<PAGE>
HEWITT MONEY MARKET FUND
A SERIES OF HEWITT SERIES TRUST
- -------------------------------------------------------------------------------
INSTITUTIONAL SHARES
ADMINISTRATIVE SHARES
- -------------------------------------------------------------------------------
PROSPECTUS
SEPTEMBER 15, 1998
- -------------------------------------------------------------------------------
Hewitt Money Market Fund is a series of Hewitt Series Trust, a diversified,
open-end management investment company. The Fund is a money market fund. The
investment objective of the Fund is to provide a high level of income, while
preserving capital and liquidity, by investing in high quality, short-term
investments.
Unlike most other money market funds, the Fund does not maintain a stable net
asset value of $1.00 per share. Net asset value per share will fluctuate.
- -------------------------------------------------------------------------------
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
HEWITT MONEY MARKET FUND
A SERIES OF HEWITT SERIES TRUST
INSTITUTIONAL SHARES
ADMINISTRATIVE SHARES
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
About the Fund.............................................................. 3
- --------------------------------------------------------------------------------
Investor Expenses........................................................... 4
- --------------------------------------------------------------------------------
Investment Objective and Policies........................................... 4
- --------------------------------------------------------------------------------
Management Arrangements..................................................... 6
- --------------------------------------------------------------------------------
How to Buy Shares........................................................... 7
- --------------------------------------------------------------------------------
How to Redeem Shares........................................................ 8
- --------------------------------------------------------------------------------
Net Asset Value............................................................. 10
- --------------------------------------------------------------------------------
Dividends and Distributions................................................. 10
- --------------------------------------------------------------------------------
Taxes....................................................................... 11
- --------------------------------------------------------------------------------
Distribution and Servicing Arrangements..................................... 12
- --------------------------------------------------------------------------------
Performance Information..................................................... 12
- --------------------------------------------------------------------------------
Additional Information...................................................... 13
- --------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
ABOUT THE FUND
INVESTMENT GOALS. Hewitt Money Market Fund is a series of Hewitt Series
Trust, a diversified, open-end management investment company. The Fund is a
money market fund. Its investment objective is to provide a high level of
income, while preserving capital and liquidity, by investing in high quality,
short-term investments.
The Fund is designed for use as an investment option by employee benefit
plans, individual retirement accounts and other investors who seek income and
stability of capital. Unlike most other money market funds, the Fund does not
maintain a stable net asset value per share because it declares dividends on a
monthly basis (rather than daily). This will not affect the return on your
investment in the Fund. Net asset value per share will fluctuate.
PRINCIPAL INVESTMENT STRATEGIES. The Fund pursues its investment objective
by investing all of its investable assets in the Money Market Master
Portfolio,, which is a series of Master Investment Portfolio. The Money Market
Master Portfolio has the same investment objective and substantially the same
investment policies as the Fund. Barclays Global Fund Advisors, Inc. serves as
the Portfolio's investment adviser. The Money Market Master Portfolio is a
diversified portfolio that invests in the following types of money market
instruments:
. U.S. Government Obligations
. Bank Obligations
. Commercial Paper and Short-Term Corporate Debt Instruments
. Repurchase Agreements
. Letters of Credit
. Floating- and Variable-Rate Obligations
PRINCIPAL RISKS. Because Money Market Master Portfolio invests in debt
securities, a decline in short-term interest rates will reduce the overall
yield of the Fund and the return on an investment. Strong equity markets or a
weak economy could cause a decline in short-term interest rates. Although
Money Market Master Portfolio invests only in high quality obligations, if an
issuer fails to pay interest or to repay principal, the return on an
investment in the Fund would be adversely affected and the net asset values of
the Fund's shares could decline. Net asset values may also be adversely
affected by a substantial increase in short-term interest rates.
An investment in the Fund is not a deposit account of Barclays Global Fund
Advisors, Inc. or any of its affiliates and is not insured or guaranteed by
the Federal Deposit Insurance Corporation or any other government agency. It
is possible to lose money by investing in the Fund.
3
<PAGE>
INVESTOR EXPENSES
The following Table summarizes the fees and expenses that you may pay if you
buy and hold shares of the Fund. It is based on estimates of expenses for the
current year.
<TABLE>
<CAPTION>
INSTITUTIONAL ADMINISTRATIVE
SHARES SHARES
------------- --------------
<S> <C> <C>
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR
INVESTMENT)
Maximum Sales Charge (Load) Imposed on Pur-
chases......................................... None None
Maximum Deferred Sales Charge (Load)............ None None
Maximum Sales Charge (Load) Imposed on Rein-
vested Dividends............................... None None
Redemption Fee.................................. None None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT
ARE DEDUCTED FROM FUND ASSETS) (AS A PERCENTAGE
OF AVERAGE NET ASSETS)
Management Fees(1).............................. 0.10% 0.10%
Shareholder Servicing Fees...................... 0.20% 0.25%
Distribution (12b-1) Fees....................... None 0.25%
Other Expenses(2)............................... 0.15% 0.15%
Total Annual Fund Operating Expenses (before re-
imbursement)................................... 1.02% 1.16%
Reimbursement of Fund Expenses(3)............... (0.57%) (0.41%)
Total Annual Fund Operating Expenses (after re-
imbursement)................................... 0.45% 0.75%
</TABLE>
------------
(1) Includes investment advisory fee and estimated ordinary operating
expenses of the Portfolio.
(2) Estimates based on assuming average net assets of $15 million
(Institutional Shares) and $35 million (Administrative Shares),
respectively.
(3) The Fund's administration agreement requires Hewitt Associates LLC to
absorb expenses of the Fund (excluding interest, brokerage commissions
and extraordinary expenses) to the extent necessary to assure that
total ordinary operating expenses of Institutional Shares of the Fund
do not exceed annually 0.45% of the average daily net assets
attributable to Institutional Shares and that total ordinary operating
expenses of Administrative Shares do not exceed annually 0.75% of the
average daily net assets attributable to Administrative Shares.
The following Example is intended to help you compare the cost of investing
in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all your shares at the end of those periods. It also
assumes that your investment has a 5% return each year and that the Fund's
operating expenses are as estimated above and remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs
would be:
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS
------- ------ -------
<S> <C> <C>
Institutional Shares $46.04 $144.64
Administrative Shares $76.64 $239.96
</TABLE>
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE. Hewitt Money Market Fund (the "Fund") seeks to provide
a high level of income, while preserving capital and liquidity, by investing
in high quality, short-term securities.
INVESTMENT POLICIES. The Fund pursues its investment objective by investing
all of its investable assets in the Money Market Master Portfolio (the
"Portfolio"). The Portfolio is a series of Master Investment Portfolio
("MIP"), which is an investment company, and has the same investment objective
and substantially the same investment policies as the Fund. It invests
exclusively in high quality, short-term debt securities (money market
instruments), including: U.S. Government
4
<PAGE>
obligations; certificates of deposit, time deposits and other obligations
issued by domestic banks; commercial paper and other debt obligations of
corporations; and repurchase agreements with respect to these obligations. The
Portfolio maintains a dollar-weighted average maturity of 90 days or less, and
invests only in securities having remaining maturities of 397 days or less.
All investments must be U.S. dollar denominated.
Securities purchased by the Portfolio, including repurchase agreements, must
be determined by Barclays Global Fund Advisors, Inc. (the "Investment
Adviser") to present minimal credit risks pursuant to procedures adopted by
the Board of Trustees of MIP. Investments purchased by the Portfolio will at
the time of purchase be rated as high quality by at least two nationally
recognized statistical rating organizations ("NRSROs") (or by one NRSRO if the
instrument is rated by only one such organization). However, the Portfolio may
purchase an unrated investment if it is determined by the Investment Adviser
to be of comparable quality to an investment rated as high quality, in
accordance with procedures established by the Board of Trustees of MIP.
Subsequent to its purchase by the Portfolio, an issue of securities may cease
to be rated or its rating may be reduced below the minimum required rating.
The Investment Adviser will consider any such event in determining whether the
Portfolio should continue to hold the securities. If the Portfolio continues
to hold the securities, it may be subject to additional risk of default.
TYPES OF INVESTMENTS. Subject to applicable investment policies and
restrictions, the Investment Adviser purchases and sells securities for the
Portfolio based on its assessment of current market conditions and its
expectations regarding future changes in interest rates and economic
conditions. The Portfolio may invest in the following types of securities:
U.S. GOVERNMENT OBLIGATIONS--These obligations include debt securities
issued or guaranteed as to principal and interest by the U.S. Government or
one of 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. 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. Certain
types of U.S. Government obligations are subject to fluctuations in yield
or value due to their structure or contract terms.
BANK OBLIGATIONS--These obligations include, but are not limited to,
negotiable certificates of deposit ("CDs"), bankers' acceptances and fixed
time deposits of U.S. banks, foreign banks, foreign branches of U.S. banks,
and U.S. branches of foreign banks. The Portfolio may invest 25% or more of
its total assets in obligations of banks, to the extent that the SEC, by
rule or interpretation, permits funds to reserve freedom to concentrate in
such obligations.
Fixed time deposits are bank obligations that are payable at stated
maturity dates and bear fixed rates of interest. They generally may be
withdrawn on demand, but may be subject to early withdrawal penalties which
vary depending upon market conditions and the remaining maturity of the
obligation. Although fixed time deposits do not have an established market,
there are no contractual restrictions on the Portfolio's right to transfer
a beneficial interest in the deposit to a third party. The Portfolio will
not invest in fixed time deposits subject to withdrawal penalties, other
than overnight deposits, if as a result more than 10% of the value of its
net assets would be invested in illiquid securities.
Obligations of foreign banks and foreign branches of U.S. banks involve
somewhat different investment risks from those affecting domestic
obligations. Liquidity could be impaired because of political and economic
developments and the obligations may be less marketable than comparable
obligations of U.S. banks. A foreign jurisdiction might impose withholding
taxes on interest income payable on those obligations and there is a risk
that foreign deposits may be seized or nationalized. Foreign governmental
restrictions (such as foreign exchange controls) may be adopted which might
adversely affect the payment of principal and interest on those obligations
and the selection of those obligations may be more difficult because there
may be less publicly available information concerning foreign banks or the
accounting, auditing and financial reporting standards, practices and
requirements applicable to foreign banks may differ from those applicable
to U.S. banks. Foreign banks are not subject to examination by any U.S.
Government agency.
5
<PAGE>
COMMERCIAL PAPER AND SHORT-TERM CORPORATE DEBT INSTRUMENTS--Commercial
paper is a short-term, unsecured promissory note issued by a corporation to
finance its short-term credit needs. It 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 a type of commercial paper. These
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
the notes. Both parties have the right to vary the amount of the
outstanding indebtedness on the notes.
Corporate debt securities include non-convertible bonds and debentures that
have not more than thirteen months remaining to maturity at the time of
their purchase by the Portfolio.
REPURCHASE AGREEMENTS--These agreements involve the purchase of a security
by the Portfolio coupled with the agreement of the seller of the security
to repurchase that security on a future date and at a specified price
together with interest. The maturities of repurchase agreements are
typically quite short, often overnight or a few days. The Portfolio may
enter into repurchase agreements with respect to securities that it may
purchase under its investment policies without regard to the maturity of
the securities underlying the agreements. All repurchase transactions are
fully collateralized. However, the Portfolio may incur a loss on a
repurchase transaction if the seller defaults and the value of the
underlying collateral declines or the Portfolio's ability to sell the
collateral is restricted or delayed. The Fund may participate in pooled
repurchase agreement transactions with other funds advised by the
Investment Adviser.
LETTERS OF CREDIT--Debt obligations which the Portfolio is permitted to
purchase may be backed by an unconditional and irrevocable letter of credit
of a bank, savings and loan association or insurance company which assumes
the obligation for payment of principal and interest in the event of
default by the issuer. Letter of credit-backed investments must, in the
opinion of the Investment Adviser, be of investment quality comparable to
other permitted investments.
FLOATING-RATE AND VARIABLE-RATE OBLIGATIONS--Debt obligations purchased by
the Portfolio may have interest rates that are periodically adjusted at
specified intervals or whenever a benchmark rate or index changes. These
floating- and variable-rate instruments may include certificates of
participation in such instruments.
INVESTMENT RESTRICTIONS. The Fund and the Portfolio are subject to various
additional restrictions on their investments in addition to those described in
this Prospectus. Certain of those restrictions, as well as the restrictions on
borrowings and concentration of investments described above and the investment
objective of the Fund and the Portfolio, are deemed fundamental policies.
These fundamental policies cannot be changed without the approval of the
holders of a majority of the Fund's or the Portfolio's outstanding voting
securities, as defined in the Investment Company Act of 1940 (the "Investment
Company Act").
MANAGEMENT ARRANGEMENTS
BOARD OF TRUSTEES. The business and affairs of the Fund are managed under
the direction and supervision of the Board of Trustees of Hewitt Series Trust
(the "Trust").
INVESTMENT ADVISER. Barclays Global Fund Advisors (the "Investment Adviser")
serves as the investment adviser of the Portfolio. The Investment Adviser is
an indirect subsidiary of Barclays Bank PLC and is located at 45 Fremont
Street, San Francisco, California 94105. As of April 30, 1998, the Investment
Adviser and its affiliates provided investment advisory services to accounts
with assets of approximately $575 billion. The Portfolio pays the Investment
Adviser a monthly fee which is computed at the annual rate of 0.10% of the
Fund's average daily net assets. In consideration of this fee, the Investment
Adviser provides investment advice and is obligated to bear all of the
ordinary operating expenses of the Portfolio.
The Investment Adviser manages the assets of the Portfolio in accordance
with the Portfolio's investment objective and policies. The primary
responsibility of the Investment Adviser is to formulate a continuing
investment program and to make all decisions regarding the purchase and sale
of securities for the Portfolio.
6
<PAGE>
ADMINISTRATOR. Hewitt Associates LLC (the "Administrator") provides
administrative services to the Fund. The Administrator is located at 100 Half
Day Road, Lincolnshire IL 60069. Services provided by the Administrator
include, but are not limited to: managing the daily operations and business
affairs of the Fund, subject to the supervision of the Board of Trustees;
overseeing the preparation and maintenance of all documents and records
required to be maintained by the Fund and the Trust; preparing or assisting in
the preparation of regulatory filings, prospectuses and shareholder reports;
providing, at its own expense, the services of its personnel to serve as
officers of the Trust; and preparing and disseminating material for meetings
of the Board of Trustees and shareholders. The Fund pays the Administrator a
monthly fee calculated at an annual rate of 0.10% of the Fund's average daily
net assets.
