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As filed with the Securities and Exchange Commission
on July 19, 1995
Registration No. 811-08140
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
FORM N-1A
AMENDMENT NO. 3 TO
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
MANAGED SERIES INVESTMENT TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
111 Center Street, Little Rock, Arkansas 72201
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
_______________________________________
Registrant's Telephone Number, including Area Code:
(800) 643-9691
Richard H. Blank, Jr.
c/o Stephens Inc.
111 Center Street
Little Rock, Arkansas 72201
(NAME AND ADDRESS OF AGENT FOR SERVICE)
WITH A COPY TO:
Robert M. Kurucza, Esq.
Marco E. Adelfio, Esq.
Morrison & Foerster
2000 Pennsylvania Avenue, N.W., Suite 5500
Washington, D.C. 20006-1812
================================================================================
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EXPLANATORY NOTE
This amendment No. 3 to the Registration Statement of Managed Series
Investment Trust (the "Trust") relates only to the Tax-Free Money Market Master
Series (the "Master Series") of the Trust. This amendment is being filed to
reflect certain non-material changes to the form of Part A describing the
Master Series and to add to the Registration Statement an unaudited
Statement of Assets and Liabilities as of July 13, 1995 of the Master
Series. This amendment does not effect the registration statement for the
Growth and Income Master Series, Tax-Free Intermediate Income Master Series,
California Tax-Free Intermediate Income Master Series, California Tax-Free
Money Market Master Series, California Tax-Free Short-Term Income Master
Series, Growth Stock Master Series and Short-Intermediate Term Master Series.
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MANAGED SERIES INVESTMENT TRUST
PART A
July 19, 1995
Responses to Items 1 through 3 have been omitted pursuant to paragraph F.4. of
the General Instructions to Form N-1A.
ITEM 4. GENERAL DESCRIPTION OF REGISTRANT.
Managed Series Investment Trust ("Trust") is a no-load, open-end
series investment company which was organized as a business trust under the
laws of Delaware on October 28, 1993. The Trust is currently comprised of
eight series: the Growth Stock Master Series, the Short-Intermediate Term
Master Series, the Growth and Income Master Series, the Tax- Free Intermediate
Income Master Series, the California Tax-Free Intermediate Income Master
Series, the California Tax- Free Short-Term Income Master Series, the
California Tax-Free Money Market Master Series and the Tax-Free Money Market
Master Series, (each a "Master Series" or "Series", the Tax-Free Money Market
Master Series and California Tax-Free Money Market Master Series are together
the "Money Market Master Series"). As of the date of this Part A, only the
Growth Stock Master Series, Short-Intermediate Term Master Series and Tax-Free
Money Market Master Series had commenced operations. Beneficial interests in
the Master Series of the Trust are issued solely in private placement
transactions that do not involve any "public offering" within the meaning of
Section 4(2) of the Securities Act of 1933, as amended (the "1933 Act").
Investments in the Series of the Trust may only be made by registered
broker/dealers or by investment companies, insurance company separate accounts,
common or commingled trust funds, group trusts or other "accredited investors"
within the meaning of Regulation D under the 1933 Act. This registration
statement does not constitute an offer to sell, or the solicitation of an offer
to buy, any security within the meaning of the 1933 Act.
On June 21, 1995, Wells Fargo Bank & Co. and The Nikko Securities Co.,
Ltd. signed a definitive agreement to sell their joint venture interest in
Wells Fargo Nikko Investment Advisers ("WFNIA") to Barclays PLC of the U.K. As
part of the sale, Barclays also will acquire Wells Fargo Bank's MasterWorks
division, which includes the Growth Stock Master Series and the
Short-Intermediate Term Master Series. The sale, which is subject to the
approval of appropriate regulatory authorities, is expected to close in the
fourth quarter of 1995.
Barclays is the second largest clearing bank in the U.K. with $259
billion in total assets. Barclays has announced its intention to combine WFNIA
with the quantitative group of BZW Asset Management ("BZWAM"), its
international asset management arm. BZWAM is the largest quantitative fund
manager in Europe, with approximately $32 billion of quantitative funds under
management, as of March 31, 1995. The BZW Division of Barclays, of which BZWAM
forms a part, is the investment banking arm of Barclays and offers a full range
of investment banking, capital markets and asset management services.
It is anticipated that a special meeting of shareholders of the Growth
Stock Master Series and Short- Intermediate Term Master Series will be convened
to consider a change in the structure of said Master Series, which will become
effective only upon the sale of the MasterWorks division. Subject to the
approval of the Trust's Board of Trustees, it is not contemplated that the
proposed change in structure will change the investment objective or overall
investment strategy of either Master Series.
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The investment objective of the TAX-FREE INTERMEDIATE INCOME MASTER
SERIES is to provide investors with a high level of income exempt from federal
income taxes, while preserving capital. The Master Series seeks to achieve its
investment objective by investing primarily in intermediate-term, investment
grade municipal securities. Intermediate- term securities are securities
issued with remaining maturities of 2 to 10 years. The Master Series also may
invest in unrated municipal securities that are determined by Wells Fargo Bank,
N.A. ("Wells Fargo Bank"), as investment adviser, to be of comparable quality
to municipal securities that are rated investment grade. Investment grade is a
term used to describe securities suitable for purchase by prudent investors.
Standard & Poor's Corporation ("S&P"), a nationally recognized statistical
rating organization ("NRSRO"), designates its top four bond ratings as
investment grade: AAA, AA, A and BBB. Moody's Investors Service, Inc.
("Moody's") is also an NRSRO and designates its top four bond ratings as
investment grade: Aaa, Aa, A and Baa. A description of the relevant ratings is
contained in the Appendix to the Statement of Additional Information (the
"SAI") for the Master Series.
The investment objective of the TAX-FREE MONEY MARKET MASTER SERIES is
to provide investors with a high level of income exempt from federal income
taxes, while preserving capital and liquidity. The Master Series seeks to
achieve its investment objective by investing in high-quality, U.S.
dollar-denominated money market instruments, primarily municipal obligations,
with remaining maturities not exceeding thirteen months.
The investment objective of the CALIFORNIA TAX-FREE INTERMEDIATE
INCOME MASTER SERIES is to provide investors with a high level of income exempt
from federal income taxes and California personal income taxes, while
preserving capital. The Master Series seeks to achieve its investment
objective by investing in intermediate-term, investment grade municipal
securities. The Master Series also may invest in unrated municipal securities
that are determined by Wells Fargo Bank, as investment adviser, to be of
comparable quality to municipal securities that are rated investment grade.
The investment objective of the CALIFORNIA TAX-FREE SHORT-TERM INCOME
MASTER SERIES is to provide investors with a high level of income exempt from
federal income taxes and California personal income taxes, while preserving
capital. The Master Series seeks to achieve its investment objective by
investing in short-term, investment grade municipal securities. Short-term
securities include those securities issued with an average weighted maturity of
3 years or less. The Master Series also may invest in unrated municipal
securities that are determined by Wells Fargo Bank, as investment adviser, to
be of comparable quality to municipal securities that are rated investment
grade. A description of the relevant ratings is contained in the Appendix to
the SAI for the Master Series.
The investment objective of the CALIFORNIA TAX-FREE MONEY MARKET
MASTER SERIES is to provide investors with a high level of income exempt from
federal income taxes and California personal income taxes, while preserving
capital and liquidity. The Master Series seeks to achieve its investment
objective by investing in high-quality, U.S. dollar- denominated money market
instruments, primarily municipal obligations with remaining maturities not
exceeding 13 months.
The investment objective of the GROWTH AND INCOME MASTER SERIES is to
provide investors with a high level of current income and to achieve long-term
capital appreciation. The Master Series seeks to achieve this investment
objective by investing primarily in common stocks, preferred stocks and debt
securities that are convertible into common stocks. Under normal market
conditions, the Master Series will invest at least 65% of its total assets in
common stocks and securities which are convertible into common stocks and at
least 65% of its total assets in income-producing securities. Up to 20% of the
Master Series' assets may be invested in securities of foreign issuers.
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The investment objective of the GROWTH STOCK MASTER SERIES is to
provide investors with above-average long-term total return, with a primary
focus on capital appreciation. Current income is a secondary consideration.
The Master Series seeks to provide investors with a rate of total return that,
over a three to five year time horizon, exceeds that of the S&P 500 Index
(before fees and expenses) over comparable periods by investing in a
diversified portfolio consisting primarily of growth-oriented common stocks.
The investment objective of the SHORT-INTERMEDIATE TERM MASTER SERIES
is to provide investors with a total return, before fees and expenses,
exceeding that of the Lehman Brothers Intermediate Government/Corporate Bond
Index ("LB Intermediate Bond Index"). The Master Series seeks to achieve its
investment objective by investing in a mix of the following types of
securities: U.S. Treasury and agency debt securities, corporate bonds,
collateralized mortgage obligations and mortgage-backed securities, other types
of asset-backed securities and money market instruments.
INVESTMENT POLICIES RELATING TO THE TAX-FREE INTERMEDIATE INCOME MASTER SERIES
AND THE TAX-FREE MONEY MARKET MASTER SERIES:
Wells Fargo Bank, as investment adviser to the Tax-Free Intermediate
Income Master Series and the Tax-Free Money Market Master Series, pursues the
objectives of such Master Series by investing (under normal market conditions)
substantially all of the assets of each Master Series in the following types of
municipal obligations that pay interest which is exempt from federal income
tax: bonds, notes and commercial paper issued by or on behalf of states,
territories, and possessions of the United States (including the District of
Columbia) and their political subdivisions, agencies, instrumentalities
(including government-sponsored enterprises) and authorities, the interest on
which, in the opinion of counsel to the issuer or bond counsel, is exempt from
federal income tax. These municipal obligations and the taxable investments
described below may bear interest at rates that are not fixed ("floating and
variable rate instruments").
Each such Master Series may temporarily invest some of its assets in
cash reserves or certain high-quality, taxable money market instruments or may
engage in certain other investment activities as described in this Part A.
Each Master Series may elect to invest temporarily up to 20% of its net assets
in certain permitted taxable investments, which include cash reserves, U.S.
Government obligations, obligations of domestic banks, commercial paper,
taxable municipal U.S. dollar denominated obligations and repurchase
agreements. The Tax-Free Money Market Master Series also may invest in
obligations of foreign banks and foreign securities. Such temporary
investments would most likely be made when there is an unexpected or abnormal
level of investor purchases or redemptions of shares of a Master Series or
because of unusual market conditions. The income from these temporary
investments and investment activities may be subject to federal income tax.
However, as stated above, Wells Fargo Bank seeks to invest substantially all of
the Master Series' assets in securities exempt from such taxes. A more
complete description of tax-free municipal obligations, taxable money market
instruments and other investment activities is contained in the "Appendix --
Additional Investment Policies."
As a matter of fundamental policy, at least 80% of the net assets of
each Master Series are invested (under normal market conditions) in municipal
obligations that pay interest which is exempt from federal income taxes and is
not subject to the federal alternative minimum tax. In addition, under normal
market conditions, at least 65% of the total assets of the Tax-Free
Intermediate Income Master Series are invested in intermediate-term municipal
securities.
[/R]
As a matter of general operating policy, each Master Series seeks to
have substantially all of its assets invested in such municipal obligations.
The Master Series' investment adviser may rely either on the opinion of counsel
to the issuer of the municipal obligations or on Internal
[/R]
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Revenue Service ("IRS") rulings regarding the tax treatment of these
obligations. In addition, each Master Series may invest 25% or more of its
assets in municipal obligations that are related in such a way that an
economic, business or political development or change affecting one such
obligation would also affect the other obligations; for example, a Master
Series may own different municipal obligations which pay interest based on the
revenues of similar types of projects.
It is anticipated that the portfolio turnover rate for the Tax-Free
Intermediate Income Master Series will not normally exceed 100% in any year. A
high portfolio turnover rate should not result in the Master Series paying
substantially more brokerage commissions, since most transactions in municipal
securities are effected on a principal basis.
INVESTMENT POLICIES RELATING TO THE CALIFORNIA TAX-FREE INTERMEDIATE INCOME
MASTER SERIES, THE CALIFORNIA TAX-FREE SHORT-TERM INCOME MASTER SERIES AND THE
CALIFORNIA TAX-FREE MONEY MARKET MASTER SERIES:
Wells Fargo Bank, as investment adviser to the Master Series, will
pursue the objectives of such Master Series by investing (under normal market
conditions) substantially all of the assets of each Master Series in the
following types of municipal obligations that pay interest which is exempt from
both federal income tax and California personal income tax: Bonds, notes and
commercial paper issued by or on behalf of the State of California, its cities,
municipalities, political subdivisions and other public authorities. These
municipal obligations and the taxable investments described below may bear
interest at rates that are not fixed ("floating and variable rate
instruments").
Each Master Series may temporarily invest some of its assets in cash
reserves or certain high-quality, taxable money market instruments, or may
engage in other investment activities. Each Master Series may elect to invest
temporarily up to 20% of its net assets in certain permitted taxable
investments, which include cash reserves, U.S. Government obligations,
obligations of domestic banks, commercial paper, taxable municipal obligations,
and repurchase agreements. The California Tax-Free Intermediate Income Master
Series and California Tax-Free Short-Term Income Master Series may make loans
of portfolio securities. The California Tax-Free Money Market Master Series
also may invest in obligations of foreign banks and foreign securities. Such
temporary investments would most likely be made when there is an unexpected or
abnormal level of investor purchases or redemptions of shares of a Master
Series or because of unusual market conditions. The income from these
temporary investments and investment activities may be subject to federal
income taxes and California personal income taxes. However, as stated above,
Wells Fargo Bank seeks to invest substantially all of the assets of each Master
Series in securities exempt from such taxes. A more complete description of
tax-free municipal obligations, taxable money market instruments, and other
investment activities is contained in the "Appendix -- Additional Investment
Policies" and in the SAI for the Master Series.
As a matter of fundamental policy, at least 80% of the net assets of
each Master Series are invested (under normal market conditions) in municipal
obligations that pay interest which is exempt from federal income taxes and not
subject to the federal alternative minimum tax. In addition, under normal
market conditions, at least 65% of the total assets of the California Tax-Free
Intermediate Income Master Series and of the California Tax-Free Short-Term
Income Master Series are invested in intermediate- and short-term municipal
securities, respectively.
At least 65% of the total assets of each Master Series are invested
(under normal market conditions) in municipal obligations that pay interest
which is exempt from California personal income taxes. However, as a matter of
general operating policy, each Master Series seeks to have substantially all of
its assets invested in such municipal obligations. The investment adviser to
the Master Series may rely either on the opinion of counsel to the issuer of
the municipal obligations or on IRS rulings regarding the tax treatment of
these obligations. In addition, each Master Series
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may invest 25% or more of its assets in California municipal obligations that
are related in such a way that an economic, business or political development
or change affecting one such obligation would also affect the other
obligations; for example, a Master Series may own different municipal
obligations which pay interest based on the revenues of similar types of
projects.
It is anticipated that the portfolio turnover rates for the California
Tax-Free Intermediate Income Master Series and the California Tax-Free
Short-Term Income Master Series will not normally exceed 100% in any year. A
high portfolio turnover rate should not result in the Master Series paying
substantially more brokerage commissions, since most transactions in municipal
securities are effected on a principal basis.
RISKS FACTORS -- As noted above and discussed further in the section captioned
"Appendix -- Additional Investment Policies," some of the securities purchased
by the Tax-Free Intermediate Income Master Series, the California Tax-Free
Intermediate Income Master Series and the California Tax-Free Short-Term Income
Master Series may be rated in the lowest investment grade category (i.e., rated
BBB by S&P or Baa by Moody's). These securities are regarded by S&P as having
an adequate capacity to pay interest and repay principal, but changes in
economic conditions or other circumstances are more likely to lead to a
weakened capacity to make such repayments. Moody's considers such securities
as having speculative characteristics.
The Tax-Free Money Market Master Series and the California Tax-Free
Money Market Master Series, under the Investment Company Act of 1940 (the "1940
Act"), must comply with certain investment criteria designed to provide
liquidity, reduce risk and allow the Master Series to maintain a stable net
asset value of $1.00 per share. Of course, the Master Series cannot guarantee
a $1.00 share price. The Master Series' dollar-weighted average portfolio
maturity must not exceed 90 days. Any security that the Master Series
purchases must have a remaining maturity of not more than 13 months. In
addition, any security that the Master Series purchases must present minimal
credit risks and be high- quality (i.e., be rated in the top two rating
categories by the required number of NRSROs or, if unrated, determined to be of
comparable quality to such rated securities). These determinations are made by
Wells Fargo Bank, as the Master Series' investment adviser, under guidelines
adopted by the Trust's Board of Trustees.
The Tax-Free Money Market Master Series seeks to reduce risk by
investing in securities of various issuers. As such, the Master Series is
considered to be diversified for purposes of the 1940 Act. In addition, the
Master Series, since its inception, has emphasized safety of principal and high
credit quality. In particular, the internal investment policies of the Master
Series' investment adviser, Wells Fargo Bank, have always prohibited the
purchase of many types of floating-rate derivative securities that are
considered potentially volatile. The following types of derivative securities
ARE NOT permitted investments for the Master Series:
o capped floaters (on which interest is not paid when market
rates move above a certain level);
o leveraged floaters (whose interest rate reset provisions are
based on a formula that magnifies changes in interest rates);
o range floaters (which do not pay any interest if market
interest rates move outside of a specified rate);
o dual index floaters (whose interest rate reset provisions are
tied to more than one index so that a change in the
relationship between these indices may result in the value of
the instrument falling below face value); and
o inverse floaters (which reset in the opposite direction of
their index).
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Additionally, the Master Series may not invest in securities whose
interest rate reset provisions are tied to an index that materially lags
short-term interest rates, such as Cost of Funds Index ("COFI") floaters. The
Master Series may only invest in floating-rate securities that bear interest at
a rate that resets quarterly or more frequently, and which resets based on
changes in standard money market rate indices such as U.S. Government Treasury
bills, London Interbank Offered Rate ("LIBOR"), the prime rate, published
commercial paper rates, federal funds rates, Public Securities Associates
("PSA") floaters or JJ Kenney Index floaters.
Since the California Tax-Free Intermediate Income Master Series, the
California Tax-Free Short-Term Income Master Series and the California Tax-Free
Money Market Master Series will invest primarily in securities issued by
California and its agencies and municipalities, events in California will be
more likely to affect the Master Series' investments. While each Master Series
will seek to reduce risk by investing its assets in securities of various
issuers, the Master Series will be considered to be non-diversified for
purposes of the 1940 Act. However, the Master Series will comply with Internal
Revenue Code of 1986, as amended (the "Code") diversification requirements, as
described in the "Appendix -- Additional Investment Policies".
Recently, lower than anticipated tax revenues in California and a cash
shortage have created uncertainty about the state's ability to meet anticipated
expenditures during the current fiscal year. In addition, during 1992 one
NRSRO downgraded the rating assigned to certain of the state's debt obligations
from its second highest rating to its third highest rating. The investment
adviser to the Master Series does not anticipate that the downgrade of these
securities will adversely affect any Master Series' efforts to meet its
investment objective, since the California Tax-Free Intermediate Income Master
Series and the California Tax-Free Short-Term Income Master Series may invest
in securities rated in the top four rating categories (i.e., investment grade)
and the downgrade did not impact any of the securities that may be purchased by
the California Tax-Free Money Market Master Series. However, any further
rating downgrade of the state's debt obligations may impact the availability of
securities that meet the Master Series' investment policies and restrictions.
The investment adviser to the Master Series will continue to monitor and
evaluate the investments of each Master Series in light of the events in
California and each Master Series' investment objective and investment
policies. The rating agencies also continue to monitor events in the state and
the state and local governments' responses to budget shortfalls. See "Special
Considerations Affecting California Municipal Securities" in the SAI for the
Master Series.
INVESTMENT POLICIES RELATING TO THE GROWTH AND INCOME MASTER SERIES:
The Growth and Income Master Series will invest in common stocks of
issuers that exhibit a strong earnings growth trend and that are believed by
the Master Series' investment adviser to have above-average prospects for
future earnings growth. The Master Series will maintain a portfolio of common
stocks diversified among industries and companies. The Master Series may
invest in common stocks of large companies (i.e., those companies with more
than $750 million in market capitalization) which Wells Fargo Bank believes
offer the potential for long-term earnings growth or above-average dividend
yield. Emphasis may be placed on common stocks which are trading at low
price-to-earning ratios, either relative to the overall market or to the
security's historic price-to-earnings relationship, and on common stocks of
issuers that have historically paid above-average dividends. Some investments
also may be made in common stocks of medium and smaller sized companies (i.e.,
those companies with at least $250 million, but less than $750 million in
capitalization) which may have the potential to generate high levels of future
revenue and earnings growth and where the investment opportunity may not be
fully reflected in the price of the securities. However, investment in medium
and smaller sized companies may involve greater risks than investments in
larger companies.
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The Master Series intends to invest less than 50% of its assets in the
securities of medium and smaller sized companies and the remainder in
securities of larger sized companies. However, the actual percentages may vary
according to changes in market conditions and the judgment by Wells Fargo Bank
as how best to achieve the Master Series' investment objective.
The Growth and Income Master Series will invest in convertible
securities that provide current income and are issued by companies with the
characteristics described above and that have a strong earnings and credit
record. The Master Series may purchase convertible securities that are
fixed-income debt securities or preferred stocks, and which may be converted at
a stated price within a specified period of time into a certain quantity of the
common stock of the same issuer. Convertible securities, while usually
subordinated to similar nonconvertible securities, are senior to common stocks
in an issuer's capital structure. Convertible securities offer flexibility by
providing the investor with a steady income stream (generally yielding a lower
amount than similar nonconvertible securities and a higher amount than common
stocks) as well as the opportunity to take advantage of increases in the price
of the issuer's common stock through the conversion feature. Fluctuations in
the convertible security's price tend to correlate with changes in the market
value of the common stock. At most, 5% of the net assets of the Master Series
will be invested in convertible securities that are not either rated in the
four highest rating categories by one or more NRSROs, such as Moody's or S&P,
or unrated but determined by Wells Fargo Bank to be of comparable quality.
Convertible securities in the fourth highest category have speculative
characteristics and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than in the case of higher grade debt obligations.
Under ordinary market conditions, at least 65% of the value of the
total assets of the Growth and Income Master Series will be invested in common
stocks and securities which are convertible into common stocks. From time to
time, for temporary defensive purposes, the Master Series may retain cash or
invest in money market instruments, as described below.
The Growth and Income Master Series may invest some of its assets (no
more than 10% of total assets under normal market conditions) in high quality
money market instruments, which include U.S. Government obligations,
obligations of domestic and foreign banks, repurchase agreements, commercial
paper (including floating and variable rate instruments) and short-term
corporate debt obligations. Such investments will be made on an ongoing basis
to provide liquidity and, to a greater extent on a temporary basis, when there
is an unexpected or abnormal level of investor purchases or redemptions of
Master Series shares or when "defensive" strategies are appropriate.
It is anticipated that the portfolio turnover rate for the Growth and
Income Master Series will not normally exceed 100% in any year.
INVESTMENT POLICIES RELATING TO THE GROWTH STOCK MASTER SERIES:
The Master Series invests primarily in the common stocks of those
growth-oriented, small- and medium-sized corporations that the Master Series'
investment adviser believes have potential for above-average, long-term capital
appreciation. These growth-oriented stocks typically have some or all of the
following characteristics:
o Low or no dividends
o Relatively small market capitalizations
o Less market liquidity
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o Relatively short operating histories
o High debt-to-equity ratios
o Involvement in rapidly growing/changing industries and/or new
technologies
The Master Series invests in a diversified portfolio of
growth-oriented common stocks and does not concentrate its investments in a
particular industry. Under normal market conditions, the Master Series'
portfolio contains common stocks of at least 20 corporations in multiple
industry groups, with the majority of these holdings consisting of stocks of
established growth companies, turnaround or acquisition candidates, or larger
capitalization companies that present one or more of the above characteristics.
Additionally, the Master Series may, from time to time, acquire
securities through initial public offerings, and may acquire and hold common
stocks of smaller and newer issuers, which are subject to the additional risks
described below. It is expected that no more than 40% of the Master Series'
assets will be invested in these more aggressive securities at one time.
Investments in smaller companies may offer greater opportunities for
capital appreciation than larger, more established companies, but they also may
involve greater risk. For example, smaller companies may have limited product
lines, markets or financial and management resources. From time to time, Wells
Fargo Bank may determine that conditions in the securities markets make
pursuing the Master Series' basic investment strategy inconsistent with the
best interests of the Master Series' investors. At such times, Wells Fargo
Bank may reduce the Master Series' exposure to the stock market in order to
reduce fluctuations in the value of the Master Series' assets. The Master
Series could invest up to 30% of its net assets in preferred stocks, government
obligations or in debt securities that are convertible into common stock; it
could also increase its investments in money market securities. At most, 5% of
the Master Series' net assets are invested in convertible debt securities that
are either rated below the four highest rating categories by one or more
nationally recognized statistical rating organizations ("NRSROs"), such as
Moody's Investors Service, Inc. ("Moody's") or S&P, or unrated securities
determined by Wells Fargo Bank to be of comparable quality. Securities rated
in the fourth highest rating category (i.e., rated BBB by S&P or Baa by
Moody's) are regarded by S&P as having an adequate capacity to pay interest and
repay principal, but changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make such repayments. Moody's
considers such securities as having speculative characteristics.
The Master Series pursues an active-trading investment strategy, and
the length of time the Master Series has held a particular security is not
generally a consideration in investment decisions. Accordingly, the Master
Series' portfolio turnover rate may be higher than that of other funds that do
not pursue an active-trading investment strategy. Portfolio turnover generally
involves some expense to the Master Series, including brokerage commissions or
dealer mark- ups, and other transaction costs on the sale of securities and the
reinvestment in other securities. Portfolio turnover also can generate
short-term capital gains tax consequences. The Master Series does not expect
to have a portfolio turnover rate exceeding 200%.
Although the Master Series holds a number of larger capitalization
stocks, under normal market conditions more than 50% of the Master Series'
total assets are invested in companies with smaller to medium capitalizations.
The Master Series invests primarily in companies with a market capitalization
of $50 million or greater, but may invest in companies with a market
capitalization under $50 million if the investment adviser to the Master Series
believes such investments to be in the best interests of the Master Series.
The majority of the Master Series' investments are currently in companies with
market capitalizations, at the time of acquisition, of
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up to $750 million. As a matter of strategy, the larger capitalized issues in
the Master Series are generally "core" positions that the Master Series may
hold for relatively long periods of time.
Under ordinary market conditions, at least 65% of the value of the
total assets of the Master Series will be invested in common stocks that are
expected by Wells Fargo Bank to have better-than-average prospects for capital
appreciation.
