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LifePath(R) Funds
LifePath 2000(R)
LifePath 2010(R)
LifePath 2020(R)
LifePath 2030(R)
LifePath 2040(R)
Prospectus
June 28, 1996
as supplemented on
October 31, 1996
MasterWorks(R) Funds
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MasterWorks Funds Inc. (formerly Stagecoach Inc.) (the "Company") is an
open-end, management investment company. This Prospectus contains information
about five of the Company's funds -- the LIFEPATH FUNDS (collectively, the
"Funds" or the "LifePath Funds").
EACH FUND INVESTS ALL OF ITS ASSETS IN A SEPARATE PORTFOLIO (EACH, A "MASTER
PORTFOLIO") OF MASTER INVESTMENT PORTFOLIO ("MIP"), AN OPEN-END, MANAGEMENT
INVESTMENT COMPANY, RATHER THAN IN A PORTFOLIO OF SECURITIES AND, AS SUCH, MAY
BE CONSIDERED A FEEDER FUND IN A MASTER/FEEDER STRUCTURE. EACH MASTER PORTFOLIO
HAS THE SAME INVESTMENT OBJECTIVE AS THE FUND BEARING THE CORRESPONDING NAME.
THEREFORE, EACH FUND'S INVESTMENT EXPERIENCE CORRESPONDS DIRECTLY WITH THE
RELEVANT MASTER PORTFOLIO'S INVESTMENT EXPERIENCE.
Please read this Prospectus before investing and retain it for future
reference. It sets forth concisely the information about the Funds and the
Master Portfolios that an investor should know before investing. A Statement of
Additional Information ("SAI") dated June 28, 1996 describing the Funds has been
filed with the Securities and Exchange Commission ("SEC") and is incorporated by
reference. The SAI is available without charge by calling the Company at
1-800-776-0179 or by writing the Company at the address printed on the back of
the Prospectus.
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AS WITH ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR
ANY OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF THESE AUTHORITIES PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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FUND SHARES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR ISSUED, ENDORSED OR
GUARANTEED BY, BARCLAYS GLOBAL INVESTORS, N.A. OR ANY OF ITS AFFILIATES. SUCH
SHARES ARE NOT INSURED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. AN
INVESTMENT IN A FUND INVOLVES CERTAIN INVESTMENT RISKS, INCLUDING POSSIBLE LOSS
OF PRINCIPAL.
MASTERWORKS FUNDS INC.
LIFEPATH 2000 FUND
LIFEPATH 2010 FUND
LIFEPATH 2020 FUND
LIFEPATH 2030 FUND
LIFEPATH 2040 FUND
HOW THESE FUNDS WORK
The five LifePath Funds represent a family of funds with different strategies
for investing toward future goals. The numbers in the Funds' names are target
dates; the nearer its target date the more conservatively each Fund invests.
Over time, each LifePath Fund generally will reduce its investment in stocks and
increase its investment in bonds and money market instruments.
PROSPECTUS
JUNE 28, 1996
AS SUPPLEMENTED ON
OCTOBER 31, 1996
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Each LifePath Fund invests in the corresponding LifePath Master Portfolio,
which invests in a wide range of U.S. and foreign equity and debt securities and
money market instruments. Investors are encouraged to select a particular
LifePath Fund based on the decade of their anticipated retirement or when they
anticipate beginning to withdraw substantial portions of their investment.
- LIFEPATH 2000 FUND is managed for investors planning to retire (or begin
to withdraw substantial portions of their investment) approximately in the year
2000.
- LIFEPATH 2010 FUND is managed for investors planning to retire (or begin
to withdraw substantial portions of their investment) approximately in the year
2010.
- LIFEPATH 2020 FUND is managed for investors planning to retire (or begin
to withdraw substantial portions of their investment) approximately in the year
2020.
- LIFEPATH 2030 FUND is managed for investors planning to retire (or begin
to withdraw substantial portions of their investment) approximately in the year
2030.
- LIFEPATH 2040 FUND is managed for investors planning to retire (or begin
to withdraw substantial portions of their investment) approximately in the year
2040.
Shares of each Fund are sold to qualified investors without a sales charge.
Investors can invest, reinvest or redeem Fund Shares at any time without charge
or penalty imposed by the Fund.
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BARCLAYS GLOBAL FUND ADVISORS ("BGFA") SERVES AS INVESTMENT ADVISER TO THE
MASTER PORTFOLIOS. BGFA AND ITS AFFILIATES PROVIDE OTHER SERVICES TO THE
FUNDS AND MASTER PORTFOLIOS FOR WHICH THEY MAY BE COMPENSATED. STEPHENS
INC. ("STEPHENS") AND BARCLAYS GLOBAL INVESTORS, N.A. ("BGI") SERVE
AS CO-ADMINISTRATORS TO THE COMPANY AND STEPHENS SERVES AS
DISTRIBUTOR OF EACH FUND'S SHARES.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary....................................... i
Summary of Fund Expenses................................. 1
Financial Highlights..................................... 3
Description of the Funds................................. 6
Risk Factors........................................... 8
Management of the Funds.................................. 22
How to Buy Shares........................................ 26
How to Redeem Shares..................................... 30
Exchange Privilege....................................... 33
Share Value.............................................. 34
Dividends and Distributions.............................. 35
Federal Income Tax Information........................... 35
General Information...................................... 37
APPENDIX
Additional Investment Policies........................... A-1
</TABLE>
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PROSPECTUS SUMMARY
The following summary provides investors with basic information about the
Funds. For more information, please refer specifically to the identified
Prospectus sections and generally to the Prospectus and SAI.
Q. WHO CAN INVEST IN THE FUNDS?
A. Shares of the Funds are offered primarily to a select group of investors.
These include:
- Participants in employee benefit plans ("Benefit Plans"), including
retirement plans, that have appointed one of the Company's Shareholder
Servicing Agents as plan trustee, plan administrator or other agent, or
whose plan trustee, plan administrator or other agent has a servicing
arrangement with a Shareholder Servicing Agent that permits investments
in Fund shares, and individuals who invest pursuant to an agreement
between a Benefit Plan and a Shareholder Servicing Agent.
- Individuals using proceeds that are being rolled over directly from a
qualified Benefit Plan to an Individual Retirement Account ("IRA")
pursuant to arrangements between the sponsor or other agent of the
qualified Benefit Plan and a Shareholder Servicing Agent.
- Foundations, corporations and other business entities that have a
servicing arrangement with one of the Company's Shareholder Servicing
Agents that permits investments in Fund shares, and persons who invest
pursuant to an agreement between such an entity and a Shareholder
Servicing Agent.
- Individuals, other than those described above, who invest at least $1
million in the Fund pursuant to an account arrangement with a Shareholder
Servicing Agent.
See "How To Buy Shares."
Q. WHAT ARE SOME OF THE POTENTIAL RISKS ASSOCIATED WITH AN INVESTMENT IN THE
FUNDS?
A. Investments in the Funds (and the Master Portfolios) are not bank deposits
or obligations of Barclays Global Investors, N.A. ("BGI") and are not
insured by the Federal Deposit Insurance Corporation ("FDIC"). Investments
in the Funds are not insured or guaranteed against loss of principal.
Therefore, investors should be prepared to accept some risk with the money
invested in the Funds. The portfolio equity securities held by each Master
Portfolio are subject to equity-
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market risk. Equity market risk is the possibility that common stock prices
will decline over short or even extended periods. The U.S. stock market
will experience periods when stock prices rise and periods when stock
prices decline. Debt instruments held by a Master Portfolio are subject to
interest-rate risk. Interest-rate risk is the risk that increases in market
interest rates may adversely affect the value of certain debt instruments
in which the Master Portfolios may invest. The value of such debt
instruments generally changes inversely to changes in market interest
rates. The Master Portfolios also may engage in certain futures contract
transactions which have other risks associated with them. As with all
mutual funds, there can be no assurance that the Funds will achieve their
respective investment objectives. See "Risk Factors" and "Appendix --
Additional Investment Policies."
Q. HOW DO I INVEST IN THE FUNDS?
A. Shares of the Funds can be purchased by establishing an account arrangement
with a designated Shareholder Servicing Agent. Shares may be purchased at
net asset value on any day the New York Stock Exchange ("NYSE") is open for
regular business (a "Business Day").
To invest in the Funds contact a Shareholder Servicing Agent to receive
information and an Account Application. An Account Application must be
completed and signed to open an account. See "How to Buy Shares."
Q. WHO MANAGES MY INVESTMENTS?
A. BGFA, as the investment adviser to the Master Portfolios, manages the
investments of each Master Portfolio. The Company has not retained the
services of a separate investment adviser for the Funds because each Fund
invests all of its assets in the corresponding Master Portfolio. As of
March 31, 1996, BGFA and its affiliates provided investment advisory
services for over $284 billion of assets. See "Management of the Funds."
Q. WHAT ARE THE FEES FOR INVESTING?
A. Unlike certain other mutual funds which charge sales loads or other
transaction fees, the Funds do not impose shareholder transaction fees on
the purchase, redemption or exchange of their shares. Shareholder Servicing
Agents, in accordance with the terms of their customer account
arrangements, may charge additional fees for maintaining customer accounts.
See "Management of the Funds."
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Q. HOW ARE THE FUNDS' INVESTMENTS VALUED?
A. The price per share or "net asset value" of each Fund is based on the net
asset value of interests in the corresponding Master Portfolio. The net
asset value of interests in a Master Portfolio is based on the total value
of the portfolio securities owned by the Master Portfolio (plus cash and
other assets net of liabilities) and the number of outstanding interests in
the Master Portfolio. A new net asset value for each Fund and Master
Portfolio is calculated on each Business Day. See "Share Value."
Q. DO THE FUNDS PAY DIVIDENDS?
A. Each Fund intends to pay quarterly dividends consisting of substantially
all of its net investment income and annual distributions consisting of
substantially all of its net realized capital gains. All dividends and
distributions are automatically reinvested at net asset value in shares of
the Fund paying the dividend or distribution, unless payment in cash is
requested and your arrangement with a Shareholder Servicing Agent permits
the processing of cash payments. Each reinvestment increases the total
number of shares held by the investor. See "Dividends and Distributions."
Q. ARE EXCHANGES TO OTHER FUNDS PERMITTED?
A. Yes. The exchange privilege enables an investor to exchange Fund shares for
shares of another fund offered by MasterWorks Funds provided such shares
are offered for sale in the investor's state of residence. See "Exchange
Privilege."
Q. HOW DO I REDEEM SHARES?
A. Shares of the Funds may be redeemed at net asset value without the
imposition of a sales charge or redemption fee on any Business Day by
letter or by telephone (unless you decline telephone privileges). See "How
to Redeem Shares." For more information contact Stephens or your
Shareholder Servicing Agent.
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Q. WHAT ARE DERIVATIVES AND DO THE FUNDS AND MASTER PORTFOLIOS USE THEM?
A. Some of the permissible investments described throughout this Prospectus
are considered "derivative" securities because their values are derived, at
least in part, from the prices of other securities or specified assets,
indices or rates. The futures contracts and options on futures contracts
that the Master Portfolios may purchase are considered derivatives. The
Master Portfolios may purchase or sell these contracts or options as
substitutes for comparable market positions in the underlying securities.
Certain of the floating- and variable-rate instruments that the Master
Portfolios may purchase can also be considered derivatives. 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.
Q. WHAT STEPS DO THE FUNDS AND MASTER PORTFOLIOS TAKE TO CONTROL
DERIVATIVES-RELATED RISKS?
A. BGFA, as investment adviser to the Master Portfolios, uses a variety of
internal risk management procedures to ensure that derivatives use is
consistent with both the Master Portfolios' and the Funds' investment
objectives, does not expose either the Master Portfolios or the Funds to
undue risks and is closely monitored. These procedures include providing
periodic reports to the Boards of Trustees and Directors concerning the use
of derivatives. Also, cash maintained by the Master Portfolios for
short-term liquidity needs (e.g., to meet anticipated redemption requests)
will, as a general matter, only be invested in U.S. Treasury bills, shares
of other mutual funds and repurchase agreements. The use of derivatives is
also subject to broadly applicable investment policies. For example, the
Master Portfolios may not invest more than a specified percentage of their
assets in "illiquid securities," including those derivatives that do not
have active secondary markets. In addition, the Master Portfolios may not
use derivatives without establishing adequate "cover" in compliance with
SEC rules limiting the use of leverage. See "Appendix -- Additional
Investment Policies."
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SUMMARY OF FUND EXPENSES
<TABLE>
<CAPTION>
LIFEPATH LIFEPATH LIFEPATH LIFEPATH LIFEPATH
2000 2010 2020 2030 2040
FUND FUND FUND FUND FUND
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average
daily net assets):
MIP Management Fees(1)......... .55% .55% .55% .55% .55%
Co-Administration Fees......... .40% .40% .40% .40% .40%
---- ---- ---- ---- ----
TOTAL FUND OPERATING
EXPENSES..................... .95% .95% .95% .95% .95%
</TABLE>
EXAMPLE OF EXPENSES
An investor would pay the following expenses on a $1,000 investment in a
Fund, assuming (1) 5% annual return and (2) redemption at the end of each time
period:
<TABLE>
<CAPTION>
LIFEPATH LIFEPATH LIFEPATH LIFEPATH LIFEPATH
2000 2010 2020 2030 2040
FUND FUND FUND FUND FUND
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
1 YEAR................ $ 10 $ 10 $ 10 $ 10 $ 10
3 YEARS............... $ 30 $ 30 $ 30 $ 30 $ 30
5 YEARS............... $ 53 $ 53 $ 53 $ 53 $ 53
10 YEARS............... $117 $117 $117 $117 $117
</TABLE>
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(1) A portion of these fees is covered by a "defensive" Rule 12b-1 Distribution
Plan that does not result in additional expenses to the Funds or Master
Portfolios. (See "Management of the Funds -- MIP 12b-1 Plan" for further
information.)
- --------------------------------------------------------------------------------
THE AMOUNTS LISTED IN THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES; ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN ABOVE. MOREOVER, WHILE THE EXAMPLE ASSUMES A 5% ANNUAL RETURN, EACH FUND'S
ACTUAL PERFORMANCE WILL VARY AND MAY RESULT IN AN ACTUAL RETURN GREATER OR LESS
THAN 5%.