The Administrator also serves as Shareholder Servicing Agent for
Institutional Shares and is paid compensation by the Fund for furnishing
various shareholder related services. See "Distribution and Servicing
Arrangements."
HOW TO BUY SHARES
The Fund offers two classes of its shares to investors: Institutional Shares
and Administrative Shares. No sales commissions or other charges are imposed
when shares are purchased or redeemed.
INSTITUTIONAL SHARES. These shares are offered for sale exclusively to
employee benefit plans which are recordkeeping clients of Hewitt Associates
LLC. Employee benefit plans may include 401(k) plans and plans qualified under
Sections 401(a) or 403(b) of the Internal Revenue Code of 1986, as amended
(the "Code"), health and welfare plans and executive deferred compensation
plans. Participants in any employee benefit plan that allows participants to
direct the investment of their plan accounts should contact their plan
administrator if they wish to purchase shares of the Fund for their plan
accounts. The plan administrator will provide information regarding the
procedures to be followed to purchase shares.
For employee benefit plans seeking additional information on purchasing
Institutional Shares, please call the Administrator at 1-800-890-3200. The
appropriate plan fiduciary must submit a completed account application before
the plan or its participants may purchase Institutional Shares.
ADMINISTRATIVE SHARES. These shares are available for purchase by individual
retirement accounts ("IRAs") and other investors, including individuals,
trusts and corporations. They can be purchased through Hewitt Services LLC,
which serves as distributor of the Fund's shares (the "Distributor").
Administrative Shares bear certain distribution related expenses. See
"Distribution and Servicing Arrangements."
You should contact the Distributor to purchase Administrative Shares. If you
do not have a brokerage account with the Distributor, you will need to submit
a completed Account Application before purchasing Administrative Shares.
For additional information on purchasing Administrative Shares or to request
an Account Application, please call the Distributor at 1-800-890-3200.
MINIMUM INITIAL AND SUBSEQUENT INVESTMENT AMOUNTS. Generally, no minimum
initial or subsequent investment requirements apply to the purchase of
Institutional Shares or Administrative Shares. However, if Administrative
Shares are not held in an IRA or other account with a financial intermediary
(including the Distributor) that maintains record ownership of shares on an
omnibus basis for its customers: (i) the initial purchase of Administrative
Shares must be in an amount of $25,000 or more; (ii) subsequent purchases of
Administrative Shares must be $1,000 or more; and (iii) the Fund will have the
right to effect a mandatory redemption of those shares if, as a result of one
or more redemptions, your shares have an aggregate value of less than $5,000.
Before the Fund effects a mandatory redemption of shares, you will be notified
and given 60 days to increase the amount of your investment in the Fund.
7
<PAGE>
SHAREHOLDER ACCOUNTS. The Fund does not issue share certificates for
Institutional Shares or Administrative Shares. Instead, an account is
maintained for each shareholder by Investors Bank & Trust Company, as the
Fund's transfer agent (the "Transfer Agent"), or by the Distributor as the
Shareholder Servicing Agent for Administrative Shares. Your account will
reflect the full and fractional shares of the Fund that you own. Shareholders
will be sent confirmations of each transaction in shares and monthly
statements showing account balances.
GENERAL INFORMATION. Shares of the Fund may be purchased on any Business
Day. A Business Day is any day that the New York Stock Exchange (NYSE) is open
and that is not a federal bank holiday. All purchases of shares are effected
at the net asset value per share next determined after (i) an order in proper
form is received by the Administrator (for Institutional Shares) or by the
Distributor (for Administrative Shares) and (ii) federal funds are received by
the Fund's custodian. Purchase orders received prior to the close of regular
trading on the NYSE (normally, 4:00 p.m., Eastern time) are effected at the
net asset value per share determined as of the close of regular trading on the
NYSE on that Business Day. See "Net Asset Value." Orders received after the
close of regular trading on the NYSE are effected at the net asset value per
share determined on the next Business Day.
PURCHASE BY FEDERAL FUNDS WIRE. Shares may be purchased by wiring federal
funds to the Fund's transfer agent. The Fund does not impose any transaction
charges; however, wire charges may be imposed by the bank which transmits the
wire. Purchase payments should be wired to:
Investors Bank & Trust Company
Boston, Massachusetts
attn: Transfer Agent
ABA number: 011001438
DDA number: 55555535
For further credit to: account name, fund and account info
PURCHASE BY CHECK (ADMINISTRATIVE SHARES ONLY). Administrative Shares may be
purchased by sending a check as described below. If you purchase shares by
check, your purchase order will not become effective until federal funds are
credited to the Fund's account, which normally will occur on the Business Day
following receipt of the check. Checks to purchase Administrative Shares
should be sent to:
Hewitt Portfolio
P.O. Box 101167
Atlanta, GA 30392-1167
HOW TO REDEEM SHARES
You may redeem all or a portion of your shares of the Fund on any Business
Day without any charge by the Fund. Shares are redeemed at their net asset
value per share next computed after the receipt of a redemption request in
proper form. Requests to redeem shares may be made as described below.
INSTITUTIONAL SHARES. Participants in any employee benefit plan that allows
participants to direct the investment of their plan accounts should contact
their plan administrator for information and instructions on redeeming shares.
Requests by employee benefit plans to redeem Institutional Shares may be
transmitted to the Administrator, as Shareholder Servicing Agent for
Institutional Shares, in accordance with procedures established by the plans
with the Administrator. Redemption proceeds for Institutional Shares will be
paid by federal funds wire to a bank account designated by the plan.
For additional information on redeeming Institutional Shares, please call 1-
800-890-3200.
8
<PAGE>
ADMINISTRATIVE SHARES. Requests to redeem Administrative Shares may be made
in writing or by telephone as described below. Redemption proceeds for
Administrative Shares will be paid by check or, if you request, by federal
funds wire (minimum wire amount $50,000) to a pre-designated bank account.
If you purchase shares by sending a check (including a certified or cashiers
check), the payment of the proceeds of a redemption of those shares may be
delayed until the check has cleared. This may take up to 15 days. For this
reason, if you need immediate access to your investment, you should purchase
shares by wiring federal funds.
In order to redeem Administrative Shares that are not held through a
financial intermediary (including the Distributor), a completed Account
Application must be on file with the Distributor. See "How to Buy Shares." You
may designate a bank account to receive redemption payments on the Account
Application. You may change this designation at any time, by providing written
instructions to the Distributor. These instructions must be signed by each
person shown on the account registration as an owner of the account, and the
signatures must be guaranteed by an eligible guarantor institution as
described under "Written Redemption Requests" below. Signature guarantees may
also be required for you to change your address on the Fund's records.
For additional information on redeeming Administrative Shares, please call
1-800-890-3200.
GENERAL INFORMATION. Redemption requests are effected at the net asset value
per share next computed after receipt by the Administrator (for Institutional
Shares) or the Distributor (for Administrative Shares) of a redemption request
in proper form. Requests received prior to the close of regular trading on the
NYSE (normally, 4:00 p.m., Eastern time) are effected at the net asset value
per share determined as of the close of regular trading on the NYSE on that
Business Day. See "Net Asset Value." Requests received after the close of
regular trading on the NYSE are effected at the net asset value per share
determined on the next Business Day. Redemption proceeds are usually mailed or
wired on the Business Day following the day a redemption is effected. In
unusual circumstances, the Fund may suspend the right of redemption or
postpone the payment of redemption proceeds for more than seven days as
permitted under the Investment Company Act.
The Fund may pay redemption proceeds by distributing securities held by the
Portfolio, but only in the unlikely event that the Board of Trustees of the
Trust determines that payment of the proceeds in cash would adversely affect
other shareholders of the Fund. A shareholder who redeems during any 90 day
period shares having a value not exceeding the lesser of (i) $250,000 or (ii)
1% of the net assets of the Fund, will not be subject to this procedure.
TELEPHONE REDEMPTION PROCEDURES (ADMINISTRATIVE SHARES ONLY). You may redeem
Administrative Shares by calling the Distributor at 1-800-890-3200. You will
be asked to provide the account name and number, and the amount of the
redemption. Proceeds of the redemption will be paid by sending you a check,
unless you request payment by federal funds wire to a pre-designated bank
account (minimum wire amount $50,000). A TELEPHONE REDEMPTION REQUEST MAY BE
MADE ONLY IF THE TELEPHONE REDEMPTION PROCEDURE HAS BEEN SELECTED ON THE
ACCOUNT APPLICATION OR IF WRITTEN INSTRUCTIONS AUTHORIZING TELEPHONE
REDEMPTION HAVE BEEN FILED WITH THE DISTRIBUTOR.
The Distributor uses certain reasonable procedures to confirm that telephone
redemption requests are genuine, such as recording telephone calls, providing
written confirmation of transactions, or requiring a form of personal
identification or other information prior to effecting a telephone redemption.
If these procedures are used, the Fund, the Distributor and the Transfer Agent
will not be liable to you for any loss due to fraudulent or unauthorized
telephone instructions.
During periods of severe market or economic conditions, it may be difficult
to contact the Distributor by telephone. In that event, you should follow the
procedures described below for written redemption requests, but send the
request by overnight delivery service to:
Hewitt Portfolio
P.O. Box 101167
Atlanta, GA 30392-1167
9
<PAGE>
WRITTEN REDEMPTION REQUESTS (ADMINISTRATIVE SHARES ONLY). You may redeem
Administrative Shares by sending a written redemption request. The request
must include the complete account name and address and the amount of the
redemption and must be signed by each person shown on the account registration
as an owner of the account. The signature of each person signing the request
must be guaranteed by an eligible guarantor institution if the redemption is
$5,000 or more. Organizations that may qualify as eligible guarantor
institutions include banks, brokers, dealers, national securities exchanges,
clearing agencies, credit unions, and savings associations. The Fund reserves
the right to request additional information from, and to make reasonable
inquiries of, any eligible guarantor institution. Proceeds of the redemption
will be paid by sending you a check, unless you request payment by federal
funds wire to a pre-designated bank account (minimum wire amount $50,000).
Written redemption requests should be sent to:
Hewitt Portfolio
P.O. Box 101167
Atlanta, GA 30392-1167
NET ASSET VALUE
The net asset values per share of Institutional Shares and Administrative
Shares are computed separately on each Business Day. Institutional Shares and
Administrative Shares will not have the same net asset values because the
expenses of the two share classes differ. Net asset value per share is
determined as of the close of regular trading on the NYSE (normally, 4:00 p.m.
Eastern time). However, on any day the trading markets for both U.S.
Government securities and money market instruments close early, net asset
value will be computed as of the earlier closing time. Unlike most other money
market funds, the Fund does not seek to maintain a stable net asset value per
share.
Net asset value per share of each class of the Fund's shares is calculated
by dividing the value of the Fund's total assets attributable to that class,
less the liabilities (including accrued expenses) of the class and its
allocable share of the Fund's liabilities (and accrued expenses), by the
number of shares of the class outstanding. Because the Fund invests in the
Portfolio, its assets will consist primarily of an interest in the Portfolio.
The value of this interest will depend on the value of the assets of the
Portfolio and its liabilities and expenses.
In determining the value of the Portfolio's assets, securities held by the
Portfolio are valued using the "amortized cost" method of valuation. This
method involves valuing each investment at cost and thereafter assuming a
constant amortization to maturity of any discount or premium, regardless of
the impact of fluctuating interest rates on the market value of the
investment. Amortized cost valuation provides certainty in valuation, but may
result in periods during which the value of an investment, as determined by
amortized cost, is higher or lower than the price that would be received if
the investment were sold. The Investment Adviser monitors the deviation
between the net asset value of the Portfolio determined by using available
market quotations or market equivalents and its net asset value determined by
using amortized cost. If it is determined that use of amortized cost valuation
will result in material dilution or other unfair results, the assets of the
Portfolio may be valued based upon market quotations.
DIVIDENDS AND DISTRIBUTIONS
Dividends are declared and paid monthly on each class of the Fund's shares
from net investment income (after deduction of expenses) and any realized
short-term capital gains allocable to that class. Distributions of net
realized long-term capital
10
<PAGE>
gains, if any, are declared and paid annually at the end of the Fund's fiscal
year. All dividends and other distributions are automatically reinvested in
full and fractional shares of the Fund at the applicable net asset value per
share in effect on the payment date, unless otherwise requested. Plans may
request that dividends and other distributions on Institutional Shares be paid
by check by notifying the Administrator. Shareholders who own Administrative
Shares may request that dividends and other distributions be paid by check by
sending a written request to the Distributor. Any such request must be
received at least five Business Days prior to a payment date in order to be
effective on that date.
Dividends are payable to all shareholders of record as of the time of
declaration. Shares become entitled to any dividend declared beginning on the
day on which they are purchased and are entitled to receive any dividends
declared through the day before they are redeemed.
In order to satisfy certain distribution requirements of the Code, the Fund
may declare special or regular year-end dividend and capital gains
distributions during October, November or December. If received by
shareholders by January 31, these distributions are deemed to have been paid
by the Fund and received by shareholders on December 31 of the prior year.
TAXES
TAXATION OF THE FUND. The Fund has elected and intends to qualify each year
as a "regulated investment company" under Subchapter M of the Code. If so
qualified, the Fund will not be subject to federal income tax to the extent it
distributes its net income to shareholders.
FEDERAL TAXATION OF SHAREHOLDERS. Dividend distributions, whether received
in cash or reinvested in additional shares, will be taxable as ordinary
income. Although the Fund does not expect to distribute any long-term capital
gains, investors will also be subject to tax on any capital gains
distributions they receive. Since the Fund does not expect to earn dividend
income, the dividends and other distributions the Fund pays will generally not
qualify for the dividends-received deduction available to corporate investors.
In January of each year, the Fund sends each shareholder a statement showing
the tax status of distributions for the past calendar year.
The redemption of shares of the Fund is a taxable event and will result in a
gain (or loss) for federal income tax purposes, depending on the amount you
receive and the cost of your shares.
