<PAGE>
Filed pursuant to Rule 497(e)
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MONEY MARKET RESERVE FUND
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PROSPECTUS
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MAY 1, 2000 (AS AMENDED OCTOBER 27, 2000)
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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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<PAGE>
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TABLE OF CONTENTS
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PAGE
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THE X.COM MONEY MARKET RESERVE FUND.......................................1
PERFORMANCE INFORMATION...................................................3
MANAGEMENT FEES AND EXPENSES..............................................4
MORE ABOUT THE FUND'S INVESTMENT STRATEGIES AND RISKS.....................6
FUND MANAGEMENT...........................................................7
THE FUND'S STRUCTURE......................................................9
PRICING OF FUND SHARES...................................................10
HOW TO BUY AND SELL SHARES OF THE FUND...................................11
DIVIDENDS AND OTHER DISTRIBUTIONS........................................14
TAX CONSEQUENCES.........................................................15
i
<PAGE>
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THE X.COM MONEY MARKET RESERVE FUND
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PLEASE NOTE THAT YOUR INVESTMENTS IN THE FUND ARE NOT DEPOSITS OF ANY BANK OR
FINANCIAL INSTITUTION, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION ("FDIC") OR ANY OTHER GOVERNMENT AGENCY. BECAUSE THE FUND IS SUBJECT
TO INVESTMENT RISKS, YOU MAY LOSE MONEY IF YOU INVEST IN THE FUND.
INVESTMENT OBJECTIVE
The X.com Money Market Reserve Fund (the "Fund") is designed as a cash
management account that provides investors with the ability to electronically
transfer funds to another Fund investor. The Fund seeks to provide shareholders
with a high level of current income, while preserving capital and liquidity, by
investing in high-quality short-term investments.
PRINCIPAL STRATEGY
The Fund is a "feeder fund." A feeder 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 a corresponding master fund. The master fund
related to the Fund is the Money Market Master Portfolio (the "Master
Portfolio"), a series of Master Investment Portfolios (the "Master Trust"), a
registered open-end management investment company issuing individual interests
in multiple series. For that reason, the discussion of the Fund's investment
objectives, strategies and risks necessarily includes a description of the
investment characteristics and risks associated with the investments of the
Master Portfolio. The Fund's performance will correspond directly to the
performance of the Master Portfolio. The Master Portfolio 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 Master Portfolio's 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.
Barclays Global Fund Advisors ("BGFA") serves as the investment adviser to the
Master Portfolio. BGFA is a subsidiary of Barclays Global Investors, N.A.
"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, under guidelines adopted by the Fund's
Board of Trustees and the Master Portfolio's Board of Trustees.
The Master Portfolio may invest up to 10% of its assets in illiquid securities.
Illiquid securities, which may include certain restricted securities, may be
difficult to sell promptly at an acceptable price. Certain restricted securities
may be subject to legal restrictions on resale. Delay or difficulty in selling
securities may result in a loss or be costly to the Master Portfolio.
1
<PAGE>
PRINCIPAL RISKS
Although the 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 Fund invests (through its
investment in the Master 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 Master Portfolio invests will go down. Conversely, if
interest rates fall, the value of the Master Portfolio's investments may rise.
CREDIT RISK: Credit risk is the risk that issuers of the debt instruments in
which the Fund invests (through its investment in the Master Portfolio) may
default on the payment of principal and/or interest. The 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 Master Portfolio is
unable or unwilling to meet its financial obligations.
2
<PAGE>
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PERFORMANCE INFORMATION
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The bar charts in this section show the annual returns of the Fund and how its
performance has varied from year to year. The average annual return tables
compare the Fund's average annual return with the return of a corresponding
index for one and five years and since inception. How the Fund has performed in
the past does not necessarily indicate how the Fund will perform in the future.
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C>
4.28% 6.01% 5.45% 5.68% 5.61% 4.92%
</TABLE>
The Fund did not offer shares to the public prior to November 18, 1999. The
Fund's annual returns are based on the annual returns of the Master Portfolio,
but have not been adjusted to account for expenses payable at the Fund level. As
a result, the annual returns for the Fund would have been lower than those shown
above because the Fund has higher expenses than the Master Portfolio.
<TABLE>
<CAPTION>
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Money Market Reserve Fund Average Annual Total Returns (As of December 31, 1999)
---------------------------------------------------------------------------------------------------------
One Year Five Years Since Inception**
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<S> <C> <C> <C>
Money Market Reserve Fund 4.92% 5.24% 4.85%
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U.S. Treasury Bills (3-month) 4.90% 5.24% 4.90%
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</TABLE>
** The feeder fund commenced operations on July 2, 1993. The performance of
the index is computed from June 30, 1993.
