<PAGE>
SB Smith Barney
MF Mutual Funds
P R O S P E C T U S
S&P 500
Index Fund
U.S. 5000
Index Fund
EAFE
Index Fund
Class A and D Shares
- -------------------------
April 28, 2000
The Securities and Exchange Commission has not approved or
disapproved these
securities or determined whether this prospectus is
accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
Contents
<TABLE>
<S> <C>
Investments, risks and
performance............................... 2
Smith Barney S&P 500 Index Fund......... 2
Smith Barney U.S. 5000 Index Fund....... 6
Smith Barney EAFE Index Fund............ 10
More on the funds' investments............ 14
Feeder fund structure..................... 16
Management................................ 17
Choosing a class of shares to buy......... 19
Buying shares............................. 20
Exchanging shares........................ 21
Redeeming shares.......................... 22
Other things to know about share transactions.... 24
Salomon Smith Barney Retirement Programs.... 25
Dividends, distributions and taxes........ 25
Share price......................... 26
Financial Highlights................ 28
Smith Barney S&P 500 Index Fund........28
Smith Barney U.S. 5000 Index Fund.... 30
Smith Barney EAFE Index Fund......... 31
</TABLE>
Each fund is a separate series of Smith Barney Investment
Trust, a Massachu-
setts Business Trust.
You should know: An investment in a fund is not a bank
deposit and is not
insured or guaranteed by the FDIC or any other government
agency.
Smith Barney Mutual Funds
1
<PAGE>
Investments, risks and performance
S&P 500 Index Fund
Investment objective
The Smith Barney S&P 500 Index Fund ("S&P 500 Index Fund")
seeks to provide
investment results that, before expenses, correspond to the
price and yield
performance of the S&P 500 Index. The fund will hold a
broadly diversified
portfolio of common stocks that is comparable to the S&P
500 Index in terms of
economic sector weightings, market capitalization and
liquidity.
Principal investment strategies
Key Investments The S&P 500 Index Fund invests at least 80%
of its assets in
common stocks included in the S&P 500 Index. The fund holds
stocks of substan-
tially all of the companies which comprise the S&P 500
Index, including those
companies which are headquartered outside the U.S. The fund
also enters into
repurchase agreements, lends portfolio securities and uses
certain types of
derivative instruments to help implement its objective.
Selection process The manager manages the S&P 500 Index
Fund as a "pure" index
fund. This means that the manager does not evaluate
individual companies to
identify attractive investment candidates. Instead, the
manager attempts to
mirror the composition of the S&P 500 Index as closely as
possible by adjusting
the fund's portfolio daily to reflect the companies
included in the index and
their weightings. The fund does not mirror the index
exactly because, unlike
the index, the fund must maintain a portion of its assets
in cash and liquid
securities to meet redemption requests and pay the fund's
expenses.
The S&P 500 Index is one of the mostly widely used
benchmarks of U.S. equity
performance. The index consists of 500 stocks chosen for
market capitalization,
liquidity and industry group representation. The index is
market-value-
weighted, so the larger of the 500 companies have a bigger
impact on the per-
formance of the index. The index is unmanaged and does not
have to maintain
liquidity to meet redemption requests or pay expenses.
Index Funds
2
<PAGE>
Principal risks of investing in the fund
Investors could lose money on their investments in the S&P
500 Index Fund, or
the fund may not perform as well as other investments, if:
.The S&P 500 Index declines or performs poorly relative to
other U.S. equity
indexes or individual stocks
.An adverse company specific event, such as an unfavorable
earnings report,
negatively affects the stock price of one of the larger
companies in the S&P
500 Index
.The stocks of companies which comprise the S&P 500 Index
fall out of favor
with investors
Because the S&P 500 Index Fund is managed as an index fund,
it will not ordi-
narily sell a portfolio security because of the security's
poor performance.
The fund normally buys or sells a portfolio security only
to reflect additions
or deletions of stocks that comprise the S&P 500 Index or
to adjust their rela-
tive weightings. Although the manager seeks to replicate
the performance of the
S&P 500 Index, the fund may underperform the index even
before deducting
expenses because the fund must maintain a portion of its
assets in liquid
short-term debt securities which historically have
generated significantly
lower returns than common stocks.
Who may want to invest The S&P 500 Index Fund may be an
appropriate investment
if you:
.Are seeking to participate in the long term growth
potential of U.S. large
capitalization stocks
.Are seeking an investment which tracks the performance of
the S&P 500 Index
.Are looking for an investment with potentially greater
return but higher risk
than a fund investing primarily in fixed income
securities
.Are willing to accept the risks of the stock market
Smith Barney Mutual Funds
3
<PAGE>
Risk return bar chart
This bar chart shows the performance of the S&P 500 Index
fund's common shares
since inception through December 31, 1999, and, in the
future, will show
changes in the fund's performance from year to year. Past
performance does not
necessarily indicate how the fund will perform in the
future. This bar chart
shows the performance of the fund's Class A shares since
inception. Class D
shares have different performance because of different
expenses.
Total Return for Class A Shares
99 20.03%
Quarterly returns:
Highest: 14.62% in 4th quarter 1999; Lowest: (6.27)% in 3rd
quarter 1999
Risk return table
This table compares the average annual total return of each
class for the peri-
ods shown with that of the S&P 500 Index, a broad-based
unmanaged market capi-
talization-weighted measure of 500 widely held common
stocks. This table
assumes the redemption of shares at the end of the period
and the reinvestment
of distributions and dividends.
Average Annual Total Returns
Calendar Years Ended December 31, 1999
<TABLE>
<CAPTION>
1 Year Since Inception Inception Date
<S> <C> <C> <C>
Class A 20.03% 23.53% 01/05/98
Class D 20.29% 26.25% 08/04/98
S&P 500 Index 21.03% 25.20% *
</TABLE>
*Index Comparison begins on January 31, 1998
Index Funds
4
<PAGE>
Fee table
This table sets forth the fees and expenses you will pay if
you invest in fund
shares.
Shareholder fees
<TABLE>
<CAPTION>
(fees paid directly from your investment)
Class A Class D
<S>
<C> <C>
Maximum sales charge (load) imposed on purchases (as a % of
offering price)
None None
Maximum deferred sales charge (load)
None None
(as a % of the lower of net asset value at
purchase or redemption)
Annual fund operating expenses*
<CAPTION>
(expenses deducted from fund assets)
Class A Class D
<S>
<C> <C>
Management fees
0.25% 0.25%
Service (12b-1) fees
0.20% None
Other expenses
0.23% 0.18%
- ------ ------
Total annual fund operating expenses
0.68% 0.43%
Expense reimbursement**
(0.09%) (0.09%)
- ------ ------
Net annual operating expenses
0.59% 0.34%
====== ======
</TABLE>
*For the fiscal year ended November 30, 1999.
**Management has agreed to cap the fund's net annual
operating expenses at
0.59% for Class A shares and 0.39% for Class D shares.
Management may not dis-
continue or modify this cap without the approval of the
fund's trustees.
Example
This example helps you compare the costs of investing in
the fund with the
costs of investing in other mutual funds. Your actual costs
may be higher or
lower. The example assumes:
.You invest $10,000 in the fund for the period shown
.You redeem all shares at the end of the period
.Your investment has a 5% return each year
.The fund's operating expenses remain the same
Number of years you own your shares
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Class A $69 $218 $379 $847
Class D $44 $138 $241 $542
</TABLE>
Smith
Barney Mutual Funds
5
<PAGE>
Investments, risks and performance
Smith Barney U.S. 5000 Index Fund
Investment objective
The Smith Barney U.S. 5000 Index Fund (the "U.S. 5000 Index
Fund") seeks to
offer long-term capital growth by approximating, before
fees and expenses, the
performance of the Wilshire 5000 Index.
The U.S. 5000 Index Fund is a feeder fund in a
master/feeder structure. Accord-
ingly, the fund does not buy individual securities
directly. Instead, it
invests all of its assets in the US Equity Index Master
Portfolio ("Master
Portfolio"), a series of Master Investment Portfolio
("MIP"), a registered
open-end management investment company. The Master
Portfolio seeks to provide
investment results that match as closely as practicable,
before fees and
expenses, the performance of the Wilshire 5000 Index. The
Master Portfolio's
investment objective may be changed by MIP's Board of
Trustees with
interestholder approval.
The U.S. 5000 Index Fund will invest in the Master
Portfolio, which seeks to
achieve its objective by investing substantially all of its
assets in two other
Master Portfolios of MIP--the Extended Index Master
Portfolio (which invests
substantially all of its assets in a representative sample
of stocks comprising
the Wilshire 4500 Index) and the S&P 500 Index Master
Portfolio (which invests
substantially all of its assets in stocks comprising the
S&P 500 Index) (to-
gether, the "Underlying Portfolios"). The Master
Portfolio's assets will be
invested in the Underlying Portfolios in proportions
adjusted periodically to
approximate the capitalization range of the Wilshire 5000
Index.
In addition to selling its beneficial interest to the U.S.
5000 Index Fund, the
Master Portfolio has sold and may continue to sell its
beneficial interest to
certain other mutual funds or other accredited investors.
The expenses and,
correspondingly, the returns of other investment options in
the Master Portfo-
lio may differ from those of the fund.
Principal investment strategies
Key investments The Master Portfolio invests in a sampling
of securities that
are selected and weighted to result in investment
characteristics comparable
to, and performance that will correlate with the
performance before fees and
expenses of, the Wilshire 5000 Index. The statistical
sampling techniques are
based on capitalization, industry exposures, dividend
yield, price/earnings
ratio, price/book ratio and earnings growth.
Index Funds
6
<PAGE>
The returns for the U.S. 5000 Index Fund are likely to be
below those of the
Wilshire 5000 Index because the fund, the Master Portfolio
and the Underlying
Portfolios each have fees and transaction expenses while
the Wilshire 5000
Index, the Wilshire 4500 Index and the S&P 500 Index have
none.
Under normal market conditions the Master Portfolio invests
at least 90% of its
assets, through the Underlying Portfolios, in common stocks
included in the
Wilshire 5000 Index, which represents the performance of a
broad range of U.S.
stocks.
Selection process The Master Portfolio follows an indexed
or "passively man-
aged" approach to investing. This means that Barclays
Global Fund Advisors
("BGFA") determines which proportion of the Equity Index
Master Portfolio's
assets will be invested in each Underlying Portfolio to
match, to the extent
feasible, the capitalization range and returns of the
Wilshire 5000 Index. In
turn, the Underlying Portfolios determine which securities
are to be purchased
or sold to match or sample their respective benchmarks.
This means that BGFA does not evaluate individual companies
to identify attrac-
tive investment candidates. Instead, BGFA attempts to
mirror the composition of
the Wilshire 5000 Index as closely as possible by adjusting
the Master Portfo-
lio's portfolio periodically to reflect the companies
included in the index and
their weightings. The Master Portfolio does not mirror the
Wilshire 5000 Index
exactly because, unlike the Wilshire 5000 Index, the Master
Portfolio must
maintain a portion of its assets in cash and liquid
securities to meet redemp-
tion requests and pay the Master Portfolio's expenses.
The Wilshire 5000 Index, an unmanaged capitalization-
weighted index of over
7,000 U.S. equity securities, consists of all the U.S.
stocks regularly traded
on the New York and American Stock Exchanges and the Nasdaq
over-the-counter
market for which daily pricing is available. An index is a
hypothetical measure
of performance based on the movement of securities that
make up a particular
market. The Wilshire 5000 Index does not show actual
investment returns or
reflect payment of management or brokerage fees, which
would lower the index's
performance. The Wilshire 5000 Index does not have to
maintain liquidity to
meet redemption requests or pay expenses.
The Wilshire 5000 Index is comprised of the stocks in the
Standard & Poor's 500
Stock Index, except for a small number of foreign stocks
that represent approx-
imately 3% of the S&P 500 Index, and the stocks in the
Wilshire 4500 Index.
Smith
Barney Mutual Funds
7
<PAGE>
Principal risks of investing in the fund
Investors could lose money on their investments in the U.S.
5000 Index Fund, or
the fund may not perform as well as other investments, if:
.The Wilshire 5000 Index declines or performs poorly
relative to other U.S.
equity indices or individual stocks
.An adverse company specific event, such as an unfavorable
earnings report,
negatively affects the stock price of one of the larger
companies in the
Wilshire 5000 Index
The U.S. 5000 Index Fund is exposed to the risks of
investing in common stocks
as well as, to a lesser extent, the additional risks of
investing in foreign
securities, which can be affected by currency, political,
legal, regulatory and
operational factors.
The U.S. 5000 Index Fund is expected to have the same
volatility as the U.S.
stock market as a whole. Additionally, the Wilshire 5000
Index includes smaller
capitalization companies whose stocks tend to have more
price volatility than
larger companies.
The U.S. 5000 Index Fund may not track the Wilshire 5000
Index perfectly
because differences between the Wilshire 5000 Index and the
fund's portfolio
will cause differences in performance. In addition,
expenses and transaction
costs, the size and frequency of cash flows into and out of
the fund, and the
differences between how and when the fund and the Wilshire
5000 Index are val-
ued can also cause differences in performance.
Who may want to invest The U.S. 5000 Index Fund may be an
appropriate invest-
ment if you:
.Are seeking to participate in the long term growth
potential of U.S. stocks
.Are looking for an investment with potentially greater
return but higher risk
than a fund investing primarily in fixed income
securities
.Are willing to accept the risks of the stock market
Performance
The U.S. 5000 Index Fund does not yet have a sufficient
operating history to
generate the performance information which other Smith
Barney funds show in bar
and table form in this part of the prospectus.
Index Funds
8
<PAGE>
Fee table
This table sets forth the fees and expenses you will pay if
you invest in
U.S. 5000 Index Fund shares.
Shareholder fees
<TABLE>
<CAPTION>
(fees paid directly from your investment) Class A Class D
<S> <C> <C>
Maximum sales charge (load) imposed
on purchases (as a % of offering price) None None
Maximum deferred sales charge (load)
(as a % of the lower of net asset value at
purchase or redemption) None None
Annual fund operating expenses
<CAPTION>
(expenses deducted from fund assets) Class A Class D
<S> <C> <C>
Management fee* 0.23% 0.23%
Service (12b-1) fees 0.20% None
Other expenses** 0.25% 0.25%
Total annual fund operating expenses*** 0.68% 0.48%
</TABLE>
* The "Management fee" includes an investment management
fee payable by the
Master Portfolio and an administration fee payable by
the fund.
** The fund is new, and therefore, has no historical
expense data. The amount
set forth in "Other expenses" represents the aggregate
amount that is pay-
able by the Master Portfolio, the Underlying Portfolios
and the fund, and
has been estimated based on expenses the fund expects to
incur during its
first full fiscal year.
*** Management has agreed to cap the fund's other expenses
at 0.25%. Management
may not discontinue or modify this cap without the
approval of the fund's
trustees. As a result of the expense cap, the total
annual fund operating
expenses will not exceed 0.68% for Class A Shares and
0.48% Class D Shares.
Example
This example helps you compare the costs of investing in
the fund with the
costs of investing in other mutual funds. Your actual costs
may be higher or
lower. The example assumes:
.You invest $10,000 in the fund for the period shown
.You redeem all shares at the end of the period
.Your investment has a 5% return each year
.The fund's operating expenses remain the same
Number of years you own your shares*
<TABLE>
<CAPTION>
1 year 3 years
<S> <C> <C>
Class A $49 $218
Class D $49 $154
</TABLE>
* Reflects costs at the fund, the Master Portfolio and the
Underlying Portfolio
levels.
Smith
Barney Mutual Funds
9
<PAGE>
Investments, risks and performance
Smith Barney EAFE Index Fund
Investment objective
The Smith Barney EAFE Index Fund (the "EAFE Index Fund")
seeks to offer long-
term capital growth and diversification by approximating,
before fees and
expenses, the performance of the Morgan Stanley Capital
International Europe,
Australasia, and Far East Free (EAFE Free) Index (the "EAFE
Index").
The EAFE Index Fund is a feeder fund in a master/feeder
structure. Accordingly,
the fund does not buy individual securities directly.
Instead, it invests all
of its assets in the International Index Master Portfolio
("Master Portfolio")
a series of MIP, rather than directly in a portfolio of
securities. The Master
Portfolio seeks to provide investment results that match as
closely as practi-
cable, before fees and expenses, the performance of the
Index. The Master Port-
folio's investment objective may be changed by MIP's Board
of Trustees without
interestholder approval.
In addition to selling its shares to the EAFE Index Fund,
the Master Portfolio
has sold and may continue to sell its shares to certain
other mutual funds or
other accredited investors. The expenses and,
correspondingly, the returns of
other investment options in the Master Portfolio may differ
from those of the
fund.
Principal investment strategies
Key investments The Master Portfolio invests in a sampling
of securities that
are selected and weighted to result in investment
characteristics comparable
to, and performance that will correlate with the
performance before fees and
expenses of, the EAFE Index. Under normal conditions, the
Master Portfolio
invests at least 90% of its assets in common stocks
included in the EAFE Index,
which represents the performance of foreign stock markets.
The Master Portfolio
attempts to achieve, in both rising and falling markets, a
correlation of at
least 95% between the total return of its net assets before
expenses and the
EAFE Index. The statistical sampling techniques are based
on capitalization,
industry exposures, dividend yield, price/earnings ratio,
price/book ratio,
earnings growth, country weightings and the effect of
foreign taxes.
The returns for the EAFE Index Fund are likely to be below
those of the EAFE
Index because the fund and the Master Portfolio each have
fees and transaction
expenses while the EAFE Index has none.
Index Funds
10
<PAGE>
Selection process BGFA follows an indexed or "passively
managed" approach to
investing. This means that BGFA does not evaluate
individual companies to iden-
tify attractive investment candidates. Instead, BGFA
attempts to mirror the
composition of the EAFE Index as closely as possible by
adjusting the Master
Portfolio's portfolio periodically to reflect the companies
included in the
EAFE Index and their weightings. The Master Portfolio does
not mirror the EAFE
Index exactly because, unlike the EAFE Index, the Master
Portfolio must main-
tain a portion of its assets in cash and liquid securities
to meet redemption
requests and pay the Master Portfolio's expenses.
The EAFE Index is an unmanaged index of common stocks of
companies located in
Europe, Australasia and the Far East (includes dividends
net of withholding
taxes). An index is a hypothetical measure of performance
based on the movement
of securities that make up a particular market. The EAFE
Index does not show
actual investment returns or reflect payment of management
or brokerage fees,
which would lower the index's performance. The EAFE Index
is unmanaged and does
not have to maintain liquidity to meet redemption requests
or pay expenses.
Principal risks of investing in the fund
Investors could lose money on their investments in the EAFE
Index Fund, or the
fund may not perform as well as other investments, if:
.An adverse company specific event, such as an unfavorable
earnings report,
negatively affects the stock price of one of the larger
companies in the EAFE
Index
.Adverse governmental action or political, economic or
market instability
affects a foreign country or region
.The currency in which a security is priced declines in
value relative to the
U.S. dollar
.The EAFE Index declines or performs poorly relative to
other non-U.S. equity
indices or individual stocks
Foreign markets can be less liquid and more volatile than
the U.S. market
because of increased risks of adverse issuer, political,
regulatory, market or
economic developments and can perform differently that the
U.S. market. The
value of securities of smaller, less well-known issuers can
perform differently
than the market as a whole and other types of stocks and
can be more volatile
than that of larger issuers. Currency fluctuations could
erase investment gains
or add to investment losses. Because the value of an
American Depositary
Receipt ("ADR") is dependent upon the market price of an
underlying foreign
security, ADRs are subject to most of the risks associated
with foreign invest-
ing.
Smith
Barney Mutual Funds
11
<PAGE>
The EAFE Index Fund may not track the EAFE Index perfectly
because differences
between the EAFE Index and the fund's portfolio will cause
differences in per-
formance. In addition, expenses and transaction costs, the
size and frequency
of cash flows into and out of the fund, and the differences
between how and
when the fund and the EAFE Index are valued can also cause
differences in per-
formance.
Who may want to invest The EAFE Index Fund may be an
appropriate investment if
you:
.Are seeking to participate in the long term growth
potential of international
markets
.Currently have exposure to U.S. stock markets and wish to
diversify your
investment portfolio by adding non-U.S. stocks that may
not move in tandem
with U.S. stocks
.Are comfortable with the risks of the stock market and the
special risks of
investing in foreign securities, including emerging
market securities
Performance
The EAFE Index Fund does not yet have a sufficient
operating history to gener-
ate the performance information which other Smith Barney
funds show in bar and
table form in this part of the prospectus.
Index Funds
12
<PAGE>
Fee table
This table sets forth the fees and expenses you will pay if
you invest in EAFE
Index Fund shares.
Shareholder fees
<TABLE>
<CAPTION>
(fees paid directly from your investment) Class A Class D
<S> <C> <C>
Maximum sales charge (load) imposed
on purchases (as a % of offering price) None None
Maximum deferred sales charge (load)
(as a % of the lower of net asset value at
purchase or redemption) None None
Annual fund operating expenses
<CAPTION>
(expenses deducted from fund assets) Class A Class D
<S> <C> <C>
Management fee* 0.40% 0.40%
Service (12b-1) fees 0.20% None
Other expenses** 0.25% 0.25%
Total annual fund operating expenses*** 0.85% 0.65%
</TABLE>
* The "Management fee" includes an investment management
fee payable by
theMaster Portfolio and an administration fee payable
by the fund.
** The fund is new, and therefore, has no historical
expense data. The amount
set forth in "Other expenses" represents the aggregate
amount that is pay-
able by both the Master Portfolio and the fund, and has
been estimated
based on expenses the fund expects to incur during its
first full fiscal
year.
*** Management has agreed to cap the fund's other expenses
to 0.25%. Management
may not discontinue or modify this cap without the
approval of the fund
trustees. As a result of this expense cap, the total
annual fund operating
expenses will not exceed 0.85% for Class A Shares and
0.65% for Class D
Shares.
Smith
Barney Mutual Funds
13
<PAGE>
Example
This example helps you compare the costs of investing in
the fund with the
costs of investing in other mutual funds. Your actual costs
may be higher or
lower. The example assumes:
.You invest $10,000 in the fund for the period shown
.You redeem all shares at the end of the period
.Your investment has a 5% return each year
.The fund's operating expenses remain the same
Number of years you own your shares*
<TABLE>
<CAPTION>
1 year 3 years
<S> <C> <C>
Class A $87 271
Class D $66 208
</TABLE>
*Reflects costs at both the fund and Master Portfolio
levels.
More on the funds' investments
S&P 500 Index Fund
Derivatives The fund may, but is not required to, use
futures and options on
securities and securities indexes, and options on these
futures, for any of the
following purposes:
.to simulate full investment in the S&P 500 Index while
maintaining sufficient
liquidity to satisfy daily redemption requests and
operating expenses
.to facilitate trading in the securities of companies that
comprise the index
.to reduce transaction costs
.to seek higher investment returns when a contract is
priced more attractively
than the stocks comprising the index
The S&P 500 Index Fund may not invest more than 20% of its
assets in derivative
contracts or more than 5% of its assets in open purchased
put options.
A derivative contract will obligate or entitle the fund to
deliver or receive
an asset or cash payment based on the change in value of
one or more securities
or indexes. Even a small investment in derivative contracts
can have a big
impact on the fund's stock market exposure. Therefore,
using derivatives can
disproportionately increase losses and reduce opportunities
for gains when
stock prices are changing. The fund may not fully benefit
from or may lose
money on derivatives if changes in their value do not
correspond accurately to
changes in the value of the fund's holdings.
Index Funds
14
<PAGE>
The other parties to certain derivative contracts present
the same types of
credit risk as issuers of fixed income securities.
Derivatives can also make
the fund less liquid and harder to value, especially in
declining markets.
Money market instruments The S&P 500 Index Fund may
temporarily maintain up to
20% of its assets in money market instruments. The fund
invests in money market
instruments under the following circumstances:
.pending investment of proceeds of the sale of shares of
the fund
.pending settlement of purchases of securities by the fund
.to maintain liquidity to meet anticipated redemptions
Foreign investments The S&P 500 Index Fund may purchase
common stocks and ADRs
of the foreign companies included in the S&P 500 Index.
These securities are
publicly traded on U.S. securities exchanges or over-the-
counter markets. ADRs
are U.S. dollar denominated securities which represent an
interest in an under-
lying foreign security.
Foreign countries generally have markets that are less
liquid and more volatile
than markets in the U.S. In some foreign countries, there
is also less informa-
tion available about foreign issuers and markets because of
less rigorous
accounting and regulatory standards than in the U.S.
Currency fluctuations
could erase investment gains or add to investment losses.
Because the value of
an ADR is dependent upon the market price of an underlying
foreign security,
ADRs are subject to most of the risks associated with
foreign investing.
U.S. 5000 Index and EAFE Index Funds
Because it can be very expensive to buy and sell all of the
securities in each
funds' corresponding Index, each Master Portfolio employs a
"sampling" tech-
nique to approximate Index characteristics such as
capitalization and industry
weight using fewer securities than contained in the
corresponding Index.
Each Master Portfolio follows an indexed or "passively
managed" approach to
investing. This means that BGFA selects securities for each
Master Portfolio
designed to approximate the investment characteristics and
performance of the
corresponding Index.
Derivative BGFA uses various techniques, such as buying and
selling
futures contracts, to increase or decrease each fund's
exposure to changing
security prices or other factors that affect security
values. If BGFA's strate-
gies do not work as intended, each fund may not achieve its
objective.
Smith
Barney Mutual Funds
15
<PAGE>
In seeking to match the performance of the corresponding
Index, each Master
Portfolio also may engage in futures and options
transactions and other deriva-
tive securities transactions which involve risk. The
futures contracts and
options on futures contracts each Master Portfolio may
purchase are considered
derivatives. Derivatives are financial instruments whose
values are derived, at
least in part, from the prices of other securities or
specified assets, indices
or rates. Each Master Portfolio intends to use futures
contracts and options as
part of its short-term liquidity holdings and/or as
substitutes for comparable
market positions in the underlying securities. Some
derivatives may be more
sensitive than direct securities to changes in interest
rates or sudden market
moves. Some derivatives also may be susceptible to
fluctuations in yield or
value because of their structure or contract terms.
Although each Master Portfolio attempts to be fully
invested at all times in
securities comprising the corresponding Index and in
futures contracts and
options on futures contracts, each Master Portfolio may
also invest up to 10%
of its assets in high-quality money market instruments to
provide liquidity.
Each Master Portfolio also may invest up to 15% of the
value of its net assets
in illiquid securities, including repurchase agreements
providing for settle-
ment in more than seven days.
Feeder fund structure
The U.S. 5000 Index Fund and the EAFE Index Fund is each
structured as a feeder
fund. Neither fund buys individual securities directly.
Instead, each fund
invests in a corresponding Master Portfolio. Each Master
Portfolio invests in
securities in accordance with investment objectives,
policies and limitations
that are similar to those of the corresponding fund.
As other investors invest their assets in each Master
Portfolio, certain eco-
nomic efficiencies may be realized with respect to each
Master Portfolio. For
example, fixed expenses that otherwise would have been
borne solely by a fund
(and the other existing interestholders in each Master
Portfolio) would be
spread across a larger asset base as more funds invest in
the Master Portfolio.
However, if a mutual fund or other investor withdraws its
investment from a
Master Portfolio, the economic efficiencies that should be
available through
investment in a Master Portfolio may not be fully achieved
or maintained. In
addition, given the relatively complex nature of the
master/feeder structure,
accounting and operational difficulties could occur. For
example, coordination
of calculation of net asset value could be affected at the
master and/or feeder
level.
The U.S. 5000 Index Fund or the EAFE Index Fund may
withdraw its investments in
a Master Portfolio if the Board determines that it is in
the
Index Funds
16
<PAGE>
best interests of the corresponding fund and its
shareholders to do so. Upon
any such withdrawal, the Board would consider what action
might be taken,
including the investment of all the assets of each fund in
another pooled
investment entity having the same investment objective as a
fund, direct man-
agement of such fund by SSB Citi Fund Management LLC ("SSB
Citi") or the hiring
of a sub-advisor to manage the fund's assets.
Investment of either fund's assets in a Master Portfolio is
not a fundamental
policy of the fund and a shareholder vote is not required
for the fund to with-
draw its investment from the Master Portfolio.
Management
S&P 500 Index Fund
Manager The S&P 500 Index Fund's investment adviser is The
Travelers Investment
Management Company (TIMCO). The manager selects the fund's
investments and
oversees its operations. The manager's address is One Tower
Square, Hartford,
Connecticut 06183-2030. TIMCO and SSB Citi are affiliates
of Salomon Smith Bar-
ney Inc. The manager, administrator and Salomon Smith
Barney are subsidiaries
of Citigroup Inc. Citigroup businesses produce a broad
range of financial serv-
ices--asset management, banking and consumer finance,
credit and charge cards,
insurance, investments, investment banking and trading--and
use diverse chan-
nels to make them available to consumer and corporate
customers around the
world.
Sandip Bhagat, president and chief investment officer of
TIMCO, and John Lau,
portfolio manager for TIMCO, have been responsible for the
day-to-day manage-
ment of the fund's portfolio since its inception. Messrs.
Bhagat and Lau have
more than 11 and 4 years, respectively, of securities
business experience.
U.S. 5000 Index and EAFE Index Fund
A feeder fund does not need an investment manager. Each
Master Portfolio's
investment advisor is BGFA. BGFA is a wholly owned direct
subsidiary of
Barclays Global Investors, N.A. (which is an indirect
subsidiary of Barclays
Bank PLC) and is located at 45 Fremont Street, San
Francisco, California 94105.
BGFA has provided asset management, administration and
advisory services for
over 25 years. For the U.S. 5000 Index Fund, BGFA receives
a monthly advisory
fee from the Master Portfolio at an annual rate equal to
0.01% of the U.S.
Equity Index Master Portfolio's average daily net assets,
0.08% of the average
daily net assets of the Extended Index Portfolio and 0.05%
of the average daily
net assets of the S&P 500 Index Portfolio.
Smith
Barney Mutual Funds
17
<PAGE>
for the EAFE Index Fund, BGFA receives a monthly advisory
fee from the Interna-
tional Index Master Portfolio at an annual rate equal to
0.15% of the first
$1 billion, and 0.10% thereafter, of the International
Index Master Portfolio's
average daily net assets. From time to time, BGFA may waive
such fees in whole
or in part. Any such waiver will reduce the expenses of the
applicable Master
Portfolio, and accordingly, have a favorable impact on its
performance.
Each fund bears a pro rata portion of the investment
advisory fees paid by the
Master Portfolio as well as certain other fees paid by the
Master Portfolio,
such as accounting, legal and Securities and Exchange
Commission registration
fees.
Management fees For its services, the manager received a
fee during the S&P 500
Index Fund's last fiscal year equal on an annual basis to
0.15%, of the fund's
average daily net assets.
All Funds
Administrator The funds' administrator is SSB Citi whose
address is 388 Green-
wich Street, New York, New York 10013. SSB Citi and Salomon
Smith Barney are
subsidiaries of Citigroup.
Administration fees For its services, SSB Citi receives a
fee equal on an
annual basis to 0.10% of the S&P 500 Index Funds' average
daily net assets. The
administrator waived all of its fees during the S&P 500
Index Fund's last fiscal
year. For its services, SSB Citi receives a fee equal on an
annual basis to
0.15% of each of the U.S. 5000 Index and EAFE Index funds'
average daily net
assets.
Distributor Each fund has entered into an agreement with
CFBDS, Inc. to dis-
tribute the fund's shares. A selling group consisting of
Salomon Smith Barney
and other broker-dealers sells fund shares to the public.
Distribution plans Each fund has adopted a Rule 12b-1
service plan for its
Class A shares. Under the plan, Class A shares pay a
service fee for the sale
of its shares and for services provided to shareholders.
The fee for Class A
shares is an ongoing expense and, over time, may cost you
more than other types
of sales charges.
Index Funds
18
<PAGE>
Transfer agent and shareholder servicing agent Citi
Fiduciary Trust Company
serves as each fund's transfer agent and shareholder
servicing agent (the
"transfer agent"). Pursuant to a sub-transfer agency and
services agreement
with the transfer agent, PFPC Global Fund Services serves
as each fund's sub-
transfer agent (the "sub-transfer agent") to render certain
shareholder record
keeping and accounting services and functions.
Choosing a class of shares to buy
You may purchase Class A shares which are sold at net asset
value with no ini-
tial or deferred sales charge. Class A shares are subject
to an ongoing service
fee.
You may purchase Class D shares only if you are
participating in certain
investment programs which charge a fee for participation,
including the Salomon
Smith Barney Retirement Programs. Class D shares are also
offered to tax-exempt
employee benefit and retirement plans of Salomon Smith
Barney and its affili-
ates. For more information about these programs, please
contact a Salomon Smith
Barney Financial Consultant.
You may buy shares from:
.A Salomon Smith Barney Financial Consultant
.An investment dealer in the selling group or a broker that
clears through Sal-
omon Smith Barney--a dealer representative
.The fund, but only if you are investing through certain
qualified plans or
certain dealer representatives
Investment minimums Minimum initial and additional
investment amounts vary
depending on the nature of your investment account.
<TABLE>
<CAPTION>
Initial Additional
<S> <C> <C>
General $1,000 $50
IRAs, Self Employed Retirement Plans,
Uniform Gift to Minor Accounts $ 250 $50
Qualified Retirement Plans* $ 25 $25
Simple IRAs $ 1 $ 1
Monthly Systematic Investment Plans $ 25 $25
Quarterly Systematic Investment Plans $ 50 $50
</TABLE>
* Qualified Retirement Plans are retirement plans
qualified under Section
403(b)(7) or Section 401(a) of the Internal Revenue
Code, including 401(k)
plans
Smith
Barney Mutual Funds
19
<PAGE>
Buying shares
Through a You should contact your Salomon Smith
Barney Financial Con-
Salomon Smith sultant or dealer representative to open a
brokerage account
Barney and make arrangements to buy shares. If
you do not provide
Financial the following information, your order will
be rejected:
Consultant or
dealer
representative
.Class of shares being bought
.Dollar amount or number of shares being
bought
You should pay for your shares through
your brokerage account
no later than the third business day after
you place your
order. Salomon Smith Barney or your dealer
representative may
charge an annual account maintenance fee.
- -----------------------------------------------------------
- ---------------------
Through each Qualified retirement plans and certain
other investors who
fund's sub- are clients of a selling group member are
eligible to buy
transfer shares directly from a fund.
agent
.Write the sub-transfer agent at the
following address:
Smith Barney Investment Trust
S&P 500 Index Fund
U.S. 5000 Index Fund
EAFE Index Fund
(Specify fund and class of shares)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, Rhode Island 02940-9699
.Enclose a check made payable to the
applicable fund to pay
for the shares. For initial purchases,
complete and send an
account application
.For more information, call the transfer
agent at 1-800-451-
2010.
- -----------------------------------------------------------
- ---------------------
Through a
systematic You may authorize Salomon Smith Barney,
your dealer represen-
investment tative or the sub-transfer agent to
transfer funds automati-
plan cally from a regular bank account, cash
held in a Salomon
Smith Barney brokerage account or Smith
Barney money market
fund to buy shares on a regular basis.
Index Funds
20
<PAGE>
.Amounts transferred should be at least
$25 monthly or $50
quarterly
.If you do not have sufficient funds in
your account on a
transfer date, Salomon Smith Barney,
your dealer represen-
tative or the sub-transfer agent may
charge you a fee
For more information, contact your Salomon
Smith Barney
Financial Consultant, dealer
representative or the transfer
agent or consult the Statement of
Additional Information
("SAI").
Exchanging shares
Smith Barney Each fund is exchangeable into the other.
offers a
distinctive
family of
funds
tailored to
help meet the
varying needs
of both large
and small
investors
You should contact your Salomon Smith
Barney Financial
Consultant or dealer representative to
exchange into the
funds. Be sure to read the prospectus of
mutual funds you are
exchanging into. An exchange is a taxable
transaction.
.You may exchange shares only for shares
of the same class.
.You may also exchange fund shares only
for shares of other
classes if you are participating in
certain fee based advi-
sory programs or employer-sponsored
retirement plans.
Please contact your Salomon Smith Barney
Financial Consul-
tant or your dealer representative for
more information.
.You must meet the minimum investment
amount for each fund
(except for systematic exchanges)
.If you hold share certificates, the sub-
transfer agent must
receive the certificates endorsed for
transfer or with
signed stock powers (documents
transferring ownership of
certificates) before the exchange is
effective.
.The fund may suspend or terminate your
exchange privilege if
you engage in an excessive pattern of
exchanges
Smith
Barney Mutual Funds
21
<PAGE>
- -----------------------------------------------------------
- ---------------------
By telephone
If you do not have a brokerage account,
you may be eligible
to exchange shares through the transfer
agent. You must com-
plete an authorization form to authorize
telephone transfers.
If eligible, you may make telephone
exchanges on any day the
New York Stock Exchange is open. Call the
transfer agent at
1-800-451-2010 between 9:00 a.m. and 4:00
p.m. (Eastern
time).
You can make telephone exchanges only
between accounts that
have identical registrations.
- -----------------------------------------------------------
- ---------------------
By mail
If you do not have a Salomon Smith Barney
brokerage account,
contact your dealer representative or
write to the sub-trans-
fer agent at the address on the next page.
Redeeming shares
Generally Contact your Salomon Smith Barney
Financial Consultant or
your dealer representative to redeem
shares of a fund.
If you hold share certificates, the sub-
transfer agent must
receive the certificates endorsed for
transfer or with signed
stock powers (documents transferring
ownership of certifi-
cates) before the redemption is effective.
If the shares are held by a fiduciary or
corporation, other
documents may be required.
Your redemption proceeds will be sent
within three business
days after your request is received in
good order. However,
if you recently purchased your shares by
check, your redemp-
tion proceeds will not be sent to you
until your original
check clears, which may take up to 15
days.
If you have a Salomon Smith Barney
brokerage account, your
redemption proceeds will be placed in your
account and not
reinvested without your specific
instruction. In other cases,
unless you direct otherwise, your
redemption proceeds will be
paid by check mailed to your address of
record.
Index Funds
22
<PAGE>
- -----------------------------------------------------------
- ---------------------
By mail
For accounts held directly at a fund, send
written requests
to the sub-transfer agent at the following
address:
Smith Barney Investment Trust
S&P 500 Index Fund
U.S. 5000 Index Fund
EAFE Index Fund
(Specify fund and class of shares)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, Rhode Island 02940-9699
Your written request must provide the
following:
.The account number
.The class of shares and the dollar amount
or number of
shares to be redeemed
.Signatures of each owner exactly as the
account is regis-
tered
- -----------------------------------------------------------
- ---------------------
By telephone
If you do not have a brokerage account,
you may be eligible
to redeem shares (except those held in
retirement plans) in
amounts up to $10,000 per day through the
transfer agent. You
must complete an authorization form to
authorize telephone
redemptions. If eligible, you may request
redemptions by tel-
ephone on any day the New York Stock
Exchange is open. Call
the transfer agent at 1-800-451-2010
between 9:00 a.m. and
4:00 p.m. (Eastern time).
Your redemption proceeds can be sent by
check to your address
of record or by wire transfer to a bank
account designated on
your authorization form. You must submit a
new authorization
form to change the bank account designated
to receive wire
transfers and you may be asked to provide
certain other docu-
ments.
- -----------------------------------------------------------
- ---------------------
Automatic You can arrange for the automatic
redemption of a portion of
cash your shares on a monthly or quarterly
basis. To qualify you
withdrawal must own shares of the fund with a value
of at least $10,000
plans ($5,000 for retirement plan accounts) and
each automatic
redemption must be at least $50.
Smith
Barney Mutual Funds
23
<PAGE>
The following conditions apply:
.Your shares must not be represented by
certificates
.All dividends and distributions must be
reinvested
For more information, contact your Salomon
Smith Barney
Financial Consultant or dealer
representative or consult the
SAI.
Other things to know about share transactions
When you buy, exchange or redeem shares, your request must
be in good order.
This means you have provided the following information
without which your
request will not be processed:
.Name of the fund
.Account number
.Class of shares being bought, exchanged or redeemed
.Dollar amount or number of shares being bought, exchanged
or redeemed
.Signature of each owner exactly as the account is
registered
The transfer agent will try to confirm that any telephone
exchange or redemp-
tion request is genuine by recording calls, asking the
caller to provide a per-
sonal identification number for your account, sending you a
written
confirmation or requiring other confirmation procedures
from time to time.
Signature guarantees To be in good order, your redemption
request must include
a signature guarantee if you:
.Are redeeming over $10,000 of shares
.Are sending signed share certificates or stock powers to
the sub-transfer
agent
.Instruct the sub-transfer agent to mail the check to an
address different from
the one on your account
.Changed your account registration
.Want the check paid to someone other than the account
owner(s)
.Are transferring the redemption proceeds to an account
with a different regis-
tration
You can obtain a signature guarantee from most banks,
dealers, brokers, credit
unions and federal savings and loan institutions, but not
from a notary public.
Index Funds
24
<PAGE>
Each fund has the right to:
.Suspend the offering of shares
.Waive or change minimum and additional investment amounts
.Reject any purchase or exchange order
.Change, revoke or suspend the exchange privilege
.Suspend telephone transactions
.Suspend or postpone redemptions of shares on any day when
trading on the New
York Stock Exchange is restricted, or as otherwise
permitted by the Securi-
ties and Exchange Commission
.Pay redemption proceeds by giving you securities. You may
pay transaction
costs to dispose of the securities.
Small account balances If your account falls below $500
because of a redemption
of fund shares, a fund may ask you to bring your account up
to $500. If your
account is still below $500 after 60 days, the fund may
close your account and
send you the redemption proceeds.
Excessive exchange transactions SSB Citi may determine that
a pattern of fre-
quent exchanges is detrimental to a fund's performance and
other shareholders.
Each fund may limit additional purchases and/or exchanges
by a shareholder.
Share certificates The funds do not issue share
certificates unless a written
request signed by all registered owners is made to the sub-
transfer agent. If
you hold share certificates it will take longer to exchange
or redeem shares.
Salomon Smith Barney Retirement Programs
You may be eligible to participate in the Salomon Smith
Barney Retirement Pro-
grams. Each fund offers Class A shares to participating
plans as an investment
alternative under the programs. You can meet minimum
investment and exchange
amounts by combining the plan's investments in any of the
Smith Barney funds.
There are no sales charges when you buy or sell shares.
For more information, call your Salomon Smith Barney
Financial Consultant or
the transfer agent, or consult the SAI.
Dividends, distributions and taxes
Dividends Each fund generally pays dividends and makes
capital gain distribu-
tions, if any, once a year, typically in December. Each
fund may pay
Smith
Barney Mutual Funds
25
<PAGE>
additional distributions and dividends at other times if
necessary for the fund
to avoid a federal tax. Each fund expects distributions to
be primarily from
capital gains. Capital gain distributions and dividends are
reinvested in addi-
tional fund shares of the same class you hold.
Alternatively, you can instruct
your Salomon Smith Barney Financial Consultant, dealer
representative or the
transfer agent to have your distributions and/or dividends
paid in cash. You
can change your choice at any time to be effective as of
the next distribution
or dividend, except that any change given to the transfer
agent less than five
days before the payment date will not be effective until
the next distribution
or dividend is paid.
Taxes In general, redeeming shares, exchanging shares and
receiving distribu-
tions (whether in cash or additional shares) are all
taxable events.
<TABLE>
<CAPTION>
Transaction Federal tax status
<S> <C>
Redemption or exchange of shares Usually capital gain
or loss;
long-term only if
shares owned
more than one year
Long-term capital gain distributions Long-term capital
gain
Short-term capital gain distributions Ordinary income
Dividends Ordinary income
</TABLE>
Long-term capital gain distributions are taxable to you as
long-term capital
gain regardless of how long you have owned your shares. You
may want to avoid
buying shares when the fund is about to declare a long-term
capital gain dis-
tribution or a dividend, because it will be taxable to you
even though it may
actually be a return of a portion of your investment.
After the end of each year, each fund will provide you with
information about
the distributions and dividends you received and any
redemptions of shares dur-
ing the previous year. If you do not provide the fund with
your correct tax-
payer identification number and any required
certifications, you may be subject
to back-up withholding of 31% of your distributions,
dividends, and redemption
proceeds. Because each shareholder's circumstances are
different and special
tax rules may apply, you should consult your tax adviser
about your investment
in the fund.
Share price
You may buy, exchange or redeem shares at their net asset
value next determined
after receipt of your request in good order. Each fund's
net asset value is the
value of its assets minus its liabilities. Net asset value
is calculated sepa-
rately for each class of shares. Each fund calculates its
net
Index Funds
26
<PAGE>
asset value every day the New York Stock Exchange is open.
This calculation is
done when regular trading closes on the Exchange (normally
4:00 p.m., Eastern
time). The Exchange is closed on certain holidays listed in
the SAI.
Each fund's currency conversions are done when the London
stock exchange
closes. When reliable market prices or quotations are not
readily available, or
when the value of a security has been materially affected
by events occurring
after a foreign exchange closes, a fund may price those
securities at fair val-
ue. Fair value is determined in accordance with procedures
approved by the
fund's board. Each fund that uses fair value to price
securities may value
those securities higher or lower than another fund using
market quotations to
price the same securities.
International markets may be open on days when U.S. markets
are closed and the
value of foreign securities owned by a fund could change on
days when you can-
not buy or redeem shares.
In order to buy, redeem or exchange shares at that day's
price, you must place
your order with your Salomon Smith Barney Financial
Consultant or dealer repre-
sentative before the New York Stock Exchange closes. If the
Exchange closes
early, you must place your order prior to the actual
closing time. Otherwise,
you will receive the next business day's price.
Salomon Smith Barney or members of the selling group must
transmit all order to
buy, exchange or redeem shares to the fund's agent before
the agent's close of
business.
U.S. 5000 Index Fund and EAFE Index Fund
The Master Portfolio for each fund is valued daily by a
Master Portfolio
itself, and a Master Portfolio's net asset value is part of
the calculation of
the fund's net asset value.
The assets of each feeder fund include its investments in a
Master Portfolio,
plus cash and any other assets. Each feeder fund's
investment in a Master Port-
folio is valued at the feeder fund's proportionate interest
in the net assets
of a Master Portfolio. Each Master Portfolio calculates the
net assets on the
same days and at the same time as the fund.
Each Master Portfolio's assets are valued based on current
market prices. If
such prices are not readily available, BGFA estimates the
securities' fair
value in accordance with guidelines approved by the
applicable Master Portfo-
lio's Board of Trustees.
Salomon Smith Barney or members of the selling group must
transmit all orders
to buy, exchange or redeem shares to the fund's agent
before the agent's close
of business.
