MASTERWORKS FUNDS INC, 485BPOS, 1997-06-30

MASTERWORKS FUNDS INC
485BPOS, 1997-06-30

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<PAGE>

As filed with the Securities and Exchange Commission
on June 30, 1997
-------------
Registration No. 33-54126; 811-7332

- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [_]

Post -Effective Amendment No. 14 [X]
----

AND

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [_]

Amendment No. 18 [X]
----

(Check appropriate box or boxes)

MASTERWORKS FUNDS INC.
(formerly, Stagecoach Inc.)

(Exact Name of Registrant as specified in Charter)
111 Center Street
Little Rock, Arkansas 72201
(Address of Principal Executive Offices, including Zip Code)

Registrant's Telephone Number, including Area code: (800) 643-9691

Richard H. Blank, Jr.
c/o Stephens Inc.
111 Center Street
Little Rock, Arkansas 72201
(Name and Address of Agent for Service)

With a copy to:
Robert M. Kurucza, Esq.
Marco E. Adelfio, Esq.
Morrison & Foerster LLP
2000 Pennsylvania Avenue, N.W.
Washington, D.C. 20006

It is proposed that this filing will become effective (check appropriate box):

[X] Immediately upon filing pursuant to Rule 485(b), or

[_] on _________, pursuant to Rule 485(b)

[_] 60 days after filing pursuant to Rule 485(a)(1), or

[_] on _________, pursuant to Rule 485(a)(1)

[_] 75 days after filing pursuant to Rule 485(a)(2), or

[_] on _________, pursuant to Rule 485(a)(2)
<PAGE>

If appropriate, check the following box:

[_] this post effective amendment designates a new effective date for a
previously filed post-effective amendment.

The Registrant has registered an indefinite number of shares of its Common
Stock, $.001 par value, under the Securities Act of 1933, pursuant to Rule 24f-2
under the Investment Company Act 1940, as amended. The Registrant filed the
notice required by Rule 24f-2 for its most recent fiscal year ended February 28,
1997 on April 28, 1997.

This Post-Effective Amendment to the Registrant's Registration Statement has
been executed by Master Investment Portfolio and Managed Series Investment Trust
(registered investment companies with separate series in which certain of the
Registrant's series invest substantially all of their assets) and their trustees
and principal officer.
<PAGE>

EXPLANATORY NOTE
----------------

This Post-Effective Amendment No. 14 to the Registration Statement of
MasterWorks Funds Inc. (the "Company") is being filed to add to the Company's
Registration Statement the audited financial statements and certain related
financial information for the Company's Asset Allocation, Bond Index, S&P 500
Stock, U.S. Treasury Allocation, Growth Stock, Short-Intermediate Term,
LifePath 2000, LifePath 2010, LifePath 2020, LifePath 2030 and LifePath 2040
Funds and corresponding Master Portfolios, and for the Company's Money Market
Fund for the fiscal year ended February 28, 1997, and to make certain other
non-material changes to the Registration Statement.
<PAGE>

Cross Reference Sheet
---------------------

MONEY MARKET FUND
-----------------

Form N-1A Item Number
- ---------------------

Part A Prospectus Captions
- ------ -------------------

1 Cover Page
2 Prospectus Summary; Summary of Fund Expenses
3 Financial Highlights
4 The Fund
Management of the Fund
General Information
Appendix - Additional Investment Policies
5 Prospectus Summary
Management of the Fund
6 Management of the Fund
Dividends and Distributions
Taxes
General Information
7 How to Buy Shares
Exchange Privilege
Share Value
8 How to Redeem Shares
9 Not Applicable

Part B Statement of Additional Information Captions
- ------ --------------------------------------------

10 Cover Page
11 Table of Contents
12 General Information
Other
13 Investment Restrictions
Additional Permitted Investment Activities
Appendix
14 Management
15 Management
16 Management
Independent Auditors
Counsel
17 Portfolio Transactions
18 Capital Stock
19 Determination of Net Asset Value
Purchase and Redemption of Shares
20 Taxes
21 Management
22 Performance Information
23 Financial Information

Part C General Information
- ------ -------------------

24-32 Information required to be included in Part C is set forth under
the appropriate Item, so numbered, in Part C of this Document.
<PAGE>

Prospectus
June 30, 1997 MONEY MARKET Fund

Money Market

Advised by Barclays Global Fund Advisors
Sponsored and distributed by Stephens Inc.
Member NYSE/SIPC
MASTERWORKS Funds

<PAGE>

MasterWorks Funds Inc. (the "Company") is an open-end, management investment
company. This Prospectus contains information about one of the Company's
funds -- the MONEY MARKET FUND (the "Fund"). The Fund seeks to provide invest-
ors with a high level of income, while preserving capital and liquidity, by
investing in high quality, short-term securities.

Please read this Prospectus before investing and retain it for future refer-
ence. It sets forth concisely the information about the Fund that an investor
should know before investing. A Statement of Additional Information ("SAI")
dated June 30, 1997 describing the Fund has been filed with the Securities and
Exchange Commission ("SEC") and is incorporated by reference into this Pro-
spectus. 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.

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

AS WITH ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAP-
PROVED BY THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMIS-
SION 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.

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

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 IN-
VESTMENT IN THE FUND INVOLVES CERTAIN INVESTMENT RISKS, INCLUDING POSSIBLE
LOSS OF PRINCIPAL.

MASTERWORKS FUNDS INC.

MONEY MARKET FUND

HOW THE FUND WORKS

The Fund invests in short-term instruments issued by banks, corporations, and
the U.S. Government and its agencies. These instruments include certificates
of deposit and U.S. Treasury bills. The Fund's investments are expected to
present minimal risks because of their relatively short maturities and the
high credit quality (financial strength) of the issuers.

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

BARCLAYS GLOBAL FUND ADVISORS IS THE INVESTMENT ADVISER TO THE MONEY MARKET
FUND AND TOGETHER WITH ITS AFFILIATES AND WELLS FARGO BANK, N.A. PROVIDES
OTHER SERVICES TO THE FUND FOR WHICH IT IS COMPENSATED. STEPHENS INC. WHICH
IS NOT AFFILIATED WITH BARCLAYS GLOBAL FUND ADVISORS, IS THE SPONSOR AND CO-
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR THE COMPANY.

PROSPECTUS

JUNE 30, 1997

<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary..................................................... 1
Summary of Fund Expenses............................................... 4
Explanation of the Tables.............................................. 4
Financial Highlights................................................... 5
The Fund............................................................... 6
Management of the Fund................................................. 8
How to Buy Shares...................................................... 10
How to Redeem Shares................................................... 14
Exchange Privilege..................................................... 17
Share Value............................................................ 18
Dividends and Distributions............................................ 18
Taxes.................................................................. 19
General Information.................................................... 20
<CAPTION>
APPENDIX
--------
<S> <C>
Additional Investment Policies......................................... A-1
</TABLE>
<PAGE>

PROSPECTUS SUMMARY

The following summary provides investors with basic information about the
Fund. For more information, please refer specifically to the identified Pro-
spectus sections and generally to the Prospectus and SAI.

Q.WHO CAN INVEST IN THE FUND?

A. Shares of the Fund are offered primarily to a select group of investors.
These include:

. Participants in employee benefit plans ("Benefit Plans"), including re-
tirement plans, who have appointed one of the Company's Selling Agents
as plan trustee, plan administrator or other agent, or whose plan trust-
ee, plan administrator or other agent has an arrangement with a Selling
Agent that permits investments in Fund shares, and individuals who in-
vest pursuant to an agreement between a Benefit Plan and a Selling
Agent.

. Investors using proceeds that are being rolled over directly from a
qualified Benefit Plan to an Individual Retirement Account ("IRA") pur-
suant to arrangements between the sponsor or other agent of the quali-
fied Benefit Plan and a Selling Agent, or who have established a tax-de-
ferred retirement plan with a Selling Agent.

. Investors who have an account arrangement with one of the Company's
Selling Agents that permits investments in Fund shares.

. Investors who have made arrangements with Barclays Global Investors,
N.A. ("BGI") and invest at least $1 million in the Fund.

See "How to Buy Shares."

Q.WHAT ARE SOME OF THE KEY FEATURES OF THE FUND?

A. The Fund seeks to provide investors with a high level of income, while
preserving capital and liquidity, by investing in high-quality, short-term
securities. These securities include obligations of the U.S. Government,
its agencies and instrumentalities (including government-sponsored enter-
prises), high-quality debt obligations, such as corporate debt, certain
obligations of U.S. banks and certain repurchase agreements. The Fund
seeks to maintain a net asset value of $1.00 per share; however, there is
no assurance that this will be achieved.

See "The Fund -- Investment Objective and Policies" and "Appendix -- Addi-
tional Investment Policies."

1
<PAGE>

Q. WHAT ARE SOME OF THE POTENTIAL RISKS ASSOCIATED WITH AN INVESTMENT IN THE
FUND?

A. An investment in the Fund is not a bank deposit or obligation of Barclays
Global Fund Advisors ("BGFA") or BGI and is not insured by the Federal De-
posit Insurance Corporation ("FDIC"). An investment in the Fund is not in-
sured or guaranteed against loss of principal. Therefore, investors should
be willing to accept some risk with the money invested in the Fund. Al-
though the Fund seeks to maintain a stable net asset value of $1.00 per
share, there is no assurance that it will be able to do so. As with all
mutual funds, there can be no assurance that the Fund will achieve its in-
vestment objective.

See "The Fund -- Risk Considerations" and "Appendix -- Additional Invest-
ment Policies."

Q.HOW DO I INVEST IN THE FUND?

A. Shares of the Fund can be purchased by establishing an account arrangement
with a designated Selling Agent. Shares may be purchased at net asset
value on any day the Fund is open for business (a "Business Day"). The
Fund is open for business Monday through Friday and is closed on New York
Stock Exchange ("NYSE") and federal bank holidays.

To invest in the Fund, contact a Selling 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. The Fund is managed by BGFA. Wells Fargo Bank, N.A. ("Wells Fargo Bank")
serves as sub-adviser to the Fund and provides investment advice to BGFA.
As of April 30, 1997, BGFA and its affiliates provided investment advisory
services for approximately $429 billion of assets.

See "Management of the Fund."

Q.WHAT ARE THE FEES FOR INVESTING?

A. Unlike certain other mutual funds which charge sales loads or other trans-
action fees, the Fund does not impose shareholder transaction

2
<PAGE>

fees on the purchase, redemption or exchange of its shares. Selling
Agents, in accordance with the terms of their customer account arrange-
ments, may charge additional fees for maintaining customer accounts.

See "Management of the Fund."

Q.HOW ARE THE FUND'S INVESTMENTS VALUED?

A. The price per share or "net asset value" of the Fund is based on the value
of the Fund's total assets (net of liabilities) divided by the number of
Fund shares outstanding. The Fund's investments are valued on the basis of
the amortized cost method, which assumes receipt of a steady rate of pay-
ment until maturity rather than actual changes in market value.

See "Share Value."

Q.DOES THE FUND PAY DIVIDENDS?

A. Dividends from net investment income are declared daily, paid monthly and
automatically reinvested in additional Fund shares at net asset value un-
less payment in cash is requested and your arrangement with a Selling
Agent permits the processing of cash payments. Each reinvestment increases
the total number of shares held by the shareholder. Any capital gains are
distributed at least annually.

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 the Company, 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 Fund may be redeemed at net asset value without the imposi-
tion of a sales charge or redemption fee on any Business Day. For more in-
formation, contact your Selling Agent.

See "How to Redeem Shares."

3
<PAGE>

SUMMARY OF FUND EXPENSES

<TABLE>
<S> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily net assets)
Management Fees........................................................... 0.35%
Co-Administration Fees.................................................... 0.10%
----
TOTAL FUND OPERATING EXPENSES............................................. 0.45%
</TABLE>

EXAMPLE OF EXPENSES

An investor would pay the following expenses on a $1,000 investment, assum-
ing (1) a 5% annual return and (2) redemption at the end of each time period:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C>
$5 $14 $25 $57
</TABLE>

EXPLANATION OF THE TABLES

The purpose of the foregoing tables is to assist an investor in understand-
ing the various fees and expenses that an investor in the Fund will pay di-
rectly or indirectly. The tables do not reflect any charges that may be im-
posed by Selling Agents directly on customer accounts in connection with an
investment in the Fund. The following provides a general explanation of the
information provided in the tables.

ANNUAL FUND OPERATING EXPENSES reflect the level of ongoing fees expected to
be in effect during the current fiscal year. "Management Fees" reflect the
amounts paid for such services during the most recently completed fiscal year.
"Co-Administration Fees" reflect the contractual level of such fees currently
payable by the Fund. BGFA, BGI and Stephens each may elect, in its sole dis-
cretion, to waive or reimburse all or a portion of its respective fees charged
to, or expenses paid by, the Fund. Any waivers or reimbursements would reduce
the Fund's total expenses. For more complete descriptions of the various costs
and expenses you can expect to incur as an investor in the Fund, see "Manage-
ment of the Fund."

EXAMPLE OF EXPENSES is a hypothetical illustration of the expenses associ-
ated with a $1,000 investment in the Fund over stated periods, based on the
expenses in the table above and an assumed annual rate of return of 5%. This
annual rate of return should not be considered an indication of actual or ex-
pected Fund performance. In addition, the Example of Expenses should not be
considered a representation of past or future expenses; actual expenses and
returns may be greater or less than those shown above.

4
<PAGE>

FINANCIAL HIGHLIGHTS

(FOR A SHARE OUTSTANDING AS SHOWN)

The following information has been derived from the Financial Highlights in-
cluded in the Fund's financial statements for the fiscal year ended February
28, 1997. The financial statements are incorporated by reference into the
Fund's SAI and have been audited by KPMG Peat Marwick LLP, independent audi-
tors, whose report thereon dated April 11, 1997, also is incorporated by ref-
erence into the SAI. This information should be read in conjunction with the
financial statements and the notes thereto. The SAI has been incorporated by
reference into this Prospectus.

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1997 1996 1995 1994*
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Asset Value, beginning
of period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment
operations:
Net investment income..... 0.05 0.05 0.04 0.02
Net realized and
unrealized gain on
investments.............. 0.00 0.00 0.00 0.00
-------- -------- -------- -------
Total from investment
operations................ 0.05 0.05 0.04 0.02
Less distributions:
From net investment
income................... (0.05) (0.05) (0.04) (0.02)
From net realized gains... 0.00 0.00 0.00 0.00
-------- -------- -------- -------
Total distributions........ (0.05) (0.05) (0.04) (0.02)
-------- -------- -------- -------
Net Asset Value, end of
period.................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== =======
Total return (not
annualized)............... 5.10% 5.60% 4.40% 1.81%
Ratios/Supplemental data:
Net assets, end of period
(000).................... $177,046 $156,852 $147,269 $81,649
Number of shares
outstanding, end of
period (000)............. 177,103 156,910 147,280 81,648
Ratios to average net
assets (annualized):
Ratio of expenses to
average net assets(1).... 0.45% 0.45% 0.45% 0.49%
Ratio of net investment
income to average net
assets(2)................ 4.96% 5.44% 4.44% 2.77%
(1) Ratio of expenses to
average net assets
prior to waived fees
and reimbursed
expenses............... 0.48% 0.49% 0.57% 0.50%
(2) Ratio of net investment
income to average net
assets prior to waived
fees and reimbursed
expenses............... 4.93% 5.40% 4.32% 2.76%
</TABLE>
- -----------
* The Fund commenced operations on July 2, 1993.

5
<PAGE>

THE FUND

INVESTMENT OBJECTIVE AND POLICIES

The Fund seeks to provide investors with a high level of income, while pre-
serving capital and liquidity, by investing in high-quality, short-term secu-
rities. The Fund, which is a diversified portfolio, invests its assets only in
U.S. dollar-denominated, high-quality money market instruments, and may engage
in certain other investment activities as described in this Prospectus. Per-
mitted investments include U.S. Government short-term obligations, obligations
of domestic and foreign banks, commercial paper, corporate notes and repur-
chase agreements. A more complete description of these investments and invest-
ment activities is contained in "Appendix -- Additional Investment Policies."

RISK CONSIDERATIONS

Investments in the Fund are not bank deposits and are not insured or guaran-
teed against loss of principal. Although the Fund seeks to maintain a stable
net asset value of $1.00 per share, there is no assurance that it will be able
to do so. As with all mutual funds there is no assurance the Fund will achieve
its investment objective. Pursuant to the Investment Company Act of 1940, as
amended (the "1940 Act"), the Fund must comply with certain investment crite-
ria designed to provide liquidity, reduce risk and allow the Fund to maintain
a stable net asset value of $1.00 per share. The Fund seeks to reduce risk by
investing its assets in securities of various issuers. As such, the Fund is
considered to be diversified for purposes of the 1940 Act.

Since its inception, the Fund has emphasized safety of principal and high
credit quality. In particular, the internal investment policies of the Fund's
investment adviser, BGFA, have always prohibited the purchase by the Fund of
many types of floating-rate instruments commonly referred to as derivatives
that are considered to be potentially volatile.

The following types of derivative securities ARE NOT permitted investments
for the Fund:

. capped floaters (on which interest is not paid when market rates move
above a certain level);

. leveraged floaters (whose interest rate reset provisions are based on a
formula that magnifies changes in interest rates);

6
<PAGE>

. range floaters (which do not pay any interest if market interest rates
move outside of a specified range);

. dual index floaters (whose interest rate reset provisions are tied to
more than one index so that a change in the relationship between these
indices may result in the value of the instrument falling below face
value); and

. inverse floaters (which reset in the opposite direction of their index).

Additionally, the Fund may not invest in securities whose interest rate re-
set provisions are tied to an index that materially lags short-term interest
rates, such as Cost of Funds Index floaters. The Fund may only invest in
floating-rate securities that bear interest at a rate that resets quarterly or
more frequently, and that resets based on changes in standard money market
rate indices such as U.S. Government Treasury bills, London Interbank Offered
Rate, the prime rate, published commercial paper rates, federal funds rates,
Public Securities Associates floaters or JJ Kenney index floaters.

PERFORMANCE

The Fund's performance may be advertised in terms of current yield or effec-
tive yield. These performance figures are based on historical results and are
not intended to indicate future performance. The Fund's current yield refers
to the income generated by an investment in the Fund over a seven- or thirty-
day period, expressed as an annual percentage rate. The effective yield is
calculated similarly, but assumes that the income earned from an investment is
reinvested at net asset value. The Fund's effective yield is slightly higher
than the current yield because of the compounding effect of the assumed rein-
vestment of income earned.

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 securities held by the Fund and is
affected by operating expenses. Performance information, such as that de-
scribed above, may not provide a basis for comparison with other investments
or other investment companies using a different method of calculating perfor-
mance.

Additional information about the performance of the Fund is contained in the
Annual Report for the Fund. The Annual Report may be obtained by calling the
Company at 1-800-776-0179.

7
<PAGE>

MANAGEMENT OF THE FUND

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. Additional information regarding the Officers and Directors of the Com-
pany is included in the SAI under "Management."

INVESTMENT ADVISER -- BGFA serves as investment adviser to the Fund. BGFA
provides investment guidance and policy direction in connection with the man-
agement of the Fund's assets. BGFA is an indirect subsidiary of Barclays Bank
PLC and is located at 45 Fremont Street, San Francisco, California 94105. As
of April 30, 1997, BGFA and its affiliates provided investment advisory serv-
ices for approximately $429 billion of assets.

The Company has agreed to pay BGFA a monthly fee at the annual rate of 0.35%
of the Fund's average daily net assets as compensation for its advisory serv-
ices. Wells Fargo Bank serves as sub-adviser to the Fund and, subject to the
supervision and approval of BGFA, furnishes investment guidance and policy di-
rection in connection with the daily portfolio management of the Fund. Wells
Fargo Bank is entitled to receive from BGFA an amount equal to 0.05% of the
average daily net assets of the Fund as compensation for its sub-advisory
services. For the fiscal year ended February 28, 1997, BGFA paid Wells Fargo
Bank the full amount of this fee.

Morrison & Foerster LLP, counsel to the Company and special counsel to BGFA
and Wells Fargo Bank, has advised the Company, BGFA, and Wells Fargo Bank that
BGFA, Wells Fargo Bank, and their affiliates may perform the services contem-
plated by the Investment Advisory Contract, the Sub-Investment Advisory Con-
tract, and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or admin-
istrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such statutes, regulations and judicial or adminis-
trative decisions or interpretations, could prevent such entities from contin-
uing 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 agree-
ments would be proposed or entered into with another entity or entities quali-
fied to perform such services.

8
<PAGE>

CO-ADMINISTRATORS -- Stephens Inc. ("Stephens") and BGI are the Fund's co-
administrators. Stephens and BGI provide the Fund with administration servic-
es, including general supervision of the Fund's non-investment operations, co-
ordination of the other services provided to the Fund, compilation of informa-
tion for reports to the SEC and the 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 di-
rectors and offi- cers. Stephens also furnishes office space and certain fa-
cilities to conduct the Fund's business, and compensates the Company's direc-
tors, officers and employees who are affiliated with Stephens. In addition,
except as outlined below under "Expenses," Stephens and BGI will be responsi-
ble for paying all expenses incurred by the Fund other than the fees payable
to BGFA. For these services, Stephens and BGI are entitled to a monthly fee at
the annual rate of 0.10% of the Fund's average daily net assets. BGI has dele-
gated certain of its duties as co-administrator to Investors Bank & Trust Com-
pany ("IBT"). IBT, as sub-administrator, is compensated by BGI for performing
certain administration services.

Prior to October 21, 1996, Stephens was the Fund's sole administrator and
received fees for its services as described in the SAI.

DISTRIBUTOR -- Stephens is the distributor for the Fund's shares. Stephens
is a full service broker/dealer and investment advisory firm located at 111
Center Street, Little Rock, Arkansas 72201. Stephens and its predecessor have
been providing securities and investment services for more than 60 years. Ad-
ditionally, it has been providing discretionary portfolio management services
since 1983. Stephens currently manages investment portfolios for pension and
profit sharing plans, individual investors, foundations, insurance companies
and university endowments. Stephens, as the Company's sponsor and the princi-
pal underwriter of the Fund within the meaning of the 1940 Act, has entered
into a Distribution Agreement with the Company pursuant to which Stephens has
the responsibility for distributing Fund shares. The Distribution Agreement
provides that Stephens shall act as agent for the Fund for the sale of its
shares, and may enter into Selling Agreements with selling agents that wish to
make available Fund shares to their respective customers ("Selling Agents").
Stephens does not receive a fee for providing distribution services to the
Fund. BGI presently acts as a Selling Agent, but does not receive any fee from
the Fund for such activities.

CUSTODIAN -- IBT currently acts as the Fund's custodian. The principal busi-
ness address of IBT is 200 Clarendon Street, Boston,

9
<PAGE>

Massachusetts 02116. IBT is not entitled to receive compensation for its cus-
todial services so long as it is entitled to receive compensation for provid-
ing sub-administration services to the Fund. Prior to October 21, 1996, BGI
acted as the Fund's custodian. The principal business address of BGI is 45
Fremont Street, San Francisco, California 94105. BGI did not receive compensa-
tion for its custodial services.

TRANSFER AND DIVIDEND DISBURSING AGENT -- Wells Fargo Bank is the Company's
transfer and dividend disbursing agent. Wells Fargo Bank performs its transfer
and dividend disbursing agency activities at 525 Market Street, San Francisco,
California 94105.

EXPENSES -- Except for advisory fees, extraordinary expenses, brokerage and
other expenses connected to the execution of portfolio transactions and cer-
tain other expenses which are borne by the Fund, Stephens and BGI have agreed
to bear all costs of the Fund's and the Company's operations.

HOW TO BUY SHARES

WHO MAY INVEST

The following types of investors are eligible to invest in Fund shares:

. Participants in Benefit Plans ("Plan Participants"), including retire-
ment plans, who have appointed one of the Company's Selling Agents as
plan trustee, plan administrator or other agent, or whose plan trustee,
plan administrator or other agent has an arrangement with a Selling
Agent that permits investments in Fund shares, and Plan Participants who
invest pursuant to an agreement between such a Benefit Plan and a Sell-
ing Agent.

. Investors who have an account arrangement with one of the Company's
Selling Agents that permits investments in Fund shares ("Qualified Buy-
ers").

10
<PAGE>

. Investors who have made arrangements with BGI and invest at least $1
million in the Fund ("Direct Buyers").

Eligible investors may purchase Fund shares in one of the several ways de-
scribed below. For more information or additional forms, call 1-800-828-6894.
The Company or Stephens may make this Prospectus available in an electronic
format. Upon receipt of a request by an investor or the investor's representa-
tive, the Company or Stephens will transmit or cause to be transmitted prompt-
ly, 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, Direct 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
Fund shares are subject to a determination by the Company that the investment
instructions are complete. If shares are purchased by a check that does not
clear, the Company reserves the right to cancel the purchase and hold the in-
vestor responsible for any losses or fees incurred. The Company reserves the
right in its sole discretion to suspend the availability of the Fund's shares
and to reject any purchase requests. Certificates for Fund shares are not is-
sued. Selling Agents may establish investment amount and account balance re-
quirements different from those of the Funds and may charge fees in addition
to those charged by the Fund.

GENERAL

Shares of the Fund may be purchased on any Business Day at the net 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 (currently 1:00 p.m., Pacific
time) will be executed at the net asset value determined as of the close of
regular trading on the NYSE on that Business 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 Selling 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 Selling Agent may estab-
lish an earlier deadline for receipt of orders, or an investor's order trans-
mitted to a Selling Agent may not be received by the Transfer Agent on the
same day.

11
<PAGE>

Federal regulations require that an investor provide a valid taxpayer iden-
tification number ("TIN"), which is usually the investor's social security
number or employee identification number, upon opening or reopening an ac-
count.

BENEFIT PLANS

Shares of the Fund are offered to Benefit Plans that have appointed one of
the Fund's Selling Agents as plan trustee, plan administrator or other agent,
or whose plan trustee, plan administrator or other agent has a servicing ar-
rangement with a Selling Agent that permits investments in Fund shares. Bene-
fit Plans include 401(k) plans and 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 Selling Agent.

Fund investments by participants in 401(k) plans are typically made by pay-
roll deductions arranged between participants and their employers. Partici-
pants in the MasterWorks 401(k) program are included in this group. Partici-
pants also may make direct contributions to their accounts in special circum-
stances 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 de-
partment for more information about contribution methods.

Plan Participants who have established an account with a Selling Agent may
purchase Fund shares in accordance with their account arrangements with such
Selling Agent. The Selling Agent is responsible for the prompt transmission of
purchase orders. Selling Agents may charge additional fees for maintaining
customer accounts other than those charged by the Fund.

IRAS, KEOGHS AND OTHER INDIVIDUAL RETIREMENT PLANS

An investor may be entitled to invest in shares of the Fund through a tax-
deferred retirement plan. In addition to offering investments in Fund shares
through IRA rollovers, a Selling 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. Contact a Selling
Agent for materials describing plans available through it, and their benefits,
provisions and fees.

12
<PAGE>

Application materials for opening an IRA rollover, Keogh retirement plan or
other individual retirement plan can be obtained from a Selling Agent. Com-
pleted retirement plan applications should be returned to the investor's Sell-
ing Agent for approval and processing. If a retirement plan application is in-
complete or improperly filled out, there may be a delay before the Fund ac-
count is opened. Investors should consult their Selling Agent.

PURCHASES BY QUALIFIED BUYERS

Qualified Buyers may open a Fund account and make additional purchases
through a Selling Agent with whom they have an account arrangement. Selling
Agents may transmit purchase orders to the Transfer Agent on behalf of invest-
ors, 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").

PURCHASES BY DIRECT BUYERS

Direct Buyers may open a Fund account by completing an Account Application.
Direct Buyers may purchase Fund shares by contacting the Transfer Agent, by
instructing the Transfer Agent to debit an Approved Bank Account or by wire.

Direct Buyers 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 (Money Market Fund)
Account Name(s): (name(s) in which to be registered)
Account Number: (if investing into an existing account)

IN-KIND PURCHASES

Payment for shares of the Fund may, at the discretion of BGFA as investment
adviser, be made in the form of securities that are permissible investments
for such Fund. Shares purchased in exchange for securities can not be redeemed
until the exchange transaction has settled. For further information, see "Pur-
chase and Redemption of Shares" in the SAI.

13
<PAGE>

HOW TO REDEEM SHARES

GENERAL

Investors may redeem all or a portion of their Fund 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 the Fund calculated after the Company
has received a redemption request in proper form. Although the Fund seeks to
maintain a $1.00 net asset value per share, redemption proceeds may be more or
less than that amount.

The Company generally remits redemption proceeds from the 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 of securities
owned by the Fund is not reasonably practicable or (b) it is not reasonably
practicable for the Fund to determine fairly 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 portfo-
lio securities.

Redemption orders that are received by the Transfer Agent before the close
of regular trading on the NYSE (currently 1:00 p.m., Pacific time), will be
executed at the net asset value determined as of the close of regular trading
on the NYSE on that Business Day. Redemption orders that are received by the
Transfer Agent after the close of regular trading on the NYSE will be executed
on the next Business Day. The investor's Selling Agent is responsible for the
prompt transmission of redemption orders to the Transfer Agent on the invest-
or's behalf. Under certain circumstances, a Selling Agent may establish an
earlier deadline for receipt of orders, or an investor's order transmitted to
a Selling Agent may not be received by the Transfer Agent on the same day.

Unless the investor has made other arrangements with an appropriate Selling
Agent, and the Transfer Agent has been informed of such arrangements, proceeds
of a redemption order made by the investor through the investor's Selling
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

14
<PAGE>

is no longer valid, the proceeds are credited to the investor's account with
the investor's Selling Agent.

REDEMPTIONS BY 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 procedures for
withdrawals, which are disclosed to investors at the time of purchase. Invest-
ors may obtain more information by contacting their employer and/or their
Selling Agent. The redemption procedures outlined in the remainder of this
section do not apply to investors in Benefit Plans or retirement plans. In-
vestors in these types of plans should contact their Selling Agent regarding
redemption procedures applicable to them.

REDEMPTIONS BY QUALIFIED BUYERS

Qualified Buyers should contact their Selling Agent regarding redemption
procedures applicable to them. The redemption procedures outlined in the re-
mainder of this section do not apply to Qualified Buyers.

REDEMPTIONS BY DIRECT BUYERS

Redemptions by Mail

1. Write a letter of instruction to the Transfer Agent. 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 redemp-
tion proceeds is sent to the investor's address of record.

Redemptions by Telephone

15
<PAGE>

representing 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 identifica-
tion, to confirm that instructions are genuine and, if it does not follow such
procedures, the Company and 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 experi-
ence difficulty in contacting the Transfer Agent by telephone to request a re-
demption 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 re-
quest being processed at a later time than it would have been if telephone re-
demption had been used. During the delay, the Fund's net asset value may fluc-
tuate.

Expedited Redemptions by Letter and Telephone

A Direct Buyer 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. Tele-
phone redemption and exchange privileges are made available to a Direct Buyer
automatically upon the opening of an account unless the investor declines such
privileges. The investor also may request an expedited redemption of Fund
shares by telephone on any Business Day, in which case both the investor's re-
ceipt of redemption proceeds and the Fund's receipt of the investor's redemp-
tion request would be expedited.

Direct Buyers may request expedited redemption by telephone by calling the
Transfer Agent at 1-800-828-6894.

Direct Buyers may request expedited redemption by mailing an expedited re-
demption request to the Transfer Agent.

Upon request, proceeds of expedited redemptions are wired or credited to an
Approved Bank Account. The Company reserves the right to impose a charge for
wiring redemption proceeds. When proceeds of an individual and corporate in-
vestor'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 in-
vestor has not predesignated in his

16
<PAGE>

or her 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 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 de-
scribed above), absent extraordinary circumstances. Such extraordinary circum-
stances could include those described above as potentially delaying redemp-
tions, 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 exchange for shares of the
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 read 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, al-
though the Company reserves the right, upon not less than 60 days' written no-
tice, 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 be-
lieves such action would be appropriate to protect a fund 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 exchanges. The exchange privi-
lege may be modified or terminated at any time upon 60 days' written notice to
shareholders.

17
<PAGE>

SHARE VALUE

Shares of the Fund are sold on a continuous basis at the applicable offering
price (net asset value per share) next determined after an order in proper
form is received by the Transfer Agent. Net asset value ("NAV") is determined
each Business Day as of the close of regular trading on the NYSE (currently,
1:00 p.m. Pacific time). On any day the trading markets for both U.S. Govern-
ment securities and money market instruments close early, the NAV calculation
time and the dividend, purchase and redemption cut-off times for the Fund may
be earlier than 1:00 p.m. (Pacific time).

The NAV of a share of the Fund is calculated by dividing the value of total
assets, less liabilities, by the number of outstanding shares. All expenses
are accrued daily and taken into account for the purposes of calculating NAV.
The Fund's portfolio investments are valued on the basis of amortized cost.
This valuation method is based on the receipt of a steady rate of payment from
the date of purchase until maturity rather than actual changes in market val-
ue. The Company's Board of Directors believes that this valuation method accu-
rately reflects fair value. As noted above, the Fund seeks to maintain a con-
stant $1.00 NAV share price, although there can be no assurance that it will
be able to do so. For further information regarding the methods employed in
valuing the Fund's investments, see "Determination of Net Asset Value" in the
SAI.

DIVIDENDS AND DISTRIBUTIONS

The Fund intends to declare dividends daily and pay dividends monthly. An
investor begins earning dividends on the day after the date such investor's
purchase order for shares is effective and continues to earn dividends through
the date the investor redeems such shares. Dividends for a Saturday, Sunday or
Holiday are credited on the preceding Business Day. If an investor redeems
shares before the dividend payment date, any dividends credited to such in-
vestor's account are paid on the following dividend payment date. The Fund de-
clares and distributes capital gains (if any) at least annually. Dividends and
capital gain distributions are automatically reinvested in additional Fund
shares at net asset value.

18
<PAGE>

TAXES

GENERAL

Distributions from the Fund's net investment income and net short-term capi-
tal gains, if any, are designated as dividend distributions and taxable to the
Fund's shareholders as ordinary income. Distributions from the Fund's net
long-term capital gains are designated as capital gain distributions and tax-
able to the Fund's shareholders as long-term capital gains. In general, your
distributions will be taxable when paid, whether you take such distributions
in cash or have them automatically reinvested in additional Fund shares. How-
ever, distributions declared in October, November and December, and distrib-
uted by the following January will be taxable as if they were paid by Decem-
ber 31.

Your redemptions (including redemptions in-kind) and exchanges of Fund
shares will ordinarily result in a taxable capital gain or loss, depending on
the amount you receive for your shares (or are deemed to receive in the case
of exchanges) and the cost of your shares. See "Taxes --Disposition of Fund
Shares" in the SAI.

Foreign shareholders may be subject to different tax treatment, including
withholding taxes. See "Federal Income Taxes -- Foreign Shareholders" in the
SAI. In certain circumstances, U.S. residents may also be subject to withhold-
ing taxes. See "Taxes -- Backup Withholding" in the SAI.

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 invest-
ment income and capital gain distributions.

However, such tax-exempt investors may be subject to tax on certain unre-
lated taxable income which could arise, for example, when such investors ac-
quire shares in the Fund through the use of leverage. Tax-exempt investors
should consult their tax advisors regarding the Unrelated Business Taxable In-
come Rules.

The foregoing discussion regarding taxes is based on tax laws which were in
effect as of the date of this Prospectus and summarizes only some of the im-
portant federal tax considerations generally affecting the Fund and its share-
holders. It is not intended as a substitute for careful tax planning; you
should consult your tax advisor with respect to your

19
<PAGE>

specific tax situation as well as with respect to foreign, state and local
taxes. Further federal tax considerations are discussed in the SAI.