The Fund is required to withhold 31% of all taxable distributions and
redemption proceeds paid to shareholders who either have not complied with IRS
taxpayer identification regulations or are otherwise subject to backup
withholding. Investors are asked to certify in their Account Applications that
their taxpayer identification numbers are correct and that they are not
subject to backup withholding. Failure to provide this certification will
result in backup withholding.
STATE AND LOCAL TAXES. Dividends and other distributions paid by the Fund
and received by an investor may be subject to state and local taxes. Although
shareholders of the Fund do not directly receive interest on U.S. Government
securities held by the Fund, certain states and localities may allow the
character of the Fund's income to pass through to shareholders. If so, the
portion of dividends paid by the Fund that is derived from interest on certain
U.S. Government securities may be exempt from state and local taxes.
Applicable rules vary from state to state, and interest on certain securities
of U.S. Government agencies may not qualify for the exemption in some states.
The United States Supreme Court has ruled that income from certain types of
repurchase agreements involving U.S. Government securities does not constitute
interest on U.S. Government securities for this purpose. However, it is not
clear whether the Court's holding extends to all types of repurchase
agreements involving U.S. Government securities in which the Fund may invest.
Any exemption from state and local income taxes does not preclude states from
assessing other taxes (such as intangible property taxes) on the ownership of
U.S. Government securities.
11
<PAGE>
The discussion set forth above regarding federal and state income taxation
is included for general information only. Prospective investors should consult
their own tax advisors concerning the federal and state tax consequences of an
investment in the Fund.
DISTRIBUTION AND SERVICING ARRANGEMENTS
DISTRIBUTOR. Hewitt Services LLC (the "Distributor"), a broker-dealer
affiliated with the Administrator, serves as the distributor of the Fund's
shares. The Distributor is located at 100 Half Day Road, Lincolnshire IL
60069.
SHAREHOLDER SERVICING ARRANGEMENTS. The Fund has retained Hewitt Associates
LLC to serve as Shareholder Servicing Agent for Institutional Shares. As
Shareholder Servicing Agent, Hewitt Associates LLC is responsible for
receiving on behalf of the Transfer Agent orders by employee benefit plans to
purchase and redeem Institutional Shares and for maintaining records showing
the number of Institutional Shares allocable to individual participant
accounts in those plans. In addition, the Shareholder Servicing Agent sends
all shareholder communications relating to the Fund to shareholders and to
plan participants or arranges for these materials to be sent. For these
services, the Fund pays the Hewitt Associates LLC a monthly fee calculated at
an annual rate of 0.20% of the average daily net assets of the Fund
attributable to Institutional Shares.
The Fund has retained the Distributor to serve as Shareholder Servicing
Agent for Administrative Shares. As Shareholder Servicing Agent, the
Distributor is responsible for maintaining records showing the number of
Administrative Shares owned by IRAs established through the Distributor and by
other investors who have purchased Administrative Shares through the
Distributor. In addition, the Shareholder Servicing Agent sends all
shareholder communications relating to the Fund to holders of Administrative
Shares or arranges for these materials to be sent. For these services, the
Fund pays Hewitt Services LLC a monthly fee calculated at an annual rate of
0.25% of the average daily net assets of the Fund attributable to
Administrative Shares. The Fund also reimburses each Shareholder Servicing
Agent for certain out-of-pocket expenses.
DISTRIBUTION FEE (ADMINISTRATIVE SHARES ONLY). The Fund has adopted a plan
pursuant to Rule 12b-1 under the Investment Company Act which allows the Fund
to pay expenses relating to the distribution of Administrative Shares. Under
the plan, the Fund pays a fee to the Distributor, calculated at an annual rate
of 0.25% of the average daily net assets of Administrative Shares, as
compensation for services rendered in connection with the sale and
distribution of Administrative Shares. This fee is an expense of
Administrative Shares only and is not borne by Institutional Shares. Because
the fee is paid out of Fund assets on an on-going basis, over time the fee
will increase the cost of an investment in Administrative Shares.
PERFORMANCE INFORMATION
The Fund may publish its "current yield" and "effective yield" in
advertisements, sales materials and shareholder reports. Current yield refers
to the income generated by an investment in the Fund over a seven-day period;
the income is then annualized. In annualizing income, the amount of income
generated by the investment during the period is assumed to be generated each
week over a 52-week period and is shown as a percentage of the investment. The
effective yield is calculated in the same manner, but when annualized, the
income earned by an investment in the Fund is assumed to be reinvested. The
effective yield will be slightly higher than the current yield because of the
compounding effect of the assumed reinvestment. All quotations of investment
performance are based upon historical investment results and are not intended
to predict future performance.
In addition, comparative performance information may be used from time to
time in advertisements, sales literature and shareholder reports. This
information may include data, ratings and rankings from Lipper Analytical
Services, Inc., IBC
12
<PAGE>
Financial Data Money Fund Report, The Bank Rate Monitor, Morningstar and other
industry publications, business periodicals and services. Comparisons to
recognized market indices and to the returns on specific money market
securities or types of securities or investments may also be used. The Fund
may disseminate yields for periods longer than seven days, and may report its
total return. The "total return" of the Fund refers to the average annual
compounded rate of return over a specified period (as stated in the
advertisement) that would equate an initial amount invested at the beginning
of the period to the end of period redeemable value of the investment,
assuming the reinvestment of all dividends and distributions.
ADDITIONAL INFORMATION
ORGANIZATION. The Trust is a Delaware business trust that was organized on
July 7, 1998. It is authorized to issue an unlimited number of shares of
beneficial interest, $.001 par value. As of the date of this Prospectus, the
Trust has only one series of its shares outstanding, representing interests in
the Fund. These shares are divided into two classes of shares (Institutional
Shares and Administrative Shares). The Board of Trustees has the power to
establish additional series of shares, representing interests in separate
investment portfolios and, subject to applicable laws and regulations, to
issue two or more classes of shares of each series. Shares are fully paid and
non-assessable, and have no preemptive or conversion rights.
Shareholders of the Fund are entitled to vote, together with the holders of
any other series of the Trust's shares, on the election of Trustees and the
ratification of the Trust's independent auditors when those matters are voted
upon at a meeting of shareholders. Shareholder will also be entitled to vote
on certain other matters as required by the Investment Company Act or the
Trust's Declaration of Trust. On these other matters, shares of the Fund will
generally be voted as a separate class from other series of the Trust's
shares. Institutional Shares and Administrative Shares will also vote as
separate classes on certain matters. Each share (and fractional share) is
entitled to one vote (or fraction thereof). However, if shares of more than
one class or series vote together on a matter, each share will have that
number of votes which equals the net asset value of such share (or fraction
thereof). All shares have non-cumulative voting rights, meaning that
shareholders entitled to cast more than 50% of the votes for the election of
Trustees can elect all of the Trustees standing for election if they choose to
do so. As discussed below, the Fund will pass through to its shareholders the
right to vote on Portfolio matters requiring shareholder approval.
INFORMATION CONCERNING INVESTMENT STRUCTURE. The Fund does not invest
directly in securities. Instead, it invests all of its investable assets in
the Portfolio, a separate series of MIP. The Portfolio has the same investment
objective and substantially the same investment policies as the Fund. The
Portfolio, in turn, purchases, holds and sells investments in accordance with
that objective and those policies. The Trustees of the Trust believe that the
per share expenses of the Fund (including its share of the Portfolio's
expenses) will be less than or approximately equal to the expenses that the
Fund would incur if its assets were invested directly in securities and other
investments.
The Fund may withdraw its assets from the Portfolio at any time, and will do
so if the Trustees believe it to be in the best interest of the Fund's
shareholders. If the Fund withdraws its investment in the Portfolio, it will
either invest directly in securities in accordance with the investment
policies described in this Prospectus or will invest in another pooled
investment vehicle that has the same investment objective and policies as the
Fund. In connection with the withdrawal of its interest in the Portfolio, the
Fund could receive securities and other investments from the Portfolio instead
of cash. This could cause the Fund to incur certain expenses.
A change in the investment objective, policies or restrictions of the
Portfolio may cause the Fund to withdraw its investment in the Portfolio.
Alternatively, the Fund could seek to change its objective, policies or
restrictions to conform to those of the Portfolio. The investment objective
and certain of the investment restrictions of the Portfolio may not be changed
without the approval of investors in the Portfolio. When the Fund is asked to
vote on such a change or on other matters
13
<PAGE>
concerning the Portfolio, the Fund will hold a shareholders meeting and vote
its interest in the Portfolio in the same manner as shares of the Fund are
voted.
Shares of the Portfolio will be held by investors other than the Fund. These
investors may include other series of the Trust, other mutual funds and other
types of pooled investment vehicles. When investors in the Portfolio vote on
matters affecting the Portfolio, the Fund could be outvoted by other
investors. The Fund may also otherwise be adversely affected by other
investors in the Portfolio. These other investors offer shares (or interests)
to their investors which have costs and expenses that differ from those of the
Fund. Thus, the investment returns for investors in other funds that invest in
the Portfolio may differ the investment return of shares of the Fund. These
differences in returns are also present in other fund structures. Information
about other holders of shares of the Portfolio is available from the
Shareholder Servicing Agents.
CUSTODIAN. Investors Bank & Trust Company (the "Custodian") is the Fund's
custodian. The Custodian maintains custody of all securities and cash assets
of the Fund and the Portfolio and is authorized to hold these assets in
securities depositories and to use subcustodians.
TRANSFER AGENT. Investors Bank & Trust Company (the "Transfer Agent") is the
Fund's transfer agent and dividend disbursing agent. The Transfer Agent has
entered into arrangements with the Administrator under which the
Administrator, as Shareholder Servicing Agent for Institutional Shares is
authorized to receive and is responsible to transmit to the Transfer Agent
orders to purchase and redeem Institutional Shares that are received from
employee benefit plans. Pursuant to these arrangements, the Administrator also
maintains records showing the number of Institutional Shares allocable to
individual participant accounts in employee benefit plan. The Distributor
maintains records showing the number of Administrative Shares owned by IRAs
established through the Distributor and by other investors who have purchased
Administrative Shares through the Distributor.
YEAR 2000. Many computer software systems in use today recognize dates using
a two digit year code. These systems cannot distinguish between years
preceding the year 2000 and years beginning after 1999. This is known as the
"Year 2000" problem. Most of the services provided to the Fund and the
Portfolio depend on the smooth functioning of computer systems. Any failure to
adapt these systems prior to the year 2000 could interfere with the proper
operations of the Fund or the Portfolio. The principal service providers to
the Fund and the Portfolio have advised the Trust and MIP that they are
working to implement necessary changes to their systems and that they expect
their systems to be adapted in time. However, there can be no assurance of
success. In addition, because the Year 2000 problem affects virtually all
organizations, companies in which the Portfolio invests could be adversely
impacted by this issue. The extent of the impact of Year 2000 problems on the
Fund and the Portfolio cannot be predicted.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus. If given or
made, such other information and representations should not be relied upon as
having been authorized by the Trust.
14
<PAGE>
This Prospectus does not constitute an offer in any state in which, or to
any person, to whom, such offer may not lawfully be made.
INVESTMENT ADVISER
Barclays Global Fund Advisors, Inc.
45 Fremont Street
San Francisco, California 94105
DISTRIBUTOR
Hewitt Services LLC
100 Half Day Road
Lincolnshire, Illinois 60069
ADMINISTRATOR
Hewitt Associates LLC
100 Half Day Road
Lincolnshire, Illinois 60069
TRANSFER AGENT
Investors Bank & Trust Company
200 Clarendon Street
16th Floor
Boston, Massachusetts 02116
CUSTODIAN
Investors Bank & Trust Company
200 Clarendon Street
16th Floor
Boston, Massachusetts 02116
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
Three Embarcadero Center
San Francisco, California 94111
LEGAL COUNSEL
Schulte Roth & Zabel LLP
900 Third Avenue
New York, New York 10022
15
<PAGE>
The Fund sends annual and semi-annual reports to shareholders. These reports
contain information regarding the investments of the Portfolio and the Fund's
investment performance and are available without charge from the Shareholder
Servicing Agents or your plan administrator. If you have questions regarding
the Fund, shareholder accounts, dividends or share purchase and redemption
procedures, or if you wish to receive the most recent annual or semi-annual
reports, please call 1-800-890-3200. The first annual report will be available
beginning on or about April 28, 1999.
This Prospectus sets forth concisely the information about the Fund and the
Trust that you should know before investing. Additional information about the
Fund and the Trust has been filed with the Securities and Exchange Commission
(SEC) in a Statement of Additional Information (SAI) dated September 15, 1998,
which is incorporated herein by reference and is available without charge by
writing to the Shareholder Servicing Agents or by calling 1-800-890-3200.
Information about the Fund (including the SAI) can be reviewed and copied at
the SEC's Public Reference Room in Washington D.C. (1-800-SEC-0330).
Information about the Fund is also available on the SEC's Internet site at
http://www.sec.gov and copies of this information may be obtained, upon
payment of a duplicating fee, by writing the Public Reference Section of the
SEC, Washington, D.C. 20549-6009.
16
<PAGE>
HEWITT MONEY MARKET FUND
STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER 15, 1998
INSTITUTIONAL SHARES
ADMINISTRATIVE SHARES
____________________________
Hewitt Money Market Fund (the "Fund") is a series of Hewitt Series
Trust (the "Trust"), a diversified, open-end, management investment company.
This Statement of Additional Information ("SAI") contains information about the
Fund which supplements the information contained in the Fund's Prospectus. The
investment objective and policies of the Fund are described in the Prospectus.
