In addition to being executed by the Trustees of Registrant, this Registration
Statement has also been executed by the Trustees of Master Investment Portfolio.
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 21, 2000
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 / /
Pre-Effective Amendment No. 2 /X/
Post-Effective Amendment No. ___ / /
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. / /
(Check appropriate box or boxes)
WHATIFI FUNDS
(Exact name of Registrant as specified in charter)
790 Eddy Street
San Francisco, California 94109
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (415) 929-5960
Whatifi Asset Management, Inc.
790 Eddy Street
San Francisco, California 94109
(Name and address of agent for service)
Please send copies of all communications to:
David M. Leahy, Esq. Mr. Harris A. Fricker
Sullivan & Worcester LLP Whatifi Asset Management, Inc.
1025 Connecticut Avenue, N.W. 790 Eddy Street
Washington, DC 20036 San Francisco, California 94109
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<PAGE>
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Registration Statement.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until this Registration Statement shall
become effective on such date as the Commission, acting pursuant to Section
8(a), may determine.
It is proposed that this filing will become effective (check appropriate box):
______ Immediately upon filing pursuant to paragraph (b)
______ on (date) pursuant to paragraph (b)
______ 60 days after filing pursuant to paragraph (a)(1)
______ 75 days after filing pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
This post-effective amendment designates a new effective date for a
previously filed post-effective amendment. |_|
PROSPECTUS JUNE __, 2000
WHATIFI FUNDS
WHATIFI S&P 500 INDEX FUND
WHATIFI EXTENDED MARKET INDEX FUND
WHATIFI INTERNATIONAL INDEX FUND
WHATIFI TOTAL BOND INDEX FUND
WHATIFI MONEY MARKET FUND
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED
2
<PAGE>
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
3
<PAGE>
TABLE OF CONTENTS
PAGE
PLEASE READ THIS PROSPECTUS..................................................
WHO CAN INVEST IN THE FUNDS?.................................................
WHAT IS THE INVESTMENT PHILOSOPHY BEHIND THE Whatifi FUNDS?..................
WHAT IS INDEXING?............................................................
WHAT IS A MASTER-FEEDER STRUCTURE?...........................................
WHAT FUNDS DOES Whatifi OFFER?...............................................
FUND PROFILES................................................................
- -WHATIFI S&P 500 INDEX FUND.......................................
- -WHATIFI EXTENDED MARKET INDEX FUND...............................
- -WHATIFI INTERNATIONAL INDEX FUND.................................
- -WHATIFI TOTAL BOND INDEX FUND....................................
- -WHATIFI MONEY MARKET FUND........................................
WHY INVEST IN INDEX FUNDS?...................................................
WHAT DO LARGE-CAP, MID-CAP OR SMALL CAP MEAN?................................
MORE INFORMATION ON THE FUNDS................................................
THE FUNDS' MANAGEMENT........................................................
THE FUNDS' STRUCTURE.........................................................
PRICING OF FUND SHARES.......................................................
HOW TO BUY AND SELL SHARES OF THE WHATIFI FUNDS..............................
BUYING A DIVIDEND............................................................
DIVIDENDS, AND OTHER DISTRIBUTIONS...........................................
TAX CONSEQUENCES.............................................................
(i)
<PAGE>
GLOSSARY.....................................................................
MORE INFORMATION.............................................................
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and the Statement
of Additional Information, and if given or made, such information or
representations may not be relied upon as having been authorized by the Funds.
This Prospectus does not constitute an offer to sell securities in any state or
jurisdiction in which such offering may not lawfully be made.
(ii)
<PAGE>
PLEASE READ THIS PROSPECTUS
This Prospectus discusses the investment objective, risks, and strategies of
each of the five Whatifi Funds. There are currently four Whatifi Index Funds and
the Whatifi Money Market Fund. Please keep this Prospectus for future reference.
WHO CAN INVEST IN THE FUNDS?
The Funds described in this Prospectus were created for online investors with a
long- term investing outlook. To purchase shares of a Fund, please follow the
instructions on our website, www.whatifi.com. You will also need to complete the
Whatifi Funds Account Application process and follow the instructions under "How
to Buy and Sell Shares" further on in this Prospectus.
In order to invest in the Funds, you must consent to receive all information
about the Funds electronically, both to open an account and during the time you
own shares of a Fund. You must also maintain your e-mail account; however, if
necessary, paper information will be provided to you free, upon request. Send
your request to Whatifi Funds, P.O. Box 182113, Columbus, Ohio 43218-2113.
WHAT IS THE INVESTMENT PHILOSOPHY BEHIND THE WHATIFI FUNDS?
We believe that optimal performance is closely aligned with a practical,
long-term and cost-effective approach to investing. The Funds described in this
Prospectus were created for the online investor. In combination, they allow for
diversification across different asset classes. We do not believe in gimmicks,
stock picking, market timing or day trading. We believe that sound, long-term
investing strategies win the day and look forward to catering to online
investors who share our view.
WHAT IS INDEXING?
Index funds are often described as "passively managed" because the portfolio
manager looks to the underlying index to determine which securities the fund
should own. For example, in the case of the Whatifi S&P 500 Index Fund, the
underlying index is the Standard & Poor's 500 Composite Stock Price Index (the
"S&P 500 Index").* The alternative is an "actively managed" approach where
investment decisions relating to the fund's holdings are based upon the
particular methodologies and judgments of a portfolio manager.
--------
* "Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "Standard & Poor's 500(R),"
and "500" are trademarks of The McGraw-Hill Companies, Inc. and have been
licensed for use by Whatifi Financial Inc. The 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 S&P 500 Fund.
(iii)
<PAGE>
WHAT IS A MASTER/FEEDER FUND STRUCTURE?
The Whatifi Funds are feeder funds investing all of their assets in a
corresponding master fund. A master/feeder structure is a two-tier structure
that consists of a master portfolio investing in securities, and a feeder fund
investing in the master portfolio. Barclays Global Fund Advisors ("BGFA") serves
as the investment adviser to each of the master portfolios in which the Funds
invest. BGFA is a subsidiary of Barclays Global Investors, N.A., the world's
largest institutional investment adviser. As of March 31, 2000, BGFA and its
affiliates provided investment advisory services for over $809 billion of
assets.
Since the investment characteristics and investment risks of the Funds are
aligned with those of each Fund's corresponding master portfolio, the following
discussion regarding each Fund's investment objective, policies and risks also
includes a description of the investment objective, policies and risks
associated with the investments of each corresponding master portfolio. Each
Fund's performance will correspond to the performance of the related master
portfolios, except that the Fund's performance will be lower because its
performance reflects the fees and expenses of both the Fund and the Master
Portfolio. Like all mutual funds, each Fund is subject to investment risks. You
may lose money if you invest in the Funds.
WHAT FUNDS DOES Whatifi OFFER?
Whatifi offers three stock index funds, a bond index fund, and a money market
fund. Each Index Fund seeks to track a different segment of the U.S. and
international markets:
INDEX FUND SEEKS TO APPROXIMATE AS
CLOSELY AS PRACTICABLE BEFORE
FEES AND EXPENSES:
Whatifi S&P 500 Index Fund The total rate of return of the
S&P 500 Index
Whatifi Extended Market Index Fund The performance of the Wilshire
4500 Index
Whatifi International Index Fund The performance of the Morgan
Stanley Capital International EAFE
Index
Whatifi Total Bond Index Fund The performance of the Lehman
Brothers Government/Corporate Bond
Index
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<PAGE>
The Whatifi Money Market Fund seeks to provide shareholders with a high
level of income, while preserving capital and liquidity, by investing in
high-quality, short-term investments.
FUND PROFILES
This Prospectus contains profiles that summarize key features of each Fund.
Following the profiles, you will find important additional information about the
Funds.
FUND PROFILE --WHATIFI S&P 500 INDEX FUND
The following profile summarizes important aspects of the Whatifi S&P 500 Index
Fund.
INVESTMENT OBJECTIVE
The Fund's goal is to approximate as closely as practicable, before fees and
expenses, the performance of the S&P 500 Index.
PRINCIPAL INVESTMENT STRATEGIES
The Fund seeks to achieve its investment objective by investing all of its
assets in the S&P 500 Index Master Portfolio ("S&P 500 Portfolio"), a series of
Master Investment Portfolio, a registered open-end management investment company
advised by BGFA. 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 as represented by the S&P 500 Index. The S&P 500 Index consists of
the common stocks of 500 leading, large capitalization U.S. companies from a
broad range of industries.
Under normal market conditions, the S&P 500 Portfolio invests at least 90% of
its total assets in the same stocks and in substantially the same percentages as
the S&P 500 Index. This is sometimes called a replication method of following an
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 net assets before fees and expenses
and that of the S&P 500 Index. A correlation of 100% means the total return of
the S&P 500 Portfolio's assets would increase and decrease the same as the S&P
500 Index.
PRINCIPAL RISKS
The Fund's total return, like stock prices generally, will fluctuate within a
wide range, so you could lose money over short or even long periods. Stock
markets tend to move in cycles, with periods of rising prices and periods of
falling prices.
The Fund is also subject to investment style risk, which is the risk that
returns from large-capitalization stocks, like other stock classes, will trail
returns from other asset classes or the overall stock market.
Large-capitalization stocks tend to go through
3
<PAGE>
cycles of doing better (or worse) than the stock market in general. These
periods can and have, in the past, lasted for as long as several years.
The Fund is also subject to tracking error risk, which is the risk that it will
not closely track the S&P 500 Index. For example, the S&P 500 Portfolio will
need to maintain cash to pay redemptions and expenses and this may affect the
performance of the S&P 500 Index Fund.
No attempt is made to individually select stocks because the S&P 500 Portfolio
is managed by determining which securities are to be bought or sold to
replicate, to the extent feasible, the S&P 500 Index.
PERFORMANCE/RISK INFORMATION
The bar chart and table below provide an indication of the risk of investing in
the Fund by showing changes in the S&P 500 Portfolio's performance from year to
year. The bar chart shows the year-by-year returns of the S&P 500 Portfolio. The
S&P 500 Portfolio's returns have been adjusted to account for estimated expenses
payable at the Fund level, but do not take into account fee waivers and
reimbursements. The average annual return tables compare the S&P 500 Portfolio's
average annual return with the return of the corresponding index for one and
five years and since inception. Past performance is not necessarily an
indication of future performance.
S&P 500 Portfolio [BAR CHART]
1994 -0.86% 1997 31.29%
1995 35.58% 1998 24.10%
1996 21.62% 1999 19.53%
During the period shown in the bar chart, the highest return for a calendar
quarter was 17.17% (quarter ended June 30, 1997) and the lowest return for a
quarter was -10.14% (quarter ended September 30, 1998).
S&P 500 Portfolio Average Annual Total Returns (As of December 31, 1999)*
One Year Five Years Since Inception -
July 2, 1993**
S&P 500 Portfolio 19.53% 26.28% 20.34%
S&P 500 Index 21.04% 28.55% 22.46%
4
<PAGE>
*The S&P 500 Portfolio's performance has been adjusted to reflect contractual
arrangements by which the Adviser pays all expenses of the Fund from the
advisory fee or its own resources.
**The S&P 500 Index is calculated from June 30, 1993.
FEES AND EXPENSES1
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
Shareholder Fees
(fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases None
(as a percentage of offering price)
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends and Other Distributions None
Redemption Fee2
(within 90 days of purchase)
(as a percentage of amount redeemed) 1.00%
Exchange Fee None
Maximum Account Fee3 $20
--------
1 The fees and expenses in the Table and Example below reflect those of
both the S&P 500 Portfolio and the Fund.
2 In addition, a wire transfer fee is charged in the case of redemptions
made by wire. Such fee is subject to change and is currently $10.
3 The Funds will apply a $5 quarterly account maintenance fee upon shareholders
who fail to maintain a total (sum of investments in all of the Funds)
non-retirement account balance of $1,000 or a retirement account balance of
$500. This fee applies to the shareholder's total account with the Funds and is
not a fee charged to the Funds. The fee is waived for shareholders with at least
$10,000 invested in all accounts in the aggregate. Shareholders who have
enrolled in the monthly savings plan have one year to reach the minimum balance
for non-retirement accounts and six months for retirement accounts without
incurring account maintenance fees.
5
<PAGE>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees 0.80%
Distribution and/or Service (12b-1) Fees None
Other Expenses4 0.00%
Total Annual Fund Operating Expenses5 0.80%
Fee Waiver and Expense Reimbursement6 0.25%
Net Operating Expenses 0.55%
------------------
Example
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 and then redeem all of
your shares at the end of these periods. The example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions, your costs would be:
One Year Three Years
$56 $176
--------
4 "Other Expenses" are estimates for the Fund's current fiscal year. 5 The
expenses shown under Annual Fund Operating Expenses are based upon contractual
arrangements by which the Adviser pays all expenses of managing and operating
the Funds, including also the fees and expenses of the Portfolios, except
brokerage expenses, taxes, interest, and extraordinary expenses, from the
advisory fee or its own resources.
6 The Adviser has entered into a written expense limitation and reimbursement
agreement with the Trust, under which it has agreed to waive its investment
advisory fee and reimburse expenses to the extent necessary to maintain Net
Operating Expenses at 0.55%. 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. The agreement can be
changed, terminated or not renewed by the Trust only upon providing thirty days'
prior notice.
6
<PAGE>
ADDITIONAL INFORMATION
DIVIDENDS AND CAPITAL GAINS
Dividends, if any, are distributed quarterly in March, June, September, and
December; capital gains, if any, are distributed annually in December.
INVESTMENT ADVISER
Whatifi Asset Management, Inc., San Francisco, California
AVAILABLE FOR IRAS
Yes
MINIMUM INITIAL INVESTMENT
None
FUND PROFILE -- WHATIFI EXTENDED MARKET INDEX FUND
The following profile summarizes important aspects of Whatifi Extended Market
Index Fund.
INVESTMENT OBJECTIVE
The Fund's goal is to match as closely as practicable, before fees and expenses,
the performance of the Wilshire 4500 Index.****
PRINCIPAL INVESTMENT STRATEGIES
The Fund seeks to achieve its investment objective by investing all of its
assets in the Wilshire 4500 Index Master Portfolio (the "Extended Index
Portfolio"), a series of Master Investment Portfolio. Unlike the S&P 500
Portfolio which invests at least 90% of its total assets in the same stocks and
in substantially the same percentages as the S&P 500 Index, the Extended Index
Portfolio invests in a representative sample of the securities comprising the
Wilshire 4500 Index. This is sometimes called a sampling
--------
**** "Wilshire Associates," "Wilshire 4500 Equity Index", "Wilshire
4500 Completion Index" and "Wilshire 4500" are trademarks of Wilshire
Associates, Inc. The Fund is not sponsored, endorsed, sold or promoted by
Wilshire Associates, Inc. and Wilshire Associates, Inc. makes no representation,
express or implied, regarding the advisability of investing in the Fund.
7
<PAGE>
method of following an index. Securities are selected for investment by the
Extended Index Portfolio in accordance with their capitalization, industry
sector and valuation, among other factors. The Fund is a mid to small cap fund.
A mid-cap fund generally holds the stocks of companies with a market value of
between $1 billion and $10 billion. A small cap fund generally holds the stocks
of companies with a market value of less than $1 billion. The Wilshire 4500
Index consists of the U.S. common stocks regularly traded on the New York and
American Stock Exchanges and the Nasdaq over-the- counter market, except those
stocks included in the S&P 500 Index. Capitalizations of stocks included in the
Wilshire 4500 Index range from less than $1 billion to in excess of $10 billion.
