<PAGE> 1
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As filed with the Securities and Exchange Commission
on June 30, 2000
Registration No. 333-447 811-7505
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[X]
Pre-Effective Amendment No.
[ ]
Post-Effective Amendment No. 17
[X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[X]
Amendment No. 20
[X]
(Check appropriate box or boxes)
AMERICAN INDEPENDENCE FUNDS TRUST
(Exact name of Registrant as specified in charter)
3435 Stelzer Road
Columbus, Ohio 43219
Address of Principal Executive Offices Zip Code)
Registrant's Telephone Number, including Area Code: (888) 266-8787
George Stevens, Esq.
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
(Name and Address of Agent for Service)
Copy to:
Thomas Majewski, Esq.
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
It is proposed that this filing will become effective:
immediately upon filing pursuant to Rule 485(b)
---
X
--- on June 30, 2000 pursuant to Rule 485(b)
60 days after filing pursuant to Rule 485(a)
---
75 days after filing pursuant to Rule 485(a)
---
on ____________, 1999 pursuant to Rule 485(a)
---
This post-effective amendment no. 17 to the registration statement on
Form N-1A of American Independence Fund Trust (the "Trust") relates only to the
NestEgg Funds and Money Market Fund, each a series of the Trust. The prospectus
and the statement of additional information describing the Service Class and the
Premium Class of the American Independence Funds series of the Trust included in
the post-effective amendment as filed pursuant to Rule 485(a) under the
Securities Act of 1933 on May 1, 2000 (File No. 333-447) is hereby incorporated
by reference.
<PAGE> 2
INVESTMENT ADVISERS
INTRUST FINANCIAL SERVICES, INC.
AMERICAN INDEPENDENCE FUNDS TRUST
BARCLAYS GLOBAL FUND ADVISORS
NESTEGG FUNDS
(MASTER PORTFOLIOS)
SUBADVISER
AMR INVESTMENT SERVICES, INC.
MONEY MARKET FUND
QUESTIONS?
Call 1-888-266-8787 or your
investment representative.
NESTEGG FUNDS
PROSPECTUS
JUNE 30, 2000
NESTEGG CAPITAL PRESERVATION FUND (FORMERLY THE "NESTEGG 2000 FUND")
NESTEGG 2010 FUND
NESTEGG 2020 FUND
NESTEGG 2030 FUND
NESTEGG 2040 FUND
MONEY MARKET FUND
SERIES OF AMERICAN INDEPENDENCE FUNDS TRUST
NESTEGG FUNDS LOGO
THE SECURITIES AND EXCHANGE COMMISSION
HAS NOT APPROVED OR DISAPPROVED THE SHARES
DESCRIBED IN THIS PROSPECTUS OR DETERMINED
WHETHER THIS PROSPECTUS IS ACCURATE
OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
RISK/RETURN SUMMARY AND FUND EXPENSES
LOGO
Carefully review this 2-15 NestEgg Funds
important section, which 16-21 Money Market Fund
summarizes each Fund's
investments, risks, past
performance, and fees.
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
Review this section for a 22-28 NestEgg Funds
more detailed discussion of
each Fund's investment
objectives, strategies and
risks.
FUND MANAGEMENT
Review this section for 29 The Investment Adviser
details on the people and 30 Adviser to the Master Portfolios
organizations who oversee 30 The Subadviser to the Money Market Fund
the Funds. 30 The Distributor and Administrator
SHAREHOLDER INFORMATION
Review this section for 31 Pricing of Fund Shares
shareholder information 32 Purchasing and Adding to Your Shares
details on how shares are 35 Selling Your Shares
valued, how to purchase, 36 General Policies on Selling Shares
sell and exchange shares, 38 Distribution Arrangements/Sales Charges
related charges and payments 40 Distribution (12b-1) Fees
of dividends and 40 Service Organization Fees
distributions. 41 Master-Feeder Fund Arrangements
41 Dividends, Distributions and Taxes
42 Exchanging Your Shares
FINANCIAL HIGHLIGHTS
43 NestEgg Funds
46 Money Market Fund
BACK COVER
Where to Learn More About the Funds
</TABLE>
1
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RISK/RETURN SUMMARY AND FUND EXPENSES
[ICON]
NESTEGG FUNDS
NESTEGG OVERVIEW
The NestEgg Funds(1) offer investors comprehensive ASSET ALLOCATION
investment strategies tailored to the time when they expect to begin
withdrawing assets. Each NestEgg Fund invests in a combination of stocks,
bonds and short-term money market instruments in proportions suggested by its
own comprehensive asset allocation strategy which gradually becomes more
conservative as the year in the Fund's name approaches.
Your ASSET ALLOCATION, or investment mix, is the distribution of your
investments among broad classes of assets: stocks, bonds and money-market
instruments.
<TABLE>
<S> <C>
INVESTMENT OBJECTIVES Each Fund seeks to maximize assets for retirement or other
purposes, consistent with the QUANTITATIVELY MEASURED RISK
that investors on average may be willing to accept given
their investment time horizon. Each Fund has its own TIME
HORIZON which affects the acceptable risk level of the Fund
and, in turn, its asset allocation.
Specifically:
- NESTEGG CAPITAL PRESERVATION FUND (formerly the NestEgg
2000 Fund) is managed for investors planning to retire (or
begin to withdraw substantial portions of their
investment) in the future.
- NESTEGG 2010 FUND is managed for investors planning to
retire (or begin to withdraw substantial portions of their
investment) approximately in the year 2010.
- NESTEGG 2020 FUND is managed for investors planning to
retire (or begin to withdraw substantial portions of their
investment) approximately in the year 2020.
- NESTEGG 2030 FUND is managed for investors planning to
retire (or begin to withdraw substantial portions of their
investment) approximately in the year 2030.
- NESTEGG 2040 FUND is managed for investors planning to
retire (or begin to withdraw substantial portions of their
investment) approximately in the year 2040.
</TABLE>
(1) Each NestEgg Fund invests all of its assets in a separate mutual fund,
called a Master Portfolio, that has a substantially identical investment
objective as the Fund. For simplicity's sake, all discussion of
investment objectives, strategies and risks of a particular NestEgg Fund
refers also to the objectives, strategies and risks of its corresponding
Master Portfolio, unless otherwise indicated. INTRUST Financial Services,
Inc. (INTRUST) serves as Investment Adviser to the NestEgg Funds in
selecting the Master Portfolios and continuously reviewing and
supervising their investment program and monitoring their performance.
Barclays Global Fund Advisors (BGFA) serves as Investment Adviser to the
Master Portfolios in making day-to-day decisions on buying and selling
securities and conducting research. The term "we" is used throughout this
prospectus to refer to either or both Investment Advisers.
2
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NESTEGG FUNDS
CONTINUED
RISK/RETURN SUMMARY AND FUND EXPENSES
[ICON]
<TABLE>
<S> <C>
PRINCIPAL INVESTMENT The NestEgg Funds pursue a common strategy of allocating and
STRATEGIES COMMON TO reallocating investments among INDEXES representing stocks,
ALL NESTEGG FUNDS bonds and money market instruments. The Funds with longer
QUANTITATIVELY MEASURED RISK time horizons invest more of their assets in stocks to
gauges both the frequency provide the opportunity for capital appreciation over the
and degree to which an asset long term. The Funds with shorter time horizons invest more
class will perform below the heavily in bonds and money market instruments to reduce risk
long-term expected average. and price volatility. The Funds with shorter time horizons
An investment's TIME HORIZON also have lower expected returns than the Funds with longer
marks the point when time horizons.
investors plan to start The strategies go further, allocating assets among 16
making net withdrawals. As a indexes within investment classes. Some of the indexes are
general rule, investors with well-known broad-based market indexes, such as the S&P 500
a longer time horizon have a Index of large company stock. Others were specifically
greater tolerance for risk created by Barclays Global Investors, N.A. (Barclays) to
than investors with a reflect a particular market segment, such as the smallest 5%
shorter time horizon. of publicly traded companies. Some of these indexes consist
Long-term investors are more of intermediate and long-term bonds, including investment
likely to accept a greater grade, corporate debt and government obligations. And some
risk of short-term loss for of these indexes include foreign securities and depositary
the opportunity of achieving receipts. The Funds also may invest in money market
greater long-term gains. instruments. This broad diversification is designed to
produce the highest expected returns for a given level of
risk. Expected returns do not necessarily translate into
actual returns.
INDEXES are composed of
groups of securities chosen
to represent an entire stock
or bond market, or a major
market segment. Indexes may
include securities that meet
objective criteria, such as
country of origin, industry
sector or company size.
Including a security in an
index means merely that it
has satisfied the selection
criteria. It implies no
expectation about
anticipated performance,
good or bad.
</TABLE>
3
<PAGE> 6
NESTEGG FUNDS
CONTINUED
RISK/RETURN SUMMARY AND FUND EXPENSES
[ICON]
<TABLE>
<S> <C>
ASSET ALLOCATION DECISIONS In buying securities for each NestEgg Fund, we do not select
individual companies. Instead, we use an investment model
that focuses on selecting a mix of indexes by measuring
their risk level and expected returns based on a proprietary
set of criteria that analyzes extensive financial and
economic data (such as market interest rates and inflation
data), as well as risk correlation and expected return
statistics. We then allocate the portion of each Fund's
assets to money market instruments and to each index we
think is appropriate for that Fund. Where possible, we buy
all the securities that comprise the index, otherwise we buy
a representative sample. We seek to match the index's return
as closely as possible. We do not try to avoid
underperforming investments, and we do not try to pick
individual investments that might outperform the index.
This strategy stems from our belief that asset allocation
decisions (choosing between stocks and bonds) matter more to
overall investment performance than individual security
selection (which particular stock or bond you choose).
RISK TOLERANCE Two general rules of investing shape the NestEgg Funds'
strategies:
- The greater an investment's potential return, the greater
its potential loss. Historically, for example, stocks have
outgained bonds, but the worst year for stocks on record
was much worse than the worst year for bonds.
- Investors with longer time horizons have greater risk
tolerance because their investments have more time to recoup
any losses.
We take more risks in the NestEgg Funds with longer time
horizons. This assumption of greater risks is linked with
these Funds' pursuit of greater returns. As each NestEgg
Fund approaches its time horizon, and its investors have
less time to recover from market declines, we systematically
reduce the level of risk. This systematic shift toward more
conservative investments is designed to help stabilize the
value of your NestEgg investment as the time nears for you
to begin drawing on it.
</TABLE>
4
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NESTEGG FUNDS
CONTINUED
RISK/RETURN SUMMARY AND FUND EXPENSES
[ICON]
<TABLE>
<S> <C>
The investment model does not limit the analysis to the long-term trends,
however. We also take into account current market conditions. If conditions in
a market have increased risk levels of an investment class or index to a point
that its risk outweighs its expected returns, we will not allocate as much of
the NestEgg Fund's assets to it as we otherwise might. Conversely, we may
reduce a NestEgg Fund's allocation to an investment class or index, even when
risks have not increased, because its expected return has fallen. This usually
happens because prices in a market have risen to the point that potential for
further gains appears limited.
AFTER A NESTEGG FUND REACHES By the time a NestEgg Fund reaches the decade identified by its name, such as
ITS TIME HORIZON the NestEgg 2000 Fund (now known as the NestEgg Capital Preservation Fund), it
has tilted as far as it will go in favor of capital preservation at the
expense of capital return. This does not mean that it invests exclusively in
money market instruments. Rather, because we believe most investors are still
willing to take some risks in pursuing returns even while drawing on their
investments, we continue to allocate a portion of the Fund's assets to stocks
and bonds, in addition to money market instruments. On average, we expect that
about 20% of the Fund's assets will be invested in stocks, with the rest in
bonds and money market instruments.
PRINCIPAL INVESTMENT NESTEGG CAPITAL PRESERVATION FUND is designed to maintain the lowest risk
STRATEGIES FOR EACH levels of all the NestEgg Funds. The NestEgg Capital Preservation Fund
NESTEGG FUND continues to allocate a portion of its assets to stocks (approximately 20%)
and bonds in addition to money market instruments, because we believe that
most investors are still willing to take some risks in pursuing returns even
while drawing on their investments. On average, we expect that about 20% of
this Fund's assets will be invested in stocks, with the rest in bonds and
money market instruments.
NESTEGG 2010 FUND is designed to produce high total return for investors
expecting to begin withdrawing assets around the year 2010. The NestEgg 2010
Fund currently holds about 45% of its assets in stocks, 49% of its assets in
bonds, and the rest of its assets in money market instruments. As the year
2010 approaches, the Fund will increasingly resemble the NestEgg Capital
Preservation Fund.
NESTEGG 2020 FUND is designed to produce high total return for investors
expecting to begin withdrawing assets around the year 2020. The NESTEGG 2020
FUND currently holds about 67% of its assets in stocks, 29% of its assets in
bonds, and the rest of its assets in money market instruments. As the stated
time horizon approaches, the allocation will become less risky and have lower
expected returns.
</TABLE>
5
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NESTEGG FUNDS
CONTINUED
RISK/RETURN SUMMARY AND FUND EXPENSES
[ICON]
<TABLE>
<CAPTION>
NESTEGG 2030 FUND is designed to produce high total return for
investors expecting to begin withdrawing assets around the year 2030.
The NestEgg 2030 Fund currently holds about 83% of its assets in stocks,
15% of its assets in bonds, and the rest of its assets in money market
instruments. As the stated time horizon approaches, the allocation will
become less risky and have lower expected returns.
<S> <C>
NESTEGG 2040 FUND is designed to produce high total return for investors
expecting to begin withdrawing assets around the year 2040. The NestEgg
2040 Fund currently holds about 99% of its assets in stocks, 1% of its
assets in bonds, and a small portion of its assets in money market
instruments. As the stated time horizon approaches, the allocation will
become less risky and have lower expected returns.
PRINCIPAL RISK FACTORS Each Fund has a different level of risk and the amount of risk is
reflected in its name. The Funds with shorter time horizons (NestEgg
Capital Preservation, NestEgg 2010, and NestEgg 2020) will tend to be
less risky and have lower expected returns than the Funds with longer
time horizons (NestEgg 2030 and NestEgg 2040).
Each of the NestEgg Funds presents each of the risk factors described
below. Depending on the NestEgg Fund's time horizon, it presents these
risk factors to varying degrees. For example, to the extent that a Fund
emphasizes stocks, it presents a higher degree of Stock Investment Risk.
Conversely, to the extent that a Fund emphasizes bonds, it presents a
higher degree of Bond Investment Risk.
The value of each NestEgg Fund's investments, and the value of your
investments in a NestEgg Fund will fluctuate with market conditions. You
may lose money on your investment in a NestEgg Fund, or the Fund could
underperform other investments. Other risks include:
STOCK INVESTMENT RISK The NestEgg Funds are subject to the risks of stock investing. These
include both short-term and prolonged price declines in the markets.
Mid- to small-cap stocks tend to present greater risks than large-cap
stocks because they are generally more volatile and can be less liquid.
Because the NestEgg Funds do not select individual companies within each
index, the NestEgg Funds hold stock in companies that present risks that
an investment adviser researching individual stocks might seek to avoid.
</TABLE>
6
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NESTEGG FUNDS
CONTINUED
RISK/RETURN SUMMARY AND FUND EXPENSES
[ICON]
<TABLE>
<CAPTION>
BOND INVESTMENT RISK
The bonds held by the NestEgg Funds are subject to the risks of fixed
income investing. Although these risks include short-term and prolonged
price declines, such price declines in the bond market have historically
been less severe than stock declines. Because the NestEgg Funds do not
select individual bonds within each index, the NestEgg Funds may hold
bonds that an investment adviser researching individual bond issuers
might seek to avoid.
<S> <C>
CREDIT RISK Bonds also face credit risk. Credit risk is the risk that the borrowers
that issued a bond may not repay principal or interest when due. U.S.
Treasury bonds have minimal credit risk because they are backed by the
U.S. government's full faith and credit. However, not all securities
issued by government agencies are backed by the government's full faith
and credit. Additionally, corporate bonds are subject to greater credit
risk than U.S. government bonds.
INTEREST RATE RISK Interest rate risk is the chance that bond prices will decline over
short or even long periods due to rising interest rates. All bonds,
including those issued by the government and its agencies, are subject
to interest rate risk. Their prices tend to move in the opposite
direction from market interest rate movements. When interest rates are
going up, bond prices tend to fall. Bonds with longer maturities are
affected more by interest rate movements than bonds with shorter
maturities, bonds with interest rate reset provisions, notes or money
market instruments. Each Fund may also invest in mortgage-backed
securities which are also subject to prepayment risk. The ability of an
issuer of such a security to repay principal prior to a security's
maturity can cause duration changes and greater price volatility in
response to interest rate changes.
RISKS OF FOREIGN The Funds invest in foreign securities, including emerging market
INVESTMENT investments, which are subject to additional risks. Foreign securities
often trade on markets that have less reliable information available and
lower transaction volumes than markets in the United States.
Consequently, stock and bond prices can be more volatile and more
difficult to value. Investing in foreign markets is generally more
expensive, due to currency exchange costs, higher commissions on trades
and higher custodial fees. Currencies may weaken relative to the U.S.
dollar, eroding the dollar value of investments denominated in those
currencies.
</TABLE>
7
<PAGE> 10
NESTEGG FUNDS
CONTINUED
RISK/RETURN SUMMARY AND FUND EXPENSES
[ICON]
<TABLE>
<CAPTION>
MODEL RISK
Although the model used to manage the NestEgg Funds' assets has been
developed and refined over many years, we can offer no assurance that
its recommended allocation will either maximize returns or minimize
risks. Nor can we offer assurance that a recommended allocation will
prove the ideal allocation in all circumstances for every investor with a
particular time horizon.
<S> <C>
DIFFERENCES AMONG FUNDS The NestEgg Capital Preservation and the NestEgg 2010 Funds are currently
subject to the highest levels of Bond Investment Risk of all of the
NestEgg Funds. The NestEgg 2020 Fund is currently subject to a
significant level of Bond Investment Risk, but less than the NestEgg
Capital Preservation and NestEgg 2010 Funds. The NestEgg 2030 and the
NestEgg 2040 Funds currently have the lowest levels of Bond Investment
Risk, although they are not free of such risk altogether.
The NestEgg 2040, NestEgg 2030 and the NestEgg 2020 Funds, in descending
order, are subject to the highest levels of Stock Investment Risk and
Foreign Investment Risk. The NestEgg 2010 Fund also currently has a
significant level of Stock Investment Risk and Foreign Investment Risk,
but less than the NestEgg 2040, NestEgg 2030 and the NestEgg 2020 Funds.
The NestEgg Capital Preservation currently has the lowest level of Stock
Investment Risk and Foreign Investment Risk, although it is not free of
such risks altogether.
All of the Funds are subject to Model Risk and the additional risks
described below under "A Further Discussion of Risk" and in the Funds'
SAI.
NO TEMPORARY DEFENSIVE We normally allocate a portion of each NestEgg Fund's assets to money
POSITIONS market instruments, but we will not adopt "defensive positions." This
means that we expect to remain invested in stocks and bonds even when
market conditions might seem to suggest temporarily holding more assets
in cash or money market instruments than usual.
An investment in the NestEgg Funds are not bank deposits or obligations
of INTRUST Bank N.A., BGFA or Barclays. They are not guaranteed or
endorsed by the Federal Deposit Insurance Corporation or any other
government agency.
</TABLE>
8
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NESTEGG FUNDS
CONTINUED
RISK/RETURN SUMMARY AND FUND EXPENSES
[ICON]
<TABLE>
<CAPTION>
WHO MAY WANT TO INVEST?
WHICH NESTEGG FUND TO CONSIDER. In making your investment decision,
you should keep in mind:
<S> <C>
- Each NestEgg Fund's investment strategy derives from the risk
tolerance of average investors with a particular time horizon.
- Each NestEgg Fund's time horizon is the decade that begins with
the year in its name.
Based strictly on statistical considerations, then, you would want
to invest in the NestEgg Fund corresponding to the decade when you
expect to begin withdrawing your investment (2010, 2020, etc.). But
statistical considerations alone may not govern your investment
decision, and the five NestEgg Funds allow for that, too. If you
are willing to assume greater risk, you might direct some or all of
your assets to a NestEgg Fund with a longer time horizon. If you
desire a more secure investment, and are willing to forego some
potential returns, you might direct some or all of your assets to a
NestEgg Fund with a shorter time horizon. The final choice is
yours.
</TABLE>
9
<PAGE> 12
NESTEGG FUNDS
CONTINUED
RISK/RETURN SUMMARY AND FUND EXPENSES
[ICON]
PERFORMANCE BAR CHARTS AND TABLES
The bar charts and tables on this
and the following pages show how
the respective NestEgg Funds have
performed from year to year. This
performance includes the
performance of the respective
Master Portfolios in which each
respective NestEgg Fund currently
invests 100% of its assets. Each
of the Master Portfolios was
organized on March 1, 1994 and
each Master Portfolio operates as
master in a master-feeder
structure. The performance shown
in the bar charts and tables
represents the actual performance
of the respective NestEgg Funds
since January 4, 1999, the
inception date for each of the
NestEgg Funds, through December
31, 1999, and the actual
performance of the applicable
Master Portfolio from March 1,
1994, the inception date for each
of the Master Portfolios, through
January 3, 1999. The Master
Portfolio's performance does not
reflect fees charged by the
NestEgg Funds (however the table
reflects the deduction of
applicable sales charge of
NestEgg Funds). This performance
would have been significantly
lower taking into account the
current fees of each of the
NestEgg Funds, because each of
the Master Portfolio's
performance reflects no fees at
the feeder level.
The bar charts provide some
indication of the risks of
investing in the respective
NestEgg Funds by showing changes
in the Fund's performance from
year to year. The table beside
each bar chart compares the
performance of the applicable
NestEgg Fund to the performance
over time to that of one or more
widely recognized, unmanaged
indices.
Both charts assume reinvestment of
dividends and distributions. Of
course, past performance does not
indicate how the Fund will
perform in the future.
ANNUAL RETURNS -- AS OF DECEMBER 31,
1999
NESTEGG CAPITAL PRESERVATION
FUND -- SERVICE SHARES(1,2)
<TABLE>
<S> <C>
1995 12.94
1996 2.20
1997 6.57
1998 6.27
1999 4.20
</TABLE>
(1) For the period January 1, 2000
through March 31, 2000 the
(non-annualized) total return of
the NestEgg Capital Preservation
Fund was 1.47% (includes fee
waivers).
<TABLE>
<S> <C> <C> <C>
Best quarter: Q2 1997 4.46%
Worst quarter: Q3 1998 -1.03%
</TABLE>
(2) These annual returns do not
include sales charges. If the
sales charges were reflected, the
annual returns would be lower.
----------------------------------------------------------
Average Annual Returns -- as of
December 31, 1999(3)
<TABLE>
<CAPTION>
SINCE INCEPTION
ONE YEAR FIVE YEARS (MARCH 1, 1994)
<S> <C> <C> <C>
-----------------------------------
NESTEGG CAPITAL
PRESERVATION 1.07% 5.72% 4.00%
-----------------------------------
LIPPER FLEXIBLE
PORTFOLIO INDEX 9.82% 16.37% 13.25%
-----------------------------------
LEHMAN BROTHERS
AGGREGATE BOND (0.82)% 7.73% 6.23%
---------------------------------------------------------
</TABLE>
(3) These returns reflect performance
after sales charges and expenses
are deducted.
10
<PAGE> 13
NESTEGG FUNDS
CONTINUED
RISK/RETURN SUMMARY AND FUND EXPENSES
[ICON]
ANNUAL RETURNS -- AS OF DECEMBER 31, 1999(1,2)
NESTEGG 2010 FUND -- SERVICE SHARES
<TABLE>
<S> <C>
1995 19.27
1996 6.54
1997 12.28
1998 11.61
1999 8.88
</TABLE>
(1) For the period January 1, 2000
through March 31, 2000, the
(non-annualized) total of the
NestEgg 2010 Fund was 1.76%
(includes fee waivers).
<TABLE>
<S> <C> <C> <C>
Best quarter: Q4 1998 9.05%
Worst quarter: Q3 1998 -4.38%
</TABLE>
(2) These annual returns do not
include sales charges. If the
sales charges were reflected,
the annual returns would be
lower.
------------------------------------------------------------
Average Annual Returns -- as of
December 31, 1999(3)
<TABLE>
<CAPTION>
SINCE INCEPTION
ONE YEAR FIVE YEARS (MARCH 1, 1994)
<S> <C> <C> <C>
-----------------------------------
NESTEGG 2010 5.60% 10.97% 8.43%
-----------------------------------
LIPPER FLEXIBLE
PORTFOLIO INDEX 9.82% 16.37% 13.25%
-----------------------------------
LEHMAN BROTHERS
AGGREGATE BOND (0.82)% 7.73% 6.23%
-----------------------------------
WILSHIRE 5000 23.56% 27.06% 22.59%
---------------------------------------------------------
</TABLE>
(3) These returns reflect
performance after sales charges
and expenses are deducted.
ANNUAL RETURNS -- AS OF DECEMBER 31, 1999(1,2)
NESTEGG 2020 FUND -- SERVICE SHARES
<TABLE>
<S> <C>
1995 22.74
1996 9.26
1997 16.55
1998 15.47
1999 13.39
</TABLE>
(1) For the period January 1, 2000 through March 31, 2000, the (non-annualized)
total return of the NestEgg 2020 Fund was 2.06% (includes fee waivers).
<TABLE>
<S> <C> <C> <C>
Best quarter: Q4 1998 13.51%
Worst quarter: Q3 1998 -7.56%
</TABLE>
(2) These annual returns do not include sales charges. If the sales charges were
reflected, the annual returns would be lower.
-----------------------------------------------------------
Average Annual Returns -- as of December 31, 1999(3)
<TABLE>
<CAPTION>
SINCE INCEPTION
ONE YEAR FIVE YEARS (MARCH 1, 1994)
<S> <C> <C> <C>
-----------------------------------
NESTEGG 2020 9.98% 14.71% 11.59%
-----------------------------------
LIPPER FLEXIBLE
PORTFOLIO INDEX 9.82% 16.37% 13.25%
-----------------------------------
LEHMAN BROTHERS
AGGREGATE BOND (0.82)% 7.73% 6.23%
-----------------------------------
WILSHIRE 5000 23.56% 27.06% 22.59%
---------------------------------------------------------
</TABLE>
(3) These returns reflect performance after sales charges and expenses are
deducted.
11
<PAGE> 14
NESTEGG FUNDS
CONTINUED
RISK/RETURN SUMMARY AND FUND EXPENSES
[ICON]
ANNUAL RETURNS -- AS OF DECEMBER
31, 1999(1,2)
NESTEGG 2030 FUND -- SERVICE SHARES
<TABLE>
<S> <C>
1995 26.24
1996 11.34
1997 19.80
1998 18.06
1999 16.25
</TABLE>
(1) For the period January 1, 2000
through March 31, 2000, the
(non-annualized) total return
of the NestEgg 2030 Fund was
2.51% (includes fee waivers).
<TABLE>
<S> <C> <C> <C>
Best quarter: Q4 1998 16.96%
Worst quarter: Q3 1998 -10.09%
</TABLE>
(2) These annual returns do not
include sales charges. If the
sales charges were reflected,
the annual returns would be
lower.
------------------------------------------------------------
Average Annual Returns -- as of
December 31, 1999(3)
<TABLE>
<CAPTION>
SINCE INCEPTION
ONE YEAR FIVE YEARS (MARCH 1, 1994)
<S> <C> <C> <C>
-----------------------------------
NESTEGG 2030 12.75% 17.50% 13.90%
-----------------------------------
LIPPER FLEXIBLE
PORTFOLIO INDEX 9.82% 16.37% 13.25%
-----------------------------------
LEHMAN BROTHERS
AGGREGATE BOND (0.82)% 7.73% 6.23%
-----------------------------------
WILSHIRE 5000 23.56% 27.06% 22.59%
---------------------------------------------------------
</TABLE>
(3) These returns reflect
performance after sales charges
and expenses are deducted.
ANNUAL RETURNS -- AS OF DECEMBER 31, 1999(1,2)
NESTEGG 2040 FUND -- SERVICE SHARES
<TABLE>
<S> <C>
1995 27.74
1996 14.14
1997 22.12
1998 20.77
1999 20.61
</TABLE>
(1) For the period January 1, 2000 through March 31, 2000 the (non-annualized)
total return of the NestEgg 2040 Fund was 2.50% (includes fee waivers).
<TABLE>
<S> <C> <C> <C>
Best quarter: Q4 1998 20.63%
Worst quarter: Q3 1998 -12.55%
</TABLE>
(2) These annual returns do not include sales charges. If the sales charges were
reflected, the annual returns would be lower.
-----------------------------------------------------------
Average Annual Returns -- as of December 31, 1999(3)
<TABLE>
<CAPTION>
SINCE INCEPTION
ONE YEAR FIVE YEARS (MARCH 1, 1994)
<S> <C> <C> <C>
-----------------------------------
NESTEGG 2040 16.98% 20.28% 16.37%
-----------------------------------
LIPPER FLEXIBLE
PORTFOLIO INDEX 9.82% 16.37% 13.25%
-----------------------------------
WILSHIRE 5000 23.56% 27.06% 22.59%
---------------------------------------------------------
</TABLE>
(3) These returns reflect performance after sales charges and expenses are
deducted.
12
<PAGE> 15
NESTEGG FUNDS
CONTINUED
RISK/RETURN SUMMARY AND FUND EXPENSES
[ICON]
As an investor in each NestEgg Fund, you will pay the following fees and
expenses when you buy and hold shares. Annual Fund operating expenses are
paid out of Fund assets, and are reflected in the share price.
FEES AND EXPENSES
SERVICE SHARES
<TABLE>
<S> <C> <C> <C> <C> <C>
CAPITAL
SHAREHOLDER TRANSACTION EXPENSES PRESERVATION 2010 2020 2030 2040
(FEES PAID BY YOU DIRECTLY)
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price) 3.00% 3.00% 3.00% 3.00% 3.00%
ANNUAL FUND OPERATING EXPENSES
(FEES PAID FROM FUND ASSETS)
Management fee 0.70% 0.70% 0.70% 0.70% 0.70%
Distribution (12b-1) fee(1) 0.25% 0.25% 0.25% 0.25% 0.25%
Shareholder servicing fee 0.25% 0.25% 0.25% 0.25% 0.25%
Other expenses 1.96% 1.74% 2.27% 1.28% 1.12%
Total Fund Operating expenses(2) 3.16% 2.94% 3.47% 2.48% 2.32%
Fee Waiver/Expense Reimbursement 1.66% 1.44% 1.97% 0.98% 0.82%
Net Expenses(3) 1.50% 1.50% 1.50% 1.50% 1.50%
</TABLE>
(1) BISYS is currently contractually waiving its entire Distribution Fee
through June 30, 2001.
(2) The NestEgg Funds each pay BISYS a 0.20% administration fee and each
Master Portfolio pays advisory and administrative fees, of which each
NestEgg Fund bears its pro-rata portion. The Fund's Board of Trustees
believes that the aggregate per share expenses of each NestEgg Fund and
the respective Master Portfolio will be approximately equal to the
expenses such Fund would incur if its assets were invested directly in
securities of its own portfolio. Management fees are 0.55% at the Master
Portfolio level and 0.15% at the NestEgg Fund level.
(3) INTRUST is currently contractually waiving a portion of its management
fees due from the Fund and waiving other expenses such that fee waivers
and expense reimbursements are limited to 1.50% for both Service Shares
and Premium Shares.
13
<PAGE> 16
NESTEGG FUNDS
CONTINUED
RISK/RETURN SUMMARY AND FUND EXPENSES
[ICON]
As an investor in each NestEgg Fund, you will pay the following fees and
expenses when you buy and hold shares. Annual Fund operating expenses are
paid out of Fund assets, and are reflected in the share price.
FEES AND EXPENSES
PREMIUM SHARES
<TABLE>
<S> <C> <C> <C> <C> <C>
CAPITAL
SHAREHOLDER TRANSACTION EXPENSES PRESERVATION 2010 2020 2030 2040
(FEES PAID BY YOU DIRECTLY)
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price) N/A N/A N/A N/A N/A
ANNUAL FUND OPERATING EXPENSES
(FEES PAID FROM FUND ASSETS)
Management fee 0.70% 0.70% 0.70% 0.70% 0.70%
Distribution (12b-1) fee(1) 0.25% 0.25% 0.25% 0.25% 0.25%
Shareholder servicing fee 0.75% 0.75% 0.75% 0.75% 0.75%
Other expenses 1.96% 1.74% 2.27% 1.28% 1.12%
Total Fund Operating expenses(2) 3.66% 3.44% 3.97% 2.98% 2.82%
Fee Waiver/Expense Reimbursement 2.16% 1.94% 2.47% 1.48% 1.32%
Net Expenses(3) 1.50% 1.50% 1.50% 1.50% 1.50%
</TABLE>
(1) BISYS is currently contractually waiving its entire Distribution Fee
through June 30, 2001.
(2) The NestEgg Funds each pay BISYS a 0.20% administration fee and each
Master Portfolio pays advisory and administrative fees, of which each
NestEgg Fund bears its pro-rata portion. The Fund's Board of Trustees
believes that the aggregate per share expenses of each NestEgg Fund and
the respective Master Portfolio will be approximately equal to the
expenses such Fund would incur if its assets were invested directly in
securities of its own portfolio. Management fees are 0.55% at the Master
Portfolio level and 0.15% at the NestEgg Fund level.
(3) INTRUST is currently contractually waiving a portion of its management
fees due from the Fund and waiving other expenses such that fee waivers
and expense reimbursements are limited to 1.50% for both Service Shares
and Premium Shares.
14
<PAGE> 17
NESTEGG FUNDS
CONTINUED
RISK/RETURN SUMMARY AND FUND EXPENSES
[ICON]
Use the table below to compare fees and expenses with those of other funds.