The Master Series may temporarily hold assets in cash or make
short-term investments to the extent appropriate to maintain adequate liquidity
for redemption requests or other cash management needs, or for temporary
defensive purposes. The short-term investments that the Master Series may
purchase for liquidity purposes include U.S. Treasury bills, shares of other
mutual funds and repurchase agreements (as described below).
INVESTMENT POLICIES RELATING TO THE SHORT-INTERMEDIATE TERM MASTER SERIES:
The Master Series seeks to maintain an overall average weighted
portfolio maturity generally in the 2-to-5 year range. Under normal market
conditions, the Master Series will invest at least 65% of its total assets in
securities having an average weighted portfolio maturity in the 2-to-5 year
range. Under unusual market conditions, the Master Series may shorten or
lengthen its average weighted portfolio maturity beyond the 2-to-5 year range.
The LB Intermediate Bond Index consists of government (Treasury and
agency) and corporate debt obligations with remaining maturities between one
and ten years. Each issue is represented in the LB Intermediate Bond Index in
proportion to its outstanding market value. The exact composition of the LB
Intermediate Bond Index varies according to the characteristics of the
securities outstanding in the marketplace.
Only investment-grade securities are considered for investment. These
securities are identified by their ratings according to one of two major rating
services, S&P and Moody's Investors Service, Inc. ("Moody's"). The rating
systems employed by each service are described in the Appendix to this
Prospectus. Each service classifies securities into broad categories starting
with "investment grade" at the top and ranging downward through more
speculative classes, including so-called "junk bonds," to securities that are
virtually worthless. The "investment grade" category is subdivided into four
rating groups by both services. The four rating groups are called "AAA"/"Aaa,"
"AA"/"Aa," "A/A," and "BBB"/"Baa" by S&P and Moody's, respectively.
Obligations with the lowest investment grade rating have speculative
characteristics, and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than in the case of higher grade debt obligations. The Master Series
may invest in securities of all four rating groups; however, most of the Master
Series' assets are invested in securities that, at the time of purchase, are
rated in the third group or higher, denoted "A" or better by both rating
services. Asset-backed securities are further restricted to the top two rating
groups at time of purchase. Mortgage- related securities which are issued or
guaranteed by U.S. Government agencies are all currently considered to be in
the highest rating category. Subsequent to its purchase by the Master Series,
an issue of securities may cease to be rated or its rating may be reduced below
the minimum rating required for purchase by the Master Series. Wells Fargo
Bank considers such an event in determining whether the Master Series should
continue to hold the obligation. To the extent the Master Series continues to
hold such obligations, it may be subject to additional risk of default.
In the marketplace it is generally the case that higher-risk
securities carry higher yields-to-maturity. That is, investors tend to demand
higher returns for securities with longer maturities or lower credit quality
rating than for similar securities of shorter maturities or higher credit
quality ratings. The amount of increased return for increased risk, however,
changes from time to time. The Master Series seeks to emphasize those maturity
segments or rating groups that appear to
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offer the most favorable returns to their risks, within the maturity and
quality ranges described above.
The Master Series may invest some of its assets (no more than 10% of
total assets under normal market conditions) in high quality money market
instruments, which include U.S. Government obligations, obligations of domestic
and foreign banks, repurchase agreements, commercial paper (including variable
amount master demand notes) and short- term corporate debt obligations. Such
investments are made on an ongoing basis to provide liquidity and, to a greater
extent on a temporary basis, when there is an unexpected or abnormal level of
investor purchases or redemptions of Master Series shares or when "defensive"
strategies are appropriate.
The portfolio turnover rate for the Master Series is not expected to
exceed 300%. Portfolio turnover generally involves some expense to the Master
Series, including brokerage commissions or dealer mark-ups and other
transaction costs on the sale of securities and the reinvestment in other
securities. Portfolio turnover also can generate short- term capital gains tax
consequences.
ITEM 5. MANAGEMENT OF THE TRUST.
The Trust's Board of Trustees provides broad supervision over the
affairs of the Trust and its Master Series.
The Trust has retained the services of Wells Fargo Bank as investment
adviser to the Master Series of the Trust, and Stephens Inc. ("Stephens") as
sponsor, distributor and administrator. The Board of Trustees of the Trust is
responsible for the general management of the Trust and supervising the actions
of Wells Fargo Bank and Stephens in these capacities.
INVESTMENT ADVISER
Pursuant to Advisory Contracts, the Master Series are advised by Wells
Fargo Bank, 420 Montgomery Street, San Francisco, California 94105, a wholly
owned subsidiary of Wells Fargo & Company. Wells Fargo Bank also has been
retained to act as the Master Series' Custodian and Transfer and Dividend
Disbursing Agent, and performs the agency activities at 525 Market Street, San
Francisco, California 94105. Wells Fargo Bank, one of the ten largest banks in
the United States, was founded in 1852 and is the oldest bank in the western
United States. As of March 31, 1995, various divisions and affiliates of Wells
Fargo Bank provided investment advisory services for approximately $196 billion
of assets of individuals, trusts, estates and institutions. Currently, Wells
Fargo Bank is the investment adviser to six other registered investment
companies.
The Advisory Contracts provide that Wells Fargo Bank shall furnish to
each Master Series investment guidance and policy direction in connection with
the daily portfolio management of such Master Series. Pursuant to the Advisory
Contracts, Wells Fargo Bank furnishes to the Board of Trustees of the Trust
periodic reports on the investment strategy and performance of the Master
Series.
Purchase and sale orders of the securities held by the Master Series
may be combined with those of other accounts that Wells Fargo Bank manages or
advises, and for which it has brokerage placement authority, in the interest of
seeking the most favorable overall net results. When Wells Fargo Bank
determines that a particular security should be bought or sold for the Master
Series and other accounts managed by Wells Fargo Bank, Wells Fargo Bank
undertakes to allocate those transactions among the participants equitably.
From time to time, a Master Series, to the extent consistent with its
investment objective, policies and restrictions, may invest in securities of
companies with which Wells Fargo Bank has a lending relationship.
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For its services under the Advisory Contracts with the Master Series,
Wells Fargo Bank is entitled to a monthly advisory fee at the annual rate of
0.50% of the average daily net assets of the Tax-Free Intermediate Income
Master Series, the California Tax-Free Intermediate Income Master Series and
the California Tax-Free Short-Term Income Master Series; 0.30% of the average
daily net assets of the Tax-Free Money Market Master Series; 0.45% of the
average daily net assets of the California Tax-Free Money Market Master Series
and the Short-Intermediate Term Master Series; and 0.60% of the average daily
net assets of the Growth and Income Master Series and the Growth Stock Master
Series. From time to time, Wells Fargo Bank may waive such fees in whole or in
part. Any such waiver will reduce expenses of a Master Series and,
accordingly, have a favorable impact on the yield of such Master Series.
For the period from May 26, 1994 to February 28, 1995, the Growth
Stock Master Series and the Short- Intermediate Term Master Series paid a fee
at the annual rate of 0.56% and 0.18%, respectively, of their average daily net
assets to Wells Fargo Bank for its services as investment adviser.
Morrison & Foerster, special counsel to Wells Fargo Bank and counsel
to the Trust, have advised Wells Fargo Bank and the Trust that Wells Fargo Bank
should be able to perform the services contemplated by the Advisory Contracts,
the Agency Agreement and the Custody Agreement without violation of the
Glass-Steagall Act. Such counsel have pointed out, however, that there are no
controlling judicial or administrative interpretations or decisions and that
future judicial or administrative interpretations of, or decisions relating to,
present federal or state statutes and regulations relating to the permissible
activities of banks and their subsidiaries or affiliates, as well as future
changes in federal or state statutes and regulations and judicial or
administrative decisions or interpretations thereof, could prevent Wells Fargo
Bank from continuing to perform, in whole or in part, such services. If Wells
Fargo Bank were prohibited from performing any of such services, it is expected
that new agreements would be proposed or entered into with another entity or
entities qualified to perform such services.
PORTFOLIO MANAGERS
THE TAX-FREE INTERMEDIATE INCOME MASTER SERIES
Mary J. Sebrell has been the principal portfolio manager of the Master Series
since the Master Series' inception. Ms. Sebrell has managed municipal bond
portfolios at Wells Fargo Bank for 13 years; her total municipal investment
experience exceeds 20 years. Prior to joining Wells Fargo Bank, she worked at
John Nuveen and Company, a firm specializing in municipal investments. She
holds a B.A. from Washburn University and is a member of the National
Federation of Municipal Analysts.
THE CALIFORNIA TAX-FREE INTERMEDIATE INCOME MASTER SERIES AND THE CALIFORNIA
TAX-FREE SHORT-TERM INCOME MASTER SERIES
David Klug has been the principal portfolio manager to each of the Master
Series since the Master Series' inception. Mr. Klug has managed municipal bond
portfolios for Wells Fargo Bank for over nine years. Prior to joining Wells
Fargo Bank, he managed the municipal bond portfolio for a major property and
casualty insurance company. His investment experience exceeds 20 years and
includes all aspects of tax-exempt fixed income investments. He holds an
M.B.A. from the University of Chicago and is a member of The National
Federation of Municipal Analysts and its California Chapter.
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THE GROWTH AND INCOME MASTER SERIES
Robert W. Bisell has been responsible for the day-to-day management of the
portfolio of the Master Series since its inception. Mr. Bisell joined Wells
Fargo Bank at the time of the merger with Crocker Bank and has been with the
combined organization for over 20 years. Prior to joining Wells Fargo Bank, he
was a vice president and investment counsel with M. H. Edie Investment
Counseling, where he managed institutional and high-net-worth portfolios. Mr.
Bisell holds a finance degree from the University of Virginia. He is a
chartered financial analyst and a member of the Los Angeles Society of
Financial Analysts.
Allen Wisniewski also has been primarily responsible for the Master Series
since its inception. Mr. Wisniewski joined Wells Fargo Bank in April 1987 with
the acquisition of Bank of America's consumer trust services, where he was a
portfolio manager. He received his B.A. degree and M.B.A. degree in economics
and finance from the University of California at Los Angeles. He is
responsible for managing approximately $500 million in assets for Wells Fargo
Bank, including equity and balanced accounts for high net worth individuals and
pensions. He is a member of the Los Angeles Society of Financial Analysts.
THE GROWTH STOCK MASTER SERIES
Jonathan Hickman has been primarily responsible for the day-to-day management
of the portfolio of the Master Series since its inception. Mr. Hickman manages
several Wells Fargo Bank collective funds with the same investment objective as
the Master Series, as well as equity and balanced portfolios for individuals
and employee benefit plans. He has approximately 10 years experience in the
investment management field and is a member of Wells Fargo's Equity Strategy
Committee. He has a B.A. and an M.B.A. in finance from Brigham Young
University.
THE SHORT-INTERMEDIATE TERM MASTER SERIES
Mr. Scott Smith has been co-manager of the portfolio of the Master Series since
June 28, 1995. He joined Wells Fargo Bank in 1988 as a taxable money market
portfolio specialist. His experience includes a position with a private money
management firm with mutual fund investment operations. Mr. Smith holds a B.A.
degree from the University of San Diego and is a chartered financial analyst.
Ms. Tamyra Thomas, who co-manages the portfolio of the Master Series with Mr.
Smith, has been both manager and co- manager of the portfolio of the Master
Series since its inception. Prior to joining Wells Fargo Bank in 1988, Ms.
Thomas was Vice President and Manager of the Investment Department of Valley
Bank and Trust in Utah. She holds a B.S. from the University of Utah.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
Wells Fargo Bank also serves as the Master Series' custodian and
transfer and dividend disbursing agent. Wells Fargo Bank performs the
custodial services at 420 Montgomery Street, San Francisco, California 94105.
Under its Custody Agreement with Wells Fargo Bank, the Master Series may, at
times, borrow money from Wells Fargo Bank as needed to satisfy temporary
liquidity needs. Wells Fargo Bank charges interest on such overdrafts at a
rate determined pursuant to each Master Series Custody Agreement. The transfer
and dividend disbursing agency activities are performed at 525 Market Street,
San Francisco, California 94105.
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Sponsor, Administrator and Placement Agent
Stephens, located at 111 Center Street, Little Rock, Arkansas 72201,
has entered into an agreement with the Trust under which Stephens acts as
administrator for the Master Series of the Trust. Stephens does not receive a
fee from the Trust for providing administrative services to the Master Series.
The Administration Agreement with the Trust states that Stephens shall
provide as administrative services, among other things: (i) general supervision
of the operation of the Master Series, including coordination of the services
performed by the investment adviser, transfer agent, custodian, independent
accountants and legal counsel; regulatory compliance, including the compilation
of information for documents such as reports to, and filings with, the
Securities and Exchange Commission ("SEC") and any state securities
commissions; and preparation of proxy statements and investor reports for the
Trust; and (ii) general supervision relative to the compilation of data
required for the preparation of periodic reports distributed to the Trust's
officers and Board of Trustees. Stephens also furnishes office space and
certain facilities required for conducting the business of the Trust and pays
the compensation of the trustees, officers and employees of the Trust who are
affiliated with Stephens.
Subject to the overall supervision of the Trust's Board of Trustees,
Stephens also acts as Placement Agent for the sale of interests of the Master
Series. Stephens is a full service broker/dealer and investment advisory firm.
Stephens and its predecessor have been providing securities and investment
services for more than 60 years, including discretionary portfolio management
services since 1983. Stephens currently manages investment portfolios for
pension and profit sharing plans, individual investors, foundations, insurance
companies and university endowments. The Trust will not purchase securities
from Stephens, Wells Fargo Bank, or their respective affiliates, as principal,
without an exemptive order from the SEC.
MASTER SERIES EXPENSES
From time to time, Wells Fargo Bank and Stephens may waive their
respective fees in whole or in part and reimburse expenses payable to others.
Any waivers or reimbursements will reduce a Master Series expenses. Except for
the expenses borne by Stephens and Wells Fargo Bank, each Master Series bears
all costs of its operations.
The Advisory Contracts for each Master Series provide that if, in any
fiscal year, the total aggregate expenses of a series incurred by, or allocated
to, such Master Series and other investment companies investing in the Master
Series (excluding taxes, interest, brokerage commissions and other portfolio
transaction expenses, expenditures that are capitalized in accordance with
generally accepted accounting principles, extraordinary expenses and amounts
accrued or paid under any distribution plan) exceed the most restrictive
expense limitation applicable to such investment companies imposed by the
securities laws or regulations of the states in which such investment
companies' shares are registered for sale, Wells Fargo Bank shall waive its
fees under the Advisory Contracts for the fiscal year to the extent of the
excess, or reimburse the excess, but only to the extent of their fees. The
Advisory Contracts further provide that the total expenses shall be reviewed
monthly so that, to the extent the annualized expenses for such month exceed
the most restrictive applicable annual expense limitation, the monthly fees
under the Advisory Contracts shall be reduced as necessary. The most stringent
applicable state restriction for investment companies limits these expenses for
any fiscal year to 2.50% of the first $30 million of an investment company's
average net assets, 2.0% of the next $70 million of average net assets and
1.50% of the average net assets in excess of $100 million.
Except for the expenses borne by Stephens and Wells Fargo, each Master
Series bears all costs of its operations, including the compensation of its
trustees who are not officers or
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employees of Stephens or Wells Fargo Bank or any of their affiliates; advisory
and administration fees; interest charges; taxes; fees and expenses of
independent auditors, legal counsel, transfer agent and dividend disbursing
agent; expenses of redeeming interests in the Trust; expenses of preparing and
printing any prospectuses; investor reports, notices, proxy statements and
reports to regulatory agencies; insurance premiums and certain expenses
relating to insurance coverage; trade association membership dues; brokerage
and other expenses connected with the execution of portfolio transactions; fees
and expenses of the custodian, including those for keeping books and accounts
and calculating the net asset value of investments in the Trust; expenses of
investor meetings; pricing services; organizational expenses; and any
extraordinary expenses. Extraordinary expenses of the Trust are allocated
among all the Master Series of the Trust in a manner proportionate to the net
assets of each Master Series on a transactional basis, or such other basis as
the Trust's Board of Trustees deem fair and equitable.
ITEM 6. CAPITAL STOCK AND OTHER SECURITIES.
ORGANIZATION AND INTERESTS
The Trust is organized as a trust under the laws of the State of
Delaware. Investors in the Trust are each liable for all obligations of the
Trust. However, the risk of an investor incurring financial loss on account of
such liability is limited to circumstances in which both inadequate insurance
exists and the Trust itself is unable to meet its obligations.
The Trust's Declaration of Trust permits the Board of Trustees to
issue beneficial interests in series of the Trust, and to permit investors to
increase or decrease their interest in the series of the Trust. The Trust has
no intention to hold annual meetings of investors, but will hold special
meetings of investors when, in the judgment of the Trustees, it is necessary or
desirable to submit matters for an investor vote. Investors holding 10% or
more of the shares outstanding and entitled to vote are entitled to call a
meeting of investors for purposes of voting on removal of a Trustee or Trustees
of the Trust.
Each investor is entitled to a vote in proportion to the amount of the
investor's investment in the Trust. Interests in a Master Series of the Trust
may not be transferred, but an investor may withdraw all or any portion of its
investment at any time at net asset value. All interests in a Master Series of
the Trust, when issued, will be fully paid and nonassessable, and investors
have no preemptive rights. A more detailed statement of the rights of
investors is contained in the SAI.
As of June 19, 1995, the Growth Stock Fund and the Short-Intermediate
Term Fund of Stagecoach Inc., 111 Center Street, Little Rock, Arkansas 72201,
owned approximately 100% of the voting securities of the Growth Stock Master
Series and approximately 100% of the voting securities of the Short-
Intermediate Term Master Series, respectively, and each Fund could be
considered a controlling person under the 1940 Act of the corresponding Master
Series.
As of July 13, 1995, Stephens Inc. and the National Tax-Free Money
Market Mutual Fund and Overland National Tax-Free Institutional Money Market
Fund of Stagecoach, Inc., each located at 111 Center Street, Little Rock,
Arkansas 72201, owned approximately one-third of the Tax-Free Money Market
Master Series and each could be considered a controlling person under the 1940
Act of such Master Series.
MASTER SERIES SHARES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR
ISSUED, ENDORSED OR GUARANTEED BY, WELLS FARGO BANK OR ANY OF ITS AFFILIATES.
SUCH SHARES ARE NOT INSURED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT
AGENCY. AN INVESTMENT IN THE MASTER SERIES INVOLVES CERTAIN RISKS, INCLUDING
THE POSSIBLE LOSS OF PRINCIPAL.
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DIVIDENDS AND DISTRIBUTIONS
The net investment income of a Master Series generally will be
declared and paid as a dividend daily to all investors of record as of 9:00
a.m. (Pacific time), with respect to the Tax-Free Money Market Master Series
and the California Tax-Free Money Market Master Series' and to all investors of
record as of 1:00 p.m. (Pacific time) with respect to the Tax-Free Intermediate
Income Master Series, the California Tax-Free Intermediate Income Master
Series, the California Tax-Free Short-Term Income Master Series, the Growth and
Income Master Series, the Growth Stock Master Series and the Short-Intermediate
Term Master Series (the "Non-Money Market Master Series"). Net investment
income for a Saturday, Sunday or Holiday (as defined below) will be declared as
a dividend to investors of record as of 9:00 a.m. (Pacific time) on the
previous business day with respect to the Market Master Series and at 1:00 p.m.
(Pacific time) with respect to the Non-Money Market Master Series. All the net
investment income of a Master Series of the Trust so determined is allocated
pro rata among the investors in such Master Series of the Trust at the time of
such determination.
Dividends and capital gain distributions, if any, paid by a Master
Series of the Trust will be reinvested in the investor's interest in such
Master Series of the Trust at net asset value and credited to the investor's
account on the payment date.
TAXES
Based upon the anticipated method of operation of each Master Series
of the Trust, the Trust believes that each Master Series will qualify for
federal income tax purposes as a partnership. The Trust therefore believes
that each Master Series will not be subject to any federal income tax on its
income and net capital gains (if any). However, each investor in a Master
Series of the Trust will be taxable on its distributive share of such Master
Series of the Trust's ordinary income and capital gain, if any, in determining
its federal income tax liability. The determination of such share will be made
in accordance with the Code and regulations promulgated thereunder.
It is intended that each Master Series' assets, income and
distributions will be managed in such a way that a regulated investment company
investing in such Master Series will be able to satisfy the requirements of
Subchapter M of the Code, assuming that the investment company invested all of
its assets in such Master Series.
Investor inquiries should be directed to the Managed Series Investment
Trust, 111 Center Street, Little Rock, Arkansas 72201.
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ITEM 7. PURCHASE OF SECURITIES.
Interests in a Master Series of the Trust may be purchased on any day
such Master Series of the Trust is open. The Non-Money Market Master Series
are open for business each day the New York Stock Exchange ("NYSE") is open for
trading ("NYSE Business Day"). The NYSE currently observes the following
holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day (each, a
"Holiday"). The Tax-Free Money Market Master Series is open on any day either
Wells Fargo Bank or the NYSE is open (a "Business Day"). The California
Tax-Free Money Market Master Series is open for business on the same days that
Wells Fargo Bank (the "Transfer Agent") is open ("Bank Business Day"). Wells
Fargo Bank and the NYSE observe the same Holidays except that Wells Fargo Bank
(but not the NYSE) observes Martin Luther King, Jr. Day, Columbus Day and
Veterans Day, and the NYSE (but not Wells Fargo Bank) observes Good Friday)
(also, "Holidays").
The Trust is a no-load open-end series investment company which was
organized as a business trust under the laws of Delaware on October 28, 1993.
Beneficial interests in a Master Series of the Trust are issued solely in
private placement transactions that do not involve any "public offering" within
the meaning of Section 4(2) of the 1933 Act. Investments in a Master Series of
the Trust may only be made by registered broker/dealers or by investment
companies, insurance company separate accounts, common or commingled trust
funds, group trusts or "accredited investors" within the meaning of Regulation
D under the 1933 Act. This registration statement does not constitute an offer
to sell, or the solicitation of an offer to buy, any "security" within the
meaning of the 1933 Act.
There is no minimum initial or subsequent purchase amount in a Master
Series of the Trust. The Trust on behalf of its Master Series reserves the
right to reject any purchase order. If accepted by a Master Series of the
Trust, investments in such Master Series may be made in exchange for securities
which are eligible for acquisition by such Master Series as described in this
Part A. All dividends, interest, subscription, or other rights pertaining to
such securities shall become the property of such Master Series and must be
delivered to such Master Series by the investor upon receipt from the issuer.
A Master Series will not accept securities in exchange for interests
unless: (1) such securities are, at the time of the exchange, eligible for
purchase by such Master Series; (2) the investor represents and agrees that all
securities offered to be exchanged are not subject to any restrictions upon
their sale by such Master Series under the 1933 Act or under the laws of the
country in which the principal market for such securities exists, or otherwise;
(3) the value of any such security (except U.S. Government securities) being
exchanged together with any other securities of the same issuer owned by a
Master Series will not exceed 5% of the net assets of such Master Series
immediately after the transaction; and (4) such securities are consistent with
the Master Series' investment objective and policies, as applied by Wells Fargo
Bank.
Interests in a Master Series are offered continuously at the net asset
value next determined after a purchase order is effective without a sales load.
Purchase orders for interests in the Tax-Free Money Market Master Series or
California Tax-Free Money Market Master Series will be effected by 9:00 a.m.
(Pacific time) on any Business Day or Bank Business Day, respectively.
Purchase orders for interests in a Non-Money Market Master Series will be
effected by 1:00 p.m. (Pacific time) on any NYSE Business Day.
Each investor in a Master Series may add to or reduce its investment
in such Master Series on any day the Master Series is open. The NAV of the
Tax-Free Money Market Master Series and California Tax-Free Money Market Master
Series is calculated
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at 9:00 a.m. on any day such Master Series is open. The NAV of such Non-Money
Market Master Series is calculated at 1:00 p.m. on any day such Non-Money
Market Master Series is open. The value of each investor's beneficial interest
in a Master Series will be determined by multiplying the net asset value of
such Master Series by the percentage, effective for that day, that represents
that investor's share of the aggregate beneficial interests in a Master Series.
Any additions or withdrawals, which are to be effected on that day, will then
be effected. The investor's percentage of the aggregate beneficial interests
in a Master Series will then be re-computed as the percentage equal to the
fraction (i) the numerator of which is the value of such investor's investment
in a Master Series as of 9:00 a.m. (with respect to the Tax-Free Money Market
Master Series and California Tax-Free Money Market Master Series) and at 1:00
p.m. (with respect to a Non-Money Market Master Series) on such day plus or
minus, as the case may be, the amount of any additions to or withdrawals from
the investor's investment in a Master Series effected on such day, and (ii) the
denominator of which is the aggregate net asset value of such Master Series as
of 9:00 a.m. (with respect to the Tax-Free Money Market Master Series and
California Tax-Free Money Market Master Series) and at 1:00 p.m. (with respect
to the Non-Money Market Master Series) on such day plus or minus, as the case
may be, the amount of the net additions to or withdrawals from the aggregate
investments in such Master Series by all investors in a Master Series. The
percentage so determined will then be applied to determine the value of the
investor's interest in a Master Series as of 9:00 a.m. (with respect to the
Tax-Free Money Market Master Series and California Tax-Free Money Market Master
Series) or 1:00 p.m. (with respect to a Non-Money Market Master Series) on the
following business day.
By investing in the Trust, an investor appoints the Transfer Agent, as
agent, to establish an open account to which all investments will be credited,
together with any dividends and capital gain distributions that are paid in
additional interests in the Trust.
DETERMINATION OF NET ASSET VALUE
The net asset value of each Master Series is determined on any day
such Master Series is open for business. It is anticipated that the net asset
value of an interest in a Money Market Master Series will remain stable at
$1.00 per share, although no assurance can be given that each Money Market
Master Series will be able to do so on a continuing basis.
Each Money Market Master Series uses the amortized cost method to
value its portfolio securities. The amortized cost method involves valuing a
security at its cost and amortizing any discount or premium over the period
until maturity, regardless of the impact of fluctuating interest rates on the
market value of the security.
Except for debt obligations with remaining maturities of 60 days or
less, which are valued at amortized cost, the other assets of each of the
Non-Money Market Master Series are valued at current market prices, or, if such
prices are not readily available, at fair value as determined in good faith in
accordance with guidelines approved by the Trust's Board of Trustees. Prices
used for such valuations may be provided by independent pricing services.
The exclusive placement agent for the Trust is Stephens. Stephens
receives no additional compensation for serving as placement agent for the
Trust.
ITEM 8. REDEMPTION OR REPURCHASE.