Under normal market conditions, the Extended Index Portfolio invests at least
90% of its total assets in the stocks comprising the Wilshire 4500 Index. Over
time, the Extended Index 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 before fees and expenses and
that of the Wilshire 4500 Index. A correlation of 100% means the performance of
the Extended Market Master Portfolio would increase and decrease exactly the
same as the Wilshire 4500 Index.
PRINCIPAL RISKS
The Fund's total return, like stock prices generally, will fluctuate within a
wide range, so an investor could lose money over short or even long periods.
Stock markets tend to move in cycles, with periods of rising prices and periods
of falling prices.
The Fund is also subject to investment style risk, which is the chance that
returns from mid- or small-capitalization stocks will trail returns from other
asset classes or the overall stock market. Small and mid-cap stocks historically
have been more volatile in price than the large-cap stocks that dominate the S&P
500 Index, and perform differently than the overall stock market. Smaller
companies tend to have fewer products and services and have more limited
financial resources than larger companies. Their securities may also trade less
frequently and in smaller amounts than those of larger companies.
The Fund is also subject to tracking error risk, which is the risk that it will
not closely track the Wilshire 4500 Index. For example, the Extended Index
Portfolio will need to maintain cash to pay redemptions and expenses and this
may affect the performance of the Extended Market Index Fund.
No attempt is made to manage the portfolio of the Extended Index Portfolio using
economic, financial or market analyses. The Extended Index Portfolio is managed
by determining which securities are to be purchased or sold to match, to the
extent feasible, the capitalization range and returns of the Wilshire 4500
Index.
PERFORMANCE/RISK INFORMATION
8
<PAGE>
No bar chart or performance table is provided because the Extended Index
Portfolio has not had a full calendar year of operations.
FEES AND EXPENSES1
The following table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.
Shareholder Fees
(fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
and Other Distributions None
Redemption Fee (within 90 days of purchase)2
(as a percentage of amount redeemed) 1.00%
Exchange Fee None
Maximum Account Fee3 $20
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees 0.80%
--------
1 The fees and expenses in the Table and Example below reflect those of
both the Extended Index Portfolio and the Fund.
2 In addition, a wire transfer fee is charged in the case of redemptions
made by wire. Such fee is subject to change and is currently $10.
3 The Funds will apply a $5 quarterly account maintenance fee upon shareholders
who fail to maintain a total (sum of investments in all of the Funds)
non-retirement account balance of $1,000 or a retirement account balance of
$500. This fee applies to the shareholder's total account with the Funds and is
not a fee charged to the Funds. The fee is waived for shareholders with at least
$10,000 invested in all accounts in the aggregate. Shareholders who have
enrolled in the monthly savings plan have one year to reach the minimum balance
for non-retirement accounts and six months for retirement accounts without
incurring account maintenance fees.
9
<PAGE>
Distribution and/or Service (12b-1) Fees None
Other Expenses4 0.00%
Total Annual Fund Operating Expenses:5 0.80%
Fee Waiver and Expense Reimbursement6 0.25%
Net Operating Expenses 0.55%
Example
The following Example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds. The Example assumes
that you invest $10,000 in the Fund for the time periods indicated and then
redeem all of your shares at the end of these periods. The Example also assumes
that your investment has a 5% return each year, and that the Fund's operating
expenses remain the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
One Year Three Years
$56 $176
ADDITIONAL INFORMATION
DIVIDENDS AND CAPITAL GAINS
--------
4 "Other Expenses" are estimates for the Fund's current fiscal year. 5 The
expenses shown under Annual Fund Operating Expenses are based upon contractual
arrangements by which the Adviser pays all expenses of managing and operating
the Funds, including also the fees and expenses of the Portfolios, except
brokerage expenses, taxes, interest, and extraordinary expenses, from the
advisory fee or its own resources.
6 The Adviser has entered into a written expense limitation and reimbursement
agreement with the Trust, under which it has agreed to waive its investment
advisory fee and reimburse expenses to the extent necessary to maintain Net
Operating Expenses at 0.55%. 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. The agreement can be
changed, terminated or not renewed by the Trust only upon providing thirty days'
prior notice.
10
<PAGE>
Dividends, if any, are distributed quarterly in March, June, September, and
December; capital gains, if any, are distributed annually in December.
INVESTMENT ADVISER
Whatifi Asset Management Inc., San Francisco, California
AVAILABLE FOR IRAS
Yes
MINIMUM INITIAL INVESTMENT
None
FUND PROFILE -- WHATIFI INTERNATIONAL INDEX FUND
The following profile summarizes important aspects of Whatifi International
Index Fund.
INVESTMENT OBJECTIVE
The Fund's goal is to approximate as closely as practicable, before fees and
expenses, the performance of the Morgan Stanley Capital International, Europe,
Australia, Far East Free Index (the "EAFE Index")****.
PRINCIPAL INVESTMENT STRATEGIES
The Fund seeks to achieve its investment objective by investing all of its
assets in the EAFE Index Master Portfolio (the "International Portfolio"), a
series of Master Investment Portfolio. The International Portfolio seeks to
match the total return performance of foreign stock markets by investing in
common stocks included in the EAFE Index. The EAFE Index tracks securities of
companies located in Europe, Australia and the Far East. The EAFE Index is made
up of stocks of companies located in 15 western European countries, Australia,
New Zealand, Hong Kong, Japan, Malaysia and Singapore. The Fund does not invest
directly in a portfolio of securities. Companies comprising the EAFE Index are
not limited to a particular capitalization.
The International Portfolio invests in a representative sample of securities
of companies included in the EAFE Index. Securities are selected for investment
by the Portfolio in
--------
**** "Morgan Stanley Capital International, Europe, Australia, Far East Free
Index"(R), EAFE Free Index(R) and "EAFE"(R) are trademarks of Morgan Stanley
Capital International ("MSCI"). The International Index Fund is not sponsored,
endorsed, sold, or promoted by MSCI and MSCI makes no representation, express or
implied, regarding the advisability of investing in the International Index
Fund.
11
<PAGE>
accordance with their capitalization, industry sector, and valuation, among
other factors. This method of following an index is sometimes referred to as
sampling.
Under normal market conditions, at least 90% of the value of the International
Portfolio's total assets will be invested in securities comprising the EAFE
Index. Over time, the International Portfolio attempts to achieve in both rising
and falling markets, a correlation of at least 95% between the total return of
its assets before fees and expenses and the total return of the EAFE Index. A
correlation of 100% would mean the total return of the International Portfolio's
assets would increase and decrease exactly the same as the EAFE Index.
PRINCIPAL RISKS
The Fund's total return, like stock prices generally, will fluctuate within a
wide range, so an investor could lose money over short or even long periods. The
Fund is also subject to investment style risk which is the chance that returns
from international stocks will trail returns from other asset classes or the
overall stock market.
The Fund is subject to country risk, which is the chance that a country's
economy will be hurt by political factors, financial issues or natural
disasters. This risk is increased to the extent the International Portfolio
invests in emerging markets, which can be volatile.
The Fund is subject to foreign investment risk. This means that it can be
affected by the risks of converting currencies; foreign government controls on
foreign investment; repatriation of capital and currency and exchange; foreign
taxes; inadequacy of some regimes of foreign supervision and regulation;
volatility from lack of liquidity; and political, economic or social
instability.
The Fund is subject to currency risk, which is the chance that returns will be
hurt by a rise in the value of the U.S. dollar compared to foreign currencies.
The Fund is also subject to tracking error risk , which is the risk that it will
not closely track the EAFE Index. For example, the International Portfolio will
need to maintain cash to pay redemptions and expenses and this may affect the
performance of the International Index Fund.
The Fund is subject to small company risk. Compared to larger, well-established
companies, smaller companies are more likely to have limited product lines,
limited capital resources and less experienced management. In addition,
securities of smaller companies are more likely to experience sharp swings in
market value and may be more difficult to sell at prices the Adviser deems
appropriate. Small company securities also offer greater risk of losses.
12
<PAGE>
No attempt is made to manage the portfolio of the International Portfolio using
economic, financial or market analyses. The International Portfolio is managed
by determining which securities are to be purchased or sold to match to the
extent feasible, the capitalization range and returns of the EAFE Index.
PERFORMANCE/RISK INFORMATION
No bar chart or performance table is provided because the International
Portfolio has not had a full year of operations.
FEES AND EXPENSES1
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
Shareholder Fees
(fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases None
(as a percentage of offering price)
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
and Other Distributions None
Redemption Fee2
(within 90 days of purchase)
(as a percentage of amount redeemed) 1.00%
Exchange Fee None
Maximum Account Fee3 $20
--------
1 The fees and expenses in the Table and Example below reflect those of
both the International Portfolio and the Fund.
2 In addition, a wire transfer fee is charged in the case of redemptions
made by wire. Such fee is subject to change and is currently $10.
3 The Funds will apply a $5 quarterly account maintenance fee upon shareholders
who fail to maintain a total (sum of investments in all of the Funds)
non-retirement account balance of $1,000 or a retirement account balance of
$500. This fee applies to the shareholder's total account with the Funds and is
not a fee charged to the Funds. The fee is waived for shareholders with at least
$10,000 invested in all accounts in the aggregate. Shareholders who have
enrolled in the monthly savings plan have one year to reach the minimum balance
for non-retirement accounts and six months for retirement accounts without
incurring account maintenance fees.
13
<PAGE>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees 0.80%
Distribution and/or Service (12b-1) Fees None
Other Expenses4 0.00%
Total Annual Fund Operating Expenses5 0.80%
Fee Waiver and Expense Reimbursement6 0.25%
Net Operating Expenses 0.55%
Example
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 and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year, and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
--------
4 "Other Expenses" are estimates for the Fund's current fiscal year. 5 The
expenses shown under Annual Fund Operating Expenses are based upon contractual
arrangements by which the Adviser pays all expenses of managing and operating
the Funds, including also the fees and expenses of the Portfolios, except
brokerage expenses, taxes, interest, and extraordinary expenses, from the
advisory fee or its own resources.
6 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
investment advisory fee and reimburse expenses to the extent necessary to
maintain Net Operating Expenses at 0.55%. 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. The
agreement can be changed, terminated or not renewed by either party only upon
providing thirty days' prior notice.
14
<PAGE>
One Year Three Years
$56 $176
ADDITIONAL INFORMATION
DIVIDENDS AND CAPITAL GAINS
Dividends, if any, are distributed quarterly in March, June, September, and
December; capital gains, if any, are distributed annually in December.
INVESTMENT ADVISER
Whatifi Asset Management, Inc., San Francisco, California
AVAILABLE FOR IRAS
Yes
MINIMUM INITIAL INVESTMENT
None
FUND PROFILE -- WHATIFI TOTAL BOND INDEX FUND
The following profile summarizes important aspects of Whatifi Total Bond Index
Fund.
INVESTMENT OBJECTIVE
The Fund's goal is to approximate as closely as practicable, before fees and
expenses, the investment results that correspond to the total return performance
of fixed income securities in the aggregate, as represented by the Lehman
Brothers Government/Corporate Bond Index (the "LB Bond Index").****
PRINCIPAL INVESTMENT STRATEGIES
The Fund seeks to achieve its investment objective by investing all of its
assets in the Bond Index Master Portfolio (the "Bond Portfolio"), a series of
Master Investment Portfolio. The Bond Portfolio seeks to replicate the total
return of the LB Bond Index.
--------
**** The Lehman Brothers Government/Corporate Bond Fund Index(R) is a trademark
of Lehman Brothers. The Total Bond Index Fund is not sponsored, endorsed, sold
or promoted by Lehman Brothers and Lehman Brothers makes no representation,
express or implied, regarding the advisability of investing in the Total Bond
Index Fund.
15
<PAGE>
The Portfolio invests substantially all of its assets in a representative sample
of securities that comprise the LB Bond Index. This method of following an index
is sometimes known as sampling. The LB Bond Index consists of approximately 6500
fixed income securities, including U.S. Government securities and investment
grade corporate bonds each with an issue size of at least $150 million and a
remaining maturity of greater than one year.
Under normal market conditions, the Bond Portfolio will invest at least 65% of
its total assets in fixed income securities. For sampling purposes, securities
are selected for investment by the Bond Portfolio based on various factors,
including, among others, the relative proportion of such securities in the LB
Bond Index.
Under normal market conditions, the Bond Portfolio invests at least 90% of its
total assets in securities that 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 the
Bond Portfolio's net assets before fees and expenses and the total return 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
The Fund is subject to several risks, any of which could cause you to lose
money.
The Fund is subject to interest rate risk, which is the chance that bond prices
overall will decline over short or even long periods due to rising interest
rates. Interest rate risk should be less for shorter-term bonds, and greater for
longer-term bonds.
The Fund is subject to income risk, which is the chance that falling interest
rates will cause the Fund's income to decline. Income risk is generally higher
for short-term bonds, and lower for long-term bonds.
The Fund is subject to credit risk, which is the chance that a bond issuer will
fail to pay interest and principal in a timely manner, reducing the Fund's
return. Credit risk should be low for the Fund.
The Fund is subject to prepayment risk, which is the chance that during periods
of falling interest rates, a mortgage-backed bond issuer will repay a
higher-yielding bond before its maturity date. Forced to reinvest the
unanticipated proceeds at lower rates, the Fund would experience a decline in
income and lose the opportunity for additional price appreciation associated
with falling rates.
The Fund is also subject to tracking error risk, which is the risk that it will
not closely track the LB Bond index. For example, the Bond Portfolio will need
to maintain cash to
16
<PAGE>
pay redemptions and expenses and this may affect the performance of the Bond
Portfolio.
PERFORMANCE/RISK INFORMATION
The bar chart and table below provide an indication of the risk of investing in
the Fund by showing changes in the Bond Portfolio's performance from year to
year. The bar chart shows the year-by-year returns of the Bond Portfolio. The
Bond Portfolio's returns have been adjusted to account for estimated expenses
payable at the Fund level, but do not take into account fee waivers and expense
reimbursements. The average annual return tables compare the Bond Portfolio's
average annual return with the return of the corresponding index for one and
five years and since inception. Past performance is not necessarily an
indication of future performance.
Bond Index Master Portfolio [BAR CHART]
1994 -4.64% 1997 8.83%
1995 17.89% 1998 8.59%
1996 1.32% 1999 -3.52%
During the period shown in the bar chart, the highest return for a calendar
quarter was 6.32% (quarter ended June 30, 1995) and the lowest return for a
quarter was -3.16% (quarter ended March 31, 1994).
Bond Index Master Portfolio Average Annual Total Returns (As of December 31,
1999)*
One Year Five Years Since Inception -
July 2, 1993**
Bond Index Master Portfolio -3.52% 6.37% 4.33%
LB Bond Index -2.15% 7.60% 5.70%
*The Bond Index Portfolio's performance has been adjusted to reflect contractual
arrangements by which the Adviser pays all expenses of the Fund from the
advisory fee or its own resources.
**The LB Bond Index is calculated from June 30, 1993.
17
<PAGE>
FEES AND EXPENSES1
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
Shareholder Fees
(fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases None
(as a percentage of offering price)
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
and Other Distributions None
Redemption Fee2
(within 90 days of purchase)
(as a percentage of amount redeemed) 1.00%
Exchange Fee None
Maximum Account Fee3 $20
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees 0.80%
Distribution and/or Service (12b-1) Fees None
--------
1 The fees and expenses in the Table and Example below reflect those of
both the Bond Portfolio and the Fund.
