X COM FUNDS, 485APOS, 2000-05-08

X COM FUNDS
485APOS, 2000-05-08

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As Filed with the Securities and Exchange Commission on May __, 2000

File Nos. 333-80205
811-09381

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

Post-Effective Amendment No. 4

and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 5

X.COM FUNDS

(Exact name of Registrant as specified in charter)

394 University Avenue
Palo Alto, CA 94301
(Address of Principal Executive Offices)

Registrant's Telephone Number, including Area Code: (650) 752-6900

JOHN T. STORY
X.com Corporation
394 University Avenue
Palo Alto, CA 94301
(Name and address of agent for service)

Please send copy of all communications to:

David A. Hearth, Esq.
Paul, Hastings, Janofsky & Walker LLP
345 California Street, 29th Floor
San Francisco, California 94104
(415) 835-1600

It is proposed that this filing will become effective:

immediately upon filing pursuant to Rule 485(b)
-----
on __________ pursuant to Rule 485(b)
-----
60 days after filing pursuant to Rule 485(a)(1)
-----
X 75 days after filing pursuant to Rule 485(a)(2)
-----
on __________ pursuant to Rule 485(a)
-----

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X.COM FUNDS

CONTENTS OF REGISTRATION STATEMENT

This registration statement contains the following documents

Facing Sheet

Contents of Registration Statement

Part A - Prospectus for

X.COM PREMIER S&P 500 FUND
X.COM U.S.A. BOND FUND
X.COM INTERNATIONAL INDEX FUND
X.COM MONEY MARKET RESERVE FUND
X.COM PREMIER MONEY MARKET FUND
X.COM SMALL CAP INDEX FUND

Part B -Statement of Additional Information for

X.COM PREMIER S&P 500 FUND
X.COM U.S.A. BOND FUND
X.COM INTERNATIONAL INDEX FUND
X.COM MONEY MARKET RESERVE FUND
X.COM PREMIER MONEY MARKET FUND
X.COM SMALL CAP INDEX FUND

Part C - Other Information

Signature Page

Exhibits

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PART A

PROSPECTUS FOR

X.COM PREMIER S&P 500 FUND
X.COM U.S.A. BOND FUND
X.COM INTERNATIONAL INDEX FUND
X.COM MONEY MARKET RESERVE FUND

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X.COM FUNDS

X.COM PREMIER S&P 500 FUND
X.COM U.S.A. BOND FUND
X.COM INTERNATIONAL INDEX FUND
X.COM MONEY MARKET RESERVE FUND

PROSPECTUS

MAY __, 2000

- --------------------------------------------------------------------------------
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Page
----
<S> <C>
INTRODUCTION..................................................................1

ABOUT EACH OF THE FUNDS.......................................................2

THE X.COM PREMIER S&P 500.....................................................3

THE X.COM U.S.A. BOND FUND....................................................5

THE X.COM INTERNATIONAL INDEX FUND............................................7

THE X.COM MONEY MARKET RESERVE FUND...........................................9

PERFORMANCE FORMATION.........................................................11

FEES AND EXPENSES.............................................................13

MORE ABOUT THE FUND'S INVESTMENT STRATEGIES AND RISKS.........................15

FUND MANAGEMENT...............................................................17

THE FUNDS'STRUCTURE...........................................................19

PRICING OF FUND SHARES........................................................20

HOW TO BUY AND SELL SHARES OF THE X.COM FUNDS.................................21

DIVIDENDS AND OTHER DISTRIBUTIONS.............................................25

TAX CONSEQUENCES..............................................................26
</TABLE>

i
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INTRODUCTION
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WHO CAN INVEST IN THE FUND?

The Funds are for on-line investors that are customers of X.com Corporation
("X.com") and First Western National Bank (the "Bank"), which is under contract
to provide X.com customers with various banking and financial services. The Bank
is a member of the Federal Deposit Insurance Corporation ("FDIC"). You will need
to do the following to purchase shares of the Funds:

- Open an account with the Bank.

- Complete an X.com Account Application and follow the instructions
provided under "How to Buy and Sell Shares" later in this Prospectus.

- Simply follow the instructions on the X.com website, WWW.X.COM.

- You are also required to consent to receive all information about the
Funds electronically, both to open an account and during the time you
own shares of the Funds. If you revoke your consent to receive this
information electronically, fail to maintain an e-mail account, or
close your account, the Funds may, to the extent permitted by the
federal securities laws, redeem your shares, and will, in any event,
prohibit additional investments in the Funds, including the
reinvestment of dividends.*

WHAT ARE INDEX FUNDS?

Index funds are often described as "passively managed" in that they seek to
match the performance of a specific benchmark index by holding either all the
securities that make up the targeted index or a highly representative sample. In
the case of the X.com Premier S&P 500 Fund that benchmark is the Standard &
Poor's 500 Composite Stock Price Index (the "S&P 500 Index"). For the X.com
U.S.A. Bond Fund the benchmark is the Lehman Brothers Government/Corporate Bond
Index (the "LB Bond Index").

WHAT IS A MASTER/FEEDER FUND STRUCTURE?

The X.com Funds described in this Prospectus are feeder funds that invest all of
their assets in a corresponding master fund. A master/feeder fund structure is a
two-tier fund structure made up of a master portfolio that invests in
securities, and a feeder fund that invests in the master portfolio instead of
directly buying portfolio securities. Barclays Global Fund Advisors ("BGFA")
serves as the investment adviser to each of the master funds.

- -------------------
* The staff of the Securities and Exchange Commission (the "Staff") has
informally indicated its view that the Funds may not involuntarily redeem
your shares if you revoke your consent to receive shareholder documents
electronically or fail to maintain an e-mail account. However, should the
Staff's position on this issue change, the Funds intend to involuntarily
redeem your shares under such circumstances.

1
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ABOUT EACH OF THE FUNDS
- --------------------------------------------------------------------------------

This portion of the Prospectus provides a description of each Fund's investment
objective, principal investment strategies and principal risks. Of course, there
can be no assurance that any Fund will achieve its investment objective.

The investment characteristics and investment risks of the Funds match those of
each Fund's corresponding Master Portfolio. For that reason, the discussion of
each Fund's investment objectives, strategies and risks necessarily includes a
description of the investment characteristics and risks associated with the
investments of the corresponding Master Portfolio. Each Fund's performance will
correspond directly to the performance of the related Master Portfolio.

Please note that your investments in the Funds are not deposits of the Bank or
any other bank or financial institution, and are not insured by the Federal
Deposit Insurance Corporation ("FDIC") or any other government agency. Because
each Fund is subject to investment risks, you may lose money if you invest in
the Funds.

2
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THE X.COM PREMIER S&P 500
- --------------------------------------------------------------------------------

INVESTMENT OBJECTIVE

The X.com Premier S&P 500 Fund (the "Premier S&P 500 Fund")* seeks to
approximate as closely as practicable, after fees and expenses, the
capitalization-weighted total rate of return of the S&P 500 Index.** The S&P 500
Index, a widely recognized benchmark for U.S. stocks, currently represents about
75% of the market capitalization of all publicly traded common stocks in the
United States. The S&P 500 Index includes 500 established companies representing
different sectors of the U.S. economy (including industrial, utilities,
financial, and transportation) selected by Standard & Poor's.

"Capitalization-weighted total rate of return" means that each stock in the
index contributes to the index in the same proportion as the value of its
shares. Thus, if the shares of Company A are worth twice as much as the shares
of Company B, Company A's return will count twice as much as Company B's in
calculating the index's overall return.

PRINCIPAL STRATEGIES

The Premier S&P 500 Fund does not invest directly in a portfolio of securities.
Instead, it seeks to achieve its investment objective by investing all of its
assets in the S&P 500 Index Master Portfolio (the "S&P 500 Portfolio"), a series
of Master Investment Portfolio ("MIP"), a registered open-end management
investment company issuing individual interests in multiple series (each, a
"Master Portfolio"). The S&P 500 Portfolio seeks to provide investment results
that correspond, after fees and expenses, to the total return of the publicly
traded common stocks, in the aggregate, as represented by the S&P 500 Index. To
do so, the S&P 500 Portfolio invests substantially all of its assets in the same
stocks and in substantially the same percentages as the S&P 500 Index.

Under normal market conditions, the S&P 500 Portfolio will invest at least 90%
of its assets in the stocks making up the S&P 500 Index. Over time, the S&P 500
Portfolio attempts to achieve, in both rising and falling markets, a correlation
of at least 95% between the capitalization-weighted total return of its assets
and that of the S&P 500 Index. A correlation of 100% would mean the total return
of the S&P 500 Portfolio's assets would increase and decrease exactly the same
as the S&P 500 Index.

PRINCIPAL RISKS

MARKET RISK: The value of an investment in the Premier S&P 500 Fund depends to a
great extent upon changes in market conditions. Equity securities change in
value more than fixed-income securities and the value of the equity securities
held by the Premier S&P 500 Fund (through its

- -------------------
* The Premier S&P 500 Fund is a "premier" fund because it provides low-cost
access to the S&P 500 Index.

** "Standard & Poor's-Registered Trademark-," "S&P-Registered Trademark-,"
"S&P 500-Registered Trademark-," "Standard & Poor's 500-Registered
Trademark-," and "500" are trademarks of The McGraw-Hill Companies, Inc.
and have been licensed by X.com Asset Management, Inc. for use in
connection with the Premier S&P 500 Fund. The Premier S&P 500 Fund is
not sponsored, endorsed, sold, or promoted by Standard & Poor's and
Standard & Poor's makes no representation regarding the advisability of
investing in the Premier S&P 500 Fund.

3
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investments in the S&P 500 Portfolio) will fluctuate as the market prices of
those securities rise and fall. The value of your investment in the Premier S&P
500 Fund will change daily based on many factors, including the volatility of
the securities in the S&P 500 Index, national and international economic
conditions, and general market conditions.

INDEX-FUND RISK: The Premier S&P 500 Fund is not actively managed through
traditional methods of stock selection. Instead, the Premier S&P 500 Fund
invests (through its investments in the S&P 500 Portfolio) in the stocks
included in the S&P 500 Index regardless of their investment merits. Except to a
limited extent, the Premier S&P 500 Fund cannot modify its investment strategies
to respond to changes in the economy and may be particularly susceptible to a
general decline in the U.S. stock market segment relating to the S&P 500 Index.

The Premier S&P 500 Fund's ability to track the performance of the S&P 500 Index
may also be affected by, among other things, transaction costs, the fees and
expenses of the Premier S&P 500 Fund and the S&P 500 Portfolio, changes in the
composition of the S&P 500 Index or the assets of the S&P 500 Portfolio
(including the need of the S&P 500 Portfolio to maintain cash balances to pay
redemptions and expenses), and the timing, frequency and amount of investor
purchases and redemptions of both the Premier S&P 500 Fund and S&P 500
Portfolio. Because the S&P 500 Portfolio seeks to track the performance of the
S&P 500 Index, the S&P 500 Portfolio will not attempt to judge the merits of any
particular stock as an investment.

MANAGER RISK: The S&P 500 Portfolio attempts to achieve, in both rising and
falling markets, a correlation of at least 95% between the
capitalization-weighted total return of its assets and that of the S&P 500
Index. As a practical matter, the S&P 500 Portfolio cannot own all the
securities that make up the S&P 500 Index in perfect correlation to the index
and, in order to replicate the index, the manager uses computerized,
quantitative techniques establishing an "indexing" investment approach to
determine which securities are to be purchased or sold to achieve its goal. To
the extent that the these techniques fail to accurately replicate the S&P 500
Index or the manager errs in following the indexing approach to the investments,
the S&P 500 Portfolio may perform differently than the S&P 500 Index.

4
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THE X.COM U.S.A. BOND FUND
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INVESTMENT OBJECTIVE

The X.com U.S.A. Bond Fund (the "U.S.A. Bond Fund") seeks to approximate as
closely as practicable, after fees and expenses, the total rate of return of the
U.S. market for issued and outstanding U.S. government and high-grade corporate
bonds as measured by the LB Bond Index. The LB Bond Index includes approximately
6,500 fixed-income securities, including U.S. Government securities and
investment grade corporate bonds, each with an outstanding market value of at
least $25 million and remaining maturity of greater than one year.

PRINCIPAL STRATEGIES

The U.S.A. Bond Fund does not invest directly in a portfolio of securities.
Instead, it seeks to achieve its investment objective by investing all of its
assets in the Bond Index Master Portfolio (the "Bond Portfolio"), a series of
MIP. The Bond Portfolio seeks to replicate the total return of the LB Bond
Index. To do so, the Bond Portfolio invests substantially all of its assets in a
representative sample of the securities that comprise the LB Bond Index, or
securities or other instruments that seek to approximate the performance and
investment characteristics of the LB Bond Index. Generally, at least 65% of the
Bond Portfolio's total assets will be invested in fixed-income securities.
Securities are selected for investment by the Bond Portfolio based on a number
of factors, including, among others, the relative proportion of such securities
in the LB Bond Index, credit quality, issuer sector, maturity structure, coupon
rates, and callability.

Under normal market conditions, the Bond Portfolio invests at least 90% of its
total assets in securities that are believed to represent the investment
characteristics of the LB Bond Index. The Bond Portfolio attempts to achieve, in
both rising and falling markets, a correlation of at least 95% between the total
return of its net assets and that of the LB Bond Index. A correlation of 100%
would mean the total return of the Bond Portfolio's assets would increase and
decrease exactly the same as the LB Bond Index.

PRINCIPAL RISKS

INDEX FUND RISK: The U.S.A. Bond Fund is not actively managed through
traditional methods of securities selection. Instead, the U.S.A. Bond Fund
invests (through its investment in the Bond Portfolio) in the fixed-income
securities included in the LB Bond Index regardless of their investment merit.
Except to a limited extent, the U.S.A. Bond Fund cannot modify its investment
strategies to respond to changes in the economy and may be particularly
susceptible to a general decline in the U.S. fixed-income market segment
relating to the LB Bond Index.

The investment adviser of the Bond Portfolio seeks to replicate the performance
of the LB Bond Index by investing in a representative sample of the securities
that comprise the LB Bond Index. This representative sample, however, may not
match the overall performance of the LB Bond Index.

The U.S.A. Bond Fund's ability to track the performance of the LB Bond Index may
be affected by, among other things, transaction costs, the fees and expenses of
the U.S.A. Bond Fund and the

5
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Bond Portfolio, the manner in which the total return of the LB Bond Index is
calculated, the size of the Bond Portfolio, and the timing, frequency and amount
of investor purchases and redemptions of both the U.S.A. Bond Fund and the Bond
Portfolio. Because the Bond Portfolio seeks to track the performance of the LB
Bond Index, the Bond Portfolio will not attempt to judge the merits of any
particular fixed income security included in the LB Bond Index as an investment.

INTEREST RATE RISK: The debt instruments in which the U.S.A. Bond Fund (through
its investments in the Bond Portfolio) invests are subject to interest rate
risk. Interest rate risk is the risk that when interest rates rise the value of
the debt instruments in which the Bond Portfolio invests will go down. When
interest rates fall, the value of the Bond Portfolio's investments may rise.

CREDIT RISK: Credit risk is the risk that issuers of the debt instruments in
which the U.S.A. Bond Fund (through its investments in the Bond Portfolio) may
invest may default on the payment of principal and/or interest. The U.S.A. Bond
Fund could lose money if the issuer of a fixed-income security owned by the Bond
Portfolio is unable or unwilling to meet its financial obligations by making
timely principal and/or interest payments. Investment-grade securities that are
rated BBB by S&P or an equivalent rating by any other nationally recognized
statistical rating organization ("NRSRO") are somewhat riskier than higher rated
obligations because they are regarded as having only an adequate capacity to pay
principal and interest, are considered to lack outstanding investment
characteristics, and may be speculative.

MARKET RISK: The market prices of securities held by the Bond Portfolio may fall
in response to national and international economic or general market conditions.

In addition, the Bond Portfolio will need to maintain cash balances to pay
redemptions and expenses, which may affect the overall performance of the U.S.A.
Bond Fund.

MANAGER RISK: The Bond Portfolio attempts to achieve, in both rising and falling
markets, a correlation of at least 95% between the capitalization-weighted total
return of its assets and that of the LB Bond Index. As a practical matter, the
Bond Portfolio cannot own all the securities that make up the LB Bond Index in
perfect correlation to the index and, in order to replicate the index, the
manager uses computerized, quantitative techniques establishing an "indexing"
investment approach to determine which securities are to be purchased or sold to
achieve its goal. To the extent that the these techniques fail to accurately
replicate the LB Bond Index or the manager errs in following the indexing
approach to the investments, the Bond Portfolio may perform differently than the
LB Bond Index.

6
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THE X.COM INTERNATIONAL INDEX FUND
- --------------------------------------------------------------------------------

INVESTMENT OBJECTIVE

The X.com International Index Fund (the "International Index Fund") seeks to
approximate, as closely as practicable, after fees and expenses, the
CAPITALIZATION-WEIGHTED TOTAL RATE OF RETURN of the MSCI EAFE -Registered
Trademark- (Europe, Australasia, Far East) Index.* The EAFE -Registered
Trademark- Index, a widely recognized benchmark for foreign stocks, includes
over 1,000 established companies representing different sectors of the world
economy in 21 developed markets.

PRINCIPAL STRATEGIES

The International Index Fund does not invest directly in a portfolio of
securities. Instead, it seeks to achieve its investment objective by investing
all of its assets in the EAFE -Registered Trademark- Index Master Portfolio (the
"EAFE -Registered Trademark- Portfolio"), a series of MIP. The EAFE -Registered
Trademark- Portfolio seeks to provide investment results that correspond, after
fees and expenses, to the total return of the publicly traded common stocks, in
the aggregate, as represented by the EAFE -Registered Trademark- Index. To do
so, the EAFE -Registered Trademark- Portfolio invests substantially all of its
assets in the same stocks and in substantially the same percentages as the EAFE
- -Registered Trademark- Index.

Under normal market conditions, the EAFE -Registered Trademark- Portfolio will
invest at least 90% of its assets in the stocks making up the EAFE -Registered
Trademark- Index. Over time, the EAFE -Registered Trademark- Portfolio attempts
to achieve, in both rising and falling markets, a correlation of at least 95%
between the capitalization-weighted total return of its assets and that of the
EAFE -Registered Trademark- Index. A correlation of 100% would mean the total
return of the EAFE -Registered Trademark- Portfolio's assets would increase and
decrease exactly the same as the EAFE -Registered Trademark- Index.

PRINCIPAL RISKS

MARKET RISK: The value of an investment in the International Index Fund depends
to a great extent upon changes in market conditions. Equity securities change in
value more than fixed-income securities and the value of the equity securities
held by the International Index Fund (through its investments in the EAFE
- -Registered Trademark- Portfolio) will fluctuate as the market prices of those
securities rise and fall. The value of your investment in the International
Index Fund will change daily based on many factors, including the volatility of
the securities in the EAFE -Registered Trademark- Index, national and
international economic conditions, and general market conditions.

- -------------------

* "Morgan Stanley Capital International," "MSCI," "MSCI EAFE -Registered
Trademark- (Europe, Australasia, Far East)" and "EAFE -Registered
Trademark-" are trademarks of Morgan Stanley Capital International. The
Fund is not sponsored, endorsed, sold or promoted by Morgan Stanley Capital
International and Morgan Stanley Capital International makes no
representation regarding the advisability of investing in the Fund.

7
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FOREIGN RISK: By emphasizing investments in foreign stocks, the International
Index Fund may expose shareholders to additional risks. Foreign stock markets
tend to be more volatile than the U.S. market due to economic and political
instability and regulatory conditions in some countries.

In addition, most of the securities in which the EAFE -Registered Trademark-
Portfolio invests are denominated in foreign currencies, whose values may
decline against the U.S. dollar.

INDEX-FUND RISK: The International Index Fund is not actively managed through
traditional methods of stock selection. Instead, the International Index Fund
invests (through its investments in the EAFE -Registered Trademark- Portfolio)
in the stocks included in the EAFE -Registered Trademark- Index regardless of
their investment merits. Except to a limited extent, the International Index
Fund cannot modify its investment strategies to respond to changes in the
economy and may be particularly susceptible to a general decline in the stock
markets of one or more countries represented in the EAFE -Registered Trademark-
Index.

The International Index Fund's ability to track the performance of the EAFE
- -Registered Trademark- Index may also be affected by, among other things,
transaction costs, the fees and expenses of the International Index Fund and the
EAFE -Registered Trademark- Portfolio, changes in the composition of the EAFE
- -Registered Trademark- Index or the assets of the EAFE -Registered Trademark-
Portfolio (including the need of the EAFE -Registered Trademark- Portfolio to
maintain cash balances to pay redemptions and expnses), and the timing,
frequency and amount of investor purchases and redemptions of both the
International Index Fund and EAFE -Registered Trademark- Portfolio. Because the
EAFE -Registered Trademark- Portfolio seeks to track the performance of the EAFE
- -Registered Trademark- Index, the EAFE -Registered Trademark- Portfolio will not
attempt to judge the merits of any particular stock as an investment.

MANAGER RISK: The EAFE -Registered Trademark- Portfolio attempts to achieve, in
both rising and falling markets, a correlation of at least 95% between the
capitalization-weighted total return of its assets and that of the EAFE
- -Registered Trademark- Index. As a practical matter, the EAFE -Registered
Trademark- Portfolio cannot own all the securities that make up the EAFE
- -Registered Trademark- Index in perfect correlation to the index and, in order
to replicate the index, the manager uses computerized, quantitative techniques
establishing an "indexing" investment approach to determine which securities are
to be purchased or sold to achieve its goal. To the extent that the these
techniques fail to accurately replicate the EAFE -Registered Trademark- Index or
the manager errs in following the indexing approach to the investments, the EAFE
- -Registered Trademark- Portfolio may perform differently than the EAFE
- -Registered Trademark- Index.

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THE X.COM MONEY MARKET RESERVE FUND
- --------------------------------------------------------------------------------

GENERAL

The X.com Money Market Reserve Fund (the "Money Market Fund") is designed as a
cash management account that provides investors with the ability to write checks
directly from their accounts as well as the ability to electronically transfer
funds to another Money Market Fund investor.

INVESTMENT OBJECTIVES

The Money Market Fund seeks to provide shareholders of the Fund with a high
level of current income, while preserving capital and liquidity, by investing in
high-quality short-term investments.

PRINCIPAL STRATEGIES

The Money Market Fund seeks to achieve this investment objective by investing
all of its assets in the Money Market Portfolio (the "Money Market Portfolio"),
a series of MIP, which, in turn, invests its assets in U.S. dollar-denominated,
high-quality money market instruments with maturities of 397 days or less, and a
dollar-weighted average portfolio maturity of 90 days or less. The Money Market
Portfolio investments include obligations of the U.S. Government, its agencies
and instrumentalities (including government-sponsored enterprises), and high
quality debt obligations such as obligations of domestic and foreign banks,
commercial paper, corporate notes and repurchase agreements that represent
minimal credit risk.

"High quality" investments are investments rated in the top two rating
categories by the requisite NRSRO or, if unrated, determined to be of comparable
quality to such rated securities by BGFA, the investment adviser of the Money
Market Portfolio, under guidelines adopted by the Money Market Fund's Board of
Trustees and the Money Market Portfolio's Board of Trustees.

PRINCIPAL RISKS

Although the Money Market Fund seeks to preserve the value of your investment at
$1 per share, the Fund cannot offer any guarantee that it will be able to do so.
It is possible to lose money by investing in the Fund.

INTEREST RATE RISK: The debt instruments in which the Money Market Fund invests
(through its investment in the Money Market Portfolio) are subject to interest
rate risk. Interest rate risk is the risk that when interest rates rise the
value of the debt instruments in which the Money Market Portfolio invests will
go down. Conversely, if interest rates fall, the value of the Money Market
Portfolio's investments may rise.

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CREDIT RISK: Credit risk is the risk that issuers of the debt instruments in
which the Money Market Fund invests (through its investment in the Money Market
Portfolio) may default on the payment of principal and/or interest. The Money
Market Fund could be unable to maintain a stable net asset value of $1.00 per
share and the Fund could lose money if the issuer of a fixed-income security
owned by the Money Market Portfolio is unable or unwilling to meet its financial
obligations.

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PERFORMANCE FORMATION
- --------------------------------------------------------------------------------

The bar charts in this section show the annual returns of each of the Funds and
how their performance has varied from year to year.* The average annual return
tables compare each Fund's average annual return with the return of a
corresponding index for one and five years and since inception. How the Funds
have performed in the past does not necessarily indicate how the Funds will
perform in the future.

X.COM PREMIER S&P 500 FUND

[CHART]

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Premier S&P 500 Fund Average Annual Total Returns (As of December 31, 1998)
- --------------------------------------------------------------------------------
One Year Five Years Since July 2, 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Premier S&P 500 Fund 28.56% 23.84% 22.71%
- --------------------------------------------------------------------------------
S&P 500 Index 28.58% 24.06% 22.95%
- --------------------------------------------------------------------------------
</TABLE>

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* The Funds did not offer shares to the public prior to November 18, 1999.
Each Fund's annual returns are based on the annual returns of each
corresponding Master Portfolio, but have not been adjusted to account for
expenses payable at the Fund level. As a result, the annual returns for the
Funds would have been lower than those shown above because Funds have
higher expenses than their corresponding portfolios.

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X.COM U.S.A. BOND FUND

[CHART]

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
U.S.A. Bond Fund Portfolio Average Annual Total Returns (As of December 31, 1998)
- ---------------------------------------------------------------------------------
One Year Five Years Since July 2, 1993
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S.A. Bond Fund 9.49% 7.03% 6.92%
- ---------------------------------------------------------------------------------
LB Bond Index 9.47% 7.30% 7.15%
- ---------------------------------------------------------------------------------
</TABLE>

X.COM INTERNATIONAL INDEX FUND

The International Index Fund commenced operations on March 31, 2000. Performance
results have not been provided because neither the International Index Fund nor
the EAFE -Registered Trademark- Portfolio has been in existence for a full
calendar year.

X.COM MONEY MARKET RESERVE FUND

[CHART]

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Money Market Reserve Fund Average Annual Total Returns (As of December 31, 1998)
- -------------------------------------------------------------------------------------------
One Year Five Years Since July 2, 1993
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Money Market Reserve Fund 5.61% 5.40% 5.19%
- -------------------------------------------------------------------------------------------
U.S. Treasury Bills (3-month) 5.31% 5.32% 4.93%
- -------------------------------------------------------------------------------------------
</TABLE>

12
<PAGE>

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FEES AND EXPENSES
- --------------------------------------------------------------------------------

This table describes the fees and expenses that you may pay if you buy and hold
shares of the Funds.

<TABLE>
<CAPTION>
Premier Money Market
SHAREHOLDER FEES (FEES PAID DIRECTLY S&P 500 U.S.A. Bond International Reserve
FROM YOUR INVESTMENT) Fund Fund Index Fund Fund
---- ---- ---------- ----
<S> <C> <C> <C> <C>
Maximum Sales Charge (Load) Imposed None None None None
on Purchases
Maximum Deferred Sales Charge (Load) None None None None
Maximum Sales Charge (Load) Imposed
in Reinvested Dividends and other None None None None
Distributions
Redemption Fee (within 90 days of None None None None
purchase)
Maximum Account Fee(1) $2.00 $2.00 $2.00 None

ANNUAL FUND OPERATING EXPENSES(2)
(EXPENSES THAT ARE DEDUCTED FROM
FUND ASSETS)

Management Fees(3) 0.28% 0.40% 0.60% 1.90%
Distribution (12b-1) Fees None None None None
Other Expenses 0.00% 0.00% 0.00% 0.00%
Total Annual Fund Operating Expenses 0.28% 0.40% 0.60 1.90%
Fee Waiver and Expense Reimbursement(4) 0.13% 0.21% 0.27% 0.40%
NET OPERATING EXPENSES 0.15% 0.19% 0.33% 1.50%
</TABLE>

(1) An account maintenance fee of $2.00 per Fund (other than the Money Market
Fund) is charged for each calendar quarter, or portion thereof, during
which you have an investment in a Fund (other than the Money Market Fund)
that, on any day, is less than $5,000.
(2) The cost reflects the expenses at both the Fund and the Master Portfolio
levels.
(3) Management fees include a fee equal to 0.05%, 0.08%, 0.25%, 0.14% and 0.10%
of the daily net assets payable at the Master Portfolio level to the
investment adviser for the S&P 500 Portfolio, Bond Portfolio, EAFE
-Registered Trademark- Portfolio, Small Cap Index Portfolio, and the Money
Market Portfolio, respectively. Management fees also include a "unified"
fee equal to 0.23%, 0.32%, 0.35% and 0.50% payable by the Premier S&P 500
Fund, U.S.A. Bond Fund, International Index Fund and the Money Market Fund,
respectively, to X.com Asset Management, Inc., the Funds' investment
adviser (the "Adviser"). Under the investment advisory contract, the
Adviser provides or arranges to be provided to the Funds administration,
transfer agency, pricing, custodial, auditing, and legal services, and is
responsible for payment of all of the operating expenses of each Fund
except the Master Portfolio management fees, brokerage fees, taxes,
interest and extraordinary expenses.
(4) The fee waiver for each Fund is made pursuant to a written expense
limitation and reimbursement agreement, which is in effect for an initial
term of one year, during which it can be terminated only by the Board. If
neither the Board nor the Adviser terminates the agreement at the end of
the year, it will be renewed thereafter automatically for successive
one-year terms on an annual basis.

13
<PAGE>

- --------------------------------------------------------------------------------
Example
- --------------------------------------------------------------------------------

This Example is intended to help you compare the cost of investing in the Funds
with the cost of investing in other mutual funds. The Example assumes that:

- you invest $10,000 in each Fund for the time periods indicated;

- your investment has a 5% return each year;

- each Fund's operating expenses remain the same, except for the fee
reduction which, for the purposes of the example, is assumed to be
applicable to onlly the first year; and

- you redeem your shares at the end of the relevant period.

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>
PREMIER S&P 500 FUND $___ $___

U.S.A. BOND FUND $___ $___

INTERNATIONAL INDEX FUND $___ $___

MONEY MARKET RESERVE FUND $___ $___
</TABLE>

* Reflects costs at both the Fund and Master Portfolio levels.

14
<PAGE>

- --------------------------------------------------------------------------------
MORE ABOUT THE FUND'S INVESTMENT STRATEGIES AND RISKS
- --------------------------------------------------------------------------------

INVESTMENT OBJECTIVES AND STRATEGIES

As with all mutual funds, there can be no assurance that the Funds will achieve
their respective investment objectives. The investment objective of each Fund is
fundamental and may not be changed without approval of Fund shareholders. A Fund
may withdraw its investment in a Master Portfolio only if the Trust's Board of
Trustees determines that such action is in the best interests of the Fund and
its shareholders. If there is a change in the investment objective or strategies
of a Fund, shareholders should consider whether the Fund remains an appropriate
investment in light of their then current financial position and needs.

THE INDEX FUNDS: Each of the Premier S&P 500 Fund, the U.S.A. Bond Fund, and the
International Index Fund is an "Index Fund" (collectively, the "Index Funds"),
which means that the assets of the related Master Portfolio (collectively, the
"Index Portfolios") are not actively managed. Instead, the manager of each Index
Portfolio seeks to achieve returns corresponding to the S&P 500 Index, LB Bond
Index and the EAFE -Registered Trademark- Index by utilizing an "indexing"
investment approach to determine which securities are to be purchased or sold to
replicate, to the extent feasible, the investment characteristics of that Index
through computerized, quantitative techniques. The Index Portfolios cannot, as a
practical matter, own all the securities that make up their respective market
indexes in perfect correlation to the indexes. The Index Portfolios seek to
track their respective market indexes during down markets as well as during up
markets. Consequently, the returns of the Index Portfolios will be directly
affected by the volatility of the securities making up their respective market
indexes.

Each Index Portfolio may invest up to 10% of its total assets in high quality
money market instruments to provide liquidity to meet redemption requests or to
facilitate investment in the stocks in the targeted Index.

ADDITIONAL STRATEGIES USED BY THE INDEX PORTOFOLIOS: Each Index Portfolio may
use derivative instruments in order to: (i) simulate full investment in its
corresponding index while retaining a cash balance for portfolio management
purposes; (ii) facilitate trading; (iii) reduce transaction costs; or (iv) seek
higher investment returns when such instruments are priced more attractively
than the stocks in its corresponding index. Those derivatives include the
purchase and sale of futures contracts and options on the targeted Index.

THE MONEY MARKET FUND: The Money Market Fund and the Money Market Portfolio
emphasize safety of principal and high credit quality. In particular, the
investment policies of the Money Market Fund and the Money Market Portfolio
prohibit the purchase of many types of floating-rate instruments, commonly
referred to as derivatives, that are considered to be potentially volatile. The
Money Market Portfolio, however, may invest in high-quality asset-backed
securities and variable and floating rate obligations, which are considered to
be derivative instruments. The Money Market Fund (through its investment in the
Money Market Portfolio) may only invest in floating-rate securities that bear
interest at a rate that resets quarterly or more frequently, and that resets
based on changes in standard money market rate indices such as U.S. Government
Treasury bills and London Interbank Offered Rate, among others. Floating and
variable rate instruments are subject to interest rate and credit risks.

15
<PAGE>

INVESTMENT RISKS

An investment in the Funds is subject to investment risks, including the loss of
the principal amount invested. The performance per share of the Funds and Master
Portfolios will change daily based on many factors, including, but not limited
to, the quality of the instruments held by each Fund and Master Portfolio and
national and international economic conditions and general market conditions.

DERIVATIVES: Derivatives are financial instruments whose values are derived, at
least in part, from prices of other securities or specified assets, indices, or
rates. The use of derivative instruments is a highly specialized activity and
there can be no guarantee that their use will increase the return of the Funds,
or protect their assets from declining in value. The Funds' investments in
derivative instruments can significantly increase their exposure to market risk
or the credit risk of the counterparty. Derivative instruments can also involve
the risk of mispricing or improper valuation and the risk that changes in the
value of the derivative instruments may not correlate perfectly with the Funds'
corresponding indexes. In fact, the use of derivative instruments may adversely
impact the value of the Funds' assets, which would in turn reduce the return you
receive on your investment.

The Master Portfolios' use of derivative instruments may adversely affect the
Funds' ability to track their respective indexes closely if the derivatives do
not perform as expected, or if the derivative instruments are timed incorrectly
or are executed under adverse market conditions. Further, the use of derivative
instruments may adversely impact the value of a Master Portfolio, which would
cause the value of your investment in the related Fund to decline.

The Money Market Portfolio may invest in high-quality asset-backed securities.
Asset-backed securities represent interests in "pools" of assets in which
payments of both interest and principal on the securities are made monthly, thus
in effect "passing through" monthly payments made by the individual borrowers on
the assets that underlie the securities. The value of these instruments are
particularly sensitive to changes in interest rate and general market
conditions. The value of asset-backed securities is also affected by the
creditworthiness of the individual borrowers.