This SAI is not a prospectus and should be read in conjunction with
the Fund's current Prospectus, dated September 15, 1998. A copy of the
Prospectus may be obtained without charge by writing Hewitt Associates LLC, the
Fund's administrator, at 100 Half Day Road, Lincolnshire, Illinois 60069 or by
calling 1-800-890-3200.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INTRODUCTION................................................................................................... 1
INVESTMENT RESTRICTIONS........................................................................................ 1
INVESTMENT POLICIES AND PRACTICES.............................................................................. 3
MANAGEMENT..................................................................................................... 7
DISTRIBUTION ARRANGEMENTS...................................................................................... 9
EXPENSES....................................................................................................... 11
DETERMINATION OF NET ASSET VALUE............................................................................... 11
PURCHASE AND REDEMPTION OF SHARES.............................................................................. 12
PORTFOLIO TRANSACTIONS......................................................................................... 13
TAXES.......................................................................................................... 14
PERFORMANCE INFORMATION........................................................................................ 15
ADDITIONAL INFORMATION......................................................................................... 16
REPORT AND AUDIT OF STATEMENT OF ASSETS AND LIABILITIES........................................................ 19
SAI APPENDIX................................................................................................... 21
</TABLE>
-i-
<PAGE>
INTRODUCTION
The Trust is a registered under the Investment Company Act of 1940
(the "1940 Act") as an open-end, management investment company. The Fund, which
is currently the sole investment portfolio of the Trust, pursues its investment
objective by investing all of its investable assets in the Money Market Master
Portfolio (the "Portfolio"). The Portfolio is a series of Master Investment
Portfolio ("MIP") and has the same investment objective and investment
restrictions as the Fund. MIP, like the Trust, is registered under the 1940 Act
as an open-end management investment company.
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions. The Fund and the Portfolio are
-----------------------------------
subject to certain investment restrictions which are fundamental policies.
These restrictions may not be changed without the approval of a majority of the
outstanding voting securities of the Fund or the Portfolio, as defined by the
1940 Act. A "majority of the outstanding voting securities" of a Fund or of the
Portfolio means the lesser of (i) 67% of the shares of that Fund or of the
Portfolio represented at a meeting at which holders of more than 50% of the
outstanding shares are present in person or represented by proxy or (ii) more
than 50% of the outstanding shares of the Fund or the Portfolio.
Under these fundamental restrictions, neither the Fund nor the
Portfolio may:
(1) purchase the securities of issuers conducting their principal
business activity in the same industry if, immediately after the purchase and as
a result thereof, the value of the Fund's investments in that industry would be
25% or more of the current value of the Fund's total assets, provided that there
is no limitation with respect to investments in (i) obligations of the U.S.
Government, its agencies or instrumentalities; (ii) obligations of domestic
banks; and provided further, that the Fund may invest all its assets in a
diversified, open-end management investment company, or a series thereof, having
substantially the same investment objective, policies and restrictions as the
Fund;
(2) purchase or sell real estate or real estate limited partnerships
(other than securities secured by real estate or interests therein or securities
issued by companies that invest in real estate or interests therein);
(3) purchase commodities or commodity contracts (including futures
contracts), except that the Fund and the Portfolio may purchase securities of an
issuer which invests or deals in commodities or commodity contracts;
(4) purchase interests, leases, or limited partnership interests in
oil, gas, or other mineral exploration or development programs;
(5) purchase securities on margin (except for short-term credits
necessary for the clearance of transactions and except for margin payments in
connection with options, futures and options on futures) or make short sales of
securities;
(6) underwrite securities of other issuers, except to the extent that
the purchase of permitted investments directly from the issuer thereof or from
an underwriter for an issuer and the later disposition of such securities in
accordance with the Fund's or the Portfolio's investment program may be deemed
to be an underwriting; and provided further, that the purchase by the Fund of
securities issued by a diversified, open-end management investment company, or a
series thereof, having substantially the same investment objective, policies and
restrictions as the Fund shall not constitute an underwriting for this purpose;
<PAGE>
(7) make investments for the purpose of exercising control or
management; provided that the Fund may invest all its assets in a diversified,
open-end management investment company, or a series thereof, having
substantially the same investment objective, policies and restrictions as the
Fund;
(8) borrow money or issue senior securities as defined in the
Investment Company Act of 1940, except that the Fund and the Portfolio may each
borrow from banks up to 10% of the current value of its net assets for temporary
purposes only in order to meet redemptions, and these borrowings may be secured
by the pledge of up to 10% of the current value of its net assets (but
investments may not be purchased while any such outstanding borrowing in excess
of 5% of net assets exists);
(9) write, purchase or sell puts, calls, straddles, spreads,
warrants, options or any combination thereof, except that the Fund and the
Portfolio may purchase securities with put rights in order to maintain
liquidity;
(10) purchase securities of any issuer (except securities issued or
guaranteed by the U.S. Government, its agencies and instrumentalities) if, as a
result, with respect to 75% of total assets, more than 5% of the value of the
Fund's or the Portfolio's total assets would be invested in the securities of
any one issuer or, with respect to 100% of total assets, the Fund's or the
Portfolio's ownership would be more than 10% of the outstanding voting
securities of such issuer, provided that the Fund may invest all its assets in a
diversified, open-end management investment company, or a series thereof, having
substantially the same investment objective, policies and restrictions as the
Fund; or
(11) make loans, except that the Fund and the Portfolio may purchase
or hold debt instruments or lend its portfolio securities in accordance with its
investment policies, and may enter into repurchase agreements (but neither the
Fund nor the Portfolio intend to lend portfolio securities during the coming
year).
Non-Fundamental Investment Restrictions. The Fund and the Portfolio
---------------------------------------
are also subject to the following additional investment restrictions which are
non-fundamental policies. These restricitons may be changed by the Board of
Trustees of the Trust or the Board of Trustees of MIP, as the case may be.
(1) The Fund and the Portfolio may not invest more than 10% of the
current value of its net assets in fixed time deposits that are subject to
withdrawal penalties and that have maturities of more than seven days,
repurchase agreements maturing in more than seven days, or other illiquid
securities.
(2) The Fund and the Portfolio, as provided in Rule 2a-7 under the
1940 Act, may each only purchase "Eligible Securities" (as defined in Rule 2a-7)
and only if, immediately after such purchase: it would have no more than 5% of
its total assets in "First Tier Securities" (as defined in Rule 2a-7) of any one
issuer, excluding government securities and except as otherwise permitted for
temporary purposes and for certain guarantees and unconditional puts; it would
own no more than 10% of the voting securities of any one issuer; it would have
no more than 5% of its total assets in "Second Tier Securities" (as defined in
Rule 2a-7); and it would have no more than the greater of $1 million or 1% of
its total assets in Second Tier Securities of any one issuer.
(3) The Fund and the Portfolio may each invest in shares of other
open-end, management investment companies, subject to the limitations of Section
12(d)(1) of the 1940 Act. Except when shares of other investment companies are
purchased as part of a merger or a similar plan of reorganization, and except to
the extent that the Fund may pursue its investment objective by investing all
its assets in a diversified, open-end management investment company, or a series
thereof, having substantially the same investment objective, policies and
restrictions as the Fund, any purchases of investment company shares will be
limited to temporary investments in shares of unaffiliated investment companies.
If such an investment is made, any investment advisory fees otherwise payable by
the Fund or the Portfolio will be waived with respect to that portion of the
Fund's or the Portfolio's assets so invested. Neither the Fund nor the
Portfolio intends to invest more than 5% of its net assets in shares of other
investment companies during the coming year.
-2-
<PAGE>
General. Unless otherwise specified, all percentage and other
-------
restrictions, requirements and limitations on investments set forth in this
Statement of Additional Information, as well as those set forth in the
Prospectus, apply immediately after the purchase of an investment, and
subsequent changes and events do not constitute a violation or require the sale
of any investment by the Portfolio or the Fund.
INVESTMENT POLICIES AND PRACTICES
General. The following information supplements the description of the
-------
investment policies and practices of the Portfolio as described in the
Prospectus.
Currently, the Fund pursues its investment objective by investing all
of its investable assets in the Portfolio. The Fund may withdraw its investment
from the Portfolio at any time if the Board of Trustees of the Trust (the "Board
of Trustees") determines that it is in the best interest of the Fund to do so.
Upon any such withdrawal, the Fund's assets would be invested in accordance with
the investment policies described below with respect to the Portfolio.
The assets of the Portfolio consist only of obligations maturing
within thirteen months from the date of acquisition, as determined in accordance
with applicable rules of the the regulations of the Securities and Exchange
Commission (the "SEC"), and the dollar-weighted average maturity of the
investments of the Portfolio may not exceed 90 days. The securities in which
the Portfolio may invest will not yield as high a level of current income as
could be achieved by investing in securities having longer maturities, less
liquidity and less safety. There can be no assurance that the investment
objective of the Portfolio or the Fund, as described in the Prospectus, will be
achieved.
Treasury, Government and Agency Securities. The Portfolio invests in
-------------------------------------------
short-term debt securities that are issued or guaranteed by the U.S. government
or an agency or instrumentality of the U.S. government ("Government
Securities"). These securities include obligations issued by the U.S. Treasury
("Treasury Securities"), including Treasury bills, notes and bonds. These are
direct obligations of the U.S. government and differ primarily in their rates of
interest and the length of their original maturities. Treasury Securities are
backed by the full faith and credit of the U.S. government. Government
Securities include Treasury Securities as well as securities issued or
guaranteed by the U.S. government or its agencies and instrumentalities ("Agency
Securities"). Agency Securities are in some cases backed by the full faith and
credit of the U.S. government. In other cases, Agency Securities are backed
solely by the credit of the governmental issuer. Certain issuers of Agency
Securities have the right to borrow from the U.S. Treasury, subject to certain
conditions. Government Securities purchased by the Portfolio may include
variable and floating rate securities.
Bank Obligations. 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. 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. As a result
of federal or state laws and regulations, domestic banks, among other things,
generally are required to maintain specified levels of reserves, limited in the
amounts which they can loan to a single borrower and subject to other
regulations designed to promote financial soundness.
Investments in obligations of foreign banks involve various risks that
are not generally associated with investments in the obligations of domestic
banks.
Unrated Investments and Changes in Ratings. The Portfolio may
------------------------------------------
purchase securities that are not rated if, in the opinion of Barclays Global
Advisors, Inc. (the "Investment Adviser"), the investment adviser of the
Portfolio, such obligations are of a quality comparable to that of the rated
investments in which the Portfolio may invest, if they are purchased in
accordance with procedures adopted by MIP's Board of Trustees in accordance with
Rule 2a-7 under the 1940 Act. These procedures require approval or ratification
by the MIP Trustees of the purchase of unrated securities.
-3-
<PAGE>
After purchase by the Portfolio, a security may cease to be rated or
its rating may be reduced below the minimum required for purchase by the Fund
and the Portfolio. Neither event will require an immediate sale of such
security by the Portfolio provided that, when a security ceases to be rated, the
MIP Board of Trustees determines that such security presents minimal credit
risks and, provided further that, when a security rating is downgraded below the
eligible quality for investment or no longer presents minimal credit risks, the
MIP Board finds that the sale of such security would not be in the Portfolio's
shareholder's best interest. To the extent the ratings given by Moody's
Investor Service, Inc. ("Moody's") or Standard & Poors Corporation ("S&P") 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.
The ratings categories used by Moody's and S&P are more fully
described in the Appendix.
Pass-Through Obligations. Certain of the debt obligations in which
------------------------
the Portfolio may invest may be pass-through obligations that represent an
ownership interest in a pool of mortgages and the resultant cash flow from those
mortgages. Payments by homeowners on the loans in the pool flow through to
certificate holders in amounts sufficient to repay principal and to pay interest
at the pass-through rate. The stated maturities of pass-through obligations may
be shortened by unscheduled prepayments of principal on the underlying
mortgages. Therefore, it is not possible to predict accurately the average
maturity of a particular pass-through obligation. Variations in the maturities
of pass-through obligations will affect the yield of any fund investing in such
obligations. Furthermore, as with any debt obligation, fluctuations in interest
rates will inversely affect the market value of pass-through obligations.
Loans of Portfolio Securities. The Portfolio may lend its securities
-----------------------------
to brokers, dealers and financial institutions, provided the loan is secured
continuously by collateral consisting of cash, Government Securities or a letter
of credit. This collateral is marked to market daily to ensure that the loan is
fully collateralized at all times. Under procedures adhered to by the
Portfolio, the loan must be callable by the Portfolio at any time and the
Portfolio must have the right to obtain the return of the securities loaned.
The Portfolio also has the right to receive any interest paid on the securities
loaned. The Portfolio will not lend securities having an aggregate market value
exceeding one-third of its total assets.
Loans of securities will only be made to firms deemed by the Board of
Trustees of MIP to be creditworthy (such creditworthiness will be monitored on
an ongoing basis by the Investment Adviser) and when the income expected to be
earned from such loans justifies the attendant risks. There may be delays in
the recovery of the loaned securities or a loss of rights in the collateral
supplied should the borrower fail financially, in which case the Portfolio could
suffer a loss. In addition, securities lending involves a form of leverage, and
the Portfolio may incur a loss if securities purchased with the collateral from
securities loans decline in value or if the income earned does not cover
transaction costs. The Portfolio may pay reasonable finder's, administrative
and custodial fees in connection with loans of securities.
Loans of securities provides a way for the Portfolio to earn either
through the reinvestment of the cash collateral or the payment of fees by the
borrower of the securities. The Portfolio does not intend to lend securities
during the coming year.
Repurchase Agreements. The Portfolio may enter into repurchase
---------------------
agreements with respect to any security in which they are authorized to invest,
although the underlying security may mature in more than thirteen months. In a
repurchase agreement the Portfolio purchases a security and the seller of the
security to the Portfolio agrees to repurchase that security from the Portfolio
at a mutually agreed-upon time and price. The maturity of repurchase agreements
are generally not more than seven days. Any repurchase agreements having longer
maturities are deemed to be illiquid and are subject to the limitation on the
purchase of illiquid securities by the Portfolio.
The custodian of the Portfolio's assets or a subcustodian approved by
MIP maintains custody of securities acquired through repurchase agreements.
These securities serve as collateral to secure the obligation of the seller to
repurchase the underlying security and the seller is required to post additional
collateral if the value of
-4-
<PAGE>
the securities should decrease below the resale price including accrued interest
under the repurchase agreement. Repurchase agreements are considered by the
staff of the SEC to be loans by the Portfolio. The Investment Adviser monitors
on an ongoing basis the value of the collateral. Certain costs may be incurred
by the Portfolio in connection with the sale of the underlying securities if the
seller does not repurchase them in accordance with the terms of the repurchase
agreement. In addition, if bankruptcy proceedings are commenced with respect to
the seller of the securities, disposition of the securities by the Portfolio may
be delayed or limited. This could cause the Portfolio to suffer a loss if the
value of the securities declines in value.
Although it is not 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 Fund in connection
with insolvency proceedings), it is the policy of the Portfolio to effect
repurchase agreements only with securities dealers, domestic banks or other
financial institutions determined by the Investment Adviser to meet certain
requirements as to creditworthiness.
