its realized net short-term capital gains
(i.e. with respect to assets held one year or less) at least annually by
automatically reinvesting (unless a shareholder has elected to receive cash)
such short-term capital gains in additional shares of the Portfolio at the net
asset value on the date the distribution is declared.
In the unlikely event that eitherthe Portfolio realizes net long-term capital
gains (i.e. with respect to assets held more than one year), it will distribute
them at least annually by automatically reinvesting (unless a shareholder has
elected to receive cash) such long-term capital gains in additional shares of
the Portfolios at the net asset value on the date the distribution is declared.
Equity Portfolios
International Equity Portfolio
Large Cap Index and Small/Mid Cap Index Portfolios will declare dividends
daily and pay a dividend of their net investment income on a quarterly basis.
International Equity Portfolio will declare and pay a dividend of its net
investment income on a quarterly basis.
basis. Large Cap Index, Small/Mid Cap Index, and
International Equity Portfolios will distribute theirits realized net short-term
capital gains (i.e. with respect to assets held one year or less) and net long-
term capital gains (i.e. with respect to assets held more than one year) at
least annually by automatically reinvesting (unless a shareholder has elected to
receive cash) such short-term or long-term capital gains in additional shares of
the Portfolios at the net asset value on the date the distribution is declared.
MANAGEMENT OF THE FUND
Board of Directors
The Board of Directors of the Fund is responsible for the overall management
and supervision of the Fund. The Fund's Directors are:
Director Profile
Robert B. Allardice, III Former Managing Director, Morgan
Stanley & Co., Incorporated (retired)
Patricia M. Gammon Director of Investments, Yale
University.
Alan M. Trager President of the Fund; President and
Director of AMT Capital Advisers, Inc. and AMT Capital Services, Inc.;
former Managing Director, Morgan Stanley & Co., Incorporated.
Additional information about the Directors and the Fund's executive officers
may be found in the Statement of Additional Information under the heading
"Management of the Fund - Board of Directors". With respect to the Large
Cap Index and Small/Mid Cap Index Portfolios, the Board of Directors may
withdraw their investment in the S&P
Master Series and the Small/Medium Master Series only if they determine that
it is in the best interests of the corresponding Portfolio and its shareholders
to do so. Upon any such withdrawal, the Board of Directors would consider what
action might be taken, including the investment of all the assets of the
Portfolio in another pooled investment entity having the same investment
objective as the Portfolio or the hiring of a sub-adviser to manage the
Portfolio's assets in accordance with the investment policies described above
with respect to the S&P Master Series or the Small/Medium Master Series.
Investment Adviser
Subject to the direction and authority of the Fund's Board of Directors, AMT
Capital Advisers, Inc. provides investment advisory services to the Fund on
behalf of the Money Market Portfolios and the International Equity Portfolio.
Founded in late 1991 and organized as a Delaware corporation, AMT Capital
Advisers, Inc., is a private investment and financial services firm, providing
financial advisory and transaction execution services. The firm's clients are
exclusively in the financial services industry and primarily include asset
management firms, mutual funds, banks and brokerage firms. The business
address of the Investment Adviser is 430 Park Avenue, New York, New York
10022. AMT Capital Advisers is registered with the Securities and Exchange
Commission as an investment adviser. Its principals are former officers of
Morgan Stanley.
Pursuant to the Investment Advisory Agreements dated October 28, 1993, for
the Money Market Portfolios and dated April 29, 1994 for the International
Equity Portfolio, AMT Capital Advisers, Inc. will provide investment advisory
services to each Portfolio of the Fund (other than the Large Cap Index and
Small/Mid Cap Index Portfolios). In addition to providing the office space,
equipment and personnel necessary to manage the Fund, the Investment
Adviser monitors the sub-advisers' investment programs and results, and
coordinates the investment activities of the sub-advisers to ensure compliance
with regulatory restrictions.
In its role as Investment Adviser, AMT Capital Advisers also works with the
Board of Directors of the Fund to select and monitor the sub-advisers serving
the Fund through analysis of investment techniques and results.