SECURITIES LENDING: Each Master Portfolio in which the Funds invest may lend a
portion of its securities to certain financial institutions in order to earn
income. These loans are fully collateralized. However, if the institution
defaults, the related Fund's performance could be reduced.

16
<PAGE>

- --------------------------------------------------------------------------------
FUND MANAGEMENT
- --------------------------------------------------------------------------------

INVESTMENT ADVISER FOR THE FUNDS. Under investment advisory agreements with the
Funds, X.com Asset Management, Inc. (the "Adviser"), a registered investment
adviser, provides investment advisory services to the Funds. The Adviser is a
wholly owned subsidiary of X.com Corporation ("X.com") and is located at 394
University Avenue, Palo Alto, CA 94301. The Adviser was formed in 1999 and
therefore has limited experience as an investment adviser.

X.com, a holding company, is the parent company of both the Adviser and First
Western National Bank (the "Bank"). X.com is dedicated to providing easy,
low-cost financial services to on-line investors through its continuous emphasis
on technology. Through the world wide web, the Adviser offers access to your
X.com Funds account virtually anywhere, at any time.

Subject to general supervision of the X.com Funds' Board of Trustees and in
accordance with the investment objective, policies and restrictions of each of
the Funds, the Adviser provides the Funds with ongoing investment guidance,
policy direction and monitoring of each of the Master Portfolios in which each
Fund invests. The Adviser may in the future manage cash and money market
instruments for cash flow purposes. The Adviser also provides or arranges for
administration, transfer agency, custody, any subadviser and all other services
necessary for the Funds to operate. For its advisory services, each Fund pays
the Adviser an investment advisory fee at an annual rate, after fee waivers and
expense reimbursements, equal to the following percentage of each Fund's average
daily net assets:

<TABLE>
<CAPTION>
AFTER FEE WAIVER AND
CONTRACTUAL RATE EXPENSE REIMBURSEMENT
---------------- ---------------------
(expressed as a percentage of (expressed as a percentage of
FUND average daily net assets) average daily net assets)
----
<S> <C> <C>
Premier S&P 500 Fund 0.23% 0.15%*
U.S.A. Bond Fund 0.32% 0.11%*
International Index Fund 0.35% 0.08%*
Money Market Reserve Fund 1.80% 1.50%*
</TABLE>

*THE ADVISER HAS ENTERED INTO A WRITTEN EXPENSE LIMITATION AND REIMBURSEMENT
AGREEMENT WITH THE TRUST, UNDER WHICH IT HAS AGREED TO WAIVE A PERCENTAGE OF ITS
ADVISORY FEE RECEIVED FROM THE FUNDS. THE EXPENSE LIMITATION AND REIMBURSEMENT
AGREEMENT IS IN EFFECT FOR AN INITIAL TERM OF ONE YEAR DURING WHICH IT CAN BE
TERMINATED ONLY BY THE BOARD. IF NEITHER THE BOARD NOR THE ADVISER TERMINATES
THE AGREEMENT AT THE END OF THE YEAR, IT WILL BE RENEWED THEREAFTER
AUTOMATICALLY FOR SUCCESSIVE ONE-YEAR TERMS ON AN ANNUAL BASIS.

Out of the fee received by the Adviser, the Adviser pays all expenses of
managing and operating the Funds except Master Portfolio expenses, brokerage
expenses, taxes, interest, fees and expenses of the independent trustees
(including legal counsel fees), and extraordinary expenses. A portion of the
advisory fee may be paid by the Adviser to unaffiliated third parties who
provide recordkeeping and administrative services that would otherwise be
performed by an affiliate of the Adviser.

17
<PAGE>

INVESTMENT ADVISER FOR THE MASTER PORTFOLIOS. Barclays Global Fund Advisors
("BGFA") is the investment adviser for each Master Portfolio. BGFA is a direct
subsidiary of Barclays Global Investors, N.A. (which, in turn, is an indirect
subsidiary of Barclays Bank PLC) and is located at 45 Fremont Street, San
Francisco, California 94105. BGFA has provided asset management, administration
and advisory services for over 25 years. As of June 30, 1999, BGFA and its
affiliates provided investment advisory services for over $687 billion of
assets. BGFA receives a fee from each Master Portfolio at an annual rate equal
to the following percentage of each Master Portfolio's average daily net assets:

<TABLE>
<CAPTION>
PERCENTAGE OF
MASTER PORTFOLIO AVERAGE DAILY NET ASSETS
<S> <C>
S&P 500 Portfolio 0.05%
Bond Portfolio 0.08%
EAFE -Registered Trademark-Portfolio 0.25%
Money Market Portfolio 0.10%
</TABLE>

Each Fund bears a pro rata portion of the investment advisory fees paid by its
corresponding Master Portfolio, as well as certain other fees paid by each
Master Portfolio, such as accounting, legal, and Securities and Exchange
Commission ("SEC") registration fees.

The Adviser may extend, but may not during the term of the expense limitation
agreement shorten, the duration of the expense waiver or reimbursement. The
expense limitation agreement is in effect for an initial term of one year,
during which it can be terminated only by the Board of the Fund. If neither the
Board nor the Adviser terminate the agreement at the end of the year, it will be
renewed thereafter automatically for successive one-year terms on an annual
basis. The expense limitation agreement may be changed, terminated or not
renewed by either party only upon 90 days' prior written notice (by e-mail or
other means), to the other party at its principal place of business.

The Funds' Statement of Additional Information contains detailed information
about the Funds' investment adviser, administrator, and other service providers.

18
<PAGE>

- --------------------------------------------------------------------------------
THE FUNDS' STRUCTURE
- --------------------------------------------------------------------------------

Each Fund is a separate series of X.com Funds. The Premier S&P 500 Fund, the
U.S.A. Bond Fund, the International Index Fund and the Money Market Reserve Fund
seek to achieve their investment objectives by investing all of each Fund's
assets in the S&P 500 Portfolio, the Bond Portfolio, the EAFE -Registered
Trademark- Portfolio and the Money Market Portfolio, respectively. Each of the
Index Portfolios and the Money Market Portfolio is a series of MIP, a registered
open-end management investment company, with the same investment objective as
the corresponding Fund. This two-tier fund structure is commonly referred to as
a "master/feeder" structure because one fund (the "feeder" fund) invests all of
its assets in a second fund (the "master" fund). In addition to selling its
shares to the Fund, each corresponding Master Portfolio has sold and is expected
to continue to sell its shares to certain other mutual funds or other accredited
investors. The expenses paid by these mutual funds and accredited investors may
differ from the expenses paid by a Fund; consequently, the returns received by
shareholders of other mutual funds or other accredited investors may differ from
those received by shareholders of the Fund.

The X.com Funds' Board of Trustees (the "Board") believes that, as other
investors invest their assets in the Master Portfolios, certain economic
efficiencies may be realized with respect to each Master Portfolio. For example,
fixed expenses that otherwise would have been borne solely by a Fund (and the
other existing interest-holders in its corresponding Master Portfolio) would be
spread across a larger asset base as more funds or other accredited investors
invest in the particular Master Portfolio. However, if a mutual fund or other
investor withdraws its investment from a Master Portfolio, the economic
efficiencies (e.g., spreading fixed expenses across a larger asset base) that
the Board believes should be available through investment in a Master Portfolio
may not be fully achieved or maintained.

Each Fund may be asked to vote on matters concerning the Master Portfolio.
Except as permitted by the SEC, whenever a Fund is requested to vote on a matter
pertaining to a Master Portfolio, that Fund will hold a meeting of its
shareholders, and, at the meeting of investors in the Master Portfolio, will
cast all of its votes in the same proportion as the votes of the Fund's
shareholders.

Each Fund may withdraw its investments in its corresponding Master Portfolio if
the Board determines that it is in the best interests of the Fund and its
shareholders to do so. Upon any such withdrawal, the Board would consider what
action might be taken, including the investment of all the assets of the Fund in
another pooled investment entity having the same investment objective as the
Fund, direct management of the Fund or other pooled investment entity by the
Adviser or the hiring of a sub-adviser to manage the Fund's assets.

Investment of the Funds' assets in the Master Portfolios is not a fundamental
policy of the Funds and a shareholder vote is not required for a Fund to
withdraw its investment from a Master Portfolio.

19
<PAGE>

- --------------------------------------------------------------------------------
PRICING OF FUND SHARES
- --------------------------------------------------------------------------------

The Funds are true no-load funds, which means you may buy or sell shares
directly at the net asset value ("NAV") next determined after the Fund receives
your request in proper form. A request is received in proper form if it is
placed electronically through the X.com website and specifies the number of
shares or dollar amount of shares to be purchased or redeemed. If the Fund
receives such request before the close of the New York Stock Exchange, Inc.
("NYSE") on a day on which the NYSE is open, your share price will be the NAV
determined that day. Shares will generally not be priced on the days on which
the NYSE is closed for trading.

Each Fund's investment in its corresponding Master Portfolio is valued based on
the Fund's ownership interest in the net assets of the Master Portfolio. A
Fund's NAV per share is calculated by taking the value of each Fund's net assets
and dividing by the number of shares outstanding. A market price may not be
available for securities that trade infrequently. In the absence of market
pricing, the Adviser, subject to the supervision of the Board of Trustees or
Pricing Committee, will make a good-faith estimate of the security's "fair
value." That value may be higher or lower than the security's closing price in
its relevant market. Expenses are accrued daily and applied when determining the
Fund's NAV. The NAV for each Fund is determined as of the close of trading on
the floor of the NYSE (generally 4:00 p.m., Eastern Time), each day the NYSE is
open. Each Fund reserves the right to change the time at which purchases and
redemptions are priced if the NYSE closes at a time other than 4:00 p.m. Eastern
Time or if an emergency exists. The NYSE is closed on most national holidays and
on Good Friday.

Each Master Portfolio calculates its NAV on the same day and at the same time as
its corresponding Fund. Each Master Portfolio's investments are valued each day
the NYSE is open for business. Each Index Portfolio's assets are valued
generally by using available market quotations or at fair value as determined in
good faith by the Board of Directors of MIP. Bonds and notes with remaining
maturities of 60 days or less are valued at amortized cost. The Money Market
Portfolio values its securities at amortized cost to account for any premiums or
discounts above or below the face value of the securities it buys. The amortized
cost method does not reflect daily fluctuations in market value.

20
<PAGE>

- --------------------------------------------------------------------------------
HOW TO BUY AND SELL SHARES OF THE X.COM FUNDS
- --------------------------------------------------------------------------------

The Funds are available only to on-line investors that have established a
customer relationship with X.com and opened an account with the First Western
National Bank (the "Bank"), which is under contract to provide X.com customers
with various banking and financial services.

ON-LINE INVESTOR REQUIREMENTS

The Funds are designed and built specifically for on-line investors. Each Fund
requires its shareholders to consent to receive all shareholder information
about the Fund electronically. Shareholder information includes, but is not
limited to, prospectuses, financial reports, confirmations, proxy solicitations,
and financial statements. Shareholders may also receive other correspondence
from X.com or the Bank through their e-mail account. By purchasing shares of the
Fund, you certify that you have access to the Internet and a current e-mail
account, and you acknowledge that you have the sole responsibility for providing
a correct and operational e-mail address. You may incur costs for on-line access
to shareholder documents and maintaining an e-mail account.

If you rescind your consent to receive shareholder information electronically,
fail to maintain an e-mail account, or close your Bank account, the Funds may,
to the extent permitted by the federal securities laws, redeem your position in
the Funds and, in any event, will prohibit additional investments in the Funds,
including the reinvestment of dividends.* If it becomes lawful to involuntarily
redeem in these circumstances, prior to revoking your consent, you will be
reminded of the Fund's involuntary redemption policy. If the Funds involuntarily
redeem your shares, you may experience adverse tax consequences. If your shares
are involuntarily redeemed, you will receive paper copies of all shareholder
information until all of your shares have been redeemed and the proceeds have
been credited to your account, or you have otherwise received the redemption
proceeds. The Fund reserves the right to deliver paper-based documents in
certain circumstances, at no cost to the investor.

ACCOUNT REQUIREMENTS

To register as a customer of X.com and open an account with the Bank, you must
complete and submit an X.com Account Application (the "Application"). The
Application is available on the X.com website at WWW.X.COM. While you may submit
the Application electronically, you must also complete, sign and deliver a
signature card. The signature card will be sent to your address of record and
must be returned promptly per the enclosed instructions.

FOR MORE DETAILED INFORMATION ON HOW TO OPEN AN ACCOUNT WITH THE BANK, VISIT THE
X.COM WEBSITE (WWW.X.COM).

- -------------------
* The Staff has informally indicated its view that the Funds may not
involuntarily redeem your shares if you revoke your consent to receive
shareholder documents electronically or fail to maintain an e-mail account.
However, should the Staff's position on this issue change, the Funds intend
to involuntarily redeem your shares under such circumstances.

21
<PAGE>

Once you open your account, you will be subject to general account requirements
as described in the Application, and will have access to all the electronic
financial services made available over the Internet by X.com, including the
opportunity to invest in X.com Funds.

PLACING AN ORDER

You can begin purchasing shares of the Funds as soon as you open and fund your
account. Because a Fund's net asset value changes daily, your purchase price
will be the NAV next determined after a Fund receives and accepts your purchase
order.

You can place orders to purchase or redeem Fund shares by accessing the X.com
website at WWW.X.COM. At the time you log-on to the website, you will be
prompted to enter your personal identification password so that we can be sure
each transaction is secure. By clicking on the appropriate mutual fund order
buttons, you can quickly and easily place an order to purchase or redeem shares
in a Fund. When you purchase shares in a Fund, you will be asked: (1) to confirm
your consent to receive all Fund documentation electronically; and (2) to affirm
that you have read the prospectus. The prospectus is readily available for
viewing and printing on the X.com website. IF YOU DO NOT CONSENT TO RECEIVE ALL
FUND DOCUMENTATION ELECTRONICALLY YOU WILL NOT BE ABLE TO PURCHASE SHARES OF THE
FUND. To complete a purchase transaction, you must transfer sufficient funds
from your Bank account to your mutual fund account. Notice of trade
confirmations will be sent electronically to the e-mail address you provided
when you opened your account.

MINIMUM INVESTMENT REQUIREMENTS*

For your initial investment in a Fund $1
To buy additional shares of a Fund $1
Continuing minimum investment $1

* Although there is no minimum investment requirement for any Fund, an
account maintenance fee of $2.00 per Fund (other than the Money Market
Fund) per calendar quarter is charged with respect to each Fund in which a
minimum investment of $5,000 is not maintained.

After your account is established you may use any of the methods described below
to buy or sell shares. You can only sell shares of the Funds that you own; that
means you cannot "short" shares of the Fund.

ACCESSING ACCOUNT INFORMATION

For information on how to access account information and/or applications
electronically, please refer to the online assistant at WWW.X.COM available 24
hours a day.

REDEMPTIONS

You can access the money you have invested in a Fund at any time by selling some
or all of your shares back to the Fund. As soon as a Fund receives your
redemption request, your shares will be redeemed and the proceeds will be
credited to your account with the Bank. This usually occurs the business day
following the transaction. All redemption proceeds will be credited to

22
<PAGE>

your Bank account (except for redemptions by check from the Money Services Fund,
which will be credited to the payee of the check).

REDEMPTION DELAYS. You will have to wait to receive payment on redeemed shares
until the funds you used to buy the shares have cleared (E.G., if you opened
your Bank account with a check, until your check has cleared). The delay may
take up to fifteen (15) days from the date of purchase.

The right of redemption may be suspended during any period in which (i) trading
on the NYSE is restricted, as determined by the SEC, or the NYSE is closed for
other than weekends and holidays; (ii) the SEC has permitted such suspension by
order; or (iii) an emergency as determined by the SEC exists, making disposal of
portfolio securities or valuation of net assets of the Fund not reasonably
practicable.

REDEMPTION FEE. The Funds do not impose a redemption fee. The Index Funds can
experience substantial price fluctuations and are intended for long-term
investors. Short-term "market timers" who engage in frequent purchases and
redemptions can disrupt a Fund's investment program and create additional
transaction costs that are borne by all shareholders. For these reasons, in the
future the Index Funds may assess a 2.0% fee on redemptions of shares held for
less than 90 days.

REDEMPTIONS BY CHECK FROM THE MONEY MARKET FUND. The Money Market Fund offers
shareholders checkwriting privileges. If you invest in the Money Market Fund,
you may write a check to redeem some of your shares. Your investment will
continue to earn income until the check clears your account. You must apply for
the checkwriting feature for your account using a special application form that
includes a signature card. You may redeem by check provided that the proper
signatures you designated are on the check. [The minimum redemption amount by
check is $500. You may write an unlimited number of checks.] There is no
per-check charge for this service, as it is provided as part of the package of
services included with the Money Market Fund.

You should not attempt to close your account by check, since you cannot be sure
of the exact number of shares or value of your account on the day that the check
is presented. You must use the on-line redemption process to close your account.
The checkwriting feature is only available for the Money Market Fund. Please
note that a [$20.00] fee will be charged to your account each time that we must
return a check unpaid for any reason, and that we may impose a charge for a
stop-payment request.

AMENDING YOUR APPLICATION

For your protection, you will be required to submit an amended Application if
you desire to change certain information provided on your initial Application.
The amended Application is designed to protect you and the Funds against
fraudulent transactions by unauthorized persons. Specifically, the Funds will
require you to amend your Application in the following instances:

1. If you transfer the ownership of your account to another individual or
organization.

23
<PAGE>

2. If you add or change your name or add or remove an owner on your
account.
3. If you add or change the beneficiary on your transfer-on-death
account.

CLOSING YOUR ACCOUNT

If you close your account with the Bank, the Fund may, to the extent permitted
by the federal securities laws, redeem all of your shares in your Fund account.

24
<PAGE>

- --------------------------------------------------------------------------------
DIVIDENDS AND OTHER DISTRIBUTIONS
- --------------------------------------------------------------------------------

The Premier S&P 500 Fund and the International Index Fund intend to pay
dividends from net investment income quarterly and distribute capital gains, if
any, annually. The U.S.A. Bond Fund and the Money Market Fund intend to declare
dividends daily and distribute them monthly. The U.S.A. Bond Fund and the Money
Market Fund will distribute capital gains, if any, at least annually. The Funds
may make additional distributions if necessary.

Unless you choose otherwise, all your dividends and capital gain distributions
will be automatically reinvested in additional Fund shares. Shares are purchased
at the net asset value determined on the reinvestment date. If you revoke your
consent to receive shareholder information electronically, fail to maintain an
e-mail account, or close your account, you will not be permitted to reinvest
your dividends in additional Fund shares.

25
<PAGE>

- --------------------------------------------------------------------------------
TAX CONSEQUENCES
- --------------------------------------------------------------------------------

The following information is meant as a general summary for U.S. taxpayers.
Please see the Funds' Statement of Additional Information for more information.
You should rely on your own tax advisor for advice about the particular federal,
state and local tax consequences to you of investing in the Funds.

Each Fund generally will not be required to pay income tax on amounts it
distributes to shareholders, although shareholders will be taxed on
distributions they receive.

The Premier S&P 500 Fund and the International Index Fund will distribute
substantially all of their income and gains to their shareholders every year.
The U.S.A. Bond Fund and the Money Market Fund will distribute dividends
monthly. If a Fund declares a dividend in October, November or December but pays
it in January, you may be taxed on the dividend as if you received it in the
previous year.

You will generally be taxed on dividends you receive from a Fund, regardless of
whether they are paid to you in cash or are reinvested in additional Fund
shares. If a Fund designates a dividend as a capital gain distribution, you will
pay tax on that dividend at the long-term capital gains tax rate, no matter how
long you have held your Fund shares.

If you invest through a tax-deferred retirement account, such as an IRA, you
generally will not be required to pay tax on dividends until they are
distributed from the account. These accounts are subject to complex tax rules,
and you should consult your tax advisor about investment through a tax-deferred
account.

There may be tax consequences to you if you dispose of your Fund shares, for
example, through redemption, exchange or sale. You will generally have a capital
gain or loss from a disposition. The amount of the gain or loss and the rate of
tax will depend mainly upon how much you paid for the shares, how much you sold
them for, and how long you held them.

Each Fund will send you a tax report each year that will tell you which
dividends must be treated as ordinary income and which (if any) are long-term
capital gain.

As with all mutual funds, a Fund may be required to withhold U.S. federal income
tax at the rate of 31% of all taxable distributions payable to you if you fail
to provide the Fund with your correct taxpayer identification number or to make
required certifications, or if you have been notified by the IRS that you are
subject to backup withholding. Backup withholding is not an additional tax, but
is a method in which the IRS ensures that it will collect taxes otherwise due.
Any amounts withheld may be credited against your U.S. federal income tax
liability.

26
<PAGE>

[Outside back cover page.]

The Statement of Additional Information for the Funds ("SAI"), contains further
information about each Fund. The SAI is incorporated into this Prospectus by
reference (that means it is legally considered part of this Prospectus).
Additional information about the Funds' investments will be available in the
Funds' annual and semi-annual reports to shareholders. In a Fund's annual
report, you will find a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during its fiscal
year.

Additional information including the SAI and the most recent annual and
semi-annual reports (when available), may be obtained without charge at our
website (WWW.X.COM). Shareholders will be alerted by e-mail when a prospectus
amendment, annual or semi-annual report is available. Shareholders may also call
the toll-free number listed below for additional information or with any
inquiries.

Further information about the Funds (including the SAI) can also be reviewed and
copied at the SEC's Public Reference Room in Washington, D.C. You may call
1-800-SEC-0330 for information about the operations of the public reference
room. Reports and other information about the Funds are also available on the
EDGAR database of the SEC's website (http://www.sec.gov) or copies can be
obtained, upon payment of a duplicating fee, by writing the Public Reference
Section of the SEC, Washington, D.C. 20549-6009 or by electronic request at the
following e-mail address: [email protected].

X.COM CORP.
394 UNIVERSITY AVENUE
PALO ALTO, CA 94301
TOLL-FREE: (888) 447-8999
HTTP://WWW.X.COM

INVESTMENT COMPANY ACT FILE NO.: 811-09381

27
<PAGE>

PART A

PROSPECTUS FOR

X.COM PREMIER MONEY MARKET FUND
X.COM SMALL CAP INDEX FUND

<PAGE>

- --------------------------------------------------------------------------------
X.COM PREMIER MONEY MARKET
FUND

X.COM SMALL CAP INDEX FUND
- --------------------------------------------------------------------------------

PROSPECTUS

MAY __, 2000

- --------------------------------------------------------------------------------

<PAGE>

- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------

PAGE

ABOUT THE FUNDS........................................................1

THE X.COM PREMIER MONEY MARKET FUND....................................2

THE X.COM SMALL CAP INDEX FUND.........................................4

PERFORMANCE INFORMATION................................................6

FEES AND EXPENSES......................................................8

MORE ABOUT THE FUNDS'INVESTMENT STRATEGIES AND RISKS..................10

FUND MANAGEMENT.......................................................13

THE FUNDS'STRUCTURE...................................................15

PRICING OF FUND SHARES................................................16

HOW TO BUY AND SELL SHARES OF THE FUND................................17

DIVIDENDS AND OTHER DISTRIBUTIONS.....................................21

TAX CONSEQUENCES......................................................22

<PAGE>

- --------------------------------------------------------------------------------
ABOUT THE FUNDS
- --------------------------------------------------------------------------------

This portion of the Prospectus provides a description of the investment
objective, principal investment strategies and principal risks of the X.com
Premier Money Market Fund and the X.com Small Cap Index Fund (each, a "Fund").
Of course, there can be no assurance that either Fund will achieve its
investment objective.

WHAT IS THE MASTER/FEEDER FUND STRUCTURE USED BY THE FUNDS?

Each Fund is a feeder fund that invests all of its assets in a corresponding
master fund. A master/feeder fund structure is a two-tier fund structure made up
of a master portfolio that invests in securities, and a feeder fund that invests
in the master portfolio instead of directly buying portfolio securities.

The investment characteristics and investment risks of each Fund match those of
the Master Portfolio in which it invests. For that reason, the discussion of
each Fund's investment objectives, strategies and risks necessarily includes a
description of the investment characteristics and risks associated with the
investments of the related Master Portfolio. Each Fund's performance will
correspond directly to the performance of the related Master Portfolio.

Please note that your investments in the Funds are not deposits of the Bank or
any other bank or financial institution, and are not insured by the Federal
Deposit Insurance Corporation ("FDIC") or any other government agency. Because
the Funds are subject to investment risks, you may lose money if you invest in
the Funds.

1
<PAGE>

- --------------------------------------------------------------------------------
THE X.COM PREMIER MONEY MARKET FUND
- --------------------------------------------------------------------------------

INVESTMENT OBJECTIVE

The X.com Premier Money Market Fund* (the "Money Market Fund") seeks to provide
shareholders of the Money Market Fund with a high level of current income, while
preserving capital and liquidity, by investing in high-quality short-term
investments.

PRINCIPAL STRATEGIES

The Money Market Fund seeks to achieve this investment objective by investing
all of its assets in the Money Market Portfolio (the "Money Market Portfolio"),
a series of Master Investment Portfolio ("MIP"), a registered, open-end
management investment company issuing individual interests in multiple series.
The Money Market Portfolio, in turn, invests its assets in U.S.
dollar-denominated, high-quality money market instruments with maturities of 397
days or less, and a dollar-weighted average portfolio maturity of 90 days or
less. The Money Market Portfolio investments include obligations of the U.S.
Government, its agencies and instrumentalities (including government-sponsored
enterprises), and high quality debt obligations such as obligations of domestic
and foreign banks, commercial paper, corporate notes and repurchase agreements
that represent minimal credit risk.

"High quality" investments are investments rated in the top two rating
categories by the requisite nationally recognized statistical rating
organization ("NRSRO") or, if unrated, determined to be of comparable quality to
such rated securities by BGFA, the investment adviser of the Money Market
Portfolio, under guidelines adopted by the Money Market Fund's Board of Trustees
and the Money Market Portfolio's Board of Trustees.

PRINCIPAL RISKS

Although the Money Market Fund seeks to preserve the value of your investment at
$1 per share, the Money Market Fund can offer no guarantee that it will be able
to do so. It is possible to lose money by investing in the Money Market Fund.

INTEREST RATE RISK: The debt instruments in which the Money Market Fund invests
(through its investments in the Money Market Portfolio) are subject to interest
rate risk. Interest rate risk is the risk that when interest rates rise the
value of the debt instruments in which the Money Market Portfolio invests will
go down. Conversely, if interest rates fall, the value of the Money Market
Portfolio's investments may rise.

- ------------------------
* The X.com Premier Money Market Fund is a "premier" fund because it provides
low-cost access to the money markets.

2
<PAGE>

CREDIT RISK: Credit risk is the risk that issuers of the debt instruments in
which the Money Market Fund (through its investments in the Money Market
Portfolio) invests may default on the payment of principal and/or interest. The
Money Market Fund could be unable to maintain a stable net asset value of $1.00
per share and the Money Market Fund could lose money if the issuer of a
fixed-income security owned by the Master Portfolio is unable or unwilling to
meet its financial obligations.

3
<PAGE>

- --------------------------------------------------------------------------------
THE X.COM SMALL CAP INDEX FUND
- --------------------------------------------------------------------------------

INVESTMENT OBJECTIVE

The X.com Small Cap Index Fund (the "Small Cap Index Fund" and, together with
the Money Market Fund, the "Funds") is an "index fund." Index funds are often
described as "passively managed" in that they seek to match the performance of a
specific benchmark index by holding either all the securities that make up the
targeted index or a highly representative sample. In the case of the Small Cap
Index Fund, that benchmark is the Russell 2000-Registered Trademark- Index. The
Small Cap Index Fund seeks to approximate as closely as practicable, before fees
and expenses, the CAPITALIZATION-WEIGHTED TOTAL RATE OF RETURN of the Russell
2000-Registered Trademark- Index.* The Russell 2000-Registered Trademark- Index,
a widely recognized benchmark for small cap U.S. stocks, includes approximately
2,000 companies representing different sectors of the U.S. economy.

As of December 31, 1999, the stocks included in the Russell 2000-Registered
Trademark- Index had an average market value of $___ million, but with a median
of $___ million (that is, an equal number of stocks had capitalization levels
above and below $___ million). The capitalization of included stocks ranged from
less than $___ million to over $___ billion.

PRINCIPAL STRATEGIES

The Small Cap Index Fund does not invest directly in a portfolio of securities.
Instead, it seeks to achieve its investment objective by investing all of its
assets in the Russell 2000-Registered Trademark- Index Master Portfolio (the
"Russell 2000-Registered Trademark- Portfolio" and, together with the Money
Market Portfolio, the "Master Portfolios"), a series of MIP. The Russell
2000-Registered Trademark- Portfolio seeks to provide investment results that
correspond, before fees and expenses, to the total return of the publicly traded
common stocks, in the aggregate, as represented by the Russell 2000-Registered
Trademark- Index. To do so, the Russell 2000-Registered Trademark- Portfolio
invests substantially all of its assets in the same stocks and in substantially
the same percentages as the Russell 2000-Registered Trademark- Index.

Under normal market conditions, the Russell 2000-Registered Trademark- Portfolio
will invest at least 90% of its assets in the stocks making up the Russell
2000-Registered Trademark- Index. Over time, the Russell 2000-Registered
Trademark- Portfolio attempts to achieve, in both rising and falling markets, a
correlation of at least 95% between the capitalization-weighted total return of
its assets and that of the Russell 2000-Registered Trademark- Index. A
correlation of 100% would mean the total return of the Russell 2000-Registered
Trademark- Portfolio's assets would increase and decrease exactly the same as
the Russell 2000-Registered Trademark- Index.

- ----------------------
* "Russell 2000-Registered Trademark- Index," "Russell" and "Russell
2000-Registered Trademark- " are trademarks of Frank Russell & Co. ("Russell").
The Small Cap Index Fund is not sponsored, endorsed, sold, or promoted by
Russell and Russell makes no representation regarding the advisability of
investing in the Small Cap Index Fund.

4
<PAGE>

PRINCIPAL RISKS

MARKET RISK: The value of an investment in the Small Cap Index Fund depends to a
great extent upon changes in market conditions. Equity securities change in
value more than fixed-income securities and the value of the equity securities
held by the Small Cap Index Fund (through its investments in the Russell
2000-Registered Trademark- Portfolio) will fluctuate as the market prices of
those securities rise and fall. The value of your investment in the Small Cap
Index Fund will change daily based on many factors, including the volatility of
the securities in the Russell 2000-Registered Trademark- Index, national and
international economic conditions, and general market conditions.

The Small Cap Index Fund's focus on small-cap stocks may expose investors to
additional risks. Smaller companies typically offer fewer products or services
and have more-limited financial resources than larger companies, and their
securities may trade less frequently and in smaller amounts than those of larger
companies. As a result, small-cap stocks--and therefore the Small Cap Index
Fund--may fluctuate significantly more in value than larger-cap stocks and
mutual funds that focus on them.

INDEX-FUND RISK: The Small Cap Index Fund is not actively managed through
traditional methods of stock selection. Instead, it invests (through its
investments in the Russell 2000-Registered Trademark- Portfolio) in the stocks
included in the Russell 2000-Registered Trademark- Index regardless of their
investment merits. Except to a limited extent, the Small Cap Index Fund cannot
modify its investment strategies to respond to changes in the economy and may be
particularly susceptible to a general decline in the U.S. stock market segment
relating to the Russell 2000-Registered Trademark- Index.

The Small Cap Index Fund's ability to track the performance of the Russell
2000-Registered Trademark- Index may also be affected by, among other things,
transaction costs, the fees and expenses of the Small Cap Index Fund and the
Russell 2000-Registered Trademark- Portfolio, changes in the composition of the
Russell 2000-Registered Trademark- Index or the assets of the Russell
2000-Registered Trademark- Portfolio, and the timing, frequency and amount of
investor purchases and redemptions of both the Small Cap Index Fund and Russell
2000-Registered Trademark- Portfolio. Because the Russell 2000-Registered
Trademark- Portfolio seeks to track the performance of the Russell
2000-Registered Trademark- Index, the Russell 2000-Registered Trademark-
Portfolio will not attempt to judge the merits of any particular stock as an
investment.

In addition, the Russell 2000-Registered Trademark- Portfolio will need to
maintain cash balances to pay redemptions and expenses, which may affect the
overall performance of the Small Cap Index Fund.

MANAGER RISK: The Russell 2000-Registered Trademark- Portfolio attempts to
achieve, in both rising and falling markets, a correlation of at least 95%
between the capitalization-weighted total return of its assets and that of the
Russell 2000-Registered Trademark- Index. As a practical matter, the Russell
2000-Registered Trademark- Portfolio cannot own all the securities that make up
the Russell 2000-Registered Trademark- Index in perfect correlation to the index
and, in order to replicate the index, the manager uses computerized,
quantitative techniques establishing an "indexing" investment approach to
determine which securities are to be purchased or sold to achieve its goal. To
the extent that the these techniques fail to accurately replicate the Russell
2000-Registered Trademark- Index or the manager errs in following the indexing
approach to the investments, the Russell 2000-Registered Trademark- Portfolio
may perform differently than the Russell 2000-Registered Trademark- Index.

5
<PAGE>

- --------------------------------------------------------------------------------
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------

The bar charts on this page shows the annual returns of each Fund and how their
performance has varied from year to year.* The average annual return table
compares the Funds' average annual return with the return of a corresponding
index for one and five years and since inception. How a Fund has performed in
the past does not necessarily indicate how the Fund will perform in the future.

[BAR CHART]
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
<S> <C> <C> <C> <C>
4.28% 6.01% 5.45% 5.68% 5.61%
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Money Market Fund Average Annual Total a (as of December 31, 1999)
- -------------------------------------------------------------------------------------------------------------------
One Year Five Years Since July 2, 1993
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Money Market Fund 5.61% 5.40% 5.19%
- -------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bills (3-month) 5.31% 5.32% 4.93%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>

- --------------------------

* The Funds did not offer shares to the public before May __, 2000. Each Fund,
in providing performance information, is using the annual returns of related
Master Portfolio, which has not been adjusted to account for expenses payable at
the Fund level. The annual returns for each Fund would have been lower than
those shown above because it has higher expenses than the Master Portfolio.