Municipal Obligations. The Portfolio may invest in municipal
---------------------
obligations. Municipal bonds generally have a maturity at the time of issuance
of up to 40 years. Medium-term municipal notes are generally issued in
anticipation of the receipt of tax funds, of the proceeds of bond placements, or
of other revenues. The ability of an issuer to make payments on notes is
therefore especially dependent on such tax receipts, proceeds from bond sales or
other revenues, as the case may be. Municipal commercial paper is a debt
obligation with a stated maturity of 270 days or less that is issued to finance
seasonal working capital needs or as short-term financing in anticipation of
longer-term debt.
The Portfolio may invest in the following municipal obligations with
remaining maturities not exceeding 13 months: (i) long-term municipal bonds
rated at the date of purchase "Aa" or better by Moody's or "AA" or better by
S&P; (ii) municipal notes rated at the date of purchase "MIG1" or "MIG2" (or
"VMIG1" or "VMIG2" in the case of an issuer having a variable rate with a demand
feature) by Moody's or "SP-1+", "SP-1" or "SP-2" by S&P; and (iii) short-term
municipal commercial paper rated at the date of purchase "P-1" by Moody's or "A-
1+", "A-1" or "A-2" by S&P.
Floating- and Variable-Rate Obligations. The the Portfolio may
---------------------------------------
purchase floating- and variable-rate obligations as described in the Prospectus.
These obligations may include floating- and variable-rate demand notes and
bonds, which are obligations ordinarily having stated maturities in excess of
thirteen months, but which permit the holder to demand payment of principal at
any time, or at specified intervals not exceeding thirteen months. Variable
rate demand notes include master demand notes that are obligations that permit
the Portfolio to invest fluctuating amounts, which may change daily without
penalty, pursuant to direct arrangements between the Portfolio, as lender, and
the borrower. The interest rates on these notes fluctuate from time to time.
The issuer of these obligations ordinarily has a corresponding right, after a
given period, to prepay in its discretion the outstanding principal amount of
the obligations plus accrued interest upon a specified number of days' notice to
the holders of the obligations. The interest rate on a floating-rate demand
obligation is based on a specified lending rate, such as a bank's prime rate,
and is adjusted automatically each time that rate is adjusted. The interest
rate on a variable-rate demand obligation is adjusted automatically at specified
intervals. Frequently, these obligations are secured by letters of credit or
other credit support arrangements provided by banks. Because these obligations
are direct lending arrangements between the lender and borrower, it is not
contemplated that the obligations generally will be traded, and there generally
is no established secondary market for these obligations, although they are
redeemable at face value. Where these obligations are not secured by letters of
credit or other credit support arrangements, the 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
the Portfolio may invest in obligations which are not so rated only if the
Investment Adviser determines that at the time of investment the obligations are
of comparable quality to the other obligations in which the Portfolio may
invest. The Investment Adviser considers on an ongoing basis the
creditworthiness of the issuers of the floating- and variable-rate demand
obligations in which the Portfolio invests. The Fund will not invest more than
10% of the value of its total net assets in floating or variable-rate demand
obligations whose demand feature is not exercisable within seven days. Such
obligations may be treated as liquid if an active secondary market exists.
-5-
<PAGE>
Forward Commitments, When-Issued Purchases and Delayed-Delivery
---------------------------------------------------------------
Transactions. The Portfolio may purchase securities on a when-issued or forward
- ------------
commitment (sometimes called a delayed-delivery) basis, which means that the
price is fixed at the time of commitment, but delivery and payment ordinarily
take place a number of days after the date of the commitment to purchase. The
Portfolio will make commitments to purchase such securities only with the
intention of actually acquiring the securities, but the Portfolio may sell these
securities before the settlement date if it is deemed advisable. The Portfolio
will not accrue income in respect of a security purchased on a forward
commitment basis prior to its stated delivery date.
Securities purchased on a when-issued or forward commitment basis are
subject to changes in value and the Portfolio is subject to the risk that such
fluctuations may occur prior to the actual delivery of the securities.
Purchasing securities on a when-issued or forward commitment basis also involves
the risk that the yield available in the market when the delivery takes place
may be higher than that obtained by the Portfolio. When the Portfolio purchases
a security on a when-issued or forward commitment basis, it will establish a
segregated account with its custodian, consisting of cash or high quality liquid
debt securities at least equal at all times to the amount of the when-issued or
forward commitment.
Purchasing securities on a forward commitment basis when the Portfolio
is fully or almost fully invested may result in greater potential fluctuation in
the value of the Portfolio's net assets. In addition, because the Portfolio
will set aside cash and other high quality liquid debt securities as described
above, the liquidity of the Portfolio's investment portfolio may decrease as the
proportion of securities purchased on a when-issued or forward commitment basis
increases.
The value of the securities underlying a when-issued purchase or a
forward commitment to purchase securities, and any subsequent fluctuations in
their value, is taken into account when determining the Portfolio's net asset
value starting on the day the Portfolio agrees to purchase the securities. The
Fund does not earn interest on the securities it has committed to purchase until
the securities are paid for and delivered on the settlement date. When the
Portfolio makes a forward commitment to sell securities it owns, the proceeds to
be received upon settlement are included in the Portfolio's assets, and
fluctuations in the value of the underlying securities are not reflected in the
Portfolio's net asset value as long as the commitment remains in effect.
Illiquid Securities. The Portfolio may invest up to 10% of the
-------------------
current value of its net assets in illiquid securities. Illiquid securities are
those securities which the Portfolio cannot sell or dispose of in the ordinary
course of business within seven days at approximately the value at which the
Fund carries the securities. These securities may include restricted
securities, fixed time deposits that are subject to withdrawal penalties and
that have maturities of more than seven days, and repurchase agreements maturing
in more than seven days. Restricted securities are securities that may not be
sold to the public without an effective registration statement under the
Securities Act of 1933, as amended (the "1933 Act"), and thus, may be sold only
in privately negotiated transactions or pursuant to an exemption from
registration. Certain restricted securities that may be sold to institutional
investors pursuant to Rule 144A under the 1933 Act and non-exempt commercial
paper may be determined to be liquid by the Investment Adviser under procedures
adopted by the Board of Trustees of MIP. The purchase of these securities could
have the effect of decreasing the Portfolio's liquidity if qualified
institutional buyers become uninterested in purchasing those securities.
Illiquid securities involve the risk that the securities will not be able to be
sold at the time desired by the Investment Adviser or at prices approximating
the value at which the Portfolio is carrying the securities.
Foreign Obligations. Investments in foreign obligations involve
-------------------
certain considerations that are not typically associated with investing in
domestic obligations. There may be less publicly available information about a
foreign issuer than about a domestic issuer. Foreign issuers also are not
generally subject to uniform accounting, auditing and financial reporting
standards or governmental supervision comparable to those applicable to domestic
issuers. In addition, with respect to certain foreign countries, taxes may be
withheld at the source under foreign income tax laws, and there is a possibility
of expropriation or confiscatory taxation, political or social instability or
diplomatic developments that could adversely affect investments in, the
liquidity of, and the ability to enforce contractual obligations with respect
to, securities of issuers located in those countries.
-6-
<PAGE>
Obligations of foreign banks and foreign branches of U.S. banks
involve somewhat different investment risks from those affecting obligations of
U.S. banks, including the possibilities that liquidity could be impaired because
of future political and economic developments; the obligations may be less
marketable than comparable obligations of U.S. banks; a foreign jurisdiction
might impose withholding taxes on interest income payable on those obligations;
foreign deposits may be seized or nationalized; foreign governmental
restrictions (such as foreign exchange controls) may be adopted which might
adversely affect the payment of principal and interest on those obligations; and
the selection of those obligations may be more difficult because there may be
less publicly available information concerning foreign banks. In addition, the
accounting, auditing and financial reporting standards, practices and
requirements applicable to foreign banks may differ from those applicable to
U.S. banks. In that connection, foreign banks are not subject to examination by
any U.S. Government agency or instrumentality.
MANAGEMENT
Directors and Officers. The Board of Trustees of the Trust has the
----------------------
overall responsibility for monitoring the operations of the Trust and the Fund
and for supervising its operations. The officers of the Trust are responsible
for managing the day-to-day operations of the Trust and the Fund. MIPs Board of
Trustees has similar responsibilities with respect to the operations of the
Portfolio.
Set forth below is information with respect to each of the Trustees
and officers of the Trust, including their principal occupations during the past
five years.
<TABLE>
<CAPTION>
NAME, POSITION WITH TRUST, AGE PRINCIPAL OCCUPATIONS
AND ADDRESS DURING LAST FIVE YEARS
---------------------------------- ----------------------------------------
<S> <C>
*E. Scott Peterson, 45 Consultant, Hewitt Associates LLC
Trustee
Donald S. Hunt, 60 Director and President, ADA Financial
Trustee Services; Director ADA Holding Co.;
860 N. Lakeshore Drive Director, Vision III; Director and Chief
Chicago, IL 60611 Excutive Officer, Global Training Inc.;
Director and President, Harris Bank Corp. and
Harris Trust & Savings Bank
John D. Oliverio, 45 Executive Vice President and Chief Operating
Trustee Officer, Wheaton Franciscan Services, Inc.;
26 West 171 Roosevelt Road Director, AHA Investment Funds, Inc.
Wheaton, IL 60189
Stacy L. Schaus, 38 Consultant, Hewitt Associates LLC
President
Peter E. Ross, 38 Consultant, Hewitt Associates LLC
Secretary
James B. Lee, 36 Consultant, Hewitt Associates LLC
Treasurer, Chief Financial Officer
</TABLE>
- --------------------
* Trustee who is an "interested person" of the Trust, as defined in the 1940
Act, because of his affiliation with Hewitt Associates LLC, an affilaite of the
distributor of the Fund's shares.
Except as otherwise indicated above, the address of each Trustee and
officer of the Trust is 100 Half Day Road, Lincolnshire, Illinois 60069.
Trustees who are not employed by Hewitt Associates LLC or one of its
affiliates are paid an attendance fee of $1000 for each meeting of the Board of
Trustees they attend. Officers of the Trust receive no compensation from the
Trust. Trustees who are not employees of Hewitt Associates LLC or one of its
affiliates are reimbursed for reasonable out-of-pocket expenses incurred in
connection with the performance of their
-7-
<PAGE>
responsibilities related expenses. As of the date of this Statement of
Additional Information, the Trustees and officers of the Trust, as a group,
owned less than 1% of the outstanding shares of the Trust and the Fund.
Trustee compensation for the coming year is estimated as follows:
COMPENSATION TABLE*
<TABLE>
<CAPTION>
Name of Person Aggregate
Compensation Pension or Retirement Total Compensation
from Trust Benefits Accrued from Trust Paid
as Part of Fund Expenses to Trustees
<S> <C> <C> <C>
E. Scott Peterson $ 0 $0 $ 0
Donald S. Hunt $4000 $0 $4000
John D. Oliverio $4000 $0 $4000
</TABLE>
Investment Adviser. The Investment Adviser, Barclays Global Fund
------------------
Advisors, located at 45 Fremont Street, San Francisco, California 94105, is a
subsidiary of Barclays Global Investors, N.A., which in turn is an indirect
subsidiary of Barclays Bank PLC. It provides investment advisory services to the
Portfolio pursuant to an investment advisory agreement with MIP dated January 1,
1996 (the "Advisory Agreement"). Pursuant to the Advisory Agreement, the
Investment Adviser is responsible for the management of the investments of the
Portfolio and makes all decisions regarding, and places all orders for, the
purchase and sale of securities.
As compensation for services rendered and expenses assumed by the
Investment Adviser, the Portfolio pays the Investment Adviser a monthly fee
which is computed at the annual rate of 0.10% of the net assets of the
Portfolio. Because the Fund is an investor in the Portfolio, shareholders of the
Fund indirectly bear this fee. Under the Advisory Agreement, the Investment
Adviser is obligated to bear all of the ordinary operating expenses of the
Portfolio.
The Advisory Agreement was approved by the Board of Trustees of MIP,
including a majority of the Trustees of MIP who are not "interested persons," as
defined by the 1940 Act of MIP or the Investment Adviser. Its current term
expires January 1, 1999 and may be continued in effect from year to year
thereafter if approved annually by either (i) MIP's Board of Trustees or (ii)
vote of a majority of the outstanding voting securities of the Fund (as defined
in the 1940 Act); or by MIP's Board of Trustees, and provided that 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 the MIP or the
Investment Adviser, by vote cast in person at a meeting called for the purpose
of voting on such approval. The Advisory Agreement is terminable without
penalty, on 60 days' written notice by the Board of Trustees of MIP or by vote
of the holders of a majority of the outstanding voting securities of the
Portfolio. As required by the 1940 Act, the Advisory Agreement provides for its
automatic termination in the event of its assignment (as defined by the 1940
Act).
Administrator. Hewitt Associates LLC (the "Administrator") provides
-------------
administrative services to the Fund pursuant to the terms of an administration
agreement dated September 1, 1998, entered into by the Trust and the
Administrator. Services provided by the Administrator include, but are not
limited to: managing the daily operations and business affairs of the Fund,
subject to the supervision of the Board of Trustees; overseeing the preparation
and maintenance of all documents and records required to be maintained by the
Fund and the Trust; preparing or assisting in the preparation of regulatory
filings, prospectuses and shareholder reports; providing, at its own expense,
the services of its personnel to serve as officers of the Trust; and preparing
and disseminating material for meetings of the Board of Trustees and
shareholders. The Fund pays the Administrator a monthly fee calculated at an
annual rate of 0.10% of the Fund's average daily net assets.
-8-
<PAGE>
The Administration Agreement was approved by the Board of Trustees of
the Trust, including a majority of the Trustees who are not "interested persons"
of the Trust or of Investment Adviser or the Distributor, as defined by the 1940
Act (the "Independent Trustees"), at a meeting held in person on August 18,
1998. It has an initial term expiring August 31, 2000, and may be continued in
effect from year to year thereafter if such continuance is approved annually by
the Board of Trustees, including the vote of a majority of the Independent
Trustees. The Administration Agreement terminates automatically in the event of
its "assignment" (as defined by the 1940 Act), and may be terminated by either
party without penalty on not less than 60 days' written notice.