An investor in a Master Series may withdraw all or a portion of its
investment at any time at the net asset value next determined after a
withdrawal request in proper form is furnished by the investor to such Master
Series. The Master Series make no charge for redemption transactions. The
proceeds of a withdrawal will be paid by the Master Series in federal funds
normally on the day after the withdrawal is effected, but in any event within
seven days. At a Master Series'
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option, payment of redemption proceeds may be made in securities, subject to
regulation by some state securities commissions. Investments in a Master
Series may not be transferred.
The right of any investor to receive payment with respect to any
withdrawal may be suspended or the payment of the withdrawal proceeds postponed
during any period in which the NYSE is closed (other than weekends or Holidays)
or trading on the NYSE is restricted, or, to the extent otherwise permitted by
the 1940 Act, if an emergency exists.
ITEM 9. PENDING LEGAL PROCEEDINGS.
Not applicable.
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APPENDIX -- ADDITIONAL INVESTMENT POLICIES
The following describes certain instruments in which the Master Series
of the Trust may invest.
MUNICIPAL SECURITIES
Subject to the maturity and other restrictions under Rule 2a-7, the
Master Series may invest in Municipal Obligations. Municipal bonds generally
have a maturity at the time of issuance of up to 40 years. Medium-term
municipal notes are generally issued in anticipation of the receipt of tax
funds, of the proceeds of bond placements, or of other revenues. The ability
of an issuer to make payments on notes is therefore especially dependent on
such tax receipts, proceeds from bond sales or other revenues, as the case may
be. Municipal commercial paper is a debt obligation with a stated maturity of
270 days or less that is issued to finance seasonal working capital needs or as
short-term financing in anticipation of longer-term debt. From time to time,
the Master Series may invest 25% or more of the current value of its total
assets in certain "private activity bonds," such as pollution control bonds;
provided, however, that such investments will be made only to the extent they
are consistent with the Master Series' fundamental policy of investing, under
normal circumstances, at least 80% of its net assets in municipal obligations
that are exempt from federal income taxes and not subject to the federal
alternative minimum tax.
The Master Series will invest in the following municipal obligations
with remaining maturities not exceeding 13 months:
(i) long-term municipal bonds rated at the date of
purchase "As" or better by Moody's or "AA" or better
by S&P;
(ii) municipal notes rated at the date of purchase "MIG 1"
or "MIG 2" (or "VMIG 1" or "VMIG 2" in the case of an
issue having a variable rate with a demand feature)
by Moody's or "SP-1+", "SP-1" or "SP-2" by S&P; and
(iii) short-term municipal commercial paper rated at the
date of purchase "P-1" by Moody's or "A-1+", "A-1" or
"A-2" by S&P.
SPECIFIC CONSIDERATIONS FOR THE CALIFORNIA TAX-FREE INTERMEDIATE INCOME MASTER
SERIES, THE CALIFORNIA TAX-FREE SHORT- TERM INCOME MASTER SERIES AND THE
CALIFORNIA TAX-FREE MONEY MARKET MASTER SERIES
The California Tax-Free Intermediate Income Master Series and the
California Tax-Free Short-Term Income Master Series will invest in municipal
bonds rated at the date of purchase "Baa" or better by Moody's or "BBB" or
better by S&P, or unrated bonds that are considered by Wells Fargo Bank, as
investment adviser, to be of comparable quality. Bonds rated at the minimum
permitted level have speculative characteristics and are more likely than
higher rated bonds to have a weakened capacity to pay principal and interest in
times of adverse economic conditions; all are considered investment grade. The
California Tax-Free Money Market Master Series will invest in municipal bonds
rated at the date of purchase "MIG 1" or "MIG 2", or, if no short-term rating
is available, "Aa" or better by Moody's or "AA" or better by S&P. Municipal
bonds generally have a maturity at the time of issuance of up to forty years.
The California Tax-Free Intermediate Income Master Series and the
California Tax-Free Short-Term Income Master Series will invest in municipal
notes rated at the date of purchase "MIG 2" (or "VMIG 2" in the case of an
issue having a variable rate with a demand feature) or better by Moody's or
"SP-2" or better by S&P, or unrated notes that are considered by Wells
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Fargo Bank, as investment adviser, to be of comparable quality. The California
Tax-Free Money Market Master Series will invest in municipal notes rated at the
date of purchase "MIG 1" or "MIG 2" (or "VMIG 1" or "VMIG 2" in the case of an
issue having a variable rate with a demand feature) by Moody's or "SP-1+" or
"SP-1" by S&P. Municipal notes generally have maturities at the time of
issuance of three years or less. Municipal notes are generally issued in
anticipation of the receipt of tax funds, of the proceeds of bond placements,
or of other revenues. The ability of an issuer to make payments on notes is
therefore especially dependent on such tax receipts, proceeds from bond sales
or other revenues, as the case may be.
The California Tax-Free Intermediate Income Master Series and the
California Tax-Free Short-Term Income Master Series will invest in municipal
commercial paper rated at the date of purchase "P-1" or "P-2" by Moody's or
"A-1+," "A-1" or "A-2" by S&P, or unrated commercial paper that is considered
by Wells Fargo Bank, as investment adviser, to be of comparable quality. The
California Tax-Free Money Market Master Series will invest in municipal
commercial paper rated at the date of purchase "P-1" by Moody's or "A-1+" or
"A-1" by S&P. Municipal commercial paper is a debt obligation with a stated
maturity of 270 days or less that is issued to finance seasonal working capital
needs or as short-term financing in anticipation of longer-term debt.
The California Tax-Free Money Market Master Series will only invest in
Municipal Securities with maturities not exceeding thirteen months.
In the event a security purchased by either the California Tax-Free
Intermediate Income Master Series or the California Tax-Free Short-Term Income
Master Series is downgraded below investment grade, these Master Series may
retain such security, although the Master Series may not have more than 5% of
their assets invested in securities rated below investment grade at any time.
A description of the ratings is contained in the Appendix to the SAI.
From time to time, each Master Series may invest 25% or more of the
current value of its total assets in certain "private activity bonds," such as
pollution control bonds; provided, however, that such investments will be made
only to the extent they are consistent with the Master Series' fundamental
policy of investing, under normal circumstances, at least 80% of their net
assets in municipal obligations that are exempt from federal income taxes and
not subject to the federal alternative minimum tax, and provided further that
the California Tax-Free Intermediate Income Master Series and the California
Tax-Free Short-Term Income Master Series may not invest 25% or more of their
assets in industrial development bonds.
For a further discussion of factors affecting purchases of municipal
obligations by the Master Series, see "Special Considerations Affecting
California Municipal Obligations" in the SAI for the Master Series.
TAXABLE INVESTMENTS
Pending the investment of proceeds from the sale of shares of the
Master Series or proceeds from sales of portfolio securities or in anticipation
of redemptions or to maintain a "defensive" posture when, in the opinion of
Wells Fargo Bank, as investment adviser, it is advisable to do so because of
market conditions, the Tax-Free Intermediate Income Master Series, the Tax-Free
Money Market Master Series, the California Tax-Free Intermediate Income Master
Series, the California Tax-Free Short-Term Income Master Series and the
California Tax-Free Money Market Master Series ("Tax-Free Master Series") may
elect to invest temporarily up to 20% of the current value of its respective
net assets in cash reserves, including the following taxable high-quality money
market instruments: (i) U.S. Government obligations; (ii) negotiable
certificates of deposit, bankers' acceptances and fixed time deposits and other
obligations of domestic banks (including foreign branches) that have more than
$1 billion in total assets at the time of investment
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and are members of the Federal Reserve System or are examined by the
Comptroller of the Currency or whose deposits are insured by the FDIC; (iii)
commercial paper rated at the date of purchase "P-1" by Moody's or "A-1+" or
"A-1" by S&P; (iv) certain repurchase agreements; and (v) high-quality
municipal obligations, the income from which may or may not be exempt from
federal income taxes.
Moreover, the Money Market Master Series may invest temporarily more
than 20% of their total assets in such securities and in high-quality,
short-term municipal obligations the interest on which is not exempt from
federal income taxes to maintain a temporary defensive posture or in an effort
to improve after-tax yield to the Master Series' shareholders when, in the
opinion of Wells Fargo Bank, as investment adviser, it is advisable to do so
because of unusual market conditions.
U.S. GOVERNMENT OBLIGATIONS
The Growth Stock Master Series, Short-Intermediate Term Master Series
and Tax-Free Money Market Master Series each may invest in various types of
U.S. Government obligations with remaining maturities of up to thirteen months.
U.S. Government obligations include securities issued or guaranteed as to
principal and interest by the U.S. Government and supported by the full faith
and credit of the U.S. Treasury. U.S. Treasury obligations differ mainly in
the length of their maturities. Treasury bills, the most frequently issued
marketable government securities, have maturities of up to one year and are
issued on a discount basis. U.S. Government obligations also include
securities issued or guaranteed by federal agencies or instrumentalities,
including government-sponsored enterprises. Some obligations of such agencies
or instrumentalities of the U.S. Government are supported by the full faith and
credit of the United States or U.S. Treasury guarantees; others, by the right
of the issuer or guarantor to borrow from the U.S. Treasury; still others by
the discretionary authority of the U.S. Government to purchase certain
obligations of the agency or instrumentality; and others, only by the credit of
the agency or instrumentality issuing the obligation. In the case of
obligations not backed by the full faith and credit of the United States, the
investor must look principally to the agency or instrumentality issuing or
guaranteeing the obligation for ultimate repayment, which agency or
instrumentality may be privately owned. There can be no assurance that the
U.S. Government would provide financial support to its agencies or
instrumentalities (including government-sponsored enterprises) where it is not
obligated to do so. In addition, U.S. Government obligations are subject to
fluctuations in market value due to fluctuations in market interest rates. As
a general matter, the value of debt instruments, including U.S. Government
obligations, declines when market interest rates increase and rises when market
interest rates decrease. Certain types of U.S. Government obligations are
subject to fluctuations in yield or value due to their structure or contract
terms.
OTHER INVESTMENT COMPANIES
The Tax-Free Money Market Master Series also may invest in shares of
other open-end investment companies that invest exclusively in high-quality
short-term securities, provided however, that any such company has a
fundamental policy of investing, under normal circumstances, at least 80% of
its net assets in obligations that are exempt from federal income tax and not
subject to the federal alternative minimum tax. Such investment companies can
be expected to charge management fees and other operating expenses that would
be in addition to those charged to the Tax-Free Money Market Master Series,
however, the Tax-Free Money Market Master Series' investment adviser has
undertaken to waive its advisory fees with respect to that portion of the
Tax-Free Money Market Master Series' assets so invested. In no event may the
Master Series, together with any company or companies controlled by it, own
more than 3% of the total outstanding voting stock of any such investment
company, nor may the Master Series, together with any such company or
companies, invest more than 5% of its assets in any one such
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investment company or invest more than 10% of its assets in securities of all
such investment companies combined.
SHORT-TERM CORPORATE DEBT INSTRUMENTS
The Growth Stock Master Series may invest in commercial paper
(including variable-amount master demand notes), which is short-term, unsecured
promissory notes issued by corporations to finance short-term credit needs.
Commercial paper is usually sold on a discount basis and has a maturity at the
time of issuance not exceeding nine months. Variable amount master demand
notes are demand obligations that permit the investment of fluctuating amounts
at varying market rates of interest pursuant to arrangements between the issuer
and a commercial bank acting as agent for the payee of such notes whereby both
parties have the right to vary the amount of the outstanding indebtedness on
the notes. Wells Fargo Bank, as investment adviser, will monitor on an ongoing
basis the ability of an issuer of a demand instrument to pay principal and
interest on demand. Wells Fargo Bank, pursuant to the direction of the Trust's
Board of Trustees, will determine the liquidity of those instruments which have
a demand feature that is not exercisable within seven days, provided an active
secondary market exists.
The Growth Stock Master Series also may invest in non-convertible
corporate debt securities (e.g., bonds and debentures) with not more than one
year remaining to maturity at the date of settlement. The Master Series will
invest only in such corporate bonds and debentures that are rated at the time
of purchase at least "Aa" by Moody's or "AA" by S&P. Subsequent to its
purchase by the Master Series, an issue of securities may cease to be rated or
its rating may be reduced below the minimum rating required for purchase by the
Master Series. Wells Fargo Bank will consider such an event in determining
whether the Master Series should continue to hold the obligation. To the
extent the Master Series continues to hold such obligations, it may be subject
to additional risk of default.
The Master Series also may invest in non-convertible corporate debt
securities (e.g., bonds and debentures) with not more than one year remaining
to maturity at the date of settlement. The Master Series will invest only in
such corporate bonds and debentures that are rated at the time of purchase at
least "Aa" by Moody's or "AA" by S&P. Subsequent to its purchase by the Master
Series, an issue of securities may cease to be rated or its rating may be
reduced below the minimum rating required for purchase by the Master Series.
Wells Fargo Bank will consider such an event in determining whether the Master
Series should continue to hold the obligation. To the extent the Master Series
continues to hold such obligations, it may be subject to additional risk of
default.
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WHEN-ISSUED SECURITIES
Certain of the securities in which the Tax-Free Intermediate Income
Master Series, the California Tax-Free Intermediate Income Master Series, the
California Tax-Free Short-Term Income Master Series, the Growth and Income
Master Series, the Growth Stock Master Series and the Short-Intermediate Term
Master Series invest will be purchased on a when- issued basis, in which case
delivery and payment normally take place within 45 days after the date of the
commitment to purchase. The Master Series makes commitments to purchase
securities on a when-issued basis only with the intention of actually acquiring
the securities, but may sell such securities before the settlement date if it
is deemed advisable. When-issued securities are subject to market fluctuation,
and no income accrues to the purchaser during the period prior to issuance.
The purchase price and the interest rate that will be received on debt
securities are fixed at the time the purchaser enters into the commitment.
Purchasing a security on a when-issued basis can involve a risk that the market
price at the time of delivery may be lower than the agreed-upon purchase price,
in which case there could be an unrealized loss at the time of delivery.
The Tax-Free Intermediate Income Master Series, the California
Tax-Free Intermediate Income Master Series, the California Tax-Free Short-Term
Income Master Series, the Growth and Income Master Series, the Growth Stock
Master Series and the Short-Intermediate Term Master Series segregate cash,
U.S. Government obligations or other high-quality debt instruments in an amount
at least equal in value to their commitments to purchase when-issued
securities. If the value of these assets declines, the Master Series segregate
additional liquid assets on a daily basis so that the value of the segregated
assets is equal to the amount of such commitments. The Master Series do not
currently intend to invest more than 5% of their net assets in when-issued
securities during the coming year.
FLOATING- AND VARIABLE-RATE INSTRUMENTS
Certain of the debt instruments that the Master Series may purchase
bear interest at rates that are not fixed, but vary with, for example, changes
in specified market rates or indices or at specified intervals. These
instruments typically have maturities of more than thirteen months but may
carry a demand feature that would permit the holder to tender them back to the
issuer at par value prior to maturity. The floating- and variable-rate
instruments that the Master Series may purchase include certificates of
participation in such obligations purchased from banks. With regard to the
Tax-Free Master Series, Wells Fargo Bank, as investment adviser may rely upon
either the opinion of counsel or IRS rulings regarding the tax-exempt status of
these certificates.
Wells Fargo Bank, as investment adviser to the Master Series, monitors
on an ongoing basis the ability of an issuer of a demand instrument to pay
principal and interest on demand. Events affecting the ability of the issuer
of a demand instrument to make payment when due may occur between the time a
Master Series elects to demand payment and the time payment is due, thereby
affecting such Master Series' ability to obtain payment at par. The investment
adviser, in accordance with the guidelines approved by the Trust's Board of
Trustees, determines the liquidity of those instruments which have a demand
feature that is not exercisable within seven days, provided that an active
secondary market exists.
The Money Market Master Series may, in accordance with SEC rules,
account for these instruments as maturing at the next interest-rate
readjustment date or the date at which the Master Series may tender the
instrument back to the issuer, whichever is later. The Money Market Master
Series may invest in floating- and variable-rate obligations even if they carry
stated maturities in excess of thirteen months, upon compliance with certain
SEC rules, in which case such obligations will be treated in accordance with
these conditions as having maturities not exceeding thirteen months.
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REPURCHASE AGREEMENTS
The Master Series may enter into repurchase agreements wherein the
seller of a security to a Master Series agrees to repurchase that security from
such Master Series at a mutually agreed-upon time and price. This results in a
fixed rate of return insulated from market fluctuations during this period.
The period of maturity is usually quite short, often overnight or a few days,
although it may extend over a number of months. The Master Series may enter
into repurchase agreements only with respect to obligations that could
otherwise be purchased by the participating Master Series. All repurchase
agreements are fully collateralized based on values that are marked to market
daily. While the maturities of the underlying securities in a repurchase
agreement transaction may be greater than thirteen months, the term of any
repurchase agreement on behalf of the Tax-Free Money Market Master Series and
the California Tax-Free Money Market Master Series will always be less than
thirteen months. If the seller defaults and the value of the underlying
securities declines, the participating Master Series may incur a loss. In
addition, if bankruptcy proceedings are commenced with respect to the seller of
the security, the participating Master Series' disposition of the security may
be delayed or limited. The Master Series enters into repurchase agreements
only with registered broker/dealers and commercial banks that meet guidelines
established by the Board of Trustees of the Trust and that are not affiliated
with Wells Fargo Bank, the Master Series' investment adviser. The Master
Series may enter into pooled repurchase agreement transactions with other funds
advised by Wells Fargo Bank.
FOREIGN OBLIGATIONS
The Money Market Master Series and the Growth Stock Master Series may
invest up to 25% of their total assets in high-quality, short-term (thirteen
months or less) debt obligations of foreign branches of U.S. banks or U.S.
branches of foreign banks that are denominated in and pay interest in U.S.
dollars. The Growth and Income Master Series may invest a portion (generally
no more than 20%) in securities of foreign governments and private issuers that
are denominated in and pay interest in U.S. dollars. Investments in foreign
obligations involve certain considerations that are not typically associated
with investing in domestic obligations. There may be less publicly available
information about a foreign issuer than about a domestic issuer. Foreign
issuers also are not generally subject to the same uniform accounting, auditing
and financial reporting standards or governmental supervision as domestic
issuers. In addition, with respect to certain foreign countries, interest may
be withheld at the source under foreign income tax laws, and there is a
possibility of expropriation or confiscatory taxation, political or social
instability or diplomatic developments that could adversely affect investments
in, the liquidity of, and the ability to enforce contractual obligations with
respect to, securities of issuers located in those countries.
LOANS OF PORTFOLIO SECURITIES
The Master Series may lend securities from their portfolios to
domestic brokers, dealers and financial institutions (but not individuals) if
cash, U.S. Government obligations or other liquid high-quality debt obligations
equal to at least 100% of the current market value of the securities loaned
(including accrued interest thereon) plus the interest payable to the Master
Series with respect to the loan, is maintained with such Master Series. In
determining whether to lend a security to the particular broker, dealer or
financial institution, the Master Series' investment adviser considers all
relevant facts and circumstances, including the size, creditworthiness and
reputation of the broker, dealer or financial institution. Any loans of
portfolio securities are fully collateralized based on values that are marked
to market daily. Any securities that the Master Series receives as collateral
do not become part of such Master Series portfolio at the time of the loan and,
in the event of a default by the borrower, the Master Series, if permitted by
law, will dispose of such collateral except for such part thereof that is a
security in which such Master Series is permitted to invest. During the time
securities are on loan, the borrower pays the Master Series any accrued income
on those securities, and the Master Series may invest the cash
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collateral in high-quality money market instruments and earn additional income
or receive an agreed-upon fee from a borrower that has delivered
cash-equivalent collateral. The securities acquired with such collateral will
be segregated as discussed above.
In the event that the borrower defaults on its obligation to return
borrowed securities, because of insolvency or otherwise, the Master Series
could experience delays and costs in gaining access to the collateral and could
suffer a loss to the extent that the value of the collateral falls below the
market value of the securities borrowed. However, loans are made only to
borrowers deemed by Wells Fargo Bank to be of good standing and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
The Master Series do not lend securities having a value that exceeds 50% of the
current value of their respective total assets. Loans of securities by the
Master Series are subject to termination at the Master Series' or the
borrower's option. The Master Series may pay reasonable administrative and
custodial fees in connection with a securities loan and may pay a negotiated
portion of the interest or fee earned with respect to the collateral to the
borrower or the placing broker. Borrowers and placing brokers may not be
affiliated, directly or indirectly, with the Trust, the investment adviser, or
the distributor.
MONEY MARKET INSTRUMENTS AND TEMPORARY INVESTMENTS
The Growth and Income Master Series and the Growth Stock Master Series
(collectively the "Master Series") may have temporary cash balances on account
of new purchases, dividends, interest and reserves for redemptions, which the
Master Series may invest in the following high-quality money market
instruments: (i) short-term obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities; (ii) negotiable certificates of
deposit ("CDs"), bankers' acceptances, fixed time deposits and other
obligations of domestic banks (including foreign branches) that have more than
$1 billion in total assets at the time of investment and that are members of
the Federal Reserve System or are examined by the Comptroller of the Currency
or whose deposits are insured by the FDIC; (iii) commercial paper rated at the
date of purchase "Prime-1" by Moody's or "A-1+" or "A-1" by S&P, or, if
unrated, of comparable quality as determined by Wells Fargo Bank in its sole
discretion as investment adviser; (iv) non-convertible corporate debt
securities (e.g., bonds and debentures) with remaining maturities at the date
of purchase of no more than one year that are rated at least "Aa" by Moody's or
"AA" by S&P; (v) repurchase agreements; and (vi) short-term, U.S.
dollar-denominated obligations of foreign banks (including U.S. branches) that,
at the time of investment: (a) have more than $10 billion, or the equivalent in
other currencies, in total assets; (b) are among the 75 largest foreign banks
in the world as determined on the basis of assets; and (c) in the opinion of
Wells Fargo Bank, as investment adviser, are of comparable quality to
obligations of U.S. banks which may be purchased by the Master Series.
OBLIGATIONS OF CORPORATIONS AND FOREIGN ENTITIES
The Short-Intermediate Term Master Series may invest in debt
securities issued by domestic corporations, U.S. dollar-denominated debt
securities issued by Canadian corporations, Yankee bonds and supra-national
obligations. Yankee bonds are U.S. dollar-denominated obligations issued by
foreign governments or companies. Supra-national obligations are U.S.
dollar-denominated obligations issued by international entities such as the
World Bank and the Inter-American Development Bank.
SECURITIES BACKED BY MORTGAGES
The Short-Intermediate Term Master Series may purchase Mortgage-Backed
Securities ("MBSs"), which are pass- through certificates representing
interests in a pool of loans secured by mortgages. The resulting cash flow
from those mortgages is used to pay principal and interest on
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the certificates. The MBSs in which the Master Series may invest are issued or
guaranteed by the Government National Mortgage Association ("GNMA"), the
Federal National Mortgage Association ("FNMA") or the Federal Home Loan
Mortgage Corporation ("FHLMC"). MBS investors receive monthly payments based
on a pro-rata share of interest and principal payments (and prepayments) on the
underlying mortgage pool, less GNMA's, FNMA's or FHLMC's fees and any
applicable loan servicing fees.
GNMA guarantees the full and timely payment of principal and interest
on GNMA certificates. The GNMA guarantee is backed by the authority of GNMA to
borrow funds from the U.S. Treasury to meet payment obligations arising from
its guarantee. Since GNMA is a wholly-owned U.S. Government corporation within
the Department of Housing and Urban Development, GNMA guarantees are also
general obligations of the United States and, as such, are backed by the full
faith and credit of the federal government. In contrast, MBSs issued by FNMA
include FNMA Guaranteed Mortgage Pass- Through Certificates ("Fannie Maes")
which are solely the obligations of FNMA and are neither backed by, nor
entitled to, the full faith and credit of the United States. FHLMC also is a
government-sponsored enterprise whose MBSs are solely obligations of FHLMC.
Therefore, FHLMC MBSs are not guaranteed by the United States or by a Federal
Home Loan Bank and do not constitute a general obligation of the United States
or any Federal Home Loan Bank. FHLMC guarantees timely payment of interest and
ultimate payment of principal due under the obligations it issues. However,
because FNMA and FHLMC are government-sponsored enterprises, their securities
are considered to be high quality investments that present minimal credit
risks.
The mortgages underlying MBSs guaranteed by GNMA are fully insured or
guaranteed by the Federal Housing Administration, the Veterans Administration
or the Farmers Home Administration. Mortgages underlying MBSs issued by FNMA
or FHLMC are typically conventional residential mortgages which are not so
insured or guaranteed, but which conform to specific underwriting, size and
maturity standards.
The Master Series also may invest up to 25% of its total assets in
collateralized mortgage obligations ("CMOs") issued or guaranteed by U.S.
Government instrumentalities (including government-sponsored enterprises) or
collateralized by U.S. Government obligations. In a CMO, a series of bonds or
certificates is issued in multiple classes. Each class is issued at a
specified coupon rate with a stated maturity or final distribution date. The
principal and interest payments in the collateral pool may be allocated among
the classes of CMOs in several ways. Typically, payments of principal,
including any prepayments, on the underlying mortgages are applied to the
classes in the order of their respective stated maturities or final
distribution dates, so that no payment of principal will be made on CMOs of one
class until all CMOs of other classes having earlier stated maturities or final
distribution dates have been paid in full.
The Master Series may purchase CMOs that are:
(1) collateralized by fixed rate or adjustable rate mortgages that are
guaranteed, as to payment of principal and interest, by a U.S. Government
agency or instrumentality (including a government-sponsored enterprise);
(2) directly guaranteed, as to payment of principal and interest, by
the issuer, which guarantee is collateralized by U.S. Government securities; or
(3) collateralized by MBSs which are issued or guaranteed by the U.S.
Government, its agencies or instrumentalities (including government-sponsored
enterprises).
The coupon rate of one or more CMO classes may reset periodically
based on an index, such as the London Interbank Offered Rate ("LIBOR"). The
interest rates on the mortgages
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underlying the MBSs and the CMOs in which the Master Series may invest may be
adjustable. In this case, they generally are readjusted at intervals of one
year or less in response to changes in a predetermined interest rate index.
There are two main categories of indices: those based on U.S. Treasury
securities and those based on certain financial aggregates, such as a
cost-of-funds index or a moving average of mortgage rates. Commonly utilized
indices include the one-year and five-year constant maturity Treasury note
rates, the three- month Treasury bill rate, the 180-day Treasury bill rate,
rates on longer-term Treasury securities, the National Median Cost of Funds,
the one-month, three-month, six- month or one-year LIBOR, a published prime
rate, or commercial paper rates. Certain of these indices follow overall
market interest rates more closely than others.