2 In addition, a wire transfer fee is charged in the case of redemptions
made by wire. Such fee is subject to change and is currently $10.
3 The Funds will apply a $5 quarterly account maintenance fee upon shareholders
who fail to maintain a total (sum of investments in all of the Funds)
non-retirement account balance of $1,000 or a retirement account balance of
$500. This fee applies to the shareholder's total account with the Funds and is
not a fee charged to the Funds. The fee is waived for shareholders with at least
$10,000 invested in all accounts in the aggregate. Shareholders who have
enrolled in the monthly savings plan have one year to reach the minimum balance
for non-retirement accounts and six months for retirement accounts without
incurring account maintenance fees.
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<PAGE>
Other Expenses4 0.00%
Total Annual Fund Operating Expenses5 0.80%
Fee Waiver and Expense Reimbursement6 0.25%
Net Operating Expenses 0.55%
Example
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 and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year, and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions, your costs would be:
One Year Three Years
$56 $176
ADDITIONAL INFORMATION
DIVIDENDS AND CAPITAL GAINS
Dividends, if any, are declared daily and distributed monthly.
INVESTMENT ADVISER
--------
4 "Other Expenses" are estimates for the Fund's current fiscal year. 5 The
expenses shown under Annual Fund Operating Expenses are based upon contractual
arrangements by which the Adviser pays all expenses of managing and operating
the Funds, including also the fees and expenses of the Portfolios, except
brokerage expenses, taxes, interest, and extraordinary expenses, from the
advisory fee or its own resources.
6 The Adviser has entered into a written expense limitation and reimbursement
agreement with the Trust, under which it has agreed to waive its investment
advisory fee and reimburse expenses to the extent necessary to maintain Net
Operating Expenses at 0.55%. 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. The agreement can be
changed, terminated or not renewed by the Trust only upon providing thirty days'
prior notice.
19
<PAGE>
Whatifi Asset Management, Inc., San Francisco, California
AVAILABLE FOR IRAS
Yes
MINIMUM INITIAL INVESTMENT
None
FUND PROFILE -- WHATIFI MONEY MARKET FUND
The following profile summarizes important aspects of Whatifi Money Market Fund.
INVESTMENT OBJECTIVE
The Fund seeks to provide shareholders with a high level of income, while
preserving capital and liquidity, by investing in high-quality short-term
investments.
PRINCIPAL INVESTMENT STRATEGIES
The Fund seeks to achieve its investment objective by investing all of its
assets in the Money Market Master Portfolio, a series of Master Investment
Portfolio, which, in turn, invests its assets in U.S. dollar-denominated,
high-quality money market instruments with remaining maturities of 397 days or
less, and a dollar-weighted average portfolio maturity of 90 days or less. The
Money Market Master Portfolio and the Fund seek to maintain a stable net asset
value of $1.00 per share. 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 National Ratings Self Regulatory Organization ("NRSRO") or, if
unrated, determined by BGFA to be of comparable quality to such rated securities
under guidelines adopted by the Fund's Board of Trustees and the Money Market
Portfolio's Board of Trustees.
PRINCIPAL RISKS
The Fund is subject to interest rate risk, which is the risk that when interest
rates rise the value of the debt instruments in which the Money Market Portfolio
invests will go down.
The Fund is subject to credit risk, which is the risk that issuers of the debt
instruments in which the Fund (through its investments in the Money Market
Portfolio) invests may default on the payment of principal and/or interest. The
Fund could lose money if the
20
<PAGE>
issuer of a fixed-income security owned by the Money Market Portfolio were
unable or unwilling to meet its financial obligations.
An investment in the Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Although the Fund seeks to
preserve the value of your investment at $1.00 per share, it is possible to lose
money by investing in the Fund.
PERFORMANCE/RISK INFORMATION
The bar chart and table below provide an indication of the risk of investing in
the Fund by showing changes in the Fund's performance from year to year. The bar
chart shows the year-by-year returns of the Money Market Portfolio. The Money
Market Portfolio's returns have been adjusted to account for estimated expenses
payable at the Fund level, but do not take into account fee waivers and expense
reimbursements. The table shows how the Money Market's average annual returns
for one and five calendar years and since inception compare with the rate for
3-month U.S. Treasury Bills. Past performance is not necessarily an indication
of future performance.
Money Market Portfolio [BAR CHART]
1994 3.10% 1997 4.45%
1995 4.82% 1998 4.43%
1996 4.27% 1999 4.09%
During the period shown in the bar chart, the highest return for a calendar
quarter was 1.22% (quarter ended June 30,1995) and the lowest return for a
quarter was .51% (quarter ended December 31, 1993).
Money Market Portfolio Average Annual Total Returns (as of December 31, 1999)*
One Year Five Years Since Inception -
July 2, 1993*
Money Market Portfolio 4.09% 4.41% 4.02%
Treasury Bills (3 month) 4.74% 5.21% 4.90%
* The Money Market Portfolio's performance has been adjusted to reflect
contractual arrangements by which the Adviser pays all expenses of the Fund from
the advisory fee or its own resources.
21
<PAGE>
To obtain the Fund's current 7-day yield, shareholders may telephone
1-877-whatifi (1- 877-942-8434).
FEES AND EXPENSES1
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
Shareholder Fees
(fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases None
(as a percentage of offering price)
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
and Other Distributions None
Redemption Fees (within 90 days of purchase)2 1.00%
(as a percentage of amount redeemed)
Exchange Fee None
Maximum Account Fee3 $20
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees 0.80%
--------
1 The fees and expenses in the Table and Example below reflect those of
both the Master Portfolio and the Fund.
2 In addition, a wire transfer fee is charged in the case of redemptions
made by wire. Such fee is subject to change and is currently $10.
3 The Funds will apply a $5 quarterly account maintenance fee upon shareholders
who fail to maintain a total (sum of investments in all of the Funds)
non-retirement account balance of $1,000 or a retirement account balance of
$500. This fee applies to the shareholder's total account with the Funds and is
not a fee charged to the Funds. The fee is waived for shareholders with at least
$10,000 invested in all accounts in the aggregate. Shareholders who have
enrolled in the monthly savings plan have one year to reach the minimum balance
for non-retirement accounts and six months for retirement accounts without
incurring account maintenance fees.
22
<PAGE>
Distribution and/or Service (12b-1) Fees None
Other Expenses4 0.00%
Total Annual Fund Operating Expenses5 0.80%
Fee Waiver and Expense Reimbursement6 0.25%
Net Operating Expenses 0.55%
Example
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 and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year, and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions, your costs would be:
One Year Three Years
$56 $176
ADDITIONAL INFORMATION
DIVIDENDS AND CAPITAL GAINS
--------
4 "Other Expenses" are estimates for the Fund's current fiscal year. 5 The
expenses shown under Annual Fund Operating Expenses are based upon contractual
arrangements by which the Adviser pays all expenses of managing and operating
the Funds, including also the fees and expenses of the Portfolios, except
brokerage expenses, taxes, interest, and extraordinary expenses, from the
advisory fee or its own resources. In the event such expenses are not paid by
the Adviser, the total expenses of the Fund will increase by any unpaid amounts
payable under the Administration Agreement as well as any allocated expenses of
the Master Portfolio. 6 The Adviser has entered into a written expense
limitation and reimbursement agreement with the Trust, under which it has agreed
to waive its investment advisory fee and reimburse expenses to the extent
necessary to maintain Net Operating Expense at 0.55%. 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. The
agreement can be changed, terminated or not renewed by either party only upon
providing thirty days' prior notice.
23
<PAGE>
Dividends, if any, are declared daily and distributed monthly.
INVESTMENT ADVISER
Whatifi Asset Management, Inc., San Francisco, California
AVAILABLE FOR IRAS
Yes
MINIMUM INITIAL INVESTMENT
None
WHY INVEST IN INDEX FUNDS?
Index funds appeal to many investors for a number of reasons:
- - Diversification. Index funds generally invest in a diversified mix of
companies and industries.
- - Relative consistency. Index funds typically match the performance of
relevant market benchmarks more closely than comparable actively managed funds
do.
- - Low cost. Index funds do not have many of the expenses of an actively
managed fund -- such as research -- and keep trading activity, and thus
operating expenses to a minimum.
- - Low realization of capital gains. Because an index fund typically sells
securities only to respond to redemption requests or to adjust the number of
shares it holds to reflect a change in its target index, the fund's turnover
rate -- and thus its realization of taxable capital gains -- is usually very
low.
WHAT DO LARGE-CAP, MID-CAP OR SMALL CAP MEAN?
In general, Whatifi defines large-capitalization companies as those whose
outstanding shares have a market value exceeding $10 billion. Mid-cap companies
are those with a market value between $1 billion and $10 billion. Small cap
companies typically have a market value of less than $1 billion.
MORE INFORMATION ON THE PORTFOLIOS AND THE FUNDS
The following sections of the Prospectus present a more complete discussion of
various important features of the Index Funds.
24
<PAGE>
The S&P 500 Fund. By seeking to track the total return of the S&P 500 Index, the
Fund seeks to approximate as closely as practicable, before fees and expenses
the capitalization-weighted total return rate of return of the S&P 500 Index.
Each stock in the index contributes to the index in the same proportion as the
value of its shares. Accordingly, 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.
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. 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 comprising the S&P 500 Index. 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 in exactly the same
way as the S&P 500 Index.
The Extended Market Index Fund. The Fund is a mid to small cap fund. Its goal is
to track the total return of the Wilshire 4500 Equity Index. The Wilshire 4500
consists of all of the U.S. common stocks regularly traded on the New York and
American Stock Exchanges and the Nasdaq over-the-counter market, except those
stocks included in the S&P 500 Index. The Fund employs a passive management
strategy designed to track the performance of the Wilshire 4500 Equity Index.
The Fund does not invest directly in a portfolio of securities. The Fund seeks
to achieve its investment objective by investing all of its assets in the
Extended Index Portfolio (the "Extended Index Portfolio"), a series of the
Master Investment Portfolio. The weightings of the Wilshire 4500 Index are based
on each stock's relative total market capitalization (i.e. its market price
times the number of shares outstanding). The Extended Index Portfolio invests in
a representative sample of these securities. Unlike the S&P 500 Index Portfolio,
which invests at least 90% of its assets in the stocks comprising the S&P 500
Index, the Extended Index Portfolio invests in a representative sample of the
over 6,500 stocks in the Wilshire 4500 Index. Securities are selected for
investment by the Extended Index Portfolio in accordance with their
capitalization, industry sector and valuation among other factors.
The International Index Fund. The Fund is subject to foreign investment risk.
The International Portfolio invests substantially all of its assets in foreign
securities. This means the International Portfolio can be affected by the risks
of foreign investing, including changes in currency exchange rates and the costs
of converting currencies; foreign government controls on foreign investment;
repatriation of capital, and currency and exchange; foreign taxes, inadequate
supervision and regulation of some foreign markets; volatility from lack of
liquidity; different settlement practices or delayed
25
<PAGE>
settlements in some markets; difficulty in obtaining complete and accurate
information about foreign companies; less strict accounting, auditing and
financing reporting standards than those in the U.S.; political, economic and
social instability; and difficulties in enforcing legal rights outside the U.S.
All of these factors can make foreign investments, especially those in emerging
markets, more volatile and potentially less liquid than U.S. investments.
The International Index Fund and the Extended Market Index Fund are both subject
to small company investing risk. The value of securities of smaller, less
well-known issuers can be more volatile than that of larger issuers and can
react differently to issuer, political, market and economic developments than
the market as a whole and other types of stocks. Smaller issuers can have more
limited product lines, markets and financial resources.
Indexing Methods
In seeking to track a particular index, a fund generally uses one of two methods
to select stocks. Some index funds hold each stock found in their target indexes
in about the same proportions as represented in the indexes themselves. This is
called a "replication" method. For example, if 5% of the S&P 500 Index were made
up of the stock of a specific company, a fund tracking that index would invest
about 5% of its assets in that company. The Whatifi S&P 500 Fund uses this
method of indexing.
Because it would be very expensive to buy and sell all of the securities held in
certain indexes (the Wilshire 4500 Index, the EAFE Index and the LB Bond Index),
funds such as the Extended Market Index Fund, the International Index Fund and
the Total Bond Index Fund, use a "sampling" technique. Using a sophisticated
computer program, these funds invest in a representative sample of stocks from
their target index that will resemble the full index in terms of industry
weightings, market capitalization, price/earnings ratio, dividend yield, and
other characteristics. For instance, if 10% of the Wilshire 4500 Index were made
up of utility stocks, the Extended Market Index Fund can be expected to invest
about 10% of its assets in some -- but not all -- of such utility stocks. The
particular utility stocks selected by the Fund, as a group, would have
investment characteristics similar to those of the utility stocks in the Index.
Costs and Market-timing
Some investors try to profit from a strategy called market-timing -- switching
money into investments when the investor expects prices to rise, and taking
money out when the investor expects prices to fall. As money is shifted in and
out of a fund, the fund incurs expenses for buying and selling securities. These
costs are borne by all fund shareholders, including the long-term investors who
do not generate the costs. Accordingly, the Funds have adopted the following
policies, among others, designed to discourage short-term trading:
26
<PAGE>
Each Fund reserves the right to reject any exchange request it believes
will increase transaction costs, or otherwise adversely affect other
shareholders. Specifically, exchange activity may be limited to 12
exchanges within a one year period per Fund or 1% of the Fund's NAV.
Each Fund may delay forwarding redemption proceeds for up to seven days
if the investor redeeming shares is engaged in excessive trading, or if
the amount of the redemption request otherwise would be disruptive to
efficient portfolio management, or would adversely affect the Fund.
THE WHATIFI INDEX FUNDS DO NOT PERMIT MARKET-TIMING. DO NOT INVEST
IN THESE FUNDS IF YOU ARE A MARKET-TIMER.
Turnover Rate
Before investing in a mutual fund, you should review its turnover rate. This
gives an indication of how transaction costs could affect the fund's future
returns. In general, the greater the volume of buying and selling by the fund,
the greater the impact that brokerage commissions and other transaction costs
will have on the fund's return. Also, funds with high turnover rates may be more
likely to generate capital gains that must be distributed to shareholders as
income subject to taxes. The average turnover rate for passively managed
domestic equity index funds investing in common stocks is roughly 20%; for all
domestic stock funds, the average turnover rate is approximately 85%, according
to Morningstar, Inc. The average turnover rate for passively managed domestic
bond index funds is roughly 79%; for all domestic bond funds, the average
turnover rate is approximately 148%, according to Morningstar, Inc. (A turnover
rate of 100% would occur if a fund sold and replaced securities valued at 100%
of its net assets within a one-year period.)
In general, a passively managed fund sells securities only to respond to
redemption requests or to adjust the number of shares held to reflect a change
in the fund's target index. Turnover rates for large-cap stock index funds tend
to be very low because large-cap indexes, such as the S&P 500, typically do not
change much from year to year. Turnover rates for other stock index funds and
bond funds tend to be higher (although still relatively low, compared to
actively managed funds) because the indexes they track are more likely to change
as a result of mergers, acquisitions, business failures, or growth of companies
than a larger-cap index.