Pursuant to the Administration Agreement, the Trust has acknowledged
that the name "Hewitt" is a property right of the Administrator and its
affiliates and has agreed that the Administrator and its affiliated companies
may use and permit others to use that name. If the Administration Agreement is
terminated, the Trust may be required to cease using the name Hewitt as part of
its name or the name of the Fund, unless otherwise permitted by the
Administrator or any successor to its interest in such name.
The Administrator also serves as the Shareholder Servicing Agent for
Institutional Shares and is paid compensation by the Fund for furnishing various
shareholder related services. See "Shareholder Servicing Arrangements," below.
Shareholder Servicing Arrangements. The Fund has retained Hewitt
----------------------------------
Associates LLC to serve as the Shareholder Servicing Agent for Institutional
Shares pursuant to the terms of a shareholder servicing agreement dated
September 1, 1998 (the "Institutional Shares Servicing Agreement"). Pursuant to
the Institutional Shares Servicing Agreement, the Fund pays Hewitt Associates
LLC a monthly fee calculated at an annual rate of 0.20% of the Fund's average
daily net assets attributable to the Institutional Shares.
The Fund has retained Hewitt Services LLC to serve as the Shareholder
Servicing Agent for Administrative Shares pursuant to the terms of a shareholder
servicing agreement dated September 1, 1998 (the "Administrative Shares
Servicing Agreement"). Pursuant to the Administrative Shares Servicing
Agreement, the Fund pays Hewitt Services LLC a monthly fee calculated at an
annual rate of 0.25% of the Fund's average daily net assets attributable to the
Administrative Shares. The responsibilities of each Shareholder Servicing Agent
are described in the Prospectus. The Fund reimburses each Shareholder Servicing
Agent for certain out-of-pocket expenses.
The Institutional Shares Servicing Agreement and the Administrative
Shares Servicing Agreement were approved by the Board of Trustees of the Trust,
including a majority of the Independent Trustees, at a meeting held in person on
August 18, 1998. Each has an initial term expiring August 31, 2000, and may be
continued in effect from year to year thereafter if such continuance is approved
annually by the Board of Trustees of the Trust, including the vote of a majority
of the Independent Trustees. Each servicing agreement terminates automatically
in the event of its "assignment" (as defined by the 1940 Act), and may be
terminated by either party to the agreement without penalty on not less than 60
days' written notice.
DISTRIBUTION ARRANGEMENTS
Hewitt Services LLC, an affiliate of the Administrator, serves as the
distributor of shares of the Fund (the "Distributor"). The Distributor also
serves as the Shareholder Servicing Agent for the Administrative Shares and is
paid compensation by the Fund for furnishing various shareholder related
services. See "Shareholder Servicing Arrangements," above. he Distributor also
receives payments from the Fund in connection with the distribution of
Administrative Shares, as described below.
Distribution Agreement. The Distributor serves as the exclusive
----------------------
distributor of shares of the Fund pursuant to a distribution agreement with the
Trust, dated as of September 1, 1998 (the "Distribution Agreement"). Pursuant to
the Distribution Agreement, the Distributor is authorized to enter into selling
agreements with securities dealers and other financial institutions for the
distribution of shares. Shares of the Fund are available for purchase on a
continuous basis from the Distributor, as agent, although the Distributor is not
obligated to sell any particular amount of shares. The Fund has appointed the
Shareholder Servicing Agent as its agent for purposes of accepting
-9-
<PAGE>
orders to purchase and redeem Institutional Shares on behalf of the Distributor
and transmitting those orders to the Fund's transfer agent.
The Distribution Agreement was approved by the Board of Trustees of
the Trust, including a majority of the Independent Trustees, at a meeting held
in person on August 18, 1998. It has an initial term expiring August 31, 2000,
and may be continued in effect from year to year thereafter if such continuance
is approved annually by the Board of Trustees, including the vote of a majority
of the Independent Trustees. The Distribution Agreement may be terminated at any
time, without penalty, by either party upon 60 days written notice and
terminates automatically in the event of an "assignment" as defined by the 1940
Act.
Under the Distribution Agreement, the Distributor is required to bear
all of the costs associated with distribution of shares of the Fund, including
the incremental cost of printing prospectuses, annual reports and other periodic
reports for distribution to prospective investors and the costs of preparing,
distributing and publishing sales literature and advertising materials. As
described below, Administrative Shares of the Fund pay a fee to the Distributor
for services it renders in connection with the distribution of Administrative
Shares.
Distribution Plan (Administrative Shares Only) . The Trust has
-----------------------------------------------
adopted a plan and agreement of distribution pursuant to Rule 12b-1 under the
Investment Company Act which allows the Fund to pay expenses relating to the
distribution of Administrative Shares (the "Distribution Plan"). Under the
Distribution Plan, the Fund pays a fee to the Distributor, calculated at an
annual rate of 0.25% of the average daily net assets of Administrative Shares,
as compensation for the services the Distributor renders and the expenses it
bears in connection with the sale and distribution of Administrative Shares.
This fee is an expense of Administrative Shares only and is not borne by
Institutional Shares.
The Distribution Plan was approved by the Board of Trustees of the
Trust, including a majority of the Trustees who are not "interested persons" (as
defined by the 1940 Act) of the Trust and who have no direct or indirect
financial interest in the operation of the Distribution Plan or in any agreement
related to the Plan ("Qualified Trustees"), at a meeting held in person on
August 18, 1998. It provides that it will continue in effect for a period of one
year from the date of its execution, and may be continued in effect from year to
year thereafter, provided that each such continuance is approved annually by a
vote of both a majority of the Trustees and a majority of the Qualified
Trustees. The Distribution Plan requires that the Trust provide the Board of
Trustees of the Trust, and that the Board review, at least quarterly, a written
report of the amounts expended (and the purposes therefor) under the
Distribution Plan. In addition, the Distribution Plan provides that the
selection and nomination of Qualified Trustees shall be committed to the
discretion of those Trustees, who are not "interested persons" (as defined by
the 1940 Act) of the Distributor, then in office. The Distribution Plan may be
terminated at any time by a vote of a majority of the Qualified Trustees or by
vote of a majority of the outstanding voting shares of the Fund (as defined by
the 1940 Act). It may not be amended to increase materially the amount of
permitted expenses thereunder without the approval of the holders of
Administrative Shares and may not be materially amended in any other respect
without a vote of the majority of both the Trustees and the Qualified Trustees.
Since payments made pursuant to the Distribution Plan are not directly
tied to actual expenses, the amount of payments by Administrative Shares to the
Distributor during any year may be more or less than actual expenses incurred by
the Distributor in providing services. For this reason, this type of
distribution fee arrangement is characterized by the staff of the Securities and
Exchange Commission as being of the "compensation variety" (in contrast to
"reimbursement" arrangements under which payments by a fund are made only to
reimburse specific expenses). However, Administrative Shares are not liable to
pay any distribution related expenses incurred by the Distributor in excess of
the amounts paid pursuant the Distribution Plan.
The Distribution Plan was adopted by the Board of Trustees of the
Trust to foster the distribution of Administrative Shares. The Trustees believe
that the Distribution Plan will provide an incentive for the Distributor to make
Administrative Shares available to its customers and that, without the
Distribution Plan, the Distributor would not offer shares of the Fund to its
customers. In addition, the Trustees believe that the Distribution Plan will
help assure that assets of the Fund attributable to Administrative Shares reach
a level that will enable the per share expenses of Administrative Shares to be
competitive with the per share expenses of other
-10-
<PAGE>
money market funds. For these reasons, the Board of Trustees determined that
adoption of the Distribution Plan will benefit the Fund and shareholder who own
Administrative Shares.
The Trustee and officers of the Trust who are members or employees of
the Distributor, or of any company affiliated with or controlling the
Distributor, may be deemed to have a direct or indirect interest in the
operation of the Distribution Plan.
EXPENSES
All expenses of the Trust and the Fund not expressly assumed by the
Administrator or the Distributor are paid by the Fund. In addition, as an
investor in the Portfolio, the Fund bears a pro rata portion of the expenses of
the Portfolio. Expenses borne by the Fund and the Portfolio include, but are not
limited to: fees for investment advisory and administration services; fees paid
to the Shareholder Servicing Agents; the distribution fee payable by
Administrative Shares; the fees and expenses of any registrar, custodian,
accounting agent, transfer agent or dividend disbursing agent; brokerage
commissions; taxes; registration costs; the cost and expense of printing,
including typesetting, and distributing prospectuses and supplements thereto to
shareholders; all expenses of shareholders' and Trustees' meetings and of
preparing, printing and mailing of proxy statements and reports to shareholders;
fees and travel expenses of Trustees or members of any advisory board or
committee who are not employees of the Administrator, the Distributor or the
Investment Adviser; all expenses incident to any dividend, withdrawal or
redemption options; charges and expenses of any outside service used for pricing
shares of the Trust; fees and expenses of legal counsel; fees and expenses of
independent auditors; membership dues of industry associations; interest on
borrowings; postage; insurance premiums on property or personnel (including
officers and Trustees) of the Trust and MIP which inure to its benefit; and
extraordinary expenses (including, but not limited to, legal claims and
liabilities and litigation costs and any indemnification relating thereto).
DETERMINATION OF NET ASSET VALUE
Days and Times Net Asset Value Per Share is Computed. The Prospectus
----------------------------------------------------
describes the days on which the net asset values per share of the Fund are
computed for purposes of purchases and redemptions of shares by investors, and
also sets forth the times as of which such computations are made.
Shares of the Fund may be purchased on any that the New York Stock
Exchange (NYSE) is open and that is not a federal bank holiday. The following
days are either days on which the NYSE is closed or which are federal bank
holidays: New Year's Day; Martin Luther King's Birthday (third Monday in
January); Presidents' Day (third Monday in February); Good Friday (Friday before
Easter); Memorial Day (last Monday in May); Independence Day; Labor Day (first
Monday in September); Columbus Day (second Monday in October); Veterans Day;
Thanksgiving Day (fourth Thursday in November); and Christmas Day.
Net asset value is computed as of the closing time of the U.S.
government securities markets on days when the Public Securities Association
recommends an early closing of such markets. Early closings may occur the
Fridays preceding the following holidays: Martin Luther King's Birthday;
Presidents' Day; Memorial Day; Labor Day; and Columbus Day. Early closings may
also occur on the business days preceding the following holidays: Independence
Day; Veterans Day; Thanksgiving Day; Christmas Day; New Year's Day, and the
Friday following Thanksgiving Day.
The net asset values per share of Institutional Shares and
Administrative Shares are computed separately. Net asset value per share of each
class of the Fund's shares is calculated by dividing the value of the Fund's
total assets attributable to that class, less the liabilities (including accrued
expenses) of the class and its allocable share of the Fund's liabilities (and
accrued expenses), by the number of shares of the class outstanding. The value
of the Portfolio's net assets (its securities and other assets, less its
liabilities, including expenses payable or accrued) is determined at the same
time and on the same days as the net asset values per share of the Fund are
determined. Unlike most other money market funds, the Fund does not seek to
maintain a stable net asset value per share.
-11-
<PAGE>
Amortized Cost Valuation. The Fund and the Portfolio use the
------------------------
amortized cost method of valuation to determine the value of their portfolio
securities in accordance with the provisions of 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. This method
of valuation does not take into account unrealized capital gains and losses
resulting from changes in the market values of the securities due to changes in
prevailing interest rate levels or other factors. While this method provides
certainty in valuation, it may result in periods during which the value, as
determined by amortized cost, is higher or lower than the price that the 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 that uses a method of valuation based upon market prices. Thus, during
periods of declining interest rates, if the use of the amortized cost method
resulted in a lower net asset value of the Fund's portfolio on a particular day,
a prospective investor in the Fund would be able to obtain a somewhat higher
yield than would result from investment in a fund using solely market values,
and existing Fund shareholders would receive correspondingly less income. The
converse would apply during periods of rising interest rates.
Rule 2a-7 provides that in order to value its portfolio using the
amortized cost method, the Fund (or to the extent the Fund invests in the
Portfolio, the Portfolio) must maintain a dollar-weighted average portfolio
maturity of 90 days or less, purchase securities having remaining maturities (as
defined in Rule 2a-7) of thirteen months or less and invest only in those high-
quality securities that are determined by the Board of Trustees of the Trust (or
MIP) to present minimal credit risks. The maturity of an instrument is generally
deemed to be the period remaining until the date when the principal amount
thereof is due or the date on which the instrument is to be redeemed. However,
Rule 2a-7 provides that the maturity of an instrument may be deemed shorter in
the case of certain instruments, including certain variable- and floating-rate
instruments subject to demand features. In addition, Rule 2a-7 requires that the
Portfolio invest only in securities which have been determined by the Investment
Adviser, under procedures adopted by the Board of Trustees of MIP, to present
minimal credit risks and to be of eligible credit quality under applicable
regulations.
PURCHASE AND REDEMPTION OF SHARES
The procedures to be used in purchasing and redeeming Institutional
Shares and Administrative Shares are set forth in the Prospectus under "How To
Buy Shares" and "How To Redeem Shares". The Company reserves the right to reject
any purchase order and to change the amount of the minimum investment and
subsequent purchases in the Funds.
Purchases by Check (Administrative Shares Only). Administrative
-----------------------------------------------
Shares may be purchased by check as described in the Prospectus. If a check to
purchase Administrative Shares does not clear, the shares purchased may be
redeemed by the Distributor and the investor will be responsible for any loss or
expenses incurred by the Fund or the Distributor as a result of the redemption
or non-clearance.
Mandatory Redemption of Shares. Under the Declaration of Trust, the
------------------------------
Trust has the right to redeem all shares of the Fund held by a shareholder if as
a result of one or more redemptions the aggregate value of shares held in the
shareholder's account is less than such dollar amount of $1 million or such
lesser amount as may be specified by the Trustees, which amount may be no
greater than the then applicable minimum initial investment amount. There is
currently no minimum required investment for Institutional Shares. There is also
currently no minimum required initial investment for Administrative Shares, if
those shares are held in an account with a financial intermediary (including the
Distributor) that holds shares for its customers on an omnibus basis. Thus,
Institutional Shares and Administrative Shares held as described above are not
subject to the mandatory redemption procedure described above. As described in
the Prospectus, Administrative Shares not held on an omnibus basis may be
subject to mandatory redemption if the value of Administrative Shares held by a
shareholder is less than $5,000. The Trust is under no obligation to compel the
redemption of any account.