It illustrates the amount of fees and expenses you would pay, assuming the
following:
- $10,000 investment
- 5% annual return
- redemption at the end of each period
- no changes in each NestEgg Fund's operating expenses except the
expiration of the current contractual fee waivers on June 30, 2001.
Because this example is hypothetical and for comparison only, your actual
costs will be different.
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C> <C>
1 3 5 10
NESTEGG FUNDS YEAR YEARS YEARS YEARS
SERVICE SHARES CAPITAL PRESERVATION $448 $1,094 $1,764 $3,551
2010 $448 $1,051 $1,678 $3,364
2020 $448 $1,155 $1,885 $3,808
2030 $448 $ 959 $1,495 $2,960
2040 $448 $ 926 $1,431 $2,815
PREMIUM SHARES CAPITAL PRESERVATION $153 $ 920 $1,709 $3,775
2010 $153 $ 876 $1,622 $3,591
2020 $153 $ 983 $1,830 $4,027
2030 $153 $ 782 $1,437 $3,194
2040 $153 $ 749 $1,372 $3,052
</TABLE>
15
<PAGE> 18
RISK/RETURN SUMMARY AND FUND EXPENSES
[ICON]
MONEY MARKET FUND
<TABLE>
<S> <C>
INVESTMENT OBJECTIVES The Fund's objective is to provide investors current income,
liquidity and the maintenance of a stable net asset value of
$1.00 per share.
PRINCIPAL The Fund invests primarily in high quality, U.S.
INVESTMENT STRATEGIES dollar-denominated short-term obligations which present
minimal credit risks.
The Fund invests in commercial paper, asset-backed
securities, obligations of financial institutions and other
high-quality money market instruments that mature in
thirteen months or less including:
- U.S. Government Obligations
- Commercial Paper
- Master Demand Notes
- Loan Participation Interests
- Medium-Term Notes
- Funding Agreements
- Yankee Dollar Bank Certificates of Deposit
- Euro Dollar Bank Certificates of Deposit
- Time Deposits
- Bankers' Acceptances
- Mortgage-Related Securities
- Asset-Backed Securities
- Repurchase Agreements
Descriptions of these other securities which the Fund may
purchase are included in the Statement of Additional
Information. The Fund will only buy securities with the
following credit qualities:
- rated in the highest short-term categories by two rating
organizations, such as "A-1" by S&P and "P-1" by Moody's
at the time of purchase;
- rated in the highest short-term category by one rating
organization if the securities are rated only by one rating
organization; or
- unrated securities that are determined to be of equivalent
quality by the Adviser pursuant to guidelines approved by
the Board and subject to ratification by the Board.
This is because the Fund invests only in high-quality
securities, limits the average maturity of the portfolio to
90 days or less, and limits the maturity of any security to
no more than thirteen months. The Fund may not achieve as
high a level of current income as other funds that do not
limit their investments to the high quality securities in
which the Fund invests.
</TABLE>
16
<PAGE> 19
MONEY MARKET FUND
CONTINUED
RISK/RETURN SUMMARY AND FUND EXPENSES
[ICON]
<TABLE>
<S> <C>
The Fund invests more than 25% of its total assets in
obligations issued by the banking industry. However, for
temporary defensive purposes during periods when the Adviser
believes that maintaining this concentration may be
inconsistent with the best interest of shareholders, the
Fund will not maintain this concentration. The Fund's policy
of concentration in the banking industry increases the
Fund's exposure to market conditions prevailing in that
industry.
PRINCIPAL INVESTMENT RISKS While all investments in mutual funds involve risk,
investing in money market portfolios like the Fund is
generally less risky than investing in other types of funds.
Although the Fund seeks to preserve the value of your
investment at $1.00 per share, it is possible to lose money
by investing in the Fund. An investment in the Fund is not a
bank deposit and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government
agency. Investors in the Fund should also be aware of the
following risks:
INTEREST RATE RISK Interest rate risk is the chance that the value of the bonds
the Fund holds will decline due to rising interest rates.
When interest rates rise, the price of most bonds goes down.
The price of a bond is also affected by its maturity. Debt
instruments with shorter maturities, such as these permitted
for money market funds tend to be less sensitive to changes
in interest rates than instruments with longer maturities.
CREDIT RISK Credit risk is the chance that a bond issuer will fail to
repay interest and principal in a timely manner, reducing
the Fund's return.
PREPAYMENT RISK The Fund's investments in mortgage-related securities are
subject to the risk that the principal amount of the
underlying mortgage may be repaid prior to the bond's
maturity date. Such repayments are common when interest
rates decline. When such a repayment occurs, no additional
interest will be paid on the investment. Prepayment exposes
the Fund to lower return upon subsequent reinvestment of the
principal.
INCOME RISK Income risk is the chance that falling interest rates will
cause the Fund's income to decline. Income risk is generally
higher for short-term bonds.
</TABLE>
17
<PAGE> 20
MONEY MARKET FUND
CONTINUED
RISK/RETURN SUMMARY AND FUND EXPENSES
[ICON]
<TABLE>
<S> <C>
ADDITIONAL RISKS The Money Market Fund's policy of concentrating in the
banking industry could increase the Fund's exposure to
economic or regulatory developments relating to or affecting
banks. Banks are subject to extensive governmental
regulation which may limit both the amounts and types of
loans and other financial commitments they can make and the
interest rates and fees they can charge. The financial
condition of banks is largely dependent on the availability
and cost of capital funds, and can fluctuate significantly
when interest rates change. In addition, general economic
conditions may affect the financial condition of banks.
WHO MAY Consider investing in the Fund if you:
WANT TO INVEST? - are seeking preservation of capital
- have a low risk tolerance
- are willing to accept lower potential returns in exchange
for a high degree of safety
- are investing short-term reserves
This Fund will not be appropriate for anyone:
- seeking high total returns
- pursuing a long-term goal or investing for retirement
</TABLE>
18
<PAGE> 21
MONEY MARKET FUND
CONTINUED
RISK/RETURN SUMMARY AND FUND EXPENSES
[ICON]
The chart on this page shows
how the Money Market Fund
has performed during its
first two full calendar
years and the table
includes performance
information since its
inception. This information
gives some indication of
the risks of an investment
in the Fund.
The returns for the Premium
Shares will differ from the
Service Shares returns
shown in the bar chart
because of differences in
expenses of each class.
Premium Shares has not yet
been offered to the public.
Both the table and the bar
chart assume reinvestment
of dividends and reflect
voluntary fee reductions.
Without voluntary fee
reductions, the Fund's
performance would have been
lower. Of course, past
performance does not
indicate how the Fund will
perform in the future.
PERFORMANCE BAR CHART AND TABLE
ANNUAL RETURNS FOR SERVICE
SHARES(1,2)
<TABLE>
<S> <C>
1998 5.09
1999 4.80
</TABLE>
Best quarter: Q4 1999 +1.33%
Worst quarter: Q2 1999 +1.10%
---------------------------------------------------
(1) These figures are as of December 31 of
each year.
(2) For the period January 1, 2000 through
March 31, 2000, the (non-annualized)
total return of the Fund was 1.38%.
AVERAGE ANNUAL RETURNS as of December 31, 1999(3)
<TABLE>
<CAPTION>
ONE YEAR ENDED
INCEPTION DECEMBER 31, 1999 SINCE INCEPTION
<S> <C> <C> <C>
-------------------------------------------------------
SERVICE SHARES January 23, 1997 4.80% 4.99%
-----------------------------------------------------------------------------------------------------
</TABLE>
(3) For current yield information on the Fund, call 1-888-266-8787. The Money
Market Fund's yield appears in The Wall Street Journal each Thursday.
19
<PAGE> 22
MONEY MARKET FUND
CONTINUED
RISK/RETURN SUMMARY AND FUND EXPENSES
[ICON]
As an investor in the
Money Market Fund, you
will pay the following
fees and expenses when you
buy and hold shares.
Annual Fund operating
expenses are paid out of
Fund assets, and are
reflected in the share
price.
FEES AND EXPENSES
<TABLE>
<S> <C> <C>
SHAREHOLDER FEES
(FEES PAID
DIRECTLY FROM
YOUR INVESTMENT) SERVICE SHARES PREMIUM SHARES
None None
ANNUAL FUND
OPERATING EXPENSES
(FEES PAID FROM
FUND ASSETS) SERVICE SHARES PREMIUM SHARES
Management fee(1,3) 0.25% 0.25%
Distribution (12b-1) fee(2,3) 0.25% 0.75%
Other expenses 0.63% 0.63%
Total Fund Operating expenses 1.13% 1.63%
Fee Waiver(1,2,3) 0.54% 1.04%
Net Expenses(3) 0.59% 0.59%
</TABLE>
(1) INTRUST is currently contractually waiving a portion of its management
fees due from the Fund and waiving other expenses such that fee waivers
and expense reimbursements are limited to 0.59% for both Service Shares
and Premium Shares.
(2) BISYS is currently contractually waiving its entire Distribution fee
through June 30, 2001.
(3) The contractual expense limitations are in effect through June 30, 2001.
20
<PAGE> 23
MONEY MARKET FUND
CONTINUED
RISK/RETURN SUMMARY AND FUND EXPENSES
[ICON]
Use the table at right to
compare fees and expenses
with those of other funds. It
illustrates the amount of
fees and expenses you would
pay, assuming the following:
- $10,000 investment
- 5% annual return
- redemption at the end of
each period
- no changes in the Fund's operating expenses, except for the expiration of
the current contractual fee waivers on June 30, 2001.
Because this example is
hypothetical and for
comparison only, your actual
costs will be different.
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
1 3 5 10
MONEY MARKET FUND YEAR YEARS YEARS YEARS
SERVICE SHARES $60 $305 $570 $1,326
PREMIUM SHARES $60 $412 $788 $1,845
</TABLE>
21
<PAGE> 24
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
[ICON]
NESTEGG FUNDS
THE NESTEGG GOAL
With their comprehensive and methodical allocation strategies, the NestEgg
Funds can serve as the core of an investor's portfolio, not just as one
element.
The NestEgg Funds seek to maximize assets for retirement or other purposes
consistent with the quantitatively measured risk that investors, on average,
may be willing to accept given their investment time horizons. We attempt to
manage the investment risk in each NestEgg Fund for investors whose time
horizons correspond to the decade in the NestEgg Fund's name: NestEgg Capital
Preservation for investors who plan to begin withdrawing a substantial
portion of their investment before the year 2010; and NestEgg 2040 for
investors who plan to begin withdrawing a substantial portion of their
investment in the decade beginning in the year 2040.
THE BGFA INVESTMENT MODEL
Each NestEgg Fund seeks to achieve its goal through an investment strategy
that relies on BGFA's proprietary investment model. The model, developed in
1993 and continuously refined, combines:
- comprehensive data on the returns of the world's equity and bond markets
- the statistical risk of losses in each of these markets
- information on how these risks correlate: whether, for example, the
cyclical ups and downs in one market, such as bonds, tend to moderate or
amplify the cyclical ups and downs in another, such as stocks of large
US companies
The model sets the NestEgg Funds' strategic allocation targets. From an
extensive database, it calculates the expected return over time for a range
of asset allocations. Then the model selects the allocation, or investment
mix, with the highest expected return for a statistically determined risk of
loss.
A NestEgg Fund's allocation may shift significantly in response to changing
market conditions -- since the Funds' investment approach allows us to adjust
the strategic allocation according to short-term investment considerations.
If research reveals that opportunities in a particular stock or bond market
seem unusually attractive, we may add to that market's model allocation.
Conversely, if research reveals that opportunities in a market do not support
long-term expectations, or do not measure up to opportunities elsewhere, we
may reduce the allocation suggested by the model.
Long-term strategic considerations generally account for about 75% of a
NestEgg Fund's asset allocation and the short-term outlook accounts for about
25%.
HOW IT WORKS: SPENDING YOUR "RISK BUDGET" WISELY
One way to understand how we adjust NestEgg Funds' asset allocation is to
regard the statistically determined risk in each Fund as its "risk budget."
Each Fund's analysis of investor needs begins from how much its investors can
afford to lose -- not from their investments' likely returns. This tolerance
for loss is the Fund's risk budget.
Different investment allocations can have the same risk of loss but with
different expected returns. We seek the Fund allocations that offer the
highest expected return while keeping within a Fund's statistically
determined risk of loss. In other words, the Funds seek the highest expected
return in exchange for the various levels of risk most investors that share
the Funds' time horizons are willing to take.
Remember, expected returns are not guaranteed returns. They are average
projections based on comprehensive research and accepted principles of market
behavior. Likewise, statistically determined risk covers the most likely
scenarios, but it does not cover all possible losses.
22
<PAGE> 25
NESTEGG FUNDS
CONTINUED
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
[ICON]
PRINCIPAL INVESTMENTS
The charts below illustrate the actual asset allocation as of fiscal year-end
February 29, 2000 for each NestEgg Fund. They demonstrate the far-reaching
diversity of a NestEgg investment.
NESTEGG ASSET WEIGHTINGS
(as of February 29, 2000)
NESTEGG CAPITAL PRESERVATION
Stocks That Trade Outside the United States 6%
Stock of All Other Publicly Traded United US Corporations 5%
Stocks of the Largest US Companies 10%
Bonds 65%
Money Market Instruments 14%
NESTEGG 2010
Stocks that Trade Outside the United States 11%
Stocks of All Other Publicly Traded US Corporations 5%
Stocks of the Largest US Companies 29%
Bonds 49%
Money Market Instruments 6%
NESTEGG 2020
Stocks that Trade Outside the United States 15%
Stocks of All Other Publicly Traded US Corporations 6%
Stocks of the Largest US Companies 46%
Bonds 29%
Money Market Instruments 4%
NESTEGG 2030
Stocks that Trade Outside the United States 20%
Stocks of All Other Publicly Traded US Corporations 7%
Stocks of the Largest US Companies 56%
Bonds 15%
Money Market Instruments 2%
NESTEGG 2040
Stocks that Trade Outside the United States 21%
Stocks of All Other Publicly Traded US Corporations 10%
Stocks of the Largest US Companies 68%
Bonds 1%
Money Market Instruments 0%
23
<PAGE> 26
NESTEGG FUNDS
CONTINUED
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
[ICON]
The NestEgg Funds may invest in all the following widely recognized asset
classes:
- money market instruments
- bonds
- stocks of the largest US companies
- stocks of all other publicly traded US corporations
- stocks that trade outside the United States
- mortgage related securities
Within stocks and bonds are sub-categories of securities:
- US government bonds, bonds issued by corporations, mortgage-backed
securities and foreign bonds form four separate sub-categories of bond
investments. The first two sub-categories are further subdivided by
maturity: long-term and intermediate-term.
- US stocks can be divided according to the value of their outstanding
stock (or capitalization), into large-cap, mid-cap and small-cap
groupings.
- Utilities -- closely regulated power generating companies -- are
generally mid-size, but their performance has differed enough from other
mid-cap stocks to warrant a distinct grouping.
- Micro-cap stocks -- the smallest 5% of publicly traded
companies -- constitute their own grouping apart from the rest of the
small-cap universe.
- We can cut each of the stock capitalization groupings in half according
to their price-to-book ratio -- the ratio of the value of their traded
stock to the book value of their plant, equipment and other tangible
assets. We consider the half with the higher price-to-book ratio growth
stocks and the half with the lower price-to-book ratio value stocks.
24
<PAGE> 27
NESTEGG FUNDS
CONTINUED
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
[ICON]
MODEL-DRIVEN DECISIONS
We allocate each NestEgg Fund's assets across investment groups according to
a sophisticated mathematical model that we developed in 1993, and have
continually refined. Our investment professionals conduct ongoing research to
enhance the model, and to ensure that we are keeping pace with the world's
constantly changing financial markets. Using this model, we gain a consistent
and objective structure for making investment decisions. Unlike traditional
investment funds that employ a portfolio manager who makes decisions on a
more subjective basis, BGFA applies a scientific approach to investing
through the use of such models.
Conventional asset allocation targets only the three broadest asset
classes -- money market investments, bonds and stocks. Comprehensive asset
allocation distributes investments methodically among the full range of asset
classes. The charts below list the indexes we have adopted or constructed to
track the performance of each of the asset classes in which the NestEgg Funds
may invest.
INVESTMENT-GRADE BOND(1) MARKET INDEXES
<TABLE>
<S> <C> <C>
SUB-CATEGORY MATURITY(2) RANGE INDEX PROVIDER
Long-term government 10 years or more Lehman Brothers(3)
Intermediate-term government More than 1 year/less than 10 Lehman Brothers(3)
years
Long-term corporate 10 years or more Lehman Brothers(3)
Intermediate-term corporate More than 1 year/less than 10 Lehman Brothers(3)
years
Mortgage-backed(4) More than 1 year Lehman Brothers(3)
Non-US world government One year or more Salomon Brothers(3)
</TABLE>
(1) Investment-Grade Bonds rank in the four highest categories, according to
the statistical criteria established by rating services, such as Moody's
Investors Service and Standard & Poor's Corp., to determine a bond's
creditworthiness and a bond issuer's financial strength.
(2) Maturity measures the number of years from the time a borrower issues a
bond to the date when the borrower must fully repay the loan, interest
included.
(3) Lehman Brothers, Inc. and Salomon Brothers do not sponsor the NestEgg
Funds or their Master Portfolios, nor are they affiliated in any way with
Barclays Global Fund Advisors or INTRUST.
(4) All fixed-coupon mortgage pass-throughs issued by the Federal National
Mortgage Association, the Government National Mortgage Association and
the Federal Home Loan Mortgage Corporation.
25
<PAGE> 28
NESTEGG FUNDS
CONTINUED
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
[ICON]
STOCK MARKET INDEXES
<TABLE>
<S> <C> <C> <C>
CAPITALIZATION GROWTH/ VALUE STOCK MARKET INDEX PROVIDER
Large Value United States S&P/BARRA*
Large Growth United States S&P/BARRA*
Large Both Major world markets, Morgan Stanley Capital
excluding Japan International**
Large Both Japan Morgan Stanley Capital
International**
Medium Value United States BGFA
Medium Growth United States BGFA
Medium Electrical power and United States BGFA
utility companies
Small Value United States BGFA
Small Growth United States BGFA
Smallest 5% Both United States BGFA
</TABLE>
* Neither S&P nor BARRA sponsors the NestEgg Funds or their Master
Portfolios, nor are they affiliated in any way with Barclays Global Fund
Advisors or INTRUST.
** Morgan Stanley Capital International does not sponsor the NestEgg Funds or
their Master Portfolios, nor are they affiliated in any way with Barclays
Global Fund Advisors or INTRUST.
OPTIMIZING THE NESTEGG FUNDS' INVESTMENTS
In the case of some asset categories, most notably US large capitalization
growth and value stocks, the NestEgg Funds can own every stock listed in the
index. Many of the other indexes consist of thousands of securities. The
NestEgg Funds as a practical matter do not hold them all. Instead, we employ
a technique known as optimization. We select a group of securities whose
diversity, fundamental characteristics and typical risks and returns will
closely match the index as a whole. Including a particular security in one of
the NestEgg Funds should in no way imply our opinion as to its attractiveness
as an investment on its own.
26
<PAGE> 29
NESTEGG FUNDS
CONTINUED
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
[ICON]
Just as the NestEgg Funds may not invest in all the securities in the
indexes, they may invest in securities not included in any index. They may,
for instance, invest in American and Global DEPOSITARY RECEIPTS to gain
exposure to foreign stock markets. They may also invest in INDEX FUTURES
CONTRACTS AND OPTIONS. This tactic can reduce the costs associated with
direct investing. It also allows the Funds to approach the returns of a fully
invested portfolio while keeping cash on hand to meet the Funds' anticipated
cash needs.
The Funds do not have to invest in every available index. Indeed, until a
Master Portfolio has reached a net asset level of $100 million to $150
million, it is unlikely to invest in all the asset classes. More importantly,
every asset category may not be appropriate for every Fund. Some may be too
volatile for the NestEgg Funds with relatively short time horizons. Others
may not offer enough expected return for Funds with relatively distant time
horizons.
DEPOSITARY RECEIPTS are receipts for shares of foreign stocks held on
deposit in US banks or banks of major European countries. The receipts
trade on the US or local European stock markets as would normal
stocks, entitling their owners to the dividends and capital gains
earned by the real shares stored in bank vaults.
INDEX FUTURES CONTRACTS are contracts to pay a fixed amount for each
point change in a particular market index between the purchase date
and the agreed-upon delivery date. The seller never actually delivers
"shares" of the index or shares of all the stocks in the index.
Instead, the buyer and the seller settle the difference in cash
between the contract price and the market price on the agreed-upon
date -- the buyer paying the difference if the actual price is lower
than the contract price and the seller paying the difference if the
actual price is higher.
Unlike futures, which obligate both buyer and seller, OPTIONS obligate
only one of the parties to the transaction. They grant the one party a
right, for a price, either to buy or sell at a fixed sum any time up
to an agreed-upon expiration date.
THE NESTEGG FUNDS' MONEY MARKET INVESTMENTS
The Funds' money market investments consist of high-quality, short-term debt
obligations selected for their safety record and ability to maintain value.
They all must have remaining maturities of 397 days (about 13 months) or
less. They include:
- US government debt securities
- foreign and domestic bank obligations
- corporate borrowings with less than a year to maturity
REPURCHASE AGREEMENTS obligate a seller of securities to buy them back
within a specified period of time (usually one week or less) at an
agreed-upon price.
27
<PAGE> 30
NESTEGG FUNDS
CONTINUED
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
[ICON]
<TABLE>
<S> <C>
ADDITIONAL RISKS TO THE Besides the general risks described above under Principal
FUNDS Risk Factors, the NestEgg Funds face additional risks
discussed below. For a further discussion of NestEgg Fund
risks, please refer to the Funds' Statement of Additional
Information (SAI), which is incorporated by reference and is
available free of charge by calling 1-888-266-8787.
Derivatives. Index futures contracts and options on index
futures contracts are generally considered
derivatives -- they derive their value from the prices of
the indexes. The floating rate or variable rate bonds that
the Funds may purchase are also considered derivatives.
Compared to conventional securities, derivatives can be more
sensitive to changes in interest rates or to sudden
fluctuations in market prices. The Funds offset this
exposure to increased loss with bank deposits or money
market investments, stable holdings that offset the
potential volatility of their derivative investments, as
required by the Securities and Exchange Commission.
</TABLE>
28
<PAGE> 31
FUND MANAGEMENT
[ICON]
THE INVESTMENT ADVISER
INTRUST Financial Services, Inc., 105 North Main Street, Box One, Wichita,
Kansas 67202 is the Adviser for the Funds. INTRUST is a wholly owned
subsidiary of INTRUST Bank, N.A. INTRUST Bank is a national banking
association which provides a full range of banking and trust services to
clients. As of December 31, 1999, total assets under management were
approximately $2 billion. Through its portfolio management team, INTRUST
continuously reviews, supervises and administers the Funds' investment
programs.
For these advisory services, the NestEgg Funds paid advisory fees during
their fiscal year ended February 29, 2000 and the Money Market Fund paid
advisory fees during its fiscal year ended October 31, 1999 as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
AVERAGE NET ASSETS
AS OF MOST RECENT
FISCAL YEAR END
<S> <C>
------------------------------
NestEgg Capital Preservation Fund 0.55%
------------------------------
NestEgg 2010 Fund 0.55%
------------------------------
NestEgg 2020 Fund 0.55%
------------------------------
NestEgg 2030 Fund 0.55%
------------------------------
NestEgg 2040 Fund 0.55%
------------------------------
The Money Market Fund 0.15%
---------------------------------------------------------------------
</TABLE>
Contractual fees (without waivers) are: each NestEgg Fund, 0.70% (including
fees of 0.55% to BGFA and 0.15% to INTRUST), and the Money Market Fund,
0.25%. INTRUST waived all of its contractual advisory fee for the NestEgg
Funds. Additionally, INTRUST reimbursed a portion of other expenses with
respect to the NestEgg Funds for their most recent fiscal year. INTRUST
waived a portion of its contractual fees with respect to the Money Market
Fund, for the most recent fiscal year.
John S. Maurer, Jr., Senior Vice President and Chief Investment Officer at
INTRUST Bank, is responsible for the management activities carried out by
INTRUST Bank regarding the Funds. Mr. Maurer has over 22 years of experience
in the investment and trust industry, including the development of equity
investment services and individual portfolio and relationship management. Mr.
Maurer has been employed with INTRUST Bank since 1996.
29
<PAGE> 32
FUND MANAGEMENT
[ICON]
ADVISER TO THE MASTER PORTFOLIOS
The NestEgg Funds are feeder funds that invest all of their assets in Master
Portfolios with substantially identical investment objectives, strategies and
policies.
BGFA serves as investment adviser to each Master Portfolio. BGFA provides
investment guidance and policy direction in connection with the management of
each Master Portfolio's assets. BGFA is a wholly-owned subsidiary of Barclays
Global Investors, N.A. (BGI) which, in turn, is an indirect subsidiary of
Barclays Bank PLC (Barclays). BGFA is located at 45 Fremont Street, San
Francisco, California 94105. As of December 31, 1999, BGI and its affiliates,
including BGFA, provided investment advisory services for approximately $783
billion of assets. Each Master Portfolio has agreed to pay to BGFA a monthly
fee at the annual rate of 0.55% of such Master Portfolio's average daily net
assets as compensation for its advisory services.
Unlike many traditional actively managed funds, there is no single portfolio
manager who makes investment decisions for the Master Portfolios. Instead, a
team of investment professionals evaluate recommendations made by BGFA's
proprietary mathematical model. This process reflects BGFA's commitment to an
objective and consistent investment management structure.
BGI, BGFA, Barclays and their affiliates deal, trade and invest for their own
account in the types of securities in which a Master Portfolio may invest and
may have deposit, loan and commercial banking relationships with the issuers
of securities purchased by a Master Portfolio. There are no affiliated
transactions or affiliated broker transactions.
THE SUBADVISER TO THE MONEY MARKET FUND
AMR Investment Services, Inc. ("AMR"), located at 4333 Amon Carter Boulevard,
MD 5645, Fort Worth, Texas 76155, is a wholly-owned subsidiary of AMR
Corporation, the parent company of American Airlines, Inc. and serves as the
subadviser to the Money Market Fund. AMR was organized in 1986 to provide
business management, advisory, administrative and asset management consulting
services. American Airlines, Inc. is not responsible for investments made by
AMR.
THE DISTRIBUTOR AND ADMINISTRATOR
BISYS Fund Services is the Funds' Distributor and Administrator. Its address
is 3435 Stelzer Road, Columbus, Ohio 43219.
The Statement of Additional Information has more detailed information about
the Investment Adviser and other service providers.
30
<PAGE> 33
SHAREHOLDER INFORMATION
[ICON]
PRICING OF FUND SHARES
---------------------------
HOW NAV IS CALCULATED
The NAV is calculated by
adding the total value of
the Fund's investments and
other assets, subtracting
its liabilities and then
dividing that figure by the
number of outstanding
shares of the Fund:
NAV =
Total Assets - Liabilities
------------------------------------------------------------------------------
Number of Shares
Outstanding
1. NAV is calculated
separately for the
Premium Shares and
Service Shares.
2. You can find most Funds'
NAV daily in The Wall
Street Journal and other
newspapers.
---------------------------
NESTEGG FUNDS
Per share net asset value (NAV) for each NestEgg Fund is determined and its
shares are priced at the close of regular
trading on the New York Stock Exchange,
normally at 4:00 p.m. Eastern time on days
the Exchange is open. Share prices may
fluctuate on days when purchases and sales
cannot take place.
Your order for purchase, sale or exchange of shares is priced at the next
determined offering price, which is NAV
plus any applicable sales charge as noted
in the section "Distribution
Arrangements/Sales Charges", calculated
after your order is received in good
order.
Each NestEgg Fund's investment in the corresponding Master Portfolio is value
based on its pro rata share of such Master
Portfolio's shares. Each Master Portfolio
determines each feeder fund's shares on
the same days and at the same time as the
corresponding NestEgg Fund.
Each Master Portfolio's securities are generally valued at current market
prices. If market quotations are not
available, prices will be valued at fair
value as determined in good faith by or at
the direction of the Master Portfolios'
Board of Trustees.
MONEY MARKET FUND
The Fund's NAV is expected to be constant at $1.00 per share, although this
value is not guaranteed. The NAV is
determined at 12 noon, Eastern time on
days the New York Stock Exchange is open.
The Fund values its securities at their
amortized cost. This method involves
valuing an instrument at its cost and
thereafter applying a constant
amortization to maturity of any discount
or premium, regardless of the impact of
fluctuating interest rates on the market
value of the instrument.
31
<PAGE> 34
SHAREHOLDER INFORMATION
[ICON]
PURCHASING AND ADDING TO YOUR SHARES
You may purchase Funds
through the Funds'
Distributor or through
banks, brokers and other
investment
representatives, which
may charge additional
fees and may require
higher minimum
investments or impose
other limitations on
buying and selling
shares. If you purchase
shares through an
investment
representative, that
party is responsible for
transmitting orders by
close of business and
may have an earlier
cut-off time for
purchase and sale
requests. Consult your
investment
representative or
institution for specific
information.
<TABLE>
<CAPTION>
MINIMUM MINIMUM
INITIAL SUBSEQUENT
ACCOUNT TYPE INVESTMENT INVESTMENT
<S> <C> <C>
Regular (non-retirement) $1,000 $50
----------------------------------------------------------
Retirement (IRA) $ 250 $50
----------------------------------------------------------
Automatic Investment Plan $1,000 $50
</TABLE>
All purchases must be in U.S. dollars. A
fee will be charged for any checks that do
not clear. Third-party checks are not
accepted.
A Fund may waive its minimum purchase
requirement and the Distributor may reject
a purchase order if it considers it in the
best interest of the Fund and its
shareholders.
-----------------------------------------------------------------------------
AVOID 31% TAX WITHHOLDING
The Funds are required to withhold 31% of taxable dividends, capital gains
distributions and redemptions paid to shareholders who have not provided the
Funds with their certified taxpayer identification number in compliance with
IRS rules. To avoid this, make sure you provide your correct Tax
Identification Number (Social Security Number for most investors) on your
account application.
-----------------------------------------------------------------------------
32
<PAGE> 35
SHAREHOLDER INFORMATION
[ICON]
PURCHASING AND ADDING TO YOUR SHARES
CONTINUED
INSTRUCTIONS FOR OPENING OR
ADDING TO AN ACCOUNT
BY REGULAR MAIL
Initial Investment:
1. Carefully read and complete the application. Establishing your account
privileges now saves you the inconvenience of having to add them later.
2. Make check, bank draft or money order payable to "American Independence
Funds Trust."
3. Mail to: American Independence Funds Trust, P.O. Box 182498, Columbus, OH
43219-2498.
Subsequent Investments:
1. Use the investment slip attached to your account statement.
Or, if unavailable,
2. Include the following information on a piece of paper:
- Fund name
- Share class
- Amount invested
- Account name
- Account number
Include your account number on your check.
3. Mail to: American Independence Funds Trust,
P.O. Box 182498, Columbus, OH 43219-2498.
BY OVERNIGHT SERVICE
See instructions 1-2 above for subsequent investments.
3. Send to: American Independence Funds,
c/o BISYS Fund Services,
Attn: T.A. Operations, 3435 Stelzer Road, Columbus, OH 43219.
ELECTRONIC PURCHASES
Your bank must participate in the Automated Clearing House (ACH) and must be
a U.S. Bank. Your bank or broker may charge for this service.
Establish electronic purchase option on your account application or call
(888) 266-8787. Your account can generally be set up for electronic purchases
within 15 days.
Call (888) 266-8787 to arrange a transfer from your bank account.
ELECTRONIC VS. WIRE TRANSFER
Wire transfers allow financial institutions to send funds to each other, almost
instantaneously. With an
electronic purchase or
sale, the transaction is
made through the
Automated Clearing House
(ACH) and may take up to
eight days to clear.
There is generally no fee
for ACH transactions.
33
<PAGE> 36
SHAREHOLDER INFORMATION
[ICON]
PURCHASING AND ADDING TO YOUR SHARES
CONTINUED
BY WIRE TRANSFER
Note: Your bank may charge a wire transfer fee.
Please phone the Funds at (888) 266-8787 for instructions on opening an
account or purchasing additional shares by wire transfer.
You can add to your account by using the convenient options described below.
The Fund reserves the right to change or eliminate these privileges at any
time with 60 days notice.
AUTOMATIC INVESTMENT PLAN
You can make automatic investments in the Funds from your bank account.
Automatic investments can be as little as $50, once you've invested the
$1,000 minimum required to open the account.
To invest regularly from your bank account:
Complete the Automatic Investment Plan portion on your Account Application.
Make sure you note:
Your bank name, address and account number
The amount you wish to invest automatically (minimum $50)
When you want to invest (on either the fifth or twentieth day of each
month)
Attach a voided personal check.
-----------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
All dividends and distributions will be automatically reinvested unless you
request otherwise. There are no sales charges for reinvested distributions.
Dividends are higher for Service Shares than for Premium Shares, because
Premium Shares are subject to higher distribution expenses. Capital gains are
distributed at least annually.
Distributions are made on a per share basis regardless of how long you've
owned your shares. Therefore, if you invest shortly before the distribution
date, some of your investment will be returned to you in the form of a
distribution.
-----------------------------------------------------------------------------
34
<PAGE> 37
SHAREHOLDER INFORMATION
[ICON]
SELLING YOUR SHARES
INSTRUCTIONS FOR SELLING SHARES
You may sell your shares
at any time. Your sales
price will be the next NAV
after your sell order is
received by the Fund, its
transfer agent, or your
investment representative.
Normally you will receive
your proceeds within a
week after your request is
received. See section on
"General Policies on
Selling Shares" below.
BY TELEPHONE
(unless you have declined telephone sales privileges)
1. Call (888) 266-8787 with instructions as to how you wish to receive your
funds (mail, wire, and electronic transfer).