Investment Strategies
As with all mutual funds, there is no assurance that the Funds will achieve
their respective investment objectives. The investment strategies of the Funds
are not fundamental and may be changed without approval of a Fund's
shareholders. A Fund may withdraw its investment in a 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 and strategies of a Fund, a shareholder
27
<PAGE>
should consider whether the Fund remains an appropriate investment in view of
the shareholder's then current financial position and needs.
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 for
other purposes.
Each Index Portfolio may use derivative instruments to the extent BGFA deems
such use appropriate 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 or bonds in its corresponding index. Such derivatives include
the purchase and sale of futures contracts and options on the S&P 500 Index, the
Wilshire 4500 Index, the EAFE Free Index and the LB Bond Index futures
contracts.
The Money Market Fund and Money Market Portfolio emphasize safety of principal
and high credit quality. 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
variable-rate securities eligible for purchase under Rule 2a- 7 under the
Investment Company Act of 1940. Variable-rate instruments are subject to
interest rate and credit risks.
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
Portfolios will change daily based on various factors, including, but not
limited to, the quality of the instruments held by each Portfolio, national and
international economic conditions and general market conditions.
The Funds are also subject to index fund risk. The Index Funds invest (through
their investments in the corresponding Portfolios) in the securities included in
the relevant Index regardless of the investment merits of such securities. As
such, an Index Fund cannot in any meaningful way modify its investment
strategies to respond to changes in the economy and may be particularly
susceptible to general market declines. An Index Fund's ability to track the
performance of its Index will also be affected by, among other things,
transaction costs, the fees and expenses of the Fund and the corresponding
Portfolio, changes in the composition of the corresponding Index or the assets
of the corresponding Portfolio, and the timing, frequency and amount of investor
purchases and redemptions of the Fund and its corresponding Portfolio. Each
Portfolio
28
<PAGE>
must maintain cash balances to pay redemptions made by its shareholders and to
pay its own expenses. This may affect the overall performance of the Fund.
Derivatives: Derivatives are financial instruments whose values are "derived"
from prices of other securities or specified assets, indices, or rates. The use
of derivatives is a specialized investment technique. There can be no guarantee
that the use of derivatives will increase the return of a Fund, or protect its
assets from declining in value. A Fund'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 a Fund's corresponding Index. In
fact, the use of derivative instruments may adversely impact the value of the
Funds' assets, which may reduce the return you receive on your investment.
The Index Funds' use of derivative instruments may affect the Funds' ability to
track their respective indexes if the derivatives do not perform as expected, or
if the derivative instruments are timed incorrectly or are executed under
adverse market conditions.
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 sensitive to changes in interest rates and general market
conditions. The value of asset-backed securities is also affected by the
creditworthiness of the individual borrowers.
Securities Lending: Each Portfolio in which the Funds invest may lend its
securities to certain high quality financial institutions in amounts not to
exceed in the aggregate one- third of the Portfolio's total assets. A Portfolio
would lend its securities in order to earn income. These loans are fully
collateralized. However, if the institution defaults, the Funds' performance
could be reduced.
THE FUNDS' MANAGEMENT
Investment Advisers. Under an investment advisory agreement with the Funds,
Whatifi Asset Management, Inc., a registered investment adviser, provides
investment advisory services to the Funds. The Adviser is a wholly owned
subsidiary of Whatifi Financial Inc. and is located at 790 Eddy Street, San
Francisco, California 94109. The Adviser is newly formed and has no prior
experience as an investment adviser.
The Adviser provides various financial services to on-line investors. Through
the world wide web, the Adviser offers access to your Whatifi Fund account
virtually anywhere, at any time.
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Subject to general supervision of the Trust's Board of Trustees and in
accordance with the investment objective, policies and restrictions of each
Fund, the Adviser provides the Funds with investment guidance, policy direction
and monitoring of each of the 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 and all other services needed for the Funds to function. For its
investment 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:
Contractual Rate
<TABLE>
<CAPTION>
<S> <C> <C>
(as a percentage
of average daily After Fee Waiver and Expense Reimbursement
Fund net assets) (as a percentage of average daily net assets) **
---- -------------------- ----------------------------------------------
S&P 500 Index Fund 0.80% 0.55%
Extended Market Index
Fund 0.80% 0.55%
International Index Fund 0.80% 0.55%
Total Bond Index Fund 0.80% 0.55%
Money Market Fund 0.80% 0.55%
</TABLE>
Out of the fee received by the Adviser, the Adviser pays all expenses of
managing and operating the Funds including the expenses of the Portfolios except
brokerage expenses, taxes, interest, and extraordinary expenses from the
advisory fee or its own resources. A portion of the investment 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. In approving the Funds' investment advisory agreement, the Trustees
of the Funds considered that each Fund's
--------
** 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 investment advisory fee received from the Funds to the extent
necessary to maintain total operating expenses at 0.55% of each Fund's
average daily net assets. This waiver of fees and reimbursement of expenses
is subject to possible reimbursement of the Adviser by the Funds within
three years of the Funds' commencement of operations if the reimbursement
by the Funds can be implemented within the stated expense limitations. 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. The agreement can be changed, terminated or not
renewed by the Trust upon providing thirty days' prior notice.
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<PAGE>
aggregate fees and expenses are higher than if such Fund invested directly in
the securities held by its corresponding Portfolio.
BGFA is the investment adviser for each Portfolio. BGFA is a direct
subsidiary of Barclays Global Investors, N.A. which, in turn, is an indirect
subsidiary of Barclays Bank PLC. BGFA is located at 45 Fremont Street, San
Francisco, California 94105. BGFA has provided asset management, administration
and investment advisory services for over 25 years. As of March 31, 2000, BGFA
and its affiliates provided investment advisory services for over $809 billion
of assets. BGFA receives a fee from each Portfolio at an annual rate equal to
the following percentage of each Portfolio's average daily net assets:
Percentage of
Portfolio Average Daily Net Assets
S&P 500 Portfolio 0.05%
Bond Portfolio 0.08%
Extended Index Portfolio 0.08%*
International Portfolio 0.15%**
Money Market Portfolio 0.10%
-----------------------
*The Extended Index Portfolio also imposes an annual co-administration fee of
0.02% of average daily net assets.
** For assets in excess of $1 billion the investment advisory fee payable to
BGFA will decrease to 0.10% of the International Index Portfolio's average daily
net assets. The International Portfolio also imposes an annual co-administration
fee of 0.10% on the first $1 billion, and 0.07% thereafter of the International
Portfolio's average daily net assets.
Each Fund bears a pro rata portion of the investment advisory fees paid by its
corresponding Portfolio; however, under the investment advisory agreement, the
Adviser has assumed payment for these expenses.
The Funds' SAI contains detailed information about the Funds' investment
adviser, administrator, and other service providers.
THE FUNDS' STRUCTURE
Each Fund is a separate series of Whatifi Funds. The S&P 500 Index Fund, the
Extended Market Index Fund, the International Index Fund, the Total Bond Index
Fund, and the Money Market Fund seek to achieve their investment objectives by
investing all of a Fund's assets in the corresponding S&P 500 Portfolio, the
Extended Index
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<PAGE>
Portfolio, the International Index Portfolio, the Bond Portfolio, and the Money
Market Portfolio, respectively. The Index Portfolios and the Money Market
Portfolio are each a series of Master Investment Portfolio, a separate open-end
investment company with a substantially similar investment objective as the
corresponding Fund. This structure is referred to as a "master/feeder" structure
because one fund (the "feeder" fund) (i.e., the Funds) invests all of its assets
in a second fund (the "master fund") (i.e., the Portfolios). In addition to
selling its shares to a Fund, each corresponding Portfolio has sold and is
expected to continue to sell its shares to certain other mutual funds (i.e.
other feeder funds) or other investors. The expenses paid by these other feeder
mutual funds and investors may differ from the expenses paid by a Fund.
Accordingly, the returns received by shareholders of other mutual funds or other
accredited investors may differ from those received by shareholders of the
Funds.
The Whatifi Funds' Trustees believe that, as other investors invest their assets
in the Portfolios, certain economic efficiencies may be realized with respect to
each Portfolio. For example, fixed expenses that otherwise would have been borne
solely by a Fund (and the other existing interest-holders in its corresponding
Portfolio) would be spread across a larger asset base as more mutual funds or
other accredited investors invest in a Portfolio. If a mutual fund or other
investor withdraws its investment from a Portfolio, the economic efficiencies
that the Trustees believe could be available through investment in a Portfolio
may not be fully realized.
Each Fund may be asked to vote on matters concerning its corresponding
Portfolio. Except as permitted by the SEC, whenever a Fund is requested to vote
on a matter concerning a Portfolio, that Fund will hold a meeting of its
shareholders, and, at the meeting of investors in the 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 corresponding Portfolio if the Board
determines that it is in the best interests of the Fund and its shareholders to
do so. In connection with 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 vehicle 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 an investment sub-adviser to manage the Fund's assets.
Investment of the Funds' assets in the 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 Portfolio.
PRICING OF FUND SHARES
The Funds are no-load funds. This means you may purchase or sell shares directly
at a Fund's net asset value ("NAV") determined after the Fund receives your
request in proper form to purchase or sell shares. A request is received in
proper form if it is placed on the website www.whatifi.com, specifies the number
of shares or dollar
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<PAGE>
amount of shares to be purchased or redeemed and, in the case of a purchase
request, is accompanied by payment in the form of federal funds or other
immediately available funds (See "Placing an Order"). If the Fund receives such
request prior to the close of the NYSE on a day on which the NYSE is open, your
share price will be the NAV determined that day. Shares will not be priced on
days on which the NYSE is closed for trading. Each Fund's investment in its
corresponding 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. 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.
Some securities in which the Index Portfolios may invest may be primarily listed
on foreign exchanges that trade on weekends or other days when an Index Fund
does not price its shares. Accordingly, an Index Fund's shares' net asset value
may change on days when shareholders will not be able to purchase or redeem
shares.
Each Portfolio calculates the value of its assets on the same day and at the
same time as its corresponding Fund. Each Portfolio's investments are valued
each day the NYSE is open for business. Each Index Portfolio's assets are valued
by using available market quotations or at fair value as determined in good
faith by the Board of Trustees 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 that Portfolio buys. The
amortized cost method does not reflect daily fluctuations in market value.
HOW TO BUY AND SELL SHARES OF THE WHATIFI FUNDS
On-Line Investor Requirements
The Funds are available only to on-line investors. Each Fund requires you to
enter into an Internet Services Agreement which, among other things, requires
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. You may also receive other correspondence from Whatifi
Funds through your e-mail account. By opening an account and 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
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<PAGE>
costs for on-line access to shareholder documents and for maintaining an e-mail
account.
Account Requirements
To open your account, you must complete the Whatifi Funds Account Application
process (the "Application"). The Application is available on the Adviser's
website at www.whatifi.com. While the Application is submitted electronically,
you may be required to submit additional information to verify your identity.
You can access the Application at www.whatifi.com through multiple electronic
gateways on the Internet, for example, America Online and Microsoft Investor.
For more information on how to access account information and/or applications
electronically, please refer to our online assistant at www.whatifi.com
available 24 hours a day or call 1-877-942-8434 between 8:00 a.m. and 9 p.m.
(Eastern Time), Monday through Friday.
You may open your account using the following forms of payment: check, money
order, or electronic funds transfer. If by check or money order, make payable to
Whatifi Funds and mail to the Whatifi Funds, P.O. Box 182113, Columbus, Ohio
43218-2113.
When your account is opened, you will receive an account number so that you can
begin to wire funds. You may be charged a fee by your financial institution to
send or receive wired funds. Send wired funds to:
c/o Whatifi Funds
Huntington National Bank
Columbus, Ohio
ABA #044000024, Whatifi Funds Concentration Account
Account #01892047720
Shareholder Name and Account Number
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 offered over the Internet by the Adviser, including the
opportunity to invest in the Funds.
Placing an Order
You can begin purchasing shares of the Funds as soon as you open your account.
Since an Index Fund's net asset value changes daily, your purchase price will be
the next NAV determined after a Fund receives your request order in proper form
to purchase shares and accepts your check or electronic funds transfer.
You can place orders to purchase or redeem Fund shares by accessing the website
at www.whatifi.com. At the time you log-on to the website, you will be requested
to enter your password so that each transaction is secure. By clicking on the
appropriate mutual
34
<PAGE>
fund order buttons, you can place an order to purchase, withdraw, exchange or
reallocate shares in a Fund. When you first open an account, you will be asked:
(1) to consent to receive all Fund documentation electronically; and (2) to
affirm that you have read the prospectus. The prospectus is available for
viewing and printing on our website. If you do not consent to maintain an e-mail
account, you will not be able to purchase shares of a Fund. Notice of trade
confirmations will be sent electronically to the e-mail address you provided
when you opened your account.
Purchase orders will not be transmitted until receipt of the purchase price in
federal or other immediately available funds. If Fund shares are purchased by
check, there will be a delay of two business days in transmitting the purchase
order until the check is converted into federal funds. You may avoid this delay
by purchasing shares by electronic funds transfer. All of your purchases must be
made in U.S. dollars and checks must be drawn on U.S. banks. No cash will be
accepted. If you make a purchase with more than one check, each check must have
a value of at least $50 and the minimum investment requirements shown below
still apply. Each Fund reserves the right to limit the number of checks
processed at one time.
<TABLE>
<CAPTION>
<S> <C>
Minimum Investment Requirements
For your initial investment in a Fund None
To buy additional shares of a Fund Minimum: $100
Continuing minimum investment Non-Retirement: $1000 within
30 days of initial purchase
Retirement: $500 within 90 days
of purchase
To invest in a Fund for your IRA or Roth IRA, None
To invest in a Fund for your Education IRA account None
To invest in a Fund for your UGMA/UTMA account None
</TABLE>
Your shares may be automatically redeemed or you may be charged an account
maintenance fee of $5 per quarter if, you no longer meet a Fund's minimum
balance requirements. Before taking action to automatically redeem your shares a
Fund would notify you and give you at least 30 days to purchase more shares to
bring your investment in the Fund to the minimum balances described above. After
your account is established you may use any of the methods described below to
buy or sell shares. You can sell only shares of the Funds that you own.
Accordingly, you cannot "short" shares of a Fund.
35
<PAGE>
Accessing Account Information
Please refer to our website at www.whatifi.com.
Redemptions
You can access money invested in a Fund at any time by selling some or all of
your shares back to the Fund. When a Fund receives your withdrawal order, your
shares will be redeemed and the proceeds will be sent to you via check or
electronic transfer, based on your payment selection. This usually occurs the
business day following the transaction.
Redemption Delays. In order to receive payment on redeemed shares, you must wait
until the funds you used to buy the shares have cleared (e.g., if you purchased
shares of a Fund by check, until your check has cleared). This 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 Funds not reasonably practicable.
Redemption Fee. Please refer to the Fund Profiles for information on redemption
fees. 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, however, can disrupt a Fund's investment
program and create additional transaction costs that are borne by all
shareholders.
Internet Redemption Privileges. The Funds employ reasonable procedures to
confirm that instructions communicated by the Internet are genuine. 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 the Internet,
providing written confirmations of such transactions to the address of record,
tape recording telephone instructions and backing up Internet transactions.
Exchange Privilege
Shares of the Funds may be exchanged for each other at NAV. Exchanges may only
be made for shares of the Funds then offered for sale in your state of
residence. The exchange privilege may be modified or terminated by the Board of
Trustees upon 60 days' prior notice to you.