6
<PAGE>

SMALL CAP INDEX FUND
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
<S> <C> <C> <C> <C>
- -3.61% 18.95% 2.28% 9.92% 9.49%
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Small Cap Index Fund Portfolio Average Annual Total Returns (as of December 31, 1999)
- -------------------------------------------------------------------------------------------------------------------
One Year Five Years Since ...........
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Small Cap Index Fund ____% ____% ____%
- -------------------------------------------------------------------------------------------------------------------
Russell 2000-Registered Trademark- Index ____% ____% ____%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>

7
<PAGE>

- --------------------------------------------------------------------------------
FEES AND EXPENSES
- --------------------------------------------------------------------------------

This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
SHAREHOLDER FEES MONEY MARKET FUND SMALL CAP INDEX FUND
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<S> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases None None
Maximum Deferred Sales Charge (Load) None None
Maximum Sales Charge (Load) Imposed in Reinvested Dividends None None
and other Distributions
Redemption Fee None None
Maximum Account Fee None $2.00(1)

ANNUAL FUND OPERATING EXPENSES(2)
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)

Management Fees(3) 0.60% 0.40%
Distribution (12b-1) Fees None None
Other Expenses 0.00% 0.00%
Total Annual Fund Operating Expenses 0.60% 0.40%
Fee Waiver and Expense Reimbursement(4) 0.10% 0.00%

NET OPERATING EXPENSES 0.50% 0.40%
</TABLE>

(1) Each account holding the Small Cap Index Fund that does not maintain a
minimum balance of $5,000 on the last business day of a calendar quarter will be
charged an Account Maintenance Fee of $2.00 for that quarter.

(2) The cost reflects the expenses at both the Fund and the Master Portfolio
levels.

(3) Management fees include a fee equal to 0.10% and 0.14%, respectively, of the
daily net assets payable at the Master Portfolio level to the investment adviser
for the Money Market Portfolio and the Russell 2000-Registered Trademark-
Portfolio. Management fees also include a "unified" fee equal to 0.50% payable
by the Funds to X.com Asset Management, Inc., the Fund's investment adviser (the
"Adviser"). Under the investment advisory contract, the Adviser provides or
arranges to be provided to the Fund administration, transfer agency, pricing,
custodial, auditing, and legal services, and is responsible for payment of all
of the operating expenses of the Funds except the Master Portfolio management
fees, brokerage fees, taxes, interest and extraordinary expenses.

(4) The fee waiver for the Fund is made pursuant to a written expense limitation
and reimbursement agreement, which is in effect for an initial term of one year
and will be renewed thereafter automatically for a one-year term on an annual
basis.

8
<PAGE>

EXAMPLE

This Example is intended to help you compare the cost of investing in the Funds
with the cost of investing in other mutual funds. The Example assumes that:

- you invest $10,000 in the applicable Fund for the time
periods indicated;

- your investment has a 5% return each year; and

- the Fund's operating expenses remain the same, except for
the reduction applicable to at least the first year; and

- you redeem your shares at the end of the relevant period

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>
MONEY MARKET FUND $__ $__

SMALL CAP INDEX FUND $__ $__
</TABLE>

* Reflects costs at both the Fund and Master Portfolio levels.

9
<PAGE>

- --------------------------------------------------------------------------------
MORE ABOUT THE FUNDS' INVESTMENT STRATEGIES AND RISKS
- --------------------------------------------------------------------------------

INVESTMENT OBJECTIVE AND STRATEGIES

As with all mutual funds, there can be no assurance that either Fund will
achieve its investment objective. The investment objective of each Fund is not
fundamental and each may be changed without approval of Fund shareholders. Each
Fund may withdraw its investment in the related Master Portfolio only if the
Trust's Board of Trustees determines that such action is in the best interests
of the related Fund and its shareholders. If there is a change in the investment
objective or strategies of a Fund, shareholders should consider whether that
Fund remains an appropriate investment in light of their then current financial
position and needs.

THE MONEY MARKET FUND: The Money Market Fund and the Money Market Portfolio
emphasize safety of principal and high credit quality. In particular, the
investment policies of the Money Market Fund and the Money Market Portfolio
prohibit the purchase of many types of floating-rate instruments, commonly
referred to as derivatives, that are considered to be potentially volatile. The
Money Market Portfolio, however, may invest in high-quality asset-backed
securities and variable and floating rate obligations, which are considered to
be derivative instruments. The Money Market Fund (through its investments in the
Money Market Portfolio) may only invest in floating-rate securities that bear
interest at a rate that resets quarterly or more frequently, and that resets
based on changes in standard money market rate indices such as U.S. Government
Treasury bills and London Interbank Offered Rate, among others. Floating and
variable rate instruments are subject to interest rate and credit risks.

THE SMALL CAP INDEX FUND: The assets of the Russell 2000-Registered Trademark-
Portfolio are not actively managed. Instead, the manager of the Russell
2000-Registered Trademark- Portfolio seeks to achieve returns corresponding to
the Russell 2000-Registered Trademark- Index by utilizing an "indexing"
investment approach to determine which securities are to be purchased or sold to
replicate, to the extent feasible, the investment characteristics of that index
through computerized, quantitative techniques. The Russell 2000-Registered
Trademark- Portfolio cannot, as a practical matter, own all the securities that
make up the Russell 2000-Registered Trademark- Index in perfect correlation to
the indexes. The Russell 2000-Registered Trademark- Portfolio seeks to track the
Russell 2000-Registered Trademark- Index during falling markets as well as
during rising markets. Consequently, the returns of the Russell 2000-Registered
Trademark- Portfolio will be directly affected by the volatility of the
securities making up the Russell 2000-Registered Trademark- Index.

INDEX INVESTING: The assets of the Russell 2000-Registered Trademark- Portfolio
are not actively managed. Instead, the manager of the Russell 2000-Registered
Trademark- Portfolio seeks to achieve returns corresponding to the targeted
index by utilizing an "indexing" investment approach to determine which
securities are to be purchased or sold to replicate, to the extent feasible, the
investment characteristics of that the Russell 2000-Registered Trademark- Index
through computerized, quantitative techniques. The Russell 2000-Registered
Trademark- Portfolio cannot, as a practical matter, own all the securities that
make up its market index in perfect correlation to the index. The Russell
2000-Registered Trademark- Portfolio seeks to track the Russell 2000-Registered
Trademark- Index during falling markets as well as during rising markets.
Consequently, the return of the Russell 2000-Registered Trademark- Portfolio
will be directly affected by the volatility of the securities making up the
Russell 2000-Registered Trademark- Index.

10
<PAGE>

ADDITIONAL STRATEGIES USED BY THE RUSSELL 2000-REGISTERED TRADEMARK- PORTFOLIO

The Russell 2000-Registered Trademark- Portfolio may invest up to 10% of its
total assets in high quality money market instruments to provide liquidity to
meet redemption requests or to facilitate investment in the stocks in the
targeted index.

The Russell 2000-Registered Trademark- Portfolio may use derivative instruments
in order to: (i) simulate full investment in the Russell 2000-Registered
Trademark- Index while retaining a cash balance for portfolio management
purposes; (ii) facilitate trading; (iii) reduce transaction costs; or (iv) seek
higher investment returns when such instruments are priced more attractively
than the stocks in the Russell 2000-Registered Trademark- Index. Those
derivatives include the purchase and sale of futures contracts and options on
the Russell 2000-Registered Trademark- Index.

INVESTMENT RISKS

An investment in the Funds is subject to investment risks, including the loss of
the principal amount invested. The performance per share of the Funds and the
Master Portfolios will change daily based on many factors, including, but not
limited to, the quality of the instruments held by the Funds or the Master
Portfolios, the national and international economic conditions and general
market conditions.

THE MONEY MARKET PORTFOLIO: The Money Market Portfolio may invest in
high-quality asset-backed securities. Asset-backed securities represent
interests in "pools" of assets in which payments of both interest and principal
on the securities are made monthly, thus in effect "passing through" monthly
payments made by the individual borrowers on the assets that underlie the
securities. The value of these instruments are particularly sensitive to changes
in interest rate and general market conditions. The value of asset-backed
securities is also affected by the creditworthiness of the individual borrowers.

THE RUSSELL 2000-REGISTERED TRADEMARK- Portfolio: The Russell 2000-Registered
Trademark- Portfolio may invest in derivative securities or "derivatives."
Derivatives are financial instruments whose values are derived, at least in
part, from prices of other securities or specified assets, indices, or rates.
The use of derivative instruments is a highly specialized activity and there can
be no guarantee that their use will increase the return of the Russell
2000-Registered Trademark- Portfolio, or protect its assets from declining in
value. The Russell 2000-Registered Trademark- Portfolio's investments in
derivative instruments can significantly increase its exposure to market risk or
the credit risk of the counterparty. Derivative instruments can also involve the
risk of mispricing or improper valuation and the risk that changes in the value
of the derivative instruments may not correlate perfectly with the Russell
2000-Registered Trademark- Index. In fact, the use of derivative instruments
adversely impact the value of the assets of the Russell 2000-Registered
Trademark- Portfolio, which may reduce the return you receive on your
investment.

The Russell 2000-Registered Trademark- Portfolio's use of derivative instruments
may adversely affect the Small Cap Index Fund's ability to track the Russell
2000-Registered Trademark- Index closely if the derivatives do not perform as
expected, or if the derivative instruments are timed incorrectly or are executed
under adverse market conditions.

11
<PAGE>

SECURITIES LENDING: The Master Portfolios may lend a portion of their securities
to certain financial institutions in order to earn income. These loans are fully
collateralized. However, if the institution defaults, the related Fund's
performance could be reduced.

12
<PAGE>

- --------------------------------------------------------------------------------
FUND MANAGEMENT
- --------------------------------------------------------------------------------

INVESTMENT ADVISER FOR THE FUNDS. Under an investment advisory agreement with
the Funds, X.com Asset Management, Inc. (the "Adviser"), a registered investment
adviser, provides investment advisory services to the Funds. The Adviser is a
wholly owned subsidiary of X.com Corporation ("X.com") and is located at 394
University Avenue, Palo Alto, CA 94301. The Adviser was formed in 1999 and
therefore has limited prior experience as an investment adviser.

Subject to general supervision of the Funds' Board of Trustees and in accordance
with the investment objective, policies and restrictions of the Funds, the
Adviser provides the Funds with ongoing investment guidance, policy direction
and monitoring of the Master Portfolios. The Adviser may in the future manage
cash and money market instruments for cash flow purposes. The Adviser also
provides or arranges for administration, transfer agency, custody, any
subadviser and all other services necessary for the Funds to operate. For its
advisory services, the Money Market Fund and the Small Cap Index Fund pay the
Adviser investment advisory fees at an annual rate of 0.50% and __%,
respectively, which, after fee waivers and expense reimbursements, and expressed
as a percentage of the Fund's average daily net assets, equal 0.50% and ___%,
respectively.*

Out of the fees received by the Adviser, the Adviser pays all expenses of
managing and operating the Funds except Master Portfolio expenses, brokerage
expenses, taxes, interest, fees and expenses of the independent trustees
(including legal counsel fees), and extraordinary expenses. A portion of the
advisory fee may be paid by the Adviser to unaffiliated third parties who
provide recordkeeping and administrative services that would otherwise be
performed by an affiliate of the Adviser.

INVESTMENT ADVISER FOR THE MONEY MARKET PORTFOLIO. Barclays Global Fund Advisors
("BGFA") is the investment adviser for the Master Portfolios. BGFA is a direct
subsidiary of Barclays Global Investors, N.A. (which, in turn, is an indirect
subsidiary of Barclays Bank PLC) and is located at 45 Fremont Street, San
Francisco, California 94105. BGFA has provided asset management, administration
and advisory services for over 25 years. As of June 30, 1999, BGFA and its
affiliates provided investment advisory services for over $687 billion of
assets. BGFA receives fees from the Master Portfolio at an annual rate equal to
0.10% of the Money Market Portfolio's average daily net assets and ___% of the
Russell 2000-Registered Trademark- Portfolio's average daily net assets.

- -----------------------------

* THE ADVISER HAS ENTERED INTO A WRITTEN EXPENSE LIMITATION AND REIMBURSEMENT
AGREEMENT WITH THE TRUST, UNDER WHICH IT HAS AGREED TO WAIVE A PERCENTAGE OF ITS
ADVISORY FEE RECEIVED FROM THE FUND. THE EXPENSE LIMITATION AND REIMBURSEMENT
AGREEMENT IS IN EFFECT FOR AN INITIAL TERM OF ONE YEAR AND WILL BE RENEWED
THEREAFTER AUTOMATICALLY FOR ONE-YEAR TERMS ON AN ANNUAL BASIS.

13
<PAGE>

Each Fund bears a pro rata portion of the investment advisory fees paid by the
Master Portfolio in which it invests, as well as certain other fees paid by the
related Master Portfolio, such as accounting, legal, and Securities and Exchange
Commission ("SEC") registration fees.

The Funds' Statement of Additional Information contains detailed information
about the Funds' investment adviser, administrator, and other service providers.

14
<PAGE>

- --------------------------------------------------------------------------------
THE FUNDS' STRUCTURE
- --------------------------------------------------------------------------------

Each Fund is a separate series of X.com Funds. The Funds seek to achieve their
investment objectives by investing all of the Funds' assets in the related
Master Portfolio. Each Master Portfolio is a series of Master Investment
Portfolio ("MIP"), a registered open-end management investment company, each
with the same investment objective as the related Fund. This two-tier fund
structure is commonly referred to as a "master/feeder" structure because one
fund (the "feeder" fund) invests all of its assets in a second fund (the
"master" fund). In addition to selling its shares to the Funds, each Master
Portfolio has sold and is expected to continue to sell its shares to certain
other mutual funds or other accredited investors. The expenses paid by these
mutual funds and accredited investors may differ from the expenses paid by the
Funds; consequently, the returns received by shareholders of other mutual funds
or other accredited investors may differ from those received by shareholders of
the Funds.

The Funds' Board of Trustees (the "Board") believes that, as other investors
invest their assets in the Master Portfolios, certain economic efficiencies may
be realized with respect to the Master Portfolios. For example, fixed expenses
that otherwise would have been borne solely by the Funds (and the other existing
interest-holders in the Master Portfolios) would be spread across a larger asset
base as more funds or other accredited investors invest in the Master
Portfolios. However, if a mutual fund or other investor withdraws its investment
from a Master Portfolio, the economic efficiencies (E.G., spreading fixed
expenses across a larger asset base) that the Board believes should be available
through investment in that Master Portfolio may not be fully achieved or
maintained.

The Funds may be asked to vote on matters concerning the related Master
Portfolio. Except as permitted by the SEC, whenever a Fund is requested to vote
on a matter pertaining to the related Master Portfolio, that Fund will hold a
meeting of its shareholders and, at the meeting of investors in the Master
Portfolio, will cast all of its votes in the same proportion as the votes of the
Fund's shareholders.

A Fund may withdraw its investments in the related Master Portfolio if the Board
determines that it is in the best interests of the Fund and its shareholders to
do so. Upon any such withdrawal, the Board would consider what action might be
taken, including the investment of all the assets of the Fund in another pooled
investment entity having the same investment objective as the Fund, direct
management of the Fund or other pooled investment entity by the Adviser or the
hiring of a sub-adviser to manage the Fund's assets.

Investment of the Funds' assets in the Master Portfolios is not a fundamental
policy of either Fund and a shareholder vote is not required for either Fund to
withdraw its investment from the related Master Portfolio.

15
<PAGE>

- --------------------------------------------------------------------------------
PRICING OF FUND SHARES
- --------------------------------------------------------------------------------

The Funds are true no-load fund, which means you may buy or sell shares directly
at the net asset value ("NAV") next determined after the Fund receives your
request in proper form. A request is received in proper form if it is placed
electronically through the X.com website and specifies the number of shares or
dollar amount of shares to be purchased or redeemed. If the Fund receives such
request before the close of the New York Stock Exchange, Inc. ("NYSE") on a day
on which the NYSE is open, your share price will be the NAV determined that day.
Shares will generally not be priced on the days on which the NYSE is closed for
trading.

The Funds' investments in the Master Portfolios are valued based on each Fund's
ownership interest in the net assets of the related Master Portfolio. Each
Fund's NAV per share is calculated by taking the value of the Fund's net assets
and dividing by the number of shares outstanding. A market price may not be
available for securities that trade infrequently. In the absence of market
pricing, the Adviser, subject to the supervision of the Board of Trustees or
Pricing Committee, will make a good-faith estimate of the security's "fair
value." That value may be higher or lower than the security's closing price in
its relevant market. Expenses are accrued daily and applied when determining
each Fund's NAV. The NAV for each Fund is determined as of the close of trading
on the floor of the NYSE (generally 4:00 p.m., Eastern Time), each day the NYSE
is open. The Funds reserve the right to change the time at which purchases and
redemptions are priced if the NYSE closes at a time other than 4:00 p.m. Eastern
Time or if an emergency exists. The NYSE is closed on most national holidays and
on Good Friday.

Each Master Portfolio calculates its NAV on the same day and at the same time as
the Funds. The Master Portfolios' investments are valued each day the NYSE is
open for business. The Master Portfolios' assets are valued generally by using
available market quotations or at fair value as determined in good faith by the
Board of Directors of MIP. Bonds and notes with remaining maturities of 60 days
or less are valued at amortized cost.

16
<PAGE>

- --------------------------------------------------------------------------------
HOW TO BUY AND SELL SHARES OF THE FUND
- --------------------------------------------------------------------------------

WHO CAN INVEST IN THE FUNDS?

The Funds are for on-line investors who are customers of X.com Corporation
("X.com") and First Western National Bank (the "Bank"), which is under contract
to provide X.com customers with various banking and financial services. The Bank
is a member of the Federal Deposit Insurance Corporation ("FDIC"). You will need
to do the following to purchase shares of the Fund:

- Open an account with the Bank.

- Complete an X.com Account Application.

- Simply follow the instructions on the X.com website, WWW.X.COM.

You are also required to consent to receive all information about the Funds
electronically, both to open an account and during the time you own shares of
the Funds. If you revoke your consent to receive this information
electronically, fail to maintain an e-mail account, or close your account, the
Funds may, to the extent permitted by the federal securities laws, redeem your
shares, and will, in any event, prohibit additional investments in the Funds,
including the reinvestment of dividends.*

ON-LINE INVESTOR REQUIREMENTS

The Funds are designed and built specifically for on-line investors. Each Fund
requires its shareholders to consent to receive all shareholder information
about the Fund electronically. Shareholder information includes, but is not
limited to, prospectuses, financial reports, confirmations, proxy solicitations,
and financial statements. Shareholders may also receive other correspondence
from X.com or the Bank through their e-mail account. By purchasing shares of a
Fund, you certify that you have access to the Internet and a current e-mail
account, and you acknowledge that you have the sole responsibility for providing
a correct and operational e-mail address. You may incur costs for on-line access
to shareholder documents and maintaining an e-mail account.

- ---------------------

* The staff of the Securities and Exchange Commission (the "Staff") has
informally indicated its view that the Funds may not involuntarily redeem your
shares if you revoke your consent to receive shareholder documents
electronically or fail to maintain an e-mail account. However, should the
Staff's position on this issue change, the Fund intends to involuntarily redeem
your shares under these circumstances.

17
<PAGE>

are automatically redeemed, you will receive paper copies of all shareholder
information until all of your shares have been redeemed and the proceeds have
been credited to your account, or you have otherwise received the redemption
proceeds. The Fund reserves the right to deliver paper-based documents in
certain circumstances, at no cost to the investor.

ACCOUNT REQUIREMENTS

FOR MORE DETAILED INFORMATION ON HOW TO OPEN AN ACCOUNT WITH THE BANK, VISIT THE
X.COM WEBSITE (WWW.X.COM).

PLACING AN ORDER

You can begin purchasing shares of the Funds as soon as you open and fund your
account. Because each Fund's net asset value changes daily, your purchase price
will be the NAV next determined after the related Fund receives and accepts your
purchase order.

You can place orders to purchase or redeem Fund shares by accessing the X.com
website at WWW.X.COM. At the time you log-on to the website, you will be
prompted to enter your personal identification password so that we can be sure
each transaction is secure. By clicking on the appropriate mutual fund order
buttons, you can quickly and easily place an order to purchase or redeem shares
in the Funds. When you purchase shares in the Funds, you will be asked: (1) to
confirm your consent to receive all Fund documentation electronically; and (2)
to affirm that you have read the prospectus. The prospectus is readily available
for viewing and printing on the X.com website. IF YOU DO NOT CONSENT TO RECEIVE
ALL FUND DOCUMENTATION ELECTRONICALLY YOU WILL NOT BE ABLE TO PURCHASE SHARES OF
THE FUNDS. To complete a purchase transaction, you must transfer sufficient
funds from your Bank account to your mutual fund account. Notice of trade
confirmations will be sent electronically to the e-mail address you provided
when you opened your account.

18
<PAGE>

MINIMUM INVESTMENT REQUIREMENTS

For your initial investment in the Fund $1

To buy additional shares of the Fund $1

Continuing minimum investment $1

After your account is established you may use any of the methods described below
to buy or sell shares. You can only sell shares of the Fund that you own; which
means that you cannot "short" or "sell short" any shares of the Funds.

ACCESSING ACCOUNT INFORMATION

For information on how to access account information and/or applications
electronically, please refer to the online assistant at WWW.X.COM available 24
hours a day.

REDEMPTIONS

You can access the money you have invested in a Fund at any time by selling some
or all of your shares back to that Fund. As soon as the Fund receives your
redemption request, your shares will be redeemed and the proceeds will be
credited to your account with the Bank. This usually occurs the business day
following the transaction.

All redemption proceeds will be credited to your Bank account.

The right of redemption may be suspended during any period in which (i) trading
on the NYSE is restricted, as determined by the SEC, or the NYSE is closed other
than for weekends and holidays; (ii) the SEC has permitted such suspension by
order; or (iii) an emergency as determined by the SEC exists, making disposal of
portfolio securities or valuation of net assets of the Fund not reasonably
practicable.

REDEMPTION FEE. The Funds do not impose redemption fees. The Small Cap Index
Fund can experience substantial price fluctuations and is intended for long-term
investors. Short-term "market timers" who engage in frequent purchases and
redemptions can disrupt the Fund's investment program and create additional
transaction costs that are borne by all shareholders. For these reasons, in the
future the Small Cap Index Fund may assess a 2.0% fee on redemptions of shares
held for less than 90 days.

AMENDING YOUR APPLICATION

For your protection, you will be required to submit an amended Application if
you wish to change certain information provided on your initial Application. The
amended Application is

19
<PAGE>

designed to protect you and the Funds against fraudulent transactions by
unauthorized persons. Specifically, the Funds will require you to amend your
Application in the following instances:

1. If you transfer the ownership of your account to another
individual or organization.

2. If you add or change your name or add or remove an owner on your
account.

3. If you add or change the beneficiary on your transfer-on-death
account.

CLOSING YOUR ACCOUNT

If you close your account with the Bank, the Funds may, to the extent permitted
by the federal securities laws, redeem all of your shares in your Fund account.

20
<PAGE>

- --------------------------------------------------------------------------------
DIVIDENDS AND OTHER DISTRIBUTIONS
- --------------------------------------------------------------------------------

The Small Cap Index Fund intends to pay dividends from net investment income
quarterly and distribute capital gains, if any, annually. The Money Market Fund
intends to declare dividends daily and distribute them monthly. The Money Market
Fund will distribute capital gains, if any, at least annually. The Funds may
make additional distributions if necessary.

21
<PAGE>

- --------------------------------------------------------------------------------
TAX CONSEQUENCES
- --------------------------------------------------------------------------------

The Funds generally will not be required to pay income tax on amounts they
distribute to shareholders, although shareholders will be taxed on distributions
they receive.

The Small Cap Index Fund will distribute substantially all of its income and
gains to its shareholders every year. The Money Market Fund will distribute
dividends to its shareholders monthly. If a Fund declares a dividend in October,
November or December but pays it in January, you may be taxed on the dividend as
if you received it in the previous year.

You will generally be taxed on dividends you receive from the Funds, regardless
of whether they are paid to you in cash or are reinvested in additional Fund
shares. If a Fund designates a dividend as a capital gain distribution, you will
pay tax on that dividend at the long-term capital gains tax rate, no matter how
long you have held your Fund shares.

The Funds will send you a tax report each year that will tell you which
dividends must be treated as ordinary income and which (if any) are long-term
capital gain.

As with all mutual funds, the Funds may be required to withhold U.S. federal
income tax at the rate of 31% of all taxable distributions payable to you if you
fail to provide the Funds with your correct taxpayer identification number or to
make required certifications, or if you have been notified by the IRS that you
are subject to backup withholding. Backup withholding is not an additional tax,
but is a method in which the IRS ensures that it will collect taxes otherwise
due. Any amounts withheld may be credited against your U.S. federal income tax
liability.

22
<PAGE>

[Outside back cover page.]

The Statement of Additional Information for the Funds ("SAI") contains further
information about the Funds. The SAI is incorporated into this Prospectus by
reference (that means it is legally considered part of this Prospectus).
Additional information about the Funds' investments will be available in the
Funds' annual and semi-annual reports to shareholders. In the Funds' annual
report, you will find a discussion of the market conditions and investment
strategies that significantly affected each Fund's performance during its fiscal
year.

Further information about the Funds (including the SAI) can also be reviewed and
copied at the SEC's Public Reference Room in Washington, D.C. You may call
1-202-942-8090 for information about the operations of the public reference
room. Reports and other information about the Funds are also available on the
EDGAR database of the SEC's website (http://www.sec.gov) or copies can be
obtained, upon payment of a duplicating fee, by writing the Public Reference
Section of the SEC, Washington, D.C. 20549-6009 or by electronic request at the
following e-mail address: [email protected].

X.COM CORP.
394 UNIVERSITY AVENUE
PALO ALTO, CA 94301
TOLL-FREE: (888) 447-8999
HTTP://WWW.X.COM

INVESTMENT COMPANY ACT FILE NO.: 811-09381

<PAGE>

PART B

STATEMENT OF ADDITIONAL INFORMATION FOR

X.COM PREMIER S&P 500 FUND
X.COM U.S.A. BOND FUND
X.COM INTERNATIONAL INDEX FUND
X.COM MONEY MARKET RESERVE FUND

<PAGE>

STATEMENT OF ADDITIONAL INFORMATION

X.COM FUNDS

X.COM PREMIER S&P 500 FUND

X.COM U.S.A. BOND FUND

X.COM MONEY MARKET RESERVE FUND

X.COM INTERNATIONAL INDEX FUND

MAY __, 2000

This Statement of Additional Information ("SAI") is not a prospectus. This SAI
should be read together with the Prospectus for the X.com Premier S&P 500 Fund
(the "Premier S&P 500 Fund"), the X.com U.S.A. Bond Fund (the "U.S.A. Bond
Fund"), the x.com International Index Fund (the "International Fund");
collectively with the Premier S&P 500 Fund and the U.S.A. Bond Fund, the "Index
Funds"), and the X.com Money Market Reserve Fund (the "Money Market Reserve
Fund"; collectively with the Index Funds, the "Funds") dated May __, 2000 (as
amended from time to time).

To obtain a copy of the Funds' Prospectus and the Funds' most recent
shareholders' report (when issued) free of charge, please access our Website
online (WWW.X.COM) via e-mail. The Funds are for on-line investors that are
customers of First Western National Bank (the "Bank"), which X.com Corporation
("X.com") has agreed to acquire subject to regulatory and shareholder approval
and with which X.com has contracted to provide various financial services for
its customers. Only investors who are customers of the Bank and who consent to
receive all information about the Funds electronically may invest in any of the
Funds.

<PAGE>

TABLE OF CONTENTS
PAGE
----
<TABLE>
<S><C>
HISTORY OF THE FUNDS...........................................................1

THE FUNDS......................................................................1

INVESTMENT STRATEGIES AND RISKS................................................2

FUND POLICIES.................................................................13

MASTER PORTFOLIO POLICIES.....................................................16

TRUSTEES AND OFFICERS.........................................................20

INVESTMENT MANAGEMENT.........................................................22

SERVICE PROVIDERS.............................................................24

MASTER PORTFOLIO TRANSACTIONS AND BROKERAGE
SELECTION..............................................................25

ORGANIZATION, DIVIDEND AND VOTING RIGHTS......................................27

SHAREHOLDER INFORMATION.......................................................28

TAXATION......................................................................31

MASTER PORTFOLIO ORGANIZATION.................................................35

PERFORMANCE INFORMATION.......................................................36

APPENDIX......................................................................42
</TABLE>

i
<PAGE>

HISTORY OF THE FUNDS

Each of the Funds is a diversified series of X.com Funds (the "Trust"). The
Trust is organized as a Delaware business trust and was formed on June 7, 1999.

THE FUNDS

Each of the Funds is classified as a diversified open-end, management investment
company.

PREMIER S&P 500 FUND. As its investment objective, the Premier S&P 500 Fund
seeks to approximate as closely as practicable, after fees and expenses, the
capitalization-weighted total rate of return(1) of Standard & Poor's 500
Composite Stock Price Index (the "S&P 500 Index")(2). The S&P 500 Index, a
widely recognized benchmark for U.S. stocks, currently represents about 75% of
the market capitalization of all publicly traded common stocks in the United
States. The S&P 500 Index includes 500 established companies representing
different sectors of the U.S. economy (including industrial, utilities,
financial, and transportation) selected by Standard & Poor's. The Premier S&P
500 Fund seeks to achieve its objective by investing in S&P 500 Index Master
Portfolio ("S&P 500 Portfolio"), a series of Master Investment Portfolio
("MIP"), a registered open-end management investment company issuing shares in
multiple series (each a "Master Portfolio"). The S&P 500 Portfolio seeks to
provide investment results that correspond (before fees and expenses) to the
total return of the publicly traded common stocks, in the aggregate, as
represented by the S&P 500 Index. To do so, the S&P 500 Portfolio invests
substantially all of its assets in the same stocks and in substantially the same
percentages as the S&P 500 Index.

U.S.A. BOND FUND. As its investment objective, the U.S.A. Bond Fund seeks to
approximate as closely as practicable, after fees and expenses, the total rate
of return of the U.S. market for issued and outstanding U.S. government and
high-grade corporate bonds as measured by the Lehman Brothers
Government/Corporate Bond Index ("LB Bond Index"). The LB Bond Index includes
approximately 6,500 fixed-income securities, including U.S. Government
securities and investment grade corporate bonds, each with an outstanding market
value of at least $25 million and remaining maturity of greater than one year.
seeks to achieve its investment objective by investing all of its assets in the
Bond Index Master Portfolio ("LB Bond Portfolio"), a series of MIP. The LB Bond
Portfolio seeks to replicate the total return of the LB Bond Index. To do so,
the
- ------------------
1 "Capitalization-weighted total rate of return" means that each stock in the
index contributes to the index in the same proportion as the value of its
shares. Thus, if the shares of Company A are worth twice as much as the
shares of Company B, Company A's return will count twice as much as Company
B's in calculating the index's overall return.

2 "Standard & Poor's -Registered Trademark- ," "S&P -Registered Trademark-,"
"S&P 500 -Registered Trademark-," "Standard & Poor's 500 -Registered
Trademark-," and "500" are trademarks of The McGraw-Hill Companies, Inc.
and have been licensed by X.com Asset Management, Inc. for use in
connection with the Premier S&P 500 Fund. The Premier S&P 500 Fund is not
sponsored, endorsed, sold, or promoted by Standard & Poor's and Standard &
Poor's makes no representation regarding the advisability of investing in
the Premier S&P 500 Fund.

1
<PAGE>

LB Bond Portfolio invests substantially all of its assets in a representative
sample of the securities that comprise the LB Bond Index, or securities or other
instruments that seek to approximate the performance and investment
characteristics of the LB Bond Index.

MONEY MARKET RESERVE FUND. As its investment objective, the Money Market Reserve
Fund seeks to provide shareholders of the Fund with a high level of current
income, while preserving capital and liquidity. The Money Market Reserve Fund
seeks to achieve this investment objective by investing all of its assets in the
Money Market Portfolio ("Money Market Portfolio"), a series of MIP, which, in
turn, invests its assets in U.S. dollar-denominated, high-quality money market
instruments with maturities of 397 days or less, and a dollar-weighted average
portfolio maturity of 90 days or less. The Money Market Portfolio, LB Bond
Portfolio, S&P 500 Portfolio and the EAFE -Registered Trademark- Portfolio are
collectively referred to herein as the "Master Portfolios".

MASTER PORTFOLIO. Master Investment Portfolio ("MIP") is an open-end management
investment company organized as a Delaware business trust. The policy of each of
the Funds to invest all of its assets in a Master Portfolio of MIP is not a
fundamental policy of any of the Funds and a shareholder vote is not required
for any Fund to withdraw its investment from the Master Portfolio in which it
invests.

The investment objective of each of the Funds is not fundamental and, therefore,
may be changed without approval of a majority (as defined in the Investment
Company Act of 1940, as amended (the "1940 Act")) of that Fund's outstanding
voting interests.

INVESTMENT STRATEGIES AND RISKS

Because each Fund invests all its assets in its corresponding Master Portfolio,
the investment characteristics and investment risks of a Fund correspond to
those of the Master Portfolio in which the Fund invests. The following
supplements the discussion in the Prospectus of the principal investment
strategies, policies and risks that pertain to the Master Portfolios and,
accordingly, to the Funds that invest in the Master Portfolios. In addition to
discussing the principal risks of investing in the Master Portfolios and the
Funds, this section also describes the non-principal risks of such investments.
These investment strategies and policies may be changed without shareholder
approval unless otherwise noted and apply to all of the Master Portfolios unless
otherwise noted.

FUTURES CONTRACTS AND OPTIONS TRANSACTIONS. The S&P 500, LB Bond and EAFE
- -Registered Trademark- Portfolios may use futures as a substitute for a
comparable market position in the underlying securities.

A futures contract is an agreement between two parties, a buyer and a seller, to
exchange a particular commodity or financial instrument at a specific price on a
specific date in the future. An option transaction generally involves a right,
which may or may not be exercised, to buy or sell a commodity or financial
instrument at a particular price on a specified future date. Futures contracts
and options are standardized and traded on exchanges, where the exchange serves
as the ultimate counterparty for all contracts. Consequently, the primary credit
risk on futures contracts is the creditworthiness of the

2
<PAGE>

exchange. Futures contracts are subject to market risk (i.e., exposure to
adverse price changes).

Upon exercise of an option on a futures contract, the writer of the option
delivers to the holder of the option the futures position and the accumulated
balance in the writer's futures margin account, which represents the amount by
which the market price of the futures contract exceeds, in the case of a call,
or is less than, in the case of a put, the exercise price of the option on the
futures contract. The potential loss related to the purchase of options on
futures contracts is limited to the premium paid for the option (plus
transaction costs). Because the value of the option is fixed at the time of
sale, there are no daily cash payments to reflect changes in the value of the
underlying contract; however, the value of the option does change daily and that
change would be reflected in the net asset value of the relevant Master
Portfolio.