- --------------------------------------------------------------------------------
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The purpose of the foregoing tables is to assist investors in understanding
the various costs and expenses borne by a Fund and a Master Portfolio. The fee
table reflects expenses at both the Fund and Master Portfolio levels. The
information in the foregoing tables is based on contract rates expected to be in
effect throughout the remainder of the current year.
With regard to the combined fees and expenses of the Funds and Master
Portfolios, the Company's Board of Directors has considered whether the various
costs and benefits of investing each Fund's assets in the corresponding Master
Portfolio rather than directly in a portfolio of securities would be more or
less than if the Fund invested in portfolio securities directly. The Company's
Board of Directors believes that the aggregate per share expenses of a Fund and
its corresponding Master Portfolio will be less than or approximately equal to
the expenses such Fund would incur if it directly acquired and managed the type
of securities held by its corresponding Master Portfolio. See "Management of the
Funds" for more complete descriptions of the various costs and expenses
applicable to investors in each of the Funds.
Other mutual funds may invest in the Master Portfolios. The expenses and,
accordingly, the investment returns of such other mutual funds may differ from
those of the Funds. Information about other investment options in the Master
Portfolios may be obtained by calling Stephens at 1-800-643-9691.
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FINANCIAL HIGHLIGHTS
The financial information presented on the following pages is for
informational purposes only and should not be considered as a projection of the
future performance of the Funds. The Funds have been established to supersede
the Institutional Class shares of the LifePath Funds of Stagecoach Trust.
Stagecoach Trust is an open-end investment company whose series also invest in
the Master Portfolios. The Stagecoach Trust LifePath Institutional Class shares
are no longer being offered. The operation of the Funds is substantially similar
to the operation of the Stagecoach Trust LifePath Institutional Class shares.
The information has been derived from the Financial Highlights in the
financial statements of the Institutional Class shares of the LifePath Funds of
Stagecoach Trust for the fiscal year ended February 29, 1996. The financial
statements are incorporated by reference into the SAI for the Funds. The
financial statements for the fiscal year ended February 29, 1996 have been
audited by KPMG Peat Marwick LLP, independent auditors, whose report on
Stagecoach Trust, dated April 12, 1996 is also incorporated by reference into
the SAI. The information on the following pages should be read in conjunction
with the annual financial statements and notes thereto of the LifePath Funds of
Stagecoach Trust for the fiscal year ended February 29, 1996. The SAI has been
incorporated by reference into this Prospectus.
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FOR AN INSTITUTIONAL CLASS SHARE OUTSTANDING
<TABLE>
<CAPTION>
LIFEPATH
LIFEPATH 2000 FUND LIFEPATH 2010 FUND 2020 FUND
-------------------------- ------------------------- ------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY FEBRUARY 28, FEBRUARY 29,
1996 1995 29, 1996 1995 1996
----------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning
of period................ $ 9.94 $ 10.00 $ 10.02 $ 10.00 $ 10.17
-------- -------- ------- -------- --------
Income from investment
operations:
Net investment income.... 0.42 0.35 0.34 0.33 0.29
Net realized and
unrealized gain/(loss)
on investments......... 0.86 (0.12) 1.60 0.01 2.03
-------- -------- ------- -------- --------
Total from investment
operations............... 1.28 0.23 1.94 0.34 2.32
Less distributions:
Dividends from net
investment income...... (0.42) (0.28) (0.35) (0.27) (0.30)
Distributions from net
realized capital
gains.................. (0.13) (0.01) (0.14) (0.05) (0.21)
-------- -------- ------- -------- --------
Total Distributions....... (0.55) (0.29) (0.49) (0.32) (0.51)
-------- -------- ------- -------- --------
Net Asset Value, end of
period................... $ 10.67 $ 9.94 $ 11.47 $ 10.02 $ 11.98
======== ======== ======= ======== ========
Total Return (not
annualized).............. 13.19% 2.38% 19.69% 3.53% 23.18%
Ratios/Supplemental Data:
Net assets, end of period
(000).................. $ 17,262 $ 7,499 $34,458 $ 13,028 $ 40,570
Number of shares
outstanding, end of
period (000)........... 1,618 754 3,004 1,300 3,385
Ratios to average net
assets (annualized)(1):
Ratio of expenses to
average net assets..... 0.95% 0.95% 0.95% 0.95% 0.95%
Ratio of net investment
income to average net
assets................. 4.23% 4.89% 3.27% 4.61% 2.68%
Portfolio Turnover(2)..... 84% 17% 39% 24% 49%
</TABLE>
(Continued)
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<TABLE>
<CAPTION>
LIFEPATH
2020 FUND LIFEPATH 2030 FUND LIFEPATH 2040 FUND
------------ -------------------------- --------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1995 1996 1995 1996 1995
------------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning
of period................ $ 10.00 $ 10.18 $10.00 $ 10.37 $10.00
-------- -------- ------ -------- ------
Income from investment
operations:
Net investment income.... 0.30 0.23 0.29 0.17 0.20
Net realized and
unrealized gain/(loss)
on investments......... 0.12 2.47 0.14 2.84 0.34
-------- -------- ------ -------- ------
Total from investment
operations............... 0.42 2.70 0.43 3.01 0.54
Less distributions:
Dividends from net
investment income...... (0.25) (0.24) (0.25) (0.18) (0.17)
Distributions from net
realized capital
gains.................. 0.00 (0.27) 0.00 (0.34) 0.00
-------- -------- ------ -------- ------
Total Distributions....... (0.25) (0.51) (0.25) (0.52) (0.17)
-------- -------- ------ -------- ------
Net Asset Value, end of
period................... $ 10.17 $ 12.37 $10.18 $ 12.86 $10.37
======== ======== ====== ======== ======
Total Return (not
annualized).............. 4.39% 26.88% 4.42% 29.32% 5.55%
Ratios/Supplemental Data:
Net assets, end of period
(000).................. $ 16,618 $ 25,447 $9,682 $ 33,386 $9,976
Number of shares
outstanding, end of
period (000)........... 1,634 2,058 951 2,596 962
Ratios to average net
assets (annualized)(1):
Ratio of expenses to
average net assets..... 0.95% 0.95% 0.95% 0.95% 0.95%
Ratio of net investment
income to average net
assets................. 3.88% 2.15% 3.59% 1.53% 2.61%
Portfolio Turnover(2)..... 28% 39% 40% 29% 5%
</TABLE>
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(1) These ratios include income and expenses charged to the Master Portfolio.
(2) The portfolio turnover rate reflects activity by the Master Portfolio. For
the fiscal year ended February 28, 1995, this information was audited by
other auditors.
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DESCRIPTION OF THE FUNDS
GENERAL
The Company is a "series fund," which is a mutual fund divided into
separate portfolios. Each 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 a shareholder of one portfolio is not deemed to be a
shareholder of any other portfolio. Each LifePath Fund is comprised of one class
of shares. By this Prospectus, five of the Company's portfolios are being
offered -- the LifePath 2000 Fund, LifePath 2010 Fund, LifePath 2020 Fund,
LifePath 2030 Fund and LifePath 2040 Fund, each of which is diversified. The
Company currently offers seven other portfolios and may, from time to time,
establish other portfolios. See "General Information."
MASTER/FEEDER STRUCTURE
Each Fund is a feeder fund in a master/feeder structure, which means it
invests all of its assets in a separate Master Portfolio of MIP with the same
investment objective as such Fund. See "Investment Objectives" and "Management
Policies" below. MIP is organized as a trust under the laws of the State of
Delaware. See "Management of the Funds." In addition to selling its interests to
a Fund, each Master Portfolio may sell its interests to certain other mutual
funds or other qualified investors. Information regarding additional options, if
any, for investment in interests of the Master Portfolio is available from
Stephens and may be obtained by calling 1-800-643-9691. The expenses and,
correspondingly, the returns of other investment options in MIP are expected to
differ from those of the Funds.
The Company's Board of Directors believes that, if other investors invest
their assets in a Master Portfolio of MIP, certain economic efficiencies may be
realized with respect to such Master Portfolio. For example, fixed expenses that
otherwise would have been borne solely by a Fund would be spread across a larger
asset base provided by more than one fund investing in a Master Portfolio. Each
Fund investing in a Master Portfolio is liable for its proportionate share of
the obligations of the Master Portfolio. However, the risk of a Fund incurring
financial loss on account of such liability is limited to circumstances in which
both inadequate insurance exists and the Master Portfolio itself is unable to
meet its obligations. Accordingly, the Company's Board of Directors believes
that the Funds and their shareholders will not be adversely affected by reason
of investing the Funds' assets in a Master Portfolio. However, if a mutual fund
or other investor withdraws its investment from a Master Portfolio, the economic
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efficiencies (e.g., spreading fixed expenses across a larger asset base) that
the Company's Board believes should be available through investment in the
Master Portfolio may not be fully achieved or maintained. In addition, given the
relatively novel nature of the master/feeder structure, accounting and
operational difficulties could occur. See "Management of the Funds" for a
description of the Funds' and Master Portfolios' management and expenses.
Each Master Portfolio's investment objective and other fundamental
policies, which are the same as those of the Fund bearing the corresponding
name, cannot be changed without approval by the holders of a majority (as
defined in the 1940 Act) of such Master Portfolio's outstanding voting
interests. Whenever a Fund, as a Master Portfolio interestholder, is requested
to vote on matters pertaining to any fundamental policy of such Master
Portfolio, the Fund will hold a meeting of its shareholders to consider such
matters and such Fund will cast its votes in proportion to the votes received
from Fund shareholders. A Fund will vote Master Portfolio interests for which it
receives no voting instructions in the same proportion as the votes received
from Fund shareholders. In addition, certain policies of the Master Portfolio
which are non-fundamental could be changed by vote of a majority of MIP's
Trustees without a vote of interestholders. If a Master Portfolio's investment
objective or policies are changed, the Fund investing in that Master Portfolio
could subsequently change its objective or policies to correspond to those of
the Master Portfolio or the Fund could redeem its Master Portfolio interests and
either seek a new investment company with a matching objective in which to
invest or retain its own investment adviser to manage its portfolio in
accordance with its objective. In the latter case, the Fund's inability to find
a substitute investment company in which to invest or equivalent management
services could adversely affect shareholders' investments in that Fund. Each
Fund's investment objective and other fundamental policies cannot be changed
without approval by the holders of a majority (as defined in the 1940 Act) of
that Fund's outstanding voting shares. A Fund will provide shareholders with 30
days' written notice prior to the implementation of any change in the investment
objective of that Fund or Master Portfolio, to the extent possible.
Information on the Funds' and Master Portfolios' investment objectives,
policies and restrictions is included under "The Funds -- Investment Objectives
and Policies" and "Appendix -- Additional Investment Policies" in this
Prospectus and "Investment Restrictions" and "Additional Permitted Investment
Activities" in the SAI. Additional Information regarding officers and
directors/trustees is included in the Fund's SAI under "Management."
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RISK FACTORS
The net asset value and investment return of each LifePath Fund and
LifePath Master Portfolio are expected to fluctuate and are neither insured nor
guaranteed. To the extent that each LifePath Master Portfolio holds both equity
and fixed-income securities, it is subject to equity-market risk, as well as
credit- and interest-rate risks. Equity-market risk is the risk that common
stock prices will fluctuate or decline over short or even extended periods of
time. Credit risk is the risk that the issuer of a debt instrument is unable,
due to financial constraints, to make timely payments on its outstanding
obligations. Interest-rate risk is the risk that increases in market interest
rates may adversely affect the value of the debt instruments in which a Master
Portfolio invests and hence the value of an investment in the Master Portfolio.
The value of debt instruments held by a Master Portfolio generally changes
inversely to changes in market interest rates. Investments in foreign securities
can expose the Master Portfolio to currency exchange risks and other potentially
adverse consequences associated with investing in securities markets that are
not as developed or efficient as those in the United States. Certain investment
techniques that may be used by the LifePath Master Portfolios, such as investing
in stock index options, futures contracts and interest-rate swaps, present
special risk considerations. See "Appendix -- Investment Techniques." As with
all mutual funds, there can be no assurance that each Fund or Master Portfolio
will achieve its investment objective. This summary of risk factors is qualified
by reference to more detailed descriptions of the risks associated with an
investment in the Funds, as set forth under "Risk Considerations" below.
INVESTMENT OBJECTIVES
Each LifePath Fund seeks to provide long-term investors with an asset
allocation strategy designed to maximize assets for retirement or for other
purposes consistent with the quantitatively measured risk investors, on average,
may be willing to accept given their investment time horizons. Specifically:
- LifePath 2000 Fund is managed for investors planning to retire (or begin
to withdraw substantial portions of their investment) approximately in the year
2000.
- LifePath 2010 Fund is managed for investors planning to retire (or begin
to withdraw substantial portions of their investment) approximately in the year
2010.
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<PAGE> 18
- LifePath 2020 Fund is managed for investors planning to retire (or begin
to withdraw substantial portions of their investment) approximately in the year
2020.
-LifePath 2030 Fund is managed for investors planning to retire (or begin
to withdraw substantial portions of their investment) approximately in the year
2030.
- LifePath 2040 Fund is managed for investors planning to retire (or begin
to withdraw substantial portions of their investment) approximately in the year
2040.
The differences in objectives and policies among the Master Portfolios
determine the types of portfolio securities in which each Master Portfolio
invests and can be expected to affect the degree of risk to which each Master
Portfolio and, therefore, the corresponding Fund, is subject and the performance
of each Master Portfolio and Fund.
ABOUT THE FUNDS
Each Fund invests all of its assets in the Master Portfolio bearing the
corresponding name, which has the same investment objective as such Fund. A Fund
may withdraw its investment in the relevant Master Portfolio at any time,
provided that the Company's Board of Directors determines that it is in the best
interests of the Fund to do so. Upon any such withdrawal, the Company's Board of
Directors would consider what action should be taken, including investing all
such Fund's assets in another pooled investment entity having the same
investment objective as the Fund, or retaining an investment adviser to manage
such Fund's assets in accordance with the policies described below.
Since the investment characteristics of each Fund correspond directly with
those of the Master Portfolio bearing the corresponding name, the following is a
discussion of the management policies used by each Master Portfolio.