BY MAIL
1. Call (888) 266-8787 to request redemption forms or write a letter of
instruction indicating:
- your Fund and account number
- amount you wish to redeem
- address where your check should be sent
- account owner signature
2. Mail to: American Independence Funds, P.O. Box 182498 Columbus, OH
43218-2499
BY OVERNIGHT SERVICE
See instruction 1 above.
2. Send to: American Independence Funds, c/o BISYS Fund Services, Attn:
T.A. Operations, 3435 Stelzer Road, Columbus, OH 43219
WIRE TRANSFER
You must indicate this option on your application.
Call (888) 266-8787 to request a wire transfer. If you call by 4 p.m. Eastern
time, your payment will normally be wired to your bank on the next business
day.
Note: Your financial institution may charge a separate fee.
WITHDRAWING MONEY FROM YOUR FUND INVESTMENT
As a mutual fund shareholder, you are technically selling shares when you
request a withdrawal in cash. This is also
known as redeeming shares or a redemption of
shares.
35
<PAGE> 38
SHAREHOLDER INFORMATION
[ICON]
SELLING YOUR SHARES
CONTINUED
ELECTRONIC REDEMPTION
Call (888) 266-8787 to request an electronic redemption.
Your bank must participate in the Automated Clearing House (ACH) and must be
a U.S. bank.
If you call by 4 p.m. Eastern time, the NAV of your shares will be determined
on the same day and the proceeds credited within 7 days.
Your bank may charge for this service.
SYSTEMATIC WITHDRAWAL PLAN
You can receive automatic payments from your account on a monthly, quarterly,
semi-annual or annual basis. The minimum withdrawal is $100. To activate this
feature:
- Make sure you've checked the appropriate box on the Account Application. Or
call (888) 266-8787.
- Include a voided personal check.
- Your account must have a value of $10,000 or more to start withdrawals.
- If the value of your account falls below $500, you may be asked to add
sufficient funds to bring the account back to $500, or the Fund may close
your account and mail the proceeds to you.
REDEMPTION BY CHECK WRITING -- THE MONEY MARKET FUND
Each month you may write checks in amounts of $500 or more on your account in
the Money Market Fund. To obtain checks, complete the signature card section
of the Account Application or contact the Fund to obtain a signature card.
Dividends and distributions will continue to be paid up to the day the check
is presented for payment. The check writing feature may be modified or
terminated upon 30-days' written notice. You must maintain the minimum
required account balance of $500 and you may not close your Money Market Fund
account by writing a check.
GENERAL POLICIES ON SELLING SHARES
REDEMPTIONS IN WRITING REQUIRED
You must request redemption in writing in the following situations:
1. Redemptions from Individual Retirement Accounts (IRAs).
2. Redemption requests requiring a signature guarantee, which include each of
the following.
- Redemptions over $10,000
- Your account registration or the name(s) in your account has changed within
the last 15 days
- The check is not being mailed to the address on your account
- The check is not being made payable to the owner of the account
- The redemption proceeds are being transferred to another Fund account with
a different registration.
A signature guarantee can be obtained from a financial institution, such as a
bank, broker-dealer, credit union, clearing agency, or savings association.
36
<PAGE> 39
SHAREHOLDER INFORMATION
[ICON]
GENERAL POLICIES ON SELLING SHARES
CONTINUED
VERIFYING TELEPHONE REDEMPTIONS
The Fund makes every effort to ensure that telephone redemptions are only
made by authorized shareholders. All telephone calls are recorded for your
protection and you will be asked for information to verify your identity.
Given these precautions, unless you have specifically indicated on your
application that you do not want the telephone redemption feature, you may be
responsible for any fraudulent telephone orders. If appropriate precautions
have not been taken, the Transfer Agent may be liable for losses due to
unauthorized transactions.
REDEMPTION WITHIN 15 BUSINESS DAYS OF INITIAL INVESTMENT
When you have made your initial investment by check, the proceeds of your
redemption may be held up to 15 business days until the Transfer Agent is
satisfied that the check has cleared. You can avoid this delay by purchasing
shares with a certified check.
POSTPONEMENT OF REDEMPTION REQUEST
Payment for shares may be delayed under extraordinary circumstances or as
permitted by the Securities and Exchange Commission in order to protect
remaining shareholders.
REDEMPTION IN KIND
Each Fund reserves the right to make payment in securities rather than cash,
known as "redemption in kind." This could occur under extraordinary
circumstances, such as a very large redemption that could affect Fund
operations (for example, more than 1% of the Fund's net assets). If the Fund
deems it advisable for the benefit of all shareholders, redemption in kind
will consist of securities equal in market value to your shares. When you
convert these securities to cash, you will pay brokerage charges.
CLOSING OF SMALL ACCOUNTS
If your account falls below $500 due to redemptions, the Fund may ask you to
increase your balance. If it is still below $500 after 30 days from written
notice by the Fund to you, the Fund may close your account and send you the
proceeds at the current NAV.
UNDELIVERABLE REDEMPTION CHECKS
For any shareholder who chooses to receive distributions in cash: If
distribution checks (1) are returned and marked as "undeliverable" or (2)
remain uncashed for six months, your account will be changed automatically so
that all future distributions are reinvested in your account. Checks that
remain uncashed for six months will be canceled and the money reinvested in
the appropriate Fund.
37
<PAGE> 40
SHAREHOLDER INFORMATION
[ICON]
DISTRIBUTION ARRANGEMENTS/SALES CHARGES
This section describes
the sales charges and
fees you will pay as an
investor in different
share classes offered by
the Funds and ways to
qualify for reduced sales
charges.
<TABLE>
<S> <C> <C>
TYPES OF CHARGES SERVICE SHARES PREMIUM SHARES
Sales Charge (Load) Front-end sales charge (not None
applicable to the Money Market
Fund); reduced sales charges
available.
Distribution and Service (12b-1) Subject to annual distribution Subject to annual distribution
Fee* fees of up to 0.25% of the Fund's fees of up to 0.75% of the Fund's
average daily net assets. average daily net assets.
Fund Expenses* Lower annual expenses than Premium Higher annual expenses than
Shares. Service Shares.
</TABLE>
* See "Service Organization Fees" below for other differences in class
expenses and "Fee Table" for applicable current 12b-1 fee waivers.
CALCULATION OF SALES CHARGES
Service Shares are sold at their public offering price. This price includes
the initial sales charge. Therefore, part of the money you invest will be
used to pay the sales charge. The remainder is invested in Fund shares. The
sales charge decreases with larger purchases. There is no sales charge on
reinvested dividends and distributions.
The current sales charge rates applicable to NestEgg Funds are as follows:
<TABLE>
<CAPTION>
SALES CHARGE SALES CHARGE
AS A % OF AS A % OF
YOUR INVESTMENT OFFERING PRICE YOUR INVESTMENT
--------------- -------------- ---------------
<S> <C> <C>
$0 up to $100,000 3.00% 3.09%
$100,001 and above 2.00% 2.56%
</TABLE>
There are no sales charges applicable to Money Market Fund purchases.
SALES CHARGE REDUCTIONS
Reduced sales charges are available to shareholders with investments of more
than $100,000. In addition, you may qualify for reduced sales charges under
the following circumstances.
- Letter of Intent. You inform the Fund in writing that you intend to
purchase enough shares over a 13-month period to qualify for a reduced
sales charge.
38
<PAGE> 41
SHAREHOLDER INFORMATION
[ICON]
- Rights of Accumulation. When the value of shares you already own plus the
amount you intend to invest reaches the amount needed to qualify for
reduced sales charges, your added investment will qualify for the reduced
sales charge.
- Combination Privilege. Combine accounts of multiple Funds (excluding the
Money Market Fund) or accounts of immediate family household members
(spouse and children under 21) to achieve reduced sales charges.
SALES CHARGE WAIVERS
The following qualify for waivers of sales charges applicable to Service
Class shares:
- Existing shareholders of a Fund upon the reinvestment of dividend and
capital gain distributions.
- Officers, trustees and employees of the Funds; officers, directors,
advisory board members, employees and retired employees of INTRUST Bank and
its affiliates; and officers, directors and employees of any firm providing
the Funds with legal, administrative, distribution, marketing, investment
advisory or other services (and spouses, children and parents of each of
the foregoing);
- Investors for whom INTRUST Bank or its affiliates, an INTRUST correspondent
bank, any sub-adviser or other financial institution acts in a fiduciary,
advisory, custodial, agency, or similar capacity;
- Fund shares purchased with the proceeds from a distribution from an account
for which INTRUST Bank or its affiliates acts in a fiduciary, advisory,
custodial, agency, or similar capacity (this waiver applies only to the
initial purchase of a Fund subject to a sales load);
- Investors who purchase Shares of a Fund through a payroll deduction plan, a
401(k) plan, a 403(b) plan, a 457 plan or other defined contribution plan,
which by its terms permits the purchases of Shares;
- Shares purchased in connection with "wrap" type investment programs,
non-transaction fee investment programs and programs offered by fee-based
financial planners, and other types of financial institutions (including
omnibus service providers).
-----------------------------------------------------------------------------
REINSTATEMENT PRIVILEGE
If you have sold shares and decide to reinvest in the Fund within a 90 day
period, you will not be charged the applicable sales load on amounts up to
the value of the shares you sold. You must provide a written reinstatement
request and payment within 90 days of the date your instructions to sell were
processed.
-----------------------------------------------------------------------------
39
<PAGE> 42
SHAREHOLDER INFORMATION
[ICON]
DISTRIBUTION (12B-1) FEES
12b-1 fees compensate the Distributor and other dealers and investment
representatives for services and expenses relating to the sale and
distribution of the Fund's shares and/or for providing shareholder services.
12b-1 fees are paid from Fund assets on an ongoing basis, and will increase
the cost of your investment.
Premium Class shares pay a 12b-1 fee of up to 0.75% of the average daily net
assets of a Fund. Service Class shares pay a 12b-1 fee of up to 0.25% of the
average daily net assets of a Fund.
Over time shareholders will pay more than the equivalent of the maximum
permitted front-end sales charge because the 12b-1 distribution and service
fees are paid out of the Fund's assets on an on-going basis.
SERVICE ORGANIZATION FEES
Service Organization fees compensate various banks, trust companies,
broker-dealers and other financial organizations for administrative services
such as maintaining shareholder accounts and records for those investors
purchasing shares through these channels. Premium shares and Service shares
shareholders may pay a service organization fee of up to 0.25% of the daily
net assets of each Fund for services such as record keeping, communication
with and education of shareholders, and asset allocation services.
40
<PAGE> 43
SHAREHOLDER INFORMATION
[ICON]
MASTER-FEEDER FUND ARRANGEMENTS
Each NestEgg Fund operates under a master-feeder structure. This means that
each NestEgg Fund seeks its investment objective by investing all of its
investable assets in another investment company which has a substantially
identical investment objective. Each NestEgg Fund invests all of its assets
in a corresponding Master Portfolio (each a "Master Portfolio"), each a
series of Master Investment Portfolio. Each NestEgg Fund may withdraw its
assets from the Master Portfolio and invest its assets in another investment
company or, alternatively, it may hire INTRUST or any other investment
adviser to manage the NestEgg Fund's assets directly if the Fund's Board of
Trustees determines that this action would be in the shareholders' best
interests.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Any income a Fund receives is paid out, less expenses, in the form of
dividends to its shareholders. Dividends on the NestEgg Funds are paid
quarterly. Dividends on the Money Market Fund are paid monthly. Capital gains
for all Funds are distributed at least annually.
Dividends and distributions are treated in the same manner for federal income
tax purposes whether you receive them in cash or in additional shares.
An exchange of shares, like a redemption of shares, is considered a sale, and
any related gains may subject to applicable taxes.
Dividends are taxable as ordinary income. Taxation on capital gains will vary
with the length of time the Fund has held the security -- not how long the
shareholder has been in the Fund.
Dividends are taxable in the year in which they are paid, even if they appear
on your account statement the following year.
You will be notified in January each year about the federal tax status of
distributions made by the Fund, Depending on your residence for tax purposes,
distributions also may be subject to state and local taxes, including
withholding taxes.
Foreign shareholders may be subject to special withholding requirements.
There is a penalty on certain pre-retirement distributions from retirement
accounts. Consult your tax adviser about the federal, state and local tax
consequences in your particular circumstances.
41
<PAGE> 44
SHAREHOLDER INFORMATION
[ICON]
EXCHANGING YOUR SHARES
Shares of any Fund in the
Trust may be exchanged for
shares of the same class in
any other Fund in the
Trust. You must meet the
minimum investment
requirements for the Fund
into which you are
exchanging. Exchanges from
one Fund to another are
taxable.
NOTES ON EXCHANGES
- The registration and
tax identification
numbers of the two
accounts must be
identical.
- The Exchange Privilege
may be changed or
eliminated at any time
upon a 60-day notice to
shareholders.
- No transaction fees are
charged for exchanges.
- Be sure to carefully
read the prospectus of
any fund into which you
wish to exchange.
- All exchanges are based
upon the relative net
asset value next
determined after the
exchange order is
received by the Funds.
INSTRUCTIONS FOR EXCHANGING SHARES
Exchanges may be made by sending a written request to American Independence
Funds, P.O. Box 182498, Columbus OH
43218-2499, or by calling (888)
266-8787. Please provide the
following information:
- Your name and telephone number
- The exact name on your account and account number
- Taxpayer identification number (usually your Social Security number)
- Dollar value or number of shares to be exchanged
- The name of the Fund from which the exchange is to be made
- The name of the Fund into which the exchange is being made.
See "General Policies on Selling Shares" for important information about
telephone transactions.
42
<PAGE> 45
FINANCIAL HIGHLIGHTS
[ICON]
The financial highlights tables are intended to help you understand each
Fund's financial performance for the period of its operations. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate that an investor would have earned
(or lost) on an investment in each Fund (assuming reinvestment of all
dividends and distributions). The financial highlights for the Money Market
Fund's Service Class have been audited by KPMG LLP, whose report, along with
the Fund's financial statements, are included in American Independence Funds
Annual Report. The financial highlights for the NestEgg Fund's Service Class
Shares have also been audited by KPMG LLP, whose report, along with the
Funds' financial statements are included in the NestEgg Funds Annual Report.
No financial information for NestEgg Funds' Premium Class and Money Market
Fund's Premium Class is shown since such classes were not operating for the
periods shown.
<TABLE>
<CAPTION>
SERVICE SHARES
---------------------------------------------------------------------------
NESTEGG CAPITAL
PRESERVATION FUND NESTEGG 2010 FUND
------------------------------------ ------------------------------------
FISCAL YEAR ENDED PERIOD ENDED(a) FISCAL YEAR ENDED PERIOD ENDED(a)
FEBRUARY 29, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
2000 1999 2000 1999
----------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD........................... $ 9.89 $10.00 $ 9.92 $10.00
------ ------ ------- ------
INVESTMENT ACTIVITIES:
Net investment income............... 0.31 0.03 0.21 0.03
Net realized and unrealized gains
(losses) on investments........... 0.09 (0.14) 0.50 (0.11)
------ ------ ------- ------
Total from Investment
Activities...................... 0.40 (0.11) 0.71 (0.08)
------ ------ ------- ------
DISTRIBUTIONS:
Net investment income............... (0.34) -- (0.24) --
Net realized gains on investment
transactions...................... -- -- (0.02) --
Tax return of capital............... --** -- -- --
------ ------ ------- ------
Total Distributions............... (0.34) -- (0.26) --
------ ------ ------- ------
NET ASSET VALUE, END OF PERIOD........ $ 9.95 $ 9.89 $ 10.37 $ 9.92
====== ====== ======= ======
TOTAL RETURN.......................... 4.19% (1.10%)(b) 7.24% (0.80%)(b)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (000's)..... $5,876 $1,316 $13,671 $2,729
Ratios to average net assets:(d)
Expenses............................ 1.49% 1.50%(c) 1.50% 1.29%(c)
Net investment income............... 3.12% 2.68%(c) 2.27% 2.46%(c)
Expenses(*)......................... 3.16% 12.20%(c) 2.94% 8.26%(c)
Portfolio turnover rate(e)............ 55% 66% 49% 38%
</TABLE>
------------------
(*) During the period certain fees were voluntarily reduced and/or
reimbursed. If such voluntary fee reductions and/or reimbursements had
not occurred, the ratio would have been as indicated.
(**) The amount is less than $0.005.
(a) Period from January 4, 1999 (commencement of operations).
(b) Not annualized.
(c) Annualized.
(d) The per share amounts and ratios reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses of
the corresponding Master Portfolios.
(e) Represents annualized portfolio turnover rate of corresponding Master
Portfolio for the fiscal years ended February 29, 2000, and February 28,
1999, respectively.
43
<PAGE> 46
FINANCIAL HIGHLIGHTS
[ICON]
<TABLE>
<CAPTION>
SERVICE SHARES
---------------------------------------------------------------------------
NESTEGG 2020 FUND NESTEGG 2030 FUND
------------------------------------ ------------------------------------
FISCAL YEAR ENDED PERIOD ENDED(a) FISCAL YEAR ENDED PERIOD ENDED(a)
FEBRUARY 29, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
2000 1999 2000 1999
----------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD...................... $ 9.93 $10.00 $ 9.92 $10.00
------- ------ ------ ------
INVESTMENT ACTIVITIES:
Net investment income.......... 0.07(f) 0.01 0.07 --
Net realized and unrealized
gains (losses) on
investments................. 0.94 (0.08) 1.14 (0.08)
------- ------ ------ ------
Total from Investment
Activities................ 1.01 (0.07) 1.21 (0.08)
------- ------ ------ ------
DISTRIBUTIONS:
Net investment income.......... (0.13) -- (0.06) --
Net realized gains on
investment transactions..... (0.05) -- (0.05) --
------- ------ ------ ------
Total Distributions......... (0.18) -- (0.11) --
------- ------ ------ ------
NET ASSET VALUE, END OF PERIOD... $ 10.76 $ 9.93 $11.02 $ 9.92
======= ====== ====== ======
TOTAL RETURN..................... 10.20% (0.70%)(b) 12.28% (0.80%)(b)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period
(000's)........................ $18,830 $7,149 $7,371 $1,198
Ratios to average net assets:(d)
Expenses....................... 1.50% 1.69%(c) 1.49% 1.50%(c)
Net investment income.......... 1.30% 0.81%(c) 0.72% 0.40%(c)
Expenses(*).................... 3.47% 5.69%(c) 2.48% 17.19%(c)
Portfolio turnover rate(e)....... 43% 36% 26% 19%
</TABLE>
------------------
(*) During the period certain fees were voluntarily reduced and/or
reimbursed. If such voluntary fee reductions and/or reimbursements had
not occurred, the ratio would have been as indicated.
(**) The amount is less than $0.005.
(a) Period from January 4, 1999 (commencement of operations).
(b) Not annualized.
(c) Annualized.
(d) The per share amounts and ratios reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses of
the corresponding Master Portfolios.
(e) Represents annualized portfolio turnover rate of corresponding Master
Portfolio for the fiscal years ended February 29, 2000 and February 28,
1999, respectively.
(f) Per share net investment income has been calculated using the daily
average share method.
44
<PAGE> 47
FINANCIAL HIGHLIGHTS
[ICON]
<TABLE>
<CAPTION>
SERVICE SHARES
-------------------------------------
NESTEGG 2040 FUND
-------------------------------------
FISCAL YEAR ENDED PERIOD ENDED(a)
FEBRUARY 29, FEBRUARY 28,
2000 1999
----------------- ----------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD................................................ $ 9.95 $10.00
------ ------
INVESTMENT ACTIVITIES:
Net investment loss...................................... --** (0.01)
Net realized and unrealized gains (losses) on
investments........................................... 1.52 (0.04)
------ ------
Total from Investment Activities...................... 1.52 (0.05)
------ ------
DISTRIBUTIONS:
In excess of net investment income....................... (0.01) --
Net realized gains on investment transactions............ (0.04) --
------ ------
Total Distributions................................... (0.05) --
------ ------
NET ASSET VALUE, END OF PERIOD............................. $11.42 $ 9.95
====== ======
TOTAL RETURN............................................... 15.36% (0.50%)(b)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (000's).......................... $8,028 $ 876
Ratios to average net assets:(d)
Expenses................................................. 1.48% 1.50%(c)
Net investment loss...................................... (0.05%) (0.51%)(c)
Expenses(*).............................................. 2.32% 14.00%(c)
Portfolio turnover rate(e)................................. 29% 19%
</TABLE>
------------------
(*) During the period certain fees were voluntarily reduced and/or
reimbursed. If such voluntary fee reductions and/or reimbursements had
not occurred, the ratio would have been as indicated.
(**) The amount is less than $0.005.
(a) Period from January 4, 1999 (commencement of operations).
(b) Not annualized.
(c) Annualized.
(d) The per share amounts and ratios reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses of
the corresponding Master Portfolios.
(e) Represents annualized portfolio turnover rate of corresponding Master
Portfolio for the fiscal years ended February 29, 2000 and February 28,
1999, respectively.
45
<PAGE> 48
FINANCIAL HIGHLIGHTS
[ICON]
<TABLE>
<CAPTION>
MONEY MARKET FUND
---------------------------------------------------------------
SERVICE SHARES
---------------------------------------------------------------
JANUARY 23, 1997
YEAR ENDED YEAR ENDED TO
OCTOBER 31, 1999 OCTOBER 31, 1998 OCTOBER 31, 1997(a)
----------------- -------------------- --------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD....... $ 1.000 $ 1.000 $ 1.000
------- ------- -------
INVESTMENT ACTIVITIES:
Net investment income.................... 0.046 0.050 0.038
------- ------- -------
Total from Investment
Activities...................... 0.046 0.050 0.038
------- ------- -------
DISTRIBUTIONS:
Net investment income.................... (0.046) (0.050) (0.038)
------- ------- -------
Total Distributions............... (0.046) (0.050) (0.038)
------- ------- -------
NET ASSET VALUE, END OF PERIOD............. $ 1.000 $ 1.000 $ 1.000
======= ======= =======
TOTAL RETURN............................... 4.70% 5.13% 3.86%(b)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's).......... $97,364 $50,746 $55,566
Ratios to average net assets:
Expenses................................. 0.59% 0.67% 0.71%(c)
Net investment income.................... 4.61% 5.04% 4.92%(c)
Expenses(*).............................. 1.13% 1.03% 1.11%(c)
</TABLE>
------------------
(*) During the period certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratio would have been as
indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
46
<PAGE> 49
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 50
For more information about the Funds, the following documents are available free
upon request:
ANNUAL/SEMIANNUAL REPORTS:
The Funds' annual and semi-annual reports to shareholders contain additional
information on each Fund's investments. In the annual report, you will find a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI):
The SAI provides more detailed information about the Funds, including its
operations and investment policies. It is incorporated by reference and is
legally considered a part of this prospectus.
You can get free copies of Reports and the SAI or request other information and
discuss your questions about the Funds by contacting a broker or bank that sells
the Funds. Or contact the Funds at:
AMERICAN INDEPENDENCE FUNDS
TRUST
3435 STELZER ROAD
COLUMBUS, OHIO 43219
TELEPHONE: (888) 266-8787
You can review and copy the Fund's reports and SAIs at the Public Reference Room
of the Securities and Exchange Commission. You can get text-only copies:
X For a duplicating fee, by writing the Public Reference Section of the
Commission, Washington, D.C. 20549-0102 or calling 1-202-942-8090.
X Free from the Commission's Website at www.sec.gov.
X Requests for information may also be sent by electronic request to the
following e-mail address: [email protected].
Investment Company Act file no. 811-7505.
<PAGE> 51
AMERICAN INDEPENDENCE FUNDS TRUST
3435 STELZER ROAD, COLUMBUS, OHIO 43219
GENERAL AND ACCOUNT INFORMATION: (888) 266-8787
INTRUST FINANCIAL SERVICES, INC. - INVESTMENT ADVISER
("INTRUST" OR THE "ADVISER")
BISYS FUND SERVICES
ADMINISTRATOR AND DISTRIBUTOR
("BISYS" OR THE "ADMINISTRATOR" OR THE "DISTRIBUTOR")
STATEMENT OF ADDITIONAL INFORMATION
NestEgg Capital Preservation Fund
NestEgg 2010 Fund
NestEgg 2020 Fund
NestEgg 2030 Fund
NestEgg 2040 Fund
MONEY MARKET FUND
This Statement of Additional Information (the "SAI") describes one
Money Market Fund ("Money Market Fund") and five NestEgg Funds (each a "Fund",
collectively the "NestEgg Funds") offered by American Independence Funds Trust
(the "Trust"). The Trust is a registered investment company that currently
offers eleven series, including the Money Market Fund and the NestEgg Funds.
Each NestEgg Fund invests all of its assets in a separate portfolio
(each a "Master Portfolio") of Master Investment Portfolio ("MIP") having the
same investment objective and policies as the NestEgg Funds. Therefore, the
investment experience of each NestEgg Fund will correspond directly with the
relevant Master Portfolio's investment experience. This two-tiered approach is
commonly referred to as a master-feeder fund structure. MIP is an open-end,
series investment company consisting of twelve series including the Master
Portfolios. Barclays Global Fund Advisors ("BGFA") serves as investment adviser
to the corresponding Master Portfolio of each Fund. References to the
investments, investment policies and risks of the Funds unless otherwise
indicated, should be understood as references to the investments, investment
policies and risks of the corresponding Master Portfolios. INTRUST Financial
Services, Inc. ("INTRUST") serves as investment adviser (the "Adviser") to the
Funds. AMR Investment Services, Inc. serves as subadviser to the Money Market
Fund.
Each Fund constitutes a separate investment portfolio with distinct
investment objectives and policies. Shares of the Funds are sold to the public
by BISYS, as Distributor to the Funds, as an investment vehicle for individuals,
institutions, corporations and fiduciaries, including customers of INTRUST or
its affiliates.
This SAI is not a prospectus and is only authorized for distribution
when preceded or accompanied by a prospectus for the Funds dated June 30, 2000
(the "Prospectus"). This SAI contains additional and more detailed information
than that set forth in the Prospectus and should be read in conjunction with the
Prospectus. The Financial Statements included in the NestEgg Funds' Annual
Report dated February 29, 2000 and the Money Market Fund's Annual Report dated
October 31, 1999 are incorporated by reference to this SAI. The Prospectus and
Annual Reports may be obtained without charge by writing the Funds at the
address above or calling 1-888-266-8787.
June 30, 2000
<PAGE> 52
TABLE OF CONTENTS
PAGE
FUND HISTORY....................................................... 3
DESCRIPTIONS OF THE FUNDS
AND THEIR INVESTMENTS AND RISKS.................................... 3
PORTFOLIO SECURITIES............................................... 7
RISK CONSIDERATIONS................................................ 25
MANAGEMENT ........................................................ 26
ADMINISTRATION AND FUND ACCOUNTING SERVICES........................ 33
EXPENSES .......................................................... 35
DETERMINATION OF NET ASSET VALUE
OF THE NESTEGG FUNDS............................................... 35
PORTFOLIO TRANSACTIONS
OF THE NESTEGG FUNDS .............................................. 36
DETERMINATION OF NET ASSET OF
THE MONEY MARKET FUND.............................................. 37
PORTFOLIO TRANSACTIONS OF
MONEY MARKET FUND.................................................. 38
TAXATION .......................................................... 39
OTHER INFORMATION ................................................. 43
APPENDIX .......................................................... 48
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THE PROSPECTUS, OR IN THIS STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THE PROSPECTUSES AND, IF GIVEN OR MADE, SUCH INFORMATION OR
PRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUNDS.
THIS STATEMENT OF ADDITIONAL INFORMATION DOES NOT CONSTITUTE AN OFFERING BY THE
FUNDS IN ANY JURISDICTION IN WHICH SUCH AN OFFERING MAY NOT LAWFULLY BE MADE.
<PAGE> 53
FUND HISTORY
The Trust is a Delaware business trust established under a Declaration
of Trust dated January 26, 1996 and currently consists of eleven separately
managed portfolios. Each NestEgg Fund invests all of its assets in the
corresponding Master Portfolio of MIP (as shown below), which has the same
investment objective as the related Fund.
FUND CORRESPONDING MASTER PORTFOLIO
---- ------------------------------
NestEgg Capital Preservation Fund LifePath Income Master
Portfolio NestEgg 2010 Fund LifePath 2010 Master Portfolio
NestEgg 2020 Fund LifePath 2020 Master Portfolio
NestEgg 2030 Fund LifePath 2030 Master Portfolio
NestEgg 2040 Fund LifePath 2040 Master Portfolio
DESCRIPTION OF THE FUNDS AND THEIR INVESTMENTS AND RISKS
INVESTMENT OBJECTIVES. The Master Portfolios consist of five asset
allocation funds, each of which is a diversified fund offered by MIP.
Organizations and other entities such as the Funds that hold shares of
beneficial interest of a Master Portfolio may be referred to herein as "feeder
funds."
The Master Portfolios seek to provide long-term investors in a feeder
fund with an asset allocation strategy designed to maximize assets consistent
with the quantitatively measured risk such investors, on average, may be willing
to accept given their investment time horizons.
As with all mutual funds, there can be no assurance that the investment
objective of each Master Portfolio will be achieved. Each Master Portfolio's
investment objective cannot be changed without approval by the holders of a
majority (as defined in the Investment Company Act of 1940, as amended (the
"1940 Act")) of such Master Portfolio's outstanding voting shares.
INVESTMENT POLICIES. The Master Portfolios invest in a wide range of
U.S. and foreign equity and debt securities and money market instruments. Each
Master Portfolio is managed for investors in a feeder fund planning to retire
(or begin to withdraw substantial portions of their investment) approximately in
the year stated in the title of the Fund in which they invest (e.g., investors
in the NestEgg Capital Preservation Fund plan to retire before the year 2010).
As each target date approaches, each NestEgg Fund will invest more
conservatively, so that over time, stock investments are reduced and bond and
money market investments are increased.
The NestEgg Funds contain both "strategic" and "tactical" components,
with the strategic component weighted more heavily than the tactical component.
The strategic component of the Funds evaluates the risk that investors, on
average, may be willing to accept given their investment time horizons. The
strategic component thus determines the changing investment risk level of each
NestEgg Fund as time passes. The tactical component addresses short-term market
conditions. The tactical component thus adjusts the amount of investment risk
taken by each NestEgg Fund without regard to time horizon, but rather in
consideration of the relative risk-adjusted short-term attractiveness of various
asset classes. The NestEgg Funds may invest in a wide range of U.S. and foreign
investments and market sectors and may shift their allocations among investments
and sectors from time to time. To manage the NestEgg Funds, BGFA employs a
proprietary investment model (the "Model") that analyzes extensive financial and
economic data, including risk correlation and expected return statistics. The
Model selects indices representing segments of the global equity and debt
markets and the Funds invest to create market exposure by purchasing
representative samples of the indices in an attempt to replicate their
performance.
The Model has broad latitude to allocate the Funds' investments among
equity securities, debt securities and money market instruments. The NestEgg
Funds are not managed as balanced portfolios and are not required to maintain a
portion of their investments in each of the permitted investment categories at
all times. Until a NestEgg Fund attains an asset level of approximately $100 to
$150 million, the Model will allocate assets across fewer of the investment
<PAGE> 54
categories identified below than it otherwise would. As a NestEgg Fund
approaches this minimum asset level, the Model will add investment categories
from among those identified below, thereby approaching the desired investment
mix overtime. The portfolio of investments of each NestEgg Fund is compared from
time to time to the Model's recommended allocation. Recommended reallocations
are implemented subject to BGFA's assessment of current economic conditions and
investment opportunities. BGFA may change from time to time the criteria and
methods it uses to implement the recommendations of the Model. Recommended
reallocations are implemented in accordance with trading policies designed to
take advantage of market opportunities and reduce transaction costs. The asset
allocation mix selected by the Model is a primary determinant in the respective
NestEgg Fund's investment performance. BGFA manages other portfolios which also
invest in accordance with the Model. The performance of each of those other
portfolios is likely to vary from the performance of NestEgg Funds. Such
variation in performance is primarily due to different equilibrium asset-mix
assumptions used for the various portfolios, timing differences in the
implementation of the Model's recommendations and differences in expenses and
liquidity requirements. The overall management of each NestEgg Fund is based on
the recommendation of the Model, and no person is primarily responsible for
recommending the mix of asset classes in each Fund or the mix of securities
within the asset classes. Decisions relating to the Model are made by BGFA's
investment committee.
EQUITY SECURITIES. The Master Portfolios seek U.S. equity market
exposure through investment in securities representative of the following
indices of common stocks:
- The S&P/BARRA Value Stock Index (consisting of primarily
large-capitalization U.S. stocks with lower-than-average price/book ratios).
- The S&P/BARRA Growth Stock Index (consisting of primarily
large-capitalization U.S. stocks with higher-than-average price/book ratios).
- The Intermediate Capitalization Value Stock Index (consisting of
primarily medium-capitalization U.S. stocks with lower-than-average price/book
ratios).
- The Intermediate Capitalization Growth Stock Index (consisting of
primarily medium-capitalization U.S. stocks with higher-than-average price/book
ratios).
- The Intermediate Capitalization Utility Stock Index (consisting of
primarily medium-capitalization U.S. utility stocks).
- The Micro Capitalization Market Index (consisting of primarily
small-capitalization U.S. stocks).
- The Small Capitalization Value Stock Index (consisting of primarily
small-capitalization U.S. stocks with lower-than-average price/book ratios).
- The Small Capitalization Growth Stock Index (consisting of primarily
small-capitalization U.S. stocks with higher-than-average price/book ratios).
The Master Portfolios seek foreign equity market exposure through
investment in foreign equity securities, American Depositary Receipts, Global
Depository Receipts or European Depositary Receipts of issuers whose securities
are representative of the following indices of foreign equity securities:
- The Morgan Stanley Capital International (MSCI) Japan Index
(consisting of primarily large-capitalization Japanese stocks).
- The Morgan Stanley Capital International Europe, Australasia, Far
East Index (MSCI EAFE) Ex-Japan Index (consisting of primarily
large-capitalization foreign stocks, excluding Japanese stocks).