Although the S&P 500, LB Bond and EAFE -Registered Trademark- Portfolios intend
to purchase or sell futures contracts only if there is an active market for such
contracts, no assurance can be given that a liquid market will exist for any
particular contract at any particular time. Many futures exchanges and boards of
trade limit the amount of fluctuation permitted in futures contract prices
during a single trading day. Once the daily limit has been reached in a
particular contract, no trades may be made that day at a price beyond that limit
or trading may be suspended for specified periods during the trading day.
Futures contract prices could move to the limit for several consecutive trading
days with little or no trading, thereby preventing prompt liquidation of futures
positions and potentially subjecting these Master Portfolios to substantial
losses. If it is not possible, or if a Master Portfolio determines not to close
a futures position in anticipation of adverse price movements, the Master
Portfolio will be required to make daily cash payments on variation margin.

The S&P 500 and EAFE -Registered Trademark- Portfolios may invest in stock index
futures and options on stock index futures as a substitute for a comparable
market position in the underlying securities. A stock index future obligates the
seller to deliver (and the purchaser to take), effectively, an amount of cash
equal to a specific dollar amount times the difference between the value of a
specific stock index at the close of the last trading day of the contract and
the price at which the agreement is made. No physical delivery of the underlying
stocks in the index is made. With respect to stock indices that are permitted
investments, the Master Portfolios intend to purchase and sell futures contracts
on the stock index for which it can obtain the best price with consideration
also given to liquidity. There can be no assurance that a liquid market will
exist at the time when the S&P 500 or EAFE -Registered Trademark- Portfolio
seeks to close out a futures contract or a futures option position. Lack of a
liquid market may prevent liquidation of an unfavorable position.

INTEREST-RATE FUTURES CONTRACTS AND OPTIONS ON INTEREST-RATE FUTURES CONTRACTS.
The LB Bond Portfolio may invest in interest-rate futures contracts and options
on interest-rate futures contracts as a substitute for a comparable market
position in the underlying securities. The LB Bond Portfolio may also sell
options on interest-rate futures contracts as part of closing purchase
transactions to terminate their options positions. No assurance can be given
that such closing transactions can be effected or the

3
<PAGE>

degree of correlation between price movements in the options on interest rate
futures or price movements in the LB Bond Portfolio's securities which are the
subject of the transactions.

INTEREST-RATE AND INDEX SWAPS. The LB Bond Portfolio may enter into
interest-rate and index swaps in pursuit of its investment objectives.
Interest-rate swaps involve the exchange by the LB Bond Portfolio with another
party of their respective commitments to pay or receive interest (for example,
an exchange of floating-rate payments or fixed-rate payments). Index swaps
involve the exchange by the LB Bond Portfolio with another party of cash flows
based upon the performance of an index of securities or a portion of an index of
securities that usually include dividends or income. In each case, the exchange
commitments can involve payments to be made in the same currency or in different
currencies. The LB Bond Portfolio will usually enter into swaps on a net basis.
In so doing, the two payment streams are netted out, with the LB Bond Portfolio
receiving or paying, as the case may be, only the net amount of the two
payments. If the LB Bond Portfolio enters into a swap, it will maintain a
segregated account on a gross basis, unless the contract provides for a
segregated account on a net basis. If there is a default by the other party to
such a transaction, the LB Bond Portfolio will have contractual remedies
pursuant to the agreements related to the transaction.

The use of interest-rate and index swaps is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio security transactions. There is no limit, except as provided
below, on the amount of swap transactions that may be entered into by the LB
Bond Portfolio. These transactions generally do not involve the delivery of
securities or other underlying assets or principal. Accordingly, the risk of
loss with respect to swaps generally is limited to the net amount of principal.
Accordingly, the risk of loss with respect to swaps generally is limited to the
net amount of payments that the LB Bond Portfolio is contractually obligated to
make. There is also a risk of a default by the other party to a swap, in which
case the LB Bond Portfolio may not receive the net amount of payments that the
LB Bond Portfolio contractually is entitled to receive.

The S&P 500, LB Bond and EAFE -Registered Trademark- Portfolios' futures
transactions must constitute permissible transactions pursuanT to regulations
promulgated by the Commodity Futures Trading Commission ("CFTC"). In addition,
these Master Portfolios may not engage in futures transactions if the sum of the
amount of initial margin deposits and premiums paid for unexpired options on
futures contracts, other than those contracts entered into for bona fide hedging
purposes, would exceed 5% of the liquidation value of these Master Portfolios'
assets, after taking into account unrealized profits and unrealized losses on
such contracts; provided, however, that in the case of an option on a futures
contract that is in-the-money at the time of purchase, the in-the-money amount
may be excluded in calculating the 5% liquidation limit. Pursuant to regulations
and/or published positions of the Securities and Exchange Commission ("SEC"),
related Master Portfolios may be required to designate cash or liquid securities
in connection with its futures transactions in an amount generally equal to the
entire value of the underlying security.

4
<PAGE>

FUTURE DEVELOPMENTS. The S&P 500, LB Bond and EAFE -Registered Trademark-
Portfolios may take advantage of opportunities in the area of options and
futures contracts and options on futures contracts and any other derivative
investments which are not presently contemplated for use by such Master
Portfolio or which are not currently available but which may be developed, to
the extent such opportunities are both consistent with the respective Master
Portfolio's investment objective and legally permissible for that Master
Portfolio. Before entering into such transactions or making any such investment,
the Index Funds will provide appropriate disclosure in their prospectus.

FORWARD COMMITMENTS, WHEN-ISSUED PURCHASES AND DELAYED-DELIVERY TRANSACTIONS.
The Master Portfolios may purchase or sell securities on a when-issued or
delayed-delivery basis and make contracts to purchase or sell securities for a
fixed price at a future date beyond customary settlement time. Securities
purchased or sold on a when-issued, delayed-delivery or forward commitment basis
involve a risk of loss if the value of the security to be purchased declines, or
the value of the security to be sold increases, before the settlement date.
Although the Master Portfolios will generally purchase securities with the
intention of acquiring them, the Master Portfolios may dispose of securities
purchased on a when-issued, delayed-delivery or a forward commitment basis
before settlement when deemed appropriate by the Master Portfolio's investment
advisor.

When-issued securities are subject to market fluctuation, and no income accrues
to the purchaser during the period before the securities are paid for and
delivered on the settlement date. The purchase price and the interest rate that
will be received on debt securities are fixed at the time the purchaser enters
into the commitment.

Securities purchased on a when-issued or forward commitment basis may expose the
Master Portfolios to risk because they may experience fluctuations in value
prior to their actual delivery. Purchasing a security on a when-issued basis can
involve a risk that the market price at the time of delivery may be lower than
the agreed-upon purchase price, in which case there could be an unrealized loss
at the time of delivery. None of the Master Portfolios currently intend to
invest more than 5% of its assets in when-issued securities during the coming
year. Each of the Master Portfolios will designate cash or liquid securities in
an amount at least equal in value to that Master Portfolio's commitments to
purchase when-issued securities. If the value of these assets declines, that
Master Portfolio will designate additional liquid assets on a daily basis so
that the value of the assets in the account is equal to the amount of such
commitments. Because the Money Market Portfolio will designate cash and other
liquid securities as described above, the liquidity of the Money Market
Portfolio's investment Master Portfolio may decrease as the proportion of
securities in the Money Market Portfolio's Master Portfolio 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 Money Market Portfolio's net
asset value starting on the day the Money Market Portfolio agrees to purchase
the securities. When the Money Market Portfolio makes a forward commitment to
sell securities it owns, the proceeds to

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be received upon settlement are not reflected in the Money Market Portfolio's
net asset value as long as the commitment remains in effect.

SHORT-TERM INSTRUMENTS AND TEMPORARY INVESTMENTS. Although the Money Market
Portfolio will primarily invest in money market instruments, the other Master
Portfolios may also invest in high-quality money market instruments on an
ongoing basis to provide liquidity or for temporary purposes when there is an
unexpected level of shareholder purchases or redemptions. The instruments in
which the Master Portfolios may invest include: (i) short-term obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities
(including government-sponsored enterprises); (ii) negotiable certificates of
deposit ("CDs"), banker's acceptances, fixed time deposits and other obligations
of domestic banks (including foreign branches) that have more than $1 billion in
total assets at the time of investment and that are members of the Federal
Reserve System or are examined by the Comptroller of the Currency or whose
deposits are insured by the FDIC; (iii) commercial paper rated at the date of
purchase "Prime-1" by Moody's or "A-1+" or "A-1" by S&P, or, if unrated, of
comparable quality as determined by the Master Portfolio's investment advisor;
(iv) non-convertible corporate debt securities (e.g., bonds and debentures) with
remaining maturities at the date of purchase of not more than one year that are
rated at least "Aa" by Moody's or "AA" by S&P; (v) repurchase agreements; and
(vi) short-term, U.S. dollar-denominated obligations of foreign banks (including
U.S. branches) that, at the time of investment have more than $10 billion, or
the equivalent in other currencies, in total assets and that, in the opinion of
the Master Portfolio's investment advisor, are of comparable quality to
obligations of U.S. banks which may be purchased by the Master Portfolios.

BANK OBLIGATIONS. The Master Portfolios may invest in bank obligations,
including certificates of deposit, time deposits, banker's acceptances and other
short-term obligations of domestic banks, foreign subsidiaries of domestic
banks, foreign branches of domestic banks, and domestic and foreign branches of
foreign banks, domestic savings and loan associations and other banking
institutions.

Certificates of deposit are negotiable certificates evidencing the obligation of
a bank to repay funds deposited with it for a specified period of time. Time
deposits are non-negotiable deposits maintained in a banking institution for a
specified period of time at a stated interest rate. Time deposits which may be
held by the Master Portfolios will not benefit from insurance from the Bank
Insurance Fund or the Savings Association Insurance Fund administered by the
Federal Deposit Insurance Corporation. Banker's acceptances are credit
instruments evidencing the obligation of a bank to pay a draft drawn on it by a
customer. These instruments reflect the obligation both of the bank and of the
drawer to pay the face amount of the instrument upon maturity. The other
short-term obligations may include uninsured, direct obligations, bearing fixed,
floating- or variable-interest rates.

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

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<PAGE>

governmental supervision comparable to those applicable to domestic issuers. In
addition, with respect to certain foreign countries, taxes may be withheld at
the source under foreign income tax laws, and there is a possibility of
expropriation or confiscatory taxation, political or social instability or
diplomatic developments that could adversely affect investments in, the
liquidity of, and the ability to enforce contractual obligations with respect
to, securities of issuers located in those countries. The Money Market Portfolio
may invest up to 25% of its assets in foreign obligations.

Obligations of foreign banks and foreign branches of U.S. banks involve somewhat
different investment risks from those affecting obligations of U.S. banks,
including the possibilities that liquidity could be impaired because of future
political and economic developments; 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 an U.S.
Government agency or instrumentality.

COMMERCIAL PAPER AND SHORT-TERM CORPORATE DEBT INSTRUMENTS. In addition to the
Money Market Portfolio which will generally invest in these types of
instruments, the S&P 500, LB Bond and EAFE -Registered Trademark- Portfolios may
invest in commercial paper (including variable amount master demand notes),
which consists of short-term, unsecured promissory notes issued by corporations
to finance short-term credit needs. Commercial paper is usually sold on a
discount basis and has a maturity at the time of issuance not exceeding nine
months. Variable amount master demand notes are demand obligations that permit
the investment of fluctuating amounts at varying market rates of interest
pursuant to arrangements between the issuer and a commercial bank acting as
agent for the payee of such notes whereby both parties have the right to vary
the amount of the outstanding indebtedness on the notes. The investment adviser
to the Master Portfolios monitors on an ongoing basis the ability of an issuer
of a demand instrument to pay principal and interest on demand.

The Master Portfolios also may invest in non-convertible corporate debt
securities (e.g., bonds and debentures) with not more than one year remaining to
maturity at the date of settlement. The Master Portfolios will invest only in
such corporate bonds and debentures that are rated at the time of purchase at
least "Aa" by Moody's or "AA" by S&P. Subsequent to its purchase by a Master
Portfolio, an issuer of securities may cease to be rated or its rating may be
reduced below the minimum rating required for purchase by the Master Portfolio.
The investment adviser to the Master Portfolios will consider such an event in
determining whether a Master Portfolio should continue to hold the obligation.
To the extent a Master Portfolio continues to hold such obligations, it may be
subject to additional risk of default.

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<PAGE>

To the extent the ratings given by Moody's or S&P may change as a result of
changes in such organizations or their rating systems, the Master Portfolios
will attempt to use comparable ratings as standards for investments in
accordance with the investment policies contained in its Prospectus and in this
SAI. The ratings of Moody's and S&P and other nationally recognized statistical
rating organizations are more fully described in the attached Appendix.

REPURCHASE AGREEMENTS. All of the Master Portfolios may enter into a repurchase
agreement wherein the seller of a security to a Master Portfolio agrees to
repurchase that security from the Master Portfolio at a mutually-agreed upon
time and price. The period of maturity is usually quite short, often overnight
or a few days, although it may extend over a number of months. Each of the
Master Portfolios may enter into repurchase agreements only with respect to
securities that could otherwise be purchased by the respective Master Portfolio,
including government securities and mortgage-related securities, regardless of
their remaining maturities, and requires that additional securities be deposited
with the custodian if the value of the securities purchased should decrease
below the repurchase price.

The Master Portfolios may incur a loss on a repurchase transaction if the seller
defaults and the value of the underlying collateral declines or is otherwise
limited or if receipt of the security or collateral is delayed. The Master
Portfolio's custodian has custody of, and holds in segregated accounts,
securities acquired as collateral by each of the Master Portfolios under a
repurchase agreement. Repurchase agreements are considered loans by the Master
Portfolios. All repurchase transactions must be 100% collateralized.

In an attempt to reduce the risk of incurring a loss on a repurchase agreement,
the Master Portfolios limit investments in repurchase agreements to selected
creditworthy securities dealers or domestic banks or other recognized financial
institutions. The Master Portfolios' advisor monitors on an ongoing basis the
value of the collateral to assure that it always equals or exceeds the
repurchase price.

FLOATING- AND VARIABLE- RATE OBLIGATIONS. All of the Master Portfolios may
purchase floating-rate and variable-rate obligations as described in the
Prospectus. The Master Portfolios may purchase debt instruments with interest
rates that are periodically adjusted at specified intervals or whenever a
benchmark rate or index changes. These adjustments generally limit the increase
or decrease in the amount of interest received on the debt instruments. The
Master Portfolios may purchase 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 a
Master Portfolio to invest fluctuating amounts, which may change daily without
penalty, pursuant to direct arrangements between the Master Portfolio, as
lender, and the borrower.

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<PAGE>

accrued interest upon a specified number of day's notice to the holders of such
obligations. The interest rate on a floating-rate demand obligation is based on
a known leading rate, such as a bank's prime rate, and is adjusted automatically
each time such rate is adjusted. The interest rate on a variable-rate demand
obligation is adjusted automatically at specified intervals. Frequently, such
obligations are secured by letters of credit or other credit support
arrangements provided by banks. Because these obligations are direct lending
arrangements between the lender and borrower, it is not contemplated that such
instruments generally will be traded, and there generally is no established
secondary market for these obligations, although they are redeemable at face
value. Accordingly, where these obligations are not secured by letters of credit
or other credit support arrangements, the Master 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 Master Portfolios may invest in obligations which are not so rated only if
BGFA determines that at the time of investment the obligations are of comparable
quality to the other obligations in which that Master Portfolio may invest.
BGFA, on behalf of the Master Portfolios, considers on an ongoing basis the
creditworthiness of the issuers of the floating- and variable-rate demand
obligations in the Master Portfolios' Portfolio. None of the Master Portfolios
will 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, provided that an active
secondary market exists.

LOANS OF MASTER PORTFOLIO SECURITIES. The S&P 500, LB Bond and EAFE -Registered
Trademark- Portfolios may lend securities from their portfolios to brokers,
dealers and financial institutions (but not individuals) in order to increase
the return on their portfolios. The value of the loaned securities may not
exceed one-third of the respective Master Portfolio's total assets and loans of
portfolio securities are fully collateralized based on values that are
marked-to-market daily. None of these Master Portfolios will enter into any
Master Portfolio security lending arrangement having a duration of longer than
one year. The principal risk of portfolio lending is potential default or
insolvency of the borrower. In either of these cases, a Master Portfolio could
experience delays in recovering securities or collateral or could lose all or
part of the value of the loaned securities. The S&P 500, LB Bond and
EAFE-Registered Trademark- Portfolios may pay reasonable administrative and
custodial fees in connection with loans of portfolio securities and may pay a
portion of the interest or fee earned thereon to the borrower or a placing
broker.

The Money Market Portfolio may lend its securities to brokers, dealers and
financial institutions, provided (1) the loan is secured continuously by
collateral consisting of cash, U.S. Government securities or an irrevocable
letter of credit which is marked to market daily to ensure that each loan is
fully collateralized; (2) the Money Market Portfolio may at any time recall the
loan and obtain the return of the securities loaned within five business days;
(3) the Money Market Portfolio will receive any interest or dividends paid on
the securities loaned; and (4) the aggregate market value of securities loaned
will not at any time exceed one-third of the total assets of the Money Market
Portfolio. The Money Market Portfolio may earn income in connection with
securities loans either through the reinvestment of the cash collateral or the
payment of fees by the borrower. The Money Market Portfolio does not currently
intend to lend its portfolio securities.

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<PAGE>

In determining whether to lend a security to a particular broker, dealer or
financial institution, the Master Portfolio's investment adviser considers all
relevant facts and circumstances, including the size, creditworthiness and
reputation of the broker, dealer, or financial institution. Any loans of
portfolio securities are fully collateralized and marked to market daily. The
Master Portfolios will not enter into any portfolio security lending arrangement
having a duration of longer than one year. Any securities that a Master
Portfolio may receive as collateral will not become part of the Master
Portfolio's investment portfolio at the time of the loan and, in the event of a
default by the borrower, the Master Portfolio will, if permitted by law, dispose
of such collateral except for such part thereof that is a security in which the
Master Portfolio is permitted to invest. During the time securities are on loan,
the borrower will pay the Master Portfolio any accrued income on those
securities, and the Master Portfolio may invest the cash collateral and earn
income or receive an agreed upon fee from a borrower that has delivered
cash-equivalent collateral.

INVESTMENT COMPANY SECURITIES. The S&P 500, LB Bond and EAFE -Registered
Trademark- Portfolios may invest in securities issued by other open-end
management investment companies which principally invest in securities of the
type in which such Master Portfolio invests. Under the 1940 Act, a Master
Portfolio's investment in such securities currently is limited to, subject to
certain exceptions, (i) 3% of the total voting stock of any one investment
company, (ii) 5% of that Master Portfolio's net assets with respect to any one
investment company and (iii) 10% of that Master Portfolio's net assets in the
aggregate. Investments in the securities of other investment companies generally
will involve duplication of advisory fees and certain other expenses. These
Master Portfolios may also purchase shares of exchange-listed closed-end funds.

ILLIQUID SECURITIES. To the extent that such investments are consistent with its
respective investment objective, the S&P 500, LB Bond and EAFE -Registered
Trademark- Portfolios may invest up to 15% of the value of their respective net
assets in securities as to which a liquid trading market does not exist. Such
securities may include securities that are not readily marketable, such as
privately issued securities and other securities that are subject to legal or
contractual restrictions on resale, floating- and variable-rate demand
obligations as to which that portfolio cannot exercise a demand feature on not
more than seven day's notice and as to which there is no secondary market and
repurchase agreements providing for settlement more than seven days after
notice.

FOREIGN SECURITIES. The EAFE -Registered Trademark- Portfolio emphasizes the
stocks of foreign issuers and the stocks of some foreign issuers may be included
in the S&P 500 Index. As a result, the S&P 500 Portfolio's portfolio may contain
and the EAFE -Registered Trademark- Portfolio will contain securities of foreign
issuers, as well as American Depositary Receipts and similar instruments, which
may subject the related Master Portfolio to additional investment risks with
respect to those securities that are different in some respects from those
incurred by a fund which invests only in securities of domestic issuers. These
risks include possible adverse political and economic developments, seizure or
nationalization of foreign deposits or adoption of governmental restrictions
which might adversely affect the value of the securities of a foreign issuer to
investors located outside the country of the issuer, whether from currency
blockage or otherwise. These securities may not necessarily be

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<PAGE>

denominated in the same currency as the securities into which they may be
converted. ADRs (sponsored or unsponsored) are receipts typically issued by a
U.S. bank or trust company and traded on a U.S. Stock Exchange, that evidence
ownership of underlying foreign securities. Issuers of unsponsored ADRs are not
contractually obligated to disclose material information in the U.S. and,
therefore, such information may not correlate to the market value of the
unsponsored ADR.

OBLIGATIONS OF FOREIGN GOVERNMENTS, BANKS AND CORPORATIONS. The S&P 500, LB Bond
and EAFE -Registered Trademark- Portfolios may invesT in U.S. dollar-denominated
short-term obligations issued or guaranteed by one or more foreign governments
or any of their political subdivisions, agencies or instrumentalities that are
determined by their investment advisor to be of comparable quality to the other
obligations in which these Master Portfolios may invest. To the extent that such
investments are consistent with its investment objective, each of the S&P 500,
LB Bond and EAFE -Registered Trademark- Portfolios may also invest in debt
obligations of supranational entities. Supranational entities include
international organizations designated or supported by governmental entities to
promote economic reconstruction or development and international banking
institutions and related government agencies. Examples include the International
Bank for Reconstruction and Development (the World Bank), the European Coal and
Steel Community, the Asian Development Bank and the InterAmerican Development
Bank. The percentage of these Master Portfolios' assets invested in obligations
of foreign governments and supranational entities will vary depending on the
relative yields of such securities, the economic and financial markets of the
countries in which the investments are made and the interest rate climate of
such countries.

Each of the S&P 500, LB Bond and EAFE-Registered Trademark- Portfolios may also
invest a portion of its total assets in high quality, short-term (one year or
less) debt obligations of foreign branches of U.S. banks or U.S. branches of
foreign banks that are denominated in and pay interest in U.S. dollars.

U.S. GOVERNMENT OBLIGATIONS. The Master Portfolios may invest in various types
of U.S. Government obligations. U.S. Government obligations include securities
issued or guaranteed as to principal and interest by the U.S. Government and
supported by the full faith and credit of the U.S. Treasury. U.S. Treasury
obligations differ mainly in the length of their maturity. Treasury bills, the
most frequently issued marketable government securities, have a maturity of up
to one year and are issued on a discount basis. U.S. Government obligations also
include securities issued or guaranteed by federal agencies or
instrumentalities, including government-sponsored enterprises. Some obligations
of such agencies or instrumentalities of the U.S. Government are supported by
the full faith and credit of the United States or U.S. Treasury guarantees.
Other obligation of such agencies or instrumentalities of the U.S. Government
are supported by the right of the issuer or guarantor to borrow from the U.S.
Treasury. Others are supported by the discretionary authority of the U.S.
Government to purchase certain obligations of the agency or instrumentality or
only by the credit of the agency or instrumentality issuing the obligation.

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In the case of obligations not backed by the full faith and credit of the United
States, the investor must look principally to the agency or instrumentality
issuing or guaranteeing the obligation for ultimate repayment, which agency or
instrumentality may be privately owned. There can be no assurance that the U.S.
Government would provide financial support to its agencies or instrumentalities
(including government-sponsored enterprises) where it is not obligated to do so.
In addition, U.S. government obligations are subject to fluctuations in market
value due to fluctuations in market interest rates. As a general matter, the
value of debt instruments, including U.S. government obligations, declines when
market interest rates increase and rises when market interest rates decrease.
Certain types of U.S. government obligations are subject to fluctuations in
yield or value due to their structure or contract terms.

UNRATED, DOWNGRADED AND BELOW INVESTMENT GRADE INVESTMENTS. The Master
Portfolios may purchase instruments that are not rated if, in the opinion of
their investment advisor, such obligations are of investment quality comparable
to other rated investments that are permitted to be purchased by the Master
Portfolios. The Money Market Portfolio may purchase such instruments if they are
purchased in accordance with the Money Market Portfolio's procedures in
accordance with Rule 2a-7 of the 1940 Act. After purchase by a Master Portfolio,
a security may cease to be rated or its rating may be reduced below the minimum
required for purchase by the Master Portfolio. Neither event will require a sale
of such security by the Master Portfolio provided that when a security ceases to
be rated, the Board of Trustees for that Master Portfolio determines that such
security presents minimal credit risks and provided further that, when a
security is downgraded below the eligible quality for investment or no longer
presents minimal credit risks, the Board of Trustees finds that the sale of such
security would not be in that Master Portfolio's best interests. In no event
will such securities exceed 5% of any Master Portfolio's net assets. To the
extent the ratings given by Moody's or S&P may change as a result of changes in
such organizations or their rating systems, the Master Portfolios will attempt
to use comparable ratings as standards for investments in accordance with the
investment policies contained in this SAI. The ratings of Moody's and S&P are
more fully described in the Appendix to this SAI.

Because the Master Portfolios are not required to sell downgraded securities,
the Master Portfolios could hold up to 5% of each of their net assets in debt
securities rated below "Baa" by Moody's or below "BBB" by S&P or in unrated, low
quality (below investment grade) securities. Although they may offer higher
yields than do higher rated securities, low rated, and unrated, low quality debt
securities generally involve greater volatility of price and risk of principal
and income, including the possibility of default by, or bankruptcy of, the
issuers of the securities. In addition, the markets in which low rated and
unrated, low quality debt are traded are more limited than those in which higher
rated securities are traded. The existence of limited markets for particular
securities may diminish the Master Portfolio's ability to sell the securities at
fair value either to meet redemption requests or to respond to changes in the
economy or in the financial markets and could adversely affect and cause
fluctuations in the daily net asset value of the portfolio's shares.

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<PAGE>

Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the values and liquidity of low rated or unrated, low
quality debt securities, especially in a thinly traded market. Analysis of the
creditworthiness of issuers of low rated or unrated, low quality debt securities
may be more complex than for issuers of higher rated securities, and the ability
of a Master Portfolio to achieve its investment objective may, to the extent
such Master Portfolio holds low rated or unrated low quality debt securities, be
more dependent upon such creditworthiness analysis than would be the case if
that Master Portfolio held exclusively higher rated or higher quality
securities.

Low rated or unrated low quality debt securities may be more susceptible to real
or perceived adverse economic and competitive industry conditions than
investment grade securities. The prices of such debt securities have been found
to be less sensitive to interest rate changes than higher rated or higher
quality investments, but more sensitive to adverse economic downturns or
individual corporate developments. A projection of an economic downturn or of a
period of rising interest rates, for example, could cause a decline in low rated
or unrated, low quality debt securities prices because the advent of a recession
could dramatically lessen the ability of a highly leveraged company to make
principal and interest payments on its debt securities. If the issuer of the
debt securities defaults, a Master Portfolio may incur additional expenses to
seek recovery.

FUND POLICIES

FUNDAMENTAL INVESTMENT RESTRICTIONS OF THE FUNDS

The following are the Funds' fundamental investment restrictions which, along
with the Funds' investment objectives, cannot be changed without shareholder
approval which would require a vote of a majority of the outstanding shares of
the applicable Fund, as set forth in the 1940 Act.

Unless noted otherwise, if a percentage restriction is adhered to at the time of
investment, a later increase or decrease in percentage resulting from a change
in a Fund's assets (I.E., due to cash inflows or redemptions) or in market value
of the investment or the Fund's assets will not constitute a violation of that
restriction.

Unless indicated otherwise below, none of the Funds may:

1. with respect to 75% of its total assets, invest in the securities of any
one issuer (other than the U.S. Government and its agencies and
instrumentalities) if immediately after and as a result of such investment
more than 5% of the total assets of the Fund would be invested in such
issuer and the Fund would hold more than 10% of the outstanding voting
securities of that issuer. There are no limitations with respect to the
remaining 25% of its total assets, except to the extent other investment
restrictions may be applicable;

2. issue senior securities, as defined in the 1940 Act, except that this
restriction will not be deemed to prohibit a Fund from (a) making any
permitted borrowings,

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<PAGE>

mortgages or pledges, or (b) entering into permissible repurchase and
dollar roll transactions;

3. borrow money, except to the extent permitted under the 1940 Act, provided
that (i) the U.S.A. Bond Fund may borrow from banks up to 10% of the
current value of its net assets for temporary purposes only in order to
meet redemptions, and these borrowings may be secured by the pledge of up
to 10% of the current value of its net assets (but investments may not be
purchased while any such outstanding borrowing in excess of 5% of its net
assets exists); and (ii) the Premier S&P 500 Fund and the International
Fund may borrow up to 20% of the current value of its respective net assets
for temporary purposes only in order to meet redemptions, and these
borrowings may be secured by the pledge of up to 20% of the current value
of such net assets (but investments may not be purchased while any such
outstanding borrowing in excess of 5% of its net assets exists);

4. act as an underwriter of another issuer's securities, except to the extent
that the Fund may be deemed to be an underwriter within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"), in connection
with the disposition of portfolio securities;

5. purchase the securities of any issuer if, as a result, more than 25% of the
Fund's total assets (taken at market value at the time of such investment)
would be invested in the securities of issuers in any particular industry,
provided, however, that (i) this restriction does not apply to securities
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities (or repurchase agreements thereto), or, for the Money
Market Reserve Fund, obligations of domestic banks, to the extent that the
SEC, by rule or interpretation, permits funds to reserve freedom to
concentrate in such obligations; and provided further that (ii) the Premier
S&P 500 Fund, U.S.A. Bond Fund and the International Fund will concentrate
in obligations to the same degree that their respective Master Portfolios
concentrate in those obligations during the same period;

6. purchase or sell real estate, although it may purchase securities secured
by real estate or interests therein, or securities issued by companies
which invest in real estate, or interests therein;

7. invest in commodities. This restriction does not prohibit the Premier S&P
500, U.S.A. Bond or International Funds, subject to restrictions described
in the Prospectus and elsewhere in this Statement of Additional
Information, from purchasing, selling or entering into futures contracts,
options on futures contracts and other derivative instruments, subject to
compliance with any applicable provisions of the federal securities or
commodities laws;

8. lend any funds or other assets, except that the Funds may, consistent with
its investment objective and policies: (a) invest in certain short-term or
temporary debt obligations, even though the purchase of such obligations
may be deemed to be the making of loans, (b) enter into repurchase
agreements, and (c) lend its

<PAGE>

portfolio securities in an amount not to exceed 33 1/3% of the Fund's total
assets, provided such loans are made in accordance with applicable
guidelines established by the SEC and the Trustees of the Funds ((c) is not
permitted for the Money Market Reserve Fund).

9. Borrow money, except for temporary or emergency purposes from a bank, or
pursuant to reverse repurchase agreements or dollar roll transactions and
then not in excess of one-third of the value of the total assets of the
related Fund (including the proceeds of such borrowings, at the lower of
cost or market value). Any such borrowing will be made only if immediately
thereafter there is an asset coverage of at least 300% of all borrowings,
and no additional investments may be made while any such borrowings are in
excess of 10% of total assets. Transactions that are fully collateralized
in a manner that does not involved the prohibited issuance of a "senior
security" within the meaning of Section 18(f) of the 1940 Act will not be
regarded as borrowings for the purposes of this restriction; or

10. Mortgage, pledge or hypothecate any of its assets except in connection with
permissible borrowings and permissible forward contracts, futures contracts
or other hedging transactions.

NON-FUNDAMENTAL INVESTMENT RESTRICTIONS OF THE FUNDS

The following are the Funds' non-fundamental operating restrictions, which may
be changed by the Funds' Board of Trustees without shareholder approval.

1. The Funds may invest in shares of other open-end management investment
companies, subject to the limitations of Section 12(d)(1) of the 1940 Act.
Under the 1940 Act, a Fund's investment in such securities currently is
limited, subject to certain exceptions, to (i) 3% of the total voting stock
of any one investment company; (ii) 5% of such Fund's net assets with
respect to any one investment company; and (iii) 10% of such Fund's net
assets in the aggregate. Other investment companies in which the Funds
invest can be expected to charge fees for operating expenses, such as
investment advisory and administration fees that would be in additions to
those charged by the Fund.

2. Each Fund may not invest more than 15% of its net assets in illiquid
securities. For this purpose, illiquid securities include, among others,
(a) securities that are illiquid by virtue of the absence of a readily
available market or legal or contractual restrictions on resale, (b) fixed
time deposits that are subject to withdrawal penalties an that have
maturities of more than seven days, and (c) repurchase agreements not
terminable within seven days.

3. Each Fund may lend securities from its portfolio to brokers, dealers,
financial institutions, in amounts not to exceed (in the aggregate)
one-third of a Fund's total assets. Any such loans of portfolio securities
will be fully collateralized based on values that are marked to market
daily. The Funds will not enter into any portfolio security lending
arrangement having a duration of longer than one year.

15
<PAGE>

MASTER PORTFOLIO POLICIES

THE S&P 500, LB BOND AND EAFE -Registered Trademark- PORTFOLIOS: FUNDAMENTAL
INVESTMENT RESTRICTIONS

The Master Portfolios are subject to the following fundamental investment
restrictions which cannot be changed without approval by the holders of a
majority (as defined in the 1940 Act) of these Master Portfolio's outstanding
voting securities. If a percentage restriction is adhered to at the time of
investment, a later change in percentage resulting from a change in values or
assets will not constitute a violation of such restriction.