The range of fluctuation of interest rates on certain adjustable rate
mortgages ("ARMs") may be limited by "caps" or "floors." A "cap" is a ceiling
or maximum interest rate under a mortgage note. A "floor" is a minimum
interest rate under a mortgage note. To the extent that the interest rates on
the ARMs underlying MBSs or CMOs cannot be adjusted in response to interest
rate changes due to the existence of "caps" or "floors" on interest rate
movements, the MBSs or CMOs are likely to respond to changes in market rates
more like fixed rate securities. In other words, interest rate increases in
excess of such caps can be expected to cause the CMOs or MBSs backed by
mortgages that have such caps to decline in value to a greater extent than
would be the case in the absence of such caps. Conversely, interest rate
decreases below such floors can be expected to cause the CMOs or MBSs backed by
mortgages that have such floors to increase in value to a greater extent than
would be the case in the absence of such floors. The value of MBSs, CMOs and
ARMs will fluctuate to the extent interest rates on the underlying ARMs differ
from prevailing market interest rates during interim periods between interest
rate reset dates. Accordingly, holders of MBSs, CMOs or ARMs could experience
some loss (or less gain than otherwise might be achieved) if they sell these
investments before the interest rates on the underlying mortgages are adjusted
to reflect prevailing market interest rates.
The holders of CMOs and MBSs not only receive scheduled payments of
principal and interest, but also receive additional principal payments
representing prepayments on the underlying mortgages. A certain level of
prepayments is factored into the price of most CMOs, since historical
experience shows that a certain percentage of mortgages will be repaid or
refinanced before maturity. When market interest rates change, however,
prepayment behavior changes. When market interest rates are high, homeowners
tend to refinance less, which slows the rate of prepayments. When market
interest rates are low, the rate of prepayments tends to accelerate. Lower
market interest rates are a positive influence on the value of a CMO, as they
are on any fixed-rate investments. At the same time, however, the risk that an
investor will receive more prepayments than anticipated and must therefore
reinvest at lower prevailing market rates is a negative influence on the CMO's
value. The net effect of falling interest rates on a CMO's price depends on
the relationship between interest rates and CMO prices which, in turn, depends
on a number of factors including whether the CMO was trading at a discount or a
premium before rates fell. Thus, it is possible for a move in interest rates
to impact different classes of the same CMO series differently. (See the
discussion of multiple classes, above.)
As a non-fundamental policy, the Master Series will not invest in
"interest only" or "principal only" securities.
OTHER ASSET-BACKED SECURITIES
The Short-Intermediate Term Master Series may invest in Asset-Backed
Securities ("ABSs"), which are pass- through securities representing ownership
interests in a pool of loans, leases, or installment contracts on personal
property such as computers and automobiles (but not real estate). They are
similar to MBSs in that they represent an undivided interest in a trust
established to hold the assets. Investors receive their pro rata share of
payments of interest and
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principal on the assets of the trust, less any servicing fees or interest
margin paid to the sponsor of the trust. ABS issuers include finance
companies, equipment leasing companies and banks. The life span of an ABS
depends on the rate at which the underlying obligations are paid down by the
borrowers. Faster prepayments of the underlying obligations will shorten the
life of an ABS.
All ABSs in which the Master Series may invest have one or more forms
of credit enhancement, such as over collateralization, recourse to issuer,
third party guaranty, a reserve fund, or a senior/subordinated security
structure. The Master Series is protected against default risk, but not market
risk, to the extent of such credit enhancements.
The Master Series invests only in ABSs rated "AA" or higher by S&P, or
"Aa" or higher by Moody's at the time of purchase. The Master Series does not
purchase subordinated ABSs.
BANK OBLIGATIONS
The Short-Intermediate Term Master Series may invest in bank
obligations, including, but not limited to, negotiable certificates of deposits
("CDs"), bankers' acceptances and fixed time deposits, subject to its
fundamental policy of not investing 25% or more of its total assets in any
particular industry. The Master Series limits its investments in U.S. bank
obligations to obligations of U.S. banks (including foreign branches) which
have more than $1 billion in total assets at the time of investment and are
members of the Federal Reserve System or are examined by the Comptroller of the
Currency or whose deposits are insured by the Federal Deposit Insurance
Corporation ("FDIC"). The Master Series limits its investments in foreign bank
obligations to U.S. dollar denominated obligations of foreign banks which at
the time of investment (i) have more than $10 billion, or the equivalent in
other currencies, in total assets and (ii) in the opinion of the Master Series'
investment manager, are of an investment quality comparable with obligations of
U.S. banks which may be purchased by the Master Series.
Fixed time deposits are obligations of foreign branches of U.S. banks
or foreign banks which are payable at a stated maturity date and bear a fixed
rate of interest. Generally fixed time deposits may be withdrawn on demand by
the investor, but they may be subject to early withdrawal penalties which vary
depending upon market conditions and the remaining maturity of the obligation.
Although fixed time deposits do not have a market, there are no contractual
restrictions on the Master Series' right to transfer a beneficial interest in
the deposit to a third party.
Obligations of foreign banks and foreign branches of U.S. banks
involve somewhat different investment risks from those affecting obligations of
U.S. banks, including the possibilities that liquidity could be impaired
because of future political and economic developments, that the obligations may
be less marketable than comparable obligations of U.S. banks, that a foreign
jurisdiction might impose withholding taxes on interest income payable on those
obligations, that foreign deposits may be seized or nationalized, that foreign
governmental restrictions (such as foreign exchange controls) may be adopted
which might adversely affect the payment of principal and interest on those
obligations and that the selection of those obligations may be more difficult
because there may be less publicly available information concerning foreign
banks or the accounting, auditing and financial reporting standards, practices
and requirements applicable to foreign banks may differ from those applicable
to U.S. banks. In that connection, foreign banks are not subject to
examination by any U.S. Government agency or instrumentality.
SHORT-TERM CORPORATE DEBT INSTRUMENTS
The Short-Intermediate Term Master Series may invest in commercial
paper (including variable amount master demand notes), which is short-term,
unsecured promissory notes issued by corporations to finance short-term credit
needs. Commercial paper is usually sold on a
28
<PAGE> 31
discount basis and has a maturity at the time of issuance not exceeding nine
months. Variable amount master demand notes are demand obligations that permit
the investment of fluctuating amounts at varying market rates of interest
pursuant to arrangements between the issuer and a commercial bank acting as
agent for the payees of such notes whereby both parties have the right to vary
the amount of the outstanding indebtedness on the notes.
The Master Series may also invest in non-convertible corporate debt
securities (e.g., bonds and debentures) with not more than one year remaining
to maturity at the date of settlement. Corporate debt securities with a
remaining maturity of less than one year tend to become extremely liquid and
are traded as money market securities.
The commercial paper investments of the Master Series at the time of
the purchase must be rated "A-1" by S&P or "Prime-1" by Moody's or, if not
rated, must be of comparable quality as determined by Wells Fargo Bank at its
discretion. Subsequent to its purchase by the Master Series, an issue of
securities may cease to be rated or its rating may be reduced below the minimum
rating required for purchase by the Master Series. Wells Fargo Bank will
consider such an event in determining whether the Master Series should continue
to hold the obligation. To the extent the Master Series continues to hold such
obligations, it may be subject to additional risk of default.
INVESTMENT POLICIES
As matters of fundamental policy (i) the Tax-Free Master Series may
borrow from banks up to 10% of the current value of their respective net assets
only for temporary purposes in order to meet redemptions, and these borrowings
may be secured by the pledge of up to 10% of the current value of their
respective net assets (but investments may not be purchased while any such
outstanding borrowing in excess of 5% of its net assets exists); (ii) the Money
Market Master Series may not make loans, except that each such Master Series
and corresponding Fund may purchase or hold debt instruments, lend its
portfolio securities and enter into repurchase agreement transactions in
accordance with its investment policies; loans for purposes of this restriction
will not include a Fund's purchase of interests in the Master Series; (iii) the
Tax-Free Master Series may not purchase the securities of issuers conducting
their principal business activity in the same industry if, immediately after
the purchase and as a result thereof, the value of a Master Series' investments
in that industry would be 25% or more of the current value of such Master
Series' total assets, provided that there is no limitation with respect to
investments in (a) municipal securities (for the purpose of this restriction,
private activity bonds and notes shall not be deemed municipal securities if
the payments of principal and interest on such bonds and notes is the ultimate
responsibility of non-governmental entities), (b) U.S. Government obligations,
and (c) with respect to the Money Market Master Series only, certain
obligations of domestic banks; and (iv) the Tax-Free Intermediate Income
Series, Tax-Free Money Market Series and Growth and Income Series, may not
purchase securities of any issuer (except securities issued or guaranteed by
the U.S. Government, its agencies and instrumentalities, including
Government-sponsored enterprises) if, as a result, with respect to 75% of its
total assets, more than 5% of the value of the Series' total assets would be
invested in the securities of any one issuer or, with respect to 100% of its
total assets the Series' ownership would be more than 10% of the outstanding
voting securities of such issuer.
In addition, as a matter of fundamental policy, the Growth and Income
Master Series, the Growth Stock Master Series and the Short-Intermediate Term
Master Series may: (i) not purchase securities of any issuer (except U.S.
Government obligations) if as a result, with respect to 75% of its total
assets, more than 5% of the value of the Master Series' total assets would be
invested in the securities of such issuer or, with respect to 100% of its total
assets, the Master Series would own more than 10% of the outstanding voting
securities of such issuer; (ii) borrow from banks up to 10% of the current
value of its net assets for temporary purposes only in order
29
<PAGE> 32
to meet redemptions, and these borrowings may be secured by the pledge of up to
10% of the current value of its net assets (but investments may not be
purchased while any such outstanding borrowing in excess of 5% of its net
assets exists); (iii) make loans of portfolio securities in accordance with its
investment policies; and (iv) not invest 25% or more of its total assets (i.e.,
concentrate) in any particular industry, except that the Master Series may
invest 25% or more of its assets in U.S. Government obligations. With respect
to paragraph (i), it may be possible that the Trust would own more than 10% of
the outstanding voting securities of an issuer.
As a matter of non-fundamental policy, the Money Market Master Series
may invest up to 10%, and the Non-Money Market Master Series may invest up to
15%, of the current value of each Master Series' net assets in repurchase
agreements having maturities of more than seven days, illiquid securities,
fixed time deposits that are subject to withdrawal penalties and that have
maturities of more than seven days, and restricted securities (which are
securities that must be registered under the Securities Act of 1933 before they
may be offered or sold to the public), unless a state imposes a lower limit.
For purposes of complying with the Code, the California Tax-Free
Intermediate Income Master Series, the California Tax-Free Short-Term Income
Master Series and the California Tax-Free Money Market Master Series will
diversify their holdings so that, at the end of each quarter of the taxable
year, (i) at least 50% of the market value of each Master Series' assets is
represented by cash, U.S. Government obligations and other securities limited
in respect of any one issuer to an amount not greater than 5% of the Master
Series' assets and 10% of the outstanding voting securities of such issuer, and
(ii) not more than 25% of the value of its assets is invested in the securities
of any one issuer (other than U.S. Government obligations and the securities of
other regulated investment companies), or of two or more issuers which the
taxpayer controls and which are determined to be engaged in the same or similar
trades or businesses or related trades or businesses. With respect to
paragraph (i), it may be possible that the Trust would own more than 10% of the
outstanding voting securities of an issuer. In addition, at least 65% of the
each such Master Series' total assets are invested (under normal market
conditions) in municipal obligations that pay interest which is exempt from
California personal income taxes. However, as a matter of general operating
policy, the Master Series seek to have substantially all of their assets
invested in such municipal obligations.
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<PAGE> 33
MANAGED SERIES INVESTMENT TRUST
TELEPHONE: 1-800-643-9691
PART B
JULY 19, 1995
__________________________________
ITEM 10. COVER PAGE.
Managed Series Investment Trust ("Trust") is a registered, open-end,
management investment company. This Part B is not a Part A and should be
read in conjunction with the Trust's Part A, dated July 19, 1995. All terms
used in this Part B that are defined in Part A have the meanings assigned in
Part A. A copy of Part A may be obtained without charge by writing Stephens
Inc. ("Stephens"), the Trust's sponsor, administrator and distributor, at 111
Center Street, Little Rock, Arkansas 72201, or by calling Stephens at
1-800-643-9691.
The Registration Statement of the Trust, including the Trust's Part
A, the Part B and the exhibits filed therewith, may be examined at the office
of the Securities and Exchange Commission ("SEC") in Washington, D.C.
Statements contained in the Trust's Part A or this Part B as to the contents of
any contract or other document referred to herein or in the Part A are not
necessarily complete, and, in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to these Registration
Statements, each such statement being qualified in all respects by such
reference.
ITEM 11. TABLE OF CONTENTS.
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
Item 12. General Information and History ...................... 2
Item 13. Investment Objective and Policies ...................... 2
Item 14. Management of the Trust ...................... 26
Item 15. Control Persons and Principal Holders of Securities ...................... 30
Item 16. Investment Advisory and Other Services ...................... 30
Item 17. Brokerage Allocation and Other Practices ...................... 32
Item 18. Capital Stock and Other Securities ...................... 33
Item 19. Purchase, Redemption and Pricing of Securities ...................... 35
Item 20. Tax Status ...................... 36
Item 21. Underwriters ...................... 37
Item 22. Calculation of Performance Data ...................... 37
Item 23. Financial Information ...................... 37
Appendix ...................... 38
Financial Statements ...................... F-1
</TABLE>
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ITEM 12. GENERAL INFORMATION AND HISTORY.
Not applicable.
ITEM 13. INVESTMENT OBJECTIVES AND POLICIES.
The Tax-Free Money Market Master Series and the California Tax-Free
Money Market Master Series are sometimes collectively referred to hereafter as
the "Money Market Master Series." The Tax-Free Intermediate Income Master
Series, California Tax-Free Intermediate Income Master Series, California
Tax-Free Short-Term Income Master Series, Growth and Income Master Series,
Growth Stock Master Series and the Short-Intermediate Term Master Series are
sometimes collectively referred to hereafter as the "Non-Money Market Master
Series." The California Tax-Free Intermediate Income Master Series, the
California Tax-Free Short-Term Income Master Series, the California Tax-Free
Money Market Master Series, the Tax-Free Intermediate Income Master Series, the
Tax-Free Money Market Master Series and the Growth and Income Master Series are
sometimes collectively referred to hereafter as "Master Series A".
INVESTMENT RESTRICTIONS
The Master Series A are subject to the following investment
restrictions, all of which are fundamental policies.
The Master Series A may not:
(1) purchase the securities of issuers conducting their principal
business activity in the same industry if, immediately after the purchase and
as a result thereof, the value of the Series' investments in that industry
would be 25% or more of the current value of such Series' total assets,
provided that there is no limitation with respect to investments in (i)
municipal securities (for the purpose of this restriction, private activity
bonds and notes shall not be deemed municipal securities if the payment of
principal and interest on such bonds or notes is the ultimate responsibility of
non-governmental entities), (ii) obligations of the United States Government,
its agencies or instrumentalities (including government-sponsored enterprises),
and (iii) with respect to the Tax-Free Money Market Series and the California
Tax-Free Money Market Series, the obligations of domestic banks (for the
purpose of this restriction, domestic bank obligations do not include
obligations of U.S. branches of foreign banks or obligations of foreign
branches of U.S. banks);
(2) purchase or sell real estate or real estate limited partnerships
(other than municipal obligations and other securities secured by real estate
or interests therein or securities issued by companies that invest in real
estate or interests therein), commodities or commodity contracts (including
futures contracts) except that a Series may purchase securities of an issuer
which invests or deals in commodities and commodity contracts and except that
the Non- Money
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Market Series may enter into futures and options contracts in accordance with
their respective investment policies;
(3) purchase securities on margin (except for short-term credits
necessary for the clearance of transactions with regard to all the Series, and
except for margin payments in connection with options, futures and options on
futures with regard to the Non-Money Market Series) or make short sales of
securities;
(4) underwrite securities of other issuers, except to the extent
that the purchase of municipal securities or other permitted investments
directly from the issuer thereof or from an underwriter for an issuer and the
later disposition of such securities in accordance with the Series' investment
program may be deemed to be an underwriting;
(5) make investments for the purpose of exercising control or
management;
(6) issue senior securities, except that each Series may borrow from
banks up to 10% of the current value of its respective net assets for temporary
purposes only in order to meet redemptions, and these borrowings may be secured
by the pledge of up to 10% of the current value of its net assets (but
investments may not be purchased while any such outstanding borrowing in excess
of 5% of its net assets exists);
(7) write, purchase or sell puts, calls, options or any combination
thereof, and the Money Market Series also may not write, purchase or sell
warrants, except that all Series may purchase securities with put rights in
order to maintain liquidity;
(8) with respect to the Tax-Free Intermediate Income Series,
Tax-Free Money Market Series and Growth and Income Series, purchase securities
of any issuer (except securities issued or guaranteed by the U.S. Government,
its agencies and instrumentalities, including government-sponsored enterprises)
if, as a result, with respect to 75% of its total assets, more than 5% of the
value of the Series' total assets would be invested in the securities of any
one issuer or, with respect to 100% of its total assets the Series' ownership
would be more than 10% of the outstanding voting securities of such issuer; or
(9) with respect to the Money Market Master Series, make loans
except that each Money Market Master Series may purchase or hold debt
instruments, lend its portfolio securities or enter into repurchase agreement
transactions in accordance with its investment policies.
The Master Series A are subject to the following non-fundamental
policies.
The Master Series A may not:
(1) purchase or retain securities of any issuer if the officers or
Trustees of the Trust or the investment adviser owning beneficially more than
one-half of one percent (0.5%) of the securities of the issuer together owned
beneficially more than 5% of such securities;
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<PAGE> 36
(2) purchase interests, leases, or limited partnership interests in
oil, gas, or other mineral exploration or development programs;
(3) purchase securities of issuers who, with their predecessors,
have been in existence less than three years, unless the securities are fully
guaranteed or insured by the U.S. Government, a state, commonwealth,
possession, territory, the District of Columbia or by an entity in existence at
least three years, or the securities are backed by the assets and revenues of
any of the foregoing if, by reason thereof, the value of its aggregate
investments in such securities will exceed 5% of its total assets; and
(4) purchase securities of unseasoned issuers, including their
predecessors, which have been in operation for less than three years, and
equity securities of issuers which are not readily marketable if by reason
thereof the value of such Series' aggregate investment in such classes of
securities will exceed 5% of its total assets.
The Master Series A may each invest in shares of other open-end,
management investment companies, subject to the limitations of Section 12(d)(1)
of the 1940 Act, provided that any such purchases will be limited to temporary
investments in shares of unaffiliated investment companies. However, the
investment adviser will waive its advisory fees for that portion of the Master
Series' assets so invested, except when such purchase is part of a plan of
merger, consolidation, reorganization or acquisition. In addition, with
respect to the Master Series A (other than the Growth and Income Master
Series), these unaffiliated investment companies must have a fundamental
investment policy of investing at least 80% of their net assets in obligations
that are exempt from federal income taxes and are not subject to the federal
alternative minimum tax.
In addition, the Series reserve the right to invest up to 15%, in the
case of the Money Market Master Series up to 10%, of the current value of their
net assets in fixed time deposits that are subject to withdrawal penalties and
that have maturities of more than seven days, repurchase agreements maturing in
more than seven days or other illiquid securities. However, as long as the
shares of an investment company investing in the Series are registered for sale
in a state that imposes a lower limit on the percentage of an investment
company's assets that may be so invested, the relevant Series will comply with
such lower limit.
Furthermore, the Money Market Master Series may not purchase or sell
real estate limited partnership interests. The Master Series A do not
currently intend to make loans of their portfolio securities.
The Short-Intermediate Term Master Series and the Growth Stock Master
Series are subject to the following investment restrictions, all of which are
fundamental policies.
The Short-Intermediate Term Master Series and the Growth Stock Master
Series may not:
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(1) purchase the securities of issuers conducting their principal
business activity in the same industry if, immediately after the purchase and
as a result thereof, the value of the Short-Intermediate Term Master Series' or
the Growth Stock Master Series' investments in that industry would be 25% or
more of the current value of the Short- Intermediate Term Master Series' or the
Growth Stock Master Series' total assets, provided that there is no limitation
with respect to investments in (i) obligations of the U.S. Government, its
agencies or instrumentalities;
(2) purchase or sell real estate or real estate limited partnerships
(other than securities secured by real estate or interests therein or
securities issued by companies that invest in real estate or interests
therein);
(3) purchase commodities or commodity contracts (including futures
contracts), except that the Short- Intermediate Master Series and the Growth
Stock Master Series may purchase securities of an issuer which invests or deals
in commodities or commodity contracts;
(4) purchase interests, leases, or limited partnership interests in
oil, gas, or other mineral exploration or development programs;
(5) purchase securities on margin (except for short-term credits
necessary for the clearance of transactions and except for margin payments in
connection with options, futures and options on futures) or make short sales of
securities;
(6) underwrite securities of other issuers, except to the extent
that the purchase of permitted investments directly from the issuer thereof or
from an underwriter for an issuer and the later disposition of such securities
in accordance with the Short-Intermediate Term Master Series' or the Growth
Stock Master Series' investment program may be deemed to be an underwriting;
(7) make investments for the purpose of exercising control or
management;
(8) borrow money or issue senior securities as defined in the 1940
Act, except that each of the Short- Intermediate Term Master Series and Growth
Stock Master Series may borrow from banks up to 10% of the current value of its
net assets for temporary purposes only in order to meet redemptions, and these
borrowings may be secured by the pledge of up to 10% of the current value of
its net assets (but investments may not be purchased while any such outstanding
borrowing in excess of 5% of its net assets exists);
(9) write, purchase or sell puts, calls, straddles, spreads,
warrants, options or any combination thereof, except that the Growth Stock
Master Series may purchase securities with put rights in order to maintain
liquidity, and except that the Short-Intermediate Term Master Series and Growth
Stock Master Series may invest up to 5% of their net assets in warrants in
accordance with their investment policies stated below;
(10) purchase securities of any issuer (except securities issued or
guaranteed by the U.S. Government, its agencies and instrumentalities) if, as a
result, with respect to 75% of its
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<PAGE> 38
total assets, more than 5% of the value of the Short-Intermediate Term Master
Series' and the Growth Stock Master Series' total assets would be invested in
the securities of any one issuer or, with respect to 100% of its total assets
the Short-Intermediate Term Master Series' and the Growth Stock Master Series'
ownership would be more than 10% of the outstanding voting securities of such
issuer; or
(11) make loans, except that the Short-Intermediate Term Master
Series and the Growth Stock Master Series may purchase or hold debt instruments
or lend its portfolio securities in accordance with its investment policies,
and may enter into repurchase agreements.
The Short-Intermediate Term Master Series and the Growth Stock Master
Series are subject to the following non-fundamental policies.
(1) Neither the Short-Intermediate Term Master Series nor the Growth
Stock Master Series may:
(a) purchase or retain securities of any issuer if the
officers or Trustees of the Trust or the investment adviser owning beneficially
more than one-half of one percent (0.5%) of the securities of the issuer
together owned beneficially more than 5% of such securities;
(b) purchase securities of issuers who, with their
predecessors, have been in existence less than three years, unless the
securities are fully guaranteed or insured by the U.S. Government, a state,
commonwealth, possession, territory, the District of Columbia or by an entity
in existence at least three years, or the securities are backed by the assets
and revenues of any of the foregoing if, by reason thereof, the value of its
aggregate investments in such securities will exceed 5% of its total assets;
(2) The Short-Intermediate Term Master Series and the Growth Stock
Master Series reserve the right to invest up to 15% of the current value of
their net assets in fixed time deposits that are subject to withdrawal
penalties and that have maturities of more than seven days, repurchase
agreements maturing in more than seven days or other illiquid securities.
However, as long as a feeder Fund's shares are registered for sale in a state
that imposes a lower limit on the percentage of a fund's assets that may be so
invested, the Short-Intermediate Term Master Series and the Growth Stock Master
Series will comply with such lower limit. The Short-Intermediate Term Master
Series and the Growth Stock Master Series presently are limited to investing
10% of their net asset in such securities due to limits applicable in several
states; and
(3) The Short-Intermediate Term Master Series and the Growth Stock
Master Series may invest in shares of other open-end, management investment
companies, subject to the limitations of Section 12(d)(1) of the 1940 Act,
provided that any such purchases will be limited to temporary investments in
shares of unaffiliated investment companies and the Investment Adviser will
waive its advisory fees for that portion of the Short-Intermediate Term Master
Series' or the Growth Stock Master Series' assets so invested, except when such
purchase is part of a plan of merger, consolidation, reorganization or
acquisition.
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ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
Unrated, Downgraded and Below Investment Grade Investments. Each
Master Series may purchase instruments that are not rated if, in the opinion of
Wells Fargo Bank, such obligations are of investment quality comparable to
other rated investments that are permitted to be purchased by such Master
Series. The Master Series may purchase unrated instruments only if they are
purchased in accordance with the Master Series' procedures adopted by the
Master Trust's Board of Trustees in accordance with Rule 2a-7 under the 1940
Act. After purchase by a Master Series, a security may cease to be rated or
its rating may be reduced below the minimum required for purchase by such
Master Series. Neither event will require a sale of such security by such
Master Series. However, in no event will such securities exceed 5% of the
Master Series' net assets. To the extent the ratings given by Moody's or S&P
may change as a result of changes in such organizations or their rating
systems, each Master Series will attempt to use comparable ratings as standards
for investments in accordance with the investment policies contained in its
Part A and in this Part B. The ratings of Moody's and S&P are more fully
described in the Appendix.
Because each Master Series is not required to sell downgraded
securities, and because the Growth Stock Master Series is permitted to purchase
securities that are rated below investment grade or if unrated are of
comparable quality, each Master Series could hold up to 5% of its net assets in
debt securities rated below "Baa" by Moody's or below "BBB" by S&P or if
unrated, low credit quality (below investment grade) securities. The Master
Series may hold such securities even though none of the Master Series except
the Growth Stock Master Series are permitted to purchase such securities.
Although they may offer higher yields than do higher rated
securities, low rated and unrated low credit quality debt securities generally
involve greater volatility of price and risk of principal and income, including
the possibility of default by, or bankruptcy of, the issuers of the securities.
In addition, the markets in which low rated and unrated low credit quality debt
securities are traded are more limited than those in which higher rated
securities are traded. The existence of limited markets for particular
securities may diminish a Master Series' ability to sell the securities at fair
value either to meet redemption requests or to respond to changes in the
economy or in the financial markets and could adversely affect and cause
fluctuations in the daily net asset value of a Master Series' shares.
Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of low rated or
unrated low quality debt securities, especially in a thinly traded market.