The Master Portfolios also may seek U.S. and foreign equity market
exposure through investment in equity securities of U.S. and foreign issuers
that are not included in the indices listed above.
<PAGE> 55
DEBT SECURITIES. The Master Portfolios seek U.S. debt market exposure
through investment in securities representative of the following indices of U.S.
debt securities:
- The Lehman Brothers Long-Term Government Bond Index (consisting of
all U.S. Government bonds with maturities of at least ten years).
- The Lehman Brothers Intermediate-Term Government Bond Index
(consisting of all U.S. Government bonds with maturities of less than ten years
and greater than one year).
- The Lehman Brothers Long-Term Corporate Bond Index (consisting of all
U.S. investment-grade corporate bonds with maturities of at least ten years).
- The Lehman Brothers Intermediate-Term Corporate Bond Index
(consisting of all U.S. investment-grade corporate bonds with maturities of less
than ten years and greater than one year).
- The Lehman Brothers Mortgage-Backed Securities Index (consisting of
all fixed-coupon mortgage pass-throughs issued by the Federal National Mortgage
Association, Government National Mortgage Association and Federal Home Loan
Mortgage Corporation with maturities greater than one year).
The Master Portfolios seek foreign debt market exposure through
investment in securities representative of the following index of foreign debt
securities:
- The Salomon Brothers Non-U.S. World Government Bond Index (consisting
of foreign government bonds with maturities of greater than one year).
Each U.S. and foreign debt security is expected to be part of an
issuance with a minimum outstanding amount at the time of purchase of
approximately $50 million and $100 million, respectively. Each security in which
a Master Portfolio invests must be rated at least "Baa" by Moody's Investors
Service, Inc. ("Moody's"), or "BBB" by Standard & Poor's Corporation ("S&P"),
Fitch Investors Service, Inc. ("Fitch") or Duff & Phelps, Inc. ("Duff") or, if
unrated, deemed to be of comparable quality by BGFA in accordance with
procedures approved by MIP's Board of Trustees. See "Risk Considerations" below.
MONEY MARKET INSTRUMENTS. The money market instrument portion of the
portfolio of each Master Portfolio generally is invested in high-quality money
market instruments, including U.S. Government obligations, obligations of
domestic and foreign banks, short-term corporate debt instruments and repurchase
agreements. See "Short-Term Instruments and Temporary Investments" below for a
more complete description of the money market instruments in which each Master
Portfolio may invest.
THE MASTER PORTFOLIOS
INVESTMENT RESTRICTIONS. Each Fund and Master Portfolio has adopted
investment policies which may be fundamental or non-fundamental. Fundamental
policies cannot be changed without approval by the holders of a majority (as
defined in the 1940 Act) of the outstanding voting securities of such Fund or
Master Portfolio, as the case may be.
Non-fundamental policies may be changed without shareholder approval by
vote of a majority of the Trustees of the MIP or the Trustees of the Trust, as
the case may be, at any time.
FUNDAMENTAL INVESTMENT RESTRICTIONS. Each Fund and each of the Master
Portfolios is subject to the following investment restrictions, all of which are
fundamental policies.
Each Fund and Master Portfolio may not:
<PAGE> 56
(1) invest more than 5% of its assets in the obligations of any single
issuer, except that up to 25% of the value of its total assets may be invested,
and securities issued or guaranteed by the U.S. Government, or its agencies or
instrumentalities may be purchased, without regard to any such limitation.
(2) hold more than 10% of the outstanding voting securities of any
single issuer. This Investment Restriction applies only with respect to 75% of
its total assets.
(3) invest in commodities, except that each Master Portfolio may
purchase and sell (i.e., write) options, forward contracts, futures contracts,
including those relating to indexes, and options on futures contracts or
indexes.
(4) purchase, hold or deal in real estate, or oil, gas or other mineral
leases or exploration or development programs, but each Master Portfolio may
purchase and sell securities that are secured by real estate or issued by
companies that invest or deal in real estate.
(5) borrow money, except to the extent permitted under the 1940 Act.
For purposes of this investment restriction, a Fund's or Master Portfolio's
entry into options, forward contracts, futures contracts, including those
relating to indices, and options on futures contracts or indices shall not
constitute borrowing to the extent certain segregated accounts are established
and maintained by the Master Portfolio.
(6) make loans to others, except through the purchase of debt
obligations and the entry into repurchase agreements. However, each Master
Portfolio may lend its portfolio securities in an amount not to exceed one-third
of the value of its total assets. Any loans of portfolio securities will be made
according to guidelines established by the Securities and Exchange Commission
("SEC") and the Board of Trustees of MIP or the Board of Trustees of the Trust,
as the case may be.
(7) act as an underwriter of securities of other issuers, except to the
extent that the Master Portfolios may be deemed an underwriter under the
Securities Act of 1933, as amended, by virtue of disposing of portfolio
securities.
(8) invest 25% or more of its total assets in the securities of issuers
in any particular industry or group of closely related industries except that,
in the case of each Master Portfolio, there shall be no limitation with respect
to investments in obligations of the U.S. Government, its agencies or
instrumentalities.
(9) issue any senior security (as such term is defined in Section 18(f)
of the 1940 Act), except to the extent the activities permitted in investment
restriction nos. 3 and 5 may be deemed to give rise to a senior security or as
otherwise permitted under the rules and regulations or an exemptive order of the
SEC.
(10) purchase securities on margin, but each Master Portfolio may make
margin deposits in connection with transactions in options, forward contracts,
futures contracts, including those related to indexes, and options on futures
contracts or indexes.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS. Each of the Funds and Master
Portfolios are subject to the following non-fundamental policies.
As a matter of non-fundamental policy:
(1) The Master Portfolios may invest in shares of other open-end
management investment companies, subject to the limitations of Section 12(d)(1)
of the 1940 Act. Under the 1940 Act, a Master Portfolio's investment in such
securities currently is limited, subject to certain exceptions, to (i) 3% of the
total voting stock of any one investment, (ii) 5% of such Master Portfolio's net
assets with respect to any one investment company, and (iii) 10% of such Master
Portfolio's net assets in the aggregate. Other investment companies in which the
Master Portfolios invest can be expected to charge fees for operating expenses,
such as investment advisory and administration fees, that would be in addition
to those charged by a Master Portfolio.
(2) Each Master Portfolio may not invest more than 15% of its net
assets in illiquid securities. For this purpose, illiquid securities include,
among others, (a) securities that are illiquid by virtue of the absence of a
readily
<PAGE> 57
available market or legal or contractual restrictions on resale, (b) fixed time
deposits that are subject to withdrawal penalties and that have maturities of
more than seven days, and (c) repurchase agreements not terminable within seven
days.
(3) Each Master Portfolio may lend securities from its portfolio to
brokers, dealers and financial institutions, in amounts not to exceed (in the
aggregate) one-third of a Master Portfolio's total assets. Any such loans of
portfolio securities will be fully collateralized based on values that are
marked to market daily. The Master Portfolios will not enter into any portfolio
security lending arrangement having a duration of longer than one year.
Notwithstanding any other investment policy or limitation (whether or
not fundamental), each Master Portfolio may invest all of its assets in the
securities of a single open-end management investment company with substantially
the same fundamental investment objective, policies and limitations as the
Master Portfolio. A decision to so invest all of its assets may, depending on
the circumstances applicable at the time, require approval of shareholders.
PORTFOLIO SECURITIES
THE NESTEGG FUNDS AND THEIR CORRESPONDING MASTER PORTFOLIOS MAY
PARTICIPATE IN THE FOLLOWING PERMITTED INVESTMENT ACTIVITIES AS INDICATED:
U.S. GOVERNMENT OBLIGATIONS. The Master Portfolios may invest in
various types of U.S. Government obligations. U.S. Government obligations
include securities issued or guaranteed as to principal and interest by the U.S.
Government, its agencies or instrumentalities. Payment of principal and interest
on U.S. Government obligations (i) may be backed by the full faith and credit of
the United States (as with U.S. Treasury obligations and GNMA certificates) or
(ii) may be backed solely by the issuing or guaranteeing agency or
instrumentality itself (as with FNMA notes). In the latter case, 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 where it is not
obligated to do so. 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.
SECURITIES OF NON-U.S. ISSUERS. The Master Portfolios may invest in
certain securities of non-U.S. issuers as discussed below.
OBLIGATIONS OF FOREIGN GOVERNMENTS, SUPRANATIONAL ENTITIES AND BANKS.
Each Master Portfolio may invest in U.S. dollar-denominated short-term
obligations issued or guaranteed by one or more foreign governments or any of
their political subdivisions, agencies or instrumentalities that are determined
by BGFA to be of comparable quality to the other obligations in which such
Master Portfolio may invest. The Master Portfolios may also invest in debt
obligations of supranational entities. Supranational entities include
international organizations designated or supported by governmental entities to
promote economic reconstruction or development and international banking
institutions and related government agencies. Examples include the International
Bank for Reconstruction and Development (the World Bank), the European Coal and
Steel Community, the Asian Development Bank and the InterAmerican Development
Bank. The percentage of each Master Portfolio's assets invested in obligations
of foreign governments and supranational entities will vary depending on the
relative yields of such securities, the economic and financial markets of the
countries in which the investments are made and the interest rate climate of
such countries.
Each Master Portfolio may invest a portion of its total assets in
high-quality, short-term (one year 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.
FOREIGN EQUITY SECURITIES AND DEPOSITARY RECEIPTS. Each Master
Portfolio's assets may be invested in equity securities of foreign issuers and
American Depositary Receipts ("ADRs") and European Depositary Receipts ("EDRs")
of such issuers.
<PAGE> 58
ADRs and EDRs may not necessarily be denominated in the same currency
as the securities into which they may be converted. ADRs are receipts typically
issued by a United States bank or trust company which evidence ownership of
underlying securities issued by a foreign corporation. EDRs, which are sometimes
referred to as Continental Depositary Receipts ("CDRs"), are receipts issued in
Europe typically by non-United States banks and trust companies that evidence
ownership of either foreign or domestic securities. Generally, ADRs in
registered form are designed for use in the United States securities markets and
EDRs and CDRs in bearer form are designed for use in Europe. Each Master
Portfolio may invest in ADRs, EDRs and CDRs through "sponsored" or "unsponsored"
facilities. A sponsored facility is established jointly by the issuer of the
underlying security and a depositary, whereas a depositary may establish an
unsponsored facility without participation by the issuer of the deposited
security. Holders of unsponsored depositary receipts generally bear all the
costs of such facilities and the depositary of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited security or to pass through voting
rights to the holders of such receipts in respect of the deposited securities.
MORTGAGE RELATED SECURITIES. Each Master Portfolio may invest in
mortgage-related securities ("MBSs"), which are securities representing
interests in a pool of loans secured by mortgages. The resulting cash flow from
these mortgages is used to pay principal and interest on the securities. MBSs
are assembled for sale to investors generally by various government-sponsored
enterprises such as the Federal National Mortgage Association ("FNMA") and the
Federal Home Loan Mortgage Corporation ("FHLMC") or are guaranteed by such
governmental agencies as the Government National Mortgage Association ("GNMA").
Regardless of the type of guarantee, all MBSs are subject to interest rate risk
(i.e., exposure to loss due to changes in interest rates) and prepayment risk.
Prepayment risk is the risk to the Master Portfolios that, as interest rates
fall, homeowners will refinance existing mortgages, causing mortgage-backed
securities to have reduced yields.
GNMA MBSs include GNMA Mortgage Pass-through Certificates
(also known as "Ginnie Maes") which are guaranteed as to the full and timely
payment of principal and interest by GNMA and such guarantee is backed by the
authority of GNMA to borrow funds from the U.S. Treasury to make payments under
its guarantee. GNMA is a wholly-owned U.S. Government corporation within the
Department of Housing and Urban Development and, as such, Ginnie Maes 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 federal government). FNMA is a
government-sponsored enterprise which is also a private corporation whose stock
trades on the NYSE. Fannie Maes are guaranteed as to timely payment of principal
and interest by FNMA. MBSs issued by FHLMC include FHLMC Mortgage Participation
Certificates ("Freddie Macs" or "PCs"). FHLMC is a government-sponsored
enterprise whose MBSs are solely obligations of FHLMC. Therefore, Freddie Macs
are not guaranteed by the United States or by any Federal Home Loan Bank and do
not constitute a debt or obligation of the United States or of any Federal Home
Loan Bank. FHLMC guarantees timely payment of interest, but only ultimate
payment of principal due under the obligations it issues. FHLMC may, under
certain circumstances, remit the guaranteed payment of principal at any time
after default on an underlying mortgage, but in no event later than one year
after the guarantee becomes payable.
FUTURES CONTRACTS AND OPTIONS TRANSACTIONS. The Master Portfolios may
use futures contracts as a hedge against the effects of interest rate changes or
changes in the market value of the stocks comprising the index in which such
Master Portfolio invests.
<PAGE> 59
A Futures Contract provides for the future sale by one party and purchase by
another party of a specified amount of a specific financial instrument for a
specified price at a designated date, time and place. An Index Futures Contract
provides for the delivery, at a designated date, time and place of an amount of
cash equal to a specified dollar amount times the difference between the index
value at the close of trading on the contract and the price at which the
contract is originally struck, no physical delivery of the securities comprising
the index is made. Options on Futures contracts are similar to options on
securities or currencies except that options on futures contracts give the
purchaser the right, in return for the premium paid, to assume a position in a
Futures contract (a long position if the option is a call and a short position
if the option is a put) at a specified exercise price at any time during the
period of the option. Futures contracts and options are standardized and traded
on exchanges, where the exchange serves as the ultimate counterparty for all
contracts. Consequently, the primary credit risk on futures contracts is the
creditworthiness of the exchange. Futures contracts are subject to market risk
(i.e., exposure to adverse price changes). At the time it enters into a futures
transaction, a Master Portfolio is required to make a performance deposit
(initial margin) of cash or liquid securities in a segregated account in the
name of the futures broker. Subsequent payments of "variation margin" are then
made on a daily basis, depending on the value of the futures position which is
continually "marked to market."
A Master Portfolio may engage only in futures contract transactions
involving (i) the sale of a futures contract (i.e., short positions) to hedge
the value of securities held by such Master Portfolio; (ii) the purchase of a
futures contract when such Master Portfolio hold a short position having the
same delivery month (i.e., a long position offsetting a short position); or
(iii) the purchase of a futures contract to permit the Master Portfolio to, in
effect, participate in the market for the designated securities underlying the
futures contract without actually owning such designated securities. When a
Master Portfolio purchases a futures contracts, it will create a segregated
account consisting of cash or other liquid assets in an amount equal to the
total market value of such futures contract, less the amount of initial margin
for the contract.
If a Master Portfolio enters into a short position in a futures
contract as a hedge against anticipated adverse market movements and the market
then rises, the increase in the value of the hedged securities will be offset,
in whole or in part, by a loss on the futures contract. If instead a Master
Portfolio purchases a futures contract as a substitute for investing in the
designated underlying securities, a Master Portfolio experiences gains or losses
that correspond generally to gains or losses in the underlying securities. The
latter type of futures contract transactions permits a Master Portfolio to
experience the results of being fully invested in a particular asset class,
while maintaining the liquidity needed to manage cash flows into or out of the
Master Portfolio (e.g., from purchases and redemptions of Master Portfolio
shares). Under normal market conditions, futures contract positions may be
closed out on a daily basis. The Master Portfolios expect to apply a portion of
their cash or cash equivalents maintained for liquidity needs to such
activities.
Transactions by a Master Portfolio in futures contracts involve certain
risks. One risk in employing futures contracts as a hedge against cash market
price volatility is the possibility that futures prices will correlate
imperfectly with the behavior of the prices of the securities in the Master
Portfolio's investment portfolio. Similarly, in employing futures contracts as a
substitute for purchasing the designated underlying securities, there is a risk
that the performance of the futures contract may correlate imperfectly with the
performance of the direct investments for which the futures contract is a
substitute. In addition, commodity exchanges generally limit the amount of
<PAGE> 60
fluctuation permitted in futures contract prices during a single trading day,
and the existence of such limits may prevent the prompt liquidation of futures
positions in certain cases. Limits on price fluctuations are designed to
stabilize prices for the benefit of market participants; however, there could be
cases where the Master Portfolio could incur a larger loss due to the delay in
trading than it would have if no limit rules had been in effect.
In order to comply with undertakings made by the Master Portfolio
pursuant to Commodity Futures Trading Commission ("CFTC") Regulation 4.5, the
Master Portfolios will use futures and option contracts solely for bona fide
hedging purposes within the meaning and intent of CFTC Reg. 1.3(z); provided,
however, that in addition, with respect to positions in commodity futures or
commodity option contracts which do not come within the meaning and intent of
CFTC Reg. 1.3(z), the aggregate initial margin and premiums required to
establish such positions will not exceed five percent of the liquidation value
of the Master Portfolio's portfolio, after taking into account unrealized
profits and unrealized losses on any such contract it has entered into; and
provided further, that in the case of an option that is in-the-money at the time
of purchase, the in-the-money amount as defined in CFTC Reg. 190.01(x) may be
excluded in computing such five percent.
STOCK INDEX FUTURES AND OPTIONS ON STOCK INDEX FUTURES. Each Master
Portfolio may invest in stock index futures and options on stock index futures
as a substitute for a comparable market position in the underlying securities. A
stock index future obligates the seller to deliver (and the purchaser to take),
effectively, an amount of cash equal to a specific dollar amount times the
difference between the value of a specific stock index at the close of the last
trading day of the contract and the price at which the agreement is made. No
physical delivery of the underlying stocks in the index is made. With respect to
stock indices that are permitted investments, each Master Portfolio intends to
purchase and sell futures contracts on the stock index for which it can obtain
the best price with consideration also given to liquidity. There can be no
assurance that a liquid market will exist at the time when a Master Portfolio
decides to close out a futures contract or a futures option position. Lack of a
liquid market may prevent liquidation of an unfavorable position.
INTEREST-RATE FUTURES CONTRACTS AND OPTIONS ON INTEREST-RATE FUTURES
CONTRACTS. Each Master Portfolio may invest in interest-rate futures contracts
and options on interest-rate futures contracts as a substitute for a comparable
market position in the underlying securities. The Master Portfolio may also sell
options on interest-rate futures contracts as part of closing purchase
transactions to terminate their options positions. No assurance can be given
that such closing transactions can be effected or the degree of correlation
between price movements in the options on interest rate futures and price
movements in the Master Portfolio's securities which are the subject of the
transaction.
INTEREST RATE AND INDEX SWAPS. Each Master Portfolio may enter into
interest rate and index swaps in pursuit of their investment objectives.
Interest-rate swaps involve the exchange by a Master Portfolio with another
party of their respective commitments to pay or receive interest (for example,
an exchange of floating rate payments on fixed-rate payments). Index swaps
involve the exchange by a Master Portfolio with another party of cash flows
based upon the performance of an index of securities or a portion of an index of
securities that usually include dividends or income. In each case, the exchange
commitments can involve payments to be made in the same currency or in different
currencies. A Master Portfolio will usually enter into swaps on a net basis. In
so doing, the two payment streams are netted out, with a Master Portfolio
receiving or paying, as the case may be, only the net amount of the two
payments. If a Master Portfolio enters into a swap, it will maintain cash or
liquid securities in a segregated account on a gross basis, unless the contract
provides for a segregated account on a net basis. If there is a default by the
other party to such a transaction, a Master Portfolio will have contractual
remedies pursuant to the agreements related to the transaction.
The use of interest-rate and index swaps is a highly specialized
activity which involves investment techniques and risks different from those
associated with ordinary portfolio security transactions. There is no limit,
except as provided below, on the amount of swap transactions that may be entered
into by a Master Portfolio. These transactions generally do not involve the
delivery of securities or other underlying assets or principal. Accordingly,
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the risk of loss with respect to swaps generally is limited to the net amount of
payments that a Master Portfolio is contractually obligated to make. There is
also a risk of a default by the other party to a swap, in which case a Master
Portfolio may not receive net amount of payments that a Master Portfolio
contractually is entitled to receive.
FOREIGN CURRENCY AND FUTURES TRANSACTIONS. Foreign currency
transactions may occur on a spot (i.e., cash) basis at the rate prevailing in
the currency exchange market or on a forward basis. A forward currency exchange
contract involves an obligation to purchase or sell a specific currency at a set
price on a future date which must be more than two days from the date of the
contract. The forward foreign currency market offers less protection against
default than is available when trading currencies on an exchange, since a
forward currency contract is not guaranteed by an exchange or clearinghouse.
Therefore, a default on a forward currency contract would deprive a Master
Portfolio of unrealized profits or force such Master Portfolio to cover its
commitments for purchase or resale, if any, at the current market price.
Each Master Portfolio may combine forward currency exchange contracts
with investments in securities denominated in other currencies.
Each Master Portfolio also may maintain short positions in forward
currency exchange transactions, which would involve the Master Portfolio
agreeing to exchange an amount of a currency it did not currently own for
another currency at a future date in anticipation of a decline in the value of
the currency sold relative to the currency such Master Portfolio contracted to
receive in the exchange.
Unlike trading on domestic futures exchanges, trading on foreign
futures exchanges is not regulated by the CFTC and generally is subject to
greater risks than trading on domestic exchanges. For example, some foreign
exchanges are principal markets so that no common clearing facility exists and
an investor may look only to the broker for performance of the contract. BGFA,
however, considers on an ongoing basis the creditworthiness of such
counterparties. In addition, any profits that a Master Portfolio might realize
in trading could be eliminated by adverse changes in the exchange rate; adverse
exchange rate changes also could cause a Master Portfolio to incur losses.
Transactions on foreign exchanges may include both futures contracts which are
traded on domestic exchanges and those which are not. Such transactions may also
be subject to withholding and other taxes imposed by foreign governments.
Currency exchange rates may fluctuate significantly over short periods of time.
They generally are determined by the forces of supply and demand in the foreign
exchange markets and the relative merits of investments in different countries,
actual or perceived changes in interest rates and other complex factors, as seen
from an international perspective. Currency exchange rates also can be affected
unpredictably by the intervention of U.S. or foreign governments or central
banks, or by the failure to intervene, or by currency controls or political
developments in the United States or abroad. The Master Portfolios intend to
engage in foreign currency transactions to maintain the same foreign currency
exposure as the relevant foreign securities index through which the Master
Portfolios seek foreign equity market exposure, but not as part of a defensive
strategy to protect against fluctuations in exchange rates. If a Master
Portfolio enters into a foreign currency transaction or forward contract, such
Master Portfolio deposits, if required by applicable regulations, with MIP's
custodian cash or high-grade debt securities in a segregated account of the
Master Portfolio in an amount at least equal to the value of the Master
Portfolio's total assets committed to the consummation of the forward contract.
If the value of the securities placed in the segregated account declines,
additional cash or securities is placed in the account so that the value of the
account equals the amount of the Master Portfolio's commitment with respect to
the contract.
At or before the maturity of a forward contract, a Master Portfolio may
either sell a portfolio security and make delivery of the currency, or may
retain the security and offset its contractual obligation to deliver the
currency by purchasing a second contract pursuant to which such Master Portfolio
obtains, on the same maturity date, the same amount of the currency which it is
obligated to deliver. If the Master Portfolio retains the portfolio security and
engages in an offsetting transaction, such Master Portfolio, at the time of
execution of the offsetting transaction, incurs a gain or a loss to the extent
that movement has occurred in forward contract prices. Should forward prices
decline during the period between the Master Portfolio's entering into a forward
contract for the sale of a currency and the date it enters into an offsetting
contract for the purchase of the currency, the Master Portfolio realizes a gain
to the extent the price of the currency it has agreed to sell exceeds the price
of the currency it has agreed to purchase. Should forward prices increase, the
Master Portfolio suffers a loss to the extent the price of the currency it has
agreed to purchase exceeds the price of the currency it has agreed to sell.
<PAGE> 62
The cost to a Master Portfolio of engaging in currency transactions
varies with factors such as the currency involved, the length of the contract
period and the market conditions then prevailing. Because transactions in
currency exchange usually are conducted on a principal basis, no fees or
commissions are involved. BGFA considers on an ongoing basis the
creditworthiness of the institutions with which a Master Portfolio enters into
foreign currency transactions. The use of forward currency exchange contracts
does not eliminate fluctuations in the underlying prices of the securities, but
it does establish a rate of exchange that can be achieved in the future. If a
devaluation generally is anticipated, the Master Portfolio may not be able to
contract to sell the currency at a price above the devaluation level it
anticipates.
The purchase of options on currency futures allows a Master Portfolio,
for the price of the premium it must pay for the option, to decide whether or
not to buy (in the case of a call option) or to sell (in the case of a put
option) a futures contract at a specified price at any time during the period
before the option expires.
FUTURE DEVELOPMENTS. Each Master Portfolio may take advantage of
opportunities in the areas of options and futures contracts and options on
futures contracts and any other derivative investments which are not presently
contemplated for use by such Master Portfolio or which are not currently
available but which may be developed, to the extent such opportunities are both
consistent with a Master Portfolio's investment objective and legally
permissible for the Master Portfolio. Before entering into such transactions or
making any such investment, a Master Portfolio would provide appropriate
disclosure in its prospectus or this SAI.
INVESTMENT COMPANY SECURITIES. Each Master Portfolio may invest in
securities issued by other investment companies which principally invest in
securities of the type in which the Master Portfolio invests. Under the 1940
Act, a Master Portfolio's investment in such securities currently is limited to,
subject to certain exceptions, (i) 3% of the total voting stock of any one
investment company, (ii) 5% of the Master Portfolio's net assets with respect to
any one investment company and (iii) 10% of the Master Portfolio's net assets in
the aggregate. Investments in the securities of other investment companies
generally will involve duplication of advisory fees and certain other expenses.
The Master Portfolio may also purchase shares of exchange listed closed-end
funds.
ILLIQUID SECURITIES. Each Master Portfolio may invest up to 15% of the
value of its net assets in securities as to which a liquid trading market does
not exist, provided such investments are consistent with its investment
objective. Such securities may include securities that are not readily
marketable, such as privately issued securities and other securities that are
subject to legal or contractual restrictions on resale, floating and
variable-rate demand obligations as to which the Master Portfolio cannot
exercise a demand feature on not more than seven days' notice and as to which
there is no secondary market and repurchase agreements providing for settlement
more than seven days after notice.
SHORT-TERM INSTRUMENTS AND TEMPORARY INVESTMENTS. Each Master Portfolio
may invest in the following high-quality money market instruments on an ongoing
basis to provide liquidity, for temporary purposes when there is an unexpected
level of shareholder purchases or redemptions or when "defensive' strategies are
appropriate: (i) short-term obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities (including government-sponsored
enterprises); (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 "Prime1" by Moody's
or "A1+" or "A1" by S&P, or, if unrated, of comparable quality as determined by
BGFA; (iv) nonconvertible corporate debt securities (e.g., bonds and debentures)
with remaining maturities at the date of purchase of not 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 have more than $10
billion, or the equivalent in other currencies, in total assets and in the
opinion of BGFA are of comparable quality to obligations of U.S. banks which may
be purchased by the Master Portfolio.
BANK OBLIGATIONS. Each Master Portfolio may invest in bank obligations,
including certificates of deposit, time deposits, bankers' acceptances and other
short-term obligations of domestic banks, foreign subsidiaries of domestic
banks, foreign branches of domestic banks, and domestic and foreign branches of
foreign banks, domestic savings and loan associations and other banking
institutions.
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Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period of
time.
Time deposits are nonnegotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate. Time
deposits which may be held by a Master Portfolio will not benefit from insurance
from the Bank Insurance Fund or the Savings Association Insurance Fund
administered by the Federal Deposit Insurance Corporation (the "FDIC").
Bankers' acceptances are credit instruments evidencing the obligation
of a bank to pay a draft drawn on it by a customer. These instruments reflect
the obligation both of the bank and of the drawer to pay the face amount of the
instrument upon maturity. The other short-term obligations may include
uninsured, direct obligations, bearing fixed, floating or variable-interest
rates.
Domestic commercial banks organized under federal law are supervised
and examined by the Comptroller of the Currency and are required to be members
of the Federal Reserve System and to have their deposits insured by the FDIC.
Domestic banks organized under state law are supervised and examined by state
banking authorities but are members of the Federal Reserve System only if they
elect to join. In addition, state banks whose certificates of deposit ("CDs")
may be purchased by each Master Portfolio are insured by the FDIC (although such
insurance may not be of material benefit to the Master Portfolio, depending on
the principal amount of the CDs of each bank held by the Master Portfolio) and
are subject to federal examination and to a substantial body of federal law and
regulation. As a result of federal or state laws and regulations, domestic
branches of domestic banks whose CDs may be purchased by each Master Portfolio
generally are required, among other things, to maintain specified levels of
reserves, are limited in the amounts which they can loan to a single borrower
and are subject to other regulations designed to promote financial soundness.
However, not all of such laws and regulations apply to the foreign branches of
domestic banks.
Obligations of foreign branches of domestic banks, foreign subsidiaries
of domestic banks and domestic and foreign branches of foreign banks, such as
CDs and time deposits ("TDs"), may be general obligations of the parent banks in
addition to the issuing branch, or may be limited by the terms of a specific
obligation and/or governmental regulation. Such obligations are subject to
different risks than are those of domestic banks. These risks include foreign
economic and political developments, foreign governmental restrictions that may
adversely affect payment of principal and interest on the obligations, foreign
exchange controls and foreign withholding and other taxes on interest income.
These foreign branches and subsidiaries are not necessarily subject to the same
or similar regulatory requirements that apply to domestic banks, such as
mandatory reserve requirements, loan limitations, and accounting, auditing and
financial record keeping requirements. In addition, less information may be
publicly available about a foreign branch of a domestic bank or about a foreign
bank than about a domestic bank.
Obligations of U.S. branches of foreign banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation or by federal or state regulation
as well as governmental action in the country in which the foreign bank has its
head office. A domestic branch of a foreign bank with assets in excess of $1
billion may be subject to reserve requirements imposed by the Federal Reserve
System or by the state in which the branch is located if the branch is licensed
in that state.
In addition, federal branches licensed by the Comptroller of the
Currency and branches licensed by certain states ("State Branches") may be
required to: (1) pledge to the appropriate regulatory authority, by depositing
assets with a designated bank within the relevant state, a certain percentage of
their assets as fixed from time to time by such regulatory authority; and (2)
maintain assets within the relevant state in an amount equal to a specified
percentage of the aggregate amount of liabilities of the foreign bank payable at
or through all of its agencies or branches within the state. The deposits of
federal and State Branches generally must be insured by the FDIC if such
branches take deposits of less than $100,000.
In view of the foregoing factors associated with the purchase of CDs
and TDs issued by foreign branches of domestic banks, by foreign subsidiaries of
domestic banks, by foreign branches of foreign banks or by domestic branches of
foreign banks, BGFA carefully evaluates such investments on a case-by-case
basis.
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Each Master Portfolio may purchase CDs issued by banks, savings and
loan associations and similar thrift institutions with less than $1 billion in
assets, provided that such institutions are members of the FDIC, and further
provided such Master Portfolio purchases any such CD in a principal amount of
not more than $100,000, which amount would be fully insured by the Bank
Insurance Fund or the Savings Association Insurance Fund administered by the
FDIC. Interest payments on such a CD are not insured by the FDIC. No Master
Portfolio will own more than one such CD per such issuer.
COMMERCIAL PAPER AND SHORT-TERM CORPORATE DEBT INSTRUMENTS. Each Master
Portfolio may invest in commercial paper (including variable amount master
demand notes), which consists of short-term, unsecured promissory notes issued
by corporations to finance short-term credit needs. Commercial paper is usually
sold on a discount basis and has a maturity at the time of issuance not
exceeding nine months. Variable amount master demand notes are demand
obligations that permit the investment of fluctuating amounts at varying market
rates of interest pursuant to arrangements between the issuer and a commercial
bank acting as agent for the payee of such notes whereby both parties have the
right to vary the amount of the outstanding indebtedness on the notes. The
investment adviser and/or subadviser to each Master Portfolio monitors on an
ongoing basis the ability of an issuer of a demand instrument to pay principal
and interest on demand.
Each Master Portfolio also may invest in nonconvertible corporate debt
securities (e.g., bonds and debentures) with not more than one year remaining to
maturity at the date of settlement. A Master Portfolio 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
Portfolio, an issue of securities may cease to be rated or its rating may be
reduced below the minimum rating required for purchase by the Master Portfolio.
The investment adviser and/or subadviser to each Master Portfolio will consider
such an event in determining whether the Master Portfolio should continue to
hold the obligation. To the extent the Master Portfolio continues to hold such
obligations, it may be subject to additional risk of default.
REPURCHASE AGREEMENTS. Each Master Portfolio may engage in a repurchase
agreement with respect to any security in which it is authorized to invest,
including government securities and mortgage-related securities, regardless of
their remaining maturities. The Master Portfolio may enter into repurchase
agreements wherein the seller of a security to the Master Portfolio agrees to
repurchase that security from the Master Portfolio at a mutually agreed-upon
time and price that involves the acquisition by the Master Portfolio of an
underlying debt instrument, subject to the seller's obligation to repurchase,
and the Master Portfolio's obligation to resell, the instrument at a fixed price
usually not more than one week after its purchase. The Master Portfolio's
custodian has custody of, and holds in a segregated account, securities acquired
as collateral by the Master Portfolio under a repurchase agreement. BGFA
monitors on an ongoing basis the value of the collateral to assure that it
always equals or exceed the repurchase price. Certain costs may be incurred by
the Master Portfolio in connection with the sale of the underlying securities if
the seller does not repurchase them in accordance with the repurchase agreement.
In addition, if bankruptcy proceedings are commenced with respect to the seller
of the securities, disposition of the securities by the Master Portfolio may be
delayed or limited. While it does not presently appear possible to eliminate all
risks from these transactions (particularly the possibility of a decline in the
market value of the underlying securities, as well as delay and costs to the
Master Portfolio in connection with insolvency proceedings), it is the policy of
the Master Portfolio to limit repurchase agreements to selected creditworthy
securities dealers or domestic banks or other recognized financial institutions.