The LifePath Master Portfolios are a diversified series of asset allocation
funds designed for long-term investors. The LifePath Master Portfolios follow an
asset allocation strategy among three broad investment classes: equity and debt
securities of issuers located throughout the world and cash in the form of money
market instruments. Each LifePath Master Portfolio differs in the weighting
assigned to each investment class and, since the later-dated Master Portfolios
tend to invest a greater portion of their assets in equity securities, the
later-dated Master Portfolios generally bear more risk than the earlier-dated
Master Portfolios. The later-dated Master Portfolios generally have an
expectation of greater total return.
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<PAGE> 19
Thus, the investment class weightings of the LifePath 2040 Master Portfolio
initially might be 100%, 0% and 0% among equity securities, debt securities and
cash, respectively, while the weightings of the LifePath 2000 Master Portfolio
initially might be 25%, 50% and 25%, respectively. Over the years, each LifePath
Master Portfolio is managed more conservatively, on the premise that individuals
investing for retirement desire to reduce investment risk in their retirement
accounts as they age. The difference in such investment class weightings is
based on the statistically determined risk that such investors, on average, may
be willing to accept given their investment time horizons in an effort to
maximize assets in anticipation of retirement or for other purposes.
Investors are encouraged to invest in a particular LifePath Fund based on
the decade of their anticipated retirement or when they anticipate beginning to
withdraw substantial portions of their accounts. For example, the LifePath 2000
Fund is designed for investors in their 50s and 60s who plan to retire (or begin
to withdraw substantial portions of their investment) in approximately 2000; the
LifePath 2010 Fund is designed for investors in their 40s and 50s who plan to
retire (or begin to withdraw as described above) in approximately 2010; and so
on. In addition, when making their investment decisions, investors could
consider evaluating their own risk profiles, recognizing, for example, that the
LifePath 2040 Fund is designed for investors with a high tolerance for risk
while the LifePath 2000 Fund is designed for investors with a low tolerance for
risk.
To manage the LifePath Master Portfolio, BGFA employs a proprietary
investment model (the "Model") that analyzes extensive financial and economic
data, including risk correlation and expected return statistics, to recommend
the portfolio allocation among the investment classes described below. At its
simplest, for each point in time, the Model recommends a portfolio allocation
designed to maximize total return for each LifePath Master Portfolio based on
each such LifePath Master Portfolio's evolving risk profile. As a result, while
each LifePath Master Portfolio invests in substantially the same securities
within an investment class, the amount of each LifePath Master Portfolio's
aggregate assets invested in a particular investment class, and thus in
particular securities, differs, but the relative percentage that a particular
security comprises within an investment class
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<PAGE> 20
ordinarily remains substantially the same. As of June 1, 1996 asset allocations
in the LifePath Master Portfolios were approximately as follows:
<TABLE>
<CAPTION>
LIFEPATH LIFEPATH LIFEPATH LIFEPATH LIFEPATH
2000 2010 2020 2030 2040
MASTER MASTER MASTER MASTER MASTER
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Equity
Securities ......
Domestic ........ 17% 39% 53% 63% 75%
International ... 5% 11% 15% 19% 20%
Debt Securities ... 77% 49% 31% 17% 4%
Cash .............. 1% 1% 1% 1% 1%
</TABLE>
The relative weightings for each LifePath Master Portfolio of the various
investment classes are expected to change over time, with the LifePath 2040
Master Portfolio adopting in the 2030s characteristics similar to the LifePath
2000 Master Portfolio today. BGFA may in the future refine the Model, or the
financial and economic data analyzed by the Model, in ways that could result in
changes to recommended allocations.
MANAGEMENT POLICIES
LifePath Master Portfolios. The LifePath Model contains both "strategic"
and "tactical" components, with the strategic component weighted more heavily
than the tactical component. The strategic component of the Model evaluates the
risk that investors, on average, may be willing to accept given their investment
time horizons. The strategic component thus determines the changing investment
risk level of each LifePath Master Portfolio as time passes. The tactical
component of the Model, on the other hand, addresses short-term market
conditions. The tactical component thus adjusts the amount of investment risk
taken by each LifePath Master Portfolio without regard to time horizon, but
rather in consideration of the relative risk-adjusted short-term attractiveness
of various asset classes.
Through the strategic and tactical components, the asset allocation
strategy contemplates shifts, which may be frequent, among a wide range of U.S.
and foreign investments and market sectors. Each LifePath Master Portfolio may
invest up to approximately 20% of the value of its total assets in foreign
securities that are not publicly traded in the United States. Rather than
choosing specific securities, the Model selects indices representing segments of
the global equity and debt markets and invests to create market exposure to
these market segments by purchasing represen-
11
<PAGE> 21
tative samples of securities comprising the indices in an attempt to replicate
their performance. From time to time, other indices may be selected in addition
to, or as a substitute for, any of the indices listed herein and market exposure
may be broadened. Investors will be notified of any such change. Although the
LifePath Funds are not true "index" funds, they may be considered
"index-allocation funds."
The Model has broad latitude to select the class of investments and the
particular securities within a class in which each LifePath Master Portfolio
invests. The LifePath Master Portfolios are not managed as balanced portfolios
and are not required to maintain a portion of their investments in each of the
permitted investment categories at all times. Until a LifePath Master Portfolio
attains an asset level of approximately $100 to $150 million, the Model will
allocate assets across fewer of the investment categories identified below than
it otherwise would. As a LifePath Master Portfolio approaches this minimum asset
level, the Model will add investment categories from among those identified
below, thereby approaching the desired investment mix over time. The portfolio
of investments of each LifePath Master Portfolio is compared from time to time
to the Model's recommended allocation. Recommended reallocations are implemented
subject to BGFA's assessment of current economic conditions and investment
opportunities. BGFA may change from time to time the criteria and methods it
uses to implement the recommendations of the Model. Recommended reallocations
are implemented in accordance with trading policies designed to take advantage
of market opportunities and reduce transaction costs. The asset allocation mix
selected by the Model is a primary determinant in the respective LifePath Master
Portfolio's investment performance.
BGFA manages other portfolios which also invest in accordance with the
Model. The performance of each of those other portfolios is likely to vary from
the performance of each LifePath Master Portfolio and corresponding LifePath
Fund. Such variation in performance is primarily due to different equilibrium
asset-mix assumptions used for the various portfolios, timing differences in the
implementation of the Model's recommendations and differences in expenses and
liquidity requirements. The overall management of each LifePath Master Portfolio
is based on the recommendation of the Model, and no person is primarily
responsible for recommending the mix of asset classes in each Master Portfolio
or the mix of securities within the asset classes. Decisions relating to the
Model are made by BGFA's investment committee.
Each LifePath Master Portfolio may invest in up to 17 asset classes,
including 10 stock classes, 6 bond classes and a money market class. Each
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<PAGE> 22
LifePath Master Portfolio invests in the classes of investments described below.
EQUITY SECURITIES -- The LifePath Master Portfolios seek U.S. equity
market exposure through the following indices of common stocks:
- The S&P/BARRA Value Stock Index (consisting of primarily large-
capitalization U.S. stocks with lower-than-average price/book ratios).
- The S&P/BARRA Growth Stock Index (consisting of primarily
large-capitalization U.S. stocks with higher-than-average price/book
ratios).
- The Intermediate Capitalization Value Stock Index (consisting of
primarily medium-capitalization U.S. stocks with lower-than-average
price/book ratios).
- The Intermediate Capitalization Growth Stock Index (consisting of
primarily medium-capitalization U.S. stocks with higher-than-average
price/book ratios).
- The Intermediate Capitalization Utility Stock Index (consisting of
primarily medium-capitalization U.S. utility stocks).
- The Micro Capitalization Market Index (consisting of primarily
small-capitalization U.S. stocks).
- The Small Capitalization Value Stock Index (consisting of primarily
small-capitalization U.S. stocks with lower-than-average price/book
ratios).
The Small Capitalization Growth Stock Index (consisting of primarily
small-capitalization U.S. stocks with higher-than-average price/book
ratios).
The LifePath Master Portfolios seek foreign equity market exposure
through the following indices of foreign equity securities:
- The Morgan Stanley Capital International (MSCI) Japan Index (consisting
of primarily large-capitalization Japanese stocks).
- The Morgan Stanley Capital International Europe, Australia, Far East
Index (MSCI EAFE) Ex-Japan Index (consisting of primarily
large-capitalization foreign stocks, excluding Japanese stocks).
In addition, each LifePath Master Portfolio may invest in other common
stocks, preferred stocks and convertible securities, including
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<PAGE> 23
those in the form of American, European and Continental Depositary
Receipts, as well as warrants to purchase such securities, and investment
company securities. See "Appendix--Portfolio Securities."
DEBT SECURITIES -- The LifePath Master Portfolios seek U.S. debt
market exposure through the following indices of U.S. debt securities:
- The Lehman Brothers Long-Term Government Bond Index (con-
sisting of all U.S. Government bonds with maturities of at least ten
years).
- The Lehman Brothers Intermediate-Term Government Bond Index (consisting
of all U.S. Government bonds with maturities of less than ten years and
greater than one year).
- The Lehman Brothers Long-Term Corporate Bond Index (consisting of all
U.S. investment-grade corporate bonds with maturities of at least ten
years).
- The Lehman Brothers Intermediate-Term Corporate Bond Index
(consisting of all U.S. investment-grade corporate bonds with maturities
of less than ten years and greater than one year).
- The Lehman Brothers Mortgage-Backed Securities Index (consisting of all
fixed-coupon mortgage pass-throughs issued by the Federal National
Mortgage Association, Government National Mortgage Association and
Federal Home Loan Mortgage Corporation with maturities greater than one
year).
The LifePath Master Portfolios seek foreign debt market exposure through
the following index of foreign debt securities:
- The Salomon Brothers Non-U.S. World Government Bond Index (consisting of
foreign government bonds with maturities of greater than one year).
Each U.S. and foreign debt security is expected to be part of an issuance
with a minimum outstanding amount at the time of purchase of approximately $50
million and $100 million, respectively. Each security in which a LifePath Master
Portfolio invests must be rated at least "Baa" by Moody's Investors Service,
Inc. ("Moody's"), or "BBB" by Standard & Poor's Corporation ("S&P"), Fitch
Investors Service, Inc. ("Fitch") or Duff & Phelps, Inc. ("Duff") or, if
unrated, deemed to be of comparable quality by the Adviser in accordance with
procedures approved by MIP's Board of Trustees. See "Risk
Considerations--Fixed-Income Securities" below, and "Appendix" in the Statement
of Additional Information.
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<PAGE> 24
MONEY MARKET INSTRUMENTS -- The money market instrument portion of the
portfolio of each Master Portfolio generally is invested in high-quality money
market instruments, including U.S. Government obligations, obligations of
domestic and foreign banks, short-term corporate debt instruments and repurchase
agreements. See "Appendix" below for a more complete description of the money
market instruments in which each Master Portfolio may invest.
INVESTMENT TECHNIQUES -- Each LifePath Master Portfolio also may lend its
portfolio securities and enter into transactions in certain derivatives, each of
which involves risk.
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 futures contracts and options on futures contracts that each Master
Portfolio may purchase are considered derivatives. Each Master Portfolio may use
some derivatives as part of its short-term liquidity holdings and/or as
substitutes for comparable market positions in the underlying securities. Also,
asset-backed securities issued or guaranteed by U.S. Government agencies or
instrumentalities and certain floating- and variable-rate instruments can be
considered derivatives. 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.
BGFA uses a variety of internal risk management procedures to ensure that
derivatives use is consistent with each Master Portfolio's investment objective,
does not expose a Master Portfolio or, indirectly, a corresponding Fund to undue
risks and is closely monitored. BGFA provides periodic reports to the Board of
Trustees or Board of Directors, as the case may be, concerning the use of
derivatives. Derivatives use also is subject to broadly applicable investment
policies. For example, in no case may a Master Portfolio invest more than 15% of
the current value of its assets in "illiquid securities," including derivatives
without active secondary markets, nor may a Master Portfolio use derivatives to
create leverage without establishing adequate "cover" in compliance with
Securities and Exchange Commission leverage rules. For more information, see
"Risk Considerations" below, and "Appendix -- Investment Techniques."
CERTAIN FUNDAMENTAL POLICIES
Each Fund and Master Portfolio may (i) borrow money to the extent permitted
under the 1940 Act; (ii) invest up to 5% of its total assets in the obligations
of any single issuer, except that up to 25% of the value of the total assets of
such Fund or Master Portfolio may be invested, and
15
<PAGE> 25
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities may be purchased, without regard to any such limitation; and
(iii) invest up to 25% of the value of its total assets in the securities of
issuers in a particular industry or group of closely related industries,
provided there is no limitation on the purchase of obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities. Each Fund,
however, may invest all of its assets in another registered investment company
without violation of these fundamental policies on diversification. This
paragraph describes fundamental policies that cannot be changed as to a Fund or
Master Portfolio without approval by the holders of a majority (as defined in
the 1940 Act) of the outstanding voting securities of such Fund or Master
Portfolio, as the case may be. See "Investment Objectives and Management
Policies -- Investment Restrictions" in the Statement of Additional Information.
CERTAIN ADDITIONAL NON-FUNDAMENTAL POLICIES
Each Fund and Master Portfolio may (i) purchase securities of any company
having less than three years' continuous operation (including operations of any
predecessors) if such purchase does not cause the value of its investments in
all such companies to exceed 5% of the value of its total assets; (ii) pledge,
hypothecate, mortgage or otherwise encumber its assets, but only to secure
permitted borrowings; and (iii) invest up to 15% of the value of its net assets
in repurchase agreements providing for settlement in more than seven days after
notice and in other illiquid securities. Although each LifePath Fund and
LifePath Master Portfolio reserves the right to 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 after notice, as long as such Fund's
shares are registered for sale in a state that imposes a lower limit on the
percentage of a fund's assets that may be so invested, such LifePath Fund and
LifePath Master Portfolio will comply with the lower limit. Each LifePath Fund
currently is limited to investing up to 10% of the value of its net assets in
such securities due to limits applicable in several states. See "Investment
Objectives and Management Policies -- Investment Restrictions" in the Statement
of Additional Information.
RISK CONSIDERATIONS
GENERAL -- Since the investment characteristics and, therefore, investment
risks directly associated with such characteristics of each LifePath Fund
correspond to those of the Master Portfolio in which such Fund invests, the
following is a discussion of the risks associated with an investment in the
Master Portfolio.
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<PAGE> 26
The net asset value per share of each LifePath Fund is not fixed and should
be expected to fluctuate.