GENERAL INFORMATION

DESCRIPTION OF THE COMPANY

The Fund is a series of the Company. The Company was organized as a Maryland
corporation on October 15, 1992, and currently offers twelve series of shares.
The Company's principal office is located at 111 Center Street, Little Rock,
Arkansas 72201.

The Board of Directors of the Company supervises the Fund's activities and
monitors the Fund's contractual arrangements with various service providers.
Additional information about the Directors and Officers of the Company is in-
cluded in the Fund's SAI under "Management." Although the Company is not re-
quired to hold regular annual shareholder meetings, occasional annual or spe-
cial meetings may be required for purposes such as electing and removing Di-
rectors, approving advisory contracts, and changing the Fund's investment ob-
jective or fundamental investment policies.

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 Fund 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 sub-
mitted to a vote, a sponsor may request direction from individual participants
regarding a shareholder vote. 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 descrip-
tion 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.

20
<PAGE>

LEGAL COUNSEL

Morrison & Foerster LLP, 2000 Pennsylvania Avenue, N.W., Washington, D.C.
20006, serves as counsel to the Company.

INFORMATION ON THE FUND

The Company provides annual and semi-annual reports to all shareholders. The
annual reports contain audited financial statements and other information
about the Fund 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 REPRE-
SENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN THE COMPANY'S
OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFER OF THE FUND'S 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 OF-
FERING MAY NOT LAWFULLY BE MADE.

21
<PAGE>

APPENDIX -- ADDITIONAL INVESTMENT POLICIES

The Fund may invest in the following types of money market instruments:

U.S. GOVERNMENT OBLIGATIONS -- The Fund may invest in various types of U.S.
Government obligations. U.S. Government obligations include securities issued
or guaranteed as to principal and interest by the U.S. Government, its agen-
cies or instrumentalities. Payment of principal and interest on U.S. Govern-
ment obligations (i) may be backed by the full faith and credit of the United
States (as with U.S. Treasury obligations and GNMA certificates) or (ii) may
be backed solely by the issuing or guaranteeing agency or instrumentality it-
self (as with FNMA notes). In the latter case, the investor must look princi-
pally 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 finan-
cial support to its agencies or instrumentalities where it is not obligated to
do so. As a general matter, the value of debt instruments, including U.S. Gov-
ernment obligations, declines when market interest rates increase and rises
when market interest rates decrease. Certain types of U.S. Government obliga-
tions are subject to fluctuations in yield or value due to their structure or
contract terms.

BANK OBLIGATIONS -- The Fund may invest in bank obligations which include,
but are not limited to, negotiable certificates of deposit ("CDs"), bankers'
acceptances and fixed time deposits. The Fund also may invest in high-quality
short-term obligations of foreign branches of U.S. banks or U.S. branches of
foreign banks that are denominated in and pay interest in U.S. dollars.

Fixed time deposits are obligations of U.S. banks, foreign branches of U.S.
banks or foreign banks which are payable at a stated maturity date and bear a
fixed rate of interest. Generally fixed time deposits may be withdrawn on de-
mand by the investor, but they may be subject to early withdrawal penalties
which vary depending upon market conditions and the remaining maturity of the
obligation. Although fixed time deposits do not have an established market,
there are no contractual restrictions on the Fund's right to transfer a bene-
ficial interest in the deposit to a third party. It is the policy of the Fund
not to invest in fixed time deposits subject to withdrawal penalties, other
than overnight deposits, or in repurchase agreements with more than seven days
to maturity or other illiquid securities, if more than 10% of the value of its
net assets would be so invested.

A-1
<PAGE>

Obligations of foreign banks and foreign branches of U.S. banks involve
somewhat different investment risks from those affecting domestic obligations,
including the possibilities that liquidity could be impaired because of future
political and economic developments, that the obligations may be less market-
able than comparable obligations of U.S. banks, that a foreign jurisdiction
might impose withholding taxes on interest income payable on those obliga-
tions, that foreign deposits may be seized or nationalized, that foreign gov-
ernmental restrictions (such as foreign exchange controls) may be adopted
which might adversely affect the payment of principal and interest on those
obligations and that the selection of those obligations may be more difficult
because there may be less publicly available information concerning foreign
banks or the accounting, auditing and financial reporting standards, practices
and requirements applicable to foreign banks may differ from those applicable
to U.S. banks. In that connection, foreign banks are not subject to examina-
tion by any U.S. Government agency or instrumentality.

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

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

A-2
<PAGE>

REPURCHASE AGREEMENTS -- The Fund may enter into repurchase agreements
wherein the seller of a security to the Fund agrees to repurchase that secu-
rity from the Fund at a mutually-agreed upon time and price. The period of ma-
turity is usually quite short, often overnight or a few days, although it may
extend over a number of months. The Fund may enter into repurchase agreements
only with respect to securities that could otherwise be purchased by the Fund,
and all repurchase transactions must be collateralized. The Fund may incur a
loss on a repurchase transaction if the seller defaults and the value of the
underlying collateral declines or is otherwise limited or if receipt of the
security or collateral is delayed. The Fund may participate in pooled repur-
chase agreement transactions with other funds advised by BGFA.

LETTERS OF CREDIT -- Certain of the debt obligations, certificates of par-
ticipation, commercial paper and other short-term obligations which the Fund
and is permitted to purchase may be backed by an unconditional and irrevocable
letter of credit of a bank, savings and loan association or insurance company
which assumes the obligation for payment of principal and interest in the
event of default by the issuer. Letter of credit-backed investments must, in
the opinion of Wells Fargo Bank, as sub-adviser, be of investment quality com-
parable to other permitted investments of the Fund.

OTHER INVESTMENT COMPANIES -- The Fund may invest in shares of other open-
end investment companies that invest exclusively in high-quality short-term
securities subject. The Fund may also purchase shares of exchange listed
closed-end funds.

MUNICIPAL OBLIGATIONS -- The Fund may invest in municipal obligations. Mu-
nicipal bonds generally have a maturity at the time of issuance of up to 40
years. Medium-term municipal notes are generally issued in anticipation of the
receipt of tax funds, of the proceeds of bond placements, or of other reve-
nues. The ability of an issuer to make payments on notes is therefore espe-
cially dependent on such tax receipts, proceeds from bond sales or other reve-
nues, as the case may be. Municipal commercial paper is a debt obligation with
a stated maturity of 270 days or less that is issued to finance seasonal work-
ing capital needs or as short-term financing in anticipation of longer-term
debt.

The Fund will invest in the following municipal obligations with remaining
maturities not exceeding 13 months:

(i) long-term municipal bonds rated at the date of purchase "Aa" or bet-
ter by Moody's or "AA" or better by S&P;

A-3
<PAGE>

(ii) municipal notes rated at the date of purchase "MIG1" or "MIG2" (or
"VMIG1" or "VMIG2" in the case of an issue having a variable rate with a
demand feature) by Moody's or "SP-1+" "SP-1" or "SP-2" by S&P; and

(iii) short-term municipal commercial paper rated at the date of pur-
chase "P-1" by Moody's or "A-1+", or "A-1" or "A-2" by S&P.

FLOATING- AND VARIABLE-RATE OBLIGATIONS -- The Fund may purchase debt in-
struments with interest rates that are periodically adjusted at specified in-
tervals or whenever a benchmark rate or index changes. The floating- and vari-
able-rate instruments that the Fund may purchase include certificates of par-
ticipation in such instruments. These adjustments generally limit the increase
or decrease in the amount of interest received on the debt instruments. Float-
ing- and variable-rate instruments are subject to interest-rate risk and
credit risk.

ILLIQUID SECURITIES -- The Fund may invest in securities not registered un-
der the 1933 Act and other securities subject to legal or other restrictions
on resale. Because such securities may be less liquid than other investments,
they may be difficult to sell promptly at an acceptable price. Delay or diffi-
culty in selling securities may result in a loss or be costly to the Fund.

INVESTMENT POLICIES

The Fund's investment objective, as set forth in the first paragraph of "The
Fund -- Investment Objective and Policies" section, is fundamental; that is,
it may not be changed without approval by the vote of the holders of a major-
ity of the Fund's outstanding voting securities, as described under "Capital
Stock" in the SAI. In addition, any fundamental investment policy may not be
changed without such shareholder approval. If the Company's Board of Directors
determines, however, that the Fund's investment objective can best be achieved
by a substantive change in a non-fundamental investment policy or strategy,
the Company's Board may make such change without shareholder approval and will
disclose any such material changes in the then-current prospectus.

As matters of fundamental policy, the Fund may: (i) borrow from banks up to
10% of the current value of its net assets only for temporary purposes in or-
der to meet redemptions, and these borrowings may be secured by the pledge of
up to 10% of the current value of its net assets (but investments may not be
purchased while any such outstanding

A-4
<PAGE>

borrowing in excess of 5% of its net assets exists); (ii) make loans of port-
folio securities or other assets, however, as a matter of current operating
policy, the Fund does not loan its portfolio securities and loans for purposes
of this restriction will not include the purchase of fixed-time deposits, re-
purchase agreements, commercial paper and other short-term obligations, and
other types of debt instruments commonly sold in a public or private offering;
and (iii) not invest 25% or more of its total assets (i.e., concentrate) in
any particular industry, excluding U.S. Government obligations and obligations
of domestic banks (for purposes of this restriction, domestic bank obligations
do not include obligations of foreign branches of U.S. banks and obligations
of U.S. branches of foreign banks).

As a matter of non-fundamental policy, the Fund may: (i) not purchase secu-
rities of any issuer (except U.S. Government obligations, for certain tempo-
rary purposes and for certain guarantees and unconditional puts) if as a re-
sult more than 5% of the value of the Fund's total assets would be invested in
the securities of such issuer or the Fund would own more than 10% of the out-
standing voting securities of such issuer; and (ii) invest up to 10% of the
current value of its net assets in securities that are illiquid by virtue of
the absence of a readily available market or legal or contractual restrictions
on resale and fixed time deposits that are subject to withdrawal penalties and
that have maturities of more than seven days. With respect to paragraph (i),
it may be possible that the Company would own more than 10% of the outstanding
voting securities of an issuer. Disposing of illiquid or restricted securities
may involve additional costs and require additional time.

INVESTMENT RATINGS

STANDARD & POOR'S RATING

BOND RATINGS -- Bonds rated "AAA" have the highest rating assigned by S&P to
a debt obligation. Capacity to pay interest and repay principal is extremely
strong. Bonds rated "AA" have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in a small degree.

COMMERCIAL PAPER AND LOAN PARTICIPATION RATINGS -- Commercial paper and loan
participations with the greatest capacity for timely payment are rated "A" by
S&P. Issues within this category are further defined with designations "1,"
"2" and "3" to indicate the relative degree of safety; "A-1," the highest of
the three, indicates the degree of safety is very high.

A-5
<PAGE>

MOODY'S INVESTORS SERVICE RATINGS

BOND RATINGS -- Bonds rated "Aaa" by Moody's are judged to be the best qual-
ity. Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. Bonds rated "Aa" are judged to be of high
quality by all standards. They are rated lower than the best bonds because
margins of protection may not be as large or fluctuation of protective ele-
ments may be of greater amplitude or there may be other elements present which
make the long-term risks appear somewhat larger than is the case with "Aaa"
securities.

COMMERCIAL PAPER AND LOAN PARTICIPATION RATINGS -- Moody's employs the des-
ignations of "Prime-1," "Prime-2" and "Prime-3" to indicate the relative ca-
pacity of the rated issuers or borrowers to repay punctually. "Prime-1" is the
highest rating assigned by Moody's. Issuers or makers of "Prime-1" obligations
must have a superior capacity for repayment of short-term promissory obliga-
tions, and will normally be evidenced by leading market positions in well es-
tablished industries, high rates of return on funds employed, conservative
capitalization structures with moderate reliance on debt and ample asset pro-
tection, broad margins in earnings coverage of fixed financial charges and
high internal cash generation, and well established access to a range of fi-
nancial markets and assured sources of alternate liquidity.

A-6
<PAGE>

SPONSOR, DISTRIBUTOR AND CO-ADMINISTRATOR
Stephens Inc.
Little Rock, Arkansas

CO-ADMINISTRATOR
Barclays Global Investors, N.A.
San Francisco, CA

INVESTMENT ADVISER
Barclays Global Fund Advisors
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

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.
<PAGE>

MASTERWORKS Funds
c/o Wells Fargo Bank, N.A.
Transfer Agent
525 Market Street
San Francisco, CA 94105

<PAGE>

Cross Reference Sheet
---------------------

LIFEPATH 2000 FUND, LIFEPATH 2010 FUND,
---------------------------------------
LIFEPATH 2020 FUND, LIFEPATH 2030 FUND AND LIFEPATH 2040 FUND
-------------------------------------------------------------

Form N-1A Item Number
- ---------------------

Part A Prospectus Captions
- ------ -------------------

1 Cover Page
2 Prospectus Summary; Summary of Fund Expenses
3 Financial Highlights
4 Description of the Funds
Management of the Funds
General Information
Appendix - Additional Investment Policies
5 Prospectus Summary
Description of the Funds
Management of the Funds
6 Description of the Funds
Dividends and Distributions
General Information
Taxes
7 How to Buy Shares
Exchange Privilege
Share Value
8 How to Redeem Shares
9 Not Applicable

Part B Statement of Additional Information Captions
- ------ --------------------------------------------

10 Cover Page
11 Table of Contents
12 General Information
Other
13 Investment Objectives and Management Policies
Appendix
14 Management
15 Management
16 Management
Independent Auditors
Counsel
17 Portfolio Transactions
18 Capital Stock
19 Determination of Net Asset Value
Purchase and Redemption of Shares
20 Dividends, Distributions and Taxes
21 Management
22 Performance Information
23 Financial Information

Part C General Information
- ------ -------------------

24-32 Information required to be included in Part C is set forth under
the appropriate Item, so numbered, in Part C of this Document.
<PAGE>

[LIFEPATH(R) FUNDS]

[LIFEPATH2000(R)]

[LIFEPATH2010(R)]

[LIFEPATH2020(R)]

[LIFEPATH2030(R)]

[LIFEPATH2040(R)]

<PAGE>

MasterWorks Funds 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").

Please read this Prospectus before investing and retain it for future refer-
ence. It sets forth concisely the information about the Funds that an investor
should know before investing. A Statement of Additional Information ("SAI")
dated June 30, 1997 describing the Funds has been filed with the Securities
and Exchange Commission ("SEC") and is incorporated by reference into this
Prospectus. 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.

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

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 IN-
VESTMENT 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 THE 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 30, 1997

<PAGE>

Each Fund invests all of its assets in a separate series (each, a "Master
Portfolio") of Master Investment Portfolio ("MIP"), an open-end, management
investment company. Each Fund has the same investment objective as the corre-
sponding Master Portfolio and each Fund's investment experience corresponds
directly with the relevant Master Portfolio's investment experience. Refer-
ences to the investments and investment policies and risks of the Funds, un-
less otherwise indicated, should be understood as references to the invest-
ments and investment policies and risks of the corresponding Master Portfolio.
Interests in a Master Portfolio may be purchased only by investment companies
or accredited investors.

Each LifePath Fund invests in a wide range of U.S. and foreign equity and
debt securities and money market instruments. Investors are encouraged to se-
lect a particular LifePath Fund based on the decade of their anticipated re-
tirement 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.

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

BARCLAYS GLOBAL FUND ADVISORS 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., WHICH
IS NOT AFFILIATED WITH THE ADVISER OR ANY AFFILIATE THEREOF, SERVES AS
THE COMPANY'S CO-ADMINISTRATOR AND AS DISTRIBUTOR OF EACH FUND'S
SHARES.
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary..................................................... 1
Summary of Fund Expenses............................................... 6
Financial Highlights................................................... 8
Description of the Funds............................................... 10
Management of the Funds................................................ 19
How to Buy Shares...................................................... 23
How to Redeem Shares................................................... 27
Exchange Privilege..................................................... 30
Share Value............................................................ 31
Dividends and Distributions............................................ 31
Taxes.................................................................. 32
General Information.................................................... 33
<CAPTION>
APPENDIX
--------
<S> <C>
Additional Investment Policies......................................... A-1
</TABLE>
<PAGE>

PROSPECTUS SUMMARY

The following summary provides investors with basic information about the
Funds. For more information, please refer specifically to the identified Pro-
spectus 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 re-
tirement plans, who 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 be-
tween a Benefit Plan and a Shareholder Servicing Agent.

. Investors using proceeds that are being rolled over directly from a
qualified Benefit Plan to an Individual Retirement Account ("IRA") pur-
suant to arrangements between the sponsor or other agent of the quali-
fied Benefit Plan and a Shareholder Servicing Agent, or who have estab-
lished a tax-deferred retirement plan with a Shareholder Servicing
Agent.

. Investors who have an account arrangement with one of the Company's
Shareholder Servicing Agents that permits investments in Fund shares.

. Investors who have made arrangements with Barclays Global Investors,
N.A. ("BGI") and invest at least $1 million.

See "How To Buy Shares."

Q. WHAT ARE SOME OF THE KEY FEATURES OF THE FUNDS?

A. Each LifePath Fund seeks to provide 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. The
LifePath Funds follow an asset allocation strategy among three broad in-
vestment classes: equity and debt securities of domestic and foreign is-
suers and cash in the form of money market instruments.

1
<PAGE>

The Funds contain both "strategic" and "tactical" components. The strate-
gic component evaluates the risk that investors, on average, may be will-
ing to accept given their investment time horizons. The strategic compo-
nent thus determines the changing investment risk level of each LifePath
Fund as time passes. The tactical component addresses short-term market
conditions. The tactical component thus adjusts the amount of investment
risk taken by each LifePath Fund without regard to time horizon, but
rather in consideration of the relative risk-adjusted short-term attrac-
tiveness of various asset classes.

Q. WHAT ARE SOME OF THE POTENTIAL RISKS ASSOCIATED WITH AN INVESTMENT IN THE
FUNDS?

A. Investments in the Funds are not bank deposits or obligations of Barclays
Global Fund Advisors ("BGFA") or 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. When the value of the
portfolio securities in which the Funds invest declines, so does the value
of Fund shares. Therefore, investors should be prepared to accept some
risk with the money invested in the Funds.

The portfolio equity securities held by each Fund are subject to equity
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 tends to be cyclical, with periods when stock prices generally rise
and periods when stock prices generally decline. Throughout the first six
months of 1997, the stock market, as measured by the S&P 500 Index and
other commonly used indices, was trading at or close to record levels.
There can be no guarantee that these levels will continue.

The portfolio debt instruments held by the Funds are subject to credit
risk and interest rate risk. Credit risk is the risk that issuers of the
debt instruments in which the Funds invest may default on the payment of
principal and/or interest. Interest rate risk is the risk that increases
in market interest rates may adversely affect the value of certain debt
instruments in which the Funds may invest. The value of the Funds' debt
instruments generally changes inversely to changes in market interest
rates.

Debt securities with longer maturities, which tend to produce higher
yields, are subject to potentially greater price fluctuation

2
<PAGE>

than obligations with shorter maturities. Fluctuations in the market value
of fixed income securities can be reduced, but not eliminated, by vari-
able-rate or floating-rate features. In addition, some of the asset-backed
securities in which the Funds invest are subject to extension risk. This
is the risk that when interest rates rise, prepayments of the underlying
obligations slow, thereby lengthening the duration and potentially reduc-
ing the value of these securities.

The Funds 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 "Description of the Funds -- Risk Considerations" and "Appendix -- Ad-
ditional Investment Policies."

Q. HOW DO I INVEST IN THE FUNDS?

A. Shares of the Funds can be purchased by establishing an account arrange-
ment with a designated Shareholder Servicing Agent. Shares may be pur-
chased at net asset value on any day the Funds are open for business (a
"Business Day"). The Funds are open for business Monday through Friday and
are closed on standard New York Stock Exchange ("NYSE") holidays.

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 in-
vestments of each Master Portfolio. The Company has not retained the ser-
vices of a separate investment adviser for the Funds because each Fund in-
vests all of its assets in the corresponding Master Portfolio. As of April
30, 1997, BGFA and its affiliates provided investment advisory services
for approximately $429 billion of assets.

See "Management of the Funds."

3
<PAGE>

Q. WHAT ARE THE FEES FOR INVESTING?

A. Unlike certain other mutual funds which charge sales loads or other trans-
action 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 arrange-
ments, may charge additional fees for maintaining customer accounts.

See "Management of the Funds."

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."

4
<PAGE>

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 the Company 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 imposi-
tion of a sales charge or redemption fee on any Business Day. For more in-
formation contact your Shareholder Servicing Agent.

See "How to Redeem Shares."

5
<PAGE>

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):
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>
- -----------
/1A/portion of these fees is covered by a "defensive" Rule 12b-1 Plan of Dis-
tribution that does not result in additional expenses to the Funds or Master
Portfolios. (See "Management of the Funds MIP 12b-1 Plan" for further infor-
mation.)

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>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
LifePath 2000 Fund.............................. $10 $30 $53 $117
LifePath 2010 Fund.............................. $10 $30 $53 $117
LifePath 2020 Fund.............................. $10 $30 $53 $117
LifePath 2030 Fund.............................. $10 $30 $53 $117
LifePath 2040 Fund.............................. $10 $30 $53 $117
</TABLE>
- -------------------------------------------------------------------------------

THE AMOUNTS LISTED IN THE EXAMPLE REPRESENT A HYPOTHETICAL ILLUSTRATION OF
THE EXPENSES ASSOCIATED WITH A $1,000 INVESTMENT OVER STATED PERIODS, BASED ON
THE EXPENSES IN THE ABOVE TABLE AND AN ASSUMED ANNUAL RATE OF RETURN OF 5%.
THIS ANNUAL RATE OF RETURN SHOULD NOT BE CONSIDERED AN INDICATION OF ACTUAL OR
EXPECTED PERFORMANCE OF A FUND NOR A REPRESENTATION OF PAST OR FUTURE EX-
PENSES; ACTUAL EXPENSES AND RETURNS MAY BE GREATER OR LESS THAN THOSE SHOWN.

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

EXPLANATION OF TABLES

The purpose of the foregoing tables is to assist investors in understanding
the various costs and expenses borne by a Fund and a Master

6
<PAGE>

Portfolio. The fee table reflects expenses at both the Fund and Master Portfo-
lio levels. The tables do not reflect any charges that may be imposed by
shareholder servicing agents or selling agents, including BGI, directly on
customer accounts in connection with an investment in a Fund. Long-term share-
holders of the Funds could pay more in sales charges than the economic equiva-
lent of the maximum front-end sales charges applicable to mutual funds sold by
members of the National Association of Securities Dealers, Inc. ("NASD").

Annual Fund Operating Expenses are based on contract amounts and reflect
each Fund's actual expenses for the fiscal year ended February 28, 1997. BGFA,
BGI and Stephens at their sole discretion may waive or reimburse all or a por-
tion of their respective fees charged to, or expenses paid by, a Fund or Mas-
ter Portfolio. Any waivers or reimbursements would reduce a Fund's or Master
Portfolio's total expenses and accordingly, have a favorable impact on its
performance. For more complete descriptions of the various costs and expenses
you can expect to incur as an investor in the Funds, please see "Management of
the Funds."

With regard to the combined fees and expenses of the Funds and Master Port-
folios, 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 man-
aged the type of securities held by its corresponding Master Portfolio. The
Company's Board of Directors believes that if other investors invest their as-
sets in the Master Portfolios, certain economic efficiencies may be realized
with respect to the Master Portfolios. For example, fixed expenses that other-
wise 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.
There can be no assurance that these economic efficiencies will be achieved.

Other mutual funds and accredited investors may invest in the Master Portfo-
lios. The expenses and, accordingly, the investment returns of such other mu-
tual funds may differ from those of the Funds. Information about other invest-
ment options in the Master Portfolios may be obtained by calling Stephens at
1-800-643-9691.

7
<PAGE>

FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING AS SHOWN)

The following information has been derived from the Financial Highlights in-
cluded in the financial statements for the fiscal period ended February 28,
1997. The financial statements are incorporated by reference into the SAI and
have been audited by KPMG Peat Marwick LLP, independent auditors, whose report
thereon, dated April 11, 1997 is also incorporated by reference into the SAI.
The information should be read in conjunction with the financial statements
and notes thereto. The SAI has been incorporated by reference into this Pro-
spectus.

8
<PAGE>

FISCAL PERIOD ENDED FEBRUARY 28, 1997(1)

<TABLE>
<CAPTION>
LIFEPATH 2000 LIFEPATH 2010 LIFEPATH 2020 LIFEPATH 2030 LIFEPATH 2040
FUND FUND FUND FUND FUND
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
beginning of period.... $ 10.55 $ 11.44 $ 11.97 $ 12.39 $ 12.91
Income from investment
operations:
Net investment income... 0.39 0.33 0.29 0.23 0.18
Net realized and
unrealized gain on
investments............ 0.35 0.96 1.40 1.79 2.27
------- ------- -------- ------- -------
Total from investment
operations............. 0.74 1.29 1.69 2.02 2.45
Less distributions:
From net investment
income................. (0.32) (0.27) (0.24) (0.20) (0.15)
From net realized
gains.................. 0.00 0.00 (0.02) (0.04) 0.00
------- ------- -------- ------- -------
Total distributions..... (0.32) (0.27) (0.26) (0.24) (0.15)
------- ------- -------- ------- -------
Net Asset Value, end of
period................. $ 10.97 $ 12.46 $ 13.40 $ 14.17 $ 15.21
======= ======= ======== ======= =======
Total return (not
annualized)............ 7.00% 11.98% 15.06% 17.37% 20.47%
Ratios/Supplemental
data:
Net assets, end of
period (000)........... $46,578 $87,204 $105,414 $58,575 $69,476
Number of shares
outstanding, end of
period (000)........... 4,245 7,000 7,868 4,135 4,569
Ratios to average
net assets
(annualized)(2):
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................. 4.21% 3.26% 2.57% 2.05% 1.46%
Portfolio Turnover(3)... 108% 73% 61% 42% 48%
Average Commission
Rate(4)................ $0.0401 $0.0404 $ 0.0451 $0.0364 $0.0351
</TABLE>
- --------------
(1) The Funds commenced operations on March 26, 1996.

(2) Ratios include expenses charged by the Master Portfolio.
(3) Portfolio turnover rate reflects activity by the Master Portfolio during
the fiscal year ended February 28, 1997.
(4) The average commission rates shown reflect activity by the Master Portfo-
lio during the fiscal year ended February 28, 1997. For fiscal years be-
ginning on or after September 1, 1995, a fund is required to disclose its
average commission rate per share for security trades on which commissions
are charged. This amount may vary depending on, among other things, the
mix of trades, trading practices and commission rate structures.

9
<PAGE>

DESCRIPTION OF THE FUNDS

GENERAL

Each LifePath Fund invests all of its assets in a separate Master Portfolio
of MIP with the same investment objective as the Fund. For simplicity, refer-
ences to the investments and investment policies and risks of the Funds, un-
less otherwise indicated, should be understood as references to the invest-
ments and investment policies and risks of the Master Portfolios.

INVESTMENT OBJECTIVES

Each LifePath Fund seeks to provide long-term investors with an asset allo-
cation strategy designed to maximize assets for retirement or for other pur-
poses consistent with the quantitatively measured risk that investors, on av-
erage, may be willing to accept given their investment time horizons. Specifi-
cally:

. 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.

The differences in objectives and policies among the Master Portfolios de-
termine the types of portfolio securities in which each Master Portfolio in-
vests and can be expected to affect the degree of risk to which each Master
Portfolio and, therefore, the corresponding Fund, is subject and the perfor-
mance of each Master Portfolio and Fund.

10
<PAGE>

ABOUT THE FUNDS

Investors are encouraged to invest in a particular LifePath Fund based on
the decade of anticipated retirement or when such investors anticipate begin-
ning to withdraw substantial portions of their account. 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 ap-
proximately 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 an investment deci-
sion, investors should evaluate their individual risk profile, 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. The LifePath Funds were the first mutual funds of
their kind to offer a flexible investment strategy designed to change over
specific time horizons.

The LifePath Funds follow an asset allocation strategy among three broad in-
vestment classes: equity securities and debt instruments of issuers located
throughout the world and cash in the form of money market instruments. Each
LifePath Fund invests varying percentages of its portfolio in equity securi-
ties, debt instruments and money market instruments. The later-dated Funds
tend to be more heavily invested in equity securities and generally bear more
risk than the earlier-dated Funds. The later-dated Funds generally have an ex-
pectation of greater total return. The investment class weightings of the
LifePath 2040 Fund at a given time might be 100%, 0% and 0% among equity secu-
rities, debt securities and cash, respectively, while the weightings of the
LifePath 2000 Fund might be 25%, 50% and 25%, respectively. These weightings
will change periodically. The difference in the investment class weightings is
based on the statistically determined risk that investors, on average, may be
willing to accept given their investment time horizons in an effort to maxi-
mize assets in anticipation of retirement or for other purposes. As each
LifePath Fund approaches its designated time horizon, it generally is managed
more conservatively, on the premise that individuals investing for retirement
desire to reduce investment risk in their retirement accounts as they age.

11
<PAGE>

As of June 1, 1997, asset allocations in the LifePath Funds were approxi-
mately as follows:

<TABLE>
<CAPTION>
LIFEPATH LIFEPATH LIFEPATH LIFEPATH LIFEPATH
2000 2010 2020 2030 2040
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Equity Securities
Domestic........................ 14% 35% 49% 58% 69%
International................... 7% 12% 15% 19% 20%
Debt Securities.................. 79% 52% 35% 22% 10%
Cash............................. 0% 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

The LifePath Funds contain both "strategic" and "tactical" components, with
the strategic component weighted more heavily than the tactical component. The
strategic component of the Funds evaluates the risk that investors, on aver-
age, may be willing to accept given their investment time horizons. The stra-
tegic component thus determines the changing investment risk level of each
LifePath Fund as time passes. The tactical component addresses short-term mar-
ket conditions. The tactical component thus adjusts the amount of investment
risk taken by each LifePath Fund without regard to time horizon, but rather in
consideration of the relative risk-adjusted short-term attractiveness of vari-
ous asset classes.

The LifePath Funds may invest in a wide range of U.S. and foreign invest-
ments and market sectors and may shift their allocations among investments and
sectors from time to time. To manage the LifePath Funds, BGFA employs a pro-
prietary investment model (the "Model") that analyzes extensive financial and
economic data, including risk correlation and expected return statistics. The
Model selects indices representing segments of the global equity and debt mar-
kets and the Funds invest to create market exposure by purchasing representa-
tive samples of the indices in an attempt to replicate their performance.

12
<PAGE>

The Model has broad latitude to allocate the Funds' investments among equity
securities, debt securities and money market instruments. The LifePath Funds
are not managed as balanced portfolios and are not required to maintain a por-
tion of their investments in each of the permitted investment categories at
all times. Until a LifePath Fund 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 Fund ap-
proaches 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 Fund 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 Fund's investment performance.

BGFA manages other portfolios which also invest in accordance with the Mod-
el. The performance of each of those other portfolios is likely to vary from
the performance of LifePath Funds. Such variation in performance is primarily
due to different equilibrium asset-mix assumptions used for the various port-
folios, timing differences in the implementation of the Model's recommenda-
tions and differences in expenses and liquidity requirements. The overall man-
agement of each LifePath Fund is based on the recommendation of the Model, and
no person is primarily responsible for recommending the mix of asset classes
in each Fund or the mix of securities within the asset classes. Decisions re-
lating to the Model are made by BGFA's investment committee.

EQUITY SECURITIES -- The LifePath Funds seek U.S. equity market exposure
through investment in securities representative of the following indices of
common stocks:

. The S&P/BARRA Value Stock Index (consisting of primarily large-capital-
ization U.S. stocks with lower-than-average price/book ratios).

. The S&P/BARRA Growth Stock Index (consisting of primarily large-capital-
ization U.S. stocks with higher-than-average price/book ratios).

13
<PAGE>

. The Intermediate Capitalization Value Stock Index (consisting of primar-
ily medium-capitalization U.S. stocks with lower-than-average price/book
ratios).

. The Intermediate Capitalization Growth Stock Index (consisting of pri-
marily medium-capitalization U.S. stocks with higher-than-average
price/book ratios).

. The Intermediate Capitalization Utility Stock Index (consisting of pri-
marily 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 ra-
tios).

. The Small Capitalization Growth Stock Index (consisting of primarily
small-capitalization U.S. stocks with higher-than-average price/book ra-
tios).

The LifePath Funds seek foreign equity market exposure through investment in
foreign equity securities, American Depositary Receipts or European Depositary
Receipts of issuers whose securities are representative of the following indi-
ces 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 In-
dex (MSCI EAFE) Ex-Japan Index (consisting of primarily large-capital-
ization foreign stocks, excluding Japanese stocks).

The LifePath Funds also may seek U.S. and foreign equity market exposure
through investment in equity securities of U.S. and foreign issuers that are
not included in the indices listed above.

DEBT SECURITIES -- The LifePath Funds seek U.S. debt market exposure through
investment in securities representative of the following indices of U.S. debt
securities:

. The Lehman Brothers Long-Term Government Bond Index (consisting 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).

14
<PAGE>

. 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 Mort-
gage Association, Government National Mortgage Association and Federal
Home Loan Mortgage Corporation with maturities greater than one year).

The LifePath Funds seek foreign debt market exposure through investment in
securities representative of 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 Fund
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 Invest-
ors Service, Inc. ("Fitch") or Duff & Phelps, Inc. ("Duff") or, if unrated,
deemed to be of comparable quality by BGFA in accordance with procedures ap-
proved by MIP's Board of Trustees. See "Risk Considerations" below.

MONEY MARKET INSTRUMENTS -- The money market instrument portion of the port-
folio of each Fund generally is invested in high-quality money market instru-
ments, including U.S. Government obligations, obligations of domestic and for-
eign banks, short-term corporate debt instruments and repurchase agreements.
See "Appendix -- Additional Investment Policies" below for a more complete de-
scription of the money market instruments in which each Master Portfolio may
invest.

RISK CONSIDERATIONS

General

Since the investment characteristics and, therefore, investment risks di-
rectly associated with each LifePath Fund correspond to those of the Master
Portfolio in which such Fund invests, the following is a

15
<PAGE>

discussion of the risks associated with the investments of the Master Portfo-
lios. Once again, unless otherwise specified, references to the investment
policies and risks of a Fund also should be understood as references to the
investment policies and risks of the corresponding Master Portfolio.

The net asset value per share of each LifePath Fund is neither insured nor
guaranteed, is not fixed and should be expected to fluctuate.

Equity Securities

The stock investments of the LifePath Funds are subject to equity market
risk. Equity market risk is the possibility that common stock prices will
fluctuate or decline over short or even extended periods. The U.S. stock mar-
ket tends to be cyclical, with periods when stock prices generally rise and
periods when prices generally decline. Throughout the first six months of
1997, the stock market, as measured by the S&P 500 Index and other commonly
used indices, was trading at or close to record levels. There can be no guar-
antee that these performance levels will continue.

Debt Securities

The debt instruments in which the LifePath Funds invest are subject to
credit and interest rate risk. Credit risk is the risk that issuers of the
debt instruments in which the Funds invest may default on the payment of prin-
cipal and/or interest. Interest-rate risk is the risk that increases in market
interest rates may adversely affect the value of the debt instruments in which
the Funds invest. The value of the debt instruments generally changes in-
versely to market interest rates. Debt securities with longer maturities,
which tend to produce higher yields, are subject to potentially greater capi-
tal appreciation and depreciation than obligations with shorter maturities.
Changes in the financial strength of an issuer or changes in the ratings of
any particular security may also affect the value of these investments.

Although some of the Funds' portfolio securities are guaranteed by the U.S.
Government, its agencies or instrumentalities, such securities are subject to
interest rate risk and the market value of these securities, upon which the
Funds' daily net asset value is based, will fluctuate. No assurance can be
given that the U.S. Government would provide financial support to its agencies
or instrumentalities where it is not obligated to do so.