Smith Barney Mutual Funds
27
<PAGE>
Financial highlights
The financial highlights tables are intended to help you
understand the perfor-
mance of each class for the past 5 years (or since
inception if less than 5
years). Certain information reflects financial results for
a single share.
Total return represents the rate that a shareholder would
have earned (or lost)
on a fund share assuming reinvestment of all dividends and
distributions. The
information in the following tables was audited by KPMG
LLP, independent
accountants, whose report, along with the fund's financial
statements, are
included in the annual report (available upon request).
There is no information
for Class D shares of U.S. 5000 Index Fund and the EAFE
Index Fund because no Class D shares were outstanding for
the period shown.
S&P 500 Index Fund
For a Class A share of beneficial interest outstanding
throughout each year
ended November 30, except where noted:
<TABLE>
<CAPTION>
1999(/1/)(/2/)
1999(/2/) 1998(/3/)
- -----------------------------------------------------------
- ----------------
<S> <C> <C>
<C>
Net asset value, beginning of period $ 14.24 $
11.98 $ 10.00
- -----------------------------------------------------------
- ----------------
Income from operations:
Net investment income(/4/) 0.01
0.12 0.05
Net realized and unrealized gain 0.83
2.27 1.93
- -----------------------------------------------------------
- ----------------
Total income from operations 0.84
2.39 1.98
- -----------------------------------------------------------
- ----------------
Less distributions from:
Net investment income (0.08)
(0.06) --
Net realized gains --
(0.07) --
- -----------------------------------------------------------
- ----------------
Total distributions (0.08)
(0.13) --
- -----------------------------------------------------------
- ----------------
Net asset value, end of period $ 15.00 $
14.24 $ 11.98
- -----------------------------------------------------------
- ----------------
Total return 5.88%++
19.96% 19.80%++
- -----------------------------------------------------------
- ----------------
Net assets, end of period (000s) $252,435
$223,787 $55,187
- -----------------------------------------------------------
- ----------------
Ratios to average net assets:
Expenses(/4/)(/5/) 0.60%+
0.59% 0.59%+
Net investment income 0.67+
0.83 1.05+
- -----------------------------------------------------------
- ----------------
Portfolio turnover rate 0%
6% 4%
- -----------------------------------------------------------
- ----------------
</TABLE>
(/1/For)the period from December 1, 1999 to December 31,
1999, which reflects a
change in the fiscal year end of the Fund.
(/2/Per)share amounts have been calculated using the
monthly average shares
method.
(/3/For)the period from January 5, 1998 (inception date) to
November 30, 1998.
(/4/The)administrator agreed to waive all or a portion of
its fees for the
period ended December 31, 1999, the year ended November
30, 1999 and for
the period ended November 30, 1998. In addition, the
administrator agreed
to reimburse expenses of $15,109 and $177,520 for the
periods ended
December 31, 1999 and November 30, 1998, respectively.
If these fees had
not been waived and expenses not reimbursed, the per
share effect on net
investment income and the expense ratio would have been
as follows:
<TABLE>
<CAPTION>
Per Share Decreases to
Expense Ratios Without
Net Investment Income
Waiver and Reimbursement
<S> <C>
<C>
1999(/1/) $0.00
0.77%+
- -----------------------------------------------------------
- -----------------------------
1999 0.01
0.68
- -----------------------------------------------------------
- -----------------------------
1998 0.04
1.42+
- -----------------------------------------------------------
- -----------------------------
</TABLE>
(/5/As)a result of voluntary expense limitations, the ratio
of expenses to
average net assets will not exceed 0.60%.
++Total return is not annualized, as it may not be
representative of the total
return for the year.
+ Annualized.
Index Funds
28
<PAGE>
For a Class D share of beneficial interest outstanding
throughout each year
ended November 30, except where noted:
<TABLE>
<CAPTION>
1999(/1/)(/2/)
1999(/2/) 1998(/3/)
- -----------------------------------------------------------
- --------------
<S> <C> <C>
<C>
Net asset value, beginning of period $ 14.28 $
11.99 $11.00
- -----------------------------------------------------------
- --------------
Income from operations:
Net investment income(/4/) 0.01
0.17 0.03
Net realized and unrealized gain 0.83
2.26 0.96
- -----------------------------------------------------------
- --------------
Total income from operations 0.84
2.43 0.99
- -----------------------------------------------------------
- --------------
Less distributions from:
Net investment income (0.11)
(0.07) --
Net realized gains --
(0.07) --
- -----------------------------------------------------------
- --------------
Total distributions (0.11)
(0.14) --
- -----------------------------------------------------------
- --------------
Net asset value, end of period $ 15.01 $
14.28 $11.99
- -----------------------------------------------------------
- --------------
Total return 5.91%++
20.29% 9.00%++
- -----------------------------------------------------------
- --------------
Net assets, end of period (000s) $20,626
$14,068 $1,810
- -----------------------------------------------------------
- --------------
Ratios to average net assets:
Expenses(/4/)(/5/) 0.36%+
0.34% 0.36%+
Net investment income 0.90+
1.08 1.33+
- -----------------------------------------------------------
- --------------
Portfolio turnover rate 0%
6% 4%
- -----------------------------------------------------------
- --------------
</TABLE>
(/1/For)the period from December 1, 1999 to December 31,
1999, which reflects a
change in the fiscal year end of the Fund.
(/2/Per)share amounts have been calculated using the
monthly average shares
method.
(/3/For)the period from August 4, 1998 (inception date) to
November 30, 1998.
(/4/The)administrator agreed to waive all or a portion of
its fees for the
period ended December 31, 1999, the year ended November
30, 1999 and for
the period ended November 30, 1998. In addition, the
administrator agreed
to reimburse expenses of $15,109 and $177,520 for the
periods ended
December 31, 1999 and November 30, 1998, respectively.
If these fees had
not been waived and expenses not reimbursed, the per
share effect on net
investment income and the expense ratio would have been
as follows:
<TABLE>
<CAPTION>
Per Share Decreases to
Expense Ratios Without
Net Investment Income
Waiver and Reimbursement
<S> <C>
<C>
1999(/1/) $0.00
0.53%+
- -----------------------------------------------------------
- -----------------------------
1999 0.01
0.43
- -----------------------------------------------------------
- -----------------------------
1998 0.02
1.18+
- -----------------------------------------------------------
- -----------------------------
</TABLE>
(/5/As)a result of voluntary expense limitations, the ratio
of expenses to
average net assets will not exceed 0.40%.
++Total return is not annualized, as it may not be
representative of the total
return for the year.
+ Annualized.
Smith
Barney Mutual Funds
29
<PAGE>
Smith Barney U.S. 5000 Index Fund
For a Class A share of capital stock outstanding
throughout the period:
<TABLE>
<CAPTION>
1999(/1/)
- ----------------------------------------------------
<S> <C>
Net asset value, beginning of period $10.00
- ----------------------------------------------------
Income from operations:
Net investment income(/2/) 0.01
Net realized and unrealized gain 1.63
- ----------------------------------------------------
Total income from operations 1.64
- ----------------------------------------------------
Net asset value, end of period $11.64
- ----------------------------------------------------
Total return++ 16.40%
- ----------------------------------------------------
Net assets, end of period (000)'s $1,287
- ----------------------------------------------------
Ratios to average net assets:+
Expenses(/2/)(/3/)(/4/) 0.68%
Net investment income 0.62
- ----------------------------------------------------
Portfolio turnover rate 9%(/5/)
- ----------------------------------------------------
</TABLE>
(/1/) For the period from October 18, 1999 (commencement of
operations) to
December 31, 1999.
(/2/) The administrator has agreed to waive all of its fees
and reimburse
expenses of $23,824 for the period ended December 31,
1999. If such fees
had not been waived or expenses reimbursed, the
decrease to net invest-
ment income per share and actual expense ratio would
have been $(0.21)
and 22.19% (annualized), respectively.
(/3/) As a result of an expense limitation, expense ratios
will not exceed
0.68%.
(/4/) This expense ratio includes expenses charged to the
Master Portfolio.
(/5/This)rate represents the Portfolio turnover of the
Master Portfolio in
which the fund invests.
++ Total return is not annualized, as it may not be
representative of the
total return for the year.
+ Annualized.
Index Funds
30
<PAGE>
Smith Barney EAFE Index Fund
For a Class A share of capital stock outstanding
throughout the period:
<TABLE>
<CAPTION>
1999(/1/)
- ----------------------------------------------------
<S> <C>
Net asset value, beginning of period $10.00
- ----------------------------------------------------
Income from operations:
Net investment loss(/2/) (0.00)*
Net realized and unrealized gain 1.52
- ----------------------------------------------------
Total income from operations 1.52
- ----------------------------------------------------
Net asset value, end of period $11.52
- ----------------------------------------------------
Total return++ 15.20%
- ----------------------------------------------------
Net assets, end of period (000)'s $ 814
- ----------------------------------------------------
Ratios to average net assets:+
Expenses(/2/)(/3/)(/4/) 0.85%
Net investment loss (0.19)
- ----------------------------------------------------
Portfolio turnover rate 39%(/5/)
- ----------------------------------------------------
</TABLE>
(/1/) For the period from October 18, 1999 (commencement
of operations) to
December 31, 1999.
(/2/) The administrator has agreed to waive all of its
fees and reimburse
expenses of $34,325 for the period ended December 31,
1999. If such fees were
not waived or expenses reimbursed, the increase to net
investment loss per
share and actual expenses ratio would have been $(0.49)
and 55.46%
(annualized), respectively.
(/3/) As a result of an expense limitation, the expense
ratio will not exceed
0.85%.
(/4/) This expense ratio includes expenses charged to the
Master Portfolio.
(/5/) This rate represents the Portfolio turnover of the
Master Portfolio in
which the fund invests.
*Amount represents less than $0.01 per share.
++Total return is not annualized, as it may not be
representative of the total
return for the year.
+ Annualized.
Smith Barney Mutual Funds
31
<PAGE>
(This page is intentionally left
blank.)
<PAGE>
SalomonSmithBarney
--------
- --------------------
A member
of citigroup [LOGO]
S&P 500 Index Fund
U.S. 5000
Index Fund
EAFE Index Fund
Each an investment portfolio of Smith Barney Investment
Trust
Shareholder reports Annual and semiannual reports to
shareholders provide
additional information about a fund's investments. These
reports discuss the
market conditions and investment strategies that affected
the fund's perfor-
mance.
Each fund sends only one report to a household if more than
one account has
the same address. Contact your Salomon Smith Barney
Financial Consultant,
dealer representative or the transfer agent if you do not
want this policy to
apply to you.
Statement of additional information The statement of
additional information
provides more detailed information about a fund and is
incorporated by refer-
ence into (is a legally part of) this prospectus.
You can make inquiries about a fund or obtain shareholder
reports or the
statement of additional information (without charge) by
contacting your Salo-
mon Smith Barney Financial Consultant or dealer
representative, by calling the
fund at 1-800-451-2010, or by writing to the fund at Smith
Barney Mutual
Funds, 388 Greenwich Street, MF2, New York, New York 10013.
Visit our web site. Our web site is located at
www.smithbarney.com
Information about the fund (including the SAI) can be
reviewed and copied at
the Securities and Exchange Commission's (the "Commission")
Public Reference
Room in Washington, D.C. In addition, information on the
operation of the Pub-
lic Reference Room may be obtained by calling the
Commission at 1-202-942-
8090. Reports and other information about the Fund are
available on the EDGAR
Database on the Commission's Internet site at
http://www.sec.gov. Copies of
this information may be obtained for a duplicating fee by
electronic request
at the following E-mail address: [email protected], or by
writing the Commis-
sion's Public Reference Section, Washington, D.C. 20549-
0102.
If someone makes a statement about a fund that is not in
this prospectus, you
should not rely upon that information. Neither the funds
nor the distributor
is offering to sell shares of a fund to any person to whom
the fund may not
lawfully sell its shares.
TMSalomon Smith Barney is a service mark of Salomon Smith
Barney Inc.
(Investment Company Act
file no. 811-06444)
FD 01887 4/00
April 28, 2000
STATEMENT OF ADDITIONAL INFORMATION
SMITH BARNEY INVESTMENT TRUST
Smith Barney U.S. 5000 Index Fund
Smith Barney EAFE Index Fund
388 Greenwich Street
New York, New York 10013
(800) 451-2010
This Statement of Additional Information ("SAI") is meant
to be read in conjunction with the combined prospectus of
the Smith Barney U.S. 5000 Index Fund (the "U.S. 5000 Index
Fund") and the Smith Barney EAFE Index Fund (the "EAFE
Index Fund") (each, a "fund") which also includes the Smith
Barney S&P 500 Index Fund, dated April 28, 2000, as amended
or supplemented from time to time (each, the "prospectus"),
and is incorporated by reference in its entirety into the
prospectus. Additional information about the fund's
investments is available in the fund's annual and semi-
annual reports to shareholders, which are incorporated
herein by reference. The prospectus and copies of the
reports may be obtained free of charge by contacting a
Salomon Smith Barney Financial Consultant, or by writing or
calling Salomon Smith Barney Inc. ("Salomon Smith Barney")
at the address or telephone number above. Each fund is a
separate investment series of Smith Barney Investment trust
(the "trust").
TABLE OF CONTENTS
Investment Objective and Management Policies......... 2
Portfolio Securities................................
Investment Restrictions of the Fund............................... 27
Risk Considerations..................................... 33
Trustees of the Trust and Executive Officers of the Fund...
36
Investment Management and Other Services............ 38
Portfolio Transactions and Turnover........................... 43
Purchase of Shares................................... 45
Redemption of Shares............................. 47
Exchange Privilege............................... 49
Valuation of Shares.............................. 50
Performance Data.................................... 51
Dividends, Distributions and Taxes........................ 54
Additional Information..................... 59
Other Information............................. 62
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
tc "INVESTMENT
OBJECTIVES AND MANAGEMENT POLICIES"
General
In order to take advantage of the economies of scale
offered by a larger pool of assets, each fund is structured
as a "feeder" fund. A feeder fund seeks to achieve its
investment objective by investing its assets in a "Master
Portfolio" managed by Barclays Global Fund Advisors, N.A.
("BGFA"). The Master Portfolio invests substantially all
of its assets in securities in accordance with investment
objectives, policies, and limitations that are
substantially similar to those of the fund. In other
words, the fund "feeds" shareholder investments into its
corresponding Master Portfolio.
The prospectus discusses each fund's and each Master
Portfolio's investment objective and policies. This
section contains supplemental information concerning the
types of securities and other instruments in which each
fund and each Master Portfolio may invest, the investment
policies and portfolio strategies the fund and each Master
Portfolio may utilize and certain risks associated with
these investments, policies and strategies. SSB Citi Fund
Management LLC (successor to SSBC Management Inc.) ("SSB
Citi" or the "administrator") serves as the fund's
administrator.
Master Investment Portfolio ("MIP") is an open-end,
management investment company, organized on October 21,
1993 as a business trust under the laws of the State of
Delaware. MIP is a "series fund," which is a mutual fund
divided into separate portfolios. The U.S. Equity Index
Master Portfolio and the International Index Portfolio are
diversified portfolios of MIP. Each Master Portfolio is
treated as a separate entity for certain matters under the
Investment Company Act of 1940, as amended (the "1940
Act"), and for other purposes, and an interestholder of the
Master Portfolio is not deemed to be an interestholder of
any other portfolio of MIP.
Beneficial interests in the Master Portfolios are issued
solely in private placement transactions which do not
involve any "public offering" within the meaning of
Regulation D under the Securities Act of 1933, as amended
(the "1933 Act"). Investments in the Master Portfolios may
be made only by investment companies or certain other
entities, which are "accredited investors" within the
meaning of Regulation D under the 1933 Act. Investment
companies that hold units of beneficial interest
("interests") in the Master Portfolios are sometimes
referred to herein as "feeder funds."
Master/Feeder Fund Structure
Unlike mutual funds that directly acquire and managed their
own portfolio of securities, each fund is a "feeder" fund
in a "master/feeder" structure. This means that each fund
invests in a larger "master" portfolio of securities that
has investment objectives and policies substantially
identical to those of each fund. The investment
performance of each fund depends on the investment
performance of each Master Portfolio. If the investment
policies of the fund and the Master Portfolio become
inconsistent, the board of trustees of the fund can decide
what actions to take. Actions the board of trustees may
recommend include withdrawal of the fund's assets from the
Master Portfolio. The board of trustees would then
consider whether it should hire its own investment adviser,
invest in a different master portfolio, or take other
action.
The U.S. 5000 Index Fund seeks to offer long-term capital
growth by approximating the performance, before expenses,
of the Wilshire 5000 Index.
The U.S. 5000 Index Fund's Master Portfolio, the U.S.
Equity Index Master Portfolio, invests substantially all of
its assets in two other Master Portfolios of BGFA. One of
these Master Portfolios invests substantially all of its
assets in a representative sample of stocks comprising the
Wilshire 4500 Index (the "Extended Index Portfolio"). The
other Master Portfolio invests substantially all of it
assets in stocks comprising the S&P 500 Index (the "S&P 500
Index Portfolio") (together, the "Underlying Portfolios").
The Master Portfolio's assets will be invested in the
Underlying Portfolios in proportions adjusted periodically
to maintain the capitalization range of the Wilshire 5000
Index.
The EAFE Index Fund seeks to offer long-term capital growth
and diversification by approximating the performance,
before expenses, of the Morgan Stanley Capital
International Europe, Australia, and Far East Free Index
(the " EAFE Index").
Because it can be very expensive to buy and sell all of the
securities in a target benchmark, the Master Portfolio
employs "sampling" techniques to approximate benchmark
characteristics such as capitalization and industry weight
using fewer securities than contained in the benchmark.
Therefore, the performance of the Master Portfolio versus
its benchmark can be expected to deviate more than that of
funds investing in all of the securities contained in a
benchmark.
The EAFE Index Fund and the International Index Master
Portfolio maintain equity exposure for cash balances by
purchasing appropriate futures contracts. Futures
contracts are not used for leverage. The EAFE Index Fund
and the International Index Master Portfolio seek to remain
fully invested at all times, without significant cash
balances.
INVESTMENT OBJECTIVE-U.S. Equity Index Master Portfolio.
? The U.S. Equity Index Master Portfolio seeks to
match as closely as practicable, before fees
and expenses, the performance of the Wilshire
5000 Equity Index (the "Wilshire 5000 Index").
The U.S. Equity Index Master Portfolio uses a
"fund of funds" structure to track the Wilshire
5000 Index, which is comprised of the stocks in
the Standard & Poor's 500 Stock Index ("S&P 500
Index"), except for a small number of foreign
stocks that represent approximately 3% of the
S&P 500 Index, and the stocks in the Wilshire
4500 Equity Index (the "Wilshire 4500 Index").
In this regard, the U.S. Equity Index Master
Portfolio seeks to achieve its objective by
investing substantially all of its assets in
two other portfolios of MIP-the Extended Index
Portfolio (which invests substantially all of
its assets in a representative sample of stocks
comprising the Wilshire 4500 Index) and the S&P
500 Index Portfolio (which invests
substantially all of its assets in stocks
comprising the S&P 500 Index) (together, the
"Underlying Portfolios"). The U.S. Equity
Index Master Portfolio's assets will be
invested in the Underlying Portfolios of MIP in
proportions adjusted periodically to maintain
the capitalization range of the Wilshire 5000
Index. The performance of the U.S. Equity
Index Master Portfolio will correspond directly
to the performance of the Underlying
Portfolios. The Master Portfolio and the fund
may not track the corresponding index
perfectly, as differences between the index and
the Master Portfolio's Underlying Portfolios
may cause differences in performance. The U.S.
Equity Index Master Portfolio's investment
objective can be changed by MIP's board of
trustees without interestholder approval. The
objective and policies of the Master Portfolio
determine the types of portfolio securities in
which it invests, the degree of risk to which
it is subject and, ultimately, its performance.
There can be no assurance that the Master
Portfolio's investment objective will be
achieved.
INVESTMENT OBJECTIVES-Underlying Portfolios
? The S&P 500 Index Portfolio seeks to provide
investment results, before fees and expenses,
that correspond to the total return performance
of publicly traded common stocks in the
aggregate, as represented by the Standard &
Poor's 500 Stock Index.
? The Extended Index Portfolio seeks to
approximate, before fees and expenses, the
capitalization range and performance of the
Wilshire 4500 Index.
ABOUT THE INDICES The Wilshire 5000 Index was created
December 31, 1980. It measures the performance of all U.S.
headquartered equity securities with readily available
price data. Over 7,000 capitalization weighted security
returns are used to adjust the index.
? The Wilshire 4500 Index was created December
31, 1983. It is the Wilshire 5000 Index with
most of the companies in the S&P 500 Index
removed. Over 6,500 capitalization weighted
security returns are used to adjust the index.
? The S&P 500 Index was created March 5, 1957.
It is composed of 500 selected common stocks,
most of which are listed on the NYSE.
The securities comprising the S&P 500 Index represent the
stocks of primarily large-cap companies. The securities
comprising the Wilshire 4500 Index represent the smaller-
and medium-sized companies of the Wilshire 5000 Index. In
order for the U.S. Equity Index Master Portfolio to
maintain a capitalization weighted representative sample of
the Wilshire 5000 Index, it will invest in the Underlying
Portfolios in proportion to the overall capitalization of
their respective indices. Based on their relative overall
capitalizations as of the date of this SAI, roughly two
thirds of the U.S. Equity Index Master Portfolio's
portfolio will be invested in the S&P 500 Index Portfolio
and the other third in the Extended Index Portfolio.
Historically, the overall capitalization of the indices
have varied, and as a result, the U.S. Equity Index Master
Portfolio's portfolio is also likely to vary.
INVESTMENT POLICIES- U.S. Equity Index Master Portfolio.
? The U.S. Equity Index Master Portfolio seeks to
match the total return performance of the
Wilshire 5000 Index, which is composed of over
7,000 selected common stocks traded on the New
York Stock Exchange, American Stock Exchange
and Nasdaq Stock Market. The weightings of
stocks in the Wilshire 5000 Index are based on
each stock's relative total market
capitalization; that is, its market price per
share times the number of shares outstanding.
The percentage of the U.S. Equity Index Master
Portfolio's assets invested in the Underlying
Portfolios is approximately the same as the
percentage such Portfolios are invested in
stocks represented in the Wilshire 5000 Index.
Securities are selected for investment by the
Underlying Portfolios as indicated below.
INVESTMENT POLICIES - Underlying Portfolios.
? The Extended Index Portfolio seeks to match the
total return performance of U.S. stocks,
excluding the large-cap stocks included in the
S&P 500 Index. The fund defines these stocks
as those comprising the Wilshire 4500 Index,
which is composed of over 6,500 equity stocks
of issuers headquartered in the United States.
The Index is almost entirely comprised of
common stocks listed on the New York Stock
Exchange, American Stock Exchange or Nasdaq
Stock Market. The weightings of stocks in the
Wilshire 4500 Index are based on each stock's
relative total market capitalization, that is,
its market price per share times the number of
shares outstanding. The Extended Index
Portfolio invests in a representative sample of
these securities. Securities are selected for
investment by the Extended Index Portfolio in
accordance with their capitalization, industry
sector and valuation, among other factors.
? The S&P 500 Index Portfolio seeks to match the
total return performance of the S&P 500 Index,
which is composed of 500 selected common
stocks, most of which are listed on the New
York Stock Exchange. The weightings of stocks
in the S&P 500 Index are based on each stock's
relative total market capitalization; that is,
its market price per share times the number of
shares outstanding. The percentage of the S&P
500 Index Portfolio's assets invested in a
given stock is approximately the same as the
percentage such stock represents in the S&P 500
Index
Unlike the Extended Index Portfolio, which invests in a
representative sample of the over 6,500 stocks represented
by its benchmark, the Wilshire 4500 Index, the S&P 500
Index Portfolio invests in all 500 of the stocks
represented by its benchmark, the S&P 500 Index.
No attempt is made to manage the portfolio of the U.S.
Equity Index Master Portfolio using economic, financial or
market analysis. The U.S. Equity Index Master Portfolio is
managed by determining which proportion of its assets will
be invested in each Underlying Portfolio to match, to the
extent feasible, the capitalization range and returns of
the Wilshire 5000 Index. The Underlying Portfolios
determine which securities are to be purchased or sold to
match or sample their respective benchmarks. Under normal
market conditions, at least 90% of the value of the U.S.
Equity Index Master Portfolio's total assets is invested,
through the Underlying Portfolios, in securities comprising
the Wilshire 5000 Index. The U.S. Equity Index Master
Portfolio's ability to match its investment performance to
the investment performance of the Wilshire 5000 Index may
be affected by, among other things, the U.S. Equity Index
Master Portfolio's and Underlying Portfolios' expenses, the
amount of cash and cash equivalents held by the U.S. Equity
Index Master Portfolio and the Underlying Portfolios, the
manner in which the total returns of the Wilshire 5000
Index, the Wilshire 4500 Index and the S&P 500 Index are
calculated; the size of the U.S. Equity Index Master
Portfolio's investment portfolio; and the timing, frequency
and size of shareholder purchases and redemptions.
The Underlying Portfolios use cash flows from
interestholder purchase and redemption activity to
maintain, to the extent feasible, the similarity of their
portfolio to the securities comprising their respective
benchmarks. The U.S. Equity Index Master Portfolio uses
cash flows from its interestholder purchase and redemption
activity to periodically adjust its investment in the
Underlying Portfolios to maintain, to the extent feasible,
the similarity of its capitalization range and returns to
those of the securities comprising the Wilshire 5000 Index.
BGFA regularly monitors the U.S. Equity Index Master
Portfolio's correlation to the Wilshire 5000 Index and
adjusts the U.S. Equity Index Master Portfolio's investment
in the Underlying Portfolios to the extent necessary.
Inclusion of a security in an Index in no way implies an
opinion by the sponsor of the Index as to its
attractiveness as an investment.
The sampling techniques utilized by the U.S. Equity Index
Master Portfolio and the Extended Index Portfolio are
designed to allow said portfolios to substantially
duplicate the investment performance of their respective
benchmarks. However, the U.S. Equity Index Master
Portfolio is not expected to track the Wilshire 5000 Index
with the same degree of accuracy that complete replication
of such Index would provide. In addition, at times, the
portfolio composition of the U.S. Equity Index Master
Portfolio may be altered (or "rebalanced") to reflect
changes in the characteristics of the Wilshire 5000 Index,
primarily by adjusting the U.S. Equity Index Master
Portfolio's investment in the Underlying Portfolios. The
S&P 500 Index seeks to replicate completely the investments
and capitalization range of the S&P 500 Index
The investment policies, strategies, techniques and
restrictions employed by the U.S. Equity Index Master
Portfolio in pursuing its investment objective vis-a-vis
the Wilshire 5000 Index are substantially similar to those
employed by the Underlying Portfolios in pursuing their
respective investment objectives vis-a-vis their respective
benchmarks. Unless otherwise indicated, references to the
investment policies, strategies, techniques and
restrictions of the U.S. Equity Index Master Portfolio also
are references to the investment policies, strategies,
techniques and restrictions of the Underlying Portfolios in
which the U.S. Equity Index Master Portfolio invests
substantially all of its assets.
In seeking to match the performance of the Wilshire 5000
Index, the U.S. Equity Index Master Portfolio also may
engage in futures and options transactions and other
derivative securities transactions and lend its portfolio
securities, each of which involves risk. The U.S. Equity
Index Master Portfolio attempts to be fully invested at all
times in securities comprising the Wilshire 5000 Index and
in futures contracts and options on futures contracts,
although the U.S. Equity Index Master Portfolio may invest
up to 10% of its assets in high-quality money market
instruments to provide liquidity. The U.S. Equity Index
Master Portfolio also may invest up to 15% of the value of
its net assets in illiquid securities, including repurchase
agreements providing for settlement in more than seven
days.
INVESTMENT OBJECTIVE - International Index Master Portfolio
? The International Index Master Portfolio seeks to
match as closely as practicable, before fees and
expenses, the performance of an international
portfolio of common stocks represented by the
Morgan Stanley Capital International Europe,
Australia, Far East Free Index (the "EAFE Free
Index," or the "Index").
The International Index Master Portfolio's investment
objective can be changed by MIP's board of trustees without
interestholder approval. The objective and policies of the
Master Portfolio determines the types of portfolio
securities in which it invests, the degree of risk to which
it is subject and, ultimately, its performance. There can
be no assurance that the Master Portfolio's investment
objective will be achieved.
PRINCIPAL STRATEGIES - International Index Master Portfolio
? The International Index Master Portfolio seeks to match
the total return performance of foreign stock markets by
investing in common stocks included in the EAFE Free
Index. The EAFE Free Index is a capitalization-weighted
index that currently includes stocks of companies
located in 15 European countries (Austria, Belgium,
Denmark, Finland, France, Germany, Ireland, Italy, the
Netherlands, Norway, Portugal, Spain, Sweden,
Switzerland and the United Kingdom), Australia, New
Zealand, Hong Kong, Japan and Singapore The EAFE Free
Index broadly represents the performance of foreign
stock markets. The weightings of stocks in the EAFE
Free Index are based on each stock's relative total
market capitalization, that is, its market price per
share times the number of shares outstanding. The
Master Portfolio invests in a representative sample of
these securities. Securities are selected for
investment by the Master Portfolio in accordance with
their capitalization, industry sector and valuation,
among other factors.
No attempt is made to manage the portfolio of the Master
Portfolio using economic, financial and market analysis.
The Master 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 Free Index. Under normal market conditions, at
least 90% of the value of the Master Portfolio's total
assets is invested in securities comprising the EAFE Free
Index. The Master Portfolio attempts to achieve, in both
rising and falling markets, a correlation of at least 95%
between the total return of its net assets before expenses
and the total return of the EAFE Free Index. The Master
Portfolio's ability to match its investment performance to
the investment performance of the EAFE Free Index may be
affected by, among other things: the Master Portfolio's
expenses; the amount of cash and cash equivalents held by
the Master Portfolio; the manner in which the total return
of the EAFE Free Index is calculated; the size of the
Master Portfolio's investment portfolio; and the timing,
frequency and size of interestholder purchases and
redemptions. The Master Portfolio uses cash flows from
interestholder purchase and redemption activity to
maintain, to the extent feasible, the similarity of its
capitalization range and returns to those of the securities
comprising the EAFE Free Index. BGFA regularly monitors
the Master Portfolio's correlation to the EAFE Free Index
and adjusts the Master Portfolio's portfolio to the extent
necessary. Inclusion of a security in the EAFE Free Index
in no way implies an opinion by MSCI as to its
attractiveness as an investment.
BGFA may use statistical sampling techniques to attempt to
replicate the returns of the EAFE Free Index using a
smaller number of securities. Statistical sampling
techniques attempt to match the investment characteristics
of the index and the fund by taking into account such
factors as capitalization, industry exposures, dividend
yield, price/earnings ratio, price/book ratio, earnings
growth, country weightings and the effect of foreign taxes.
The sampling techniques utilized by the Master Portfolio
are designed to allow the Master Portfolio to substantially
duplicate the investment performance of the EAFE Free
Index. However, the Master Portfolio is not expected to
track the EAFE Free Index with the same degree of accuracy
that complete replication of such Index would provide. In
addition, at times, the portfolio composition of the Master
Portfolio may be altered (or "rebalanced") to reflect
changes in the characteristics of the EAFE Free Index.
In seeking to match the performance of the EAFE Free Index,
the Master Portfolio also may engage in futures and options
transactions and other derivative securities transactions
and lend its portfolio securities, each of which involves
risk. The Master Portfolio attempts to be fully invested
at all times in securities comprising the EAFE Free Index
and in futures contracts and options on futures contracts,
although the Master Portfolio may invest up to 10% of its
assets in high-quality money market instruments to provide
liquidity. The Master Portfolio may invest up to 15% of
the value of its net assets in illiquid securities,
including repurchase agreements providing for settlement in
more than seven days.
PORTFOLIO SECURITIES
The U.S. 5000 Index Fund and the EAFE Index Fund
Repurchase Agreements. The fund may agree to purchase
securities from a bank or recognized securities dealer and
simultaneously commit to resell the securities to the bank
or dealer at an agreed-upon date and price reflecting a
market rate of interest unrelated to the coupon rate or
maturity of the purchased securities ("repurchase
agreements"). The fund would maintain custody of the
underlying securities prior to their repurchase; thus, the
obligation of the bank or dealer to pay the repurchase
price on the date agreed to would be, in effect, secured by
such securities. If the value of such securities were less
than the repurchase price, plus interest, the other party
to the agreement would be required to provide additional
collateral so at all times the collateral is at least 102%
of the repurchase price plus accrued interest. Default by
or bankruptcy of a seller would expose the fund to possible
loss because of adverse market action, expenses and/or
delays in connection with the disposition of the underlying
obligations. The financial institutions with which the
fund may enter into repurchase agreements will be banks and
non-bank dealers of U.S. Government securities on the
Federal Reserve Bank of New York's list of reporting
dealers, if such banks and non-bank dealers are deemed
creditworthy by the fund's manager. The manager will
continue to monitor creditworthiness of the seller under a
repurchase agreement, and will require the seller to
maintain during the term of the agreement the value of the
securities subject to the agreement to equal at least 102%
of the repurchase price (including accrued interest). In
addition, SSB Citi will require the value of this
collateral, after transaction costs (including loss of
interest) reasonably expected to be incurred on a default,
be equal to 102% or greater than the repurchase price
(including accrued premium) provided in the repurchase
agreement or the daily amortization of the difference
between the purchase price and the repurchase price
specified in the repurchase agreement. The manager will
mark-to-market daily the value of the securities.
Repurchase agreements are considered to be loans by the
fund under the 1940 Act.
U.S. Equity Index Master Portfolio
The U.S. Equity Index Master Portfolio may invest in the
securities described below.
The investment policies, strategies, techniques and
restrictions employed by the Master Portfolio in pursuing
its investment objective vis-a-vis the Wilshire 5000 Index
are substantially similar to those employed by the
Underlying Portfolios in pursuing their respective
investment objectives vis-a-vis their respective
benchmarks. Unless otherwise indicated, references to the
investment policies, strategies, techniques and
restrictions of the U.S Equity Index Master Portfolio also
are references to the investment policies, strategies,
techniques and restrictions of the Underlying Portfolios in
which the U.S, Equity Index Master Portfolio invests
substantially all of its assets.
Futures Contracts and Options Transactions-The U.S. Equity
Index Master Portfolio may use futures as a substitute for
a comparable market position in the underlying securities.
A futures contract is an agreement between two parties, a
buyer and a seller, to exchange a particular commodity or
financial statement at a specific price on a specific date
in the future. An option transaction generally involves a
right, which may or may not be exercised, to buy or sell a
commodity or financial instrument at a particular price on
a specified future date. Futures contracts and options are
standardized and traded on exchanges, where the exchange
serves as the ultimate counterparty for all contracts.
Consequently, the primary credit risk on futures contracts
is the creditworthiness of the exchange. Futures contracts
are subject to market risk (i.e., exposure to adverse price
changes).
Although the U.S. Equity Index Master Portfolio intends to
purchase or sell futures contracts only if there is an
active market for such contracts, no assurance can be given
that a liquid market will exist for any particular contract
at any particular time. Many futures exchanges and boards
of trade limit the amount of fluctuation permitted in
futures contract prices during a single trading day. Once
the daily limit has been reached in a particular contract,
no trades may be made that day at a price beyond that limit
or trading may be suspended for specified periods during
the trading day. Futures contract prices could move to the
limit for several consecutive trading days with little or
no trading, thereby preventing prompt liquidation of
futures positions and potentially subjecting the U.S.
Equity Index Master Portfolio to substantial losses. If it
is not possible, or if the U.S. Equity Index Master
Portfolio determines not to close a futures position in
anticipation of adverse price movements, the U.S. Equity
Index Master Portfolio will be required to make daily cash
payments on variation margin.
Stock Index Futures and Options on Stock Index Futures-The
U.S. Equity Index Master Portfolio may invest in stock
index futures and options on stock index futures as a
substitute for a comparable market position in the
underlying securities. A stock index future obligates the
seller to deliver (and the purchaser to take), effectively,
an amount of cash equal to a specific dollar amount times
the difference between the value of a specific stock index
at the close of the last trading day of the contract and
the price at which the agreement is made. No physical
delivery of the underlying stocks in the index is made.
With respect to stock indices that are permitted
investments, the U.S. Equity Index Master Portfolio intends
to purchase and sell futures contracts on the stock index
for which it can obtain the best price with consideration
also given to liquidity. There can be no assurance that a
liquid market will exist at the time when the U.S. Equity
Index Master 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.
Index Swaps-The U.S. Equity Index Master Portfolio may
enter into index swaps in pursuit of its investment
objective. Index swaps involve the exchange by the U.S.
Equity Index Master Portfolio with another party of cash
flows based upon the performance of an index of securities
or a portion of an index of securities that usually include
dividends or income. In each case, the exchange
commitments can involve payments to be made in the same
currency or in different currencies. The U.S. Equity Index
Master Portfolio will usually enter into swaps on a net
basis. In so doing, the two payment streams are netted
out, with the U.S. Equity Index Master Portfolio receiving
or paying, as the case may be, only the net amount of the
two payments. If the U.S. Equity Index Master Portfolio
enters into a swap, it will maintain a segregated account
on a gross basis, unless the contract provides for a
segregated account on a net basis. If there is a default
by the other party to such a transaction, the U.S. Equity
Index Master Portfolio will have contractual remedies
pursuant to the agreements related to the transaction.
The use of index swaps is a highly specialized activity
which involves investment techniques and risks different
from those associated with ordinary portfolio security
transactions. There is no limit, except as provided below,
on the amount of swap transactions that may be entered into
by the U.S. Equity Index Master 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 payments that the
U.S. Equity Index Master Portfolio is contractually
obligated to make. There is also a risk of a default by
the other party to a swap, in which case the U.S. Equity
Index Master Portfolio may not receive net amount of
payments that the U.S. Equity Index Master Portfolio
contractually is entitled to receive.
Borrowing Money-As a fundamental policy, the U.S. Equity
Index Master Portfolio is permitted to borrow to the extent
permitted under the 1940 Act. However, the U.S. Equity
Index Master Portfolio currently intends to borrow money
only for temporary or emergency (not leveraging) purposes,
and may borrow up to one-third of the value of its total
assets (including the amount borrowed) valued at the lesser
of cost or market, less liabilities (not including the
amount borrowed) at the time the borrowing is made.
International Index Master Portfolio
The International Index Master Portfolio may invest in the
securities described below.
Foreign Currency Futures Contracts.
In General. A foreign currency futures contract is an
agreement between two parties for the future delivery of a
specified currency at a specified time and at a specified
price. A "sale" of a futures contract means the
contractual obligation to deliver the currency at a
specified price on a specified date, or to make the cash
settlement called for by the contract. Futures contracts
have been designed by exchanges which have been designated
"contract markets" by the Commodity Futures Trading
Commission ("CFTC") and must be executed through a
brokerage firm, known as a futures commission merchant,
which is a member of the relevant contract market. Futures
contracts trade on these markets, and the exchanges,
through their clearing organizations, guarantee that the
contracts will be performed as between the clearing members
of the exchange.
While futures contracts based on currencies do provide for
the delivery and acceptance of a particular currency, such
deliveries and acceptances are very seldom made.
Generally, a futures contract is terminated by entering
into an offsetting transaction. The International Index
Master Portfolio will incur brokerage fees when it
purchases and sells futures contracts. At the time such a
purchase or sale is made, the International Index Master
Portfolio must provide cash or money market securities as a
deposit known as "margin." The initial deposit required
will vary, but may be as low as 2% or less of a contract's
face value. Daily thereafter, the futures contract is
valued through a process known as "marking to market," and
the International Index Master Portfolio may receive or be
required to pay "variation margin" as the futures contract
becomes more or less valuable.
Purchase and Sale of Currency Futures Contracts. In order
to hedge its portfolio and to protect it against possible
variations in foreign exchange rates pending the settlement
of securities transactions, the International Index Master
Portfolio may buy or sell currency futures contracts. If a
fall in exchange rates for a particular currency is
anticipated, the International Index Master Portfolio may
sell a currency futures contract as a hedge. If it is
anticipated that exchange rates will rise, the
International Index Master Portfolio may purchase a
currency futures contract to protect against an increase in
the price of securities denominated in a particular
currency the International Index Master Portfolio intends
to purchase. These futures contracts will be used only as
a hedge against anticipated currency rate changes.
A currency futures contract sale creates an obligation by
the International Index Master Portfolio, as seller, to
deliver the amount of currency called for in the contract
at a specified future time for a specified price. A
currency futures contract purchase creates an obligation by
the International Index Master Portfolio, as purchaser, to
take delivery of an amount of currency at a specified
future time at a specified price. Although the terms of
currency futures contracts specify actual delivery or
receipt, in most instances the contracts are closed out
before the settlement date without the making or taking of
delivery of the currency. Closing out of a currency
futures contract is effected by entering into an offsetting
purchase or sale transaction.
In connection with transactions in foreign currency
futures, the International Index Master Portfolio will be
required to deposit as "initial margin" an amount of cash
or short-term government securities equal to from 5% to 8%
of the contract amount. Thereafter, subsequent payments
(referred to as "variation margin") are made to and from
the broker to reflect changes in the value of the futures
contract.
Risk Factors Associated with Futures Transactions. The
effective use of futures strategies depends on, among other
things, the International Index Master Portfolio's ability
to terminate futures positions at times when BGFA deems it
desirable to do so. Although the International Index
Master Portfolio will not enter into a futures position
unless BGFA believes that a liquid secondary market exists
for such future, there is no assurance that the
International Index Master Portfolio will be able to effect
closing transactions at any particular time or at an
acceptable price. The International Index Master Portfolio
generally expects that its futures transactions will be
conducted on recognized US. and foreign securities and
commodity exchanges.
Futures markets can be highly volatile and transactions of
this type carry a high risk of loss. Moreover, a
relatively small adverse market movement with respect to
these transactions may result not only in loss of the
original investment but also in unquantifiable further loss
exceeding any margin deposited.
The use of futures involves the risk of imperfect
correlation between movements in futures prices and
movements in the price of currencies which are the subject
of the hedge. The successful use of futures strategies
also depends on the ability of BGFA to correctly forecast
interest rate movements, currency rate movements and
general stock market price movements.
In addition to the foregoing risk factors, the following
sets forth certain information regarding the potential
risks associated with the International Index Master
Portfolio's futures transactions.
Risk of Imperfect Correlation. The International Index
Master Portfolio's ability effectively to hedge currency
risk through transactions in foreign currency futures
depends on the degree to which movements in the value of
the currency underlying such hedging instrument correlate
with movements in the value of the relevant securities held
by the International Index Master Portfolio. If the values
of the securities being hedged do not move in the same
amount or direction as the underlying currency, the hedging
strategy for the International Index Master Portfolio might
not be successful and the International Index Master
Portfolio could sustain losses on its hedging transactions
which would not be offset by gains on its portfolio. It is
also possible that there may be a negative correlation
between the currency underlying a futures contract and the
portfolio securities being hedged, which could result in
losses both on the hedging transaction and the portfolio
securities. In such instances, the International Index
Master Portfolio's overall return could be less than if the
hedging transactions had not been undertaken.
Under certain extreme market conditions, it is possible
that the International Index Master Portfolio will not be
able to establish hedging positions, or that any hedging
strategy adopted will be insufficient to completely protect
the International Index Master Portfolio.
The International Index Master Portfolio will purchase or
sell futures contracts only if, in BGFA's judgment, there
is expected to be a sufficient degree of correlation
between movements in the value of such instruments and
changes in the value of the relevant portion of the
International Index Master Portfolio's portfolio for the
hedge to be effective. There can be no assurance that
BGFA's judgment will be accurate.
Potential Lack of a Liquid Secondary Market. The ordinary
spreads between prices in the cash and futures markets, due
to differences in the natures of those markets, are subject
to distortions. First, all participants in the futures
market are subject to initial deposit and variation margin
requirements. This could require the International Index
Master Portfolio to post additional cash or cash
equivalents as the value of the position fluctuates.
Further, rather than meeting additional variation margin
requirements, investors may close futures contracts through
offsetting transactions which could distort the normal
relationship between the cash and futures markets. Second,
the liquidity of the futures market may be lacking. Prior
to exercise or expiration, a futures position may be
terminated only by entering into a closing purchase or sale
transaction, which requires a secondary market on the
exchange on which the position was originally established.
While the International Index Master Portfolio will
establish a futures position only if there appears to be a
liquid secondary market therefor, there can be no assurance
that such a market will exist for any particular futures
contract at any specific time. In such event it may not be
possible to close out a position held by the International
Index Master Portfolio, which could require the
International Index Master Portfolio to purchase or sell
the instrument underlying the position, make or receive a
cash settlement or meet ongoing variation margin
requirements. The inability to close out futures positions
also could have an adverse impact on the International
Index Master Portfolio's ability effectively to hedge its
securities, or the relevant portion thereof.
The liquidity of a secondary market in a futures contract
may be adversely affected by "daily price fluctuation
limits" established by the exchanges, which limit the
amount of fluctuation in the price of a contract during a
single trading day and prohibit trading beyond such limits
once they have been reached. The trading of futures
contracts also is subject to the risk of trading halts,
suspensions, exchange or clearing house equipment failures,
government intervention, insolvency of the brokerage firm
or clearing house or other disruptions of normal trading
activity, which could at times make it difficult or
impossible to liquidate existing positions or to recover
excess variation margin payments.
Trading and Position Limits. Each contract market on which
futures contracts arc traded has established a number of
limitations governing the maximum number of positions which
may be held by a trader, whether acting alone or in concert
with others. "Shares" means the equal proportionate
transferable units of interest into which the beneficial
interest of each Series or Class is divided from time to
time (including whole Shares and fractions of Shares).
BGFA does not believe that these trading and position
limits will have an adverse impact on the hedging
strategies regarding the International Index Master
Portfolio's investments.
Regulations on the Use of Futures Contracts. Regulations
of the CFTC require that the International Index Master
Portfolio enter into transactions in futures contracts for
hedging purposes only, in order to assure that it is not
deemed to be a "commodity pool" under such regulations. In
particular, CFTC regulations require that all short futures
positions be entered into for the purpose of hedging the
value of investment securities held by the International
Index Master Portfolio, and that all long futures positions
either constitute bona fide hedging transactions, as
defined in such regulations, or have a total value not in
excess of an amount determined by reference to certain cash
and securities positions maintained for the International
Index Master Portfolio, and accrued profits on such
positions. In addition, the International Index Master
Portfolio may not purchase or sell such instruments if,
immediately thereafter, the sum of the amount of initial
margin deposits on its existing futures positions and
premiums paid for options on futures contracts would exceed
5% of the market value of the International Index Master
Portfolio's total assets.