3
<PAGE>
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MANAGEMENT FEES AND EXPENSES
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This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
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SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
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<S> <C>
Maximum Sales Charge (Load) Imposed on Purchases None
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) Imposed in Reinvested Dividends
and other Distributions None
Redemption Fee (within 90 days of purchase) None
Maximum Account Fee None
</TABLE>
<TABLE>
<CAPTION>
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ANNUAL FUND OPERATING EXPENSES(1) (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
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<S> <C>
Management Fees(2) 1.90%
Distribution (12b-1) Fees None
Other Expenses 0.00%
Total Annual Fund Operating Expenses 1.90%
Fee Waiver and Expense Reimbursement(3) 0.40%
NET OPERATING EXPENSES 1.50%
</TABLE>
(1) The cost reflects the expenses at both the Fund and the Master Portfolio
levels.
(2) Management fees include a fee equal to 0.10% of the daily net assets
payable at the Master Portfolio level to the investment adviser for the
Master Portfolio. Management fees also include a "unified" fee equal to
0.50% payable by the Fund 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 Fund except the Master Portfolio management fees, brokerage fees,
taxes, interest and extraordinary expenses.
(3) 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, 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.
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Example
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This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that:
- you invest $10,000 in the Fund for the time periods indicated;
- your investment has a 5% return each year;
4
<PAGE>
- the 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 only 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>
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EXAMPLE 1 YEAR * 3 YEARS*
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<S> <C> <C>
MONEY MARKET RESERVE FUND $152 $557
</TABLE>
* Reflects costs at both the Fund and Master Portfolio levels.
5
<PAGE>
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MORE ABOUT THE FUND'S INVESTMENT STRATEGIES AND RISKS
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INVESTMENT STRATEGIES
The Fund and the Master Portfolio emphasize safety of principal and high credit
quality. In particular, the investment policies of the Fund and the Master
Portfolio prohibit the purchase of many types of floating-rate instruments,
commonly referred to as derivatives, that are considered to be potentially
volatile. The Master Portfolio, however, may invest in high-quality asset-backed
securities and variable and floating rate obligations, which are considered to
be derivative instruments. The Fund (through its investment in the Master
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.
INVESTMENT RISKS
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 Fund,
or protect its assets from declining in value. The Fund's investments in
derivative instruments can significantly increase its exposure to market risk or
the credit risk of the counterparty. In fact, the use of derivative instruments
may adversely impact the value of the Fund's assets, which would in turn reduce
the return you receive on your investment.
SECURITIES LENDING: The Master Portfolio 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
Fund's performance could be reduced.
ASSET BACKED SECURITIES: The Master 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.
6
<PAGE>
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FUND MANAGEMENT
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INVESTMENT ADVISER FOR THE FUND. Under an investment advisory agreement with the
Fund, X.com Asset Management, Inc. (the "Adviser"), a registered investment
adviser, provides investment advisory services to the Fund. The Adviser is a
wholly owned subsidiary of X.com Corporation ("X.com") and is located at 1840
Embarcadero Road, Palo Alto, California 94303. 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 the Adviser. 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 the Fund,
the Adviser provides the Fund with ongoing investment guidance, policy direction
and monitoring of each of the Master Portfolio in which the 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 Fund to
operate. For its advisory services, the Fund pays the Adviser an investment
advisory fee at an annual rate, after fee waivers and expense reimbursements,
equal to a contractual rate of 1.80% of the Fund's average daily net assets and
which, after fee waiver and expense reimbursement is equal to 1.50% of the
Fund'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 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 Fund 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 MASTER PORTFOLIO. Barclays Global Fund Advisors
("BGFA") is the investment adviser for the 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 the Master Portfolio at an annual rate equal to
0.10% of the Master Portfolio's average daily net assets.
7
<PAGE>
The Fund bears a pro rata portion of the investment advisory fees paid by the
Master Portfolio, as well as certain other fees paid by the 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 Fund's Statement of Additional Information contains detailed information
about the Fund's investment adviser, administrator, and other service providers.
8
<PAGE>
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THE FUND'S STRUCTURE
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The Fund is a separate series of X.com Funds. The Fund seeks to achieve its
investment objectives by investing all of its assets in the Master Portfolio.
The Master Portfolio is a series of the Master Trust, a registered open-end
management investment company, with the same investment objective as the 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,
the 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 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 Portfolio, certain economic
efficiencies may be realized with respect to the Master Portfolio. For example,
fixed expenses that otherwise would have been borne solely by the Fund (and the
other existing interest-holders in the Master Portfolio) would be spread across
a larger asset base as more funds or other accredited investors invest in the
Master Portfolio. However, if a mutual fund or other investor withdraws its
investment from the 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 the Master Portfolio may not be fully achieved
or maintained.
The Fund may be asked to vote on matters concerning the Master Portfolio. Except
as permitted by the SEC, whenever the Fund is requested to vote on a matter
pertaining to the Master Portfolio, the 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.
The Fund may withdraw its investment in the 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 Fund's assets in the Master Portfolio is not a fundamental
policy of the Fund and a shareholder vote is not required for the Fund to
withdraw its investment from the Master Portfolio.
9
<PAGE>
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PRICING OF FUND SHARES
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The Fund is a 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 Fund's investment in the Master Portfolio is valued based on the Fund's
ownership interest in the net assets of the Master Portfolio. The 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 the Fund's NAV.
The NAV for the 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
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.