The Investment Adviser bears the expense of providing the above services,
and pays the fees of each Portfolio's sub-advisers. For its services, the Money
Market and National Municipal Money Market Portfolios payMoney Market
Portfolio pays the Investment Adviser a monthly fee at an annual rate of
0.25% of theirits respective average daily net assets and, and the International
Equity Portfolio pays a monthly base fee at an annual rate of 0.75% of its
average daily net assets (adjusted for any performance fees payable to or
deducted from HLM's fee described below). The fee paid by the International
Equity Portfolio is higher than that charged by most funds which invest
primarily in U.S. securities, but not necessarily higher than the fees charged
to funds with investment objectives similar to those of the Portfolio.
Sub-Advisers
TheAll sub-advisers of the Money Market Portfolios and the International
Equity Portfolio are employed by the Investment Adviser, subject to approval
by the Board of Directors and the shareholders of the applicable Portfolio.
The Investment Adviser recommends sub-advisers to the Fund's Board of
Directors based upon its continuing quantitative and qualitative evaluation of
the sub-adviser's skill in managing assets using specific investment styles and
strategies.
Each such sub-adviser has discretion to purchase and sell securities for the
assets of its respective Portfolio in accordance with that Portfolio's
objectives, policies and restrictions and the more specific strategies provided
by the Investment Adviser. Although suchthe sub-advisers are subject to general
supervision by the Fund's Board, officers and Investment Adviser, these
parties do not evaluate the investment merits of specific securities
transactions. As compensation for its services, FFTW is paid a monthly fee at
an annual rate of 0.10% of the average daily net assets of the Money Market
Portfolio by the Investment Adviser out of the proceeds of the investment
advisory fee described in "Investment Adviser." As compensation for its
services, SBAM is paid a monthly fee at an annual rate of 0.10% of the
average daily net assets of the National Municipal Money Market Portfolio,
and no less than $25,000 on an annual basis, by the Investment Adviser out of
the proceeds of the investment advisory fee described in "Investment Adviser."
As compensation for its services, HLM is paid a monthly base fee at an annual
rate of 0.50% (adjusted according to the performance schedule described
below) of the average daily net assets of the International Equity Portfolio.
HLM's fee is paid by the Investment Adviser out of the proceeds of the
investment advisory fee described in "Investment Adviser."
Investment Adviser/Sub-Adviser for the S&P and Small/Medium Master
Series
Wells Fargo Bank, as the investment adviser of the Master Trust, manages the
investments of each of the S&P and Small/Medium Master Series. The Fund,
on behalf of each of the Large Cap Index Portfolio and the Small/Mid Cap
Index Portfolios, has not retained the services of AMT Capital Advisers as
investment adviser because the Portfolios invest all of their assets in the
Master Series. Pursuant to an Investment Advisory Agreement with the
Master Trust, Wells Fargo Bank provides investment guidance and policy
direction in connection with the management of the Master Series' assets
subject to the supervision of the Master Trust's Board of Trustees and in
conformity with Delaware law and the stated policies of the Master Series.
Wells Fargo Bank has engaged WFNIA to provide sub-investment advisory
services to the S&P and Small/Medium Master Series. WFNIA is a general
partnership owned 50% by a wholly-owned subsidiary of Wells Fargo and
50% by a subsidiary of The Nikko Securities Co., Ltd. WFNIA is responsible
for managing or providing investment advice for over $150 billion in assets
under management as of June 30, 1994. Pursuant to a Sub-Advisory
Agreement, WFNIA, subject to the supervision and approval of Wells Fargo,
provides investment advisory assistance and the day-to-day management of the
Master Series' assets, subject to the overall authority of the Master Trust's
Board of Trustees and in conformity with Delaware law and the stated policies
of such Master Series. For its services as investment adviser to the S&P Index
Master Series and Small/Medium Stock Index Master Series, Wells Fargo
Bank is paid a monthly fee at an annual rate of 0.05% and 0.10% of the
average daily net assets, respectively, of which it remits an annual fee of
0.04% and 0.09%, respectively, to Wells Fargo Nikko Investment Advisors as
sub-adviser to the S&P Master Series and Small/Medium Master Series.