Analysis of the creditworthiness of issuers of low rated or unrated low quality
debt securities may be more complex than for issuers of higher rated
securities, and the ability of a Master Series to achieve its investment
objective may, to the extent it holds low rated or unrated low quality debt
securities, be more dependent upon such creditworthiness analysis than would be
the case if the Master Series held exclusively higher rated or higher quality
debt securities.
B-7
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Low rated or unrated low quality debt securities may be more
susceptible to real or perceived adverse economic and competitive industry
conditions than investment grade securities. The prices of such debt
securities have been found to be less sensitive to interest rate changes than
higher rated or higher quality investments, but more sensitive to adverse
economic downturns or individual corporate developments. A projection of an
economic downturn or of a period of rising interest rates, for example, could
cause a decline in low rated or unrated low quality debt securities prices
because the advent of a recession could dramatically lessen the ability of a
highly leveraged company to make principal and interest payments on its debt
securities. If the issuer of the debt securities defaults, the Master Series
may incur additional expenses to seek recovery.
Letters of Credit. Certain of the debt obligations (including
municipal securities, certificates of participation, commercial paper and other
short-term obligations) which the Master Series may purchase may be backed by
an unconditional and irrevocable letter of credit of a bank, savings and loan
association or insurance company which assumes the obligation for payment of
principal and interest in the event of default by the issuer. Only banks,
savings and loan associations and insurance companies which, in the opinion of
Wells Fargo Bank, are of comparable quality to issuers of other permitted
investments of each such Master Series may be used for letter of credit-backed
investments, provided that, in the case of the Money Market Master Series, the
Trust's Board approves or ratifies such investments.
Pass-Through Obligations. Certain of the debt obligations which the
Non-Money Market Master Series may purchase may be pass-through obligations
that represent an ownership interest in a pool of mortgages and the resultant
cash flow from those mortgages. Payments by homeowners on the loans in the
pool flow through to certificate holders in amounts sufficient to repay
principal and to pay interest at the pass-through rate. The stated maturities
of pass- through obligations may be shortened by unscheduled prepayments of
principal on the underlying mortgages. Therefore, it is not possible to
predict accurately the average maturity of a particular pass-through
obligation. Variations in the maturities of pass-through obligations will
affect the yield of the Master Series investing in such obligation.
Furthermore, as with any debt obligation, fluctuations in interest rates will
inversely affect the market value of pass- through obligations. The Non-Money
Market Master Series may invest in pass-through obligations that are supported
by the full faith and credit of the U.S. Government (such as those issued by
the Government National Mortgage Association) or those that are guaranteed by
an agency or instrumentality of the U.S. Government or government sponsored
enterprise (such as the Federal National Mortgage Association or the Federal
Home Loan Mortgage Corporation) or bonds collateralized by any of the
foregoing.
When-Issued Securities. Certain of the securities in which the
Short-Intermediate Term Master Series and Growth Stock Master Series may invest
are purchased on a when-issued basis, in which case delivery and payment
normally take place within 45 days after the date of the commitment to
purchase. The Short-Intermediate Term Master Series and Growth Stock Master
Series make commitments to purchase securities on a when-issued basis only with
the intention of actually acquiring the securities, but may sell them before
the settlement date if it is
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deemed advisable. When-issued securities are subject to market fluctuation,
and no income accrues to the purchaser during the period prior to issuance.
The purchase price and the interest rate received on debt securities are fixed
at the time the purchaser enters into the commitment. Purchasing a security on
a when-issued basis can involve a risk that the market price at the time of
delivery may be lower than the agreed-upon purchase price, in which case there
could be an unrealized loss at the time of delivery. None of the Master Series
currently intends to invest more than 5% of its assets in when-issued
securities during the coming year. Each Master Series establishes a segregated
account in which it maintains cash or liquid, high-grade debt securities in an
amount at least equal in value to the Master Series' commitments to purchase
when-issued securities. If the value of these assets declines, the Master
Series will place additional liquid assets in the account on a daily basis so
that the value of the assets in the account is equal to the amount of such
commitments.
Loans of Portfolio Securities. Each Master Series may lend
securities from their portfolios to brokers, dealers and financial institutions
(but not individuals) if cash, U.S. Government securities or other high-quality
debt obligations equal to at least 100% of the current market value of the
securities loaned (including accrued interest thereon) plus the interest
payable to such Master Series with respect to the loan is maintained with the
Master Series. In determining whether or not to lend a security to a
particular broker, dealer or financial institution, the Master Series'
Investment Adviser considers all relevant facts and circumstances, including
the size, creditworthiness and reputation of the broker, dealer, or financial
institution. Any loans of portfolio securities are fully collateralized based
on values that are marked to market daily. The Master Series do not enter into
any portfolio security lending arrangement having a duration longer than one
year. Any securities that a Master Series receives as collateral do not become
part of the Master Series' portfolio at the time of the loan and, in the event
of a default by the borrower, the Master Series will, if permitted by law,
dispose of such collateral except for such part thereof that is a security in
which the Master Series is permitted to invest. During the time securities are
on loan, the borrower will pay the Master Series any accrued income on those
securities, and the Master Series may invest the cash collateral and earn
income or receive an agreed-upon fee from a borrower that has delivered
cash-equivalent collateral. None of the Master Series will lend securities
having a value that exceeds one-third of the current value of its total assets.
Loans of securities by any of the Master Series are subject to termination at
the Master Series' or the borrower's option. The Master Series may pay
reasonable administrative and custodial fees in connection with a securities
loan and may pay a negotiated portion of the interest or fee earned with
respect to the collateral to the borrower or the placing broker. Borrowers and
placing brokers are not permitted to be affiliated, directly or indirectly,
with the Trusts, the Investment Adviser or the Distributor.
Foreign Obligations. Investments in foreign obligations involve
certain considerations that are not typically associated with investing in
domestic obligations. There may be less publicly available information about a
foreign issuer than about a domestic issuer. Foreign issuers also are not
generally subject to uniform accounting, auditing and financial reporting
standards or governmental supervision comparable to those applicable to
domestic issuers. In addition, with respect to certain foreign countries,
interest may be withheld at the source under foreign income tax laws, and there
is a possibility of expropriation of confiscatory
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taxation, political or social instability or diplomatic developments that could
adversely affect investments in, the liquidity of, and the ability to enforce
contractual obligations with respect to, securities of issuers located in those
countries. None of the Master Series may invest 25% or more of its assets in
foreign obligations.
Obligations of foreign banks and foreign branches of U.S. banks
involve somewhat different investment risks from those affecting obligations of
U.S. banks, including the possibilities that liquidity could be impaired
because of future political and economic developments, that the obligations may
be less marketable than comparable obligations of U.S. banks, that a foreign
jurisdiction might impose withholding taxes on interest income payable on those
obligations, that foreign deposits may be seized or nationalized, that foreign
governmental restrictions (such as foreign exchange controls) may be adopted
which might adversely affect the payment of principal and interest on those
obligations and that the selection of those obligations may be more difficult
because there may be less publicly available information concerning foreign
banks or the accounting, auditing and financial reporting standards, practices
and requirements applicable to foreign banks may differ from those applicable
to U.S. banks. In that connection, foreign banks are not subject to
examination by any U.S. Government agency or instrumentality.
Convertible Securities (Lower Rated Securities) . Subject to the
limitations described in Part A, the Growth and Income Master Series may invest
in convertible securities that are not rated in one of the four highest rating
categories by a nationally recognized statistical ratings organization
("NRSRO") or unrated but determined by Wells Fargo to be of comparable quality
such lower rated securities. The yields on such lower rated securities, which
include securities also known as junk bonds, generally are higher than the
yields available on higher-rated securities. However, investments in lower
rated securities and comparable unrated securities generally involve greater
volatility of price and risk of loss of income and principal, including the
probability of default by or bankruptcy of the issuers of such securities.
Lower rated securities and comparable unrated securities (a) will likely have
some quality and protective characteristics that, in the judgment of the rating
organization, are outweighed by large uncertainties or major risk exposures to
adverse conditions and (b) are predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal in accordance with the
terms of the obligation. Accordingly, it is possible that these types of
factors could, in certain instances, reduce the value of securities held in the
Master Series' portfolio, with a commensurate effect on the value of its
shares. Therefore, an investment in the Growth and Income Master Series should
not be considered as a complete investment program and may not be appropriate
for all investors.
While the market values of lower rated securities and comparable
unrated securities tend to react less to fluctuations in interest rate levels
than the market values of higher-rated securities, the market values of certain
lower rated securities and comparable unrated securities also tend to be more
sensitive to individual corporate developments and changes in economic
conditions than higher-rated securities. In addition, lower rated securities
and comparable unrated securities generally present a higher degree of credit
risk. Issuers of lower rated securities and comparable unrated securities
often are highly leveraged and may not have more traditional methods of
financing available to them so that their ability to service their debt
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obligations during an economic downturn or during sustained periods of rising
interest rates may be impaired. The risk of loss due to default by such
issuers is significantly greater because lower rated securities and comparable
unrated securities generally are unsecured and frequently are subordinated to
the prior payment of senior indebtedness. The Master Series may incur
additional expenses to the extent that it is required to seek recovery upon a
default in the payment of principal or interest on its portfolio holdings. The
existence of limited markets for lower rated securities and comparable unrated
securities may diminish the Master Series' ability to (a) obtain accurate
market quotations for purposes of valuing such securities and calculating its
net asset value and (b) sell the securities at fair value either to meet
redemption requests or to respond to changes in the economy or in financial
markets.
Certain lower rated debt securities and comparable unrated securities
frequently have call or buy-back features that permit their issuers to call or
repurchase the securities from their holders, such as the Master Series. If an
issuer exercises these rights during periods of declining interest rates, the
Master Series may have to replace the security with a lower yielding security,
thus resulting in a decreased return to the Master Series.
The market for certain lower rated securities and comparable unrated
securities is relatively new and has not weathered a major economic recession.
The effect that such a recession might have on such securities is not known.
Any such recession, however, could disrupt severely the market for such
securities and adversely affect the value of such securities. Any such
economic downturn also could adversely affect the ability of the issuers of
such securities to repay principal and pay interest thereon.
Privately Issued Securities (Rule 144A). The Growth and Income
Master Series and the Growth Stock Master Series may invest in privately issued
securities which may be resold only in accordance with Rule 144A under the
Securities Act of 1933 ("Rule 144A Securities"). Rule 144A Securities are
restricted securities that are not publicly traded. Accordingly, the liquidity
of the market for specific Rule 144A Securities may vary. Wells Fargo,
pursuant to guidelines established by the Trust's Board of Trustees, evaluates
the liquidity characteristics of each Rule 144A Security proposed for purchase
by the Master Series on a case-by-case basis and considers the following
factors, among others, in its evaluation: (1) the frequency of trades and
quotes for the Rule 144A Security; (2) the number of dealers willing to
purchase or sell the Rule 144A Security and the number of other potential
purchasers; (3) dealer undertakings to make a market in the Rule 144A Security;
and (4) the nature of the Rule 144A Security and the nature of the marketplace
trades (e.g., the time needed to dispose of the Rule 144A Security, the method
of soliciting offers and the mechanics of transfer). The Growth and Income
Master Series and the Growth Stock Master Series do not intend to invest more
than 5% of their net assets in Rule 144A Securities during the coming year.
Municipal Bonds. The Master Series may invest in municipal bonds.
The two principal classifications of municipal bonds are "general obligation"
and "revenue" bonds. Municipal bonds are debt obligations issued to obtain
funds for various public purposes, including the construction of a wide range
of public facilities such as bridges, highways, housing, hospitals, mass
transportation, schools, streets, and water and sewer works. Other purposes
for
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which municipal bonds may be issued include the refunding of outstanding
obligations and obtaining funds for general operating expenses or to loan to
other public institutions and facilities. Industrial development bonds are a
specific type of revenue bond backed by the credit and security of a private
user. Certain types of industrial development bonds are issued by or on behalf
of public authorities to obtain funds to provide privately-operated housing
facilities, sports facilities, convention or trade show facilities, airport,
mass transit, port or parking facilities, air or water pollution control
facilities and certain local facilities for water supply, gas, electricity, or
sewage or solid waste disposal. The Master Series (except for the Growth and
Income Master Series) may not invest 25% or more of their respective assets in
industrial development bonds. Assessment bonds, wherein a specially created
district or project area levies a tax (generally on its taxable property) to
pay for an improvement or project may be considered a variant of either
category. There are, of course, other variations in the types of municipal
bonds, both within a particular classification and between classifications,
depending on numerous factors.
Municipal Notes. Municipal notes include, but are not limited to,
tax anticipation notes ("TANs"), bond anticipation notes ("BANs"), revenue
anticipation notes ("RANs") and construction loan notes. Notes sold as interim
financing in anticipation of collection of taxes, a bond sale or receipt of
other revenues are usually general obligations of the issuer.
TANs. An uncertainty in a municipal issuer's capacity to raise taxes
as a result of a decline in its tax base or a rise in delinquencies could
adversely affect the issuer's ability to meet its obligations on outstanding
TANs. Furthermore, some municipal issuers mix various tax proceeds into a
general fund that is used to meet obligations other than those of the
outstanding TANs. Use of such a general fund to meet various obligations could
affect the likelihood of making payments on TANs.
BANs. The ability of a municipal issuer to meet its obligations on
its BANs is primarily dependent on the issuer's adequate access to the longer
term municipal bond market and the likelihood that the proceeds of such bond
sales will be used to pay the principal of, and interest on, BANs.
RANs. A decline in the receipt of certain revenues, such as
anticipated revenues from another level of government, could adversely affect
an issuer's ability to meet its obligations on outstanding RANs. In addition,
the possibility that the revenues would, when received, be used to meet other
obligations could affect the ability of the issuer to pay the principal of, and
interest on, RANs.
The values of outstanding municipal securities will vary as a result
of changing market evaluations of the ability of their issuers to meet the
interest and principal payments (i.e., credit risk). Such values also will
change in response to changes in the interest rates payable on new issues of
municipal securities (i.e., market risk). Should such interest rates rise, the
value of outstanding securities, including those held in a Master Series'
portfolio, will decline and (if purchased at par value) they would sell at a
discount. If interests rates fall, the value of outstanding securities will
generally increase and (if purchased at par value) they would sell at a
premium. Changes in the value of municipal securities held in a Master Series'
portfolio arising
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from these or other factors will cause changes in the net asset value per share
of the Master Series.
Investments in Warrants. The Non-Money Market Master Series may
invest up to 5% of their net assets at the time of purchase in warrants (other
than those that have been acquired in units or attached to other securities),
and not more than 2% of their net assets in warrants which are not listed on
the New York or American Stock Exchange. Warrants represent rights to purchase
securities at a specific price valid for a specific period of time. The prices
of warrants do not necessarily correlate with the prices of the underlying
securities. The Master Series only may purchase warrants on securities in
which the Master Series may invest directly.
SPECIAL CONSIDERATIONS AFFECTING
CALIFORNIA MUNICIPAL OBLIGATIONS
Certain debt obligations held by the California Tax-Free Intermediate
Income Master Series, the California Tax-Free Short-Term Income Master Series
and the California Tax-Free Money Market Master Series ("California Tax-Free
Master Series") may be obligations of issuers which rely in whole or in
substantial part on California state revenues for the continuance of their
operations and the payment of their obligations. The extent to which the
California Legislature will continue to appropriate a portion of the state's
general funds to counties, cities and their various entities, is not entirely
certain. To the extent local entities do not receive money from the state to
pay for their operations and services, their ability to pay debt service on
obligations held by these Master Series may be impaired.
Certain California constitutional amendments, legislative measures,
executive orders, administrative regulations, and voter initiatives, as
discussed below, could adversely affect the market values and marketability of,
or result in default of, existing obligations, including obligations that may
be held by the California Tax-Free Master Series. Obligations of the state or
local governments may also be affected by budgetary pressures affecting the
State and economic conditions in the State. Interest income to the California
Tax-Free Master Series could also be adversely affected. The following
highlights only some of the more significant financial trends and problems, and
is based on information drawn from official statements and prospectuses
relating to securities offerings of the State of California, its agencies or
instrumentalities, as available on the date of this SAI. Wells Fargo has not
independently verified any of the information contained in such official
statements and other publicly available documents, but is not aware of any fact
which would render such information inaccurate.
CONSTITUTIONAL LIMITATIONS ON TAXES AND APPROPRIATIONS:
LIMITATION ON TAXES. Certain obligations held by the California
Tax-Free Master Series may be obligations of issuers that rely in whole or in
part, directly or indirectly, on ad valorem property taxes as a source of
revenue. The taxing powers of California local governments and districts are
limited by Article XIIIA of the California Constitution, enacted
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by the voters in 1978 and commonly known as "Proposition 13." Briefly, Article
XIIIA limits to 1% of full cash value the rate of ad valorem property taxes on
real property and generally restricts the reassessment of property to 25% per
year, except upon new construction or change of ownership (subject to a number
of exemptions). Taxing entities may, however, raise ad valorem taxes above the
1% limit to pay debt service on voter-approved bond indebtedness.
Under Article XIIIA, the basic 1% ad valorem tax levy is applied
against the assessed value of property as of the owner's date of acquisition
(or as of March 1, 1975 if acquired earlier), subject to certain adjustments.
This system has resulted in widely varying amounts of tax on similarly situated
properties. Several lawsuits were filed challenging the acquisition-based
assessment system of Proposition 13, but on June 18, 1992, the U.S. Supreme
Court announced a decision upholding Proposition 13.
Article XIIIA prohibits local governments from raising revenues
through ad valorem property taxes above the 1%, and requires voters of any
government unit to give 2/3 approval to levy any "special tax." However, court
decisions allowed non-voter-approved levy of "general taxes" which were not
dedicated to a specific use. In response to these decisions, the voters of the
State in 1986 adopted an initiative statute which imposed significant new
limits on the ability of local entities to raise or levy general taxes, except
by receiving majority local voter approval. Significant elements of this
initiative, "Proposition 62," have been overturned in recent court cases, but
efforts may continue to further restrict the ability of local government
agencies to levy or raise taxes.
APPROPRIATIONS LIMITS. The State is subject to an annual
appropriations limit imposed by Article XIIIB of the State Constitution (the
"Appropriations Limit"). Article XIIIB prohibits the State from spending
"appropriations subject to limitation" in excess of the Appropriations Limit.
Article XIIIB, originally adopted in 1979, was modified substantially by
Propositions 98 and 111 in 1988 and 1990, respectively, "Appropriations subject
to limitation," with respect to the State, are authorizations to spend
"proceeds of taxes," which consist of tax revenues, and certain other funds,
including proceeds from regulatory licenses, user charges or other fees to the
extent that such proceeds exceed "the cost reasonably borne by that entity in
providing the regulation, product or service," but "proceeds of taxes" exclude
most State subventions to local governments, tax refunds and some benefit
payments such as unemployment insurance. No limit is imposed on appropriations
of funds which are not "proceeds of taxes," such as reasonable user charges or
fees, and certain other non-tax funds.
Among the expenditures not included in the Article XIIIB
appropriations limit are: (1) the debt service cost of bonds issued or
authorized prior to January 1, 1979, or subsequently authorized by the voters;
(2) appropriations arising from certain emergencies declared by the Governor;
(3) appropriations for certain capital outlay projects; and (4) appropriations
by the State of post-1989 increases in gasoline taxes and vehicle weight fees.
The appropriations limit for each year is adjusted annually to
reflect changes in cost of living and population, and any transfers of service
responsibilities between government units. The definitions for such
adjustments were liberalized by Proposition 111 to more closely
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follow growth in the State's economy. For the 1990-91 fiscal year, each unit
of government has recalculated its appropriations limit by taking the actual
1986-87 limit and applying the Proposition 111 annual adjustments forward to
1990-91. This was expected to raise the limit in most cases.
Proposition 98 changed State funding of public education below the
university level and the operation of the State Appropriations Limit, primarily
by guaranteeing K-14 schools (kindergarten through twelfth plus two-year
community colleges) a minimum share of General Fund Revenues. Proposition 98,
as modified by Proposition 111, guarantees K-14 schools the greater amount as
calculated under three different tests. This guaranteed amount can be
suspended for a one-year period through a two-thirds vote of both houses of the
State Legislature, with the Governor's concurrence. In the fall of 1989, such
a suspension was enacted to avoid having 40.3 percent of revenues generated by
a special supplemental sales tax enacted for earthquake relief go to K-14
schools. Proposition 98 also contains provisions transferring certain State
tax revenues in excess of the Article XIIIB limit to K-14 schools.
Under Proposition 111, "excess" revenues are measured over a two-year
cycle. With respect to local governments, excess revenues must be returned by
a revision of tax rates or fee schedules within the two subsequent fiscal
years. The appropriations limit for a local government may be overridden by
referendum under certain conditions for up to four years at a time. With
respect to the State, 50% of any excess revenues is to be distributed to K-14
schools and the other 50% is to be refunded to taxpayers.
In the years immediately following enactment, very few California
governmental entities operated near their appropriations limit; in the
mid-to-late 1980's, however, many entities were at or approaching their limit.
Many local entities have successfully sought voter approval for four-year
waivers of the limit and, under Proposition 111, may elect among different
measures of population in setting the limit. During FY 1986-87, State receipts
from proceeds of taxes exceeded its appropriations limit by $1.138 billion,
which was returned to taxpayers. Since that time, appropriations subject to
limitation were under the State limit.
The 1991-92 Budget Act appropriated $18.5 billion for K-14 schools.
During the course of the fiscal year, revenues proved to be substantially below
expectations. By the time the Governor's Budget was introduced in January,
1992, it became clear that per capita growth in the General Fund revenues for
1991-92 would be smaller than the growth in State per capita personal income and
the Governor's Budget therefore reflected a reduction in Proposition 98 funding
in 1991-92.
In response to the changing revenue situation and to fully fund the
Proposition 98 guarantee in both the 1991-92 and 1992-93 Fiscal Years without
exceeding it, the Legislature enacted several bills as part of the 1992-93
budget package which responded to the fiscal crisis in education funding. In
Fiscal Year 1991-92, Proposition 98 appropriations for K-14 schools were
reduced by $1.083 billion. In order to not adversely impact cash received by
school districts, however, a short-term loan was appropriated from the
non-Proposition 98 State General Fund. The Legislature then appropriated $16.6
billion to K-14 schools for 1992-93 (the minimum
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guaranteed by Proposition 98), but designated $1.083 billion of this amount to
"repay" the prior year loan, thereby reducing cash outlays in 1992-93 by that
amount.
In addition to reducing the 1991-92 Fiscal Year appropriations for
K-14 schools by $1.083 billion and converting that amount to a loan (the
"inter-year adjustment"), Chapter 703, Statutes of 1992 also made an adjustment
based on the additional $1.2 billion of local property taxes that were shifted
to schools and community colleges. Additionally, Chapter 703 contained a
provision that if an appellate court should determine that one of the tests
used for the recalculation or the inter-year adjustment is unconstitutional,
unenforceable or invalid, Proposition 98 would be suspended for the 1992-93
Fiscal Year, with the result that K-14 schools would receive the amount
intended by the 1992-93 Budget Act compromise.
The State Controller stated in October 1992 that, because of a
drafting error in Chapter 703, he could not implement the $1.083 billion
reduction of the 1992-93 school funding appropriation, which was part of the
inter-year adjustment. The Legislature ultimately enacted corrective
legislation as part of the 1993-94 Budget package to implement the $1.083
billion inter-year adjustment as originally intended. To date, three actions
have been brought concerning that law. The effect of the corrective
legislation on these actions has not been determined.
In the 1992-93 Budget Act, a new loan of $732 million was made to
K-12 schools in order to maintain per- average daily attendance ("ADA") funding
at the same level as 1991-92, at $4,187. An additional loan of $241 million
was made to community college districts. These loans are to be repaid from
future Proposition 98 entitlements. Including both State and Local funds, and
adjusting for the loans and repayments, on a cash basis, total Proposition 98
K-12 funding in 1992-93 increased to $21.5 billion, 2.4 percent more than the
amount in 1991-92 ($21.0 billion).
Based on revised State tax revenues and estimated decreased reported
pupil enrollment, the 1993-94 Budget Act projects that the 1992-93 Proposition
98 Budget Act appropriations of $16.6 billion exceed a revised minimum
guarantee by $313 million. As a result, the 1993-94 Budget Act reverts $25
million in 1992-93 appropriations to the General Fund. Limiting the reversion
to this amount ensures that per ADA funding for general purposes will remain at
the prior year level. The 1993-94 Budget Act also designates $98 million on
1992-93 appropriations toward satisfying prior year's guarantee levels, an
obligation that resulted primarily from updating State Tax revenues for
1991-92, and designates $190 million as a loan repayable from 1993-94 funding.
The 1993-94 Budget Act projects the Proposition 98 minimum funding
level at $13.5 billion. This amount also takes into account increased property
taxes transferred to school districts from other local governments.
Legislation accompanying the 1993-94 Budget Act provides a new loan of $609
million to K-12 schools in order to maintain per ADA funding at $4,187 and a
loan of $178 million to community colleges. These loans have been combined
with the K-14 1992- 93 loans into one loan totalling $1.760 billion. Repayment
of this loan would be
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from future years' Proposition 98 entitlements, and would be conditioned on
maintaining current funding levels per pupil for K-14 schools.
In the spring of 1991, the Richmond Unified School District ("RUSD")
Board of Directors attempted to end classes six weeks early because of a fiscal
crisis. In response to lawsuits, a lower court judge, in a case called Butt v.
State of California, ordered the State, over objections from the Governor, to
provide funding to allow the school year to be completed, and an emergency loan
was arranged by the State Controller. On appeal, the California Supreme Court
in late December 1992 upheld the lower court's action, ruling that the State
Constitution's guarantee of public education required the State to ensure a
full year's education in all school districts. The Court, however, overturned
a portion of the original order relating to the source of funds for RUSD's
emergency loan; the decision leaves unclear just where the State must find
funds to make any future loans of this kind.
OBLIGATIONS OF THE STATE OF CALIFORNIA. As of February 1, 1993, the
State had approximately $17.0 billion of general obligation bonds outstanding
and $8.6 billion remained authorized but unissued. In addition, at June 30,
1992, the State had lease-purchase obligations, payable from the State's
General Fund, of approximately $2.9 billion. The State issued approximately $4
billion of general obligation bonds in calendar year 1991, and $3 billion in
1992. This is expected to decline further in 1993 and 1994. Of the State's
outstanding general obligation debt, approximately 28% is presently
self-liquidating (for which program revenues are anticipated to be sufficient
to reimburse the General Fund for debt service payments). In FY 1991-92, debt
service on general obligation bonds and lease-purchase debt was approximately
3.2% of General Fund revenues. The State has paid the principal of and
interest on its general obligations bonds, lease-purchase debt, and short-term
obligations when due.