When the International Index Master Portfolio purchases a
futures contract, an amount of cash or cash equivalents or
high quality debt securities will be segregated with the
International Index Master Portfolio's custodian so that
the amount so segregated, plus the initial deposit and
variation margin held in the account of its broker, will at
all times equal the value of the futures contract, thereby
insuring that the use of such futures is unleveraged.
The International Index Master Portfolio's ability to
engage in the hedging transactions described herein may be
limited by the policies and concerns of various Federal and
state regulatory agencies. Such policies may be changed by
vote of the board of trustees.
BGFA uses a variety of internal risk management procedures
to ensure that derivatives use is consistent with the
International Index Master Portfolio's investment
objective, does not expose the International Index Master
Portfolio to undue risk and is closely monitored. These
procedures include providing periodic reports to the board
of trustees concerning the use of derivatives.
Foreign Obligations and Securities.
The foreign securities in which the International Index
Master Portfolio may invest include common stocks,
preferred stocks, warrants, convertible securities and
other securities of issuers organized under the laws of
countries other than the United States. Such securities
also include equity interests in foreign investment funds
or trusts, real estate investment trust securities and any
other equity or equity-related investment whether
denominated in foreign currencies or U.S. dollars.
The International Index Master Portfolio may invest in
foreign securities through American Depository Receipts
("ADRs"), Canadian Depository Receipts (''CDRs''), European
Depository Receipts ("EDRs"), International Depository
Receipts ("IDRs") and Global Depository Receipts ("GDRs")
or other similar securities convertible into securities of
foreign issuers. 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, and
CDRs are receipts typically issued by a Canadian bank or
trust company 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. EDRs and IDRs
are receipts typically issued by European banks and trust
companies, and GDRs are receipts issued by either a U.S. or
non-U.S. banking institution, that evidence ownership of
the underlying foreign securities. Generally, ADRs in
registered form are designed for use in US. securities
markets and EDRs and IDRs in bearer form are designed
primarily for use in Europe.
For temporary defensive purposes, the International Index
Master Portfolio may invest in fixed income securities of
non-U.S. governmental and private issuers. Such
investments may include bonds, notes, debentures and other
similar debt securities, including convertible securities.
Investments in foreign obligations involve certain
considerations that are not typically associated with
investing in domestic securities. There may be less
publicly available information about a foreign issuer than
about a domestic issuer. Foreign issuers also are not
generally subject to the same accounting auditing and
financial reporting standards or governmental supervision
as domestic issuers. In addition, with respect to certain
foreign countries, taxes may be withheld at the source
under foreign tax laws, and there is a possibility of
expropriation or confiscatory taxation, political, social
and monetary 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.
From time to time, investments in other investment
companies may be the most effective available means by
which the International Index Master Portfolio may invest
in securities of issuers in certain countries. Investment
in such investment companies may involve the payment of
management expenses and, in connection with some purchases,
sales loads, and payment of substantial premiums above the
value of such companies' portfolio securities. At the same
time, the International Index Master Portfolio would
continue to pay its own management fees and other expenses.
Investment income on certain foreign securities in which
the International Index Master Portfolio may invest may be
subject to foreign withholding or other taxes that could
reduce the return on these securities. Tax treaties
between the United States and foreign countries, however,
may reduce or eliminate the amount of foreign taxes to
which the International Index Master Portfolio would be
subject.
The International Index Master Portfolio's investments in
foreign securities involve currency risks. The U.S. dollar
value of a foreign security tends to decrease when the
value of the U.S. dollar rises against the foreign currency
in which the security is denominated, and tends to increase
when the value of the U.S. dollar falls against such
currency. To attempt to minimize risks to the
International Index Master Portfolio from adverse changes
in the relationship between the U.S. dollar and foreign
currencies, the International Index Master Portfolio may
engage in foreign currency transactions on a spot (i.e.,
cash) basis and may purchase or sell forward foreign
currency exchange contracts ("forward contracts"). A
forward contract is an obligation to purchase or sell a
specific currency for an agreed price at a future date that
is individually negotiated and privately traded by currency
traders and their customers. The International Index Master
Portfolio may also purchase and sell foreign currency
futures contracts (see "Purchase and Sale of Currency
Futures Contracts").
Forward contracts establish an exchange rate at a future
date. These contracts are transferable in the interbank
market conducted directly between currency traders (usually
large commercial banks) and their customers. A forward
contract generally has no deposit requirement and is traded
at a net price without commission. The International Index
Master Portfolio will direct its custodian, to the extent
required by applicable regulations, to segregate high grade
liquid assets in an amount at least equal to its
obligations under each forward contract. Neither spot
transactions nor forward contracts eliminate fluctuations
in the prices of the International Index Master Portfolio's
portfolio securities or in foreign exchange rates, or
prevent loss if the prices of these securities should
decline.
The International Index Master Portfolio may enter into a
forward contract, for example, when it enters into a
contract for the purchase or sale of a security denominated
in a foreign currency in order to "lock in" the U.S. dollar
price of the security (a "transaction hedge"). In
addition, when BGFA believes that a foreign currency may
suffer a substantial decline against the U.S. dollar, it
may enter into a forward sale contract to sell an amount of
that foreign currency approximating the value of some or
all of the International Index Master Portfolio's
securities denominated in such foreign currency, or when
BGFA believes that the U.S. dollar may suffer a substantial
decline against the foreign currency, it may enter into a
forward purchase contract to buy that foreign currency for
a fixed dollar amount (a "position hedge').
The International Index Master Portfolio may, in the
alternative, enter into a forward contract to sell a
different foreign currency for a fixed U.S. dollar amount
where BGFA believes that the U.S. dollar value of the
currency to be sold pursuant to the forward contract will
fall whenever there is a decline in the U.S. dollar value
of the currency in which the portfolio securities are
denominated (a "cross-hedge").
Foreign currency hedging transactions are an attempt to
protect the International Index Master Portfolio against
changes in foreign currency exchange rates between the
trade and settlement dates of specific securities
transactions or changes in foreign currency exchange rates
that would adversely affect a portfolio position or an
anticipated portfolio position. Although these
transactions tend to minimize the risk of loss due to a
decline in the value of the hedged currency, at the same
time they tend to limit any potential gain that might be
realized should the value of the hedged currency increase.
The precise matching of the forward contract amount and the
value of the securities involved will not generally be
possible because the future value of these securities in
foreign currencies will change as a consequence of market
movements in the value of those securities between the date
the forward contract is entered into and date it matures.
The International Index Master Portfolio's custodian will,
to the extent required by applicable regulations, segregate
cash, U.S. Government securities or other high-quality debt
securities having a value equal to the aggregate amount of
the International Index Master Portfolio's commitments
under forward contracts entered into with respect to
position hedges and cross-hedges. If the value of the
segregated securities declines, additional cash or
securities will be segregated on a daily basis so that the
value of the segregated securities will equal the amount of
the International Index Master Portfolio's commitments with
respect to such contracts.
The cost to the International Index Master Portfolio of
engaging in currency transactions varies with factors such
as the currency involved, the length of the contract period
and the market conditions then prevailing. Because
transactions in currency exchange usually are conducted on
a principal basis, no fees or commissions are involved.
BGFA considers on an ongoing basis the creditworthiness of
the institutions with which the International Index Master
Portfolio enters into foreign currency transactions. The
use of forward currency exchange contracts does not
eliminate fluctuations in the underlying prices of the
securities, but it does establish a rate of exchange that
can be achieved in the future. If a devaluation generally
is anticipated, the International Index Master Portfolio
may not be able to contract to sell the currency at a price
above the devaluation level it anticipates.
Hedging and Related Strategies.
The International Index Master Portfolio may attempt to
protect the U.S. dollar equivalent value of one or more of
its investments (hedge) by purchasing and selling foreign
currency futures contracts and by purchasing and selling
currencies on a spot (i.e., cash) or forward basis.
Foreign currency futures contracts are bilateral agreements
pursuant to which one party agrees to make, and the other
party agrees to accept, delivery of a specified type of
currency at a specified future time and at a specified
price. Although such futures contracts by their terms call
for actual delivery or acceptance of currency, in most
cases the contracts are closed out before the settlement
date without the making or taking of delivery. A forward
currency contract involves an obligation to purchase or
sell a specific currency at a specified future date, which
may be any fixed number of days from the contract date
agreed upon by the parties, at a price set at the time the
contract is entered into.
The International Index Master Portfolio may enter into
forward currency contracts for the purchase or sale of a
specified currency at a specified future date either with
respect to specific transactions or with respect to
portfolio positions. For example, the International Index
Master Portfolio may enter into a forward currency contract
to sell an amount of a foreign currency approximating the
value of some or all of the Master Portfolio's securities
denominated in such currency. The International Index
Master Portfolio may use forward contracts in one currency
or a basket of currencies to hedge against fluctuations in
the value of another currency when BGFA anticipates there
will be a correlation between the two and may use forward
currency contracts to shift the International Index Master
Portfolio's exposure to foreign currency fluctuations from
one country to another. The purpose of entering into these
contracts is to minimize the risk to the International
Index Master Portfolio from adverse changes in the
relationship between the U.S. dollar and foreign
currencies.
BGFA might not employ any of the strategies described
above, and there can be no assurance that any strategy used
will succeed. If BGFA incorrectly forecasts exchange
rates, market values or other economic factors in utilizing
a strategy for the International Index Master Portfolio,
the Master Portfolio might have been in a better position
had it not hedged at all. The use of these strategies
involves certain special risks, including (1) the fact that
skills needed to use hedging instruments are different from
those needed to select the International Index Master
Portfolio's securities, (2) possible imperfect correlation,
or even no correlation, between price movements of hedging
instruments and price movements of the investments being
hedged, (3) the fact that, while hedging strategies can
reduce the risk of loss, they can also reduce the
opportunity for gain, or even result in losses, by
offsetting favorable price movements in hedged investments
and (4) the possible inability of the International Index
Master Portfolio to purchase or sell a portfolio security
at a time that otherwise would be favorable for it to do
so, or the possible need for the International Index Master
Portfolio to sell a portfolio security at a disadvantageous
time, due to the need for the International Index Master
Portfolio to maintain "cover" or to segregate securities in
connection with hedging transactions and the possible
inability of the International Index Master Portfolio to
close out or to liquidate its hedged position.
New financial products and risk management techniques
continue to be developed. The International Index Master
Portfolio my use these instruments and techniques to the
extent consistent with its investment objectives and
regulatory and tax considerations.
Privately Issued Securities.
The International Index Master Portfolio may invest in
privately issued securities, including those which may be
resold only in accordance with Rule 144A under the
Securities Act of 1933 ("Rule 144A Securities"). Rule 144A
Securities are restricted securities that are not publicly
traded. Accordingly, the liquidity of the market for
specific Rule 144A Securities may vary. Delay or
difficulty in selling such securities may result in a loss
to the International Index Master Portfolio. Privately
issued or Rule 144A securities that are determined by BGFA
to be "illiquid" are subject to the International Index
Master Portfolio's policy of not investing more than 15% of
its net assets in illiquid securities. BGFA, under
guidelines approved by board of trustees of MIP, will
evaluate the liquidity characteristics of each Rule 144A
Security proposed for purchase by the International Index
Master Portfolio on a case-by-case basis and will consider
the following factors, among others, in their evaluation:
(1) the frequency of trades and quotes for the Rule 144A
Security; (2) the number of dealers willing to purchase or
sell the Rule 144A Security and the number of other
potential purchasers; (3) dealer undertakings to make a
market in the Rule 144A Security; and (4) the nature of the
Rule 144A Security and the nature of the marketplace trades
(e.g., the time needed to dispose of the Rule 144A
Security, the method of soliciting offers and the mechanics
of transfer).
PORTFOLIO SECURITIES - U.S. Equity Index and International
Index
Master Portfolios
The U.S. Equity Index Master Portfolio and the
International Index Master Portfolio (each, a "Master
Portfolio") may invest in the securities described below.
Short-Term Instruments and Temporary Investments.
The Master Portfolios may invest in high-quality money
market instruments on an ongoing basis to provide
liquidity, for temporary purposes when there is an
unexpected level of interestholder purchases or redemptions
or when "defensive" strategies are appropriate. The
instruments in which the Master Portfolio may invest
include: (i) short-term obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities
(including government-sponsored enterprises); (ii)
negotiable certificates of deposit ("CDs"), bankers'
acceptances, fixed time deposits and other obligations of
domestic banks (including foreign branches) that have more
than $1 billion in total assets at the time of investment
and that are members of the Federal Reserve System or are
examined by the Comptroller of the Currency or whose
deposits are insured by the Federal Deposit Insurance
Company (the "FDIC"); (iii) commercial paper rated at the
date of purchase "Prime-1" by Moody's or "A-1+" or "A-1" by
S&P, or, if unrated, of comparable quality as determined by
BGFA; (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 in
the opinion of BGFA are of comparable quality to
obligations of U.S. banks which may be purchased by the
Master Portfolio.
Bank Obligations. The Master Portfolio may invest in bank
obligations, including certificates of deposit, time
deposits, bankers' acceptances and other short-term
obligations of domestic banks, foreign subsidiaries of
domestic banks, foreign branches of domestic banks, and
domestic and foreign branches of foreign banks, domestic
savings and loan associations and other banking
institutions. Certificates of deposit are negotiable
certificates evidencing the obligation of a bank to repay
funds deposited with it for a specified period of time.
Time deposits are non-negotiable deposits maintained in a
banking institution for a specified period of time at a
stated interest rate. Time deposits which may be held by
the Master Portfolio will not benefit from insurance from
the Bank Insurance Fund or the Savings Association
Insurance Fund administered by the FDIC. Bankers'
acceptances are credit instruments evidencing the
obligation of a bank to pay a draft drawn on it by a
customer. These instruments reflect the obligation both of
the bank and of the drawer to pay the face amount of the
instrument upon maturity. The other short-term obligations
may include uninsured, direct obligations, bearing fixed,
floating- or variable-interest rates.
Domestic commercial banks organized under Federal law are
supervised and examined by the Comptroller of the Currency
and are required to be members of the Federal Reserve
System and to have their deposits insured by the FDIC.
Domestic banks organized under state law are supervised and
examined by state banking authorities but are members of
the Federal Reserve System only if they elect to join. In
addition, state banks whose CDs may be purchased by the
Master Portfolio are insured by the FDIC (although such
insurance may not be of material benefit to the Master
Portfolio, depending on the principal amount of the CDs of
each bank held by the Master Portfolio) and are subject to
Federal examination and to a substantial body of Federal
law and regulation. As a result of Federal or state laws
and regulations, domestic branches of domestic banks whose
CDs may be purchased by the Master Portfolio generally are
required, among other things, to maintain specified levels
of reserves, are limited in the amounts which they can loan
to a single borrower and are subject to other regulation
designed to promote financial soundness. However, not all
of such laws and regulations apply to the foreign branches
of domestic banks.
Obligations of foreign branches of domestic banks, foreign
subsidiaries of domestic banks and domestic and foreign
branches of foreign banks, such as CDs and time deposits
("TDs"), may be general obligations of the parent bank in
addition to the issuing branch, or may be limited by the
terms of a specific obligation and governmental regulation.
Such obligations are subject to different risks than are
those of domestic banks. These risks include foreign
economic and political developments, foreign governmental
restrictions that may adversely affect payment of principal
and interest on the obligations, foreign exchange controls
and foreign withholding and other taxes on interest income.
These foreign branches and subsidiaries are not necessarily
subject to the same or similar regulatory requirements that
apply to domestic banks, such as mandatory reserve
requirements, loan limitations, and accounting, auditing
and financial record keeping requirements. In addition,
less information may be publicly available about a foreign
branch of a domestic bank or about a foreign bank than
about a domestic bank
Obligations of United States branches of foreign banks may
be general obligations of the parent bank in addition to
the issuing branch, or may be limited by the terms of a
specific obligation or by Federal or state regulation as
well as governmental action in the country in which the
foreign bank has its head office. A domestic branch of a
foreign bank with assets in excess of $1 billion may be
subject to reserve requirements imposed by the Federal
Reserve System or by the state in which the branch is
located if the branch is licensed in that state.
In addition, Federal branches licensed by the Comptroller
of the Currency and branches licensed by certain states
("State Branches") may be required to: (1) pledge to the
regulator by depositing assets with a designated bank
within the state, a certain percentage of their assets as
fixed from time to time by the appropriate regulatory
authority; and (2) maintain assets within the state in an
amount equal to a specified percentage of the aggregate
amount of liabilities of the foreign bank payable at or
through all of its agencies or branches within the state.
The deposits of Federal and State Branches generally must
be insured by the FDIC if such branches take deposits of
less than $100,000.
In view of the foregoing factors associated with the
purchase of CDs and TDs issued by foreign branches of
domestic banks, by foreign subsidiaries of domestic banks,
by foreign branches of foreign banks or by domestic
branches of foreign banks, BGFA carefully evaluates such
investments on a case-by-case basis.
The Master Portfolio may purchase CDs issued by banks,
savings and loan associations and similar thrift
institutions with less than $1 billion in assets, which are
members of the FDIC, provided such Master Portfolio
purchases any such CD in a principal amount of not more
than $100,000, which amount would be fully insured by the
Bank Insurance Fund or the Savings Association Insurance
Fund administered by the FDIC. Interest payments on such a
CD are not insured by the FDIC. No Master Portfolio will
own more than one such CD per such issuer.
Commercial Paper and Short-Term Corporate Debt Instruments.
The Master Portfolio may invest in commercial paper
(including variable amount master demand notes), which
consists of short-term, unsecured promissory notes issued
by corporations to finance short-term credit needs.
Commercial paper is usually sold on a discount basis and
has a maturity at the time of issuance not exceeding nine
months. Variable amount master demand notes are demand
obligations that permit the investment of fluctuating
amounts at varying market rates of interest pursuant to
arrangements between the issuer and a commercial bank
acting as agent for the payee of such notes whereby both
parties have the right to vary the amount of the
outstanding indebtedness on the notes. BGFA monitors on an
ongoing basis the ability of an issuer of a demand
instrument to pay principal and interest on demand.
The Master Portfolio also may invest in non-convertible
corporate debt securities (e.g., bonds and debentures) with
not more than one year remaining to maturity at the date of
settlement. The Master Portfolio will invest only in such
corporate bonds and debentures that are rated at the time
of purchase at least "Aa" by Moody's or "AA" by S&P.
Subsequent to its purchase by the Master Portfolio, an
issue of securities may cease to be rated or its rating may
be reduced below the minimum rating required for purchase
by the Master Portfolio. BGFA will consider such an event
in determining whether the Master Portfolio should continue
to hold the obligation. To the extent the Master Portfolio
continues to hold such obligations, it may be subject to
additional risk of default.
U.S. Government Obligations. The Master 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 its agencies or instrumentalities. Payment of
principal and interest on U.S. Government obligations (i)
may be backed by the full faith and credit of the United
States (as with U.S. Treasury obligations and GNMA
certificates) or (ii) may be backed solely by the issuing
or guaranteeing agency or instrumentality itself (as with
FNMA notes). In the latter case, the investor must look
principally to the agency or instrumentality issuing or
guaranteeing the obligation for ultimate repayment, which
agency or instrumentality may be privately owned. There
can be no assurance that the U.S. Government would provide
financial support to its agencies or instrumentalities
where it is not obligated to do so. As a general matter,
the value of debt instruments, including U.S. Government
obligations, declines when market interest rates increase
and rises when market interest rates decrease. Certain
types of U.S. Government obligations are subject to
fluctuations in yield or value due to their structure or
contract terms.
Repurchase Agreements
The Master Portfolio may engage in a repurchase agreement
with respect to any security in which it is authorized to
invest, although the underlying security may mature in more
than thirteen months. The Master Portfolio may enter into
repurchase agreements wherein the seller of a security to
the Master Portfolio agrees to repurchase that security
from the Master Portfolio at a mutually agreed-upon time
and price that involves the acquisition by the Master
Portfolio of an underlying debt instrument, subject to the
seller's obligation to repurchase, and the Master
Portfolio's obligation to resell, the instrument at a fixed
price usually not more than one week after its purchase.
The Master Portfolio's custodian has custody of, and holds
in a segregated account, securities acquired as collateral
by the Master Portfolio under a repurchase agreement.
Repurchase agreements are considered by the staff of the
Securities and Exchange Commission (the "SEC") to be loans
by the Master Portfolio. The Master Portfolio may enter
into repurchase agreements only with respect to securities
of the type in which it may invest, 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 resale
price. BGFA monitors on an ongoing basis the value of the
collateral to assure that it always equals or exceeds the
repurchase price. Certain costs may be incurred by the
Master Portfolio in connection with the sale of the
underlying securities if the seller does not repurchase
them in accordance with the repurchase agreement. In
addition, if bankruptcy proceedings are commenced with
respect to the seller of the securities, disposition of the
securities by the Master Portfolio may be delayed or
limited. While it does not presently appear possible to
eliminate all risks from these transactions (particularly
the possibility of a decline in the market value of the
underlying securities, as well as delay and costs to the
Master Portfolio in connection with insolvency
proceedings), it is the policy of the Master Portfolio to
limit repurchase agreements to selected creditworthy
securities dealers or domestic banks or other recognized
financial institutions. The Master Portfolio considers on
an ongoing basis the creditworthiness of the institutions
with which it enters into repurchase agreements.
Repurchase agreements are considered to be loans by the
Master Portfolio under the 1940 Act.
Floating- and Variable-Rate Obligations.
The Master Portfolio may purchase floating- and variable-
rate obligations. The Master Portfolio may purchase
floating- and variable-rate demand notes and bonds, which
are obligations ordinarily having stated maturities in
excess of thirteen months, but which permit the holder to
demand payment of principal at any time, or at specified
intervals not exceeding thirteen months. Variable rate
demand notes include master demand notes that are
obligations that permit the Master Portfolio to invest
fluctuating amounts, which may change daily without
penalty, pursuant to direct arrangements between the Master
Portfolio, as lender, and the borrower. The interest rates
on these notes fluctuate from time to time. The issuer of
such obligations ordinarily has a corresponding right after
a given period, to prepay in its discretion the outstanding
principal amount of the obligations plus accrued interest
upon a specified number of days' notice to the holders of
such obligations. The interest rate on a floating-rate
demand obligation is based on a known lending rate, such as
a bank's prime rate, and is adjusted automatically each
time such rate is adjusted. The interest rate on a
variable-rate demand obligation is adjusted automatically
at specified intervals. Frequently, such obligations are
secured by letters of credit or other credit support
arrangements provided by banks. Because these obligations
are direct lending arrangements between the lender and
borrower, it is not contemplated that such instruments
generally will be traded, and there generally is no
established secondary market for these obligations,
although they are redeemable at face value. Accordingly,
where these obligations are not secured by letters of
credit or other credit support arrangements, the Master
Portfolio's right to redeem is dependent on the ability of
the borrower to pay principal and interest on demand. Such
obligations frequently are not rated by credit rating
agencies and the Master 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 each
Master Portfolio may invest. BGFA, on behalf of the Master
Portfolio, considers on an ongoing basis the
creditworthiness of the issuers of the floating- and
variable-rate demand obligations in the Master Portfolio's
portfolio. Each Master Portfolio will not invest more than
10% of the value of its total net assets in floating- or
variable-rate demand obligations whose demand feature is
not exercisable within seven days. Such obligations may be
treated as liquid, provided an active secondary market
exists.
Illiquid Securities.
The Master Portfolio may invest up to 15% of the value of
its net assets in securities as to which a liquid trading
market does not exist, provided such investments are
consistent with its investment objective. Such securities
may include securities that are not readily marketable,
such as privately issued securities and other securities
that are subject to legal or contractual restrictions on
resale, floating- and variable-rate demand obligations as
to which the Master Portfolio cannot exercise a demand
feature on not more than seven days' notice and as to which
there is no secondary market and repurchase agreements
providing for settlement more than seven days after notice.
Investment Company Securities.
The Master Portfolio may invest in securities issued by
other open-end, management investment companies to the
extent permitted under the 1940 Act. As a general matter,
under the 1940 Act investment in such securities is limited
to: (i) 3% of the total voting stock of any one investment
company, (ii) 5% of the Master Portfolio's net assets with
respect to any one investment company and (iii) 10% of the
Master Portfolio's net assets with respect to all such
companies in the aggregate. Investments in the securities
of other investment companies generally will involve
duplication of advisory fees and certain other expenses.
The Master Portfolio may also purchase interests of
exchange-listed closed-end funds to the extent permitted
under the 1940 Act.
Loans of Portfolio Securities.
The Master Portfolio may lend securities from its portfolio
to brokers, dealers and financial institutions (but not
individuals) if cash, U.S. Government securities or other
high quality debt obligations equal to at least 100% of the
current market value of the securities loaned (including
accrued interest thereon) plus the interest payable to the
Master Portfolio with respect to the loan is maintained
with the Master Portfolio. In determining whether or not
to lend a security to a particular broker, dealer or
financial institution, the BGFA 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 based on values that are marked to
market daily. The Master Portfolio does not enter into any
portfolio security lending arrangements having a duration
longer than one year. Any securities that the Master
Portfolio receives as collateral do not become part of its
portfolio at the time of the loan and, in the event of a
default by the borrower, the Master Portfolio will, if
permitted by law, dispose of such collateral except for
such part thereof that is a security in which the Master
Portfolio is permitted to invest. During the time
securities are on loan, the borrower will pay the Master
Portfolio any accrued income on those securities, and the
Master Portfolio may invest the cash collateral and earn
income or receive an agreed-upon fee from a borrower that
has delivered cash-equivalent collateral. The Master
Portfolio will not lend securities having a value that
exceeds one-third of the current value of its respective
total assets. Loans of securities by the Master Portfolio
are subject to termination at the Master Portfolio or the
borrower's option. The Master Portfolio may pay reasonable
administrative and custodial fees in connection with a
securities loan and may pay a negotiated portion of the
interest or fee earned with respect to the collateral to
the borrower or the placing broker. Borrowers and placing
brokers are not permitted to be affiliated, directly or
indirectly, with the Master Portfolio or BGFA.
Forward Commitments, When-Issued Purchases and
Delayed-Delivery Transactions.
The Master Portfolio may purchase or sell securities on a
when-issued or delayed-delivery basis and make contracts to
purchase or sell securities for a fixed price at a future
date beyond customary settlement time. Securities
purchased or sold on a when-issued, delayed-delivery or
forward commitment basis involve a risk of loss if the
value of the security to be purchased declines, or the
value of the security to be sold increases, before the
settlement date. Although the Master Portfolio will
generally purchase securities with the intention of
acquiring them, the Master Portfolio may dispose of
securities purchased on a when-issued, delayed-delivery or
a forward commitment basis before settlement when deemed
appropriate by the adviser. Securities purchased on a
when-issued or forward commitment basis may expose the
Master Portfolio to risk because they may experience such
fluctuations prior to their actual delivery. Purchasing
securities on a when-issued or forward-commitment basis can
involve the additional risk that the yield available in the
market when the delivery takes place actually may be higher
than that obtained in the transaction itself.
The Master Portfolio will segregate cash, U.S. Government
obligations or other high-quality debt instruments in an
amount at least equal in value to the Master Portfolio's
commitments to purchase when-issued securities. If the
value of these assets declines, the Master Portfolio will
segregate additional liquid assets on a daily basis so that
the value of the segregated assets is equal to the amount
of such commitments.
Future Developments.
The Master Portfolio may take advantage of opportunities in
the area of options and futures contracts and options on
futures contracts and any other derivative investments
which are not presently contemplated for use by the Master
Portfolio or which are not currently available but which
may be developed, to the extent such opportunities are both
consistent with the Master Portfolio's investment objective
and legally permissible for the Master Portfolio. Before
entering into such transactions or making any such
investment, the Master Portfolio will provide appropriate
disclosure in its prospectus.
Portfolio Characteristics and Policies
Each of the funds and the Master Portfolios are diversified
under the federal securities laws and regulations.
Because the structures of the Master Portfolios are based
on the relative market capitalizations of eligible
holdings, it is possible that a Master Portfolio might
include at least 5% of the outstanding voting securities of
one or more issuers. In such circumstances, the Master
Portfolio and the issuer would be deemed affiliated persons
and certain requirements under the federal securities laws
and regulations regulating dealings between mutual funds
and their affiliates might become applicable. However,
based on the present capitalizations of the groups of
companies eligible for inclusion in the Master Portfolios
and the anticipated amount of the assets intended to be
invested in such securities, management does not anticipate
that the Master Portfolios will include as much as 5% of
the voting securities of any issuer.
The fund will not incur any brokerage or other costs in
connection with their purchase or redemption of shares of
the Master Portfolio, except if the fund receives
securities or currencies from a Master Portfolio to satisfy
the fund's redemption request.
INVESTMENT LIMITATIONS
Futures Contracts
The Master Portfolio may enter into futures contracts and
options on futures contracts only for the purpose of
remaining fully invested and to maintain liquidity to pay
redemptions. Futures contracts provide for the future sale
by one party and purchase by another party of a specified
amount of defined securities at a specified future time and
at a specified price. Futures contracts that are
standardized as to maturity date and underlying financial
instruments are traded on national futures exchanges. A
Master Portfolio will be required to make a margin deposit
in cash or government securities with a broker or custodian
to initiate and maintain positions in futures contracts.
Minimal initial margin requirements are established by the
futures exchange and brokers may establish margin
requirements that are higher than the exchange
requirements. After a futures contract position is opened,
the value of the contract is marked to market daily. If
the futures contract price changes, to the extent that the
margin on deposit does not satisfy margin requirements,
payment of additional "variation" margin will be required.
Conversely, reduction in the contract value may reduce the
required margin resulting in a repayment of excess margin
to a Master Portfolio. Variation margin payments are made
to and from the futures broker for as long as the contract
remains open. The Master Portfolios expect to earn income
on their margin deposits. To the extent a Master Portfolio
invests in futures contracts and options thereon for other
than bona fide hedging purposes, no Master Portfolio will
enter into such transactions if, immediately thereafter,
the sum of the amount of initial margin deposits and
premiums paid for open futures options would exceed 5% of
the Master Portfolio's net assets, after taking into
account unrealized profits and unrealized losses on such
contracts it has entered into; provided, however, that, in
the case of an option that is in-the-money at the time of
purchase, the in-the-money amount may be excluded in
calculating the 5%. Pursuant to published positions of the
SEC, the Master Portfolios may be required to maintain
segregated accounts consisting of liquid assets, such as
cash or liquid securities (or, as permitted under
applicable regulation, enter into offsetting positions) in
connection with their futures contract transactions in
order to cover their obligations with respect to such
contracts.
Positions in futures contracts may be closed out only on an
exchange that provides a secondary market. However, there
can be no assurance that a liquid secondary market will
exist for any particular futures contract at any specific
time. Therefore, it might not be possible to close a
futures position and, in the event of adverse price
movements, a Master Portfolio would continue to be required
to make variation margin deposits. In such circumstances,
if a Master Portfolio has insufficient cash, it might have
to sell portfolio securities to meet daily margin
requirements at a time when it might be disadvantageous to
do so. Management intends to minimize the possibility that
it will be unable to close out a futures contract by only
entering into futures which are traded on national futures
exchanges and for which there appears to be a liquid
secondary market.
Cash Management Practices
The fund and the Master Portfolios engage in cash
management practices in order to earn income on uncommitted
cash balances. Generally, cash is uncommitted pending
investment in other obligations, payment of redemptions or
in other circumstances where BGFA believes liquidity is
necessary or desirable. For example, cash investments may
be made for temporary defensive purposes during periods in
which market, economic or political conditions warrant. All
the Portfolios and Master Funds may invest cash in short-
term repurchase agreements.
The aggregate amount of expenses for the fund and the
Master Portfolio may be greater than it would be if the
fund were to invest directly in the securities held by the
Master Portfolios. However, the total expense ratios for
the fund and the Master Portfolios are expected to be less
over time than such ratios would be if the fund were to
invest directly in the underlying securities. This
arrangement enables institutional investors, including the
fund, to pool their assets, which may be expected to result
in economies by spreading certain fixed costs over a larger
asset base. Each shareholder in a Master Portfolio,
including the fund, will pay its proportionate share of the
expenses of that Master Portfolio.
The shares of the Master Portfolio will be offered to
institutional investors for the purpose of increasing the
funds available for investment, to reduce expenses as a
percentage of total assets and to achieve other economies
that might be available at higher asset levels. Investment
in a Master Portfolio by other institutional investors
offers potential benefits to the Master Portfolio and
through their investment in the Master Portfolio, the fund
also. However, such economies and expense reductions might
not be achieved, and additional investment opportunities,
such as increased diversification, might not be available
if other institutions do not invest in the Master
Portfolio. Also, if an institutional investor were to
redeem its interest in a Master Portfolio, the remaining
investors in that Master Portfolio could experience higher
pro rata operating expenses, thereby producing lower
returns, and the Master Portfolio's security holdings may
become less diverse, resulting in increased risk.
Institutional investors that have a greater pro rata
ownership interest in a Master Portfolio than the
corresponding Feeder Fund could have effective voting
control over the operation of the Master Portfolio.
If the board of trustees of the fund determines that it is
in the best interest of the fund, the fund may withdraw its
investment in the Master Portfolio at any time. Upon any
such withdrawal, the board would consider what action the
fund might take, including either seeking to invest its
assets in another registered investment company with the
same investment objective as the fund, which might not be
possible, or retaining an investment advisor to manage the
fund's assets in accordance with its own investment
objective, possibly at increased cost. Shareholders of the
fund will receive written notice thirty days prior to the
effective date of any changes in the investment objective
of its corresponding Master Portfolio. A withdrawal by a
fund of its investment in the corresponding Master
Portfolio could result in a distribution in kind of
portfolio securities (as opposed to a cash distribution) to
the fund. Should such a distribution occur, the fund could
incur brokerage fees or other transaction costs in
converting such securities to cash in order to pay
redemptions. In addition, a distribution in kind to a fund
could result in a less diversified portfolio of investments
and could affect adversely the liquidity of the fund.
Moreover, a distribution in kind by a Master Portfolio to a
fund may constitute a taxable exchange for federal income
tax purposes resulting in gain or loss to such fund. Any
net capital gains so realized will be distributed to that
fund's shareholders.
Shareholder Rights
Whenever the fund, as an investor in its corresponding
Master Portfolio, is asked to vote on a shareholder
proposal, the respective fund will solicit voting
instructions from the fund's shareholders with respect to
the proposal. The trustees of the trust will then vote the
fund's shares in the Master Portfolio in accordance with
the voting instructions received from the fund's
shareholders. The trustees of the trust will vote shares
of the fund for which they receive no voting instructions
in accordance with their best judgment.
INVESTMENT RESTRICTIONS OF THE FUND
The fund has adopted the following investment restrictions
for the protection of shareholders. Although the fund
currently will invest all of its assets in the Master
Portfolio, the board of trustees intends to maintain the
following additional investment restrictions. To the
extent that the fund's restrictions listed are inconsistent
with the Master Portfolios, the Master Portfolios
restrictions are controlling. Restrictions 1 through 7
below cannot be changed without approval by the holders of
a majority of the outstanding shares of the fund, defined
as the lesser of (a) 67% or more of the fund's shares
present at a meeting, if the holders of more than 50% of
the outstanding shares are present in person or by proxy or
(b) more than 50% of the fund's outstanding shares. The
remaining restrictions may be changed by the fund's board
of trustees at any time. In accordance with these
restrictions, the fund will not:
1. Invest in a manner that would cause it to fail to be
a "diversified company" under the 1940 Act and the
rules, regulations and orders thereunder.
2. Issue "senior securities" as defined in the 1940 Act,
and the rules, regulations and orders thereunder,
except as permitted under the 1940 Act and the rules,
regulations and orders thereunder.
3. Invest more than 25% of its total assets in
securities, the issuers of which conduct their
principal business activities in the same industry.
For purposes of this limitation, securities of the
U.S. government (including its agencies and
instrumentalities) and securities of state or
municipal governments and their political
subdivisions are not considered to be issued by
members of any industry.
4. Borrow money, except that (a) the fund may borrow
from banks for temporary or emergency (not
leveraging) purposes, including the meeting of
redemption requests which might otherwise require the
untimely disposition of securities, and (b) the fund
may, to the extent consistent with its investment
policies, enter into reverse repurchase agreements,
forward roll transactions and similar investment
strategies and techniques. To the extent that it
engages in transactions described in (a) and (b), the
fund will be limited so that no more than 33 1/3% of
the value of its total assets (including the amount
borrowed), valued at the lesser of cost or market,
less liabilities (not including the amount borrowed),
is derived from such transactions.
5. Make loans. This restriction does not apply to: (a)
the purchase of debt obligations in which the fund
may invest consistent with its investment objective
and policies; (b) repurchase agreements; and (c)
loans of its portfolio securities, to the fullest
extent permitted under the 1940 Act.
6. Engage in the business of underwriting securities
issued by other persons, except to the extent that
the fund may technically be deemed to be an
underwriter under the Securities Act of 1933, as
amended, in disposing of portfolio securities.
7. Purchase or sell real estate, real estate mortgages,
commodities or commodity contracts, but this
restriction shall not prevent the fund from: (a)
investing in securities of issuers engaged in the
real estate business or the business of investing in
real estate (including interests in limited
partnerships owning or otherwise engaging in the real
estate business or the business of investing in real
estate) and securities which are secured by real
estate or interests therein; (b) holding or selling
real estate received in connection with securities it
holds or held; (c) trading in futures contracts and
options on futures contracts (including options on
currencies to the extent consistent with the fund's
investment objective and policies); or (d) investing
in real estate investment trust securities.
8. Purchase any securities on margin (except for such
short-term credits as are necessary for the clearance
of purchases and sales of portfolio securities) or
sell any securities short (except "against the box").
For purposes of this restriction, the deposit or
payment by the fund of underlying securities and
other assets in escrow and collateral agreements with
respect to initial or maintenance margin in
connection with futures contracts and related options
and options on securities, indexes or similar items
is not considered to be the purchase of a security on
margin.
9. Invest in oil, gas or other mineral exploration or
development programs.
10. Purchase or otherwise acquire any security if, as a
result, more than 15% of its net assets would be
invested in securities that are illiquid.
11. Invest for the purpose of exercising control of
management.
If any percentage restriction described above is complied
with at the time of an investment, a later increase or
decrease in percentage resulting from a change in values or
assets will not constitute a violation of such restriction.
INVESTMENT RESTRICTIONS OF THE U.S. EQUITY INDEX MASTER
PORTFOLIO
The U.S. Equity Index Master Portfolio has adopted the
following investment restrictions as fundamental policies.
These restrictions cannot be changed, as to the Master
Portfolio, without approval by the holders of a majority
(as defined in the 1940 Act) of the Master Portfolio's
outstanding voting securities. The Master Portfolio may
not:
1. Invest more than 5% of its assets in the obligations
of any single issuer, except that up to 25% of the
value of its total assets may be invested, and
securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities may
be purchased, without regard to any such limitation.
2. Hold more than 10% of the outstanding voting
securities of any single issuer. This Investment
Restriction applies only with respect to 75% of its
total assets.
3. Invest in commodities, except that the Master
Portfolio may purchase and sell (i.e., write)
options, forward contracts, futures contracts,
including those relating to indexes, and options on
futures contracts or indexes.
4. Purchase, hold or deal in real estate, or oil, gas or
other mineral leases or exploration or development
programs, but the Master portfolio may purchase and
sell securities that are secured by real estate or
issued by companies that invest or deal in real
estate.
5. Borrow money, except to the extent permitted under
the 1940 Act provided that the Master Portfolio 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. For purposes of this investment
restriction, the Master Portfolio's entry into
options, forward contracts, futures contracts,
including those relating to indexes, and options on
futures contracts or indexes shall not constitute
borrowing to the extent certain segregated accounts
are established and maintained by the Master
Portfolio.
6. Make loans to others, except through the purchase of
debt obligations and the entry into repurchase
agreements. However, the Master Portfolio may lend
its portfolio securities in an amount not to exceed
one-third of the value of its total assets. Any
loans of portfolio securities will be made according
to guidelines established by the Securities and
Exchange Commission and the MIP's board of trustees.
7. Act as an underwriter of securities of other issuers,
except to the extent the Master Portfolio may be
deemed an underwriter under the Securities Act of
1933, as amended, by virtue of disposing of portfolio
securities.
8. Invest 25% or more of its total assets in the
securities of issuers in any particular industry or
group of closely related industries except that there
shall be no limitation with respect to investments in
(i) obligations of the U.S. Government, its agencies
or instrumentalities (ii) any industry in which the
Wilshire 4500 Index becomes concentrated to the same
degree during the same period, the Master Portfolio
will be concentrated as specified above only to the
extent the percentage of its assets invested in those
categories of investments is sufficiently large that
25% or more of its total assets would be invested in
a single industry.
9. Issue any senior security (as such term is defined in
Section 18(f) of the 1940 Act), except to the extent
the activities permitted in Investment Restriction
Nos. 3 and 5 may be deemed to give rise to a senior
security.
The U.S. Equity Index Master Portfolio has adopted the
following investment restrictions as non-fundamental
policies. These restrictions may be changed without
shareholder approval by a vote of a majority of the
trustees of MIP, at any time. The Master Portfolio is
subject to the following investment restrictions, all of
which are non-fundamental policies.
1. The Master 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 Master Portfolio's investment
is 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
Master Portfolio's net assets with respect to any one
investment company and (iii) 10% of the Master
Portfolio's net assets in the aggregate. Other
investment companies in which the Master Portfolio
invests can be expected to charge fees for operating
expense, such as investment advisory and
administration fees, that would be in addition to
those charged by the Master Portfolio.
2. The Master Portfolio may not invest more than 15% of
the Master Portfolio's net assets in illiquid
securities. For this purpose, illiquid securities
include, among others, (a) securities that are
illiquid by virtue of the absence of a readily
available market or legal or contractual restrictions
on resale, (b) fixed time deposits that are subject
to withdrawal penalties and that have maturities of
more than seven days, and (c) repurchase agreements
not terminable within seven days.
3. The Master Portfolio may lend securities from its
portfolio to brokers, dealers and financial
institutions, in amounts not to exceed (in the
aggregate) one-third of the fund's total assets. Any
such loans of portfolio securities will be fully
collateralized based on values that are marked to
market daily. The Master Portfolio will not enter
into any portfolio security lending arrangement
having a duration of longer than one year.
If any percentage restriction described above is complied
with at the time of an investment, a later increase or
decrease in percentage resulting from a change in values or
assets will not constitute a violation of such restriction.
INVESTMENT RESTRICTIONS OF THE INTERNATIONAL INDEX MASTER
PORTFOLIO
The International Index Master Portfolio has adopted the
following investment restrictions as fundamental policies.
These restrictions cannot be changed, as to the Master
Portfolio, without approval by the holders of a majority
(as defined in the 1940 Act) of the Master Portfolio's
outstanding voting securities. The Master Portfolio may
not:
1. Invest more than 5% of its assets in the obligations
of any single issuer, except that up to 25% of the
value of its total assets may be invested, and
securities issued or guaranteed by the US. Government
or its agencies or instrumentalities may be
purchased, without regard to any such limitation.
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 its
total assets.
3. Invest in commodities, except that the Master
Portfolio may purchase and sell (i.e., write)
options, forward contracts, futures contracts,
including those relating to indexes, and options on
futures contracts or indices.
4. Purchase, hold or deal in real estate, or oil, gas or
other mineral leases or exploration or development
program, but the Master Portfolio may purchase and
sell securities that are secured by real estate or
issued by companies that invest or deal in real
estate.
5. Borrow money, except to the extent permitted under
the 1940 Act provided that the Master Portfolio 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. For purposes of this investment
restriction, the Master Portfolio's entry into
options, forward contracts, futures contracts,
including those relating to indices, and options on
futures contracts or indices shall not constitute
borrowing to the extent certain segregated accounts
are established and maintained by the Master
Portfolio.
6. Make loans to others, except through the purchase of
debt obligations and the entry into repurchase
agreements. However, the Master Portfolio may lend
its portfolio securities in an amount not to exceed
one-third of the value of its total assets. Any
loans of portfolio securities will be made according
to guidelines established by the Securities and
Exchange Commission and the MIP's board of trustees.
7. Act as an underwriter of securities of other issuers,
except to the extent the Master Portfolio may be
deemed an underwriter under the 1933 Act as amended,
by virtue of disposing of portfolio securities.
8. Invest 25% or more of its total assets in the
securities of issuers in any particular industry or
group of closely related industries except that there
shall be no limitation with respect to investments in
(i) obligations of the US. Government, its agencies
or instrumentalities (ii) any industry in which the
EAFE Free Index becomes concentrated to the same
degree during the same period, the Master Portfolio
will be concentrated as specified above only to the
extent the percentage of its assets invested in those
categories of investments is sufficiently large that
25% or more of its total assets would be invested in
a single industry.
9. Issue any senior security (as such term is defined in
Section 18(f) of the 1940 Act), except to the extent
the activities permitted in Investment Restriction
Nos. 3 and 5 may be deemed to give rise to a senior
security.
The International Index Master Portfolio has adopted the
following investment restrictions as non-fundamental
policies. These restrictions may be changed without
shareholder approval by a vote of a majority of the
trustees of MIP, at any time. The Master Portfolio is
subject to the following investment restrictions, all of
which are non-fundamental policies.
1. The Master 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 Master Portfolio's investment
in such securities currently is limited, subject to
certain exceptions, to (i) 3% of the total voting
stock of any one investment company, (ii) 5% of the
Master Portfolio's net assets with respect to any one
investment company, and (iii) 10% of the Master
Portfolio's net assets in the aggregate. Other
investment companies in which the Master 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 Master Portfolio.
2. The Master Portfolio may not invest more than 15% of
its net assets in illiquid securities. For this
purpose, illiquid securities include, among others,
(a) securities that are illiquid by virtue of the
absence of a readily available market or legal or
contractual restrictions on resale, (b) fixed time
deposits that are subject to withdrawal penalties and
that have maturities of more than seven days, and (c)
repurchase agreements not terminable within seven
days.
3. The Master Portfolio may lend securities from its
portfolio to brokers, dealers and financial
institutions, in amounts not to exceed (in the
aggregate) one-third of the Master Portfolio's total
assets. Any such loans of portfolio securities will
be fully collateralized based on values that are
marked to market daily. The Master Portfolio will
not enter into any portfolio security lending
arrangement having a duration of longer than one
year.
If any percentage restriction described above is complied
with at the time of an investment, a later increase or
decrease in percentage resulting from a change in values or
assets will not constitute a violation of such restriction.
RISK CONSIDERATIONS
U.S. EQUITY INDEX MASTER PORTFOLIO
General-The value of the U.S. Equity Index Master
Portfolio's interests is neither insured nor guaranteed, is
not fixed and should be expected to fluctuate.