INVESTMENT TECHNIQUES -- Each LifePath Master Portfolio may engage in
various investment techniques the use of which involves greater risk than that
incurred by other funds with similar investment objectives. See
"Appendix -- Investment Techniques." Using these techniques may affect the
degree to which a LifePath Master Portfolio's net asset value fluctuates.
EQUITY SECURITIES -- Investors should be aware that equity securities
fluctuate in value, often based on factors unrelated to the value of the issuer
of the securities, and that fluctuations can be pronounced. Changes in the value
of a LifePath Master Portfolio's portfolio securities result in changes in the
value of such LifePath Master Portfolio's shares and thus the LifePath Master
Portfolio's performance.
The securities of the smaller companies in which each LifePath Master
Portfolio may invest may be subject to more abrupt or erratic market movements
than larger, more-established companies, both because the securities typically
are traded in lower volume and because the issuers typically are subject to a
greater degree of changes in earnings and prospects.
FIXED-INCOME SECURITIES -- Investors should be aware that even though
interest-bearing securities are investments which promise a stable stream of
income, the prices of such securities are inversely affected by changes in
interest rates and, therefore, are subject to the risk of market price
fluctuations. Long-term securities are affected to a greater extent by interest
rates than shorter-term securities. The values of fixed-income securities also
may be affected by changes in the credit rating or financial condition of the
issuing entities. Once the rating of a portfolio security has been changed to a
rating below investment grade, the particular LifePath Master Portfolio
considers all circumstances deemed relevant in determining whether to continue
to hold the security. Certain securities that may be purchased by the LifePath
Master Portfolio, such as those rated "Baa" by Moody's and "BBB" by S&P, Fitch
and Duff, may be subject to such risk with respect to the issuing entity and to
greater market fluctuations than certain lower yielding, higher rated
fixed-income securities. Securities which are rated "Baa" by Moody's are
considered medium-grade obligations; they are neither highly protected nor
poorly secured, and are considered by Moody's to have speculative
characteristics. Securities rated "BBB" by S&P are regarded as having adequate
capacity to pay interest and repay principal, and, while such debt securities
ordinarily exhibit adequate protection parameters, adverse economic conditions
or changing
17
<PAGE> 27
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for securities in this category than in higher rated categories.
Securities rated "BBB" by Fitch are considered investment grade and of
satisfactory credit quality; however, adverse changes in economic conditions and
circumstances are more likely to have an adverse impact on these securities and,
therefore, impair timely payment. Securities rated "BBB" by Duff have below
average protection factors but nonetheless are considered sufficient for prudent
investment. If a security held by a LifePath Master Portfolio is downgraded to a
rating below investment grade, such Master Portfolio may continue to hold the
security until such time as BGFA determines it to be advantageous for the
LifePath Master Portfolio to sell the security. If such a policy would cause a
LifePath Master Portfolio to have 5% or more of its net assets invested in
securities that have been downgraded below investment grade, the Master
Portfolio promptly would seek to dispose of such securities in an orderly
manner. See "Appendix -- Portfolio Securities -- Ratings" and "Appendix" in the
Statement of Additional Information.
FOREIGN SECURITIES -- Foreign securities markets generally are not as
developed or efficient as those in the United States. Securities of some foreign
issuers are less liquid and more volatile than securities of comparable U.S.
issuers. Similarly, volume and liquidity in most foreign securities markets are
less than in the United States, and, at times, price volatility can be greater
than in the United States. In addition, there may be less publicly available
information about a non-U.S. issuer, and non-U.S. issuers generally are not
subject to uniform accounting and financial reporting standards, practices and
requirements comparable to those applicable to U.S. issuers. See
"Appendix -- Portfolio Securities -- Bank Obligations."
Because evidences of ownership of such securities usually are held outside
the United States, each Master Portfolio will be subject to additional risks
which include possible adverse political and economic developments, possible
seizure or nationalization of foreign deposits and possible adoption of
governmental restrictions which might adversely affect the payment of principal
and interest on the foreign securities or might restrict the payment of
principal and interest to investors located outside the country of the issuers,
whether from currency blockage or otherwise. Custodial expenses for a portfolio
of non-U.S. securities generally are higher than for a portfolio of U.S.
securities.
Since the LifePath Master Portfolios may purchase foreign securities in
currencies of foreign countries, the value of these assets as measured in U.S.
dollars may be affected favorably or unfavorably by changes in
18
<PAGE> 28
currency rates and exchange control regulations. Some currency exchange costs
generally are incurred when a LifePath Master Portfolio changes investments from
one country to another.
Furthermore, some of these securities may be subject to brokerage or stamp
taxes levied by foreign governments, which have the effect of increasing the
cost of such investment and reducing the realized gain or increasing the
realized loss on such securities at the time of sale. Income received by a
Master Portfolio from sources within foreign countries may be reduced by
withholding and other taxes imposed by such countries. Tax conventions between
certain countries and the United States, however, may reduce or eliminate such
taxes. All such taxes paid by a Master Portfolio reduce the net income available
to its corresponding Fund for distribution to the Fund's shareholders.
FOREIGN CURRENCY EXCHANGE -- Currency exchange rates may fluctuate
significantly over short periods of time. They generally are determined by the
forces of supply and demand in the foreign exchange markets and the relative
merits of investments in different countries, actual or perceived changes in
interest rates and other complex factors, as seen from an international
perspective. Currency exchange rates also can be affected unpredictably by the
intervention of U.S. or foreign governments or central banks, or by the failure
to intervene, or by currency controls or political developments in the United
States or abroad. The LifePath Master Portfolios intend to engage in foreign
currency transactions to maintain the same foreign currency exposure as the
relevant foreign securities index through which the Master Portfolios seek
foreign equity market exposure, but not as part of a defensive strategy to
protect against fluctuations in exchange rates.
Foreign currency transactions may occur on a spot (i.e., cash) basis at the
rate prevailing in the currency exchange market or on a forward basis. A forward
currency exchange contract involves an obligation to purchase or sell a specific
currency at a set price on a future date which must be more than two days from
the date of the contract. The forward foreign currency market offers less
protection against default than is available when trading currencies on an
exchange, since a forward currency contract is not guaranteed by an exchange or
clearinghouse. Therefore, a default on a forward currency contract could deprive
a LifePath Master Portfolio of unrealized profits or force such Master Portfolio
to cover its commitments for purchase or resale, if any, at the current market
price.
Foreign Futures Transactions -- Unlike trading on domestic futures
exchanges, trading on foreign futures exchanges is not regulated by the
Commodity Futures Trading Commission (the "CFTC") and generally is
19
<PAGE> 29
subject to greater risks than trading on domestic exchanges. For example, some
foreign exchanges are principal markets so that no common clearing facility
exists and an investor may look only to the broker for performance of the
contract. BGFA, however, considers on an ongoing basis the creditworthiness of
such counterparties. In addition, any profits that a LifePath Master Portfolio
might realize in trading could be eliminated by adverse changes in the exchange
rate; adverse exchange rate changes also could cause a Master Portfolio to incur
losses. Transactions on foreign exchanges may include both futures contracts
which are traded on domestic exchanges and those which are not. Such
transactions may also be subject to withholding and other taxes imposed by
foreign governments.
Other Investment Considerations -- Asset allocation and modeling strategies
are employed by BGFA for other investment companies and accounts advised or
sub-advised by BGFA. If these strategies indicate particular securities should
be purchased or sold, at the same time, by a LifePath Master Portfolio and one
or more of these investment companies or accounts, available investments or
opportunities for sales will be allocated equitably to each by BGFA. In some
cases, this procedure may adversely affect the size of the position obtained for
or disposed of by a LifePath Master Portfolio or the price paid or received by
such LifePath Master Portfolio.
Under normal market conditions, the portfolio turnover rate for each
LifePath Master Portfolio is not expected to exceed 100%. A portfolio turnover
rate of 100% would occur, for example, if all of a LifePath Master Portfolio's
securities were replaced within one year. Higher portfolio turnover rates are
likely to result in comparatively greater brokerage commissions. In addition,
short-term gains realized from portfolio transactions are taxable to
shareholders as ordinary income. Portfolio turnover will not be a limiting
factor in making investment decisions.
PERFORMANCE
For purposes of advertising, performance of the LifePath Funds may be
calculated on the basis of average annual total return and/or cumulative total
return of shares. Average annual total return of shares is calculated pursuant
to a standardized formula which assumes that an investment in shares of a Fund
was purchased with an initial payment of $1,000 and that the investment was
redeemed at the end of a stated period of time, after giving effect to the
reinvestment of dividends and distributions during the period. The return of
shares is expressed as a percentage rate which, if applied on a compounded
annual basis, would result in the redeemable value of the investment in shares
at the end of the period. Advertisements
20
<PAGE> 30
of the performance of shares of a LifePath Fund include the Fund's average
annual total return of shares for one, five and ten year periods, or for shorter
time periods depending upon the length of time during which such Fund has
operated.
Cumulative total return of shares is computed on a per share basis and
assumes the reinvestment of dividends and distributions. Cumulative total return
of shares generally is expressed as a percentage rate which is calculated by
combining the income and principal changes for a specified period and dividing
by the net asset value per share at the beginning of the period. Advertisements
may include the percentage rate of total return of shares or may include the
value of a hypothetical investment in shares at the end of the period which
assumes the application of the percentage rate of total return.
Performance may vary from time to time, and past results are not
necessarily representative of future results. Investors should remember that
performance is a function of the type and quality of portfolio securities held
by the Master Portfolio in which the Fund invests and is affected by operating
expenses. Performance information, such as that described above, may not provide
a basis for comparison with other investments or other investment companies
using a different method of calculating performance.
Additional information about the performance of each Fund is contained in
the Semi-Annual Report for the Funds. The Semi-Annual Reports may be obtained by
calling the Company at 1-800-776-0179.
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<PAGE> 31
MANAGEMENT OF THE FUNDS
GENERAL -- The Company has not retained the services of an investment
adviser because each Fund's assets are invested in a Master Portfolio that has
retained investment advisory services (see "Master Portfolio Investment Adviser"
below). Each LifePath Fund bears a pro rata portion of the fees paid by the
corresponding Master Portfolio.
BOARD OF DIRECTORS -- The business and affairs of the Company are managed
under the direction of its Board of Directors and in conformity with Maryland
law. The Company's Directors are also MIP's Trustees. The Company's Directors
also serve as the Trustees of Stagecoach Trust, another open-end investment
company whose LifePath Fund series are wholly invested in the Master Portfolios.
The Company's Board, including a majority of the Directors who are not
"interested persons" (as defined in the 1940 Act) of the Company, has adopted
procedures to address potential conflicts of interest that may arise as a result
of the structure of the Boards. Additional information regarding the Officers
and Directors of the Company and the Officers and Trustees of MIP is included in
the SAI under "Management."
MASTER PORTFOLIO INVESTMENT ADVISER -- BGFA serves as investment adviser to
each of the LifePath 2000, LifePath 2010, LifePath 2020, LifePath 2030 and
LifePath 2040 Master Portfolios of MIP. Pursuant to an Investment Advisory
Contract with each Master Portfolio, BGFA provides investment guidance and
policy direction in connection with the management of each Master Portfolio's
assets, subject to the overall authority of MIP's Board of Trustees and in
conformity with Delaware law and the stated policies of such Master Portfolio.
BGFA was created by the reorganization of Wells Fargo Nikko Investment Advisors
("WFNIA"), the former sub-adviser to each Master Portfolio, with and into an
affiliate of Wells Fargo Institutional Trust Company, N.A. ("WFITC"). BGFA is an
indirect subsidiary of Barclays Bank PLC and is located at 45 Fremont Street,
San Francisco, California 94105. As of March 31, 1996, BGFA and its affiliates
provided investment advisory services for over $284 billion of assets. MIP has
agreed to pay to BGFA a monthly fee at the annual rate of 0.55% of each LifePath
Master Portfolio's average daily net assets as compensation for its advisory
services. For the period beginning January 1, 1996 and ended February 29, 1996,
MIP, on behalf of each Master Portfolio, actually paid BGFA an amount equal to
0.55% of each Master Portfolio's average daily net assets as compensation for
its advisory services.
Prior to January 1, 1996, Wells Fargo Bank N.A. ("Wells Fargo Bank"), a
wholly owned subsidiary of Wells Fargo & Company located at
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420 Montgomery Street, San Francisco, California 94105, served as each Master
Portfolio's investment adviser. Pursuant to an Investment Advisory Agreement
with MIP, Wells Fargo Bank provided investment guidance and policy direction in
connection with the management of each Master Portfolio's assets, subject to the
supervision of MIP's Board of Trustees and in conformity with Delaware law and
the stated policies of such Master Portfolio. Wells Fargo Bank was entitled to
receive a monthly fee at the annual rate of 0.55% of each LifePath Master
Portfolio's average daily net assets as compensation for its advisory services.
For the period beginning March 1, 1995 and ended December 31, 1995, MIP, on
behalf of each Master Portfolio, actually paid an amount equal to 0.55% of each
such Master Portfolio's average daily net assets to Wells Fargo Bank for
advisory services.
Prior to January 1, 1996, Wells Fargo Bank engaged WFNIA, located at 45
Fremont Street, San Francisco, California 94105, to provide investment
sub-advisory services to each Master Portfolio. WFNIA was a general partnership
owned 50% by a wholly owned subsidiary of Wells Fargo Bank and 50% by a
subsidiary of The Nikko Securities Co., Ltd. Pursuant to a Sub-Investment
Advisory Agreement, WFNIA, subject to the supervision and approval of Wells
Fargo Bank, provided investment advisory assistance and the day-to-day
management of each Master Portfolio's assets. WFNIA was entitled to receive from
Wells Fargo Bank a monthly fee at the annual rate of 0.40% of each LifePath
Master Portfolio's average daily net assets for its sub-advisory services. For
the period beginning March 1, 1995 and ended December 31, 1995, Wells Fargo Bank
actually paid WFNIA an amount equal to 0.40% of the average daily net assets of
each LifePath Master Portfolio. The LifePath Master Portfolios no longer retain
a sub-investment adviser.
BGFA and its affiliates deal, trade and invest for their own accounts in
the types of securities in which a Master Portfolio may invest and may have
deposit, loan and commercial banking relationships with the issuers of
securities purchased by a Master Portfolio. BGFA has informed MIP that in making
investment decisions the Adviser does not obtain or use material inside
information in its possession.