Wells Fargo Bank, deals, trades and invests for its own account in the types of
securities in which the Master Series may invest and may have deposit, loan,
and commercial banking relationships with the issuers of securities purchased
by the Master Series. Wells Fargo Bank has informed the Master Trust that in
making its investment decisions it does not obtain or use material inside
information in its possession.
International Equity Portfolio Performance Fee Adjustment
Performance adjustments are added or deducted from the FulcrumBase Fee
paid to the Investment Adviser and HLM ( which is a basean annual fee of
0.75% and 0.50%, respectively, of the Portfolio's average daily net assets)
based on a comparison of the Portfolio's actual gross total returns vis-a-vis
the actual gross total return of the International Equity Portfolio's
benchmark, the Morgan Stanley Capital International World ex USA Index (with
income reinvested) according to the schedule below. Actual gross total return
shall mean the change in the market value of the Portfolio over the measurement
period, adjusted on a time-weighted basis for any assets added to or withdrawn
from the Portfolio.
Return ParameterPerformance AdjustmentBenchmark return plus 450 basis
points or more+ 10 basis points*Benchmark return plus 300 to 449.99 basis
points+ 5 basis pointsBenchmark return plus 150 to 299.99 basis points No
adjustmentBenchmark return plus 0 to 149.99 basis points- 5 basis pointsLess
than the benchmark return- 10 basis points* A "basis point" is one-hundredth
of one percent (i.e., one basis point equals 0.01%).
Except as otherwise provided below, the monthly fee payable to the Sub-Asub-
adviser shall be equal to 1/12 of the performance adjusted fee for the
applicable month. The performance adjusted fee shall equal 0.50% of the
average daily net assets of the Portfolio during the performance measurement
period, adjusted upwards or downwards in accordance with the schedule above
to reflect the performance of the Portfolio during the performance
measurement period. The performance adjusted fee shall not be adjusted
above 0.60% on an annualized basis (the "Maximum Fee") nor below 0.40%
on an annualized basis (the "Minimum Fee").
The performance measurement period shall be a rolling 12-month period
which, by definition, ends two months prior to the current month. For
example, in determining a calculation as of March 31st of any year, the rolling
12-month period would commence as of February 1st of the prior year and end
as of January 31st of that year. The appropriate fee for any month shall be
payable on the tenth (10th) day of the month following the following the
month in which the fee was earned.
With respect to the first two (2) full calendar months that services are
provided hereunder, as well as any portion of a prior month, the Investment
Adviser shall pay the Sub-Asub-adviser a fee equal to 1/12 of 0.45% of the
Portfolio's average daily net assets for the applicable month, prorated for a
portion of a month.
The next twelve (12) months are referred to as the "Transition Period." With
respect to the first eleven (11) months of the Transition Period, the Investment
Adviser shall pay to the Sub-Asub-adviser 1/12 of the Minimum Fee applied
to the Portfolio's average daily net assets over such month. During the
Transition Period, the fee rate that will be accrued as payable to the Sub-Asub-
adviser shall be 0.50% (the Fulcrum Fee) as adjusted according to the
schedule above based on the 12-month period, the first of which begins the
first day of the first full calendar month that services are provided. On the
fourteenth (14th) month (on the tenth business day of the fifteenth month), the
Investment Adviser shall pay the Sub-Asub-adviser an amount equal to the
difference between the aggregate amount of the Minimum Fee paid in the first
eleven months of the Transition Period and the accrued rate payable to the
Sub-Asub-adviser during the entire twelve months of the Transition Period.