16
<PAGE>

Foreign Securities

The LifePath Funds may invest in debt obligations and equity securities of
foreign issuers and may invest in American Depositary Receipts ("ADRs") and
European Depositary Receipts ("EDRs") of such issuers. Investing in the secu-
rities of issuers in any foreign country, including through ADRs and EDRs, in-
volves special risks and considerations not typically associated with invest-
ing in U.S. companies. These include differences in accounting, auditing and
financial reporting standards; generally higher commission rates on foreign
portfolio transactions; the possibility of nationalization, expropriation or
confiscatory taxation; adverse changes in investment or exchange control regu-
lations (which may include suspension of the ability to transfer currency from
a country); and political, social and monetary or diplomatic developments that
could affect U.S. investments in foreign countries. Additionally, dispositions
of foreign securities and dividends and interest payable on those securities
may be subject to foreign taxes, including withholding taxes. Foreign securi-
ties often trade with less frequency and volume than domestic securities and,
therefore, may exhibit greater price volatility. Additional costs associated
with an investment in foreign securities may include higher custodial fees
than apply to domestic custodial arrangements and transaction costs of foreign
currency conversions. Changes in foreign exchange rates also will affect the
value of securities denominated or quoted in currencies other than the U.S.
dollar. A Fund's performance may be affected either unfavorably or favorably
by fluctuations in the relative rates of exchange between the currencies of
different nations, by exchange control regulations and by indigenous economic
and political developments.

Other Investment Considerations

Because the Funds may shift investment allocations significantly from time
to time, their performance may differ from funds which invest in one asset
class or from funds with a stable mix of assets. Further, shifts among asset
classes may result in relatively high turnover and transaction (i.e., broker-
age commission) costs. Portfolio turnover also can generate short-term capital
gains tax consequences. During those periods in which a high percentage of a
Fund's assets are invested in long-term bonds, the Fund's exposure to inter-
est-rate risk will be greater because the longer maturity of such securities
means they are generally more sensitive to changes in market interest rates
than short-term securities.

17
<PAGE>

Each LifePath Fund also may lend its portfolio securities and enter into
futures transactions, each of which involves risk. The futures contracts and
options on futures contracts that each Fund may purchase may be considered de-
rivatives. Derivatives are financial instruments whose values are derived, at
least in part, from the prices of other securities or specified assets, indi-
ces or rates. Certain of the floating- and variable-rate instruments that each
Fund may purchase may also be considered derivatives. Each Fund may use some
derivatives as part of its short-term liquidity holdings and/or as substitutes
for comparable market positions in the underlying securities. Some derivatives
may be more sensitive than direct securities to changes in interest rates or
sudden market moves. Some derivatives also may be susceptible to fluctuations
in yield or value due to their structure or contract terms. A Fund may not use
derivatives to create leverage without establishing adequate "cover" in com-
pliance with SEC leverage rules.

Asset allocation and modeling strategies are employed by BGFA for other in-
vestment 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 Fund 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 Fund or the
price paid or received by such Fund.

PERFORMANCE

For purposes of advertising, performance of the LifePath Funds may be calcu-
lated on the basis of average annual total return and/or cumulative total re-
turn 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 re-
investment of dividends and distributions during the period. The return of
shares is expressed as a percentage rate which, if applied on a compounded an-
nual basis, would result in the redeemable value of the investment in shares
at the end of the period. Advertisements 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.

18
<PAGE>

Cumulative total return of shares is computed on a per share basis and as-
sumes 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. Advertise-
ments 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 figures are based on historical results and are not intended to
indicate future performance. 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 will be contained
in the Annual Report for each Fund. The Annual Reports may be obtained by
calling the Company at 1-800-776-0179.

MANAGEMENT OF THE FUNDS

GENERAL -- The Company has not retained the services of an investment ad-
viser because each Fund's assets are invested in a Master Portfolio that has
retained investment advisory services (see "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 in conformity with Maryland law.
The Company's Directors are also MIP's Trustees. Certain of the Company's Di-
rectors also serve as the Trustees of Stagecoach Trust, another open-end in-
vestment 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 that term is defined in the 1940 Act) of the Com-
pany, 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."

19
<PAGE>

INVESTMENT ADVISER -- BGFA serves as investment adviser to each LifePath
Master Portfolio. BGFA provides investment guidance and policy direction in
connection with the management of each Master Portfolio's assets. BGFA is an
indirect subsidiary of Barclays Bank PLC ("Barclays") and is located at 45
Fremont Street, San Francisco, California 94105. As of April 30, 1997, BGFA
and its affiliates provided investment advisory services for approximately
$429 billion of assets. MIP has agreed to pay to BGFA a monthly fee at the an-
nual rate of 0.55% of each LifePath Master Portfolio's average daily net as-
sets as compensation for its advisory services.

BGFA, Barclays and their affiliates deal, trade and invest for their own ac-
count 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 and
this prospectus without violation of the Glass-Steagall Act. Such counsel has
pointed out, however, that there are no controlling judicial or administrative
interpretations or decisions and that future judicial or administrative inter-
pretations of, or decisions related to, present federal or state statutes, in-
cluding the Glass-Steagall Act, and regulations 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 per-
forming any such services, it is expected that new agreements would be pro-
posed or entered into with another entity or entities qualified to perform
such services.

CO-ADMINISTRATORS -- Stephens Inc. ("Stephens") and BGI are the Funds' co-
administrators. Stephens and BGI provide the Funds with administration servic-
es, including general supervision of the Funds' non-investment operations, co-
ordination of the other services provided to the Funds, compilation of infor-
mation for reports to the SEC and the state securities commissions, prepara-
tion of proxy statements and shareholder reports, and general supervision of
data compilation in connection with preparing periodic reports to the
Company's directors and

20
<PAGE>

officers. Stephens also furnishes office space and certain facilities to con-
duct the Funds' business, and compensates the Company's directors, officers
and employees who are affiliated with Stephens. In addition, except as out-
lined under "Expenses" below, Stephens and BGI will be responsible for paying
all expenses incurred by the Fund other than the fees payable to BGFA. For
these services, Stephens and BGI are entitled to a monthly fee at the annual
rate of 0.40% of each Fund's average daily net assets. Stephens previously
provided substantially the same services as sole administrator to the Funds.

BGI has delegated certain of its duties as co-administrator to Investors
Bank & Trust Company ("IBT"). IBT, as sub-administrator, is compensated by BGI
for performing certain administration services.

DISTRIBUTOR -- Stephens is the distributor for the Funds' shares. Stephens
is a full service broker/dealer and investment advisory firm located at 111
Center Street, Little Rock, Arkansas 72201. Stephens and its predecessor have
been providing securities and investment services for more than 60 years, in-
cluding discretionary portfolio management services since 1983. Stephens cur-
rently manages investment portfolios for pension and profit sharing plans, in-
dividual investors, foundations, insurance companies and university endow-
ments.

Stephens, as the Company's sponsor and the principal underwriter of the
Funds within the meaning of the 1940 Act, has entered into a Distribution
Agreement with the Company pursuant to which Stephens has the responsibility
for distributing Fund shares. The Distribution Agreement provides that Ste-
phens shall act as agent for the Funds for the sale of Fund shares, and may
enter into Selling Agreements with selling agents that wish to make available
Fund shares to their respective customers ("Selling Agents"). Stephens does
not receive a fee for providing distribution services to the Funds. BGI pres-
ently acts as a Selling Agent, but does not receive any fee from the Funds for
such activities.

CUSTODIAN -- IBT currently acts as the Funds' custodian. The principal busi-
ness address of IBT is 200 Clarendon Street, Boston, Massachusetts 02116. IBT
is not entitled to receive compensation for its custodial services so long as
it is entitled to receive compensation for providing sub-administration serv-
ices to the Fund. Prior to October 21, 1996, BGI acted as the Funds' custodi-
an. The principal business address of BGI is 45 Fremont Street, San Francisco,
California 94105. BGI did not receive compensation for its custodial services.

21
<PAGE>

TRANSFER AND DIVIDEND DISBURSING AGENT -- Wells Fargo Bank, N.A. ("Wells
Fargo Bank") is the Company's transfer and dividend disbursing agent. Wells
Fargo Bank performs its transfer and dividend disbursing agency services at
525 Market Street, San Francisco, California 94105.

SHAREHOLDER SERVICING AGENTS -- The Funds have adopted a Shareholder Servic-
ing Plan pursuant to which they have entered into Shareholder Servicing Agree-
ments with BGI and may enter into similar agreements with other entities (col-
lectively, "Shareholder Servicing Agents") for the provision of certain serv-
ices to Fund shareholders. The services provided may include personal services
relating to shareholder accounts, such as answering shareholder inquiries,
providing reports and other information, and providing services related to the
maintenance of shareholder accounts. For these services, each Shareholder Ser-
vicing Agent is entitled to receive a monthly fee at the annual rate of up to
0.20% of the average daily value of each LifePath Fund represented by shares
owned during the period for which payment is being made by investors with whom
the Shareholder Servicing Agent maintains a servicing relationship, or an
amount which equals the maximum amount payable to the Shareholder Servicing
Agent under applicable laws, regulations or rules, including the Conduct Rules
of the National Association of Securities Dealers, Inc., whichever is less.
Stephens and BGI as co-administrators have agreed to pay these shareholder
servicing fees out of the fees each receives for co-administration services.

A Shareholder Servicing Agent also may impose certain conditions on its cus-
tomers, subject to the terms of this Prospectus, in addition to or different
from those imposed by the Company, such as requiring a minimum initial invest-
ment 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 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 con-

22
<PAGE>

nection with the sale of a former affiliate of Wells Fargo Bank may be charac-
terized as indirect payments by each Master Portfolio to finance activities
primarily intended to result in the sale of interests in such Master Portfo-
lio. 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 -- Except for extraordinary expenses, brokerage and other expenses
connected with to the execution of portfolio transactions and certain other
expenses which are borne by the Funds, Stephens and BGI have agreed to bear
all costs of the Funds' and the Company's operations.

HOW TO BUY SHARES

WHO MAY INVEST

The following types of investors are eligible to invest in the Funds:

. Participants in Benefit Plans ("Plan Participants"), including retire-
ment plans, who have appointed one of the Company's Shareholder Servic-
ing Agents as plan trustee, plan administrator or other agent, or whose
plan trustee, plan administrator or other agent has a servicing arrange-
ment 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.

. Investors using proceeds which are being rolled over directly from a
qualified Benefit Plan to an Individual Retirement Account ("IRA") pur-
suant to arrangements between the sponsor or other agent of the quali-
fied Benefit Plan and a Shareholder Servicing Agent, or who have estab-
lished a tax-deferred retirement plan with a Shareholder Servicing
Agent.

. Investors who have an account arrangement with one of the Company's
Shareholder Servicing Agents that permits investments in Fund shares
("Qualified Buyers").

. Investors who have made arrangements with BGI and invest at least $1
million in a Fund ("Direct Buyers").

Eligible investors may purchase Fund shares in one of the several ways de-
scribed below. For more information or additional forms, call

23
<PAGE>

1-800-828-6894. The Company or Stephens may make the Prospectus available in
an electronic format. Upon receipt of a request by an investor or the invest-
or's representative, the Company or Stephens will transmit or cause to be
transmitted promptly, without charge, a paper copy of the electronic Prospec-
tus.

MINIMUM INVESTMENT AMOUNT

In most cases, investors in Fund shares are not required to establish or
maintain a minimum investment amount. However, Direct 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 invest-
ment 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 is-
sued. 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 Funds.

GENERAL

Shares of each Fund may be purchased on any Business Day at the net 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 (currently 1:00 p.m., Pacific
time) will be executed at the net asset value determined as of the close of
regular trading on the NYSE on that Business 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 responsi-
ble for the prompt transmission of the investor's purchase order to the Trans-
fer 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 re-
ceived by the Transfer Agent on the same day.

Federal regulations require that an investor provide a valid taxpayer iden-
tification number ("TIN"), which is usually the investor's social security
number or employer identification number, upon opening or reopening an ac-
count.

24
<PAGE>

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 invest-
ments in the Funds. Benefit Plans include 401(k) plans and other plans quali-
fied 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 Ser-
vicing Agent.

Fund investments by participants in 401(k) plans are typically made by pay-
roll deductions arranged between participants and their employers. Partici-
pants 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 Servic-
ing Agent may purchase Fund shares in accordance with their account arrange-
ments with such Shareholder Servicing Agent. The Shareholder 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-de-
ferred 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 con-
tact 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 indi-
vidual retirement plan can be obtained from a Shareholder

25
<PAGE>

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. Investors should con-
sult their Shareholder Servicing Agent.

PURCHASES BY QUALIFIED BUYERS

Qualified Buyers may open a Fund account and make additional purchases
through a Shareholder Servicing Agent with whom they have an account arrange-
ment. Shareholder Servicing Agents may transmit purchase orders to the Trans-
fer 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").

PURCHASES BY DIRECT BUYERS

Direct Buyers 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)

IN-KIND PURCHASES

Payment for shares of a Fund may, at the discretion of BGFA as investment
adviser, be made in the form of securities that are permissible investments
for such Fund. Shares purchased in exchange for securities can not be redeemed
until the exchange transaction has settled. For further information, see "Pur-
chase and Redemption of Shares" in the SAI.

26
<PAGE>

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 af-
ter the Company has received a redemption request in proper form. Redemption
proceeds may be more or less than the amount invested depending on the rele-
vant Fund's net asset value of shares at the time of purchase and redemption.

The Company generally 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 Portfo-
lio is not reasonably practicable or (b) it is not reasonably practicable for
the Fund or the relevant Master Portfolio to determine fairly the value of its
net assets, or a period during which the SEC by order permits deferral of re-
demptions 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 pro-
ceeds may be made in portfolio securities.

Redemption orders that are received by the Transfer Agent before the close
of regular trading on the NYSE (currently 1:00 p.m., Pacific time) will be ex-
ecuted at the net asset value determined as of the close of regular trading on
the NYSE on that Business 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 Transfer Agent on the in-
vestor'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 Trans-
fer Agent on the same day.

Unless the investor has made other arrangements with an appropriate Share-
holder Servicing Agent and the Transfer Agent has been informed of such ar-
rangements, proceeds of a redemption order made by the investor through the
investor's Shareholder Servicing Agent are

27
<PAGE>

credited to the investor's Approved Bank Account. If no such account is desig-
nated, 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 in-
vestor's account with the investor's Shareholder Servicing Agent.

REDEMPTIONS BY 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 pro-
cedures 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. In-
vestors in these types of plans should contact their Shareholder Servicing
Agent regarding redemption procedures applicable to them.

REDEMPTIONS BY QUALIFIED BUYERS

Qualified Buyers should contact their Shareholder Servicing Agent regarding
redemption procedures applicable to them. The redemption procedures outlined
in the remainder of this section do not apply to Qualified Buyers.

REDEMPTIONS BY DIRECT BUYERS

Redemptions by Mail

1. Write a letter of instruction to the Transfer Agent. 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 redemp-
tion proceeds is sent to the investor's address of record.

Redemptions by Telephone

Telephone redemption or exchange privileges are made available to Direct
Buyers automatically upon opening an account, unless the share-

28
<PAGE>

holder specifically declines the privileges. These privileges authorize the
Transfer Agent to act on telephone instructions from any person representing
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 reason-
able procedures, such as requiring a form of personal identification, to con-
firm 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 unautho-
rized 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 experi-
ence difficulty in contacting the Transfer Agent by telephone to request a re-
demption 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 re-
quest being processed at a later time than it would have been if telephone re-
demption had been used. During the delay, a LifePath Fund's net asset value
may fluctuate.

Expedited Redemptions by Letter and Telephone

A Direct Buyer 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. Tele-
phone redemption and exchange privileges are made available to a Direct Buyer
automatically upon the opening of an account unless the investor declines such
privileges. The investor also may request an expedited redemption of Fund
shares by telephone on any Business Day. In which case both the investor's re-
ceipt of redemption proceeds and the Fund's receipt of the investor's redemp-
tion request would be expedited.

Direct Buyers may request expedited redemption by calling the Transfer Agent
at 1-800-828-6894.

Direct Buyers may request expedited redemption by mailing an expedited re-
demption request to the Transfer Agent.

29
<PAGE>

else, to an address other than that of record, or to an account with an ap-
proved bank that the investor has not predesignated in the Account Applica-
tion, the expedited redemption request must be made by letter and the signa-
ture(s) on the letter must be guaranteed, regardless of the amount of the re-
demption. If the individual or corporate investor's expedited redemption re-
quest is received by the Transfer Agent on a Business Day, the investor's re-
demption 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 cir-
cumstances could include those described above as potentially delaying redemp-
tions, 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 invest-
or's state of residence. Before undertaking an exchange into another fund, in-
vestors 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
the Company 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, al-
though the Company reserves the right, upon not less than 60 days' written no-
tice, 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 be-
lieves such action would be appropriate to protect a fund 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
may be modified or terminated at any time upon 60 days' written notice to
shareholders.

30
<PAGE>

SHARE VALUE

Shares of the Funds are sold on a continuous basis at the applicable offer-
ing price (net asset value per share) next determined after an order in proper
form is received by the Transfer Agent. Net asset value ("NAV") per share is
determined as of the close of regular trading on the NYSE (currently 1:00
p.m., Pacific time) each Business Day.

The NAV of a share of each Fund is the value of total net assets attribut-
able to such Fund divided by the number of outstanding shares of that Fund.
The value of the net assets is determined daily by adjusting the net assets at
the beginning of the day by the value of shareholder activity, net investment
income and net realized and unrealized gains or losses for that day. Net in-
vestment income is calculated each day as daily income less expenses. The NAV
of each Fund is expected to fluctuate daily and is expected to differ. Each
Fund's investment in the corresponding Master Portfolio is valued at the NAV
of such 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 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
MIP'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 each Master Portfolio's investments, see "Determination of
Net Asset Value" in the SAI.

DIVIDENDS AND DISTRIBUTIONS

The Funds intend to declare and pay quarterly dividends of substantially all
of their net investment income. The Funds distribute any net realized capital
gains at least annually, in all events in a manner consistent with the provi-
sions of the 1940 Act and the Internal Revenue Code. No Fund will make distri-
butions from net realized securities gains unless capital loss carryovers, if
any, have been utilized or have expired. 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 ar-
rangement with a Shareholder Servicing Agent permits the processing of cash
payments.

Dividends and capital gain distributions have the effect of reducing the NAV
per share by the amount distributed on the payment date. Al-

31
<PAGE>

though 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.

TAXES

GENERAL

Distributions from a Fund's net investment income and net short-term capital
gains, if any, are designated as dividend distributions and taxable to the
Fund's shareholders as ordinary income. Distributions from a Fund's net long-
term capital gains are designated as capital gain distributions and taxable to
the Fund's shareholders as long-term capital gains. In general, your distribu-
tions will be taxable when paid, whether you take such distributions in cash
or have them automatically reinvested in additional Fund shares. However, dis-
tributions declared in October, November, and December and distributed by the
following January will be taxable as if they were paid by December 31.

Foreign shareholders may be subject to different tax treatment, including
withholding taxes. See "Federal Income Taxes -- Foreign Shareholders" in the
SAIs. In certain circumstances, U.S. residents may also be subject to with-
holding taxes. See "Federal Income Taxes -- Backup Withholding" in the SAIs.

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 invest-
ment income and capital gain distributions.

32
<PAGE>

The foregoing discussion regarding taxes is based on tax laws which were in
effect as of the date of this Prospectus and summarizes only some of the im-
portant federal tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for care- ful tax planning;
you should consult your tax advisor with respect to your specific tax situa-
tion as well as with respect to foreign, state and local taxes. Further fed-
eral tax considerations are discussed in the SAI.

GENERAL INFORMATION

DESCRIPTION OF THE COMPANY

Each Fund is a series of the Company. The Company was organized as a Mary-
land corporation on October 15, 1992, and currently offers twelve series of
shares. 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 in-
cluded in the Funds' SAI under "Management." Although the Company is not re-
quired to hold regular annual shareholder meetings, occasional annual or spe-
cial meetings may be required for purposes such as electing or removing Direc-
tors, approving advisory contracts and changing a Fund's investment objective
or fundamental investment policies.

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 re-
quest, will cease using the "LifePath" name.

VOTING

33
<PAGE>

shareholders. The directors of the Company will vote shares for which they re-
ceive 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" sec-
tion of the SAI.

Whenever a Fund, as a Master Portfolio interestholder, is requested to vote
on any matter submitted to interestholders of such Master Portfolio, the Fund
will hold a meeting of its shareholders to consider such matters. The Fund
will cast its votes in proportion to the votes received from its shareholders.
Shares for which the Fund receives no voting instructions are voted in the
same proportion as the votes received from Fund shareholders. If a Master
Portfolio's investment objective or policies are changed, the corresponding
Fund may elect to change its objective or policies to correspond to those of
the Master Portfolio. The Fund may also elect to redeem its interests in the
Master Portfolio and either seek a new investment company with a matching ob-
jective in which to invest or retain its own investment adviser to manage the
Fund's portfolio in accordance with its objective. In the latter case, the
Fund's inability to find a substitute investment company in which to invest or
equivalent management services could adversely affect shareholders' invest-
ments in that Fund.

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.

34
<PAGE>

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS 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 OF-
FERING MAY NOT LAWFULLY BE MADE.

35
<PAGE>

APPENDIX -- ADDITIONAL INVESTMENT POLICIES

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. To avoid the need to refer to both the Funds and the Master Portfolios
in every instance, the following sections generally refer to the Funds only.
REFERENCES TO THE INVESTMENTS AND INVESTMENT POLICIES AND RISKS OF THE
LIFEPATH FUNDS, UNLESS OTHERWISE INDICATED, SHOULD BE UNDERSTOOD AS REFERENCES
TO THE INVESTMENTS AND INVESTMENT POLICIES AND RISKS OF THE CORRESPONDING MAS-
TER PORTFOLIOS.

U.S. GOVERNMENT OBLIGATIONS -- The LifePath Funds may invest in various
types of U.S. Government obligations. U.S. Government obligations include se-
curities issued or guaranteed as to principal and interest by the U.S. Govern-
ment, its agencies or instrumentalities. Payment of principal and interest on
U.S. Government obligations (i) may be backed by the full faith and credit of
the United States (as with U.S. Treasury obligations and GNMA certificates) or
(ii) may be backed solely by the issuing or guaranteeing agency or instrumen-
tality itself (as with FNMA notes). In the latter case, the investor must look
principally to the agency or instrumentality issuing or guaranteeing the obli-
gation for ultimate repayment, which agency or instrumentality may be pri-
vately owned. There can be no assurance that the U.S. Government would provide
financial support to its agencies or instrumentalities where it is not obli-
gated to do so. As a general matter, the value of debt instruments, including
U.S. Government obligations, declines when market interest rates increase and
rises when market interest rates decrease. Certain types of U.S. Government
obligations are subject to fluctuations in yield or value due to their struc-
ture or contract terms.

SECURITIES OF NON-U.S. ISSUERS -- The Funds may invest in certain securities
of non-U.S. issuers as discussed below.

Obligations of Foreign Governments, Supranational Entities and Banks -- Each
LifePath Fund may invest in U.S. dollar-denominated short-term obligations is-
sued or guaranteed by one or more foreign governments or any of their politi-
cal subdivisions, agencies or instrumentalities that are determined by BGFA to
be of comparable quality to the other obligations in which such Fund may in-
vest. The Funds may also invest in debt obligations of supranational entities.
Supranational entities include international organizations designated or sup-
ported by gov-

A-1
<PAGE>

ernmental entities to promote economic reconstruction or development and in-
ternational banking institutions and related government agencies. Examples in-
clude 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 each Fund's assets in-
vested in obligations of foreign governments and supranational entities will
vary depending on the relative yields of such securities, the economic and fi-
nancial markets of the countries in which the investments are made and the in-
terest rate climate of such countries.

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

Foreign Equity Securities and Depositary Receipts -- Each LifePath Fund's
assets may be invested in equity securities of foreign issuers and American
Depositary Receipts ("ADRs") and European Depositary Receipts ("EDRs") of such
issuers.

ADRs and EDRs may not necessarily be denominated in the same currency as the
securities into which they may be converted. ADRs are receipts typically is-
sued by a United States bank or trust company which evidence ownership of un-
derlying securities issued by a foreign corporation. EDRs, which are sometimes
referred to as Continental Depositary Receipts ("CDRs"), are receipts issued
in Europe typically by non-United States banks and trust companies that evi-
dence 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
Fund 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 depositary, whereas a depositary may establish an
unsponsored facility without participation by the issuer of the deposited se-
curity. Holders of unsponsored depositary receipts generally bear all the
costs of such facilities and the depositary of an unsponsored facility fre-
quently is under no obligation to distribute shareholder communications re-
ceived 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.

FLOATING- AND VARIABLE-RATE OBLIGATIONS -- Each LifePath Fund may purchase
debt instruments with interest rates that are peri-

A-2
<PAGE>

odically adjusted at specified intervals or whenever a benchmark rate or index
changes. These adjustments generally limit the increase or decrease in the
amount of interest received on the debt instruments. Floating- and variable-
rate instruments are subject to interest-rate risk and credit risk.

MORTGAGE-RELATED SECURITIES -- Each LifePath Fund may invest in mortgage-re-
lated securities ("MBSs"), which are securities representing interests in a
pool of loans secured by mortgages. The resulting cash flow from these mort-
gages is used to pay principal and interest on the securities. MBSs are assem-
bled 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).

GNMA MBSs include GNMA Mortgage Pass-Through Certificates (also known as
"Ginnie Maes") which are guaranteed as to the full and timely payment of prin-
cipal 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 guaran-
tee. GNMA is a wholly-owned U.S. Government corporation within the Department
of Housing and Urban Development and, as such, Ginnie Maes 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 prin-
cipal at any time after default on an underlying mortgage, but in no event
later than one year after the guarantee becomes payable.

A-3
<PAGE>

FUTURES CONTRACTS AND OPTIONS TRANSACTIONS -- Each LifePath Fund may use
futures as a substitute for a comparable market position in the underlying se-
curities.

A futures contract is an agreement between two parties, a buyer and a sell-
er, to exchange a particular commodity or financial statement at a specific
price on a specific date in the future. An option transaction generally in-
volves a right, which may or may not be exercised, to buy or sell a commodity
or financial instrument at a particular price on a specified future date.
Futures contracts and options are standardized and traded on exchanges, where
the exchange serves as the ultimate counterparty for all contracts. Conse-
quently, the primary credit risk on futures contracts is the creditworthiness
of the exchange. Futures contracts are subject to market risk (i.e., exposure
to adverse price changes).

Although each of the Funds intends to purchase or sell futures contracts
only if there is an active market for such contracts, no assurance can be
given that a liquid market will exist for any particular contract at any par-
ticular 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 a Fund to substantial losses. If it is not possible, or if a Fund
determines not to close a futures position in anticipation of adverse price
movements, the Fund will be required to make daily cash margin payments.

Stock Index Futures and Options on Stock Index Futures -- Each LifePath Fund
may invest in stock index futures and options on stock index futures as a sub-
stitute for a comparable market position in the underlying securities. A stock
index future obligates the seller to deliver (and the purchaser to take), ef-
fectively, an amount of cash equal to a specific dollar amount times the dif-
ference 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 Fund intends to purchase
and sell futures contracts on the stock index for which it can obtain the best
price with consideration also given to liquidity. There can be no assur-

A-4
<PAGE>

ance that a liquid market will exist at the time when a Fund seeks to close
out a futures contract or a futures option position. Lack of a liquid market
may prevent liquidation of an unfavorable position.

Interest-Rate Futures Contracts and Options on Interest-Rate Futures Con-
tracts -- Each LifePath Fund may invest in interest-rate futures contracts and
options on interest-rate futures contracts as a substitute for a comparable
market position in the underlying securities. The Funds may also sell options
on interest-rate futures contracts as part of closing purchase transactions to
terminate their options positions. No assurance can be given that such closing
transactions can be effected or the degree of correlation between price move-
ments in the options on interest rate futures and price movements in the
Funds' portfolio securities which are the subject of the transaction.

Interest-Rate and Index Swaps -- Each LifePath Fund may enter into interest-
rate and index swaps in pursuit of their investment objectives. Interest-rate
swaps involve the exchange by a Fund with another party of their respective
commitments to pay or receive interest (for example, an exchange of floating-
rate payments on fixed-rate payments). Index swaps involve the exchange by a
Fund with another party of cash flows based upon the performance of an index
of securities or a portion of an index of securities that usually include div-
idends or income. In each case, the exchange commitments can involve payments
to be made in the same currency or in different currencies. A Fund will usu-
ally enter into swaps on a net basis. In so doing, the two payment streams are
netted out, with a Fund receiving or paying, as the case may be, only the net
amount of the two payments. If a Fund enters into a swap, it will maintain a
segregated account on a gross basis, unless the contract provides for a segre-
gated account on a net basis. If there is a default by the other party to such
a transaction, a Fund will have contractual remedies pursuant to the agree-
ments related to the transaction.

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

A-5
<PAGE>

Foreign Currency and Futures Transactions -- 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 con-
tract. The forward foreign currency market offers less protection against de-
fault than is available when trading currencies on an exchange, since a for-
ward currency contract is not guaranteed by an exchange or clearinghouse.
Therefore, a default on a forward currency contract would deprive a LifePath
Fund of unrealized profits or force such Fund to cover its commitments for
purchase or resale, if any, at the current market price.

Each LifePath Fund may combine forward currency exchange contracts with in-
vestments in securities denominated in other currencies.

Each LifePath Fund also may maintain short positions in forward currency ex-
change transactions, which would involve the Fund 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 Fund contracted to receive in the exchange.

Unlike trading on domestic futures exchanges, trading on foreign futures ex-
changes is not regulated by the Commodity Futures Trading Commission (the
"CFTC") and generally is subject to greater risks than trading on domestic ex-
changes. 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 Fund might realize in trading could be eliminated by adverse changes
in the exchange rate; adverse exchange rate changes also could cause a Fund to
incur losses. Transactions on foreign exchanges may include both futures con-
tracts 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.

A-6
<PAGE>

total voting stock of any one investment company, (ii) 5% of the Master Port-
folio's net assets with respect to any one investment company and (iii) 10% of
the Master Portfolio's net assets in the aggregate. Investments in the securi-
ties of other investment companies generally will involve duplication of advi-
sory fees and certain other expenses. The Master Portfolio may also purchase
shares of exchange listed closed-end funds.

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

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

A-7
<PAGE>

Bank Obligations -- Each Fund may invest in bank obligations, including cer-
tificates of deposit, time deposits, bankers' acceptances and other short-term
obligations of domestic banks, foreign subsidiaries of domestic banks, foreign
branches of domestic banks, and domestic and foreign branches of foreign
banks, domestic savings and loan associations and other banking institutions.

Certificates of deposit are negotiable certificates evidencing the obliga-
tion 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 institu-
tion for a specified period of time at a stated interest rate. Time deposits
which may be held by a Fund will not benefit from insurance from the Bank In-
surance Fund or the Savings Association Insurance Fund administered by the
Federal Deposit Insurance Corporation.

Bankers' acceptances are credit instruments evidencing the obligation of a
bank to pay a draft drawn on it by a customer. These instruments reflect the
obligation both of the bank and of the drawer to pay the face amount of the
instrument upon maturity. The other short-term obligations may include unin-
sured, direct obligations, bearing fixed, floating- or variable-interest
rates.

Commercial Paper and Short-Term Corporate Debt Instruments --Each Fund may
invest in commercial paper (including variable amount master demand notes),
which consists of short-term, unsecured promissory notes issued by corpora-
tions to finance short-term credit needs. Commercial paper is usually sold on
a discount basis and has a maturity at the time of issuance not exceeding nine
months. Variable amount master demand notes are demand obligations that permit
the investment of fluctuating amounts at varying market rates of interest pur-
suant to arrangements between the issuer and a commercial bank acting as agent
for the payee of such notes whereby both parties have the right to vary the
amount of the outstanding indebtedness on the notes. The investment adviser
and/or sub-adviser to each Fund monitors on an ongoing basis the ability of an
issuer of a demand instrument to pay principal and interest on demand.

A-8
<PAGE>

rating may be reduced below the minimum rating required for purchase by the
Fund. The investment adviser and/or sub-adviser to each Fund will consider
such an event in determining whether the Fund should continue to hold the ob-
ligation. To the extent the Fund continues to hold such obligations, it may be
subject to additional risk of default.

Repurchase Agreements -- Each Fund may enter into repurchase agreements
wherein the seller of a security to a Fund agrees to repurchase that security
from the Fund at a mutually-agreed upon time and price. The period of maturity
is usually quite short, often overnight or a few days, although it may extend
over a number of months. A Fund may enter into repurchase agreements only with
respect to securities that could otherwise be purchased by the Fund, and all
repurchase transactions must be collateralized. A Fund may incur a loss on a
repurchase transaction if the seller defaults and the value of the underlying
collateral declines or is otherwise limited or if receipt of the security or
collateral is delayed. The Funds may participate in pooled repurchase agree-
ment transactions with other funds advised by BGFA.

FORWARD COMMITMENTS, WHEN-ISSUED PURCHASES AND DELAYED-DELIVERY TRANSAC-
TIONS -- Each Fund may purchase or sell securities on a when-issued or de-
layed-delivery basis and make contracts to purchase or sell securities for a
fixed price at a future date beyond customary settlement time. Securities pur-
chased or sold on a when-issued, delayed-delivery or forward commitment basis
involve a risk of loss if the value of the security to be purchased declines,
or the value of the security to be sold increases, before the settlement date.
Although a Fund will generally purchase securities with the intention of ac-
quiring them, a Fund may dispose of securities purchased on a when-issued, de-
layed-delivery or a forward commitment basis before settlement when deemed ap-
propriate by the adviser.

BORROWING MONEY -- As a fundamental policy, each Fund is permitted to borrow
to the extent permitted under the 1940 Act. However, each Fund currently in-
tends to borrow money only for temporary or emergency (not leveraging) purpos-
es, and may borrow up to one-third of the value of its total assets (including
the amount borrowed) valued at the lesser of cost or market, less liabilities
(not including the amount borrowed) at the time the borrowing is made. While
borrowings exceed 5% of a Fund's total assets, the Fund will not make any new
investments.

A-9
<PAGE>

The value of the loaned securities may not exceed one-third of a Fund's total
assets and loans of portfolio securities are fully collateralized based on
values that are market-to-market daily. The Funds will not enter into any
portfolio security lending arrangement having a duration of longer than one
year. The principal risk of portfolio lending is potential default or insol-
vency of the borrower. In either of these cases, a Fund could experience de-
lays in recovering securities or collateral or could lose all or part of the
value of the loaned securities. The Funds may pay reasonable administrative
and custodial fees in connection with loans of portfolio securities and may
pay a portion of the interest or fee earned thereon the borrower or a placing
broker.

CONVERTIBLE SECURITIES -- Each LifePath Fund may purchase fixed-income con-
vertible 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 securi-
ties are senior to common stock in a corporation's capital structure, but usu-
ally 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 con-
vertible security also affords an investor the opportunity, through its con-
version 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 "con-
version 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 gen-
erally 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.

RATINGS -- The ratings of Moody's, S&P, Fitch and Duff represent their opin-
ions 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 prin-
cipal payments, they do not evaluate the market value risk of such obliga-
tions. Therefore, although these ratings may be

A-10
<PAGE>

an initial criterion for selection of portfolio investments, BGFA also evalu-
ates such obligations and the ability of their issuers to pay interest and
principal. Each Fund relies on BGFA's judgment, analysis and experience in
evaluating the creditworthiness of an issuer. In this evaluation, BGFA 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.

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 obliga-
tions 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 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 limita-
tion on the purchase of obligations issued or guaranteed by the U.S. Govern-
ment, its agencies or instrumentalities. This paragraph describes fundamental
policies that cannot be changed as to a Fund or Master Portfolio without ap-
proval by the holders of a majority (as defined in the 1940 Act) of the out-
standing voting securities of such Fund or Master Portfolio, as the case may
be. See "Investment Objectives and Management Policies -- Investment Restric-
tions" in the SAI.