Suspension of Redemptions. Redemption proceeds are normally paid as
-------------------------
described in the Prospectuses. The payment of redemption proceeds by the Fund
may be postponed for more than seven days or the right of redemption suspended
at times (a) when the New York Stock Exchange is closed for other than customary
-12-
<PAGE>
weekends and holidays, (b) when trading on the New York Stock Exchange is
restricted, (c) when an emergency exists as a result of which disposal by the
Fund of securities owned by it is not reasonably practicable or it is not
reasonably practicable for the Fund to determine fairly the value of its net
assets, or (d) during any other period when the Securities and Exchange
Commission (the "SEC"), by order, so permits for the protection of shareholders.
Applicable rules and regulations of the SEC will govern as to whether the
conditions described in (b) or (c) exist.
Redemption in Kind. In the event that the Board of Trustees
------------------
determines that it would be detrimental to the best interests of remaining
shareholders of the Fund to pay any redemption or redemptions in cash, a
redemption payment by a Fund may be made in whole or in part by a distribution
in kind of portfolio securities, subject to applicable rules of the SEC. Any
securities distributed in kind will be readily marketable and will be valued,
for purposes of the redemption, in the same manner as such securities are
normally valued in computing net asset value per share. In the unlikely event
that shares are redeemed in kind, the redeeming shareholder would incur
transaction costs in converting the distributed securities to cash. The Trust
has elected to be governed by Rule 18f-1 under the 1940 Act and is therefore
obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of
the net asset value of a Fund during any 90 day period for any one shareholder.
PORTFOLIO TRANSACTIONS
Purchases and sales of debt securities generally are principal
transactions. Debt securities acquired for the Portfolio normally are purchased
or sold from or to dealers serving as market makers for the securities at a net
price. Debt securities also may be purchased in underwritten offerings and may
be purchased directly from the issuer. Generally, Government Securities and
other money market securities are traded on a net basis and do not involve
brokerage commissions. The cost of executing transactions in debt securities
consists primarily of dealer spreads and underwriting commissions. Under the
1940 Act, persons affiliated with the Trust are prohibited from dealing with the
Trust as a principal in the purchase and sale of securities unless an exemptive
order allowing such transactions is obtained from the SEC or an exemption is
otherwise available. However, the Portfolio may purchase securities from
underwriting syndicates in which the Investment Adviser or an affiliate of the
Investment Adviser is a member under certain conditions in accordance with the
provisions of a rule adopted under the 1940 Act and in compliance with
procedures adopted by the MIP 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 the MIP Board of Trustees, the Investment Adviser is responsible
for the Portfolio's investment decisions and the placing of orders to purchase
and sell securities. In placing orders, it is the policy of the Portfolio to
obtain the best overall terms taking into account the dealer's general execution
and operational facilities, the type of transaction involved and other factors
such as the dealer's risk in positioning the securities involved. While the
Investment Adviser generally seeks reasonably competitive spreads or
commissions, the Portfolio will not necessarily be paying the lowest spread or
commission available.
In assessing the best overall terms available for any transaction, the
Investment Adviser 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.
The Investment Adviser may cause the Portfolio to pay a broker which furnishes
brokerage and research services a higher commission than that which might be
charged by another broker for effecting the same transaction, provided that the
Investment Adviser determines in good faith that such commission is reasonable
in relation to the value of the brokerage and research services provided by that
broker, viewed in terms of either the particular transaction or the overall
responsibilities of the Investment Adviser. Such brokerage and research services
might consist of reports and statistics relating to specific companies or
industries, general summaries of groups of stocks or bonds and their comparative
earnings and yields, or broad overviews of the stock, bond, and government
securities markets and the economy.
Supplementary research information so received is in addition to, and
not in lieu of, services required to be performed by the Investment Adviser and
does not reduce the advisory fees payable by the Portfolio. The MIP Board of
Trustees will periodically review the commissions paid by the Portfolio to
consider whether commissions paid over representative periods of time appear to
be reasonable in relation to the benefits inuring to
-13-
<PAGE>
the Portfolio. It is possible that certain of the supplementary research or
other services received will primarily benefit one or more other investment
companies or other accounts for which the Investment Adviser exercises
investment discretion. Conversely, the Portfolio may be the primary beneficiary
of the research or services received as a result of portfolio transactions
effected for such other accounts or investment companies.
Under Section 28(e) of the Securities Exchange Act of 1934, an adviser
shall not be "deemed to have acted unlawfully or to have breached its fiduciary
duty" solely because under certain circumstances it has caused the account to
pay a higher commission than the lowest available. To obtain the benefit of
Section 28(e), an adviser must make a good faith determination that the
commissions paid are "reasonable in relation to the value of the brokerage and
research services provided...viewed in terms of either that particular
transaction or its overall responsibilities with respect to the accounts as to
which it exercises investment discretion and that the services provided by a
broker provide an adviser with lawful and appropriate assistance in the
performance of its investment decision-making responsibilities." Accordingly,
the price to the Portfolio in any brokerage transaction may be less favorable
than that available from another broker if the difference is reasonably
justified by other aspects of the portfolio execution services offered.
Broker-dealers utilized by the Investment Adviser may furnish
statistical, research and other information or services which are deemed by the
Investment adviser to be beneficial to the Portfolio's investment program.
Research services received from brokers supplement the Investment Adviser's own
research and may include the following types of information: statistical and
background information on industry groups and individual companies; forecasts
and interpretations with respect to U.S. and foreign economics, securities,
markets, specific industry groups and individual companies; information on
political developments; portfolio management strategies; performance information
on securities and information concerning prices of securities; and information
supplied by specialized services to the Investment Adviser and to the Portfolio
with respect to the performance, investment activities and fees and expenses of
other mutual funds. Such information may be communicated electronically, orally
or in written form. Research services may also include the providing of
equipment used to communicate research information, the arranging of meetings
with management of companies and the providing of access to consultants who
supply research information.
The outside research assistance is useful to the Investment Adviser
since the brokers utilized by the Investment Adviser as a group tend to follow a
broader universe of securities and other matters than the staff of the
Investment Adviser can follow. In addition, this research provides the
Investment Adviser with a diverse perspective on financial markets. Research
services which are provided to the Investment Adviser by brokers are available
for the benefit of all accounts managed or advised by the Investment Adviser. It
is the opinion of the Investment Adviser that this material is beneficial in
supplementing their research and analysis; and, therefore, it may benefit the
Portfolio by improving the quality of the Investment Adviser's investment
advice.
TAXES
It is the policy of the Trust to distribute each fiscal year
substantially all of the Fund's net investment income and net realized capital
gains, if any, to shareholders. The Trust intends that the Fund will qualify as
a regulated investment company under the provisions of the Internal Revenue Code
of 1986, as amended (the "Code"). If so qualified, the Fund will not be subject
to federal income tax on that part of its net investment income and net realized
capital gains which it distributes to its shareholders. To qualify for such tax
treatment, the Fund must generally, among other things: (a) derive at least 90%
of its gross income from dividends, interest, payments received with respect to
loans of stock and securities, and gains from the sale or other disposition of
stock or securities and certain related income; and (b) diversify its holdings
so that at the end of each fiscal quarter (i) 50% of the market value of the
Fund's assets is represented by cash, Government Securities, securities of other
regulated investment companies, and other securities limited, in respect of any
one issuer, to an amount not greater than 5% of the Fund's assets or 10% of the
voting securities of any issuer, and (ii) not more than 25% of the value of its
assets is invested in the securities of any one issuer (other than Government
Securities).
The Portfolio has elected to be treated as a partnership for federal
income tax purposes and therefore believes that it will not be required to pay
any federal or state income or excise taxes. Any interest,
-14-
<PAGE>
dividends, gains and losses of the Portfolio will be deemed to pass through to
the Fund in proportion to the Fund's ownership interest in the Portfolio. Thus,
to the extent that the Portfolio accrues but does not distribute income or
gains, the Fund will be deemed to have realized and recognized its proportionate
share of interest, dividends and gains, regardless of whether there has been a
distribution of such items to the Fund. The Portfolio will seek to minimize
recognition by its investors, including the Fund, of interest, dividends and
gains without a distribution.0
The Code requires regulated investment companies to pay a
nondeductible 4% excise tax to the extent they do not distribute 98% of their
ordinary income, determined on a calendar year basis, and 98% of their capital
gains, determined on an October 31 year end. The Trust intends to distribute
the income and capital gains of the Funds in the manner necessary to avoid
imposition of the 4% excise tax by the end of each calendar year.
Dividends of the Funds declared in October, November or December and
paid the following January will be taxable to shareholders as if received on
December 31 of the year in which they are declared.
PERFORMANCE INFORMATION
Calculation of Yield. Quotations of the "current yield" and
--------------------
"effective yield" of Institutional Shares and Administrative Shares may be used
in advertisements, sales materials and shareholder reports. Current yield is
the simple annualized yield for an identified seven calendar day period. This
yield calculation is based on a hypothetical account having a balance of exactly
one share of the Fund at the beginning of the seven-day period. The base period
return is the net change in the value of the hypothetical account during the
seven-day period, including dividends declared on any shares purchased with
dividends on the shares but excluding any capital changes. Yield will vary as
interest rates and other conditions change. Yields also depend on the quality,
length of maturity and type of instruments held and operating expenses of the
Fund. Because the expenses of Institutional Shares and Administrative Shares
differ, the yield of each class of the Fund's shares will differ.
Effective yield is computed by compounding the unannualized seven-day
period return as follows: by adding 1 to the unannualized seven-day base period
return, raising the sum to a power equal to 365 divided by 7, and subtracting 1
from the result.
365/7
Effective yield = [(base period return + 1) ]-1
Calculation of Total Return. Quotations of average annual total
---------------------------
return and other total return data relating to Institutional Shares and
Administrative Shares may also be used in advertisements, sales materials and
shareholder reports. Average annual total return quotations for the specified
periods are computed by finding the average annual compounded rates of return
(based on net investment income and any realized and unrealized capital gains or
losses on investments over such periods) that would equate the initial amount
invested to the redeemable value of such investment at the end of each period.
In making these computations, all dividends and distributions are assumed to be
reinvested and all applicable recurring and non-recurring expenses are taken
into account. The Fund also may quote annual, average annual and annualized
total return and aggregate total return performance data, both as a percentage
and as a dollar amount based on a hypothetical investment amount, for various
periods. The total return of Institutional Shares and Administrative Shares
will differ because their expenses differ.
Total return quotations will be computed in accordance with the
following formula, except that as required by the periods of the quotations,
actual annual, annualized or aggregate data, rather than average annual data,
may be quoted:
n
P (1+T) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
-15-
<PAGE>
n = number of years
ERV = ending redeemable value of the
hypothetical $1,000 payment made at the beginning of the period.
Actual annual or annualized total return data generally will be lower
than average annual total return data because the average rates of return
reflect compounding of return. Aggregate total return data, which is calculated
according to the following formula, generally will be higher than average annual
total return data because the aggregate rates of return reflect compounding over
longer periods of time:
ERV - P
-------
P
Where: P = a hypothetical initial payment of $1,000.
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the period.
Yield and total return quotations are based upon historical investment
performance and is not intended to indicate future performance. Yield and total
return will fluctuate and will depend upon not only changes in prevailing
interest rates, but also upon any realized gains and losses and changes in
expenses.
Performance Comparisons. From time to time and only to the extent the
-----------------------
comparison is appropriate, the performance of Institutional Shares and
Administrative Shares may be compared to the performance of various indices and
investments for which reliable performance data is available. Performance of
Institutional Shares and Administrative Shares may also be compared to averages,
performance rankings and other information prepared by recognized mutual fund
statistical services.
Quotations of performance used in advertising and other types of
literature may be compared to the 91-Day Treasury Bill Average (Federal
Reserve), Lipper Money Market Fund Average, Donoghue Taxable Money Market Fund
Average, Salomon Three-Month Treasury Bill Index, or Bank Averages, which are
calculated from figures supplied by the U.S. League of Savings Institutions
based on effective annual rates of interest on both passbook and certificate
accounts. Savings accounts offer a guaranteed return of principal and a fixed
rate of interest. The performance of Institutional Shares and Administrative
Shares also may be compared to the Consumer Price Index, as published by the
U.S. Bureau of Labor Statistics, which is an established measure of change over
time in the prices of goods and services in major expenditure groups.
Performance comparisons to other mutual funds having investment
objectives similar to those of the Fund may also be used. This comparative
performance could be expressed as a ranking prepared by Lipper Analytical
Services, Inc., Donoghue's Money Fund Report, including Donoghue's Taxable Money
Market Fund Average or Morningstar, Inc., independent services which monitor the
performance of mutual funds.
Of course, past performance is no guarantee of future investment
results.
ADDITIONAL INFORMATION
Description of the Trust and its Shares. The Trust was organized on
---------------------------------------
July 7, 1998, as a business trust under the laws of the State of Delaware.
Interests in the Fund are represented by shares of beneficial
interest, $.001 par value. The Trust is authorized to issue an unlimited number
of shares, and may issue shares in series, with each series representing
interests in a separate portfolio of investments (a "series"). As of the date
of this Statement of Additional
-16-
<PAGE>
Information, shares representing interests in the Fund constitute the sole
series of the Trust's shares outstanding. Two classes of the Fund's shares
(Institutional Shares and Administrative Shares) have been authorized.
Each share of each class represents an equal proportionate interest in
that Fund with each other share of that class, without any priority or
preference over other shares. All consideration received for the sales of the
Fund, all assets in which such consideration is invested, and all income,
earnings and profits derived therefrom are allocated to and belong to that Fund.
As such, the interest of shareholders in the Fund will be separate and distinct
from the interest of shareholders of any other funds which may be represented by
other series of shares of the Trust, and shares of the Fund will be entitled to
dividends and distributions only out of the net income and gains, if any, of the
Fund as declared by the Board of Trustees of the Trust. The assets of the Fund
and those of each other series of the Trust that may be authorized will be
segregated on the Trust's books and will be charged with the expenses and
liabilities of that series and a pro rata share of the general expenses and
liabilities of the Trust not attributable solely to any particular series. The
Board of Trustees determines those expenses and liabilities deemed to be general
expenses and liabilities of the Trust, and these items will be allocated among
Fund and other series of the Trust in a manner deemed fair and equitable by the
Board of Trustees in its sole discretion.