Portfolio Managers
Sub-Adviser/ Portfolio/
Address/ Background
Portfolio Manger(s)
Fischer Francis Trees Money Market Portfolio& Watts,
Inc. Organized in 1972, FFTW is a registered
investment adviser717 Fifth Avenue and a New York
corporation that currently manages nearlyNew York, NY 10022
$20 $18 billion in assets entirely in fixed-income portfolios for
65 major institutional clients including banks, central banks, pension funds
and other institutional clients.Portfolio Managerss: (a)
David J. Marmon, Portfolio Manager. Mr. Marmon is responsible for
management of the U.S. short-term portfolios. He joined FFTW in 1990 from
Yamaichi International (America) where he was head of futures and options
research. Mr. Marmon was previously a financial analyst and strategist at the
First Boston Corporation, where he developed hedging programs for financial
institutions and industrial firms. Mr. Marmon has a B.A. summa cum laude
in economics from Alma College and an M.A. in economics from Duke
University.
(b) Stewart M. Russell, Portfolio
Manager. Mr. Russell is also
responsible for management of the U.S. short-
term portfolios. He joined FFTW in 1992 from the short-
term proprietary trading desk in the global markets area of J.P. Morgan, where
he was responsible for proprietary positioning of U.S. and non-U.S.
government obligations, corporate bonds, and asset-backed securities. Earlier
at the bank, Mr. Russell managed the short-term interest rate risk group,
coordinating a $10 billion book of assets and liabilities. Mr. Russell holds a
B.A. in government from Cornell University and an M.B.A. in finance from
New York University.
Salomon Brothers National Municipal Money
Market Portfolio
Asset Management Inc SBAM was incorporated in 1987 and
serves as an
7 World Trade Center investment adviser to various individuals,
institutions, New York, New York 10048 and investment companies.
SBAM has $9.1 billion of
assets under management,
including $1.1 billion in tax- exempt
investment strategies.
Portfolio Manager: Marybeth Whyte, Vice President
of Salomon Brothers Asset Management Inc. Ms. Whyte joined SBAM in
July 1994, after serving as a Senior Vice President and head of the Municipal
Bond Area at Fiduciary Trust Company International. Prior to Fiduciary, she
managed portfolios for high net worth individuals, she managed portfolios for
high net worth individuals, mutual funds, and pension funds at U.S. Trust
Company and Bernstein-Macaulay Inc., respectively. Ms. Whyte received a
B.A. degree from SUNY Oneonta and an M.B.A., Finance from Bernard M.
Baruch College.
Wells Fargo Bank, N.A./ Large Cap Index and Small/Mid Cap
Index Portfolios
Wells Fargo Nikko WFNIA, which first introduced the
indexing concept in
Investment Advisors 1971, is the world leader in passive index-
based
45 Fremont Street investment funds. With over $150 billion,
the firm's
San Francisco, CA 94105 global clientele includes more than 400
corporate and
public defined-benefit and
defined-contribution pension plans, foundations, and endowments.
Portfolio Managers: (a) Patricia C. Dunn, President, Chief
Executive Officer, and Co-Chief Investment Officer, WFNIA Americas
Group. Ms. Dunn joined Wells Fargo in 1976 and is responsible for all of the
firm's business activities in North America. Ms Dunn has been a frequent
guest speaker at seminars on topics related to asset allocation and index
management. She received her A.B. from the University of California at
Berkeley.
(b) Donald L. Luskin, Vice
Chairman, Chief Operating Officer, and Co-Chief Investment Officer,
WFNIA Americas Group. Mr. Luskin is responsible for the firm's portfolio
management, transaction management, and communications groups, as well
as for research and product development. Mr. Luskin joined Wells Fargo in
1987 and was formerly a Vice President and Director of Jeffries & Company.
Harding, Loevner International Equity Portfolio
Management, L.P. HLM, established in 1989, is a
registered investment
50 Division Street adviser that specializes in global
investment management for
Somerville, NJ 08876 private investors, foundations and
endowments. HLM currently has $3050 million under management.
Portfolio Managers: : (a) Daniel D. Harding,
Chief Investment Officer of Harding, Loevner Management, L.P. Prior to
founding the firm, Mr. Harding served for ten years as a senior investment
manager with Rockefeller & Co., the private investment firm that advises the
Rockefeller family and related charities. At Rockefeller, he set equity and
fixed income investment strategy and spearheaded the international
diversification of the firm's investments.