Amending Your Application
36
<PAGE>
For your protection, you will be required to submit an amended Application if
you desire to change certain information provided in your initial Application.
The supporting documentation is designed to protect you and the Funds against
fraudulent transactions by unauthorized persons. The Funds will require
supporting documentation under the following circumstances:
- You wish to change the last name on your account.
- You wish to change the Social Security Number on your account.
- You wish to change the date of birth on your account.
BUYING A DIVIDEND
Unless you are investing through a tax-deferred retirement account (such as an
IRA), it is not to your advantage to buy shares of a fund shortly before it
makes a distribution, because doing so can cost you money in taxes. This is
known as "buying a dividend." For example: on December 15, you invest $5,000,
buying 250 shares for $20 each. If the fund pays a distribution of $1 per share
on December 16, its share price would drop to $19 (not counting market change).
You still have only $5,000 (250 shares x $19 = $4,750 in share value, plus 250
shares x $1 = $250 in distributions), but you owe tax on the $250 distribution
you received--even if you reinvest it in more shares. To avoid "buying a
dividend," check a fund's distribution schedule before you invest. See
"Dividends and Other Distributions" below for each Fund's dividends and
distributions schedule.
DIVIDENDS AND OTHER DISTRIBUTIONS
The S&P 500 Index Fund, the Extended Market Index Fund and the International
Index Fund intend to pay dividends from their net investment income quarterly
and distribute capital gains, if any, annually. The Bond Index Fund and the
Money Market Fund intend to declare dividends daily and distribute them monthly.
The Bond Index Fund and the Money Market Fund will distribute capital gains, if
any, at least annually. The Funds may make additional distributions as
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.
TAX CONSEQUENCES
The following information is intended to be a general summary for U.S.
taxpayers. Please refer to the Funds' SAI for more information. You should rely
on your own tax adviser for advice about the federal, state and local tax
consequences related to any investment in the Funds. Each Fund generally will
not have to pay income tax on amounts it distributes to you; however, you will
be taxed on distributions you receive.
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<PAGE>
The S&P 500 Index Fund, the Extended Market Index Fund and the International
Index Fund will each distribute substantially all of their income and gains to
their shareholders each year. The Bond Index Fund and the Money Market Fund will
distribute dividends monthly. If a Fund declares a dividend in October, November
or December of any year but pays it in January of the next year, 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. A Fund's capital gain distributions will be taxable at different rates
depending upon the length of time the Fund has held its assets.
If you invest through a tax-deferred retirement account, such as an IRA, you
generally will not have to pay tax on dividends until they are distributed from
the account. These accounts are subject to various tax rules. You should consult
your tax adviser 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 primarily upon how much you paid for the shares of the Fund, how
much you sold them for, and how long you held them.
Each Fund will e-mail you a report each year that will show 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 by 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.
GLOSSARY OF INVESTMENT TERMS
ACTIVE MANAGEMENT
An investment approach that seeks to exceed the average returns of the financial
markets. Active managers rely on research, market forecasts, and their judgment
in buying and selling securities.
CAPITAL GAINS DISTRIBUTION
Payment to mutual fund shareholders of gains realized on securities that the
fund has sold at a profit, less any realized losses.
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<PAGE>
CASH RESERVES
Cash deposits, short-term bank deposits, and money market instruments which
include U.S. Treasury bills, bank certificates of deposit (CDs), repurchase
agreements, commercial paper, and banker's acceptances.
COMMON STOCK
A security representing ownership rights in a corporation. A stockholder is
entitled to share in the company's profits, some of which may be paid out as
dividends.
DIVIDEND INCOME
Payment to shareholders of income from interest or dividends generated by a
fund's investments.
EXPENSE RATIO
The percentage of a fund's average net assets used to pay its expenses. The
expense ratio may include management fees, administrative fees, any 12b-1
distribution fees (i.e. fees paid by the a mutual fund to promote the sale of
its shares), other expenses and the expenses of the Master Portfolio. The Funds
do not charge any Rule 12b-1 fees.
INDEX
An unmanaged group of securities whose overall performance is used as a standard
to measure investment performance.
INVESTMENT ADVISER
An entity that makes the day-to-day decisions regarding a fund's investments.
MUTUAL FUND
An investment company that pools the money of many people and invests it in a
variety of securities in an effort to achieve a specific objective over time.
NET ASSET VALUE (NAV)
The market value of a mutual fund's total assets, less liabilities, divided by
the number of shares outstanding. The value of a single share is called its
share value or share price.
PASSIVE MANAGEMENT
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<PAGE>
A low-cost investment strategy in which a mutual fund attempts to match --
rather than outperform -- a particular stock or bond market index. Also known as
indexing.
PRINCIPAL
The amount of money you put into an investment.
SECURITIES
Stocks, bonds, money market instruments, and other investment vehicles.
TOTAL RETURN
A percentage change, over a specified time period, in a mutual fund's net asset
value, with the ending net asset value adjusted to account for the reinvestment
of all distributions of dividends and capital gains.
VOLATILITY
The fluctuation in value of a mutual fund or other security. The greater a
fund's volatility, the wider the fluctuations between its high and low prices.
YIELD
Income (interest or dividends) earned by an investment, expresses as a
percentage of the investment's price.
MORE INFORMATION
The SAI contains more information on each Fund. The SAI is incorporated into
this Prospectus by reference. Further information about the Funds' investments
will be available in the Funds' annual and semi-annual reports. 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.whatifi.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 questions.
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 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 on the SEC's Internet site at http://www.sec.gov. Copies can also be
obtained, upon
40
<PAGE>
payment of a duplicating fee, by electronic request at the following e-mail
address: [email protected], or by writing the Public Reference Section of the
SEC, Washington, D.C. 20549-6009.
Whatifi Asset Management, Inc.
790 Eddy Street
San Francisco, California 94109
Toll-Free: 1-877-whatifi (1-877-942-8434)
http://www.whatifi.com
Investment Company Act file No.: 811-09741
41
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
Whatifi Funds
Whatifi S&P 500 Index Fund
Whatifi Extended Market Index Fund
Whatifi International Index Fund
Whatifi Total Bond Index Fund
Whatifi Money Market Fund
June __, 2000
This Statement of Additional Information (the "SAI") is not a prospectus and
should be read together with the Prospectus for the Whatifi S&P 500 Index Fund
(the "S&P 500 Index Fund"), the Whatifi Extended Market Index Fund (the
"Extended Market Index Fund"), the Whatifi International Index Fund (the
"International Index Fund"), the Whatifi Total Bond Index Fund, (the "Bond Index
Fund" (collectively, the "Index Funds"), and the Whatifi Money Market Fund (the
"Money Market Fund" (collectively with the Index Funds, the "Funds") dated June
__, 2000.
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.whatifi.com) via e-mail. The Funds are for on-line investors only.
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<PAGE>
TABLE OF CONTENTS
Page
THE FUNDS....................................................................
INVESTMENT STRATEGIES AND RISKS..............................................
FUND POLICIES................................................................
PORTFOLIO POLICIES...........................................................
TRUSTEES AND OFFICERS........................................................
INVESTMENT MANAGEMENT........................................................
SERVICE PROVIDERS............................................................
PORTFOLIO TRANSACTIONS AND BROKERAGE SELECTION...............................
ORGANIZATION, DIVIDEND AND VOTING RIGHTS.....................................
SHAREHOLDER INFORMATION......................................................
TAXATION.....................................................................
MASTER PORTFOLIO ORGANIZATION................................................
PERFORMANCE INFORMATION......................................................
INDEX INFORMATION............................................................
FINANCIAL STATEMENTS.........................................................
APPENDIX.....................................................................
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<PAGE>
THE FUNDS
Each of the Funds is a diversified series of Whatifi Funds (the "Trust"). The
Trust is organized as a Delaware business trust and was formed on December 15,
1999. Each of the Funds is classified as a diversified open-end, management
investment company.
The investment objective of each of the Funds is not fundamental and,
accordingly, can be changed without shareholder approval; however, such a change
would not be made without prior notice to shareholders.
INVESTMENT STRATEGIES AND RISKS
Since 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 investment strategies,
policies and risks that pertain to the Portfolios and, accordingly, to the Funds
that invest in the Portfolios. In addition to discussing the principal risks of
investing in the 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 Portfolios unless otherwise noted.
Futures Contracts and Options Transactions. The S&P 500, Extended Market,
International and Bond 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, to exchange a 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. The primary credit risk with futures contracts is the
creditworthiness of the exchange. Futures contracts are also 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 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 Portfolio.
Although the S&P 500, Extended Index, International and Bond 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
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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
a Portfolio determines not to close a futures position in anticipation of
adverse price movements, the Portfolio will be required to make daily cash
payments on variation margin.
The S&P 500, Extended Index, and International 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 Portfolios intend to purchase and sell futures
contracts on the stock index for which they can obtain the best price with
consideration also given to liquidity. There can be no assurance that a liquid
market will exist at the time when a 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 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 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 made that such closing
transactions can be effected or on the degree of correlation between price
movements in the options on interest rate futures or price movements in the Bond
Portfolio's securities which are the subject of the transactions.
Interest-Rate and Index Swaps. The Bond Portfolio may enter into interest-rate
and index swaps. Interest-rate swaps involve the exchange by the 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 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 Bond Portfolio will usually enter into swaps on a
net basis. In so doing, the two payment streams are netted out, with the Bond
Portfolio receiving or paying, as the case may be, only the net amount of the
two payments. If the Bond Portfolio enters into a swap, it must 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, the
Bond Portfolio has contractual remedies pursuant to the agreements related to
the transaction.
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The use of interest-rate and index swaps is a very specialized activity. It
involves investment techniques and risks different from those used in connection
with ordinary portfolio security transactions. There is no limit on the amount
of swap transactions that may be entered into by the 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 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 Bond Portfolio may
not receive the net amount of payments that the Bond Portfolio contractually is
entitled to receive.
The S&P 500, Extended Index, International and Bond Portfolios' futures
transactions must constitute permissible transactions under regulations of the
Commodity Futures Trading Commission ("CFTC"). In addition, these 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 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"), the S&P 500,
Extended Index, International and Bond Portfolios may be required to segregate
cash or high quality money market instruments in connection with their futures
transactions in an amount generally equal to the entire value of the underlying
security.
Future Developments. The S&P 500, Extended Index, International and Bond
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 Portfolios or
which are not currently available but which may be developed, to the extent such
opportunities are consistent with the respective Portfolio's investment
objective and legally permissible for that Portfolio. Before entering into such
transactions or making any such investment, the Index Funds will provide
appropriate disclosure in their prospectus.
The International Portfolio may engage in foreign currency futures transactions,
which in addition to the foregoing, involve risks similar to those described
below under "Foreign Securities."
Forward Commitments, When-Issued Purchases and Delayed-Delivery Transactions.
The 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 Portfolios will usually purchase securities with the intention of
acquiring them, the Portfolios may dispose of securities purchased on a
when-issued, delayed-delivery or a forward commitment basis before settlement
when deemed appropriate by the Portfolio's investment advisor.
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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
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 Portfolios currently intend to invest more
than 5% of its total assets in when-issued securities during the coming year.
Each Portfolio will establish a segregated account in which it will maintain
cash or liquid securities in an amount at least equal in value to that
Portfolio's commitments to purchase when-issued securities. If the value of
these assets declines, that Portfolio will place additional liquid assets in the
account on a daily basis so that the value of the assets in the account is equal
to the amount of such commitments. Because the Money Market Portfolio will set
aside cash and other high quality liquid debt securities as described above, the
liquidity of the Money Market Portfolio's investment portfolio may decrease as
the proportion of securities in the Money Market Portfolio's 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 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
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 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 Federal Deposit Insurance Corporation. ("FDIC");
(iii) commercial paper rated at the date of purchase "Prime-1" by Moody's
Investor Services ("Moodys") or "A-1+" or "A-1" by Standard and Poors ("S&P"),
or, if unrated, of comparable quality as determined by the Portfolio's
investment adviser; (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
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that, in the opinion of the Portfolio's investment adviser, are of comparable
quality to obligations of U.S. banks which may be purchased by the Portfolios.
Bank Obligations. The Portfolios may invest in bank obligations, including CDs,
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.
CDs 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
Portfolios are not insured by the Bank Insurance Fund or the Savings Association
Insurance Fund administered by the FDIC. 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 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 total 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.
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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, the Extended Index, the International and Bond
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 Portfolios monitors on an ongoing basis the ability of
an issuer of a demand instrument to pay principal and interest on demand.
The 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 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 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 Portfolio. The investment adviser to the
Portfolios will consider such an event in determining whether a Portfolio should
continue to hold the obligation. To the extent a Portfolio continues to hold
such obligations, it may be subject to additional risk of default.
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 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 Appendix to this SAI.
Repurchase Agreements. All of the Portfolios may enter into repurchase
agreements. These are where the seller of a security to a Portfolio agrees to
repurchase that security from the Portfolio at a mutually-agreed upon time and
price. The period of maturity is usually short, often overnight or for a few
days, although it may extend over a number of months. Each of the Portfolios may
enter into repurchase agreements only with respect to securities that could
otherwise be purchased by the respective 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 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 Portfolio's
custodian has custody of, and holds in segregated accounts, securities acquired
as collateral by each of the Portfolios under a repurchase agreement. Repurchase
agreements are loans by the Portfolios. All repurchase transactions must be 100%
collateralized.
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The Portfolios limit their investments in repurchase agreements to selected
creditworthy securities dealers or domestic banks or other recognized financial
institutions. The Portfolios' adviser 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. Each Portfolio may purchase
floating-rate and variable-rate obligations. The 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 Portfolios may purchase floating- and variable-rate
demand notes and bonds. These are obligations ordinarily having 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 Portfolio to invest fluctuating amounts, which may change daily without
penalty, pursuant to direct arrangements between the 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 rate is
adjusted. The interest rate on a variable-rate demand obligation is adjusted
automatically at specified intervals. Such obligations are often secured by
letters of credit or other credit support arrangements provided by banks. Since
these obligations are direct lending arrangements between the lender and
borrower, such instruments generally will not be traded. There generally is no
established secondary market for these obligations, although they are redeemable
at face value. Where these obligations are not secured by letters of credit or
other credit support arrangements, a 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 a 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 Portfolio may invest. BGFA, on behalf of the
Portfolios, considers on an ongoing basis the creditworthiness of the issuers of
the floating- and variable-rate demand obligations in the Portfolios' portfolio.
No 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 S&P 500, Extended Index, International and
Bond Portfolios may lend securities from their portfolios to brokers, dealers
and financial institutions in order to increase the return on their portfolios.
The value of the loaned securities may not exceed one-third of a Portfolio's
total assets. Loans of portfolio securities are fully collateralized based on
values that are marked-to-market daily. No Portfolio will enter into any
portfolio security lending arrangement having a duration of
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longer than one year. The principal risk of portfolio lending is potential
default or insolvency of the borrower. In either of these cases, a 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, Extended Index,
International and Bond 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.