Equity Securities-The stock investments of the Master
Portfolio are subject to equity market risk. Equity market
risk is the possibility that common stock prices will
fluctuate or decline over short or even extended periods.
The U.S. stock market tends to be cyclical, with periods
when stock prices generally rise and periods when prices
generally decline. In addition, many of the companies
whose securities comprise the Wilshire 4500 Index are
small- to medium-sized companies which, historically, have
been more susceptible to market fluctuations than
securities of larger capitalization companies such as those
comprising the S&P 500 Index. As of the date of this
registration statement, the U.S. stock market, as measured
by the Wilshire 5000 Index and other commonly used indices,
was trading at or close to record levels. There can be no
assurance that these record levels will continue.
Debt Securities-The debt instruments in which the Master
Portfolio may invest are subject to credit and interest
rate risk. Credit risk is the risk that issuers of debt
instruments may default on the payment of principal and/or
interest. Interest-rate risk is the risk that increases in
market interest rates may adversely affect the value of
debt instruments. The value of debt instruments generally
changes inversely to market interest rates. Debt
securities with longer maturities, which tend to produce
higher yields, are subject to potentially greater capital
appreciation and depreciation than, obligations with
shorter maturities. Changes in the financial strength of
an issuer or changes in the ratings of any particular
security may also affect the value of debt instruments.
Although some debt instruments are guaranteed by the U.S.
Government, its agencies or instrumentalities, such
instruments are subject to interest rate risk and the
market value of these instruments will fluctuate. No
assurance can be given that the U.S. Government, would
provide financial support to the agencies or
instrumentalities that issue or guarantee these instruments
where it is not obligated to do so.
INTERNATIONAL INDEX MASTER PORTFOLIO
General-The value of the International Index Master
Portfolio's interests is neither insured nor guaranteed, is
not fixed and should be expected to fluctuate.
Equity Securities-The stock investments of the Master
Portfolio are subject to equity market risk. Equity market
risk is the possibility that common stock prices will
fluctuate or decline over short or even extended periods.
International stock markets tend to be cyclical, with
periods when stock prices generally rise and periods when
prices generally decline. In addition, many of the
companies whose securities comprise the EAFE Free Index are
small to medium size companies which, historically, have
been more susceptible to market fluctuations than
securities of larger capitalization companies.
Foreign Investment Risk-The Master Portfolio invests
substantially all of its assets in foreign securities.
This means the Master 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 settlements in
some markets; difficulty in getting complete and accurate
information about foreign companies; less strict
accounting, auditing and financial reporting standards than
those in the U.S.; political, economic and social
instability, and difficulty enforcing legal rights outside
the U.S.
In addition, many foreign countries are less prepared than
the United States to properly process and calculate
information related to dates from and after January 1,
2000, which could result in difficulty pricing foreign
investments and failure by foreign issuers to pay timely
dividends, interest or principal. All of these factors can
make foreign investments, especially those in emerging
markets, more volatile and potentially less liquid than
U.S. investments.
Issuer-Specific Changes-Changes in the financial condition
of an issuer, changes in specific economic or political
conditions that affect a particular type of security or
issuer, and changes in general economic or political
conditions can affect the value of an issuer's securities.
Small Company Investing-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.
Other Investment Considerations-The Master Portfolio may
enter into transactions in futures contracts and options on
futures contracts, each of which involves risk. The
futures contracts and options on futures contracts that the
Master Portfolio may purchase may be considered
derivatives. Derivatives are financial instruments whose
values are derived, at least in part, from the prices of
other securities or specified assets, indices or rates.
The Master Portfolio intends to use futures contracts and
options as part of its short-term liquidity holdings and/or
substitutes for comparable market positions in the
underlying securities. Some derivatives may be more
sensitive than direct securities to changes in interest
rates or sudden market moves. Some derivatives also may be
susceptible to fluctuations in yield or value due to their
structure or contract terms.
Securities Loans
The Master Portfolios are authorized to lend securities to
qualified brokers, dealers, banks and other financial
institutions for the purpose of earning additional income.
While the Master Portfolios may earn additional income from
lending securities, such activity is incidental to their
investment objectives. The value of securities loaned may
not exceed 33 1/3% of the value of each Master Portfolio's
total assets. In connection with such loans, the Master
Portfolio will receive collateral consisting of cash or
U.S. government securities, which will be maintained at all
times in an amount equal to at least 100% of the current
market value of the loaned securities. In addition, the
Master Portfolio will be able to terminate the loan at any
time, will receive reasonable compensation on the loan, as
well as amounts equal to any dividends, interest or other
distributions on the loaned securities. In the event of
the bankruptcy of the borrower, a Master Portfolio could
experience delay in recovering the loaned securities.
Management believes that this risk can be controlled
through careful monitoring procedures.
The funds and the trust bear all of their own costs and
expenses, including: services of its independent
accountants, legal counsel, brokerage commissions and
transfer taxes in connection with the acquisition and
disposition of portfolio securities, taxes, insurance
premiums, costs incidental to meetings of its shareholders
and trustees, the cost of filing its registration
statements under federal securities laws and the cost of
any filings required under state securities laws, reports
to shareholders, and transfer and dividend disbursing
agency, administrative services and custodian fees.
Expenses allocable to a particular fund or Master Portfolio
are so allocated.
THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK.
TRUSTEES OF THE TRUST AND EXECUTIVE OFFICERS OF THE FUND
The names of the trustees of the trust and executive
officers of the fund, together with information as to their
principal business occupations, are set forth below. The
executive officers of the fund are employees of
organizations that provide services to the fund. Each
trustee who is an "interested person" of the trust, as
defined in the 1940 Act, is indicated by an asterisk. The
address of the "non-interested" trustees and the executive
officers of the fund is 388 Greenwich Street, New York, New
York 10013, unless otherwise indicated.
Herbert Barg, Trustee (Age 77). Private Investor. His
address is 273 Montgomery Avenue, Bala Cynwyd, Pennsylvania
19004. Director/Trustee of sixteen investment companies
associated with Citigroup, Inc. ("Citigroup")
*Alfred J. Bianchetti Trustee (Age 77). Retired; formerly
Senior Consultant to Dean Witter Reynolds Inc. His address
is 19 Circle End Drive, Ramsey, New Jersey 07466.
Director/Trustee of eleven investment companies associated
with Citigroup.
Martin Brody Trustee (Age 78). Consultant, HMK Associates;
Retired Vice Chairman of the Board of Restaurant Associates
Corp. His address is c/o HMK Associates, 30 Columbia
Turnpike, Florham Park, New Jersey 07932. Director/Trustee
of twenty-one investment companies associated with
Citigroup.
Dwight B. Crane Trustee (Age 62). Professor, Harvard
Business School. His address is c/o Harvard Business
School, Soldiers Field Road, Boston, Massachusetts 02163.
Director/Trustee of twenty-four investment companies
associated with Citigroup.
Burt N. Dorsett Trustee (Age 69). Managing Partner of
Dorsett McCabe Management. Inc., an investment counseling
firm; Director of Research Corporation Technologies, Inc.,
a nonprofit patent clearing and licensing firm. His
address is 201 East 62nd Street, New York, New York 10021.
Director/Trustee of eleven investment companies associated
with Citigroup.
Elliot S. Jaffe Trustee (Age 73). Chairman of the Board
and President of The Dress Barn, Inc. His address is 30
Dunnigan Drive, Suffern, New York 10901. Director/Trustee
of eleven investment companies associated with Citigroup.
Stephen E. Kaufman Trustee (Age 68). Attorney. His
address is 277 Park Avenue, New York, New York 10172.
Director/Trustee of thirteen investment companies
associated with Citigroup.
Joseph J. McCann Trustee (Age 69). Financial Consultant;
Retired Financial Executive, Ryan Homes, Inc. His address
is 200 Oak Park Place, Pittsburgh, Pennsylvania 15243.
Director/Trustee of eleven investment companies associated
with Citigroup.
*Heath B. McLendon Trustee (Age 66). Chairman of the Board,
President and Chief Executive Officer; Managing Director of
Salomon Smith Barney; President of SSB Citi and Travelers
Investment Adviser, Inc. ("TIA"); Chairman or Co-Chairman
of the Board of seventy-one investment companies associated
with Salomon Smith Barney. His address is 7 World Trade
Center, New York, New York 10048.
Cornelius C. Rose, Jr. Trustee (Age 66). President,
Cornelius C. Rose Associates, Inc., financial consultants,
and Chairman and Director of Performance Learning Systems,
an educational consultant. His address is Meadowbrook
Village, Building 4, Apt 6, West Lebanon, New Hampshire
03784. Director/Trustee of eleven investment companies
associated with Citigroup.
Lewis E. Daidone (Age 42). Senior Vice President and
Treasurer; Managing Director of Salomon Smith Barney; Chief
Financial Officer of the Smith Barney mutual funds;
Treasurer and Senior Vice President or Executive Vice
President of sixty-one investment companies associated with
Citigroup; Director and Senior Vice President of SSB Citi
and TIA.
Irving David (Age 39). Controller
Director of Salomon Smith Barney; formerly Assistant
Treasurer of First Investment Management Company.
Controller or Assistant Treasurer of fifty-three investment
companies associated with Citigroup.
Christina T. Sydor (Age 49). Secretary
Managing Director of Salomon Smith Barney; Secretary of
sixty-one investment companies associated with Citigroup;
General Counsel and Secretary of SSB Citi and TIA.
THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK.
No officer, trustee or employee of Salomon Smith Barney or
any of its affiliates receives any compensation from the
trust for serving as an officer of the funds or trustee of
the trust. The trust pays each trustee who is not an
officer, director or employee of Salomon Smith Barney or
any of its affiliates a fee of $12,000 per annum plus $1000
per in-person meeting and $100 per telephonic meeting.
Each Trustee emeritus who is not an officer, director or
employee of Salomon Smith Barney or its affiliates receives
a fee of $5,000 per annum plus $500 per in-person meeting
and $50 per telephonic meeting. All Trustees are
reimbursed for travel and out-of-pocket expenses incurred
to attend such meetings, which for the last fiscal year
totaled $14,437.
For the fiscal year ended November 30, 1999, the trustees
of the trust were paid the following compensation:
Name of Person
Aggregate
Compensat
ion
from
Trust
Total
Pension or
Retirement
Benefits
Accrued
As part of
Trust
Expenses
Compensation
from Trust
and Fund
Complex
Paid to
Trustees
Number of
Funds for Which DirecD
Trustee Serves Within
Fund Complex
Herbert Barg**
Alfred
Bianchetti*
Martin Brody**
Dwight B.
Crane**
Burt N.
Dorsett**
Elliot S.
Jaffe**
Stephen E.
Kaufman**
Joseph J.
McCann**
Heath B.
McLendon*
Cornelius C.
Rose, Jr.**
$15,600
14,600
13,600
15,500
15,500
12,600
15,600
15,600
- -----
14,600
$ 0
0
0
0
0
0
0
0
0
0
$114,288
53,900
138,600
155,363
57,950
45,100
110,650
58,050
- ------
53,500
16
11
21
24
11
11
13
11
71
11
_________________
* Designated an "interested" trustee.
** Designates member of Audit Committee.
Upon attainment of age 80, fund trustees are required to
change to emeritus status. Trustees emeritus are entitled
to serve in emeritus status for a maximum of 10 years. A
trustee emeritus may attend meetings but has no voting
rights.
INVESTMENT MANAGEMENT AND OTHER SERVICES
Master Portfolio Adviser
Each Master Portfolio has substantially the same investment
objectives as the corresponding fund. Consequently, the
funds do not have their own investment adviser. BGFA
serves as the Master Portfolios' Investment Adviser and
provides investment guidance and policy direction for the
Master Portfolios.
BGFA makes no attempt to apply economic, financial or
market analysis when managing the Master Portfolios. BGFA
selects securities because they will help the Master
Portfolios achieve returns corresponding to the returns of
the applicable index.. The process reflects BGFA's
commitment to an objective and consistent investment
management structure.
BGFA serves as investment adviser to the Master Portfolios
and the Underlying Portfolios. BGFA is a direct subsidiary
of Barclays Global Investors, N.A. (which, in turn, is an
indirect subsidiary of Barclays Bank PLC) and is located at
45 Fremont Street San Francisco, CA 94105. As of December
31, 1999, BGFA and its affiliates provided investment
advisory services for approximately $782 billion of assets
under management.
BGFA provides the Master Portfolios and the Underlying
Portfolios with investment guidance and policy direction in
connection with the daily portfolio management of each,
subject to the supervision of MIP's board of trustees and
in conformity with Delaware law and the stated policies of
each such portfolio. BGFA furnishes to MIP's board of
trustees periodic reports on the investment strategy and
performance of the Master Portfolios and the Underlying
Portfolios.
BGFA is entitled to receive monthly fees at the annual rate
of 0.01% of the average daily net assets of the U.S. Equity
Index Master Portfolio, 0.08% of the average daily net
assets of the Extended Index Portfolio and 0.05% of the
average daily net assets of the S&P 500 Index Portfolio as
compensation for its advisory services. The U.S. Equity
Index Master Portfolio bears its pro rata share of the
advisory fees of the Underlying Portfolios. Based on these
fee levels and the expected allocation of assets between
the two Underlying Portfolios, the advisory fees payable to
BGFA by the Master Portfolio on a combined basis will be
approximately 0.07% of the average daily net assets of the
Master Portfolio. As compensation for its advisory services
to the International Index Master Portfolio, BGFA is
entitled to receive fees at an annual rate of 0.15% of the
first $1 billion and 0.10% thereafter, of the International
Index Master Portfolio's average daily net assets. From
time to time, BGFA may waive such fees in whole or in part.
Any such waiver will reduce the expenses of the Master
Portfolio and, accordingly, have a favorable impact on its
performance.
Purchase and sale orders for portfolio securities of the
Master Portfolios may be combined with those of other
accounts that BGFA manages or advises, and for which it has
brokerage placement authority, in the interest of seeking
the most favorable overall net results. When BGFA, subject
to the supervision and the overall authority of MIP's board
of trustees, determines that a particular security should
be bought or sold for a Master Portfolio and other accounts
managed by BGFA, it undertakes to allocate those
transactions among the participants equitably.
BGFA may deal, trade and invest for its own account in the
types of securities in which the Master Portfolio may
invest. BGFA has informed MIP that in making its
investment decisions it does not obtain or use material
inside information in its possession.
Morrison & Foerster LLP, counsel to MIP and special counsel
to BGFA, has advised MIP and BGFA that BGFA and its
affiliates may perform the services contemplated by the
BGFA Advisory Contracts without violation of the Glass-
Steagall Act. Such counsel has pointed out, however, that
there are no controlling judicial or administrative
interpretations or decisions and that future judicial or
administrative interpretations of or decisions relating to,
present federal or state statutes, including the Glass-
Steagall Act and regulations relating to the permissible
activities of banks and their subsidiaries or affiliates,
as well as future changes in such statutes, regulations and
judicial or administrative decisions or interpretations,
could prevent such entities from continuing to perform, in
whole or in part, such services. If any such entity were
prohibited from performing any such services, it is
expected that new agreements would be proposed or entered
into with another entity or entities qualified to perform
such services.
Administrator - SSB Citi
SSB Citi serves as administrator to the fund pursuant to a
written agreement (the "Administration Agreement"). SSB
Citi is a wholly owned subsidiary of Salomon Smith Barney
Holdings Inc. ("Holdings"), which in turn, is a wholly
owned subsidiary of Citigroup Inc. The administrator will
pay the salary of any officer and employee who is employed
by both it and the fund and bears all expenses in
connection with the performance of its services.
As administrator SSB Citi: (a) assists in supervising all
aspects of the fund's operations except those performed by
other parties pursuant to written agreements; b) supplies
the fund with office facilities (which may be in SSB Citi's
own offices), statistical and research data, data
processing services, clerical, accounting and bookkeeping
services, including, but not limited to, the calculation of
(i) the net asset value of shares of the fund, (ii) service
fees, internal auditing and legal services, internal
executive and administrative services, and stationary and
office supplies; and (c) prepares reports to shareholders
of the fund, tax returns and reports to and filings with
the SEC and state blue sky authorities.
As compensation for administrative services rendered to the
fund, the administrator will receive a fee computed daily
and paid monthly at the annual rate of 0.15% of the value
of the fund's average daily net assets.
The fund bears expenses incurred in its operation,
including: taxes, interest, brokerage fees and commissions,
if any; fees of trustees who are not officers, Directors,
shareholders or employees of the administrator or its
affiliates; SEC fees and state Blue Sky qualification fees;
charges of custodians; transfer and dividend disbursing
agent's fees; certain insurance premiums; outside auditing
and legal expenses; costs of maintaining corporate
existence; investor services (including allocated telephone
and personnel expenses); costs of preparation and printing
of prospectuses and statements of additional information
for regulatory purposes and for distribution to existing
shareholders; costs of shareholders' reports and
shareholder meetings; and meetings of the officers or board
of trustees of the fund.
Auditors
KPMG LLP, independent auditors, 757 Third Avenue, New York,
New York 100174, have been selected to serve as auditors of
the trust and to render opinions on the fund's financial
statements for the fiscal year ending December 31, 2000.
The Master Investment Portfolio has been audited by KPMG
LLP, independent auditors, 3 Embarcadero Center, 21st Floor,
San Francisco, California 94111.
Counsel
Willkie Farr & Gallagher, 787 Seventh Avenue, New York, New
York 10019, serves as counsel to each fund.
Stroock & Stroock & Lavan LLP, 180 Maiden Lane, New York,
New York, serves as counsel to the trustees who are not
"interested persons" of each fund.
Custodian, Fund Accounting Services Agent and Sub-
administrator of the Master Portfolio
Investors Bank & Trust Company ("IBT"), 200 Clarendon
Street, Boston, MA 02116, serves as custodian of the
assets of the fund and the Master Portfolio. As a result,
IBT has custody of all securities and cash of the fund and
the Master Portfolio, delivers and receives payment for
securities sold, receives and pays for securities
purchased, collects income from investments, and performs
other duties, all as directed by the officers of the fund
and the Master Portfolio. The custodian has no
responsibility for any of the investment policies or
decisions of the fund and the Master Portfolio. IBT also
acts as the fund's Accounting Services Agent.
Custodial fees of up to 0.10% are payable after the first
two years of the Master Portfolio's operations. The Master
Portfolio was launched on February 22, 1998 therefore, the
initial two year period expires on February 22, 2001.
Thereafter IBT will be entitled to receive custodial fees
from the Master Portfolio (after waivers). This will
increase the total operating expense of the Master
Portfolio by 0.10%.
Transfer Agent and Sub-Transfer Agent
Citi Fiduciary Trust Company, (successor to Smith Barney
Private Trust Company) (the "transfer agent") located at
388 Greenwich Street, New York, New York 10013 serves as
the transfer agent and shareholder services agent for the
fund.
PFPC Global Fund Services ("PFPC" or "sub-transfer agent")
located at Exchange Place, Boston, Massachusetts 02109,
serves as the trust's sub-transfer agent. Under the sub-
transfer agency agreement, the sub-transfer agent maintains
the shareholder account records for the trust, handles
certain communications between shareholders and the trust
and distributes dividends and distributions payable by the
trust. For these services, the sub-transfer agent receives
a monthly fee computed on the basis of the number of
shareholder accounts it maintains for the trust during the
Code of Ethics Pursuant to Rule 17j-1 of the 1940 Act, the
funds, their investment advisers and principal underwriter
have adopted a code of ethics that permits personnel to
invest in securities for their own accounts, including
securities that may be purchased or held by the funds. All
personnel must place the interests of clients first and
avoid activities, interests and relationships that might
interfere with the duty to make decisions in the best
interests of the clients. All personal securities
transactions by employees must adhere to the requirements
of the code and must be conducted in such a manner as to
avoid any actual or potential conflict of interest, the
appearance of such a conflict, or the abuse of an
employee's position of trust and responsibility.
A copy of the funds' code of ethics is on file with the
Securities and Exchange Commission.
Distributor tc "DISTRIBUTOR"
CFBDS, Inc. serves as the fund's distributor pursuant to a
written agreement dated October 8, 1998, (the "Distribution
Agreement") and which was amended to include each fund and
approved by the fund's board of trustees, including a
majority of the independent trustees, on October 13, 1999.
When payment is made by the investor before the settlement
date, unless otherwise noted by the investor, the funds
will be held as a free credit balance in the investor's
brokerage account and Salomon Smith Barney may benefit from
the temporary use of the funds. The fund's board of
trustees has been advised of the benefits to Salomon Smith
Barney resulting from these settlement procedures and will
take such benefits into consideration when reviewing the
Administration and Distribution Agreements for continuance.
Shareholding Servicing Arrangements
To compensate Salomon Smith Barney for the services they
provide to fund shareholders, each fund has adopted a
services plan (the "Plan") pursuant to Rule 12b-1 under the
1940 Act. Under the Plan, the fund pays a service fee with
respect to Class A shares that is accrued daily and paid
monthly, calculated at the annual rate of 0.20 % of the
value of the fund's average daily net assets attributable
to Class A shares. Class D shares are not subject to a
service fee.
Under its terms, the Plan continues from year to year,
provided such continuance is approved annually by vote of
the board of trustees, including a majority of the trustees
who are not interested persons of the trust and who have no
direct or indirect financial interest in the operation of
the Plan (the "Independent Trustees"). The Plan may not
be amended to increase the amount of the service fees
without shareholder approval, and all amendments of the
Plan also must be approved by the trustees including all of
the Independent Trustees in the manner described above.
The Plan may be terminated with respect to the Class A
shares at any time, without penalty, by vote of a majority
of the Independent Trustees or, with respect to any fund,
by vote of a majority of the outstanding voting securities
of the fund. Pursuant to the Plan, Salomon Smith Barney
will provide the board of trustees with periodic reports of
amounts expended under the Plan and the purpose for which
such expenditures were made.
Co-Administrators and Placement Agent of the Master
Portfolios
Stephens, Inc. ("Stephens"), and Barclays Global Investors,
N.A. ("BGI") serve as co-administrators on behalf of the
Master Portfolios. Under the Co-Administration Agreement
between Stephens, BGI and the Master Portfolios, Stephens
and BGI provide the Master Portfolios with administrative
services, including: (i) general supervision of the Master
Portfolios' non-investment operations, coordination of the
other services provided to the Master Portfolios; (ii)
compilation of information for reports to, and filings
with, the SEC and state securities commissions; and
preparation of proxy statements and shareholder reports for
the Master Portfolios; and (iii) general supervision
relative to the compilation of data required for the
preparation of periodic reports distributed to the MIP's
officers and board. Stephens also furnishes office space
and certain facilities required for conducting the business
of the Master Portfolios and compensates the MIP's
trustees, officers and employees who are affiliated with
Stephens. In addition, Stephens and BGI will be responsible
for paying all expenses incurred by the U.S. Equity Index
Master Portfolio other than the fees payable to BGFA and
other than custodial fees of up to 0.01% payable after the
first two years of the Master Portfolio's operations.
Stephens and BGI are entitled to receive a monthly fee, in
the aggregate, at an annual rate of 0.02% of the average
daily net assets of the U.S. Equity Index Master Portfolio
for providing administrative services and assuming
expenses.
As compensation for administration services to
International Index Master Portfolio, Stephens and BGI are
entitled to receive a monthly fee, in the aggregate, at an
annual rate of 0.10% of the first $1 billion and 0.07%
thereafter of the Master Portfolio average daily net
assets.
Stephens also acts as the placement agent of Master
Portfolio's shares pursuant to a Placement Agency Agreement
with the Master Portfolio.
PORTFOLIO TRANSACTIONS AND TURNOVER
BGFA assumes general supervision over placing orders on
behalf of the Master Portfolios for the purchase or sale of
portfolio securities. Allocation of brokerage transactions,
including their frequency, is made in the best judgment of
BGFA and in a manner deemed fair and reasonable to
interestholders. In executing portfolio transactions and
selecting brokers or dealers, BGFA seeks to obtain the best
overall terms available for the Master 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. The
primary consideration is prompt execution of orders at the
most favorable net price. Certain of the brokers or
dealers with whom the Master Portfolios may transact
business offer commission rebates to the Master 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 commissions paid by other
institutional investors for comparable services. Brokers
also are selected because of their ability to handle
special executions such as are involved in large block
trades or broad distributions, provided the primary
consideration is met. Portfolio turnover may vary from
year to year, as well as within a year. High turnover
rates over 100% are likely to result in comparatively
greater brokerage expenses.
The Master Portfolios have no obligation to deal with any
dealer or group of dealers in the execution of transactions
in portfolio securities. Subject to policies established
by the Master Portfolios' board of trustees, BGFA as
advisor is responsible for the Master Portfolios'
investment portfolio decisions and the placing of portfolio
transactions. In placing orders, it is the policy of the
Master Portfolios to obtain the best results taking into
account the broker/dealer's general execution and
operational facilities, the type of transaction involved
and other factors such as the broker/dealer's risk in
positioning the securities involved. While BGFA generally
seeks reasonably competitive spreads or commissions, the
Master Portfolios will not necessarily be paying the lowest
spread or commission available.
Purchase and sale orders of the securities held by the
Master Portfolios may be combined with those of other
accounts that 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 the Master
Portfolios and other accounts managed by BGFA, BGFA
undertakes to allocate those transactions among the
participants equitably.
Under the 1940 Act, persons affiliated with the Master
Portfolios such as Stephens, BGFA and their affiliates are
prohibited from dealing with the Master Portfolios as a
principal in the purchase and sale of securities unless an
exemptive order allowing such transactions is obtained from
the SEC or an exemption is otherwise available.
Except in the case of equity securities purchased by the
Master Portfolios, purchases and sales of securities
usually will be principal transactions. Portfolio
securities normally will be purchased or sold from or to
dealers serving as market makers for the securities at a
net price. The Master Portfolios also will purchase
portfolio securities in underwritten offerings and may
purchase securities directly from the issuer. Generally,
money market securities, adjustable rate mortgage
securities ("ARMS"), municipal obligations, and
collateralized mortgage obligations ("CMOs") are traded on
a net basis and do not involve brokerage commissions.
The cost of executing the Master Portfolios' investment
portfolio securities transactions will consist primarily
of dealer spreads and underwriting commissions.
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 Master
Portfolio, 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 Master 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 Master 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 Master Portfolios' board of
trustees.
Certain of the brokers or dealers with whom the Master
Portfolios may transact business offer commission rebates
to the Master 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
PURCHASE OF SHARES tc "PURCHASE OF SHARES"
Detailed information about the purchase, redemption and
exchange of fund shares appears in the prospectus.
General
The shares of each fund are offered at net asset value,
which is calculated as of the close of The New York Stock
Exchange, Inc. ("NYSE") on each day that the NYSE is open
for business. The value of the shares of each fund will
fluctuate in relation to the investment experience of the
Master Portfolios in which it invests.
Investors may purchase shares from a Salomon Smith Barney
Financial Consultant or a broker that clears through
Salomon Smith Barney ("Dealer Representative"). In
addition, certain investors, including qualified retirement
plans purchasing through certain Dealer Representatives,
may purchase shares directly from the fund. When
purchasing shares of the fund, investors must specify
whether the purchase is for Class A or Class D shares.
Salomon Smith Barney and Dealer Representatives may charge
their customers an annual account maintenance fee in
connection with a brokerage account through which an
investor purchases or holds shares. Accounts held directly
at the sub-transfer agent are not subject to a maintenance
fee.
Investors may open an account in the fund by making an
initial investment of at least $1,000 for each account, or
$250 for an IRA or a Self-Employed Retirement Plan, in the
fund. Subsequent investments of at least $50 may be made
for all Classes. For shareholders purchasing shares of the
fund through the Systematic Investment Plan on a monthly
basis, the minimum initial investment requirement and
subsequent investment requirement for all Classes is $25.
For shareholders purchasing shares of the fund through the
Systematic Investment Plan on a quarterly basis, the
minimum initial investment required and the subsequent
investment requirement for all Classes is $50. There are
no minimum investment requirements for employees of
Citigroup and its subsidiaries, including Salomon Smith
Barney, unitholders who invest distributions from a Unit
Investment Trust ("UIT") sponsored by Salomon Smith Barney,
and Directors/Trustees of any of the Smith Barney mutual
funds, and their spouses and children. The fund reserves
the right to waive or change minimums, to decline any order
to purchase its shares and to suspend the offering of
shares from time to time. Shares purchased will be held in
the shareholder's account by the sub-transfer agent. Share
certificates are issued only upon a shareholder's written
request to the sub-transfer agent.
Purchase orders received by the fund or a Salomon Smith
Barney Financial Consultant prior to the close of regular
trading on the NYSE, on any day the fund calculates its net
asset value, are priced according to the net asset value
determined on that day (the ''trade date''). Orders
received by a Dealer Representative prior to the close of
regular trading on the NYSE on any day the fund calculates
its net asset value, are priced according to the net asset
value determined on that day, provided the order is
received by the fund or the fund's agent prior to its close
of business. For shares purchased through Salomon Smith
Barney or a Dealer Representative purchasing through
Salomon Smith Barney, payment for shares of the fund is due
on the third business day after the trade date. In all
other cases, payment must be made with the purchase order.
Systematic Investment Plan. Shareholders may make
additions to their accounts at any time by purchasing
shares through a service known as the Systematic Investment
Plan. Under the Systematic Investment Plan, Salomon Smith
Barney or the sub-transfer agent is authorized through
preauthorized transfers of at least $25 on a monthly basis
or at least $50 on a quarterly basis to charge the
shareholder's account held with a bank or other financial
institution on a monthly or quarterly basis as indicated by
the shareholder, to provide for systematic additions to the
shareholder's fund account. A shareholder who has
insufficient funds to complete the transfer will be charged
a fee of up to $25 by Salomon Smith Barney or the sub-
transfer agent. The Systematic Investment Plan also
authorizes Salomon Smith Barney to apply cash held in the
shareholder's Salomon Smith Barney brokerage account or
redeem the shareholder's shares of a Smith Barney money
market fund to make additions to the account. Additional
information is available from the fund or a Salomon Smith
Barney Financial Consultant or a Dealer Representative.
Class D shares are offered to a limited group of investors
who participate in certain investment programs which charge
a fee for participation, including the Smith Barney 401(k)
Platform program. In addition, Class D shares are offered
to tax-exempt employee benefit and retirement plans of
Salomon Smith Barney and its affiliates. For more
information about these programs, contact a Salomon Smith
Barney Financial Consultant.
Smith Barney Retirement Programs
You may be eligible to participate in a retirement program
sponsored by Salomon Smith Barney or one of its affiliates.
The fund offers Class A shares at net asset value to
participating plans under the programs. You can meet
minimum investment and exchange amounts, if any by
combining the plan's investments in any of the Smith Barney
mutual funds.
There are no sales charges when you buy or sell shares and
the class of shares you may purchase depends on the amount
of your initial investment and/or the date your account is
opened. Once a class of shares is chosen, all additional
purchases must by of the same class.
For plans opened on or after March 1, 2000 that are not
plans for which Paychex Inc. or an affiliate provides
administrative services (a "Paychex Plan"), Class A shares
may be purchased regardless of the amount invested.
For plans opened prior to March 1, 2000 and for Paychex
plans, the class of shares you may purchase depends on the
amount of your initial investment:
Class A Shares. Class A shares may be purchased by plans
investing at least $1million.
For more information, call your Salomon Smith Barney
Financial Consultant or the transfer agent.
Participating plans wishing to acquire shares of the fund
through the Smith Barney 401(k) Program or the Smith Barney
ExecChoiceTM Program must purchase such shares directly from
the transfer agent. For further information regarding these
Programs, investors should contact a Salomon Smith Barney
Financial Consultant.
REDEMPTION OF SHARES tc "REDEMPTION OF SHARES"
The right of redemption of shares of the fund may be
suspended or the date of payment postponed (a) for any
periods during which the NYSE is closed (other than for
customary weekend and holiday closings), (b) when trading
in the markets the fund normally utilizes is restricted, or
an emergency exists, as determined by the SEC, so that
disposal of the fund's investments or determination of its
net asset value is not reasonably practicable or (c) for
any other periods as the SEC by order may permit for the
protection of the fund's shareholders.
If the shares to be redeemed were issued in certificate
form, the certificates must be endorsed for transfer (or be
accompanied by an endorsed stock power) and must be
submitted to the sub-transfer agent together with the
redemption request. Any signature appearing on a share
certificate, stock power or written redemption request in
excess of $10,000 must be guaranteed by an eligible
guarantor institution such as a domestic bank, savings and
loan institution, domestic credit union, member bank of the
Federal Reserve System or member firm of a national
securities exchange. Written redemption requests of
$10,000 or less do not require a signature guarantee unless
more than one such redemption request is made in any 10-day
period or the redemption proceeds are to be sent to an
address other than the address of record. Unless otherwise
directed, redemption proceeds will be mailed to an
investor's address of record. The transfer agent may
require additional supporting documents for redemptions
made by corporations, executors, administrators, trustees
or guardians. A redemption request will not be deemed
properly received until the transfer agent receives all
required documents in proper form.
If a shareholder holds shares in more than one Class, any
request for redemption must specify the Class being
redeemed. In the event of a failure to specify which
Class, or if the investor owns fewer shares of the Class
than specified, the redemption request will be delayed
until the transfer agent receives further instructions from
Salomon Smith Barney, or if the shareholder's account is
not with Salomon Smith Barney, from the shareholder
directly. The redemption proceeds will be remitted on or
before the third business day following receipt of proper
tender, except on any days on which the NYSE is closed or
as permitted under the 1940 Act, in extraordinary
circumstances. Generally, if the redemption proceeds are
remitted to a Salomon Smith Barney brokerage account, these
funds will not be invested for the shareholder's benefit
without specific instruction and Salomon Smith Barney will
benefit from the use of temporarily uninvested funds.
Redemption proceeds for shares purchased by check, other
than a certified or official bank check, will be remitted
upon clearance of the check, which may take up to fifteen
days or more.
Distribution in Kind
If the board of trustees of the trust determines that it
would be detrimental to the best interests of the remaining
shareholders to make a redemption payment wholly in cash,
the fund may pay, in accordance with SEC rules, any portion
of a redemption in excess of the lesser of $250,000 or
1.00% of the fund's net assets by a distribution in kind of
portfolio securities in lieu of cash. Shareholders may
incur brokerage commissions when they subsequently sell
those securities.
Automatic Cash Withdrawal Plan
An automatic cash withdrawal plan (the "Withdrawal Plan")
is available to shareholders of the fund who own shares of
the fund with a value of at least $10,000 and who wish to
receive specific amounts of cash monthly or quarterly.
Withdrawals of at least $50 may be made under the
Withdrawal Plan by redeeming as many shares of the fund as
may be necessary to cover the stipulated withdrawal
payment. To the extent withdrawals exceed dividends,
distributions and appreciation of a shareholder's
investment in a fund, continued withdrawal payments will
reduce the shareholder's investment, and may ultimately
exhaust it. Withdrawal payments should not be considered
as income from investment in a fund. Furthermore, as it
generally would not be advantageous to a shareholder to
make additional investments in the fund at the same time he
or she is participating in the Withdrawal Plan, purchases
by such shareholders in amounts of less than $5,000
ordinarily will not be permitted.
Shareholders of the fund who wish to participate in the
Withdrawal Plan and who hold their shares in certificate
form must deposit their share certificates with the sub-
transfer agent as agent for Withdrawal Plan members. All
dividends and distributions on shares in the Withdrawal
Plan are reinvested automatically at net asset value in
additional shares of the fund involved. A shareholder who
purchases shares directly through the sub-transfer agent
may continue to do so and applications for participation in
the Withdrawal Plan must be received by the sub-transfer
agent no later than the eighth day of the month to be
eligible for participation beginning with that month's
withdrawal. For additional information, shareholders
should contact a Salomon Smith Barney Financial Consultant.
Additional Information Regarding Telephone Redemption And
Exchange Program
Neither the fund nor its agents will be liable for
following instructions communicated by telephone that are
reasonably believed to be genuine. The fund and its agents
will employ procedures designed to verify the identity of
the caller and legitimacy of instructions (for example, a
shareholder's name and account number will be required and
phone calls may be recorded). The fund reserves the right
to suspend, modify or discontinue the telephone redemption
and exchange program or to impose a charge for this service
at any time following at least seven (7) days' prior notice
to shareholders.
EXCHANGE PRIVILEGE
Shares of each Class of the U.S. 5000 Index Fund may only
be exchanged for shares of the same Class of
1. Smith Barney S&P 500 Index Fund and
2. Smith Barney EAFE Index Fund
Shares of each Class of the EAFE Index Fund may only be
exchanged for shares of the same Class of
1. Smith Barney S&P 500 Index Fund and
2. Smith Barney U.S. 5000 Index Fund
Exchanges can be made to the extent shares are offered for
sale in the shareholder's state of residence. Exchanges of
Class A and Class D shares are subject to minimum
investment requirements and all shares are subject to the
other requirements of the fund into which exchanges are
made.
Class A and Class D shareholders of the fund who wish to
exchange all or a portion of their shares for shares of the
respective Class in any of the funds identified above may
do so without imposition of any charge.
Additional Information Regarding the Exchange Privilege
Although the exchange privilege is an important benefit,
excessive exchange transactions can be detrimental to the
fund's performance and its shareholders. The manager may
determine that a pattern of frequent exchanges is excessive
and contrary to the best interests of the fund's other
shareholders. In this event, the fund may, at its
discretion, decide to limit additional purchases and/or
exchanges by the shareholder. Upon such a determination,
the fund will provide notice in writing or by telephone to
the shareholder at least 15 days prior to suspending the
exchange privilege and during the 15 day period the
shareholder will be required to (a) redeem his or her
shares in the fund or (b) remain invested in the fund or
exchange into any of the funds of the Smith Barney mutual
funds ordinarily available, which position the shareholder
would be expected to maintain for a significant period of
time. All relevant factors will be considered in
determining what constitutes an abusive pattern of
exchanges.
Certain shareholders may be able to exchange shares by
telephone. See ''Redemption of Shares-Additional
Information Regarding Telephone Redemptions and Exchange
Program.'' Exchanges will be processed at the net asset
value next determined. Redemption procedures discussed
below are also applicable for exchanging shares, and
exchanges will be made upon receipt of all supporting
documents in proper form. If the account registration of
the shares of the fund being acquired is identical to the
registration of the shares of the fund exchanged, no
signature guarantee is required. An exchange involves a
taxable redemption of shares, subject to the tax treatment
described in "Dividend, Distributions and Taxes" below,
followed by a purchase of shares of a different fund.
Before exchanging shares, investors should read the current
prospectus describing the shares to be acquired. The fund
reserves the right to modify or discontinue exchange
privileges upon 60 days' prior notice to shareholders.
VALUATION OF SHARES tc "VALUATION OF SHARES"
The net asset value per share of the fund's Classes is
calculated on each day, Monday through Friday, except days
on which the NYSE is closed. The NYSE currently is
scheduled to be closed on New Year's Day, Martin Luther
King Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas,
and on the preceding Friday or subsequent Monday when one
of these holidays falls on a Saturday or Sunday,
respectively. Because of the differences in distribution
fees and Class-specific expenses, the per share net asset
value of each Class will differ. The following is a
description of the procedures used by the trust in valuing
its assets.
The net asset value per share of each fund and is
calculated as of the close of the NYSE by dividing the
total market value of its investments and other assets,
less any liabilities, by the total outstanding shares of
the stock of the fund. The value of each fund's shares will
fluctuate in relation to the investment experience of the
Master Portfolios in which such fund invests. Securities
held by a fund or Master Portfolio which are listed on a
securities exchange and for which market quotations are
available are valued at the last quoted sale price of the
day. Price information on listed securities is taken from
the exchange where the security is primarily traded.
The securities of the Master Portfolios, including covered
call options written by the Master Portfolios, are valued
as discussed below. Domestic securities are valued at the
last sale price on the domestic securities or commodities
exchange or national securities market on which such
securities primarily are traded. Securities not listed on
a domestic exchange or national securities market, or
securities in which there were no transactions, are valued
at the most recent bid prices. Portfolio securities which
are traded primarily on foreign securities or commodities
exchanges generally are valued at the preceding closing
values of such securities on their respective exchanges,
except that when an occurrence subsequent to the time a
value was so established is likely to have changed such
value, then the fair value of those securities is
determined by BGFA in accordance with guidelines approved
by MIP's board of trustees. Short-term investments are
carried at amortized cost which approximates value. Any
securities or other assets for which recent market
quotations are not readily available are valued at fair
value as determined in good faith by BGFA in accordance
with such guidelines.
Restricted securities, as well as securities or other
assets for which market quotations are not readily
available, or are not valued by a pricing service approved
by MIP's board of trustees, are valued at fair value as
determined in good faith by BGFA in accordance with
guidelines approved by MIP's board of trustees. BGFA and
MIP's board of trustees periodically review the method of
valuation. In making its good faith valuation of
restricted securities, BGFA generally takes the following
factors into consideration: restricted securities which
are, or are convertible into, securities of the same class
of securities for which a public market exists usually will
be valued at market value less the same percentage discount
at which purchased. This discount is revised periodically
if it is believed that the discount no longer reflects the
value of the restricted securities. Restricted securities
not of the same class as securities for which a public
market exists usually are valued initially at cost. Any
subsequent adjustment from cost is based upon
considerations deemed relevant by MIP's board of trustees.
PERFORMANCE DATA tc "PERFORMANCE DATA"
From time to time a fund may advertise its total return and
average annual total return in advertisements and/or other
types of sales literature. These figures are computed
separately for Class A and Class D shares of the fund.
These figures are based on historical earnings and are not
intended to indicate future performance. Total return is
computed for a specified period of time assuming
reinvestment of all income dividends and capital gain
distributions on the reinvestment dates at prices
calculated as stated in the prospectus, then dividing the
value of the investment at the end of the period so
calculated by the initial amount invested and subtracting
100%. The standard average annual total return, as
prescribed by the SEC is derived from this total return,
which provides the ending redeemable value. Such standard
total return information may also be accompanied with
nonstandard total return information for differing periods
computed in the same manner but without annualizing the
total return. A fund may also include comparative
performance information in advertising or marketing its
shares. Such performance information may include data from
Lipper Analytical Services, Inc. and other financial
publications.
THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK.
Average Annual Total Return
A fund's "average annual total return," as described below,
is computed according to a formula prescribed by the SEC.
The formula can be expressed 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 investment made
at the beginning of a
1-, 5- or 10-year
period at the end of a
1-, 5- or 10-year
period (or fractional
portion thereof),
assuming reinvestment
of all dividends and
distributions.
The ERV assumes complete redemption of the hypothetical
investment at the end of the measuring period. A fund's
net investment income changes in response to fluctuations
in interest rates and the expenses of the fund.
U.S. 5000 Index Fund
Aggregate Annual Total Return
Class of Shares
1-Year
5-Year
10-Year
Life of
Fund 1
Class A
N/A
N/A
N/A
22.70%
Class D
N/A
N/A
N/A
N/A2
EAFE Index Fund
Aggregate Annual Total Return
Class of Shares
1-Year
5-Year
10-Year
Life of
Fund 1
Class A
N/A
N/A
N/A
14.10%
Class D
N/A
N/A
N/A
N/A2
____________________
1 Class A and D commenced operations on October 18, 1999.
The results reflected are for the period from October
18, 1999 to March 31, 2000.
2 There is no information for Class D shares because no
Class D shares were outstanding.
Aggregate Total Return
A fund's "aggregate total return," as described below,
represents the cumulative change in the value of an
investment in the fund for the specified period and is
computed by the following formula:
ERV - P
P
Where: P = a hypothetical initial
payment of $10,000.
ERV = Ending Redeemable Value of a
hypothetical $10,000
investment made at the
beginning of the 1-, 5- or
10-year period at the end of
the 1-, 5- or 10-year period
(or fractional portion
thereof), assuming
reinvestment of all dividends
and distributions.
The ERV assumes complete redemption of the hypothetical
investment at the end of the measuring period.
U.S. 5000 Index Fund
Aggregate Annual Total Return
Class of Shares
1-Year
5-Year
10-
Year
Life of
Fund 1
Class A
N/A
N/A
N/A
22.70%
Class D
N/A
N/A
N/A
N/A2
EAFE Index Fund
Aggregate Annual Total Return
Class of Shares
1-Year
5-Year
10-
Year
Life of
Fund 1
Class A
N/A
N/A
N/A
14.10%
Class D
N/A
N/A
N/A
N/A2
____________________
1 Class A and D commenced operations on October 18,
1999. The results reflected are for the period from
October 18, 1999 to
March 31, 2000.
2 There is no information for Class D shares because no
Class D shares were outstanding.
Performance will vary from time to time depending upon
market conditions, the composition of the fund's portfolio
and operating expenses and the expenses exclusively
attributable to the Class. Consequently, any given
performance quotation should not be considered
representative of the Class' performance for any specified
period in the future. Because performance will vary, it
may not provide a basis for comparing an investment in the
Class with certain bank deposits or other investments that
pay a fixed yield for a stated period of time. Investors
comparing a Class' performance with that of other mutual
funds should give consideration to the quality and maturity
of the respective investment companies' portfolio
securities.
DIVIDENDS, DISTRIBUTIONS AND TAXES tc "TAXES "
MIP is organized as a business trust under Delaware law.
Under MIP's current classification for federal income tax
purposes, it is intended that each Master Portfolio will be
treated as a partnership for such purposes and, therefore,
such Master Portfolio will not be subject to any federal
income tax on its income and gains (if any). However, each
investor in a Master Portfolio will be taxed on its share
(as determined in accordance with the governing instruments
of MIP) of such Master Portfolio's taxable income and
capital gain in determining its federal income tax
liability. The determination of such share will be made in
accordance with the Internal Revenue Code of 1986, as
amended (the "Code"), and regulations promulgated
thereunder.
MIP's taxable year-end is the last day of December.
Although MIP will not be subject to federal income tax, it
will file appropriate federal income tax returns
The Master Portfolios assets, income and distributions will
be managed in such a way that an investor in a Master
Portfolio may satisfy the requirements of Subchapter M of
the Code by investing substantially all of its assets in
the Master Portfolio. Investors are advised to consult
their own tax advisors as to the tax consequences of an
investment in the Master Portfolio.
Taxes
The following is a summary of the material United States
federal income tax considerations regarding the purchase,
ownership and disposition of shares of a fund. Each
prospective shareholder is urged to consult his own tax
adviser with respect to the specific federal, state, local
and foreign tax consequences of investing in a fund. The
summary is based on the laws in effect on the date of this
SAI, which are subject to change. Each fund will be
treated as a separate entity for federal tax purposes.
Unless otherwise noted, the following discussion is
applicable to each fund.