None of the S&P 500, LB Bond or EAFE -Registered Trademark- Portfolios may:

1. invest more than 5% of its assets in the obligations of any single issuer,
except that up to 25% of the value of its total assets may be invested, and
securities issued or guaranteed by the U.S. government, or its agencies or
instrumentalities may be purchased, without regard to any such limitation;

2. hold more than 10% of the outstanding voting securities of any single
issuer. This investment restriction applies only with respect to 75% of
each Master Portfolio's total assets;

3. invest in commodities, except that each Master Portfolio may purchase and
sell (I.E., write) options, forward contracts, futures contracts, including
those relating to indexes, and options on futures contracts or indexes;

4. purchase, hold or deal in real estate, or oil, gas or other mineral leases
or exploration or development programs, but each Master Portfolio may
purchase and sell securities that are secured by real estate or issued by
companies that invest or deal in real estate;

5. borrow money, except to the extent permitted under the 1940 Act, provided
that the LB Bond Portfolio may borrow from banks up to 10% of the current
value of its net assets for temporary purposes only in order to meet
redemptions, and these borrowings may be secured by the pledge of up to 10%
of the current value of its net assets (but investments may not be
purchased while any such outstanding borrowing in excess of 5% of its net
assets exists), and except that the S&P 500 and EAFE-Registered
Trademark-Portfolios may borrow up to 20% of the current value of its
respective net assets for temporary purposes only in order to meet
redemptions, and these borrowings may be secured by the pledge of up to 20%
of the current value of its net assets (but investments may not be
purchased while any such outstanding borrowing in excess of 5% of its net
assets exists). For purposes of this investment restriction, a Master
Portfolio's entry into options, forward contracts, futures contracts,
including those relating to indexes, and options on futures contracts or
indexes shall not constitute borrowing to the extent certain segregated
accounts are established and maintained by such Master Portfolio;

16
<PAGE>

6. make loans to others, except through the purchase of debt obligations and
the entry into repurchase agreements. However, each of the S&P 500, LB Bond
and EAFE-Registered Trademark- Portfolios may lend its portfolio securities
in an amount not to exceed one-third of the value of its total assets. Any
loans of Master Portfolio securities will be made according to guidelines
established by the SEC and the Master Portfolios' Board of Trustees;

7. act as an underwriter of securities of other issuers, except to the extent
that the Master Portfolio may be deemed an underwriter under the Securities
Act by virtue of disposing of portfolio securities;

8. invest 25% or more of its total assets in the securities of issuers in any
particular industry or group of closely related industries, except that
there shall be no limitation with respect to investments in (i) obligations
of the U.S. Government, its agencies or instrumentalities; (ii) in the case
of the S&P 500 Master Portfolio, any industry in which the S&P 500 Index
becomes concentrated to the same degree during the same period; (iii) in
the case of the LB Bond Portfolio, any industry in which the LB Bond Index
becomes concentrated to the same degree during the same period; and (iv) in
the case of the EAFE-Registered Trademark- Portfolio, any industry in which
the EAFE-Registered Trademark-Index becomes concentrated to the same degree
during the same period;

9. issue any senior security (as such term is defined in Section 18(f) of the
1940 Act), except to the extent the activities permitted in such Master
Portfolio's Fundamental Investment Restrictions Nos. 3 and 5 may be deemed
to give rise to a senior security; or

10. purchase securities on margin, but each Master Portfolio may make margin
deposits in connection with transactions in options, forward contracts,
futures contracts, including those related to indexes, and options on
futures contracts or indexes.

S&P 500 LB BOND AND EAFE-Registered Trademark- PORTFOLIOS: NON-FUNDAMENTAL
INVESTMENT RESTRICTIONS

The S&P 500, LB Bond and EAFE-Registered Trademark- Portfolios are subject to
the following non-fundamental operating policies which may be changed by the
Board of Trustees of these Master Portfolios without the approval of the holders
of such Master Portfolio's outstanding securities.

1. The Master Portfolios may invest in shares of other open-end management
investment companies, subject to the limitations of Section 12(d)(1) of the
1940 Act. Under the 1940 Act, a Master Portfolio's investment in such
securities currently is limited, subject to certain exceptions, to (i) 3%
of the total voting stock of any one investment company; (ii) 5% of such
Master Portfolio's net assets with respect to any one investment company;
and (iii) 10% of such Master Portfolio's net assets in the aggregate. Other
investment companies in which the

17
<PAGE>

Master Portfolios invest can be expected to charge fees for operating
expenses, such as investment advisory and administration fees that would be
in additions to those charged by the Master Portfolio.

2. Each Master Portfolio may not invest more than 15% of its net assets in
illiquid securities. For this purpose, illiquid securities include, among
others, (a) securities that are illiquid by virtue of the absence of a
readily available market or legal or contractual restrictions on resale,
(b) fixed time deposits that are subject to withdrawal penalties an that
have maturities of more than seven days, and (c) repurchase agreements not
terminable within seven days.

3. Each Master Portfolio may lend securities from its portfolio to brokers,
dealers, financial institutions, in amounts not to exceed (in the
aggregate) one-third of a Master Portfolio's total assets. Any such loans
of portfolio securities will be fully collateralized based on values that
are marked to market daily. The Master Portfolios will not enter into any
portfolio security lending arrangement having a duration of longer than one
year.

MONEY MARKET PORTFOLIO: FUNDAMENTAL INVESTMENT RESTRICTIONS

The Money Market Portfolio may not:

1. purchase the securities of issuers conducting their principal business
activity in the same industry if, immediately after the purchase and as a
result thereof, the value of the Money Market Portfolio's investments in
that industry would be 25% or more of the current value of the Money Market
Portfolio'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; and (ii) obligations of domestic banks, to the extent
that the SEC, by rule or interpretation, permits funds to reserve freedom
to concentrate in such obligations;

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 Money Market 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

18
<PAGE>

an issuer and the later disposition of such securities in accordance with
the Money Market Portfolio's investment program may be deemed to be an
underwriting;

7. make investments for the purpose of exercising control or management;

8. borrow money or issue senior securities as defined in the 1940 Act, except
that the Money Market Portfolio may borrow from banks up to 10% of the
current value of its net assets for temporary purposes only in order to
meet redemptions, and these borrowings may be secured by the pledge of up
to 10% of the current value of its net assets (but investments may not be
purchased while any such outstanding borrowings in excess of 5% of its net
assets exists);

9. write, purchase or sell puts, calls, straddles, spreads, warrants, options
or any combination thereof, except that the Money Market 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 its total assets, more than 5% of the value
of the Money Market Portfolio's total assets would be invested in the
securities of any one issuer or, with respect to 100% of its total assets
the Money Market Portfolio's ownership would be more than 10% of the
outstanding voting securities of such issuer; or

11. make loans, except that the Money Market Portfolio may purchase or hold
debt instruments or lend its portfolio securities in accordance with its
investment policies, and may enter into repurchase agreements.

MONEY MARKET PORTFOLIO: NON-FUNDAMENTAL INVESTMENT RESTRICTIONS. The Money
Market Portfolio is subject to the following investment restrictions, all of
which are non-fundamental policies.

As a matter of non-fundamental policy:

12. The Money Market Portfolio may invest in shares of other open-end
management investment companies, subject to the limitations of Section
12(d)(1) of the 1940 Act. Under the 1940 Act, the Money Market Portfolio's
investment in such securities currently is limited, subject to certain
exceptions, to (i) 3% of the total voting stock of any one investment
company, (ii) 5% of the Money Market Portfolio's net assets with respect to
any one investment company; and (iii) 10% of the Money Market Portfolio's
net assets in the aggregate. Other investment companies in which the Money
Market Portfolio invests can be expected to charge fees for operating
expenses, such as investment advisory and administration fees, that would
be in addition to those charged by the Money Market Portfolio.

13. The Money Market Portfolio may not invest more than 10% of its net assets
in illiquid securities. For this purpose, illiquid securities include,
among others, (i) securities that are illiquid by virtue of the absence of
a readily available market or

<PAGE>

legal or contractual restrictions on resale, (ii) fixed time deposits that
are subject to withdrawal penalties and that have maturities of more than
seven days, and (iii) repurchase agreements not terminable within seven
days.

14. The Money Market Portfolio may lend securities from its portfolio to
brokers, dealers and financial institutions, in amounts not to exceed (in
the aggregate) one-third of the Money Market Portfolio's total assets. Any
such loans of portfolio securities will be fully collateralized based on
values that are marked to market daily. The Money Market Portfolio will not
enter into any portfolio security lending arrangement having a duration of
longer than one year.

TRUSTEES AND OFFICERS

The Trust's Board of Trustees has the responsibility for the overall management
of the Funds, including general supervision and review of its investment
activities and the conformity with Delaware Law and the stated policies of the
Funds. The Board of Trustees elects the officers of the Trust who are
responsible for administering the Funds' day-to-day operations. Trustees and
officers of the Funds, together with information as to their principal business
occupations during the last five years, and other information are shown below.
Each "interested or affiliated person," as defined in the 1940 Act, is indicated
by an asterisk (*):

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Name, Address, and Age Position(s) Held with the Principal Occupation(s) During the Past
Fund 5 Years
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Nicole E. Faucher Trustee President, Nicole E Faucher &
Associates (Internet company)
(1998-present); formerly, President,
R.V. Kohn's & Associates (investment
consulting) (1996-98); Managing
Director, Western Region, SEI Capital
Resources (investment consulting)
(1993-96)

Kevin T. Hamilton Trustee Principal and Portfolio Manager,
Messner & Smith Investment Management
Limited (1998-present); formerly,
Executive Vice President, Montgomery
Asset Management, LLC (1991-98).

20
<PAGE>

Elon R. Musk* Trustee, Director, President, and Treasurer,
Chairman of the Board of X.com Asset Management, Inc.
Trustees (1999-present); Chairman and Chief
Executive Officer, X.com
(1999-present); Executive Vice
President and Principal Founder, Zip2
Corp. (1995-99); Teaching Assistant,
Business Education, Wharton School of
Business, University of Pennsylvania
(1994-95)

Gregory N. River Trustee Founder, Owner, and President, Paladin
Consulting Company (1996-present);
Consultant (investment services),
Self-Employed (1994-96).

John T. Story* Trustee; President Executive Vice President, X.com,
(1999-present); President, John T.
Story & Associates (mutual fund
consulting) (1998-99); Executive Vice
President, Montgomery Asset Management
(1994-1998).
</TABLE>

*Each of Mr. Musk and Mr. Story is an "interested person" of the Trust (as that
term is defined in the 1940 Act) because of his affiliations with the Fund.

The Trust pays each non-affiliated Trustee a quarterly fee of $500 per Board
meeting for the Funds. In addition, the Trust reimburses each of the
non-affiliated Trustee for travel and other expenses incurred in connection with
attendance at such meetings. Other officers and Trustees of the Trust receive no
compensation or expense reimbursement. The following table provides an estimate
of each Trustee's compensation for the current fiscal year:

ESTIMATED COMPENSATION TABLE

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Aggregate Total Compensation From
Compensation Funds and Trust Expected to be
Name of Person, Position from the Funds Paid to Trustees (1)
- -------------------------------------------------------------------------------------
<S> <C> <C>
Nicole E. Faucher $2,000 $2,000
Kevin T. Hamilton $2,000 $2,000
Gregory N. River $2,000 $2,000
</TABLE>

21
<PAGE>

No Trustee will receive any benefits upon retirement. Thus, no pension or
retirement benefits have accrued as part of the Funds' expenses.

- ------------
(1) This amount represents the estimated aggregate amount of compensation paid
to each non-affiliated Trustee for service on the Board of Trustees for the
fiscal year ending December 31, 1999.

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

A shareholder that owns 25% or more of any Funds' voting securities is in
control of that Fund on matters submitted to a vote of shareholders. Upon
commencement of operations and shortly after, X.com Asset Management, Inc., the
Funds' investment adviser, owned 100% of the Funds' outstanding shares. There
are no other shareholders holding 25% or more.

INVESTMENT MANAGEMENT

INVESTMENT ADVISERS. Under an Investment Advisory Agreement (the "Investment
Advisory Agreement") with the Trust, X.com Asset Management, Inc. ("Investment
Adviser") provides investment advisory services to the Funds. The Investment
Adviser is a wholly owned subsidiary of X.com Corporation, a Delaware
corporation.

Subject to general supervision of the Trust's Board of Trustees and in
accordance with the investment objective, policies and restrictions of each of
the Funds, the Investment Adviser provides the Funds with ongoing investment
guidance, policy direction and monitoring of each of the Master Portfolios. The
Investment Adviser may in the future manage cash and money market instruments
for cash flow purposes. The Investment Adviser also provides or arranges for
administration, transfer agency, custody and all other services necessary for
the Funds to operate. The Investment Adviser has only limited experience
managing mutual funds, beginning in November 1999. For its services, the Premier
S&P 500 Fund pays the Investment Adviser an investment advisory fee at an annual
rate equal to 0.23% of its average daily net assets; the U.S.A. Bond Fund pays
the Investment Adviser an investment advisory fee at an annual rate equal to
0.32% of its average daily net assets; the Money Market Reserve Fund pays the
Investment Adviser an investment advisory fee at an annual rate equal to 0.50%
of its average daily net assets. ; and the International Fund pays the
Investment Adviser an investment advisory fee at an annual rate equal to 0.35%
of its average daily net assets.

In addition, the Investment Adviser has entered into an expense limitation and
reimbursement agreement with the Trust, under which the Investment Adviser will
waive all investment advisory fees payable to it by the Premier S&P 500 Fund,
0.21% of the investment advisory fees payable to it by the U.S.A. Bond Fund,
0.10% of the investment advisory fees payable to it by the Money Market Reserve
Fund and all investment advisory fees payable to it by the International Fund
over 0.60%.

22
<PAGE>

THE MASTER PORTFOLIO'S INVESTMENT ADVISER. The Master Portfolio's investment
adviser is Barclays Global Fund Advisors ("BGFA"). BGFA is a direct subsidiary
of Barclays Global Investors, N.A. (which, in turn, is an indirect subsidiary of
Barclays Bank PLC ("Barclays")) and is located at 45 Fremont Street, San
Francisco, California 94105. BFGA has provided assets management, administration
and advisory services for over 25 years. As of December 31, 1999, BGFA and its
affiliates provided investment advisory services for over $____ billion of
assets. Barclays Bank PLC has been involved in banking in the United Kingdom for
over 300 years. Pursuant to an Investment Advisory Contract dated January 1,
1996 (the "Advisory Contract") with the Master Portfolios, BGFA provides
investment guidance and policy direction in connection with the management of
the Master Portfolio's assets. Pursuant to the Advisory Contract, BGFA furnishes
to the Master Portfolio's Board of Trustees periodic reports on the investment
strategy and performance of the Master Portfolios. BGFA receives fees from the
S&P 500 Portfolio, the LB Bond Portfolio; the Money Market Portfolio and the
EAFE-Registered Trademark- Portfolio at an annual rate equal to 0.05%, 0.08%,
0.10%, and 0.25%, respectively, of the Master Portfolio's average daily net
assets. This advisory fee is an expense of each Master Portfolio borne
proportionately by its interestholders, including each of the respective Funds.

The Investment Adviser has entered into an expense limitation and reimbursement
agreement with the Trust, under which the Investment Adviser will reimburse the
Premier S&P 500 Fund for all fees incurred at the Master Portfolio level.

The Advisory Contract for the Master Portfolios provides that if, in any fiscal
year, the total expenses of the S&P 500 or LB Bond Portfolio (excluding taxes,
interest, brokerage commissions and extraordinary expenses but including the
fees provided for in the Advisory Contract) exceed the most restrictive expense
limitation applicable to the applicable Master Portfolio imposed by the
securities laws or regulations of the states having jurisdiction over that
Master Portfolio, BGFA shall waive its fees under the Advisory Contract for the
fiscal year to the extent of the excess or reimburse the excess of such Master
Portfolio, but only to the extent of its fees.

BGFA has agreed to provide to each Master Portfolio, among other things, money
market security and fixed-income research, analysis and statistical and economic
data and information concerning interest rate and security market trends,
portfolio composition, credit conditions and average maturities of each Master
Portfolio's investment portfolio.

The Advisory Contract will continue in effect for each Master Portfolio provided
the continuance is approved annually (i) by the holders of a majority of the
applicable Master Portfolio's outstanding voting securities or by the applicable
Master Portfolio's Board of Trustees and (ii) by a majority of the Trustees of
the applicable Master Portfolio who are not parties to the Advisory Contract or
affiliated with any such party. The Advisory Contract may be terminated on 60
days' written notice by either party and will terminate automatically if
assigned.

Asset allocation and modeling strategies are employed by BGFA for other
investment companies and accounts advised or sub-advised by BGFA. If these
strategies indicate

23
<PAGE>

particular securities should be purchased or sold at the same time by a Master
Portfolio and one or more of these investment companies or accounts, available
investments or opportunities for sales will be allocated equitably to each by
BGFA. In some cases, these procedures may adversely affect the size of the
position obtained for or disposed of by a portfolio or the price paid or
received by a Master Portfolio.

SERVICE PROVIDERS

ADMINISTRATOR OF THE FUND. Investors Bank & Trust Company ("IBT"), 200 Clarendon
Street, Boston, MA 02111, serves as the Funds' administrator. As the Funds'
administrator, IBT provides administrative services directly or through
sub-contracting, including: (i) general supervision of the operation of the
Funds, including coordination of the services performed by the investment
adviser, transfer and dividend disbursing agent, custodian, shareholder
servicing agent, independent auditors and legal counsel; (ii) general
supervision of regulatory compliance matters, including the compilation of
information for documents such as reports to, and filings with, the SEC and
state securities commissions; and (iii) periodic reviews of management reports
and financial reporting. IBT also furnishes office space and certain facilities
required for conducting the business of the Fund. The Investment Adviser pays
IBT for all administrative services provided to the Funds.

ADMINISTRATOR OF THE MASTER PORTFOLIOS. Stephens, Inc. ("Stephens"), and
Barclays Global Investors, N.A. ("BGI") serve as co-administrators on behalf of
the Master Portfolios. Under the Co-Administration Agreement between Stephens,
BGI and the Master Portfolios, Stephens and BGI provide as administrative
services, among other things: (i) general supervision of the operation of the
Master Portfolios, including coordination of the services performed by the
investment adviser, transfer and dividend disbursing agent, custodian,
shareholder servicing agent(s), independent auditors and legal counsel; (ii)
general supervision of regulatory compliance matters, including the compilation
of information for documents such as reports to, and filings with, the SEC and
state securities commissions; and preparation of proxy statements and
shareholder reports for the Master Portfolios; and (iii) general supervision
relative to the compilation of data required for the preparation of periodic
reports distributed to the Master Portfolio's officers and Board of Trustees.
Stephens also furnishes office space and certain facilities required for
conducting the business of the Master Portfolios together with those ordinary
clerical and bookkeeping services that are not furnished by BGFA. Stephens also
pays the compensation of the Master Portfolio's Trustees, officers and employees
who are affiliated with Stephens. Furthermore, except as provided in the
advisory contract, Stephens and BGI bear substantially all costs of the Master
Portfolios and the Master Portfolio's operations. However, Stephens and BGI are
not required to bear any cost or expense which a majority of the non-affiliated
Trustees of the Master Portfolios deem to be an extraordinary expense.

24
<PAGE>

investments, and performs other duties, all as directed by the officers of the
Funds and the Master Portfolios. The custodian has no responsibility for any of
the investment policies or decisions of the Funds and the Master Portfolios. IBT
also acts as the Funds' Accounting Services Agent. The Investment Adviser pays
IBT for all custodial services provided to the Funds.

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. X.com Asset Management, Inc., 394
University Avenue, Palo Alto, California 94301, acts as transfer agent and
dividend disbursing agent for the Funds.

FUND SHAREHOLDER SERVICING AGENT. Under a Shareholder Servicing Agreement, the
Bank acts as shareholder servicing agent for the Fund. As shareholder servicing
agent, the Bank provides personal services to the Funds' shareholders and
maintains the Funds' shareholder accounts. Such services include, (i) answering
shareholder inquiries regarding account status and history, the manner in which
purchases and redemptions of the Funds' shares may be effected, and certain
other matters pertaining to the Funds; (ii) assisting shareholders in
designating and changing dividend options, account designations and addresses;
(iii) providing necessary personnel and facilities to coordinate the
establishment and maintenance of shareholder accounts and records with the
Funds' transfer agent; (iv) transmitting shareholder's purchase and redemption
orders to the Funds' transfer agent; (v) arranging for the wiring or other
transfer of funds to and from shareholder accounts in connection with
shareholder orders to purchase or redeem shares of the Fund; (vi) verifying
purchase and redemption orders, transfers among and changes in
shareholder-designated accounts; (vii) informing the distributor of the Fund of
the gross amount of purchase and redemption orders for the Funds' shares; (viii)
provide certain printing and mailing services, such as printing and mailing of
shareholder account statements, checks, and tax forms; and (ix) providing such
other related services as the Fund or a shareholder may reasonably request, to
the extent permitted by applicable law.

INDEPENDENT AUDITORS. KPMG LLP, 99 High Street, Boston, Massachusetts, 02110,
acts as independent auditors for the Fund.

LEGAL COUNSEL. Paul, Hastings, Janofsky & Walker LLP, 345 California Street, San
Francisco, California 94104, acts as legal counsel for the Trust and the Funds.

MASTER PORTFOLIO TRANSACTIONS AND BROKERAGE SELECTION

The Master Portfolios have 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 Master Portfolios' Board of Trustees, BGFA as
investment adviser to the Master Portfolios (the "Master Adviser"), is
responsible for the Master Portfolios' investment portfolio decisions and the
placing of portfolio transactions. In placing orders, it is the policy of the
Master Portfolios to obtain the best results taking into account the
broker/dealer's general execution and operational facilities, the type of
transaction involved and other factors such as the broker/dealer's risk in
positioning the securities involved. While the Master Adviser generally seeks
reasonably competitive spreads or

25
<PAGE>

commissions, the Master Portfolios will not necessarily be paying the lowest
spread or commission available.

Purchase and sale orders of the securities held by the Master Portfolios may be
combined with those of other accounts that the Master Adviser manages, and for
which it has brokerage placement authority, in the interest of seeking the most
favorable overall net results. When the Master Adviser determines that a
particular security should be bought or sold for a Master Portfolio and other
accounts managed by the Master Adviser, the Master Adviser undertakes to
allocate those transactions among the participants equitably.

Under the 1940 Act, persons affiliated with the Master Portfolios such as
Stephens, the Master Adviser and their affiliates are prohibited from dealing
with the Master Portfolios 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.

Except in the case of equity securities purchased by a Master Portfolio,
purchases and sales of securities usually will be principal transactions. Master
Portfolio securities normally will be purchased or sold from or to dealers
serving as market makers for the securities at a net price. The Master
Portfolios also will purchase portfolio securities in underwritten offerings and
may purchase securities directly from the issuer. Generally, money market
securities, adjustable rate mortgage securities ("ARMS"), municipal obligations,
and collateralized mortgage obligations ("CMOs") are traded on a net basis and
do not involve brokerage commissions. The cost of executing the Master
Portfolio's investment portfolio securities transactions will consist primarily
of dealer spreads and underwriting commissions.

Purchases and sales of equity securities on a securities exchange are effected
through brokers who charge a negotiated commission for their services. Orders
may be directed to any broker including, to the extent and in the manner
permitted by applicable law, affiliates of the Master Adviser. In the
over-the-counter market, securities are generally traded on a "net" basis with
dealers acting as principal for their own accounts without a stated commission,
although the price of the security usually includes a profit to the dealer. In
underwritten offerings, securities are purchased at a fixed price that includes
an amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount.

26
<PAGE>

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. Rates are established pursuant to negotiations with
the broker based on the quality and quantity of execution services provided by
the broker in the light of generally prevailing rates. The allocation of orders
among brokers and the commission rates paid are reviewed periodically by the
Master Portfolio's Board of Trustees.

Certain of the brokers or dealers with whom the Master Portfolios may transact
business offer commission rebates to the Master Portfolios. The Master Adviser
considers such rebates in assessing the best overall terms available for any
transaction. The overall reasonableness of brokerage commissions paid is
evaluated by the Master Adviser based upon its knowledge of available
information as to the general level of commission paid by other institutional
investors for comparable services.

ORGANIZATION, DIVIDEND AND VOTING RIGHTS

The Funds are diversified series of X.com Funds (the "Trust"), an open-end
investment company, organized as a Delaware business trust on June 7, 1999. The
Trust may issue additional series and classes.

All shareholders may vote on each matter presented to shareholders. Fractional
shares have the same rights proportionately as do full shares. Shares of the
Trust have no preemptive, conversion, or subscription rights. If the Trust
issues additional series, each series of shares will be held separately by the
custodian, and in effect each series will be a separate fund.

All shares of the Trust have equal voting rights. Approval by the shareholders
of a Fund is effective as to that Fund whether or not sufficient votes are
received from the shareholders of the other investment portfolios to approve the
proposal as to those investment portfolios.

Generally, the Trust will not hold an annual meeting of shareholders unless
required by the 1940 Act. The Trust will hold a special meeting of its
shareholders for the purpose of voting on the question of removal of a Trustee
or Trustees if requested in writing by the holders of at least 10% of the
Trust's outstanding voting securities, and to assist in communicating with other
shareholders as required by Section 16(c) of the 1940 Act.

Each share of the Funds represents an equal proportional interest in that Fund
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to that Fund as are declared in the discretion of the
Trustees. In the event of the liquidation or dissolution of the Trust,
shareholders of a Fund are entitled to receive the assets attributable to that
Fund that are available for distribution, and a distribution of any general
assets not attributable to a particular investment portfolio that are available
for distribution in such manner and on such basis as the Trustees in their sole
discretion may determine.

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<PAGE>

Shareholders are not entitled to any preemptive rights. All shares, when issued,
will be fully paid and non-assessable by the Trust.

Under Delaware law, the shareholders of the Funds are not generally subject to
liability for the debts or obligations of the Trust. Similarly, Delaware law
provides that a series of the Trust will not be liable for the debts or
obligations of any other series of the Trust. However, no similar statutory or
other authority limiting business trust shareholder liability exists in other
states. As a result, to the extent that a Delaware business trust or a
shareholder is subject to the jurisdiction of courts of such other states, the
courts may not apply Delaware law and may thereby subject the Delaware business
trust shareholders to liability. To guard against this risk, the Declaration of
Trust contains an express disclaimer of shareholder liability for acts or
obligations of a Fund. Notice of such disclaimer will generally be given in each
agreement, obligation or instrument entered into or executed by a series or the
Trustees. The Declaration of Trust also provides for indemnification by the
relevant series for all losses suffered by a shareholder as a result of an
obligation of the series. In view of the above, the risk of personal liability
of shareholders of a Delaware business trust is remote.

SHAREHOLDER INFORMATION

Shares are sold through the Bank and are distributed by the Funds.

PRICING OF FUND SHARES. The net asset value per share of the Fund is calculated
as follows: all liabilities incurred or accrued are deducted from the valuation
of total assets, which includes accrued but undistributed income; the resulting
net assets are divided by the number of shares of the Fund outstanding at the
time of the valuation and the result (adjusted to the nearest cent) is the net
asset value per share.

As noted in the Prospectus, the net asset value of the Premier S&P 500, U.S.A.
Bond and International Funds will be determined as of the close of trading on
each day the New York Stock Exchange ("NYSE") is open for trading. It is
expected that the NYSE will be closed on Saturdays and Sundays and for New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas. The national
bank holidays also include: Columbus Day and Veterans' Day. The Funds may, but
do not expect to, determine the net asset values of their shares on any day when
the NYSE is not open for trading if there is sufficient trading in their
portfolio securities on such days to materially affect per-share net asset
value. The Funds will use the net asset value reported by the related Master
Portfolio for its shares in calculating the related Fund's net asset values.

Generally, the Funds' investments are valued at market value or, in the absence
of a market value, at fair value as determined in good faith by the Investment
Adviser and the Trust's Board of Trustees or Pricing Committee pursuant to
procedures approved by or under the direction of the Board.

The Funds' equity securities, including ADRs, EDRs and GDRs, that are traded on
securities exchanges are valued at the last sale price on the exchange on which
such

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<PAGE>

securities are traded, as of the close of business on the day the securities are
being valued or, lacking any reported sales, at the mean between the last
available bid and asked price. Equity securities that are traded on more than
one exchange are valued on the exchange determined by the Investment Adviser to
be the primary market. Securities traded in the over-the-counter market are
valued at the mean between the last available bid and asked price prior to the
time of valuation. Securities and assets for which market quotations are not
readily available (including restricted securities that are subject to
limitations as to their sale) are valued at fair value as determined in good
faith by or under the direction of the Board.

Generally, trading in and valuation of foreign securities is substantially
completed each day at various times prior to the close of the NYSE. In addition,
trading in and valuation of foreign securities may not take place on every day
in which the NYSE is open for trading. Furthermore, trading takes place in
various foreign markets on days in which the NYSE is not open for trading and on
which the Funds' net asset values are not calculated. Occasionally, events
affecting the values of such securities in U.S. dollars on a day on which the
Funds calculates their net asset value may occur between the times when such
securities are valued and the close of the NYSE and will not be reflected in the
computation of the Funds' net asset value unless the Board or its delegates deem
that such events would materially affect the net asset value, in which case an
adjustment would be made.

Short-term debt obligations with remaining maturities in excess of 60 days are
valued at current market prices, as discussed above. Short-term securities with
60 days or less remaining to maturity are, unless conditions indicate otherwise,
amortized to maturity based on their cost to the Funds if acquired within 60
days of maturity or, if already held by a Fund on the 60th day, based on the
value determined on the 61st day.

Corporate debt securities, U.S. government securities, mortgage-related
securities and asset-backed fixed-income securities held by a Fund are valued on
the basis of valuations provided by dealers in those instruments, by an
independent pricing service, or at fair value as determined in good faith by
procedures approved by the Board. Any such pricing service, in determining
value, will use information with respect to transactions in the securities being
valued, quotations from dealers, market transactions in comparable securities,
analyses and evaluations of various relationships between securities and
yield-to-maturity information.

An option that is written by a Fund is generally valued at the last sale price
or, in the absence of the last sale price, the last offer price. An option that
is purchased by a Fund is generally valued at the last sale price or, in the
absence of the last sale price, the last bid price. The value of a futures
contract equals the unrealized gain or loss on the contract that is determined
by marking the contract to the current settlement price for a like contract on
the valuation date of the futures contract if the securities underlying the
futures contract experience significant price fluctuations after the
determination of the settlement price. When a settlement price cannot be used,
futures contracts will be valued at their fair market value as determined by or
under the direction of the Boards.

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<PAGE>

If any securities held by a Fund are restricted as to resale or do not have
readily available market quotations, the Investment Adviser and the Trust's
Board or Pricing Committee determine their fair value, following procedures
approved by the Board. The Trustees periodically review such valuations and
valuation procedures. The fair value of such securities is generally determined
as the amount which the related Fund could reasonably expect to realize from an
orderly disposition of such securities over a reasonable period of time. The
valuation procedures applied in any specific instance are likely to vary from
case to case. However, consideration is generally given to the financial
position of the issuer and other fundamental analytical data relating to the
investment and to the nature of the restrictions on disposition of the
securities (including any registration expenses that might be borne by such Fund
in connection with such disposition). In addition, specific factors are also
generally considered, such as the cost of the investment, the market value of
any unrestricted securities of the same class (both at the time of purchase and
at the time of valuation), the size of the holding, the prices of any recent
transactions or offers with respect to such securities and any available
analysts' reports regarding the issuer.

Any assets or liabilities initially expressed in terms of foreign currencies are
translated into U.S. dollars at the official exchange rate or, alternatively, at
the mean of the current bid and asked prices of such currencies against the U.S.
dollar last quoted by a major bank that is a regular participant in the foreign
exchange market or on the basis of a pricing service that takes into account the
quotes provided by a number of such major banks. If neither of these
alternatives is available or both are deemed not to provide a suitable
methodology for converting a foreign currency into U.S. dollars, the Board in
good faith will establish a conversion rate for such currency.

All other assets of the Funds are valued in such manner as the Board in good
faith deems appropriate to reflect their fair value.

The Money Market Reserve Fund uses the amortized cost method to determine the
value of its portfolio securities pursuant to Rule 2a-7 under the 1940 Act. The
amortized cost method involves valuing a security at its cost and amortizing any
discount or premium over the period until maturity, regardless of the impact of
fluctuating interest rates on the market value of the security. 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.

Rule 2a-7 provides that in order to value its Master Portfolio using the
amortized cost method, the Money Market Reserve Fund must maintain a
dollar-weighted average Master 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 to present minimal credit risks. The
maturity of an instrument is generally deemed to be the period remaining until
the date when the principal amount thereof is due or the date on which the
instrument is to be redeemed. However, Rule 2a-7 provides that the maturity of
an instrument may be deemed shorter in the case of certain instruments,
including certain variable- and floating-rate instruments subject to demand
features. Pursuant to the Rule, the Board of Trustees is required to establish
procedures designed to stabilize, to the

30
<PAGE>

extent reasonably possible, the Money Market Reserve Fund's price per share as
computed for the purpose of sales and redemptions at $1.00. Such procedures
include review of the Money Market Reserve Fund's Master Portfolio holdings by
the Board of Trustees, at such intervals as it may deem appropriate, to
determine whether the Money Market Reserve Fund's net asset value calculated by
using available market quotations deviates from the $1.00 per share based on
amortized cost. The extent of any deviation will be examined by the Board of
Trustees. If such deviation exceeds 1/2 of 1%, the Board of Trustees will
promptly consider what action, if any, will be initiated. In the event the Board
of Trustees determines that a deviation exists that may result in material
dilution or other unfair results to shareholders, the Board of Trustees will
take such corrective action as it regards as necessary and appropriate,
including the sale of portfolio instruments prior to maturity to realize capital
gains or losses or to shorten average portfolio maturity, withholding dividends
or establishing a net asset value per share by using available market
quotations.

TELEPHONE AND INTERNET REDEMPTION PRIVILEGES. The Trust employs reasonable
procedures to confirm that instructions communicated by telephone or the
Internet are genuine. The Trust and the Funds may not be liable for losses due
to unauthorized or fraudulent instructions. Such procedures include but are not
limited to requiring a form of personal identification prior to acting on
instructions received by telephone or the Internet, providing written
confirmations of such transactions to the address of record, tape recording
telephone instructions and backing up Internet transactions.

TAXATION

Set forth below is a discussion of certain U.S. federal income tax issues
concerning the Fund and the purchase, ownership, and disposition of Fund shares.
This discussion does not purport to be complete or to deal with all aspects of
federal income taxation that may be relevant to shareholders in light of their
particular circumstances. This discussion is based upon present provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), the regulations
promulgated thereunder, and judicial and administrative ruling authorities, all
of which are subject to change, which change may be retroactive. Prospective
investors should consult their own tax advisors with regard to the federal tax
consequences of the purchase, ownership, or disposition of Fund shares, as well
as the tax consequences arising under the laws of any state, foreign country, or
other taxing jurisdiction.

TAXATION OF THE FUNDS. Each Fund intends to be taxed as a regulated investment
company under Subchapter M of the Code. Accordingly, each Fund must, among other
things, (a) derive in each taxable year at least 90% of its gross income from
dividends, interest, payments with respect to certain securities loans, and
gains from the sale or other disposition of stock, securities or foreign
currencies, or other income derived with respect to its business of investing in
such stock, securities or currencies; and (b) diversify its holdings so that, at
the end of each fiscal quarter, (i) at least 50% of the value of the Fund's
total assets is represented by cash and cash items, U.S. Government securities,
the securities of other regulated investment companies and other securities,
with such other securities limited, in respect of any one issuer, to an amount
not greater than 5% of the

31
<PAGE>

value of the Fund's total assets and 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its total assets is
invested in the securities of any one issuer (other than U.S. Government
securities and the securities of other regulated investment companies).

As regulated investment companies, the Funds generally are not subject to U.S.
federal income tax on income and gains that it distributes to shareholders, if
at least 90% of Fund's investment company taxable income (which includes, among
other items, dividends, interest and the excess of any net short-term capital
gains over net long-term capital losses) for the taxable year is distributed.
The Funds intend to distribute substantially all of such income.