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. See "Investment Ob-
jectives and Management Policies -- Investment Restrictions" in the SAI.

A-11
<PAGE>

SPONSOR, DISTRIBUTOR AND CO-ADMINISTRATOR
Stephens Inc.
Little Rock, Arkansas

CO-ADMINISTRATOR

Barclays Global Investors, N.A.

San Francisco, California

INVESTMENT ADVISER
Barclays Global Fund Advisors
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

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 CRIMI-
NAL OFFENSE.
<PAGE>

MASTERWORKSFunds
c/o Wells Fargo Bank, N.A.
Transfer Agent
525 Market Street
San Francisco, CA 94105

<PAGE>

Cross Reference Sheet
---------------------

ASSET ALLOCATION FUND, BOND INDEX FUND,
---------------------------------------
GROWTH STOCK FUND, S&P 500 STOCK FUND,
--------------------------------------
SHORT-INTERMEDIATE TERM FUND, AND
---------------------------------
U.S. TREASURY ALLOCATION FUND
-----------------------------

Form N-1A Item Number
- ---------------------

Part A Prospectus Captions
- ------ -------------------

1 Cover Page
2 Prospectus Summary; Summary of Fund Expenses
3 Financial Highlights
4 Management of the Funds
Appendix - Additional Investment Policies
5 Prospectus Summary
Management of the Funds
6 Management of the Funds
Dividends and Distributions
Taxes
7 How to Buy Shares
Exchange Privilege
Share Value
8 How to Redeem Shares
9 Not Applicable

Part B Statement of Additional Information Captions
- ------ --------------------------------------------

Part C General Information
- ------ -------------------

24-32 Information required to be included in Part C is set forth under
the appropriate Item, so numbered, in Part C of this Document.
<PAGE>

Prospectus
June 30, 1997 ASSET ALLOCATION Fund
BOND INDEX Fund
GROWTH STOCK Fund
S&P 500 STOCK Fund
SHORT-INTERMEDIATE
TERM Fund
U.S. TREASURY
ALLOCATION Fund

Bond

Stock

Strategy

Advised by Barclays Global Fund Advisors
Sponsored and distributed by Stephens Inc.,
Member NYSE/SIPC
MASTERWORKS Funds

<PAGE>

MasterWorks Funds Inc. (the "Company") is an open-end, management investment
company. This Prospectus contains information about six of the Company's
funds -- the ASSET ALLOCATION, BOND INDEX, GROWTH STOCK, S&P 500 STOCK, SHORT-
INTERMEDIATE TERM and U.S. TREASURY ALLOCATION FUNDS (collectively the
"Funds").

Please read this Prospectus before investing and retain it for future refer-
ence. It sets forth concisely the information about the Funds that an investor
should know before investing. A Statement of Additional Information ("SAI")
dated June 30, 1997 containing additional information about the Funds has been
filed with the Securities and Exchange Commission ("SEC") and is incorporated
by reference into this Prospectus. 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.

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

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 IN-
VESTMENT IN A FUND INVOLVES CERTAIN INVESTMENT RISKS, INCLUDING POSSIBLE LOSS
OF PRINCIPAL.

MASTERWORKS FUNDS INC.
ASSET ALLOCATION FUND
BOND INDEX FUND
GROWTH STOCK FUND
S&P 500 STOCK FUND
SHORT-INTERMEDIATE TERM FUND
U.S. TREASURY ALLOCATION FUND

PROSPECTUS
JUNE 30, 1997

<PAGE>

HOW THE FUNDS WORK

Each Fund invests all of its assets in a corresponding Master Portfolio
(each, a "Master Portfolio") of Master Investment Portfolio ("MIP") or Managed
Series Investment Trust ("MSIT"), each an open-end, management investment com-
pany, rather than in a portfolio of securities. Each Fund has substantially
the same investment objective as the corresponding Master Portfolio and each
Fund's investment experience corresponds directly with the respective Master
Portfolio's investment experience. Interests in a Master Portfolio may be pur-
chased only by other investment companies or other accredited investors. Ref-
erences to a "Fund" are to the Fund or its corresponding Master Portfolio, as
the context requires.

The ASSET ALLOCATION FUND invests in a mix of stocks included in the Stan-
dard & Poor's 500 Stock Index (the "S&P 500 Index"), U.S. Treasury bonds, and
high-quality money market instruments (including certificates of deposit and
Treasury bills). The allocation of investments in the Fund's portfolio among
these asset classes is based on the expected risk and returns of each asset
class as compared to the other asset classes.

The BOND INDEX FUND seeks to match the performance of the Lehman Brothers
Government/Corporate Bond Index by investing in many of the bonds found in
such Index. This Index includes most of the bonds issued by the U.S. Treasury,
U.S. government agencies, and high quality, investment grade bonds issued by
U.S. corporations.

The GROWTH STOCK FUND seeks to outperform the S&P 500 Index over periods of
three to five years. The Fund invests primarily in common stocks of growth-
oriented, small- and medium-sized corporations.

The S&P 500 STOCK FUND is an index fund. The Fund seeks to match the perfor-
mance of the S&P 500 Index by investing in a representative sample of the
stocks found in such Index. The S&P 500 Index, a widely recognized benchmark
for U.S. stocks, currently represents about 75% of the value of all publicly
traded common stocks in the U.S. The Fund is broadly diversified since the S&P
500 Index includes 500 established companies representing different sectors of
the U.S. economy (industrial, utilities, financial, and transportation) and
the Fund invests in a representative sample of the Index.
<PAGE>

The SHORT-INTERMEDIATE TERM FUND seeks to provide total returns higher than
those of the Lehman Brothers Intermediate Government/Corporate Bond Index. It
pursues this goal by investing in a broad range of securities with short- to
intermediate-term maturities (two to five years) including U.S. government ob-
ligations, corporate bonds, mortgage- and asset-backed securities, and money
market instruments.

The U.S. TREASURY ALLOCATION FUND seeks to achieve over the long term a high
level of total return consistent with reasonable risk by investing in a mix of
U.S. Treasury securities, including long-term U.S. Treasury bonds, intermedi-
ate-term U.S. Treasury notes, and short-term U.S. Treasury bills. The alloca-
tion of investments in the Fund's portfolio among each class of U.S. Treasury
securities is based on the expected risk and return of each asset class as
compared to the other asset classes.

BARCLAYS GLOBAL FUND ADVISORS IS THE INVESTMENT ADVISER TO THE MASTER PORTFO-
LIOS AND TOGETHER WITH ITS AFFILIATES PROVIDES OTHER SERVICES TO THE FUNDS
AND MASTER PORTFOLIOS FOR WHICH IT IS COMPENSATED. STEPHENS INC., WHICH
IS NOT AFFILIATED WITH BARCLAYS GLOBAL FUND ADVISORS, IS THE SPONSOR
AND CO-ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR THE COMPANY.
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary..................................................... 1
Summary of Fund Expenses............................................... 6
Explanation of Tables.................................................. 7
Financial Highlights................................................... 9
The Funds.............................................................. 15
Management of the Funds................................................ 36
How to Buy Shares...................................................... 41
How to Redeem Shares................................................... 44
Exchange Privilege..................................................... 48
Share Value............................................................ 48
Dividends and Distributions............................................ 49
Taxes.................................................................. 50
General Information.................................................... 51
<CAPTION>
APPENDIX
--------
<S> <C>
Additional Investment Policies......................................... A-1
</TABLE>
<PAGE>

PROSPECTUS SUMMARY

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 re-
tirement plans, who have appointed one of the Company's Shareholder Ser-
vicing 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 be-
tween a Benefit Plan and a Shareholder Servicing Agent.

. Investors using proceeds that are being rolled over directly from a
qualified Benefit Plan to an Individual Retirement Account ("IRA") pur-
suant to arrangements between the sponsor or other agent of the quali-
fied Benefit Plan and a Shareholder Servicing Agent, or who have estab-
lished a tax-deferred retirement plan with a Shareholder Servicing
Agent.

. Investors who have an account arrangement with one of the Company's
Shareholder Servicing Agents that permits investments in Fund shares.

. Investors who have made arrangements with Barclays Global Investors,
N.A. ("BGI") and invest at least $1 million in a Fund.

See "How To Buy Shares."

Q. WHAT ARE SOME OF THE POTENTIAL RISKS ASSOCIATED WITH AN INVESTMENT IN THE
FUNDS?

A. Investments in a Fund are not bank deposits or obligations of Barclays
Global Fund Advisors ("BGFA") or BGI, are not insured by the Federal De-
posit Insurance Corporation ("FDIC"). Investments in the Funds are not in-
sured or guaranteed against loss of principal. When the value of the port-
folio securities in which the Funds invest declines, so does the value of
Fund shares. Therefore, investors should be prepared to accept some risk
with the money invested in the Funds.

The stock investments of the Funds are subject to equity market risk. Eq-
uity market risk is the possibility that common stock prices

1
<PAGE>

will fluctuate or decline over short or even extended periods. The U.S.
stock market tends to be cyclical, with periods when stock prices gener-
ally rise and periods when prices generally decline. Throughout the first
six months of 1997, the stock market, as measured by the S&P 500 Index and
other commonly used indices, was trading at or close to record levels.
There can be no guarantee that these performance levels will continue.

The portfolio debt instruments of the Funds are subject to credit and in-
terest rate risk. Credit risk is the risk that issuers of the debt instru-
ments in which the Funds invest may default on the payment of principal
and/or interest. Interest-rate risk is the risk that increases in market
interest rates may adversely affect the value of the debt instruments in
which the Funds invest. The value of the Funds' portfolio debt instruments
generally changes inversely to market interest rates. Debt securities with
longer maturities, which tend to produce higher yields, are subject to po-
tentially greater price fluctuation than obligations with shorter maturi-
ties. Fluctuations in the market value of fixed income securities can be
reduced, but not eliminated, by variable-rate or floating-rate features.
In addition, some of the asset-backed securities in which the Short-
Intermediate Term Fund may invest are subject to extension risk. This is
the risk that when interest rates rise, prepayments of the underlying ob-
ligations slow, thereby lengthening the duration and potentially reducing
the value of these securities.

Because the Asset Allocation and U.S. Treasury Allocation Funds may shift
their investment allocations significantly from time to time, each Fund's
performance may differ from funds which invest in one asset class or from
funds with a stable mix of assets. Further, shifts among asset classes may
result in relatively high turnover and transaction costs. Portfolio turn-
over also can generate short-term capital gains tax consequences. During
those periods in which a high percentage of each Fund's portfolio is in-
vested in long-term bonds, the Fund's exposure to interest-rate risk will
be greater because the longer maturity of such securities means they are
generally more sensitive to changes in market interest rates than shorter-
term securities.

2
<PAGE>

companies with more established operating histories, diverse product lines
and financial capacity. Securities of small and new companies generally
trade less frequently or in limited volume, or only in the over-the-
counter market or on a regional securities exchange. As a result, the
prices of such securities may be more volatile than those of larger, more
established companies and, as a group, these securities may suffer more
severe price declines during periods of generally declining equity prices.

As with all mutual funds, there is no assurance that a Fund will achieve
its investment objective.

See "The Funds -- Risk Considerations" and "Appendix -- Additional Invest-
ment Policies."

Q. HOW DO I INVEST IN THE FUNDS?

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 in-
vestments of each Master Portfolio. The Company has not retained the serv-
ices of a separate investment adviser for the Funds because each Fund in-
vests all of its assets in the corresponding Master Portfolio. As of April
30, 1997, BGFA and its affiliates provided investment advisory services
for approximately $429 billion of assets.

See "Management of the Funds."

Q. WHAT ARE THE FEES FOR INVESTING?

3
<PAGE>

Shareholder Servicing Agents, in accordance with the terms of their cus-
tomer account arrangements, may charge additional fees for maintaining
customer accounts.

See "Management of the Funds."

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) divided by the number of outstanding in-
terests 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. The Growth Stock Fund and the S&P 500 Stock Fund each intend to pay quar-
terly dividends consisting of substantially all of their net investment
income and annual distributions consisting of substantially all of their
net realized capital gains. The Asset Allocation Fund, Bond Index Fund,
Short-Intermediate Term Fund and the U.S. Treasury Allocation Fund intend
to pay monthly dividends consisting of substantially all of their net in-
vestment income and annual distributions consisting of substantially all
of their 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 shareholder.

See "Dividends and Distributions."

Q. ARE EXCHANGES TO OTHER FUNDS PERMITTED?

See "Exchange Privilege."

4
<PAGE>

Q. HOW DO I REDEEM SHARES?

See "How to Redeem Shares."

5
<PAGE>

SUMMARY OF FUND EXPENSES

ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)

<TABLE>
<CAPTION>
ASSET
ALLOCATION BOND INDEX GROWTH STOCK
FUND FUND FUND
---------- ------------ -------------
<S> <C> <C> <C>
Management Fees........................... 0.35% 0.08% 0.58%
(after waivers and reimbursements)/1/
Co-Administration Fees.................... 0.40% 0.15% 0.18%
----- ----- -----
TOTAL FUND OPERATING EXPENSES............. 0.75% 0.23% 0.76%
(after waivers and reimbursements)/2/
<CAPTION>
SHORT- U.S. TREASURY
S&P 500 INTERMEDIATE ALLOCATION
STOCK FUND TERM FUND FUND
---------- ------------ -------------
<S> <C> <C> <C>
Management Fees........................... 0.05% 0.45% 0.30%
Co-Administration Fees.................... 0.15% 0.18% 0.40%
----- ----- -----
TOTAL FUND OPERATING EXPENSES ............ 0.20% 0.63% 0.70%
</TABLE>
- -----------

/1Management/Fees (before waivers and reimbursements) would be 0.60% for the
Growth Stock Fund.
/2Total/Fund Operating Expenses (before waivers and reimbursements) would be
0.78% for the Growth Stock Fund.

EXAMPLE OF EXPENSES

An investor would pay the following expenses on a $1,000 investment in a Fund,
assuming (1) a 5% annual return and (2) redemption at the end of each time pe-
riod:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Asset Allocation Fund........................... $ 8 $24 $42 $93
Bond Index Fund................................. $ 2 $ 7 $13 $29
Growth Stock Fund............................... $ 8 $24 $42 $94
S&P 500 Stock Fund.............................. $ 2 $ 6 $11 $26
Short-Intermediate Term Fund.................... $ 6 $20 $35 $79
U.S. Treasury Allocation Fund................... $ 7 $22 $39 $87
</TABLE>

6
<PAGE>

EXPLANATION OF TABLES

The purpose of the foregoing tables is to assist an investor in understand-
ing the various fees and expenses that an investor in the Funds will pay di-
rectly or indirectly. The foregoing tables reflect expenses for each of the
Funds at both the Fund and the Master Portfolio levels. The tables do not re-
flect any charges that may be imposed by Shareholder Servicing Agents or Sell-
ing Agents, including BGI, directly on customer accounts in connection with an
investment in the Funds. The following provides a general explanation of the
information provided in the tables for each of the Funds.

ANNUAL FUND OPERATING EXPENSES reflect the level of ongoing fees expected to
be in effect during the current fiscal year. "Management Fees" reflects the
amounts paid for such services during the most recently completed fiscal year.
"Co-Administration Fees" reflects the contractual level of such fees currently
payable by each Fund. BGFA, BGI and Stephens each, in its sole discretion, may
waive or reimburse all or a portion of its respective fees charged to, or ex-
penses paid by, a Fund or Master Portfolio. Any waivers or reimbursements
would reduce a Fund's total expenses and have a favorable impact on its per-
formance. For more complete descriptions of the various costs and expenses you
can expect to incur as an investor in the Funds, please see the Prospectus
section captioned "Management of the Funds."

EXAMPLE OF EXPENSES is a hypothetical illustration of the expenses associ-
ated with a $1,000 investment in the Funds over stated periods, based on the
expenses in the table above and an assumed annual rate of return of 5%. This
annual rate of return should not be considered an indication of actual or ex-
pected Fund performance. In addition, the Example of Expenses should not be
considered a representation of past or future expenses; actual expenses and
returns may be greater or less than those shown above.

With regard to the combined fees and expenses of the Funds and the Master
Portfolios, the Company's Board of Directors has considered whether the vari-
ous costs and benefits of investing all of each Fund's assets in the corre-
sponding Master Portfolio rather than directly in a portfolio of securities
would be more or less than if the Fund invested in portfolio securities di-
rectly. 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 ac-
quired and managed the type of securities held by its corresponding Master
Portfolio. The

7
<PAGE>

Company's Board of Directors believes that if other investors invest their as-
sets in the Master Portfolios, certain economic efficiencies may be realized
with respect to the Master Portfolios. For example, fixed expenses that other-
wise 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.
There can be no assurance that these economic efficiencies will be achieved.
See "Management of the Funds" for more complete descriptions of the various
costs and expenses applicable to investors in each of the Funds.

* * *

8
<PAGE>

FINANCIAL HIGHLIGHTS

(FOR A SHARE OUTSTANDING AS SHOWN)

The following information has been derived from the Financial Highlights in-
cluded in the Funds' financial statements for the fiscal year ended February
28, 1997. The financial statements are incorporated by reference into the
Funds' SAI and have been audited by KPMG Peat Marwick LLP, independent audi-
tors, whose report thereon dated April 11, 1997, also is incorporated by ref-
erence into the SAI. This information should be read in conjunction with the
financial statements and the notes thereto. The SAI has been incorporated by
reference into this Prospectus.

ASSET ALLOCATION FUND
<TABLE>
<CAPTION>
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1997 1996 1995 1994(1)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Asset Value, beginning
of period................. $ 11.83 $ 9.93 $ 10.19 $ 10.00
Income from investment
operations:
Net investment income..... 0.47 0.40 0.44 0.23
Net realized and
unrealized gain(loss) on
investments.............. 1.02 1.90 (0.14) 0.28
-------- -------- -------- --------
Total from investment
operations................ 1.49 2.30 0.30 0.51
Less distributions:
From net investment
income................... (0.47) (0.40) (0.44) (0.23)
From net realized gains... (0.73) 0.00 (0.12) (0.09)
-------- -------- -------- --------
Total distributions........ (1.20) (0.40) (0.56) (0.32)
-------- -------- -------- --------
Net Asset Value, end of
period.................... $ 12.12 $ 11.83 $ 9.93 $ 10.19
======== ======== ======== ========
Total return (not
annualized)............... 13.09% 23.54% 3.28% 5.14%
Ratios/Supplemental data:
Net assets, end of period
(000).................... $431,585 $397,930 $293,696 $217,140
Number of shares
outstanding, end of period
(000)..................... 35,613 33,634 29,585 21,303
Ratios to average net
assets(2)
Ratio of expenses to
average net assets....... 0.75% 0.75% 0.75% 0.79%
Ratio of net investment
income to average net
assets................... 3.95% 3.62% 4.62% 3.47%
Portfolio turnover+........ 43% 40% 24% 33%
Average commission rate
paid...................... $ 0.0335++ -- -- --
Ratio of expenses to
average net assets prior
to waived fees and
reimbursed expenses....... N/A N/A 0.76% 0.80%
Ratio of net investment
income to average net
assets prior to waived
fees and reimbursed
expenses.................. N/A N/A 4.61% 3.46%
</TABLE>
- -----------
(1) The Fund commenced operations on July 2, 1993.

(2) Ratios include expenses charged by the Master Portfolio.

+ On May 26, 1994 the Fund was reorganized and began investing all of its as-
sets in the corresponding Master Portfolio of MIP. The portfolio turnover
rates for the fiscal year ended February 29, 1996 and thereafter reflect
activity by the Master Portfolio.The rate shown for the fiscal year ended
1995 is for the period from March 1, 1994 to May 25, 1994. The portfolio
turnover rate for the period beginning May 26, 1994 and ending February 28,
1995 was 23% and reflects activity by the Master Portfolio which was au-
dited by other auditors.
++ The average commission rate paid reflects activity by the Master Portfolio
during the fiscal year ended February 28, 1997. For fiscal years beginning
on or after September 1, 1995, a fund is required to disclose its average
commission rate per share for security trades on which commissions are
charged. This amount may vary depending on, among other things, the mix of
trades, trading practices and commission rate structures.

9
<PAGE>

BOND INDEX FUND

<TABLE>
<CAPTION>
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1997 1996 1995 1994(1)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Asset Value, beginning
of period................. $ 9.66 $ 9.20 $ 9.76 $ 10.00
Income from investment
operations:
Net investment income..... 0.63 0.64 0.64 0.38
Net realized and
unrealized gain(loss) on
investments.............. (0.23) 0.46 (0.56) (0.24)
-------- ------- ------- -------
Total from investment
operations................ 0.40 1.10 0.08 0.14
Less distributions:
From net investment
income................... (0.63) (0.64) (0.64) (0.38)
From net realized gains... 0.00 0.00 0.00 0.00
-------- ------- ------- -------
Total distributions........ (0.63) (0.64) (0.64) (0.38)
-------- ------- ------- -------
Net Asset Value, end of
period.................... $ 9.43 $ 9.66 $ 9.20 $ 9.76
-------- ------- ------- -------
Total return (not
annualized)............... 4.32% 12.17% 1.12% 1.38%
Ratios/Supplemental data:
Net assets, end of period
(000).................... $129,469 $58,090 $18,593 $14,899
Number of shares
outstanding, end of
period (000)............. 13,736 6,016 2,020 1,526
Ratios to average net
assets (annualized)(2)
Ratio of expenses to
average net assets....... 0.23% 0.23% 0.23% 0.31%
Ratio of net investment
income to average net
assets................... 6.69% 6.67% 7.08% 5.88%
Portfolio turnover+........ 39% 21% 14% 20%
Ratio of expenses to
average net assets prior
to waived fees and
reimbursed expenses....... 0.32% 0.53% 0.71% 0.32%
Ratio of net investment
income to average net
assets prior to waived
fees and reimbursed
expenses.................. 6.60% 6.37% 6.61% 5.87%
</TABLE>
- -----------
(1) The Fund commenced operations on July 2, 1993.

(2) Ratios include expenses charged by the Master Portfolio.

10
<PAGE>

GROWTH STOCK FUND

<TABLE>
<CAPTION>
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1997 1996 1995 1994(1)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Asset Value, beginning
of period................. $ 14.78 $ 11.64 $ 11.52 $ 10.00
Income from investment
operations:
Net investment income
(loss)................... (0.06) (0.01) 0.00 (0.01)
Net realized and
unrealized gain (loss) on
investments.............. (0.43) 4.82 0.19 1.86
-------- -------- ------- -------
Total from investment
operations................ 0.49 4.81 0.19 1.85
Less distributions:
From net investment
income................... 0.00 (0.01) 0.00 0.00
From net realized gains... (0.22) (1.66) (0.07) (0.33)
-------- -------- ------- -------
Total distributions........ (0.22) (1.67) (0.07) (0.33)
-------- -------- ------- -------
Net Asset Value, end of
period.................... $ 14.07 $ 14.78 $ 11.64 $ 11.52
======== ======== ======= =======
Total return (not
annualized)............... (3.46)% 42.10% 1.70% 18.65%
Ratios/supplemental data:
Net assets, end of period
(000).................... $213,218 $178,584 $96,925 $45,443
Number of shares
outstanding, end of
period (000)............. 15,156 12,084 8,330 3,945
Ratios to average net
assets (annualized)(2)
Ratio of expenses to
average net assets....... 0.76% 0.76% 0.76% 0.80%
Ratio of net investment
income (loss) to average
net assets............... (0.41)% (0.12)% (0.02)% (0.18)%
Portfolio turnover+........ 129% 145% 27% 104%
Average commission rate
paid...................... $ 0.0777++ -- -- --
Ratio of expenses to
average net assets prior
to waived fees and
reimbursed expenses....... 0.81% 0.86% 0.87% 0.80%
Ratio of net investment
income (loss) to average
net assets prior to waived
fees and reimbursed
expenses.................. (0.46)% (0.22)% (0.12)% (0.18)%
</TABLE>
- -----------
(1) The Fund commenced operations on July 2, 1993.

(2) Ratios include expenses charged by the Master Portfolio.

+ On May 26, 1994 the Fund was reorganized and began investing all of its as-
sets in the corresponding Master Portfolio of MSIT. The portfolio turnover
rates for the fiscal years ending February 29, 1996 and thereafter reflect
activity by the Master Portfolio. The rate shown for the fiscal year ended
1995 is for the period from February 28, 1994 to May 25, 1994. The portfo-
lio turnover rate for the period beginning May 26, 1994 and ended February
28, 1995 was 93% and reflects activity by the Master Portfolio which was
audited by other auditors.
++ The average commission rate paid reflects activity by the Master Portfolio
during the fiscal year ended February 28, 1997. For fiscal years beginning
on or after September 1, 1995, a fund is required to disclose its average
commission rate per share for security trades on which commissions are
charged. This amount may vary depending on, among other things, the mix of
trades, trading practices and commission rate structures.

11
<PAGE>

S&P 500 STOCK FUND

<TABLE>
<CAPTION>
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1997 1996 1995 1994(1)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Asset Value, beginning
of period................ $ 14.02 $ 10.83 $ 10.50 $ 10.00
Income from investment
operations:
Net investment income.... 0.32 0.31 0.27 0.16
Net realized and
unrealized gain (loss)
on investments.......... 3.23 3.36 0.41 0.47
---------- -------- -------- --------
Total from investment
operations............... 3.55 3.67 0.68 0.63
Less distributions:
From net investment
income.................. (0.32) (0.30) (0.27) (0.12)
From net realized gains.. (0.22) (0.18) (0.08) (0.01)
---------- -------- -------- --------
Total distributions....... (0.54) (0.48) (0.35) (0.13)
---------- -------- -------- --------
Net Asset Value, end of
period................... $ 17.03 $ 14.02 $ 10.83 $ 10.50
========== ======== ======== ========
Total return (not
annualized).............. 25.82% 34.35% 6.71% 6.30%
Ratios/supplemental data:
Net assets, end of period
(000)................... $1,423,024 $882,696 $448,776 $122,391
Number of shares
outstanding, end of
period (000)............ 83,551 62,951 41,427 11,653
Ratios to average net
assets (annualized)(2)
Ratio of expenses to
average net assets...... 0.20% 0.20% 0.21% 0.27%
Ratio of net investment
income to average net
assets.................. 2.15% 2.52% 2.93% 2.46%
Portfolio turnover+....... 4% 2% 8% 4%
Average commission rate
paid..................... $ 0.0625++ -- -- --
Ratio of expenses to
average net assets prior
to waived fees and
reimbursed expenses...... 0.22% 0.26% 0.25% 0.28%
Ratio of net investment
income to average net
assets prior to waived
fees and reimbursed
expenses................. 2.13% 2.46% 2.88% 2.45%
</TABLE>
- -----------
(1) The Fund commenced operations on July 2, 1993.

(2) Ratios include expenses charged by the Master Portfolio.

+ On May 26, 1994 the Fund was reorganized and began investing all of its as-
sets in the corresponding Master Portfolio of MIP. The portfolio turnover
rates for the fiscal years ending February 29, 1996 and thereafter reflect
activity by the Master Portfolio. The rate shown for the fiscal year ended
1995 is for the period from March 1, 1994 to May 25, 1994. The portfolio
turnover rate for the period beginning May 26, 1994 and ending February 28,
1995 was 5% and reflects activity by the Master Portfolio which was audited
by other auditors.
++ The average commission rate paid reflects activity by the Master Portfolio
during the fiscal year ended February 28, 1997. For fiscal years beginning
on or after September 1, 1995, a fund is required to disclose its average
commission rate per share for security trades on which commissions are
charged. This amount may vary depending on, among other things, the mix of
trades, trading practices and commission rate structures.

12
<PAGE>

SHORT-INTERMEDIATE TERM FUND

<TABLE>
<CAPTION>
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1997 1996 1995 1994(1)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Asset Value, beginning
of period................. $ 9.40 $ 9.15 $ 9.72 $10.00
Income from investment
operations:
Net investment income..... 0.60 0.65 0.64 0.42
Net realized and
unrealized gain (loss) on
investments.............. (0.21) 0.25 (0.57) (0.28)
------- ------- ------- ------
Total from investment
operations................ 0.39 0.90 0.07 0.14
Less distributions:
From net investment
income................... (0.60) (0.65) (0.64) (0.42)
From net realized gains... 0.00 0.00 0.00 0.00
------- ------- ------- ------
Total distributions........ (0.60) (0.65) (0.64) (0.42)
------- ------- ------- ------
Net Asset Value, end of
period................... $ 9.19 $ 9.40 $ 9.15 $ 9.72
======= ======= ======= ======
Total return (not
annualized)............... 4.29% 10.07% 0.89% 1.42%
Ratios/supplemental data:
Net assets, end of period
(000).................... $13,054 $13,704 $14,298 $5,258
Number of shares
outstanding, end of
period (000)............. 1,420 1,458 1,562 541
Ratios to average net
assets (annualized)(2)
Ratio of expenses to
average net assets....... 0.65% 0.65% 0.65% 0.65%
Ratio of net investment
income to average net
assets................... 6.48% 6.82% 7.07% 6.02%
Portfolio turnover+........ 62% 105% 29% 277%
Ratio of expenses to
average net assets prior
to waived fees and
reimbursed expenses....... 1.29% 1.44% 1.41% 0.65%
Ratio of net investment
income to average net
assets prior to waived
fees and reimbursed
expenses.................. 5.84% 6.03% 6.32% 6.02%
</TABLE>
- -----------
(1) The Fund commenced operations on July 2, 1993.

(2) Ratios include expenses charged by the Master Portfolio.

13
<PAGE>

U.S. TREASURY ALLOCATION FUND

<TABLE>
<CAPTION>
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1997 1996 1995 1994(1)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Asset Value, beginning
of period................. $ 9.35 $ 8.99 $ 9.67 $ 10.00
Income from investment
operations:
Net investment income..... 0.56 0.51 0.59 0.39
Net realized and
unrealized gain (loss) on
investments.............. (0.11) 0.36 (0.68) (0.05)
------- ------- ------- -------
Total from investment
operations................ 0.45 0.87 (0.09) 0.34
Less distributions:
From net investment
income................... (0.56) (0.51) (0.59) (0.39)
From net realized gains... 0.00 0.00 0.00 (0.20)
In excess of net realized
gains.................... 0.00 0.00 0.00 (0.08)
------- ------- ------- -------
Total distributions........ (0.56) (0.51) (0.59) (0.67)
------- ------- ------- -------
Net Asset Value, end of
period.................... $ 9.24 $ 9.35 $ 8.99 $ 9.67
======= ======= ======= =======
Total return (not
annualized)............... 4.99% 9.89% (0.76)% 3.33%
Ratios/Supplemental data:
Net assets, end of period
(000).................... $47,542 $51,632 $56,852 $58,216
Number of shares
outstanding, end of
period (000)............. 5,147 5,522 6,324 6,019
Ratios to average net
assets (annualized)(2)
Ratio of expenses to
average net assets....... 0.70% 0.70% 0.70% 0.78%
Ratio of net investment
income to average net
assets................... 6.03% 5.47% 6.52% 5.79%
Portfolio turnover+........ 196% 325% 43% 210%
Ratio of expenses to
average net assets prior
to waived fees and
reimbursed expenses....... 0.71% N/A 0.72% 0.80%
Ratio of net investment
income to average net
assets prior to waived
fees and reimbursed
expenses.................. 6.02% N/A 6.50% 5.77%
</TABLE>
- -----------
(1) The Fund commenced operations on July 2, 1993.

(2) Ratios include expenses charged by the Master Portfolio.

14
<PAGE>

THE FUNDS

INVESTMENT OBJECTIVE AND POLICIES

The following is a summary of the investment objectives and policies of the
Funds.

ASSET ALLOCATION FUND

The Asset Allocation Fund seeks to achieve over the long term a high level
of total return, including net realized and unrealized capital gains and net
investment income, consistent with reasonable risk. This investment objective
is fundamental and cannot be changed without shareholder approval. The Asset
Allocation Fund seeks to achieve its investment objective by investing all of
its assets in the Asset Allocation Master Portfolio of MIP, which has substan-
tially the same fundamental investment objective as the Asset Allocation Fund.

The Asset Allocation Master Portfolio seeks to achieve its objective by pur-
suing an asset allocation strategy. This strategy is based upon the premise
that certain asset classes from time to time are under- or over-valued by the
market relative to each other and that under-valued asset classes represent
relatively better long-term, risk-adjusted investment opportunities, and that
timely, low-cost shifts among common stocks, U.S. Treasury bonds and money
market instruments (as determined by their perceived relative over- or under-
valuation) can produce investment returns superior to investments in only one
such class. The Asset Allocation Fund is designed for investors with invest-
ment horizons of five years or greater; it is not designed for investors seek-
ing short-term gains.

BGFA uses an investment model developed in 1973 (the "Asset Allocation Mod-
el") to pursue the Asset Allocation Master Portfolio's asset allocation strat-
egy. The Asset Allocation Model is presently used as a basis for managing sev-
eral large employee benefit trust funds and other institutional accounts and
is proprietary to BGFA. The Asset Allocation Model analyzes extensive finan-
cial data from numerous sources and regularly determines a recommended portfo-
lio allocation among common stocks, U.S. Treasury bonds and money market in-
struments. The Asset Allocation Model has broad latitude in selecting the
class of investments and the particular securities within a class in which the
Asset Allocation Master Portfolio may invest. At any given time, substantially
all of the Asset Allocation Master Portfolio's assets may be invested in a
single

15
<PAGE>

asset class and the relative allocation among the asset classes may shift sig-
nificantly from time to time.

The Asset Allocation Master Portfolio's investments are compared from time
to time to the Asset Allocation 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 Asset Al-
location Model. Recommended reallocation is implemented in accordance with
trading policies designed to take advantage of market opportunities and reduce
transaction costs. The asset allocation mix selected by the Asset Allocation
Model is the primary determinant in the Asset Allocation Master Portfolio's
investment performance.

The overall management of the Asset Allocation Master Portfolio is based on
the recommendation of the Asset Allocation Model, and no person is primarily
responsible for recommending the mix of asset classes in the Asset Allocation
Master Portfolio or the mix of securities within the asset classes. Decisions
relating to the Asset Allocation Model are made by BGFA's investment commit-
tee.

The Asset Allocation Master Portfolio's assets are invested as follows:

Stock Investments. In making its stock investments, the Asset Allocation
Master Portfolio invests in substantially all of the common stocks which com-
prise the S&P 500 Index/1/ using, to the extent feasible, the same weighting
used by that index. The Asset Allocation Master Portfolio does not individu-
ally select common stocks on the basis of traditional investment analysis.

- --------------
/1/S&P does not sponsor the Asset Allocation Fund or the Asset Allocation Mas-
ter Portfolio, nor is it affiliated in any way with BGFA, the Asset Alloca-
tion Master Portfolio or the Asset Allocation Fund. "Standard & Poor's(R),"
"S&P(R)," "S&P 500(R)," and "Standard & Poor's 500(R)" are trademarks of Mc-
Graw-Hill, Inc. and have been licensed for use by the Asset Allocation Fund
and the Asset Allocation Master Portfolio. The Asset Allocation Fund and the
Asset Allocation Master Portfolio are not sponsored, endorsed, sold, or pro-
moted by S&P and S&P makes no representation or warranty, express or im-
plied, regarding the advisability of investing in the Asset Allocation Fund
or the Asset Allocation Master Portfolio.

16
<PAGE>

U.S. Treasury Bonds. The Asset Allocation Master Portfolio invests in U.S.
Treasury bonds with remaining maturities of at least 20 years. Under normal
market conditions, the dollar-weighted average maturity of this portion of the
Asset Allocation Master Portfolio's investment portfolio is expected to range
between 22 and 28 years. The Asset Allocation Master Portfolio invests this
portion of its assets in an effort to replicate the total return performance
of the Lehman Brothers 20 Year Treasury Index which is composed of U.S. Trea-
sury securities with remaining maturities of 20 years or more.