The Fund and Its Investments
The fund intends to continue to qualify to be treated as a
regulated investment company each taxable year under the
Code. To so qualify, the fund must, among other things:
(a) derive at least 90% of its gross income in each taxable
year from dividends, interest, payments with respect to
securities loans and gains from the sale or other
disposition of stock or securities or foreign currencies,
or other income (including, but not limited to, gains from
options, futures or forward contracts) 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 quarter of the fund's taxable year, (i) at
least 50% of the market value of the fund's assets is
represented by cash, securities of other regulated
investment companies, United States government securities
and other securities, with such other securities limited,
in respect of any one issuer, to an amount not greater than
5% of the fund's assets and not greater than 10% of the
outstanding voting securities of such issuer and (ii) not
more than 25% of the value of its assets is invested in the
securities (other than United States government securities
or securities of other regulated investment companies) of
any one issuer or any two or more issuers that the fund
controls and are determined to be engaged in the same or
similar trades or businesses or related trades or
businesses. For purposes of federal income tax law,
including the application of the foregoing qualification
requirements, a fund will be treated as if it derived
directly its proportionate share of each item of income,
deduction, gain or loss (and as if it held directly its
proportionate share of the assets and liabilities) of each
Master Portfolio in which it invests, either directly or
indirectly.
As a regulated investment company, the fund will not be
subject to United States federal income tax on its
investment company taxable income (i.e., income other than
any excess of its net realized long-term capital gains over
its net realized short-term capital losses ("net relized
capital gains") or on its net realized capital gains, if
any, that it distributes to its shareholders, provided an
amount equal to at least 90% of its investment company
taxable income, plus or minus certain other adjustments as
specified in the Code, and 90% of its net tax-exempt income
for the taxable year is distributed in compliance with the
Code's timing and other requirements but will be subject to
tax at regular corporate rates on any taxable income or
gains it does not distribute. The Code imposes a 4%
nondeductible excise tax on the fund to the extent it does
not distribute by the end of any calendar year at least 98%
of its net investment income for that year and 98% of the
net amount of its capital gains (both long-and short-term)
for the one-year period ending, as a general rule, on
October 31 of that year. For this purpose, however, any
income or gain retained by the fund that is subject to
corporate income tax will be considered to have been
distributed by year-end. In addition, the minimum amounts
that must be distributed in any year to avoid the excise
tax will be increased or decreased to reflect any
underdistribution or overdistribution, as the case may be,
from the previous year. The fund anticipates that it will
pay such dividends and will make such distributions as are
necessary in order to avoid the application of this tax.
If, in any taxable year, the fund fails to qualify as a
regulated investment company under the Code or fails to
meet the distribution requirement, it would be taxed in the
same manner as an ordinary corporation and distributions to
its shareholders would not be deductible by the fund in
computing its taxable income. In addition, in the event of
a failure to qualify, the fund's distributions, to the
extent derived from the fund's current or accumulated
earnings and profits would constitute dividends (eligible
for the corporate dividends-received deduction) which are
taxable to shareholders as ordinary income, even though
those distributions might otherwise (at least in part) have
been treated in the shareholders' hands as long-term
capital gains. If the fund fails to qualify as a regulated
investment company in any year, it must pay out its
earnings and profits accumulated in that year in order to
qualify again as a regulated investment company. In
addition, if the fund failed to qualify as a regulated
investment company for a period greater than one taxable
year, the fund may be required to recognize any net built-
in gains (the excess of the aggregate gains, including
items of income, over aggregate losses that would have been
realized if it had been liquidated) with respect to certain
of its assets in order to qualify as a regulated investment
company in a subsequent year.
The fund's transactions in foreign currencies, forward
contracts, options and futures contracts (including options
and futures contracts on foreign currencies) will be
subject to special provisions of the Code (including
provisions relating to "hedging transactions" and
"straddles") that, among other things, may affect the
character of gains and losses realized by the fund (i.e.,
may affect whether gains or losses are ordinary or
capital), accelerate recognition of income to the fund and
defer fund losses. These rules could therefore affect the
character, amount and timing of distributions to
shareholders. These provisions also (a) will require the
fund to mark-to-market certain types of the positions in
its portfolio (i.e., treat them as if they were closed out)
and (b) may cause the fund to recognize income without
receiving cash with which to pay dividends or make
distributions in amounts necessary to satisfy the
distribution requirements for avoiding income and excise
taxes. The fund will monitor its transactions, will make
the appropriate tax elections and will make the appropriate
entries in its books and records when it acquires any
foreign currency, forward contract, option, futures
contract or hedged investment in order to mitigate the
effect of these rules and prevent disqualification of the
fund as a regulated investment company.
The fund's investment in Section 1256 contracts, such as
regulated futures contracts, most forward currency
contracts traded in the interbank market and options on
most stock indices, are subject to special tax rules. All
section 1256 contracts held by the fund at the end of its
taxable year are required to be marked to their market
value, and any unrealized gain or loss on those positions
will be included in the fund's income as if each position
had been sold for its fair market value at the end of the
taxable year. The resulting gain or loss will be combined
with any gain or loss realized by the fund from positions
in section 1256 contracts closed during the taxable year.
Provided such positions were held as capital assets and
were not part of a "hedging transaction" nor part of a
"straddle," 60% of the resulting net gain or loss will be
treated as long-term capital gain or loss, and 40% of such
net gain or loss will be treated as short-term capital gain
or loss, regardless of the period of time the positions
were actually held by the fund.
Index Swaps. As a result of entering into index swaps, the
fund may make or receive periodic net payments. It may also
make or receive a payment when a swap is terminated prior
to maturity through an assignment of the swap or other
closing transaction. Periodic net payments will constitute
ordinary income or deductions, while termination of a swap
will result in capital gain or loss (which will be a long-
term capital gain or loss if the fund has been a party to
the swap for more than one year).
Foreign Investments. Dividends or other income (including,
in some cases, capital gains) received by the fund from
investments in foreign securities may be subject to
withholding and other taxes imposed by foreign countries.
Tax conventions between certain countries and the United
States may reduce or eliminate such taxes in some cases.
The fund will not be eligible to elect to treat any foreign
taxes paid by it as paid by its shareholders, who therefore
will not be entitled to credits for such taxes on their own
tax returns. Foreign taxes paid by the fund will reduce
the return from the fund's investments.
Passive Foreign Investment Companies. If the fund
purchases shares in certain foreign investment entities,
called "passive foreign investment companies" (a "PFIC"),
it may be subject to United States federal income tax on a
portion of any "excess distribution" or gain from the
disposition of such shares even if such income is
distributed as a taxable dividend by the fund to its
shareholders. Additional charges in the nature of interest
may be imposed on the fund in respect of deferred taxes
arising from such distributions or gains. If the fund were
to invest in a PFIC and elected to treat the PFIC as a
"qualified electing fund" under the Code, in lieu of the
foregoing requirements, the fund might be required to
include in income each year a portion of the ordinary
earnings and net capital gains of the qualified electing
fund, even if not distributed to the fund, and such amounts
would be subject to the 90% and excise tax distribution
requirements described above. In order to make this
election, the fund would be required to obtain certain
annual information from the PFICs in which it invests,
which may be difficult or not possible to obtain.
Alternatively, the fund may elect to mark-to-market to its
stock in a PFIC. This election would result in the fund
being treated as if it had sold and repurchased all of the
PFIC stock at the end of each year. In this case, the fund
would report gains as ordinary income and would deduct
losses as ordinary losses to the extent of previously
recognized gains. The election, once made, would be
effective for all subsequent taxable years of the fund,
unless revoked with the consent of the Internal Revenue
Service (the "IRS"). By making the election, the fund
could potentially ameliorate the adverse tax consequences
with respect to its ownership of shares in a PFIC, but in
any particular year may be required to recognize income in
excess of the distributions it receives from PFICs and its
proceeds from dispositions of PFIC stock. The fund may
have to distribute this "phantom" income and gain to
satisfy its distribution requirement and to avoid
imposition of the 4% excise tax. The fund will make the
appropriate tax elections, if possible, and take any
additional steps that are necessary to mitigate the effect
of these rules.
Taxation of United States Shareholders
Dividends and Distributions. Any dividend declared by the
fund in October, November or December of any calendar year
and payable to shareholders of record on a specified date
in such a month shall be deemed to have been received by
each shareholder on December 31 of such calendar year and
to have been paid by the fund not later than such December
31, provided such dividend is actually paid by the fund
during January of the following calendar year. The fund
intends to distribute annually to its shareholders
substantially all of its investment company taxable income,
and any net realized capital gains. However, if the fund
retains for investment an amount equal to all or a portion
of its net realized capital gains, it will be subject to a
corporate tax (currently at a rate of 35%) on the amount
retained. In that event, the fund will designate such
retained amounts as undistributed capital gains in a notice
to its shareholders who (a) will be required to include in
income for United Stares federal income tax purposes, as
long-term capital gains, their proportionate shares of the
undistributed amount, (b) will be entitled to credit their
proportionate shares of the 35% tax paid by the fund on the
undistributed amount against their United States federal
income tax liabilities, if any, and to claim refunds to the
extent their credits exceed their liabilities, if any, and
(c) will be entitled to increase their tax basis, for
United States federal income tax purposes, in their shares
by an amount equal to 65% of the amount of undistributed
capital gains included in the shareholder's income.
Organizations or persons not subject to federal income tax
on such capital gains will be entitled to a refund of their
pro rata share of such taxes paid by the fund upon filing
appropriate returns or claims for refund with the IRS.
Dividends of net investment income and distributions of net
realized short-term capital gains are taxable to a United
States shareholder as ordinary income, whether paid in cash
or in shares. Distributions of net-long-term capital
gains, if any, that the fund designates as capital gains
dividends are taxable as long-term capital gains, whether
paid in cash or in shares and regardless of how long a
shareholder has held shares of the fund. Dividends and
distributions paid by the fund attributable to dividends on
stock of U.S. corporations received by the fund, with
respect to which the fund meets certain holding period
requirements, will be eligible for the deduction for
dividends received by corporations. Distributions in excess
of the fund's current and accumulated earnings and profits
will, as to each shareholder, be treated as a tax-free
return of capital to the extent of a shareholder's basis in
his shares of the fund, and as a capital gain thereafter
(if the shareholder holds his shares of the fund as capital
assets).
Shareholders receiving dividends or distributions in the
form of additional shares should be treated for United
States federal income tax purposes as receiving a
distribution in the amount equal to the amount of money
that the shareholders receiving cash dividends or
distributions will receive, and should have a cost basis in
the shares received equal to such amount.
Investors considering buying shares just prior to a
dividend or capital gain distribution should be aware that,
although the price of shares just purchased at that time
may reflect the amount of the forthcoming distribution,
such dividend or distribution may nevertheless be taxable
to them. If the fund is the holder of record of any stock
on the record date for any dividends payable with respect
to such stock, such dividends are included in the fund's
gross income not as of the date received but as of the
later of (a) the date such stock became ex-dividend with
respect to such dividends (i.e., the date on which a buyer
of the stock would not be entitled to receive the declared,
but unpaid, dividends) or (b) the date the fund acquired
such stock. Accordingly, in order to satisfy its income
distribution requirements, the fund may be required to pay
dividends based on anticipated earnings, and shareholders
may receive dividends in an earlier year than would
otherwise be the case.
Sales of Shares. Upon the sale or exchange of his shares,
a shareholder will realize a taxable gain or loss equal to
the difference between the amount realized and his basis in
his shares. Such 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
one year or less. Any loss realized on a sale or exchange
will be disallowed to the extent the shares disposed of are
replaced, including replacement through the reinvesting of
dividends and capital gains distributions in the fund,
within a 61-day period beginning 30 days before and ending
30 days after the disposition of the shares. In such a
case, the basis of the shares acquired will be increased to
reflect the disallowed loss. Any loss realized by a
shareholder on the sale of a fund share held by the
shareholder for six months or less will be treated for
United States federal income tax purposes as a long-term
capital loss to the extent of any distributions or deemed
distributions of long-term capital gains received by the
shareholder with respect to such share. If a shareholder
incurs a sales charge in acquiring shares of the fund,
disposes of those shares within 90 days and then acquires
shares in a mutual fund for which the otherwise applicable
sales charge is reduced by reason of a reinvestment right
(e.g., an exchange privilege), the original sales charge
will not be taken into account in computing gain/loss on
the original shares to the extent the subsequent sales
charge is reduced. Instead, the disregarded portion of the
original sales charge will be added to the tax basis in the
newly acquired shares. Furthermore, the same rule also
applies to a disposition of the newly acquired shares made
within 90 days of the second acquisition. This provision
prevents a shareholder from immediately deducting the sales
charge by shifting his or her investment in a family of
mutual funds.
Backup Withholding. The fund may be required to withhold,
for United States federal income tax purposes, 31% of the
dividends, distributions and redemption proceeds payable to
shareholders who fail to provide the fund with their
correct taxpayer identification number or to make required
certifications, or who have been notified by the IRS that
they are subject to backup withholding. Certain
shareholders are exempt from backup withholding. Backup
withholding is not an additional tax and any amount
withheld may be credited against a shareholder's United
States federal income tax liabilities.
Notices. Shareholders will be notified annually by the
fund as to the United States federal income tax status of
the dividends, distributions and deemed distributions
attributable to undistributed capital gains (discussed
above in "Taxes- Taxation of United States Shareholders -
Dividends and Distributions") made by the fund to its
shareholders. Furthermore, shareholders will also receive,
if appropriate, various written notices after the close of
the fund's taxable year regarding the United States federal
income tax status of certain dividends, distributions and
deemed distributions that were paid (or that are treated as
having been paid) by the fund to its shareholders during
the preceding taxable year.
Other Taxation
Distributions also may be subject to additional state,
local and foreign taxes depending on each shareholder's
particular situation.
The foregoing is only a summary of certain material tax
consequences affecting the funds and its shareholders.
Shareholders are advised to consult their own tax advisers
with respect to the particular tax consequences to them of
an investment in a fund.
ADDITIONAL INFORMATION
The Fund
The trust was organized on October 17, 1991 under the laws
of the Commonwealth of Massachusetts and is a business
entity commonly known as a "Massachusetts business trust"
under the name Shearson Lehman Brothers Intermediate-Term
Trust. On October 14, 1994 and August 16, 1995, the
trust's name was changed to Smith Barney Income Trust and
Smith Barney Investment Trust, respectively. In addition
to each fund, the trust offers shares of beneficial
interest of five other separate funds with a par value of
$.001 per share. Each fund offers shares of beneficial
interest currently classified into two Classes - A and D.
Each Class of the fund represents an identical interest in
the fund's investment portfolio. As a result, the Classes
have the same rights, privileges and preferences, except
with respect to: (a) the designation of each Class;
(b) the effect of the respective sales charge, if any, for
each Class; (c) the distribution and/or service fees borne
by each Class pursuant to the Plan; (d) the expenses
allocable exclusively to each Class; (e) voting rights on
matters exclusively affecting a single Class; and (f) the
exchange privilege of each Class. The trust's board of
trustees does not anticipate that there will be any
conflicts among the interests of the holders of the
different Classes. The trustees, on an ongoing basis, will
consider whether any such conflict exists and, if so, take
appropriate action.
Under Massachusetts's law, shareholders could, under
certain circumstances, be held personally liable for the
obligations of the fund. The Master Trust Agreement
disclaims shareholder liability for acts or obligations of
the fund, however, and requires that notice of such
disclaimer be given in each agreement, obligation or
instrument entered into or executed by the fund or a
trustee. The Master Trust Agreement provides for
indemnification from fund property for all losses and
expenses of any shareholder held personally liable for the
obligations of the fund. Thus, the risk of a shareholder's
incurring financial loss on account of shareholder
liability is limited to circumstances in which the fund
itself would be unable to meet its obligations, a
possibility which management of the fund believes is
remote. Upon payment of any liability incurred by the
fund, a shareholder paying such liability will be entitled
to reimbursement from the general assets of the fund. The
trustees intend to conduct the operation of the fund in
such a way so as to avoid, as far as possible, ultimate
liability of the shareholders for liabilities of the fund.
The Master Trust Agreement permits the trustees of the fund
to issue an unlimited number of full and fractional shares
of a single class and to divide or combine the shares into
a greater or lesser number of shares without thereby
changing the proportionate beneficial interests in the
fund. Each share in the fund represents an equal
proportional interest in the fund with each other share.
Shareholders of the fund are entitled upon its liquidation
to share pro rata in its net assets available for
distribution. No shareholder of the fund has any
preemptive or conversion rights. Shares of the fund are
fully paid and non-assessable.
Pursuant to the Master Trust Agreement, the fund's trustees
may authorize the creation of additional series of shares
(the proceeds of which would be invested in separate,
independently managed portfolios) and additional classes of
shares within any series (which would be used to
distinguish among the rights of different categories of
shareholders, as might be required by future regulations or
other unforeseen circumstances).
The fund does not hold annual shareholder meetings. There
normally will be no meetings of shareholders for the
purpose of electing trustees unless and until such time as
less than a majority of the trustees holding office have
been elected by shareholders, at which time the trustees
then in office will call a shareholders' meeting for the
election of trustees. Shareholders of record of no less
than two-thirds of the outstanding shares of the trust may
remove a trustee through a declaration in writing or by
vote cast in person or by proxy at a meeting called for
that purpose. The trustees will call a meeting for any
purpose upon written request of shareholders holding at
least 10% of the trust's outstanding shares and the trust
will assist shareholders in calling such a meeting as
required by the 1940 Act.
When matters are submitted for shareholder vote,
shareholders of each Class will have one vote for each full
share owned and a proportionate, fractional vote for any
fractional share held of that Class. Generally, shares of
the fund will be voted on a fund-wide basis on all matters
except matters affecting only the interests of one Class,
in which case only shares of the affected Class would be
entitled to vote.
Master Portfolio Organization
The Master Portfolios are a series of MIP, an open-end,
series management investment company organized as
Delaware business trust. MIP was organized on October 21,
1993. In accordance with Delaware law and in connection
with the tax treatment sought by MIP, the Declaration of
Trust provides that its investors are personally
responsible for trust liabilities and obligations, but only
to the extent the trust property is insufficient to
satisfy such liabilities and obligations. The Declaration
of Trust also provides that MIP must maintain appropriate
insurance (for example, fidelity bonding and errors and
omissions insurance) for the protection of the trust, its
investors, trustees, officers, employees and agents
covering possible tort and other liabilities, and that
investors will be indemnified to the extent they are held
liable for a disproportionate share of MIP's obligations.
Thus, the risk of an investor incurring financial loss on
account of investor liability is limited to circumstances
in which both inadequate insurance existed and MIP
itself was unable to meet its obligations.
The Declaration of Trust further provides that
obligations of MIP are not binding upon its trustees
individually but only upon the property of MIP and that
the trustees will not be liable for any action or
failure to act, but nothing in the Declarations of Trust
protects a trustee against any liability to which the
trustee would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of the
trustee's office.
The interests in the Master Portfolios have substantially
identical voting and other rights as those rights
enumerated above for shares of the fund. MIP is generally
not required to hold annual meetings, but is required by
Section 16(c) of the 1940 Act to hold a special meeting
and assist investor communications under certain
circumstances. Whenever the fund is requested to vote on a
matter with respect to the corresponding Master
Portfolio, the fund will hold a meeting of fund
shareholders and will cast its votes as instructed by such
shareholders.
In a situation where the fund does not receive instruction
from certain of its shareholders on how to vote the
corresponding shares of the Master Portfolio, such fund
will vote such shares in the same proportion as the
shares for which the fund does receive voting instructions.
Annual and Semi-annual Reports. The fund sends its
shareholders a semi-annual report and an audited annual
report, which include listings of investment securities
held by the fund at the end of the period covered. In an
effort to reduce the fund's printing and mailing costs, the
fund consolidates the mailing of its semi-annual and annual
reports by household. This consolidation means that a
household having multiple accounts with the identical
address of record will receive a single copy of each
report. The fund also consolidates the mailing of its
prospectus so that a shareholder having multiple accounts
will receive a single Prospectus annually. Shareholders who
do not want this consolidation to apply to their accounts
should contact their Salomon Smith Barney Financial
Consultant or the transfer agent.
FINANCIAL STATEMENTS
The U.S. 5000 Index fund's annual report for the fiscal
year ended December 31, 1999 was filed on March 7, 2000,
Accession Number 91155-00-000182. The EAFE Index fund's
annual report for the fiscal year ended December 31, 1999
was filed on March 7, 2000, Accession Number 91155-00-
000183.
OTHER INFORMATION
Styles of Fund Management In an industry where the average
portfolio manager has seven years of experience (source:
ICI, 1998), the portfolio managers of Smith Barney mutual
funds average 21 years in the industry and 15 years with
the firm.
Smith Barney mutual funds offers more than 60 mutual funds.
We understand that many investors prefer an active role in
allocating the mix of funds in their portfolio, while
others want the asset allocation decisions to be made by
experienced managers.
That's why we offer four "styles" of fund management that
can be tailored to suit each investor's unique financial
goals.
Style Pure Series
Our Style Pure Series funds stay fully invested
within their asset class and investment style,
enabling investors to make asset allocation decisions
in conjunction with their Salomon Smith Barney
Financial Consultant.
Classic Investor Series
Our Classic Investor Series funds offer a range of
equity and fixed income strategies that seek to
capture opportunities across asset classes and
investment styles using disciplined investment
approaches.
The Concert Allocation Series
As a fund of funds, investors can select a Concert
Portfolio that may help their investment needs. As
needs change, investors can easily choose another
long-term, diversified investment from our Concert
family.
Special Discipline Series
Our Special Discipline Series funds are designed for
investors who are looking beyond more traditional
market categories: from natural resources to a roster
of state-specific municipal funds.
U.S. 5000 Index Fund
Wilshire Associates, Incorporated ("Wilshire Associates")
does not sponsor any portfolio of the fund, nor is it
affiliated in anyway with the funds. "Wilshire 5000 Equity
Index" and related marks are trademarks of Wilshire
Associates. None of the funds are sponsored, endorsed,
sold, or promoted by the index or its sponsor and neither
the index nor its sponsor make any representation or
warranty, express or implied, regarding the advisability of
investing in the funds.
The fund is not sponsored, endorsed, sold or promoted by
Wilshire Associates. Wilshire Associates makes no
representation or warranty, express or implied, to the
owners of this fund or any member of the public regarding
the advisability of investing in funds generally or in this
fund particularly or the ability of the Wilshire 5000 Index
to track general stock market performance. Wilshire's only
relationship to the fund is the licensing of certain
trademarks and and trade names of Wilshire. The Wilshire
5000 Index which is composed and calculated without regard
to the issuer of this fund or this fund. Wilshire has no
obligation to take the needs of the issuer of this fund or
the owners of this fund into consideration in determining,
composing or calculating the Wilshire 5000 Index. Wilshire
does not guarantee the accuracy or the completeness of the
Wilshire 5000 Index or any data included therein and
Wilshire shall have no liability for any errors, omissions,
or interruptions therein. Wilshire makes no warranty,
express or implied, as to results to be obtained by the
fund, owners of the product, or any other person or entity
from the use of the Wilshire 5000 Index or any data
included therein. Wilshire makes no express or implied
warranties, and expressly disclaims all warranties of
merchantability or fitness for a particular purpose or use
with respect to the Wilshire 5000 Index or any data
included therein. Without limiting any of the foregoing,
in no event shall Wilshire have any liability for any
special, punitive, indirect, or consequential damages
(including lost profits), even if notified of the
possibility of such damages.
U.S. 5000 Index Fund
"S&P 500(r)" is a trademark of The McGraw-Hill Companies, Inc.
and has been licensed for use by Salomon Smith Barney. The
fund is not sponsored, endorsed, sold or promoted by
Standard & Poor's (S&P), a division of The McGraw-Hill
Companies, Inc. S&P makes no representation or warranty,
express or implied, to the shareholders of the fund or any
member of the public regarding the advisability of
investing in securities generally or in the fund
particularly or the ability of the S&P 500 Index to track
general stock market performance. S&P's only relationship
to Salomon Smith Barney is the licensing of certain
trademarks and trade names of S&P and the S&P 500 Index
which is determined, composed and calculated by S&P without
regard to Salomon Smith Barney or the fund. S&P has no
obligation to take the needs of Salomon Smith Barney or the
shareholders of the fund into consideration in determining,
composing or calculating the S&P 500 Index. S&P is not
responsible for and has not participated in the
determination of the prices and amount of the fund's shares
or the timing of the issuance or sale of the fund's shares
or in the determination or calculation of the equation by
which fund shares are to be converted into cash. S&P has
no obligation or liability in connection with the
administration, marketing or trading of fund shares.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P
500 INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY
FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO
WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE FUND,
OWNERS OF THE FUND, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P
500 INDEX OR ANY DATA INCLUDED THEREIN. S&P MAKES NO EXPRESS OR
IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO
THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY
OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY
SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST
PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
EAFE Index Fund
The fund is not sponsored, endorsed, sold or promoted by
MSCI or any affiliate of MSCI. Neither MSCI nor any other
party makes any representation or warranty, express or
implied, to the owners of this fund or any member of the
public regarding the advisability of investing in funds
generally or in this fund particularly or the ability of
the EAFE Index to track general stock market performance.
MSCI is the licensor of certain trademarks, service marks,
and trade names of MSCI and the EAFE Index which is
determined, composed and calculated by MSCI without regard
to the issuer of this fund or this fund. MSCI has no
obligation to take the needs of the issuer of this fund of
the owners of this fund into consideration in determining,
composing or calculating the EAFE Index. MSCI is not
responsible for and has not participated in the
determination or calculation of the equation by which the
fund is redeemable for cash. Neither MSCI nor any other
party has any obligation or liability to owners of this
fund in connection with the administration, marketing or
trading of this fund.
ALTHOUGH MSCI SHALL OBTAIN INFORMATION FOR INCLUSION IN OR
FOR USE IN THE CALCULATION OF THE INDEXES FROM SOURCES
WHICH MSCI CONSIDERS RELIABLE, NEITHER MSCI NOR ANY OTHER
PARTY GUARANTEES THE ACCURACY AND/OR THE COMPLETENESS OF
THE INDEXES OR ANY DATA INCLUDED THEREIN. NEITHER MSCI NOT
ANY OTHER PARTY MAKES ANY WARRANTY, EXPRESS OR IMPLIED, AS
TO RESULTS TO BE OBTAINED BY LICENSEE, LICENSEE'S CUSTOMERS
AND COUNTERPARTIES, OWNERS OF THE FUNDS, OR ANY OTHER
PERSON OR ENTITY FROM THE USE OF THE INDEXES OR ANY DATA
INCLUDED THEREIN IN CONNECTION WITH THE RIGHTS LICENSED
HEREUNDER OR FOR ANY OTHER USE. NEITHER MSCI NOT ANY OTHER
PARTY MAKES ANY EXPRESS OF IMPLIED WARRANTIES, AND MSCI
HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH
RESPECT TO THE INDEXES OR ANY DATA INCLUDED THEREIN.
WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL
MSCI OR ANY OTHER PARTY HAVE ANY LIABILITY FOR ANY DIRECT,
INDIRECT, SPECIAL, PUNITIVE, CONSEQUENTIAL OR ANY OTHER
DAMAGES (INCLUDING LOST PROFITS) EVEN IF NOTIFIED OF THE
POSSIBILITY OF SUCH DAMAGES
APPENDIX
Description of certain ratings assigned by Standard &
Poor's Corporation ("S&P") and Moody's Investors Service,
Inc. ("Moody's")
APPENDIX
DESCRIPTION OF COMMERCIAL PAPER RATINGS
A-1 and Prime-1 Commercial Paper Ratings
The rating A-1 (including A-1+) is the highest commercial
paper rating assigned by S&P. Commercial paper rated A-1 by
S&P has the following characteristics:
? liquidity ratios are adequate to meet cash
requirements;
? long-term senior debt is rated "A" or better;
? the issuer has access to at least two additional
channels of borrowing;
? basic earnings and cash flow have an upward trend with
allowance made for unusual circumstances;
? typically, the issuer's industry is well established
and the issuer has a strong position within the industry;
and
? the reliability and quality of management are
unquestioned.
Relative strength or weakness of the above factors
determines whether the issuer's commercial paper is
rated A-1, A-2 or A-3. Issues rated A-1 that are
determined by S&P to have overwhelming safety
characteristics are designated A-1+.
The rating Prime-1 is the highest commercial paper rating
assigned by Moody's. Among the factors considered by
Moody's in assigning ratings are the following:
? evaluation of the management of the issuer;
? economic evaluation of the issuer's industry or
industries and an appraisal of speculative-type risks
which may be inherent in certain areas;
? evaluation of the issuer's products in relation
to competition and customer acceptance;
? liquidity;
? amount and quality of long-term debt;
? trend of earnings over a period of ten years;
? financial strength of parent company and the
relationships which exist with the issuer; and
? recognition by the management of obligations which
may be present or may arise as a result of public interest
questions and preparations to meet such obligations.
SMITH BARNEY
INVESTMENT TRUST
U.S. 5000 Index Fund
EAFE Index Fund
April 28, 2000
SMITH BARNEY INVESTMENT TRUST
388 Greenwich Street
New York, NY 10013
SALOMON SMITH BARNEY
A Member of
Citigroup [Symbol]
April 28, 2000
STATEMENT OF ADDITIONAL INFORMATION
SMITH BARNEY INVESTMENT TRUST
Smith Barney U.S. 5000 Index Fund
Smith Barney EAFE Index Fund
388 Greenwich Street
New York, New York 10013
(800) 451-2010
This Statement of Additional Information ("SAI") is meant
to be read in conjunction with the combined prospectus of
the Smith Barney U.S. 5000 Index Fund (the "U.S. 5000 Index
Fund") and the Smith Barney EAFE Index Fund (the "EAFE
Index Fund") (each, a "fund") which also includes the Smith
Barney S&P 500 Index Fund, dated April 28, 2000, as amended
or supplemented from time to time (each, the "prospectus"),
and is incorporated by reference in its entirety into the
prospectus. Additional information about the fund's
investments is available in the fund's annual and semi-
annual reports to shareholders, which are incorporated
herein by reference. The prospectus and copies of the
reports may be obtained free of charge by contacting a
Salomon Smith Barney Financial Consultant, or by writing or
calling Salomon Smith Barney Inc. ("Salomon Smith Barney")
at the address or telephone number above. Each fund is a
separate investment series of Smith Barney Investment trust
(the "trust").
TABLE OF CONTENTS
Investment Objective and Management Policies......... 2
Portfolio Securities....................... 8
Investment Restrictions of the Fund............................... 27
Risk Considerations....................... 33
Trustees of the Trust and Executive Officers of the Fund...
36
Investment Management and Other Services............ 38
Portfolio Transactions and Turnover........................... 43
Purchase of Shares............................... 45
Redemption of Shares.............................. 47
Exchange Privilege......................... 49
Valuation of Shares................... 50
Performance Data................... 51
Dividends, Distributions and Taxes........................ 54
Additional Information................ 59
Other Information....................... 62
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES tc "INVESTMENT
OBJECTIVES AND MANAGEMENT POLICIES"
General
In order to take advantage of the economies of scale
offered by a larger pool of assets, each fund is structured
as a "feeder" fund. A feeder fund seeks to achieve its
investment objective by investing its assets in a "Master
Portfolio" managed by Barclays Global Fund Advisors, N.A.
("BGFA"). The Master Portfolio invests substantially all
of its assets in securities in accordance with investment
objectives, policies, and limitations that are
substantially similar to those of the fund. In other
words, the fund "feeds" shareholder investments into its
corresponding Master Portfolio.
The prospectus discusses each fund's and each Master
Portfolio's investment objective and policies. This
section contains supplemental information concerning the
types of securities and other instruments in which each
fund and each Master Portfolio may invest, the investment
policies and portfolio strategies the fund and each Master
Portfolio may utilize and certain risks associated with
these investments, policies and strategies. SSB Citi Fund
Management LLC (successor to SSBC Management Inc.) ("SSB
Citi" or the "administrator") serves as the fund's
administrator.
Master Investment Portfolio ("MIP") is an open-end,
management investment company, organized on October 21,
1993 as a business trust under the laws of the State of
Delaware. MIP is a "series fund," which is a mutual fund
divided into separate portfolios. The U.S. Equity Index
Master Portfolio and the International Index Portfolio are
diversified portfolios of MIP. Each Master Portfolio is
treated as a separate entity for certain matters under the
Investment Company Act of 1940, as amended (the "1940
Act"), and for other purposes, and an interestholder of the
Master Portfolio is not deemed to be an interestholder of
any other portfolio of MIP.
Beneficial interests in the Master Portfolios are issued
solely in private placement transactions which do not
involve any "public offering" within the meaning of
Regulation D under the Securities Act of 1933, as amended
(the "1933 Act"). Investments in the Master Portfolios may
be made only by investment companies or certain other
entities, which are "accredited investors" within the
meaning of Regulation D under the 1933 Act. Investment
companies that hold units of beneficial interest
("interests") in the Master Portfolios are sometimes
referred to herein as "feeder funds."
Master/Feeder Fund Structure
Unlike mutual funds that directly acquire and managed their
own portfolio of securities, each fund is a "feeder" fund
in a "master/feeder" structure. This means that each fund
invests in a larger "master" portfolio of securities that
has investment objectives and policies substantially
identical to those of each fund. The investment
performance of each fund depends on the investment
performance of each Master Portfolio. If the investment
policies of the fund and the Master Portfolio become
inconsistent, the board of trustees of the fund can decide
what actions to take. Actions the board of trustees may
recommend include withdrawal of the fund's assets from the
Master Portfolio. The board of trustees would then
consider whether it should hire its own investment adviser,
invest in a different master portfolio, or take other
action.
The U.S. 5000 Index Fund seeks to offer long-term capital
growth by approximating the performance, before expenses,
of the Wilshire 5000 Index.
The U.S. 5000 Index Fund's Master Portfolio, the U.S.
Equity Index Master Portfolio, invests substantially all of
its assets in two other Master Portfolios of BGFA. One of
these Master Portfolios invests substantially all of its
assets in a representative sample of stocks comprising the
Wilshire 4500 Index (the "Extended Index Portfolio"). The
other Master Portfolio invests substantially all of it
assets in stocks comprising the S&P 500 Index (the "S&P 500
Index Portfolio") (together, the "Underlying Portfolios").
The Master Portfolio's assets will be invested in the
Underlying Portfolios in proportions adjusted periodically
to maintain the capitalization range of the Wilshire 5000
Index.
The EAFE Index Fund seeks to offer long-term capital growth
and diversification by approximating the performance,
before expenses, of the Morgan Stanley Capital
International Europe, Australia, and Far East Free Index
(the " EAFE Index").
Because it can be very expensive to buy and sell all of the
securities in a target benchmark, the Master Portfolio
employs "sampling" techniques to approximate benchmark
characteristics such as capitalization and industry weight
using fewer securities than contained in the benchmark.
Therefore, the performance of the Master Portfolio versus
its benchmark can be expected to deviate more than that of
funds investing in all of the securities contained in a
benchmark.
The EAFE Index Fund and the International Index Master
Portfolio maintain equity exposure for cash balances by
purchasing appropriate futures contracts. Futures
contracts are not used for leverage. The EAFE Index Fund
and the International Index Master Portfolio seek to remain
fully invested at all times, without significant cash
balances.
INVESTMENT OBJECTIVE-U.S. Equity Index Master Portfolio.
? The U.S. Equity Index Master Portfolio seeks to
match as closely as practicable, before fees
and expenses, the performance of the Wilshire
5000 Equity Index (the "Wilshire 5000 Index").
The U.S. Equity Index Master Portfolio uses a
"fund of funds" structure to track the Wilshire
5000 Index, which is comprised of the stocks in
the Standard & Poor's 500 Stock Index ("S&P 500
Index"), except for a small number of foreign
stocks that represent approximately 3% of the
S&P 500 Index, and the stocks in the Wilshire
4500 Equity Index (the "Wilshire 4500 Index").
In this regard, the U.S. Equity Index Master
Portfolio seeks to achieve its objective by
investing substantially all of its assets in
two other portfolios of MIP-the Extended Index
Portfolio (which invests substantially all of
its assets in a representative sample of stocks
comprising the Wilshire 4500 Index) and the S&P
500 Index Portfolio (which invests
substantially all of its assets in stocks
comprising the S&P 500 Index) (together, the
"Underlying Portfolios"). The U.S. Equity
Index Master Portfolio's assets will be
invested in the Underlying Portfolios of MIP in
proportions adjusted periodically to maintain
the capitalization range of the Wilshire 5000
Index. The performance of the U.S. Equity
Index Master Portfolio will correspond directly
to the performance of the Underlying
Portfolios. The Master Portfolio and the fund
may not track the corresponding index
perfectly, as differences between the index and
the Master Portfolio's Underlying Portfolios
may cause differences in performance. The U.S.
Equity Index Master Portfolio's investment
objective can be changed by MIP's board of
trustees without interestholder approval. The
objective and policies of the Master Portfolio
determine the types of portfolio securities in
which it invests, the degree of risk to which
it is subject and, ultimately, its performance.
There can be no assurance that the Master
Portfolio's investment objective will be
achieved.
INVESTMENT OBJECTIVES-Underlying Portfolios
? The S&P 500 Index Portfolio seeks to provide
investment results, before fees and expenses,
that correspond to the total return performance
of publicly traded common stocks in the
aggregate, as represented by the Standard &
Poor's 500 Stock Index.
? The Extended Index Portfolio seeks to
approximate, before fees and expenses, the
capitalization range and performance of the
Wilshire 4500 Index.
ABOUT THE INDICES The Wilshire 5000 Index was created
December 31, 1980. It measures the performance of all U.S.
headquartered equity securities with readily available
price data. Over 7,000 capitalization weighted security
returns are used to adjust the index.
? The Wilshire 4500 Index was created December
31, 1983. It is the Wilshire 5000 Index with
most of the companies in the S&P 500 Index
removed. Over 6,500 capitalization weighted
security returns are used to adjust the index.
? The S&P 500 Index was created March 5, 1957.
It is composed of 500 selected common stocks,
most of which are listed on the NYSE.
The securities comprising the S&P 500 Index represent the
stocks of primarily large-cap companies. The securities
comprising the Wilshire 4500 Index represent the smaller-
and medium-sized companies of the Wilshire 5000 Index. In
order for the U.S. Equity Index Master Portfolio to
maintain a capitalization weighted representative sample of
the Wilshire 5000 Index, it will invest in the Underlying
Portfolios in proportion to the overall capitalization of
their respective indices. Based on their relative overall
capitalizations as of the date of this SAI, roughly two
thirds of the U.S. Equity Index Master Portfolio's
portfolio will be invested in the S&P 500 Index Portfolio
and the other third in the Extended Index Portfolio.
Historically, the overall capitalization of the indices
have varied, and as a result, the U.S. Equity Index Master
Portfolio's portfolio is also likely to vary.
INVESTMENT POLICIES- U.S. Equity Index Master Portfolio.
? The U.S. Equity Index Master Portfolio seeks to
match the total return performance of the
Wilshire 5000 Index, which is composed of over
7,000 selected common stocks traded on the New
York Stock Exchange, American Stock Exchange
and Nasdaq Stock Market. The weightings of
stocks in the Wilshire 5000 Index are based on
each stock's relative total market
capitalization; that is, its market price per
share times the number of shares outstanding.
The percentage of the U.S. Equity Index Master
Portfolio's assets invested in the Underlying
Portfolios is approximately the same as the
percentage such Portfolios are invested in
stocks represented in the Wilshire 5000 Index.
Securities are selected for investment by the
Underlying Portfolios as indicated below.
INVESTMENT POLICIES - Underlying Portfolios.
? The Extended Index Portfolio seeks to match the
total return performance of U.S. stocks,
excluding the large-cap stocks included in the
S&P 500 Index. The fund defines these stocks
as those comprising the Wilshire 4500 Index,
which is composed of over 6,500 equity stocks
of issuers headquartered in the United States.
The Index is almost entirely comprised of
common stocks listed on the New York Stock
Exchange, American Stock Exchange or Nasdaq
Stock Market. The weightings of stocks in the
Wilshire 4500 Index are based on each stock's
relative total market capitalization, that is,
its market price per share times the number of
shares outstanding. The Extended Index
Portfolio invests in a representative sample of
these securities. Securities are selected for
investment by the Extended Index Portfolio in
accordance with their capitalization, industry
sector and valuation, among other factors.
? The S&P 500 Index Portfolio seeks to match the
total return performance of the S&P 500 Index,
which is composed of 500 selected common
stocks, most of which are listed on the New
York Stock Exchange. The weightings of stocks
in the S&P 500 Index are based on each stock's
relative total market capitalization; that is,
its market price per share times the number of
shares outstanding. The percentage of the S&P
500 Index Portfolio's assets invested in a
given stock is approximately the same as the
percentage such stock represents in the S&P 500
Index
Unlike the Extended Index Portfolio, which invests in a
representative sample of the over 6,500 stocks represented
by its benchmark, the Wilshire 4500 Index, the S&P 500
Index Portfolio invests in all 500 of the stocks
represented by its benchmark, the S&P 500 Index.
No attempt is made to manage the portfolio of the U.S.
Equity Index Master Portfolio using economic, financial or
market analysis. The U.S. Equity Index Master Portfolio is
managed by determining which proportion of its assets will
be invested in each Underlying Portfolio to match, to the
extent feasible, the capitalization range and returns of
the Wilshire 5000 Index. The Underlying Portfolios
determine which securities are to be purchased or sold to
match or sample their respective benchmarks. Under normal
market conditions, at least 90% of the value of the U.S.
Equity Index Master Portfolio's total assets is invested,
through the Underlying Portfolios, in securities comprising
the Wilshire 5000 Index. The U.S. Equity Index Master
Portfolio's ability to match its investment performance to
the investment performance of the Wilshire 5000 Index may
be affected by, among other things, the U.S. Equity Index
Master Portfolio's and Underlying Portfolios' expenses, the
amount of cash and cash equivalents held by the U.S. Equity
Index Master Portfolio and the Underlying Portfolios, the
manner in which the total returns of the Wilshire 5000
Index, the Wilshire 4500 Index and the S&P 500 Index are
calculated; the size of the U.S. Equity Index Master
Portfolio's investment portfolio; and the timing, frequency
and size of shareholder purchases and redemptions.
The Underlying Portfolios use cash flows from
interestholder purchase and redemption activity to
maintain, to the extent feasible, the similarity of their
portfolio to the securities comprising their respective
benchmarks. The U.S. Equity Index Master Portfolio uses
cash flows from its interestholder purchase and redemption
activity to periodically adjust its investment in the
Underlying Portfolios to maintain, to the extent feasible,
the similarity of its capitalization range and returns to
those of the securities comprising the Wilshire 5000 Index.
BGFA regularly monitors the U.S. Equity Index Master
Portfolio's correlation to the Wilshire 5000 Index and
adjusts the U.S. Equity Index Master Portfolio's investment
in the Underlying Portfolios to the extent necessary.
Inclusion of a security in an Index in no way implies an
opinion by the sponsor of the Index as to its
attractiveness as an investment.
The sampling techniques utilized by the U.S. Equity Index
Master Portfolio and the Extended Index Portfolio are
designed to allow said portfolios to substantially
duplicate the investment performance of their respective
benchmarks. However, the U.S. Equity Index Master
Portfolio is not expected to track the Wilshire 5000 Index
with the same degree of accuracy that complete replication
of such Index would provide. In addition, at times, the
portfolio composition of the U.S. Equity Index Master
Portfolio may be altered (or "rebalanced") to reflect
changes in the characteristics of the Wilshire 5000 Index,
primarily by adjusting the U.S. Equity Index Master
Portfolio's investment in the Underlying Portfolios. The
S&P 500 Index seeks to replicate completely the investments
and capitalization range of the S&P 500 Index
The investment policies, strategies, techniques and
restrictions employed by the U.S. Equity Index Master
Portfolio in pursuing its investment objective vis-a-vis
the Wilshire 5000 Index are substantially similar to those
employed by the Underlying Portfolios in pursuing their
respective investment objectives vis-a-vis their respective
benchmarks. Unless otherwise indicated, references to the
investment policies, strategies, techniques and
restrictions of the U.S. Equity Index Master Portfolio also
are references to the investment policies, strategies,
techniques and restrictions of the Underlying Portfolios in
which the U.S. Equity Index Master Portfolio invests
substantially all of its assets.
In seeking to match the performance of the Wilshire 5000
Index, the U.S. Equity Index Master Portfolio also may
engage in futures and options transactions and other
derivative securities transactions and lend its portfolio
securities, each of which involves risk. The U.S. Equity
Index Master Portfolio attempts to be fully invested at all
times in securities comprising the Wilshire 5000 Index and
in futures contracts and options on futures contracts,
although the U.S. Equity Index Master Portfolio may invest
up to 10% of its assets in high-quality money market
instruments to provide liquidity. The U.S. Equity Index
Master Portfolio also may invest up to 15% of the value of
its net assets in illiquid securities, including repurchase
agreements providing for settlement in more than seven
days.
INVESTMENT OBJECTIVE - International Index Master Portfolio
? The International Index Master Portfolio seeks to
match as closely as practicable, before fees and
expenses, the performance of an international
portfolio of common stocks represented by the
Morgan Stanley Capital International Europe,
Australia, Far East Free Index (the "EAFE Free
Index," or the "Index").
The International Index Master Portfolio's investment
objective can be changed by MIP's board of trustees without
interestholder approval. The objective and policies of the
Master Portfolio determines the types of portfolio
securities in which it invests, the degree of risk to which
it is subject and, ultimately, its performance. There can
be no assurance that the Master Portfolio's investment
objective will be achieved.
PRINCIPAL STRATEGIES - International Index Master Portfolio
? The International Index Master Portfolio seeks to match
the total return performance of foreign stock markets by
investing in common stocks included in the EAFE Free
Index. The EAFE Free Index is a capitalization-weighted
index that currently includes stocks of companies
located in 15 European countries (Austria, Belgium,
Denmark, Finland, France, Germany, Ireland, Italy, the
Netherlands, Norway, Portugal, Spain, Sweden,
Switzerland and the United Kingdom), Australia, New
Zealand, Hong Kong, Japan and Singapore The EAFE Free
Index broadly represents the performance of foreign
stock markets. The weightings of stocks in the EAFE
Free Index are based on each stock's relative total
market capitalization, that is, its market price per
share times the number of shares outstanding. The
Master Portfolio invests in a representative sample of
these securities. Securities are selected for
investment by the Master Portfolio in accordance with
their capitalization, industry sector and valuation,
among other factors.
No attempt is made to manage the portfolio of the Master
Portfolio using economic, financial and market analysis.