The Board of Trustees may create additional classes of shares of the
Funds. Except for the different distribution related and other specific costs
borne by each class of the Fund's shares, shares of each class have the same
voting and other rights. These varying costs will result in different dividends
for each class.
Annual meetings of shareholders of the Trust will not be held except
as required by the 1940 Act or other applicable law. A meeting will be held on
the removal of a Trustee or Trustees of the Trust if requested in writing by
shareholders representing not less than 10% of the outstanding shares of the
Trust. The Trust will assist in communications among shareholders as required
by Section 16(c) of the 1940 Act.
The Portfolio and MIP. The Fund pursues its investment objective by
---------------------
investing all of its investable assets in the Portfolio. The Portfolio is a
newly formed series of MIP, an open-end management investment company that is
organized as a Delaware business trust. MIP was formed on October 21, 1993. In
accordance with Delaware law and in connection with the tax treatment sought by
MIP, the Declaration of Trust of MIP provides that investors in MIP are
personally responsible for Trust liabilities and obligations, but only to the
extent that MIP's property is insufficient to satisfy such liabilities and
obligations. The MIP Declaration of Trust also provides that MIP shall maintain
appropriate insurance (for example, fidelity bonding and errors and omissions
insurance) for the protection of the MIP, its investors, Trustees of MIP,
officers, employees and agents covering possible tort and other liabilities, and
that investors will be indemnified to the extent that they are held liable for a
disproportionate share of MIP's obligations.
Interests in the Portfolio have substantially identical voting and
other rights as those right discussed above with respect to the Trust. Whenever
the Fund has the right to vote on any matter relating to MIP or the Portfolio by
virtue of its investment in the Portfolio, the Fund will hold a meeting of its
shareholders and will cast its vote as an investor in the Portfolio in the same
proportion as shares of the Fund are voted.
Trustee and Officer Liability. Under the Trust's Declaration of Trust
-----------------------------
and its By-Laws, and under Delaware law, the Trustees, officers, employees and
agents of the Trust are entitled to indemnification under certain circumstances
against liabilities, claims and expenses arising from any threatened, pending or
completed action, suit or proceeding to which they are made parties by reason of
the fact that they are or were such Trustees, officers, employees or agents of
the Trust, subject to the limitations of the 1940 Act which prohibit
indemnification which would protect such persons against liabilities to the
Trust or its shareholders to which they would otherwise be subject by reason of
their own bad faith, willful misfeasance, gross negligence or reckless disregard
of duties. Similar provisions are contained in the Declaration of Trust of MIP.
Control Persons. As of the date of this Statement of Additional
---------------
Information, Hewitt Associates LLC was the sole owner of shares of the Fund. So
long as such ownership of shares continues to exceed 25% of the outstanding
shares of the Fund, Hewitt Associates LLC will be deemed to control the Fund by
virtue of such
-17-
<PAGE>
ownership. Through the exercise of voting rights with respect to shares of the
Fund, Hewitt Associates LLC may be able to determine the outcome of shareholder
voting on matters as to which approval of shareholders is required.
Independent Auditors. KPMG Peat Marwick LLP, Three Embarcardero
--------------------
Center, San Francisco, California, 94111, are the independent auditors of the
Trust. The independent auditors are responsible for auditing the financial
statements annually and prepare the tax returns of the Fund. KPMG Peat Marwick
LLP also serve as the independent auditors of MIP and audit the financial
statements of the Porfolio. The selection of the independent auditors for the
Trust and MIP is approved annually by their respective Boards of Trustees.
Custodian. Investors Bank & Trust Company, 200 Clarendon Street, 16th
---------
Floor, Boston, Massachusetts, 02116, serves as custodian of the Fund and the
Portfolio and maintains custody of the securities and similar assets of the Fund
and the Portfolio. Cash held by the custodian, which may at times be
substantial, is insured by the Federal Deposit Insurance Corporation up to the
amount of available insurance coverage limits (presently, $100,000). Investors
Bank & Trust Company also maintains the accounting books and records of the Fund
and provides sub-administrative services.
Transfer Agent. Investors Bank & Trust Company, 200 Clarendon Street,
--------------
16th Floor, Boston, Massachusetts, 02116,(the "Transfer Agent") serves as the
Fund's transfer agent and dividend disbursing agent.
Shareholder Reports. Shareholders of the Fund are kept fully informed
-------------------
through annual and semi-annual reports showing diversification of investments,
securities owned and other information regarding the activities of the Fund.
Legal Counsel. Schulte Roth & Zabel LLP, New York, New York, serves
-------------
as counsel to the Trust.
Registration Statement. This Statement of Additional Information and
----------------------
the Prospectus do not contain all of the information set forth in the
Registration Statement the Trust has filed with the SEC. The complete
Registration Statement may be obtained from the SEC upon payment of the fee
prescribed by the rules and regulations of the SEC.
Financial Statements. The statement of assets and liabilities of the
--------------------
Fund as of August 31, 1998, included in this Statement of Additional Information
has been audited by KPMG Peat Marwick LLP, independent public accountants, as
indicated by their report thereon. The financial statements are included herein
in reliance upon the authority of said firm as experts in accounting and
auditing in giving said report.
-18-
<PAGE>
AUDIT OF STATEMENT OF ASSETS AND LIABILITIES AS OF AUGUST 31, 1998
Hewitt Money Market Fund
Statement of Assets and Liabilities
August 31, 1998
<TABLE>
<S> <C>
ASSETS:
Cash............................................... $100,000
--------
Total Assets....................................... 100,000
LIABILITIES:
Total Liabilities.................................... 0
NET ASSETS:............................................. $100,000
========
Net assets consist of:
Paid-in Capital.................................... $100,000
NET ASSETS:............................................. $100,000
========
Administrative Shares.............................. 70,000
Institutional Shares............................... $ 30,000
Shares outstanding:
Administrative Shares.............................. 7,000
Institutional Shares............................... 3,000
NET ASSET VALUE:
Administrative Shares.............................. $ 10.00
Institutional Shares............................... $ 10.00
</TABLE>
See Notes to Statement of Assets and Liabilities
HEWITT MONEY MARKET FUND
NOTES TO STATEMENT OF ASSETS AND LIABILITIES
August 31, 1998
Note 1 - Organization and Summary of Significant Accounting Policies:
(A) General: The Hewitt Money Market Fund (the "Fund"), a series
of Hewitt Series Trust (the "Trust"), is a diversified open-end management
investment company registered under the Investment Company Act of 1940, as
amended. The Company was established as a Delaware business trust organized
pursuant to a Declaration of Trust dated July 7, 1998. The objective of the Fund
is to provide a high level of income while preserving capital and liquidity by
investing in high quality, short-term securities. The Fund presently offers two
classes of shares, Administrative Shares and Institutional Shares. Shares of
each class have identical interests in the portfolio of the Fund and have the
same rights. As of August 31, 1998, the Fund had no operations other than
organizational matters and the issuance and sale of initial shares to Hewitt
Associates LLC on August 31, 1998.
(B) Federal Taxes: The Fund has elected and intends to qualify
each year as a "regulated investment company" under Subchapter M of the Internal
Revenue Code. If so qualified, the Fund will not be subject to federal income
tax to the extent it distributes its net income to shareholders.
Note 2 - Investment Adviser
The Fund pursues its investment objective by investing all of its
investable assets in the Money Market Master Portfolio (the "Portfolio"), which
is a series of Master Investment Portfolio ("MIP"). The Portfolio has the same
investment objective and substantially the same investment policies as the Fund.
Barclays Global Fund Advisors, Inc. (the "Investment Adviser") serves as the
Portfolio's investment adviser. For their services, the Adviser is paid by the
Portfolio a fee at an annual rate of 0.10% of the Fund's average daily net
assets.
Note 3 - Administrative, Distribution and Shareholder Servicing Fees
Hewitt Associates LLC (the "Administrator") provides
administrative services to the Fund. Services provided by the Administrator
include, but are not limited to: managing the daily operations and business
affairs of the Fund, subject to the supervision of the Board of Trustees;
overseeing the preparation and maintenance of all documents and records required
to be maintained by the Fund and the Trust; preparing or assisting in the
preparation of regulatory filings, prospectuses and shareholder reports;
providing, at its own expense, the services of its personnel to serve as
officers of the Trust; and preparing and disseminating material for meetings of
the Board of Trustees and shareholders. The Fund pays the Administrator a
monthly fee calculated at an annual rate of 0.10% of the Fund's average daily
net assets. The administrator has agreed to waive its fees or absorb expenses of
the Fund to the extent necessary to assure that total ordinary operating
expenses of Institutional and Administrative Shares on an annual basis do not
exceed 0.45% and 0.75% of the average daily net assets of the Fund attributable
to Institutional and Administrative Shares, respectively. The Administrator may
not modify or terminate these waiver agreements without the approval of the
Board of Trustees of the Trust.
Hewitt Services LLC (the "Distributor") serves as the Distributor
of the Fund's shares. The Fund has adopted a plan pursuant to Rule 12b-1 under
the Investment Company Act which allows the Fund to pay expenses relating to the
distribution of Administrative Shares. Under the plan, the Fund pays a fee to
the Distributor, calculated at an annual rate of 0.25% of the average daily net
assets of Administrative Shares, as compensation for services rendered in
connection with the sale and distribution of Administrative Shares. This fee is
an expense of Administrative Shares only and is not borne by Institutional
Shares.
Hewitt Associates LLC also serves as the shareholder servicing
agent (the "Shareholder Servicing Agent") for Institutional Shares. The
Shareholder Servicing Agent is responsible for receiving on behalf of the
Transfer Agent orders by employee benefit plans to purchase and redeem
Institutional Shares. The Shareholder Servicing Agent is also responsible for
maintaining records showing the number of Institutional Shares allocable to
individual participant accounts in those plans. In addition, the Shareholder
Servicing Agent sends all shareholder communications relating to the Fund to
shareholders and to plan participants or arranges for these materials to be
sent. For these services, the Fund pays Hewitt Associates LLC a monthly fee
calculated at an annual rate of 0.20% of the average daily net assets of the
Fund attributable to Institutional Shares.
The Fund has retained the Distributor to serve as Shareholder
Servicing Agent for Administrative Shares. As Shareholder Servicing Agent, the
Distributor is responsible for maintaining records showing the number of
Administrative Shares owned by IRAs established through the Distributor and by
other investors who have purchased Administrative Shares through the
Distributor. In addition, the Distributor sends all shareholder communications
relating to the Fund to holders of Administrative Shares or arranges for all
these materials to be sent. For these services, the Fund pays the Distributor a
monthly fee calculated at an annual rate of 0.25% of the average daily net
assets of the Fund attributable to Administrative Shares. The Fund also
reimburses each Shareholder Servicing Agent for certain out-of-pocket expenses.
-19-
<PAGE>
REPORT ON AUDIT OF STATEMENT OF ASSETS AND LIABILITIES AS OF AUGUST 31, 1998
The Board of Trustees
Hewitt Money Market Fund:
We have audited the accompanying statement of assets and liabilities of Hewitt
Money Market Fund (the "Fund") as of August 31, 1998. This financial statement
is the responsibility of the Fund's management. Our responsibility is to express
an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of assets and liabilities is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of assets and
liabilities. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the statement of assets and liabilities referred to above
presents fairly, in all material respects, the financial position of Hewitt
Money Market Fund as of August 31, 1998, in conformity with generally accepted
accounting principles.
San Francisco, California
August 31, 1998
-20-
<PAGE>
SAI APPENDIX
The following is a description of the ratings given by Moody's and S&P
to corporate bonds and commercial paper.
CORPORATE BONDS
Moody's: The four highest ratings for corporate bonds are "Aaa,"
-------
"Aa," "A" and "Baa." Bonds rated "Aaa" are judged to be of the "best quality"
and carry the smallest amount of investment risk. Interest payments are
protected by a large or by an exceptionally stable margin and principal is
secure. Bonds rated "Aa" are of "high quality by all standards," but margins of
protection or other elements make long-term risks appear somewhat greater than
"Aaa" rated bonds. Bonds rated "A" possess many favorable investment attributes
and are considered to be upper medium grade obligations. Bonds rated "Baa" are
considered to be medium grade obligations; interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds have speculative characteristics as well. Moody's applies numerical
modifiers "1," "2" and "3" in each rating category from "Aa" through "Baa" in
its rating system. The modifier "1" indicates that the security ranks in the
higher end of its category; the modifier "2" indicates a mid-range ranking; and
the modifier "3" indicates that the issue ranks in the lower end.
S&P: The four highest ratings for corporate bonds are "AAA," "AA,"
---
"A" and "BBB." Bonds rated "AAA" have the highest ratings assigned by S&P and
have an extremely strong capacity to pay interest and repay principal. Bonds
rated "AA" have a "very strong capacity to pay interest and repay principal" and
differ "from the highest rated issued only in small degree." Bonds rated "A"
have a "strong capacity" to pay interest and repay principal, but are "somewhat
more susceptible" to adverse effects of changes in economic conditions or other
circumstances than bonds in higher rated categories. Bonds rated "BBB" are
regarded as having an "adequate capacity" to pay interest and repay principal,
but changes in economic conditions or other circumstances are more likely to
lead to a "weakened capacity" to make such repayments. The ratings from "AA" to
"BBB" may be modified by the addition of a plus or minus sign to show relative
standing within the category.
CORPORATE COMMERCIAL PAPER
Moody's: Moody's employs the designations of "Prime-1," "Prime-2" and
-------
"Prime-3" to indicate the relative capacity of the rated issuers or borrowers to
repay punctually. The highest rating for corporate commercial paper is "Prime-
1." Issuers rated "Prime-1" 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 highinternal cash generation, and well established access
to a range of financial markets and assured sources of alternate liquidity.
Issuers rated "Prime-2" "have a strong capacity for repayment of short-term
promissory obligations," but earnings trends, while sound, will be subject to
more variation.
S&P: The "A-1" rating for corporate commercial paper indicates that
---
the "degree of safety regarding timely payment is either overwhelming or very
strong." Commercial paper with "overwhelming safety characteristics" will be
rated "A-1+." Commercial paper with a strong capacity for timely payments on
issues will be rated "A-2."
-21-