Money Market Investments. The money market instruments held by the Asset
Allocation Master Portfolio generally consist of high-quality money market
instruments, including U.S. Government obligations, obligations of domestic
and foreign banks, short-term corporate debt instruments, repurchase
agreements and time deposits.

A more complete description of the Asset Allocation Master Portfolio's in-
vestments and investment activities is contained in "Appendix -- Additional
Investment Policies."

BOND INDEX FUND

The Bond Index Fund seeks to approximate as closely as practicable before
fees and expenses the total rate of return of the U.S. market for issued and
outstanding U.S. Government and high-grade corporate bonds as measured by the
Lehman Brothers Government/Corporate Bond Index ("LB Bond Index"). This in-
vestment objective is fundamental and cannot be changed without shareholder
approval. The Bond Index Fund seeks to achieve its investment objective by in-
vesting all of its assets in the Bond Index Master Portfolio of MIP, which has
substantially the same investment objective as the Bond Index Fund. The Bond
Index Master Portfolio seeks to achieve its objective by investing substan-
tially all of its assets in securities included in the LB Bond Index,/2/ which
is composed of approximately 5,000 issues of fixed-income securities, includ-
ing U.S. Government securities and investment grade corporate bonds, each with
an outstanding market value of at least $25 million and a remaining maturity
of greater than one year. The Bond Index Master Portfolio invests in a sample
of these securities. The Bond Index Master Portfolio invests at least 65% of
its total assets in bonds and debentures. Securities are selected for invest-
ment by the Bond Index
- --------------
/2/Lehman Brothers, Inc. does not sponsor the Bond Index Fund or the Bond Index
Master Portfolio, nor is it affiliated in any way with BGFA, the Bond Index
Fund or the Bond Index Master Portfolio.

17
<PAGE>

Master Portfolio based on a mix of factors, such as the relative proportion of
such securities in the LB Bond Index, credit quality, issuer sector, maturity
structure, coupon rates and callability, as described below.

No attempt is made to manage the portfolio of the Bond Index Master Portfo-
lio using economic, financial and market analysis. The Bond Index Master Port-
folio is managed by determining which securities are to be purchased or sold
to replicate, to the extent feasible, the investment characteristics of the LB
Bond Index. Under normal market conditions, at least 90% of the value of the
Bond Index Master Portfolio's total assets are invested in securities repre-
senting the LB Bond Index. The Bond Index Master Portfolio attempts to
achieve, in both rising and falling markets, a correlation of at least 95% be-
tween the total return of its net assets before expenses and the total return
of the LB Bond Index. Perfect (100%) correlation would be achieved if the to-
tal return of the Bond Index Master Portfolio's net assets increased or de-
creased exactly as the total return of the LB Bond Index increased or de-
creased. The Bond Index Master Portfolio's ability to match its investment
performance to the investment performance of the LB Bond Index may be affected
by, among other things, the Bond Index Master Portfolio's and the Bond Index
Fund's expenses, the amount of cash and cash equivalents held in the Bond In-
dex Master Portfolio's investment portfolio, the manner in which the total re-
turn of the LB Bond Index is calculated, the size of the Bond Index Master
Portfolio's investment portfolio, and the timing, frequency and size of share-
holder purchases and redemptions. The Bond Index Master Portfolio uses cash
flows from shareholder purchase and redemption activity to maintain, to the
extent feasible, the similarity of its portfolio to the securities comprising
such Index. BGFA regularly monitors the Bond Index Master Portfolio's correla-
tion to the LB Bond Index and adjusts the portfolio of the Bond Index Master
Portfolio to the extent necessary to enable the Bond Index Master Portfolio to
attempt to achieve a correlation of at least 95% with the LB Bond Index. The
Bond Index Fund's performance corresponds directly to the investment experi-
ence of the Bond Index Master Portfolio. Inclusion of a security in the LB
Bond Index in no way implies an opinion by the sponsor of the LB Bond Index as
to its attractiveness as an investment. In the future, subject to the approval
of the Bond Index Master Portfolio's interestholders, one or more indices for
the Bond Index Master Portfolio may be selected if such standard of comparison
is deemed to be more representative of the performance of the securities the
Bond Index Master Portfolio seeks to replicate.

18
<PAGE>

The Bond Index Master Portfolio does not hold all of the issues that com-
prise the LB Bond Index because of the costs involved and the illiquidity of
certain of the securities which comprise such Index. Instead, the Bond Index
Master Portfolio attempts to hold a representative sample of the securities in
the LB Bond Index so that, in the aggregate, the investment characteristics of
the Bond Index Master Portfolio's investment portfolio resemble those of the
LB Bond Index. The Bond Index Master Portfolio uses a statistical process
known as "sampling" to construct its investment portfolio. This process is
used with respect to the Bond Index Master Portfolio to select issues to rep-
resent entire "classes" or types of fixed-income securities in the Index. At
the broadest level, the Bond Index Master Portfolio seeks to hold securities
reflecting the two major classes of fixed-income securities in the LB Bond In-
dex -- U.S. Government obligations and investment-grade corporate debt securi-
ties. Such classes are delineated further according to credit quality, issuer
sector, term to maturity, coupon rates and callability. The sampling tech-
niques utilized by the Bond Index Master Portfolio are expected to be an ef-
fective means of approximating the investment performance of the LB Bond In-
dex; however, the Bond Index Master Portfolio is not expected to track the LB
Bond Index with the same degree of accuracy that complete replication of such
Index would provide. Over time, the portfolio composition of the Bond Index
Master Portfolio will be altered (or "rebalanced") to reflect changes in the
characteristics of the Index.

The Board of Trustees of MIP periodically reviews the Bond Index Master
Portfolio's investment performance before fees and expenses as compared to the
LB Bond Index. The Board reviews discrepancies in performance for reasonable-
ness, taking into account the size of the Bond Index Master Portfolio's in-
vestment portfolio, and any corrective actions deemed necessary will be taken
to avert excessive discrepancies in the future. There can be no assurance that
the Bond Index Fund or the Bond Index Master Portfolio will achieve its re-
spective investment objective.

Index funds, such as the Bond Index Fund and the Bond Index Master Portfo-
lio, seek to create a portfolio which substantially replicates the total re-
turn of the securities comprising the applicable index. Index funds are not
managed through traditional methods of fund management, which typically in-
volve frequent changes in a portfolio of securities on the basis of economic,
financial and market analyses. Therefore, brokerage costs, transfer taxes and
certain other transaction costs for index funds may be lower than those in-
curred by non-index, tradition-

19
<PAGE>

ally managed funds. The portfolio turnover rate of the Bond Index Master Port-
folio generally is not expected to exceed 100%.

The Bond Index Master Portfolio may invest some of its assets (no more than
10% of total assets under normal market conditions) in high quality money mar-
ket instruments, which include U.S. Government obligations, obligations of do-
mestic and foreign banks, repurchase agreements, commercial paper (including
variable amount master demand notes) and short-term corporate debt obliga-
tions. Such investments are made on an ongoing basis to provide liquidity and,
to a greater extent on a temporary basis, when there is an unexpected or ab-
normal level of investor purchases or redemptions of Bond Index Fund shares or
when "defensive" strategies are appropriate. In addition, the Bond Index Mas-
ter Portfolio may lend its portfolio securities and engage in interest rate
futures and options transactions, each of which involves risk. A more complete
description of the Bond Index Master Portfolio's investments and investment
activities is contained in "Appendix -- Additional Investment Policies."

GROWTH STOCK FUND

The Growth Stock Fund seeks above-average, long-term total return, with a
primary focus on capital appreciation. Current income is a secondary consider-
ation. This investment objective is fundamental and cannot be changed without
shareholder approval. The Growth Stock Fund seeks to achieve its investment
objective by investing all of its assets in the Growth Stock Master Portfolio
of MSIT, which has the same fundamental investment objective as the Growth
Stock Fund. The investment objective of the Growth Stock Master Portfolio is
to provide investors with above-average, long-term total return, with a pri-
mary focus on capital appreciation. The Growth Stock Master Portfolio seeks to
provide investors with a rate of total return that, over a three to five
year time horizon, exceeds that of the S&P 500 Index/3/ (before fees and
- --------------

/3/S&P does not sponsor the Growth Stock Fund or the Growth Stock Master Port-
folio, nor is it affiliated in any way with BGFA, the Growth Stock Master
Portfolio or the Growth Stock Fund. "Standard & Poor's(R)," "S&P(R)," "S&P
500(R)," and "Standard & Poor's 500(R)" are trademarks of McGraw-Hill, Inc.
and have been licensed for use by the Growth Stock Fund and the Growth Stock
Master Portfolio. The Growth Stock Fund and the Growth Stock Master Portfo-
lio are not sponsored, endorsed, sold, or promoted by S&P and S&P makes no
representation or warranty, express or implied, regarding the advisability
of investing in the Growth Stock Fund or the Growth Stock Master Portfolio.

20
<PAGE>

expenses) over comparable periods by investing in a diversified portfolio con-
sisting primarily of growth-oriented common stocks. The Growth Stock Master
Portfolio is advised by BGFA and sub-advised by Wells Fargo Bank, N.A. ("Wells
Fargo Bank").

Since the investment characteristics of the Growth Stock Fund directly cor-
respond to those of the Growth Stock Master Portfolio, the discussion below
relates to the various investments of and techniques employed by the Growth
Stock Master Portfolio.

The Growth Stock Master Portfolio invests primarily in common stocks that
Wells Fargo Bank, as sub-adviser, believes have better-than-average prospects
for appreciation. Under normal market conditions, the Master Portfolio will
hold at least 20 common stock issues spread across multiple industry groups,
with the majority of these holdings consisting of established growth compa-
nies, turnaround or acquisition candidates, or attractive larger capitaliza-
tion companies. The Master Portfolio also may invest up to 25% of its assets
in American Depositary Receipts ("ADRs") and similar instruments and may in-
vest up to 15% of its assets in equity securities of companies in emerging or
less developed markets. The stock issues held by the Master Portfolio may have
some of the following characteristics: low or no dividends; smaller market
capitalizations; less market liquidity; relatively short operating histories;
aggressive capitalization structures (including high debt levels); and in-
volvement in rapidly growing/changing industries and/or new technologies.

Additionally, it is expected that the Master Portfolio may from time to time
acquire securities through initial public offerings, and may acquire and hold
common stocks of smaller and newer issuers. It is expected that no more than
40% of the Master Portfolio's assets will be invested in these highly aggres-
sive issues at one time.

Though the Master Portfolio will hold a number of larger capitalization
stocks, under normal market conditions more than 50% of the Master Portfolio's
total assets will be invested in companies whose market capitalizations at the
time of acquisition are within the capitalization range of companies listed on
the S&P Small Cap 600 Index. As of December 1996, the capitalization range for
the S&P Small Cap 600 was from $40 million to $2.6 billion. The capitalization
range for the S&P Small Cap 600 Index is expected to change frequently. The
Master Portfolio may invest in companies with a market capitalization under

21
<PAGE>

$40 million if the investment adviser to the Master Portfolio believes such
investments to be in the best interest of the Master Portfolio.

Under ordinary market conditions, at least 65% of the value of the total as-
sets of the Master Portfolio will be invested in common stocks and in securi-
ties which are convertible into common stocks that Wells Fargo Bank, as sub-
adviser, believes have better-than-average prospects for appreciation. The
Master Portfolio also may invest in convertible debt securities. At most, 5%
of the Master Portfolio's net assets will be invested in convertible debt se-
curities that are either not rated in the four highest rating categories by
one or more nationally recognized statistical rating organizations ("NRSROs"),
such as Moody's Investor Service, Inc. ("Moody's") or Standard & Poor's Rating
Group ("S&P"), or unrated securities determined by Wells Fargo Bank to be of
comparable quality.

From time to time, when the adviser or sub-adviser determines that market
conditions make pursuing the Master Portfolio's basic investment strategy in-
consistent with the best interests of the Master Portfolio's investors, the
Fund may use temporary alternative strategies, primarily designed to reduce
fluctuations in the value of the Master Portfolio's assets. In implementing
these temporary "defensive" strategies, the Master Portfolio may invest in
preferred stock or investment-grade debt securities that are convertible into
common stock and in money market instruments. Generally, these temporary "de-
fensive" investments will not exceed 30% of the Master Portfolio's total as-
sets.

The Growth Stock Master Portfolio pursues an active-trading investment
strategy, and the length of time the Growth Stock Master Portfolio has held a
particular security is not generally a consideration in investment decisions.
Accordingly, the portfolio turnover rate of the Growth Stock Master Portfolio
may be higher than that of other growth stock funds that do not pursue an ac-
tive-trading investment strategy. Portfolio turnover generally involves some
expense to the Growth Stock Master Portfolio, including brokerage commissions
or dealer mark-ups, and other transaction costs on the sale of securities and
the reinvestment in other securities. The Growth Stock Fund bears a pro rata
portion of such transaction costs. Portfolio turnover also can generate short-
term capital gains tax consequences. For additional information relating to
portfolio turnover see "Taxes" in this Prospectus and "Portfolio Transactions"
and "Taxes" in the SAI.

A more complete description of the Growth Stock Master Portfolio's invest-
ments, investment activities, and investment restrictions is contained in "Ap-
pendix -- Additional Investment Policies" and in the SAI.

22
<PAGE>

Mr. Steve Enos, as co-portfolio manager, is responsible for the day-to-day
management of the Growth Stock Master Portfolio. Mr. Enos joined Wells Fargo
Bank in 1993 and is a member of the Wells Fargo Bank Growth Equity Team. He
began his career with First Interstate Bank, where he was assistant vice pres-
ident and portfolio manager. From 1991 to 1993, Mr. Enos was a principal at
Dolan Capital Management where he managed both personal and pension portfo-
lios. Mr. Enos received his undergraduate degree in Economics from the Univer-
sity of California at Davis. Mr. Enos is a Chartered Financial Analyst and a
member of the Association for Investment Management and Research.

Mr. Thomas Zeifang, as co-portfolio manager, also is responsible for the
day-to-day management of the Growth Stock Master Portfolio. Mr. Zeifang joined
Wells Fargo Bank in the summer of 1995 and is primarily responsible for pro-
viding fundamental equity analysis. Mr. Zeifang was an analyst at Fleet In-
vestment Advisors from 1992 to 1995 and prior to 1992 worked for three years
as an assistant portfolio manager at Marine Midland Bank. Mr. Zeifang holds a
B.B.A. in finance from Saint Bonaventure University, an M.B.A. in finance and
business policy from the William E. Simon School of Business Administration,
and is a Chartered Financial Analyst.

S&P 500 STOCK FUND/4/

The S&P 500 Stock Fund seeks to approximate as closely as practicable (be-
fore fees and expenses) the capitalization-weighted total rate of return of
that portion of the U.S. market for publicly-traded common stocks composed of
the larger-capitalized companies. This investment objective is fundamental and
cannot be changed without shareholder approval. The S&P 500 Stock Fund seeks
to achieve its investment objective by investing all of its assets in the S&P
500 Index Master Portfolio of MIP, which has substantially the same fundamen-
tal investment objective as the Fund. The Master Portfolio seeks to achieve
its objective by investing substantially all its assets in the same stocks and
in substantially the same percentages as the S&P 500 Index. The weightings of
stocks in the S&P 500 Index are based on each stock's relative total market
capitalization; that is, its market price per share times the number of shares
outstanding.
- --------------
/4/S&P does not sponsor the S&P 500 Stock Fund or the S&P 500 Index Master
Portfolio, nor is it affiliated in any way with BGFA, the S&P 500 Index Mas-
ter Portfolio or the S&P 500 Stock Fund. "Standard & Poor's(R)," "S&P(R),"
"S&P 500(R)," and "Standard & Poor's 500(R)" are trademarks of McGraw-Hill,
Inc. and have been licensed for use by

23
<PAGE>

No attempt is made to manage the portfolio of the S&P 500 Index Master Port-
folio using economic, financial and market analysis. The Master Portfolio is
managed by determining which securities are to be purchased or sold to repli-
cate, to the extent feasible, the investment characteristics of the S&P 500 In-
dex. Under normal market conditions, at least 90% of the value of the Master
Portfolio's total assets is invested in securities comprising the S&P 500 In-
dex. The S&P 500 Index Master Portfolio attempts to achieve, in both rising and
falling markets, a correlation of at least 95% between the total return of its
net assets before expenses and the total return of the S&P 500 Index. Perfect
(100%) correlation would be achieved if the total return of the Master Portfo-
lio's net assets increased or decreased exactly as the total return of the S&P
500 Index increased or decreased. The Master Portfolio's ability to match its
investment performance to the investment performance of the S&P 500 Index may
be affected by, among other things, the Master Portfolio's expenses, the amount
of cash and cash equivalents held by the Master Portfolio, the manner in which
the total return of the S&P 500 Index is calculated and the timing, frequency,
and size of shareholder purchases and redemptions. The S&P 500 Index Master
Portfolio uses cash flows from shareholder purchase and redemption activity to
maintain, to the extent feasible, the similarity of its portfolio to the secu-
rities comprising the S&P 500 Index. BGFA regularly monitors the S&P 500 Index
Master Portfolio's, correlation to the S&P 500 Index and adjusts the portfolio
of the Master Portfolio to the extent necessary to enable the Master Portfolio
to achieve a correlation of at least 95% with the S&P 500 Index. The S&P 500
Stock Fund's performance will correspond directly to the experience of the S&P
500 Index Master Portfolio. In the future, subject to the approval of the Mas-
ter Portfolio's interestholders, one or more indices for the Master Portfolio
may be selected if such standard of comparison is deemed to be more representa-
tive of the performance of the securities the S&P 500 Index Master Portfolio
seeks to replicate.
- -----------

the S&P 500 Stock Fund and the S&P 500 Index Master Portfolio. The S&P 500
Stock Fund and the S&P 500 Index Master Portfolio are not sponsored, endorsed,
sold, or promoted by S&P and S&P makes no representation or warranty, express
or implied, regarding the advisability of investing in the S&P 500 Stock Fund
and the S&P 500 Index Master Portfolio. S&P's only relationship to the S&P 500
Stock Fund and S&P 500 Index Master Portfolio is the licensing of certain
trademarks and trade names of S&P and of the S&P 500 Index to the Fund and
Master Portfolio. The S&P 500 Index is determined, composed and calculated by
S&P without regard to the Fund or Master Portfolio.

24
<PAGE>

In seeking to replicate the performance of the S&P 500 Index, the S&P 500
Index Master Portfolio also may engage in futures and options transactions and
other derivative securities transactions, and may lend its portfolio
securities, each of which involves risk. The Master Portfolio attempts to be
fully invested at all times in securities comprising the S&P 500 Index and in
futures and options. See "Appendix -- Additional Investment Policies."

The S&P 500 Index Master Portfolio may invest some of its assets (no more
than 10% of total assets under normal market conditions) in
high-quality money market instruments, which include U.S. Government obliga-
tions, obligations of domestic and foreign banks, repurchase agreements, com-
mercial paper (including variable amount master demand notes) and short-term
corporate debt obligations. Such investments will be made on an ongoing basis
to provide liquidity and, to a greater extent, on a temporary basis, when
there is an unexpected or abnormal level of investor purchases or redemptions
of S&P 500 Stock Fund shares or when "defensive" strategies are appropriate.
In addition, the Master Portfolio may engage in securities lending to increase
its income. A more complete description of the S&P 500 Index Master Portfo-
lio's investments and investment activities is contained in "Appendix -- Addi-
tional Investment Policies."

SHORT-INTERMEDIATE TERM FUND

The Short-Intermediate Term Fund seeks to provide a total return, before
fees and expenses, exceeding that of the Lehman Brothers Intermediate
Government/Corporate Bond Index (the "LB Intermediate Bond Index"). Histori-
cally, the LB Intermediate Bond Index has outperformed short-term investments
such as Treasury bills and has generally experienced a positive return on an
annual basis. The Fund's investment objective is fundamental and cannot be
changed without shareholder approval. The Short-Intermediate Term Fund seeks
to achieve its investment objective by investing all of its assets in the
Short-Intermediate Term Master Portfolio of MSIT, which has the same fundamen-
tal investment objective as the Short-Intermediate Term Fund. The investment
objective of the Short-Intermediate Term Master Portfolio is to provide in-
vestors with a total return, before fees and expenses, exceeding that of the
LB Intermediate Bond Index. The Short-Intermediate Term Master Portfolio in-
vests in a mix of the following types of instruments: U.S. Treasury and agency
debt securities, corporate bonds, collateralized mortgage obligations and
mortgage-backed securities, other types of asset-backed securities, and money
market instruments such as commercial paper, bankers' acceptances, certifi-
cates of deposits, fixed time

25
<PAGE>

deposits, repurchase agreements, and short-term debt of the U.S. Government or
its agencies. The Short-Intermediate Term Master Portfolio is actively man-
aged. Although its investment objective is related to the performance of the
LB Intermediate Bond Index, the Short-Intermediate Term Master Portfolio does
not attempt to replicate the portfolio composition of that Index. The Short-
Intermediate Term Master Portfolio may hold instruments with different maturi-
ties, as well as certain investment securities -- such as collateralized mort-
gage obligations and other asset-backed securities -- which are not included in
the Index. A more complete description of the securities that may be purchased
by the Short-Intermediate Term Master Portfolio is contained in "Appendix --
Additional In-vestment Policies." As similar types of securities are developed
in the mar-ketplace, they may be considered for investment by the Short-
Intermediate Term Master Portfolio, but the Short-Intermediate Term Master
Portfolio may not in-vest in such securities prior to adding appropriate
disclosure. The Short-In-termediate Term Master Portfolio is advised by BGFA and
sub-advised by Wells Fargo Bank.

Since the investment characteristics of the Short-Intermediate Term Fund di-
rectly correspond to those of the Short-Intermediate Term Master Portfolio,
the discussion below relates to the various investments of and techniques em-
ployed by the Short-Intermediate Term Master Portfolio.

Under normal market conditions, the Short-Intermediate Term Master Portfolio
seeks to maintain an average weighted portfolio maturity generally in the 2-
to-5 year range. Under unusual market conditions, the Short-Intermediate Term
Master Portfolio may shorten or lengthen its average weighted portfolio matu-
rity outside of the 2-to-5 year range.

The LB Intermediate Bond Index consists of government (Treasury and agency)
and corporate debt obligations with remaining maturities between one and ten
years. Each issue is represented in the LB Intermediate Bond Index in propor-
tion to its outstanding market value. The exact composition of the LB Interme-
diate Bond Index varies according to the characteristics of the securities
outstanding in the marketplace.

Only investment-grade securities are considered for investment. These secu-
rities will be identified by their ratings according to one of two major rat-
ing services, S&P and Moody's. The rating systems employed by each service are
described in the Appendix to this Prospectus. Each service classifies securi-
ties into broad categories starting with "investment grade" at the top and
ranging downward through more speculative classes, including so-called "junk
bonds," to securities that are

26
<PAGE>

virtually worthless. The "investment grade" category is subdivided into four
rating groups by both services. The four rating groups are called "AAA"/"Aaa,"
"AA"/"Aa," "A"/"A," and "BBB"/"Baa" by S&P and Moody's, respectively. Obliga-
tions with the lowest investment grade rating have speculative characteris-
tics, and changes in economic conditions or other circumstances are more
likely to lead to a weakened capacity to make principal and interest payments
than in the case of higher grade debt obligations. The Short-Intermediate Term
Master Portfolio may invest in securities of all four rating groups; however,
most of the Short-Intermediate Term Master Portfolio's assets will be invested
in securi-ties that, at the time of purchase, are rated in the third group or
higher, denoted "A" or better by both rating services. Asset-backed securities
are further restricted to the top two rating groups at time of purchase.
Mortgage-related securities, which are issued or guaranteed by U.S. Government
agen-cies, are all currently considered to be in the highest rating category.
Sub-sequent to its purchase by the Short-Intermediate Term Master Portfolio, an
issue of securities may cease to be rated or its rating may be reduced below the
minimum rating required for purchase by the Short-Intermediate Term Master
Portfolio. Wells Fargo will consider such an event in determining whether the
Short-Intermediate Term Master Portfolio should continue to hold the obliga-
tion. To the extent the Short-Intermediate Term Master Portfolio continues to
hold such obligations, it may be subject to additional risk of default.

In the marketplace, it is generally the case that higher-risk securities
carry higher yields-to-maturity. That is, investors tend to demand higher re-
turns for securities with longer maturities or lower credit quality ratings
than for similar securities of shorter maturities or higher credit quality
ratings. The amount of increased return for increased risk, however, changes
from time to time. The Short-Intermediate Term Master Portfolio seeks to em-
phasize those maturity segments or rating groups that appear to offer the most
favorable returns to their risks, within the maturity and quality ranges de-
scribed above.

The Short-Intermediate Term Master Portfolio may invest some of its assets
(no more than 10% of total assets under normal market conditions) in high
quality money market instruments, which include U.S. Government obligations,
obligations of domestic and foreign banks, repurchase agreements, commercial
paper (including variable amount master demand notes) and short-term corporate
debt obligations. Such investments are made on an ongoing basis to provide li-
quidity and, to a greater extent on a temporary basis, when there is an unex-
pected or

27
<PAGE>

abnormal level of investor purchases or redemptions of Short-Intermediate Term
Master Portfolio shares or when "defensive" strategies are appropriate.

Portfolio turnover generally involves some expense to the Short-Intermediate
Term Master Portfolio, including brokerage commissions or dealer mark-ups and
other transaction costs on the sale of securities and the reinvestment in
other securities. The Short-Intermediate Term Fund bears a pro rata portion of
such transaction costs. Portfolio turnover also can generate short-term capi-
tal gains tax consequences. For additional information relating to portfolio
turnover see "Taxes" in this Prospectus and "Portfolio Transactions" and "Tax-
es" in the SAI.

PORTFOLIO MANAGERS -- Ms. Tamyra Thomas, who co-manages the portfolio of the
Short-Intermediate Term Master Portfolio with Mr. Smith, has been both manager
and co-manager of the portfolio of the Master Portfolio since its inception.
Ms. Thomas is a senior vice-president and the chief fixed income investment
officer of Wells Fargo Bank. Ms. Thomas has managed bond portfolios for over a
decade. She currently manages in excess of $1 billion of long-term taxable
bond portfolios for various foundations, defined benefit plans and other cli-
ents. Prior to joining Wells Fargo Bank in early 1988, she held a number of
senior investment positions for the Valley Bank & Trust Company of Utah in-
cluding vice president and manager of the investment department and chairman
of the Trust Investment Committee. She holds a B.S. from the University of
Utah and was past president of the Utah Bond Club. Ms. Thomas is a chartered
financial analyst.

Mr. Scott Smith has been co-manager of the portfolio of the Short-Intermedi-
ate Term Master Portfolio since June of 1995. Mr. Smith joined Wells Fargo
Bank in 1988 as a taxable money market portfolio specialist. His experience
includes a position with a private money management firm with mutual fund in-
vestment operations. Mr. Smith holds a B.A. from the University of San Diego
and is a chartered financial analyst.

U.S. TREASURY ALLOCATION FUND

The U.S. Treasury Allocation Fund seeks to achieve over the long term a high
level of total return, including net realized and unrealized capital gains and
net investment income, consistent with reasonable risk. This investment objec-
tive is fundamental and cannot be changed without shareholder approval. The
U.S. Treasury Allocation Fund seeks

28
<PAGE>

to achieve its investment objective by investing all of its assets in the U.S.
Treasury Allocation Master Portfolio of MIP, which has substantially the same
fundamental investment objective as the U.S. Treasury Allocation Fund. The
U.S. Treasury Allocation Master Portfolio seeks to achieve its objective by
pursuing a strategy of allocating and reallocating its investments among the
following three maturity classes of U.S. Treasury debt securities: long-term
bonds, intermediate-term notes, and short-term bills. That strategy is based
upon the premise that those maturity classes of debt securities from time to
time are over- or under-valued relative to each other by the market and that
under-valued maturity classes represent relatively better long-term investment
opportunities, and that timely low transaction cost shifts among such maturity
classes (as determined by their perceived relative over- or under-valuation)
can produce superior long-term investment returns. As a fundamental policy,
under normal market conditions, the U.S. Treasury Allocation Master Portfolio
will have at least 65% of the value of its total assets invested in U.S. Trea-
sury bonds, notes and bills. The U.S. Treasury Allocation Fund is designed for
investors with investment horizons of five years or greater; it is not de-
signed for investors seeking short-term gains. There can be no assurance that
the U.S. Treasury Allocation Fund or the U.S. Treasury Allocation Master Port-
folio will achieve its respective investment objective.

In determining the recommended portfolio mix, BGFA uses an investment model
(the "U.S. Treasury Allocation Model") which is presently used as a basis for
managing several large employee benefit funds and other institutional ac-
counts. The U.S. Treasury Allocation Model, which is proprietary to BGFA, ana-
lyzes risk, correlation and expected return data and regularly determines a
recommended portfolio allocation among long-term U.S. Treasury bonds, interme-
diate-term U.S. Treasury notes, and short-term U.S. Treasury bills. As further
described in "Appendix -- Additional Investment Policies," debt securities are
subject to fluctuations in market value due to fluctuations in market interest
rates; the values of such securities generally change inversely to changes in
market interest rates. Securities with longer maturities are generally more
sensitive to changes in interest rates than shorter-term debt securities. At
any given time, substantially all of the U.S. Treasury Allocation Master Port-
folio's assets may be invested in a single maturity class and the relative al-
location among the maturity classes may shift significantly from time to time.

The U.S. Treasury Allocation Master Portfolio's assets are invested in the
following types of debt instruments:

29
<PAGE>

Long-Term U.S. Treasury Bonds. The U.S. Treasury Allocation Master Portfolio
invests in U.S. Treasury bonds with remaining maturities of at least 20 years.
Under normal market conditions, the dollar-weighted average maturity of this
portion of the U.S. Treasury Allocation Master Portfolio's investment portfo-
lio is expected to range between 22 and 28 years.

Intermediate-Term U.S. Treasury Notes. The U.S. Treasury Allocation Master
Portfolio invests in U.S. Treasury notes and other U.S. Treasury securities
with remaining maturities ranging from one to 20 years. Under normal market
conditions, the dollar-weighted average maturity of this portion of the U.S.
Treasury Allocation Master Portfolio's investment portfolio is expected to
range between three and seven years.

Short-Term U.S. Treasury Bills. The U.S. Treasury Allocation Master Portfo-
lio invests in U.S. Treasury bills and other U.S. Treasury securities with re-
maining maturities of one year or less. Under normal market conditions, the
dollar-weighted average maturity of this portion of the U.S. Treasury Alloca-
tion Master Portfolio's investment portfolio is expected to range between 30
and 90 days.

In addition, the U.S. Treasury Allocation Master Portfolio may hold money
market instruments for liquidity purposes, as described in "Appendix -- Addi-
tional Investment Policies."

The U.S. Treasury Allocation Model is an optimization model which uses sta-
tistical techniques to determine the relative allocation of the U.S. Treasury
Allocation Master Portfolio's assets among U.S. Treasury bonds, U.S. Treasury
notes, and U.S. Treasury bills. A key component of the U.S. Treasury Alloca-
tion Model is a set of assumptions concerning expected risk and return and in-
vestor attitudes toward risk, which are incorporated into the allocation deci-
sion. The principal inputs of financial data to the model currently are (i)
the current yields on 91-day U.S. Treasury bills, 5-year U.S. Treasury notes,
and 30-year U.S. Treasury bonds; (ii) the expected statistical standard devia-
tion in investment return for each maturity class of fixed income securities;
and (iii) the expected statistical correlation of investment return among the
three maturity classes of U.S. Treasury securities. Using this and other data,
the U.S. Treasury Allocation Model is run daily to determine the recommended
allocation. Because the U.S. Treasury Allocation Master Portfolio may shift
its investment allocations among maturity classes significantly from time to
time, the performance of the U.S. Treasury Allocation Master Portfolio and the
U.S. Treasury Allocation Fund may

30
<PAGE>

differ from other U.S. Treasury allocation funds which invest in one maturity
class or from U.S. Treasury allocation funds with a constant mix of maturity
classes.

The Master Portfolio's investments are compared from time to time to the U.S.
Treasury Allocation 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 U.S. Treasury Allocation
Model. Recommended reallocation is implemented in accordance with trading
policies designed to take advantage of market op-portunities and reduce
transaction costs. The asset allocation mix selected by the U.S. Treasury
Allocation Model is a primary determinant in the U.S. Trea-sury Allocation
Master Portfolio's investment performance.

Although the basic premises of the U.S. Treasury Allocation Model have not
changed in any substantial respect, various inputs to the U.S. Treasury Allo-
cation Model and the manner in which its recommendations are implemented have
changed over time, and the U.S. Treasury Allocation Model is subject to such
further changes as BGFA, from time to time, may implement in its discretion.
The overall management of the U.S. Treasury Allocation Master Portfolio is
based on the recommendation of the U.S. Treasury Allocation Model, and no per-
son 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 U.S. Treasury Allocation Model are made by BGFA's investment
committee.

A more complete description of the U.S. Treasury Allocation Master Portfo-
lio's investments and investment activities is contained in "Appendix -- Addi-
tional Investment Policies."

RISK CONSIDERATIONS

General

Since the investment characteristics and, therefore, investment risks di-
rectly associated with such characteristics of each Fund correspond to those
of the Master Portfolio in which such Fund invests, the following is a discus-
sion of the risks associated with the investments of the Master Portfolios.
Once again, unless otherwise specified, references to the investment policies
and risks of a Fund also should be understood as references to the investment
policies and risks of the corresponding Master Portfolio.

31
<PAGE>

The net asset value per share of each Fund is neither insured nor guaran-
teed, is not fixed and should be expected to fluctuate.

Equity Securities

The stock investments of the Funds are subject to equity market risk. Equity
market risk is the possibility that common stock prices will fluctuate or de-
cline over short or even extended periods. The U.S. stock market tends to be
cyclical, with periods when stock prices generally rise and periods when
prices generally decline. Throughout the first six months of 1997, the stock
market, as measured by the S&P 500 Index and other commonly used indices, was
trading at or close to record levels. There can be no guarantee that these
performance levels will continue.

Debt Securities

The debt instruments in which the Funds invest are subject to credit and in-
terest rate risk. Credit risk is the risk that issuers of the debt instruments
in which the Funds invest may default on the payment of principal and/or in-
terest. Interest-rate risk is the risk that increases in market interest rates
may adversely affect the value of the debt instruments in which the Funds in-
vest. The value of the debt instruments generally changes inversely to market
interest rates. Debt securities with longer maturities, which tend to produce
higher yields, are subject to potentially greater capital appreciation and de-
preciation than obligations with shorter maturities. Changes in the financial
strength of an issuer or changes in the ratings of any particular security may
also affect the value of these investments. In addition, some of the asset-
backed securities in which the Short-Intermediate Term Fund may invest are
subject to extension risk. This is the risk that when interest rates rise,
prepayments of the underlying obligations slow, thereby lengthening the dura-
tion and potentially reducing the value of these securities.

Although some of the Funds' securities are guaranteed by the U.S. Govern-
ment, its agencies or instrumentalities, such securities are subject to inter-
est rate risk and the market value of these securities, upon which the Funds'
daily net asset value is based, will fluctuate. No assurance can be given that
the U.S. Government would provide financial support to its agencies or instru-
mentalities where it is not obligated to do so.