Morrison & Foerster LLP, counsel to the Company and MIP and special counsel
to BGFA, has advised the Company, MIP and BGFA that BGFA and its affiliates may
perform the services contemplated by the Investment Advisory Contracts, other
agreements and this prospectus without violation of the Glass-Stegall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations of, or decisions related to, present federal or
state statutes, including
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the Glass-Stegall Act, and relating to the permissible activities of banks and
their subsidiaries and 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.
CO-ADMINISTRATORS -- BGI and Stephens each serve as Co-Administrators to
the Funds. Subject to the overall authority of the Company's Board of Directors,
BGI and Stephens have agreed jointly to supervise the general administrative
operations of the Funds and to provide specific administrative services
including, among other things: coordination of other services provided to the
Funds, compilation of information for reports to the Securities and Exchange
Commission and state securities commissions, preparation of proxy statements and
shareholder reports, and general supervision of data compilation in connection
with preparing periodic reports to the Company's Board of Directors and
officers. BGI and Stephens are entitled to receive for these administrative
services a combined fee (expressed as a percentage of average daily net assets)
of 0.40% from each Fund. This fee is an "all-inclusive" or "semi-unified" fee,
and BGI and Stephens, in consideration thereof, have agreed generally to bear
all of the Funds' ordinary operating expenses, including payments to the Funds'
transfer agent and shareholder servicing agents. BGI and Stephens may delegate
certain of their administrative duties to sub-administrators, and BGI has
delegated certain of its duties to Investors Bank & Trust Company ("IBT"). IBT
is compensated by BGI for its services.
DISTRIBUTOR -- Stephens also serves as the Company's principal underwriter
within the meaning of the 1940 Act and as distributor of each Fund's shares
pursuant to a Distribution Agreement with the Company. The Distribution
Agreement provides that Stephens acts as agent for the Company for the sale of
Fund shares and may enter into Selling Agreements with Selling Agents that wish
to make available shares of the Funds to their respective customers.
Financial institutions acting as Selling Agents, Shareholder Servicing
Agents, or in certain other capacities may be required to register as dealers
pursuant to applicable state securities laws which may differ from federal law
and any interpretations expressed herein.
Stephens is a full service broker/dealer and investment advisory firm.
Stephens and its predecessor have been providing securities and investment
services for more than 60 years, including discretionary portfolio
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management services since 1983. Stephens currently manages investment
portfolios for pension and profit sharing plans, individual investors,
foundations, insurance companies and university endowments.
CUSTODIAN AND TRANSFER AGENT -- IBT serves as custodian to each Fund and
its corresponding Master Portfolio. IBT is not entitled to receive fees for its
custodial services so long as it is entitled to receive a separate fee from BGI
for its services as sub-administrator of the Funds. Prior to October 21, 1996,
BGI (formerly, Wells Fargo Investment Trust Company, N.A.) served as Custodian
to each Fund and Master Portfolio. BGI was not entitled to receive compensation
for its custodial services.
Wells Fargo Bank serves as the Company's and MIP's transfer and dividend
disbursing agent (the "Transfer Agent"). Wells Fargo Bank provides transfer
agency services to the Funds at 525 Market Street, San Francisco, California
94105. BGI and Stephens, as Co-Administrators, are responsible for compensating
Wells Fargo Bank for its transfer and dividend disbursing agency services. MIP
pays no additional fee for transfer and dividend disbursing agency services.
SHAREHOLDER SERVICING PLAN -- The Company has adopted a Shareholder
Servicing Plan pursuant to which it may enter into Shareholder Servicing
Agreements with certain financial institutions (including BGI and its
affiliates), securities dealers and other industry professionals (collectively,
"Shareholder Servicing Agents") for the provision of certain services to Fund
shareholders. The services provided may include personal services relating to
shareholder accounts, such as answering shareholder inquiries regarding the
Funds, providing reports and other information, and providing services related
to the maintenance of shareholder accounts. BGI and Stephens, as
Co-Administrators, have agreed to pay all compensation owed to shareholder
servicing agents for their services to the Funds.
A Shareholder Servicing Agent also may impose certain conditions on its
customers, subject to the terms of this Prospectus, in addition to or different
from those imposed by the Company, such as requiring a minimum initial
investment or payment of a separate fee for additional services. Each
Shareholder Servicing Agent is required to agree to disclose any fees it may
directly charge its customers who are Fund shareholders and to
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notify them in writing at least 30 days before it imposes any transaction fees.
MIP 12B-1 PLAN -- MIP's Board of Trustees has adopted, on behalf of each
Master Portfolio, a "defensive" distribution plan under Section 12(b) of the
1940 Act and Rule 12b-1 thereunder (the "Plan"). The Plan does not result in any
additional expenses being borne by a Master Portfolio or a Fund. The Plan was
adopted by a majority of MIP's Board of Trustees (including a majority of those
Trustees who are not "interested persons" of MIP as defined in the 1940 Act) on
October 10, 1995. The Plan was intended as a precaution designed to address the
possibility that certain ongoing payments by Barclays to Wells Fargo Bank in
connection with the sale of WFNIA may be characterized as indirect payments by
each Master Portfolio to finance activities primarily intended to result in the
sale of interests in such Master Portfolio. The Plan provides that if any
portion of a Master Portfolio's advisory fees (up to 0.25% of the average daily
net assets of each Master Portfolio on an annual basis) were deemed to
constitute an indirect payment for activities that are primarily intended to
result in the sale of interests in a Master Portfolio, such payment would be
authorized pursuant to the Plan.
EXPENSES -- Under the Co-Administration Agreement, BGI and Stephens have
agreed to assume all of the ordinary operating expenses of each LifePath Fund
and a pro rata share of the operating expenses of each LifePath Master
Portfolio. BGI and Stephens will not be responsible for, among other things,
advisory fees and expenses specifically assumed by the adviser, costs related to
securities transactions, taxes and extraordinary expenses.
HOW TO BUY SHARES
WHO MAY INVEST -- Only the following types of investors are eligible to
invest in the Funds:
- Participants in Benefit Plans ("Plan Participants"), including retirement
plans, that have appointed one of the Company's Shareholder Servicing
Agents as plan trustee, plan administrator or other agent, or whose plan
trustee, plan administrator or other agent has a servicing arrangement
with a Shareholder Servicing Agent that permits investments in the Funds,
and Plan Participants who invest pursuant to an agreement between such a
Benefit Plan and a Shareholder Servicing Agent.
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- Individuals using proceeds which are being rolled over directly from a
qualified Benefit Plan to an Individual Retirement Account ("IRA")
pursuant to arrangements between the sponsor or other agent of the
qualified Benefit Plan and a Shareholder Servicing Agent.
- Foundations, corporations and other business entities that have a
servicing arrangement with one of the Company's Shareholder Servicing
Agents that permits investments in the Funds and persons who invest
pursuant to an agreement between such an entity and a Shareholder
Servicing Agent.
- Individuals, other than those described above, who invest at least $1
million in a Fund pursuant to an account arrangement with a Shareholder
Servicing Agent ("Qualified Buyers").
Eligible Investors may purchase Fund shares in one of the several ways
described below. For more information or additional forms, call 1-800-776-0179.
The Company or Stephens may make the Prospectus available in an electronic
format. Upon receipt of a request by an investor or the investor's
representative, the Company or Stephens will transmit or cause to be transmitted
promptly, without charge, a paper copy of the electronic Prospectus.
MINIMUM INVESTMENT AMOUNT
In most cases, investors in Fund shares are not required to establish or
maintain a minimum investment amount. However, Qualified Buyers are required to
make an initial investment in Fund shares of at least $1 million (although this
requirement may be waived under certain conditions). All investments in a Fund's
shares are subject to a determination by the Company that the investment
instructions are complete. If shares are purchased by a check which does not
clear, the Company reserves the right to cancel the purchase and hold the
investor responsible for any losses or fees incurred. The Company reserves the
right in its sole discretion to suspend the availability of any Fund's shares
and to reject any purchase requests. Certificates for Fund shares are not
issued. Shareholder Servicing Agents may establish investment amount and account
balance requirements different from those of the Funds and may charge fees in
addition to those charged by the Fund.
GENERAL
Shares of each Fund may be purchased on any day the New York Stock Exchange
("NYSE") is open for business (a "Business Day") at the net
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asset value per share next determined after an order in proper form is received
by the Transfer Agent. Purchase orders that are received by the Transfer Agent
before the close of regular trading on the NYSE are executed on the same day.
Orders received by the Transfer Agent after the close of regular trading on the
NYSE are executed on the next Business Day. The investor's Shareholder Servicing
Agent is responsible for the prompt transmission of the investor's purchase
order to the Transfer Agent on the investor's behalf. Under certain
circumstances, a Shareholder Servicing Agent may establish an earlier deadline
for receipt of orders or an investor's order transmitted to a Shareholder
Servicing Agent may not be received by the Transfer Agent on the same day.
Federal regulations require that an investor provide a valid taxpayer
identification number ("TIN"), which is usually the investor's social security
number or employer identification number, upon opening or reopening an account.
See "Dividends, Distributions and Taxes" for further information concerning this
requirement. Failure to furnish a social security number or a certified TIN to
the Company could subject the investor to penalties imposed by the IRS.
BENEFIT PLANS
Shares of each Fund are offered to Benefit Plans that have appointed one of
the Company's Shareholder Servicing Agents as plan trustee, plan administrator
or other agent, or whose plan trustee, plan administrator or other agent has a
servicing arrangement with a Shareholder Servicing Agent that permits
investments in the Funds. Benefit Plans include 401(k) plans and other plans
qualified under Section 401(a) of the Internal Revenue Code of 1986, as amended
(the "Code"), health and welfare plans and executive deferred compensation
plans. For additional information about Benefit Plans that may be eligible to
invest in Fund shares, prospective investors should contact a Shareholder
Servicing Agent.
Fund investments by participants in 401(k) plans are typically made by
payroll deductions arranged between participants and their employers.
Participants in the MasterWorks program are included in this group. Participants
also may make direct contributions to their accounts in special circumstances
such as the transfer of a rollover amount from another 401(k) plan or from a
rollover IRA. Investors should contact their employer's benefits department for
more information about contribution methods.
Plan Participants who have established an account with a Shareholder
Servicing Agent may purchase Fund shares in accordance with their account
arrangements with such Shareholder Servicing Agent. The Share-
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holder Servicing Agent is responsible for the prompt transmission of purchase
orders. Shareholder Servicing Agents may charge additional fees for maintaining
customer accounts other than those charged by the Funds.
IRAS, KEOGHS AND OTHER INDIVIDUAL RETIREMENT PLANS
An investor may be entitled to invest in a Fund's shares through a tax-
deferred retirement plan. In addition to offering investments through IRA
rollovers, a Shareholder Servicing Agent may offer other types of tax-deferred
or tax-advantaged plans, including a Keogh retirement plan for self-employed
professional persons, sole proprietors and partnerships. Investors should
contact a Shareholder Servicing Agent for materials describing available plans
and their benefits, provisions and fees.
Application materials for opening an IRA rollover, Keogh plan or other
individual retirement plan can be obtained from a Shareholder Servicing Agent.
Completed retirement plan applications should be returned to the investor's
Shareholder Servicing Agent for approval and processing. If an investor's
retirement plan application is incomplete or improperly filled out, there may be
a delay before the Fund account is opened.
PURCHASES BY QUALIFIED BUYERS AND ELIGIBLE INDIVIDUAL AND
CORPORATE INVESTORS
Qualified Buyers and eligible individual or corporate investors may open a
Fund account through a Shareholder Servicing Agent with whom they have an
existing account arrangement. An Account Application must be completed to open a
Fund account. Account Applications may be obtained by contacting a Shareholder
Servicing Agent or by calling 1-800-776-0179. Shareholder Servicing Agents may
transmit purchase orders to the Transfer Agent on behalf of investors, including
purchase orders for which payment is to be made by wire or by transfer from an
Approved Bank designated in an investor's Account Application ("Approved Bank
Account").
Qualified Buyers and eligible individual or corporate investors may
purchase Fund shares by wire by instructing the wiring bank to transmit the
specified amount in federal funds to:
Wells Fargo Bank, N.A.
San Francisco, California
Bank Routing Number: 121000248
Wire Purchase Account Number: 4068-000587
Attention: MasterWorks Funds Inc. (Name of Fund)
Account Name(s): (name(s) in which to be registered)
Account Number: (if investing into an existing account)
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Share purchases are effected at the net asset value next determined after
the Account Application is received and accepted. The Shareholder Servicing
Agent is responsible for the prompt transmission of purchase orders to the
Transfer Agent.
Additional Purchases
A Qualified Buyer or other eligible individual or corporate investor may
make additional purchases by contacting their Shareholder Servicing Agent or by
instructing the Fund's Transfer Agent to debit an Approved Bank Account by wire
by using the procedures described under "Initial Purchases by Wire" above.
HOW TO REDEEM SHARES
GENERAL
Investors may redeem all or a portion of their shares on any Business Day
without any charge by the Company. The redemption price of the shares is the
next determined net asset value of shares of the relevant Fund calculated after
the Company has received a redemption request in proper form. Redemption
proceeds may be more or less than the amount invested depending on the relevant
Fund's net asset value of shares at the time of purchase and redemption. The
redemption of Fund shares is ordinarily treated as a sale or exchange for
federal income tax purposes and, therefore, a redeeming shareholder may
recognize a taxable gain or loss.
The Company remits redemption proceeds from a Fund within seven days after
a redemption order is received in proper form, absent extraordinary
circumstances. Such extraordinary circumstances could include a period during
which an emergency exists as a result of which (a) disposal by the Master
Portfolio in which such Fund invests of securities owned by the Master Portfolio
is not reasonably practicable or (b) it is not reasonably practicable for the
Fund or the relevant Master Portfolio fairly to determine the value of its net
assets, or a period during which the SEC by order permits deferral of
redemptions for the protection of Fund shareholders. In addition, the Company
may defer payment of a shareholder's redemption until reasonably satisfied that
such shareholder's investments made by check have been collected (which can take
up to ten days from the purchase date). Payment of redemption proceeds may be
made in portfolio securities, subject to regulation by some state securities
commissions.