ECONOMY. California's economy is the largest among the 50 states and
one of the largest in the world. The State's population grew by 26% in the
1980s and, at over 31 million, it now represents 12.3% of the total United
States population. Total personal income in the State, at an estimated $645
billion in 1993, accounts for about 13% of all personal income in the nation.
Total employment is almost 14 million, the majority of which is in the service,
trade, and manufacturing sectors.
Since the start of the 1990-91 Fiscal Year, the State has faced the
worst economic, fiscal and budget conditions since the 1930s. Construction,
manufacturing (especially aerospace), exports and financial services, among
others, have all been severely affected. Job losses have been the worst of any
post-war recession. Employment levels are expected to stabilize by late 1993
before net employment starts to increase, and pre-recession job levels are not
expected to be reached for several more years. Unemployment reached 10 percent
in November 1992 and is expected to remain above 9 percent through 1993 and
1994. According to the Department of Finance, recovery from the recession in
California is not expected in meaningful terms until late 1993 or 1994,
notwithstanding signs of recovery elsewhere in the nation.
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The recession has seriously affected State tax revenues. It has also
caused increased expenditures for health and welfare programs. The State has
also been facing a structural imbalance in its budget with the largest programs
supported by the General Fund -- K-12 schools and community colleges, health
and welfare, and corrections -- growing at rates higher than the growth rates
for the principal revenue sources of the General Fund. As a result, the State
has experienced recurring budget deficits. The Controller reports that
expenditures exceeded revenues for four of the five fiscal years ending with
1991-92. Revenues and expenditures were essentially equal in 1992-93, but the
original budget for that year projected revenues exceeding expenditures by $2.6
billion. By June 30, 1993, according to the Department of Finance, the State's
Reserve for Economic Uncertainties had a deficit, on a budget basis, of
approximately $2.8 billion.
A further consequence of the large budget imbalances over the last
three fiscal years has been that the State depleted its available cash
resources and has had to use a series of external borrowings to meet its cash
needs.
The 1993-94 Budget Act is projected to have $40.6 billion of General
Fund revenues and transfers and $38.5 billion of budgeted expenditures.
As a result of the deterioration in the State's budget and cash
situation in fiscal years 1991-92 and 1992-93, the rating agencies reduced the
State's credit ratings. Between October 1991 and October 1992 the rating on
the State's general obligation bonds was reduced by S&P from "AAA" to "A+" and
by Moody's from "AAA" to "AA."
The Department of Finance Bulletins for July, August, and September,
1993 reported that California entered the fourth year of recession in June,
1993 with few signs of any sustained turnaround in the economy, which remains
sluggish. In the year from August, 1992 to August, 1993, an estimated 173,000
more jobs had been lost, principally in manufacturing. A small gain in nonfarm
employment in July, 1993 was offset by a larger loss of 22,000 jobs in August,
1993. Unemployment has risen in the last few months to 9.0 percent in August.
Changes in the rate have been primarily due to changes in the labor force;
actual jobs and job-seekers declined in August, 1993. This was consistent with
a report issued by the Department of Finance indicating that California
suffered a net loss of 150,000 residents to other states in the last fiscal
year; overall population still grew due to births and foreign immigration.
Both residential and nonresidential real estate construction remained in a
sustained slump, and were, in May, 1993 both at or close to the lowest levels
since the start of the recession.
Finally, the Department of Finance noted that California would be hit
hard by the latest round of federal military base closings and force
realignments, which will be implemented over the remaining years of the decade.
California was estimated to have 22 percent of the nation's defense spending,
but might suffer 25-30 percent of the defense spending cuts over the next five
years. The Department also estimates that the recent federal Budget
Reconciliation Act will have a disproportionate and negative impact on
California. California would suffer 19.5 percent of the outlay reductions,
which rely heavily on defense budget cuts, and the State, with
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many high income taxpayers, will pay nearly 14.5 percent of the tax increases,
compared to 12 percent of the nation's population.
RECENT STATE FINANCIAL RESULTS. The principal sources of State
General Fund revenues in 1991-92 were the California personal income tax (42%
of total revenues), the sales tax (39%), bank and corporation taxes (11%), and
the gross premium tax on insurance (3%). The State maintains a Special Fund
for Economic Uncertainties (the "SFEU"), derived from General Fund revenues, as
a reserve to meet cash needs of the General Fund, but which is required to be
replenished as soon as sufficient revenues are available. Year-end balances in
the SFEU are included for financial reporting purposes in the General Fund
balance.
Inter-fund borrowing has been used for many years to meet temporary
imbalances of receipts and disbursements in the General Fund. As of June 30,
1993, there were outstanding loans in the aggregate principal amount of $43
million to the General Fund from the Special Fund for Economic Uncertainties,
and outstanding loans in the aggregate principal amount of $3.016 billion to
the General Fund from the Special Funds. On June 30, 1993, the General Fund
also had been supplemented with the proceeds of the sale of $2.0 billion of
revenue anticipation warrants on June 23, 1993. Inter- fund borrowing is also
permitted from certain other Special Funds under specified circumstances.
In the years following enactment of the federal Tax Reform Act of
1986, and conforming changes to the State's tax laws, the State experienced a
series of fiscal years in which revenue came in significantly higher or lower
than original estimates. The 1989-90 Fiscal Year ended with revenues below
estimate, so that the State's budget reserve (the SFEU) was fully depleted by
June 30, 1990. In approaching the 1990-91 Fiscal Year budget, the Governor
stated that a structural imbalance existed in the budget. The largest General
Fund programs -- K-14 education, health, welfare and corrections -- were
increasing faster than the revenue base, driven by the State's rapid population
increases in the mid to late 1980's. The Governor estimated that a $3.6
billion gap needed to be closed in order to fund all State programs at their
legislated levels (including costs of living adjustments, or "COLAs"), and to
restore a $1.3 billion budget reserve. The Governor called for structural
changes to programs in order to close this budget gap.
The 1990-91 Budget Act closed the budget gap with a combination of
revenue increases, structural program changes, expenditure reductions, and
one-time deferrals and adjustments. As enacted, the Governor estimated there
would be a balance in the SFEU at June 30, 1991 of approximately $1.3 billion.
However, it became evident shortly after the fiscal year began that revenues
were coming in substantially lower than estimated, as the State and national
economies were affected by the recession which began in summer 1990, and by the
Persian Gulf crisis. It was eventually determined that revenues in all major
categories (except insurance taxes) were lower than receipts in the 1989-90
Fiscal Year, the first such year-to-year decline since the 1930s.
Although the new Administration, which took office in January 1991,
announced substantially reduced revenue projections in the January 1991
Governor's Budget, the weaknesses of the economy resulted in actual receipts in
the second half of the 1990-91 Fiscal
B-19
<PAGE> 52
Year falling well below even those projections. In addition, expenditures for
health and welfare programs were higher than originally budgeted, consistent
with the ongoing recession. As a result of these factors, the General Fund
ended the 1990-91 Fiscal Year with a large deficit.
The 1991-92 Budget Act projected General Fund expenditures of $43.4
billion and Special Fund expenditures of $10.6 billion. The Department of
Finance estimated that there would be a balance in the SFEU on June 30, 1992 of
$1.2 billion. An estimated $14.3 billion "budget gap" was closed through a
combination of temporary and permanent changes in laws and one-time budget
adjustments. The major features of the budget compromise were: program funding
reductions totaling $5.1 billion; a total of $5.1 billion of increased State
tax revenues; savings of $2.1 billion by returning certain health and welfare
programs to counties; and additional miscellaneous savings or revenue gains and
one-time accounting charges totaling $2.0 billion.
The 1991-92 Budget Act was based on economic forecasts showing
recovery from the recession would begin in summer or fall of 1991, but revenues
lagged behind projections from the start of the 1991-92 Fiscal Year. By the
time the Governor's Budget for 1992-93 was prepared in late 1991, it was
evident that the recession had been much more severe in the State than was
thought earlier, and that it was continuing longer than anticipated. As a
result, revenues for the 1991-92 Fiscal Year were much lower than originally
estimated and expenditures were higher, particularly in health and welfare
programs.
As a result of the revenue shortfalls accumulating for the previous
two fiscal years, the Controller in April, 1992 indicated that cash resources
(including borrowing from Special Funds) would not be sufficient to meet all
General Fund obligations due on June 30 and July 1, 1992. On June 25, 1992,
the Controller issued $475 million of 1992 Revenue Anticipation Warrants (the
"1992 Warrants") in order to provide funds to cover all necessary payments from
the General Fund at the end of the 1991-92 Fiscal Year and on July 1, 1992.
The 1992 Warrants were paid on July 24, 1992. In addition to the 1992
Warrants, the Controller reported that as of June 30, 1992, the General Fund
had borrowed $1.336 billion from the SFEU and $4.699 billion from other Special
Funds, using all but about $183 million of borrowable cash resources.
By the time the 1992-93 Governors Budget was presented in January
1992, it was evident the recession was much deeper than earlier anticipated.
To balance the proposed budget, program reductions totalling $4.365 billion and
revenue and transfer increases of $872 million were proposed for the 1991-92
and 1992-93 Fiscal Years. Economic performance in the State continued to be
sluggish after the 1992-93 Governor's Budget was prepared. By the time of the
May Revision, issued on May 20, 1992, the Administration estimated that the
1992-93 Budget needed to address a gap of about $7.9 billion, much of which was
needed to repay the accumulated budget deficits of the previous two years.
The severity of the budget crisis led to a long delay in adopting the
budget. With the failure to adopt a budget by July 1, 1992, which would allow
the State to carry out its normal annual cash flow borrowing, the Controller
was forced to issue registered warrants to pay
B-20
<PAGE> 53
a variety of obligations representing prior years' or continuing
appropriations, and mandates from court orders. Available funds were used to
make constitutionally-mandated payments, such as debt service on bonds and
revenue anticipation warrants. Between July 1 and September 4, 1992 the
Controller issued a total of approximately $3.8 billion of registered warrants.
After that date, all remaining outstanding registered warrants (about $2.9
billion) were called for redemption from proceeds of the issuance of 1992
Interim Notes after the budget was adopted.
From July 1, 1992 until the Budget Act was signed on September 2,
1992 many State vendors went unpaid for services rendered or supplies delivered
during this period. Certain obligations, such as employee salaries, welfare
payments, school apportionments, debt service and (until August 14 only)
Medi-Cal reimbursements, were paid (although in many cases with registered
warrants) based on continuing or special appropriations, or court orders. The
level of these payments was consistent with, and reflected in, the 1992-93
Budget Act. State employees filed suit against the State alleging that payment
of their salaries with registered warrants violated federal labor laws.
The 1992-93 Budget Act provided for expenditures of $57.4 billion and
consisted of General Fund expenditures of $40.8 billion and Special Fund and
Bond Fund expenditures of $16.6 billion. The Department of Finance estimated
in September, 1992 that there would be a balance in the SFEU of $28 million on
June 30, 1993. Following enactment of the 1992-93 Budget Act, the State
immediately undertook its regular cash flow borrowing program for the 1992-93
Fiscal Year.
The $7.9 billion budget gap was closed through use of some increased
revenues and transfers, but primarily with expenditure cuts. The principal
reductions were in health and welfare, K-12 schools and community colleges,
state aid to local governments, higher education (partially offset by increased
student fees), and various other programs. In addition, funds were transferred
from special funds, collections of State revenues were accelerated, and other
adjustments were made.
After the 1992-93 Budget Act was enacted and as confirmed in the
Governor's Budget proposal for 1993-94, released on January 8, 1993, it became
evident that economic conditions in the State were not beginning to improve in
the second half of 1992, as assumed by the Department of Finance's May 1992
economic estimates, which underlay the 1992- 93 Budget Act. This was
exacerbated by enactment of an initiative measure in November, 1992 which
repealed a sales tax for certain candy, snack foods and bottled water, reducing
revenues by about $300 million for a full fiscal year ($200 million in
1992-93). The January Governor's budget projected a $2.1 billion budget
deficit at June 30, 1993 (compared to the 1992-93 Budget Act projection of a
$28 million balance).
On May 20, 1993, the Department of Finance released its May Revision
to the January Governor's Budget (the "May Revision"), updating revenue and
expenditure projections and proposals for the 1992-93 and 1993-94 fiscal years.
The May Revision projected that the General Fund would end the fiscal year on
June 30, 1993 with an accumulated budget deficit of about $2.8 billion, and a
negative fund balance of about $2.2 billion (the difference being certain
B-21
<PAGE> 54
reserves for encumbrances and school funding costs). The Governor projected
revenues for 1992-93 of $41.0 billion, $1.0 billion less than in the 1991-92
fiscal year. On the expenditure side, the continued recession increased health
and welfare costs above the original Budget Act projections. Also, property
tax receipts at the local level were less than projected, so that the State
will not get the full $1.3 billion benefit from the property tax shift enacted
in the Budget Act. Overall, the May Revision projected total General Fund
expenditures of $41.1 billion for the 1992-93 fiscal year, about $300 million
higher than the Budget Act and $2.2 billion less than Fiscal Year 1991-92.
The January Governor's Budget had projected that, because of severely
reduced revenues, the State would face a cash flow shortfall in May 1993,
necessitating additional external borrowing. The State met this cash flow need
by issuing $3.0 billion of revenue anticipation notes on April 26, 1993, which
matured on June 24, 1993. On June 23, 1993, the State also issued the 1993
Revenue Anticipation Warrants, which mature on December 23, 1993, in the
principal amount of $2.0 billion to meet cash flow requirements for the end of
the 1992-93 Fiscal Year and the start of the 1993-94 Fiscal Year.
The 1993-94 Fiscal Year represents the third consecutive year the
Governor and the Legislature were faced with a very difficult environment,
requiring revenue actions and expenditure cuts totalling multiple billions of
dollars to produce a balanced budget. The Governor's Budget introduced on
January 8, 1993 proposed General Fund expenditures of $37.3 billion, with
projected revenues of $39.9 billion. It also proposed Special Fund
expenditures of $12.4 billion and Special Fund Revenues of $12.1 billion. To
balance the budget in the face of declining revenues, the Governor proposed a
series of revenue shifts from local government, reliance on increased federal
aid, and reductions in state spending.
The May Revision indicated that the revenue projections of the
January Budget Proposal were tracking well, with the full year 1992-93 about
$80 million higher than the January projection. Personal income tax revenue
was higher than projected, sales tax was close to target, and bank and
corporation taxes were lagging behind projections. The May Revision projected
the State would have an accumulated deficit of about $2.75 billion by June 30,
1993. The Governor proposed to eliminate this deficit over an 18-month period.
He also agreed to retain the 0.5 percent sales tax scheduled to expire June 30,
1993 for a six-month period, dedicated to local public safety purposes, with a
November election to determine a permanent extension. Unlike previous years,
the Governor's Budget and May Revision did not calculate a "gap" to be closed,
but rather set forth revenue and expenditure forecasts and proposals designed
to produce a balanced budget.
The 1993-94 Budget Act was signed by the Governor on June 30, 1993,
along with implementing legislation. The Governor vetoed about $71 million in
spending. With enactment of the Budget Act, the State is proceeding with its
regular cash flow borrowing program for the fiscal year, which includes
issuance of approximately $2 billion of revenue anticipation notes. This act
is predicated on General Fund revenues and transfers estimated at $40.6
billion, about $700 million higher than the January Governor's Budget, but
still about $400 million below 1992-93 (and the second consecutive year of
actual decline). The principal
B-22
<PAGE> 55
reasons for declining revenue are the continued weak economy and the expiration
(or repeal) of three fiscal steps taken in 1991 -- a half cent temporary sales
tax, a deferral of operating loss carry forwards, and repeal by initiative of a
sales tax on candy and snack foods. The 1993-94 Budget Act also assumes
Special Fund revenues of $11.9 billion, an increase of 2.9 percent over
1992-93.
The 1993-94 Budget Act includes General Fund expenditures of $38.5
billion (a 6.3 percent reduction from projected 1992-93 expenditures of $41.1
billion), in order to keep a balanced budget within the available revenues.
The Budget also includes Special Fund expenditures of $12.1 billion, a 4.2
percent increase.
The 1993-94 Budget Act contains no General Fund tax/revenue increases
other than a two-year suspension of the renters' tax credit. The
Administration continues to predict that population growth in the 1990's will
keep upward pressure on major State programs, such as K-14 education, health
and welfare and corrections, outstripping projected revenue growth in an
economy only very slowly emerging from a deep recession.
The September 1993 Bulletin of the Department of Finance reports that
General Fund revenues in August, 1993 were $79 million, or about 2.6 percent,
above updated May Revision estimates, but about $65 million of this was
apparently due to an administrative problem in refunds which will appear next
month. July and August 1993 combined revenues were $86 million or 1.7 percent
above projections, with all three major tax sources tracking projections well.
August, 1993 sales tax receipts were 10.5% above projections, offsetting weak
results in June and July. The Department of Finance continues to report,
however, that economic activity in the State remains sluggish. The Department
of Finance also reports that the State will only receive approximately $450
million in aid from the Federal Government to offset the health and welfare
costs associated with foreign immigrants living in the State, substantially
less than the $692 million contemplated by the 1993-94 Budget Act.
On June 2, 1993, the Commission on State Finance ("COSF") issued its
Quarterly General Fund Forecast, which assessed the Governor's May Revision.
The COSF report projected stagnant economic conditions through 1994, and agreed
generally with the Governor's economic projections, although the COSF showed
slightly lower growth than the Governor in some State economic factors. The
COSF projects about $700 million lower revenues in 1993-94 than the May
Revision, principally because the COSF believes most of the increase in
personal income taxes seen late in 1992-93 came from a one-time income shift,
rather than reflecting a permanent base of greater tax revenues. The COSF also
shows other major taxes (and local property taxes) a little weaker than the May
Revision, with a resulting increase in expenditures to make up the property tax
shortfall for school financing. Altogether, COSF projects in its "Primary
Forecast" that the fund balance at June 30, 1994 would be over $800 million
less than the May Revision forecast.
The COSF report includes two alternative forecasts based on either
continued recession, or stronger recovery. The pessimistic forecast is $1.5
billion worse at June 30, 1994 than the Primary Forecast, and the optimistic
forecast is about $1.5 billion better.
B-23
<PAGE> 56
OBLIGATIONS OF OTHER ISSUERS.
State Assistance. Property tax revenues received by local
governments declined more than 50% following passage of Proposition 13.
Subsequently, the California Legislature enacted measures to provide for the
redistribution of the State's General Fund surplus to local agencies; the
reallocation of certain State revenues to local agencies; and the assumption of
certain governmental functions by the State to assist municipal issuers to
raise revenues. Total local assistance from the State's General Fund totaled
approximately $33.0 billion in FY 1991-92 (about 75% of General Fund
expenditures) and has been budgeted at $31.1 billion for FY 1992-93, including
the effect of implementing reductions in certain aid programs. To reduce State
General Fund support for school districts, the 1992-93 Budget Act caused local
governments to transfer $1.3 billion of property tax revenues to school
districts, representing loss of almost half the post-Proposition 13 "bailout"
aid. The Governor has proposed in his 1993-94 Budget that local governments
transfer a further $2.5 billion of property taxes to school districts, with the
possibility that they could raise taxes at the local level to make up some of
the shortfall.
To the extent the State should be constrained by its Article XIIIB
appropriations limit, or its obligation to conform to Proposition 98, or other
considerations, the absolute level, or the rate of growth, of State assistance
to local governments may continue to be reduced. Any such reductions in State
aid could compound the serious fiscal constraints already experienced by many
local governments, particularly counties. At least one rural county (Butte)
publicly announced that it might enter bankruptcy proceedings in August 1990,
although such plans were put off after the Governor approved legislation to
provide additional funds for the county. Other counties have also indicated
that their budgetary condition is extremely grave. A school district (Richmond
Unified) recently filed for protection under bankruptcy laws, but the petition
was later dismissed; other school districts have indicated financial stress,
although none has threatened bankruptcy.
Assessment Bonds. Municipal obligations which are assessment bonds
or Mello-Roos bonds may be adversely affected by a general decline in real
estate values or a slow-down in real estate sales activity. In many cases,
such bonds are secured by land which is undeveloped at the time of issuance but
anticipated to be developed within a few years after issuance. In the event of
such reduction or slowdown, such development may not occur or may be delayed,
thereby increasing the risk of a default on the bonds. Because the special
assessments or taxes securing these bonds are not the personal liability of the
owners of the property assessed, the lien on the property is the only security
for the bonds. Moreover, in most cases the issuer of these bonds is not
required to make payments on the bonds in the event of delinquency in the
payment of assessments or taxes, except for amounts, if any, in a reserve fund
established for the bonds.
California Long-Term Lease Obligations. Certain California long-term
lease obligations, though typically payable from the general fund of the
municipality, are subject to "abatement" in the event the facility being leased
is unavailable for beneficial use and occupancy by the municipality during the
term of the lease. Abatement is not a default, and there may be no remedies
available to the holders of the certificates evidencing the lease obligation in
the event
B-24
<PAGE> 57
abatement occurs. The most common causes of abatement are failure to complete
construction of the facility before the end of the period during which lease
payments have been capitalized and uninsured casualty losses to the facility
(e.g., due to earthquake). In the event abatement occurs with respect to a
lease obligation, lease payments may be interrupted (if all available insurance
proceeds and reserves are exhausted) and the certificates may not paid when
due.
Several years ago, the Richmond Unified School District ("RUSD")
entered into a lease transaction in which certain existing properties of the
RUSD were sold and leased back in order to obtain funds to cover operating
deficits. Following a fiscal crisis in which the RUSD's finances were taken
over by a State receiver (including a brief period under bankruptcy court
protection), the RUSD failed to make rental payments on this lease, resulting
in a lawsuit by the Trustee for the Certificate of Participation holder, in
which the State was named defendant (on the grounds that it controlled the
RUSD's finances). One of the defenses raised in answer to this lawsuit was the
invalidity of the original lease transaction. The trial court has upheld the
validity of the RUSD's lease but an appeal has been filed by the State. Any
ultimate judgment against the Trustee may have implications for lease
transactions of a similar nature by other California entities.
Other Considerations. The repayment of Industrial Development
Securities secured by real property may be affected by California laws limiting
foreclosure rights of creditors. Health Care and Hospital Securities may be
affected by changes in State regulations governing cost reimbursements to
health care providers under Medi-Cal (the State's Medicaid program), including
risks related to the policy of awarding exclusive contracts to certain
hospitals.
Limitations on ad valorem property taxes may particularly affect "tax
allocation" bonds issued by California redevelopment agencies. Such bonds are
secured solely by the increase in assessed valuation of a redevelopment project
area after the start of redevelopment activity. In the event that assessed
values in the redevelopment project decline (for example, because of a major
natural disaster such as an earthquake), the tax increment revenue may be
insufficient to make principal and interest payments on those bonds. Both
Moody's and S&P suspended ratings on California tax allocation bonds after the
enactment of Articles XIIIA and XIIIB, and only resumed such ratings on a
selective basis.
Proposition 87, approved by California voters in 1988, requires that
all revenues produced by a tax rate increase go directly to the taxing entity
which increased such tax to repay that entity's general obligation
indebtedness. As a result, redevelopment agencies (which, typically, are the
Issuers of Tax Allocation Securities) no longer receive an increase in tax
increment when taxes on property in the project area are increased to repay
voter- approved bonded indebtedness.
Substantially all of California is within an active geologic region
subject to major seismic activity. Any California Municipal Obligation in the
California Tax-Free Master Series could be affected by an interruption of
revenues because of damaged facilities or, consequently, income tax deductions
for casualty losses or property tax assessment reductions. Compensatory
B-25
<PAGE> 58
financial assistance could be constrained by the inability of (i) an issuer to
have obtained earthquake insurance coverage at reasonable rates; (ii) an
insurer to perform on its contracts of insurance in the event of widespread
losses; or (iii) the federal or State government to appropriate sufficient
funds within their respective budget limitations.
The October 1989 Northern California earthquake is estimated to have
resulted in a $2 billion (0.3%) reduction in personal income statewide, but
wage effects were minor and largely offset by reconstruction activity. The
federal government has committed approximately $3.5 billion to earthquake
relief, and, shortly after the event, the California Legislature enacted, in
special session, a temporary increase in the sales tax rate to finance relief
efforts. The earthquake was not expected to materially affect California's
economy.
Because of the complex nature of Articles XIIIA and XIIIB of the
California Constitution (described briefly above), the ambiguities and possible
inconsistencies in their terms, and the impossibility of predicting future
appropriations or changes in population and the cost of living, and the
probability of continuing legal challenges, it is not currently possible to
determine fully the impact of Article XIIIA or Article XIIIB, or the outcome of
any pending litigation with respect to those provisions on California
obligations in the California Tax-Free Master Series or on the ability of the
State or local governments to pay debt service on such obligations.
Legislation has been or may be introduced (either in the Legislature or by
initiative) which would modify existing taxes or other revenue-raising measures
or which either would further limit or, alternatively would increase the
abilities of state and local governments to impose new taxes or increase
existing taxes. It is not presently possible to predict the extent to which
any such legislation will be enacted, or if enacted, how it would affect
California municipal obligations. It is also not presently possible to predict
the extent of future allocations of state revenues to local governments or the
abilities of state or local governments to pay the interest on, or repay the
principal of, such California municipal obligations in light of future fiscal
circumstances.
* * *
The taxable securities market is a broader and more liquid market
with a greater number of investors, issuers and market makers than the market
for municipal securities. The more limited marketability of municipal
securities may make it difficult in certain circumstances to dispose of large
investments advantageously.
ITEM 14. MANAGEMENT OF THE TRUST.
The principal occupations during the past five years of the Trustees
and executive officers of the Trust are listed below. Each of the Officers and
Trustees of the Trust serve in the identical capacity as Officers and Directors
of Stagecoach Inc. The address of each, unless otherwise indicated, is 111
Center Street, Little Rock, Arkansas 72201. Trustees deemed to be "interested
persons" of the Trust for purposes of the 1940 Act are indicated by an
asterisk.
B-26
<PAGE> 59
<TABLE>
<CAPTION>
Principal Occupations
Name, Address and Age Position During Past 5 Years
- --------------------- -------- ---------------------
<S> <C> <C>
Jack S. Euphrat, 73 Trustee Private Investor.
415 Walsh Road
Atherton, CA 94027.
*R. Greg Feltus, 44 Trustee, Senior Vice President
Chairman and of Stephens; Manager
President of Financial Services
Group; President of
Stephens Insurance
Services Inc.; Senior
Vice President of
Stephens Sports
Management Inc.; and
President of
Investors Brokerage
Insurance Inc.
Thomas S. Goho, 53 Trustee Associate Professor
321 Beechcliff Court of Finance of the
Winston-Salem, NC 27104 School of Business and
Accounting at Wake Forest
University since 1983.