Mr. Harding graduated with honors from Colgate University and is a
Chartered Financial Analyst.
(b) Simon Hallett, Senior
Portfolio Manager and Principal of Harding, Loevner Management, L.P.
Prior to joining the firm in 1991, Mr. Hallett served seven years with Jardine
Fleming Investment Management where he was director in charge of a team
of six portfolio managers investing in the markets of Southeast and North
Asia. Mr. Hallett graduated with honors from Oxford University.
(c) David R. Loevner, Chief
Executive Officer of Harding, Loevner Management, L.P. Mr. Loevner's prior
experience includes nine years with the Rockefeller family office, where he
managed equity portfolios and developed new financial planning and asset
allocation techniques. In 1987, he relocated to Hong Kong to open
Rockefeller's first Asian office and manage a regional investment program
comprising both quoted and private venture investments. Before joining
Rockefeller, Mr. Loevner was an economist with the World Bank. He
graduated summa cum laude from Princeton University and, as a Sachs
scholar, received graduate degrees from Oxford University.
Administrator
Pursuant to an Administration Agreement dated as of October 28, 1993
between the Fund and AMT Capital Services, Inc., AMT Capital provides for
administrative services to, and assists in managing and supervising all aspects
of, the general day-to-day business activities and operations of the Fund other
than investment advisory activities, including custodial, transfer agency,
dividend disbursing, accounting, auditing, compliance and related services.
Each Portfolio of the Fund pays AMT Capital a monthly fee at an annual rate
of 0.10% of their respective average daily net assets.
Founded in early 1992, AMT Capital Services is a registered broker-dealer
whose senior managers are former officers of Morgan Stanley and The
Vanguard Group, where they were responsible for the administration and
distribution of The Pierpont Funds, a $5 billion fund complex now owned by
J.P. Morgan, and the private label administration group of Vanguard, which
administered over $10 billion in assets for 45 portfolios, respectively.
AMT Capital acts as an independent, third-party administrator responsible for
managing all aspects of the Fund's operations. It focuses on selecting,
managing, and replacing, if necessary, the other service providers to the Fund
to secure the best service at the best prices available on the market.
Direct Expenses
Those fees and expenses paid directly by the Fund may include the fees of
independent auditors, transfer agent and dividend disbursing agent, and
custodian; the expense of obtaining quotations for calculating the value of
each Portfolio's net assets; taxes, if any, and the preparation of each
Portfolio's tax returns; brokerage fees and commissions; interest; costs of
Board of Director and shareholder meetings; the expense of printing and mailing
prospectuses and reports to existing shareholders; fees for filing reports with
regulatory bodies and the maintenance of the Fund's existence; legal fees; fees
to federal and state authorities for the registration of shares; fees and
expenses of members of the Board of Directors who are not directors, officers,
employees or stockholders of the Investment Adviser or its affiliates; insurance
and fidelity bond premiums; and any extraordinary expenses of a nonrecurring
nature.
TAX CONSIDERATIONS
The following discussion is for general information only. An investor should
consult with his or her own tax adviser as to the tax consequences of an
investment in a Portfolio, including the status of distributions from each
Portfolio under applicable state or local law.
Federal Income Taxes
Each Portfolio intends to qualify for and to elect to be treated as a regulated
investment company ("RIC") under the Internal Revenue Code of 1986 (the
"Code"), as amended. To qualify, a Portfolio must meet certain income,
distribution and diversification requirements. In any year in which a Portfolio
qualifies as a RIC and distributes all of its taxable income and substantially
all of its net tax-exempt interest income on a timely basis, the Portfolio will
not pay U.S. federal income or excise tax. Each Portfolio intends to distribute
all of its taxable income and net tax-exempt interest income by automatically
reinvesting such amount in additional shares of the Portfolio and distributing
those shares to its shareholders, unless a shareholder elects, on the Account
Application Form, to receive cash payments for such distributions.