Foreign Securities

Investing in the securities of issuers in any foreign country, including
through American Depositary Receipts ("ADRs"), European Deposi-

32
<PAGE>

tary Receipts ("EDRs") and similar securities, involves special risks and con-
siderations not typically associated with investing in U.S. companies. These
include differences in accounting, auditing and financial reporting standards;
generally higher commission rates on foreign portfolio transactions; the pos-
sibility of nationalization, expropriation or confiscatory taxation; adverse
changes in investment or exchange control regulations (which may include sus-
pension of the ability to transfer currency from a country); and political,
social and monetary or diplomatic developments that could affect U.S. invest-
ments in foreign countries. Additionally, dispositions of foreign securities
and dividends and interest payable on those securities may be subject to for-
eign taxes, including withholding taxes. Foreign securities often trade with
less frequency and volume than domestic securities and, therefore, may exhibit
greater price volatility. Additional costs associated with an investment in
foreign securities may include higher custodial fees than apply to domestic
custodial arrangements and transaction costs of foreign currency conversions.
Changes in foreign exchange rates also will affect the value of securities de-
nominated or quoted in currencies other than the U.S. dollar. A Fund's perfor-
mance may be affected either unfavorably or favorably by fluctuations in the
relative rates of exchange between the currencies of different nations, by ex-
change control regulations and by indigenous economic and political develop-
ments.

Other Investment Considerations

Because the Asset Allocation and U.S. Treasury Allocation Funds may shift
investment allocations significantly from time to time, their performance may
differ from funds which invest in one asset class or from funds with a stable
mix of assets. Further, shifts among asset classes may result in relatively
high turnover and transaction (i.e., brokerage commission) costs. Portfolio
turnover also can generate short-term capital gains tax consequences. During
those periods in which a higher percentage of certain Funds' assets are in-
vested in long-term bonds, those Master Portfolios' exposure to interest-rate
risk will be greater because the longer maturity of such securities means they
are generally more sensitive to changes in market interest rates than short-
term securities.

The Asset Allocation, Bond Index, Short-Intermediate Term and U.S. Treasury
Allocation Funds may enter into futures transactions, each of which involves
risk. The futures contracts and options on futures contracts that these Funds
may purchase may be considered derivatives. Certain of the floating-and-vari-
able-rate instruments that each Fund

33
<PAGE>

may purchase may also be considered derivatives. Derivatives are financial in-
struments whose values are derived, at least in part, from the prices of other
securities or specified assets, indices or rates. Each Fund may use some de-
rivatives as part of its short-term liquidity holdings and/or as substitutes
for comparable market positions in the underlying securities. Some derivatives
may be more sensitive than direct securities to changes in interest rates or
sudden market moves. Some derivatives also may be susceptible to fluctuations
in yield or value due to their structure or contract terms. A Fund may not use
derivatives to create leverage without establishing adequate "cover" in com-
pliance with SEC leverage rules.

The Growth Stock Fund may invest a significant portion of its assets in the
securities of smaller and newer issuers. Investments in such companies may
present opportunities for capital appreciation because of high potential earn-
ings growth. However, such investments may present greater risks than invest-
ments in larger-size companies with more established operating histories, di-
verse product lines and financial capacity. Securities of small and new compa-
nies generally trade less frequently or in limited volume, or only in the
over-the-counter market or on a regional securities exchange. As a result, the
prices of such securities may be more volatile than those of larger, more es-
tablished companies and, as a group, these securities may suffer more severe
price declines during periods of generally declining equity prices.

Asset allocation and modeling strategies are employed by BGFA for other in-
vestment 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 Fund and one or more of these investment companies or ac-
counts, available investments or opportunities for sales will be allocated eq-
uitably to each by BGFA. In some cases, this procedure may adversely affect
the size of the position obtained for or disposed of by a Fund or the price
paid or received by such Fund.

PERFORMANCE

For purposes of advertising, the performance of the 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 re-
deemed at the end of a stated period of time, after giving effect to the rein-
vestment of dividends and

34
<PAGE>

distributions during the period. The return of shares is expressed as a per-
centage 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. Ad-
vertisements of the performance of shares of a 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 as-
sumes 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 charges for a specified period and dividing
by the net asset value per share at the beginning of the period. Advertise-
ments 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.

The performance of the Bond Index, Short-Intermediate Term and U.S. Treasury
Allocation Funds may be advertised in terms of yield. The yield on shares of
these Funds is calculated by dividing each Fund's net investment income per
share earned during a specified period (usually 30 days) by its net asset
value per share on the last day of such period and annualizing the result.

Additional information about the performance of each Fund is contained in
the Annual Report which may be obtained by calling the Company at 1-800-776-
0179.

35
<PAGE>

MANAGEMENT OF THE FUNDS

GENERAL -- The Company has not retained the services of an investment ad-
viser because each Fund's assets are invested in a corresponding Master Port-
folio of Master Investment Portfolio ("MIP") or Managed Series Investment
Trust ("MSIT") that has retained investment advisory services (see "Master
Portfolio Investment Adviser" below). Each Fund bears a pro rata portion of
the fees paid by the corresponding Master Portfolio. Each Fund invests in a
series of either MIP or MSIT as follows:

<TABLE>
<CAPTION>
MASTER
FUND PORTFOLIO
---- ---------
<S> <C>
Asset Allocation Fund............................ Asset Allocation Master
Portfolio of MIP
Bond Index Fund.................................. Bond Index Master Portfolio
of MIP
Growth Stock Fund................................ Growth Stock Master
Portfolio of MSIT
Short-Intermediate Term Fund..................... Short-Intermediate Term
Master Portfolio of MSIT
S&P 500 Stock Fund............................... S&P 500 Index Master
Portfolio of MIP
U.S. Treasury Allocation Fund.................... U.S. Treasury Allocation
Master Portfolio of MIP
</TABLE>

MIP is registered under the 1940 Act as an open-end management investment
company. MIP was organized on October 21, 1993 as a Delaware business trust.
MSIT is registered under the 1940 Act as an open-end management investment
company. MSIT was organized as a Delaware business trust on October 28, 1993.

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 also serve as Trustees of MIP and MSIT. Addi-
tional information regarding the Officers and Directors/Trustees of the Compa-
ny, MIP and MSIT is included in the SAI under "Management."

INVESTMENT ADVISER -- BGFA serves as investment adviser to the Master Port-
folios. BGFA provides investment guidance and policy direction in connection
with the management of each Master Portfolio's assets. BGFA is an indirect
subsidiary of Barclays Bank PLC ("Barclays") and is located at 45 Fremont
Street, San Francisco, California 94105. As

36
<PAGE>

of April 30, 1997, BGFA and its affiliates provided investment advisory serv-
ices for approximately $429 billion of assets.

For its advisory services to the Master Portfolios, BGFA is contractually
entitled to receive from each Master Portfolio monthly fees at the following
annual rates of the respective Master Portfolio's average daily net assets:

<TABLE>
<CAPTION>
ANNUAL
ADVISORY
MASTER PORTFOLIO FEES
---------------- --------
<S> <C>
Asset Allocation Master Portfolio................................... .35%
Bond Index Master Portfolio......................................... .08%
Growth Stock Master Portfolio....................................... .60%
S&P 500 Index Master Portfolio...................................... .05%
Short-Intermediate Term Master Portfolio............................ .45%
U.S. Treasury Allocation Master Portfolio........................... .30%
</TABLE>

The actual amount of advisory fees paid by each Master Portfolio, as a per-
centage of each Fund's average daily net assets, is set forth in this Prospec-
tus under the heading "Summary of Fund Expenses." Additional information con-
cerning the advisory fees paid by each Master Portfolio is found in the Funds'
SAI under "Investment Adviser".

Wells Fargo Bank currently serves as sub-adviser to the Growth Stock and
Short-Intermediate Term Master Portfolios. Wells Fargo Bank, subject to the
supervision and approval of BGFA, provides investment advisory assistance and
the day-to-day management of such Master Portfolios' assets. For providing
sub-advisory services to the Growth Stock and Short-Intermediate Term Master
Portfolios, Wells Fargo Bank is entitled to receive from BGFA monthly fees at
the annual rate of 0.15% and 0.10% of the Growth Stock and Short-Intermediate
Term Master Portfolios' respective average daily net assets. For the fiscal
year ended February 28, 1997, BGFA paid Wells Fargo Bank the full amount of
this fee.

BGFA, Barclays and their affiliates deal, trade and invest for their own ac-
count in the types of securities in which the Master Portfolios may invest and
may have deposit, loan and commercial banking relationships with the issuers
of securities purchased by the Master Portfolios. BGFA has informed the Master
Portfolios that in making investment decisions the Adviser does not obtain or
use material inside information in its possession.

37
<PAGE>

Morrison and Foerster LLP, counsel to the Company, MIP and MSIT and special
counsel to BGFA and Wells Fargo Bank, has advised the Company, MIP, MSIT, BGFA
and Wells Fargo Bank that BGFA, Wells Fargo Bank and their affiliates may per-
form the services contemplated by the Investment Advisory and Sub-Advisory
Contracts and this Prospectus without violation of the Glass-Steagall Act.
Such counsel has pointed out, however, that there are no controlling judicial
or administrative interpretations or decisions and that future judicial or ad-
ministrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such statutes, regulations and judicial or adminis-
trative decisions or interpretations, could prevent such entities from contin-
uing 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 agree-
ments would be proposed or entered into with another entity or entities quali-
fied to perform such services.

CO-ADMINISTRATORS -- Stephens Inc. ("Stephens") and BGI are the Funds' co-
administrators. Stephens and BGI provide the Funds with administrative servic-
es, including general supervision of the Funds' non-investment operations, co-
ordination of the other services provided to the Funds, compilation of infor-
mation for reports to the SEC and the state securities commissions, prepara-
tion of proxy statements and shareholder reports, and general supervision of
data compilation in connection with preparing periodic reports to the
Company's directors and officers. Stephens also furnishes office space and
certain facilities to conduct the Funds' business, and compensates the
Company's directors, officers and employees who are affiliated with Stephens.
In addition, except as outlined below under "Expenses", Stephens and BGI will
be responsible for paying all expenses incurred by the Funds other than the
fees payable to BGFA. For these services, Stephens and BGI are entitled to a
monthly fee at the annual rate of each Fund's average daily net assets as
shown below:

<TABLE>
<CAPTION>
ANNUAL
CO-ADMINISTRATION
FUND FEE
---- -----------------
<S> <C>
Asset Allocation Fund...................................... 0.40%
Bond Index Fund............................................ 0.15%
Growth Stock Fund.......................................... 0.18%
S&P 500 Stock Fund......................................... 0.15%
Short-Intermediate Term Fund............................... 0.18%
U.S. Treasury Allocation Fund.............................. 0.40%
</TABLE>

38
<PAGE>

BGI has delegated certain of its duties as administrator to Investors Bank
and Trust Company ("IBT"). IBT, as sub-administrator, is compensated by BGI
for performing certain administration services. Prior to October 21, 1996,
Stephens was the Funds' sole administrator and received fees for its services
as described in the SAI.

DISTRIBUTOR -- Stephens is the distributor for the Funds shares. Stephens is
a full service broker/dealer and investment advisory firm located at 111 Cen-
ter Street, Little Rock, Arkansas 72201. Stephens and its predecessor have
been providing securities and investment services for more than 60 years. Ad-
ditionally, it has been providing discretionary portfolio management services
since 1983. Stephens currently manages investment portfolios for pension and
profit sharing plans, individual investors, foundations, insurance companies
and university endowments. Stephens, as the Company's sponsor and the princi-
pal underwriter of the Funds within the meaning of the 1940 Act, has entered
into a Distribution Agreement with the Company pursuant to which Stephens has
the responsibility for distributing Fund shares. The Distribution Agreement
provides that Stephens shall act as agent for the Funds for the sale of their
shares, and may enter into Selling Agreements with selling agents that wish to
make available Fund shares to their respective customers ("Selling Agents").
Stephens does not receive a fee for providing distribution services to the
Funds. BGI presently acts as a Selling Agent, but does not receive any fee
from the Funds for such activities.

CUSTODIAN -- IBT currently acts as the Funds' custodian. The principal busi-
ness address of IBT is 89 South Street, Boston, Massachusetts 02111. IBT is
not entitled to receive compensation for its custodial services so long as it
is entitled to receive compensation for providing sub-administration services
to the Funds. Prior to October 21, 1996, BGI acted as the Funds' custodian.
The principal business address of BGI is 45 Fremont Street, San Francisco,
California 94105. BGI did not receive compensation for its custodial services.

TRANSFER AND DIVIDEND DISBURSING AGENT -- Wells Fargo Bank is the Company's
transfer and dividend disbursing agent. Wells Fargo Bank performs its transfer
and dividend disbursing agency services at 525 Market Street, San Francisco,
California 94105.

SHAREHOLDER SERVICING AGENTS -- The Funds have adopted a Shareholder Servic-
ing Plan pursuant to which they have entered into a Shareholder Servicing
Agreement with BGI, and may enter into similar

39
<PAGE>

agreements with other entities ("Shareholder Servicing Agents") for the provi-
sion of certain services to the Funds. The services provided may include per-
sonal services relating to shareholder accounts, such as answering shareholder
inquiries, providing reports and other information, and providing services re-
lated to the maintenance of shareholder accounts. For these services, each
Shareholder Servicing Agent is entitled to receive a monthly fee equal to the
percentage rate listed below of the average daily net assets of such Fund rep-
resented by shares owned during the period for which payment is being made by
investors with whom the Shareholder Servicing Agent maintains a servicing re-
lationship, or an amount which equals the maximum amount payable to the Share-
holder Servicing Agent under applicable laws, regulations or rules, including
the Conduct Rules of the National Association of Securities Dealers, Inc.,
whichever is less. Stephens and BGI as co-administrators have agreed to pay
these shareholder servicing fees out of the fees each receives for co-adminis-
tration services.

<TABLE>
<CAPTION>
ANNUAL
SHAREHOLDER
SERVICING
FUND FEE
---- -----------
<S> <C>
Asset Allocation Fund............................................ .20%
Bond Index Fund.................................................. .07%
Growth Stock Fund................................................ .10%
S&P 500 Stock Fund............................................... .07%
Short-Intermediate Term Fund..................................... .10%
U.S. Treasury Allocation Fund.................................... .20%
</TABLE>

A Shareholder Servicing Agent may impose certain conditions on its custom-
ers, subject to the terms of this Prospectus, in addition to or different from
those imposed by the Fund, such as requiring a higher minimum initial invest-
ment 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 shareholders of the Funds and to notify them in
writing at least thirty days before it imposes any transaction fees.

EXPENSES -- Except for extraordinary expenses, brokerage and other expenses
connected with the execution of portfolio transactions and certain other ex-
penses which are borne by the Funds, Stephens and BGI have agreed to bear all
costs of the Funds' and the Company's operations.

40
<PAGE>

HOW TO BUY SHARES

WHO MAY INVEST

The following types of investors are eligible to invest in shares of the
Funds:

. Participants in Benefit Plans ("Plan Participants"), including retire-
ment plans, who have appointed one of the Company's Shareholder Servic-
ing Agents as plan trustee, plan administrator or other agent, or whose
plan trustee, plan administrator or other agent has a servicing arrange-
ment with a Shareholder Servicing Agent that permits investments in Fund
shares, and Plan Participants who invest pursuant to an agreement be-
tween such a Benefit Plan and a Shareholder Servicing Agent.

. Investors using proceeds that are being rolled over directly from a
qualified Benefit Plan to an IRA pursuant to arrangements between the
sponsor or other agent of the qualified Benefit Plan and a Shareholder
Servicing Agent, or who have established a tax-deferred retirement plan
with a Shareholder Servicing Agent.

. Investors who have an account arrangement with one of the Company's
Shareholder Servicing Agents that permits investments in Fund shares
("Qualified Buyers").

. Investors who have made arrangements with BGI and invest at least $1
million in a Fund ("Direct Buyers").

Eligible investors may purchase Fund shares in one of the several ways de-
scribed below. For more information or additional forms, call 1-800-828-6894.
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 representa-
tive, the Company or Stephens will transmit or cause to be transmitted prompt-
ly, without charge, a paper copy of the electronic Prospectus.

MINIMUM INVESTMENT AMOUNT

41
<PAGE>

purchased by a check that 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 a Fund's shares and to reject any purchase requests. Certifi-
cates for Fund shares are not issued. Shareholder Servicing Agents may estab-
lish 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 the Funds may be purchased on any Business Day at the net 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 (currently 1:00 p.m., Pacific
time) will be executed at the net asset value determined as of the close of
regular trading on the NYSE on that Business 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 responsi-
ble for the prompt transmission of the investor's purchase order to the Trans-
fer 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 re-
ceived by the Transfer Agent on the same day.

BENEFIT PLANS

Shares of the Funds are offered to Benefit Plans that have appointed one of
the Funds' 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 invest-
ments in Fund shares. Benefit Plans include 401(k) plans and 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.

42
<PAGE>

IRAS, KEOGHS AND OTHER INDIVIDUAL RETIREMENT PLANS

An investor may be entitled to invest in shares of the Funds through a tax-
deferred retirement plan. In addition to offering investments in Fund shares
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. Contact
a Shareholder Servicing Agent for materials describing plans available through
it, and their benefits, provisions and fees.

Application materials for opening an IRA rollover, Keogh retirement plan or
other individual retirement plan can be obtained from a Shareholder Servicing
Agent. Completed retirement plan applications should be returned to the in-
vestor's Shareholder Servicing Agent for approval and processing. If an in-
vestor's retirement plan application is incomplete or improperly filled out,
there may be a delay before the Fund account is opened. Investors should con-
sult their Shareholder Servicing Agent.

PURCHASES BY QUALIFIED BUYERS

43
<PAGE>

PURCHASES BY DIRECT BUYERS

Direct Buyers 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)

IN-KIND PURCHASES

HOW TO REDEEM SHARES

GENERAL

Investors may redeem all or a portion of their Fund 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 the 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 Fund's net asset value
at the time of purchase and redemption.

44
<PAGE>

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 Port-
folio to determine fairly 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 sharehold-
er'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 pur-
chase date). Payment of redemption proceeds may be made in portfolio securi-
ties.

Redemption orders that are received by the Transfer Agent before the close
of regular trading on the NYSE (currently 1:00 p.m., Pacific time), will be
executed at the net asset value determined as of the close of regular trading
on the NYSE on that Business Day. Redemption orders that are received by the
Transfer Agent after the close of regular trading on the NYSE, will be exe-
cuted on the next Business Day. The investor's Shareholder Servicing Agent is
responsible for the prompt transmission of redemption orders 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 re-
ceived by the Transfer Agent on the same day.

Unless the investor has made other arrangements with an appropriate Share-
holder Servicing Agent, and the Transfer Agent has been informed of such ar-
rangements, proceeds of a redemption order made by the investor 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.

REDEMPTIONS BY 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 procedures for
withdrawals, which are disclosed to investors at the time of purchase. Invest-
ors may obtain more information by contacting their employer and/or their
Shareholder Servicing Agent. The redemption procedures outlined in the remain-
der of this section do not apply to investors in Benefit Plans or retirement
plans. Investors in these types of plans should contact their Shareholder Ser-
vicing Agent regarding redemption procedures applicable to them.

45
<PAGE>

REDEMPTIONS BY QUALIFIED BUYERS

REDEMPTIONS BY DIRECT BUYERS

Redemptions by Mail

1. Write a letter of instruction to the Transfer Agent. 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 redemp-
tion proceeds is sent to the investor's address of record.

Redemptions by Telephone

Telephone redemption or exchange privileges are made available to Direct
Buyers automatically upon opening an account (unless the shareholder specifi-
cally declines the privileges). These privileges authorize the Transfer Agent
to act on telephone instructions from any person representing himself or her-
self to be the investor and reasonably believed by the Transfer Agent to be
genuine. The Company requires the Transfer Agent to employ reasonable proce-
dures, such as requiring a form of personal identification, to confirm that
instructions are genuine and, if it does not follow such procedures, the Com-
pany and 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.

46
<PAGE>

Expedited Redemptions by Letter and Telephone

A Direct Buyer 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. Tele-
phone redemption and exchange privileges are made available to a Direct Buyer
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 re-
ceipt of redemption proceeds and the Fund's receipt of the investor's redemp-
tion request would be expedited.

Direct Buyers may request expedited redemption by calling the Transfer Agent
at 1-800-828-6894.

Direct Buyers may request expedited redemption by mailing an expedited re-
demption request to the Transfer Agent.

Upon request, proceeds of expedited redemptions are wired or credited to the
investor's Approved Bank Account. The Company reserves the right to impose a
charge for wiring redemption proceeds. When proceeds of an individual or cor-
porate 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 his or her Account Application, the ex-
pedited 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
investor's expedited redemption request is received by the Transfer Agent on a
Business Day, the investor's redemption proceeds are transmitted to the in-
vestor's Approved Bank Account on the next Business Day (assuming the invest-
or'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.

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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 read a copy of the current prospectus of the
fund into which the exchange is being made. A prospectus may be obtained by
calling the Company 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, al-
though the Company reserves the right, upon not less than 60 days' written no-
tice, 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 be-
lieves such action would be appropriate to protect a fund 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
may be modified or terminated at any time upon 60 days' written notice to
shareholders.

SHARE VALUE

Shares of each Fund are sold on a continuous basis at the applicable offer-
ing price next determined after an order in proper form is received by the
Transfer Agent. Net asset value ("NAV") per share is determined each Business
Day as of the close of regular trading on the NYSE (currently 1:00 p.m., Pa-
cific time).

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<PAGE>

fluctuate daily and is expected to differ. Each Fund's investment in the cor-
responding Master Portfolio is valued at the NAV of such 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 obliga-
tions with remaining maturities of 60 days or less, which are valued at amor-
tized cost, each Master Portfolio's assets are valued at current market pric-
es, or if such prices are not readily available, at fair value as determined
in good faith in accordance with guidelines approved by the appropriate Board
of Trustees. Prices used for such valuations may be provided by independent
pricing services. For further information regarding the methods employed in
valuing each Master Portfolio's investments, see "Determination of Net Asset
Value" in the SAI.

DIVIDENDS AND DISTRIBUTIONS

The Growth Stock Fund and the S&P 500 Stock Fund each intend to pay quar-
terly dividends consisting of substantially all of their net investment income
and annual distributions consisting of substantially all of their net realized
capital gains. The Asset Allocation Fund, Bond Index Fund, Short-Intermediate
Term Fund and the U.S. Treasury Allocation Fund intend to pay monthly divi-
dends consisting of substantially all of their net investment income and an-
nual distributions consisting of substantially all of their net realized capi-
tal gains. 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.

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 acquired 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.

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<PAGE>

TAXES

GENERAL

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 invest-
ment income and capital gain distributions.

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<PAGE>

your specific tax situation as well as with respect to foreign, state and lo-
cal taxes. Further federal tax considerations are discussed in the SAI.

GENERAL INFORMATION

DESCRIPTION OF THE COMPANY

Each Fund is a series of the Company. The Company was organized as a Mary-
land corporation on October 15, 1992 and currently offers twelve series of
shares. 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 their contractual arrangements with various service providers. Addi-
tional information about the Directors and officers of the Company is included
in the Funds' SAI under "Management." Although the Company is not required to
hold regular annual shareholder meetings, occasional annual or special meet-
ings may be required for purposes such as electing or removing Directors, ap-
proving advisory contracts and distribution plans and changing a Fund's in-
vestment objectives or fundamental investment policies.

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 sub-
mitted 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.

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<PAGE>

from its shareholders. Shares for which the Fund receives no voting instruc-
tions are voted in the same proportion as the votes received from the other
Fund shareholders. If a Master Portfolio's investment objective or policies
are changed, the corresponding Fund may elect to change its objective or poli-
cies to correspond to those of the Master Portfolio. The Fund may also elect
to redeem its interests in the Master Portfolio and either seek a new invest-
ment company with a matching objective in which to invest or retain its own
investment adviser to manage the Fund's portfolio in accordance with its ob-
jective. In the latter case, the Fund's inability to find a substitute invest-
ment company in which to invest or equivalent management services could ad-
versely affect shareholders' investments in the Fund.

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

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS 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 OF-
FERING MAY NOT LAWFULLY BE MADE.

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<PAGE>

APPENDIX -- ADDITIONAL INVESTMENT POLICIES

FUND INVESTMENTS

Set forth below is a description of certain investments and additional in-
vestment policies for each Fund, except as otherwise indicated. REFERENCES TO
THE INVESTMENTS AND INVESTMENT POLICIES AND RESTRICTIONS OF A FUND, UNLESS
OTHERWISE INDICATED, SHOULD BE UNDERSTOOD AS REFERENCES TO THE INVESTMENTS AND
INVESTMENT POLICIES AND RESTRICTIONS OF THE CORRESPONDING MASTER PORTFOLIO.

U.S. GOVERNMENT OBLIGATIONS -- The Funds may invest in various types of U.S.
Government obligations. U.S. Government obligations include securities issued
or guaranteed as to principal and interest by the U.S. Government, its agen-
cies or instrumentalities. Payment of principal and interest on U.S. Govern-
ment obligations (i) may be backed by the full faith and credit of the United
States (as with U.S. Treasury obligations and GNMA certificates) or (ii) may
be backed solely by the issuing or guaranteeing agency or instrumentality it-
self (as with FNMA notes). In the latter case, the investor must look princi-
pally 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 finan-
cial support to its agencies or instrumentalities where it is not obligated to
do so. As a general matter, the value of debt instruments, including U.S. Gov-
ernment obligations, declines when market interest rates increase and rises
when market interest rates decrease. Certain types of U.S. Government obliga-
tions are subject to fluctuations in yield or value due to their structure or
contract terms.

SECURITIES OF NON-U.S. ISSUERS -- The Funds may invest in certain securities
of non-U.S. issuers as discussed below.

Obligations of Foreign Governments, Banks and Corporations -- Each Fund may
invest in U.S. dollar-denominated short-term obligations issued or guaranteed
by one or more foreign governments or any of their political subdivisions,
agencies or instrumentalities that are determined by BGFA or Wells Fargo Bank
to be of comparable quality to the other obligations in which such Fund may
invest. The Funds may also invest in debt obligations of supranational enti-
ties. Supranational entities include international organizations designated or
supported by governmental entities to promote economic reconstruction or de-
velopment and international banking institutions and related government

A-1
<PAGE>

agencies. Examples include the International Bank for Reconstruction and De-
velopment (the World Bank), the European Coal and Steel Community, the Asian
Development Bank and the InterAmerican Development Bank. The percentage of
each Fund's assets invested in obligations of foreign governments and suprana-
tional entities will vary depending on the relative yields of such securities,
the economic and financial markets of the countries in which the investments
are made and the interest rate climate of such countries.

Each Fund may invest a portion (up to 25% for the Short-Intermediate Term
Fund) of its total assets in high-quality, short-term (one year or less) debt
obligations of foreign branches of U.S. banks or U.S. branches of foreign
banks that are denominated and pay interest in U.S. dollars. The Funds also
may invest in U.S. dollar-denominated debt obligations issued by foreign cor-
porations.

Emerging Market Securities -- The Growth Stock Fund may invest up to 15% of
its assets in equity securities of companies in "emerging markets." The Fund
considers countries with emerging markets to include the following: (i) coun-
tries with an emerging stock market as defined by the International Finance
Corporation; (ii) countries with low- to middle-income economies according to
the International Bank for Reconstruction and Development (more commonly re-
ferred to as the World Bank); and (iii) countries listed in World Bank publi-
cations as developing. The adviser may invest in those emerging markets that
have a relatively low gross national product per capita, compared to the
world's major economies, and which exhibit potential for rapid economic
growth. The adviser believes that investment in equity securities for emerging
market issuers offers significant potential for long-term capital apprecia-
tion.

Equity securities of emerging market issuers may include common stock, pre-
ferred stocks (including convertible preferred stocks) and warrants; bonds,
notes and debentures convertible into common or preferred stock; equity inter-
ests in foreign investment funds or trusts and real estate investment trust
securities. The Fund also may invest in American Depositary Receipts, European
Depositary Receipts, Continental Depositary Receipts, Global Depositary Re-
ceipts, International Depositary Receipts and similar instruments of such is-
suers.

Emerging market countries include, but are not limited to: Argentina, Bra-
zil, Chile, China, the Czech Republic, Columbia, Ecuador, Greece, Hong Kong,
Indonesia, India, Malaysia, Mexico, the Philippines,

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<PAGE>

Poland, Portugal, Peru, Russia, Singapore, South Africa, Thailand, Taiwan and
Turkey. A company is considered in a country, market or region if it conducts
its principal business activities there, namely, if it derives a significant
portion (at least 50%) of its revenues or profits from goods produced or sold,
investments made, or services performed therein or has at least 50% of its as-
sets situated in such country, market or region.

American Depositary Receipts and Similar Instruments--The Growth Stock Fund
may invest in foreign securities through American Depositary Receipts
("ADRs"), Canadian Depositary Receipts ("CDRs"), European Depositary Receipts
("EDRs"), International Depositary Receipts ("IDRs") and Global Depositary Re-
ceipts ("GDRs") or other similar securities convertible into securities of
foreign issuers. These securities may not necessarily be denominated in the
same currency as the securities into which they may be converted. ADRs (spon-
sored or unsponsored) are receipts typically issued by a U.S. bank or trust
company and traded on a U.S. stock exchange, and CDRs are receipts typically
issued by a Canadian bank or trust company that evidence ownership of under-
lying foreign securities. Issuers of unsponsored ADRs are not contractually
obligated to disclose material information in the U.S. and, therefore, such
information may not correlate to the market value of the unsponsored ADR. EDRs
and IDRs are receipts typically issued by European banks and trust companies,
and GDRs are receipts issued by either a U.S. or non-U.S. banking institution,
that evidence ownership of the underlying foreign securities. Generally, ADRs
in registered form are designed for use in U.S. securities markets and EDRs
and IDRs in bearer form are designed primarily for use in Europe. The Fund may
invest up to 25% of its assets in these types of securities.

FLOATING- AND VARIABLE-RATE OBLIGATIONS -- The Funds may purchase debt in-
struments with interest rates that are periodically adjusted at specified in-
tervals or whenever a benchmark rate or index changes. These adjustments gen-
erally limit the increase or decrease in the amount of interest received on
the debt instruments. Floating- and variable-rate instruments are subject to
interest-rate risk and credit risk.

BONDS -- Certain of the debt instruments purchased by the Asset Allocation,
Bond Index, Short-Intermediate Term and U.S. Treasury Allocation Funds may be
bonds. A bond is an interest-bearing security issued by a company or govern-
mental unit. The issuer of a bond has a contractual obligation to pay interest
at a stated rate on specific dates

A-3
<PAGE>

and to repay principal (the bond's face value) periodically or on a specified
maturity date. An issuer may have the right to redeem or "call" a bond before
maturity, in which case the investor may have to reinvest the proceeds at
lower market rates. Most bonds bear interest income at a "coupon" rate that is
fixed for the life of the bond. The value of a fixed rate bond usually rises
when market interest rates fall, and falls when market interest rates rise.
Accordingly, a fixed rate bond's yield (income as a percent of the bond's cur-
rent value) may differ from its coupon rate as its value rises or falls.

Other types of bonds bear income at an interest rate that is adjusted peri-
odically. Because of their adjustable interest rates, the value of "floating-
rate" or "variable-rate" bonds fluctuates much less in response to market in-
terest rate movements than the value of fixed rate bonds. Also, the Funds may
treat some of these bonds as having a shorter maturity for purposes of calcu-
lating the weighted average maturity of their investment portfolios. Bonds may
be senior or subordinated obligations. Senior obligations generally have the
first claim on a corporation's earnings and assets and, in the event of liqui-
dation, are paid before subordinated debt. Bonds may be unsecured (backed only
by the issuer's general creditworthiness) or secured (also backed by specified
collateral).

ASSET-BACKED SECURITIES -- The Short-Intermediate Term Fund may invest in
mortgage-related securities. Mortgage pass-through securities are securities
representing interests in "pools" of mortgages in which payments of both in-
terest and principal on the securities are made monthly, in effect "passing
through" monthly payments made by the individual borrowers on the residential
mortgage loans which underlie the securities (net of fees paid to the issuer
or guarantor of the securities). Early repayment of principal on mortgage
pass-through securities (arising from prepayments of principal due to sale of
the underlying property, refinancing, or foreclosure, net of fees and costs
which may be incurred) may expose the Fund to a lower rate of return upon re-
investment of principal. Also, if a security subject to prepayment has been
purchased at a premium, in the event of prepayment the value of the premium
would be lost. Like other fixed-income securities, when interest rates rise,
the value of a mortgage-related security generally will decline; however, when
interest rates decline, the value of mortgage-related securities with prepay-
ment features may not increase as much as other fixed-income securities. Pay-
ment of principal and interest on some mortgage pass-through securities (but
not the market value of the securities themselves) may be guaranteed by the
full faith and credit of

A-4
<PAGE>

the U.S. Government or its agencies or instrumentalities. Mortgage pass-
through securities created by non-government issuers (such as commercial
banks, savings and loan institutions, private mortgage insurance companies,
mortgage bankers and other secondary market issuers) may be supported by vari-
ous forms of insurance or guarantees, including individual loan, title, pool
and hazard insurance, and letters of credit, which may be issued by governmen-
tal entities, private insurers or the mortgage poolers.

The Fund may invest up to 25% of its total assets in investment grade col-
lateralized mortgage obligations ("CMOs"). CMOs are structured into multiple
classes, with each class bearing a different stated maturity. Payments of
principal, including prepayments, are first returned to investors holding the
shortest maturity class; investors holding the longer maturity classes receive
principal only after the first class has been retired. The Fund may purchase
CMOs that are:

(1) collateralized by fixed rate or adjustable rate mortgages that are
guaranteed, as to payment of principal and interest, by a U.S. Government
agency or instrumentality;

(2) directly guaranteed, as to payment of principal and interest by the
issuer, which guarantee is collateralized by U.S. Government securities;
or

(3) collateralized by mortgage-backed securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities.

The Short-Intermediate Term Fund may invest in asset-backed securities
("ABSs"), which are unrelated to mortgage loans. These asset-backed securities
may consist of undivided fractional interests in pools of consumer loans or
receivables held in trust. Examples include certificates for automobile re-
ceivables (CARS) and credit card receivables (CARDS). Payments of principal
and interest on these asset-backed securities are "passed through" on a
monthly or other periodic basis to certificate holders and are typically sup-
ported by some form of credit enhancement, such as a letter of credit, surety
bond, limited guaranty, or subordination. The extent of credit enhancement
varies, but usually amounts to only a fraction of the asset-backed security's
par value until exhausted. Ultimately, asset-backed securities are dependent
upon payment of the consumer loans or receivables by individuals, and the cer-
tificate holder frequently has no recourse to the entity that originated the
loans or receivables. The actual maturity and realized yield will vary based
upon the prepayment experience of the underlying asset pool and prevailing in-
terest rates at the time of prepayment. Asset-backed secu-

A-5
<PAGE>

rities are relatively new instruments and may be subject to greater risk of
default during periods of economic downturn than other instruments. Also, the
secondary market for certain asset-backed securities may not be as liquid as
the market for other types of securities, which could result in a Fund experi-
encing difficulty in valuing or liquidating such securities.

FUTURES CONTRACTS AND OPTIONS TRANSACTIONS -- The Asset Allocation, Bond In-
dex, S&P 500 Stock and U.S. Treasury Allocation Funds may use futures as a
substitute for a comparable market position in the underlying securities.

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

Stock Index Futures and Options on Stock Index Futures -- The S&P 500 Stock
and Asset Allocation Funds may invest in stock index futures and options on
stock index futures as a substitute for a comparable market position in the
underlying securities. A stock index future

A-6
<PAGE>

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 deliv-
ery of the underlying stocks in the index is made. With respect to stock indi-
ces that are permitted investments, each Fund intends to purchase and sell
futures contracts on the stock index for which it can obtain the best price
with consideration also given to liquidity. There can be no assurance that a
liquid market will exist at the time when a Fund seeks to close out a futures
contract or a futures option position. Lack of a liquid market may prevent
liquidation of an unfavorable position.

Interest-Rate Futures Contracts and Options on Interest-Rate Futures Con-
tracts -- The Asset Allocation, Bond Index and U.S. Treasury Allocation Funds
may invest in interest-rate futures contracts and options on interest-rate
futures contracts as a substitute for a comparable market position in the un-
derlying securities. The Funds may also sell options on interest-rate futures
contracts as part of closing purchase transactions to terminate their options
positions. No assurance can be given that such closing transactions can be ef-
fected or the degree of correlation between price movements in the options on
interest rate futures and price movements in the Funds' portfolio securities
which are the subject of the transaction.