Financial Planner and
President of Piedmont Financial
Planning since 1983.
*Zoe Ann Hines, 46 Trustee Senior Vice President of
Stephens and Director of
Brokerage Accounting; and
Secretary of Stephens Resource
Management.
*W. Rodney Hughes, 69 Trustee Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Robert M. Joses, 77 Trustee Private Investor.
47 Dowitcher Way
San Rafael, CA 94901
</TABLE>
B-27
<PAGE> 60
<TABLE>
<S> <C> <C>
*J. Tucker Morse, 51 Trustee Real Estate
10 Legrae Street Developer; Chairman
Charleston, SC 29401 of Renaissance
Properties Ltd.;
President of Morse
Investment Corporation;
and Co-Managing Partner
of Main Street Ventures.
Richard H. Blank, Jr., 39 Chief Associate of Financial
Operating Services Group of
Officer, Stephens Sports Management
Secretary and Inc.; and Director of Capo Inc.
Treasurer
Larry W. Bowden, 41 Vice President Vice President of Stephens
and Assistant Manager of
Financial Services Group;
Senior Vice President of
Stephens Insurance Services Inc.
Ellen M. Gray, 65 Vice President Senior Vice President of
Stephens and Director of
Investors Brokerage Insurance
Inc. Prior thereto, Senior Vice
President of Eppler, Guerin &
Turner, Inc.
E. Curtis Jeffries, 38 Vice President Associate of Financial Services
-- Marketing Group of Stephens. Prior
thereto, Account Supervisor
of Brooks-Pollard Co.
Jane G. Johnson, 41 Vice President Associate of Financial Services
Group of Stephens.
Michael W. Nolte, 34 Assistant Associate of Financial Services
Secretary Group of Stephens.
Ann Bonsteel, 32 Assistant Associate of
Secretary Financial Services Group
of Stephens.
</TABLE>
B-28
<PAGE> 61
<TABLE>
<CAPTION>
COMPENSATION TABLE
------------------
Total Compensation
Aggregate Compensation from Registrant
Name and Position from Registrant and Fund Complex
----------------- ---------------------- ------------------
<S> <C> <C>
Jack S. Euphrat $0 $34,188
Trustee
*R. Greg Feltus 0 0
Trustee
Thomas S. Goho 0 34,188
Trustee
*Zoe Ann Hines 0 0
Trustee
*W. Rodney Hughes 0 32,188
Trustee
Robert M. Joses 0 34,188
Trustee
*J. Tucker Morse 0 32,188
Trustee
</TABLE>
Trustees of the Trust who are not officers or employees of Stephens
or Wells Fargo are not compensated by the Trust for their services but are
reimbursed for all out-of-pocket expenses relating to attendance at board
meetings. Trustees who are affiliated with Stephens or Wells Fargo also do not
receive compensation from the Trust and also are reimbursed for all
out-of-pocket expenses relating to attendance at board meetings. Each of the
officers and Trustees of the Trust serves in the identical capacity as officers
and Directors of Overland Express Funds, Inc., Stagecoach Funds, Inc. and
Stagecoach Inc., and as Trustees and/or Officers of Stagecoach Trust, Master
Investment Portfolio, Master Investment Trust and Life & Annuity Trust, each of
which are registered open-end management investment companies and each of which
is considered to be in the same "fund complex", as such term is defined in Form
N-1A under the 1940 Act, as the Trust. The Trustees are compensated by other
Companies and Trusts within the fund complex for their services as
directors/trustees to such Companies and Trusts. Currently, the Trustees do
not receive any compensation from the Trust (although they are reimbursed for
out-of-pocket expenses) and do not receive any retirement benefits or deferred
compensation from the Trust or fund complex.
B-29
<PAGE> 62
ITEM 15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.
As of June 19, 1995, the Growth Stock Fund and the Short-Intermediate
Term Fund of Stagecoach Inc., 111 Center Street, Little Rock, Arkansas 72201,
owned approximately 100% of the voting securities of the Growth Stock Master
Series and approximately 100% of the voting securities of the
Short-Intermediate Master Series, respectively, and each Fund could be
considered a controlling person under the 1940 Act of the corresponding master
series.
As of July 13, 1995, Stephens Inc., the National Tax-Free Money
Market Mutual Fund and Overland National Tax- Free Institutional Money Market
Fund of Stagecoach Inc., all of which are located at 111 Center Street, Little
Rock, Arkansas 72201, each owned approximately 33 1/3% of the voting securities
of the Tax-Free Money Market Master Series and could each be considered a
controlling person under the 1940 Act of the Tax-Free Money Market Master
Series.
ITEM 16. INVESTMENT ADVISORY AND OTHER SERVICES.
INVESTMENT ADVISER
The Master Series of the Trust are advised by Wells Fargo Bank. The
Advisory Contracts provide that Wells Fargo Bank shall furnish to the Master
Series investment guidance and policy direction in connection with the daily
portfolio management of each Master Series. Pursuant to the Advisory
Contracts, Wells Fargo Bank furnishes to the Board of Trustees of the Trust
periodic reports on the investment strategy and performance of the Master
Series.
Wells Fargo Bank has agreed to provide to the Master Series, among
other things, money market security and fixed- income research, analysis and
statistical and economic data and information concerning interest rate and
security market trends, portfolio composition, credit conditions and average
maturities of the investments of the California Tax-Free Intermediate Income
Master Series, California Tax-Free Short-Term Income Master Series and the
Tax-Free Intermediate Income Master Series.
Each Advisory Contract will continue in effect for more than two
years provided the continuance is approved annually (i) by the holders of a
majority of the respective Master Series' outstanding voting securities or by
the Board of Trustees of the Trust and (ii) by a majority of the Trustees of
the Trust who are not parties to the Advisory Contract or "interested persons"
(as defined in the 1940 Act) of any such party. The Advisory Contracts may be
terminated on 60 days' written notice by either party and will terminate
automatically if assigned.
For the fiscal period from May 26, 1994 (commencement of operations)
to February 28, 1995, the Master Series paid to Wells Fargo Bank the advisory
fees indicated below and Wells Fargo Bank waived the indicated amounts:
B-30
<PAGE> 63
<TABLE>
<CAPTION>
Fees
Fees Paid Waived/Reimbursed
--------- -----------------
<S> <C> <C>
Short-Intermediate Term $ 10,673 $16,510
Master Series
Growth Stock Master Series $283,463 $16,451
</TABLE>
Morrison & Foerster, counsel to the Trust and special counsel to
Wells Fargo Bank, has advised Wells Fargo Bank and the Trust that Wells Fargo
Bank should be able to perform the services contemplated by the Advisory
Contracts, the Agency Agreement and the Custody Agreement without
violation of the Glass-Steagall Act. Such counsel have pointed out, however,
that there are no controlling judicial or administrative interpretations or
decisions and that future judicial or administrative interpretations of, or
decisions relating to, present federal or state statutes and regulations
relating to the permissible activities of banks and their subsidiaries or
affiliates, as well as future changes in federal or state statutes and
regulations and judicial or administrative decisions or interpretations
thereof, could prevent Wells Fargo Bank from continuing to perform, in whole or
in part, such services. If Wells Fargo Bank were prohibited from performing
any of such services, it is expected that new agreements would be proposed or
entered into with another entity or entities qualified to perform such
services.
ADMINISTRATOR
The Trust has retained Stephens as administrator on behalf of the
Trust. Under the Administration Agreement with the Trust, Stephens, in
connection therewith, furnishes the Trust with office facilities, together with
those ordinary clerical and bookkeeping services that are not being furnished
by Wells Fargo Bank. For the fiscal period from May 26, 1994 (commencement of
operations) to February 28, 1995, the Master Series did not pay any
administrative fees to Stephens.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
Wells Fargo Bank has been retained to act as Custodian and Transfer
and Dividend Disbursing Agent for the Trust. The Custodian, among other
things, maintains a custody account or accounts in the name of the Trust;
receives and delivers all assets for the Trust upon purchase and upon sale or
maturity; collects and receives all income and other payments and distributions
on account of the assets of the Trust and pays all expenses of the Trust.
Wells Fargo Bank is compensated for its services as Custodian under the
Advisory Contracts for the Master Series. Wells Fargo Bank is not entitled to
receive a fee for its services as Transfer and Dividend Disbursing Agent.
B-31
<PAGE> 64
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP has been selected as the independent auditors
for the Trust. KPMG Peat Marwick LLP provides audit services, tax return
preparation and assistance and consultation in connection with review of
certain SEC filings. KPMG Peat Marwick LLP's address is Three Embarcadero
Center, San Francisco, California 94111.
ITEM 17. BROKERAGE ALLOCATION AND OTHER PRACTICES.
The Trust has no obligation to deal with any dealer or group of
dealers in the execution of transactions in portfolio securities. Subject to
policies established by the Trust's Board of Trustees, Wells Fargo Bank is
responsible for the Master Series' portfolio decisions and the placing of
portfolio transactions. In placing orders, it is the policy of the Trust to
obtain the best results taking into account the dealer's general execution and
operational facilities, the type of transaction involved and other factors such
as the dealer's risk in positioning the securities involved. While Wells Fargo
Bank generally seeks reasonably competitive spreads or commissions, the Master
Series will not necessarily be paying the lowest spread or commission
available.
Purchase and sale orders of the securities held by the Master Series
may be combined with those of other accounts that Wells Fargo Bank manages,
and for which it has brokerage placement authority, in the interest of seeking
the most favorable overall net results. When Wells Fargo Bank determines that
a particular security should be bought or sold for a Master Series and other
accounts managed by Wells Fargo Bank, Wells Fargo Bank undertakes to allocate
those transactions among the participants equitably.
Except for the Growth and Income Master Series and Growth Stock
Master Series, purchases and sales of securities usually will be principal
transactions. Portfolio securities normally will be purchased or sold from or
to dealers serving as market makers for the securities at a net price. The
Master Series also will purchase portfolio securities in underwritten offerings
and may purchase securities directly from the issuer. Generally, municipal
obligations, taxable money market securities, adjustable rate mortgage
securities ("ARMS") and collateralized mortgage obligations ("CMOs") are traded
on a net basis and do not involve brokerage commissions. The cost of executing
a Master Series' portfolio securities transactions consists primarily of dealer
spreads and underwriting commissions. Under the 1940 Act, persons affiliated
with the Trust are prohibited from dealing with the Trust as a principal in the
purchase and sale of securities unless an exemptive order allowing such
transactions is obtained from the SEC or an exemption is otherwise available.
The Master Series may purchase municipal obligations from
underwriting syndicates of which Stephens or Wells Fargo Bank is a member under
certain conditions in accordance with the provisions of a rule adopted under
the 1940 Act and in compliance with procedures adopted by the Trust's Board of
Trustees.
Wells Fargo Bank, as the investment adviser of each Master Series,
may, in circumstances in which two or more dealers are in a position to offer
comparable results for a
B-32
<PAGE> 65
Master Series portfolio transaction, give preference to a dealer that has
provided statistical or other research services to Wells Fargo Bank. By
allocating transactions in this manner, Wells Fargo Bank is able to supplement
its research and analysis with the views and information of securities firms.
Information so received will be in addition to, and not in lieu of, the
services required to be performed by Wells Fargo Bank under the Advisory
Contracts, and the expenses of Wells Fargo Bank will not necessarily be reduced
as a result of the receipt of this supplemental research information.
Furthermore, research services furnished by dealers through which Wells Fargo
Bank places securities transactions for each Master Series may be used by Wells
Fargo Bank in servicing its other accounts, and not all of these services may
be used by Wells Fargo Bank in connection with advising such Master Series.
On February 28, 1995, the Master Series owned securities of their
"regular brokers or dealers" or their parents, as defined in the 1940 Act, as
follows: Growth Stock Master Series and Short-Intermediate Term Master Series
owned $5,419,000 and $958,000, respectively, of Goldman Sachs & Co.
PORTFOLIO TURNOVER. The portfolio turnover rates for the California
Tax-Free Intermediate Income Master Series, the California Tax-Free Short-Term
Income Master Series, the Growth and Income Master Series and the Tax-Free
Intermediate Income Master Series generally is not expected to exceed 100%.
The portfolio turnover rates for the Short- Intermediate Term Master Series and
the Growth Stock Master Series are generally not expected to exceed 300% and
200% respectively. The higher portfolio turnover rates for the
Short-Intermediate Term Master Series and the Growth Stock Master Series may
result in higher transaction (i.e. principal markup/markdown, brokerage and
other transaction) costs. The portfolio turnover rate of a Master Series will
not be a limiting factor when Wells Fargo Bank deems portfolio changes
appropriate.
Because the portfolios of the Money Market Master Series consist of
securities with relatively short-term maturities, such Master Series can expect
to experience high portfolio turnovers. A high portfolio turnover rate should
not adversely affect such Master Series, however, because portfolio
transactions ordinarily will be made directly with principals on a net basis
and, consequently, the Money Market Master Series usually will not incur
brokerage expenses.
ITEM 18. CAPITAL STOCK AND OTHER SECURITIES.
The Trust is a business trust organized under the laws of Delaware on
October 28, 1993. In accordance with Delaware law and in connection with the
tax treatment sought by the Trust, the Trust's Declaration of Trust provides
that its investors would be personally responsible for Trust liabilities and
obligations, but only to the extent the Trust property is insufficient to
satisfy such liabilities and obligations. The Declaration of Trust also
provides that the Trust shall maintain appropriate insurance (for example,
fidelity bonding and errors and omissions insurance) for the protection of the
Trust, its investors, Trustees, Officers, employees and agents covering
possible tort and other liabilities, and that investors will be indemnified to
the extent they are held liable for a disproportionate share of Trust
obligations. Thus, the risk of an
B-33
<PAGE> 66
investor incurring financial loss on account of investor liability is limited
to circumstances in which both inadeis unable to meet its obligations.
[/R]
The Declaration of Trust further provides that obligations of the
Trust are not binding upon the Trustees individually but only upon the property
of the Trust and that the Trustees will not be liable for any action or failure
to act, but nothing in the Declaration of Trust protects a Trustee against any
liability to which the Trustee would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of the Trustee's office.
All interests of a Master Series have equal voting rights and will
be voted in the aggregate, and not by series, except where voting by series is
required by law or where the matter involved only affects one series. For
example, a change in a Master Series' fundamental investment policy would be
voted upon only by shareholders of the Master Series involved. Additionally,
approval of an advisory contract is a matter to be determined separately by
Master Series. Approval by the shareholders of one Master Series is effective
as to that Master Series whether or not sufficient votes are received from the
shareholders of the other investment portfolios to approve the proposal as to
those investment portfolios. As used in Part A and in this SAI, the term
"majority," when referring to approvals to be obtained from shareholders of a
Master Series, means the vote of the lesser of (i) 67% of the shares of the
Master Series represented at a meeting if the holders of more than 50% of the
outstanding shares of the Master Series are present in person or by proxy, or
(ii) more than 50% of the outstanding shares of the Master Series. The term
"majority," when referring to the approvals to be obtained from shareholders of
the Trust as a whole, means the vote of the lesser of (i) 67% of the Trust's
shares represented at a meeting if the holders of more than 50% of the Trust's
outstanding shares are present in person or by proxy, or (ii) more than 50% of
the Trust's outstanding shares. Shareholders are entitled to one vote for each
full share held and fractional votes for fractional shares held.
The Trust may dispense with an annual meeting of shareholders in any
year in which it is not required to elect Trustees under the 1940 Act.
However, the Trust has undertaken to hold a special meeting of its shareholders
for the purpose of voting on the question of removal of a Trustee or Trustees
if requested in writing by the holders of at least 10% of the Trust's
outstanding voting securities, and to assist in communicating with other
shareholders as required by Section 16(c) of the 1940 Act.
The Trust may enter into a merger or consolidation, or sell all or
substantially all of its assets, if approved by the vote of two-thirds of its
investors (with the vote of each being in proportion to their respective
percentages of the beneficial interests in the Trust), except that if the
Trustees of the Trust recommend such sale of assets, the approval by vote of a
majority of the investors (with the vote of each being in proportion to their
respective percentages of the beneficial interests in the Trust) will be
sufficient. The Trust may also be terminated (i) upon liquidation and
distribution of its assets, if approved by the vote of two-thirds of its
investors (with the vote of each being in proportion to the amount of their
investment) or (ii) by the Trustees of the Trust by written notice to its
investors. In the event of the liquidation or
B-34
<PAGE> 67
dissolution of the Trust, investors are entitled to receive their pro rata
share of all assets available for distribution.
ITEM 19. PURCHASE, REDEMPTION AND PRICING OF SECURITIES.
Beneficial interests in the Trust are issued solely in private
placement transactions that do not involve any "public offering" within the
meaning of Section 4(2) of the Securities Act of 1933, as amended (the "1933
Act"). Investments in the Trust may only be made by registered broker/dealers
or by investment companies, insurance company separate accounts, common or
commingled trust funds, group trusts or similar organizations or entities that
are "accredited investors" within the meaning of Regulation D under the 1933
Act. This registration statement does not constitute an offer to sell, or the
solicitation of an offer to buy, any "security" within the meaning of the 1933
Act.
Net asset value of the Master Series of the Trust is determined by
the Custodian of the Trust on each day the relevant Master Series is open.
As indicated in Part A, the Trust uses the amortized cost method to
determine the value of the portfolio securities of the Money Market Master
Series pursuant to Rule 2a-7 under the 1940 Act. The amortized cost method
involves valuing a security at its cost and amortizing any discount or premium
over the period until maturity, regardless of the impact of fluctuating
interest rates on the market value of the security. While this method provides
certainty in valuation, it may result in periods during which the value, as
determined by amortized cost, is higher or lower than the price that such
Master Series would receive if the security were sold. During these periods the
yield to investors may differ somewhat from that which could be obtained from a
similar fund that uses a method of valuation based upon market prices. Thus,
during periods of declining interest rates, if the use of the amortized cost
method resulted in a lower value of such Master Series' portfolio on a
particular day, a prospective investor in the Master Series would be able to
obtain a somewhat higher yield than would result from investment in a fund
using solely market values, and existing Master Series investors would receive
correspondingly less income. The converse would apply during periods of rising
interest rates.
Rule 2a-7 provides that, in order to value its portfolio using the
amortized cost method, the Master Series must maintain a dollar-weighted
average portfolio maturity of 90 days or less, purchase securities having
remaining maturities (as defined in Rule 2a-7) of thirteen months or less, and
invest only in Eligible Securities determined by the Board of Trustees to
present minimal credit risks. The maturity of an instrument is generally
deemed to be the period remaining until the date when the principal amount
thereof is due or the date on which the instrument is to be redeemed. However,
Rule 2a-7 provides that the maturity of an instrument may be deemed shorter in
the case of certain instruments, including certain variable and floating rate
instruments subject to demand features. Pursuant to the Rule, the Board is
required to establish procedures designed to stabilize, to the extent
reasonably possible, the Master Series'
B-35
<PAGE> 68
net asset value. Such procedures include review of the Master Series' holdings
by the Board of Trustees, at such intervals as it may deem appropriate, to
determine whether the Master Series' net asset value calculated by using
available market quotations deviates within 1/2 of the 1% of the value based on
amortized cost. The extent of any deviation will be examined by the Board of
Trustees. If such deviation exceeds 1/2 of 1%, the Board will promptly
consider what action, if any, will be initiated. In the event the Board
determines that a deviation exists that may result in material dilution or
other unfair results to investors, the Board will take such corrective action
as it regards as necessary and appropriate, including the sale of portfolio
instruments prior to maturity to realize capital gains or losses or to shorten
average portfolio maturity, withholding dividends or establishing a net asset
value by using available market quotations.
Securities held by the Non-Money Market Master Series for which
market quotations are available are valued at latest prices. Securities of a
Non-Money Market Master Series for which the primary market is a national
securities exchange or the National Association of Securities Dealers Automated
Quotations National Market System are valued at last sale prices. In the
absence of any sale of such securities on the valuation date and in the case of
other securities, including U.S. Government securities but excluding money
market instruments maturing in 60 days or less, the valuations are based on
latest quoted bid prices. Money market instruments maturing in 60 days or less
are valued at amortized cost, with cost being the value of the security on the
preceding day (61st day). Futures contracts will be marked to market daily at
their respective settlement prices determined by the relevant exchange.
Options listed on a national exchange are valued at the last sale price on the
exchange on which they are traded at the close of the NYSE, or, in the absence
of any sale on the valuation date, at latest quoted bid prices. Options not
listed on a national exchange are valued at latest quoted bid prices. Debt
securities maturing in 60 days or less are valued at amortized cost. In all
cases, bid prices will be furnished by an independent pricing service approved
by the Board of Trustees. Prices provided by an independent pricing service
may be determined without exclusive reliance on quoted prices and may take into
account appropriate factors such as institutional-size trading in similar
groups of securities, yield, quality, coupon rate, maturity, type of issue,
trading characteristics and other market data. Securities held under a
repurchase agreement will be valued at a price equal to the amount of the cash
investment at the time of valuation on the valuation date. The market value of
the underlying securities shall be determined in accordance with the applicable
procedures, as described above, for the purpose of determining the adequacy of
collateral. All other securities and other assets of the Non-Money Market
Master Series for which current market quotations are not readily available are
valued at fair value as determined in good faith by the Trust's Trustees and in
accordance with procedures adopted by the Trustees.
ITEM 20. TAX STATUS.
Under the current method of operation of the Trust, the Trust is
intended to qualify as a partnership under the Internal Revenue Code of 1986,
as amended (the "Code"). However, each investor in the Trust will be taxable
on its share (as determined in accordance with the governing instruments of the
Trust) of the Trust's ordinary income and capital gain in determining the
investor's income tax liability. The determination of such share will be made
in accordance with the Code and regulations promulgated thereunder. The
Trust's taxable year-end is February 28.
B-36
<PAGE> 69
The Trust's assets, income and distributions are managed in such a
way that a regulated investment company investing in the Trust will be able to
satisfy the requirements of Subchapter M of the Code, assuming that the
investment company invested all of its assets in the Trust. The Trust is
treated as a non-publicly traded partnership rather than a regulated investment
company or a corporation under the Code. As a non-publicly traded partnership
under the Code, any interest, dividends and gains or losses of the Trust will
be deemed to have been "passed through" to investors in the Trust, regardless
of whether such interest, dividends or gains have been distributed by the Trust
or losses have been realized by the investors. Accordingly, if the Trust were
to accrue but not distribute any interest, dividends or gains, an investor
would be deemed to have realized and recognized its proportionate share of
interest, dividends, gains or losses without receipt of any corresponding
distribution. However, the Trust seeks to minimize recognition by investors of
interest, dividends, gains or losses without a corresponding distribution.
Investors' capital accounts will be adjusted on a daily basis to
reflect additional investments or withdrawals and any increase or decrease in
net asset value. For purposes of determining fair market value of the assets
of the Money Market Master Series, the Trust will use the amortized cost method
of valuation under Rule 2a-7 under the 1940 Act.
ITEM 21. UNDERWRITERS.
The distributor and exclusive placement agent for the Trust is
Stephens, which receives no additional compensation for serving in this
capacity. Registered broker/dealers and investment companies, insurance
company separate accounts, common and commingled trust funds, group trusts and
similar organizations and entities which constitute accredited investors, as
defined in the regulations adopted under the 1933 Act, may continuously invest
in the Trust.
ITEM 22. CALCULATIONS OF PERFORMANCE DATA.
Not applicable.
ITEM 23. FINANCIAL INFORMATION.
KPMG Peat Marwick LLP have been selected as the independent auditors
to the Trust. KPMG Peat Marwick LLP provides audit services, tax return
preparation and assistance and consultation in connection with the review of
certain SEC filings. KPMG Peat Marwick LLP's address is Three Embarcadero
Center, San Francisco, California 94111. The audited financial statements for
the Short-Intermediate Term Master Series and Growth Stock Master Series are
incorporated in this Part B by reference to the financial statements contained
in post-effective amendment No. 8 to the Registration Statement on form N-1A of
Stagecoach Inc. as filed with the SEC on or about June 27, 1995.
B-37
<PAGE> 70
APPENDIX
The following is a description of the ratings given by Moody's and
S&P to corporate and municipal bonds, municipal notes, and corporate and
municipal commercial paper.
Corporate and Municipal Bonds
Moody's: The four highest ratings for corporate and municipal bonds
are "Aaa," "Aa," "A" and "Baa." Bonds rated "Aaa" are judged to be of the
"best quality" and carry the smallest amount of investment risk. Bonds rated
"Aa" are of "high quality by all standards," but margins of protection or other
elements make long-term risks appear somewhat greater than "Aaa" rated bonds.
Bonds rated "A" possess many favorable investment attributes and are considered
to be upper medium grade obligations. Bonds rated "Baa" are considered to be
medium grade obligations; interest payments and principal security appear
adequate for the present, but certain protective elements may be lacking or may
be characteristically unreliable over any great length of time. Such bonds
have speculative characteristics as well. Moody's applies numerical modifiers
"1," "2" and "3" in each rating category from "Aa" through "Baa" in its rating
system. The modifier "1" indicates that the security ranks in the higher end
of its category; the modifier "2" indicates a mid-range ranking; and the
modifier "3" indicates that the issue ranks in the lower end.
S&P: The four highest ratings for corporate and municipal bonds are
"AAA," "AA," "A" and "BBB." Bonds rated "AAA" have the highest ratings
assigned by S&P and have an extremely strong capacity to pay interest and repay
principal. Bonds rated "AA" have a "very strong capacity to pay interest and
repay principal" and differ "from the highest rated issued only in small
degree." Bonds rated "A" have a "strong capacity" to pay interest and repay
principal, but are "somewhat more susceptible" to adverse effects of changes in
economic conditions or other circumstances than bonds in higher rated
categories. Bonds rated "BBB" are regarded as having an "adequate capacity" to
pay interest and repay principal, but changes in economic conditions or other
circumstances are more likely to lead to a "weakened capacity" to make such
repayments. The ratings from "AA" to "BBB" may be modified by the addition of
a plus or minus sign to show relative standing within the category.
Municipal Notes
Moody's: The highest ratings for state and municipal short-term
obligations are "MIG 1," "MIG 2," and "MIG 3" (or "VMIG 1," "VMIG 2" and "VMIG
3" in the case of an issue having a variable rate demand feature). Notes rated
"MIG 1" or "VMIG 1" are judged to be of the "best quality." Notes rated "MIG
2" or "VMIG 2" are of "high quality," with margins of protections "ample
although not as large as in the preceding group." Notes rated "MIG 3" or "VMIG
3" are of "favorable quality," with all security elements accounted for, but
lacking the strength of the preceding grades.