Telephone redemption or exchange privileges are made available to
shareholders automatically upon opening an account, unless the shareholder
specifically declines the privileges. These privileges authorize the Transfer
Agent to act on telephone instructions from any person represent-
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ing himself or herself to be the investor and reasonably believed by the
Transfer Agent to be genuine. The Company requires the Transfer Agent to employ
reasonable procedures, such as requiring a form of personal identification, to
confirm that instructions are genuine and, if it does not follow such
procedures, the Company or the Transfer Agent may be liable for any losses due
to unauthorized or fraudulent instructions. Neither the Company nor the Transfer
Agent will be liable for following telephone instructions reasonably believed to
be genuine.
During times of drastic economic or market conditions investors may
experience difficulty in contacting the Transfer Agent by telephone to request a
redemption or exchange of Fund shares. In such cases, investors should consider
using the other redemption procedures made available to such investors. Use of
these other redemption procedures may result in the investor's redemption
request being processed at a later time than it would have been if telephone
redemption had been used. During the delay, a LifePath Fund's net asset value
may fluctuate.
Redemption orders that are received by the Transfer Agent before the close
of trading on the NYSE generally are executed at the net asset value determined
as of the close of regular trading on the NYSE on that day. Redemption orders
that are received by the Transfer Agent after the close of trading on the NYSE
are executed on the next Business Day. The investor's Shareholder Servicing
Agent is responsible for the prompt transmission of redemption orders to the
Fund on the investor's behalf. Under certain circumstances, a Shareholder
Servicing Agent may establish an earlier deadline for receipt of orders or an
investor's order transmitted to a Shareholder Servicing Agent may not be
received by the Transfer Agent on the same day.
Unless the investor has made other arrangements with the Shareholder
Servicing Agent and the Transfer Agent has been informed of such arrangements,
proceeds of a redemption order made through the investor's Shareholder Servicing
Agent are credited to the investor's Approved Bank Account. If no such account
is designated, a check for the proceeds is mailed to the investor's address of
record or, if such address is no longer valid, the proceeds are credited to the
investor's account with the investor's Shareholder Servicing Agent.
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BENEFIT PLANS, IRAS, KEOGHS AND OTHER INDIVIDUAL
RETIREMENT PLANS
Investors in these types of plans are subject to restrictions on
withdrawing their money under the Code. Each type of plan has established
withdrawal procedures that are disclosed to investors at the time of purchase.
Investors may obtain more information by contacting their employer and/or their
Shareholder Servicing Agent. The redemption procedures outlined in the remainder
of this section do not apply to investors in Benefit Plans or retirement plans.
Investors in these types of plans should contact their Shareholder Servicing
Agent regarding redemption procedures applicable to them.
REDEMPTIONS BY QUALIFIED BUYERS AND ELIGIBLE INDIVIDUAL AND
CORPORATE INVESTORS
Redemptions by Mail
1. Write a letter of instruction. Indicate the dollar amount or number of
Fund shares to be redeemed, the Fund account number and TIN (where applicable).
2. Sign the letter in exactly the same way the account is registered. If
there is more than one owner of the shares, all owners must sign.
Unless other instructions are given in proper form, a check for the
redemption proceeds is sent to the investor's address of record.
Expedited Redemptions by Letter and Telephone
An individual or corporate investor may request an expedited redemption of
Fund shares by letter, in which case the investor's receipt of redemption
proceeds, but not the Fund's receipt of the investor's redemption request, would
be expedited. Telephone redemption or exchange privileges are made available to
an investor automatically upon the opening of an account unless the investor
declines the privilege. The investor also may request an expedited redemption of
Fund shares by telephone on any Business Day, in which case both the investor's
receipt of redemption proceeds and the Fund's receipt of the investor's
redemption request would be expedited.
Investors may request expedited redemption by telephone by calling the
Transfer Agent at 1-800-776-0179.
Investors may request expedited redemption by mailing an expedited
redemption request to the Transfer Agent at the mailing address set forth under
"How to Buy Shares -- Initial Purchases by Wire."
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Upon request, proceeds of expedited redemptions are wired or credited to
the investor's Approved Bank Account designated in the Account Application. The
Company reserves the right to impose a charge for wiring redemption proceeds.
When proceeds of an investor's expedited redemption are to be paid to someone
else, to an address other than that of record, or to an account with an approved
bank that the investor has not predesignated in the Account Application, the
expedited redemption request must be made by letter and the signature(s) on the
letter must be guaranteed, regardless of the amount of the redemption. If the
individual or corporate investor's expedited redemption request is received by
the Transfer Agent on a Business Day, the investor's redemption proceeds are
transmitted to the investor's Approved Bank Account on the next Business Day
(assuming the investor's investment check has cleared as described above),
absent extraordinary circumstances. Such extraordinary circumstances could
include those described above as potentially delaying redemptions, and also
could include situations involving an unusually heavy volume of wire transfer
orders on a national or regional basis or communication or transmittal delays
that could cause a brief delay in the wiring or crediting of funds.
EXCHANGE PRIVILEGE
The exchange privilege enables an investor to purchase, in exchange for
shares of a Fund, shares of another fund offered by the Company in the
investor's state of residence. Before undertaking an exchange into another fund,
investors should obtain and review a copy of the current prospectus of the fund
into which the exchange is being made. A prospectus may be obtained by calling
MasterWorks Funds at 1-800-776-0179.
Shares are exchanged at the next determined net asset value. No fees are
currently charged to shareholders directly in connection with exchanges,
although the Company reserves the right, upon not less than 60 days' written
notice, to charge shareholders a nominal exchange fee in accordance with rules
promulgated by the SEC. The Company reserves the right to limit the number of
times shares may be exchanged and to reject in whole or in part any exchange
request into a Fund when management believes that such action would be in the
best interests of such Fund's other shareholders, such as when management
believes such action would be appropriate to protect the Funds against
disruptions in portfolio management resulting from frequent transactions by
those seeking to time market fluctuations. Any such rejection is made by
management on a prospective basis only, upon notice to the shareholder given not
later than 10 days following such shareholder's most recent exchange. The
exchange privilege
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may be modified or terminated at any time upon 60 days' written notice to
shareholders.
The exchange of shares of one Fund's for shares of another is treated for
federal income tax purposes as a sale of the shares relinquished in the exchange
by the shareholder and, therefore, an exchanging shareholder may recognize a
taxable gain or loss.
SHARE VALUE
The value of a share of each Fund is its "net asset value," or NAV. NAV is
computed by adding the value of the Fund's portfolio investments (i.e., the
value of its investments in the Master Portfolio) plus cash and other assets,
deducting liabilities (including the fees payable to the various service
providers) and then dividing the result by the number of Fund shares
outstanding. Each Fund's NAV is expected to fluctuate daily.
The Funds are open for business each Business Day, which is a day on which
the NYSE is open for trading. Currently, the weekdays on which the NYSE is
closed are: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Each Fund's NAV
is calculated each Business Day as of the close of regular trading on the NYSE
(currently 4:00 p.m., Eastern Standard Time).
Each Fund's investments in the corresponding Master Portfolio is valued at
the NAV of the Master Portfolio's shares. Each Master Portfolio calculates the
NAV of its shares on the same days and at the same time as the corresponding
Fund. Except for debt obligations with remaining maturities of 60 days or less,
which are valued at amortized cost, each Master Portfolio's other assets are
valued at current market prices, or if such prices are not readily available, at
fair value as determined in good faith in accordance with guidelines approved by
the Master Trust's Board of Trustees. Prices used for such valuations may be
provided by independent pricing services. For further information regarding the
methods employed in valuing the Master Portfolios' investments, see
"Determination of Net Asset Value" in the SAI.
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DIVIDENDS AND DISTRIBUTIONS
The Funds declare and pay quarterly dividends of substantially all of their
net investment income. The Funds distribute any net realized capital gains at
least annually. All dividends and distributions are automatically reinvested at
net asset value in shares of the Fund paying such dividend or distribution,
unless payment in cash is requested and your arrangement with a Shareholder
Servicing Agent permits the processing of cash payments. Each reinvestment
increases the total number of shares held by a shareholder.
Dividends and capital gain distributions have the effect of reducing the
NAV per share by the amount distributed on the payment date. Although a dividend
or distribution paid to an investor on newly issued shares shortly after
purchase would represent, in substance, a return of capital, the dividend or
distribution may consist of net investment income or net realized capital gain
and, accordingly, would be taxable to the investor.
FEDERAL INCOME TAX INFORMATION
GENERAL
Each Fund intends to qualify as a regulated investment company under
Subchapter M of the Code as long as such qualification is in the best interest
of the Fund's shareholders. The Funds will be treated as separate entities for
federal income tax purposes and thus the provisions of the Code applicable to
regulated investment companies will be applied to the Funds and every other fund
separately, rather than to the Company as a whole. In addition, net capital
gains, net investment income, and operating expenses will be determined
separately for each Fund. By complying with the applicable provisions of the
Code, each Fund will not be subject to federal income tax with respect to its
net investment income and net realized capital gains distributed to its
shareholders.
Each Fund seeks to qualify as a regulated investment company by investing
all of its assets in the corresponding Master Portfolio. Each Master Portfolio
will be treated as a non-publicly traded partnership rather than as a regulated
investment company or a corporation under the Code, and as such, shall not be
subject to federal income tax. As a non-publicly traded partnership, any
interest, dividends, gains and losses of each Master Portfolio are deemed to be
"passed through" to its corresponding Fund in proportion to that Fund's
ownership interest in the Master Portfolio. If a Master Portfolio were to accrue
but not distribute any interest, dividends or gains, its corresponding Fund
would be deemed to have realized and
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recognized its allocable share of such income, regardless of whether or not such
income has been distributed by the Master Portfolio. However, each Master
Portfolio seeks to minimize recognition by a Fund and other investors of
interest, dividends or gains without a corresponding distribution.
The Company may be required to withhold, subject to certain exemptions, at
a rate of 31% ("backup withholding") on dividends, capital gain distributions,
and redemption proceeds (including proceeds from exchanges) paid or credited to
an individual Fund shareholder, unless a shareholder certifies that the TIN
provided is correct and that the shareholder is not subject to backup
withholding, or the IRS notifies the Company that the shareholder's TIN is
incorrect or the shareholder is subject to backup withholding. Such tax withheld
does not constitute an additional tax imposed on the shareholder, and may be
claimed as a tax payment on the shareholder's federal income tax return.
TAXABLE INVESTORS
The Funds intend to distribute all of their net investment income and net
realized capital gains (if any) each taxable year. Distributions from net
investment income (including net short-term capital gains and excluding net
tax-exempt income) will be taxable as ordinary income to shareholders who are
not currently exempt from federal income taxes. Whether a shareholder takes
dividend payments and capital gain distributions in cash or has them
automatically reinvested in Fund shares, the shareholder will ordinarily be
taxed. Corporate shareholders of the Funds will be eligible for the
dividends-received deduction on the dividends paid by the Funds to the extent
the Funds' income is derived from certain dividends received from domestic
corporations, as long as the corporate shareholder holds the Fund shares upon
which the eligible dividend was paid for at least 46 days.
The Funds, or the Transfer Agent on their behalf, will regularly inform
shareholders of the amount and nature of the Funds' dividends and capital gain
distributions. Investors should keep all statements they receive to assist in
recordkeeping.
BENEFIT PLAN INVESTORS
As a general matter, benefit plans, their sponsors and their participants
are not subject to federal income taxes at the time of receipt of net investment
income and capital gain distributions.
However, such tax-exempt investors may be subject to tax on certain
unrelated taxable income which could arise, for example, when such
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investors acquire shares in the Fund through the use of leverage. Tax-exempt
investors should consult their tax advisors regarding the Unrelated Business
Taxable Income Rules.
The foregoing is a brief discussion of certain federal income tax
considerations. Further information is contained in the SAI. All investors
should consult their individual tax advisors with respect to their particular
tax situations as well as the state and local tax status of investments in
shares of the Funds.
GENERAL INFORMATION
DESCRIPTION OF THE COMPANY
Each Fund is a series of the Company. The Company was organized as a
Maryland corporation on October 15, 1992, and currently offers the following
series: the Asset Allocation, Bond Index, Growth Stock, Money Market,
Short-Intermediate Term, S&P 500 Stock, U.S. Treasury Allocation, LifePath 2000,
LifePath 2010, LifePath 2020, LifePath 2030 and LifePath 2040 Funds. All of the
Company's existing series, except the Money Market Fund, are feeder funds in
master/feeder structures. Each LifePath Fund of the Company offers one class of
shares and each share has one vote. The Company's principal office is located at
111 Center Street, Little Rock, Arkansas 72201.
The Board of Directors of the Company supervises the Funds' activities and
monitors the Funds' contractual arrangements with various service providers.
Additional information about the Directors and officers of the Company is
included in the Funds' SAI under "Management." A Fund may withdraw its
investment in a Master Portfolio only if the Board of Directors of the Company
determines that it is in the best interests of the Fund and its shareholders to
do so. Upon any such withdrawal, the Board of Directors of the Company would
consider what action might be taken, including the investment of all the assets
of the Fund in another pooled investment entity having the same investment
objective as the Fund or the hiring of an investment adviser to manage the
Fund's assets in accordance with the investment policies described above with
respect to the Master Portfolio. Although the Company is not required to hold
regular annual shareholder meetings, occasional annual or special meetings may
be required for purposes such as electing or removing Directors, approving
advisory contracts and changing a Fund's investment objective or fundamental
investment policies.
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BGFA has granted the Company a non-exclusive license to use the name
"LifePath." If the license agreement is terminated, the Company, at BGFA's
request, will cease using the "LifePath" name.
VOTING
All shares of the Company have equal voting rights and will be voted in the
aggregate, rather than by fund, unless otherwise required by law (such as when a
matter affects only one fund). Shareholders of the Funds are entitled to one
vote for each share owned and fractional votes for fractional shares owned.
Depending on the terms of a particular Benefit Plan and the matter being
submitted to a vote, a sponsor may request direction from individual
participants regarding a shareholder vote. In addition, whenever a Fund is
requested to vote on matters pertaining to a Master Portfolio, the Company will
hold a meeting of the Fund's shareholders and will cast its vote as instructed
by Fund shareholders. The directors of the Company will vote shares for which
they receive no voting instructions in the same proportion as the shares for
which they do receive voting instructions. A more detailed description of the
voting rights and attributes of the shares is contained in the "Capital Stock"
section of the SAI.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP, Three Embarcadero Center, San Francisco, California
94111, serves as independent auditors for the Company.