BGFA considers on an ongoing basis the creditworthiness of the institutions with
which it enters into repurchase agreements. Repurchase agreements are considered
to be loans by a Master Portfolio under the 1940 Act. A Master Portfolio may
participate in pooled repurchase agreement transactions with other funds advised
by BGFA.
FORWARD COMMITMENTS, WHEN ISSUED PURCHASES AND DELAYED DELIVERY
TRANSACTIONS. Each Master Portfolio may purchase or sell securities on a
when-issued or delayed delivery basis and make contracts to purchase or sell
securities for a fixed price at a future date beyond customary settlement time.
Securities purchased or sold on a when-issued, delayed-delivery or forward
commitment basis involve a risk of loss if the value of the security to be
purchased declines, or the value of the security to be sold increases, before
the
<PAGE> 65
settlement date. Although a Master Portfolio will generally purchase securities
with the intention of acquiring them, a Master Portfolio may dispose of
securities purchased on a when-issued, delayed-delivery or a forward commitment
basis before settlement when deemed appropriate by the adviser.
BORROWING MONEY. As a fundamental policy, each Master Portfolio is
permitted to borrow to the extent permitted under the 1940 Act. However, each
Master Portfolio currently intends to borrow money only for temporary or
emergency (not leveraging) purposes, and may borrow up to one-third of the value
of its total assets (including the amount borrowed) valued at the lesser of cost
or market, less liabilities (not including the amount borrowed) at the time the
borrowing is made. While borrowings exceed 5% of a Master Portfolio's total
assets, the Master Portfolio will not make any new investments.
LENDING PORTFOLIO SECURITIES. To a limited extent, each Master
Portfolio may lend its portfolio securities to brokers, dealers and other
financial institutions (but not individuals), provided it receives cash
collateral which is maintained at all times in an amount equal to at least 100%
of the current market value of the securities loaned. By lending its portfolio
securities, a Master Portfolio can increase its income through the investment of
the cash collateral or by receipt of a loan premium from the borrower. For
purposes of this policy, each Master Portfolio considers collateral consisting
of U.S. Government obligations or irrevocable letters of credit issued by banks
whose securities meet the standards for investment by such Master Portfolio to
be the equivalent of cash. From time to time, a Master Portfolio may return to
the borrower, or to a third party unaffiliated with MIP which is acting as a
"placing broker," a part of the interest earned from the investment of
collateral received in exchange for securities loaned.
The value of the loaned securities may not exceed one-third of a Master
Portfolio's total assets. The Master Portfolio will not enter into any portfolio
security lending arrangement having a duration of longer than one year. The
principal risk of portfolio lending is potential default or insolvency of the
borrower. In either of these cases, a Master Portfolio could experience delays
in recovering securities or collateral or could lose all or part of the value of
the loaned securities. The Master Portfolio may pay reasonable administrative
and custodial fees in connection with loans of portfolio securities and may pay
a portion of the interest or fee earned thereon to the borrower or a placing
broker.
The SEC currently requires that the following conditions must be met
whenever portfolio securities are loaned: (1) the Master Portfolio must receive
at least 100% cash collateral from the borrower; (2) the borrower must increase
such collateral whenever the market value of the securities loaned rises above
the level of such collateral; (3) the Master Portfolio must be able to terminate
the loan at any time; (4) the Master Portfolio must receive reasonable interest
on the loan, as well as any dividends, interest or other distributions payable
on the loaned securities, and any increase in market value; (5) the Master
Portfolio may pay only reasonable custodian fees in connection with the loan;
and (6) while voting rights on the loaned securities may pass to the borrower,
MIP's Board of Trustees must terminate the loan and regain the right to vote the
securities if a material event adversely affecting the investment occurs. These
conditions may be subject to future modification.
CONVERTIBLE SECURITIES. Each Master Portfolio may purchase fixed-income
convertible securities, such as bonds or preferred stock, which may be converted
at a stated price within a specified period of time into a specified number of
shares of common stock of the same or a different issuer. Convertible securities
are senior to common stock in a corporation's capital structure, but usually are
subordinated to nonconvertible debt securities. While providing a fixed-income
stream (generally higher in yield than the income from a common stock but lower
than that afforded by a nonconvertible debt security), a convertible security
also affords an investor the opportunity, through its conversion feature, to
participate in the capital appreciation of the common stock into which it is
convertible.
In general, the market value of a convertible security is the higher of
its "investment value" (i.e., its value as a fixed-income security) or its
"conversion value" (i.e., the value of the underlying shares of common stock if
the security is converted). As a fixed-income security, the market value of a
convertible security generally increases when interest rates decline and
generally decreases when interest rates rise. However, the price of a
convertible security also is influenced by the market value of the security's
underlying common stock. Thus, the price of a convertible security generally
increases as the market value of the underlying stock increases, and generally
<PAGE> 66
decreases as the market value of the underlying stock declines. Investments in
convertible securities generally entail less risk than investments in the common
stock of the same issuer.
WARRANTS. Each Master Portfolio may invest generally up to 5% of its
net assets at the time of purchase in warrants, except that this limitation does
not apply to warrants acquired in units or attached to securities. A warrant is
an instrument issued by a corporation which gives the holder the right to
subscribe to a specified amount of the corporation's capital stock at a set
price for a specified period of time. The prices of warrants do not necessarily
correlate with the prices of the underlying securities.
FIXED INCOME OBLIGATIONS. Investors should be aware that even though
interest-bearing obligations are investments which promise a stable stream of
income, the prices of such securities are inversely affected by changes in
interest rates and, therefore, are subject to the risk of market price
fluctuations. Long-term obligations are affected to a greater extent by interest
rates than shorter term obligations. The values of fixed-income obligations also
may be affected by changes in the credit rating or financial condition of the
issuing entities. Once the rating of a portfolio security has been changed to a
rating below investment grade, the particular Master Portfolio considers all
circumstances deemed relevant in determining whether to continue to hold the
security. Certain obligations that may be purchased by the Master Portfolio,
such as those rated "Baa" by Moody's and "BBB" by S&P, Fitch and Duff, may be
subject to such risk with respect to the issuing entity and to greater market
fluctuations than certain lower yielding, higher rated fixed income securities.
Securities which are rated "Baa" by Moody's are considered medium-grade
obligations; they are neither highly protected nor poorly secured, and are
considered by Moody's to have speculative characteristics. Obligations rated
"BBB" by S&P are regarded as having adequate capacity to pay interest and repay
principal, and, while such debt securities ordinarily exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for securities in this category than in higher rated categories. Obligations
rated "BBB" by Fitch are considered investment grade and of satisfactory credit
quality; however, adverse changes in economic conditions and circumstances are
more likely to have an adverse impact on these obligations and, therefore,
impair timely payment. Obligations rated "BBB" by Duff have below average
protection factors but nonetheless are considered sufficient for prudent
investment. If a security held by a Master Portfolio is downgraded to a rating
below investment grade, such Master Portfolio may continue to hold the
obligation until such time as BGFA determines it to be advantageous for the
Master Portfolio to sell the obligation. If such a policy would cause a Master
Portfolio to have 5% or more of its net assets invested in obligations that have
been downgraded below investment grade, the Master Portfolio promptly would seek
to dispose of such obligations in an orderly manner.
RATINGS. The ratings of Moody's, S&P, Fitch and Duff represent their
opinions as to the quality of the obligations which they undertake to rate. It
should be emphasized, however, that ratings are relative and subjective and,
although ratings may be useful in evaluating the safety of interest and
principal payments, they do not evaluate the market value risk of such
obligations. Therefore, although these ratings may be an initial criterion for
selection of portfolio investments, BGFA also evaluates such obligations and the
ability of their issuers to pay interest and principal. Each Master Portfolio
relies on BGFA's judgment, analysis and experience in evaluating the
creditworthiness of an issuer. In this evaluation, BGFA takes into
consideration, among other things, the issuer's financial resources, its
sensitivity to economic conditions and trends, the quality of the issuer's
management and regulatory matters. It also is possible that a rating agency
might not timely change the rating on a particular issue to reflect subsequent
events.
FLOATING- AND VARIABLE-RATE OBLIGATIONS. Each Master Portfolio may
purchase floating- and variable-rate demand notes and bonds, which are
obligations ordinarily having stated maturities in excess of 13 months, but
which permit the holder to demand payment of principal at any time or at
specified intervals not exceeding 13 months. Variable-rate demand notes include
master demand notes which are obligations that permit a Master Portfolio to
invest fluctuating amounts, which may change daily without penalty, pursuant to
direct arrangements between the Master Portfolio, as lender, and the borrower.
The interest rates on these notes fluctuate from time to time. The issuer of
such obligations ordinarily has a corresponding right, after a given period, to
prepare in its discretion the outstanding principal amount of the obligations
plus accrued interest upon a specified number of days' notice to the holders of
such obligations. The interest rate on a floating-rate demand obligation is
based on a known lending rate, such as a bank's prime rate, and is adjusted
automatically at specified intervals. Frequently, such obligations are secured
by letters of credit or other credit support arrangements provided by banks.
<PAGE> 67
Because these obligations are direct lending arrangements between the lender and
borrower, it is not contemplated that such instruments generally will be traded.
There generally is no established secondary market for these obligations,
although they are redeemable at face value. Accordingly, where these obligations
are not secured by letters of credit or other credit support arrangements, the
Master Portfolio's right to redeem is dependent on the ability of the borrower
to pay principal and interest on demand. Such obligations frequently are not
rated by credit rating agencies and each Master Portfolio may invest in
obligations which are not so rated only if BGFA determines that at the time of
investment the obligations are of comparable quality to the other obligations in
which such Master Portfolio may invest. BGFA, on behalf of each Master
Portfolio, considers on an ongoing basis the creditworthiness of the issuers of
the floating- and variable-rate demand obligations in such Master Portfolio's
portfolio. No Master Portfolio invests more than 10% of the value of its net
assets in illiquid securities including floating- or variable-rate demand
obligations whose demand feature is not exercisable within seven days. Such
obligations may be treated as liquid, provided that an active secondary market
exists.
INVESTMENT POLICIES OF THE MONEY MARKET FUND
The Prospectus discusses the investment objectives of the Money Market
Fund and the policies to be employed to achieve those objectives. This section
contains supplemental information concerning certain types of securities and
other instruments in which the Money Market Fund may invest, the investment
policies and portfolio strategies that the Money Market Fund may utilize, and
certain risks attendant to such investments, policies and strategies.
U.S. TREASURY OBLIGATIONS. The Money Market Fund may invest in U.S.
Treasury obligations, which are backed by the full faith and credit of the
United States Government as to the timely payment of principal and interest.
U.S. Treasury obligations consist of bills, notes, and bonds and separately
traded interest and principal component parts of such obligations known as
STRIPS which generally differ in their interest rates and maturities. U.S.
Treasury bills, which have original maturities of up to one year, notes, which
have maturities ranging from one year to 10 years, and bonds, which have
original maturities of 10 to 30 years, are direct obligations of the United
States Government.
U.S. GOVERNMENT SECURITIES. The Money Market Fund may invest in U.S.
Government securities, which are obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. U.S. Government securities
include debt securities issued or guaranteed by U.S. Government-sponsored
enterprises and federal agencies and instrumentalities. Such agencies include,
among others, Farmers Home Administration, Federal Farm Credit System, Federal
Housing Administration, Government National Mortgage Association, Maritime
Administration, Small Business Administration, and The Tennessee Valley
Authority. The Money Market Fund may purchase securities issued or guaranteed by
the Government National Mortgage Association which represent participations in
Veterans Administration and Federal Housing Administration backed mortgage
pools. Obligations of instrumentalities of the United States Government include
securities issued by, among others, Federal Home Loan Banks, Federal Home Loan
Mortgage Corporation, Federal Land Banks, Federal National Mortgage Association
and the United States Postal Service. Some of these securities are supported by
the full faith and credit of the United States Treasury (e.g., Government
National Mortgage Association). Guarantees of principal by agencies or
instrumentalities of the U.S. Government may be a guarantee of payment at the
maturity of the obligation so that in the event of a default prior to maturity
there might not be a market and thus no means of realizing the value of the
obligation prior to maturity.
MORTGAGE-RELATED SECURITIES. The Money Market Fund may, consistent with
their respective investment objective and policies, invest in mortgage-related
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities.
Mortgage pass-through securities are securities representing interests
in "pools" of mortgages in which payments of both interest and principal on the
securities are made monthly, in effect, "passing through" monthly payments made
by the individual borrowers on the mortgage loans which underlie the securities
(net of fees paid to the issuer or guarantor of the securities). These "pools"
are assembled for sale to investors by various governmental agencies such as the
Government National Mortgage Association and government-related organizations
such as the Federal National Mortgage Association and the Federal Home Loan
Mortgage Corporation, as well as by nongovernmental issuers such as commercial
banks, savings and loan institutions, mortgage bankers, and private
<PAGE> 68
mortgage insurance companies. Although certain mortgage-related securities are
guaranteed by a third party or otherwise similarly secured, the market value of
the security, which may fluctuate, is not so secured. If the Fund purchases a
mortgage-related security at a premium, that portion may be lost if there is a
decline in the market value of the security whether resulting from changes in
interest rates or prepayments in the underlying mortgage collateral. In
recognition of this prepayment risk to investors, the Public Securities
Association (the "PSA") has standardized the method of measuring the rate of
mortgage loan principal prepayments. The PSA formula, the Constant Prepayment
Rate or other similar models that are standard in the industry will be used by
the Fund in calculating maturity for purposes of investment in mortgage-related
securities. The inverse relation between interest rates and value of fixed
income securities will be more pronounced with respect to investments by the
Fund in mortgage-related securities, the value of which may be more sensitive to
interest rate changes. As with other interest-bearing securities, the prices of
such securities are inversely affected by changes in interest rates. However,
though the value of a mortgage-related security may decline when interest rates
rise, the converse is not necessarily true since in periods of declining
interest rates the mortgages underlying the securities are prone to prepayment.
For this and other reasons, a mortgage-related security's stated maturity may be
shortened by unscheduled prepayments on the underlying mortgages and, therefore,
it is not possible to predict accurately the security's return to the Fund. In
addition, regular payments received in respect of mortgage-related securities
include both interest and principal. No assurance can be given as to the return
the Fund will receive when these amounts are reinvested.
There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage-related securities
and among the securities that they issue. Mortgage-related securities created by
the Government National Mortgage Association ("GNMA") include GNMA Mortgage
Pass-Through Certificates (also known as "Ginnie Maes") which are guaranteed as
to the timely payment of principal and interest and such guarantee is backed by
the full faith and credit of the United States. GNMA is a wholly-owned U.S.
Government corporation within the Department of Housing and Urban Development.
GNMA certificates also are supported by the authority of GNMA to borrow from the
U.S. Government to make payments under its guarantee. Mortgage-related
securities issued by the Federal National Mortgage Association ("FNMA") include
FNMA Guaranteed Mortgage Pass-Through Certificates (also known as "Fannie Maes")
which are solely the obligations of the FNMA and are not backed by or entitled
to the full faith and credit of the United States. The FNMA is a
government-sponsored organization owned entirely by private stock-holders.
Fannie Maes are guaranteed as to timely payment of the principal and interest by
FNMA. Mortgage-related securities issued by the Federal Home Loan Mortgage
Corporation ("FHLMC") include FHLMC Mortgage Participation Certificates (also
known as ("Freddie Macs" or "PCs"). The FHLMC is a corporate instrumentality of
the United States, created pursuant to an Act of Congress, which is owned
entirely by Federal Home Loan Banks. Freddie Macs are not guaranteed by the
United States or by any Federal Home Loan Banks and do not constitute a debt or
obligation of the United States or of any Federal Home Loan Bank. Freddie Macs
entitle the holder to timely payment of interest, which is guaranteed by the
FHLMC. The FHLMC currently guarantees timely payment of interest and either
timely payment of principal or eventual payment of principal, depending upon the
date of issue. When the FHLMC does not guarantee timely payment of principal,
FHLMC may remit the amount due on account of its guarantee of ultimate payment
of principal at any time after default on an underlying mortgage, but in no
event later than one year after it becomes payable.
Collateralized Mortgage Obligations ("CMOs") are hybrid instruments
with characteristics of both mortgage-backed bonds and mortgage pass-through
securities. Similar to a bond, interest and prepaid principal on a CMO are paid,
in most cases, semi-annually. CMOs may be collateralized by whole mortgage loans
but are more typically collateralized by portfolios of mortgage pass-through
securities guaranteed by GNMA, FHLMC or FNMA. CMOs are structured in multiple
classes, with each class bearing a different stated maturity or interest rate.
The inverse relation between interest rates and value of fixed income securities
will be more pronounced with respect to investments by the Fund in
mortgage-related securities, the value of which may be more sensitive to
interest rate changes.
ASSET-BACKED SECURITIES. The Money Market Fund is permitted to invest
in asset-backed securities. Through the use of trusts and special purpose
subsidiaries, various types of assets, primarily home equity loans and
automobile and credit card receivables, are being securitized in pass-through
structures similar to the mortgage pass-through structures described above.
Consistent with the Fund's investment objectives, policies and quality
standards, the Fund may invest in these and other types of asset-backed
securities which may be developed in the future.
<PAGE> 69
Asset-backed securities involve certain risks that are not posed by
mortgage-related securities, resulting mainly from the fact that asset-backed
securities do not usually contain the benefit of a complete security interest in
the related collateral. For example, credit card receivables generally are
unsecured and the debtors are entitled to the protection of a number of state
and federal consumer credit laws, some of which may reduce the ability to obtain
full payment. In the case of automobile receivables, due to various legal and
economic factors, proceeds from repossessed collateral may not always be
sufficient to support payments on these securities. The risks associated with
asset-backed securities are often reduced by the addition of credit enhancements
such as a letter of credit from a bank, excess collateral or a third-party
guarantee.
DOMESTIC AND FOREIGN BANK OBLIGATIONS. The Money Market Fund's
investment in domestic and foreign bank obligations include but are not
restricted to certificates of deposit, commercial paper, Yankeedollar
certificates of deposit, bankers' acceptances, Eurodollar certificates of
deposit and time deposits, promissory notes and medium-term deposit notes
including floating or variable rate obligations issued by U.S. or foreign bank
holding companies and their bank subsidiaries, branches and agencies. The Fund
will not invest in any obligations of its affiliates, as defined under the 1940
Act.
The Fund limits its investment in United States bank obligations to
obligations of United States banks (including foreign branches). The Fund limits
its investment in foreign bank obligations to United States dollar-denominated
obligations of foreign banks (including United States branches of foreign banks)
which in the opinion of the Adviser, are of an investment quality comparable to
obligations of United States banks which may be purchased by the Fund. There is
no limitation on the amount of the Fund's assets which may be invested in
obligations of foreign banks meeting the conditions set forth herein.
Certificates of deposit are issued against funds deposited in an
eligible bank (including its domestic and foreign branches, subsidiaries and
agencies), are for a definite period of time, earn a specified rate of return
and are normally negotiable. A bankers' acceptance is a short-term draft drawn
on a commercial bank by a borrower, usually in connection with a commercial
transaction. The borrower is liable for payment, as is the bank, which
unconditionally guarantees to pay the draft at its face amount on the maturity
date. Eurodollar obligations are U.S. Dollar obligations issued outside the
United States by domestic or foreign entities. Yankeedollar obligations are U.S.
dollar obligations issued inside the United States by foreign entities. Bearer
deposit notes are obligations of a bank, rather than a bank holding company.
Similar to certificates of deposit, deposit notes represent bank level
investments and, therefore, are senior to all holding company corporate debt.
Fixed time deposits may be withdrawn on demand by the investor, but may
be subject to early withdrawal penalties which vary depending upon market
conditions and the remaining maturity of the obligation. There are no
contractual restrictions on the right to transfer a beneficial interest in a
fixed time deposit to a third party, although there is no market for such
deposits. Investments in fixed time deposits subject to withdrawal penalties
maturing in more than seven days may not exceed 10% of the value of the net
assets of the Fund.
Obligations of foreign banks involve somewhat different investment
risks than those affecting obligations of United States banks, including the
possibilities that their liquidity could be impaired because of future political
and economic developments, that the obligations may be less marketable than
comparable obligations of United States 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 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 that the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign banks may differ from those applicable to United States
banks. Foreign banks are not subject to examination by any United States
Government agency or instrumentality.
Investments in Eurodollar and Yankeedollar obligations involve
additional risks. Most notably, there generally is less publicly available
information about foreign companies; there may be less governmental regulation
and supervision; they may use different accounting and financial standards; and
the adoption of foreign governmental restrictions may adversely affect the
payment of principal and interest on foreign investments. In
<PAGE> 70
addition, not all foreign branches of United States banks are supervised or
examined by regulatory authorities as are United States banks, and such branches
may not be subject to reserve requirements.
STRIPS AND ZERO COUPON SECURITIES. The Money Market Fund may invest in
separately traded principal and interest components of securities backed by the
full faith and credit of the United States Treasury. The principal and interests
components of United States Treasury bonds with remaining maturities of longer
than ten years are eligible to be traded independently under the Separate
Trading of Registered Interest and Principal of Securities ("STRIPS") program.
Under the STRIPS program, the principal and interest components are separately
issued by the United States Treasury at the request of depository financial
institutions, which then trade the component parts separately. The interest
component of STRIPS may be more volatile than that of United States Treasury
bills with comparable maturities. In accordance with Rule 2a-7, the Fund's
investments in STRIPS are limited to those with maturity components not
exceeding thirteen months. The Fund will not actively trade in STRIPS.
The Fund may invest in zero coupon securities. A zero coupon security
pays no interest to its holder during its life and is sold at a discount to its
face value at maturity. The market prices of zero coupon securities generally
are more volatile than the market prices of securities that pay interest
periodically and are more sensitive to changes in interest rates than non-zero
coupon securities having similar maturities and credit qualities.
COMMERCIAL PAPER. Commercial paper includes short-term unsecured
promissory notes, variable rate demand notes and variable rate master demand
notes issued by domestic and foreign bank holding companies, corporations and
financial institutions and similar taxable instruments issued by government
agencies and instrumentalities. All commercial paper purchased by the Money
Market Fund is, at the time of investment, rated in one of the top two rating
categories of at least one Nationally Recognized Statistical Rating Organization
("NRSRO") or, if not rated, are, in the opinion of the Adviser, as applicable,
of an investment quality comparable to rated commercial paper in which the Money
Market Fund may invest, or, with respect to the Money Market Fund, (i) rated
"P-1" by Moody's Investors Service, Inc. ("Moody's") and "A-1" or better by
Standard & Poor's Corporation ("S&P") or in a comparable rating category by any
two NRSROs that have rated the commercial paper or (ii) rated in a comparable
category by only one such organization if it is the only organization that has
rated the commercial paper.
CORPORATE DEBT SECURITIES. The Money Market Fund's investments in these
securities are limited to corporate debt securities (corporate bonds,
debentures, notes and similar corporate debt instruments) which meet the rating
criteria established for the Fund. The Fund may invest in both rated commercial
paper and rated corporate debt obligations of foreign issuers that meet the same
quality criteria applicable to investments by the Fund in commercial paper and
corporate debt obligations of domestic issuers. These investments, therefore,
are not expected to involve significant additional risks as compared to the
risks of investing in comparable domestic securities. Generally, all foreign
investments carry with them both opportunities and risks not applicable to
investments in securities of domestic issuers, such as risks of foreign
political and economic instability, adverse movements in foreign exchange rates,
the imposition or tightening of exchange controls or other limitations on
repatriation of foreign capital, changes in foreign governmental attitudes
toward private investment (possibly leading to nationalization, increased
taxation or confiscation of foreign assets) and added difficulties inherent in
obtaining and enforcing a judgment against a foreign issuer of securities should
it default.
After purchase by the Money Market Fund, a security may cease to be
rated or its rating may be reduced below the minimum required for purchase by
the Fund. Neither event will require a sale of such security by the Fund.
However, the Fund's Adviser will consider such event in its determination of
whether the Fund should continue to hold the security. To the extent the ratings
given by a NRSRO may change as a result of changes in such organizations or
their rating systems, the Fund will attempt to use comparable ratings as
standards for investments in accordance with the investment policies contained
in the Prospectus and in this SAI.
VARIABLE AND FLOATING RATE DEMAND AND MASTER DEMAND OBLIGATIONS. The
Fund may, from time to time, buy variable rate demand obligations issued by
corporations, bank holding companies and financial institutions and similar
taxable and tax-exempt instruments issued by government agencies and
instrumentalities. These securities will typically have a maturity of 397 days
or less, but carry with them the right of the holder to put the securities to a
remarketing agent or other entity on short notice, typically seven days or less.
<PAGE> 71
The obligation of the issuer of the put to repurchase the securities may or may
not be backed by a letter of credit or other obligation issued by a financial
institution. The purchase price is ordinarily par plus accrued and unpaid
interest.
The Money Market Fund may also buy variable rate master demand
obligations. The terms of these obligations permit the investment of fluctuating
amounts by the Money Market Fund at varying rates of interest pursuant to direct
arrangements between the Fund, as lender, and the borrower. They permit weekly,
and in some instances, daily, changes in the amounts borrowed. The Money Market
Fund has the right to increase the amount under the obligation at any time up to
the full amount provided by the note agreement, or to decrease the amount, and
the borrower may prepay up to the full amount of the obligation without penalty.
The obligations may or may not be backed by bank letters of credit. Because the
obligations are direct lending arrangements between the lender and the borrower,
it is not generally contemplated that they will be traded, and there is no
secondary market for them, although they are redeemable (and thus, immediately
repayable by the borrower) at principal amount, plus accrued interest, upon
demand. The Money Market Fund has no limitations on the type of issuer from whom
the obligations will be purchased. The Money Market Fund will invest in variable
rate master demand obligations only when such obligations are determined by the
Adviser or, pursuant to guidelines established by the Board of Trustees to be of
comparable quality to rated issuers or instruments eligible for investment by
the Money Market Fund.
OTHER MUTUAL FUNDS. The Money Market Fund may invest in shares of other
open-end, management investment companies, subject to the limitations of the
1940 Act and subject to such investments being consistent with the overall
objective and policies of the Fund making such investment, provided that any
such purchases will be limited to short-term investments in shares of
unaffiliated investment companies. The purchase of securities of other mutual
funds results in duplication of expenses such that investors indirectly bear a
proportionate share of the expenses of such mutual funds including operating
costs, and investment advisory and administrative fees.
"WHEN-ISSUED" AND "FORWARD COMMITMENT" TRANSACTIONS. The Money Market
Fund may purchase securities on a when-issued and delayed-delivery basis and may
purchase or sell securities on a forward commitment basis. When-issued or
delayed-delivery transactions arise when securities are purchased by the Fund
with payment and delivery taking place in the future in order to secure what is
considered to be an advantageous price and yield to the Fund at the time of
entering into the transaction. A forward commitment transaction is an agreement
by a Fund to purchase or sell securities at a specified future date. When the
Fund engages in these transactions, the Fund relies on the buyer or seller, as
the case may be, to consummate the sale. Failure to do so may result in the Fund
missing the opportunity to obtain a price or yield considered to be
advantageous. When-issued and delayed-delivery transactions and forward
commitment transactions may be expected to occur a month or more before delivery
is due. However, no payment or delivery is made by the Fund until it receives
payment or delivery from the other party to the transaction. A separate account
containing liquid assets equal to the value of purchase commitments will be
maintained until payment is made. Such securities have the effect of leverage on
the Funds and may contribute to volatility of a Fund's net asset value. While
the Money Market Fund normally enters into these transactions with the intention
of actually receiving or delivering the securities, it may sell these securities
before the settlement date or enter into new commitments to extend the delivery
date into the future, if the Adviser considers such action advisable as a matter
of investment strategy.
LOANS OF PORTFOLIO SECURITIES. The Money Market Fund may lend its
portfolio securities to brokers, dealers and financial institutions, provided:
(1) the loan is secured continuously by collateral consisting of U.S. Government
securities or cash or approved bank letters of credit maintained on a daily
mark-to-market basis in an amount at least equal to the current market value of
the securities loaned; (2) the Money Market Fund may at any time call the loan
and obtain the return of the securities loaned within five business days; (3)
the Money Market Fund will receive any interest or dividends paid on the loaned
securities; and (4) the aggregate market value of securities loaned will not at
any time exceed 33-1/3% of the total assets of the Fund.
The Money Market Fund will earn income for lending their securities
because cash collateral pursuant to these loans will be invested in short-term
money market instruments. In connection with lending securities, the Money
Market Fund may pay reasonable finders, administrative and custodial fees. Loans
of securities involve a risk that the borrower may fail to return the securities
or may fail to provide additional collateral.
<PAGE> 72
Securities loans will be made in accordance with the following
conditions: (1) the Money Market Fund must receive at least 100% collateral in
the form of cash or cash equivalents, securities of the U.S. Government and its
agencies and instrumentalities, and approved bank letters of credit; (2) the
borrower must increase the collateral whenever the market value of the loaned
securities (determined on a daily basis) rises above the level of collateral;
(3) the Money Market Fund must be able to terminate the loan after notice, at
any time; (4) the Money Market Fund must receive reasonable interest on the loan
or a flat fee from the borrower, as well as amounts equivalent to any dividends,
interest or other distributions on the securities loaned, and any increase in
market value of the loaned securities; (5) the Money Market Fund may pay only
reasonable custodian fees in connection with the loan; and (6) voting rights on
the securities loaned may pass to the borrower, provided, however, that if a
material event affecting the investment occurs, the Board of Trustees must be
able to terminate the loan and vote proxies or enter into an alternative
arrangement with the borrower to enable the Board of Trustees to vote proxies.
REPURCHASE AGREEMENTS. The Money Market Fund may invest in securities
subject to repurchase agreements with any bank or registered broker-dealer who,
in the opinion of the Trustees present a minimum risk of bankruptcy. Such
agreements may be considered to be loans by the Money Market Fund for purposes
of the 1940 Act. A repurchase agreement is a transaction in which the seller of
a security commits itself at the time of the sale to repurchase that security
from the buyer at a mutually agreed-upon time and price. The repurchase price
exceeds the sale price, reflecting an agreed-upon interest rate effective for
the period the buyer owns the security subject to repurchase. The agreed-upon
rate is unrelated to the interest rate on that security. The Adviser will
monitor the value of the underlying security at the time the transaction is
entered into and at all times during the term of the repurchase agreement to
ensure that the value of the security always equals or exceeds the repurchase
price. In the event of default by the seller under the repurchase agreement, the
Money Market Fund may have problems in exercising their rights to the underlying
securities and may incur costs and experience time delays in connection with the
disposition of such securities. The agreements will be fully collateralized and
the value of the collateral, including accrued interest, marked-to-market daily.
The Fund may not invest more than 10% of its net assets in repurchase agreements
maturing in more than seven business days or in securities for which market
quotations are not readily available.
REVERSE REPURCHASE AGREEMENTS. The Money Market Fund may also enter
into reverse repurchase agreements to avoid selling securities during
unfavorable market conditions to meet redemptions. Pursuant to a reverse
repurchase agreement, a Fund will sell portfolio securities and agree to
repurchase them from the buyer at a particular date and price. Whenever the Fund
enters into a reverse repurchase agreement, it will establish a segregated
account in which it will maintain liquid assets in an amount at least equal to
the repurchase price marked-to-market daily (including accrued interest), and
will subsequently monitor the account to ensure that such equivalent value is
maintained. The Fund pays interest on amounts obtained pursuant to reverse
repurchase agreements. Reverse repurchase agreements are considered to be
borrowings by a Fund under the 1940 Act.
RISKS OF TECHNIQUES INVOLVING LEVERAGE. Use of leveraging involves
special risks and may involve speculative investment techniques. The Money
Market Fund may borrow for other than temporary or emergency purposes, lend
their securities, enter reverse repurchase agreements, and purchase securities
on a when issued or forward commitment basis. Each of these transactions involve
the use of "leverage" when cash made available to the Fund through the
investment technique is used to make additional portfolio investments. The Fund
uses these investment techniques only when the Adviser believes that the
leveraging and the returns available to the Fund from investing the cash will
provide shareholders a potentially higher return.
Leverage exists when the Money Market Fund achieves the right to a
return on a capital base that exceeds the investment the Fund has invested.
Leverage creates the risk of magnified capital losses which occur when losses
affect an asset base, enlarged by borrowings or the creation of liabilities,
that exceeds the equity base of the Fund. Leverage may involve the creation of a
liability that requires the Fund to pay interest (for instance, reverse
repurchase agreements) or the creation of a liability that does not entail any
interest costs (for instance, forward commitment transactions).
The risks of leverage include a higher volatility of the net asset
value of the Fund's shares and the relatively greater effect on the net asset
value of the shares caused by favorable or adverse market movements or changes
in the cost of cash obtained by leveraging and the yield obtained from investing
the cash. So long as the Fund is able to
<PAGE> 73
realize a net return on its investment portfolio that is higher than interest
expense incurred, if any, leverage will result in higher current net investment
income being realized by the Fund than if the Fund were not leveraged. On the
other hand, interest rates change from time to time as does their relationship
to each other depending upon such factors as supply and demand, monetary and tax
policies and investor expectations. Changes in such factors could cause the
relationship between the cost of leveraging and the yield to change so that
rates involved in the leveraging arrangement may substantially increase relative
to the yield on the obligations in which the proceeds of the leveraging have
been invested. To the extent that the interest expense involved in leveraging
approaches the net return on the Fund's investment portfolio, the benefit of
leveraging will be reduced, and, if the interest expense on borrowings were to
exceed the net return to shareholders, the Fund's use of leverage would result
in a lower rate of return than if the Fund were not leveraged. Similarly, the
effect of leverage in a declining market could be a greater decrease in net
asset value per share than if the Fund were not leveraged. In an extreme case,
if the Fund's current investment income were not sufficient to meet the interest
expense of leveraging, it could be necessary for the Fund to liquidate certain
of its investments at an inappropriate time. The use of leverage may be
considered speculative.