The Master 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 Free Index. Under normal market conditions, at
least 90% of the value of the Master Portfolio's total
assets is invested in securities comprising the EAFE Free
Index. The Master Portfolio attempts to achieve, in both
rising and falling markets, a correlation of at least 95%
between the total return of its net assets before expenses
and the total return of the EAFE Free Index. The Master
Portfolio's ability to match its investment performance to
the investment performance of the EAFE Free Index may be
affected by, among other things: the Master Portfolio's
expenses; the amount of cash and cash equivalents held by
the Master Portfolio; the manner in which the total return
of the EAFE Free Index is calculated; the size of the
Master Portfolio's investment portfolio; and the timing,
frequency and size of interestholder purchases and
redemptions. The Master Portfolio uses cash flows from
interestholder purchase and redemption activity to
maintain, to the extent feasible, the similarity of its
capitalization range and returns to those of the securities
comprising the EAFE Free Index. BGFA regularly monitors
the Master Portfolio's correlation to the EAFE Free Index
and adjusts the Master Portfolio's portfolio to the extent
necessary. Inclusion of a security in the EAFE Free Index
in no way implies an opinion by MSCI as to its
attractiveness as an investment.
BGFA may use statistical sampling techniques to attempt to
replicate the returns of the EAFE Free Index using a
smaller number of securities. Statistical sampling
techniques attempt to match the investment characteristics
of the index and the fund by taking into account such
factors as capitalization, industry exposures, dividend
yield, price/earnings ratio, price/book ratio, earnings
growth, country weightings and the effect of foreign taxes.
The sampling techniques utilized by the Master Portfolio
are designed to allow the Master Portfolio to substantially
duplicate the investment performance of the EAFE Free
Index. However, the Master Portfolio is not expected to
track the EAFE Free Index with the same degree of accuracy
that complete replication of such Index would provide. In
addition, at times, the portfolio composition of the Master
Portfolio may be altered (or "rebalanced") to reflect
changes in the characteristics of the EAFE Free Index.
In seeking to match the performance of the EAFE Free Index,
the Master Portfolio also may engage in futures and options
transactions and other derivative securities transactions
and lend its portfolio securities, each of which involves
risk. The Master Portfolio attempts to be fully invested
at all times in securities comprising the EAFE Free Index
and in futures contracts and options on futures contracts,
although the Master Portfolio may invest up to 10% of its
assets in high-quality money market instruments to provide
liquidity. The Master Portfolio may invest up to 15% of
the value of its net assets in illiquid securities,
including repurchase agreements providing for settlement in
more than seven days.
PORTFOLIO SECURITIES
The U.S. 5000 Index Fund and the EAFE Index Fund
Repurchase Agreements. The fund may agree to purchase
securities from a bank or recognized securities dealer and
simultaneously commit to resell the securities to the bank
or dealer at an agreed-upon date and price reflecting a
market rate of interest unrelated to the coupon rate or
maturity of the purchased securities ("repurchase
agreements"). The fund would maintain custody of the
underlying securities prior to their repurchase; thus, the
obligation of the bank or dealer to pay the repurchase
price on the date agreed to would be, in effect, secured by
such securities. If the value of such securities were less
than the repurchase price, plus interest, the other party
to the agreement would be required to provide additional
collateral so at all times the collateral is at least 102%
of the repurchase price plus accrued interest. Default by
or bankruptcy of a seller would expose the fund to possible
loss because of adverse market action, expenses and/or
delays in connection with the disposition of the underlying
obligations. The financial institutions with which the
fund may enter into repurchase agreements will be banks and
non-bank dealers of U.S. Government securities on the
Federal Reserve Bank of New York's list of reporting
dealers, if such banks and non-bank dealers are deemed
creditworthy by the fund's manager. The manager will
continue to monitor creditworthiness of the seller under a
repurchase agreement, and will require the seller to
maintain during the term of the agreement the value of the
securities subject to the agreement to equal at least 102%
of the repurchase price (including accrued interest). In
addition, SSB Citi will require the value of this
collateral, after transaction costs (including loss of
interest) reasonably expected to be incurred on a default,
be equal to 102% or greater than the repurchase price
(including accrued premium) provided in the repurchase
agreement or the daily amortization of the difference
between the purchase price and the repurchase price
specified in the repurchase agreement. The manager will
mark-to-market daily the value of the securities.
Repurchase agreements are considered to be loans by the
fund under the 1940 Act.
U.S. Equity Index Master Portfolio
The U.S. Equity Index Master Portfolio may invest in the
securities described below.
The investment policies, strategies, techniques and
restrictions employed by the Master Portfolio in pursuing
its investment objective vis-a-vis the Wilshire 5000 Index
are substantially similar to those employed by the
Underlying Portfolios in pursuing their respective
investment objectives vis-a-vis their respective
benchmarks. Unless otherwise indicated, references to the
investment policies, strategies, techniques and
restrictions of the U.S Equity Index Master Portfolio also
are references to the investment policies, strategies,
techniques and restrictions of the Underlying Portfolios in
which the U.S, Equity Index Master Portfolio invests
substantially all of its assets.
Futures Contracts and Options Transactions-The U.S. Equity
Index Master Portfolio may use futures as a substitute for
a comparable market position in the underlying securities.
A futures contract is an agreement between two parties, a
buyer and a seller, to exchange a particular commodity or
financial statement at a specific price on a specific date
in the future. An option transaction generally involves a
right, which may or may not be exercised, to buy or sell a
commodity or financial instrument at a particular price on
a specified future date. Futures contracts and options are
standardized and traded on exchanges, where the exchange
serves as the ultimate counterparty for all contracts.
Consequently, the primary credit risk on futures contracts
is the creditworthiness of the exchange. Futures contracts
are subject to market risk (i.e., exposure to adverse price
changes).
Although the U.S. Equity Index Master Portfolio intends to
purchase or sell futures contracts only if there is an
active market for such contracts, no assurance can be given
that a liquid market will exist for any particular contract
at any particular time. Many futures exchanges and boards
of trade limit the amount of fluctuation permitted in
futures contract prices during a single trading day. Once
the daily limit has been reached in a particular contract,
no trades may be made that day at a price beyond that limit
or trading may be suspended for specified periods during
the trading day. Futures contract prices could move to the
limit for several consecutive trading days with little or
no trading, thereby preventing prompt liquidation of
futures positions and potentially subjecting the U.S.
Equity Index Master Portfolio to substantial losses. If it
is not possible, or if the U.S. Equity Index Master
Portfolio determines not to close a futures position in
anticipation of adverse price movements, the U.S. Equity
Index Master Portfolio will be required to make daily cash
payments on variation margin.
Stock Index Futures and Options on Stock Index Futures-The
U.S. Equity Index Master Portfolio may invest in stock
index futures and options on stock index futures as a
substitute for a comparable market position in the
underlying securities. A stock index future obligates the
seller to deliver (and the purchaser to take), effectively,
an amount of cash equal to a specific dollar amount times
the difference between the value of a specific stock index
at the close of the last trading day of the contract and
the price at which the agreement is made. No physical
delivery of the underlying stocks in the index is made.
With respect to stock indices that are permitted
investments, the U.S. Equity Index Master Portfolio intends
to purchase and sell futures contracts on the stock index
for which it can obtain the best price with consideration
also given to liquidity. There can be no assurance that a
liquid market will exist at the time when the U.S. Equity
Index Master 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.
Index Swaps-The U.S. Equity Index Master Portfolio may
enter into index swaps in pursuit of its investment
objective. Index swaps involve the exchange by the U.S.
Equity Index Master Portfolio with another party of cash
flows based upon the performance of an index of securities
or a portion of an index of securities that usually include
dividends or income. In each case, the exchange
commitments can involve payments to be made in the same
currency or in different currencies. The U.S. Equity Index
Master Portfolio will usually enter into swaps on a net
basis. In so doing, the two payment streams are netted
out, with the U.S. Equity Index Master Portfolio receiving
or paying, as the case may be, only the net amount of the
two payments. If the U.S. Equity Index Master Portfolio
enters into a swap, it will maintain a segregated account
on a gross basis, unless the contract provides for a
segregated account on a net basis. If there is a default
by the other party to such a transaction, the U.S. Equity
Index Master Portfolio will have contractual remedies
pursuant to the agreements related to the transaction.
The use of index swaps is a highly specialized activity
which involves investment techniques and risks different
from those associated with ordinary portfolio security
transactions. There is no limit, except as provided below,
on the amount of swap transactions that may be entered into
by the U.S. Equity Index Master 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 payments that the
U.S. Equity Index Master Portfolio is contractually
obligated to make. There is also a risk of a default by
the other party to a swap, in which case the U.S. Equity
Index Master Portfolio may not receive net amount of
payments that the U.S. Equity Index Master Portfolio
contractually is entitled to receive.
Borrowing Money-As a fundamental policy, the U.S. Equity
Index Master Portfolio is permitted to borrow to the extent
permitted under the 1940 Act. However, the U.S. Equity
Index Master Portfolio currently intends to borrow money
only for temporary or emergency (not leveraging) purposes,
and may borrow up to one-third of the value of its total
assets (including the amount borrowed) valued at the lesser
of cost or market, less liabilities (not including the
amount borrowed) at the time the borrowing is made.
International Index Master Portfolio
The International Index Master Portfolio may invest in the
securities described below.
Foreign Currency Futures Contracts.
In General. A foreign currency futures contract is an
agreement between two parties for the future delivery of a
specified currency at a specified time and at a specified
price. A "sale" of a futures contract means the
contractual obligation to deliver the currency at a
specified price on a specified date, or to make the cash
settlement called for by the contract. Futures contracts
have been designed by exchanges which have been designated
"contract markets" by the Commodity Futures Trading
Commission ("CFTC") and must be executed through a
brokerage firm, known as a futures commission merchant,
which is a member of the relevant contract market. Futures
contracts trade on these markets, and the exchanges,
through their clearing organizations, guarantee that the
contracts will be performed as between the clearing members
of the exchange.
While futures contracts based on currencies do provide for
the delivery and acceptance of a particular currency, such
deliveries and acceptances are very seldom made.
Generally, a futures contract is terminated by entering
into an offsetting transaction. The International Index
Master Portfolio will incur brokerage fees when it
purchases and sells futures contracts. At the time such a
purchase or sale is made, the International Index Master
Portfolio must provide cash or money market securities as a
deposit known as "margin." The initial deposit required
will vary, but may be as low as 2% or less of a contract's
face value. Daily thereafter, the futures contract is
valued through a process known as "marking to market," and
the International Index Master Portfolio may receive or be
required to pay "variation margin" as the futures contract
becomes more or less valuable.
Purchase and Sale of Currency Futures Contracts. In order
to hedge its portfolio and to protect it against possible
variations in foreign exchange rates pending the settlement
of securities transactions, the International Index Master
Portfolio may buy or sell currency futures contracts. If a
fall in exchange rates for a particular currency is
anticipated, the International Index Master Portfolio may
sell a currency futures contract as a hedge. If it is
anticipated that exchange rates will rise, the
International Index Master Portfolio may purchase a
currency futures contract to protect against an increase in
the price of securities denominated in a particular
currency the International Index Master Portfolio intends
to purchase. These futures contracts will be used only as
a hedge against anticipated currency rate changes.
A currency futures contract sale creates an obligation by
the International Index Master Portfolio, as seller, to
deliver the amount of currency called for in the contract
at a specified future time for a specified price. A
currency futures contract purchase creates an obligation by
the International Index Master Portfolio, as purchaser, to
take delivery of an amount of currency at a specified
future time at a specified price. Although the terms of
currency futures contracts specify actual delivery or
receipt, in most instances the contracts are closed out
before the settlement date without the making or taking of
delivery of the currency. Closing out of a currency
futures contract is effected by entering into an offsetting
purchase or sale transaction.
In connection with transactions in foreign currency
futures, the International Index Master Portfolio will be
required to deposit as "initial margin" an amount of cash
or short-term government securities equal to from 5% to 8%
of the contract amount. Thereafter, subsequent payments
(referred to as "variation margin") are made to and from
the broker to reflect changes in the value of the futures
contract.
Risk Factors Associated with Futures Transactions. The
effective use of futures strategies depends on, among other
things, the International Index Master Portfolio's ability
to terminate futures positions at times when BGFA deems it
desirable to do so. Although the International Index
Master Portfolio will not enter into a futures position
unless BGFA believes that a liquid secondary market exists
for such future, there is no assurance that the
International Index Master Portfolio will be able to effect
closing transactions at any particular time or at an
acceptable price. The International Index Master Portfolio
generally expects that its futures transactions will be
conducted on recognized US. and foreign securities and
commodity exchanges.
Futures markets can be highly volatile and transactions of
this type carry a high risk of loss. Moreover, a
relatively small adverse market movement with respect to
these transactions may result not only in loss of the
original investment but also in unquantifiable further loss
exceeding any margin deposited.
The use of futures involves the risk of imperfect
correlation between movements in futures prices and
movements in the price of currencies which are the subject
of the hedge. The successful use of futures strategies
also depends on the ability of BGFA to correctly forecast
interest rate movements, currency rate movements and
general stock market price movements.
In addition to the foregoing risk factors, the following
sets forth certain information regarding the potential
risks associated with the International Index Master
Portfolio's futures transactions.
Risk of Imperfect Correlation. The International Index
Master Portfolio's ability effectively to hedge currency
risk through transactions in foreign currency futures
depends on the degree to which movements in the value of
the currency underlying such hedging instrument correlate
with movements in the value of the relevant securities held
by the International Index Master Portfolio. If the values
of the securities being hedged do not move in the same
amount or direction as the underlying currency, the hedging
strategy for the International Index Master Portfolio might
not be successful and the International Index Master
Portfolio could sustain losses on its hedging transactions
which would not be offset by gains on its portfolio. It is
also possible that there may be a negative correlation
between the currency underlying a futures contract and the
portfolio securities being hedged, which could result in
losses both on the hedging transaction and the portfolio
securities. In such instances, the International Index
Master Portfolio's overall return could be less than if the
hedging transactions had not been undertaken.
Under certain extreme market conditions, it is possible
that the International Index Master Portfolio will not be
able to establish hedging positions, or that any hedging
strategy adopted will be insufficient to completely protect
the International Index Master Portfolio.
The International Index Master Portfolio will purchase or
sell futures contracts only if, in BGFA's judgment, there
is expected to be a sufficient degree of correlation
between movements in the value of such instruments and
changes in the value of the relevant portion of the
International Index Master Portfolio's portfolio for the
hedge to be effective. There can be no assurance that
BGFA's judgment will be accurate.
Potential Lack of a Liquid Secondary Market. The ordinary
spreads between prices in the cash and futures markets, due
to differences in the natures of those markets, are subject
to distortions. First, all participants in the futures
market are subject to initial deposit and variation margin
requirements. This could require the International Index
Master Portfolio to post additional cash or cash
equivalents as the value of the position fluctuates.
Further, rather than meeting additional variation margin
requirements, investors may close futures contracts through
offsetting transactions which could distort the normal
relationship between the cash and futures markets. Second,
the liquidity of the futures market may be lacking. Prior
to exercise or expiration, a futures position may be
terminated only by entering into a closing purchase or sale
transaction, which requires a secondary market on the
exchange on which the position was originally established.
While the International Index Master Portfolio will
establish a futures position only if there appears to be a
liquid secondary market therefor, there can be no assurance
that such a market will exist for any particular futures
contract at any specific time. In such event it may not be
possible to close out a position held by the International
Index Master Portfolio, which could require the
International Index Master Portfolio to purchase or sell
the instrument underlying the position, make or receive a
cash settlement or meet ongoing variation margin
requirements. The inability to close out futures positions
also could have an adverse impact on the International
Index Master Portfolio's ability effectively to hedge its
securities, or the relevant portion thereof.
The liquidity of a secondary market in a futures contract
may be adversely affected by "daily price fluctuation
limits" established by the exchanges, which limit the
amount of fluctuation in the price of a contract during a
single trading day and prohibit trading beyond such limits
once they have been reached. The trading of futures
contracts also is subject to the risk of trading halts,
suspensions, exchange or clearing house equipment failures,
government intervention, insolvency of the brokerage firm
or clearing house or other disruptions of normal trading
activity, which could at times make it difficult or
impossible to liquidate existing positions or to recover
excess variation margin payments.
Trading and Position Limits. Each contract market on which
futures contracts arc traded has established a number of
limitations governing the maximum number of positions which
may be held by a trader, whether acting alone or in concert
with others. "Shares" means the equal proportionate
transferable units of interest into which the beneficial
interest of each Series or Class is divided from time to
time (including whole Shares and fractions of Shares).
BGFA does not believe that these trading and position
limits will have an adverse impact on the hedging
strategies regarding the International Index Master
Portfolio's investments.
Regulations on the Use of Futures Contracts. Regulations
of the CFTC require that the International Index Master
Portfolio enter into transactions in futures contracts for
hedging purposes only, in order to assure that it is not
deemed to be a "commodity pool" under such regulations. In
particular, CFTC regulations require that all short futures
positions be entered into for the purpose of hedging the
value of investment securities held by the International
Index Master Portfolio, and that all long futures positions
either constitute bona fide hedging transactions, as
defined in such regulations, or have a total value not in
excess of an amount determined by reference to certain cash
and securities positions maintained for the International
Index Master Portfolio, and accrued profits on such
positions. In addition, the International Index Master
Portfolio may not purchase or sell such instruments if,
immediately thereafter, the sum of the amount of initial
margin deposits on its existing futures positions and
premiums paid for options on futures contracts would exceed
5% of the market value of the International Index Master
Portfolio's total assets.
When the International Index Master Portfolio purchases a
futures contract, an amount of cash or cash equivalents or
high quality debt securities will be segregated with the
International Index Master Portfolio's custodian so that
the amount so segregated, plus the initial deposit and
variation margin held in the account of its broker, will at
all times equal the value of the futures contract, thereby
insuring that the use of such futures is unleveraged.
The International Index Master Portfolio's ability to
engage in the hedging transactions described herein may be
limited by the policies and concerns of various Federal and
state regulatory agencies. Such policies may be changed by
vote of the board of trustees.
BGFA uses a variety of internal risk management procedures
to ensure that derivatives use is consistent with the
International Index Master Portfolio's investment
objective, does not expose the International Index Master
Portfolio to undue risk and is closely monitored. These
procedures include providing periodic reports to the board
of trustees concerning the use of derivatives.
Foreign Obligations and Securities.
The foreign securities in which the International Index
Master Portfolio may invest include common stocks,
preferred stocks, warrants, convertible securities and
other securities of issuers organized under the laws of
countries other than the United States. Such securities
also include equity interests in foreign investment funds
or trusts, real estate investment trust securities and any
other equity or equity-related investment whether
denominated in foreign currencies or U.S. dollars.
The International Index Master Portfolio may invest in
foreign securities through American Depository Receipts
("ADRs"), Canadian Depository Receipts (''CDRs''), European
Depository Receipts ("EDRs"), International Depository
Receipts ("IDRs") and Global Depository Receipts ("GDRs")
or other similar securities convertible into securities of
foreign issuers. 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, and
CDRs are receipts typically issued by a Canadian bank or
trust company 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. EDRs and IDRs
are receipts typically issued by European banks and trust
companies, and GDRs are receipts issued by either a U.S. or
non-U.S. banking institution, that evidence ownership of
the underlying foreign securities. Generally, ADRs in
registered form are designed for use in US. securities
markets and EDRs and IDRs in bearer form are designed
primarily for use in Europe.
For temporary defensive purposes, the International Index
Master Portfolio may invest in fixed income securities of
non-U.S. governmental and private issuers. Such
investments may include bonds, notes, debentures and other
similar debt securities, including convertible securities.
Investments in foreign obligations involve certain
considerations that are not typically associated with
investing in domestic securities. There may be less
publicly available information about a foreign issuer than
about a domestic issuer. Foreign issuers also are not
generally subject to the same accounting auditing and
financial reporting standards or governmental supervision
as domestic issuers. In addition, with respect to certain
foreign countries, taxes may be withheld at the source
under foreign tax laws, and there is a possibility of
expropriation or confiscatory taxation, political, social
and monetary 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.
From time to time, investments in other investment
companies may be the most effective available means by
which the International Index Master Portfolio may invest
in securities of issuers in certain countries. Investment
in such investment companies may involve the payment of
management expenses and, in connection with some purchases,
sales loads, and payment of substantial premiums above the
value of such companies' portfolio securities. At the same
time, the International Index Master Portfolio would
continue to pay its own management fees and other expenses.
Investment income on certain foreign securities in which
the International Index Master Portfolio may invest may be
subject to foreign withholding or other taxes that could
reduce the return on these securities. Tax treaties
between the United States and foreign countries, however,
may reduce or eliminate the amount of foreign taxes to
which the International Index Master Portfolio would be
subject.
The International Index Master Portfolio's investments in
foreign securities involve currency risks. The U.S. dollar
value of a foreign security tends to decrease when the
value of the U.S. dollar rises against the foreign currency
in which the security is denominated, and tends to increase
when the value of the U.S. dollar falls against such
currency. To attempt to minimize risks to the
International Index Master Portfolio from adverse changes
in the relationship between the U.S. dollar and foreign
currencies, the International Index Master Portfolio may
engage in foreign currency transactions on a spot (i.e.,
cash) basis and may purchase or sell forward foreign
currency exchange contracts ("forward contracts"). A
forward contract is an obligation to purchase or sell a
specific currency for an agreed price at a future date that
is individually negotiated and privately traded by currency
traders and their customers. The International Index Master
Portfolio may also purchase and sell foreign currency
futures contracts (see "Purchase and Sale of Currency
Futures Contracts").
Forward contracts establish an exchange rate at a future
date. These contracts are transferable in the interbank
market conducted directly between currency traders (usually
large commercial banks) and their customers. A forward
contract generally has no deposit requirement and is traded
at a net price without commission. The International Index
Master Portfolio will direct its custodian, to the extent
required by applicable regulations, to segregate high grade
liquid assets in an amount at least equal to its
obligations under each forward contract. Neither spot
transactions nor forward contracts eliminate fluctuations
in the prices of the International Index Master Portfolio's
portfolio securities or in foreign exchange rates, or
prevent loss if the prices of these securities should
decline.
The International Index Master Portfolio may enter into a
forward contract, for example, when it enters into a
contract for the purchase or sale of a security denominated
in a foreign currency in order to "lock in" the U.S. dollar
price of the security (a "transaction hedge"). In
addition, when BGFA believes that a foreign currency may
suffer a substantial decline against the U.S. dollar, it
may enter into a forward sale contract to sell an amount of
that foreign currency approximating the value of some or
all of the International Index Master Portfolio's
securities denominated in such foreign currency, or when
BGFA believes that the U.S. dollar may suffer a substantial
decline against the foreign currency, it may enter into a
forward purchase contract to buy that foreign currency for
a fixed dollar amount (a "position hedge').
The International Index Master Portfolio may, in the
alternative, enter into a forward contract to sell a
different foreign currency for a fixed U.S. dollar amount
where BGFA believes that the U.S. dollar value of the
currency to be sold pursuant to the forward contract will
fall whenever there is a decline in the U.S. dollar value
of the currency in which the portfolio securities are
denominated (a "cross-hedge").
Foreign currency hedging transactions are an attempt to
protect the International Index Master Portfolio against
changes in foreign currency exchange rates between the
trade and settlement dates of specific securities
transactions or changes in foreign currency exchange rates
that would adversely affect a portfolio position or an
anticipated portfolio position. Although these
transactions tend to minimize the risk of loss due to a
decline in the value of the hedged currency, at the same
time they tend to limit any potential gain that might be
realized should the value of the hedged currency increase.
The precise matching of the forward contract amount and the
value of the securities involved will not generally be
possible because the future value of these securities in
foreign currencies will change as a consequence of market
movements in the value of those securities between the date
the forward contract is entered into and date it matures.
The International Index Master Portfolio's custodian will,
to the extent required by applicable regulations, segregate
cash, U.S. Government securities or other high-quality debt
securities having a value equal to the aggregate amount of
the International Index Master Portfolio's commitments
under forward contracts entered into with respect to
position hedges and cross-hedges. If the value of the
segregated securities declines, additional cash or
securities will be segregated on a daily basis so that the
value of the segregated securities will equal the amount of
the International Index Master Portfolio's commitments with
respect to such contracts.
The cost to the International Index Master Portfolio of
engaging in currency transactions varies with factors such
as the currency involved, the length of the contract period
and the market conditions then prevailing. Because
transactions in currency exchange usually are conducted on
a principal basis, no fees or commissions are involved.
BGFA considers on an ongoing basis the creditworthiness of
the institutions with which the International Index Master
Portfolio enters into foreign currency transactions. The
use of forward currency exchange contracts does not
eliminate fluctuations in the underlying prices of the
securities, but it does establish a rate of exchange that
can be achieved in the future. If a devaluation generally
is anticipated, the International Index Master Portfolio
may not be able to contract to sell the currency at a price
above the devaluation level it anticipates.
Hedging and Related Strategies.
The International Index Master Portfolio may attempt to
protect the U.S. dollar equivalent value of one or more of
its investments (hedge) by purchasing and selling foreign
currency futures contracts and by purchasing and selling
currencies on a spot (i.e., cash) or forward basis.
Foreign currency futures contracts are bilateral agreements
pursuant to which one party agrees to make, and the other
party agrees to accept, delivery of a specified type of
currency at a specified future time and at a specified
price. Although such futures contracts by their terms call
for actual delivery or acceptance of currency, in most
cases the contracts are closed out before the settlement
date without the making or taking of delivery. A forward
currency contract involves an obligation to purchase or
sell a specific currency at a specified future date, which
may be any fixed number of days from the contract date
agreed upon by the parties, at a price set at the time the
contract is entered into.
The International Index Master Portfolio may enter into
forward currency contracts for the purchase or sale of a
specified currency at a specified future date either with
respect to specific transactions or with respect to
portfolio positions. For example, the International Index
Master Portfolio may enter into a forward currency contract
to sell an amount of a foreign currency approximating the
value of some or all of the Master Portfolio's securities
denominated in such currency. The International Index
Master Portfolio may use forward contracts in one currency
or a basket of currencies to hedge against fluctuations in
the value of another currency when BGFA anticipates there
will be a correlation between the two and may use forward
currency contracts to shift the International Index Master
Portfolio's exposure to foreign currency fluctuations from
one country to another. The purpose of entering into these
contracts is to minimize the risk to the International
Index Master Portfolio from adverse changes in the
relationship between the U.S. dollar and foreign
currencies.
BGFA might not employ any of the strategies described
above, and there can be no assurance that any strategy used
will succeed. If BGFA incorrectly forecasts exchange
rates, market values or other economic factors in utilizing
a strategy for the International Index Master Portfolio,
the Master Portfolio might have been in a better position
had it not hedged at all. The use of these strategies
involves certain special risks, including (1) the fact that
skills needed to use hedging instruments are different from
those needed to select the International Index Master
Portfolio's securities, (2) possible imperfect correlation,
or even no correlation, between price movements of hedging
instruments and price movements of the investments being
hedged, (3) the fact that, while hedging strategies can
reduce the risk of loss, they can also reduce the
opportunity for gain, or even result in losses, by
offsetting favorable price movements in hedged investments
and (4) the possible inability of the International Index
Master Portfolio to purchase or sell a portfolio security
at a time that otherwise would be favorable for it to do
so, or the possible need for the International Index Master
Portfolio to sell a portfolio security at a disadvantageous
time, due to the need for the International Index Master
Portfolio to maintain "cover" or to segregate securities in
connection with hedging transactions and the possible
inability of the International Index Master Portfolio to
close out or to liquidate its hedged position.
New financial products and risk management techniques
continue to be developed. The International Index Master
Portfolio my use these instruments and techniques to the
extent consistent with its investment objectives and
regulatory and tax considerations.
Privately Issued Securities.
The International Index Master Portfolio may invest in
privately issued securities, including those which may be
resold only in accordance with Rule 144A under the
Securities Act of 1933 ("Rule 144A Securities"). Rule 144A
Securities are restricted securities that are not publicly
traded. Accordingly, the liquidity of the market for
specific Rule 144A Securities may vary. Delay or
difficulty in selling such securities may result in a loss
to the International Index Master Portfolio. Privately
issued or Rule 144A securities that are determined by BGFA
to be "illiquid" are subject to the International Index
Master Portfolio's policy of not investing more than 15% of
its net assets in illiquid securities. BGFA, under
guidelines approved by board of trustees of MIP, will
evaluate the liquidity characteristics of each Rule 144A
Security proposed for purchase by the International Index
Master Portfolio on a case-by-case basis and will consider
the following factors, among others, in their evaluation:
(1) the frequency of trades and quotes for the Rule 144A
Security; (2) the number of dealers willing to purchase or
sell the Rule 144A Security and the number of other
potential purchasers; (3) dealer undertakings to make a
market in the Rule 144A Security; and (4) the nature of the
Rule 144A Security and the nature of the marketplace trades
(e.g., the time needed to dispose of the Rule 144A
Security, the method of soliciting offers and the mechanics
of transfer).
PORTFOLIO SECURITIES - U.S. Equity Index and International
Index
Master Portfolios
The U.S. Equity Index Master Portfolio and the
International Index Master Portfolio (each, a "Master
Portfolio") may invest in the securities described below.
Short-Term Instruments and Temporary Investments.
The Master Portfolios may invest in high-quality money
market instruments on an ongoing basis to provide
liquidity, for temporary purposes when there is an
unexpected level of interestholder purchases or redemptions
or when "defensive" strategies are appropriate. The
instruments in which the Master Portfolio may invest
include: (i) short-term obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities
(including government-sponsored enterprises); (ii)
negotiable certificates of deposit ("CDs"), bankers'
acceptances, fixed time deposits and other obligations of
domestic banks (including foreign branches) that have more
than $1 billion in total assets at the time of investment
and that are members of the Federal Reserve System or are
examined by the Comptroller of the Currency or whose
deposits are insured by the Federal Deposit Insurance
Company (the "FDIC"); (iii) commercial paper rated at the
date of purchase "Prime-1" by Moody's or "A-1+" or "A-1" by
S&P, or, if unrated, of comparable quality as determined by
BGFA; (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 in
the opinion of BGFA are of comparable quality to
obligations of U.S. banks which may be purchased by the
Master Portfolio.
Bank Obligations. The Master Portfolio may invest in bank
obligations, including certificates of deposit, time
deposits, bankers' acceptances and other short-term
obligations of domestic banks, foreign subsidiaries of
domestic banks, foreign branches of domestic banks, and
domestic and foreign branches of foreign banks, domestic
savings and loan associations and other banking
institutions. Certificates of deposit are negotiable
certificates evidencing the obligation of a bank to repay
funds deposited with it for a specified period of time.
Time deposits are non-negotiable deposits maintained in a
banking institution for a specified period of time at a
stated interest rate. Time deposits which may be held by
the Master Portfolio will not benefit from insurance from
the Bank Insurance Fund or the Savings Association
Insurance Fund administered by the FDIC. Bankers'
acceptances are credit instruments evidencing the
obligation of a bank to pay a draft drawn on it by a
customer. These instruments reflect the obligation both of
the bank and of the drawer to pay the face amount of the
instrument upon maturity. The other short-term obligations
may include uninsured, direct obligations, bearing fixed,
floating- or variable-interest rates.
Domestic commercial banks organized under Federal law are
supervised and examined by the Comptroller of the Currency
and are required to be members of the Federal Reserve
System and to have their deposits insured by the FDIC.
Domestic banks organized under state law are supervised and
examined by state banking authorities but are members of
the Federal Reserve System only if they elect to join. In
addition, state banks whose CDs may be purchased by the
Master Portfolio are insured by the FDIC (although such
insurance may not be of material benefit to the Master
Portfolio, depending on the principal amount of the CDs of
each bank held by the Master Portfolio) and are subject to
Federal examination and to a substantial body of Federal
law and regulation. As a result of Federal or state laws
and regulations, domestic branches of domestic banks whose
CDs may be purchased by the Master Portfolio generally are
required, among other things, to maintain specified levels
of reserves, are limited in the amounts which they can loan
to a single borrower and are subject to other regulation
designed to promote financial soundness. However, not all
of such laws and regulations apply to the foreign branches
of domestic banks.
Obligations of foreign branches of domestic banks, foreign
subsidiaries of domestic banks and domestic and foreign
branches of foreign banks, such as CDs and time deposits
("TDs"), may be general obligations of the parent bank in
addition to the issuing branch, or may be limited by the
terms of a specific obligation and governmental regulation.
Such obligations are subject to different risks than are
those of domestic banks. These risks include foreign
economic and political developments, foreign governmental
restrictions that may adversely affect payment of principal
and interest on the obligations, foreign exchange controls
and foreign withholding and other taxes on interest income.
These foreign branches and subsidiaries are not necessarily
subject to the same or similar regulatory requirements that
apply to domestic banks, such as mandatory reserve
requirements, loan limitations, and accounting, auditing
and financial record keeping requirements. In addition,
less information may be publicly available about a foreign
branch of a domestic bank or about a foreign bank than
about a domestic bank
Obligations of United States branches of foreign banks may
be general obligations of the parent bank in addition to
the issuing branch, or may be limited by the terms of a
specific obligation or by Federal or state regulation as
well as governmental action in the country in which the
foreign bank has its head office. A domestic branch of a
foreign bank with assets in excess of $1 billion may be
subject to reserve requirements imposed by the Federal
Reserve System or by the state in which the branch is
located if the branch is licensed in that state.
In addition, Federal branches licensed by the Comptroller
of the Currency and branches licensed by certain states
("State Branches") may be required to: (1) pledge to the
regulator by depositing assets with a designated bank
within the state, a certain percentage of their assets as
fixed from time to time by the appropriate regulatory
authority; and (2) maintain assets within the state in an
amount equal to a specified percentage of the aggregate
amount of liabilities of the foreign bank payable at or
through all of its agencies or branches within the state.
The deposits of Federal and State Branches generally must
be insured by the FDIC if such branches take deposits of
less than $100,000.
In view of the foregoing factors associated with the
purchase of CDs and TDs issued by foreign branches of
domestic banks, by foreign subsidiaries of domestic banks,
by foreign branches of foreign banks or by domestic
branches of foreign banks, BGFA carefully evaluates such
investments on a case-by-case basis.
The Master Portfolio may purchase CDs issued by banks,
savings and loan associations and similar thrift
institutions with less than $1 billion in assets, which are
members of the FDIC, provided such Master Portfolio
purchases any such CD in a principal amount of not more
than $100,000, which amount would be fully insured by the
Bank Insurance Fund or the Savings Association Insurance
Fund administered by the FDIC. Interest payments on such a
CD are not insured by the FDIC. No Master Portfolio will
own more than one such CD per such issuer.
Commercial Paper and Short-Term Corporate Debt Instruments.
The Master Portfolio may invest in commercial paper
(including variable amount master demand notes), which
consists of short-term, unsecured promissory notes issued
by corporations to finance short-term credit needs.
Commercial paper is usually sold on a discount basis and
has a maturity at the time of issuance not exceeding nine
months. Variable amount master demand notes are demand
obligations that permit the investment of fluctuating
amounts at varying market rates of interest pursuant to
arrangements between the issuer and a commercial bank
acting as agent for the payee of such notes whereby both
parties have the right to vary the amount of the
outstanding indebtedness on the notes. BGFA monitors on an
ongoing basis the ability of an issuer of a demand
instrument to pay principal and interest on demand.
The Master Portfolio also may invest in non-convertible
corporate debt securities (e.g., bonds and debentures) with
not more than one year remaining to maturity at the date of
settlement. The Master Portfolio will invest only in such
corporate bonds and debentures that are rated at the time
of purchase at least "Aa" by Moody's or "AA" by S&P.
Subsequent to its purchase by the Master Portfolio, an
issue of securities may cease to be rated or its rating may
be reduced below the minimum rating required for purchase
by the Master Portfolio. BGFA will consider such an event
in determining whether the Master Portfolio should continue
to hold the obligation. To the extent the Master Portfolio
continues to hold such obligations, it may be subject to
additional risk of default.
U.S. Government Obligations. The Master 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 its agencies or instrumentalities. Payment of
principal and interest on U.S. Government obligations (i)
may be backed by the full faith and credit of the United
States (as with U.S. Treasury obligations and GNMA
certificates) or (ii) may be backed solely by the issuing
or guaranteeing agency or instrumentality itself (as with
FNMA notes). In the latter case, the investor must look
principally to the agency or instrumentality issuing or
guaranteeing the obligation for ultimate repayment, which
agency or instrumentality may be privately owned. There
can be no assurance that the U.S. Government would provide
financial support to its agencies or instrumentalities
where it is not obligated to do so. As a general matter,
the value of debt instruments, including U.S. Government
obligations, declines when market interest rates increase
and rises when market interest rates decrease. Certain
types of U.S. Government obligations are subject to
fluctuations in yield or value due to their structure or
contract terms.
Repurchase Agreements
The Master Portfolio may engage in a repurchase agreement
with respect to any security in which it is authorized to
invest, although the underlying security may mature in more
than thirteen months. The Master Portfolio may enter into
repurchase agreements wherein the seller of a security to
the Master Portfolio agrees to repurchase that security
from the Master Portfolio at a mutually agreed-upon time
and price that involves the acquisition by the Master
Portfolio of an underlying debt instrument, subject to the
seller's obligation to repurchase, and the Master
Portfolio's obligation to resell, the instrument at a fixed
price usually not more than one week after its purchase.
The Master Portfolio's custodian has custody of, and holds
in a segregated account, securities acquired as collateral
by the Master Portfolio under a repurchase agreement.
Repurchase agreements are considered by the staff of the
Securities and Exchange Commission (the "SEC") to be loans
by the Master Portfolio. The Master Portfolio may enter
into repurchase agreements only with respect to securities
of the type in which it may invest, 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 resale
price. BGFA monitors on an ongoing basis the value of the
collateral to assure that it always equals or exceeds the
repurchase price. Certain costs may be incurred by the
Master Portfolio in connection with the sale of the
underlying securities if the seller does not repurchase
them in accordance with the repurchase agreement. In
addition, if bankruptcy proceedings are commenced with
respect to the seller of the securities, disposition of the
securities by the Master Portfolio may be delayed or
limited. While it does not presently appear possible to
eliminate all risks from these transactions (particularly
the possibility of a decline in the market value of the
underlying securities, as well as delay and costs to the
Master Portfolio in connection with insolvency
proceedings), it is the policy of the Master Portfolio to
limit repurchase agreements to selected creditworthy
securities dealers or domestic banks or other recognized
financial institutions. The Master Portfolio considers on
an ongoing basis the creditworthiness of the institutions
with which it enters into repurchase agreements.
Repurchase agreements are considered to be loans by the
Master Portfolio under the 1940 Act.
Floating- and Variable-Rate Obligations.
The Master Portfolio may purchase floating- and variable-
rate obligations. The Master Portfolio may purchase
floating- and variable-rate demand notes and bonds, which
are obligations ordinarily having stated maturities in
excess of thirteen months, but which permit the holder to
demand payment of principal at any time, or at specified
intervals not exceeding thirteen months. Variable rate
demand notes include master demand notes that are
obligations that permit the Master Portfolio to invest
fluctuating amounts, which may change daily without
penalty, pursuant to direct arrangements between the Master
Portfolio, as lender, and the borrower. The interest rates
on these notes fluctuate from time to time. The issuer of
such obligations ordinarily has a corresponding right after
a given period, to prepay in its discretion the outstanding
principal amount of the obligations plus accrued interest
upon a specified number of days' notice to the holders of
such obligations. The interest rate on a floating-rate
demand obligation is based on a known lending rate, such as
a bank's prime rate, and is adjusted automatically each
time such rate is adjusted. The interest rate on a
variable-rate demand obligation is adjusted automatically
at specified intervals. Frequently, such obligations are
secured by letters of credit or other credit support
arrangements provided by banks. Because these obligations
are direct lending arrangements between the lender and
borrower, it is not contemplated that such instruments
generally will be traded, and there generally is no
established secondary market for these obligations,
although they are redeemable at face value. Accordingly,
where these obligations are not secured by letters of
credit or other credit support arrangements, the Master
Portfolio's right to redeem is dependent on the ability of
the borrower to pay principal and interest on demand. Such
obligations frequently are not rated by credit rating
agencies and the Master 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 each
Master Portfolio may invest. BGFA, on behalf of the Master
Portfolio, considers on an ongoing basis the
creditworthiness of the issuers of the floating- and
variable-rate demand obligations in the Master Portfolio's
portfolio. Each Master Portfolio will not invest more than
10% of the value of its total net assets in floating- or
variable-rate demand obligations whose demand feature is
not exercisable within seven days. Such obligations may be
treated as liquid, provided an active secondary market
exists.
Illiquid Securities.
The Master Portfolio may invest up to 15% of the value of
its net assets in securities as to which a liquid trading
market does not exist, provided such investments are
consistent with its investment objective. Such securities
may include securities that are not readily marketable,
such as privately issued securities and other securities
that are subject to legal or contractual restrictions on
resale, floating- and variable-rate demand obligations as
to which the Master Portfolio cannot exercise a demand
feature on not more than seven days' notice and as to which
there is no secondary market and repurchase agreements
providing for settlement more than seven days after notice.
Investment Company Securities.
The Master Portfolio may invest in securities issued by
other open-end, management investment companies to the
extent permitted under the 1940 Act. As a general matter,
under the 1940 Act investment in such securities is limited
to: (i) 3% of the total voting stock of any one investment
company, (ii) 5% of the Master Portfolio's net assets with
respect to any one investment company and (iii) 10% of the
Master Portfolio's net assets with respect to all such
companies in the aggregate. Investments in the securities
of other investment companies generally will involve
duplication of advisory fees and certain other expenses.
The Master Portfolio may also purchase interests of
exchange-listed closed-end funds to the extent permitted
under the 1940 Act.
Loans of Portfolio Securities.
The Master Portfolio may lend securities from its portfolio
to brokers, dealers and financial institutions (but not
individuals) if cash, U.S. Government securities or other
high quality debt obligations equal to at least 100% of the
current market value of the securities loaned (including
accrued interest thereon) plus the interest payable to the
Master Portfolio with respect to the loan is maintained
with the Master Portfolio. In determining whether or not
to lend a security to a particular broker, dealer or
financial institution, the BGFA 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 based on values that are marked to
market daily. The Master Portfolio does not enter into any
portfolio security lending arrangements having a duration
longer than one year. Any securities that the Master
Portfolio receives as collateral do not become part of its
portfolio at the time of the loan and, in the event of a
default by the borrower, the Master Portfolio will, if
permitted by law, dispose of such collateral except for
such part thereof that is a security in which the Master
Portfolio is permitted to invest. During the time
securities are on loan, the borrower will pay the Master
Portfolio any accrued income on those securities, and the
Master Portfolio may invest the cash collateral and earn
income or receive an agreed-upon fee from a borrower that
has delivered cash-equivalent collateral. The Master
Portfolio will not lend securities having a value that
exceeds one-third of the current value of its respective
total assets. Loans of securities by the Master Portfolio
are subject to termination at the Master Portfolio or the
borrower's option. The Master Portfolio may pay reasonable
administrative and custodial fees in connection with a
securities loan and may pay a negotiated portion of the
interest or fee earned with respect to the collateral to
the borrower or the placing broker. Borrowers and placing
brokers are not permitted to be affiliated, directly or
indirectly, with the Master Portfolio or BGFA.
Forward Commitments, When-Issued Purchases and
Delayed-Delivery Transactions.
The Master Portfolio may purchase or sell securities on a
when-issued or delayed-delivery basis and make contracts to
purchase or sell securities for a fixed price at a future
date beyond customary settlement time. Securities
purchased or sold on a when-issued, delayed-delivery or
forward commitment basis involve a risk of loss if the
value of the security to be purchased declines, or the
value of the security to be sold increases, before the
settlement date. Although the Master Portfolio will
generally purchase securities with the intention of
acquiring them, the Master Portfolio may dispose of
securities purchased on a when-issued, delayed-delivery or
a forward commitment basis before settlement when deemed
appropriate by the adviser. Securities purchased on a
when-issued or forward commitment basis may expose the
Master Portfolio to risk because they may experience such
fluctuations prior to their actual delivery. Purchasing
securities on a when-issued or forward-commitment basis can
involve the additional risk that the yield available in the
market when the delivery takes place actually may be higher
than that obtained in the transaction itself.
The Master Portfolio will segregate cash, U.S. Government
obligations or other high-quality debt instruments in an
amount at least equal in value to the Master Portfolio's
commitments to purchase when-issued securities. If the
value of these assets declines, the Master Portfolio will
segregate additional liquid assets on a daily basis so that
the value of the segregated assets is equal to the amount
of such commitments.
Future Developments.
The Master Portfolio may take advantage of opportunities in
the area of options and futures contracts and options on
futures contracts and any other derivative investments
which are not presently contemplated for use by the Master
Portfolio or which are not currently available but which
may be developed, to the extent such opportunities are both
consistent with the Master Portfolio's investment objective
and legally permissible for the Master Portfolio. Before
entering into such transactions or making any such
investment, the Master Portfolio will provide appropriate
disclosure in its prospectus.
Portfolio Characteristics and Policies
Each of the funds and the Master Portfolios are diversified
under the federal securities laws and regulations.
Because the structures of the Master Portfolios are based
on the relative market capitalizations of eligible
holdings, it is possible that a Master Portfolio might
include at least 5% of the outstanding voting securities of
one or more issuers. In such circumstances, the Master
Portfolio and the issuer would be deemed affiliated persons
and certain requirements under the federal securities laws
and regulations regulating dealings between mutual funds
and their affiliates might become applicable. However,
based on the present capitalizations of the groups of
companies eligible for inclusion in the Master Portfolios
and the anticipated amount of the assets intended to be
invested in such securities, management does not anticipate
that the Master Portfolios will include as much as 5% of
the voting securities of any issuer.
The fund will not incur any brokerage or other costs in
connection with their purchase or redemption of shares of
the Master Portfolio, except if the fund receives
securities or currencies from a Master Portfolio to satisfy
the fund's redemption request.
INVESTMENT LIMITATIONS
Futures Contracts
The Master Portfolio may enter into futures contracts and
options on futures contracts only for the purpose of
remaining fully invested and to maintain liquidity to pay
redemptions. Futures contracts provide for the future sale
by one party and purchase by another party of a specified
amount of defined securities at a specified future time and
at a specified price. Futures contracts that are
standardized as to maturity date and underlying financial
instruments are traded on national futures exchanges. A
Master Portfolio will be required to make a margin deposit
in cash or government securities with a broker or custodian
to initiate and maintain positions in futures contracts.
Minimal initial margin requirements are established by the
futures exchange and brokers may establish margin
requirements that are higher than the exchange
requirements. After a futures contract position is opened,
the value of the contract is marked to market daily. If
the futures contract price changes, to the extent that the
margin on deposit does not satisfy margin requirements,
payment of additional "variation" margin will be required.