Dividends paid by a Portfolio from its investment company taxable income
(including interest and net short-term capital gains) will be taxable to a U.S.
shareholder as ordinary income, whether received in cash or in additional
Fund shares. Distributions of net capital gains (the excess of net long-term
capital gains over net short-term capital losses) are generally taxable to
shareholders as long-term capital gain, regardless of how long they have held
their Portfolio shares. If a portion of the Large Cap Index or Small Cap
Index, through their investments in the S&P and Small/Medium Master
Series, respectively, or International Equity Portfolios''s income consists of
dividends paid by U.S. corporations, a portion of the dividends paid by the
Portfolio may be eligible for the corporate dividends-received deduction.
None of the amounts treated as distributed by the Money Market Portfolios are
expected to be eligible for the corporate dividends-received deduction.
Distributions by the National Municipal Money Market Portfolio that it
derives from interest income exempt from federal income tax and designates
as "exempt-interest dividends" generally may be exempt from federal income
tax. If the Portfolio earns taxable income from any of its investments, it will
be distributed as a taxable dividend. To the extent the Portfolio invests in
private activity obligations, shareholders subject to the alternative minimum
tax will be required to treat a portion of the Portfolio's dividends as a "tax
preference item" in determining their federal tax obligation. Exempt-interest
dividends also may be subject to state or local taxes, depending on state and
local tax laws. Because some states exempt interest on their own municipal
obligations from tax, shareholders will receive tax information each year
illustrating how the Portfolio allocated its exempt interest income by state.
A distribution will be treated as paid on December 31 of the current calendar
year if it is declared by a Portfolio in October, November or December with a
record date in any such month and paid by the Portfolio during January of the
following calendar year. Such distributions will be taxable to shareholders in
the calendar year in which the distributions are declared, rather than the
calendar year in which the distributions are received. Each Portfolio will
inform shareholders of the amount and tax status of all amounts treated as
distributed to them not later than 60 days after the close of each calendar
year.
Any gain or loss realized by a shareholder upon the sale or other disposal of
shares of a Portfolio, or upon receipt of a distribution in a complete
liquidation of the Portfolio, generally will be a capital gain or loss which
will be long-term or short-term, generally depending upon the shareholder's
holding period for the shares.
Each Portfolio may be required to withhold U.S. federal income tax at the rate
of 31% of all taxable distributions payable to shareholders who fail to provide
the Portfolio with their correct taxpayer identification number or to make
required certifications, or who have been notified by the IRS that they are
subject to backup withholding. Backup withholding is not an additional tax.
Any amounts withheld may be credited against the shareholder's U.S. federal
income tax liability.
Income received by International Equity Portfolio 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. In certain circumstances, the Portfolio
may be eligible and may elect to "pass through" to the Portfolio's shareholders
the amount of foreign income and similar taxes paid by the Portfolio. Each
shareholder will be notified within 60 days after the close of a Portfolio's
taxable year whether the foreign taxes paid by the Portfolio will "pass
through" for the year.
Further information relating to tax consequences is contained in the Statement
of Additional Information.
State and Local Taxes
A Portfolio may be subject to state, local or foreign taxation in any
jurisdiction in which the Portfolio may be deemed to be doing business.
Portfolio distributions may be subject to state and local taxes. Distributions
of a Portfolio which are derived from interest on obligations of the U.S.
Government and certain of its agencies, authorities and instrumentalities may
be exempt from state and local taxes in certain states. Shareholders should
consult their own tax advisers regarding the particular tax consequences of an
investment in a Portfolio.
Tax Status of Master Series
The Master Trust is organized as a business trust under Delaware law. Under
the Master Investment Portfolio's anticipated method of operation as a
partnership, no Master Series will be subject to any income tax. However,
each investor in a Master Series will be taxable on its share (as determined in
accordance with the governing instruments of the Master Trust) of such
Master Series' ordinary income and capital gain in determining its income tax
liability. The determination of such share will be made in accordance with the
Code, as amended, and regulations promulgated thereunder.
The Master Trust's taxable year-end is December 31. Although the Master
Trust will not be subject to Federal income tax, it will file appropriate
Federal income tax returns.