ILLIQUID SECURITIES. The Money Market Fund has adopted a fundamental
policy with respect to investments in illiquid securities. Historically,
illiquid securities have included securities subject to contractual or legal
restrictions on resale because they have not been registered under the
Securities Act of 1933, as amended ("Securities Act"), securities that are
otherwise not readily marketable and repurchase agreements having a maturity of
longer than seven days. Securities that have not been registered under the
Securities Act are referred to as private placements or restricted securities
and are purchased directly from the issuer or in the secondary market. Mutual
funds do not typically hold a significant amount of these restricted or other
illiquid securities because of the potential for delays on resale and
uncertainty in valuation. Limitations on resale may have an adverse effect on
the marketability of portfolio securities and a mutual fund might be unable to
dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemptions within
seven days. A mutual fund might also have to register such restricted securities
in order to dispose of them resulting in additional expense and delay. Adverse
market conditions could impede such a public offering of securities.
In recent years, however, a large institutional market has developed
for certain securities that are not registered under the Securities Act,
including repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on
either an efficient institutional market in which the unregistered security can
be readily resold or on the issuer's ability to honor a demand for repayment.
The fact that there are contractual or legal restrictions on resale to the
general public or to certain institutions may not be indicative of the liquidity
of such investments.
The Fund may also invest in restricted securities issued under Section
4(2) of the Securities Act, which exempts from registration "transactions by an
issuer not involving any public offering." Section 4(2) instruments are
restricted in the sense that they can only be resold through the issuing dealer
and only to institutional investors; they cannot be resold to the general public
without registration. Restricted securities issued under Section 4(2) of the
Securities Act will be treated as illiquid and subject to the Fund's investment
restriction on illiquid securities.
The Commission has adopted Rule 144A, which allows a broader
institutional trading market for securities otherwise subject to restrictions on
resale to the general public. Rule 144A establishes a "safe harbor" from the
registration requirements of the Securities Act applicable to resales of certain
securities to qualified institutional buyers. It is the intent of the Funds' to
invest, pursuant to procedures established by the Board of Trustees and subject
to applicable investment restrictions, in securities eligible for resale under
Rule 144A which are determined to be liquid based upon the trading markets for
the securities.
Pursuant to guidelines set forth by and under the supervision of the
Board of Trustees the Adviser will monitor the liquidity of restricted
securities in a Fund's portfolio. In reaching liquidity decisions, the Adviser
will consider, among other things, the following factors: (1) the frequency of
trades and quotes for the security over the course of six months or as
determined in the discretion of the Adviser; (2) the number of dealers wishing
to purchase or sell the security and the number of other potential purchasers
over the course of six months or as determined in the discretion of the Adviser;
(3) dealer undertakings to make a market in the security; (4) the nature of the
security and the marketplace in which it trades (e.g., the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
the transfer); and (5) other factors, if any, which the Adviser deems relevant.
The Adviser will also monitor the purchase of Rule 144A securities to assure
that the total of all Rule 144A
<PAGE> 74
securities held by the Fund does not exceed 10% of the Fund's average daily net
assets. Rule 144A securities which are determined to be liquid based upon their
trading markets will not, however, be required to be included among the
securities considered to be illiquid for purposes of Investment Restriction No.
1. Investments in Rule 144A securities could have the effect of increasing Fund
illiquidity.
INVESTMENT RESTRICTIONS OF THE MONEY MARKET FUND
Unless otherwise indicated, only Investment Restriction Nos. 2, 3, 4,
7, 8, 12, and 16 set forth below are fundamental policies of the Money Market
Fund, which can be changed only when permitted by law and approved by a majority
of the Fund's outstanding voting securities. The non-fundamental investment
restrictions can be changed by approval of a majority of the Board of Trustees.
A "majority of the outstanding voting securities" means the lesser of (i) 67% of
the shares represented at a meeting at which more than 50% of the outstanding
shares are represented in person or by proxy or (ii) more than 50% of the
outstanding shares.
The Money Market Fund, except as indicated, may not:
(1) Invest more than 10% of the value of its net assets in investments
which are illiquid (including repurchase agreements having maturities of more
than seven calendar days, variable and floating rate demand and master demand
notes not requiring receipt of principal note amount within seven days notice
and securities of foreign issuers which are not listed on a recognized domestic
or foreign securities exchange);
(2) Borrow money or pledge, mortgage or hypothecate its assets, except
that the Fund may enter into reverse repurchase agreements or borrow from banks
up to 33-1/3% of the current value of its net assets for temporary or emergency
purposes or to meet redemptions. The Fund has adopted a non-fundamental policy
to limit such borrowing to 10% of its net assets and those borrowings may be
secured by the pledge of not more than 15% of the current value of its total net
assets (but investments may not be purchased by the Fund while any such
borrowings exist);
(3) Issue senior securities, except insofar as the Fund may be deemed
to have issued a senior security in connection with any repurchase agreement or
any permitted borrowing;
(4) Make loans, except loans of portfolio securities and except that
the Fund may enter into repurchase agreements with respect to its portfolio
securities and may purchase the types of debt instruments described in the
Prospectus or the SAI;
(5) Invest in companies for the purpose of exercising control or
management;
(6) Invest more than 10% of its net assets in shares of other
investment companies and the Fund may invest all of its assets in another
investment company;
(7) Invest in real property (including limited partnership interests
but excluding real estate investment trusts and master limited partnerships,
debt obligations secured by real estate or interests therein, and securities
issued by other companies that invest in real estate or interest therein),
commodities, commodity contracts, or oil, gas and other mineral resource,
exploration, development, lease or arbitrage transactions;
(8) Engage in the business of underwriting securities of other issuers,
except to the extent that the disposal of an investment position may technically
cause it to be considered an underwriter as that term is defined under the
Securities Act of 1933;
(9) Sell securities short, except to the extent that the Fund
contemporaneously owns or has the right to acquire at no additional cost
securities identical to those sold short;
(10) Purchase securities on margin, except that the Fund may obtain such
short-term credits as may be necessary for the clearance of purchases and sales
of securities;
<PAGE> 75
(11) Purchase or retain the securities of any issuer, if those
individual officers and Trustees of the Trust, the Adviser, , or the
Distributor, each owning beneficially more than 1/2 of 1% of the securities of
such issuer, together own more than 5% of the securities of such issuer;
(12) Invest more than 25% of its total assets in the securities of any
one industry, except that the Fund may invest more than 25% of its total assets
in instruments issued by the banking industry. For this purpose, U.S. Government
securities (and repurchase agreements related thereto) are not considered
securities of a single industry. In addition, finance companies as a group are
not considered a single industry for purposes of this policy. Wholly owned
finance companies will be considered to be in the industries of their parent
companies if their activities are primarily related to financing the activities
of their parent companies.
(13) Invest more than 5% of its net assets in warrants which are
unattached to securities, included within that amount, no more than 2% of the
value of the Fund's net assets, may be warrants which are not listed on the New
York or American Stock Exchanges.
(14) Write, purchase or sell puts, calls or combinations thereof,
except that the Fund may purchase or sell puts and calls as otherwise described
in the Prospectus or SAI; however, the Fund will not invest more than 5% of its
total assets in these classes of securities for purposes other than bona fide
hedging;
(15) Invest more than 5% of the current value of its total assets in
the securities of companies which, including predecessors, have a record of less
than three years' continuous operation (except (i) obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities or (ii)
municipal securities which are rated by at least two NRSRO's or determined by
the Adviser to be of comparable quality) provided each Fund may invest all or a
portion of its assets in another open end management investment company with
substantially the same investment objective, policies and investment
restrictions as the Fund; or
(16) With respect to 100% of its assets, purchase a security if as a
result, (1) more than 5% of its total assets would be invested in any one issuer
other than the U.S. Government or its agencies or instrumentalities, or (2) the
Fund would own more than 10% of the outstanding voting securities of such
issues.
The Money Market Fund's diversification tests are measured at the time
of initial purchases, and are calculated as specified in Rule 2a-7 which may
allow the Fund to exceed limits specified in the Prospectus for certain
securities subject to guarantees or demand features. The Fund will be deemed to
satisfy the maturity requirements described in the Prospectus to the extent it
satisfies Rule 2a-7 maturity requirements.
It is the intention of the Funds, unless otherwise indicated, that with
respect to the Funds' policies that are the result of the application of law
(for example, Rule 2a-7 with respect to the Money Market Fund) the Funds will
take advantage of the flexibility provided by rules or interpretations of the
SEC currently in existence or promulgated in the future or changes to such laws.
RISK CONSIDERATIONS
GENERAL. Since the investment characteristics and, therefore,
investment risks directly associated with each NestEgg Fund correspond to those
of the Master Portfolio in which such Fund invests, the following is a
discussion of the risks associated with the investments of the Master
Portfolios. Once again, unless otherwise specified, references to the investment
policies and risks of a Fund also should be understood as references to the
investment policies and risks of the corresponding Master Portfolio. The net
asset value per share of each NestEgg Fund is neither insured nor guaranteed, is
not fixed and should be expected to fluctuate.
EQUITY SECURITIES. The stock investments of the Master Portfolios are
subject to equity market risk. Equity market risk is the possibility that common
stock prices will fluctuate or decline over short or even extended periods. The
U.S. stock market tends to be cyclical, with periods when stock prices generally
rise and periods when prices generally decline. Throughout 1998, the stock
market, as measured by the S&P 500 Index and other commonly used indices, was
trading at or close to record levels. There can be no guarantee that these
performance levels will continue.
<PAGE> 76
DEBT SECURITIES. The debt instruments in which the Master Portfolios
invest are subject to credit and interest rate risk. Credit risk is the risk
that issuers of the debt instruments in which the Master Portfolios invest may
default on the payment of principal and/or interest. Interest rate risk is the
risk that increases in market interest rates may adversely affect the value of
the debt instruments in which the Master Portfolios invest. The value of the
debt instruments generally changes inversely to market interest rates. Debt
securities with longer maturities, which tend to produce higher yields, are
subject to potentially greater capital appreciation and depreciation than
obligations with shorter maturities. Changes in the financial strength of an
issuer or changes in the ratings of any particular security may also affect the
value of these investments. Although some of the Master Portfolios' portfolio
securities are guaranteed by the U.S. Government, its agencies or
instrumentalities, such securities are subject to interest rate risk and the
market value of these securities, upon which the Master Portfolio's daily net
asset value is based, will fluctuate. No assurance can be given that the U.S.
Government would provide financial support to its agencies or instrumentalities
where it is not obligated to do so.
FOREIGN SECURITIES. The Master Portfolios may invest in debt
obligations and equity securities of foreign issuers and may invest in American
Depositary Receipts ("ADRs") and European Depositary Receipts ("EDRs") of such
issuers. Investing in the securities of issuers in any foreign country,
including through ADRs and EDRs, involves special risks and considerations not
typically associated with investing in U.S. companies. These include differences
in accounting, auditing and financial reporting standards; generally higher
commission rates on foreign portfolio transactions; the possibility of
nationalization, expropriation or confiscatory taxation; adverse changes in
investment or exchange control regulations (which may include suspension of the
ability to transfer currency from a country); and political, social and monetary
or diplomatic developments that could affect U.S. investments in foreign
countries. Additionally, dispositions of foreign securities and dividends and
interest payable on those securities may be subject to foreign taxes, including
withholding taxes. Foreign securities often trade with less frequency and volume
than domestic securities and, therefore, may exhibit greater price volatility.
Additional costs associated with an investment in foreign securities may include
higher custodial fees than apply to domestic custodial arrangements and
transaction costs of foreign currency conversions. Changes in foreign exchange
rates also will affect the value of securities denominated or quoted in
currencies other than the U.S. dollar. A Master Portfolio's performance may be
affected either unfavorably or favorably by fluctuations in the relative rates
of exchange between the currencies of different nations, by exchange control
regulations and by indigenous economic and political developments.
OTHER INVESTMENT CONSIDERATIONS. Because the Master Portfolios may
shift investment allocations significantly from time to time, their performance
may differ from funds which invest in one asset class or from funds with a
stable mix of assets. Further, shifts among asset classes may result in
relatively high turnover and transaction (i.e., brokerage commission) costs.
Portfolio turnover also can generate short-term capital gains tax consequences.
During those periods in which a high percentage of a Master Portfolio's assets
are invested in long-term bonds, the Master Portfolios' exposure to interest
rate risk will be greater because the longer maturity of such securities means
they are generally more sensitive to changes in market interest rates than
short-term securities.
Each Master Portfolio also may lend its portfolio securities and enter
into futures transactions, each of which involves risk. The futures contracts
and options on futures contracts that each Master Portfolio may purchase may be
considered derivatives. Derivatives are financial instruments whose values are
derived, at least in part, from the prices of other securities or specified
assets, indices or rates.
Asset allocation and modeling strategies are employed by BGFA for other
investment companies and accounts advised or sub-advised by BGFA. If these
strategies indicate particular securities should be purchased or sold, at the
same time, by a Master Portfolio and one or more of these investment companies
or accounts, available investments or opportunities for sales will be allocated
equitably to each by BGFA. In some cases, this procedure may adversely affect
the size of the position obtained for or disposed of by a Master Portfolio or
the price paid or received by such Master Portfolio.
<PAGE> 77
MANAGEMENT
TRUSTEES AND OFFICERS OF THE TRUST
The business and affairs of each Fund are managed under the direction
of the Board of Trustees.
The age, address and principal occupations for the past five years of
each Trustee and executive officers of the Trust are listed below. The address
of each, unless otherwise indicated, is 3435 Stelzer Road, Columbus, Ohio 43219.
G.L. Best, Age: 52, Trustee. Vice President, Finance and
Administration, of Williams Energy Services Company; Treasurer of The Williams
Companies (1992-1995).
Terry L. Carter, Age: 52, Trustee. Senior Vice President of QuikTrip
Corporation.
Thomas F. Kice, Age: 50, Trustee. President of Kice Industries Inc.
George Mileusnic, Age: 46, Trustee. Executive Vice President of
Operations of North American Division of The Coleman Co., Inc.
John J. Pileggi, Age: 42, Chairman of the Board of Trustees. President
and CEO of ING Mutual Fund Management Co. LLC.
David Bunstine, Age 35, President. Vice President (1998-present),
Director, BISYS Fund Services, Inc since 1987.
Steve Pierce, Age: 35 Director (1999-present) BISYS Fund Services, Inc.
since 1999.
<PAGE> 78
COMPENSATION TABLE
3/1/99 THROUGH 2/29/00
PENSION OR
RETIREMENT
BENEFITS ESTIMATED TOTAL
AGGREGATE ACCRUED ANNUAL COMPENSATION
COMPENSATION AS PART OF BENEFITS FROM
FROM FUND UPON THE FUND
THE TRUST EXPENSES RETIREMENT COMPLEX
--------- -------- ---------- -------
G.L. Best, Trustee $6,000 0 N/A $6,000
Terry L. Carter, Trustee $6,000 0 N/A $6,000
Thomas F. Kice, Trustee $6,000 0 N/A $6,000
George Mileusnic, Trustee $6,000 0 N/A $6,000
John J. Pileggi, Trustee $6,000 0 N/A $6,000
Trustees of the Trust receive from the Trust an annual retainer of
$1,000 and a meeting fee of $250 for each Board of Trustees meeting and $1,000
for each Board committee meeting of the Trust attended and are reimbursed for
all out-of-pocket expenses relating to attendance at such meetings None of the
Trustees are deemed to be "interested persons" of the Trust, as defined in the
1940 Act.
As of June 9, 2000, Officers and Trustees of the Trust, as a group, own
less than 1% of the outstanding shares of the funds of the Trust.
The following information relates to directors and officers of Master
Investment Portfolio ("MIP"), together with information as to their principal
business occupations during the last five years, are shown below. The address of
each, unless otherwise indicated, is 111 Center Street, Little Rock, Arkansas
72201. Directors who are deemed to be an "interested person" of MIP, as defined
in the 1940 Act, are indicated by an asterisk.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE POSITION DURING PAST 5 YEARS
------------------------------- -------- --------------------------------------
<S> <C> <C>
Jack S. Euphrat, 78 Director Private Investor.
415 Walsh Road
Atherton, CA 94027
*R. Greg Feltus, 49 Director, Chairman and President Executive Vice President of Stephens
Inc.; President of Stephens Insurance
Services Inc.; Senior Vice President of
Stephens Sports Management Inc.; and
President of Investors Brokerage
Insurance Inc.
Leo Soong1, 54 Director Managing Director of Crystal Geyser
Crystal Geyser Water Co. Roxane Water Co.,; Co-Founder and
55 Francisco Street, Suite 410 President of Crystal Geyser Water Co.
San Francisco, CA 94133
W. Rodney Hughes, 74 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Richard H. Blank, Jr., 43 Chief Operating Officer, Vice President of Stephens Inc.;
Secretary and Treasurer Director of Stephens Sports Management
Inc.; and Director of Capo Inc.
</TABLE>
(1) Elected to the Board of Directors of MIP on February 9, 2000.
<PAGE> 79
COMPENSATION TABLE
For the Fiscal Year Ended February 29, 2000
AGGREGATE TOTAL COMPENSATION
COMPENSATION FROM REGISTRANT
NAME AND POSITION FROM REGISTRANT(1) AND FUND COMPLEX(1)
Jack S. Euphrat $ 9,125 $18,250
Director
*R. Greg Feltus $ 0 $ 0
Director
Thomas S. Goho2 $ 1,500 $ 3,000
Director
W. Rodney Hughes $ 1,500 $ 3,000
Director
*J. Tucker Morse(2) $ 1,429 $ 2,857
Director
Leo Soong
Director
(1) No compensation was paid directly by the Registrant; however, the Master
Portfolios paid the above amounts in connection with the Directors' service
with the Masterworks Funds.
(2) Retired from the Board of Directors of MIP on April 28, 1999.
MASTER/FEEDER STRUCTURE. Each NestEgg Fund seeks to achieve its
investment objective by investing all of its assets into the corresponding
Master Portfolio of MIP. The NestEgg Funds and other entities investing in a
Master Portfolio are each liable for all obligations of such Master Portfolio.
However, the risk of a NestEgg Fund incurring financial loss on account of such
liability is limited to circumstances in which both inadequate insurance existed
and MIP itself is unable to meet its obligations. Accordingly, the Trust's Board
of Trustees believes that neither a Fund nor its shareholders will be adversely
affected by investing Fund assets in a Master Portfolio. However, if a mutual
fund or other investor withdraws its investment from such Master Portfolio, the
economic efficiencies (e.g., spreading fixed expenses among a larger asset base)
that the Trust's Board believes may be available through investment in the
Master Portfolio may not be fully achieved. In addition, given the relative
novelty of the master/feeder structure, accounting or operational difficulties,
although unlikely, could arise.
A NestEgg Fund may withdraw its investment in a Master Portfolio only
if the Trust's Board of Trustees determines that such action is in the best
interests of such Fund and its shareholders. Upon any such withdrawal, the
Trust's Board would consider alternative investments, including investing all of
the Fund's assets in another investment company with the same investment
objective as the Fund or hiring an investment adviser to manage the Fund's
assets in accordance with the investment policies described below with respect
to the Master Portfolio.
The investment objective and other fundamental policies of a Master
Portfolio cannot be changed without approval by the holders of a majority (as
defined in the 1940 Act) of the Master Portfolio's outstanding interests.
Whenever a NestEgg Fund, as an interestholder of the corresponding Master
Portfolio, is requested to vote on any matter submitted to interestholders of
the Master Portfolio, the NestEgg Fund will hold a meeting of its shareholders
to consider such matters. The NestEgg Fund will cast its votes in proportion to
the votes received from its shareholders. Shares for which the NestEgg Fund
receives no voting instructions will be voted in the same proportion as the
votes received from the other NestEgg Fund shareholders.
Certain policies of the Master Portfolio which are nonfundamental may
be changed by vote of a majority of MIP's Trustees without interestholder
approval. If the Master Portfolio's investment objective or fundamental or
nonfundamental policies are changed, the Fund may elect to change its objective
or policies to correspond to
<PAGE> 80
those of the Master Portfolio. A Fund may also elect to redeem its interests in
the corresponding Master Portfolio and either seek a new investment fund with a
matching objective in which to invest or retain its own investment adviser to
manage the Fund's portfolio in accordance with its objective. In the latter
case, the NestEgg Fund's inability to find a substitute investment company in
which to invest or equivalent management services could adversely affect
shareholders' investments in the NestEgg Fund. The NestEgg Funds will provide
shareholders with 30 days' written notice prior to the implementation of any
change in the investment objective of the NestEgg Fund or the Master Portfolio,
to the extent possible.
INVESTMENT ADVISER TO THE MASTER PORTFOLIOS
BGFA provides investment advisory services to each Master Portfolio
pursuant to separate Investment Advisory Contracts (each, a "BGFA Advisory
Contract") with MIP. Pursuant to the BFGA Advisory Contracts, BGFA furnishes to
the MIP's Board of Trustees periodic reports on the investment strategy and
performance of each Master Portfolio. BGFA has agreed to provide to the Master
Portfolios, 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 each Master Portfolio's investment portfolio.
BGFA is entitled to receive monthly fees at the annual rate of 0.55%
of each Master Portfolio's average daily net assets as compensation for its
advisory services to such Master Portfolio.
As to each Master Portfolio, the applicable BGFA Advisory Contract is
subject to annual approval by (i) MIP's Board of Trustees or (ii) vote of a
majority (as defined in the 1940 Act) of the outstanding voting securities of
such Master Portfolio, provided that in either event the continuance also is
approved by a majority of MIP's Board of Trustees who are not "interested
persons" (as defined in the 1940 Act) of MIP or BGFA, by vote cast in person at
a meeting called for the purpose of voting on such approval. As to each Master
Portfolio, the applicable BGFA Advisory Contract is terminable without penalty,
on 60 days' written notice by MIP's Board of Trustees or by vote of the holders
of a majority of such Master Portfolio's shares, or, on not less than 60 days'
written notice, by BGFA. The applicable BGFA Advisory Contract terminates
automatically, as to the relevant Master Portfolio, in the event of its
assignment (as defined in the 1940 Act).
BGFA, Barclays and their affiliates deal, trade and invest for their
own account in the types of securities in which a Master Portfolio may invest
and may have deposit, loan and commercial banking relationships with the issuers
of securities purchased by a Master Portfolio. BGFA has informed MIP that in
making investment decisions the Adviser does not obtain or use material inside
information in its possession.
<PAGE> 81
INVESTMENT ADVISER TO THE FUNDS
INTRUST Financial Services, Inc. ("INTRUST") and its parent INTRUST
Bank, N.A. ("INTRUST Bank") have provided investment advisory services to the
Funds since inception pursuant to an Advisory Agreement with the Trust (the
"Advisory Agreement"). Subject to such policies as the Trust's Board of Trustees
may determine, INTRUST makes investment decisions for the Funds. The Advisory
Agreement provides that, as compensation for services thereunder, INTRUST is
entitled to receive from each Fund a monthly fee at an annual rate average daily
net assets of the Fund. For the periods since inception , INTRUST was entitled
to advisory fees in the following amounts:
FYE 2/29/00 FYE 2/28/99(a)
EARNED WAIVED EARNED WAIVED
NestEgg Capital Preservation Fund $ 4,419 $ 4,419 $ 240 $ 240
NestEgg 2010 Fund $ 8,147 $ 8,147 $ 463 $ 463
NestEgg 2020 Fund $15,468 $15,468 $1,309 $1,309
NestEgg 2030 Fund $ 5,642 $ 5,642 $ 154 $ 154
NestEgg 2040 Fund $ 5,961 $ 5,961 $ 151 $ 151
Money Market Fund (see below) (see below)
(a) Commenced operations on January 4, 1999.
To accommodate changes to the regulatory requirements applicable to
banks which serve as investment advisers to registered investment companies
contained in the Investment Advisers Act of 1940 as amended, the
responsibilities of INTRUST Bank as adviser to the Funds were assumed by INTRUST
Financial Services, Inc., a wholly owned subsidiary of INTRUST Bank, N.A., on
March 1, 2000. The assumption of these investment advisory responsibilities by
INTRUST did not result in any changes in staff or resources presently employed
to render advisory services.
INTRUST is a wholly-owned subsidiary of INTRUST Bank which in turn is a
majority-owned subsidiary of INTRUST Financial Corporation, a bank holding
company. INTRUST Bank is a national banking association which provides a full
range of banking and trust services to clients. As of December 31, 1999, total
assets under management were approximately $2 billion. The principal place of
business address of the Adviser is 105 North Main Street, Box One, Wichita,
Kansas 67201.
Under the terms of an Investment Advisory Agreement for the Funds
between the Trust and the Adviser ("Agreement"), the investment advisory
services of the Adviser to the Funds are not exclusive. The Adviser is free to,
and does, render investment advisory services to others.
<PAGE> 82
The Investment Advisory Agreements for the Funds will continue in
effect for a period beyond two years from the date of their execution only as
long as such continuance is approved annually (I) by the holders of a majority
of the outstanding voting securities of the Funds or by the Board of Trustees
and (ii) by a majority of the Trustees who are not parties to such Contract or
"interested persons" (as defined in the 1940 Act) of any such party. The
Contracts may be terminated without penalty by vote of the Trustees or the
shareholders of the Funds, or by the Adviser, on 60 days' written notice by
either party to the Contract and will terminate automatically if assigned.
SUBADVISER TO THE MONEY MARKET FUND
AMR Investment Services, Inc. ("AMR") serves as sub-adviser to the
Money Market Fund. AMR, located at 4333 Amon Carter Boulevard, MD 5645, Fort
Worth, Texas 76155, is a wholly-owned subsidiary of AMR Corporation, the parent
company of American Airlines, Inc., and was organized in 1986 to provide
business management, advisory, administrative and asset management consulting
services. American Airlines, Inc. is not responsible for investments made by
AMR. As of May 31, 2000, AMR provides investment advice with respect to
approximately $22.3 billion in assets, including approximately $14.7 billion
of assets on behalf of AMR Corporation and its primary subsidiary, American
Airlines, Inc. For the subadvisory services it provides to the Money Market
Fund, AMR receives from the Adviser, and not the Funds, monthly fees based upon
average daily net assets at the annual rate of 0.20%.
Advisory Fees. For the fiscal years ended October 31, 1997, 1998 and
1999, the Adviser and AMR were entitled to advisory fees in the following
amounts with respect to the Money Market Fund:
FYE 10/31/97(a) FYE 10/31/98 FYE 10/31/99
EARNED WAIVED EARNED WAIVED EARNED WAIVED
INTRUST $120,771 $72,463 $128,959 $25,792 $194,001 $38,802
AMR $ 71,919 $35,959 $103,167 $28,651 $155,200 $38,801
(a) Commenced operations on January 23, 1997.
PAST PERFORMANCE OF THE SUBADVISER
The Money Market Fund is substantially identical to other pooled
accounts, including investment companies, advised by AMR. Set forth below are
certain performance data for the Money Market Fund and for such pooled accounts
("Money Market Composite"). The Money Market Composite consists of the American
AAdvantage Money Market Fund (from September 1987 to present), the American
Performance Cash Management Fund (from October 1990 to April 30, 2000), the
FUNDS IV Cash Reserve Fund (from September 1994 through September 1996), the
American AAdvantage Money Market Mileage Fund (from November 1995 to present),
the AMR Investment Services Strategic Cash Business Trust (from July 1996 to
present) and the Money Market Fund (from February 1997 to present). Expenses of
the portfolios in the Money Market Composite range from approximately 0.11% for
the AMR Investment Services Strategic Cash Business Trust to approximately 0.85%
for the American Performance Cash Management Fund. The Strategic Cash Business
Trust is an unregistered pooled account and as such is not subject to certain
requirements that apply to mutual funds under the applicable securities, tax and
other laws that, if applicable, may have adversely affected performance. The
data shown below reflects total return for the periods shown, reduced by the
actual expense ratio for such funds. To the extent such funds had expense
waivers or reimbursements in effect during the periods indicated below, such
funds' actual performance would have been lower had such expense waivers or
reimbursements not been in effect. Fund fees and expenses may be higher than
such expenses and if applied would have reduced the performance below. The
performance information for the Money Market Composite is deemed relevant since
the AMR accounts have been managed using the same investment objectives,
policies, strategies and restrictions and portfolio managers as those used by
the Money Market Fund. However, this performance data is not necessarily
indicative of the past or future performance of any of the Funds. The AMR pooled
accounts and the American Independence Money Market Fund are
<PAGE> 83
separate funds. The Money Market Composite performance does not represent the
past performance of the Money Market Fund.
ANNUALIZED TOTAL RETURNS
FOR THE PERIODS ENDED MAY 31, 2000
----------------------------------
MONEY MARKET MONEY LIPPER INSTITUTIONAL
COMPOSITE MARKET FUND MONEY MARKET INDEX
--------- ----------- ------------------
1 Year 4.97% 4.83% 5.03%
3 Years 5.27% N/A 5.23%
5 Year 5.34% N/A 5.28%
10 Years 5.57% N/A 5.38%
Since Inception 5.94% 4.99% 5.73%
* The inception date of the Money Market Fund is January 23, 1997; the inception
date for the AMR Money Market Composite is September 1, 1987. The since
inception return for the Lipper Institutional Money Market Index is calculated
using September 1, 1987 as the inception date.
DISTRIBUTION OF FUND SHARES
The Trust has retained BISYS Fund Services Limited Partnership d/b/a
BISYS Fund Services ("BISYS"), 3435 Stelzer Road, Columbus OH 43219, to serve as
principal underwriter for the shares of the Funds pursuant to a Distribution
Contract. The Distribution Contract provides that the Distributor will use its
best efforts to maintain a broad distribution of the Funds' shares among bona
fide investors and may enter into selling group agreements with responsible
dealers and dealer managers as well as sell the Funds' shares to individual
investors. The Distributor is not obligated to sell any specific amount of
shares.
DISTRIBUTION PLAN
The Trustees of the Trust have voted to adopt on behalf of each Fund a
Master Distribution Plan (the "Plan") pursuant to Rule 12b-1 of the Investment
Company Act of 1940 (the "1940 Act") after having concluded that there is a
reasonable likelihood that the Plan will benefit the Fund and its shareholders.
The Plan provides for a monthly payment by a Fund to the Distributor in such
amounts that the Distributor may request or for direct payment by a Fund, for
certain costs incurred under the Plan, subject to periodic Board approval,
provided that each such payment is based on the average daily value of the
Fund's net assets during the preceding month and is calculated at an annual rate
not to exceed 0.25% for the Service Shares and not to exceed 0.75% for the
Premium Shares. The Distributor will use all amounts received under the Plan for
payments to broker-dealers or financial institutions (but not including banks)
for their assistance in distributing shares of the Funds and otherwise promoting
the sale of Fund shares, including payments in amounts based on the average
daily value of Fund shares owned by shareholders in respect of which the
broker-dealer or financial institution has a distributing relationship. The
Distributor may also use all or any portion of such fees to pay Fund expenses
such as the printing and distribution of prospectuses sent to prospective
investors; the preparation, printing and distribution of sales literature and
expenses associated with media advertisements. Each Fund will pay all costs and
expenses in connection with the preparation, printing and distribution of their
Prospectus to current shareholders and the operation of the Plan, including
related legal and accounting fees. No Fund will be liable for distribution
expenditures made by the Distributor in any given year in excess of the maximum
amount payable under the Plan for that Fund's fiscal year.
The Plan provides for the Distributor to prepare and submit to the
Board of Trustees on a quarterly basis written reports of all amounts expended
pursuant to the Plan and the purpose for which such expenditures were made. The
Plan provides that it may not be amended to increase materially the costs which
the Fund may bear pursuant to the Plan without shareholder approval and that
other material amendments of the Plan must be approved by the Board of Trustees,
and by the Trustees who neither are "interested persons" (as defined in the 1940
Act) of the Trust nor have any direct or indirect financial interest in the
operation of the Plan or in any related agreement, by vote cast in person at a
meeting called for the purpose of considering such amendments. The selection and
<PAGE> 84
nomination of the Trustees of the Trust has been committed to the discretion of
the Trustees who are not "interested persons" of the Trust. The Plan and the
related Administration Agreement between the Trust and the Sponsor have been
approved, and are subject to annual approval, by the Board of Trustees and by
the Trustees who neither are "interested persons" nor have any direct or
indirect financial interest in the operation of the Plan or in the
Administrative Services Contract, by vote cast in person at a meeting called for
the purpose of voting on the Plan. The Board of Trustees and the Trustees who
are not "interested persons" and who have no direct or indirect financial
interest in the operation of the Plan voted to approve the Plan at a meeting
held on August 7, 1998. The Plan is terminable with respect to the Fund at any
time by a vote of a majority of the Trustees who are not "interested persons" of
the Trust and who have no direct or indirect financial interest in the operation
of the Plan or by vote of the holders of a majority of the shares of the Fund.
12b-1 Distribution Fees. For the fiscal years ended October 31, 1997,
1998 and 1999, no 12b-1 distribution fees were paid by the Money Market Fund.
BISYS, as Distributor to the Money Market Fund was entitled to 12b-1
distribution fees in the following amounts:
FYE 10/31/97(a) FYE 10/31/98 FYE 10/31/99
EARNED WAIVED EARNED WAIVED EARNED WAIVED
------ ------ ------ ------ ------ ------
Money Market Fund $120,770 $120,770 $128,957 $128,957 $194,001 $194,001
(a) Commenced operations on January 23, 1997.
<PAGE> 85
For the period since inception, no 12b-1 distribution fees for the
NestEgg Funds were paid. BISYS was entitled to 12b-1 distribution fees in the
following amounts:
FYE 2/29/00 FYE 2/28/99(a)
EARNED WAIVED EARNED WAIVED
NestEgg Capital Preservation Fund $ 7,366 $ 7,366 $ 400 $ 400
NestEgg 2010 Fund $13,578 $13,578 $ 788 $ 788
NestEgg 2020 Fund $25,780 $25,780 $2,182 $2,182
NestEgg 2030 Fund $ 9,403 $ 9,403 $ 255 $ 255
NestEgg 2040 Fund $ 9,935 $ 9,935 $ 233 $ 233
(a) Commenced operations on January 4, 1999.