Amounts not distributed on a timely basis in accordance with a calendar year
distribution requirement are subject to a nondeductible 4% excise tax at the
Fund level. To avoid the tax, each Fund must distribute during each calendar
year an amount equal to the sum of (1) at least 98% of its ordinary income (not
taking into account any capital gains or losses) for the calendar year, (2) at
least 98% of its capital gains in excess of its capital losses (adjusted for
certain ordinary losses) for a one-year period generally ending on October 31 of
the calendar year, and (3) all ordinary income and capital gains for previous
years that were not distributed during such years. To avoid application of the
excise tax, the Funds intend to make distributions in accordance with the
calendar year distribution requirement.

DISTRIBUTIONS. Distributions of investment company taxable income (including net
short-term capital gains) are taxable to a U.S. shareholder as ordinary income,
whether paid in cash or shares. Dividends paid by a Fund to a corporate
shareholder, to the extent such dividends are attributable to dividends received
by the Fund from U.S. corporations, may, subject to limitation, be eligible for
the dividends received deduction. However, the alternative minimum tax
applicable to corporations may reduce the value of the dividends received
deduction. Distributions of net capital gains (the excess of net long-term
capital gains over net short-term capital losses) designated by the Fund as
capital gain dividends, whether paid in cash or reinvested in Fund shares, will
generally be taxable to shareholders as long-term capital gain, regardless of
how long a shareholder has held Fund shares.

Shareholders will be notified annually as to the U.S. federal tax status of
distributions, and shareholders receiving distributions in the form of newly
issued shares will receive a report as to the net asset value of the shares
received. A distribution will be treated as paid on December 31 of a calendar
year if it is declared by a Fund in October, November or December of that year
with a record date in such a month and paid by the Fund during January of the
following year. Such distributions will be taxable to shareholders in the
calendar year in which the distributions are declared, rather than the calendar
year in which the distributions are received.

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<PAGE>

implications of buying shares of a Fund just prior to a distribution. The price
of shares purchased at this time will include the amount of the forthcoming
distribution, but the distribution will generally be taxable to the shareholder.

DISPOSITIONS. Upon a redemption, sale or exchange of shares of a Fund, a
shareholder will realize a taxable gain or loss depending upon his or her basis
in the shares. A gain or loss will be treated as capital gain or loss if the
shares are capital assets in the shareholder's hands, and will be long-term
capital gain or loss if the shares are held for more than one year and
short-term capital gain or loss if the shares are held for not more than one
year. Any loss realized on a redemption, sale or exchange will be disallowed to
the extent the shares disposed of are replaced (including through reinvestment
of dividends) within a period of 61 days, beginning 30 days before and ending 30
days after the shares are disposed of. In such a case the basis of the shares
acquired will be adjusted to reflect the disallowed loss. If a shareholder holds
Fund shares for six months or less and during that period receives a
distribution taxable to the shareholder as long-term capital gain, any loss
realized on the sale of such shares during such six-month period would be a
long-term loss to the extent of such distribution.

BACKUP WITHHOLDING. The Funds generally will be required to withhold federal
income tax at a rate of 31% ("backup withholding") from dividends paid, capital
gain distributions, and redemption proceeds to shareholders if (1) the
shareholder fails to furnish the related Fund with the shareholder's correct
taxpayer identification number or social security number, (2) the IRS notifies
the shareholder or the related Fund that the shareholder has failed to report
properly certain interest and dividend income to the IRS and to respond to
notices to that effect, or (3) when required to do so, the shareholder fails to
certify that he or she is not subject to backup withholding. Any amounts
withheld may be credited against the shareholder's federal income tax liability.

OTHER TAXATION. Distributions may be subject to additional state, local and
foreign taxes, depending on each shareholder's particular situation.

MARKET DISCOUNT. If a Fund purchases a debt security at a price lower than the
stated redemption price of such debt security, the excess of the stated
redemption price over the purchase price is "market discount". If the amount of
market discount is more than a de minimis amount, a portion of such market
discount must be included as ordinary income (not capital gain) by such Fund in
each taxable year in which the Fund owns an interest in such debt security and
receives a principal payment on it. In particular, the Fund will be required to
allocate that principal payment first to the portion of the market discount on
the debt security that has accrued but has not previously been includable in
income. In general, the amount of market discount that must be included for each
period is equal to the lesser of (i) the amount of market discount accruing
during such period (plus any accrued market discount for prior periods not
previously taken into account) or (ii) the amount of the principal payment with
respect to such period. Generally, market discount accrues on a daily basis for
each day the debt security is held by the Fund at a constant rate over the time
remaining to the debt security's maturity or, at the election of the Fund, at a
constant yield to maturity which takes into account the semi-annual compounding
of interest. Gain realized on the disposition of a market discount obligation
must be

33
<PAGE>

recognized as ordinary interest income (not capital gain) to the extent of the
"accrued market discount."

ORIGINAL ISSUE DISCOUNT. Certain debt securities acquired by the Funds may be
treated as debt securities that were originally issued at a discount. Very
generally, original issue discount is defined as the difference between the
price at which a security was issued and its stated redemption price at
maturity. Although no cash income on account of such discount is actually
received by the Funds, original issue discount that accrues on a debt security
in a given year generally is treated for federal income tax purposes as interest
and, therefore, such income would be subject to the distribution requirements
applicable to regulated investment companies. Some debt securities may be
purchased by the Funds at a discount that exceeds the original issue discount on
such debt securities, if any. This additional discount represents market
discount for federal income tax purposes (see above).

OPTIONS, FUTURES AND FORWARD CONTRACTS. Any regulated futures contracts and
certain options (namely, nonequity options and dealer equity options) in which a
Fund may invest may be "section 1256 contracts." Gains (or losses) on these
contracts generally are considered to be 60% long-term and 40% short-term
capital gains or losses. Also, section 1256 contracts held by a Fund at the end
of each taxable year (and on certain other dates prescribed in the Code) are
"marked to market" with the result that unrealized gains or losses are treated
as though they were realized.

Transactions in options, futures and forward contracts undertaken by the Funds
may result in "straddles" for federal income tax purposes. The straddle rules
may affect the character of gains (or losses) realized by a Fund, and losses
realized by the Fund on positions that are part of a straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which the losses are realized. In
addition, certain carrying charges (including interest expense) associated with
positions in a straddle may be required to be capitalized rather than deducted
currently. Certain elections that the Funds may make with respect to its
straddle positions may also affect the amount, character and timing of the
recognition of gains or losses from the affected positions.

Because only a few regulations implementing the straddle rules have been
promulgated, the consequences of such transactions to a Fund are not entirely
clear. The straddle rules may increase the amount of short-term capital gain
realized by the Fund, which is taxed as ordinary income when distributed to
shareholders. Because application of the straddle rules may affect the character
of gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to shareholders as ordinary income or long-term capital gain may be
increased or decreased substantially as compared to a fund that did not engage
in such transactions.

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<PAGE>

respect to the appreciated position. In that event, the Fund would be treated as
if it had sold and immediately repurchased the property and would be taxed on
any gain (but not loss) from the constructive sale. The character of gain from a
constructive sale would depend upon the Fund's holding period in the property.
Loss from a constructive sale would be recognized when the property was
subsequently disposed of, and its character would depend on the Fund's holding
period and the application of various loss deferral provisions of the Code.
Constructive sale treatment does not apply to transactions closed in the 90-day
period ending with the 30th day after the close of the taxable year, if certain
conditions are met.

MASTER PORTFOLIO ORGANIZATION

The Master Portfolios are series of Master Investment Portfolio ("MIP"), an
open-end, series management investment company organized as Delaware business
trust. MIP was organized on October 21, 1993. In accordance with Delaware law
and in connection with the tax treatment sought by MIP, the Declaration of Trust
provides that its investors are personally responsible for Trust liabilities and
obligations, but only to the extent the Trust property is insufficient to
satisfy such liabilities and obligations. The Declaration of Trust also provides
that MIP must maintain appropriate insurance (for example, fidelity bonding and
errors and omissions insurance) for the protection of the Trust, its investors,
Trustees, officers, employees and agents covering possible tort and other
liabilities, and that investors will be indemnified to the extent they are held
liable for a disproportionate share of MIP's obligations. Thus, the risk of an
investor incurring financial loss on account of investor liability is limited to
circumstances in which both inadequate insurance existed and MIP itself was
unable to meet its obligations.

The Declaration of Trust further provides that obligations of MIP are not
binding upon its Trustees individually but only upon the property of MIP and
that the Trustees will not be liable for any action or failure to act, but
nothing in the Declarations of Trust protects a Trustee against any liability to
which the Trustee would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties involved in the
conduct of the Trustee's office.

The interests in the Master Portfolios have substantially identical voting and
other rights as those rights enumerated above for shares of the Funds. MIP is
generally not required to hold annual meetings, but is required by Section 16(c)
of the 1940 Act to hold a special meeting and assist investor communications
under certain circumstances. Whenever one of the Funds is requested to vote on a
matter with respect to the Master Portfolio in which it invests, that Fund will
hold a meeting of Fund shareholders and will cast its votes as instructed by
such shareholders.

In a situation where a Fund does not receive instruction from certain of its
shareholders on how to vote the corresponding shares of the applicable
Portfolio, such Fund will vote such shares in the same proportion as the shares
for which the Fund does receive voting instructions.

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<PAGE>

MASTER/FEEDER STRUCTURE. Each Fund seeks to achieve its investment objective by
investing all of its assets into the corresponding Master Portfolio of MIP. The
Funds and other entities investing in a Master Portfolio are each liable for all
obligations of such Master Portfolio. However, the risk of a Fund incurring
financial loss on account of such liability is limited to circumstances in which
both inadequate insurance existed and MIP itself is unable to meet its
obligations. Accordingly, the Trust's Board of Trustees believes that neither a
Fund nor its shareholders will be adversely affected by investing Fund assets in
a Master Portfolio. However, if a mutual fund or other investor withdraws its
investment from such Master Portfolio, the economic efficiencies (e.g.,
spreading fixed expenses among a larger asset base) that the Trust's Board of
Trustees believes may be available through investment in the Master Portfolio
may not be fully achieved. In addition, given the relative novelty of the
master/feeder structure, accounting or operational difficulties, although
unlikely, could arise.

A Fund may withdraw its investment in a Master Portfolio only if the Trust's
Board of Trustees determines that such action is in the best interests of such
Fund and its shareholders. Upon any such withdrawal, the Trust's Board of
Trustees would consider alternative investments, including investing all of the
Fund's assets in another investment company with the same investment objective
as the Fund or hiring an investment adviser to manage the Fund's assets in
accordance with the investment policies described below with respect to the
Master Portfolio.

Certain policies of the Master Portfolio which are non-fundamental may be
changed by vote of a majority of MIP's Trustees without interestholder approval.
If the Master Portfolio's investment objective or fundamental or non-fundamental
policies are changed, the Fund may elect to change its objective or policies to
correspond to those of the Master Portfolio. A Fund also may elect to redeem its
interests in the corresponding Master Portfolio and either seek a new investment
company with a matching objective in which to invest or retain its own
investment adviser to manage the Fund's portfolio in accordance with its
objective. In the latter case, a Fund's inability to find a substitute
investment company in which to invest or equivalent management services could
adversely affect shareholders' investments in the Fund. The Funds will provide
shareholders with 30 days' written notice prior to the implementation of any
change in the investment objective of the Fund or the Master Portfolio, to the
extent possible.

PERFORMANCE INFORMATION

The Premier S&P 500, U.S.A. Bond and International Funds may advertise a variety
of types of performance information as more fully described below. All of the
Funds' performance is historical and past performance does not guarantee the
future performance of the Funds. From time to time, the Investment Adviser may
agree to waive or reduce its management fee and/or to reimburse certain
operating expenses of the Funds. Waivers of management fees and reimbursement of
other expenses will have the effect of increasing the Funds' performance.

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<PAGE>

AVERAGE ANNUAL TOTAL RETURN. The Premier S&P 500, U.S.A. Bond and International
Funds' average annual total return quotation will be computed in accordance with
a standardized method prescribed by rules of the SEC. The average annual total
return for these Funds for a specific period is calculated as follows:

P(1+T)(To the power of n) = ERV

Where:

P = a hypothetical initial payment of $10,000

T = average annual total return

N = number of years

ERV = ending redeemable value of a hypothetical $10,000 payment made at the
beginning of the applicable period at the end of the period.

The calculation assumes that all income and capital gains dividends paid by
these Funds have been reinvested at net asset value on the reinvestment dates
during the period and all recurring fees charges to all shareholder accounts are
included.

TOTAL RETURN. Calculation of each of the Premier S&P 500, U.S.A. Bond and
International Funds' total return is not subject to a standardized formula.
Total return performance for a specific period will be calculated by first
taking an investment (assumed below to be $10,000) ("initial investment") in
these Funds' shares on the first day of the period and computing the "ending
value" of that investment at the end of the period. The total return percentage
is then determined by subtracting the initial investment from the ending value
and dividing the remainder by the initial investment and expressing the result
as a percentage. The calculation assumes that all income and capital gains
dividends paid by these Funds have been reinvested at net asset value of the
Funds on the reinvestment dates during the period. Total return may also be
shown as the increased dollar value of the hypothetical investment over the
period.

CUMULATIVE TOTAL RETURN. Cumulative total return represents the simple change in
value of an investment over a stated period and may be quoted as a percentage or
as a dollar amount. Total returns and cumulative total returns may be broken
down into their components of income and capital (including capital gains and
changes in share price) in order to illustrate the relationship between these
factors and their contributions to total return.

DISTRIBUTION RATE. The distribution rate for each of the Premier S&P 500, U.S.A.
Bond and International Funds will be computed according to a non-standardized
formula by dividing the total amount of actual distributions per share paid by
the applicable Fund over a twelve month period by that Fund's net asset value on
the last day of the period. The distribution rate differs from these Funds'
yield because the distribution rate includes distributions to shareholders from
sources other than dividends and interest, such as

37
<PAGE>

short-term capital gains. Therefore, these Funds' distribution rate may be
substantially different than its yield. Both the Funds' yield and distribution
rates will fluctuate.

YIELD. The yield for the Funds, including the Money Market Reserve Fund,
fluctuates from time to time, unlike bank deposits or other investments that pay
a fixed yield for a stated period of time, and does not provide a basis for
determining future yields since it is based on historical data. Yield is
generally a function of portfolio quality, composition, maturity and market
conditions as well as the expenses allocated to the particular Fund. The yield
will be calculated based on a 30-day (or one-month) period, computed by dividing
the net investment income per share earned during the period by the maximum
offering price per share on the last day of the period and annualizing the
result, according to the following formula:

YIELD = 2[(a-b+1)(To the power of 6)-1],
-----
cd

where:

a = dividends and interest earned during the period;

b = expenses accrued for the period (net of reimbursements);

c = the average daily number of shares outstanding during the period
that were entitled to receive dividends;

d = the maximum offering price per share on the last day of the period.

The net investment income of the Index Funds include actual interest income,
plus or minus amortized purchase discount (which may include original issue
discount) or premium, less accrued expenses. Realized and unrealized gains and
losses on portfolio securities are not included in the Index Funds' net
investment income.

Current yield for the Money Market Reserve Fund is calculated based on the net
changes, exclusive of capital changes, over a seven day and/or thirty day
period, in the value of a hypothetical pre-existing account having a balance of
one share at the beginning of the period, subtracting a hypothetical charge
reflecting deductions from shareholder accounts, and dividing the difference by
the value of the account at the beginning of the base period to obtain the base
period return, and then multiplying the base period return by (365/7) with the
resulting yield figure carried to at least the nearest hundredth of one percent.

Effective yield for the Money Market Reserve Fund is calculated by determining
the net change exclusive of capital changes in the value of a hypothetical
pre-existing account having a balance of one share at the beginning of the
period, subtracting a hypothetical charge reflecting deductions from shareholder
accounts, and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return, and then
compounding the base period return by adding one, raising the same to a power
equal to 365 divided by seven, and subtracting one from the result.

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<PAGE>

PERFORMANCE COMPARISONS:

CERTIFICATES OF DEPOSIT. Investors may want to compare a Fund's performance to
that of certificates of deposit offered by banks and other depositary
institutions. Certificates of deposit may offer fixed or variable interest rates
and principal is guaranteed and may be insured. Withdrawal of the deposits prior
to maturity normally will be subject to a penalty. Rates offered by banks and
other depositary institutions are subject to change at any time specified by the
issuing institution.

MONEY MARKET FUNDS. Investors may also want to compare performance of a Fund to
that of money market funds. Money market fund yields will fluctuate and shares
are not insured, but share values usually remain stable.

LIPPER ANALYTICAL SERVICES, INC. ("LIPPER") AND OTHER INDEPENDENT RANKING
ORGANIZATIONS. From time to time, in marketing and other fund literature, a
Fund's performance may be compared to the performance of other mutual funds in
general or to the performance of particular types of mutual funds with similar
investment goals, as tracked by independent organizations. Among these
organizations, Lipper, a widely used independent research firm which ranks
mutual funds by overall performance, investment objectives, and assets, may be
cited. Lipper performance figures are based on changes in net asset value, with
all income and capital gains dividends reinvested. Such calculations do not
include the effect of any sales charges imposed by other funds. A Fund may be
compared to Lipper's appropriate fund category, that is, by fund objective and
portfolio holdings. A Fund's performance may also be compared to the average
performance of its Lipper category.

MORNINGSTAR, INC. A Fund's performance may also be compared to the performance
of other mutual funds by Morningstar, Inc., which rates funds on the basis of
historical risk and total return. Morningstar's ratings range from five stars
(highest) to one star (lowest) and represent Morningstar's assessment of the
historical risk level and total return of a fund as a weighted average for 3, 5,
and 10 year periods. Ratings are not absolute and do not represent future
results.

INDEPENDENT SOURCES. Evaluations of fund performance made by independent sources
may also be used in advertisements concerning the Funds, including reprints of,
or selections from, editorials or articles about the Funds, especially those
with similar objectives. Sources for fund performance and articles about the
Funds may include publications such as Money, Forbes, Kiplinger's, Smart Money,
Financial World, Business Week, U.S. News and World Report, The Wall Street
Journal, Barron's, and a variety of investment newsletters.

INDICES. The Funds may compare their performance to a wide variety of indices.
There are differences and similarities between the investments that a Fund may
purchase and the investments measured by the indices.

HISTORICAL ASSET CLASS RETURNS. From time to time, marketing materials may
portray the historical returns of various asset classes. Such presentations will
typically compare the

39
<PAGE>

average annual rates of return of inflation, U.S. Treasury bills, bonds, common
stocks, and small stocks. There are important differences between each of these
investments that should be considered in viewing any such comparison. The market
value of stocks will fluctuate with market conditions, and small-stock prices
generally will fluctuate more than large-stock prices. Stocks are generally more
volatile than bonds. In return for this volatility, stocks have generally
performed better than bonds or cash over time. Bond prices generally will
fluctuate inversely with interest rates and other market conditions, and the
prices of bonds with longer maturities generally will fluctuate more than those
of shorter-maturity bonds. Interest rates for bonds may be fixed at the time of
issuance, and payment of principal and interest may be guaranteed by the issuer
and, in the case of U.S. Treasury obligations, backed by the full faith and
credit of the U.S. Treasury.

The historical S&P 500 data presented from time to time is not intended to
suggest that an investor would have achieved comparable results by investing in
any one equity security or in managed portfolios of equity securities, such as
the Fund, during the periods shown.

PORTFOLIO CHARACTERISTICS. In order to present a more complete picture of a
Fund's portfolio, marketing materials may include various actual or estimated
portfolio characteristics, including but not limited to median market
capitalizations, earnings per share, alphas, betas, price/earnings ratios,
returns on equity, dividend yields, capitalization ranges, growth rates,
price/book ratios, top holdings, sector breakdowns, asset allocations, quality
breakdowns, and breakdowns by geographic region.

MEASURES OF VOLATILITY AND RELATIVE PERFORMANCE. Occasionally statistics may be
used to specify fund volatility or risk. The general premise is that greater
volatility connotes greater risk undertaken in achieving performance. Measures
of volatility or risk are generally used to compare a fund's net asset value or
performance relative to a market index. One measure of volatility is beta. Beta
is the volatility of a fund relative to the total market as represented by the
Standard & Poor's 500 Stock Index. A beta of more than 1.00 indicates volatility
greater than the market, and a beta of less than 1.00 indicates volatility less
than the market. Another measure of volatility or risk is standard deviation.
Standard deviation is a statistical tool that measures the degree to which a
fund's performance has varied from its average performance during a particular
time period.

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<PAGE>

Standard deviation is calculated using the following formula:

Standard deviation = the square root of S(xi - xm)2
-------
n-1

Where: S = "the sum of",

xi = each individual return during the time period,

xm = the average return over the time period, and

n = the number of individual returns during the time period.

Statistics may also be used to discuss a Fund's relative performance. One such
measure is alpha. Alpha measures the actual return of a fund compared to the
expected return of a fund given its risk (as measured by beta). The expected
return is based on how the market as a whole performed, and how the particular
fund has historically performed against the market. Specifically, alpha is the
actual return less the expected return. The expected return is computed by
multiplying the advance or decline in a market representation by the fund's
beta. A positive alpha quantifies the value that the fund manager has added, and
a negative alpha quantifies the value that the fund manager has lost. Other
measures of volatility and relative performance may be used as appropriate.
However, all such measures will fluctuate and do not represent future results.

Discussions of economic, social, and political conditions and their impact on
the Funds may be used in advertisements and sales materials. Such factors that
may impact the Funds include, but are not limited to, changes in interest rates,
political developments, the competitive environment, consumer behavior, industry
trends, technological advances, macroeconomic trends, and the supply and demand
of various financial instruments. In addition, marketing materials may cite the
portfolio management's views or interpretations of such factors.

MASTER FUND PERFORMANCE. The Funds intend to disclose historical performance of
the Master Portfolios, including the average annual and cumulative returns
restated to reflect the expense ratio of the Funds. This information will be
included by amendment. Although the investments of the Master Portfolios will be
reflected in the Funds, the Funds are distinct mutual funds and have different
fees, expenses and returns than the Master Portfolios. Historical performance of
substantially similar mutual funds is not indicative of future performance of
the Funds. Portfolio performance will be supplied by the Master Portfolio.

41
<PAGE>

APPENDIX

DESCRIPTION OF COMMERCIAL PAPER RATINGS

A-1 AND PRIME-1 COMMERCIAL PAPER RATINGS

The rating A-1 (including A-1+) is the highest commercial paper rating assigned
by S&P. Commercial paper rated A-1 by S&P has the following characteristics:

- liquidity ratios are adequate to meet cash requirements;

- long-term senior debt is rated "A" or better;

- the issuer has access to at least two additional channels of
borrowing;

- basic earnings and cash flow have an upward trend with allowance made
for unusual circumstances;

- typically, the issuer's industry is well established and the issuer
has a strong position within the industry; and

- the reliability and quality of management are unquestioned.

Relative strength or weakness of the above factors determines whether the
issuer's commercial paper is rated A-1, A-2 or A-3. Issues rated A-1 that are
determined by S&P to have overwhelming safety characteristics are designated
A-1+.

The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Among the factors considered by Moody's in assigning ratings are the following:

- evaluation of the management of the issuer;

- economic evaluation of the issuer's industry or industries and an
appraisal of speculative-type risks which may be inherent in certain
areas;

- evaluation of the issuer's products in relation to competition and
customer acceptance;

- liquidity;

- amount and quality of long-term debt;

- trend of earnings over a period of ten years;

- financial strength of parent company and the relationships which exist
with the issuer; and

- recognition by the management of obligations which may be present or
may arise as a result of public interest questions and preparations to
meet such obligations.

<PAGE>

DESCRIPTION OF BOND RATINGS

Bonds are considered to be "investment grade" if they are in one of the top four
ratings.

S&P's ratings are as follows:

- Bonds rated AAA have the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.

- Bonds rated AA have a very strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than bonds
in higher rated categories.

- Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than bonds
in higher rated categories.

- Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this category than in higher
rated categories.

- Debt rated BB, B, CCC, CC or C is regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the
obligation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse debt conditions.

- The rating C1 is reserved for income bonds on which no interest is
being paid.

- Debt rated D is in default and payment of interest and/or repayment of
principal is in arrears.

The ratings from AA to CCC may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within the major rating categories.

Moody's ratings are as follows:

- Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally
referred to as "gilt-edged." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.

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<PAGE>

- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long
term risks appear somewhat larger than in Aaa securities.

- Bonds which are rated A possess many favorably investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but
elements may be present which suggest a susceptibility to impairment
some time in the future.

- Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.

- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in this class.

- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or
of maintenance of other terms of the contract over any long period of
time may be small.

- Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.

- Bonds which are rated Ca represent obligations which are speculative
to a high degree. Such issues are often in default or have other
marked shortcomings.

- Bonds which are rated C are the lowest class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.

Moody's applies modifiers to each rating classification from Aa through B to
indicate relative ranking within its rating categories. The modifier "1"
indicates that a security ranks in the higher end of its rating category; the
modifier "2" indicates a mid-range ranking and the modifier "3" indicates that
the issue ranks in the lower end of its rating category.

<PAGE>

PART B

STATEMENT OF ADDITIONAL INFORMATION

X.COM PREMIER MONEY MARKET FUND
X.COM SMALL CAP INDEX FUND

<PAGE>

STATEMENT OF ADDITIONAL INFORMATION

X.COM PREMIER MONEY MARKET FUND
X.COM SMALL CAP INDEX FUND

MAY __, 2000

This Statement of Additional Information ("SAI") is not a prospectus. This SAI
should be read together with the Prospectus for the X.com Premier Money Market
Fund (the "Money Market Fund") and the X.com Small Cap Index Fund (the "Small
Cap Index Fund" and, together with the Money Market Fund, the "Funds"), dated
May __, 2000 (as amended from time to time).

<PAGE>

TABLE OF CONTENTS

PAGE
----
HISTORY OF THE FUNDS...........................................................1

THE FUNDS......................................................................1

INVESTMENT STRATEGIES AND RISKS................................................1

FUND POLICIES.................................................................11

MASTER PORTFOLIO POLICIES.....................................................13

TRUSTEES AND OFFICERS.........................................................16

INVESTMENT MANAGEMENT.........................................................18

SERVICE PROVIDERS.............................................................19

MASTER PORTFOLIO TRANSACTIONS AND BROKERAGE SELECTION.........................21

ORGANIZATION, DIVIDEND AND VOTING RIGHTS......................................22

SHAREHOLDER INFORMATION.......................................................23

TAXATION......................................................................27

MASTER PORTFOLIO ORGANIZATION.................................................30

PERFORMANCE INFORMATION.......................................................32

FINANCIAL STATEMENTS..........................................................36

APPENDIX......................................................................37

i
<PAGE>

HISTORY OF THE FUNDS

Each Fund is a diversified series of X.com Funds (the "Trust"). The Trust is
organized as a Delaware business trust and was formed on June 7, 1999.

THE FUNDS

Each Fund is classified as a diversified open-end, management investment
company.

THE MASTER PORTFOLIOS. Master Investment Portfolio ("MIP") is an open-end
management investment company organized as a Delaware business trust. The policy
of the each Fund to invest all of its assets in the Master Portfolio is a
fundamental policy of each Fund and a shareholder vote is required for a Fund to
withdraw its investment from the related Master Portfolio.

The investment objective of each Fund is fundamental and, therefore, may not be
changed without approval of a majority (as defined in the Investment Company Act
of 1940, as amended (the "1940 Act")) of that Fund's outstanding voting
interests.

INVESTMENT STRATEGIES AND RISKS

Because each Fund invests all of its assets in the related Master Portfolio, the
investment characteristics and investment risks of each Fund correspond to those
of the related Master Portfolio. The following supplements the discussion in the
Prospectus of the principal investment strategies, policies and risks that
pertain to the Master Portfolios and, accordingly, to the related Fund. In
addition to discussing the principal risks of investing in the Master Portfolios
and the Funds, this section also describes the non-principal risks of such
investments. These investment strategies and policies may be changed without
shareholder approval unless otherwise noted.

FUTURES CONTRACTS AND OPTIONS TRANSACTIONS. The Russell 2000 -Registered
Trademark- Portfolio may use futures as a substitute for a comparable market
position in the underlying securities.

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<PAGE>

exercise price of the option on the futures contract. The potential loss related
to the purchase of options on futures contracts is limited to the premium paid
for the option (plus transaction costs). Because the value of the option is
fixed at the time of sale, there are no daily cash payments to reflect changes
in the value of the underlying contract; however, the value of the option does
change daily and that change would be reflected in the net asset value of the
Russell 2000 -Registered Trademark- Portfolio.

Although the Russell 2000 -Registered Trademark- Portfolio intends to purchase
or sell futures contracts only if there is an active market for such contracts,
no assurance can be given that a liquid market will exist for any particular
contract at any particular time. Many futures exchanges and boards of trade
limit the amount of fluctuation permitted in futures contract prices during a
single trading day. Once the daily limit has been reached in a particular
contract, no trades may be made that day at a price beyond that limit or trading
may be suspended for specified periods during the trading day. Futures contract
prices could move to the limit for several consecutive trading days with little
or no trading, thereby preventing prompt liquidation of futures positions and
potentially subjecting these Portfolios to substantial losses. If it is not
possible, or if the Russell 2000 -Registered Trademark- Portfolio determines not
to close a futures position in anticipation of adverse price movements, the
Russell 2000 -Registered Trademark- Portfolio will be required to make daily
cash payments on variation margin.

The Russell 2000 -Registered Trademark- Portfolio may invest in stock index
futures and options on stock index futures as a substitute for a comparable
market position in the underlying securities. A stock index future obligates the
seller to deliver (and the purchaser to take), effectively, an amount of cash
equal to a specific dollar amount times the difference between the value of a
specific stock index at the close of the last trading day of the contract and
the price at which the agreement is made. No physical delivery of the underlying
stocks in the index is made. With respect to stock indices that are permitted
investments, the Russell 2000 -Registered Trademark- Portfolio intends to
purchase anD sell futures contracts on the stock index for which it can obtain
the best price with consideration also given to liquidity. There can be no
assurance that a liquid market will exist at the time when the Russell 2000
- -Registered Trademark- Portfolio seeks to close out a futures contract or a
futures option position. Lack of a liquid market may prevent liquidation of an
unfavorable position.

The Russell 2000 -Registered Trademark- Portfolio's futures transactions must
constitute permissible transactions pursuant to regulations promulgated by the
Commodity Futures Trading Commission ("CFTC"). In addition, the Russell 2000
- -Registered Trademark- Portfolio may not engage in futures transactions if the
sum of the amount of initial margin deposits and premiums paid for unexpired
options on futures contracts, other than those contracts entered into for bona
fide hedging purposes, would exceed 5% of the liquidation value of the assets of
the Russell 2000 -Registered Trademark- Portfolio, after taking into account
unrealized profits and unrealized losses on such contracts; provided, however,
that in the case of an option on a futures contract that is in-the-money at the
time of purchase, the in-the-money amount may be excluded in calculating the 5%
liquidation limit. Pursuant to regulations and/or published positions of the
Securities and Exchange Commission ("SEC"), the Russell 2000 -Registered
Trademark- Portfolio may be required to designate cash or liquid securities in
connection with its

2
<PAGE>

futures transactions in an amount generally equal to the entire value of the
underlying security.

FUTURE DEVELOPMENTS. The Russell 2000 -Registered Trademark- Portfolio may take
advantage of opportunities in the area of options and futures contracts and
options on futures contracts and any other derivative investments which are not
presently contemplated for use by the Russell 2000 -Registered Trademark-
Portfolio or which are not currently available but which may be developed, to
the extent such opportunities are both consistent with the respective
Portfolio's investment objective and legally permissible for the Russell 2000
- -Registered Trademark- Portfolio. Before entering into such transactions or
making any such investment, the Small Cap Index Fund will provide appropriate
disclosure in their prospectus.

FORWARD COMMITMENTS, WHEN-ISSUED PURCHASES AND DELAYED-DELIVERY TRANSACTIONS.
The Master Portfolios may purchase or sell securities on a when-issued or
delayed-delivery basis and make contracts to purchase or sell securities for a
fixed price at a future date beyond customary settlement time. Securities
purchased or sold on a when-issued, delayed-delivery or forward commitment basis
involve a risk of loss if the value of the security to be purchased declines, or
the value of the security to be sold increases, before the settlement date.
Although the Master Portfolios will generally purchase securities with the
intention of acquiring them, a Master Portfolio may dispose of securities
purchased on a when-issued, delayed-delivery or a forward commitment basis
before settlement when deemed appropriate by the Master Portfolio's investment
advisor.

Securities purchased on a when-issued or forward commitment basis may expose the
Master Portfolios to risk because they may experience fluctuations in value
prior to their actual delivery. Purchasing a security on a when-issued basis can
involve a risk that the market price at the time of delivery may be lower than
the agreed-upon purchase price, in which case there could be an unrealized loss
at the time of delivery. Neither Master Portfolio currently intends to invest
more than 5% of its assets in when-issued securities during the coming year. A
Master Portfolio will designate cash or liquid securities in an amount at least
equal in value to that Master Portfolio's commitments to purchase when-issued
securities. If the value of these assets declines, the Master Portfolio will
designate additional liquid assets on a daily basis so that the value of the
assets in the account is equal to the amount of such commitments. Because the
Master Portfolio will designate cash and other liquid securities as described
above, the liquidity of the Master Portfolio's investment portfolio may decrease
as the proportion of securities in the Master Portfolio's portfolio purchased on
a when-issued or forward commitment basis increases.

3
<PAGE>

Master Portfolio agrees to purchase the securities. When a Master Portfolio
makes a forward commitment to sell securities it owns, the proceeds to be
received upon settlement are not reflected in the Master Portfolio's net asset
value as long as the commitment remains in effect.

SHORT-TERM INSTRUMENTS. The Money Market Portfolio will primarily invest in
money market instruments. The instruments in which the Money Market Portfolio
may invest include: (i) short-term obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities (including government-sponsored
enterprises); (ii) negotiable certificates of deposit ("CDs"), banker's
acceptances, fixed time deposits and other obligations of domestic banks
(including foreign branches) that have more than $1 billion in total assets at
the time of investment and that are members of the Federal Reserve System or are
examined by the Comptroller of the Currency or whose deposits are insured by the
FDIC; (iii) commercial paper rated at the date of purchase "Prime-1" by Moody's
or "A-1+" or "A-1" by S&P, or, if unrated, of comparable quality as determined
by Portfolio's investment advisor; (iv) non-convertible corporate debt
securities (e.g., bonds and debentures) with remaining maturities at the date of
purchase of not more than one year that are rated at least "Aa" by Moody's or
"AA" by S&P; (v) repurchase agreements; and (vi) short-term, U.S.
dollar-denominated obligations of foreign banks (including U.S. branches) that,
at the time of investment have more than $10 billion, or the equivalent in other
currencies, in total assets and that, in the opinion of the Money Market
Portfolio's investment advisor, are of comparable quality to obligations of U.S.
banks which may be purchased by the Money Market Portfolio.