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

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<PAGE>

Options -- The Growth Stock Fund may invest in call and put options on a
specific security. The Fund may invest up to 15% of its assets, represented by
the premium paid, in the purchase of call and put options in respect of spe-
cific securities (or groups of "baskets" of specific securities). The pur-
chaser of an option risks a total loss of the premium paid for the option if
the price of the underlying security does not increase or decrease suffi-
ciently to justify exercise. The seller of an option, on the other hand, will
recognize the premium as income if the option expires unrecognized but fore-
goes any capital appreciation in excess of the exercise price in the case of a
call option and may be required to pay a price in excess of current market
value in the case of a put option. The Fund may purchase and write unlisted
over-the-counter options with broker/dealers deemed creditworthy by the advis-
er. Closing transactions for such options are usually effected directly with
the same broker/dealer that effected the original option transaction. A Fund
bears the risk that the broker/dealer will fail to meet its obligations. There
is no assurance that a liquid secondary trading market exists for closing out
an unlisted option position. Furthermore, unlisted options are not subject to
the protections afforded purchasers of listed options by the Options Clearing
Corporation, which performs the obligations of its members who fail to perform
in connection with the purchase or sale of options.

INVESTMENT COMPANY SECURITIES -- Each Master Portfolio may invest in securi-
ties issued by other investment companies which principally invest in securi-
ties of the type in which the Master Portfolio invests. Under the 1940 Act, a
Master Portfolio's investment in such securities currently is limited to, sub-
ject to certain exceptions, (i) 3% of the total voting stock of any one in-
vestment company, (ii) 5% of the Master Portfolio's net assets with respect to
any one investment company and (iii) 10% of the Master Portfolio's net assets
in the aggregate. Invest-

A-8
<PAGE>

ments in the securities of other investment companies generally will involve
duplication of advisory fees and certain other expenses. The Master Portfolios
may also purchase shares of exchange listed closed-end funds.

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

CONVERTIBLE SECURITIES -- The Growth Stock Fund may invest in convertible
securities that provide current income and are issued by companies with the
characteristics described above for the Fund and that have a strong earnings
and credit record. The Fund may purchase convertible securities that are
fixed-income debt securities or preferred stocks, and which may be converted
at a stated price within a specific period of time into a certain quantity of
the common stock of the same issuer. Convertible securities, while usually
subordinate to similar nonconvertible securities, are senior to common stocks
in an issuer's capital structure. Convertible securities offer flexibility by
providing the investor with a steady income stream (which generally yield a
lower amount than similar nonconvertible securities and a higher amount than
common stocks) as well as the opportunity to take advantage of increases in
the price of the issuer's common stock through the conversion feature. Fluctu-
ations in the convertible security's price can reflect changes in the market
value of the common stock or changes in market interest rates. At most, 5% of
the Fund's net assets will be invested, at the time of purchase, in convert-
ible securities that are not rated in the four highest rating categories by
one or more NRSROs, such as Moody's or S&P, or unrated but determined by BGFA
or Wells Fargo Bank to be of comparable quality.

CORPORATE REORGANIZATIONS -- The Growth Stock Fund may invest in securities
for which a tender or exchange offer has been made or announced, and in
securities of companies for which a merger, consolidation, liquidation or
similar reorganization proposal has been announced if, in the judgment of BGFA
or Wells Fargo Bank, there is a

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<PAGE>

reasonable prospect of capital appreciation significantly greater than the
added portfolio turnover expenses inherent in the short term nature of such
transactions. The principal risk associated with such investments is that such
offers or proposals may not be consummated within the time and under the terms
contemplated at the time of the investment, in which case, unless such offers
or proposals are replaced by equivalent or increased offers or proposals which
are consummated, the Funds may sustain a loss.

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

A-10
<PAGE>

Certificates of deposit are negotiable certificates evidencing the obliga-
tion of a bank to repay funds deposited with it for a specified period of
time.

Commercial Paper and Short-Term Corporate Debt Instruments -- Each Fund may
invest in commercial paper (including variable amount master demand notes),
which consists of short-term, unsecured promissory notes issued by corpora-
tions to finance short-term credit needs. Commercial paper is usually sold on
a discount basis and has a maturity at the time of issuance not exceeding nine
months. Variable amount master demand notes are demand obligations that permit
the investment of fluctuating amounts at varying market rates of interest pur-
suant to arrangements between the issuer and a commercial bank acting as agent
for the payee of such notes whereby both parties have the right to vary the
amount of the outstanding indebtedness on the notes. The investment adviser
and/or sub-adviser to each Fund monitors on an ongoing basis the ability of an
issuer of a demand instrument to pay principal and interest on demand.

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

A-11
<PAGE>

LOANS OF PORTFOLIO SECURITIES -- Each Fund may lend securities from their
portfolios to brokers, dealers and financial institutions (but not individu-
als) in order to increase the return on such Fund's portfolio. The value of
the loaned securities may not exceed one-third of a Fund's total assets and
loans of portfolio securities are fully collateralized based on values that
are market-to-market daily. The Funds will not enter

A-12
<PAGE>

into any portfolio security lending arrangement having a duration of longer
than one year. The principal risk of portfolio lending is potential default or
insolvency of the borrower. In either of these cases, a Fund could experience
delays in recovering securities or collateral or could lose all or part of the
value of the loaned securities. The Funds may pay reasonable administrative
and custodial fees in connection with loans of portfolio securities and may
pay a portion of the interest or fee earned thereon the borrower or a placing
broker. See "Additional Permitted Investment Activities" in the SAI for addi-
tional information.

INVESTMENT POLICIES -- THE FUNDS

The investment objective of each Fund as set forth in the first sentence of
the section describing such Fund under the heading entitled "The Funds -- In-
vestment Objective and Policies", is fundamental; that is, it may not be
changed without approval by the vote of the holders of a majority of the out-
standing voting securities of such Fund as described under "Capital Stock" in
the SAI. In addition, any fundamental investment policy may not be changed
without shareholder approval. If the Board of Directors of the Company deter-
mines, however, that the investment objective of a Fund can best be achieved
by a substantive change in a non-fundamental investment policy or strategy,
the Board may make such change without shareholder approval and will disclose
any such material changes in the then current prospectus.

As matters of fundamental policy, the Funds may: (i) not purchase securities
of any issuer (except U.S. Government obligations) if as a result, with re-
spect to 75% of its total assets, more than 5% of the value of a Fund's total
assets would be invested in the securities of such issuer or, with respect to
100% of its total assets, a Fund would own more than 10% of the outstanding
voting securities of such issuer provided that this restriction shall not pre-
vent a Fund from investing all of its assets in the Master Portfolio's; (ii)
borrow from banks up to 20% of the current value of its net assets for tempo-
rary purposes only in order to meet redemptions, and these borrowings may be
secured by the pledge of up to 20% of the current value of its net assets (but
investments may not be purchased while any such outstanding borrowing in ex-
cess of 5% of its net assets exists); (iii) make loans of portfolio securities
in accordance with its investment policies; and (iv) not invest 25% or more of
its total assets (i.e., concentrate) in any particular industry, except that a
Fund will concentrate its assets in any one industry for the same period as
does the S&P 500 Index and except that a Fund may invest 25% or more of their
assets in U.S. Government obligations, provided that this re-

A-13
<PAGE>

striction shall not prevent a Fund from investing all of its assets in the
corresponding Master Portfolio.

The Funds reserve the right to invest up to 15% of the current value of
their net assets in repurchase agreements having maturities of more than seven
days and other illiquid securities. Disposing of illiquid or restricted secu-
rities may involve additional costs and require additional time.

INVESTMENT RATINGS

The following describes how three of the major rating agencies classify
their investment ratings. Ratings of debt securities represent the rating
agency's opinion regarding their quality, and are not a guarantee of quality.
Credit ratings attempt to evaluate the safety of principal and interest pay-
ments, and do not evaluate the risks of fluctuations in market value. Further-
more, rating agencies may fail to make timely changes in credit ratings in re-
sponse to subsequent events, so that an issuer's current financial condition
may be better or worse than the rating indicates. Subsequent to purchase by a
Master Portfolio, the rating of a debt security may be reduced below the mini-
mum rating required for initial purchase by the Master Portfolio or the secu-
rity may cease to be rated. BGFA will consider either such event in determin-
ing whether a Master Portfolio should continue to hold the security. In no
event will a Master Portfolio hold more than 5% of its net assets in debt se-
curities rated below "BBB" by S&P or below "Baa" by Moody's or in unrated low
quality (below investment grade) debt securities. BGFA does not make any rep-
resentation that the investment ratings provided by such rating agencies are
accurate or complete.

STANDARD & POOR'S RATINGS

Bond Ratings. Bonds rated "AAA" have the highest rating assigned by S&P to a
debt obligation. Capacity to pay interest and repay principal is extremely
strong. Bonds rated "AA" have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in a small degree.
Bonds rated "A" have a strong capacity to pay interest and repay principal al-
though it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
Bonds rated "BBB" by S&P are regarded as having an adequate capacity to pay
interest and repay principal. Whereas such bonds normally exhibit ade-

A-14
<PAGE>

quate protection parameters, adverse economic conditions or changing circum-
stances are more likely to lead to a weakened capacity to pay interest and re-
pay principal for debt in this category than in higher rated categories.

Commercial Paper Ratings. Commercial paper with the greatest capacity for
timely payment is rated "A" by S&P. Issues within this category are further
redefined with designations "1", "2" and "3" to indicate the relative degree
of safety; "A-1," the highest of the three, indicates the degree of safety is
very high.

MOODY'S INVESTORS SERVICE RATINGS

Bond Ratings. Bonds rated "Aaa" by Moody's are judged to be of the best
quality. Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. Bonds rated "Aa" are judged to be of
high quality by all standards. They are rated lower than the best bonds be-
cause margins of protection may not be as large or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than is the case with
"Aaa" securities. Bonds that are rated "A" possess many favorable investment
attributes and are to be considered upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but ele-
ments may be present which suggest a susceptibility to impairment sometime in
the future. Bonds which are rated "Baa" by Moody's are considered medium grade
obligations, i.e., they are neither highly protected nor poorly secured. In-
terest payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be characteristically unre-
liable over longer periods of time. Such bonds lack outstanding investment
characteristics and, in fact, have speculative characteristics as well.

Commercial Paper Ratings. Moody's employs the designations of "Prime-1,"
"Prime-2" and "Prime-3" to indicate the relative capacity of the rated issuers
to repay punctually. "Prime-1" is the highest commercial paper rating assigned
by Moody's. Issuers of "Prime-1" obligations must have a superior capacity for
repayment of short-term promissory obligations, and will normally be evidenced
by leading market positions in well established industries, high rates of re-
turn on funds employed, conservative capitalization structures with moderate
reliance on debt and ample asset protection, broad margins in earnings cover-
age of fixed financial charges and high internal cash generation, and well
estab-

A-15
<PAGE>

lished access to a range of financial markets and assured sources of alternate
liquidity.

FITCH INVESTORS SERVICE RATINGS

Bond Ratings. Bonds rated "BBB" by Fitch are considered to be investment
grade and of satisfactory quality. The obligor's ability to pay interest and
repay principal is considered to be adequate. Adverse changes in economic con-
ditions and circumstances, however, are more likely to weaken this ability
than with bonds having higher ratings.

A-16
<PAGE>

SPONSOR, DISTRIBUTOR AND CO-ADMINISTRATOR
Stephens Inc.
Little Rock, Arkansas

CO-ADMINISTRATOR

Barclays Global Investors, N.A.

San Francisco, California

INVESTMENT ADVISER
Barclays Global Fund Advisors
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

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 CRIMI-
NAL OFFENSE.
<PAGE>

MASTERWORKS Funds
c/o Wells Fargo Bank, N.A.
Transfer Agent
525 Market Street
San Francisco, CA 94105

<PAGE>

MASTERWORKS FUNDS INC.

STATEMENT OF ADDITIONAL INFORMATION

MONEY MARKET FUND

JUNE 30, 1997

_______________________

MasterWorks Funds Inc. (the "Company") is an open-end, management investment
company. This Statement of Additional Information ("SAI") contains additional
information about the Company's MONEY MARKET FUND (the "Fund"). The investment
objective of the Fund is described in its Prospectus. See "The Fund --
Investment Objective and Policies."

This SAI is not a prospectus and should be read in conjunction with the Fund's
current Prospectus, also dated June 30, 1997. All terms used in this SAI that
are defined in the Prospectus will have the meanings assigned in the Prospectus.
A copy of the Prospectus may be obtained without charge by writing Stephens Inc.
("Stephens"), the Company's sponsor, co-administrator and distributor, at 111
Center Street, Little Rock, Arkansas 72201 or by calling the Transfer Agent at
1-800-776-0179.
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information.................................... 1
Investment Restrictions................................ 1
Additional Permitted Investment Activities............. 3
Management............................................. 7
Performance Information................................ 12
Determination of Net Asset Value....................... 14
Purchases and Redemption of Shares..................... 14
Portfolio Transactions................................. 16
Taxes.................................................. 18
Capital Stock.......................................... 22
Other.................................................. 23
Counsel................................................ 23
Independent Auditors................................... 24
Financial Information.................................. 24
SAI Appendix........................................... A-1
Financial Statements................................... F-1
</TABLE>

i
<PAGE>

GENERAL INFORMATION

The Company is a registered investment company which currently offers twelve
series, including the Fund. On or about December 30, 1993, the Company's Board
of Directors approved, primarily for marketing purposes, the change of its
corporate name from "WellsFunds Inc." to "Stagecoach Inc." On or about March 15,
1996, the Company changed its corporate name from "Stagecoach Inc." to
"MasterWorks Funds Inc."

INVESTMENT RESTRICTIONS

FUNDAMENTAL INVESTMENT RESTRICTIONS. The Fund is subject to the following
investment restrictions, all of which are fundamental policies.

The Money Market Fund may not:

(2) purchase or sell real estate or real estate limited partnerships (other
than securities secured by real estate or interests therein or securities issued
by companies that invest in real estate or interests therein);

(3) purchase commodities or commodity contracts (including futures contracts),
except that the Fund may purchase securities of an issuer which invests or deals
in commodities or commodity contracts;

(4) purchase interests, leases, or limited partnership interests in oil, gas,
or other mineral exploration or development programs;

(5) purchase securities on margin (except for short-term credits necessary for
the clearance of transactions and except for margin payments in connection with
options, futures and options on futures) or make short sales of securities;

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

1
<PAGE>

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

(9) write, purchase or sell puts, calls, straddles, spreads, warrants, options
or any combination thereof, except that the Money Market Fund may purchase
securities with put rights in order to maintain liquidity;

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

NON-FUNDAMENTAL INVESTMENT RESTRICTIONS. The Fund is subject to the following
investment restrictions, all of which are non-fundamental policies.

(1) The Money Market Fund may not:

(a) purchase or retain securities of any issuer if the officers or
Directors of the Company or its investment adviser owning beneficially more than
one-half of one percent (0.5%) of the securities of the issuer together owned
beneficially more than 5% of such securities;

(b) purchase securities of issuers who, with their predecessors, have
been in existence less than three years, unless the securities are fully
guaranteed or insured by the U.S. Government, a state, commonwealth, possession,
territory, the District of Columbia or by an entity in existence at least three
years, or the securities are backed by the assets and revenues of any of the
foregoing if, by reason thereof, the value of its aggregate investments in such
securities will exceed 5% of its total assets.

(2) The Money Market Fund reserves the right to invest up to 10% of the
current value of its net assets in fixed time deposits that are subject to
withdrawal penalties and that have maturities of more than seven days,
repurchase agreements maturing in more than seven days or other illiquid
securities. However, as long as the 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, the Fund will comply with such lower limit. The Fund presently
is limited to investing 10% of its net asset in such securities due to limits
applicable in several states.

2
<PAGE>

(3) The Money Market Fund may not purchase securities of unseasoned issuers,
including their predecessors, which have been in operation for less than three
years, and equity securities of issuers which are not readily marketable if by
reason thereof the value of the Fund's aggregate investment in such classes of
securities will exceed 5% of its total assets.

(4) The Money Market Fund, as provided in Rule 2a-7 under the 1940 Act, may
only purchase "Eligible Securities" (as defined in Rule 2a-7) and only if,
immediately after such purchase: the Fund would have no more than 5% of its
total assets in "First Tier Securities" (as defined in Rule 2a-7) of any one
issuer, excluding government securities and except as otherwise permitted for
temporary purposes and for certain guarantees and unconditional puts; the Money
Market Fund would own no more than 10% of the voting securities of any one
issuer; the Fund would have no more than 5% of its total assets in "Second Tier
Securities" (as defined in Rule 2a-7); and the Fund would have no more than the
greater of $1 million or 1% of its total assets in Second Tier Securities of any
one issuer.

(5) The Fund may invest in shares of other open-end, management investment
companies, subject to the limitations of Section 12(d)(1) of the 1940 Act,
provided that any such purchases will be limited to temporary investments in
shares of unaffiliated investment companies and the investment adviser will
waive its advisory fees for that portion of the Fund's assets so invested,
except when such purchase is part of a plan of merger, consolidation,
reorganization or acquisition. The Fund does not intend to invest more than 5%
of its net assets in such securities during the coming year.

ADDITIONAL PERMITTED INVESTMENT ACTIVITIES

General. The assets of the Money Market Fund consist only of obligations
--------
maturing within thirteen months from the date of acquisition (as determined in
accordance with the regulations of the SEC), and the dollar-weighted average
maturity of the Fund may not exceed 90 days. The securities in which the Fund
may invest will not yield as high a level of current income as may be achieved
from securities with less liquidity and less safety. There can be no assurance
that the Fund's investment objective will be realized as described in the Fund's
Prospectus.

Unrated Investments. The Money Market Fund may purchase instruments that are
-------------------
not rated if, in the opinion of Wells Fargo Bank, N.A. ("Wells Fargo Bank"), as
sub-adviser, such obligations are of investment quality comparable to other
rated investments that are permitted for purchase by the Fund, if they are
purchased in accordance with the Fund's procedures adopted by the Company's
Board of Directors in accordance with Rule 2a-7 under the 1940 Act. Such
procedures require approval or ratification by the Directors of the purchase of
unrated securities. After purchase by the Money Market Fund, a security may
cease to be rated or its rating may be reduced below the minimum required for
purchase by the Fund. Neither event will require an immediate sale of such
security by the Fund provided that, when a security ceases to be rated, the
Company's Board of Directors determines that such security presents minimal
credit risks and, provided further that, when a security rating is downgraded
below the eligible quality for investment or no longer presents minimal credit
risks, the Board finds that the sale of such security would not be in the Fund's
shareholder's best interest. However, in no event will such

3
<PAGE>

securities exceed 5% of the Fund's net assets. To the extent the ratings given
by Moody's Investor Service, Inc. ("Moody's") or Standard & Poors Corporation
("S&P") may change as a result of changes in such organizations or their rating
systems, the Money Market Fund will attempt to use comparable ratings as
standards for investments in accordance with the investment policies contained
in the Prospectus and in this SAI. The ratings of Moody's and S&P are more fully
described in the SAI Appendix.

Pass-Through Obligations. Certain of the debt obligations in which the Money
------------------------
Market Fund may invest may be pass-through obligations that represent an
ownership interest in a pool of mortgages and the resultant cash flow from those
mortgages. Payments by homeowners on the loans in the pool flow through to
certificate holders in amounts sufficient to repay principal and to pay interest
at the pass-through rate. The stated maturities of pass-through obligations may
be shortened by unscheduled prepayments of principal on the underlying
mortgages. Therefore, it is not possible to predict accurately the average
maturity of a particular pass-through obligation. Variations in the maturities
of pass-through obligations will affect the yield of any Fund investing in such
obligations. Furthermore, as with any debt obligation, fluctuations in interest
rates will inversely affect the market value of pass-through obligations.

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

Repurchase Agreements. The Money Market Fund may engage in a repurchase
----------------------
agreement with respect to any security in which it is authorized to invest,
although the underlying security may mature in more than thirteen months. The
Fund may enter into repurchase agreements wherein the seller of a security to
the Fund agrees to repurchase that security from the Fund at a mutually agreed-
upon time and price that involves the acquisition by the Fund of an underlying
debt instrument, subject to the seller's obligation to repurchase, and the
Fund's obligation to resell, the instrument at a fixed price usually not more
than one week after its purchase. The Fund's custodian has custody of, and
holds in a segregated account, securities acquired as collateral by the Fund
under a repurchase agreement. Repurchase agreements are considered by the staff
of the SEC to be loans by the Fund. The Fund may enter into repurchase
agreements only with respect to securities of the type in which it may invest,
including government securities and mortgage-related securities, regardless of
their remaining maturities, and requires that additional securities be deposited
with the custodian if the value of the securities purchased should decrease
below resale price. Wells Fargo Bank monitors on an ongoing basis the value of
the collateral to assure that it always equals or exceeds the repurchase price.
Certain costs may be incurred by the Fund in connection with the sale of the
underlying securities if the seller does not repurchase

4
<PAGE>

them in accordance with the repurchase agreement. In addition, if bankruptcy
proceedings are commenced with respect to the seller of the securities,
disposition of the securities by the Fund may be delayed or limited. While it
does not presently appear possible to eliminate all risks from these
transactions (particularly the possibility of a decline in the market value of
the underlying securities, as well as delay and costs to the Fund in connection
with insolvency proceedings), it is the policy of the Fund to limit repurchase
agreements to selected creditworthy securities dealers or domestic banks or
other recognized financial institutions. The Fund considers on an ongoing basis
the creditworthiness of the institutions with which it enters into repurchase
agreements. Repurchase agreements are considered to be loans by a Fund under the
Investment Company Act of 1940 (the "1940 Act").

Floating- and Variable-Rate Obligations. The Money Market Fund may purchase
---------------------------------------
floating- and variable-rate obligations as described in the Prospectus. The
Fund may purchase floating- and variable-rate demand notes and bonds, which are
obligations ordinarily having stated maturities in excess of thirteen months,
but which permit the holder to demand payment of principal at any time, or at
specified intervals not exceeding thirteen months. Variable rate demand notes
include master demand notes that are obligations that permit the Fund to invest
fluctuating amounts, which may change daily without penalty, pursuant to direct
arrangements between the Fund, as lender, and the borrower. The interest rates
on these notes fluctuate from time to time. The issuer of such obligations
ordinarily has a corresponding right, after a given period, to prepay in its
discretion the outstanding principal amount of the obligations plus accrued
interest upon a specified number of days' notice to the holders of such
obligations. The interest rate on a floating-rate demand obligation is based on
a known lending rate, such as a bank's prime rate, and is adjusted automatically
each time such rate is adjusted. The interest rate on a variable-rate demand
obligation is adjusted automatically at specified intervals. Frequently, such
obligations are secured by letters of credit or other credit support
arrangements provided by banks. Because these obligations are direct lending
arrangements between the lender and borrower, it is not contemplated that such
instruments generally will be traded, and there generally is no established
secondary market for these obligations, although they are redeemable at face
value. Accordingly, where these obligations are not secured by letters of
credit or other credit support arrangements, the Fund's right to redeem is
dependent on the ability of the borrower to pay principal and interest on
demand. Such obligations frequently are not rated by credit rating agencies and
the Fund may invest in obligations which are not so rated only if Wells Fargo
Bank determines that at the time of investment the obligations are of comparable
quality to the other obligations in which the Fund may invest. Wells Fargo Bank,
on behalf of the Fund, considers on an ongoing basis the creditworthiness of the
issuers of the floating- and variable-rate demand obligations in the Fund's
portfolio. The Fund will not invest more than 10% of the value of its total net
assets in floating- or variable-rate demand obligations whose demand feature is
not exercisable within seven days. Such obligations may be treated as liquid,
provided that an active secondary market exists.

Forward Commitments, When-Issued Purchases and Delayed-Delivery Transactions.
----------------------------------------------------------------------------
The Money Market Fund may purchase securities on a when-issued or forward
commitment (sometimes called a delayed-delivery) basis, which means 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

5
<PAGE>

the commitment to purchase. The Fund will make commitments to purchase such
securities only with the intention of actually acquiring the securities, but the
Fund may sell these securities before the settlement date if it is deemed
advisable. The Fund 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 Fund's investment 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 Fund 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 the Fund consisting of cash or 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 will be established and
maintained at the Fund's custodian bank. Purchasing securities on a forward
commitment basis when the Fund is fully or almost fully invested may result in
greater potential fluctuation in the value of the Fund's total net assets and
its net asset value per share. In addition, because the Fund will set aside
cash and other high quality liquid debt securities as described above, the
liquidity of the Fund's investment portfolio may decrease as the proportion of
securities in the Fund's portfolio purchased on a when-issued or forward
commitment basis increases.

The value of the securities underlying a when-issued purchase or a forward
commitment to purchase securities, and any subsequent fluctuations in their
value, is taken into account when determining the Money Market Fund's net asset
value starting on the day the Fund agrees to purchase the securities. The Fund
does not earn interest on the securities it has committed to purchase until they
are paid for and delivered on the settlement date. When the Fund makes a forward
commitment to sell securities it owns, the proceeds to be received upon
settlement are included in the Fund's assets, and fluctuations in the value of
the underlying securities are not reflected in the Fund's net asset value as
long as the commitment remains in effect.

Rule 144A. It is possible that unregistered securities, purchased by the Money
---------
Market Fund in reliance upon Rule 144A under the Securities Act of 1933, could
have the effect of increasing the level of the Fund's illiquidity to the extent
that qualified institutional buyers become, for a period, uninterested in
purchasing these securities.

Foreign Obligations. Investments in foreign obligations involve certain
-------------------
considerations that are not typically associated with investing in domestic
obligations. There may be less publicly available information about a foreign
issuer than about a domestic issuer. Foreign issuers also are not generally
subject to uniform accounting, auditing and financial reporting standards or
governmental supervision comparable to those applicable to domestic issuers. In
addition, with respect to certain foreign countries, taxes may be withheld at
the source under foreign income tax laws, and there is a possibility of
expropriation or confiscatory taxation, political or social

6
<PAGE>

instability or diplomatic developments that could adversely affect investments
in, the liquidity of, and the ability to enforce contractual obligations with
respect to, securities of issuers located in those countries. [THE MONEY MARKET
FUND MAY INVEST UP TO 25% OF ITS ASSETS IN FOREIGN OBLIGATIONS.]

Obligations of foreign banks and foreign branches of U.S. banks involve
somewhat different investment risks from those affecting obligations of U.S.
banks, including the possibilities that liquidity could be impaired because of
future political and economic developments; the obligations may be less
marketable than comparable obligations of U.S. banks; a foreign jurisdiction
might impose withholding taxes on interest income payable on those obligations;
foreign deposits may be seized or nationalized; foreign governmental
restrictions (such as foreign exchange controls) may be adopted which might
adversely affect the payment of principal and interest on those obligations; and
the selection of those obligations may be more difficult because there may be
less publicly available information concerning foreign banks. In addition, the
accounting, auditing and financial reporting standards, practices and
requirements applicable to foreign banks may differ from those applicable to
U.S. banks. In that connection, foreign banks are not subject to examination by
any U.S. Government agency or instrumentality.

MANAGEMENT

Directors and Officers. The following information supplements and should be
----------------------
read in conjunction with the Prospectus section entitled "Management of the
Fund." Directors and officers of the Company, together with information as to
their principal business occupations during the last five years, are shown
below. The address of each, unless otherwise indicated, is 111 Center Street,
Little Rock, Arkansas 72201. Directors who are deemed to be an "interested
person" of the Company, as defined in the 1940 Act, are indicated by an
asterisk.

PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE POSITION DURING PAST 5 YEARS
- --------------------- -------- ---------------------
<S> <C> <C>
Jack S. Euphrat, 75 Director Private Investor.
415 Walsh Road
Atherton, CA 94027.

*R. Greg Feltus, 46 Director, Executive Vice President of Stephens;
Chairman and Manager of Financial Services Group;
President President of Stephens Insurance Services Inc.;
Senior Vice President of Stephens Sports Management Inc.;
and President of Investors Brokerage Insurance Inc.

Thomas S. Goho, 55 Director Associate Professor of Finance
P.O. Box 7285 Calloway School of Business and Accounting at
Reynold Station Wake Forest University since 1982.
Winston-Salem, NC 27109
</TABLE>

7
<PAGE>

PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE POSITION DURING PAST 5 YEARS
- --------------------- -------- ---------------------
<S> <C> <C>
*Zoe Ann Hines, 48 Director Senior Vice President of Stephens;
Director of Brokerage Accounting of Stephens;
Secretary of Stephens Resource Management;
and Senior Vice President of Link Investments Inc.

*W. Rodney Hughes, 70 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901

Robert M. Joses, 79 Director Private Investor.
47 Dowitcher Way
San Rafael, CA 94901

*J. Tucker Morse, 52 Director Chairman of Home Account Network, Inc.;
4 Beaufain Street Real Estate Developer;
Charleston, SC 29401 Chairman of Renaissance Properties Ltd.;
President of Morse Investment Corporation;
and Co-Managing Partner of Main Street Ventures

Richard H. Blank, Jr., 40 Chief Associate of Financial Services Group of Stephens;
Operating Director of Stephens Sports Management Inc.;
Officer, and Director of Capo Inc.
Secretary and
Treasurer
</TABLE>

COMPENSATION TABLE
For the Fiscal Year Ended February 28, 1997

TOTAL COMPENSATION
AGGREGATE COMPENSATION FROM REGISTRANT
NAME AND POSITION FROM REGISTRANT AND FUND COMPLEX
- ----------------- ---------------------- ------------------
<S> <C> <C>
Jack S. Euphrat $9,250 $9,250
Director

*R. Greg Feltus
Director 0 0

Thomas S. Goho
Director $9,250 $9,250

*Zoe Ann Hines
Director 0 0

*W. Rodney Hughes
Director $8,250 $8,250

Robert M. Joses
Director $9,250 $9,250

*J. Tucker Morse
Director $8,250 $8,250
</TABLE>

8
<PAGE>

Directors of the Company are compensated annually by the Company and by all
the registrants in the fund complex for their services as indicated above and
also are reimbursed for all out-of-pocket expenses relating to attendance at
board meetings. The Company, Master Investment Portfolio and Managed Series
Investment Trust together form a separate "fund complex", as such term is
defined in Form N-1A under the 1940 Act ( the "BGFA Fund Complex" ). Overland
Express Funds Inc., Stagecoach Funds, Inc., Stagecoach Trust, Life & Annuity
Trust and Master Investment Trust are considered to be members of the same fund
complex (the "Wells Fargo Fund Complex"). Each of the Directors and Officers of
the Company serves in the identical capacity as Directors/Trustees and Officers
of each registered open-end management investment company in both the Wells
Fargo and BGFA Fund Complexes, except for Zoe Ann Hines, who, after September 6,
1996, only serves the aforementioned members of the BGFA Fund Complex. The
Directors are compensated by other companies and trusts within a fund complex
for their services as Directors/Trustees to such companies and trusts. Currently
the Directors do not receive any retirement benefits or deferred compensation
from the Company or any other member of each fund complex. As of the date of
this SAI, Directors and officers of the Company as a group beneficially owned
less than 1% of the outstanding shares of the Company.

Investment Adviser. BGFA provides investment advisory services to the Fund
------------------
pursuant to an Investment Advisory Contract with the Company. Pursuant to the
Advisory Contract, BGFA furnishes the Company's Board of Directors with periodic
reports on the investment strategy and performance of the Fund. For its advisory
services to the Fund, BGFA is entitled to receive a fee at the annual rate of
0.35% of the Fund's average daily net assets.

For the period beginning January 1, 1996 and ended February 29, 1996, and for
the fiscal year ended February 28, 1997, the Fund paid advisory fees to BGFA,
without waivers:

<TABLE>
<CAPTION>
1/1/96 - 2/29/96 FYE 2/28/97
Fees Paid Fees Paid
--------- ---------
<S> <C> <C>
Money Market Fund $89,609 $570,332
</TABLE>

Prior to January 1, 1996, Wells Fargo Bank provided investment advisory
services to the Fund pursuant to an Investment Advisory Agreement, the terms of
which were identical in all material respects, other than the identity of the
parties, to the BGFA Advisory Contract.

For the fiscal year ended February 28, 1995 and for the period beginning March
1, 1995 and ended December 31, 1995, the Fund paid advisory fees to Wells Fargo
Bank and Wells Fargo Bank waived advisory fees as follows:

<TABLE>
<CAPTION>
FYE 2/28/95 3/1/95 - 12/31/95
Fees Paid Fees Waived Fees Paid Fees Waived
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Money Market Fund $371,199 0 $435,178 $51,320
</TABLE>

9
<PAGE>

Sub-Investment Adviser. BGFA has engaged Wells Fargo Bank to provide sub-
----------------------
investment advisory services pursuant to a Sub-Advisory Contract. The Sub-
Advisory Contract provides that Wells Fargo Bank shall furnish to the Fund
investment guidance and policy direction in connection with the daily portfolio
management of the Fund. Wells Fargo Bank has agreed to provide the Fund with
among other things, money market security and fixed-income research, analysis
and statistical and economic data and information concerning interest rate and
security market trends, portfolio composition and credit conditions. For its
sub-advisory services to the Fund, Wells Fargo Bank is entitled to receive a fee
at an annual rate of 0.05% of the Fund's average daily net assets.

For the period beginning January 1, 1996 and ended February 29, 1996, and for
the fiscal year ended FEBRUARY 28, 1997, BGFA paid to Wells Fargo Bank the sub-
advisory fees indicated below and Wells Fargo Bank waived the indicated amount:

<TABLE>
<CAPTION>
1/1/96-2/29/96 FYE 2/28/97
Fees Paid Fees Waived Fees Paid Fees Waived
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Money Market Fund $12,801 $0 $80,773 $0
</TABLE>

The Advisory and Sub-Advisory Contracts are subject to the annual approval by
(i) the Company's Board of Directors or (ii) vote of a majority (as defined in
the 1940 Act) of the outstanding voting securities of the Fund, provided that in
either event the continuance also is approved by a majority of the Company's
Board of Directors who are not "interested persons" (as defined in the 1940 Act)
of the Company or BGFA, by vote cast in person at a meeting called for the
purpose of voting on such approval. The Contracts are terminable without
penalty, on 60 days' written notice by the Company's Board of Directors or by
vote of the holders of a majority of the Fund's shares, or, after the Reapproval
Date, on not less than 60 days' written notice, by BGFA. The Contracts terminate
automatically in the event of an assignment (as defined in the 1940 Act).

Co-Administrators. The Company has engaged Stephens and Barclays Global
-----------------
Investors, N.A. ("BGI") to provide certain administration services to the Fund.
Pursuant to a Co-Administration Agreement with the Company, Stephens and BGI
provide as administration services, among other things: (i) general supervision
of the operation of the Company and the Fund, including coordination of the
services performed by the investment adviser, sub-adviser, transfer and dividend
disbursing agent, custodian, independent auditors and legal counsel; (ii)
general supervision of regulatory compliance matters, including the compilation
of information for documents such as reports to, and filings with, the SEC and
state securities commissions, and preparation of proxy statements and
shareholder reports for the Fund; and (iii) general supervision relative to the
compilation of data required for the preparation of periodic reports distributed
to the Company's officers and Board of Directors. Stephens also furnishes office
space and certain facilities required for conducting the business of the Fund
together with all other administrative services that are not being furnished by
the Fund's investment adviser.

10
<PAGE>

Stephens also pays the compensation of the Company's Directors, officers and
employees who are affiliated with Stephens.