<PAGE> 86
ADMINISTRATION AND FUND ACCOUNTING SERVICES
BISYS provides management and administrative services necessary for the
operation of the Funds, including, among other things: (i) preparation of
shareholder reports and communications; (ii) regulatory compliance, such as
reports to and filings with the SEC and state securities commissions; and (iii)
general supervision of the operation of the Funds, including coordination of the
services performed by the Adviser, the Distributor, transfer agent, custodians,
independent accountants, legal counsel and others. In addition, BISYS furnishes
office space and facilities required for conducting the business of the Funds
and pays the compensation of the Trust's officers affiliated with BISYS. For
these services, BISYS receives from each Fund a fee, payable monthly, at the
annual rate of 0.20% of the Money Market Fund's average daily net assets and
0.20% of each NestEgg Fund's average daily net assets so long as the Funds are
invested in MIP.
The Administration Agreement is for a one-year term and is renewed
automatically each year, unless terminated, for successive one year terms. The
Administration Agreement will terminate automatically in the event of its
assignment.
Administration Fees. For the fiscal years ended October 31, 1999, 1998
and 1997, BISYS, as Administrator to the Money Market Fund was entitled to
administration fees in the following amounts:
FYE 10/31/97(a) FYE 10/31/98 FYE 10/31/99
EARNED WAIVED EARNED WAIVED EARNED WAIVED
------ ------ ------ ------ ------ ------
Money Market Fund $99,617 $0 $103,167 $0 $155,203 $0
(a) Commenced operations on January 4, 1999.
For the fiscal year ended February 29, 2000 and February 28, 1999,
BISYS was entitled to administration fees from the NestEgg Funds in the
following amounts:
FYE 2/29/00 FYE 2/28/00(a)
EARNED WAIVED EARNED WAIVED
------ ------ ------ ------
NestEgg Capital Preservation Fund $ 5,892 $1,780 $ 320 $ 320
NestEgg 2010 Fund $10,862 $3,063 $ 630 $ 630
NestEgg 2020 Fund $20,624 $7,131 $1,745 $1,745
NestEgg 2030 Fund $ 7,523 $1,563 $ 204 $ 204
NestEgg 2040 Fund $ 7,948 $1,228 $ 185 $ 185
(a) Commenced operations on January 4, 1999.
BISYS Fund Services, Inc. ("BFSI"), an affiliate of BISYS, serves as
the Fund Accounting Agent for the Money Market Fund pursuant to a Fund
Accounting Agreement. For the fiscal years ended October 31, 1999 and 1998,
BFSI, as Fund Accountant for the Money Market Fund was entitled to fees in the
following amounts:
FYE 10/31/98 FYE 10/31/99
EARNED WAIVED EARNED WAIVED
------ ------ ------ ------
Money Market Fund $30,352 $0 $30,583 $0
(a) Commenced operations on January 23, 1997.
<PAGE> 87
Investors Bank & Trust serves as the Fund Accounting Agent to the
NestEgg Funds pursuant to a Fund Accounting Agreement.
For the fiscal year ended February 29, 2000, fund accounting fees paid
by the NestEgg Funds were:
FYE 2/29/00
-----------
NestEgg Capital Preservation Fund $ 10,830
NestEgg 2010 Fund $ 14,324
NestEgg 2020 Fund $ 14,212
NestEgg 2030 Fund $ 9,469
NestEgg 2040 Fund $ 8,934
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
INTRUST Bank acts as custodian of the Money Market Fund's assets. BISYS
Fund Services, Inc. ("BFSI") acts as transfer agent for the Funds. BFSI and
BISYS have offices located at 3435 Stelzer Road, Columbus, Ohio 43219. The Trust
compensates BFSI for providing personnel and facilities to perform transfer
agency related services for the Trust at a rate intended to represent the cost
of providing such services. The NestEgg Funds pay no custodian fees at the Fund
level as long as all of their assets are invested in another mutual fund, but
they incur their pro-rata portion of the custody fees of Investors Bank & Trust
Company as the Master Portfolios' Custodian. Investors Bank & Trust, as the
Master Portfolios' Custodian, has reviewed and approved custodial arrangements
for securities held outside of the United States in accordance with Rule 17f-5
of the 1940 Act.
INDEPENDENT AUDITORS
KPMG LLP has been selected as the independent auditors for the Trust.
KPMG LLP provides audit services, tax return preparation and assistance and
consultation in connection with certain SEC filings. KPMG LLP is located at Two
Nationwide Plaza, Columbus, Ohio, 43215.
SERVICE ORGANIZATIONS
The Trust also contracts with banks (including the Adviser), trust
companies, broker-dealers (other than BISYS) or other financial organizations
("Service Organizations") to provide certain administrative services for the
Funds. Services provided by Service Organizations may include among other
things: providing necessary personnel and facilities to establish and maintain
certain shareholder accounts and records; assisting in processing purchase and
redemption transactions; arranging for the wiring of funds; transmitting and
receiving funds in connection with shareholders orders to purchase or redeem
shares; verifying and guaranteeing client signatures in connection with
redemption orders, transfers among and changes in shareholders designating
accounts; providing periodic statements showing a shareholder's account balance
and, to the extent practicable, integrating such information with other client
transactions; furnishing periodic and annual statements and confirmations of all
purchases and redemptions of shares in a shareholder's account; transmitting
proxy statements, annual reports, and updating prospectuses and other
communications from the Funds to shareholders; and providing such other services
as the Funds or a shareholder
<PAGE> 88
reasonably may request, to the extent permitted by applicable statute, rule or
regulation. The Distributor will not be a Service Organization or receive fees
for servicing. Service Organizations for shareholders may also provide record
keeping, communication with and education of shareholders, fiduciary services
(exclusive of investment management) and asset allocation services.
For the fiscal year ended February 29, 2000, shareholder services fees
entitled to be paid to service organizations were as follows:
FYE 2/29/00
EARNED WAIVED
------ ------
NestEgg Capital Preservation Fund $ 7,366 $ 7,366
NestEgg 2010 Fund $13,578 $13,578
NestEgg 2020 Fund $25,780 $25,780
NestEgg 2030 Fund $ 9,403 $ 9,403
NestEgg 2040 Fund $ 9,935 $ 9,935
No shareholder service fees were paid with respect to the Money Market
Fund.
Some Service Organizations may impose additional or different
conditions on their clients, such as requiring their clients to invest more than
the minimum initial or subsequent investments specified by the Funds or charging
a direct fee for servicing. If imposed, these fees would be in addition to any
amounts which might be paid to the Service Organization by the Funds. Each
Service Organization has agreed to transmit to its clients a schedule of any
such fees. Shareholders using Service Organizations are urged to consult them
regarding any such fees or conditions.
EXPENSES
Each Fund bears all costs of its operations, other than expenses
specifically assumed by the Distributor and the Adviser. The costs borne by the
Funds include legal and accounting expenses, Trustees' fees and expenses,
insurance premiums, custodian and transfer agent fees and expenses, expenses
incurred in acquiring or disposing of the Funds' portfolio securities, expenses
of registering and qualifying the Funds' shares for sale with the SEC and with
various state securities commissions, expenses of obtaining quotations on the
Funds' portfolio securities and pricing of the Funds' shares, expenses of
maintaining the Funds' legal existence and of shareholders' meetings, and
expenses of preparing and distributing to existing shareholders reports, proxies
and prospectuses.
<PAGE> 89
DETERMINATION OF NET ASSET VALUE OF THE NESTEGG FUNDS
Shares of the NestEgg Funds are sold on a continuous basis at the
applicable offering price (net asset value per share) next determined after an
order in proper form is received by the Transfer Agent. Net asset value ("NAV")
per share is determined as of the close of regular trading on the NYSE
(currently 4:00 p.m., New York time) each Business Day (defined under
"Determination of Net Asset Value of the Money Market Fund").
The NAV per share of each class of shares of each NestEgg Fund is
computed by dividing the net assets (i.e., the value of the assets less the
liabilities) attributable to such class of shares by the total number of the
outstanding shares of each class. The value of the net assets of each class of
shares is determined daily by adjusting the net assets at the beginning of the
day by the value of shareholder activity, net investment income and net realized
and unrealized gains or losses for that day. Net investment income is calculated
each day as daily income less expenses. The NAV of each class of shares of each
Fund is expected to fluctuate daily and is expected to differ. Each NestEgg
Fund's investment in the corresponding Master Portfolio is valued at the NAV of
such Master Portfolio's shares. Each Master Portfolio calculates the NAV of its
shares on the same days and at the same time as the corresponding NestEgg Fund.
The securities of the Master Portfolios, including covered call options
written by a Master Portfolio, are valued at the last sale price on the
securities exchange or national securities market on which such securities
primarily are traded. Securities not listed on an exchange or national
securities market, or securities in which there were no transactions, are valued
at the most recent bid prices. Portfolio securities which are traded primarily
on foreign securities exchanges generally are valued at the preceding closing
values of such securities on their respective exchanges, except that when an
occurrence subsequent to the time a value was so established is likely to have
changed such value, then the fair value of those securities is determined by
consideration of other factors by or under the direction of MIP's Board of
Trustees or its delegates. Short-term investments are carried at amortized cost,
which approximates market value. Any securities or other assets for which recent
market quotations are not readily available are valued at fair value as
determined in good faith by MIP's Board of Trustees. Prices used for such
valuations may be provided by independent pricing services.
Restricted securities, as well as securities or other assets for which
market quotations are not readily available, or are not valued by a pricing
service approved by MIP's Board of Trustees, are valued at fair value as
determined in good faith by or under the direction of MIP's Board of Trustees or
its delegates. MIP's Board of Trustees reviews the method of valuation on a
current basis. In making a good-faith valuation of restricted securities, the
following are generally considered: restricted securities that are, or are
convertible into, securities of the same class of securities for which a public
market exists usually are valued at market value less the same percentage
discount at which such securities were purchased. This discount may be revised
periodically if the Adviser believes that the discount no longer reflects the
value of the restricted securities. Restricted securities not of the same class
as securities for which a public market exists usually are valued initially at
cost. Any subsequent adjustment from cost is based upon considerations deemed
relevant by or under the direction of MIP's Board of Trustees or its delegates.
Any assets or liabilities initially expressed in terms of foreign
currency are translated into dollars using information provided by pricing
entities, such as Morgan Stanley Capital International or Gelderman Data
Service, or at a quoted market exchange rate as may be determined to be
appropriate by the Adviser. Forward currency contracts are valued at the current
cost of offsetting the contract. Because of the need to obtain prices as of the
close of trading on various exchanges throughout the world, the calculation of
net asset value does not take place contemporaneously with the determination of
prices of the foreign securities held by the Master Portfolios. In addition,
foreign securities held by a Master Portfolio may be traded actively in
securities markets which are open for trading on days when the Master Portfolio
does not determine its net asset value. Accordingly, there may be occasions when
a Master Portfolio does not calculate its net asset value but when the value of
such Master Portfolio's portfolio securities is affected by such trading
activity.
Fixed income securities are valued each business day using available
market quotations or at fair value as determined by one or more independent
pricing services (collectively, the "Service") approved by MIP's Board of
Trustees. The Service may use available market quotations and employ electronic
data processing techniques and/or a matrix system to determine valuations. The
Service's procedures are reviewed by MIP's officers under the general
supervision of MIP's Board of Trustees.
<PAGE> 90
Expenses and fees, including advisory fees, are accrued daily and are
taken into account for the purpose of determining the net asset value of each
Master Portfolio's shares.
PORTFOLIO TRANSACTIONS OF THE NESTEGG FUNDS
Since each NestEgg Fund invests all of its assets in a corresponding
Master Portfolio of MIP, set forth below is a description of the Master
Portfolios' policies governing portfolio securities transactions.
Purchases and sales of equity securities on a securities exchange
usually are effected through brokers who charge a negotiated commission for
their services. Commission rates are established pursuant to negotiations with
the broker based on the quality and quantity of execution services provided by
the broker in light of generally prevailing rates. Orders may be directed to any
broker including, to the extent and in the manner permitted by applicable law,
INTRUST or Barclays Global Investors Services. In the over-the-counter market,
securities are generally traded on a "net" basis with dealers acting as
principal for their own accounts without a stated commission, although the price
of the security usually includes a profit to the dealer. In underwritten
offerings, securities are purchased at a fixed price that includes an amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount.
Purchases of debt securities generally are principal transactions. Debt
securities normally are purchased or sold from or to dealers serving as market
makers for the securities at a net price. Debt securities may also be purchased
in underwritten offerings or directly from an issuer. Generally debt obligations
are traded on a net basis and do not involve brokerage commissions. The cost of
executing transactions in debt securities consists primarily of dealer spreads
and underwriting commissions. Under the 1940 Act, persons affiliated with MIP
are prohibited from dealing with MIP as a principal in the purchase and sale of
portfolio securities unless an exemptive order allowing such transactions is
obtained from the SEC or an exemption is otherwise available. The Master
Portfolios may purchase securities from underwriting syndicates of which INTRUST
or BGFA 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 MIP's Board of Trustees.
MIP 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 MIP's Board of Trustees, BGFA, as adviser, is responsible for the
Master Portfolio's investment decisions and the placing of portfolio
transactions. In placing orders, it is MIP's policy to obtain the best overall
terms taking into account the dealer's general execution and operational
facilities, the type of transaction involved and other factors such as the
dealer's risk in positioning the securities involved. BGFA generally seeks
reasonably competitive spreads or commissions.
In assessing the best overall terms available for any transaction, BGFA
considers factors deemed relevant, including the breadth of the market in the
security, the price of the security, the financial condition and execution
capability of the broker or dealer, and the reasonableness of the commission, if
any, both for the specific transaction and on a continuing basis. As a result, a
Master Portfolio may pay a broker/dealer which furnishes brokerage services a
higher commission than that which might be charged by another broker/dealer for
effecting the same transaction, provided that such commission is determined to
be reasonable in relation to the value of the brokerage services provided by
such broker/dealer. Certain of the broker/dealers with whom the Master
Portfolios may transact business may offer commission rebates to the Master
Portfolios. BGFA considers such rebates in assessing the best overall terms
available for any transaction. MIP's Board of Trustees will periodically review
the commissions paid by the Master Portfolios to consider whether the
commissions paid over representative periods of time appear to be reasonable in
relation to the benefits inuring to the Master Portfolios.
Under Section 28(e) of the Securities Exchange Act of 1934, an adviser
shall not be "deemed to have acted unlawfully or to have breached its fiduciary
duty" solely because under certain circumstances it has caused the account to
pay a higher commission than the lowest available. To obtain the benefit of
Section 28(e), an adviser must make a good faith determination that the
commissions paid are "reasonable in relation to the value of the brokerage and
research services provided . . . viewed in terms of either that particular
transaction or its overall
<PAGE> 91
responsibilities with respect to the accounts as to which it exercises
investment discretion and that the services provided by a broker provide an
adviser with lawful and appropriate assistance in the performance of its
investment decision-making responsibilities." Accordingly, the price to a Master
Portfolio in any transaction may be less favorable than that available from
another broker/dealer if the difference is reasonably justified by other aspects
of the portfolio execution services offered.
PORTFOLIO TURNOVER
Changes may be made in the portfolio consistent with the investment
objectives and policies of the Funds whenever such changes are believed to be in
the best interests of the Funds and their shareholders. The portfolio turnover
rate is calculated by dividing the lesser of purchases or sales of portfolio
securities by the average monthly value of the Fund's portfolio securities. For
purposes of this calculation, portfolio securities exclude all securities having
a maturity when purchased of one year or less.
DETERMINATION OF NET ASSET VALUE OF THE MONEY MARKET FUND
The net asset value per share of the Money Market Fund is calculated at
12:00 noon (Eastern time), Monday through Friday, on each day the New York Stock
Exchange is open for trading (a "Business Day"), which excludes the following
business holidays: New Year's Day, Dr. Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day,
Christmas Day, Columbus Day and Veterans Day. The net asset value per share of
each share class is computed by dividing the value of the net assets
attributable to each class (i.e., the value of the assets less the liabilities)
by the total number of such class's outstanding shares. All expenses, including
fees paid to the Adviser, the Administrator and the Distributor, are accrued
daily and taken into account for the purpose of determining the net asset value.
Expenses directly attributable to the Fund are charged to the Fund; other
expenses are allocated proportionately among each Fund within the Trust in
relation to the net assets of each Fund, or on another reasonable basis. Each
share class within the Fund is charged with the direct expenses of that class
and with a proportion of the general expenses of the Fund. These general
expenses (e.g., investment advisory fees) are allocated among the classes of
shares based on the relative value of their outstanding shares. The Money Market
Fund uses the amortized cost method to determine the value of its portfolio
securities pursuant to Rule 2a-7 under the 1940 Act. The amortized cost method
involves valuing a security at its cost and amortizing any discount or premium
over the period until maturity regardless of the impact of fluctuating interest
rates on the market value of the security. While this method provides certainty
in valuation, it may result in periods during which the value, as determined by
amortized cost, is higher or lower than the price which the Fund would receive
if the security were sold. During these periods, the yield to a shareholder may
differ somewhat from that which could be obtained from a similar fund which
utilizes 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
lower value of a Fund's portfolio on a particular day, a prospective investor in
the Fund would be able to obtain a somewhat higher yield than would result from
an investment in a fund utilizing solely market values and existing Fund
shareholders would receive correspondingly less income. The converse would apply
during periods of rising interest rates.
Rule 2a-7 provides that in order to value its portfolio using the
amortized cost method, the Money Market Fund must maintain a dollar-weighted
average portfolio maturity of 90 days or less, purchase securities having
remaining maturities of 397 days or less and invest only in U.S. dollar
denominated eligible securities determined by the Trust's Board of Trustees to
be of minimal credit risks and which (1) have received the highest short-term
rating by at least two Nationally Recognized Statistical Rating Organizations
("NRSROs"), such as "A-1" by Standard & Poor's and "P-1" by Moody's; (2) are
single rated and have received the highest short-term rating by a NRSRO; or (3)
are unrated, but are determined to be of comparable quality by the Adviser or
AMR pursuant to guidelines approved by the Board and subject to the ratification
of the Board.
In addition, the Fund will not invest more than 5% of its total assets
in the securities (including the securities collateralizing a repurchase
agreement) of, or subject to puts issued by, a single issuer, except that, the
Fund may invest in U.S. Government securities or repurchase agreements that are
collateralized by U.S. Government securities without any such limitation, and
the limitation with respect to puts does not apply to unconditional puts if no
more than 10% of a Fund's total assets are invested in securities issued or
guaranteed by the issuer of the unconditional put. Investments in rated
securities not rated in the highest category by at least two rating
<PAGE> 92
organizations (or one rating organization if the instrument was rated by only
one such organization), and unrated securities not determined by the Board of
Trustees to be comparable to those rated in the highest rating category, will be
limited to 5% of the Fund's total assets, with investment in any one such issuer
being limited to no more than the greater of 1% of a Fund's total assets or
$1,000,000.
Pursuant to Rule 2a-7, the Board of Trustees is also required to
establish procedures designed to stabilize, to the extent reasonably possible,
the price per share of the Fund, as computed for the purpose of sales and
redemptions, at $1.00. Such procedures include review of the Fund's portfolio
holdings by the Board of Trustees, at such intervals as it may deem appropriate,
to determine whether the net asset value of the Fund calculated by using
available market quotations deviates from $l.00 per share 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 of Trustees will promptly consider
what action, if any, will be initiated. In the event the Board of Trustees
determines that a deviation exists which may result in material dilution or
other unfair results to investors or existing shareholders, the Board of
Trustees will take such corrective action as it regards as necessary and
appropriate, which may include selling portfolio instruments prior to maturity
to realize capital gains or losses or to shorten average portfolio maturity,
withholding dividends or establishing a net asset value per share by using
available market quotations.
PORTFOLIO TRANSACTIONS OF THE MONEY MARKET FUND
Investment decisions for the Fund and for the other investment advisory
clients of the Adviser and AMR are made with a view to achieving their
respective investment objectives. Investment decisions are the product of many
factors in addition to basic suitability for the particular client involved.
Thus, a particular security may be bought or sold for certain clients even
though it could have been bought or sold for other clients at the same time.
Likewise, a particular security may be bought for one or more clients when one
or more clients are selling the security. In some instances, one client may sell
a particular security to another client. It also sometimes happens that two or
more clients simultaneously purchase or sell the same security, in which event
each day's transactions in such security are, insofar as possible, averaged as
to price and allocated between such clients in a manner which in the opinion of
the Adviser and AMR, is equitable to each and in accordance with the amount
being purchased or sold by each. There may be circumstances when purchases or
sales of portfolio securities for one or more clients will have an adverse
effect on other clients.
Debt securities normally will be purchased or sold from or to issuers
directly or to dealers serving as market makers for the securities at a net
price. Generally, money market securities are traded on a net basis and do not
involve brokerage commissions.
The cost of executing portfolio securities transactions for the Money
Market Fund primarily consists of dealer spreads and underwriting commissions.
Under the 1940 Act, persons affiliated with the Funds or the Sponsor are
prohibited from dealing with the Fund as a principal in the purchase and sale of
securities unless a permissive order allowing such transactions is obtained from
the SEC.
The Adviser or AMR may, in circumstances in which two or more
broker-dealers are in a position to offer comparable results, give preference to
a dealer which has provided statistical or other research services to the
Adviser or AMR. By allocating transactions in this manner, the Adviser and AMR
are able to supplement their research and analysis with the views and
information of securities firms. These items, which in some cases may also be
purchased for cash, include such matters as general economic and securities
market reviews, industry and company reviews, evaluations of securities and
recommendations as to the purchase and sale of securities.
Some of these services are of value to the Adviser and AMR in advising
various of their clients (including the Fund), although not all of these
services are necessarily useful and of value in managing the Fund. The
management fees paid by the Fund are not reduced because the Adviser and AMR or
their affiliates receive such services.
As permitted by Section 28(e) of the Securities Exchange Act of 1934
(the "Act"), the Adviser and AMR may cause the Fund to pay a broker-dealer which
provides "brokerage and research services" (as defined in the Act)
<PAGE> 93
to the Adviser and AMR an amount of disclosed commission for effecting a
securities transaction for the Fund in excess of the commission which another
broker-dealer would have charged for effecting that transaction.
Consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc. and subject to seeking the most favorable price and
execution available and such other policies as the Trustees may determine, the
Adviser may consider sales of shares of the Fund as a factor in the selection of
broker-dealers to execute portfolio transactions for the Fund.
TAXATION
The Money Market Fund and the NestEgg Funds have qualified and intends
to qualify and elect annually to be treated as regulated investment companies
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). To qualify as a regulated investment company, a Fund must (a)
distribute to shareholders at least 90% of its investment company taxable income
(which includes, among other items, dividends, taxable interest and the excess
of net short-term capital gains over net long-term capital losses); (b) derive
in each taxable year at least 90% of its gross income from dividends, interest,
payments with respect to securities loans and gains from the sale or other
disposition of stock, securities or foreign currencies or other income derived
with respect to its business of investing in such stock, securities or
currencies; and (c) diversify its holdings so that, at the end of each quarter
of the taxable year, (i) at least 50% of the market value of the Fund's assets
is represented by cash and cash items (including receivables), U.S. Government
securities, the securities of other regulated investment companies and other
securities, with such other securities of any one issuer limited for the
purposes of this calculation to an amount not greater than 5% of the value of
the Fund's total assets and not greater than 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its total
assets is invested in the securities of any one issuer (other than U.S.
Government securities or the securities of other regulated investment
companies). By meeting these requirements, the Funds generally will not be
subject to Federal income tax on their investment company taxable income and net
capital gains which are distributed to shareholders. If the Funds do not meet
all of these Code requirements, they will be taxed as ordinary corporations and
their distributions will be taxed to shareholders as ordinary income.
Amounts, other than tax-exempt interest, not distributed on a timely
basis in accordance with a calendar year distribution requirement are subject to
a nondeductible 4% excise tax. To prevent imposition of the excise tax, each
Fund must distribute for each calendar year an amount equal to the sum of (1) at
least 98% of its ordinary income (excluding any capital gains or losses) for the
calendar year, (2) at least 98% of the excess of its capital gains over capital
losses (adjusted for certain ordinary losses) for the one-year period ending
October 31 of such year, and (3) all ordinary income and capital gains net
income (adjusted for certain ordinary losses) for previous years that were not
distributed during such years. A distribution, including an "exempt-interest
dividend," will be treated as paid on December 31 of a calendar year if it is
declared by a Fund during October, November or December of that year to
shareholders of record on a date in such a month and paid by the Fund during
January of the following year. Such distributions will be taxable to
shareholders in the calendar year in which the distributions are declared,
rather than the calendar year in which the distributions are received.
Some Funds and MIP may invest in stocks of foreign companies that are
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign company is classified as a PFIC under the Code if at least
one-half of its assets constitutes investment-type assets or 75% or more of its
gross income is investment-type income. Under the PFIC rules, an "excess
distribution" received with respect to PFIC stock is treated as having been
realized ratably over the period during which the Fund or the Portfolio held the
PFIC stock. A Fund itself will be subject to tax on the portion, if any, of the
excess distribution that is allocated to the Fund's. Excess distributions
include any gain from the sale of PFIC stock as well as certain distributions
from a PFIC. All excess distributions are taxable as ordinary income.
A Fund or MIP may be able to elect alternative tax treatment with
respect to PFIC stock. Under an election that currently may be available, a Fund
or MIP generally would be required to include in its gross income its share of
the earnings of a PFIC on a current basis, regardless of whether any
distributions are received from the PFIC. If this election is made, the special
rules, discussed above, relating to the taxation of excess distributions, would
not
<PAGE> 94
apply. In addition, other elections may become available that would affect the
tax treatment of PFIC stock held by a Fund. Each Fund's and MIP's intention to
qualify annually as a regulated investment company may limit its elections with
respect to PFIC stock.
Because the application of the PFIC rules may affect, among other
things, the character of gains, the amount of gain or loss and the timing of the
recognition of income with respect to PFIC stock, as well as subject a Fund
itself or MIP to tax on certain income from PFIC stock, the amount that must be
distributed to shareholders, and which will be taxed to shareholders as ordinary
income or long-term capital gain, may be increased or decreased substantially as
compared to a fund that did not invest in PFIC stock. Investors should consult
their own tax advisors in this regard. MIP does not intend to acquire stock of
issuers that are considered PFICs.
Distributions of investment company taxable income generally are
taxable to shareholders as ordinary income. Distributions from certain of the
Funds may be eligible for the dividends-received deduction available to
corporations. To the extent dividends received by a Fund are attributable to
foreign corporations, a corporation that owns shares will not be entitled to the
dividends-received deduction with respect to its pro rata portion of such
dividends, since the dividends-received deduction is generally available only
with respect to dividends paid by domestic corporations. Proposed legislation,
if enacted, would reduce the dividends received deduction from 70 to 50 percent.
Distributions of net long term capital gains, if any, designated by the
Funds as long term capital gain dividends are taxable to shareholders as
long-term capital gain, regardless of the length of time the Funds' shares have
been held by a shareholder. All distributions are taxable to the shareholder in
the same manner whether reinvested in additional shares or received in cash.
Shareholders will be notified annually as to the Federal tax status of
distributions.
Distributions by a Fund reduce the net asset value of the Fund's
shares. Should a distribution reduce the net asset value below a shareholder's
cost basis, such distribution, nevertheless, would be taxable to the shareholder
as ordinary income or capital gain as described above, even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implications of
buying shares just prior to a distribution by the Funds. The price of shares
purchased at that time includes the amount of the forthcoming distribution.
Those purchasing just prior to a distribution will receive a distribution which
will nevertheless generally be taxable to them.
Upon the taxable disposition (including a sale or redemption) of shares
of a Fund, a shareholder may realize a gain or loss depending upon his basis in
his shares. Such gain or loss generally will be treated as capital gain or loss
if the shares are capital assets in the shareholders hands. Such gain or loss
will be long-term or short-term, generally depending upon the shareholder's
holding period for the shares. However, a loss realized by a shareholder on the
disposition of Fund shares with respect to which capital gain dividends have
been paid will, to the extent of such capital gain dividends, be treated as
long-term capital loss if such shares have been held by the shareholder for six
months or less. A loss realized on the redemption, sale or exchange of Fund
shares will be disallowed to the extent an exempt-interest dividend was received
with respect to those shares if the shares have been held by the shareholder for
six months or less. Further, a loss realized on a disposition will be disallowed
to the extent the shares disposed of are replaced (whether by reinvestment of
distributions or otherwise) within a period of 61 days beginning 30 days before
and ending 30 days after the shares are disposed of. In such a case, the basis
of the shares acquired will be adjusted to reflect the disallowed loss.
Shareholders receiving distributions in the form of additional shares will have
a cost basis for Federal income tax purposes in each share received equal to the
net asset value of a share of the Funds on the reinvestment date.
The taxation of equity options is governed by Code Section 1234.
Pursuant to Code Section 1234, the premium received by a Fund for selling a put
or call option is not included in income at the time of receipt. If the option
expires, the premium is short-term capital gain to the Fund. If the Fund enters
into a closing transaction, the difference between the amount paid to close out
its position and the premium received is short-term capital gain or loss. If a
call option written by a Fund is exercised, thereby requiring the Fund to sell
the underlying security, the premium will increase the amount realized upon the
sale of such security and any resulting gain or loss will be a
<PAGE> 95
capital gain or loss, and will be long-term or short-term depending upon the
holding period of the security. With respect to a put or call option that is
purchased by a Fund, if the option is sold, any resulting gain or loss will be a
capital gain or loss, and will be long-term or short-term, depending upon the
holding period of the option. If the option expires, the resulting loss is a
capital loss and is long-term or short-term, depending upon the holding period
of the option. If the option is exercised, the cost of the option, in the case
of a call option, is added to the basis of the purchased security and, in the
case of a put option, reduces the amount realized on the underlying security in
determining gain or loss.
Certain of the options, futures contracts, and forward foreign currency
exchange contracts that several of the Funds and each Master Portfolio may
invest in are so-called "section 1256 contracts." With certain exceptions, gains
or losses on section 1256 contracts generally are considered 60% long-term and
40% short-term capital gains or losses ("60/40"). Also, section 1256 contracts
held by a Fund or the Portfolio at the end of each taxable year (and, generally,
for purposes of the 4% excise tax, on October 31 of each year) are
"marked-to-market" with the result that unrealized gains or losses are treated
as though they were realized and the resulting gain or loss is treated as 60/40
gain or loss. Investors should contact their own tax advisors in this regard.
Generally, the hedging transactions undertaken by a Fund or MIP may
result in "straddles" for Federal income tax purposes. The straddle rules may
affect the character of gains (or losses) realized by a Fund or MIP. In
addition, losses realized by a Fund or MIP on a position that are part of a
straddle may be deferred under the straddle rules, rather than being taken into
account in calculating the taxable income for the taxable year in which such
losses are realized. Because only a few regulations implementing the straddle
rules have been promulgated, the tax consequences to a Fund or MIP of hedging
transactions are not entirely clear. Hedging transactions may increase the
amount of short-term capital gain realized by a Fund or MIP which is taxed as
ordinary income when distributed to stockholders.
A Fund or MIP may make one or more of the elections available under the
Code which are applicable to straddles. If a Fund or MIP makes any of the
elections, the amount, character and timing of the recognition of gains or
losses from the affected straddle positions will be determined under rules that
vary according to the election(s) made. The rules applicable under certain of
the elections may operate to accelerate the recognition of gains or losses from
the affected straddle positions.
Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to shareholders, and which will be taxed to shareholders as ordinary
income or long-term capital gain, may be increased or decreased substantially as
compared to a Fund that did not engage in such hedging transactions. Investors
should contact their own tax advisors in this regard.
Certain requirements that must be met under the Code in order for a
Fund to qualify as a regulated investment company may limit the extent to which
a Fund will be able to engage in transactions in options, futures, and forward
contracts.
Under the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time a Fund or MIP accrues interest,
dividends or other receivables, or accrues expenses or other liabilities
denominated in a foreign currency, and the time the Fund or MIP actually
collects such receivables, or pays such liabilities, generally are treated as
ordinary income or ordinary loss. Similarly, on disposition of debt securities
denominated in a foreign currency and on disposition of certain options and
forward and futures contracts, gains or losses attributable to fluctuations in
the value of foreign currency between the date of acquisition of the security or
contract and the date of disposition also are treated as ordinary gain or loss.
These gains or losses, referred to under the Code as "section 988" gains or
losses, may increase, decrease, or eliminate the amount of a Fund's investment
company taxable income to be distributed to its shareholders as ordinary income.
Investors should contact their own tax advisors in this regard.
Income received by a Fund or MIP from sources within foreign countries
may be subject to withholding and other similar income taxes imposed by the
foreign country. If more than 50% of the value of a Fund's total assets at the
close of its taxable year consists of securities of foreign governments and
corporations, the Fund will be eligible and intends to elect to "pass-through"
to its shareholders the amount of such foreign taxes paid by the Fund or, in the
case of the NestEgg Funds, its proportionate share of such taxes paid by MIP.
Pursuant to this election, a shareholder would be required to include in gross
income (in addition to taxable dividends actually received) his pro
<PAGE> 96
rata share of the foreign taxes paid (or deemed paid) by a Fund, and would be
entitled either to deduct his pro rata share of foreign taxes in computing his
taxable income or to use it as a foreign tax credit against his U.S. Federal
income tax liability, subject to limitations. No deduction for foreign taxes may
be claimed by a shareholder who does not itemize deductions, but such a
shareholder may be eligible to claim the foreign tax credit (see below). Each
shareholder will be notified within 60 days after the close of a Fund's taxable
year whether the foreign taxes paid by a Fund or MIP will "pass-through" for
that year and, if so, such notification will designate (a) the shareholder's
portion of the foreign taxes paid to each such country and (b) the portion of
the dividend which represents income derived from foreign sources. Generally, a
credit for foreign taxes is subject to the limitation that it may not exceed the
shareholder's U.S. tax attributable to his total foreign source taxable income.