Certificates of deposit are negotiable certificates evidencing the obligation of
a bank to repay funds deposited with it for a specified period of time. Time
deposits are non-negotiable deposits maintained in a banking institution for a
specified period of time at a stated interest rate. Time deposits, which may be
held by the Master Portfolios, will not benefit from insurance from the Bank
Insurance Fund or the Savings Association Insurance Fund administered by the
Federal Deposit Insurance Corporation. Banker's acceptances are credit
instruments evidencing the obligation of a bank to pay a draft drawn on it by a
customer. These instruments reflect the obligation both of the bank and of the
drawer to pay the face amount of the instrument upon maturity. The other
short-term obligations may include uninsured, direct obligations, bearing fixed,
floating- or variable-interest rates.

4
<PAGE>

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.

COMMERCIAL PAPER AND SHORT-TERM CORPORATE DEBT INSTRUMENTS. The Master
Portfolios may invest in commercial paper (including variable amount master
demand notes), which consists of short-term, unsecured promissory notes issued
by corporations to finance short-term credit needs. Commercial paper is usually
sold on a discount basis and has a maturity at the time of issuance not
exceeding nine months. Variable amount master demand notes are demand
obligations that permit the investment of fluctuating amounts at varying market
rates of interest pursuant to arrangements between the issuer and a commercial
bank acting as agent for the payee of such notes whereby both parties have the
right to vary the amount of the outstanding indebtedness on the notes. The
investment adviser to the Master Portfolios monitors on an ongoing basis the
ability of an issuer of a demand instrument to pay principal and interest on
demand.

The Master Portfolios also may invest in non-convertible corporate debt
securities (e.g., bonds and debentures) with not more than one year remaining to
maturity at the date of settlement. The Master Portfolios will invest only in
such corporate bonds and debentures that are rated at the time of purchase at
least "Aa" by Moody's or "AA" by S&P. Subsequent to its purchase by a Master
Portfolio, an issuer of securities may cease to be rated or its rating may be
reduced below the minimum rating required for purchase by the Master Portfolio.
The investment adviser to the Master Portfolios will consider such an event in
determining whether the related Master Portfolio should continue to hold the
obligation. To the extent the Master Portfolio continues to hold such
obligations, it may be subject to additional risk of default.

5
<PAGE>

policies contained in the Prospectus and in this SAI. The ratings of Moody's and
S&P and other nationally recognized statistical rating organizations are more
fully described in the attached Appendix.

REPURCHASE AGREEMENTS. The Master Portfolios may enter into repurchase
agreements wherein the seller of a security to a Master Portfolio agrees to
repurchase that security from the Master Portfolio at a mutually-agreed upon
time and price. The period of maturity is usually quite short, often overnight
or a few days, although it may extend over a number of months. The Master
Portfolios may enter into repurchase agreements only with respect to securities
that could otherwise be purchased by the related Master Portfolio, including
government securities and mortgage-related securities, regardless of their
remaining maturities, and requires that additional securities be deposited with
the custodian if the value of the securities purchased should decrease below the
repurchase price.

The Master Portfolios may incur a loss on a repurchase transaction if the seller
defaults and the value of the underlying collateral declines or is otherwise
limited or if receipt of the security or collateral is delayed. The Master
Portfolios' custodian has custody of, and holds in segregated accounts,
securities acquired as collateral by each Master Portfolio under repurchase
agreements. Repurchase agreements are considered loans by the Master Portfolios.
All repurchase transactions must be 100% collateralized.

FLOATING- AND VARIABLE-RATE OBLIGATIONS. The Master Portfolios may purchase
floating-rate and variable-rate obligations as described in the Prospectus. The
Master Portfolios may purchase debt instruments with interest rates that are
periodically adjusted at specified intervals or whenever a benchmark rate or
index changes. These adjustments generally limit the increase or decrease in the
amount of interest received on the debt instruments. The Master Portfolios may
purchase 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 Master
Portfolios to invest fluctuating amounts, which may change daily without
penalty, pursuant to direct arrangements between the related Master Portfolio,
as lender, and the borrower.

Floating- and variable-rate instruments are subject to interest-rate risk and
credit risk. The issuer of such obligations ordinarily has a corresponding
right, after a given period, to prepay in its discretion the outstanding
principal amount of the obligations plus accrued interest upon a specified
number of day's notice to the holders of such obligations. The interest rate on
a floating-rate demand obligation is based on a known leading rate, such as a
bank's prime rate, and is adjusted automatically each time such

6
<PAGE>

rate is adjusted. The interest rate on a variable-rate demand obligation is
adjusted automatically at specified intervals. Frequently, such obligations are
secured by letters of credit or other credit support arrangements provided by
banks. Because these obligations are direct lending arrangements between the
lender and borrower, it is not contemplated that such instruments generally will
be traded, and there generally is no established secondary market for these
obligations, although they are redeemable at face value. Accordingly, where
these obligations are not secured by letters of credit or other credit support
arrangements, the Master 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 Master Portfolio may
invest in obligations which are not so rated only if BGFA determines that at the
time of investment the obligations are of comparable quality to the other
obligations in which the related Master Portfolio may invest. BGFA, on behalf of
the related Master Portfolio, considers on an ongoing basis the creditworthiness
of the issuers of the floating- and variable-rate demand obligations in the
Master Portfolio's portfolio. Neither Master Portfolio will 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, provided that an active secondary market
exists.

LOANS OF PORTFOLIO SECURITIES. The Master Portfolios may lend their securities
to brokers, dealers and financial institutions, provided (1) the loan is secured
continuously by collateral consisting of cash, U.S. Government securities or an
irrevocable letter of credit which is marked to market daily to ensure that each
loan is fully collateralized; (2) the Master Portfolio may at any time recall
the loan and obtain the return of the securities loaned within five business
days; (3) the Master Portfolio will receive any interest or dividends paid on
the securities loaned; and (4) the aggregate market value of securities loaned
will not at any time exceed one-third of the total assets of the Master
Portfolio. The Master Portfolios may earn income in connection with securities
loans either through the reinvestment of the cash collateral or the payment of
fees by the borrower. Neither Master Portfolio currently intends to lend its
portfolio securities.

In determining whether to lend a security to a particular broker, dealer or
financial institution, the Master Portfolios' investment adviser considers all
relevant facts and circumstances, including the size, creditworthiness and
reputation of the broker, dealer, or financial institution. Any loans of
portfolio securities are fully collateralized and marked to market daily.
Neither Master Portfolio will enter into any portfolio security lending
arrangement having a duration of longer than one year. Any securities that a
Master Portfolio may receive as collateral will not become part of the Master
Portfolio's investment portfolio at the time of the loan and, in the event of a
default by the borrower, the Master Portfolio will, if permitted by law, dispose
of such collateral except for such part thereof that is a security in which the
Master Portfolio is permitted to invest. During the time securities are on loan,
the borrower will pay the Master Portfolio any accrued income on those
securities, and the Master Portfolio may invest the cash collateral and earn
income or receive an agreed upon fee from a borrower that has delivered
cash-equivalent collateral.

7
<PAGE>

INVESTMENT COMPANY SECURITIES. The Russell 2000 -Registered Trademark- Portfolio
may invest in securities issued by other open-end management investment
companies that principally invest in securities of the type in which the Russell
2000 -Registered Trademark- Portfolio invests. Under the 1940 Act, the Russell
2000 -Registered Trademark- Portfolio's investment in such securities currently
is limited to, subject to certain exceptions, (i) 3% of the total voting stock
of any one investment company, (ii) 5% of the Russell 2000 -Registered
Trademark- Portfolio's net assets with respect to any one investment company and
(iii) 10% of the Russell 2000 -Registered Trademark- Portfolio's net assets in
the aggregate. Investments in the securities of other investment companies
generally will involve duplication of advisory fees and certain other expenses.
The Russell 2000 -Registered Trademark- Portfolio may also purchase shares of
exchange-listed closed-end funds.

ILLIQUID SECURITIES. To the extent that such investments are consistent with its
investment objective, the Russell 2000 -Registered Trademark- Portfolio may
invest up to 15% of the value of its net assets in securities as to which a
liquid trading market does not exist. Such securities may include securities
that are not readily marketable, such as privately issued securities and other
securities that are subject to legal or contractual restrictions on resale,
floating- and variable-rate demand obligations as to which the Russell 2000
- -Registered Trademark- Portfolio cannot exercise a demand feature on not more
than seven day's notice and as to which there is no secondary market and
repurchase agreements providing for settlement more than seven days after
notice.

FOREIGN SECURITIES. The stocks of some foreign issuers may be included in the
Russell 2000 -Registered Trademark- Portfolio, as well as American Depositary
Receipts and similar instruments, which may subject the Russell 2000 -Registered
Trademark- Portfolio to additional investment risks with respect to those
securities that are different in some respects from those incurred by a fund
that invests only in securities of domestic issuers. These risks include
possible adverse political and economic developments, seizure or nationalization
of foreign deposits or adoption of governmental restrictions which might
adversely affect the value of the securities of a foreign issuer to investors
located outside the country of the issuer, whether from currency blockage or
otherwise. These securities may not necessarily be denominated in the same
currency as the securities into which they may be converted. ADRs (sponsored or
unsponsored) are receipts typically issued by a U.S. bank or trust company and
traded on a U.S. Stock Exchange, that evidence ownership of underlying foreign
securities. Issuers of unsponsored ADRs are not contractually obligated to
disclose material information in the U.S. and, therefore, such information may
not correlate to the market value of the unsponsored ADR.

OBLIGATIONS OF FOREIGN GOVERNMENTS, BANKS AND CORPORATIONS. The Russell 2000
- -Registered Trademark- Portfolio may invest in U.S. dollar-denominated
short-term obligations issued or guaranteed by one or more foreign governments
or any of their political subdivisions, agencies or instrumentalities that are
determined by their investment advisor to be of comparable quality to the other
obligations in which the Russell 2000 -Registered Trademark- Portfolio may
invest. To the extent that such investments are consistent with its investment
objective, the Russell 2000 -Registered Trademark- Portfolio may also invest in
debt obligations of supranational entities. Supranational entities include
international organizations designated or supported by governmental entities to
promote economic reconstruction or development and international banking
institutions and related government agencies. Examples include the

8
<PAGE>

International Bank for Reconstruction and Development (the World Bank), the
European Coal and Steel Community, the Asian Development Bank and the
InterAmerican Development Bank. The percentage of the Russell 2000 -Registered
Trademark- Portfolio's assets invested in obligations of foreign governments and
supranational entities will vary depending on the relative yields of such
securities, the economic and financial markets of the countries in which the
investments are made and the interest rate climate of such countries.

The Russell 2000 -Registered Trademark- Portfolio may also invest a portion of
its total assets in high quality, short-term (one year or less) debt obligations
of foreign branches of U.S. banks or U.S. branches of foreign banks that are
denominated in and pay interest in U.S. dollars.

UNRATED, DOWNGRADED AND BELOW INVESTMENT GRADE INVESTMENTS. The Money Market
Portfolio may purchase instruments that are not rated if they are purchased in
accordance with the Money Market Portfolio's procedures in accordance with Rule
2a-7 of the 1940 Act. The Russell 2000 -Registered Trademark- Portfolio may
purchase instruments that are not rated if, in the opinion of its investment
advisor, such obligations are of investment quality comparable to other rated
investments that are permitted to be purchased by the Russell 2000 -Registered
Trademark- Portfolio. After purchase by a Master Portfolio, a security may cease
to be rated or its rating may be reduced below the minimum required for purchase
by the

9
<PAGE>

Master Portfolio. Neither event will require a sale of such security by the
master Portfolio provided that when a security ceases to be rated, the Board of
Trustees for the related Master Portfolio determines that such security presents
minimal credit risks and provided further that, when a security is downgraded
below the eligible quality for investment or no longer presents minimal credit
risks, the Board of Trustees finds that the sale of such security would not be
in the best interests of the related Master Portfolio. In no event will such
securities exceed 5% of a Master Portfolio's net assets. To the extent the
ratings given by Moody's or S&P may change as a result of changes in such
organizations or their rating systems, the Master Portfolios will attempt to use
comparable ratings as standards for investments in accordance with the
investment policies contained in this SAI. The ratings of Moody's and S&P are
more fully described in the Appendix to this SAI.

Because the Master Portfolios are not required to sell downgraded securities, a
Master Portfolio could hold up to 5% of its net assets in debt securities rated
below "Baa" by Moody's or below "BBB" by S&P or in unrated, low quality (below
investment grade) securities. Although they may offer higher yields than do
higher rated securities, low rated, and unrated, low quality debt securities
generally involve greater volatility of price and risk of principal and income,
including the possibility of default by, or bankruptcy of, the issuers of the
securities. In addition, the markets in which low rated and unrated, low quality
debt are traded are more limited than those in which higher rated securities are
traded. The existence of limited markets for particular securities may diminish
the Master Portfolios' ability to sell the securities at fair value either to
meet redemption requests or to respond to changes in the economy or in the
financial markets and could adversely affect and cause fluctuations in the daily
net asset value of the Master Portfolio's shares.

Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the values and liquidity of low rated or unrated, low
quality debt securities, especially in a thinly traded market. Analysis of the
creditworthiness of issuers of low rated or unrated, low quality debt securities
may be more complex than for issuers of higher rated securities, and the ability
of the Master Portfolios to achieve their investment objectives may, to the
extent the Master Portfolios hold low rated or unrated low quality debt
securities, be more dependent upon such creditworthiness analysis than would be
the case if the Master Portfolios held exclusively higher rated or higher
quality securities.

Low rated or unrated low quality debt securities may be more susceptible to real
or perceived adverse economic and competitive industry conditions than
investment grade securities. The prices of such debt securities have been found
to be less sensitive to interest rate changes than higher rated or higher
quality investments, but more sensitive to adverse economic downturns or
individual corporate developments. A projection of an economic downturn or of a
period of rising interest rates, for example, could cause a decline in low rated
or unrated, low quality debt securities prices because the advent of a recession
could dramatically lessen the ability of a highly leveraged company to make
principal and interest payments on its debt securities. If the issuer of the
debt securities defaults, the Master Portfolios may incur additional expenses to
seek recovery.

10
<PAGE>

FUND POLICIES

FUNDAMENTAL INVESTMENT RESTRICTIONS OF THE FUNDS

Unless noted otherwise, if a percentage restriction is adhered to at the time of
investment, a later increase or decrease in percentage resulting from a change
in the Fund's assets (I.E., due to cash inflows or redemptions) or in market
value of the investment or the Fund's assets will not constitute a violation of
that restriction.

Unless indicated otherwise below, neither Fund may::

1. with respect to 75% of its total assets, invest in the securities of
any one issuer (other than the U.S. Government and its agencies and
instrumentalities) if immediately after and as a result of such investment more
than 5% of the total assets of the Fund would be invested in such issuer and the
Fund would hold more than 10% of the outstanding voting securities of that
issuer. There are no limitations with respect to the remaining 25% of its total
assets, except to the extent other investment restrictions may be applicable;

2. issue senior securities, as defined in the 1940 Act, except that this
restriction will not be deemed to prohibit a Fund from (a) making any permitted
borrowings, mortgages or pledges, or (b) entering into permissible repurchase
and dollar roll transactions;

3. borrow money, except to the extent permitted under the 1940 Act;

4. act as an underwriter of another issuer's securities, except to the
extent that the Fund may be deemed to be an underwriter within the meaning of
the Securities Act of 1933, as amended (the "Securities Act"), in connection
with the disposition of portfolio securities;

5. purchase the securities of any issuer if, as a result, more than 25%
of the Fund's total assets (taken at market value at the time of such
investment) would be invested in the securities of issuers in any particular
industry, provided, however, that (i) this restriction does not apply to
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities (or repurchase agreements thereto), or obligations of domestic
banks, to the extent that the SEC, by rule or interpretation, permits funds to
reserve freedom to concentrate in such obligations, and (ii) the Small Cap Index
Fund will concentrate in obligations to the same degree that the Russell 2000
- -Registered Trademark- Index concentrate in those obligations during the same
period;

11
<PAGE>

6. purchase or sell real estate, although it may purchase securities
secured by real estate or interests therein, or securities issued by companies
which invest in real estate, or interests therein;

7. invest in commodities. This restriction shall not prohibit the Small
Cap Index Fund, subject to restrictions described in the Prospectus and
elsewhere in this Statement of Additional Information, from purchasing, selling
or entering into futures contracts, options on futures contracts and other
derivative instruments, subject to compliance with any applicable provisions of
the federal securities or commodities laws;

8. lend any funds or other assets, except that a Fund may, consistent
with its investment objective and policies: (a) invest in certain short-term or
temporary debt obligations, even though the purchase of such obligations may be
deemed to be the making of loans, (b) enter into repurchase agreements and (c)
in the case of the Small Cap Index Fund, lend its portfolio securities in an
amount not to exceed 33 1/3% of the Fund's total assets, provided such loans are
made in accordance with applicable guidelines established by the SEC and the
Trustees of the Small Cap Index Fund;

9. borrow money, except for temporary or emergency purposes from a bank,
or pursuant to reverse repurchase agreements or dollar roll transactions and
then not in excess of one-third of the value of the total assets of the Fund
(including the proceeds of such borrowings, at the lower of cost or market
value). Any such borrowing will be made only if immediately thereafter there is
an asset coverage of at least 300% of all borrowings, and no additional
investments may be made while any such borrowings are in excess of 10% of total
assets. Transactions that are fully collateralized in a manner that does not
involved the prohibited issuance of a "senior security" within the meaning of
Section 18(f) of the 1940 Act will not be regarded as borrowings for the
purposes of this restriction; or

10. mortgage, pledge or hypothecate any of its assets except in connection
with permissible borrowings and permissible forward contracts, futures contracts
or other hedging transactions.

NON-FUNDAMENTAL INVESTMENT RESTRICTIONS OF THE FUNDS

The following are the Funds' non-fundamental operating restrictions, which may
be changed by the Funds' Board of Trustees without shareholder approval.

1. The Funds may invest in shares of other open-end management investment
companies, subject to the limitations of Section 12(d)(1) of the 1940 Act. Under
the 1940 Act, the Funds' investment in such securities currently is limited,
subject to certain exceptions, to (a) 3% of the total voting stock of any one
investment company; (b) 5% of the Fund's net assets with respect to any one
investment company; and (c) 10% of the Fund's net assets in the aggregate. Other
investment companies in which the Funds invest can be expected to charge fees
for operating expenses, such as investment advisory and administration fees that
would be in additions to those charged by the Funds.

12
<PAGE>

2. Neither Fund may invest more than 15% of its net assets in illiquid
securities. For this purpose, illiquid securities include, among others, (a)
securities that are illiquid by virtue of the absence of a readily available
market or legal or contractual restrictions on resale, (b) fixed time deposits
that are subject to withdrawal penalties an that have maturities of more than
seven days, and (c) repurchase agreements not terminable within seven days.

3. Each Fund may lend securities from its portfolio to brokers, dealers,
financial institutions, in amounts not to exceed (in the aggregate) one-third of
the Fund's total assets. Any such loans of portfolio securities will be fully
collateralized based on values that are marked to market daily. Neither Fund
will enter into any portfolio security lending arrangement having a duration of
longer than one year.

MASTER PORTFOLIO POLICIES

FUNDAMENTAL INVESTMENT RESTRICTIONS

The Master Portfolios are subject to the following fundamental investment
restrictions which cannot be changed without approval by the holders of a
majority (as defined in the 1940 Act) of the related Master Portfolio's
outstanding voting securities. If a percentage restriction is adhered to at the
time of investment, a later change in percentage resulting from a change in
values or assets will not constitute a violation of such restriction.

Neither Master 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 Master Portfolio's investments in that industry would
be 25% or more of the current value of the Master Portfolio's total assets,
provided that there is no limitation with respect to investments in (a)
obligations of the U.S. Government, its agencies or instrumentalities; (b)
obligations of domestic banks, to the extent that the SEC, by rule or
interpretation, permits funds to reserve freedom to concentrate in such
obligations and (c) with respect to the Russell 2000 -Registered Trademark-
Portfolio, any industry in which the Russell 2000 -Registered Trademark- Index
becomes concentrated to the same degree during the same period;

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 a Master 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;

13
<PAGE>

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 a Master Portfolio's investment program may be deemed to be an
underwriting;

7. make investments for the purpose of exercising control or management;

8. borrow money or issue senior securities as defined in the 1940 Act,
except that a Master Portfolio may borrow from banks up to 10% of the current
value of its net assets for temporary purposes only in order to meet
redemptions, and these borrowings may be secured by the pledge of up to 10% of
the current value of its net assets (but investments may not be purchased while
any such outstanding borrowings in excess of 5% of its net assets exists);

9. with respect to the Money Market Portfolio, write, purchase or sell
puts, calls, straddles, spreads, warrants, options or any combination thereof,
except that the Money Market 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 its total assets, more than 5% of the value of
the Master Portfolio's total assets would be invested in the securities of any
one issuer or, with respect to 100% of its total assets the Master Portfolio's
ownership would be more than 10% of the outstanding voting securities of such
issuer; or

11. make loans, except that a Master Portfolio may purchase or hold debt
instruments or lend its portfolio securities in accordance with its investment
policies, and may enter into repurchase agreements.

NON-FUNDAMENTAL INVESTMENT RESTRICTIONS.

The Master Portfolios are subject to the following investment restrictions, all
of which are non-fundamental policies.

As a matter of non-fundamental policy:

1. The Master Portfolios may invest in shares of other open-end
management investment companies, subject to the limitations of Section 12(d)(1)
of the 1940 Act. Under the 1940 Act, the Master Portfolios' investment in such
securities currently is limited, subject to certain exceptions, to (a) 3% of the
total voting stock of any one investment company, (b) 5% of a Master Portfolio's
net assets with respect to any one investment company; and (c) 10% of a Master
Portfolio's net assets in the aggregate. Other investment companies in which a
Master Portfolio invests can be expected to

14
<PAGE>

charge fees for operating expenses, such as investment advisory and
administration fees, that would be in addition to those charged by the Master
Portfolio.

2. Neither Master Portfolio may invest more than 10% of its net assets in
illiquid securities. For this purpose, illiquid securities include, among
others, (a) securities that are illiquid by virtue of the absence of a readily
available market or legal or contractual restrictions on resale, (b) fixed time
deposits that are subject to withdrawal penalties and that have maturities of
more than seven days, and (c) repurchase agreements not terminable within seven
days.

3. Each Master Portfolio may lend securities from its portfolio to
brokers, dealers and financial institutions, in amounts not to exceed (in the
aggregate) one-third of the related Master Portfolio's total assets. Any such
loans of portfolio securities will be fully collateralized based on values that
are marked to market daily. Neither Master Portfolio will enter into any
portfolio security lending arrangement having a duration of longer than one
year.

15
<PAGE>

TRUSTEES AND OFFICERS

The Trust's Board of Trustees has the responsibility for the overall management
of the Funds, including general supervision and review of their investment
activities and the conformity with Delaware law and the stated policies of the
Funds. The Board of Trustees elects the officers of the Trust who are
responsible for administering the Funds' day-to-day operations. Trustees and
officers of the Funds are listed below, together with information as to their
principal business occupations during the last five years, and other
information. Each "interested or affiliated person," as defined in the 1940 Act,
is indicated by an asterisk (*):

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Name, Address, and Position(s) Held with the Principal Occupation(s) During the Past
Age Trust 5 Years
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Nicole E. Faucher Trustee President, Nicole E Faucher & Associates
(Internet company) (1998-present); formerly,
President, R.V. Kohn's & Associates
(investment consulting) (1996-98); Managing
Director, Western Region, SEI Capital
Resources (investment consulting) (1993-96)

Kevin T. Hamilton Trustee Principal and Portfolio Manager, Messner &
Smith Investment Management Limited
(1998-present); formerly, Executive Vice
President, Montgomery Asset Management, LLC
(1991-98).

Elon R. Musk* Trustee, Director, President, and Treasurer, X.com
Asset Management, Inc. (1999-present);
Chairman and Chief Executive Officer, X.com
Chairman of the Board of (1999-present); Executive Vice President and
Trustees Principal Founder, Zip2 Corp. (1995-99);
Teaching Assistant, Business Education,
Wharton School of Business, University of
Pennsylvania (1994-95)

16
<PAGE>

Gregory N. River Trustee Founder, Owner, and President, Paladin
Consulting Company (1996-present);
Consultant (investment services),
Self-Employed (1994-96).

John T. Story* Trustee; President Executive Vice President, X.com,
(1999-present); President, John T. Story &
Associates (mutual fund consulting)
(1998-99); Executive Vice President,
Montgomery Asset Management (1994-1998).
</TABLE>

*Each of Mr. Musk and Mr. Story is an "interested person" of the Trust (as that
term is defined in the 1940 Act) because of his affiliations with the Funds.

<TABLE>
<CAPTION>
ESTIMATED COMPENSATION TABLE
- -----------------------------------------------------------------------------------------------------------
Aggregate Total Compensation From Funds
Compensation from and Trust Expected to be Paid to
Name of Person, Position the Funds Trustees(1)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Nicole E. Faucher $2,000 $2,000

Kevin T. Hamilton $2,000 $2,000

Gregory N. River $2,000 $2,000
</TABLE>

No Trustee will receive any benefits upon retirement. Thus, no pension or
retirement benefits have accrued as part of the Funds' expenses.

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

A shareholder that owns 25% or more of a Fund's voting securities is in control
of that Fund on matters submitted to a vote of shareholders. Upon commencement
of operations

17
<PAGE>

and shortly after, X.com Asset Management, Inc., the Funds' investment adviser,
will own 100% of the Funds' outstanding shares. There are no other shareholders
holding 25% or more.

INVESTMENT MANAGEMENT

INVESTMENT ADVISERS. Under an Investment Advisory Agreement (the "Investment
Advisory Agreement") with the Trust, X.com Asset Management, Inc. (the
"Investment Adviser") provides investment advisory services to the Funds. The
Investment Adviser is a wholly owned subsidiary of X.com Corporation, a Delaware
corporation.

Subject to general supervision of the Trust's Board of Trustees and in
accordance with the investment objective, policies and restrictions of the
Funds, the Investment Adviser provides the Funds with ongoing investment
guidance, policy direction and monitoring of the Master Portfolios. The
Investment Adviser may in the future manage cash and money market instruments
for cash flow purposes. The Investment Adviser also provides or arranges for
administration, transfer agency, custody and all other services necessary for
the Funds to operate. The Investment Adviser has only limited experience
managing mutual funds beginning in November 1999.

The Money Market Fund pays the Investment Adviser an annual investment advisory
fee of 0.50% and the Small Cap Index Fund pays the Investment Adviser an annual
investment advisory fee of 0.26%. In addition, the Investment Adviser has
entered into an expense limitation and reimbursement agreement with the Trust,
under which the Investment Adviser will waive 0.10% of the investment advisory
fees payable to it by the Money Market Fund and all investment advisory fees
over a contractual expense limitation of 0.60% with respect to the Small Cap
Index Fund.

THE MASTER PORTFOLIOS' INVESTMENT ADVISER. The Master Portfolios' investment
adviser is Barclays Global Fund Advisors ("BGFA"). BGFA is a direct subsidiary
of Barclays Global Investors, N.A. (which, in turn, is an indirect subsidiary of
Barclays Bank PLC ("Barclays")) and is located at 45 Fremont Street, San
Francisco, California 94105. BFGA has provided assets management, administration
and advisory services for over 25 years. As of December 31, 1999, BGFA and its
affiliates provided investment advisory services for over $____ billion of
assets. Barclays Bank PLC has been involved in banking in the United Kingdom for
over 300 years. Pursuant to an Investment Advisory Contract dated January 1,
1996 (the "Advisory Contract") with the Master Portfolios, BGFA provides
investment guidance and policy direction in connection with the management of
the Master Portfolios' assets. Pursuant to the Advisory Contract, BGFA furnishes
to the Master Portfolios' Board of Trustees periodic reports on the investment
strategy and performance of the Master Portfolio. BGFA receives fees from the
Money Market Portfolio and the Russell 2000 -Registered Trademark- Portfolio at
annual rates equal to 0.10% and ___%, respectively, of the related Master
Portfolio's average daily net assets. This advisory fee is an expense of the
Master Portfolio borne proportionately by its interestholders, including the
Funds.

18
<PAGE>

BGFA has agreed to provide to the Master Portfolios, among other things,
research, analysis and statistical and economic data and information concerning
interest rate and security market trends, portfolio composition, credit
conditions and average maturities of the Master Portfolios' investment
portfolio.

The Advisory Contract will continue in effect for each Master Portfolio provided
that the continuance is approved annually (i) by the holders of a majority of
the Master Portfolio's outstanding voting securities or by the Master
Portfolio's Board of Trustees and (ii) by a majority of the Trustees of the
Master Portfolio who are not parties to the Advisory Contract or affiliated with
any such party. The Advisory Contract may be terminated on 60 days' written
notice by either party and will terminate automatically if assigned.

Asset allocation and modeling strategies are employed by BGFA for other
investment companies and accounts advised or sub-advised by BGFA. If these
strategies indicate particular securities should be purchased or sold at the
same time by one or more Master Portfolios and one or more of these investment
companies or accounts, available investments or opportunities for sales will be
allocated equitably to each by BGFA. In some cases, these procedures may
adversely affect the size of the position obtained for or disposed of by the
Master Portfolios or the price paid or received by the Master Portfolios.

SERVICE PROVIDERS

ADMINISTRATOR OF THE FUNDS. Investors Bank & Trust Company ("IBT"), 200
Clarendon Street, Boston, MA 02111, serves as the Funds' administrator. As the
Funds' administrator, IBT provides administrative services directly or through
sub-contracting, including: (i) general supervision of the operation of the
Funds, including coordination of the services performed by the investment
adviser, transfer and dividend disbursing agent, custodian, shareholder
servicing agent, independent auditors and legal counsel; (ii) general
supervision of regulatory compliance matters, including the compilation of
information for documents such as reports to, and filings with, the SEC and
state securities commissions; and (iii) periodic reviews of management reports
and financial reporting. IBT also furnishes office space and certain facilities
required for conducting the business of the Funds. The Investment Adviser pays
IBT for all administrative services provided to the Funds.

19
<PAGE>

reports for the Master Portfolio; and (iii) general supervision related to the
compilation of data required for the preparation of periodic reports distributed
to the Master Portfolios' officers and Board of Trustees. Stephens also
furnishes office space and certain facilities required for conducting the
business of the Master Portfolios together with those ordinary clerical and
bookkeeping services that are not furnished by BGFA. Stephens also pays the
compensation of the Master Portfolios' Trustees, officers and employees who are
affiliated with Stephens. Furthermore, except as provided in the advisory
contract, Stephens and BGI bear substantially all costs of the Master Portfolios
and the Master Portfolios' operations. However, Stephens and BGI are not
required to bear any cost or expense which a majority of the non-affiliated
Trustees of the Master Portfolio deem to be an extraordinary expense.

CUSTODIAN AND FUND ACCOUNTING SERVICES AGENT. IBT also serves as custodian of
the assets of the Funds and the Master Portfolios. As a result, IBT has custody
of all securities and cash of the Funds and the Master Portfolios, delivers and
receives payment for securities sold, receives and pays for securities
purchased, collects income from investments, and performs other duties, all as
directed by the officers of the Funds and the Master Portfolios. The custodian
has no responsibility for any of the investment policies or decisions of the
Funds or the Master Portfolios. IBT also acts as the Funds' Accounting Services
Agent. The Investment Adviser pays IBT for all custodial services provided to
the Funds.

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. X.com Asset Management, Inc., 394
University Avenue, Palo Alto, California 94301, acts as transfer agent and
dividend disbursing agent for the Funds.

FUND SHAREHOLDER SERVICING AGENT. Under a Shareholder Servicing Agreement, the
Bank acts as shareholder servicing agent for the Funds. As shareholder servicing
agent, the Bank provides personal services to the Funds' shareholders and
maintains the Funds' shareholder accounts. Such services include, (i) answering
shareholder inquiries regarding account status and history, the manner in which
purchases and redemptions of the Funds' shares may be effected, and certain
other matters pertaining to the Funds; (ii) assisting shareholders in
designating and changing dividend options, account designations and addresses;
(iii) providing necessary personnel and facilities to coordinate the
establishment and maintenance of shareholder accounts and records with the
Funds' transfer agent; (iv) transmitting shareholder's purchase and redemption
orders to the Funds' transfer agent; (v) arranging for the wiring or other
transfer of funds to and from shareholder accounts in connection with
shareholder orders to purchase or redeem shares of the Funds; (vi) verifying
purchase and redemption orders, transfers among and changes in
shareholder-designated accounts; (vii) informing the distributor of the Funds of
the gross amount of purchase and redemption orders for the Funds' shares; (viii)
providing certain printing and mailing services, such as printing and mailing of
shareholder account statements, checks, and tax forms; and (ix) providing such
other related services as a Fund or a shareholder may reasonably request, to the
extent permitted by applicable law.

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<PAGE>

INDEPENDENT AUDITORS. _______________, 99 High Street, Boston, Massachusetts,
02110, acts as independent auditors for the Funds.

LEGAL COUNSEL. Paul, Hastings, Janofsky & Walker LLP, 345 California Street, San
Francisco, California 94104, acts as legal counsel for the Trust and the Funds.

MASTER PORTFOLIO TRANSACTIONS AND BROKERAGE SELECTION

FOR THE MASTER PORTFOLIOS. The Master Portfolios have 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 Master Portfolios' Board of
Trustees, BGFA, as investment adviser to the Master Portfolios (the "Master
Adviser"), is responsible for the Master Portfolios' investment portfolio
decisions and the placing of portfolio transactions. In placing orders, it is
the policy of the Master Portfolios to obtain the best results taking into
account the broker/dealer's general execution and operational facilities, the
type of transaction involved and other factors such as the broker/dealer's risk
in positioning the securities involved. While the Master Adviser generally seeks
reasonably competitive spreads or commissions, the Master Portfolios will not
necessarily be paying the lowest spread or commission available.

Under the 1940 Act, persons affiliated with a Master Portfolio, such as the
Master Adviser, and their affiliates are prohibited from dealing with that
Master Portfolio as a principal in the purchase and sale of securities unless an
exemptive order allowing such transactions is obtained from the SEC or an
exemption is otherwise available.

Except in the case of equity securities purchased by a Master Portfolio,
purchases and sales of securities usually will be principal transactions.
Portfolio securities normally will be purchased or sold from or to dealers
serving as market makers for the securities at a net price. The Master
Portfolios also will purchase portfolio securities in underwritten offerings and
may purchase securities directly from the issuer. Generally, money market
securities, adjustable rate mortgage securities ("ARMS"), municipal obligations,
and collateralized mortgage obligations ("CMOs") are traded on a net basis and
do not involve brokerage commissions. The cost of executing the Master
Portfolios' investment portfolio securities transactions will consist primarily
of dealer spreads and underwriting commissions.