In determining whether to lend a security to a particular broker, dealer or
financial institution, the 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 Portfolios will not
enter into any portfolio security lending arrangement having a duration of
longer than one year. Any securities that a Portfolio may receive as collateral
will not become part of the Portfolio's investment portfolio at the time of the
loan and, in the event of a default by the borrower, the Portfolio will, if
permitted by law, dispose of such collateral except for such part thereof that
is a security in which the Portfolio is permitted to invest. During the time
securities are on loan, the borrower will pay the Portfolio any accrued income
on those securities, and the 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, Extended Index, International and
Bond Portfolios may invest in securities issued by other open-end management
investment companies which principally invest in securities of the type in which
such Portfolio invests. Under the Investment Company Act of 1940, as amended
(the "1940 Act"), a 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 Portfolio's total assets with
respect to any one investment company and (iii) 10% of that Portfolio's total
assets in the aggregate. Investments in the securities of other investment
companies generally will involve duplication of investment advisory fees and
certain other expenses. These Portfolios may also purchase shares of
exchange-listed closed-end funds.
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Illiquid Securities. To the extent that such investments are consistent with its
respective investment objective, the S&P 500, Extended Index, International and
Bond Portfolios may invest up to 15% (10% in the case of the Money Market Fund)
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. Since the International Portfolio invests only in the stocks
of foreign issuers and since the stocks of some foreign issuers may be included
in the S&P 500 Index and the Wilshire 4500 Index, the International Portfolio,
S&P 500 Portfolio and Extended Index Portfolio may, contain securities of such
foreign issuers, as well as American Depositary Receipts ("ADRs") and similar
instruments. These securities will subject the International Portfolio and may
subject the S&P 500 Portfolio and the Extended Index Portfolio to additional
investment risks that are different in some respects from those incurred by a
fund which invests only in securities of domestic issuers. Such 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 S&P 500,
Extended Index, International and Bond 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 adviser to be of
comparable quality to the other obligations in which these Portfolios may
invest. To the extent that such investments are consistent with its investment
objective, each of the S&P 500, Extended Index, International, and Bond
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
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.
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Each of the S&P 500, Extended Index, International, and Bond Portfolios may also
invest a portion of their 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 Portfolios other than the International
Portfolio 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. 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 Portfolios may
purchase instruments that are not rated if, in the opinion of their investment
adviser, such obligations are of investment quality comparable to other rated
investments that are permitted to be purchased by the 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 Portfolio, a security may cease to be
rated or its rating may be reduced below the minimum required for purchase by
the Portfolio. Neither event will require a sale of such security by the
Portfolio provided that when a security ceases to be rated, the Board of
Trustees for that 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
Portfolio's best interests. In no event will such securities exceed 5% of any
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
Portfolios will attempt to use comparable ratings as standards for
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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 Portfolios (other than the Money Market Portfolio) are not required
to sell downgraded securities, such 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 a 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.
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 Portfolio to achieve its investment objective may, to the extent such
Portfolio holds low rated or unrated low quality debt securities, be more
dependent upon such creditworthiness analysis than would be the case if that
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 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 cannot be
changed without shareholder approval (i.e., the vote of a majority of the
outstanding voting securities of the applicable Fund, as set forth in the 1940
Act). Such vote means the vote at the annual or any special meeting of the
security holders of the Fund, duly called, (A) of 67% or more of the voting
securities present at such meeting, if the holders of more than 50% of the
outstanding voting securities of such Fund are present
11
<PAGE>
or represented by proxy; or (B) of more than 50% of the outstanding voting
securities of such Fund, whichever is less.
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, each of the Funds may not:
1. Invest more than 5% of its total 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. With respect to 75% of its total assets (100% in the case of the Money
Market Fund), invest in a security if, as a result of such investment,
it would hold more than 10% (taken at the time of such investment) of
the outstanding voting securities of any one issuer.
3. Issue senior securities, except as permitted under the 1940 Act.
4. Borrow money, except to the extent permitted under the 1940 Act, provided
that (i) the Bond Fund and the Money Market Fund may each borrow from banks
up to 10% of the current value of its net assets for temporary purposes
only in order to meet redemptions, and these borrowings may be secured by
the pledge of up to 10% of the current value of its net assets (but
investments may not be purchased while any such outstanding borrowing in
excess of 5% of its net assets exists); and (ii) each of the S&P 500 Index
Fund, the Extended Index Fund and the International Index Fund may borrow
up to 20% 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 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 total assets exists). For purposes of this investment
restriction, an Index Fund's entry into options, forward contracts, futures
contracts, including those related to indexes, and options or futures
contracts or indexes shall not constitute borrowing to the extent certain
segregated accounts are established and maintained by such Fund.
5. 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.
6. Purchase the securities of any issuer if, as a result, 25% or more 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
12
<PAGE>
U.S. Government or its agencies or instrumentalities (or repurchase
agreements thereto), or, for the Money Market 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 (ii) the S&P 500 Index Fund, the Extended Index Fund, the
International Index Fund, and the Total Bond Index Fund will
concentrate in obligations to approximately the same degree that their
respective Indexes concentrate in those obligations during the same
period.
7. 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.
8. Invest in commodities or commodity contracts (except that a Fund may invest
in securities of an issuer which invests or deals in commodities or
commodity contracts). This restriction shall not prohibit the S&P 500 Index
Fund, the Extended Index Fund, the International Index Fund and the Bond
Index Fund, subject to restrictions described in the Prospectus and
elsewhere in this SAI, 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.
9. 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) 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 Funds.
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 total assets with
respect to any one investment company; and (iii) 10% of such Fund's total
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 addition to
those charged by the Fund.
2. Each Fund may not invest more than 15% (10% in the case of the Money Market
Fund) 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
13
<PAGE>
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.
PORTFOLIO POLICIES
The S&P 500, the Extended Index, the International and the Bond 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 Portfolios' 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.
Each of the S&P 500, the Extended Index, the International and the Bond
Portfolios may not:
1. Invest more than 5% of its total 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. With respect to the
International Portfolio, this limitation does not apply to foreign
currency transactions, including without limitation, forward currency
contracts.
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 Portfolio's total assets.
3. Invest in commodities, except that each 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 Portfolio may purchase and
sell securities that are secured by real estate or issued by companies that
invest or deal in real estate.
14
<PAGE>
5. Borrow money, except to the extent permitted under the 1940 Act, provided
that the 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 Portfolio, the Extended Index
Portfolio, and the International Portfolio may borrow up to 20% of the
current value of their 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 their net assets (but with the respect to
the S&P 500 Portfolio only, investments may not be purchased while any such
outstanding borrowing in excess of 5% of its total assets exists). For
purposes of this investment restriction, a 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 Portfolio.
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
Portfolio, the Extended Index Portfolio, the International Portfolio
and the Bond Portfolio may lend its portfolio securities in an amount
not to exceed one-third of the value of its total assets. Any loans of
portfolio securities will be made according to guidelines established
by the SEC and the Portfolios' Board of Trustees.
7. Act as an underwriter of securities of other issuers, except to the
extent that the 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 Portfolio, the Extended Index Portfolio and the
International Portfolio, any industry in which the S&P 500 Index, the
Wilshire 4500 Index, or the EAFE Index, respectively, becomes concentrated
to the same degree during the same period, the relevant Portfolio will be
concentrated as specified above only to the extent the percentage of its
assets invested in those categories of investment is sufficiently large
that 25% or more of its total assets would be invested in a single
industry; and (iii) in the case of the Bond Portfolio, any industry in
which the LB Bond 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
Portfolio's Fundamental Investment Restrictions Nos. 3 and 5 may be
deemed to give rise to a senior security.
10. With respect to each Portfolio other than the Extended Index and
International Portfolios, purchase securities on margin, but each Portfolio
may make margin
15
<PAGE>
deposits in connection with transactions in options, forward contracts,
futures contracts, including those related to indexes, and options on
futures contracts or indexes.
The S&P 500, Extended Index, International, and Bond Portfolios: Non-Fundamental
Investment Restrictions
The S&P 500 Extended Index, International and Bond Portfolios are subject to the
following non-fundamental operating policies which may be changed by the Board
of Trustees of these Portfolios without the approval of the holders of such
Portfolio's outstanding securities.
1. The 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 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 Portfolio's net assets
with respect to any one investment company; and (iii) 10% of such
Portfolio's net assets in the aggregate. Other investment companies in
which the 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 Portfolio.
2. Each 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 Portfolio may lend securities from its portfolio to brokers,
dealers, financial institutions, in amounts not to exceed (in the
aggregate) one-third of a Portfolio's total assets. Any such loans of
portfolio securities will be fully collateralized based on values that
are marked to market daily. The 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
16
<PAGE>
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 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.
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.
17
<PAGE>
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:
1. 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 total assets with respect
to any one investment company; and (iii) 10% of the Money Market
Portfolio's total 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.
2. 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 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.
3. 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 is responsible for the overall management of the
Funds, including general supervision and review of its investment activities and
its 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 person," as defined in the 1940 Act, is indicated by an asterisk
(*):
18
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Position(s) Held with Principal Occupation(s)
Name, Address, and Age the Fund During the Past 5 Years
----------------------- -------- -----------------------
Harris A. Fricker (35) * Chairman of the Board Chairman of the Board, President
Whatifi Asset Management, Inc. and President and Chief Executive Officer of
790 Eddy Street Whatifi Asset Management, Inc.
San Francisco, California 94109 (the "Adviser") and its parent
company, Whatifi Financial Inc.
(July 1999 - Present); Consultant
to X.com Corporation (Internet
financial services) (March 1999 -
July 1999); Senior Vice President
and Director, Dundee Securities
Corp. (investment dealer) (March
1998 - March 1999); Managing
Director, Institutional Equities,
(Canaccord Capital Corp.
(investment dealer) February
1995 - March 1998)
Steven J. Dixon (39) * Trustee and Vice Chief Financial Officer, the
Whatifi Asset Management, Inc. President Adviser and its parent company,
790 Eddy Street Whatifi Financial Inc. (July 1999 -
San Francisco, California 94109 Present); Chief Financial Officer,
X.Com Corporation - (Internet
financial services) (July 1999);
Executive Vice President and
Deputy Treasurer, Bank of
America (August 1985-June
1999)
Shon Goel (53) Trustee President and Chief Executive
13469 Paseo Terrano Officer, The Lantis Corporation
Salinas, California 93908 (ground support equipment for
aviation industry) (1974-1999)
Kenneth Crouse (35) Trustee Managing Member, Investment
Twinrock Capital Management Management, Twinrock Capital
969G Edgewater Boulevard Management LLC (November
No. 800 1999 - Present); Senior
Foster City, California 94404 Associate, Broadview
International (investment banking).
August 1996-May 1999); Student, Harvard
Business School (September 1994 - May 1996).
19
<PAGE>
Position(s) Held with Principal Occupation(s)
Warner Henderson (49) Trustee President and Chief Executive
Aequitas Investment Advisors Officer, Aequitas Investment
176 Federal Street Advisors (investment advice since
Fifth Floor 1990.)
Boston, Massachusetts 02109
Curtis W. Barnes (46) Secretary November 1999 to present, Vice
BISYS Funds Services Ohio, Inc. President-Administration Services
3455 Stelzer Road BISYS Fund Services; 1995-1999
Columbus, Ohio 43219 Officer, Administration Services,
BISYS; prior to joining BISYS,
employed with John Hancock Advisers for more
than 11 years.
Steven Pierce (34) Treasurer Mr. Pierce has been Director of
BISYS Funds Services Ohio, Inc. Financial Services of BISYS Fund
3455 Stelzer Road Services, Inc. since 1996 Mr.
Columbus, Ohio 43219 Pierce also serves as Treasurer
of Institutional Investors Capital
Appreciation Fund, Inc. and as an
officer to other mutual funds
registered under the 1940 Act
who are clients of BISYS. From
1996 to 1998, Mr. Pierce was the
Manager of Financial Operations
at CNA Insurance. From 1994 to
1996, he was a Trust Officer at
First Chicago NBD Corporation.
From 1989 to 1994, he was a
Senior Financial Accountant at
Kemper Financial Services.
Irimga McKay (39) Vice President November 1988 to present,
BISYS Fund Services Senior Vice President, Client
1230 Columbia Street Services of BISYS Fund
Suite 500 Services.
San Diego, California 92101
Gregory T. Maddox (31) Vice President April 1991 to present, Vice
BISYS Fund Services President, Client Services of
1230 Columbia Street BISYS Fund Services.
Suite 500
San Diego, California 92101
20
<PAGE>
Position(s) Held with Principal Occupation(s)
Alaina Metz (36) Assistant Secretary June 1995 to present, Chief
BISYS Funds Services Ohio, Inc. Administration Officer of BISYS
3455 Stelzer Road Fund Services. Supervisor of
Columbus, Ohio 43219 Alliance Capital Management for
more than five years prior to
joining BISYS.
</TABLE>
-----------------------------
(*) Denotes "interested person" as such term is defined in the 1940 Act.
The Trust pays each non-affiliated Trustee a quarterly fee of $500 per Board
meeting. The Chairman of the Audit Committee is paid an additional $500 per
year. In addition, the Trust reimburses each of the non-affiliated Trustees 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 from the Trust for the current fiscal year:
Estimated Compensation Table
<TABLE>
<CAPTION>
<S> <C> <C>
Trustee Aggregate Compensation Total Compensation From
------- from the Funds Funds and Trust Expected to
-------------- be Paid to Trustees (1)
Harris A. Fricker None None
Steven J. Dixon None None
Shon Goel $2,000 $2,000
Kenneth Crouse $2,000 $2,000
Warner Henderson $2,000 $2,000
</TABLE>
It is currently expected that no Trustee will receive any benefits upon
retirement. Accordingly, 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, 2000.
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. To satisfy
regulatory requirements, as of May 15, 2000, Whatifi Financial Inc., the parent
company of the
21
<PAGE>
Funds' investment adviser, owned 100% of each Fund's outstanding shares. There
are no other shareholders holding 25% or more of any Fund's outstanding shares.
The Funds, the Adviser and the Funds' principal underwriter have adopted Codes
of Ethics which permit their personnel to invest in securities, including
securities which may be purchased or held by the Master Portfolios.
INVESTMENT MANAGEMENT
Investment Advisers. Under an investment advisory agreement with the Trust,
Whatifi Asset Management, Inc. (the "Adviser") provides investment advisory
services to the Funds. The Adviser is a wholly owned subsidiary of Whatifi
Financial Inc., a Delaware corporation that is a financial services holding
company. The Adviser is located at 790 Eddy Street, San Francisco, California
94109.
Subject to the 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 investment guidance,
policy direction and monitoring of each of the 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
and all other services necessary for the Funds to operate. The Adviser has not
previously managed a mutual fund. For its services, each Fund pays the Adviser
an investment advisory fee at an annual rate equal to 0.80% of its average daily
net assets.
The Portfolios' Investment Adviser. Each Portfolio's investment advisor 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 March 31, 2000, BGFA and its
affiliates provided investment advisory services for over $809 billion of
assets. Barclays Bank PLC has been involved in banking in the United Kingdom for
over 300 years. Pursuant to Investment Advisory Contracts (the "Advisory
Contracts") with the Portfolios, BGFA provides investment guidance and policy
direction in connection with the management of the Portfolio's assets. Pursuant
to the Advisory Contracts, BGFA furnishes to the Portfolios' Board of Trustees
periodic reports on the investment strategy and performance of the Portfolios.
BGFA receives fees from the S&P 500 Portfolio, the Extended Index Portfolio, the
Bond Portfolio and the Money Market Portfolio at an annual rate equal to 0.05%,
0.08%, 0.08% and 0.10%, respectively, of the Portfolio's average daily net
assets. BGFA receives fees from the International Index Portfolio at the annual
rate of 0.15% of the first $1 billion, and 0.10% thereafter. In addition, the
International Index Portfolio charges an annual administrative fee of 0.10% of
the first $1 billion, and 0.107% thereafter of its average daily net assets and
the Extended Index Portfolio charges an annual administrative fee of 0.02% of
its average daily net assets.