LEGAL COUNSEL
Morrison & Foerster LLP, 2000 Pennsylvania Avenue, N.W., Washington, D.C.
20006, serves as counsel to the Company.
INFORMATION ON THE FUNDS
The Company provides annual and semi-annual reports to all shareholders.
The annual reports contain audited financial statements and other information
about the Funds including additional information on performance. Shareholders
may obtain a copy of the Company's most recent annual report without charge by
phoning 1-800-776-0179.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN THE
COMPANY'S OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFER OF THE FUNDS'
SHARES AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
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APPENDIX
PORTFOLIO SECURITIES
To the extent set forth in this Prospectus, each Fund through its
investment in the corresponding Master Portfolio may invest in the securities
described below.
U.S. GOVERNMENT OBLIGATIONS -- U.S. Government obligations include
securities issued or guaranteed as to principal and interest by the U.S.
Government and supported by the full faith and credit of the U.S. Treasury. U.S.
Treasury obligations differ mainly in the length of their maturity. Treasury
bills, the most frequently issued marketable government securities, have a
maturity of up to one year and are issued on a discount basis. U.S. Government
obligations also include securities issued or guaranteed by federal agencies or
instrumentalities, including government-sponsored enterprises. Some obligations
of agencies or instrumentalities of the U.S. Government are supported by the
full faith and credit of the United States or U.S. Treasury guarantees; others,
by the right of the issuer or guarantor to borrow from the U.S. Treasury; still
others by the discretionary authority of the U.S. Government to purchase certain
obligations of the agency or instrumentality; and others, only by the credit of
the agency or instrumentality issuing the obligation. In the case of obligations
not backed by the full faith and credit of the United States, the investor must
look principally to the agency or instrumentality issuing or guaranteeing the
obligation for ultimate repayment, which agency or instrumentality may be
privately owned. There can be no assurance that the U.S. Government would
provide financial support to its agencies or instrumentalities (including
government-sponsored agencies) where it is not obligated to do so. In addition,
U.S. Government obligations are subject to fluctuations in market value due to
fluctuations in market interest rates. As a general matter, the value of debt
instruments, including U.S. Government obligations, declines when market
interest rates increase and rises when market interest rates decrease. Certain
types of U.S. Government obligations are subject to fluctuations in yield or
value due to their structure or contract terms.
FOREIGN GOVERNMENT OBLIGATIONS; SECURITIES OF SUPRANATIONAL
ENTITIES -- Each Master Portfolio, through its investment in money market
instruments, may invest in obligations issued or guaranteed by one or more
foreign governments or any of their political subdivisions, agencies or
instrumentalities that are determined by the Adviser to be of comparable quality
to the other obligations in which such Master Portfolio may invest. Such
securities also include debt obligations of supranational entities.
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Supranational entities include international organizations designated or
supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government
agencies. Examples include the International Bank for Reconstruction and
Development (the World Bank), the European Coal and Steel Community, the Asian
Development Bank and the InterAmerican Development Bank. The percentage of a
Master Portfolio's assets invested in securities issued by foreign governments
varies depending on the relative yields of such securities, the economic and
financial markets of the countries in which the investments are made and the
interest rate climate of such countries.
BANK OBLIGATIONS -- Each 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. With respect to such securities issued by foreign branches of
domestic banks, foreign subsidiaries of domestic banks, and domestic and foreign
branches of foreign banks, a Master Portfolio may be subject to additional
investment risks that are different in some respects from those incurred by a
fund which invests only in debt obligations of U.S. domestic issuers. Such risks
include possible future political and economic developments, the possible
imposition of foreign withholding taxes on interest income payable on the
securities, the possible establishment of exchange controls or the adoption of
other foreign governmental restrictions which might adversely affect the payment
of principal and interest on these securities and the possible seizure or
nationalization of foreign deposits.
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 a 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
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may include uninsured, direct obligations, bearing fixed, floating or variable
interest rates.
COMMERCIAL PAPER AND OTHER SHORT-TERM CORPORATE OBLIGATIONS -- Each Master
Portfolio may invest in commercial paper, which consists of short-term,
unsecured promissory notes issued to finance short-term credit needs. The
commercial paper purchased by a LifePath Master Portfolio consists only of
direct obligations which, at the time of their purchase, are (a) rated not lower
than Prime-1 by Moody's, A-1 by S&P, F-1 by Fitch or Duff-1 by Duff, (b) issued
by companies having an outstanding unsecured debt issue currently rated not
lower than Aa3 by Moody's or AA- by S&P, Fitch or Duff, or (c) if unrated,
determined by BGFA to be of comparable quality to those rated obligations which
may be purchased by such Master Portfolio.
REPURCHASE AGREEMENTS -- Each Master Portfolio may enter into repurchase
agreements wherein the seller of a security to a Master Portfolio agrees to
repurchase that security from such Master Portfolio at a mutually agreed-upon
time and price. MIP's custodian will have custody of, and will hold in a
segregated account, securities acquired by a Master Portfolio under a repurchase
agreement. Repurchase agreements are considered by the staff of the Securities
and Exchange Commission to be loans by the Master Portfolio entering into them.
In an attempt to reduce the risk of incurring a loss on a repurchase agreement,
each Master Portfolio enters into repurchase agreements only with federally
regulated or insured banks or primary government securities dealers reporting to
the Federal Reserve Bank of New York or their affiliates, or, under certain
circumstances, banks with total assets in excess of $5 billion or domestic
broker/dealers with total equity capital in excess of $100 million, with respect
to securities of the type in which such Master Portfolio may invest or
government securities regardless of their remaining maturities, and requires
that additional securities be deposited with it if the value of the securities
purchased should decrease below repurchase price. The Adviser 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 a Master
Portfolio in connection with the sale of the 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 a Master Portfolio may be delayed
or limited. Each Master Portfolio considers on an ongoing basis the
creditworthiness of the institutions with which it enters into repurchase
agreements.
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UNREGISTERED NOTES -- Each Master Portfolio may purchase unsecured
promissory notes ("Notes") which are not readily marketable and have not been
registered under the Securities Act of 1933, as amended (the "1933 Act"),
provided such investments are consistent with such Master Portfolio's goal. No
Master Portfolio invests more than 15% of the value of its net assets in Notes
and in other illiquid securities.
FLOATING- AND VARIABLE-RATE OBLIGATIONS -- Each Master Portfolio may
purchase floating- and variable-rate demand notes and bonds, which are
obligations ordinarily having stated maturities in excess of 13 months, but
which permit the holder to demand payment of principal at any time or at
specified intervals not exceeding 13 months. Variable-rate demand notes include
master demand notes which are obligations that permit a Master Portfolio to
invest fluctuating amounts, which may change daily without penalty, pursuant to
direct arrangements between the Master Portfolio, as lender, and the borrower.
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. 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 each Master Portfolio may invest in obligations which
are not so rated only if the Adviser determines that at the time of investment
the obligations are of comparable quality to the other obligations in which such
Master Portfolio may invest. The Adviser, on behalf of each Master Portfolio,
considers on an ongoing basis the creditworthiness of the issuers of the
floating- and variable-rate demand obligations in such Master Portfolio's
portfolio. No Master Portfolio invests more than 15% of the value of its net
assets in illiquid securities including floating- or variable-rate demand
obligations whose demand feature is not exercisable
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within seven days. Such obligations will be treated as liquid, provided that an
active secondary market exists.
PARTICIPATION INTERESTS -- Each Master Portfolio may purchase from
financial institutions participation interests in securities in which such
Master Portfolio may invest. A participation interest gives the Master Portfolio
an undivided interest in the security in the proportion that the Master
Portfolio's participation interest bears to the total principal amount of the
security. These instruments may have fixed, floating or variable rates of
interest. If the participation interest is unrated, or has been given a rating
below that which is permissible for purchase by the Master Portfolio, the
participation interest must be backed by an irrevocable letter of credit or
guarantee of a bank, or the payment obligation otherwise must be collateralized
by U.S. Government obligations, or, in the case of unrated participation
interests, the Adviser must have determined that the instrument is of comparable
quality to those instruments in which such Master Portfolio may invest. Prior to
a Master Portfolio's purchase of any such instrument backed by a letter of
credit or guarantee of a bank, the Adviser evaluates the creditworthiness of the
bank, considering all factors which it deems relevant, which generally may
include review of the bank's cash flow; level of short-term debt; leverage;
capitalization; the quality and depth of management; profitability; return on
assets; and economic factors relative to the banking industry. For certain
participation interests, the Master Portfolio has the right to demand payment,
on not more than seven days' notice, for all or any part of the Master
Portfolio's participation interest in the security, plus accrued interest. As to
these instruments, each Master Portfolio intends to exercise its right to demand
payment only upon a default under the terms of the security, as needed to
provide liquidity to meet redemptions, or to maintain or improve the quality of
its investment portfolio.
MORTGAGE-RELATED SECURITIES -- Each LifePath Master Portfolio may invest in
mortgage-related securities ("MBSs"), which are securities representing
interests in a pool of loans secured by mortgages. The resulting cash flow from
these mortgages is used to pay principal and interest on the securities. MBSs
are assembled for sale to investors by various government-sponsored enterprises
such as the Federal National Mortgage Association ("FNMA") and the Federal Home
Loan Mortgage Corporation ("FHLMC") or are guaranteed by such governmental
agencies as the Government National Mortgage Association ("GNMA"). Regardless of
the type of guarantee, all MBSs are subject to interest rate risk (i.e.,
exposure to loss due to changes in interest rates).
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GNMA MBSs include GNMA Mortgage Pass-Through Certificates ("Ginnie Maes")
which are guaranteed as to the full and timely payment of principal and interest
by GNMA and such guarantee is backed by the authority of GNMA to borrow funds
from the U.S. Treasury to make payments under its guarantee. GNMA is a
wholly-owned U.S. Government corporation within the Department of Housing and
Urban Development and, as such, GNMA obligations are general obligations of the
United States and are backed by the full faith and credit of the federal
government. In contrast, MBSs issued by FNMA include FNMA Guaranteed Mortgage
Pass-Through Certificates ("Fannie Maes") which are solely the obligations of
FNMA and are neither backed by nor entitled to the full faith and credit of the
federal government. FNMA is a government-sponsored enterprise which is also a
private corporation whose stock trades on the NYSE. Fannie Maes are guaranteed
as to timely payment of principal and interest by FNMA. MBSs issued by FHLMC
include FHLMC Mortgage Participation Certificates ("Freddie Macs" or "PCs").
FHLMC is a government-sponsored enterprise whose MBSs are solely obligations of
FHLMC. Therefore, Freddie Macs are not guaranteed by the United States or by any
Federal Home Loan Bank and do not constitute a debt or obligation of the United
States or of any Federal Home Loan Bank. FHLMC guarantees timely payment of
interest, but only ultimate payment of principal due under the obligations it
issues. FHLMC may, under certain circumstances, remit the guaranteed payment of
principal at any time after default on an underlying mortgage, but in no event
later than one year after the guarantee becomes payable.
AMERICAN, EUROPEAN AND CONTINENTAL DEPOSITORY RECEIPTS -- Each LifePath
Master Portfolio's assets may be invested in the securities of foreign issuers
in the form of American Depository Receipts ("ADRs") and European Depository
Receipts ("EDRs"). These securities may not necessarily be denominated in the
same currency as the securities into which they may be converted. ADRs are
receipts typically issued by a United States bank or trust company which
evidence ownership of underlying securities issued by a foreign corporation.
EDRs, which are sometimes referred to as Continental Depository Receipts
("CDRs"), are receipts issued in Europe typically by non-United States banks and
trust companies that evidence ownership of either foreign or domestic
securities. Generally, ADRs in registered form are designed for use in the
United States securities markets and EDRs and CDRs in bearer form are designed
for use in Europe. Each LifePath Master Portfolio may invest in ADRs, EDRs and
CDRs through "sponsored" or "unsponsored" facilities. A sponsored facility is
established jointly by the issuer of the underlying security and a depository,
whereas a depository may establish an unsponsored facility
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without participation by the issuer of the deposited security. Holders of
unsponsored depository receipts generally bear all the costs of such facilities
and the depository of an unsponsored facility frequently is under no obligation
to distribute shareholder communications received from the issuer of the
deposited security or to pass through voting rights to the holders of such
receipts in respect of the deposited securities.
CONVERTIBLE SECURITIES -- Each LifePath Master Portfolio may purchase
fixed-income convertible securities, such as bonds or preferred stock, which may
be converted at a stated price within a specified period of time into a
specified number of shares of common stock of the same or a different issuer.
Convertible securities are senior to common stock in a corporation's capital
structure, but usually are subordinated to non-convertible debt securities.
While providing a fixed-income stream (generally higher in yield than the income
from a common stock but lower than that afforded by a non-convertible debt
security), a convertible security also affords an investor the opportunity,
through its conversion feature, to participate in the capital appreciation of
the common stock into which it is convertible.
In general, the market value of a convertible security is the higher of its
"investment value" (i.e., its value as a fixed-income security) or its
"conversion value" (i.e., the value of the underlying shares of common stock if
the security is converted). As a fixed-income security, the market value of a
convertible security generally increases when interest rates decline and
generally decreases when interest rates rise. However, the price of a
convertible security also is influenced by the market value of the security's
underlying common stock. Thus, the price of a convertible security generally
increases as the market value of the underlying stock increases, and generally
decreases as the market value of the underlying stock declines. Investments in
convertible securities generally entail less risk than investments in the common
stock of the same issuer.
WARRANTS -- Each LifePath Master Portfolio may invest generally up to 5% of
its net assets at the time of purchase in warrants, except that this limitation
does not apply to warrants acquired in units or attached to securities. A
warrant is an instrument issued by a corporation which gives the holder the
right to subscribe to a specified amount of the corporation's capital stock at a
set price for a specified period of time. The prices of warrants do not
necessarily correlate with the prices of the underlying securities.
ILLIQUID SECURITIES -- Each Master Portfolio may invest up to 15% of the
value of its total net assets in securities as to which a liquid trading market
does not exist, provided such investments are consistent with its
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investment objective. Such securities may include securities that are not
readily marketable, such as certain securities that are subject to legal or
contractual restrictions on resale, participation interests that are not subject
to the demand feature described above, floating- and variable-rate demand
obligations as to which the Master Portfolio cannot exercise the related demand
feature described above on not more than seven days' notice and as to which
there is no secondary market and repurchase agreements providing for settlement
in more than seven days after notice. Disposing of illiquid securities generally
will involve additional costs and require additional time. However, if a
substantial market of qualified institutional investors develops pursuant to
Rule 144A under the 1933 Act for certain of these securities held by a Master
Portfolio, such Master Portfolio intends to treat such securities as liquid
securities in accordance with procedures approved by MIP's Board of Trustees.