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<PAGE>

affiliates of the Master Adviser. In the over-the-counter market, securities are
generally traded on a "net" basis with dealers acting as principal for their own
accounts without a stated commission, although the price of the security usually
includes a profit to the dealer. In underwritten offerings, securities are
purchased at a fixed price that includes an amount of compensation to the
underwriter, generally referred to as the underwriter's concession or discount.

In placing orders for portfolio securities of the Master Portfolios, the Master
Adviser is required to give primary consideration to obtaining the most
favorable price and efficient execution. This means that the Master Adviser
seeks to execute each transaction at a price and commission, if any, that
provide the most favorable total cost or proceeds reasonably attainable in the
circumstances. While the Master Adviser generally seeks reasonably competitive
spreads or commissions, the Master Portfolios will not necessarily be paying the
lowest spread or commission available. In executing portfolio transactions and
selecting brokers or dealers, the Master Adviser seeks to obtain the best
overall terms available for the Master Portfolios. In assessing the best overall
terms available for any transaction, the Master 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. Rates are established pursuant to
negotiations with the broker based on the quality and quantity of execution
services provided by the broker in the light of generally prevailing rates. The
allocation of orders among brokers and the commission rates paid are reviewed
periodically by the Master Portfolios' Board of Trustees.

ORGANIZATION, DIVIDEND AND VOTING RIGHTS

Each Fund is a diversified series of X.com Funds (the "Trust"), an open-end
investment company, organized as a Delaware business trust on June 7, 1999. The
Trust may issue additional series and classes.

All shares of the Trust have equal voting rights. Approval by the shareholders
of a Fund is effective as to that Fund whether or not sufficient votes are
received from the

22
<PAGE>

shareholders of the other investment portfolios to approve the proposal as to
those investment portfolios.

Each share of a Fund represents an equal proportional interest in that Fund and
is entitled to such dividends and distributions out of the income earned on the
assets belonging to the Fund as are declared in the discretion of the Trustees.
In the event of the liquidation or dissolution of the Trust, shareholders of a
Fund are entitled to receive the assets attributable to that Fund that are
available for distribution, and a distribution of any general assets not
attributable to a particular investment portfolio that are available for
distribution in such manner and on such basis as the Trustees in their sole
discretion may determine.

Shareholders are not entitled to any preemptive rights. All shares, when issued,
will be fully paid and non-assessable by the Trust.

Under Delaware law, the shareholders of the Funds are not generally subject to
liability for the debts or obligations of the Trust. Similarly, Delaware law
provides that a series of the Trust will not be liable for the debts or
obligations of any other series of the Trust. However, no similar statutory or
other authority limiting business trust shareholder liability exists in other
states. As a result, to the extent that a Delaware business trust or a
shareholder is subject to the jurisdiction of courts of such other states, the
courts may not apply Delaware law and may thereby subject the Delaware business
trust shareholders to liability. To guard against this risk, the Declaration of
Trust contains an express disclaimer of shareholder liability for acts or
obligations of the Funds. Notice of such disclaimer will generally be given in
each agreement, obligation or instrument entered into or executed by a series or
the Trustees. The Declaration of Trust also provides for indemnification by the
relevant series for all losses suffered by a shareholder as a result of an
obligation of the series. In view of the above, the risk of personal liability
of shareholders of a Delaware business trust is remote.

SHAREHOLDER INFORMATION

Shares are sold through the Bank and are distributed by the Funds.

PRICING OF FUND SHARES. The net asset value per share of each Fund is calculated
as follows: all liabilities incurred or accrued are deducted from the valuation
of total assets, which includes accrued but undistributed income; the resulting
net assets are divided by the number of shares of the Fund outstanding at the
time of the valuation and the result (adjusted to the nearest cent) is the net
asset value per share.

As noted in the Prospectus, the net asset value of shares of each Fund generally
will be determined at least once daily as of 4:00 P.M., Eastern time (or earlier
when trading closes

23
<PAGE>

earlier), on each day the NYSE is open for trading. It is expected that the NYSE
will be closed on Saturdays and Sundays and for New Year's Day, Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas. The national bank holidays also
include: Columbus Day and Veterans' Day. The Funds may, but do not expect to,
determine the net asset values of their shares on any day when the NYSE is not
open for trading if there is sufficient trading in its portfolio securities on
such days to materially affect per-share net asset value.

Each Fund will use the net asset value reported by the related Master Portfolio
for its shares in calculating the Fund's net asset values.

THE SMALL CAP INDEX FUND

The Small Cap Index Fund's equity securities, including ADRs, EDRs and GDRs,
which are traded on securities exchanges are valued at the last sale price on
the exchange on which such securities are traded, as of the close of business on
the day the securities are being valued or, lacking any reported sales, at the
mean between the last available bid and asked price. Equity securities that are
traded on more than one exchange are valued on the exchange determined by the
Investment Adviser to be the primary market. Securities traded in the
over-the-counter market are valued at the mean between the last available bid
and asked price prior to the time of valuation. Securities and assets for which
market quotations are not readily available (including restricted securities
which are subject to limitations as to their sale) are valued at fair value as
determined in good faith by or under the direction of the Board.

Generally, trading in and valuation of foreign securities is substantially
completed each day at various times prior to the close of the NYSE. In addition,
trading in and valuation of foreign securities may not take place on every day
in which the NYSE is open for trading. Furthermore, trading takes place in
various foreign markets on days in which the NYSE is not open for trading and on
which the Small Cap Index Fund's net asset values are not calculated.
Occasionally, events affecting the values of such securities in U.S. dollars on
a day on which the Small Cap Index Fund calculates its net asset value may occur
between the times when such securities are valued and the close of the NYSE that
will not be reflected in the computation of the Small Cap Index Fund's net asset
value unless the Board or its delegates deem that such events would materially
affect the net asset value, in which case an adjustment would be made.

Short-term debt obligations with remaining maturities in excess of 60 days are
valued at current market prices, as discussed above. Short-term securities with
60 days or less remaining to maturity are, unless conditions indicate otherwise,
amortized to maturity based on their cost to the Small Cap Index Fund if
acquired within 60 days of maturity or,

24
<PAGE>

if already held by the Small Cap Index Fund on the 60th day, based on the value
determined on the 61st day.

Corporate debt securities, U.S. government securities, mortgage-related
securities and asset-backed fixed-income securities held by the Small Cap Index
Fund are valued on the basis of valuations provided by dealers in those
instruments, by an independent pricing service, or at fair value as determined
in good faith by procedures approved by the Board. Any such pricing service, in
determining value, will use information with respect to transactions in the
securities being valued, quotations from dealers, market transactions in
comparable securities, analyses and evaluations of various relationships between
securities and yield-to-maturity information.

An option that is written by the Small Cap Index Fund is generally valued at the
last sale price or, in the absence of the last sale price, the last offer price.
An option that is purchased by the Small Cap Index Fund is generally valued at
the last sale price or, in the absence of the last sale price, the last bid
price. The value of a futures contract equals the unrealized gain or loss on the
contract that is determined by marking the contract to the current settlement
price for a like contract on the valuation date of the futures contract if the
securities underlying the futures contract experience significant price
fluctuations after the determination of the settlement price. When a settlement
price cannot be used, futures contracts will be valued at their fair market
value as determined by or under the direction of the Board.

If any securities held by the Small Cap Index Fund are restricted as to resale
or do not have readily available market quotations, the Investment Adviser and
the Trust's Board or Pricing Committee determine their fair value, following
procedures approved by the Board. The Trustees periodically review such
valuations and valuation procedures. The fair value of such securities is
generally determined as the amount which the Small Cap Index Fund could
reasonably expect to realize from an orderly disposition of such securities over
a reasonable period of time. The valuation procedures applied in any specific
instance are likely to vary from case to case. However, consideration is
generally given to the financial position of the issuer and other fundamental
analytical data relating to the investment and to the nature of the restrictions
on disposition of the securities (including any registration expenses that might
be borne by the Small Cap Index Fund in connection with such disposition). In
addition, specific factors are also generally considered, such as the cost of
the investment, the market value of any unrestricted securities of the same
class (both at the time of purchase and at the time of valuation), the size of
the holding, the prices of any recent transactions or offers with respect to
such securities and any available analysts' reports regarding the issuer.

25
<PAGE>

suitable methodology for converting a foreign currency into U.S. dollars, the
Board in good faith will establish a conversion rate for such currency.

THE MONEY MARKET FUND

The Money Market Fund uses the amortized cost method to determine the value of
its portfolio securities pursuant to Rule 2a-7 under the 1940 Act. The amortized
cost method involves valuing a security at its cost and amortizing any discount
or premium over the period until maturity, regardless of the impact of
fluctuating interest rates on the market value of the security. 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.

Rule 2a-7 provides that in order to value the Money Market Portfolio using the
amortized cost method, the Money Market Fund must maintain a dollar-weighted
average portfolio maturity of 90 days or less, purchase securities having
remaining maturities (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 to
present minimal credit risks. The maturity of an instrument is generally deemed
to be the period remaining until the date when the principal amount thereof is
due or the date on which the instrument is to be redeemed. However, Rule 2a-7
provides that the maturity of an instrument may be deemed shorter in the case of
certain instruments, including certain variable- and floating-rate instruments
subject to demand features. Pursuant to the Rule, the Board is required to
establish procedures designed to stabilize, to the extent reasonably possible,
the Money Market Fund's price per share as computed for the purpose of sales and
redemptions at $1.00. Such procedures include review of the Money Market Fund's
portfolio holdings by the Board, at such intervals as it may deem appropriate,
to determine whether the Money Market Fund's net asset value calculated by using
available market quotations deviates from the $1.00 per share based on amortized
cost. The extent of any deviation will be examined by the Board. If such
deviation exceeds 1/2 of 1%, the Board will promptly consider what action, if
any, will be initiated. In the event the Board determines that a deviation
exists that may result in material dilution or other unfair results to
shareholders, the Board will take such corrective action as it regards as
necessary and appropriate, including the sale of portfolio instruments prior to
maturity to realize capital gains or losses or to shorten average portfolio
maturity, withholding dividends or establishing a net asset value per share by
using available market quotations.

All other assets of the each Fund are valued in such manner as the Board in good
faith deems appropriate to reflect their fair value.

TELEPHONE AND INTERNET REDEMPTION PRIVILEGES. The Trust employs reasonable
procedures to confirm that instructions communicated by telephone or the
Internet are genuine. Neither the Trust nor either Fund may be liable for losses
due to unauthorized or fraudulent instructions. Such procedures include but are
not limited to requiring a form of personal identification prior to acting on
instructions received by telephone or the Internet, providing written
confirmations of such transactions to the address of record, tape recording
telephone instructions and backing up Internet transactions.

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<PAGE>

TAXATION

Set forth below is a discussion of certain U.S. federal income tax issues
concerning the Funds and the purchase, ownership, and disposition of Fund
shares. This discussion does not purport to be complete or to deal with all
aspects of federal income taxation that may be relevant to shareholders in light
of their particular circumstances. This discussion is based upon present
provisions of the Internal Revenue Code of 1986, as amended (the "Code"), the
regulations promulgated thereunder, and judicial and administrative ruling
authorities, all of which are subject to change, which change may be
retroactive. Prospective investors should consult their own tax advisors with
regard to the federal tax consequences of the purchase, ownership, or
disposition of Fund shares, as well as the tax consequences arising under the
laws of any state, foreign country, or other taxing jurisdiction.

As a regulated investment company, a Fund generally is not subject to U.S.
federal income tax on income and gains that it distributes to shareholders, if
at least 90% of the Fund's investment company taxable income (which includes,
among other items, dividends, interest and the excess of any net short-term
capital gains over net long-term capital losses) for the taxable year is
distributed. Each Fund intends to distribute substantially all of such income.

Amounts not distributed on a timely basis in accordance with a calendar year
distribution requirement are subject to a nondeductible 4% excise tax at the
Fund level. To avoid the tax, the Fund must distribute during each calendar year
an amount equal to the sum of (1) at least 98% of its ordinary income (not
taking into account any capital gains or losses) for the calendar year, (2) at
least 98% of its capital gains in excess of its capital losses (adjusted for
certain ordinary losses) for a one-year period generally ending on October 31 of
the calendar year, and (3) all ordinary income and capital gains for previous
years that were not distributed during such years. To avoid application of the
excise tax, the Funds intend to make distributions in accordance with the
calendar year distribution requirement.

27
<PAGE>

Shareholders will be notified annually as to the U.S. federal tax status of
distributions, and shareholders receiving distributions in the form of newly
issued shares will receive a report as to the net asset value of the shares
received. A distribution will be treated as paid on December 31 of a calendar
year if it is declared by the Fund in October, November or December of that year
with a record date in such a month and paid by the Fund during January of the
following year. Such distributions will be taxable to shareholders in the
calendar year in which the distributions are declared, rather than the calendar
year in which the distributions are received.

If the net asset value of shares is reduced below a shareholder's cost as a
result of a distribution by a Fund, such distribution generally will be taxable
even though it represents a return of invested capital. Investors should be
careful to consider the tax implications of buying shares of a Fund just prior
to a distribution. The price of shares purchased at this time will include the
amount of the forthcoming distribution, but the distribution will generally be
taxable to the shareholder.

BACKUP WITHHOLDING. A Fund generally will be required to withhold federal income
tax at a rate of 31% ("backup withholding") from dividends paid, capital gain
distributions, and redemption proceeds to shareholders if (1) the shareholder
fails to furnish the Fund with the shareholder's correct taxpayer identification
number or social security number, (2) the IRS notifies the shareholder or the
Fund that the shareholder has failed to report

28
<PAGE>

properly certain interest and dividend income to the IRS and to respond to
notices to that effect, or (3) when required to do so, the shareholder fails to
certify that he or she is not subject to backup withholding. Any amounts
withheld may be credited against the shareholder's federal income tax liability.

OTHER TAXATION. Distributions may be subject to additional state, local and
foreign taxes, depending on each shareholder's particular situation.

MARKET DISCOUNT. If a Fund purchases a debt security at a price lower than the
stated redemption price of such debt security, the excess of the stated
redemption price over the purchase price is "market discount". If the amount of
market discount is more than a de minimis amount, a portion of such market
discount must be included as ordinary income (not capital gain) by the Fund in
each taxable year in which the Fund owns an interest in such debt security and
receives a principal payment on it. In particular, the Fund will be required to
allocate that principal payment first to the portion of the market discount on
the debt security that has accrued but has not previously been includable in
income. In general, the amount of market discount that must be included for each
period is equal to the lesser of (i) the amount of market discount accruing
during such period (plus any accrued market discount for prior periods not
previously taken into account) or (ii) the amount of the principal payment with
respect to such period. Generally, market discount accrues on a daily basis for
each day the debt security is held by a Fund at a constant rate over the time
remaining to the debt security's maturity or, at the election of the Fund, at a
constant yield to maturity which takes into account the semi-annual compounding
of interest. Gain realized on the disposition of a market discount obligation
must be recognized as ordinary interest income (not capital gain) to the extent
of the "accrued market discount."

ORIGINAL ISSUE DISCOUNT. Certain debt securities acquired by a Fund may be
treated as debt securities that were originally issued at a discount. Very
generally, original issue discount is defined as the difference between the
price at which a security was issued and its stated redemption price at
maturity. Although no cash income on account of such discount is actually
received by the Fund, original issue discount that accrues on a debt security in
a given year generally is treated for federal income tax purposes as interest
and, therefore, such income would be subject to the distribution requirements
applicable to regulated investment companies. Some debt securities may be
purchased by the Fund at a discount that exceeds the original issue discount on
such debt securities, if any. This additional discount represents market
discount for federal income tax purposes (see above).

OPTIONS, FUTURES AND FORWARD CONTRACTS. Any regulated futures contracts and
certain options (namely, nonequity options and dealer equity options) in which
the Fund may invest may be "section 1256 contracts." Gains (or losses) on these
contracts generally are considered to be 60% long-term and 40% short-term
capital gains or losses. Also, section 1256 contracts held by the Fund at the
end of each taxable year (and on certain other dates prescribed in the Code) are
"marked to market" with the result that unrealized gains or losses are treated
as though they were realized.

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<PAGE>

Transactions in options, futures and forward contracts undertaken by a Fund may
result in "straddles" for federal income tax purposes. The straddle rules may
affect the character of gains (or losses) realized by the Fund, and losses
realized by the Fund on positions that are part of a straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which the losses are realized. In
addition, certain carrying charges (including interest expense) associated with
positions in a straddle may be required to be capitalized rather than deducted
currently. Certain elections that the Fund may make with respect to its straddle
positions may also affect the amount, character and timing of the recognition of
gains or losses from the affected positions.

CONSTRUCTIVE SALES. Under certain circumstances, a Fund may recognize gain from
a constructive sale of an "appreciated financial position" it holds if it enters
into a short sale, forward contract or other transaction that substantially
reduces the risk of loss with respect to the appreciated position. In that
event, the Fund would be treated as if it had sold and immediately repurchased
the property and would be taxed on any gain (but not loss) from the constructive
sale. The character of gain from a constructive sale would depend upon the
Fund's holding period in the property. Loss from a constructive sale would be
recognized when the property was subsequently disposed of, and its character
would depend on the Fund's holding period and the application of various loss
deferral provisions of the Code. Constructive sale treatment does not apply to
transactions closed in the 90-day period ending with the 30th day after the
close of the taxable year, if certain conditions are met.

MASTER PORTFOLIO ORGANIZATION

Each Master Portfolio is a series of Master Investment Portfolio ("MIP"), an
open-end, series management investment company organized as Delaware business
trust. MIP was organized on October 21, 1993. In accordance with Delaware law
and in connection with the tax treatment sought by MIP, the Declaration of Trust
provides that its investors are personally responsible for Trust liabilities and
obligations, but only to the extent the Trust property is insufficient to
satisfy such liabilities and obligations. The Declaration of Trust also provides
that MIP must maintain appropriate insurance (for example, fidelity bonding and
errors and omissions insurance) for the protection of the Trust, its investors,
Trustees, officers, employees and agents covering possible tort and other
liabilities, and that investors will be indemnified to the extent they are held
liable for a disproportionate share of MIP's obligations. Thus, the risk of an
investor incurring financial loss on

30
<PAGE>

account of investor liability is limited to circumstances in which both
inadequate insurance existed and MIP itself was unable to meet its obligations.

The interests in the Master Portfolios have substantially identical voting and
other rights as those rights enumerated above for shares of the related Fund.
MIP is generally not required to hold annual meetings, but is required by
Section 16(c) of the 1940 Act to hold a special meeting and assist investor
communications under certain circumstances. Whenever a Fund is requested to vote
on a matter with respect to the Master Portfolio, the Fund will hold a meeting
of Fund shareholders and will cast its votes as instructed by such shareholders.

In a situation where a Fund does not receive instruction from certain of its
shareholders on how to vote the corresponding shares of its related Master
Portfolio, the Fund will vote such shares in the same proportion as the shares
for which the Fund does receive voting instructions.

MASTER/FEEDER STRUCTURE. Each Fund seeks to achieve its investment objective by
investing all of its assets into the Master Portfolio. The Funds and other
entities investing in a Master Portfolio are each liable for all obligations of
that Master Portfolio. However, the risk of a Fund incurring financial loss on
account of such liability is limited to circumstances in which both inadequate
insurance existed and MIP itself is unable to meet its obligations. Accordingly,
the Trust's Board of Trustees believes that neither a Fund nor its shareholders
will be adversely affected by investing Fund assets in a Master Portfolio.
However, if a mutual fund or other investor withdraws its investment from a
Master Portfolio, the economic efficiencies (e.g., spreading fixed expenses
among a larger asset base) that the Trust's Board of Trustees believes may be
available through investment in the Master Portfolio may not be fully achieved.
In addition, given the relative novelty of the master/feeder structure,
accounting or operational difficulties, although unlikely, could arise.

A Fund may withdraw its investment in the Master Portfolio only if the Trust's
Board of Trustees determines that such action is in the best interests of the
Fund and its shareholders. Upon any such withdrawal, the Trust's Board of
Trustees would consider alternative investments, including investing all of the
Fund's assets in another investment company with the same investment objective
as the Fund or hiring an investment adviser to manage the Fund's assets in
accordance with the investment policies described below with respect to the
Master Portfolio.

Certain policies of the Master Portfolio which are non-fundamental may be
changed by vote of a majority of MIP's Trustees without interestholder approval.
If a Master

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<PAGE>

Portfolio's investment objective or fundamental or non-fundamental policies are
changed, the related Fund may elect to change its objective or policies to
correspond to those of the Master Portfolio. The Fund also may elect to redeem
its interests in the Master Portfolio and either seek a new investment company
with a matching objective in which to invest or retain its own investment
adviser to manage the Fund's portfolio in accordance with its objective. In the
latter case, the Fund's inability to find a substitute investment company in
which to invest or equivalent management services could adversely affect
shareholders' investments in the Fund. Each Fund will provide shareholders with
30 days' written notice prior to the implementation of any change in the
investment objective of the Fund or the Master Portfolio, to the extent
possible.

PERFORMANCE INFORMATION

The Funds may advertise a variety of types of performance information as more
fully described below. All of the Funds' performance is historical and past
performance does not guarantee the future performance of a Fund. From time to
time, the Investment Adviser may agree to waive or reduce its management fee
and/or to reimburse certain operating expenses of a Fund. Waivers of management
fees and reimbursement of other expenses will have the effect of increasing the
Fund's performance.

AVERAGE ANNUAL TOTAL RETURN. Each Fund's average annual total return quotation
will be computed in accordance with a standardized method prescribed by rules of
the SEC. The average annual total return for each Fund for a specific period is
calculated as follows:

P(1+T)(To the power of n) = ERV

Where:

P = a hypothetical initial payment of $10,000 T = average annual total return
N = number of years
ERV = ending redeemable value of a hypothetical $10,000 payment made at the
beginning of the applicable period at the end of the period.

The calculation assumes that all income and capital gains dividends paid by the
Fund have been reinvested at net asset value on the reinvestment dates during
the period and all recurring fees charges to all shareholder accounts are
included.

TOTAL RETURN. Calculation of a Fund's total return is not subject to a
standardized formula. Total return performance for a specific period will be
calculated by first taking an investment (assumed below to be $10,000) ("initial
investment") in the Fund's shares on the first day of the period and computing
the "ending value" of that investment at the end of the period. The total return
percentage is then determined by subtracting the initial investment from the
ending value and dividing the remainder by the initial investment and expressing
the result as a percentage. The calculation assumes that all income and capital
gains dividends paid by the Fund have been reinvested at net asset value of the

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<PAGE>

Fund on the reinvestment dates during the period. Total return may also be shown
as the increased dollar value of the hypothetical investment over the period.

YIELD. The yield for each Fund fluctuates from time to time, unlike bank
deposits or other investments that pay a fixed yield for a stated period of
time, and does not provide a basis for determining future yields since it is
based on historical data. Yield is generally a function of portfolio quality,
composition, maturity and market conditions as well as the expenses allocated to
the particular fund. The yield will be calculated based on a 30-day (or
one-month) period, computed by dividing the net investment income per share
earned during the period by the maximum offering price per share on the last day
of the period and annualizing the result, according to the following formula:

YIELD = 2[(a-b+1)(To the power of 6)-1],
---
cd

where:

a = dividends and interest earned during the period;

b = expenses accrued for the period (net of reimbursements);

c = the average daily number of shares outstanding during the period that were
entitled to receive dividends;

d = the maximum offering price per share on the last day of the period.

Current yield for each Fund is calculated based on the net changes, exclusive of
capital changes, over a seven day and/or thirty day period, in the value of a
hypothetical pre-existing account having a balance of one share at the beginning
of the period, subtracting a hypothetical charge reflecting deductions from
shareholder accounts, and dividing the difference by the value of the account at
the beginning of the base period to obtain the base period return, and then
multiplying the base period return by (365/7) with the resulting yield figure
carried to at least the nearest hundredth of one percent.

Effective yield for a Fund is calculated by determining the net change exclusive
of capital changes in the value of a hypothetical pre-existing account having a
balance of one share at the beginning of the period, subtracting a hypothetical
charge reflecting deductions from shareholder accounts, and dividing the
difference by the value of the account at the beginning of the base period to
obtain the base period return, and then compounding the base period return by
adding one, raising the same to a power equal to 365 divided by seven, and
subtracting one from the result.

33
<PAGE>

PERFORMANCE COMPARISONS:

MONEY MARKET FUNDS. Investors may also want to compare performance of the Funds,
particularly the Money Market Fund, to that of money market funds. Money market
fund yields will fluctuate and shares are not insured, but share values usually
remain stable.

INDICES. A Fund may compare its performance to a wide variety of indices. There
are differences and similarities between the investments that the Funds may
purchase and the investments measured by the indices.

HISTORICAL ASSET CLASS RETURNS. From time to time, marketing materials may
portray the historical returns of various asset classes. Such presentations will
typically compare

34
<PAGE>

the average annual rates of return of inflation, U.S. Treasury bills, bonds,
common stocks, and small stocks. There are important differences between each of
these investments that should be considered in viewing any such comparison. The
market value of stocks will fluctuate with market conditions, and small-stock
prices generally will fluctuate more than large-stock prices. Stocks are
generally more volatile than bonds. In return for this volatility, stocks have
generally performed better than bonds or cash over time. Bond prices generally
will fluctuate inversely with interest rates and other market conditions, and
the prices of bonds with longer maturities generally will fluctuate more than
those of shorter-maturity bonds. Interest rates for bonds may be fixed at the
time of issuance, and payment of principal and interest may be guaranteed by the
issuer and, in the case of U.S. Treasury obligations, backed by the full faith
and credit of the U.S. Treasury.

35
<PAGE>

Standard deviation is calculated using the following formula:

Standard deviation = the square root of S(xi - xm)2
---------
n-1

Where: S = "the sum of",

xi = each individual return during the time period,
xm = the average return over the time period, and
n = the number of individual returns during the time period.

Statistics may also be used to discuss a Fund's relative performance. One such
measure is alpha. Alpha measures the actual return of a fund compared to the
expected return of the fund given its risk (as measured by beta). The expected
return is based on how the market as a whole performed, and how the particular
fund has historically performed against the market. Specifically, alpha is the
actual return less the expected return. The expected return is computed by
multiplying the advance or decline in a market representation by the fund's
beta. A positive alpha quantifies the value that the fund manager has added, and
a negative alpha quantifies the value that the fund manager has lost. Other
measures of volatility and relative performance may be used as appropriate.
However, all such measures will fluctuate and do not represent future results.

Discussions of economic, social, and political conditions and their impact on a
Fund may be used in advertisements and sales materials. Such factors that may
impact the Funds include, but are not limited to, changes in interest rates,
political developments, the competitive environment, consumer behavior, industry
trends, technological advances, macroeconomic trends, and the supply and demand
of various financial instruments. In addition, marketing materials may cite the
portfolio management's views or interpretations of such factors.

MASTER PORTFOLIO PERFORMANCE. Each Fund intends to disclose historical
performance of the related Master Portfolio, including the average annual and
cumulative returns restated to reflect the expense ratio of the Fund. This
information will be included or updated by amendment. Although the investments
of the related Master Portfolio will be reflected in each Fund, the Fund is a
distinct mutual fund and has different fees, expenses and returns than the
related Master Portfolio. Historical performance of substantially similar mutual
funds is not indicative of future performance of a Fund. Portfolio performance
will be supplied by the related Master Portfolio.

FINANCIAL STATEMENTS

No financial statements have yet been prepared because neither Fund has
commenced operations.

36
<PAGE>

APPENDIX

DESCRIPTION OF COMMERCIAL PAPER RATINGS

A-1 and Prime-1 Commercial Paper Ratings

The rating A-1 (including A-1+) is the highest commercial paper rating assigned
by S&P. Commercial paper rated A-1 by S&P has the following characteristics:

- liquidity ratios are adequate to meet cash requirements;

- long-term senior debt is rated "A" or better;

- the issuer has access to at least two additional channels of
borrowing;

- basic earnings and cash flow have an upward trend with allowance made
for unusual circumstances;

- typically, the issuer's industry is well established and the issuer
has a strong position within the industry; and

- the reliability and quality of management are unquestioned.

The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Among the factors considered by Moody's in assigning ratings are the following:

- evaluation of the management of the issuer;

- economic evaluation of the issuer's industry or industries and an
appraisal of speculative-type risks which may be inherent in certain
areas;

- evaluation of the issuer's products in relation to competition and
customer acceptance;

- liquidity;

- amount and quality of long-term debt;

- trend of earnings over a period of ten years;

- financial strength of parent company and the relationships which exist
with the issuer; and

- recognition by the management of obligations which may be present or
may arise as a result of public interest questions and preparations to
meet such obligations.

37
<PAGE>

DESCRIPTION OF BOND RATINGS

Bonds are considered to be "investment grade" if they are in one of the top four
ratings.

S&P's ratings are as follows:

- Bonds rated AAA have the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.

- The rating C1 is reserved for income bonds on which no interest is
being paid.

- Debt rated D is in default and payment of interest and/or repayment of
principal are in arrears.

The ratings from AA to CCC may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within the major rating categories.

Moody's ratings are as follows:

38
<PAGE>

- Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.

- Bonds which are rated Ca represent obligations which are speculative
to a high degree. Such issues are often in default or have other
marked shortcomings.

- Bonds which are rated C are the lowest class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.

39
<PAGE>

PART C

OTHER INFORMATION

Item 23. Exhibits

(a) Articles of Incorporation

(i) Certificate of Trust -- 1
(ii) Trust Instrument -- 1
(iii) Amended and Restated Trust Instrument -- 2

(b) By-laws - 3

(d) Form of Investment Advisory Contract between X.com Asset Management,
Inc. and the Registrant - to be filed by amendment

(e) Underwriting Contracts: Not applicable

(f) Bonus or Profit Sharing Contracts: Not applicable

(g) Form of Custodian Agreement between X.com Asset Management, Inc.,
Investors Bank & Trust Company, and the Registrant -- 2

(h) Other Material Contracts:

(i) Form of Administration Agreement between X.com Asset Management,
Inc., Investors Bank & Trust, and the Registrant -- 2
(ii) Form of Transfer Agency Agreement between X.com Asset
Management, Inc. and the Registrant -- 2
(iii) Form of X.com Funds Electronic Delivery Consent Agreement -- 2
(iv) Form of Third Party Feeder Fund Agreement between X.com Asset
Management, Inc., Master Investment Portfolio, and the
Registrant - 2

(i) Opinion and Consent of Counsel

(i) With respect to: X.com Premier S&P 500 Fund, X.com U.S.A. Bond
Fund and X.com Money Market Reserve Fund -- 2
(ii) With respect to: X.com International Index Fund -3
(iii) With respect to: X.com Premier Money Market Fund and X.com Small
Cap Index Fund - to be filed by amendment

(j) Consent of Independent Auditors: To be filed by amendment

(k) Financial Statements: 3

(l) Form of Subscription Agreement between Elon R. Musk and the
Registrant -- 2

(m) Rule 12b-1 Plan: Not applicable

(n) Financial Data Schedules: Not applicable

(o) Rule 18f-3 Plan: Not applicable

<PAGE>

(p) Powers of Attorney -- 2

(i) Form of Power of Attorney for Nicole E. Faucher
(ii) Form of Power of Attorney for Kevin T. Hamilton
(iii) Form of Power of Attorney for Elon R. Musk
(iv) Form of Power of Attorney for Gregory N. River
(v) Form of Power of Attorney for John T. Story

1. Filed with initial Registration Statement on Form N-1A on June 8, 1999.
2. Filed with Pre-Effective Amendment No. 1 on November 18, 1999.
3. Filed with Post-Effective Amendment No. 2 on March 24, 2000.
4. Filed with Post-Effective Amendment No. 3 on April 26, 2000.

Item 24. Persons Controlled by or Under Common Control With Registrant

No person is controlled by or under common control with the Registrant.

Item 25. Indemnification

Reference is made to Article X of the Registrant's Trust Instrument.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, officers and controlling persons of the
Registrant by the Registrant pursuant to the Declaration of Trust or otherwise,
the Registrant is aware that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and, public policy as expressed in the Act and, therefore, is unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by trustees,
officers or controlling persons of the Registrant in connection with the
successful defense of any act, suit or proceeding) is asserted by such trustees,
officers or controlling persons in connection with the shares being registered,
the Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issues.

Item 26. Business and Other Connections of Investment Adviser

X.com Asset Management, Inc. (the "Investment Adviser") is a Delaware
corporation that offers investment advisory services. The Investment Adviser's
offices are located at 394 University Avenue, Palo Alto, CA 94301. The directors
and officers of the Investment Adviser and their business and other connections
are as follows:

<TABLE>
<CAPTION>
Name Title/Status with Investment Adviser Other Business Connections
<S> <C> <C>
Elon R. Musk Director; President; Treasurer Trustee and Chairman of the Board,
X.com Funds; Chairman and Chief
Executive Officer, X.com Corporation

John T. Story Chief Operating Officer and Trustee and President, X.com Funds;
Chief Financial Officer Executive Vice President, X.com
Corporation

Mark Sullivan Secretary; Assistant Treasurer Vice President, Operations, X.com
Corporation
</TABLE>

<PAGE>

Item 27. Principal Underwriters

Shares of the Registrant (of each Fund) are self-distributed.

Item 28. Location of Accounts and Records

The account books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act of 1940 and
the Rules thereunder will be maintained at the offices of X.com Asset
Management, Inc., 394 University Drive, Palo Alto, California 94301, and
Investors Bank & Trust Company, 200 Clarendon Street, Boston, Massachusetts,
02111.

Item 29. Management Services

Not applicable

Item 30. Undertakings:

Not applicable

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this amendment to
its Registration Statement to be signed on its behalf by the undersigned, duly
authorized, in the City of Palo Alto in the State of California on the 8th day
of May 2000.

X.COM FUNDS

(Registrant)

By: /s/ John T. Story*
----------------------
Name: John T. Story
Title: President

Pursuant to the requirements of the Securities Act of 1933, this amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:

<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ John T. Story* Trustee and President May 8th, 2000
- ------------------------
John T. Story

/s/ Jeff J. Gaboury* Treasurer and May 8th, 2000
- ------------------------ Chief Financial Officer
Jeff J. Gaboury

/s/ Nicole E. Faucher* Trustee May 8th, 2000
- ------------------------
Nicole E. Faucher

/s/ Kevin T. Hamilton* Trustee May 8th, 2000
- ------------------------
Kevin T. Hamilton

/s/ Elon R. Musk* Trustee May 8th, 2000
- ------------------------
Elon R. Musk

/s/ Gregory N. River* Trustee May 8th, 2000
- ------------------------
Gregory N. River
</TABLE>

*By: /s/ Susan C. Mosher
-------------------
Susan C. Mosher,

Attorney-in-Fact, pursuant to
Power of Attorney previously
filed.