Conversely, reduction in the contract value may reduce the
required margin resulting in a repayment of excess margin
to a Master Portfolio. Variation margin payments are made
to and from the futures broker for as long as the contract
remains open. The Master Portfolios expect to earn income
on their margin deposits. To the extent a Master Portfolio
invests in futures contracts and options thereon for other
than bona fide hedging purposes, no Master Portfolio will
enter into such transactions if, immediately thereafter,
the sum of the amount of initial margin deposits and
premiums paid for open futures options would exceed 5% of
the Master Portfolio's net assets, after taking into
account unrealized profits and unrealized losses on such
contracts it has entered into; provided, however, that, in
the case of an option that is in-the-money at the time of
purchase, the in-the-money amount may be excluded in
calculating the 5%. Pursuant to published positions of the
SEC, the Master Portfolios may be required to maintain
segregated accounts consisting of liquid assets, such as
cash or liquid securities (or, as permitted under
applicable regulation, enter into offsetting positions) in
connection with their futures contract transactions in
order to cover their obligations with respect to such
contracts.
Positions in futures contracts may be closed out only on an
exchange that provides a secondary market. However, there
can be no assurance that a liquid secondary market will
exist for any particular futures contract at any specific
time. Therefore, it might not be possible to close a
futures position and, in the event of adverse price
movements, a Master Portfolio would continue to be required
to make variation margin deposits. In such circumstances,
if a Master Portfolio has insufficient cash, it might have
to sell portfolio securities to meet daily margin
requirements at a time when it might be disadvantageous to
do so. Management intends to minimize the possibility that
it will be unable to close out a futures contract by only
entering into futures which are traded on national futures
exchanges and for which there appears to be a liquid
secondary market.
Cash Management Practices
The fund and the Master Portfolios engage in cash
management practices in order to earn income on uncommitted
cash balances. Generally, cash is uncommitted pending
investment in other obligations, payment of redemptions or
in other circumstances where BGFA believes liquidity is
necessary or desirable. For example, cash investments may
be made for temporary defensive purposes during periods in
which market, economic or political conditions warrant. All
the Portfolios and Master Funds may invest cash in short-
term repurchase agreements.
The aggregate amount of expenses for the fund and the
Master Portfolio may be greater than it would be if the
fund were to invest directly in the securities held by the
Master Portfolios. However, the total expense ratios for
the fund and the Master Portfolios are expected to be less
over time than such ratios would be if the fund were to
invest directly in the underlying securities. This
arrangement enables institutional investors, including the
fund, to pool their assets, which may be expected to result
in economies by spreading certain fixed costs over a larger
asset base. Each shareholder in a Master Portfolio,
including the fund, will pay its proportionate share of the
expenses of that Master Portfolio.
The shares of the Master Portfolio will be offered to
institutional investors for the purpose of increasing the
funds available for investment, to reduce expenses as a
percentage of total assets and to achieve other economies
that might be available at higher asset levels. Investment
in a Master Portfolio by other institutional investors
offers potential benefits to the Master Portfolio and
through their investment in the Master Portfolio, the fund
also. However, such economies and expense reductions might
not be achieved, and additional investment opportunities,
such as increased diversification, might not be available
if other institutions do not invest in the Master
Portfolio. Also, if an institutional investor were to
redeem its interest in a Master Portfolio, the remaining
investors in that Master Portfolio could experience higher
pro rata operating expenses, thereby producing lower
returns, and the Master Portfolio's security holdings may
become less diverse, resulting in increased risk.
Institutional investors that have a greater pro rata
ownership interest in a Master Portfolio than the
corresponding Feeder Fund could have effective voting
control over the operation of the Master Portfolio.
If the board of trustees of the fund determines that it is
in the best interest of the fund, the fund may withdraw its
investment in the Master Portfolio at any time. Upon any
such withdrawal, the board would consider what action the
fund might take, including either seeking to invest its
assets in another registered investment company with the
same investment objective as the fund, which might not be
possible, or retaining an investment advisor to manage the
fund's assets in accordance with its own investment
objective, possibly at increased cost. Shareholders of the
fund will receive written notice thirty days prior to the
effective date of any changes in the investment objective
of its corresponding Master Portfolio. A withdrawal by a
fund of its investment in the corresponding Master
Portfolio could result in a distribution in kind of
portfolio securities (as opposed to a cash distribution) to
the fund. Should such a distribution occur, the fund could
incur brokerage fees or other transaction costs in
converting such securities to cash in order to pay
redemptions. In addition, a distribution in kind to a fund
could result in a less diversified portfolio of investments
and could affect adversely the liquidity of the fund.
Moreover, a distribution in kind by a Master Portfolio to a
fund may constitute a taxable exchange for federal income
tax purposes resulting in gain or loss to such fund. Any
net capital gains so realized will be distributed to that
fund's shareholders.
Shareholder Rights
Whenever the fund, as an investor in its corresponding
Master Portfolio, is asked to vote on a shareholder
proposal, the respective fund will solicit voting
instructions from the fund's shareholders with respect to
the proposal. The trustees of the trust will then vote the
fund's shares in the Master Portfolio in accordance with
the voting instructions received from the fund's
shareholders. The trustees of the trust will vote shares
of the fund for which they receive no voting instructions
in accordance with their best judgment.
INVESTMENT RESTRICTIONS OF THE FUND
The fund has adopted the following investment restrictions
for the protection of shareholders. Although the fund
currently will invest all of its assets in the Master
Portfolio, the board of trustees intends to maintain the
following additional investment restrictions. To the
extent that the fund's restrictions listed are inconsistent
with the Master Portfolios, the Master Portfolios
restrictions are controlling. Restrictions 1 through 7
below cannot be changed without approval by the holders of
a majority of the outstanding shares of the fund, defined
as the lesser of (a) 67% or more of the fund's shares
present at a meeting, if the holders of more than 50% of
the outstanding shares are present in person or by proxy or
(b) more than 50% of the fund's outstanding shares. The
remaining restrictions may be changed by the fund's board
of trustees at any time. In accordance with these
restrictions, the fund will not:
1. Invest in a manner that would cause it to fail to be
a "diversified company" under the 1940 Act and the
rules, regulations and orders thereunder.
2. Issue "senior securities" as defined in the 1940 Act,
and the rules, regulations and orders thereunder,
except as permitted under the 1940 Act and the rules,
regulations and orders thereunder.
3. Invest more than 25% of its total assets in
securities, the issuers of which conduct their
principal business activities in the same industry.
For purposes of this limitation, securities of the
U.S. government (including its agencies and
instrumentalities) and securities of state or
municipal governments and their political
subdivisions are not considered to be issued by
members of any industry.
4. Borrow money, except that (a) the fund may borrow
from banks for temporary or emergency (not
leveraging) purposes, including the meeting of
redemption requests which might otherwise require the
untimely disposition of securities, and (b) the fund
may, to the extent consistent with its investment
policies, enter into reverse repurchase agreements,
forward roll transactions and similar investment
strategies and techniques. To the extent that it
engages in transactions described in (a) and (b), the
fund will be limited so that no more than 33 1/3% of
the value of its total assets (including the amount
borrowed), valued at the lesser of cost or market,
less liabilities (not including the amount borrowed),
is derived from such transactions.
5. Make loans. This restriction does not apply to: (a)
the purchase of debt obligations in which the fund
may invest consistent with its investment objective
and policies; (b) repurchase agreements; and (c)
loans of its portfolio securities, to the fullest
extent permitted under the 1940 Act.
6. Engage in the business of underwriting securities
issued by other persons, except to the extent that
the fund may technically be deemed to be an
underwriter under the Securities Act of 1933, as
amended, in disposing of portfolio securities.
8. Purchase or sell real estate, real estate mortgages,
commodities or commodity contracts, but this
restriction shall not prevent the fund from: (a)
investing in securities of issuers engaged in the
real estate business or the business of investing in
real estate (including interests in limited
partnerships owning or otherwise engaging in the real
estate business or the business of investing in real
estate) and securities which are secured by real
estate or interests therein; (b) holding or selling
real estate received in connection with securities it
holds or held; (c) trading in futures contracts and
options on futures contracts (including options on
currencies to the extent consistent with the fund's
investment objective and policies); or (d) investing
in real estate investment trust securities.
8. Purchase any securities on margin (except for such
short-term credits as are necessary for the clearance
of purchases and sales of portfolio securities) or
sell any securities short (except "against the box").
For purposes of this restriction, the deposit or
payment by the fund of underlying securities and
other assets in escrow and collateral agreements with
respect to initial or maintenance margin in
connection with futures contracts and related options
and options on securities, indexes or similar items
is not considered to be the purchase of a security on
margin.
9. Invest in oil, gas or other mineral exploration or
development programs.
10. Purchase or otherwise acquire any security if, as a
result, more than 15% of its net assets would be
invested in securities that are illiquid.
11. Invest for the purpose of exercising control of
management.
If any percentage restriction described above is complied
with at the time of an investment, a later increase or
decrease in percentage resulting from a change in values or
assets will not constitute a violation of such restriction.
INVESTMENT RESTRICTIONS OF THE U.S. EQUITY INDEX MASTER
PORTFOLIO
The U.S. Equity Index Master Portfolio has adopted the
following investment restrictions as fundamental policies.
These restrictions cannot be changed, as to the Master
Portfolio, without approval by the holders of a majority
(as defined in the 1940 Act) of the Master Portfolio's
outstanding voting securities. The Master Portfolio may
not:
1. Invest more than 5% of its assets in the obligations
of any single issuer, except that up to 25% of the
value of its total assets may be invested, and
securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities may
be purchased, without regard to any such limitation.
2. Hold more than 10% of the outstanding voting
securities of any single issuer. This Investment
Restriction applies only with respect to 75% of its
total assets.
3. Invest in commodities, except that the Master
Portfolio may purchase and sell (i.e., write)
options, forward contracts, futures contracts,
including those relating to indexes, and options on
futures contracts or indexes.
4. Purchase, hold or deal in real estate, or oil, gas or
other mineral leases or exploration or development
programs, but the Master portfolio may purchase and
sell securities that are secured by real estate or
issued by companies that invest or deal in real
estate.
5. Borrow money, except to the extent permitted under
the 1940 Act provided that the Master Portfolio 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. For purposes of this investment
restriction, the Master Portfolio's entry into
options, forward contracts, futures contracts,
including those relating to indexes, and options on
futures contracts or indexes shall not constitute
borrowing to the extent certain segregated accounts
are established and maintained by the Master
Portfolio.
6. Make loans to others, except through the purchase of
debt obligations and the entry into repurchase
agreements. However, the Master Portfolio may lend
its portfolio securities in an amount not to exceed
one-third of the value of its total assets. Any
loans of portfolio securities will be made according
to guidelines established by the Securities and
Exchange Commission and the MIP's board of trustees.
7. Act as an underwriter of securities of other issuers,
except to the extent the Master Portfolio may be
deemed an underwriter under the Securities Act of
1933, as amended, by virtue of disposing of portfolio
securities.
8. Invest 25% or more of its total assets in the
securities of issuers in any particular industry or
group of closely related industries except that there
shall be no limitation with respect to investments in
(i) obligations of the U.S. Government, its agencies
or instrumentalities (ii) any industry in which the
Wilshire 4500 Index becomes concentrated to the same
degree during the same period, the Master Portfolio
will be concentrated as specified above only to the
extent the percentage of its assets invested in those
categories of investments is sufficiently large that
25% or more of its total assets would be invested in
a single industry.
9. Issue any senior security (as such term is defined in
Section 18(f) of the 1940 Act), except to the extent
the activities permitted in Investment Restriction
Nos. 3 and 5 may be deemed to give rise to a senior
security.
The U.S. Equity Index Master Portfolio has adopted the
following investment restrictions as non-fundamental
policies. These restrictions may be changed without
shareholder approval by a vote of a majority of the
trustees of MIP, at any time. The Master Portfolio is
subject to the following investment restrictions, all of
which are non-fundamental policies.
1. The Master 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 Master Portfolio's investment
is 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
Master Portfolio's net assets with respect to any one
investment company and (iii) 10% of the Master
Portfolio's net assets in the aggregate. Other
investment companies in which the Master Portfolio
invests can be expected to charge fees for operating
expense, such as investment advisory and
administration fees, that would be in addition to
those charged by the Master Portfolio.
4. The Master Portfolio may not invest more than 15% of
the Master Portfolio's net assets in illiquid
securities. For this purpose, illiquid securities
include, among others, (a) securities that are
illiquid by virtue of the absence of a readily
available market or legal or contractual restrictions
on resale, (b) fixed time deposits that are subject
to withdrawal penalties and that have maturities of
more than seven days, and (c) repurchase agreements
not terminable within seven days.
5. The Master Portfolio may lend securities from its
portfolio to brokers, dealers and financial
institutions, in amounts not to exceed (in the
aggregate) one-third of the fund's total assets. Any
such loans of portfolio securities will be fully
collateralized based on values that are marked to
market daily. The Master Portfolio will not enter
into any portfolio security lending arrangement
having a duration of longer than one year.
If any percentage restriction described above is complied
with at the time of an investment, a later increase or
decrease in percentage resulting from a change in values or
assets will not constitute a violation of such restriction.
INVESTMENT RESTRICTIONS OF THE INTERNATIONAL INDEX MASTER
PORTFOLIO
The International Index Master Portfolio has adopted the
following investment restrictions as fundamental policies.
These restrictions cannot be changed, as to the Master
Portfolio, without approval by the holders of a majority
(as defined in the 1940 Act) of the Master Portfolio's
outstanding voting securities. The Master Portfolio may
not:
1. Invest more than 5% of its assets in the obligations
of any single issuer, except that up to 25% of the
value of its total assets may be invested, and
securities issued or guaranteed by the US. Government
or its agencies or instrumentalities may be
purchased, without regard to any such limitation.
This limitation does not apply to foreign currency
transactions including without limitation forward
currency contracts.
3. Hold more than 10% of the outstanding voting
securities of any single issuer. This Investment
Restriction applies only with respect to 75% of its
total assets.
3. Invest in commodities, except that the Master
Portfolio may purchase and sell (i.e., write)
options, forward contracts, futures contracts,
including those relating to indexes, and options on
futures contracts or indices.
4. Purchase, hold or deal in real estate, or oil, gas or
other mineral leases or exploration or development
program, but the Master Portfolio may purchase and
sell securities that are secured by real estate or
issued by companies that invest or deal in real
estate.
5. Borrow money, except to the extent permitted under
the 1940 Act provided that the Master Portfolio 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. For purposes of this investment
restriction, the Master Portfolio's entry into
options, forward contracts, futures contracts,
including those relating to indices, and options on
futures contracts or indices shall not constitute
borrowing to the extent certain segregated accounts
are established and maintained by the Master
Portfolio.
6. Make loans to others, except through the purchase of
debt obligations and the entry into repurchase
agreements. However, the Master Portfolio may lend
its portfolio securities in an amount not to exceed
one-third of the value of its total assets. Any
loans of portfolio securities will be made according
to guidelines established by the Securities and
Exchange Commission and the MIP's board of trustees.
7. Act as an underwriter of securities of other issuers,
except to the extent the Master Portfolio may be
deemed an underwriter under the 1933 Act as amended,
by virtue of disposing of portfolio securities.
8. Invest 25% or more of its total assets in the
securities of issuers in any particular industry or
group of closely related industries except that there
shall be no limitation with respect to investments in
(i) obligations of the US. Government, its agencies
or instrumentalities (ii) any industry in which the
EAFE Free Index becomes concentrated to the same
degree during the same period, the Master Portfolio
will be concentrated as specified above only to the
extent the percentage of its assets invested in those
categories of investments is sufficiently large that
25% or more of its total assets would be invested in
a single industry.
9. Issue any senior security (as such term is defined in
Section 18(f) of the 1940 Act), except to the extent
the activities permitted in Investment Restriction
Nos. 3 and 5 may be deemed to give rise to a senior
security.
The International Index Master Portfolio has adopted the
following investment restrictions as non-fundamental
policies. These restrictions may be changed without
shareholder approval by a vote of a majority of the
trustees of MIP, at any time. The Master Portfolio is
subject to the following investment restrictions, all of
which are non-fundamental policies.
1. The Master 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 Master Portfolio's investment
in such securities currently is limited, subject to
certain exceptions, to (i) 3% of the total voting
stock of any one investment company, (ii) 5% of the
Master Portfolio's net assets with respect to any one
investment company, and (iii) 10% of the Master
Portfolio's net assets in the aggregate. Other
investment companies in which the Master 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 Master Portfolio.
2. The Master Portfolio may not invest more than 15% of
its net assets in illiquid securities. For this
purpose, illiquid securities include, among others,
(a) securities that are illiquid by virtue of the
absence of a readily available market or legal or
contractual restrictions on resale, (b) fixed time
deposits that are subject to withdrawal penalties and
that have maturities of more than seven days, and (c)
repurchase agreements not terminable within seven
days.
3. The Master Portfolio may lend securities from its
portfolio to brokers, dealers and financial
institutions, in amounts not to exceed (in the
aggregate) one-third of the Master Portfolio's total
assets. Any such loans of portfolio securities will
be fully collateralized based on values that are
marked to market daily. The Master Portfolio will
not enter into any portfolio security lending
arrangement having a duration of longer than one
year.
If any percentage restriction described above is complied
with at the time of an investment, a later increase or
decrease in percentage resulting from a change in values or
assets will not constitute a violation of such restriction.
RISK CONSIDERATIONS
U.S. EQUITY INDEX MASTER PORTFOLIO
General-The value of the U.S. Equity Index Master
Portfolio's interests is neither insured nor guaranteed, is
not fixed and should be expected to fluctuate.
Equity Securities-The stock investments of the Master
Portfolio are subject to equity market risk. Equity market
risk is the possibility that common stock prices will
fluctuate or decline over short or even extended periods.
The U.S. stock market tends to be cyclical, with periods
when stock prices generally rise and periods when prices
generally decline. In addition, many of the companies
whose securities comprise the Wilshire 4500 Index are
small- to medium-sized companies which, historically, have
been more susceptible to market fluctuations than
securities of larger capitalization companies such as those
comprising the S&P 500 Index. As of the date of this
registration statement, the U.S. stock market, as measured
by the Wilshire 5000 Index and other commonly used indices,
was trading at or close to record levels. There can be no
assurance that these record levels will continue.
Debt Securities-The debt instruments in which the Master
Portfolio may invest are subject to credit and interest
rate risk. Credit risk is the risk that issuers of debt
instruments may default on the payment of principal and/or
interest. Interest-rate risk is the risk that increases in
market interest rates may adversely affect the value of
debt instruments. The value of debt instruments generally
changes inversely to market interest rates. Debt
securities with longer maturities, which tend to produce
higher yields, are subject to potentially greater capital
appreciation and depreciation than, obligations with
shorter maturities. Changes in the financial strength of
an issuer or changes in the ratings of any particular
security may also affect the value of debt instruments.
Although some debt instruments are guaranteed by the U.S.
Government, its agencies or instrumentalities, such
instruments are subject to interest rate risk and the
market value of these instruments will fluctuate. No
assurance can be given that the U.S. Government, would
provide financial support to the agencies or
instrumentalities that issue or guarantee these instruments
where it is not obligated to do so.
INTERNATIONAL INDEX MASTER PORTFOLIO
General-The value of the International Index Master
Portfolio's interests is neither insured nor guaranteed, is
not fixed and should be expected to fluctuate.
Equity Securities-The stock investments of the Master
Portfolio are subject to equity market risk. Equity market
risk is the possibility that common stock prices will
fluctuate or decline over short or even extended periods.
International stock markets tend to be cyclical, with
periods when stock prices generally rise and periods when
prices generally decline. In addition, many of the
companies whose securities comprise the EAFE Free Index are
small to medium size companies which, historically, have
been more susceptible to market fluctuations than
securities of larger capitalization companies.
Foreign Investment Risk-The Master Portfolio invests
substantially all of its assets in foreign securities.
This means the Master 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 settlements in
some markets; difficulty in getting complete and accurate
information about foreign companies; less strict
accounting, auditing and financial reporting standards than
those in the U.S.; political, economic and social
instability, and difficulty enforcing legal rights outside
the U.S.
In addition, many foreign countries are less prepared than
the United States to properly process and calculate
information related to dates from and after January 1,
2000, which could result in difficulty pricing foreign
investments and failure by foreign issuers to pay timely
dividends, interest or principal. All of these factors can
make foreign investments, especially those in emerging
markets, more volatile and potentially less liquid than
U.S. investments.
Issuer-Specific Changes-Changes in the financial condition
of an issuer, changes in specific economic or political
conditions that affect a particular type of security or
issuer, and changes in general economic or political
conditions can affect the value of an issuer's securities.
Small Company Investing-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.
Other Investment Considerations-The Master Portfolio may
enter into transactions in futures contracts and options on
futures contracts, each of which involves risk. The
futures contracts and options on futures contracts that the
Master Portfolio may purchase may be considered
derivatives. Derivatives are financial instruments whose
values are derived, at least in part, from the prices of
other securities or specified assets, indices or rates.
The Master Portfolio intends to use futures contracts and
options as part of its short-term liquidity holdings and/or
substitutes for comparable market positions in the
underlying securities. Some derivatives may be more
sensitive than direct securities to changes in interest
rates or sudden market moves. Some derivatives also may be
susceptible to fluctuations in yield or value due to their
structure or contract terms.
Securities Loans
The Master Portfolios are authorized to lend securities to
qualified brokers, dealers, banks and other financial
institutions for the purpose of earning additional income.
While the Master Portfolios may earn additional income from
lending securities, such activity is incidental to their
investment objectives. The value of securities loaned may
not exceed 33 1/3% of the value of each Master Portfolio's
total assets. In connection with such loans, the Master
Portfolio will receive collateral consisting of cash or
U.S. government securities, which will be maintained at all
times in an amount equal to at least 100% of the current
market value of the loaned securities. In addition, the
Master Portfolio will be able to terminate the loan at any
time, will receive reasonable compensation on the loan, as
well as amounts equal to any dividends, interest or other
distributions on the loaned securities. In the event of
the bankruptcy of the borrower, a Master Portfolio could
experience delay in recovering the loaned securities.
Management believes that this risk can be controlled
through careful monitoring procedures.
The funds and the trust bear all of their own costs and
expenses, including: services of its independent
accountants, legal counsel, brokerage commissions and
transfer taxes in connection with the acquisition and
disposition of portfolio securities, taxes, insurance
premiums, costs incidental to meetings of its shareholders
and trustees, the cost of filing its registration
statements under federal securities laws and the cost of
any filings required under state securities laws, reports
to shareholders, and transfer and dividend disbursing
agency, administrative services and custodian fees.
Expenses allocable to a particular fund or Master Portfolio
are so allocated.
THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK.
TRUSTEES OF THE TRUST AND EXECUTIVE OFFICERS OF THE FUND
The names of the trustees of the trust and executive
officers of the fund, together with information as to their
principal business occupations, are set forth below. The
executive officers of the fund are employees of
organizations that provide services to the fund. Each
trustee who is an "interested person" of the trust, as
defined in the 1940 Act, is indicated by an asterisk. The
address of the "non-interested" trustees and the executive
officers of the fund is 388 Greenwich Street, New York, New
York 10013, unless otherwise indicated.
Herbert Barg, Trustee (Age 77). Private Investor. His
address is 273 Montgomery Avenue, Bala Cynwyd, Pennsylvania
19004. Director/Trustee of sixteen investment companies
associated with Citigroup, Inc. ("Citigroup")
*Alfred J. Bianchetti Trustee (Age 77). Retired; formerly
Senior Consultant to Dean Witter Reynolds Inc. His address
is 19 Circle End Drive, Ramsey, New Jersey 07466.
Director/Trustee of eleven investment companies associated
with Citigroup.
Martin Brody Trustee (Age 78). Consultant, HMK Associates;
Retired Vice Chairman of the Board of Restaurant Associates
Corp. His address is c/o HMK Associates, 30 Columbia
Turnpike, Florham Park, New Jersey 07932. Director/Trustee
of twenty-one investment companies associated with
Citigroup.
Dwight B. Crane Trustee (Age 62). Professor, Harvard
Business School. His address is c/o Harvard Business
School, Soldiers Field Road, Boston, Massachusetts 02163.
Director/Trustee of twenty-four investment companies
associated with Citigroup.
Burt N. Dorsett Trustee (Age 69). Managing Partner of
Dorsett McCabe Management. Inc., an investment counseling
firm; Director of Research Corporation Technologies, Inc.,
a nonprofit patent clearing and licensing firm. His
address is 201 East 62nd Street, New York, New York 10021.
Director/Trustee of eleven investment companies associated
with Citigroup.
Elliot S. Jaffe Trustee (Age 73). Chairman of the Board
and President of The Dress Barn, Inc. His address is 30
Dunnigan Drive, Suffern, New York 10901. Director/Trustee
of eleven investment companies associated with Citigroup.
Stephen E. Kaufman Trustee (Age 68). Attorney. His
address is 277 Park Avenue, New York, New York 10172.
Director/Trustee of thirteen investment companies
associated with Citigroup.
Joseph J. McCann Trustee (Age 69). Financial Consultant;
Retired Financial Executive, Ryan Homes, Inc. His address
is 200 Oak Park Place, Pittsburgh, Pennsylvania 15243.
Director/Trustee of eleven investment companies associated
with Citigroup.
*Heath B. McLendon Trustee (Age 66). Chairman of the Board,
President and Chief Executive Officer; Managing Director of
Salomon Smith Barney; President of SSB Citi and Travelers
Investment Adviser, Inc. ("TIA"); Chairman or Co-Chairman
of the Board of seventy-one investment companies associated
with Salomon Smith Barney. His address is 7 World Trade
Center, New York, New York 10048.
Cornelius C. Rose, Jr. Trustee (Age 66). President,
Cornelius C. Rose Associates, Inc., financial consultants,
and Chairman and Director of Performance Learning Systems,
an educational consultant. His address is Meadowbrook
Village, Building 4, Apt 6, West Lebanon, New Hampshire
03784. Director/Trustee of eleven investment companies
associated with Citigroup.
Lewis E. Daidone (Age 42). Senior Vice President and
Treasurer; Managing Director of Salomon Smith Barney; Chief
Financial Officer of the Smith Barney mutual funds;
Treasurer and Senior Vice President or Executive Vice
President of sixty-one investment companies associated with
Citigroup; Director and Senior Vice President of SSB Citi
and TIA.
Irving David (Age 39). Controller
Director of Salomon Smith Barney; formerly Assistant
Treasurer of First Investment Management Company.
Controller or Assistant Treasurer of fifty-three investment
companies associated with Citigroup.
Christina T. Sydor (Age 49). Secretary
Managing Director of Salomon Smith Barney; Secretary of
sixty-one investment companies associated with Citigroup;
General Counsel and Secretary of SSB Citi and TIA.
THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK.
No officer, trustee or employee of Salomon Smith Barney or
any of its affiliates receives any compensation from the
trust for serving as an officer of the funds or trustee of
the trust. The trust pays each trustee who is not an
officer, director or employee of Salomon Smith Barney or
any of its affiliates a fee of $12,000 per annum plus $1000
per in-person meeting and $100 per telephonic meeting.
Each Trustee emeritus who is not an officer, director or
employee of Salomon Smith Barney or its affiliates receives
a fee of $5,000 per annum plus $500 per in-person meeting
and $50 per telephonic meeting. All Trustees are
reimbursed for travel and out-of-pocket expenses incurred
to attend such meetings, which for the last fiscal year
totaled $14,437.
For the fiscal year ended November 30, 1999, the trustees
of the trust were paid the following compensation:
Name of Person
Aggregate
Compensat
ion
from
Trust
Total
Pension or
Retirement
Benefits
Accrued
As part of
Trust
Expenses
Compensation
from Trust
and Fund
Complex
Paid to
Trustees
Number of
Funds for Which DirecD
Trustee Serves Within
Fund Complex
Herbert Barg**
Alfred
Bianchetti*
Martin Brody**
Dwight B.
Crane**
Burt N.
Dorsett**
Elliot S.
Jaffe**
Stephen E.
Kaufman**
Joseph J.
McCann**
Heath B.
McLendon*
Cornelius C.
Rose, Jr.**
$15,600
14,600
13,600
15,500
15,500
12,600
15,600
15,600
- -----
14,600
$ 0
0
0
0
0
0
0
0
0
0
$114,288
53,900
138,600
155,363
57,950
45,100
110,650
58,050
- ------
53,500
16
11
21
24
11
11
13
11
71
11
_________________
* Designated an "interested" trustee.
** Designates member of Audit Committee.
Upon attainment of age 80, fund trustees are required to
change to emeritus status. Trustees emeritus are entitled
to serve in emeritus status for a maximum of 10 years. A
trustee emeritus may attend meetings but has no voting
rights.
INVESTMENT MANAGEMENT AND OTHER SERVICES
Master Portfolio Adviser
Each Master Portfolio has substantially the same investment
objectives as the corresponding fund. Consequently, the
funds do not have their own investment adviser. BGFA
serves as the Master Portfolios' Investment Adviser and
provides investment guidance and policy direction for the
Master Portfolios.
BGFA makes no attempt to apply economic, financial or
market analysis when managing the Master Portfolios. BGFA
selects securities because they will help the Master
Portfolios achieve returns corresponding to the returns of
the applicable index.. The process reflects BGFA's
commitment to an objective and consistent investment
management structure.
BGFA serves as investment adviser to the Master Portfolios
and the Underlying Portfolios. BGFA is a direct subsidiary
of Barclays Global Investors, N.A. (which, in turn, is an
indirect subsidiary of Barclays Bank PLC) and is located at
45 Fremont Street San Francisco, CA 94105. As of December
31, 1999, BGFA and its affiliates provided investment
advisory services for approximately $782 billion of assets
under management.
BGFA provides the Master Portfolios and the Underlying
Portfolios with investment guidance and policy direction in
connection with the daily portfolio management of each,
subject to the supervision of MIP's board of trustees and
in conformity with Delaware law and the stated policies of
each such portfolio. BGFA furnishes to MIP's board of
trustees periodic reports on the investment strategy and
performance of the Master Portfolios and the Underlying
Portfolios.
BGFA is entitled to receive monthly fees at the annual rate
of 0.01% of the average daily net assets of the U.S. Equity
Index Master Portfolio, 0.08% of the average daily net
assets of the Extended Index Portfolio and 0.05% of the
average daily net assets of the S&P 500 Index Portfolio as
compensation for its advisory services. The U.S. Equity
Index Master Portfolio bears its pro rata share of the
advisory fees of the Underlying Portfolios. Based on these
fee levels and the expected allocation of assets between
the two Underlying Portfolios, the advisory fees payable to
BGFA by the Master Portfolio on a combined basis will be
approximately 0.07% of the average daily net assets of the
Master Portfolio. As compensation for its advisory services
to the International Index Master Portfolio, BGFA is
entitled to receive fees at an annual rate of 0.15% of the
first $1 billion and 0.10% thereafter, of the International
Index Master Portfolio's average daily net assets. From
time to time, BGFA may waive such fees in whole or in part.
Any such waiver will reduce the expenses of the Master
Portfolio and, accordingly, have a favorable impact on its
performance.
Purchase and sale orders for portfolio securities of the
Master Portfolios may be combined with those of other
accounts that BGFA manages or advises, and for which it has
brokerage placement authority, in the interest of seeking
the most favorable overall net results. When BGFA, subject
to the supervision and the overall authority of MIP's board
of trustees, determines that a particular security should
be bought or sold for a Master Portfolio and other accounts
managed by BGFA, it undertakes to allocate those
transactions among the participants equitably.
BGFA may deal, trade and invest for its own account in the
types of securities in which the Master Portfolio may
invest. BGFA has informed MIP that in making its
investment decisions it does not obtain or use material
inside information in its possession.
Morrison & Foerster LLP, counsel to MIP and special counsel
to BGFA, has advised MIP and BGFA that BGFA and its
affiliates may perform the services contemplated by the
BGFA Advisory Contracts without violation of the Glass-
Steagall Act. Such counsel has pointed out, however, that
there are no controlling judicial or administrative
interpretations or decisions and that future judicial or
administrative interpretations of or decisions relating to,
present federal or state statutes, including the Glass-
Steagall Act and regulations relating to the permissible
activities of banks and their subsidiaries or affiliates,
as well as future changes in such statutes, regulations and
judicial or administrative decisions or interpretations,
could prevent such entities from continuing to perform, in
whole or in part, such services. If any such entity were
prohibited from performing any such services, it is
expected that new agreements would be proposed or entered
into with another entity or entities qualified to perform
such services.
Administrator - SSB Citi
SSB Citi serves as administrator to the fund pursuant to a
written agreement (the "Administration Agreement"). SSB
Citi is a wholly owned subsidiary of Salomon Smith Barney
Holdings Inc. ("Holdings"), which in turn, is a wholly
owned subsidiary of Citigroup Inc. The administrator will
pay the salary of any officer and employee who is employed
by both it and the fund and bears all expenses in
connection with the performance of its services.
As administrator SSB Citi: (a) assists in supervising all
aspects of the fund's operations except those performed by
other parties pursuant to written agreements; b) supplies
the fund with office facilities (which may be in SSB Citi's
own offices), statistical and research data, data
processing services, clerical, accounting and bookkeeping
services, including, but not limited to, the calculation of
(i) the net asset value of shares of the fund, (ii) service
fees, internal auditing and legal services, internal
executive and administrative services, and stationary and
office supplies; and (c) prepares reports to shareholders
of the fund, tax returns and reports to and filings with
the SEC and state blue sky authorities.
As compensation for administrative services rendered to the
fund, the administrator will receive a fee computed daily
and paid monthly at the annual rate of 0.15% of the value
of the fund's average daily net assets.
The fund bears expenses incurred in its operation,
including: taxes, interest, brokerage fees and commissions,
if any; fees of trustees who are not officers, Directors,
shareholders or employees of the administrator or its
affiliates; SEC fees and state Blue Sky qualification fees;
charges of custodians; transfer and dividend disbursing
agent's fees; certain insurance premiums; outside auditing
and legal expenses; costs of maintaining corporate
existence; investor services (including allocated telephone
and personnel expenses); costs of preparation and printing
of prospectuses and statements of additional information
for regulatory purposes and for distribution to existing
shareholders; costs of shareholders' reports and
shareholder meetings; and meetings of the officers or board
of trustees of the fund.
Auditors
KPMG LLP, independent auditors, 757 Third Avenue, New York,
New York 100174, have been selected to serve as auditors of
the trust and to render opinions on the fund's financial
statements for the fiscal year ending December 31, 2000.
The Master Investment Portfolio has been audited by KPMG
LLP, independent auditors, 3 Embarcadero Center, 21st Floor,
San Francisco, California 94111.
Counsel
Willkie Farr & Gallagher, 787 Seventh Avenue, New York, New
York 10019, serves as counsel to each fund.
Stroock & Stroock & Lavan LLP, 180 Maiden Lane, New York,
New York, serves as counsel to the trustees who are not
"interested persons" of each fund.
Custodian, Fund Accounting Services Agent and Sub-
administrator of the Master Portfolio
Investors Bank & Trust Company ("IBT"), 200 Clarendon
Street, Boston, MA 02116, serves as custodian of the
assets of the fund and the Master Portfolio. As a result,
IBT has custody of all securities and cash of the fund and
the Master Portfolio, delivers and receives payment for
securities sold, receives and pays for securities
purchased, collects income from investments, and performs
other duties, all as directed by the officers of the fund
and the Master Portfolio. The custodian has no
responsibility for any of the investment policies or
decisions of the fund and the Master Portfolio. IBT also
acts as the fund's Accounting Services Agent.
Custodial fees of up to 0.10% are payable after the first
two years of the Master Portfolio's operations. The Master
Portfolio was launched on February 22, 1998 therefore, the
initial two year period expires on February 22, 2001.
Thereafter IBT will be entitled to receive custodial fees
from the Master Portfolio (after waivers). This will
increase the total operating expense of the Master
Portfolio by 0.10%.
Transfer Agent and Sub-Transfer Agent
Citi Fiduciary Trust Company, (successor to Smith Barney
Private Trust Company) (the "transfer agent") located at
388 Greenwich Street, New York, New York 10013 serves as
the transfer agent and shareholder services agent for the
fund.
PFPC Global Fund Services ("PFPC" or "sub-transfer agent")
located at Exchange Place, Boston, Massachusetts 02109,
serves as the trust's sub-transfer agent. Under the sub-
transfer agency agreement, the sub-transfer agent maintains
the shareholder account records for the trust, handles
certain communications between shareholders and the trust
and distributes dividends and distributions payable by the
trust. For these services, the sub-transfer agent receives
a monthly fee computed on the basis of the number of
shareholder accounts it maintains for the trust during the
Code of Ethics Pursuant to Rule 17j-1 of the 1940 Act, the
funds, their investment advisers and principal underwriter
have adopted a code of ethics that permits personnel to
invest in securities for their own accounts, including
securities that may be purchased or held by the funds. All
personnel must place the interests of clients first and
avoid activities, interests and relationships that might
interfere with the duty to make decisions in the best
interests of the clients. All personal securities
transactions by employees must adhere to the requirements
of the code and must be conducted in such a manner as to
avoid any actual or potential conflict of interest, the
appearance of such a conflict, or the abuse of an
employee's position of trust and responsibility.
A copy of the funds' code of ethics is on file with the
Securities and Exchange Commission.
Distributor tc "DISTRIBUTOR"
CFBDS, Inc. serves as the fund's distributor pursuant to a
written agreement dated October 8, 1998, (the "Distribution
Agreement") and which was amended to include each fund and
approved by the fund's board of trustees, including a
majority of the independent trustees, on October 13, 1999.
When payment is made by the investor before the settlement
date, unless otherwise noted by the investor, the funds
will be held as a free credit balance in the investor's
brokerage account and Salomon Smith Barney may benefit from
the temporary use of the funds. The fund's board of
trustees has been advised of the benefits to Salomon Smith
Barney resulting from these settlement procedures and will
take such benefits into consideration when reviewing the
Administration and Distribution Agreements for continuance.
Shareholding Servicing Arrangements
To compensate Salomon Smith Barney for the services they
provide to fund shareholders, each fund has adopted a
services plan (the "Plan") pursuant to Rule 12b-1 under the
1940 Act. Under the Plan, the fund pays a service fee with
respect to Class A shares that is accrued daily and paid
monthly, calculated at the annual rate of 0.20 % of the
value of the fund's average daily net assets attributable
to Class A shares. Class D shares are not subject to a
service fee.
Under its terms, the Plan continues from year to year,
provided such continuance is approved annually by vote of
the board of trustees, including a majority of the trustees
who are not interested persons of the trust and who have no
direct or indirect financial interest in the operation of
the Plan (the "Independent Trustees"). The Plan may not
be amended to increase the amount of the service fees
without shareholder approval, and all amendments of the
Plan also must be approved by the trustees including all of
the Independent Trustees in the manner described above.
The Plan may be terminated with respect to the Class A
shares at any time, without penalty, by vote of a majority
of the Independent Trustees or, with respect to any fund,
by vote of a majority of the outstanding voting securities
of the fund. Pursuant to the Plan, Salomon Smith Barney
will provide the board of trustees with periodic reports of
amounts expended under the Plan and the purpose for which
such expenditures were made.
Co-Administrators and Placement Agent of the Master
Portfolios
Stephens, Inc. ("Stephens"), and Barclays Global Investors,
N.A. ("BGI") serve as co-administrators on behalf of the
Master Portfolios. Under the Co-Administration Agreement
between Stephens, BGI and the Master Portfolios, Stephens
and BGI provide the Master Portfolios with administrative
services, including: (i) general supervision of the Master
Portfolios' non-investment operations, coordination of the
other services provided to the Master Portfolios; (ii)
compilation of information for reports to, and filings
with, the SEC and state securities commissions; and
preparation of proxy statements and shareholder reports for
the Master Portfolios; and (iii) general supervision
relative to the compilation of data required for the
preparation of periodic reports distributed to the MIP's
officers and board. Stephens also furnishes office space
and certain facilities required for conducting the business
of the Master Portfolios and compensates the MIP's
trustees, officers and employees who are affiliated with
Stephens. In addition, Stephens and BGI will be responsible
for paying all expenses incurred by the U.S. Equity Index
Master Portfolio other than the fees payable to BGFA and
other than custodial fees of up to 0.01% payable after the
first two years of the Master Portfolio's operations.
Stephens and BGI are entitled to receive a monthly fee, in
the aggregate, at an annual rate of 0.02% of the average
daily net assets of the U.S. Equity Index Master Portfolio
for providing administrative services and assuming
expenses.
As compensation for administration services to
International Index Master Portfolio, Stephens and BGI are
entitled to receive a monthly fee, in the aggregate, at an
annual rate of 0.10% of the first $1 billion and 0.07%
thereafter of the Master Portfolio average daily net
assets.
Stephens also acts as the placement agent of Master
Portfolio's shares pursuant to a Placement Agency Agreement
with the Master Portfolio.
PORTFOLIO TRANSACTIONS AND TURNOVER
BGFA assumes general supervision over placing orders on
behalf of the Master Portfolios for the purchase or sale of
portfolio securities. Allocation of brokerage transactions,
including their frequency, is made in the best judgment of
BGFA and in a manner deemed fair and reasonable to
interestholders. In executing portfolio transactions and
selecting brokers or dealers, BGFA seeks to obtain the best
overall terms available for the Master 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. The
primary consideration is prompt execution of orders at the
most favorable net price. Certain of the brokers or
dealers with whom the Master Portfolios may transact
business offer commission rebates to the Master 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 commissions paid by other
institutional investors for comparable services. Brokers
also are selected because of their ability to handle
special executions such as are involved in large block
trades or broad distributions, provided the primary
consideration is met. Portfolio turnover may vary from
year to year, as well as within a year. High turnover
rates over 100% are likely to result in comparatively
greater brokerage expenses.
The Master Portfolios have no obligation to deal with any
dealer or group of dealers in the execution of transactions
in portfolio securities. Subject to policies established
by the Master Portfolios' board of trustees, BGFA as
advisor is responsible for the Master Portfolios'
investment portfolio decisions and the placing of portfolio
transactions. In placing orders, it is the policy of the
Master Portfolios to obtain the best results taking into
account the broker/dealer's general execution and
operational facilities, the type of transaction involved
and other factors such as the broker/dealer's risk in
positioning the securities involved. While BGFA generally
seeks reasonably competitive spreads or commissions, the
Master Portfolios will not necessarily be paying the lowest
spread or commission available.
Purchase and sale orders of the securities held by the
Master Portfolios may be combined with those of other
accounts that 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 the Master
Portfolios and other accounts managed by BGFA, BGFA
undertakes to allocate those transactions among the
participants equitably.
Under the 1940 Act, persons affiliated with the Master
Portfolios such as Stephens, BGFA and their affiliates are
prohibited from dealing with the Master Portfolios as a
principal in the purchase and sale of securities unless an
exemptive order allowing such transactions is obtained from
the SEC or an exemption is otherwise available.
Except in the case of equity securities purchased by the
Master Portfolios, purchases and sales of securities
usually will be principal transactions. Portfolio
securities normally will be purchased or sold from or to
dealers serving as market makers for the securities at a
net price. The Master Portfolios also will purchase
portfolio securities in underwritten offerings and may
purchase securities directly from the issuer. Generally,
money market securities, adjustable rate mortgage
securities ("ARMS"), municipal obligations, and
collateralized mortgage obligations ("CMOs") are traded on
a net basis and do not involve brokerage commissions.
The cost of executing the Master Portfolios' investment
portfolio securities transactions will consist primarily
of dealer spreads and underwriting commissions.
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 Master
Portfolio, 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 Master 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 Master 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 Master Portfolios' board of
trustees.
Certain of the brokers or dealers with whom the Master
Portfolios may transact business offer commission rebates
to the Master 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
PURCHASE OF SHARES tc "PURCHASE OF SHARES"
Detailed information about the purchase, redemption and
exchange of fund shares appears in the prospectus.
General
The shares of each fund are offered at net asset value,
which is calculated as of the close of The New York Stock
Exchange, Inc. ("NYSE") on each day that the NYSE is open
for business. The value of the shares of each fund will
fluctuate in relation to the investment experience of the
Master Portfolios in which it invests.
Investors may purchase shares from a Salomon Smith Barney
Financial Consultant or a broker that clears through
Salomon Smith Barney ("Dealer Representative"). In
addition, certain investors, including qualified retirement
plans purchasing through certain Dealer Representatives,
may purchase shares directly from the fund. When
purchasing shares of the fund, investors must specify
whether the purchase is for Class A or Class D shares.
Salomon Smith Barney and Dealer Representatives may charge
their customers an annual account maintenance fee in
connection with a brokerage account through which an
investor purchases or holds shares. Accounts held directly
at the sub-transfer agent are not subject to a maintenance
fee.
Investors may open an account in the fund by making an
initial investment of at least $1,000 for each account, or
$250 for an IRA or a Self-Employed Retirement Plan, in the
fund. Subsequent investments of at least $50 may be made
for all Classes. For shareholders purchasing shares of the
fund through the Systematic Investment Plan on a monthly
basis, the minimum initial investment requirement and
subsequent investment requirement for all Classes is $25.
For shareholders purchasing shares of the fund through the
Systematic Investment Plan on a quarterly basis, the
minimum initial investment required and the subsequent
investment requirement for all Classes is $50. There are
no minimum investment requirements for employees of
Citigroup and its subsidiaries, including Salomon Smith
Barney, unitholders who invest distributions from a Unit
Investment Trust ("UIT") sponsored by Salomon Smith Barney,
and Directors/Trustees of any of the Smith Barney mutual
funds, and their spouses and children. The fund reserves
the right to waive or change minimums, to decline any order
to purchase its shares and to suspend the offering of
shares from time to time. Shares purchased will be held in
the shareholder's account by the sub-transfer agent. Share
certificates are issued only upon a shareholder's written
request to the sub-transfer agent.
Purchase orders received by the fund or a Salomon Smith
Barney Financial Consultant prior to the close of regular
trading on the NYSE, on any day the fund calculates its net
asset value, are priced according to the net asset value
determined on that day (the ''trade date''). Orders
received by a Dealer Representative prior to the close of
regular trading on the NYSE on any day the fund calculates
its net asset value, are priced according to the net asset
value determined on that day, provided the order is
received by the fund or the fund's agent prior to its close
of business. For shares purchased through Salomon Smith
Barney or a Dealer Representative purchasing through
Salomon Smith Barney, payment for shares of the fund is due
on the third business day after the trade date. In all
other cases, payment must be made with the purchase order.