The Master Portfolio calculates its NAV on the same day and at the same time as
the Fund. The Master Portfolio's investments are valued each day the NYSE is
open for business. The Master 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.
10
<PAGE>
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HOW TO BUY AND SELL SHARES OF THE FUND
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The Fund is available only to on-line investors through X.com Corporation's
("X.com") Paypal web site. You will need to do the following to purchase shares
of the Fund:
-- Complete an Application.
-- Simply follow the instructions on the X.com or Paypal website, at
www.X.com or www.PayPal.com.
-- You are also required to consent to receive all information about
the Fund electronically, both to open an account and during the
time you own shares of the Fund. If you revoke your consent to
receive this information electronically, fail to maintain an
e-mail account, or close your account, the Fund may, to the extent
permitted by the federal securities laws, redeem your shares, and
will, in any event, prohibit additional investments in the Fund,
including the reinvestment of dividends.*
ON-LINE INVESTOR REQUIREMENTS
The Fund is designed and built specifically for on-line investors. The 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 through their e-mail account. By opening an account for 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, the Fund may, to the extent permitted by the
federal securities laws, redeem your position in the Fund and, in any event,
will prohibit additional investments in the Fund, 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 Fund 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 reserve the
right to deliver paper-based documents in certain circumstances, at no cost to
the investor.
-----------------------
* The staff of the Securities and Exchange Commission (the "Staff") has
informally indicated its view that the Fund 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 such circumstances.
11
<PAGE>
PLACING AN ORDER
You can begin accumulating shares of the Fund as soon as you register as a
customer of X.com or PayPal. Because the Fund's net asset value changes daily,
your share price will be the NAV next determined after the Fund receives and
accepts your order.
You can place orders to purchase or redeem Fund shares by accessing the X.com or
PayPal website at www.X.com or www.PayPal.com. When you purchase shares in the
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
website. IF YOU DO NOT CONSENT TO RECEIVE ALL FUND DOCUMENTATION ELECTRONICALLY
YOU WILL NOT BE ABLE TO PURCHASE SHARES OF THE FUND.
<TABLE>
<CAPTION>
MINIMUM INVESTMENT REQUIREMENTS
<S> <C>
For your initial investment in the Fund $1
Additional shares of the Fund $1
Continuing minimum investment $1
</TABLE>
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; 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 or
www.PayPal.com available 24 hours a day.
REDEMPTIONS
You can access the money you have invested in the Fund at any time by selling
some or all of your shares back to the Fund. As soon as the Fund receives your
redemption request, your shares will be redeemed and the proceeds will be
credited to your account. This usually occurs the business day following the
transaction.
REDEMPTION DELAYS. You will have to wait to receive payment on redeemed shares
until the funds you used to buy the shares have 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 Fund does not impose a redemption fee.
12
<PAGE>
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 designed to protect you and the Fund against fraudulent
transactions by unauthorized persons. Specifically, the Fund 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 do not maintain an email address or if you terminate your ability to
electronically access X.com or PayPal, the Fund may, to the extent permitted by
the federal securities laws, redeem all of your shares in your Fund account.
13
<PAGE>
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DIVIDENDS AND OTHER DISTRIBUTIONS
------------------------------------------------------------------------------
The Fund intends to declare dividends daily and distribute them monthly and will
distribute capital gains, if any, at least annually. The Fund may make
additional distributions if necessary.
All of 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.
14
<PAGE>
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TAX CONSEQUENCES
------------------------------------------------------------------------------
The following information is meant as a general summary for U.S. taxpayers.
Please see the Fund's 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 Fund.
The 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 Fund will distribute dividends monthly. If the 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 Fund, regardless
of whether they are paid to you in cash or are reinvested in additional Fund
shares. If the 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.
The 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, the 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.
15
<PAGE>
[Outside back cover page.]
The Statement of Additional Information for the Fund ("SAI"), contains further
information about the Fund. The SAI is incorporated into this Prospectus by
reference (that means it is legally considered part of this Prospectus).
Additional information about the Fund's investments is available in the Fund's
annual report to shareholders, which is incorporated by reference. In the annual
report, you will find a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during its fiscal
year.
Additional information including the SAI and the most recent annual report may
be obtained without charge at our website (www.X.com or www.PayPal.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.
The Securities and Exchange Commission (the "SEC") maintains an Internet website
(http://www.sec.gov) that contains the SAI, material incorporated by reference,
and other information about the Fund. You can also copy and review this
information at the SEC's Public Reference Room in Washington, D.C., or you can
obtain copies, upon payment of a duplicating fee, by writing to the Public
Reference Room of the SEC, Washington, D.C. 20549-0102 or by electronic request
at the following e-mail address: [email protected]. You can obtain information
on the operation of the Public Reference Room by calling the SEC at
1-202-942-8090.
X.com Corp./PayPal
1840 EMBARCADERO ROAD
PALO ALTO, CA 94303
TOLL-FREE: (888) 447-8999
http://www.X.com
http://www.PayPal.com
INVESTMENT COMPANY ACT FILE NO.: 811-09381
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