It is intended that each Master Series' assets, income and distributions will be
managed in such a way that an investor in the Master Series will be able to
satisfy the requirements of Subchapter M of the Code, assuming that the
investor invested all of its investable assets in the Master Series.
Investors are advised to consult their own tax advisers as to the tax
consequences of an investment in the Master Series.
SHAREHOLDER INFORMATION
Description of the Fund
The Fund was established under Maryland law by the filing of its Articles of
Incorporation on August 3, 1993. The Fund's Articles of Incorporation permit
the Directors to authorize the creation of additional Portfolios, each of which
will issue a separate class of shares. Currently, the Fund has fivetwo separate
Portfolios.
Voting Rights
A shareholder has one vote in Director elections and on other matters
submitted to shareholders for their vote for each dollar of net asset value held
by the shareholder. Matters to be acted upon that affect a particular
Portfolio, including approval of the investment advisory agreement with the
Investment Adviser and the submission of changes of fundamental investment
policy of a Portfolio, will require the affirmative vote of the shareholders of
such Portfolio. The election of the Fund's Board of Directors and the approval
of the Fund's independent auditors are voted upon by shareholders on a Fund-
wide basis. As a Maryland corporation, the Fund is not required to hold
annual shareholder meetings. Shareholder approval will be sought only for
certain changes in the Fund's or a Portfolio's operation and for the election of
Directors under certain circumstances.
Directors may be removed by shareholders at a special meeting. A special
meeting of the Fund shall be called by the Directors upon written request of
shareholders owning at least 10% of the Fund's outstanding shares.
Shareholders will be assisted in communicating with other shareholders in
connection with removing a Director as if Section 16(c) of the 1940 Act were
applicable.
OTHER PARTIES
Custodian and Accounting Agent
Investors Bank & Trust Company, P.O. Box 1537, Boston, Massachusetts
02205-1537, is Custodian for the securities and cash of the Fund and
Accounting Agent for the Fund.
Wells Fargo Institutional Trust Company, N.A., 45 Fremont Street, San
Francisco, California 94105 ("WFITC"), is the Master Trust's Custodian.
WFITC is owned by WFNIA and Wells Fargo & Company.
Transfer and Dividend Disbursing Agent
Investors Bank & Trust Company, P.O. Box 1537, Boston, Massachusetts
02205-1537, is Transfer Agent for the shares of the Fund, and Dividend
Disbursing Agent for the Fund.
Legal Counsel
Dechert Price & Rhoads, 1500 K Street, N.W., Washington, D.C. 20005-
1208, are legal counsel for the Fund.
Morrison & Foerster, 2000 Pennsylvania Avenue, N.W., Suite 5500,
Washington, D.C. 20006-1812, are legal counsel for the Master Trust.
Independent Auditors
Ernst & Young, LLP, 787 Seventh Avenue, New York, New York 10019 are
the independent auditors for the Fund.
SHAREHOLDER INQUIRIES
Inquiries concerning the Fund may be made by writing to AMT Capital
Services, Inc., 430 Park Avenue, 17th Floor, New York, New York 10022 or
by calling AMT Capital at (800) 762-4848 [or (212) 308-4848, if within New
York City].
CONTROL PERSON AND PRINCIPAL HOLDERS OF SECURITIES
CONTROL PERSON
As of September 1 December 30, 1994, the following shareholder is deemed a
"control person" as such term is defined in the 1940 Act and held
77.8467.23% of the outstanding shares of Common Stock ($.001 par value) of
the Fund:
Cooper Industries, Inc.
1001 Fannin Street
First City Tower, Suite 3900
Houston, TX 77210
As of September 10, 1994, the following person held five percent or more of
the outstanding shares of Common Stock ($.001 par value) of the Fund:
Mercersburg Academy Percent of Fund: 8.96%
c/o Valley Bank, a Division
of Dauphin Deposit Bank &
Trust Company, Custodian
P.O. Box 459
Chambersburg, PA 17201
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