Systematic Investment Plan. Shareholders may make
additions to their accounts at any time by purchasing
shares through a service known as the Systematic Investment
Plan. Under the Systematic Investment Plan, Salomon Smith
Barney or the sub-transfer agent is authorized through
preauthorized transfers of at least $25 on a monthly basis
or at least $50 on a quarterly basis to charge the
shareholder's account held with a bank or other financial
institution on a monthly or quarterly basis as indicated by
the shareholder, to provide for systematic additions to the
shareholder's fund account. A shareholder who has
insufficient funds to complete the transfer will be charged
a fee of up to $25 by Salomon Smith Barney or the sub-
transfer agent. The Systematic Investment Plan also
authorizes Salomon Smith Barney to apply cash held in the
shareholder's Salomon Smith Barney brokerage account or
redeem the shareholder's shares of a Smith Barney money
market fund to make additions to the account. Additional
information is available from the fund or a Salomon Smith
Barney Financial Consultant or a Dealer Representative.
Class D shares are offered to a limited group of investors
who participate in certain investment programs which charge
a fee for participation, including the Smith Barney 401(k)
Platform program. In addition, Class D shares are offered
to tax-exempt employee benefit and retirement plans of
Salomon Smith Barney and its affiliates. For more
information about these programs, contact a Salomon Smith
Barney Financial Consultant.
Smith Barney Retirement Programs
You may be eligible to participate in a retirement program
sponsored by Salomon Smith Barney or one of its affiliates.
The fund offers Class A shares at net asset value to
participating plans under the programs. You can meet
minimum investment and exchange amounts, if any by
combining the plan's investments in any of the Smith Barney
mutual funds.
There are no sales charges when you buy or sell shares and
the class of shares you may purchase depends on the amount
of your initial investment and/or the date your account is
opened. Once a class of shares is chosen, all additional
purchases must by of the same class.
For plans opened on or after March 1, 2000 that are not
plans for which Paychex Inc. or an affiliate provides
administrative services (a "Paychex Plan"), Class A shares
may be purchased regardless of the amount invested.
For plans opened prior to March 1, 2000 and for Paychex
plans, the class of shares you may purchase depends on the
amount of your initial investment:
Class A Shares. Class A shares may be purchased by plans
investing at least $1million.
For more information, call your Salomon Smith Barney
Financial Consultant or the transfer agent.
Participating plans wishing to acquire shares of the fund
through the Smith Barney 401(k) Program or the Smith Barney
ExecChoiceTM Program must purchase such shares directly from
the transfer agent. For further information regarding these
Programs, investors should contact a Salomon Smith Barney
Financial Consultant.
REDEMPTION OF SHARES tc "REDEMPTION OF SHARES"
The right of redemption of shares of the fund may be
suspended or the date of payment postponed (a) for any
periods during which the NYSE is closed (other than for
customary weekend and holiday closings), (b) when trading
in the markets the fund normally utilizes is restricted, or
an emergency exists, as determined by the SEC, so that
disposal of the fund's investments or determination of its
net asset value is not reasonably practicable or (c) for
any other periods as the SEC by order may permit for the
protection of the fund's shareholders.
If the shares to be redeemed were issued in certificate
form, the certificates must be endorsed for transfer (or be
accompanied by an endorsed stock power) and must be
submitted to the sub-transfer agent together with the
redemption request. Any signature appearing on a share
certificate, stock power or written redemption request in
excess of $10,000 must be guaranteed by an eligible
guarantor institution such as a domestic bank, savings and
loan institution, domestic credit union, member bank of the
Federal Reserve System or member firm of a national
securities exchange. Written redemption requests of
$10,000 or less do not require a signature guarantee unless
more than one such redemption request is made in any 10-day
period or the redemption proceeds are to be sent to an
address other than the address of record. Unless otherwise
directed, redemption proceeds will be mailed to an
investor's address of record. The transfer agent may
require additional supporting documents for redemptions
made by corporations, executors, administrators, trustees
or guardians. A redemption request will not be deemed
properly received until the transfer agent receives all
required documents in proper form.
If a shareholder holds shares in more than one Class, any
request for redemption must specify the Class being
redeemed. In the event of a failure to specify which
Class, or if the investor owns fewer shares of the Class
than specified, the redemption request will be delayed
until the transfer agent receives further instructions from
Salomon Smith Barney, or if the shareholder's account is
not with Salomon Smith Barney, from the shareholder
directly. The redemption proceeds will be remitted on or
before the third business day following receipt of proper
tender, except on any days on which the NYSE is closed or
as permitted under the 1940 Act, in extraordinary
circumstances. Generally, if the redemption proceeds are
remitted to a Salomon Smith Barney brokerage account, these
funds will not be invested for the shareholder's benefit
without specific instruction and Salomon Smith Barney will
benefit from the use of temporarily uninvested funds.
Redemption proceeds for shares purchased by check, other
than a certified or official bank check, will be remitted
upon clearance of the check, which may take up to fifteen
days or more.
Distribution in Kind
If the board of trustees of the trust determines that it
would be detrimental to the best interests of the remaining
shareholders to make a redemption payment wholly in cash,
the fund may pay, in accordance with SEC rules, any portion
of a redemption in excess of the lesser of $250,000 or
1.00% of the fund's net assets by a distribution in kind of
portfolio securities in lieu of cash. Shareholders may
incur brokerage commissions when they subsequently sell
those securities.
Automatic Cash Withdrawal Plan
An automatic cash withdrawal plan (the "Withdrawal Plan")
is available to shareholders of the fund who own shares of
the fund with a value of at least $10,000 and who wish to
receive specific amounts of cash monthly or quarterly.
Withdrawals of at least $50 may be made under the
Withdrawal Plan by redeeming as many shares of the fund as
may be necessary to cover the stipulated withdrawal
payment. To the extent withdrawals exceed dividends,
distributions and appreciation of a shareholder's
investment in a fund, continued withdrawal payments will
reduce the shareholder's investment, and may ultimately
exhaust it. Withdrawal payments should not be considered
as income from investment in a fund. Furthermore, as it
generally would not be advantageous to a shareholder to
make additional investments in the fund at the same time he
or she is participating in the Withdrawal Plan, purchases
by such shareholders in amounts of less than $5,000
ordinarily will not be permitted.
Shareholders of the fund who wish to participate in the
Withdrawal Plan and who hold their shares in certificate
form must deposit their share certificates with the sub-
transfer agent as agent for Withdrawal Plan members. All
dividends and distributions on shares in the Withdrawal
Plan are reinvested automatically at net asset value in
additional shares of the fund involved. A shareholder who
purchases shares directly through the sub-transfer agent
may continue to do so and applications for participation in
the Withdrawal Plan must be received by the sub-transfer
agent no later than the eighth day of the month to be
eligible for participation beginning with that month's
withdrawal. For additional information, shareholders
should contact a Salomon Smith Barney Financial Consultant.
Additional Information Regarding Telephone Redemption And
Exchange Program
Neither the fund nor its agents will be liable for
following instructions communicated by telephone that are
reasonably believed to be genuine. The fund and its agents
will employ procedures designed to verify the identity of
the caller and legitimacy of instructions (for example, a
shareholder's name and account number will be required and
phone calls may be recorded). The fund reserves the right
to suspend, modify or discontinue the telephone redemption
and exchange program or to impose a charge for this service
at any time following at least seven (7) days' prior notice
to shareholders.
EXCHANGE PRIVILEGE
Shares of each Class of the U.S. 5000 Index Fund may only
be exchanged for shares of the same Class of
3. Smith Barney S&P 500 Index Fund and
4. Smith Barney EAFE Index Fund
Shares of each Class of the EAFE Index Fund may only be
exchanged for shares of the same Class of
3. Smith Barney S&P 500 Index Fund and
4. Smith Barney U.S. 5000 Index Fund
Exchanges can be made to the extent shares are offered for
sale in the shareholder's state of residence. Exchanges of
Class A and Class D shares are subject to minimum
investment requirements and all shares are subject to the
other requirements of the fund into which exchanges are
made.
Class A and Class D shareholders of the fund who wish to
exchange all or a portion of their shares for shares of the
respective Class in any of the funds identified above may
do so without imposition of any charge.
Additional Information Regarding the Exchange Privilege
Although the exchange privilege is an important benefit,
excessive exchange transactions can be detrimental to the
fund's performance and its shareholders. The manager may
determine that a pattern of frequent exchanges is excessive
and contrary to the best interests of the fund's other
shareholders. In this event, the fund may, at its
discretion, decide to limit additional purchases and/or
exchanges by the shareholder. Upon such a determination,
the fund will provide notice in writing or by telephone to
the shareholder at least 15 days prior to suspending the
exchange privilege and during the 15 day period the
shareholder will be required to (a) redeem his or her
shares in the fund or (b) remain invested in the fund or
exchange into any of the funds of the Smith Barney mutual
funds ordinarily available, which position the shareholder
would be expected to maintain for a significant period of
time. All relevant factors will be considered in
determining what constitutes an abusive pattern of
exchanges.
Certain shareholders may be able to exchange shares by
telephone. See ''Redemption of Shares-Additional
Information Regarding Telephone Redemptions and Exchange
Program.'' Exchanges will be processed at the net asset
value next determined. Redemption procedures discussed
below are also applicable for exchanging shares, and
exchanges will be made upon receipt of all supporting
documents in proper form. If the account registration of
the shares of the fund being acquired is identical to the
registration of the shares of the fund exchanged, no
signature guarantee is required. An exchange involves a
taxable redemption of shares, subject to the tax treatment
described in "Dividend, Distributions and Taxes" below,
followed by a purchase of shares of a different fund.
Before exchanging shares, investors should read the current
prospectus describing the shares to be acquired. The fund
reserves the right to modify or discontinue exchange
privileges upon 60 days' prior notice to shareholders.
VALUATION OF SHARES tc "VALUATION OF SHARES"
The net asset value per share of the fund's Classes is
calculated on each day, Monday through Friday, except days
on which the NYSE is closed. The NYSE currently is
scheduled to be closed on New Year's Day, Martin Luther
King Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas,
and on the preceding Friday or subsequent Monday when one
of these holidays falls on a Saturday or Sunday,
respectively. Because of the differences in distribution
fees and Class-specific expenses, the per share net asset
value of each Class will differ. The following is a
description of the procedures used by the trust in valuing
its assets.
The net asset value per share of each fund and is
calculated as of the close of the NYSE by dividing the
total market value of its investments and other assets,
less any liabilities, by the total outstanding shares of
the stock of the fund. The value of each fund's shares will
fluctuate in relation to the investment experience of the
Master Portfolios in which such fund invests. Securities
held by a fund or Master Portfolio which are listed on a
securities exchange and for which market quotations are
available are valued at the last quoted sale price of the
day. Price information on listed securities is taken from
the exchange where the security is primarily traded.
The securities of the Master Portfolios, including covered
call options written by the Master Portfolios, are valued
as discussed below. Domestic securities are valued at the
last sale price on the domestic securities or commodities
exchange or national securities market on which such
securities primarily are traded. Securities not listed on
a domestic exchange or national securities market, or
securities in which there were no transactions, are valued
at the most recent bid prices. Portfolio securities which
are traded primarily on foreign securities or commodities
exchanges generally are valued at the preceding closing
values of such securities on their respective exchanges,
except that when an occurrence subsequent to the time a
value was so established is likely to have changed such
value, then the fair value of those securities is
determined by BGFA in accordance with guidelines approved
by MIP's board of trustees. Short-term investments are
carried at amortized cost which approximates value. Any
securities or other assets for which recent market
quotations are not readily available are valued at fair
value as determined in good faith by BGFA in accordance
with such guidelines.
Restricted securities, as well as securities or other
assets for which market quotations are not readily
available, or are not valued by a pricing service approved
by MIP's board of trustees, are valued at fair value as
determined in good faith by BGFA in accordance with
guidelines approved by MIP's board of trustees. BGFA and
MIP's board of trustees periodically review the method of
valuation. In making its good faith valuation of
restricted securities, BGFA generally takes the following
factors into consideration: restricted securities which
are, or are convertible into, securities of the same class
of securities for which a public market exists usually will
be valued at market value less the same percentage discount
at which purchased. This discount is revised periodically
if it is believed that the discount no longer reflects the
value of the restricted securities. Restricted securities
not of the same class as securities for which a public
market exists usually are valued initially at cost. Any
subsequent adjustment from cost is based upon
considerations deemed relevant by MIP's board of trustees.
PERFORMANCE DATA tc "PERFORMANCE DATA"
From time to time a fund may advertise its total return and
average annual total return in advertisements and/or other
types of sales literature. These figures are computed
separately for Class A and Class D shares of the fund.
These figures are based on historical earnings and are not
intended to indicate future performance. Total return is
computed for a specified period of time assuming
reinvestment of all income dividends and capital gain
distributions on the reinvestment dates at prices
calculated as stated in the prospectus, then dividing the
value of the investment at the end of the period so
calculated by the initial amount invested and subtracting
100%. The standard average annual total return, as
prescribed by the SEC is derived from this total return,
which provides the ending redeemable value. Such standard
total return information may also be accompanied with
nonstandard total return information for differing periods
computed in the same manner but without annualizing the
total return. A fund may also include comparative
performance information in advertising or marketing its
shares. Such performance information may include data from
Lipper Analytical Services, Inc. and other financial
publications.
THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK.
Average Annual Total Return
A fund's "average annual total return," as described below,
is computed according to a formula prescribed by the SEC.
The formula can be expressed 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 investment made
at the beginning of a
1-, 5- or 10-year
period at the end of a
1-, 5- or 10-year
period (or fractional
portion thereof),
assuming reinvestment
of all dividends and
distributions.
The ERV assumes complete redemption of the hypothetical
investment at the end of the measuring period. A fund's
net investment income changes in response to fluctuations
in interest rates and the expenses of the fund.
U.S. 5000 Index Fund
Aggregate Annual Total Return
Class of Shares
1-Year
5-Year
10-Year
Life of
Fund 1
Class A
N/A
N/A
N/A
22.70%
Class D
N/A
N/A
N/A
N/A2
EAFE Index Fund
Aggregate Annual Total Return
Class of Shares
1-Year
5-Year
10-Year
Life of
Fund 1
Class A
N/A
N/A
N/A
14.10%
Class D
N/A
N/A
N/A
N/A2
____________________
1 Class A and D commenced operations on October 18, 1999.
The results reflected are for the period from October
18, 1999 to March 31, 2000.
2 There is no information for Class D shares because no
Class D shares were outstanding.
Aggregate Total Return
A fund's "aggregate total return," as described below,
represents the cumulative change in the value of an
investment in the fund for the specified period and is
computed by the following formula:
ERV - P
P
Where: P = a hypothetical initial
payment of $10,000.
ERV = Ending Redeemable Value of a
hypothetical $10,000
investment made at the
beginning of the 1-, 5- or
10-year period at the end of
the 1-, 5- or 10-year period
(or fractional portion
thereof), assuming
reinvestment of all dividends
and distributions.
The ERV assumes complete redemption of the hypothetical
investment at the end of the measuring period.
U.S. 5000 Index Fund
Aggregate Annual Total Return
Class of Shares
1-Year
5-Year
10-
Year
Life of
Fund 1
Class A
N/A
N/A
N/A
22.70%
Class D
N/A
N/A
N/A
N/A2
EAFE Index Fund
Aggregate Annual Total Return
Class of Shares
1-Year
5-Year
10-
Year
Life of
Fund 1
Class A
N/A
N/A
N/A
14.10%
Class D
N/A
N/A
N/A
N/A2
____________________
1 Class A and D commenced operations on October 18,
1999. The results reflected are for the period from
October 18, 1999 to
March 31, 2000.
2 There is no information for Class D shares because no
Class D shares were outstanding.
Performance will vary from time to time depending upon
market conditions, the composition of the fund's portfolio
and operating expenses and the expenses exclusively
attributable to the Class. Consequently, any given
performance quotation should not be considered
representative of the Class' performance for any specified
period in the future. Because performance will vary, it
may not provide a basis for comparing an investment in the
Class with certain bank deposits or other investments that
pay a fixed yield for a stated period of time. Investors
comparing a Class' performance with that of other mutual
funds should give consideration to the quality and maturity
of the respective investment companies' portfolio
securities.
DIVIDENDS, DISTRIBUTIONS AND TAXES tc "TAXES "
MIP is organized as a business trust under Delaware law.
Under MIP's current classification for federal income tax
purposes, it is intended that each Master Portfolio will be
treated as a partnership for such purposes and, therefore,
such Master Portfolio will not be subject to any federal
income tax on its income and gains (if any). However, each
investor in a Master Portfolio will be taxed on its share
(as determined in accordance with the governing instruments
of MIP) of such Master Portfolio's taxable income and
capital gain in determining its federal income tax
liability. The determination of such share will be made in
accordance with the Internal Revenue Code of 1986, as
amended (the "Code"), and regulations promulgated
thereunder.
MIP's taxable year-end is the last day of December.
Although MIP will not be subject to federal income tax, it
will file appropriate federal income tax returns
The Master Portfolios assets, income and distributions will
be managed in such a way that an investor in a Master
Portfolio may satisfy the requirements of Subchapter M of
the Code by investing substantially all of its assets in
the Master Portfolio. Investors are advised to consult
their own tax advisors as to the tax consequences of an
investment in the Master Portfolio.
Taxes
The following is a summary of the material United States
federal income tax considerations regarding the purchase,
ownership and disposition of shares of a fund. Each
prospective shareholder is urged to consult his own tax
adviser with respect to the specific federal, state, local
and foreign tax consequences of investing in a fund. The
summary is based on the laws in effect on the date of this
SAI, which are subject to change. Each fund will be
treated as a separate entity for federal tax purposes.
Unless otherwise noted, the following discussion is
applicable to each fund.
The Fund and Its Investments
The fund intends to continue to qualify to be treated as a
regulated investment company each taxable year under the
Code. To so qualify, the fund must, among other things:
(a) derive at least 90% of its gross income in each taxable
year from dividends, interest, payments with respect to
securities loans and gains from the sale or other
disposition of stock or securities or foreign currencies,
or other income (including, but not limited to, gains from
options, futures or forward contracts) 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 quarter of the fund's taxable year, (i) at
least 50% of the market value of the fund's assets is
represented by cash, securities of other regulated
investment companies, United States government securities
and other securities, with such other securities limited,
in respect of any one issuer, to an amount not greater than
5% of the fund's assets and not greater than 10% of the
outstanding voting securities of such issuer and (ii) not
more than 25% of the value of its assets is invested in the
securities (other than United States government securities
or securities of other regulated investment companies) of
any one issuer or any two or more issuers that the fund
controls and are determined to be engaged in the same or
similar trades or businesses or related trades or
businesses. For purposes of federal income tax law,
including the application of the foregoing qualification
requirements, a fund will be treated as if it derived
directly its proportionate share of each item of income,
deduction, gain or loss (and as if it held directly its
proportionate share of the assets and liabilities) of each
Master Portfolio in which it invests, either directly or
indirectly.
As a regulated investment company, the fund will not be
subject to United States federal income tax on its
investment company taxable income (i.e., income other than
any excess of its net realized long-term capital gains over
its net realized short-term capital losses ("net relized
capital gains") or on its net realized capital gains, if
any, that it distributes to its shareholders, provided an
amount equal to at least 90% of its investment company
taxable income, plus or minus certain other adjustments as
specified in the Code, and 90% of its net tax-exempt income
for the taxable year is distributed in compliance with the
Code's timing and other requirements but will be subject to
tax at regular corporate rates on any taxable income or
gains it does not distribute. The Code imposes a 4%
nondeductible excise tax on the fund to the extent it does
not distribute by the end of any calendar year at least 98%
of its net investment income for that year and 98% of the
net amount of its capital gains (both long-and short-term)
for the one-year period ending, as a general rule, on
October 31 of that year. For this purpose, however, any
income or gain retained by the fund that is subject to
corporate income tax will be considered to have been
distributed by year-end. In addition, the minimum amounts
that must be distributed in any year to avoid the excise
tax will be increased or decreased to reflect any
underdistribution or overdistribution, as the case may be,
from the previous year. The fund anticipates that it will
pay such dividends and will make such distributions as are
necessary in order to avoid the application of this tax.
If, in any taxable year, the fund fails to qualify as a
regulated investment company under the Code or fails to
meet the distribution requirement, it would be taxed in the
same manner as an ordinary corporation and distributions to
its shareholders would not be deductible by the fund in
computing its taxable income. In addition, in the event of
a failure to qualify, the fund's distributions, to the
extent derived from the fund's current or accumulated
earnings and profits would constitute dividends (eligible
for the corporate dividends-received deduction) which are
taxable to shareholders as ordinary income, even though
those distributions might otherwise (at least in part) have
been treated in the shareholders' hands as long-term
capital gains. If the fund fails to qualify as a regulated
investment company in any year, it must pay out its
earnings and profits accumulated in that year in order to
qualify again as a regulated investment company. In
addition, if the fund failed to qualify as a regulated
investment company for a period greater than one taxable
year, the fund may be required to recognize any net built-
in gains (the excess of the aggregate gains, including
items of income, over aggregate losses that would have been
realized if it had been liquidated) with respect to certain
of its assets in order to qualify as a regulated investment
company in a subsequent year.
The fund's transactions in foreign currencies, forward
contracts, options and futures contracts (including options
and futures contracts on foreign currencies) will be
subject to special provisions of the Code (including
provisions relating to "hedging transactions" and
"straddles") that, among other things, may affect the
character of gains and losses realized by the fund (i.e.,
may affect whether gains or losses are ordinary or
capital), accelerate recognition of income to the fund and
defer fund losses. These rules could therefore affect the
character, amount and timing of distributions to
shareholders. These provisions also (a) will require the
fund to mark-to-market certain types of the positions in
its portfolio (i.e., treat them as if they were closed out)
and (b) may cause the fund to recognize income without
receiving cash with which to pay dividends or make
distributions in amounts necessary to satisfy the
distribution requirements for avoiding income and excise
taxes. The fund will monitor its transactions, will make
the appropriate tax elections and will make the appropriate
entries in its books and records when it acquires any
foreign currency, forward contract, option, futures
contract or hedged investment in order to mitigate the
effect of these rules and prevent disqualification of the
fund as a regulated investment company.
The fund's investment in Section 1256 contracts, such as
regulated futures contracts, most forward currency
contracts traded in the interbank market and options on
most stock indices, are subject to special tax rules. All
section 1256 contracts held by the fund at the end of its
taxable year are required to be marked to their market
value, and any unrealized gain or loss on those positions
will be included in the fund's income as if each position
had been sold for its fair market value at the end of the
taxable year. The resulting gain or loss will be combined
with any gain or loss realized by the fund from positions
in section 1256 contracts closed during the taxable year.
Provided such positions were held as capital assets and
were not part of a "hedging transaction" nor part of a
"straddle," 60% of the resulting net gain or loss will be
treated as long-term capital gain or loss, and 40% of such
net gain or loss will be treated as short-term capital gain
or loss, regardless of the period of time the positions
were actually held by the fund.
Index Swaps. As a result of entering into index swaps, the
fund may make or receive periodic net payments. It may also
make or receive a payment when a swap is terminated prior
to maturity through an assignment of the swap or other
closing transaction. Periodic net payments will constitute
ordinary income or deductions, while termination of a swap
will result in capital gain or loss (which will be a long-
term capital gain or loss if the fund has been a party to
the swap for more than one year).
Foreign Investments. Dividends or other income (including,
in some cases, capital gains) received by the fund from
investments in foreign securities may be subject to
withholding and other taxes imposed by foreign countries.
Tax conventions between certain countries and the United
States may reduce or eliminate such taxes in some cases.
The fund will not be eligible to elect to treat any foreign
taxes paid by it as paid by its shareholders, who therefore
will not be entitled to credits for such taxes on their own
tax returns. Foreign taxes paid by the fund will reduce
the return from the fund's investments.
Passive Foreign Investment Companies. If the fund
purchases shares in certain foreign investment entities,
called "passive foreign investment companies" (a "PFIC"),
it may be subject to United States federal income tax on a
portion of any "excess distribution" or gain from the
disposition of such shares even if such income is
distributed as a taxable dividend by the fund to its
shareholders. Additional charges in the nature of interest
may be imposed on the fund in respect of deferred taxes
arising from such distributions or gains. If the fund were
to invest in a PFIC and elected to treat the PFIC as a
"qualified electing fund" under the Code, in lieu of the
foregoing requirements, the fund might be required to
include in income each year a portion of the ordinary
earnings and net capital gains of the qualified electing
fund, even if not distributed to the fund, and such amounts
would be subject to the 90% and excise tax distribution
requirements described above. In order to make this
election, the fund would be required to obtain certain
annual information from the PFICs in which it invests,
which may be difficult or not possible to obtain.
Alternatively, the fund may elect to mark-to-market to its
stock in a PFIC. This election would result in the fund
being treated as if it had sold and repurchased all of the
PFIC stock at the end of each year. In this case, the fund
would report gains as ordinary income and would deduct
losses as ordinary losses to the extent of previously
recognized gains. The election, once made, would be
effective for all subsequent taxable years of the fund,
unless revoked with the consent of the Internal Revenue
Service (the "IRS"). By making the election, the fund
could potentially ameliorate the adverse tax consequences
with respect to its ownership of shares in a PFIC, but in
any particular year may be required to recognize income in
excess of the distributions it receives from PFICs and its
proceeds from dispositions of PFIC stock. The fund may
have to distribute this "phantom" income and gain to
satisfy its distribution requirement and to avoid
imposition of the 4% excise tax. The fund will make the
appropriate tax elections, if possible, and take any
additional steps that are necessary to mitigate the effect
of these rules.
Taxation of United States Shareholders
Dividends and Distributions. Any dividend declared by the
fund in October, November or December of any calendar year
and payable to shareholders of record on a specified date
in such a month shall be deemed to have been received by
each shareholder on December 31 of such calendar year and
to have been paid by the fund not later than such December
31, provided such dividend is actually paid by the fund
during January of the following calendar year. The fund
intends to distribute annually to its shareholders
substantially all of its investment company taxable income,
and any net realized capital gains. However, if the fund
retains for investment an amount equal to all or a portion
of its net realized capital gains, it will be subject to a
corporate tax (currently at a rate of 35%) on the amount
retained. In that event, the fund will designate such
retained amounts as undistributed capital gains in a notice
to its shareholders who (a) will be required to include in
income for United Stares federal income tax purposes, as
long-term capital gains, their proportionate shares of the
undistributed amount, (b) will be entitled to credit their
proportionate shares of the 35% tax paid by the fund on the
undistributed amount against their United States federal
income tax liabilities, if any, and to claim refunds to the
extent their credits exceed their liabilities, if any, and
(c) will be entitled to increase their tax basis, for
United States federal income tax purposes, in their shares
by an amount equal to 65% of the amount of undistributed
capital gains included in the shareholder's income.
Organizations or persons not subject to federal income tax
on such capital gains will be entitled to a refund of their
pro rata share of such taxes paid by the fund upon filing
appropriate returns or claims for refund with the IRS.
Dividends of net investment income and distributions of net
realized short-term capital gains are taxable to a United
States shareholder as ordinary income, whether paid in cash
or in shares. Distributions of net-long-term capital
gains, if any, that the fund designates as capital gains
dividends are taxable as long-term capital gains, whether
paid in cash or in shares and regardless of how long a
shareholder has held shares of the fund. Dividends and
distributions paid by the fund attributable to dividends on
stock of U.S. corporations received by the fund, with
respect to which the fund meets certain holding period
requirements, will be eligible for the deduction for
dividends received by corporations. Distributions in excess
of the fund's current and accumulated earnings and profits
will, as to each shareholder, be treated as a tax-free
return of capital to the extent of a shareholder's basis in
his shares of the fund, and as a capital gain thereafter
(if the shareholder holds his shares of the fund as capital
assets).
Shareholders receiving dividends or distributions in the
form of additional shares should be treated for United
States federal income tax purposes as receiving a
distribution in the amount equal to the amount of money
that the shareholders receiving cash dividends or
distributions will receive, and should have a cost basis in
the shares received equal to such amount.
Investors considering buying shares just prior to a
dividend or capital gain distribution should be aware that,
although the price of shares just purchased at that time
may reflect the amount of the forthcoming distribution,
such dividend or distribution may nevertheless be taxable
to them. If the fund is the holder of record of any stock
on the record date for any dividends payable with respect
to such stock, such dividends are included in the fund's
gross income not as of the date received but as of the
later of (a) the date such stock became ex-dividend with
respect to such dividends (i.e., the date on which a buyer
of the stock would not be entitled to receive the declared,
but unpaid, dividends) or (b) the date the fund acquired
such stock. Accordingly, in order to satisfy its income
distribution requirements, the fund may be required to pay
dividends based on anticipated earnings, and shareholders
may receive dividends in an earlier year than would
otherwise be the case.
Sales of Shares. Upon the sale or exchange of his shares,
a shareholder will realize a taxable gain or loss equal to
the difference between the amount realized and his basis in
his shares. Such 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
one year or less. Any loss realized on a sale or exchange
will be disallowed to the extent the shares disposed of are
replaced, including replacement through the reinvesting of
dividends and capital gains distributions in the fund,
within a 61-day period beginning 30 days before and ending
30 days after the disposition of the shares. In such a
case, the basis of the shares acquired will be increased to
reflect the disallowed loss. Any loss realized by a
shareholder on the sale of a fund share held by the
shareholder for six months or less will be treated for
United States federal income tax purposes as a long-term
capital loss to the extent of any distributions or deemed
distributions of long-term capital gains received by the
shareholder with respect to such share. If a shareholder
incurs a sales charge in acquiring shares of the fund,
disposes of those shares within 90 days and then acquires
shares in a mutual fund for which the otherwise applicable
sales charge is reduced by reason of a reinvestment right
(e.g., an exchange privilege), the original sales charge
will not be taken into account in computing gain/loss on
the original shares to the extent the subsequent sales
charge is reduced. Instead, the disregarded portion of the
original sales charge will be added to the tax basis in the
newly acquired shares. Furthermore, the same rule also
applies to a disposition of the newly acquired shares made
within 90 days of the second acquisition. This provision
prevents a shareholder from immediately deducting the sales
charge by shifting his or her investment in a family of
mutual funds.
Backup Withholding. The fund may be required to withhold,
for United States federal income tax purposes, 31% of the
dividends, distributions and redemption proceeds payable to
shareholders who fail to provide the fund with their
correct taxpayer identification number or to make required
certifications, or who have been notified by the IRS that
they are subject to backup withholding. Certain
shareholders are exempt from backup withholding. Backup
withholding is not an additional tax and any amount
withheld may be credited against a shareholder's United
States federal income tax liabilities.
Notices. Shareholders will be notified annually by the
fund as to the United States federal income tax status of
the dividends, distributions and deemed distributions
attributable to undistributed capital gains (discussed
above in "Taxes- Taxation of United States Shareholders -
Dividends and Distributions") made by the fund to its
shareholders. Furthermore, shareholders will also receive,
if appropriate, various written notices after the close of
the fund's taxable year regarding the United States federal
income tax status of certain dividends, distributions and
deemed distributions that were paid (or that are treated as
having been paid) by the fund to its shareholders during
the preceding taxable year.
Other Taxation
Distributions also may be subject to additional state,
local and foreign taxes depending on each shareholder's
particular situation.
The foregoing is only a summary of certain material tax
consequences affecting the funds and its shareholders.
Shareholders are advised to consult their own tax advisers
with respect to the particular tax consequences to them of
an investment in a fund.
ADDITIONAL INFORMATION
The Fund
The trust was organized on October 17, 1991 under the laws
of the Commonwealth of Massachusetts and is a business
entity commonly known as a "Massachusetts business trust"
under the name Shearson Lehman Brothers Intermediate-Term
Trust. On October 14, 1994 and August 16, 1995, the
trust's name was changed to Smith Barney Income Trust and
Smith Barney Investment Trust, respectively. In addition
to each fund, the trust offers shares of beneficial
interest of five other separate funds with a par value of
$.001 per share. Each fund offers shares of beneficial
interest currently classified into two Classes - A and D.
Each Class of the fund represents an identical interest in
the fund's investment portfolio. As a result, the Classes
have the same rights, privileges and preferences, except
with respect to: (a) the designation of each Class;
(b) the effect of the respective sales charge, if any, for
each Class; (c) the distribution and/or service fees borne
by each Class pursuant to the Plan; (d) the expenses
allocable exclusively to each Class; (e) voting rights on
matters exclusively affecting a single Class; and (f) the
exchange privilege of each Class. The trust's board of
trustees does not anticipate that there will be any
conflicts among the interests of the holders of the
different Classes. The trustees, on an ongoing basis, will
consider whether any such conflict exists and, if so, take
appropriate action.
Under Massachusetts's law, shareholders could, under
certain circumstances, be held personally liable for the
obligations of the fund. The Master Trust Agreement
disclaims shareholder liability for acts or obligations of
the fund, however, and requires that notice of such
disclaimer be given in each agreement, obligation or
instrument entered into or executed by the fund or a
trustee. The Master Trust Agreement provides for
indemnification from fund property for all losses and
expenses of any shareholder held personally liable for the
obligations of the fund. Thus, the risk of a shareholder's
incurring financial loss on account of shareholder
liability is limited to circumstances in which the fund
itself would be unable to meet its obligations, a
possibility which management of the fund believes is
remote. Upon payment of any liability incurred by the
fund, a shareholder paying such liability will be entitled
to reimbursement from the general assets of the fund. The
trustees intend to conduct the operation of the fund in
such a way so as to avoid, as far as possible, ultimate
liability of the shareholders for liabilities of the fund.
The Master Trust Agreement permits the trustees of the fund
to issue an unlimited number of full and fractional shares
of a single class and to divide or combine the shares into
a greater or lesser number of shares without thereby
changing the proportionate beneficial interests in the
fund. Each share in the fund represents an equal
proportional interest in the fund with each other share.
Shareholders of the fund are entitled upon its liquidation
to share pro rata in its net assets available for
distribution. No shareholder of the fund has any
preemptive or conversion rights. Shares of the fund are
fully paid and non-assessable.
Pursuant to the Master Trust Agreement, the fund's trustees
may authorize the creation of additional series of shares
(the proceeds of which would be invested in separate,
independently managed portfolios) and additional classes of
shares within any series (which would be used to
distinguish among the rights of different categories of
shareholders, as might be required by future regulations or
other unforeseen circumstances).
The fund does not hold annual shareholder meetings. There
normally will be no meetings of shareholders for the
purpose of electing trustees unless and until such time as
less than a majority of the trustees holding office have
been elected by shareholders, at which time the trustees
then in office will call a shareholders' meeting for the
election of trustees. Shareholders of record of no less
than two-thirds of the outstanding shares of the trust may
remove a trustee through a declaration in writing or by
vote cast in person or by proxy at a meeting called for
that purpose. The trustees will call a meeting for any
purpose upon written request of shareholders holding at
least 10% of the trust's outstanding shares and the trust
will assist shareholders in calling such a meeting as
required by the 1940 Act.
When matters are submitted for shareholder vote,
shareholders of each Class will have one vote for each full
share owned and a proportionate, fractional vote for any
fractional share held of that Class. Generally, shares of
the fund will be voted on a fund-wide basis on all matters
except matters affecting only the interests of one Class,
in which case only shares of the affected Class would be
entitled to vote.
Master Portfolio Organization
The Master Portfolios are a series of MIP, an open-end,
series management investment company organized as
Delaware business trust. MIP was organized on October 21,
1993. In accordance with Delaware law and in connection
with the tax treatment sought by MIP, the Declaration of
Trust provides that its investors are personally
responsible for trust liabilities and obligations, but only
to the extent the trust property is insufficient to
satisfy such liabilities and obligations. The Declaration
of Trust also provides that MIP must maintain appropriate
insurance (for example, fidelity bonding and errors and
omissions insurance) for the protection of the trust, its
investors, trustees, officers, employees and agents
covering possible tort and other liabilities, and that
investors will be indemnified to the extent they are held
liable for a disproportionate share of MIP's obligations.
Thus, the risk of an investor incurring financial loss on
account of investor liability is limited to circumstances
in which both inadequate insurance existed and MIP
itself was unable to meet its obligations.
The Declaration of Trust further provides that
obligations of MIP are not binding upon its trustees
individually but only upon the property of MIP and that
the trustees will not be liable for any action or
failure to act, but nothing in the Declarations of Trust
protects a trustee against any liability to which the
trustee would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of the
trustee's office.
The interests in the Master Portfolios have substantially
identical voting and other rights as those rights
enumerated above for shares of the fund. MIP is generally
not required to hold annual meetings, but is required by
Section 16(c) of the 1940 Act to hold a special meeting
and assist investor communications under certain
circumstances. Whenever the fund is requested to vote on a
matter with respect to the corresponding Master
Portfolio, the fund will hold a meeting of fund
shareholders and will cast its votes as instructed by such
shareholders.
In a situation where the fund does not receive instruction
from certain of its shareholders on how to vote the
corresponding shares of the Master Portfolio, such fund
will vote such shares in the same proportion as the
shares for which the fund does receive voting instructions.
Annual and Semi-annual Reports. The fund sends its
shareholders a semi-annual report and an audited annual
report, which include listings of investment securities
held by the fund at the end of the period covered. In an
effort to reduce the fund's printing and mailing costs, the
fund consolidates the mailing of its semi-annual and annual
reports by household. This consolidation means that a
household having multiple accounts with the identical
address of record will receive a single copy of each
report. The fund also consolidates the mailing of its
prospectus so that a shareholder having multiple accounts
will receive a single Prospectus annually. Shareholders who
do not want this consolidation to apply to their accounts
should contact their Salomon Smith Barney Financial
Consultant or the transfer agent.
FINANCIAL STATEMENTS
The U.S. 5000 Index fund's annual report for the fiscal
year ended December 31, 1999 was filed on March 7, 2000,
Accession Number 91155-00-000182. The EAFE Index fund's
annual report for the fiscal year ended December 31, 1999
was filed on March 7, 2000, Accession Number 91155-00-
000183.
OTHER INFORMATION
Styles of Fund Management In an industry where the average
portfolio manager has seven years of experience (source:
ICI, 1998), the portfolio managers of Smith Barney mutual
funds average 21 years in the industry and 15 years with
the firm.
Smith Barney mutual funds offers more than 60 mutual funds.
We understand that many investors prefer an active role in
allocating the mix of funds in their portfolio, while
others want the asset allocation decisions to be made by
experienced managers.
That's why we offer four "styles" of fund management that
can be tailored to suit each investor's unique financial
goals.
Style Pure Series
Our Style Pure Series funds stay fully invested
within their asset class and investment style,
enabling investors to make asset allocation decisions
in conjunction with their Salomon Smith Barney
Financial Consultant.
Classic Investor Series
Our Classic Investor Series funds offer a range of
equity and fixed income strategies that seek to
capture opportunities across asset classes and
investment styles using disciplined investment
approaches.
The Concert Allocation Series
As a fund of funds, investors can select a Concert
Portfolio that may help their investment needs. As
needs change, investors can easily choose another
long-term, diversified investment from our Concert
family.
Special Discipline Series
Our Special Discipline Series funds are designed for
investors who are looking beyond more traditional
market categories: from natural resources to a roster
of state-specific municipal funds.
U.S. 5000 Index Fund
Wilshire Associates, Incorporated ("Wilshire Associates")
does not sponsor any portfolio of the fund, nor is it
affiliated in anyway with the funds. "Wilshire 5000 Equity
Index" and related marks are trademarks of Wilshire
Associates. None of the funds are sponsored, endorsed,
sold, or promoted by the index or its sponsor and neither
the index nor its sponsor make any representation or
warranty, express or implied, regarding the advisability of
investing in the funds.
The fund is not sponsored, endorsed, sold or promoted by
Wilshire Associates. Wilshire Associates makes no
representation or warranty, express or implied, to the
owners of this fund or any member of the public regarding
the advisability of investing in funds generally or in this
fund particularly or the ability of the Wilshire 5000 Index
to track general stock market performance. Wilshire's only
relationship to the fund is the licensing of certain
trademarks and and trade names of Wilshire. The Wilshire
5000 Index which is composed and calculated without regard
to the issuer of this fund or this fund. Wilshire has no
obligation to take the needs of the issuer of this fund or
the owners of this fund into consideration in determining,
composing or calculating the Wilshire 5000 Index. Wilshire
does not guarantee the accuracy or the completeness of the
Wilshire 5000 Index or any data included therein and
Wilshire shall have no liability for any errors, omissions,
or interruptions therein. Wilshire makes no warranty,
express or implied, as to results to be obtained by the
fund, owners of the product, or any other person or entity
from the use of the Wilshire 5000 Index or any data
included therein. Wilshire makes no express or implied
warranties, and expressly disclaims all warranties of
merchantability or fitness for a particular purpose or use
with respect to the Wilshire 5000 Index or any data
included therein. Without limiting any of the foregoing,
in no event shall Wilshire have any liability for any
special, punitive, indirect, or consequential damages
(including lost profits), even if notified of the
possibility of such damages.
U.S. 5000 Index Fund
"S&P 500(r)" is a trademark of The McGraw-Hill Companies, Inc.
and has been licensed for use by Salomon Smith Barney. The
fund is not sponsored, endorsed, sold or promoted by
Standard & Poor's (S&P), a division of The McGraw-Hill
Companies, Inc. S&P makes no representation or warranty,
express or implied, to the shareholders of the fund or any
member of the public regarding the advisability of
investing in securities generally or in the fund
particularly or the ability of the S&P 500 Index to track
general stock market performance. S&P's only relationship
to Salomon Smith Barney is the licensing of certain
trademarks and trade names of S&P and the S&P 500 Index
which is determined, composed and calculated by S&P without
regard to Salomon Smith Barney or the fund. S&P has no
obligation to take the needs of Salomon Smith Barney or the
shareholders of the fund into consideration in determining,
composing or calculating the S&P 500 Index. S&P is not
responsible for and has not participated in the
determination of the prices and amount of the fund's shares
or the timing of the issuance or sale of the fund's shares
or in the determination or calculation of the equation by
which fund shares are to be converted into cash. S&P has
no obligation or liability in connection with the
administration, marketing or trading of fund shares.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P
500 INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY
FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO
WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE FUND,
OWNERS OF THE FUND, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P
500 INDEX OR ANY DATA INCLUDED THEREIN. S&P MAKES NO EXPRESS OR
IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO
THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY
OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY
SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST
PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
EAFE Index Fund
The fund is not sponsored, endorsed, sold or promoted by
MSCI or any affiliate of MSCI. Neither MSCI nor any other
party makes any representation or warranty, express or
implied, to the owners of this fund or any member of the
public regarding the advisability of investing in funds
generally or in this fund particularly or the ability of
the EAFE Index to track general stock market performance.
MSCI is the licensor of certain trademarks, service marks,
and trade names of MSCI and the EAFE Index which is
determined, composed and calculated by MSCI without regard
to the issuer of this fund or this fund. MSCI has no
obligation to take the needs of the issuer of this fund of
the owners of this fund into consideration in determining,
composing or calculating the EAFE Index. MSCI is not
responsible for and has not participated in the
determination or calculation of the equation by which the
fund is redeemable for cash. Neither MSCI nor any other
party has any obligation or liability to owners of this
fund in connection with the administration, marketing or
trading of this fund.
ALTHOUGH MSCI SHALL OBTAIN INFORMATION FOR INCLUSION IN OR
FOR USE IN THE CALCULATION OF THE INDEXES FROM SOURCES
WHICH MSCI CONSIDERS RELIABLE, NEITHER MSCI NOR ANY OTHER
PARTY GUARANTEES THE ACCURACY AND/OR THE COMPLETENESS OF
THE INDEXES OR ANY DATA INCLUDED THEREIN. NEITHER MSCI NOT
ANY OTHER PARTY MAKES ANY WARRANTY, EXPRESS OR IMPLIED, AS
TO RESULTS TO BE OBTAINED BY LICENSEE, LICENSEE'S CUSTOMERS
AND COUNTERPARTIES, OWNERS OF THE FUNDS, OR ANY OTHER
PERSON OR ENTITY FROM THE USE OF THE INDEXES OR ANY DATA
INCLUDED THEREIN IN CONNECTION WITH THE RIGHTS LICENSED
HEREUNDER OR FOR ANY OTHER USE. NEITHER MSCI NOT ANY OTHER
PARTY MAKES ANY EXPRESS OF IMPLIED WARRANTIES, AND MSCI
HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH
RESPECT TO THE INDEXES OR ANY DATA INCLUDED THEREIN.
WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL
MSCI OR ANY OTHER PARTY HAVE ANY LIABILITY FOR ANY DIRECT,
INDIRECT, SPECIAL, PUNITIVE, CONSEQUENTIAL OR ANY OTHER
DAMAGES (INCLUDING LOST PROFITS) EVEN IF NOTIFIED OF THE
POSSIBILITY OF SUCH DAMAGES
APPENDIX
Description of certain ratings assigned by Standard &
Poor's Corporation ("S&P") and Moody's Investors Service,
Inc. ("Moody's")
APPENDIX
DESCRIPTION OF COMMERCIAL PAPER RATINGS
A-1 and Prime-1 Commercial Paper Ratings
The rating A-1 (including A-1+) is the highest commercial
paper rating assigned by S&P. Commercial paper rated A-1 by
S&P has the following characteristics:
? liquidity ratios are adequate to meet cash
requirements;
? long-term senior debt is rated "A" or better;
? the issuer has access to at least two additional
channels of borrowing;
? basic earnings and cash flow have an upward trend with
allowance made for unusual circumstances;
? typically, the issuer's industry is well established
and the issuer has a strong position within the industry;
and
? the reliability and quality of management are
unquestioned.
Relative strength or weakness of the above factors
determines whether the issuer's commercial paper is
rated A-1, A-2 or A-3. Issues rated A-1 that are
determined by S&P to have overwhelming safety
characteristics are designated A-1+.
The rating Prime-1 is the highest commercial paper rating
assigned by Moody's. Among the factors considered by
Moody's in assigning ratings are the following:
? evaluation of the management of the issuer;
? economic evaluation of the issuer's industry or
industries and an appraisal of speculative-type risks
which may be inherent in certain areas;
? evaluation of the issuer's products in relation
to competition and customer acceptance;
? liquidity;
? amount and quality of long-term debt;
? trend of earnings over a period of ten years;
? financial strength of parent company and the
relationships which exist with the issuer; and
? recognition by the management of obligations which
may be present or may arise as a result of public interest
questions and preparations to meet such obligations.
SMITH BARNEY
INVESTMENT TRUST
U.S. 5000 Index Fund
EAFE Index Fund
April 28, 2000
SMITH BARNEY INVESTMENT TRUST
388 Greenwich Street
New York, NY 10013
SALOMON SMITH BARNEY
A Member of
Citigroup [Symbol]