BGFA has agreed to provide to each 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,
22
<PAGE>
credit conditions and average maturities of each Portfolio's investment
portfolio. The Advisory Contract will continue in effect for more than two years
for each Portfolio provided the continuance is approved annually (i) by the
holders of a majority of the applicable Portfolio's outstanding voting
securities or by the applicable Portfolio's Board of Trustees and (ii) by a
majority of the Trustees of the applicable Portfolio who are not parties to the
Advisory Contract or affiliated of any such party. The Advisory Contract may be
terminated on 60 day's 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 a 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 Portfolio.
SERVICE PROVIDERS
Administrator of the Funds. BISYS Fund Services Ohio, Inc. ("BISYS"), 3435
Stelzer Road, Columbus, Ohio 43219, serves as the Funds' administrator. As the
Funds' administrator, BISYS 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. BISYS also furnishes office space and certain
facilities required for conducting the business of the Funds. Additionally, the
Funds, the Adviser and BISYS have entered into an Omnibus Fee Agreement in which
the amount of compensation due and payable to BISYS by the Adviser pursuant to
the Administration, and Transfer Agency Agreements shall be the greater of (i)
$150,000 per Fund annually and (ii) an annual fee payable monthly ranging from
.15% of the Trust's assets of up to $1 billion and .05% of the Trust's assets in
excess of $10 billion.
Principal Underwriter of the Funds. BISYS Fund Services Limited Partnership
d/b/a/ BISYS Fund Services ("BISYS LP"), 3435 Stelzer Road, Columbus, Ohio 43219
serves as principal underwriter of the Funds. BISYS LP receives no compensation
in its capacity as the Funds' distributor. BISYS LP uses its best efforts to
distribute the
23
<PAGE>
Funds' shares, which shares are offered for sale by the Funds continuously at
their net asset values without the imposition of any sales charge.
Transfer Agent, Dividend Disbursing Agent and Shareholder Servicing Agent. BISYS
also acts as transfer agent, dividend disbursing agent and shareholder servicing
agent for the Funds. Under its agreement with the Funds, as transfer, dividend
disbursing and shareholder servicing agent, BISYS 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 a Fund or a shareholder may reasonably request, to the
extent permitted by applicable law.
Administrator of the Portfolios. Stephens, Inc. ("Stephens"), and Barclays
Global Investors, N.A. ("BGI") serve as co-administrators on behalf of the
Portfolios. Under the Co-Administration Agreement between Stephens, BGI and the
Portfolios, Stephens and BGI provide as administrative services, among other
things: (i) general supervision of the operation of the 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 Portfolios; and
(iii) general supervision relative to the compilation of data required for the
preparation of periodic reports distributed to the Portfolios' officers and
Board of Trustees. Stephens also furnishes office space and certain facilities
required for conducting the business of the Portfolios together with those
ordinary clerical and bookkeeping services that are not furnished by BGFA.
Stephens also pays the compensation of the 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
Portfolios and the 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 Portfolios deem to be an extraordinary expense.
Custodian. Investors Bank & Trust Company, ("IBT") 200 Clarendon Street, Boston,
Massachusetts 02111 serves as custodian of the assets of the Funds and the
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Portfolios. Accordingly, IBT has custody of all securities and cash of the Funds
and the Portfolios, delivers and receives payment for securities sold, receives
and pays for securities purchased, collects income from investments, and
performs other duties, including fund accounting services, all as directed by
the officers of the Funds and the Portfolios. The custodian has no
responsibility for any of the investment policies or decisions of the Funds and
the Portfolios. As of the date of this SAI, the coadministrators of the
Portfolios pay IBT for all custodial services provided to the Funds and the
Portfolios. However, beginning on February 22, 2001, IBT will be entitled to
receive a custody fee of up to 0.01% from the Extended Index Portfolio.
Independent Auditors. KPMG LLP, Three Embarcadero Center, San Francisco,
California 94110 acts as independent auditors for the Fund.
Legal Counsel. Sullivan & Worcester LLP, 1025 Connecticut Avenue, N.W.,
Washington, DC 20036, acts as legal counsel for the Trust.
PORTFOLIO TRANSACTIONS AND BROKERAGE SELECTION
The Portfolios have no obligation to deal with any dealer or group of
broker-dealers in the execution of transactions in portfolio securities. Subject
to policies established by the Portfolios' Board of Trustees, BGFA as adviser to
the Portfolios, is responsible for the Portfolios' investment portfolio
decisions and the placing of portfolio transactions. In placing orders, it is
the policy of the 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 BGFA generally seeks reasonably
competitive spreads or commissions, the Portfolios will not necessarily be
paying the lowest spread or commission available.
Purchase and sale orders of the securities held by the Portfolios may be
combined with those of other accounts that BGFA manages, and for which it has
brokerage placement authority, in the interest of seeking the most favorable
overall net results. When BGFA determines that a particular security should be
bought or sold for a Portfolio and other accounts managed by BGFA, BGFA
undertakes to allocate those transactions among the participants equitably.
Under the 1940 Act, persons affiliated with the Portfolios such as Stephens,
BGFA and their affiliates are prohibited from dealing with the 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 the S&P 500 Portfolio, the
Extended Index Portfolio and the International Index 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 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
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collateralized mortgage obligations ("CMOs") are traded on a net basis and do
not involve brokerage commissions. The cost of executing the 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, Stephens or BGI. 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 Portfolios, BGFA is required
to give primary consideration to obtaining the most favorable price and
efficient execution. This means that BGFA 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 BGFA generally seeks
reasonably competitive spreads or commissions, the Portfolios will not
necessarily be paying the lowest spread or commission available. In executing
portfolio transactions and selecting brokers or dealers, BGFA seeks to obtain
the best overall terms available for the Portfolios. In assessing the best
overall terms available for any transaction, BGFA considers factors deemed
relevant, including the breadth of the market in the security, the price of the
security, the financial condition and execution capability of the broker or
dealer, and the reasonableness of the commission, if any, both for the specific
transaction and on a continuing basis. 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 Portfolio's Board of Trustees.
Certain of the brokers or dealers with whom the Portfolios may transact business
offer commission rebates to the Portfolios. BGFA considers such rebates in
assessing the best overall terms available for any transaction. The overall
reasonableness of brokerage commissions paid is evaluated by BGFA 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 Whatifi Funds (the "Trust"), an open-end
investment company, organized as a Delaware business trust on December 15, 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
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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.
The Trust does not expect to hold annual meetings of shareholders unless
required to do so 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 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 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.
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
Pricing of Fund Shares. The net asset value per share of a Fund is calculated by
deducting all liabilities incurred or accrued from the valuation of the Fund's
total assets (including accrued but undistributed income. The resulting net
assets are then divided by the number of shares of the Fund outstanding at the
time of valuation. The result (to
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the nearest cent) is the net asset value. The net asset value of the S&P 500
Index Fund, the Extended Index Fund, the International Index Fund and the Bond
Index Fund is determined as of the close of trading on each day the New York
Stock Exchange ("NYSE") is open for trading. The NYSE is open for trading Monday
through Friday except on national holidays observed by the NYSE. 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 its portfolio using the amortized cost
method, the Money Market Fund must maintain a dollar-weighted average portfolio
maturity of 90 days or less, purchase securities having remaining maturities (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 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 of Trustees, 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 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.
Internet Redemption Privileges. The Trust employs reasonable procedures to
confirm that instructions communicated by 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 the
Internet, providing written confirmations of such transactions to the address of
record, tape recording telephone instructions and backing up Internet
transactions.
TAXATION
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The following 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 own circumstances. This discussion is based upon current provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), the regulations
promulgated thereunder, and judicial and administrative ruling authorities.
These are all subject to change and such change may be retroactive. Prospective
investors should consult their own tax advisors regarding a 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. The Funds intend to be taxed as regulated investment
companies under Subchapter M of the Code. As such, a 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 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 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. The Fund intends to distribute substantially all of such income.
Any 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, a 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, each Fund intends 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 the 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.
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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.
If the net asset value of shares is reduced below a shareholder's cost as a
result of a distribution by the 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
immediately prior to a distribution. The price of shares purchased at such 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 the 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. Each 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 a Fund with the shareholder's correct taxpayer
identification number or social security number, (2) the IRS notifies the
shareholder or a 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.
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Other Taxation. Distributions may be subject to additional state, local and
foreign taxes, depending on each shareholder's situation.
Market Discount. If the 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 a Fund in
each taxable year in which the Fund owns an interest in such debt security and
receives a principal payment on it. A 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 a 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. 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 a 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, non-equity options and dealer equity options) in which
a Fund may invest may be "section 1256 contracts." Gains (or losses) on such
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 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.
Certain carrying charges (including interest expense)
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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.
Since few regulations implementing the straddle rules have been promulgated, the
consequences of such transactions to a Fund are not clear. The straddle rules
may increase the amount of short-term capital gain realized by a 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.
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
The 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. Accordingly, 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 Declaration of Trust protects a Trustee against any liability to
which the Trustee would otherwise be subject by reason
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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 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 the one of the Funds is requested to vote
on a matter with respect to the Portfolio in which it invests, such Fund will
hold a meeting of its shareholders and will cast its votes as instructed by its
shareholders.
In a situation where a Fund does not receive instructions 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 receives voting instructions.
Master/Feeder Structure. Each Fund seeks to achieve its investment objective by
investing all of its assets in 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 interest holder
approval. If the Master Portfolio's investment objective or fundamental or
non-fundamental policies are changed, the corresponding Fund may elect to change
its investment 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 investment 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'
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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 S&P 500 Index Fund, the Extended Index Fund, the International Index Fund
and the Bond Index Fund 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 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.
Average Annual Total Return. The Index 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)n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the 1-, 5-, or 10 year periods (or fractional portion).
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 charged to all shareholder accounts are
included.
Total Return. Calculation of each of the Index Funds' total return is subject to
a standard 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.
34
<PAGE>
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 Index Funds will be
computed, according to a standard 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 short-term capital gains. Accordingly, 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 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)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.
35
<PAGE>
Current yield for the Money Market 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 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
multiplying the base period return by 365/7 with the resulting yield figure
carried to at least the nearest hundredth of one percent.
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 is a widely used independent research firm which ranks
mutual funds by overall performance, investment objectives, and assets, and 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)
36
<PAGE>
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 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.
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
37
<PAGE>
fund's performance has varied from its average performance during a particular
time period.
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 Portfolio Performance. The Funds intend to disclose historical
performance of the 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 Portfolios will
be reflected in the Funds, the Funds are distinct mutual funds and have
different fees, expenses and returns than the Portfolios. Historical performance
of substantially similar mutual funds is not indicative of future performance of
the Funds. The Portfolios' performance will be supplied by the Portfolios.
FINANCIAL STATEMENTS
38
<PAGE>
The statements of assets and liabilities of the Funds as of May 15, 2000, and
related notes to the statements of assets and liabilities, and the independent
auditors' report are included herewith.
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:
o liquidity ratios are adequate to meet cash requirements;
o long-term senior debt is rated "A" or better;
o the issuer has access to at least two additional channels of
borrowing;
o basic earnings and cash flow have an upward trend with allowance made
for unusual circumstances;
o typically, the issuer's industry is well established and the issuer
has a strong position within the industry; and
o 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:
o evaluation of the management of the issuer;
o economic evaluation of the issuer's industry or industries and an appraisal
of speculative-type risks which may be o inherent in certain areas;
o evaluation of the issuer's products in relation to competition and
customer acceptance; liquidity;
o amount and quality of long-term debt;
39
<PAGE>
o trend of earnings over a period of ten years;
o financial strength of parent company and the relationships which exist
with the issuer; and
o 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.
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:
o Bonds rated AAA have the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
o 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.
o 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.
o 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.
o 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.
40
<PAGE>
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:
o 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.
o 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.
o 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.
o 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.
o 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.
o 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.
41
<PAGE>
o 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.
o 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.
o 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.
42
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Trustees
Whatifi Funds:
We have audited the accompanying statements of assets and liabilities of Whatifi
S&P 500 Index Fund, Whatifi Extended Market Index Fund, Whatifi International
Index Fund, Whatifi Total Bond Index Fund, and Whatifi Money Market Fund (each a
series of Whatifi Funds) as of May 15, 2000, and the related statements of
operations for the one-day period ended May 15, 2000 (date of initial
capitalization). These financial statements are the responsibility of the Funds'
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Whatifi S&P 500 Index Fund,
Whatifi Extended Market Index Fund, Whatifi International Index Fund, Whatifi
Total Bond Index Fund, and Whatifi Money Market Fund as of May 15, 2000, and the
results of operations for the one-day period then ended, in conformity with
accounting principles generally accepted in the United States of America.
San Francisco, California
May 15, 2000
<PAGE>
Whatifi Funds
Whatifi S&P 500 Index Fund
Statement of Assets and Liabilities
May 15, 2000
ASSETS:
Cash $20,000
-------
Total Assets 20,000
LIABILITIES:
Total Liabilities --
NET ASSETS $20,000
=======
NET ASSETS CONSIST OF:
Paid-in Capital 20,000
-------
NET ASSETS $20,000
=======
Shares issued and outstanding 2,000
Net asset value and offering price per share* $ 10.00
-----------------------
* A 1.00% redemption charge is assessed on redemptions occurring within 90 days
of purchase.
The redemption charge does not apply to exchanges made between Whatifi Funds.
See Notes to Financial Statements
<PAGE>
Whatifi Funds
Whatifi S&P 500 Index Fund
Statement of Operations
For the One Day Period Ended May 15, 2000
Investment Income $ 0
========
Expenses
Organization Expenses $ 40,486
Expenses reimbursed by the Adviser (40,486)
--------
Net Investment Income $ 0
========
See Notes to Financial Statements
<PAGE>
Whatifi Funds
Whatifi Extended Market Index Fund
Statement of Assets and Liabilities
May 15, 2000
ASSETS:
Cash $20,000
-------
Total Assets 20,000
LIABILITIES:
Total Liabilities --
NET ASSETS $20,000
=======
NET ASSETS CONSIST OF:
Paid-in Capital 20,000
-------
NET ASSETS $20,000
=======
Shares issued and outstanding 2,000
Net asset value and offering price per share* $ 10.00
-----------------------
* A 1.00% redemption charge is assessed on redemptions occurring within 90 days
of purchase.
The redemption charge does not apply to exchanges made between Whatifi Funds.
See Notes to Financial Statements
<PAGE>
Whatifi Funds
Whatifi Extended Market Index Fund
Statement of Operations
For the One Day Period Ended May 15, 2000
Investment Income $ 0
========
Expenses
Organization Expenses $ 40,486
Expenses reimbursed by the Adviser (40,486)
--------
Net Investment Income $ 0
========
See Notes to Financial Statements
<PAGE>
Whatifi Funds
Whatifi International Index Fund
Statement of Assets and Liabilities
May 15, 2000
ASSETS:
Cash $20,000
-------
Total Assets 20,000
LIABILITIES:
Total Liabilities --
NET ASSETS $20,000
=======
NET ASSETS CONSIST OF:
Paid-in Capital 20,000
-------
NET ASSETS $20,000
=======
Shares issued and outstanding 2,000
Net asset value and offering price per share* $ 10.00
-----------------------
* A 1.00% redemption charge is assessed on redemptions occurring within 90 days
of purchase.