For this purpose, if a Fund makes the election described in the preceding
paragraph, the source of the Fund's income flows through to its shareholders.
Gains from the sale of securities will be treated as derived from U.S. sources
and certain currency fluctuations gains, including fluctuation gains from
foreign currency-denominated debt securities, receivables and payables, will be
treated as ordinary income derived from U.S. sources. The limitation on the
foreign tax credit is applied separately to foreign source passive income as
defined for purposes of the foreign tax credit) including foreign source passive
income of a Fund. The foreign tax credit may offset only 90% of the alternative
minimum tax imposed on corporations and individuals, and foreign taxes generally
may not be deducted in computing alternative minimum taxable income.
The Funds are required to report to the IRS all distributions except in
the case of certain exempt shareholders. All such distributions generally are
subject to withholding of Federal income tax at a rate of 31% ("backup
withholding") in the case of non-exempt shareholders if (1) the shareholder
fails to furnish the Funds with and to certify the shareholder's correct
taxpayer identification number or social security number, (2) the IRS notifies
the Funds or a shareholder that the shareholder has failed to report properly
certain interest and dividend income to the IRS and to respond to notices to
that effect, or (3) when required to do so, the shareholder fails to certify
that he is not subject to backup withholding. If the withholding provisions are
applicable, any such distributions, whether reinvested in additional shares or
taken in cash, will be reduced by the amounts required to be withheld. Backup
withholding is not an additional tax. Any amount withheld may be credited
against the shareholders U.S. Federal income tax liability. Investors may wish
to consult their tax advisors about the applicability of the backup withholding
provisions.
The foregoing discussion relates only to Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens and residents and U.S.
corporations, partnerships, trusts and estates). Distributions by the Funds also
may be subject to state and local taxes and their treatment under state and
local income tax laws may differ from the Federal income tax treatment.
Distributions of a Fund which are derived from interest on obligations of the
U.S. Government and certain of its agencies and instrumentalities may be exempt
from state and local taxes in certain states. Shareholders should consult their
tax advisors with respect to particular questions of Federal, state and local
taxation. Shareholders who are not U.S. persons should consult their tax
advisers regarding U.S. and foreign tax consequences of ownership of shares of
the Funds including the likelihood that distributions to them would be subject
to withholding of U.S. tax at a rate of 30% (or at a lower rate under a tax
treaty).
OTHER INFORMATION
CAPITALIZATION
The capitalization of the Trust consists solely of an unlimited number
of shares of beneficial interest with a par value of $0.001 each. The Board of
Trustees may establish additional Funds (with different investment objectives
and fundamental policies) at any time in the future. Establishment and offering
of additional Funds will not alter the rights of the Trust's shareholders. When
issued, shares are fully paid, non-assessable, redeemable and freely
transferable. Shares do not have preemptive rights or subscription rights. In
any liquidation of a Fund, each shareholder is entitled to receive his pro rata
share of the net assets of that Fund.
VOTING RIGHTS
Under the Declaration of Trust, the Trust is not required to hold
annual meetings of each Fund's shareholders to elect Trustees or for other
purposes. When certain matters affect only one class of shares but not another,
the shareholders would vote as a class regarding such matters. It is not
anticipated that the Trust will hold
<PAGE> 97
shareholders' meetings unless required by law or the Declaration of Trust. In
this regard, the Trust will be required to hold a meeting to elect Trustees to
fill any existing vacancies on the Board if, at any time, fewer than a majority
of the Trustees have been elected by the shareholders of the Trust. In addition,
the Declaration of Trust provides that the holders of not less than two-thirds
of the outstanding shares of the Trust may remove persons serving as Trustee
either by declaration in writing or at a meeting called for such purpose. The
Trustees are required to call a meeting for the purpose of considering the
removal of persons serving as Trustee if requested in writing to do so by the
holders of not less than 10% of the outstanding shares of the Trust. To the
extent required by applicable law, the Trustees shall assist shareholders who
seek to remove any person serving as Trustee.
The Trust's shares do not have cumulative voting rights, so that the
holders of more than 50% of the outstanding shares may elect the entire Board of
Trustees, in which case the holders of the remaining shares would not be able to
elect any Trustees.
As of June 9, 2000, no person owned of record, or to the knowledge of
management beneficially owned five percent or more of the outstanding shares of
the respective American Independence Fund or classes except as set forth below:
Money Market Fund
Institutional Service Class Shares Owned % Owned
--------------------------- ------------ -------
Phillip H. Jones 1,936.550 100.0000%*
Camille Jones
2342 Glengariff Drive
Dallas, TX 75228
* Disclaims beneficial ownership.
NestEgg Capital Preservation Fund
Service Shares Shares Owned % Owned
--------------------------------- ------------ -------
Transco & Company 405,655.089 99.9494%*
105 N. Main
Wichita, KS 67201
* Disclaims beneficial ownership.
NestEgg 2010 Fund
Service Shares Shares Owned % Owned
--------------------------------- ------------ -------
Transco & Company 1,142,666.535 97.5196%*
105 N. Main
Wichita, KS 67201
* Disclaims beneficial ownership.
NestEgg 2020 Fund
Service Shares Shares Owned % Owned
--------------------------------- ------------ -------
Transco & Company 1,665,810.705 98.6884%*
105 N. Main
Wichita, KS 67201
* Disclaims beneficial ownership.
<PAGE> 98
NestEgg 2030 Fund
Service Shares Shares Owned % Owned
-------------- ------------ -------
Transco & Company 674,282.435 93.7619%*
105 N. Main
Wichita, KS 67201
NestEgg 2040 Fund
Service Shares Shares Owned % Owned
Transco & Company 774,820.600 99.4047%*
105 N. Main
Wichita, KS 67201
* Disclaims beneficial ownership.
The Funds do not know the extent to which other holders of record were
beneficial owners of shares indicated.
YIELD AND PERFORMANCE INFORMATION
A Fund may, from time to time, include its yield and total return in
advertisements or reports to shareholders or prospective investors. The methods
used to calculate the yield and total return of the Funds are mandated by the
SEC. Quotations of "yield" for the NestEgg Funds will be based on the investment
income per share during a particular 30-day (or one month) period (including
dividends and interest), less expenses accrued during the period ("net
investment income"), and will be computed by dividing net investment income by
the maximum public offering price per share on the last day of the period.
Current yield for the Money Market Fund will be based on the change in
the value of a hypothetical investment (exclusive of capital changes such as
gains or losses from the sale of securities and unrealized appreciation and
depreciation) over a particular seven-day period, less a pro-rata share of each
Fund's expenses accrued over that period (the "base period"), and stated as a
percentage of the investment at the start of the base period (the "base period
return"). The base period return is then annualized by multiplying by 365/7,
with the resulting yield figure carried to at least the nearest hundredth of one
percent. "Effective yield" for the Money Market Fund assumes that all dividends
received during the base period have been reinvested. Calculation of "effective
yield" begins with the same "base period return" used in the calculation of
yield, which is then annualized to reflect weekly compounding pursuant to the
following formula:
Effective Yield = [(Base Period Return + 1)[RAISED TO THE (365/7) POWER]] -- 1.
For the seven-day period ended October 31, 1999, the seven-day yield
and seven-day effective yield for the Money Market Fund were 5.20% and 5.23%.
Average annual total return is calculated by determining the ending
redeemable value of an investment purchased with a hypothetical $1,000 payment
made at the beginning of the period (assuming the reinvestment of dividends and
distributions), dividing by the amount of the initial investment, taking the
"n"th root of the quotient (where "n" is the number of years in the period) and
subtracting 1 from the result.
<PAGE> 99
Total return is calculated by subtracting the amount of the net asset
value per share at the beginning of a stated period from the net asset value per
share at the end of the period (after giving effect to the reinvestment of
dividends and distributions during the period), and dividing the result by the
net asset value per share at the beginning of the period.
Performance information for the Funds may be compared, in reports and
promotional literature, to: (i) the Standard & Poor's 500 Stock Index, Dow Jones
Industrial Average, or other unmanaged indices so that investors may compare the
Funds' results with those of a group of unmanaged securities widely regarded by
investors as representative of the securities markets in general; (ii) other
groups of mutual funds tracked by Lipper Analytical Services, a widely used
independent research firm which ranks mutual funds by overall performance,
investment objectives, and assets, or tracked by other services, companies,
publications, or persons who rank mutual funds on overall performance or other
criteria; and (iii) the Consumer Price Index (measure for inflation) to assess
the real rate of return from an investment of dividends but generally do not
reflect deductions for administrative and management costs and expenses.
Investors who purchase and redeem shares of the Funds through a
customer account maintained at a Service Organization may be charged one or more
of the following types of fees as agreed upon by the Service Organization and
the investor, with respect to the customer services provided by the Service
Organization: account fees (a fixed amount per month or per year); transaction
fees (a fixed amount per transaction processed); compensating balance
requirements (a minimum dollar amount a customer must maintain in order to
obtain the services offered); or account maintenance fees (a periodic charge
based upon a percentage of the assets in the account or of the dividends paid on
those assets). Such fees will have the effect of reducing the yield and average
annual total return of the Funds for those investors. Investors who maintain
accounts with the Trust as transfer agent will not pay these fees.
The chart below shows the average annual returns for the NestEgg Funds.
The NestEgg Funds invest all of their investable assets in the corresponding
Master Portfolios. Performance shown below is the actual performance of each
NestEgg Fund since January 4, 1999 (its inception) and adjusted performance of
the corresponding Master Portfolio managed by BGFA: LifePath Income Master
Portfolio, LifePath 2010 Master Portfolio, LifePath 2020 Master Portfolio,
LifePath 2030 Master Portfolio, and LifePath 2040 Master Portfolio. Each Master
Portfolio's performance has been adjusted to reflect the fees and expenses
(excluding fee waivers and/or expense reimbursements) which are estimated for
the current fiscal year to apply to the applicable NestEgg Funds. Such
performance without fee waiver and expense reimbursements would have been lower
had current expenses been taken into account in calculating the performance. The
one-year total returns represent performance of the NestEgg Fund for the fiscal
year ended February 29, 2000. The five-year returns represent performance of the
Master Portfolios from March 1, 1995 through January 3, 1999 and the NestEgg
Funds from January 4, 1999 through February 29, 2000. The since inception
returns represent the performance of the Master Portfolios from March 1, 1994
through January 3, 1999 and the NestEgg Funds from January 4, 1999 through
February 29, 2000.
ANNUALIZED RATES OF RETURN FOR
PERIODS ENDING FEBRUARY 29, 2000
Lipper Flexible
Capital Aggregate Income Portfolio
Preservation Bond Index(1) Benchmark(3) Fund Index(4)
------------ ------------- ------------ -------------
1 Year............. 4.19% 1.10% 7.87% 8.63%
5 Years............ 5.40% 6.99% 10.30% 15.06%
Since Inception.... 4.22% 6.11% 9.84% 12.49%
ANNUALIZED RATES OF RETURN FOR
PERIODS ENDING FEBRUARY 29, 2000
Lehman Brothers LIFEPATH Lipper Flexible
Aggregate 2010 Portfolio
NestEgg Bond Index(1) Benchmark(3) Fund Index(4)
------- --------------- ------------ ---------------
1 Year................ 7.24% 1.10% 9.01% 8.63%
5 Years............... 10.15% 6.99% 12.49% 15.06%
Since Inception....... 8.31% 6.11% 11.76% 12.49%
ANNUALIZED RATES OF RETURN FOR
PERIODS ENDING FEBRUARY 29, 2000
Wilshire LIFEPATH Lipper Flexible
NestEgg 5000 Equity 2020 Portfolio
2020 Bond Index(2) Benchmark(3) Fund Index(4)
---- ------------- ------------ --------------
1 Year....................... 10.20% 21.18% 10.07% 8.63%
5 Years...................... 12.72% 25.03% 14.65% 15.06%
Since Inception.............. 11.17% 21.50% 13.67% 12.49%
<PAGE> 100
ANNUALIZED RATES OF RETURN FOR
PERIODS ENDING FEBRUARY 29, 2000
Wilshire LIFEPATH Lipper Flexible
NestEgg 5000 Equity 2030 Portfolio
2030 Bond Index(2) Benchmark(3) Fund Index(4)
---- ------------- ------------ -------------
1 Year................... 12.28% 21.18% 10.90% 8.63%
5 Years.................. 15.07% 25.03% 16.75% 15.06%
Since Inception.......... 13.25% 21.50% 15.53% 12.49%
ANNUALIZED RATES OF RETURN FOR
PERIODS ENDING FEBRUARY 29, 2000
Wilshire LIFEPATH Lipper Flexible
NestEgg 5000 Equity 2040 Portfolio
2040 Bond Index(2) Benchmark(3) Fund Index(4)
---- ------------- ------------ -------------
1 Year.................. 15.36% 21.18% 11.70% 8.63%
5 Years................. 17.53% 25.03% 18.84% 15.06%
Since Inception......... 15.53% 21.50% 17.40% 12.49%
(1) The Lehman Brothers Aggregate Bond Index is composed of the Lehman
Government/Corporate Index and the Mortgage-Backed Securities Index
and includes treasury issues, agency issues, corporate bond issues
and mortgage backed securities.
(2) The Wilshire 5000 Equity Index is composed of domestic equity
securities of companies in addition to a very small number of
limited partnerships and REITS.
(3) The LifePath Benchmarks represents returns of the BGI US Equity
Market Index (a blended index replicating the broad US equity
market, large, medium and small companies), MSCI EAFE (Europe,
Australasia and Far East equity securities), the Lehman Aggregate
Bond Index and US Treasury Bills and are representative of the
broad asset classes in each Master Portfolio.
(4) The Lipper Flexible Portfolio Fund Index's returns represent an
average of returns of certain mutual funds investing in domestic
common stocks, bonds and money market instruments in an asset
allocation strategy as tracked by Lipper Analytical Services.
FINANCIAL STATEMENTS
The Reports of Independent Auditors and Financial Statements of the
Trust for the period ended October 31, 1999 in the case of the Money Market Fund
and for the period ended February 29, 2000 in the case of the NestEgg Funds are
incorporated herein by reference to the Trust's Annual Reports, such Financial
Statements having been audited by KPMG LLP, independent auditors, and is so
included and incorporated by reference in reliance upon the reports of said
firm, which report is given upon their authority as experts in auditing and
accounting. Copies of the Annual Reports are available without charge upon
request by writing to American Independence Funds Trust, 3435 Stelzer Road,
Columbus, OH 43219-8006 or telephoning 1-888- 266-8787.
The Report of Independent Auditors and Financial Statements of the
Master Portfolios for the year ended February 29, 2000 are incorporated herein
by reference to MIP's Annual Report, such Financial Statements having been
audited by KPMG LLP, independent auditors, and is so included and incorporated
by reference in reliance upon the report of said firm, which report is given
upon their authority as experts in auditing and accounting.
<PAGE> 101
APPENDIX
INVESTMENT RATINGS
The following describes how three of the major rating agencies classify their
investment ratings. Ratings of debt securities represent the rating agency's
opinion regarding their quality, and are not a guarantee of quality. Credit
ratings attempt to evaluate the safety of principal and interest payments, and
do not evaluate the risks of fluctuations in market value. Furthermore, rating
agencies may fail to make timely changes in credit ratings in response to
subsequent events, so that an issuer's current financial condition may be better
or worse than the rating indicates. Subsequent to purchase by a Master
Portfolio, the rating of a debt security may be reduced below the minimum rating
required for initial purchase by the Master Portfolio or the security may cease
to be rated. BGFA will consider either such event in determining whether a
Master Portfolio should continue to hold the security. In no event will a Master
Portfolio hold more than 5% of its net assets in debt securities rated
below"BBB" by S&P or below "Baa" by Moody's or in unrated low quality (below
investment grade) debt securities. BGFA does not make any representation that
the investment ratings provided by such rating agencies are accurate or
complete.
STANDARD & POOR'S RATINGS
Bond Ratings. Bonds rated "AAA" have the highest rating assigned by S&P to a
debt obligation. Capacity to pay interest and repay principal is extremely
strong. Bonds rated "AA" have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in a small degree. Bonds
rated "A" have a strong capacity to pay interest and repay principal although it
is somewhat more susceptible to the adverse effects of changes in circumstances
and economic conditions than debt in higher rated categories. Bonds rated "BBB"
by S&P are regarded as having an adequate capacity to pay interest and repay
principal. Whereas such bonds normally exhibit adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
Commercial Paper Ratings. Commercial paper with the greatest capacity for timely
payment is rated"A" by S&P. Issues within this category are further redefined
with designations "1", "2" and "3" to indicate the relative degree of
safety;"A-1," the highest of the three, indicates the degree of safety is very
high.
MOODY'S INVESTORS SERVICE RATINGS
Bond Ratings. Bonds rated "Aaa" by Moody's are judged to be of the best quality.
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. Bonds rated "Aa" are judged to be of high quality by
all standards. They are rated lower than the best bonds because margins of
protection may not be as large or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than is the case with "Aaa" securities.
Bonds that are rated "A" possess many favorable investment attributes and are to
be considered upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future. Bonds which
are rated "Baa" by Moody's are considered medium grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present, but certain protective elements may be
lacking or may be characteristically unreliable over longer periods of time.
Such bonds lack outstanding investment characteristics and, in fact, have
speculative characteristics as well.
Commercial Paper Ratings.
Moody's employs the designations of "Prime-1,""Prime-2" and "Prime-3" to
indicate the relative capacity of the rated issuers to repay punctually.
"Prime-1" is the highest commercial paper rating assigned by Moody's. Issuers of
"Prime-1" obligations must have a superior capacity for repayment of short-term
promissory obligations, and will normally be evidenced by leading market
positions in well established industries, high rates of return on funds
employed, conservative capitalization structures with moderate reliance on debt
and ample asset protection, broad margins in earnings coverage of fixed
financial charges and high internal cash generation, and well established access
to a range of financial markets and assured sources of alternate liquidity.
<PAGE> 102
FITCH INVESTORS SERVICE RATINGS
Bond Ratings. Bonds rated "BBB" by Fitch are considered to be investment grade
and of satisfactory quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to weaken this ability than with
bonds having higher ratings.
<PAGE> 103
PART C. OTHER INFORMATION
--------
Item 23. Exhibits:
(a) Trust Instrument.(3)
(b) Bylaws of Registrant.(3)
(c) None.
(d)(1) Form of Master Investment Advisory
Agreement and Supplements between
Registrant and Adviser relating to Money
Market Fund, Short-Term Bond Fund,
Intermediate Bond Fund, Stock Fund,
International Multi-Manager Stock Fund
and the Kansas Tax-Exempt Bond Fund.(2)
(d)(2) Form of Master Investment Advisory
Agreement and Supplements between
Registrant and Adviser relating to the
NestEgg Funds.(6)
(d)(3) Form of Sub-Advisory Agreements between
Adviser and Sub-Advisers.(2)
(d)(4) Form of Master Administration Agreement
and Supplements between Registrants and
Administrator.(2)
(d)(5) Agreement among AMR Investment Services
Trust, AMR Investment Services, Inc.,
INTRUST Funds Trust and BISYS Fund
Services, dated January 17, 1997.(6)
(d)(6) Investment Advisory Contracts by and
among BZW Barclays Global Fund Advisors
and Master Investment Portfolio, each
dated January 1, 1996, on behalf of each
of the LifePath 2000 Master Portfolio,
LifePath 2010 Master Portfolio, LifePath
2020 Master Portfolio, LifePath 2030
Master Portfolio, and LifePath 2040
Master Portfolio, are incorporated by
reference to Master Investment Portfolio
Amendment No. 3 to Registration Statement
on Form POS-AMI (1940 Act File No.
811-08162) filed with the Commission on
January 5, 1996.
7
<PAGE> 104
(d)(7) Form of Third Party Feeder Fund Agreement
between Registrant and Master Investment
Portfolio with respect to NestEgg
Funds.(6)
(e) Form of Master Distribution Contract and
Supplements between Registrant and
Distributor.(2)
(f) None.
(g)(1) Form of Custodian Contract between
Registrant and Custodian.(2)
(g)(2) Custody Agreement with Investors Bank &
Trust, N.A. with respect to the Master
Portfolios incorporated by reference to
Master Investment Portfolio Amendment No.
5 to Registration Statement on Form
POS-AMI (1940 Act File No. 811-08162)
filed with the Commission on June 30,
1997.
(h)(1) Form of Transfer Agency and Service
Agreement between Registrant and Transfer
Agent.(2)
(h)(2) Form of Service Organization
Agreement.(2)
(h)(3) Form of Fund Accounting Agreement between
Registrant and Investors Bank & Trust
Company with respect to NestEgg
Funds.(6)
(i)(1) Consent of Paul, Weiss, Rifkind, Wharton
& Garrison, counsel to Registrant.(1)
(i)(2) Opinion of Counsel to Registrant.
(Opinion is now combined with consent in
Item 23(i)(1)).
(j)(1) Consent of KPMG LLP NestEgg Funds.(1)
(j)(2) Consent of KPMG LLP Money Market Fund.(1)
(k) None.
(l) Subscription Agreement.(2)
(m) Amended Form of Rule 12b-1 Distribution
Plan and Agreement between Registrant and
Distributor--(6)
(n) Not Applicable.
8
<PAGE> 105
(o) Rule 18f-3 Plan.(2)
Other Exhibits:
(A) Power of Attorney.(2)
(B) Power of Attorney dated February 9, 1998.(5)
(C) Powers of Attorney dated August 11, 1998 for
Master Investment Portfolio(6)
(1) Filed herewith.
(2) Previously filed on December 23, 1996 as part of Pre-Effective
Amendment No. 3 and incorporated by reference herein.
(3) Previously filed with Post-Effective Amendment No. 1 on June 27, 1997,
and incorporated by reference herein.
(4) Previously filed with Post-Effective Amendment No. 2 on December 22,
1997, and incorporated by reference herein.
(5) Previously filed with Post-Effective Amendment No. 3 on February 27,
1998, and incorporated by reference herein.
(6) Previously filed with Post-Effective Amendment No. 7 on November 30,
1998, and incorporated by reference herein.
Item 24. Persons Controlled by or under Common Control with Registrant.
None.
Item 25. Indemnification.
As permitted by Section 17(h) and (i) of the Investment
Company Act of 1940 (the "1940 Act") and pursuant to Article X of the
Registrant's Trust Instrument (Exhibit 1 to the Registration Statement), Section
4 of the Master
9
<PAGE> 106
Investment Advisory Contract between Registrant and the Adviser (Exhibit 5(a) to
this Registration Statement), and Section 14 of the Master Distribution Contract
between Registrant and the Distributor (Exhibit 6 to this Registration
Statement) officers, trustees, employees and agents of the Registrant will not
be liable to the Registrant, any shareholder, officer, trustee, employee, agent
or other person for any action or failure to act, except for bad faith, willful
misfeasance, gross negligence or reckless disregard of duties, and those
individuals may be indemnified against liabilities in connection with the
Registrant, subject to the same exceptions.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Securities Act") may be permitted to trustees,
officers and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant understands that in the option of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a trustee, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such trustee, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The Registrant will purchase an insurance policy insuring its
officers and trustees against liabilities, and certain costs of defending claims
against such officers and trustees, to the extent such officers and trustees are
not found to have committed conduct constituting willful misfeasance, bad faith,
gross negligence or reckless disregard in the performance of their duties. The
insurance policy also insures the Registrant against the cost of indemnification
payments to officers under certain circumstances.
Section 4 of the Master Investment Advisory Contract between
Registrant and the Adviser and Section 9 of the Master Distribution Contract
between Registrant and the Distributor limit the liability of the Adviser, and
the distributor to liabilities arising from willful misfeasance, bad faith or
gross negligence in the performance of their respective duties or from reckless
disregard by them of their respective obligations and duties under the
agreements.
The Registrant hereby undertakes that it will apply the
indemnification provisions of its Declaration of Trust, By-Laws, Investment
Advisory Contracts and Distribution Contract in a manner consistent with Release
No. 11330 of the Securities and Exchange Commission under the 1940 Act so long
as the interpretations of Section 17(h) and 17(i) of such Act remain in effect
and are consistently applied.
10
<PAGE> 107
Item 26. Business and Other Connections of INTRUST Financial Services,
Inc.
INTRUST Financial Services, Inc. is a wholly owned subsidiary
of INTRUST Financial Corporation (formerly First Bancorp of Kansas), a bank
holding company. INTRUST Bank, N.A. is a majority-owned subsidiary of INTRUST
Financial Corporation. INTRUST Bank, N.A. is a national banking association
which provides a full range of banking and trust services to clients. As of
December 31, 1997 total assets under management were approximately $2 billion.
The principal place of business address of the Adviser is 105 North Main Street,
Box One, Wichita, Kansas 67201. The executive officers of INTRUST Bank, N.A. and
INTRUST Financial Corporation and such executive officers' positions during the
past two years are as follows:
INTRUST Financial Services, Inc.
--------------------------------
Name Position and Office
---- -------------------
Hugo Ernst President
Michael Mitchell Vice President
Alicia Guagliardo Vice President
INTRUST Bank, N.A.
------------------
Name Position and Office
---- -------------------
C.Q. Chandler, IV Chairman, President and Chief
Executive Officer (Vice Chairman prior
to February, 1996)
J.V. Lentell Vice Chairman
Ron Baldwin Vice Chairman
(Hired February, 1996; Executive Vice
President Fourth Financial Corporation
prior to February, 1996)
Phillip J. Owings Executive Vice President(Senior Vice
President prior to March 1998)
INTRUST Financial Corporation
-----------------------------
Name Position and Office
---- -------------------
C.Q. Chandler III Chairman and Chief Executive Officer
C.Q. Chandler, IV President
Jay Smith Executive Vice President
11
<PAGE> 108
Rick Beach Executive Vice President (Senior Vice
President prior to March, 1996)
Business and Other Connections of BGFA
The LifePath Income, LifePath 2010, LifePath 2020, LifePath 2030,
LifePath 2040 Master Portfolios are advised by Barclays Global Fund Advisors
("BGFA"), a wholly-owned subsidiary of Barclays Global Investors, N.A. ("BGI",
formerly, Wells Fargo Institutional Trust Company).
BGFA's business is that of a registered investment adviser to certain
open-end, management investment companies and various other institutional
investors. Wells Fargo Bank's business is that of a national banking association
with respect to which it conducts a variety of commercial banking and trust
activities, including acting as investment adviser and/or sub-adviser to certain
open-end management investment companies and various other institutional
investors.
The directors and officers of BGFA consist primarily of persons who
during the past two years have been active in the investment management business
of the former sub-adviser to the Registrant, Wells Fargo Nikko Investment
Advisors ("WFNIA") and, in some cases, the service business of BGI. Each of the
directors and executive officers of BGFA will also have substantial
responsibilities as directors and/or officers of BGI. To the knowledge of the
Registrant, except as set forth below, none of the directors or executive
officers of BGFA is or has been at any time during the past two fiscal years
engaged in any other business, profession, vocation or employment of a
substantial nature.
<TABLE>
<CAPTION>
Name and Position Principal Business(es) During at
at BGFA Least the Last Two Fiscal Years
------------------- --------------------------------
<S> <C>
Frederick L.A. Grauer Director of BGFA and Co-Chairman and Director of BGI
Director 45 Fremont Street, San Francisco, CA 94105
Patricia Dunn Director of BGFA and Co-Chairman and Director of BGI
Director 45 Fremont Street, San Francisco, CA 94105
Lawrence G. Tint Chairman of the Board of Directors of BGFA and Chairman
Chief Executive Officer of BGI and Director; 45 Fremont Street, San Francisco, CA 94105
Geoffrey Fletcher Chief Financial Officer of BGFA and BGI since May 1997 45
Fremont Street, San Francisco, CA 94105
Managing Director and Principal Accounting Officer at Bankers
Trust Company from 1988 - 1997
505 Market Street, San Francisco, CA 94111
</TABLE>
Item 27. Principal Underwriter
(a) BISYS acts as Distributor/Underwriter for other
registered investment companies:
BISYS FUND SERVICES LIMITED PARTNERSHIP
---------------------------------------
Alpine Equity Trust
American Performance Funds
AmSouth Mutual Funds
The BB&T Mutual Funds Group
The Coventry Group
The Eureka Funds
Governor Funds
Fifth Third Funds
Hirtle Callaghan Trust
HSBC Funds Trust and HSBC Mutual Funds Trust
American Independence Funds Trust
The Infinity Mutual Funds, Inc.
Magna Funds
Meyers Investment Trust
12
<PAGE> 109
Metamarkets.com
Mercantile Mutual Funds
MMA Praxis Mutual Funds
M.S.D.&T. Funds
Pacific Capital Funds
Republic Advisor Funds Trust
Republic Funds Trust
Summit Investment Trust
USAllianz Funds
USAllianz Funds Variable Insurance Products Trust
Variable Insurance Funds
The Victory Portfolios
The Victory Variable Insurance Funds
Vintage Mutual Funds, Inc.
WHATIFI Funds
(b) Officers and Directors.
<TABLE>
<CAPTION>
Name and Principal Positions and Position
Business Address Offices with Registrant with Underwriter
---------------- ----------------------- ----------------
<S> <C> <C>
BISYS Fund Services, Inc. None Sole General Partner
3435 Stelzer Road
Columbus, Ohio 43219
WC Subsidiary Corporation None Sole Limited Partner
150 Clove Road
Little Falls, New Jersey 07424
</TABLE>
(c) Not applicable.
Item 28. Location of Accounts and Records
(a) 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 the offices of BISYS (as administrator, transfer agent, fund
accountant(except for NestEgg funds) and distributor) located at 3435 Stelzer
Road, Columbus, Ohio 43219 and INTRUST Financial Services and INTRUST Bank, N.A.
(as adviser and custodian respectively) at 105 North Main Street, Box One,
Wichita, Kansas 63201 and AMR Investment Services, Inc., at 4333 Amon Carter
Boulevard, MD, 5645, Fort Worth, Texas 76155.
(b) BGFA maintains all records relating to their services as adviser
for Master Investment Portfolio at 45 Fremont Street, San Francisco, California
94105.
(c) Investors Bank & Trust Company maintains all records relating to
its services as fund accountant and custodian to the NestEgg Funds and Master
Portfolios at 89 South Street, Boston, Massachusetts 02111.
Item 29. Management Services.
13
<PAGE> 110
Not applicable.
Item 30. Undertakings.
(a) Registrant undertakes to call a meeting of
shareholders for the purpose of voting upon the
removal of a trustee if requested to do so by the
holders of at least 10% of the Registrant's
outstanding shares.
(b) Registrant undertakes to provide the support to
shareholders specified in Section 16(c) of the 1940
Act as though that section applied to the Registrant.
(c) Registrant undertakes to furnish each person to whom
a prospectus is delivered with a copy of the
Registrant's latest annual report to shareholders
upon request and without charge.
14
<PAGE> 111
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, as amended, the Registrant certifies that it
meets all of the requirements for effectiveness of this Post-Effective Amendment
No. 17 to the Registration Statement pursuant to Rule 485(a) under the
Securities Act of 1933 and has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Columbus, and State of Ohio, on June 30, 2000.
AMERICAN INDEPENDENCE FUNDS TRUST
By: /s/ David Bunstine
----------------------------
David Bunstine, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Terry L. Carter* Trustee June 30, 2000
----------------------------
Terry L. Carter
/s/ Thomas F. Kice* Trustee June 30, 2000
----------------------------
Thomas F. Kice
/s/ George Mileusnic* Trustee June 30, 2000
----------------------------
George Mileusnic
/s/ John J. Pileggi* Trustee June 30, 2000
----------------------------
John J. Pileggi
/s/ G.L. Best* Trustee June 30, 2000
----------------------------
G.L. Best
/s/ David Bunstine President June 30, 2000
----------------------------
David Bunstine
</TABLE>
<PAGE> 112
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Steve Pierce Treasurer June 30, 2000
---------------------------- (Principal Financial
Steve Pierce and Accounting Officer)
*By: /s/ David Bunstine June 30, 2000
----------------------------
David Bunstine
Attorney-in-Fact
</TABLE>
16
<PAGE> 113
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment No. 17 to
the Registration Statement on Form N-1A of American Independence Funds Trust
pursuant to Rule 485(b) under the Securities Act of 1933 and Master Investment
Portfolio has duly caused this Post-Effective Amendment No. 17 to be signed on
its behalf by the undersigned, thereto duly authorized, in the City of Little
Rock, State of Arkansas on the 30th day of June 2000.
MASTER INVESTMENT PORTFOLIO
LIFEPATH INCOME MASTER PORTFOLIO
LIFEPATH 2010 MASTER PORTFOLIO
LIFEPATH 2020 MASTER PORTFOLIO
LIFEPATH 2030 MASTER PORTFOLIO
LIFEPATH 2040 MASTER PORTFOLIO
By /s/ Richard H. Blank, Jr.
-------------------------------------
Richard H. Blank, Jr.
Secretary and Treasurer
(Principal Financial Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 17 to the Registration Statement on Form N-1A has
been signed below by the following persons in the capacities and on the date
indicated:
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ Richard H. Blank, Jr. Secretary and Treasurer June 30, 2000
----------------------------------- (Principal Financial Officer)
Richard H. Blank, Jr.
----------------------------------- Trustee June 30, 2000
Jack S. Euphrat*
Chairman, President and Trustee June 30, 2000
----------------------------------- (Principal Executive Officer),
R. Greg Feltus*
----------------------------------- Trustee June 30, 2000
W. Rodney Hughes*
----------------------------------- Trustee June 30, 2000
Leo Soong*
</TABLE>
* Richard H. Blank, Jr. signs this document pursuant to powers of
attorney previously filed herein.
*By /s/ Richard H. Blank, Jr.
---------------------------------
Richard H. Blank, Jr.
Attorney in Fact