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<PAGE> 71
S&P: The "SP-1" rating reflects a "very strong or strong capacity to
pay principal and interest." Notes issued with "overwhelming safety
characteristics" will be rated "SP-1+." The "SP-2" rating reflects a
"satisfactory capacity" to pay principal and interest.
Corporate and Municipal Commercial Paper
Moody's: The highest rating for corporate and municipal commercial
paper is "P-1" (Prime-1). Issuers rated "P-1" have a "superior capacity for
repayment of short-term promissory obligations." Issuers rated "P-2" (Prime-2)
"have a strong capacity for repayment of short-term promissory obligations,"
but earnings trends, while sound, will be subject to more variation.
S&P: The "A-1" rating for corporate and municipal commercial paper
indicates that the "degree of safety regarding timely payment is either
overwhelming or very strong." Commercial paper with "overwhelming safety
characteristics" will be rated "A-1+." Commercial paper with a strong capacity
for timely payments on issues will be rated "A-2."
Corporate Notes
S&P: The two highest ratings for corporate notes are "SP-1" and
"SP-2." The "SP-1" rating reflects a "very strong or strong capacity to pay
principal and interest." Notes issued with "overwhelming safety
characteristics" will be rated "SP-1+." The "SP-2" rating reflects a
"satisfactory capacity" to pay principal and interest.
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<PAGE> 72
MANAGED SERIES INVESTMENT TRUST
TAX-FREE MONEY MARKET MASTER SERIES
STATEMENT OF ASSETS AND LIABILITIES
AS OF JULY 13, 1995
<TABLE>
<CAPTION>
<S> <C>
ASSETS LIABILITIES
SECURITIES AT VALUE $ 0 PAYABLES $
CASH 3,000 INCOME PAYABLE 0
RECEIVABLES CAP GAIN PAYABLE 0
ACCRUED INCOME 0 INV SEC PURCHASED 0
INV SEC SOLD 0 CAP SHRS REDEEMED 0
CAP SHRS SOLD 0 ACCRUED EXPENSES 12,500
OTHER RECEIVABLES 0 OTHER PAYABLES 0
OTHER ASSETS 12,500 OTHER LIABILITIES 0
TOTAL ASSETS 15,500 TOTAL LIABILITIES 12,500
SHAREHOLDERS EQUITY $3,000
SHARES OUTSTANDING 3,000
NET ASSET VALUE $ 1.00
</TABLE>
<PAGE> 73
MANAGED SERIES INVESTMENT TRUST
FILE NO. 811-8140
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(a) Financial Statements:
The unaudited Statement of Assets and Liabilities of the Tax-Free
Money Market Master Series is included in Part B, Item 23.
The audited financial statements for the Trust are incorporated by
reference to Post Effective Amendment No. 8 on Form N-1A of Stagecoach
Inc., filed June 27, 1995.
(b) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
1 - Declaration of Trust incorporated by
reference to the Registration
Statement on Form N-1A filed
November 8, 1993.
2 - By-Laws incorporated by reference to
the Registration Statement on Form
N-1A filed November 8, 1993.
3 - Not Applicable
</TABLE>
C-1
<PAGE> 74
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
4 - Form of Certificate of Beneficial
Interest incorporated by reference to
the Registration Statement on Form
N-1A filed November 8, 1993.
5(a) - Form of Advisory Contract between
Wells Fargo Bank, N.A. and the Growth
and Income Series incorporated by
reference to the Registration
Statement on Form N-1A filed
November 8, 1993.
(b) - Form of Advisory Contract between
Wells Fargo Bank, N.A. and the
Tax-Free Intermediate Income Series
incorporated by reference to the
Registration Statement on Form N-1A
filed November 8, 1993.
(c) - Form of Advisory Contract between
Wells Fargo Bank, N.A. and California
Tax-Free Intermediate Income Series
incorporated by reference to the
Registration Statement on Form N-1A
filed November 8, 1993.
(d) - Form of Advisory Contract between
Wells Fargo Bank, N.A. and California
Tax-Free Short-Term Income Series
incorporated by reference to the
Registration Statement on Form N-1A
filed November 8, 1993.
(e) - Investment Advisory Agreement between
Wells Fargo Bank, N.A. and Tax-Free
Money Market Series, filed herewith.
(f) - Form of Advisory Contract between
Wells Fargo Bank, N.A. and California
Tax-Free Money Market Series
incorporated by reference to the
Registration Statement on Form N-1A
filed November 8, 1993.
</TABLE>
C-2
<PAGE> 75
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
(g) - Investment Advisory Agreement between
Wells Fargo Bank, N.A. and Growth
Stock Master Series dated March 1,
1994, incorporated by reference to
Amendment No. 2 to the Registration
Statement, filed June 27, 1995.
(h) - Investment Advisory Agreement between
Wells Fargo Bank, N.A. and Short-
Intermediate Term Master Series dated
March 1, 1994, incorporated by reference
to Amendment No. 2 to the Registration
Statement, filed June 27, 1995.
(i) - Form of Administration Agreement with
Stephens Inc. on behalf of all the
Series Incorporated by reference to the
Registration Statement on Form N-1A
filed November 8, 1993.
6 - Form of Placement Agent Agreement with
Stephens Inc. Incorporated by reference
to the Registration Statement on Form
N-1A filed November 8, 1993.
7 - Not Applicable
8 - Form of Custody Agreement with Wells
Fargo Bank, N.A. Incorporated by
reference to the Registration
Statement on Form N-1A filed
November 8, 1993.
9 - Form of Agency Agreement with Wells
Fargo Bank, N.A. Incorporated by
reference to the Registration
Statement on Form N-1A filed
November 8, 1993.
10 - Not Applicable
11 - Not Applicable
12 - Not Applicable
13(a) - Investment Letter, incorporated by
reference to Amendment No. 2 to the
Registration Statement, filed June 27, 1995
(b) - Investment Letter executed by Stephens,
Inc., filed herewith.
(c) - Investment Letter executed by Stagecoach
Inc., on behalf of the National Tax-Free
Money Market Mutual Fund, filed herewith.
(d) - Investment Letter executed by Stagecoach,
Inc., on behalf of the Overland National
Tax-Free Institutional Money Market Fund,
filed herewith.
14 - Not Applicable
15 - Not Applicable
</TABLE>
C-3
<PAGE> 76
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
16 - Not Applicable
27(a) - Financial Data Schedule - Growth Stock
Master Series, incorporated by reference
to Amendment No. 2 to the Registration
Statement, filed June 27, 1995.
27(b) - Financial Data Schedule - Short-
Intermediate Term Master Series,
incorporated by reference
to Amendment No. 2 to the Registration
Statement, filed June 27, 1995.
27(c) - Financial Data Schedule - Tax-Free
Money Market Master Series, filed
herewith.
</TABLE>
Item 25. Persons Controlled by or under Common Control with
Registrant.
No person is controlled by or under common control
with Registrant.
Item 26. Number of Holders of Securities.
As of July 13, 1995, the number of record holders
of the Registrant were as follows:
Title of Class Number of Record Holders
Growth and Income Master Series 1
Tax-Free Intermediate Income
Master Series 0
California Tax-Free Intermediate
Income Master Series 0
California Tax-Free Short-Term
Income Master Series 0
Tax-Free Money Market Master 3
Series
California Tax-Free Money Market
Master Series 0
Growth Stock Master Series 2
Short-Intermediate Term Master 2
Series
C-4
<PAGE> 77
Item 27. Indemnification.
Article V of the Registrant's Declaration of Trust
limits the liability and, in certain instances, provides for
mandatory indemnification of the Registrant's trustees,
officers, employees, agents and holders of beneficial interests
in the Trust. In addition, the Trustees are empowered under
Section 3.9 of the Registrant's Declaration of Trust to obtain
such insurance policies as they deem necessary.
Item 28. Business and Other Connections
of Investment Adviser.
Wells Fargo Bank, N.A. ("Wells Fargo"), a wholly owned
subsidiary of Wells Fargo & Company, serves as investment
adviser to the Registrant and to several other registered open-
end management investment companies. Wells Fargo's business is
that of a national banking association with respect to which it
conducts a variety of commercial banking and trust activities.
To the knowledge of Registrant, none of the directors
or executive officers of Wells Fargo, except those set forth
below, is or has been at any time during the past two fiscal
years engaged in any other business, profession, vocation or
employment of a substantial nature, except that certain
executive officers also hold various positions with and engage
in business for Wells Fargo & Company. Set forth below are the
names and principal businesses of the directors and executive
officers of Wells Fargo who are or during the past two fiscal
years have been engaged in any other business, profession,
vocation or employment of a substantial nature for their own
account or in the capacity of director, officer, employee,
partner or trustee. All the directors of Wells Fargo also
serve as directors of Wells Fargo & Company.
<TABLE>
<CAPTION>
Principal Business(es) During at
Name Position(s) Least the Last Two Fiscal Years
- ---- ----------- --------------------------------
<S> <C> <C>
H. Jesse Arnelle Trustee Senior Partner of Arnelle &
Hastie, Director of FPL Group,
Inc.
William R. Breuner Trustee General Partner in Breuner
Associates, Breuner Properties and
Breuner-Pevarnick Real Estate
Developers. Vice Chairman of the
California State Railroad Museum
Foundation. Retired Chairman of
the Board of Directors of John
Breuner Co.
</TABLE>
C-5
<PAGE> 78
<TABLE>
<CAPTION>
Principal Business(es) During at
Name Position(s) Least the Last Two Fiscal Years
- ---- ----------- --------------------------------
<S> <C> <C>
Williams S. Davila Trustee President and Director of The Vons
Companies, Inc. Officer of
Western Assoc. of Food Chains.
Rayburn S. Dezember Trustee Former Chairman of Central Pacific
Corp. Director of CalMat Co.,
Tejon Ranch Co., Turner Casting
Inc., The Bakersfield Californian
and Kern County Economic Develop-
ment Corp. Chairman of the Board
of Trustees of Whittier College.
Paul Hazen Chairman of Chairman of the Board of Directors
the Board of of Wells Fargo & Company.
Trustees Director of Pacific Telesis Group,
Phelps Dodge Corp. and Safeway
Inc.
Robert K. Jaedicke Trustee Accounting Professor and Dean
Emeritus of Graduate School of
Business, Stanford University.
Director of Homestake Mining Co.,
California Water Service Company,
Boise Cascade Corp., Enron Corp.
and GenCorp, Inc.
Paul A. Miller Trustee Chairman of the Executive
Committee and Director of Pacific
Enterprises. Trustee of Mutual
Life Insurance Company of New
York. Director of Newhall
Management Corporation. Trustee
of University of Southern
California.
Ellen M. Newman Trustee President of Ellen Newman
Associates. Chair of Board of
Trustees of University of
California, San Francisco,
Foundation. Director of American
Conservatory Theatre and
California Chamber of Commerce.
Philip J. Quigley Trustee Chairman and Chief Executive
Officer of Pacific Telesis Group
</TABLE>
[/R]
C-6
<PAGE> 79
<TABLE>
<CAPTION>
Principal Business(es) During at
Name Position(s) Least the Last Two Fiscal Years
- ---- ----------- --------------------------------
<S> <C> <C>
Carl E. Reichardt Director Director of Ford Motor Company,
Hospital Corporation America,
HCA-Hospital Corp. of America,
Pacific Gas and Electric Company
and Newhall Management
Corporation.
Donald B. Rice Director President and Chief Operating
Officer, Teledyne, Inc.
Susan G. Swenson Director President and Chief Operating
Officer of Cellular One.
Chang-Lin Tien Director Chancellor of University of
California at Berkley.
John A. Young Director Retired President, Director and
Chief Executive Officer of
Hewlett-Packard Company. Director
of Chevron Corporation.
William F. Zuendt President President of Wells Fargo &
Company. Director of 3Com
Corporation and MasterCard
International
</TABLE>
Item 29. Principal Underwriters.
(a) Stephens Inc., the distributor for the Registrant,
does not presently act as investment adviser for any other
registered investment companies, but does act a principal
underwriter for Overland Express Funds, Inc., Stagecoach
Funds, Inc., Stagecoach Inc., Stagecoach Trust, Nations Fund,
Inc. and Nations Fund Trust and is the exclusive placement agent
for Master Investment Trust and Master Investment Portfolio, all
of which are registered open-end management investment
companies, and has acted as principal underwriter for the Liberty
Term Trust, Inc. and the Nations Government Income Term Trust
2003, Inc., closed-end management investment companies.
(b) Information with respect to each director and
officer of the principal underwriter is incorporated by reference
to Form ADV and Schedules A and D filed by Stephens Inc. with the
Securities and Exchange Commission pursuant to The Investment
Advisers Act of 1940 (file No. 501-15510).
C-7
<PAGE> 80
(c) Not applicable.
Item 30. Location of Accounts and Records.
All accounts, books and other documents required to be
maintained by Section 31(a) of the Investment Company Act of 1940
and the Rules thereunder are maintained at one or more of the
following offices: Managed Series Investment Trust maintains
those accounts, books and other documents required by Rule 31a-
1(b)(4) and (d), and Rule 31a-2(a)(3) and (c) at 111 Center
Street, Little Rock, Arkansas 72201; Wells Fargo maintains all
other accounts, books or other documents required by Rules 31a-1,
31a-2 and 31a-3 at 525 Market Street, San Francisco, California
94163; and copies of most of such documents also are maintained by
Managed Series Investment Trust.
Item 31. Management Services.
Other than as set forth under the captions "Item 5.
Management of the Fund" in the Prospectus constituting Part A of
this Registration Statement and "Item 16. Investment Advisory and
Other Services" in the Statement of Additional Information
constituting Part B of this Registration Statement, Registrant is
not a party to any management-related service contract.
Item 32. Undertakings.
(a) Not applicable.
(b) Not applicable.
(c) Registrant undertakes to hold a special meeting of
its shareholders for the purpose of voting on the
question of removal of a trustee or trustees if
requested in writing by the holders of at least 10%
of Managed Series Investment Trust's outstanding
voting securities, and to assist in communicating
with other shareholders as required by Section 16(c)
of the Investment Company Act of 1940.
C-8
<PAGE> 81
SIGNATURES
Pursuant to the requirements of the Investment
Company Act of 1940, the Registrant has duly caused this
Amendment No. 3 to the Registration Statement on Form N-1A
to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Little Rock, State of
Arkansas on the 18th day of July, 1995.
MANAGED SERIES INVESTMENT TRUST
By: /s/ Richard H. Blank, Jr.
------------------------------
Name: Richard H. Blank, Jr.
Title: Secretary and Treasurer
(Principal Financial
Officer)
<PAGE> 82
MANAGED SERIES INVESTMENT TRUST -- FILE NO. 811-8140
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequential
Exhibit Number Description Page No.
- -------------- ----------- ----------
<S> <C> <C>
99.B5(e) Investment Advisory
Agreement between Wells
Fargo Bank, N.A. and the
Tax-Free Money Market
Master Series
99.B13(b) Investment Letter executed
by Stephens Inc.
99.B13(c) Investment Letter executed
by Stagecoach Inc., on behalf
of the National Tax-Free
Money Market Mutual Fund
99.B13(d) Investment Letter executed
by Stagecoach Inc., on behalf
of the Overland National Tax-Free
Institutional Money Market
Fund
27.(c) Financial Data Schedule for
the Tax-Free Money Market
Master Series
</TABLE>
<PAGE> 1
EXHIBIT 99.B5(e)
INVESTMENT ADVISORY AGREEMENT
TAX-FREE MONEY MARKET MASTER SERIES
MANAGED SERIES INVESTMENT TRUST
111 Center Street
Little Rock, Arkansas 72201
March 1, 1994
Wells Fargo Bank, N.A.
525 Market Street
San Francisco, California 94163
Dear Sirs:
This will confirm the agreement between Managed Series Investment
Trust, a Delaware business trust (the "Trust"), on behalf of the TAX-FREE MONEY
MARKET MASTER SERIES (the "Master Series") and Wells Fargo Bank, N.A. (the
"Adviser") as follows:
1. The Trust is a registered open-end management investment company
currently consisting of eight investment portfolios, but which may from time to
time consist of a greater or lesser number of investment portfolios. The Trust
proposes to engage in the business of investing and reinvesting the assets of
the Master Series in the manner and in accordance with the investment objective
and restrictions specified in the Trust's Registration Statement, as amended
from time to time (the "Registration Statement"), filed by the Trust under the
Investment Company Act of 1940 (the "1940 Act"). Copies of the documents
referred to in the preceding sentence have been furnished to the Adviser. Any
amendments to those documents shall be furnished to the Adviser promptly.
2. The Trust is engaging the Adviser to manage the investing and
reinvesting of the assets of the Master Series and to provide the advisory
services specified elsewhere in this contract, subject to the overall
supervision of the Board of Trustees of the Trust. Pursuant to an
administration agreement between the Trust and Stephens Inc. (the
"Administrator") on behalf of the Master Series, the Trust has engaged the
Administrator to provide the administrative services specified therein.
3. (a) The Adviser shall make investments for the account of the Master
Series in accordance with the
1
<PAGE> 2
Adviser's best judgment and consistent with the investment objective and
restrictions set forth in the Trust's Registration Statement, the 1940 Act and
the provisions of the Internal Revenue Code relating to regulated investment
companies, subject to policy decisions adopted by the Trust's Board of
Trustees. The Adviser shall advise the Trust's officers and Board of Trustees,
at such times as the Trust's Board of Trustees may specify, of investments made
for the Master Series and shall, when requested by the Trust's officers or
Board of Trustees, supply the reasons for making particular investments.
(b) The Adviser shall provide to the Trust investment guidance and
policy direction in connection with its daily management of the Master Series'
portfolio, including oral and written research, analysis, advice, statistical
and economic data and information and judgments, and shall furnish to the
Trust's Board of Trustees periodic reports on the investment strategy and
performance of the Master Series and such additional reports and information as
the Trust's Board of Trustees and officers shall reasonably request.
(c) The Adviser shall pay the costs of printing and distributing
all materials relating to the Master Series prepared by it, or prepared at its
request, other than such costs relating to proxy statements, prospectuses,
reports for holders of beneficial interests ("Interests") of the Master Series
("Holders") and other materials distributed to existing or prospective Holders
on behalf of the Master Series.
(d) The Adviser shall, at its expense, employ or associate with
itself such persons as the Adviser believes appropriate to assist it in
performing its obligations under this contract.
4. Except as provided in each of the Trust's advisory contracts and
administration agreement, the Trust shall bear all costs of its operations,
including the compensation of its trustees who are not affiliated with the
Adviser, the Administrator or any of their affiliates; advisory and
administration fees; governmental fees; interest charges; taxes; fees and
expenses of its independent auditors, legal counsel, transfer agent and
dividend disbursing agent; expenses of redeeming Interests; expenses of
preparing and printing Interest certificates, prospectuses (except the expense
of printing and mailing prospectuses used for promotional purposes), Holders'
reports, notices, proxy statements and reports to regulatory agencies; travel
expenses of trustees, officers and employees; office
2
<PAGE> 3
supplies; insurance premiums and certain expenses relating to insurance
coverage; trade association membership dues; brokerage and other expenses
connected with the execution of portfolio securities transactions; fees and
expenses of any custodian, including those for keeping books and accounts and
calculating the net asset value per Interest of the Master Series; expenses of
Holders' meetings; expenses relating to the issuance, registration and
qualification of Interests of the Master Series; pricing services, if any;
organizational expenses; and any extraordinary expenses. Expenses attributable
to one or more, but not all of the Master Series are charged against the assets
of the relevant Master Series. General expenses of the Master Series are
allocated among the Master Series in a manner proportionate to the net assets
of the Master Series, on a transactional basis or on such other basis as the
Board of Trustees deems equitable.
5. The Adviser shall give the Trust the benefit of the Adviser's best
judgment and efforts in rendering services under this contract. As an
inducement to the Adviser's undertaking to render these services, the Trust
agrees that the Adviser shall not be liable under this contract for any mistake
in judgment or in any other event whatsoever except for lack of good faith,
provided that nothing in this contract shall be deemed to protect or purport to
protect the Adviser against any liability to the Trust or its Holders to which
the Adviser would otherwise be subject by reason of willful misfeasance, bad
faith or gross negligence in the performance of the Adviser's duties under this
contract or by reason of reckless disregard of its obligations and duties
hereunder.
6. In consideration of the services to be rendered by the Adviser
under this contract, the Trust shall pay the Adviser a fee on the first
business day of each month, at the annual rate of 0.45% of the average daily
value (as determined on the day that such value is determined for the Master
Series at the time set forth in the Registration Statement for determining net
asset value per Interest) of the Master Series' net assets during the preceding
month. If the fee payable to the Adviser pursuant to this paragraph 6 begins to
accrue after the beginning of any month or if this contract terminates before
the end of any month, the fee for the period from the effective date to the end
of that month or from the beginning of that month to the termination date,
respectively, shall be prorated according to the proportion that the period
bears to the full month in which the effectiveness or termination occurs. For
purposes of calculating each such monthly fee, the value of the Master Series'
net assets shall be computed in the manner specified
3
<PAGE> 4
in the Registration Statement and the Trust's Declaration of Trust for the
computation of the value of the Master Series' net assets in connection with
the determination of the net asset value of Master Series Interests.
7. If in any fiscal year the total expenses incurred by, or allocated
to, the Master Series excluding taxes, interest, brokerage commissions and
other portfolio transaction expenses, other expenditures that are capitalized
in accordance with generally accepted accounting principles and extraordinary
expenses of the Master Series, but including the fees provided for in paragraph
6, exceed the most restrictive expense limitation applicable to the Master
Series imposed by state securities laws or regulations thereunder, as these
limitations may be raised or lowered from time to time, the Adviser shall waive
or reimburse a pro rata portion of its fees hereunder.
8. This contract shall become effective on its execution date and
shall thereafter continue in effect, provided that this contract shall continue
in effect for a period of more than two years from the date hereof only so long
as the continuance is specifically approved at least annually (a) by the vote
of a majority of the Master Series' outstanding voting securities (as defined
in the 1940 Act) or by the Trust's Board of Trustees and (b) by the vote, cast
in person at a meeting called for the purpose, of a majority of the Trust's
trustees who are not parties to this contract or "interested persons" (as
defined in the 1940 Act) of any such party. This contract may be terminated at
any time by the Trust, without the payment of any penalty, by a vote of a
majority of the Master Series' outstanding voting securities (as defined in the
1940 Act) or by a vote of a majority of the Trust's entire Board of Trustees on
60 days' written notice to the Adviser or by the Adviser, at any time after the
second anniversary of the effective date of this contract, on 60 days' written
notice to the Trust. This contract shall terminate automatically in the event
of its assignment (as defined in the 1940 Act).
9. Except to the extent necessary to perform the Adviser's
obligations under this contract, nothing herein shall be deemed to limit or
restrict the right of the Adviser, or any affiliate of the Adviser, or any
employee of the Adviser, to engage in any other business or to devote time and
attention to the management or other aspects of any other business, whether of
a similar or dissimilar nature, or to render services of any kind to any other
corporation, firm, individual or association.
4
<PAGE> 5
10. This contract shall be governed by and construed in accordance
with the laws of the State of California.
11. This agreement has been executed on behalf of the Trust by the
undersigned officer of the Trust in his capacity as an officer of the Trust.
The obligations of this agreement shall only be binding upon the assets and
property of the relevant Master Series, as provided for in the Trust's
Agreement and Declaration of Trust, and shall not be binding upon any trustee,
officer or shareholder of the Trust or Master Series individually.
5
<PAGE> 6
If the foregoing correctly sets forth the agreement between the Trust
and the Adviser, please so indicate by signing and returning to the Trust the
enclosed copy hereof.
Very truly yours,
MANAGED SERIES INVESTMENT TRUST
on behalf of the Tax-Free Money
Market Master Series
By: /s/Richard H. Blank, Jr.
----------------------------
Name: Richard H. Blank, Jr.
-------------------------
Title: Chief Operating Officer
------------------------
ACCEPTED as of the date
set forth above:
WELLS FARGO BANK, N.A.
By: /s/Robert Chlebowski
----------------------------
Name: Robert Chlebowski
--------------------------
Title: Senior Vice President
-------------------------
By: /s/Michael J. Niedermeyer
----------------------------
Name: Michael J. Niedermeyer
--------------------------
Title: Executive Vice President
-------------------------
6
<PAGE> 1
EXHIBIT 99.B13(b)
July 12, 1995
Managed Series Investment Trust
111 Center Street
Little Rock, Arkansas 72201
Ladies/Gentlemen:
With respect to our purchase from you of $1,000 of interests
in the Tax-Free Money Market Master Series of Managed Series Investment Trust
(the "Trust"), we hereby advise you that we are purchasing such shares with no
intention to dispose of such shares either through resale to others or
redemption by the Trust.
Very truly yours,
STEPHENS INC.
By: /s/ Richard H. Blank, Jr.
Richard H. Blank, Jr.
Vice President
<PAGE> 1
EXHIBIT 99.B13(c)
July 12, 1995
Managed Series Investment Trust
111 Center Street
Little Rock, Arkansas 72201
Ladies/Gentlemen:
With respect to our purchase from you of $1,000 of interests
in the Tax-Free Money Market Master Series of Managed Series Investment Trust
(the "Trust"), we hereby advise you that we are purchasing such shares with no
intention to dispose of such shares either through resale to others or
redemption by the Trust.
Very truly yours,
STAGECOACH INC., on behalf of
the National Tax-Free Money
Market Mutual Fund
By: /s/ Richard H. Blank, Jr.
-------------------------
Richard H. Blank, Jr.
Chief Operating Officer,
Secretary and Treasurer
<PAGE> 1
EXHIBIT 99.B13(d)
July 12, 1995
Managed Series Investment Trust
111 Center Street
Little Rock, Arkansas 72201
Ladies/Gentlemen:
With respect to our purchase from you of $1,000 of interests
in the Tax-Free Money Market Master Series of Managed Series Investment Trust
(the "Trust"), we hereby advise you that we are purchasing such shares with no
intention to dispose of such shares either through resale to others or
redemption by the Trust.
Very truly yours,
STAGECOACH INC., on behalf of the
Overland National Tax-Free
Institutional Money Market Fund
By: /s/ Richard H. Blank, Jr.
Richard H. Blank, Jr.
Chief Operating Officer,
Secretary and Treasurer
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000914609
<NAME> MANAGED SERIES INVESTMENT TRUST
<SERIES>
<NUMBER> 3
<NAME> TAX-FREE MONEY MARKET MASTER SERIES
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-START> JUL-12-1995
<PERIOD-END> JUL-19-1995
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 15,500
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 15,500
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 12,500
<TOTAL-LIABILITIES> 12,500
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,000
<SHARES-COMMON-STOCK> 3,000
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 3,000
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,000
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 3,000
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 3,000
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