The redemption charge does not apply to exchanges made between Whatifi Funds.
See Notes to Financial Statements
<PAGE>
Whatifi Funds
Whatifi International Index Fund
Statement of Operations
For the One Day Period Ended May 15, 2000
Investment Income $ 0
========
Expenses
Organization Expenses $ 40,486
Expenses reimbursed by the Adviser (40,486)
--------
Net Investment Income $ 0
========
See Notes to Financial Statements
<PAGE>
Whatifi Funds
Whatifi Total Bond Index Fund
Statement of Assets and Liabilities
May 15, 2000
ASSETS:
Cash $20,000
-------
Total Assets 20,000
LIABILITIES:
Total Liabilities --
NET ASSETS $20,000
=======
NET ASSETS CONSIST OF:
Paid-in Capital 20,000
-------
NET ASSETS $20,000
=======
Shares issued and outstanding 2,000
Net asset value and offering price per share* $ 10.00
-----------------------
* A 1.00% redemption charge is assessed on redemptions occurring within 90 days
of purchase.
The redemption charge does not apply to exchanges made between Whatifi Funds.
See Notes to Financial Statements
<PAGE>
Whatifi Funds
Whatifi Toal Bond Index Fund
Statement of Operations
For the One Day Period Ended May 15, 2000
Investment Income $ 0
========
Expenses
Organization Expenses $ 27,018
Expenses reimbursed by the Adviser (27,018)
--------
Net Investment Income $ 0
========
See Notes to Financial Statements
<PAGE>
Whatifi Funds
Whatifi Money Market Fund
Statement of Assets and Liabilities
May 15, 2000
ASSETS:
Cash $20,000
-------
Total Assets 20,000
LIABILITIES:
Total Liabilities --
NET ASSETS $20,000
=======
NET ASSETS CONSIST OF:
Paid-in Capital 20,000
-------
NET ASSETS $20,000
=======
Shares issued and outstanding 2,000
Net asset value and offering price per share* $ 10.00
-----------------------
* A 1.00% redemption charge is assessed on redemptions occurring within 90 days
of purchase.
The redemption charge does not apply to exchanges made between Whatifi Funds.
See Notes to Financial Statements
<PAGE>
<PAGE>
Whatifi Funds
Whatifi Money Market Fund
Statement of Operations
For the One Day Period Ended May 15, 2000
Investment Income $ 0
========
Expenses
Organization Expenses $ 27,018
Expenses reimbursed by the Adviser (27,018)
--------
Net Investment Income $ 0
========
See Notes to Financial Statements
<PAGE>
Whatifi Funds
NOTES FINANCIAL STATEMENTS
May 15, 2000
1. ORGANIZATION
Whatifi Funds (the "Trust") was organized as a Delaware business trust
on December 15, 1999. The Trust is a diversified open-end management
investment company registered under the Investment Company Act of 1940,
as amended. The Trust currently offers shares of five funds: the S&P
500 Index Fund, Extended Market Index Fund, International Index Fund,
Total Bond Index Fund and Money Market Fund (individually a "Fund",
collectively, the "Funds"). The Trust is authorized to issue an
unlimited number of shares.
The objective of the S&P 500 Index Fund is to approximate as closely as
practicable, before fees and expenses, the capitalization-weighted
total rate of return of the S&P 500 Index. The objective of the
Extended Market Index Fund is to approximate as closely as practicable,
before fees and expenses, the performance of the Wilshire 4500 Index.
The objective of the International Index Fund is to approximate as
closely as practicable, before fees and expenses, the performance of an
international portfolio of common stocks represented by the Morgan
Stanley Capital International ("MSCI") Europe, Australia, Far East Free
Index (the "EAFE Index"). The objective of the Total Bond Index Fund is
to approximate as closely as practicable, before fees and expenses, the
investment results that correspond to the total return performance of
fixed income securities in the aggregate, as represented by the Lehman
Brothers Government/Corporate Bond Index (the "LB Bond Index"). The
objective of the Money Market Fund is to provide shareholders with a
high level of current income, at the same time preserving capital and
liquidity, by investing in high-quality short-term investments.
The Whatifi Funds are feeder funds investing all of their assets in a
corresponding master fund. A master/feeder structure is a two-tier
structure that consists of a master portfolio investing in securities,
and a feeder fund investing in the master portfolio. Barclays Global
Fund Advisors ("BGFA), an indirect subsidiary of Barclays Bank PLC,
serves as the investment adviser to each of the master portfolios in
which the Funds invest.
As of May 15, 2000, the Trust had no operations other than
organizational matters, including the issuance of seed money shares to
Whatifi Asset Management, Inc.
<PAGE>
2. SIGNIFICANT ACCOUNTING POLICIES
Organization Expense: Costs incurred and to be incurred in connection
with the organization of the Funds and the initial public offering of
shares of the Funds, principally professional fees and printing,
estimated at $175,494 are expensed as incurred by the Funds and have
been reimbursed by Whatifi Asset Management, Inc. (the "Advisers"),
subject to the expense limitation and reimbursement agreement described
in the Related Party Transactions footnote below.
Federal Income Taxes: The Trust intends to comply with the requirements
of the Internal Revenue Code necessary to qualify as a regulated
investment company and to make the requisite distributions of taxable
income to its shareholders which will be sufficient to relieve it from
all or substantially all federal income taxes.
Use of Estimates: Estimates and assumptions are required to be made
regarding assets and liabilities when financial statements are
prepared. Changes in the economic environment, financial markets and
any other parameters used in determining these estimates could cause
actual results to differ from these amounts.
3. RELATED PARTY TRANSACTIONS
Whatifi Asset Management, Inc. (the "Adviser"), a wholly owned
subsidiary of Whatifi Financial Inc., serves as the investment adviser
to the Trust. Under the terms of the investment advisory agreement, the
Adviser is entitled to receive fees at the annual rate of 0.80% of
average daily net assets of the S&P 500 Index Fund, Extended Market
Index Fund, International Index Fund, Total Bond Index Fund and Money
Market Fund. Included in this fee is an amount payable at the Master
Portfolio level of 0.05%, 0.08%, 0.25%, 0.08%, and 0.10% of the average
daily net assets invested in the S&P 500 Index Master Portfolio,
Extended Market Index Master Portfolio, International Index Master
Portfolio, Total Bond Index Master Portfolio, and Money Market Master
Portfolio, respectively. The Adviser also provides or arranges for
administration, transfer agency, custody and all other services
necessary for the Funds to operate.
Out of the fee received by the Adviser, the Adviser pays all expenses
of managing and operating the Funds. A portion of the investment
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
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 investment advisory fee received from the
Funds to the extent necessary to maintain total operating expenses at
0.55% of each Fund's average daily net assets. This waiver of fees and
reimbursement of expenses is subject to possible reimbursement of the
Adviser by the Funds within three years of the Funds' commencement of
operations if the reimbursement by the Funds can be implemented within
the stated expense limitations. Unreimbursed expenses under the excess
expense plan amounted to $40,486, $40,486, $40,486, $27,018, $27,018 of
the S&P 500 Index Fund, Extended Market Index Fund, International Index
Fund, Total Bond Index Fund, and Money Market Fund, respectively, at
May 15, 2000.
BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services
("BISYS LP") is an Ohio limited partnership. BISYS Fund Services Ohio,
Inc. ("BISYS ") and BISYS LP are subsidiaries of The BISYS Group, Inc.
BISYS serves the Funds as administrator and transfer agent. BISYS LP
serves the Funds as distributor. Certain officers of the Trust are
affiliated with BISYS. Such officers receive no direct payments or fees
from the Funds for serving as officers of the Trust.
<PAGE>
PART C:
OTHER INFORMATION
Item 23. Exhibits
(a) Trust Instrument2
(b) Certificate of Trust2
(c) By-laws**
(d) None
(e) Investment Advisory Agreement between Whatifi Asset Management, Inc.
and the Registrant
(f) Underwriting Agreement among BISYS Fund Services Limited Partnership
d/b/a BISYS Fund Services ("BISYS LP"), Whatifi Asset Management, Inc.
and the Registrant
(g) None
(h) Custodian Agreement among Whatifi Asset Management, Inc., Investors
Bank & Trust Company, and the Registrant
(i) Other Material Contracts:
(1) Administration Agreement among Whatifi Asset Management, Inc.,
BISYS Fund Services Ohio Inc. ("BISYS") and the Registrant
(2) Transfer Agent, Dividend Disbursing Agent and Shareholder
Servicing Agent Agreement among Whatifi Asset Management,
Inc., BISYS and Registrant
(3) Whatifi Funds Internet Services Agreement2
(4) Third Party Feeder Fund Agreement among Whatifi Asset
Management, Inc., Master Investment Portfolio, and the
Registrant
(5) Consent to Use of Name2
(6) Consent to Service as a Trustee***
(7) Powers of Attorney2; filed herewith for Trustees of Master
Investment Portfolio
(j) Opinion and Consent of Counsel2
--------
** Incorporated in part by reference to the Trust's initial
Registration Statement filed on December 22, 1999.
*** Incorporated by reference to the Trust's pre-effective Amendment No. 1
filed on May 25, 2000.
43
<PAGE>
(k) Consent of Independent Auditors
(l) None
(m) Subscription Agreement between Whatifi Asset Management, Inc. and the
Registrant
(n) None
(o) None
(p) Reserved
(q) Code of Ethics
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 VII 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, 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
action, 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
Whatifi Asset Management, Inc. (the "Adviser") is a Delaware corporation
that offers investment advisory services. The Adviser's offices are located at
790 Eddy Street, San Francisco, California 94109. The directors and officers of
the Adviser and their business and other connections are as follows:
44
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Directors and Officers of Title/Status with Investment Other Business Connections
Investment Adviser Adviser
Harris A. Fricker President and Chief Executive President and Chief Executive
Officer Officer, Whatifi Financial Inc.
Steven J. Dixon Chief Financial Officer Chief Financial Officer, Whatifi
Financial Inc.
Stephen J. Cucchiaro Chief Investment Officer Chief Investment Officer, Whatifi
Financial Inc., President,
Windward Capital, Inc.
</TABLE>
Item 27. Principal Underwriters
Shares of the Funds are distributed by BISYS LP (a). In addition to the
Registrant, BISYS LP or its affiliates act as distributor to the following
investment companies: Alpine Equity Trust, American Independence Funds Trust,
American Performance Funds, AmSouth Funds, The BB&T Mutual Funds Group, The
Coventry Group, The Eureka Funds, Fifth Third Funds, Governor Funds, Hirtle
Callaghan Trust, HSBC Funds Trust and HSBC Mutual Funds Trust, The Infinity
Mutual Funds, Inc., Magna Funds, Mercantile Mutual Funds, Inc., Metamarkets.com,
Myers Investment Trust, MMA Praxis Mutual Funds, M.S.D.&T. Funds, Pacific
Capital Funds, Republic Advisor Funds Trust, Republic Funds Trust, Summit
Investment Trust, USAllianz Funds, USAllianz Funds Variable Insurance Products
Trust, Variable Insurance Funds, The Victory Portfolios, The Victory Variable
Insurance Funds, Vintage Mutual Funds, Inc. (b) Directors and executive officers
of the Distributor are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Name Position with Underwriter Position with Fund
WC Subsidiary Corporation Sole Limited Partner None
150 Clove Road
Little Falls, NJ 07424
BISYS Fund Services, Inc. Sole General Partner None
3435 Stelzer Road
Columbus, OH 43219
</TABLE>
Officers:
Dennis Sheehan* Executive Officer
William Tomko* Supervising Principal
Gregory A. Trichtinger* Vice President
Andrew Corbin* Vice President
Robert Tuch* Assistant Secretary
Olu T. Lawal* Finance Operations
------------------------
* Principal Business Address is 3435 Stelzer Road, Columbus, Ohio 43219
Item 28. Location of Accounts and Records
45
<PAGE>
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 the Funds' investment adviser,
Whatifi Asset Management, Inc., 790 Eddy Street, San Francisco, California
94109, the Funds' custodian, Investors Bank & Trust Company, 200 Clarendon
Street, Boston, Massachusetts, 02111 and the Funds' administrator and transfer
agent, BISYS Fund Services Ohio, Inc., 3435 Stelzer Road, Columbus, Ohio 43219.
Item 29. Management Services
Not applicable
Item 30. Undertakings:
Not applicable
46
<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
Pre-Effective Amendment No. 2 to its Registration Statement to be signed on its
behalf by the undersigned, duly authorized, in San Francisco, California 94109
on the 21st day of June, 2000.
Whatifi Funds
(Registrant)
By: /s/ Harris A. Fricker
-----------------------------
Name: Harris A. Fricker
Title: President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
Signature Title Date
/s/Harris A. Fricker Chairman of the Board of
--------------------------- Trustees and President June 21, 2000
Harris A. Fricker
/s/Steven J. Dixon
--------------------------- Trustee June 21, 2000
Steven J. Dixon
* Trustee June 21, 2000
-----------------------------
Shon Goel
* Trustee June 21, 2000
-----------------------------
Ken Crouse
* Trustee June 21, 2000
-----------------------------
Warner Henderson
/s/Steven Pierce
-------------------------- Treasurer and
Steven Pierce Chief Financial Officer June 21, 2000
47
<PAGE>
* David M. Leahy signs this document pursuant to powers of attorney filed with
Pre- effective Amendment No. 1 to the Registration Statement on May 25, 2000.
* By /s/David M. Leahy
------------------
David M. Leahy
Attorney-in-Fact
48
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the undersigned has duly caused this Pre-Effective
Amendment No. 2 to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Little Rock, State of Arkansas on the 21st day of
June, 2000.
Master Investment Portfolio
Bond Index Master Portfolio
Extended Index Master Portfolio
International Index Master Portfolio
S&P 500 Index Master Portfolio
Money Market Master Portfolio
By /s/ Richard H. Blank, Jr.
---------------------------
Richard H. Blank, Jr.
Secretary and Treasurer
(Principal Financial Officer)
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the date indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
Signatures Title Date
--------- ----- ----
/s/ Richard H. Blank, Jr. Secretary and Treasurer June 21, 2000
____________________ (Principal Financial Officer)
Richard H. Blank, Jr.
* Trustee June 21, 2000
--------------------
Jack S. Euphrat*
* Chairman, President June 21, 2000
____________________ (Principal Executive Officer),
R. Greg Feltus* and Trustee
* Trustee June 21, 2000
--------------------
W. Rodney Hughes*
* Trustee June 21, 2000
--------------------
Lee Soong
</TABLE>
* Richard H. Blank, Jr. signs this document pursuant to powers of attorney as
filed herewith.
49
<PAGE>
*By /s/ Richard H. Blank, Jr.
----------------------
Richard H. Blank, Jr.
Attorney-in-Fact
50
<PAGE>
EXHIBIT LIST
Exhibit No. Exhibit Name
(d) Investment Advisory Agreement
(e) Underwriting Agreement
(g) Custodian Agreement
(h)(1) Administration Agreement
(h)(2) Transfer Agency Agreement
(h)(4) Third Party Feeder Fund Agreement
(h)(7) Powers of Attorney for Trustees of Master Investment Portfolio
(h)(j) Consent of Independent Auditors
(m) Subscription Agreement
(p) Code of Ethics
51