Because it is not possible to predict with assurance how the market for
restricted securities pursuant to Rule 144A will develop, MIP's Board of
Trustees has directed the Adviser to monitor carefully each Master Portfolio's
investments in such securities with particular regard to trading activity,
availability of reliable price information and other relevant information. To
the extent that for a period of time, qualified institutional investors cease
purchasing such restricted securities pursuant to Rule 144A, a Master
Portfolio's investing in such securities may have the effect of increasing the
level of illiquidity in such Master Portfolio's portfolio during such period.
INVESTMENT COMPANY SECURITIES -- Each Master Portfolio may invest in
securities issued by other open-end management investment companies which
principally invest in securities of the type in which such Master Portfolio
invests. Under the 1940 Act, a Master Portfolio's investment in such securities
currently is limited to, subject to certain exceptions, (i) 3% of the total
voting stock of any one investment company, (ii) 5% of such Master Portfolio's
total net assets with respect to any one investment company and (iii) 10% of
such Master Portfolio's total net assets in the aggregate. Investments in the
securities of other investment companies involve duplication of advisory fees
and certain other expenses.
RATINGS -- The ratings of Moody's, S&P, Fitch and Duff represent their
opinions as to the quality of the obligations which they undertake to rate. It
should be emphasized, however, that ratings are relative and subjective and,
although ratings may be useful in evaluating the safety of interest and
principal payments, they do not evaluate the market value risk of such
obligations. Therefore, although these ratings may be an initial criterion for
selection of portfolio investments, the Adviser also evaluates such obligations
and the ability of their issuers to pay interest and principal. Each Master
Portfolio relies on the Adviser's judgment, analysis
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and experience in evaluating the creditworthiness of an issuer. In this
evaluation, the Adviser takes into consideration, among other things, the
issuer's financial resources, its sensitivity to economic conditions and trends,
the quality of the issuer's management and regulatory matters. It also is
possible that a rating agency might not timely change the rating on a particular
issue to reflect subsequent events. See "Description of the Funds -- Risk
Considerations -- Fixed-Income Securities."
INVESTMENT TECHNIQUES
STOCK INDEX OPTIONS -- Each LifePath Master Portfolio may purchase and
write (i.e., sell) put and call options on stock indices as a substitute for
comparable market positions in the underlying securities. A stock index
fluctuates with changes in the market values of the stocks included in the
index. The aggregate premiums paid on all options purchased may not exceed 20%
of a LifePath Master Portfolio's total assets and the value of options written
or purchased may not exceed 10% of the value of a LifePath Master Portfolio's
total assets.
The effectiveness of purchasing or writing stock index options depends upon
the extent to which price movements in the LifePath Master Portfolio's portfolio
correlate with price movements of the stock index selected. Because the value of
an index option depends upon movements in the level of the index rather than the
price of a particular stock, whether a LifePath Master Portfolio realizes a gain
or loss from purchasing or writing options on an index depends upon movements in
the level of stock prices in the stock market generally or, in the case of
certain indices, in an industry or market segment, rather than movements in the
price of a particular stock.
When a LifePath Master Portfolio writes an option on a stock index, such
LifePath Master Portfolio places in a segregated account with MIP's custodian
cash or liquid securities in an amount at least equal to the market value of the
underlying stock index and maintains the account while the option is open or
otherwise covers the transaction.
FUTURES TRANSACTIONS -- IN GENERAL -- None of the LifePath Master
Portfolios will be a commodity pool. To the extent permitted by applicable
regulations, each LifePath Master Portfolio is permitted to use futures as a
substitute for a comparable market position in the underlying securities.
A futures contract involves a firm agreement to buy or sell a commodity or
financial instrument at a particular price on a specified future date. Futures
contracts are traded on exchanges, where the exchange serves as the ultimate
counterparty for all contracts. Consequently, the only credit
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risk on futures contracts is the creditworthiness of the exchange. Futures
contracts are, however, subject to market risk (i.e., exposure to adverse price
changes).
Each LifePath Master Portfolio may trade futures contracts and may purchase
and write options on futures contracts in U.S. domestic markets, such as the
Chicago Board of Trade and the International Monetary Market of the Chicago
Mercantile Exchange, or, to the extent permitted under applicable law, on
exchanges located outside the United States, such as the London International
Financial Futures Exchange, the Deutscher Aktienindex and the Sydney Futures
Exchange Limited. See "Description of the Funds -- Risk
Considerations -- Foreign Futures Transactions."
Each LifePath Master Portfolio's futures transactions must constitute
permissible transactions pursuant to regulations promulgated by the CFTC. In
addition, a LifePath Master Portfolio may not engage in futures transactions if
the sum of the amount of initial margin deposits and premiums paid for unexpired
options on futures contracts, other than those contracts entered into for bona
fide hedging purposes, would exceed 5% of the liquidation value of the Master
Portfolio's assets, after taking into account unrealized profits and unrealized
losses on such contracts; 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 this 5% liquidation limit. Pursuant to regulations and/or
published positions of the Securities and Exchange Commission, a LifePath Master
Portfolio may be required to segregate cash, U.S. Government obligations or
other high quality money market instruments in connection with its futures
transactions in an amount generally equal to the entire value of the underlying
commitment.
Initially, when purchasing or selling futures contracts a LifePath Master
Portfolio is required to deposit with the MIP's custodian in the broker's name
an amount of cash or cash equivalents up to approximately 10% of the contract
amount. This amount is subject to change by the exchange or board of trade on
which the contract is traded. Members of such exchange or board of trade may
impose their own higher requirements. This amount is known as "initial margin"
and is in the nature of a performance bond or good faith deposit on the contract
which is returned to the LifePath Master Portfolio upon termination of the
futures position, assuming all contractual obligations have been satisfied.
Subsequent payments to and from the broker, known as "variation margin," are
made daily as the price of the index or securities underlying the futures
contract fluctuates, making the long and short positions in the futures contract
more or less valuable, a process known as "marking-to-market." At any time
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prior to the expiration of a futures contract, the LifePath Master Portfolio may
elect to close the position by taking an opposite position, at the then-
prevailing price, thereby terminating its existing position in the contract.
Although each LifePath Master Portfolio may 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 relevant LifePath Master Portfolio to substantial losses. If it
is not possible, or the LifePath Master Portfolio determines not to close a
futures position in anticipation of adverse price movements, it will be required
to make daily cash payments of variation margin.
An option on a futures contract gives the purchaser the right, in return
for the premium paid, to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put) at
a specified exercise price at any time during the option exercise period. The
writer (i.e., seller) of the option is required upon exercise to assume an
offsetting futures position (a short position if the option is a call and a long
position if the option is a put). Upon exercise of the option, the assumption of
offsetting futures positions by both the writer and the holder of the option
will be accompanied by delivery of the accumulated cash balance in the writer's
futures margin account in the amount by which the market price of the futures
contract, at exercise, exceeds (in the case of a call) or is less than (in the
case of a put) the exercise price of the option on the futures contract.
STOCK INDEX FUTURES AND OPTIONS ON STOCK INDEX FUTURES -- Each LifePath
Master Portfolio may purchase and sell stock index futures contracts and options
on stock index futures contracts.
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, each LifePath Master Portfolio
intends to purchase and sell futures contracts on
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the stock index for which it can obtain the best price with consideration also
given to liquidity.
Interest Rate Futures Contracts and Options on Interest Rate Futures
Contracts -- Each LifePath Master Portfolio may invest in interest rate futures
contracts and options on interest rate futures contracts as a substitute for a
comparable market position in the underlying securities.
Each LifePath Master Portfolio also may write options on interest rate
futures contracts as part of closing purchase transactions to terminate its
options positions. No assurance can be given that such closing transactions can
be effected or concerning the degree of correlation between price movements in
the options on interest rate futures and price movements in the LifePath Master
Portfolio's portfolio securities which are the subject of the transaction.
INTEREST RATE AND INDEX SWAPS -- Each LifePath Master Portfolio may enter
into interest rate and index swaps in pursuit of its investment objective.
Interest rate swaps involve the exchange by a LifePath Master Portfolio with
another party of their respective commitments to pay or receive interest (for
example, an exchange of floating-rate payments for fixed-rate payments). Index
swaps involve the exchange by a LifePath Master Portfolio with another party of
cash flows based upon the performance of an index or a portion of an index
(usually including dividends or income). In each case, the exchange commitments
can involve payments to be made in the same currency or in different currencies.
Each LifePath Master Portfolio usually enters into swaps on a net basis. In
so doing, only the net difference of the payment obligations is exchanged
between the counterparties. If a LifePath Master Portfolio enters into a swap,
it maintains a segregated account in an amount equivalent to the gross value of
its payment obligations unless the contract provides otherwise. If the other
party to such a transaction defaults on a swap, the Master Portfolio has
contractual remedies pursuant to the agreements related to the transaction. In
such a case, the LifePath Master Portfolio's risk of loss consists of the net
amount of payments that the LifePath Master Portfolio contractually is entitled
to receive.
The use of interest rate and index swaps is a highly specialized activity
which involves investment techniques 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 a 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
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of payments that the LifePath Master Portfolio is contractually entitled to
receive. No LifePath Master Portfolio invests more than 15% of the value of its
net assets in swaps that are illiquid, and in other illiquid securities.
FOREIGN CURRENCY TRANSACTIONS -- Each LifePath Master Portfolio may engage
in currency exchange transactions either on a spot (i.e., cash) basis at the
rate prevailing in the currency exchange market, or by entering into forward
contracts to purchase or sell currencies. A forward currency exchange contract
involves an obligation between two parties to exchange a specific currency at a
set price on a future date, which must be more than two days from the date of
the contract. These contracts are entered into in the interbank market conducted
directly between currency traders (typically commercial banks or other financial
institutions) and their customers.
Each LifePath Master Portfolio may combine forward currency exchange
contracts with investments in securities denominated in other currencies.
Each LifePath Master Portfolio also may maintain short positions in forward
currency exchange transactions, which would involve the Master Portfolio
agreeing to exchange an amount of a currency it did not currently own for
another currency at a future date in anticipation of a decline in the value of
the currency sold relative to the currency such Master Portfolio contracted to
receive in the exchange.
LENDING PORTFOLIO SECURITIES -- From time to time, each Master Portfolio
may lend securities from its portfolio to brokers, dealers and other financial
institutions needing to borrow securities to complete certain transactions. Such
loans may not exceed one-third of the value of the relevant Master Portfolio's
total assets. In connection with such loans, each Master Portfolio receives
collateral consisting of cash, U.S. Government obligations or other high-quality
debt instruments which will be maintained at all times in an amount equal to at
least 100% of the current market value of the loaned securities. Each Master
Portfolio can increase its income through the investment of such collateral.
Each Master Portfolio continues to be entitled to receive payments in amounts
equal to the dividends, interest and other distributions payable on the loaned
security and receives interest on the amount of the loan. Such loans are
terminable at any time upon specified notice. A Master Portfolio might
experience risk of loss if the institution with which it has engaged in a
portfolio loan transaction breaches its agreement with such Master Portfolio.
FORWARD COMMITMENTS -- Each Master Portfolio may purchase securities on a
when-issued or forward commitment basis, which means
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that the price is fixed at the time of commitment but delivery and payment
ordinarily take place a number of days after the date of the commitment to
purchase. A Master Portfolio makes commitments to purchase such securities only
with the intention of actually acquiring the securities, but the Master
Portfolio may sell these securities before the settlement date if it is deemed
advisable. The Master Portfolio will not accrue income in respect of a security
purchased on a forward commitment basis prior to its stated delivery date.
Securities purchased on a when-issued or forward commitment basis and
certain other securities held in the Master Portfolio's portfolio are subject to
changes in value (both generally changing in the same way, i.e., appreciating
when interest rates decline and depreciating when interest rates rise) based
upon the public's perception of the creditworthiness of the issuer and changes,
real or anticipated, in the level of interest rates. Securities purchased on a
when-issued or forward commitment basis may expose the relevant 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. A segregated account of each Master Portfolio consisting of
cash, U.S. Government obligations or other high quality liquid debt securities
at least equal at all times to the amount of the when-issued or forward
commitments is established and maintained at MIP's custodian bank. Purchasing
securities on a forward commitment basis when a Master Portfolio is fully or
almost fully invested may result in greater potential fluctuation in the value
of such Master Portfolio's total net assets and its net asset value per share.
BORROWING MONEY -- As a fundamental policy, each Master Portfolio is
permitted to borrow to the extent permitted under the 1940 Act. However, each
Master Portfolio currently intends to borrow money only for temporary or
emergency (not leveraging) purposes, in an amount up to one-third of the value
of its total net 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. While borrowings exceed 5% of a Master Portfolio's total
net assets, such Master Portfolio will not make any investments.
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SPONSOR, DISTRIBUTOR AND CO-ADMINISTRATOR
Stephens Inc.
Little Rock, Arkansas
INVESTMENT ADVISER
Barclays Global Fund Advisors
San Francisco, California
CO-ADMINISTRATOR
Barclays Global Investors, N.A.
San Francisco, California
CUSTODIAN
Investors Bank & Trust Company
Boston, Massachusetts
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Wells Fargo Bank, N.A.
San Francisco, California
LEGAL COUNSEL
Morrison & Foerster LLP
Washington, D.C.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
San Francisco, California
For more information about the Funds write or call:
MASTERWORKS FUNDS INC.
c/o Wells Fargo Bank, N.A. -- Transfer Agent
525 Market Street
San Francisco, California 94105
1-800-776-0179
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
LWLP.Pros 10/96
<PAGE> 64
MASTERWORKS Funds Inc.
c/o Wells Fargo Bank, N.A.
Transfer Agent
420 Montgomery Street
San Francisco, CA 94163
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<S> <C>
MASTERWORKS Funds Inc.
c/o Wells Fargo Bank, N.A. --------------------
Transfer Agent BULK RATE
420 Montgomery Street U.S. POSTAGE
San Francisco, CA 94163 PAID
DALLAS, TEXAS
Permit No. 1808
--------------------
</TABLE>
LWLP.Pros 10/96