In addition, except for advisory fees, extraordinary expenses, brokerage and
other expenses connected to the execution of portfolio transactions and certain
expenses which are borne by the Fund, Stephens and BGI have agreed to bear all
costs of the Fund's and the Company's operations. For providing such services,
Stephens and BGI are entitled to a fee of 0.10% of the Fund's average daily net
assets. Effective October 21, 1996, BGI contracted with Investors Bank & Trust
Company ("IBT") to provide certain sub-administrative services. Prior to
October 21, 1996, Stephens served as sole administrator to the Fund.

For the fiscal years ended February 28, 1995, February 29, 1996, and February
28, 1997, the Fund paid the following administration fees:

<TABLE>
<CAPTION>
FYE 1995 FYE 1996 FYE 1997
-------- -------- -----------
<S> <C> <C> <C>
Money Market Fund $58,429 $76,777 $111,048(1)
</TABLE>
_______________

/(1)/ This amount includes $75,738 paid to Stephens during the fiscal year and
$35,310 paid to BGI under the Co-Administration Agreement during the
period from October 21, 1996 to February 28, 1997.

Distributor. Stephens acts as the exclusive distributor of the Fund's shares
-----------
pursuant to an Amended and Restated Distribution Agreement (the "Distribution
Agreement") with the Company. Shares are sold on a continuous basis by Stephens
as agent, although Stephens is not obligated to sell any particular amount of
shares. No compensation is payable by the Company to Stephens for its
distribution services. The term and termination provisions of the Distribution
Agreement are substantially similar to those of the Agreement with the Adviser
discussed above.

Custodian. IBT, concurrent with its appointment as sub-administrator for the
---------
Fund on October 21, 1996, also has been retained to act as Custodian for the
Fund and performs such services at 200 Clarendon Street, Boston, Massachusetts
02116. The custodian, among other things, maintains a custody account or
accounts in the name of the Fund; receives and delivers all assets for the Fund
upon purchase and upon sale or maturity and collects and receives all income and
other payments and distributions on account of the assets of the Fund. IBT shall
not be entitled to compensation for providing custody services to the Fund
pursuant to the Custody Agreement so long as it receives compensation from BGI
for providing sub-administration services to the Company, on behalf of the Fund.
Prior to October 21, 1996, BGI served as the Fund's custodian and was not
entitled to receive a fee. Prior to January 1, 1996, Wells Fargo Bank served as
the Fund's custodian. For the period beginning January 1, 1996 and ended
February 29, 1996, and for the fiscal year ended February 28, 1997, the Fund did
not pay any custody fees.

11
<PAGE>

Francisco, California 94105. Wells Fargo Bank is entitled to receive from the
Trust for its services as transfer and dividend disbursing agent, a monthly fee
at the annual rate of 0.05% of the Fund's average daily net assets.

PERFORMANCE INFORMATION

Generally. The yield for the Money Market Fund fluctuates from time to time,
---------
unlike bank deposits or other investments that pay a fixed yield for a stated
period of time, and does not provide a basis for determining future yields since
it is based on historical data. Yield is a function of portfolio quality,
composition, maturity and market conditions as well as the expenses allocated to
the Fund.

Current yield for the Money Market Fund is calculated based on the net
changes, exclusive of capital changes, over a seven day and/or thirty day
period, in the value of a hypothetical pre-existing account having a balance of
one share at the beginning of the period, subtracting a hypothetical charge
reflecting deductions from shareholder accounts, and dividing the difference by
the value of the account at the beginning of the base period to obtain the base
period return, and then multiplying the base period return by (365/7) with the
resulting yield figure carried to at least the nearest hundredth of one percent.
THE CURRENT YIELDS FOR THE FUND FOR THE SEVEN-DAY AND THIRTY DAY PERIODS ENDED
FEBRUARY 28, 1997 WERE 5.10% AND 4.99%, RESPECTIVELY.

Effective yield for the Money Market Fund is calculated by determining the net
change exclusive of capital changes in the value of a hypothetical pre-existing
account having a balance of one share at the beginning of the period,
subtracting a hypothetical charge reflecting deductions from shareholder
accounts, and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return, and then
compounding the base period return by adding one, raising the sum to a power
equal to 365 divided by seven, and subtracting one from the result. THE
EFFECTIVE YIELD FOR THE FUND FOR THE SEVEN-DAY PERIOD ENDED FEBRUARY 28, 1997
WAS 5.10%.

In addition, investors should recognize that changes in the net asset values
of shares of the Money Market Fund affect the yield for any specified period,
and such changes should be considered together with the Fund's yield in
ascertaining the Fund's total return to shareholders for the period. Yield
information may be useful in reviewing the Fund's performance and for providing
a basis for comparison with investment alternatives. The yield of the Fund,
however, may not be comparable to the yields from investment alternatives
because of differences in the foregoing variables and differences in the methods
used to value portfolio securities, compute expenses and calculate yield.

Performance Comparisons. From time to time and only to the extent the
-----------------------
comparison is appropriate for the Fund, the company may quote the performance of
a Fund in advertising and other types of literature and may compare the
performance of the Fund to the performance of various indices and investments
for which reliable performance data is available. The performance of the Fund
may be compared in advertising and other literature to averages, performance
rankings and other information prepared by recognized mutual fund statistical
services.

12
<PAGE>

From time to time, the Company may quote the Money Market Fund's performance
in advertising and other types of literature as compared to the 91-Day Treasury
Bill Average (Federal Reserve), Lipper Money Market Fund Average, Donoghue
Taxable Money Market Fund Average, Salomon Three-Month Treasury Bill Index, or
Bank Averages, which are calculated from figures supplied by the U.S. League of
Savings Institutions based on effective annual rates of interest on both
passbook and certificate accounts. Savings accounts offer a guaranteed return of
principal and a fixed rate of interest. The Fund's performance also may be
compared to the Consumer Price Index, as published by the U.S. Bureau of Labor
Statistics, which is an established measure of change over time in the prices of
goods and services in major expenditure groups.

In addition, the Company also may use, in advertisements and other types of
literature, information and statements: (1) showing that bank savings accounts
offer a guaranteed return of principal and a fixed rate of interest, but no
opportunity for capital growth; and (2) describing Wells Fargo Bank, and its
affiliates and predecessors, as one of the first investment managers to advise
investment accounts using asset allocation and index strategies. The Company
also may include in advertising and other types of literature information and
other data from reports and studies prepared by the Tax Foundation, including
information regarding federal and state tax levels and the related "Tax Freedom
Day." The Company also may disclose in advertising and other types of sales
literature the level and categories of assets under management by the Fund's
investment adviser, sub-adviser or their affiliates.

The Fund's performance also may be compared to those of other mutual funds
having similar objectives. This comparative performance could be expressed as a
ranking prepared by Lipper Analytical Services, Inc., Donoghue's Money Fund
Report, including Donoghue's Taxable Money Market Fund Average or Morningstar,
Inc., independent services which monitor the performance of mutual funds. The
Fund's performance will be calculated by relating net asset value per share at
the beginning of a stated period to the net asset value of the investment,
assuming reinvestment of all gains distributions and dividends paid, at the end
of the period. Any such comparisons may be useful to investors who wish to
compare the Fund's past performance with that of its competitors. Of course,
past performance cannot be a guarantee of future results.

Other Advertising Items. The Company also may discuss in advertising and other
-----------------------
types of literature that the Fund has been assigned a rating by a nationally
recognized statistical rating organization ("NRSRO"), such as Standard & Poor's
Corporation. Such rating would assess the creditworthiness of the investments
held by the Fund. The assigned rating would not be a recommendation to purchase,
sell or hold the Fund's shares since the rating would not comment on the market
price of the Fund's shares or the suitability of the Fund for a particular
investor. In addition, the assigned rating would be subject to change,
suspension or withdrawal as a result of changes in, or unavailability of,
information relating to the Fund or its investments. The Company may compare the
Fund's performance with other investments which are assigned ratings by NRSROs.
Any such comparisons may be useful to investors who wish to compare the Fund's
past performance with other rated investments.

13
<PAGE>

DETERMINATION OF NET ASSET VALUE

The Money Market Fund uses the amortized cost method to determine the value of
its portfolio securities pursuant to Rule 2a-7 under the 1940 Act. The amortized
cost method involves valuing a security at its cost and amortizing any discount
or premium over the period until maturity, regardless of the impact of
fluctuating interest rates on the market value of the security. While this
method provides certainty in valuation, it may result in periods during which
the value, as determined by amortized cost, is higher or lower than the price
that the Money Market Fund would receive if the security were sold. During these
periods the yield to a shareholder may differ somewhat from that which could be
obtained from a similar fund that uses a method of valuation based upon market
prices. Thus, during periods of declining interest rates, if the use of the
amortized cost method resulted in a lower value of the Money Market Fund's
portfolio on a particular day, a prospective investor in the Money Market Fund
would be able to obtain a somewhat higher yield than would result from
investment in a fund using solely market values, and existing Money Market Fund
shareholders would receive correspondingly less income. The converse would apply
during periods of rising interest rates.

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

PURCHASE AND REDEMPTION OF SHARES

Terms of Purchase. The Money Market Fund is generally open Monday through
-----------------
Friday and closed on weekends, NYSE holidays and federal bank holidays. The
holidays on which the Fund is closed currently are: New Year's Day, Martin
Luther King, Jr.'s, Birthday, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Veterans Day, Columbus Day, Labor Day,

14
<PAGE>

Thanksgiving Day and Christmas Day. The Company reserves the right to reject any
purchase order and to change the amount of the minimum investment and subsequent
purchases in the Funds.

Payment for shares of the Money Market Fund may, at the discretion of the
adviser, be made in the form of securities that are permissible investments for
the Fund and must meet the investment objective, policies and limitations of the
Fund as described in the Prospectus. In connection with an in-kind securities
payment, a Fund may require, among other things, that the securities (i) be
valued on the day of purchase in accordance with the pricing methods used by the
Fund; (ii) are accompanied by satisfactory assurance that the Fund will have
good and marketable title to such securities received by it; (iii) are not
subject to any restrictions upon resale by the Fund; (iv) be in proper form for
transfer to the Fund; (v) are accompanied by adequate information concerning the
basis and other tax matters relating to the securities. All dividends, interest,
subscription or other rights pertaining to such securities shall become the
property of the Fund engaged in the in-kind purchase transaction and must be
delivered to the Fund by the investor upon receipt from the issuer. Securities
acquired through an in-kind purchase will be acquired for investment and not for
immediate resale. Shares purchased in exchange for securities generally cannot
be redeemed until the transfer has settled.

Suspension of Redemptions. Under the 1940 Act, a Fund may suspend the right
-------------------------
of redemption or postpone the date of payment upon redemption for any period
during which the NYSE is closed (other than customary weekend and holiday
closings, or during which trading is restricted, or during which as determined
by the SEC by rule or regulation) an emergency exists as a result of which
disposal or valuation of portfolio securities is not reasonably practicable, or
for such periods as the SEC may permit.

The Company may suspend redemption rights or postpone redemption payments for
such periods as are permitted under the 1940 Act. The Company also may redeem
shares involuntarily or make payment for redemption in securities or other
property if it appears appropriate to do so in light of the Company's
responsibilities under the 1940 Act.

In addition, the Company may redeem shares involuntarily to reimburse the Fund
for any losses sustained by reason of the failure of a shareholder to make full
payment for shares purchased or to collect any charge relating to a transaction
effected for the benefit of a shareholder which is applicable to shares of the
Fund as provided from time to time in the Prospectus.

15
<PAGE>

PORTFOLIO TRANSACTIONS

Purchases and sales of debt securities generally are principal transactions.
Debt securities normally are purchased or sold from or to dealers serving as
market makers for the securities at a net price. Debt securities also may be
purchased in underwritten offerings and may be purchased directly from the
issuer. Generally, U.S. Government Obligations, municipal obligations and
taxable money market securities are traded on a net basis and do not involve
brokerage commissions. The cost of executing transactions in debt securities
consists primarily of dealer spreads and underwriting commissions. Under the
1940 Act, persons affiliated with the Company are prohibited from dealing with
the Company as a principal in the purchase and sale of securities unless an
exemptive order allowing such transactions is obtained from the SEC or an
exemption is otherwise available. The Fund may purchase municipal or other
obligations from underwriting syndicates of which Stephens, BGFA or Wells Fargo
Bank is a member under certain conditions in accordance with the provisions of a
rule adopted under the 1940 Act and in compliance with procedures adopted by the
Board of Directors.

The Company has no obligation to deal with any dealer or group of dealers in
the execution of transactions in portfolio securities. Subject to policies
established by the Company's Board of Directors and BGFA, Wells Fargo Bank is
responsible for the Fund's investment decisions and the placing of portfolio
transactions. In placing orders, it is the policy of the Company to obtain the
best overall terms taking into account the dealer's general execution and
operational facilities, the type of transaction involved and other factors such
as the dealer's risk in positioning the securities involved. While Wells Fargo
Bank generally seeks reasonably competitive spreads or commissions, the Fund
will not necessarily be paying the lowest spread or commission available.

In assessing the best overall terms available for any transaction, Wells Fargo
Bank considers factors deemed relevant, including the breadth of the market in
the security, the price of the security, the financial condition and execution
capability of the broker or dealer, and the reasonableness of the commission, if
any, both for the specific transaction and on a continuing basis. Wells Fargo
Bank may cause the Fund to pay a broker/dealer which furnishes brokerage and
research services a higher commission than that which might be charged by
another broker/dealer for effecting the same transaction, provided that Wells
Fargo Bank determines in good faith that such commission is reasonable in
relation to the value of the brokerage and research services provided by such
broker/dealer, viewed in terms of either the particular transaction or the
overall responsibilities of Wells Fargo Bank. Such brokerage and research
services might consist of reports and statistics relating to specific companies
or industries, general summaries of groups of stocks or bonds and their
comparative earnings and yields, or broad overviews of the stock, bond, and
government securities markets and the economy.

Supplementary research information so received is in addition to, and not in
lieu of, services required to be performed by BGFA and Wells Fargo Bank and does
not reduce the advisory fees payable by the Fund. The Board of Directors will
periodically review the commissions paid by the Fund to consider whether the
commissions paid over representative periods of time appear to be reasonable in
relation to the benefits inuring to the Fund. It is possible that certain of the
supplementary research or other services received will primarily benefit one or
more other

16
<PAGE>

investment companies or other accounts for which Wells Fargo Bank exercises
investment discretion. Conversely, the Fund may be the primary beneficiary of
the research or services received as a result of portfolio transactions effected
for such other account or investment company.

Under Section 28(e) of the Securities Exchange Act of 1934, an adviser shall
not be "deemed to have acted unlawfully or to have breached its fiduciary duty"
solely because under certain circumstances it has caused the account to pay a
higher commission than the lowest available. To obtain the benefit of Section
28(e), an adviser must make a good faith determination that the commissions paid
are "reasonable in relation to the value of the brokerage and research services
provided . . . viewed in terms of either that particular transaction or its
overall responsibilities with respect to the accounts as to which it exercises
investment discretion and that the services provided by a broker provide an
adviser with lawful and appropriate assistance in the performance of its
investment decision-making responsibilities." Accordingly, the price to the Fund
in any transaction may be less favorable than that available from another
broker/dealer if the difference is reasonably justified by other aspects of the
portfolio execution services offered.

Broker/dealers utilized by Wells Fargo Bank may furnish statistical, research
and other information or services which are deemed by Wells Fargo Bank to be
beneficial to the Fund's investment programs. Research services received from
brokers supplement Wells Fargo Bank's own research and may include the following
types of information: statistical and background information on industry groups
and individual companies; forecasts and interpretations with respect to U.S. and
foreign economies, securities, markets, specific industry groups and individual
companies; information on political developments; portfolio management
strategies; performance information on securities and information concerning
prices of securities; and information supplied by specialized services to Wells
Fargo Bank and to the Company's Directors with respect to the performance,
investment activities and fees and expenses of other mutual funds. Such
information may be communicated electronically, orally or in written form.
Research services may also include the providing of equipment used to
communicate research information, the arranging of meetings with management of
companies and the providing of access to consultants who supply research
information.

The outside research assistance is useful to Wells Fargo Bank since the
brokers utilized by Wells Fargo Bank as a group tend to follow a broader
universe of securities and other matters than the staff of Wells Fargo Bank can
follow. In addition, this research provides Wells Fargo Bank with a diverse
perspective on financial markets. Research services which are provided to Wells
Fargo Bank by brokers are available for the benefit of all accounts managed or
advised by Wells Fargo Bank. It is the opinion of Wells Fargo Bank that this
material is beneficial in supplementing their research and analysis; and,
therefore, it may benefit the Money Market Fund by improving the quality of
Wells Fargo's investment advice.

Portfolio Turnover. Because the portfolio of the Money Market Fund consists
------------------
of securities with relatively short-term maturities, the Fund expects to
experience high portfolio turnover. A high portfolio turnover rate should not
adversely affect the Money Market Fund, however, because portfolio transactions
ordinarily will be made directly with principals on a net basis, and,
consequently, the Fund usually will not incur excessive transaction costs.

17
<PAGE>

Brokerage Commissions. For the fiscal years ended February 28, 1995, February
---------------------
29, 1996, and February 28, 1997, the Fund did not pay any brokerage commissions.

Securities of Regular Broker/Dealers. As of February 28, 1997, the Fund owned
------------------------------------
no securities of its "regular brokers or dealers" or their parents, as defined
in the 1940 Act.

TAXES

In General. The 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 Fund will be treated as a separate
entity for tax purposes; thus, the provisions of the Code applicable to
regulated investment companies will generally be applied to the Fund, rather
than to the Company as a whole. In addition, net capital gains, net investment
income, and operating expenses will be determined separately for the Fund.

Qualification as a regulated investment company under the Code requires, among
other things, that (a) the Fund derive at least 90% of its annual gross income
from interest, payments with respect to securities loans, dividends and gains
from the sale or other disposition of securities or options thereon; (b) the
Fund derive less than 30% of its gross income from gains from the sale or other
disposition of securities or options thereon held for less than three months;
and (c) the Fund diversify its holdings so that, at the end of each quarter of
the taxable year, (i) at least 50% of the market value of the Fund's assets is
represented by cash, government securities and other securities limited in
respect of any one issuer to an amount not greater than 5% of the Fund's assets
and 10% of the outstanding voting securities of such issuer, and (ii) not more
than 25% of the value of its assets is invested in the securities of any one
issuer (other than U.S. Government securities and the securities of other
regulated investment companies), or in two or more issuers which the Fund
controls and which are determined to be engaged in the same or similar trades or
businesses. As a regulated investment company, the Fund will not be subject to
federal income tax on its net investment income and net capital gains
distributed to its shareholders, provided that it distributes to its
shareholders at least 90% of its net investment income, including net tax-exempt
income, earned in each year. The Fund intends to pay out substantially all of
its net investment income and net realized capital gains (if any) for each year.

Generally, dividends and capital gain distributions are taxable to
shareholders when they are received. However, dividends and distributions
declared payable as of a record date in October, November or December of any
calendar year are deemed under the Code to have been paid by the Fund and
received by the shareholders on December 31 of that calendar year if the
dividends and distributions are actually paid in the following January.
Accordingly, such dividends and distributions will be taxable to the recipient
shareholders in the year in which the record date falls.

A 4% nondeductible excise tax will be imposed on the Fund (other than to the
extent of the Fund's tax-exempt income) to the extent it does not meet certain
minimum distribution requirements by the end of each calendar year. The Fund
will either actually or be deemed to

18
<PAGE>

distribute substantially all of its net investment income and net capital gains
by the end of each calendar year and, thus, expects not to be subject to the
excise tax.

Income and dividends received by the Fund from sources within foreign
countries may be subject to withholding and other taxes imposed by such
countries. Tax conventions between certain countries and the United States may
reduce or eliminate such taxes. Because not more than 50% of the value of the
total assets of the Fund is expected to consist of securities of foreign
issuers, the Fund will be not eligible to elect to "pass-through" foreign tax
credits to shareholders.

Federal Income Tax Rates. As of the printing of this SAI, the maximum tax
------------------------
rate applicable to an individual's ordinary income is 39.6% (marginal rates may
be higher for some individuals due to phase out of exemptions and elimination of
deductions); the maximum individual marginal tax rate applicable to net capital
gains is 28%; the maximum corporate tax rate applicable to ordinary income and
net capital gains is 35% (except that to eliminate the benefit of lower marginal
corporate income tax rates, corporations which have taxable income in excess of
$100,000 for a taxable year will be required to pay an additional tax of up to
$11,750, and corporations which have taxable income in excess of $15,000,000 for
a taxable year will be required to pay an additional tax of up to $100,000).
Naturally, the amount of tax payable by an individual or corporation will be
affected by a combination of tax laws covering, for example, deductions,
credits, deferrals, exemptions, sources of income and other matters.

Capital Gain Distributions. To the extent that the Fund recognizes long-term
--------------------------
capital gains, such gains will be distributed at least annually. These
distributions will be taxable to shareholders as long-term capital gains,
regardless of how long a shareholder has held Fund shares. The Fund intends to
designate such distributions as capital gain distributions in a written notice
to the shareholders mailed by the Fund not later than 60 days after the close of
the Fund's taxable year.

Other Distributions. Although dividends will be declared daily based on the
-------------------
Fund's daily earnings, for federal income tax purposes, the Fund's earnings and
profits will be determined at the end of each taxable year and will be allocated
pro rata over the entire year. For federal income tax purposes, only amounts
paid out of earnings and profits will qualify as dividends. Thus, if during a
taxable year the Fund's declared dividends (as declared daily throughout the
year) exceed the Fund's net income (as determined at the end of the year), only
that portion of the year's distributions which equals the year's earnings and
profits will be deemed to have constituted a dividend. It is expected that the
Fund's net income, on an annual basis, will equal the dividends declared during
the year.

Disposition of Fund Shares. If a shareholder receives a designated capital
--------------------------
gain distribution (to be treated by the shareholder as a long-term capital gain)
with respect to any Fund share and such Fund share is held for six months or
less, then, unless otherwise disallowed, any loss on the sale or exchange of
that Fund share will be treated as a long-term capital loss to the extent of the
designated capital gain distribution. In addition, any loss realized by a
shareholder upon the sale or redemption of Fund shares held less than six months
is disallowed to the extent of any

19
<PAGE>

exempt-interest dividends received thereon by the shareholder. These rules shall
not apply, however, to losses incurred under a periodic redemption plan.

If a shareholder exchanges or otherwise disposes of Fund shares within 90 days
of having acquired such shares and if, as a result of having acquired those
shares, the shareholder subsequently pays a reduced sales charge on a new
purchase of shares of the Fund or of a different regulated investment company
(the "new shares"), the sales charge previously incurred in acquiring the Fund's
shares shall not be taken into account (to the extent such previous sales
charges do not exceed the reduction in sales charges on the new purchase) for
the purpose of determining the amount of gain or loss on the disposition, but
will be treated as having been incurred in the acquisition of the new shares.
Also, any loss realized on a redemption or exchange of Fund shares will be
disallowed to the extent that substantially identical shares are reacquired
within the 61-day period beginning 30 days before and ending 30 days after the
shareholder disposes of the Fund shares.

Taxation of Fund Investments. Gains or losses on sales of portfolio
----------------------------
securities by the Fund will generally be long-term capital gains or losses if
the securities have been held by it for more than one year, except in certain
cases such as where the Fund acquires a put or writes a call thereon. Gains
recognized on the disposition of a debt obligation (including tax-exempt
obligations purchased after April 30, 1993) purchased by the Fund at a market
discount (generally, at a price less than its principal amount) will, but was
not previously included in income of the Fund pursuant to an available election,
be treated as ordinary income to the extent of the portion of market discount
which accrued during the period of time the Fund held the debt obligation. Other
gains or losses on the sale of portfolio securities will be short-term capital
gains or losses.

If an option written by the Fund lapses or is terminated through a closing
transaction, such as a repurchase by the Fund of the option from its holder, the
Fund will realize a short-term capital gain or loss, depending on whether the
premium income is greater or less than the amount paid by the Fund in the
closing transaction. Some realized capital losses may be deferred if they
result from a position which is part of a "straddle," discussed below. If
securities are sold by the Fund pursuant to the exercise of a call option
written by it, the Fund will add the premium received to the sale price of the
securities delivered in determining the amount of gain or loss on the sale. If
securities are purchased by the Fund pursuant to the exercise of a put option
written by it, the Fund will subtract the premium received from its cost basis
in the securities purchased. The requirement that the Fund derive less than 30%
of its gross income from gains from the sale of securities held for less than
three months may limit the Fund's ability to write options.

The amount of any gain or loss realized by a Fund on closing out certain
regulated futures contracts will generally result in a realized capital gain or
loss for tax purposes. Such futures contracts held at the end of each fiscal
year will be required to be "marked to market" for federal income tax purposes
pursuant to Section 1256 of the Code. In this regard, such futures contracts
will be deemed to have been sold at market value. Sixty percent (60%) of any
net gain or loss recognized on these deemed sales and sixty percent (60%) of any
net realized gain or loss from any actual sales, generally will be treated as
long-term capital gain or loss, and the remaining

20
<PAGE>

forty percent (40%) will be treated as short-term capital gain or loss.
Transactions that qualify as designated hedges are excepted from the "marked to
market" and "60%/40%" rules. Currency transactions may be subject to Section 988
of the Code, under which such marked to market and foreign currency gains or
losses would generally be computed separately and treated as ordinary income or
losses. The Fund will attempt to monitor Section 988 transactions to avoid an
adverse tax impact.

Offsetting positions held by the Fund involving certain financial forward
futures or option contracts may be considered, for tax purposes, to constitute
"straddles." Straddles are defined to include "offsetting positions" in
actively traded personal property. The tax treatment of straddles is governed
by Section 1092 of the Code which, in certain circumstances, overrides or
modifies the provisions of Sections 1256 and 988. If the Fund were treated as
entering into straddles by reason of its engaging in certain financial forward,
futures or option contracts, such straddles may be characterized as "mixed
straddles" if the futures, forwards, or options comprising a part of such
straddles were governed by the applicable provisions of Section 1256 or 988 of
the Code. The Fund may make one or more elections with respect to mixed
straddles. Depending upon which election is made, if any, the results with
respect to the Fund may differ.

Generally, to the extent the straddle rules apply to positions established by
the Fund, losses realized by the Fund may be deferred to the extent of
unrealized gain in any offsetting positions. Moreover, as a result of the
foregoing rules, short-term capital loss on straddle positions may be
recharacterized as long-term capital loss and long-term capital gain may be
characterized as short-term capital gain or ordinary income.

If the Fund purchases shares in a "passive foreign investment company"
("PFIC"), it may be subject to federal income tax and an interest charge imposed
by the IRS upon certain distributions from the PFIC or the Fund's disposition of
its PFIC shares. If the Fund invests in a PFIC, it intends to make an election
under proposed Treasury Regulations to mark-to-market its interest in PFIC
shares. Under the election, the Fund will be treated as recognizing at the end
of each taxable year the excess, if any, of the fair market value of its
interest in PFIC shares over its basis in such shares. Although such excess will
be taxable to the Fund as ordinary income notwithstanding any distributions by
the PFIC, the Fund will not be subject to federal income tax or the interest
charge with respect to its interest in the PFIC.

Foreign Shareholders. Under the Code, distributions of net investment income
--------------------
by the Fund to a nonresident alien individual, nonresident alien fiduciary of a
trust or estate, foreign corporation, or foreign partnership (a "foreign
shareholder") will be subject to U.S. withholding tax at a rate of 30% or a
lower treaty rate. Withholding will not apply if a dividend paid by the Fund to
a foreign shareholder is "effectively connected" with a U.S. trade or business,
in which case the reporting and withholding requirements applicable to U.S.
citizens, U.S. residents or domestic corporations will apply. Distributions of
net long-term capital gains are not subject to tax withholding, but in the case
of a foreign shareholder who is a nonresident alien individual, such
distributions ordinarily will be subject to U.S. income tax at a rate of 30% if
the individual is physically present in the U.S. for more than 182 days during
the taxable year.

21
<PAGE>

Backup Withholding. 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 Taxpayer Identification Number ("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 that the
shareholder is subject to backup withholding. Such tax withheld does not
constitute any additional tax imposed on the shareholder, and may be claimed as
a tax payment on the shareholder's federal income tax return. An investor must
provide a valid TIN upon opening or reopening an account. Failure to furnish a
valid TIN to the Company could subject the investor to penalties imposed by the
IRS.

Other Matters. Investors should be aware that the investments to be made by
-------------
the Fund may involve sophisticated tax rules that may result in income or gain
recognition by the Fund without corresponding current cash receipts. Although
the Fund will seek to avoid significant noncash income, such noncash income
could be recognized by the Fund, in which case the Fund may distribute cash
derived from other sources in order to meet the minimum distribution
requirements described above.

The foregoing discussion and the discussions in the Prospectus address only
some of the federal tax considerations generally affecting investments in the
Fund. Each investor is urged to consult his or her tax advisor regarding
specific questions as to federal, state or local taxes and foreign taxes.

CAPITAL STOCK

The Company, an open-end, management investment company, was incorporated in
Maryland on October 15, 1992. The authorized capital stock of the Company
consists of 10,000,000,000 shares having a par value of $.001 per share. As of
the date of this SAI, the Company's Board of Directors has authorized the
issuance of twelve series of shares. The Board of Directors may, in the future,
authorize the issuance of other series of capital stock representing shares of
additional investment portfolios.

All shares of the Company have equal voting rights and will be voted in the
aggregate, and not by series, except where voting by a series is required by law
or where the matter involved only affects one series. For example, a change in
the Fund's fundamental investment policy would be voted upon only by
shareholders of the Fund. Additionally, approval of an advisory contract is a
matter to be determined separately by fund. Approval by the shareholders of a
fund is effective as to that fund whether or not sufficient votes are received
from the shareholders of the other investment portfolios to approve the proposal
as to those investment portfolios. As used in the Money Market Fund's Prospectus
and in this SAI, the term "majority," when referring to approvals to be obtained
from shareholders of the Fund, means the vote of the lesser of (i) 67% of the
shares of the Fund represented at a meeting if the holders of more than 50% of
the outstanding shares of the Fund are present in person or by proxy, or (ii)
more than 50% of the outstanding shares of the Fund. The term "majority," when
referring to the approvals to be obtained from shareholders of the Company as a
whole, means the vote of the lesser of (i) 67%

22
<PAGE>

of the Company's shares represented at a meeting if the holders of more than 50%
of the Company's outstanding shares are present in person or by proxy, or (ii)
more than 50% of the Company's outstanding shares. Shareholders are entitled to
one vote for each full share held and fractional votes for fractional shares
held.

The Company may dispense with an annual meeting of shareholders in any year in
which it is not required to elect Directors under the 1940 Act. However, the
Company has undertaken to hold a special meeting of its shareholders for the
purpose of voting on the question of removal of a Director or Directors if
requested in writing by the holders of at least 10% of the Company's outstanding
voting securities, and to assist in communicating with other shareholders as
required by Section 16(c) of the 1940 Act.

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

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

As of May 30, 1997, the Wells Fargo Bank 401(K) MasterWorks Omnibus Account,
420 Montgomery Street, San Francisco, CA 94104, was the record owner of
approximately 93% of the outstanding voting securities of the Money Market Fund,
and may be presumed to "control" the Fund as that term is defined in the 1940
Act.

OTHER

The Registration Statement, including the Prospectus for the Money Market
Fund, the SAI and the exhibits filed therewith, may be examined at the office of
the SEC in Washington, D.C. Statements contained in the Prospectus or the SAI as
to the contents of any contract or other document referred to herein or in the
Prospectus are not necessarily complete, and, in each instance, reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.

COUNSEL

Morrison & Foerster LLP, 2000 Pennsylvania Avenue, NW, Suite 5500, Washington,
D.C. 20006-1812, as counsel for the Company, has rendered its opinion as to
certain legal matters regarding the due authorization and valid issuance of the
shares being sold pursuant to the Fund's Prospectus.

23
<PAGE>

INDEPENDENT AUDITORS

KPMG Peat Marwick LLP, Three Embarcadero Center, San Francisco, California
94111, has been selected as the independent auditors for the Company. KPMG Peat
Marwick LLP provides audit services, tax return preparation and assistance and
consultation in connection with review of certain SEC filings.

FINANCIAL INFORMATION

The portfolio of investments, audited financial statements and independent
auditors' report for the fiscal year ended February 28, 1997 for the Money
Market Fund are hereby incorporated by reference to the MasterWorks Funds Inc.
Annual Report, as filed with the SEC on May 2, 1997. The portfolio of
investments, audited financial statements and independent auditors' report for
the Fund is attached to all SAIs delivered to shareholders or prospective
shareholders.

24
<PAGE>

SAI APPENDIX

The following is a description of the ratings given by Moody's and S&P to
corporate bonds and commercial paper.

CORPORATE BONDS

Moody's: The four highest ratings for corporate bonds are "Aaa," "Aa," "A" and
"Baa." Bonds rated "Aaa" are judged to be of the "best quality" and carry the
smallest amount of investment risk. Bonds rated "Aa" are of "high quality by all
standards," but margins of protection or other elements make long-term risks
appear somewhat greater than "Aaa" rated bonds. Bonds rated "A" possess many
favorable investment attributes and are considered to be upper medium grade
obligations. Bonds rated "Baa" are considered to be medium grade obligations;
interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds have speculative
characteristics as well. Moody's applies numerical modifiers "1," "2" and "3" in
each rating category from "Aa" through "Baa" in its rating system. The modifier
"1" indicates that the security ranks in the higher end of its category; the
modifier "2" indicates a mid-range ranking; and the modifier "3" indicates that
the issue ranks in the lower end.

S&P: The four highest ratings for corporate bonds are "AAA," "AA," "A" and
"BBB." Bonds rated "AAA" have the highest ratings assigned by S&P and have an
extremely strong capacity to pay interest and repay principal. Bonds rated "AA"
have a "very strong capacity to pay interest and repay principal" and differ
"from the highest rated issued only in small degree." Bonds rated "A" have a
"strong capacity" to pay interest and repay principal, but are "somewhat more
susceptible" to adverse effects of changes in economic conditions or other
circumstances than bonds in higher rated categories. Bonds rated "BBB" are
regarded as having an "adequate capacity" to pay interest and repay principal,
but changes in economic conditions or other circumstances are more likely to
lead to a "weakened capacity" to make such repayments. The ratings from "AA" to
"BBB" may be modified by the addition of a plus or minus sign to show relative
standing within the category.

CORPORATE COMMERCIAL PAPER

Moody's: The highest rating for corporate commercial paper is "Prime-1."
Issuers rated "Prime-1" have a "superior capacity for repayment of short-term
promissory obligations." Issuers rated "Prime-2" "have a strong capacity for
repayment of short-term promissory obligations," but earnings trends, while
sound, will be subject to more variation.

S&P: The "A-1" rating for corporate commercial paper indicates that the
"degree of safety regarding timely payment is either overwhelming or very
strong." Commercial paper with "overwhelming safety characteristics" will be
rated "A-1+." Commercial paper with a strong capacity for timely payments on
issues will be rated "A-2."

A-1
<PAGE>

MASTERWORKS LIFEPATH(R) FUNDS
MASTERWORKS FUNDS INC.

STATEMENT OF ADDITIONAL INFORMATION

LIFEPATH 2000 FUND
LIFEPATH 2010 FUND
LIFEPATH 2020 FUND
LIFEPATH 2030 FUND
LIFEPATH 2040 FUND

JUNE 30, 1997

MasterWorks Funds Inc. (the "Company") is an open-end, management investment
company. This Statement of Additional Information ("SAI") contains additional
information about the Company's LifePath 2000, LifePath 2010, LifePath 2020,
LifePath 2030, and LifePath 2040 Funds (the "LifePath Funds" or the
"Funds").

Each LifePath Fund invests all of its assets in a separate portfolio (each a
"Master Portfolio") of Master Investment Portfolio ("MIP") having the same
investment objective as the Fund. Therefore, the investment experience of each
Fund will correspond directly with the relevant Master Portfolio's investment
experience. MIP is an open-end, series investment company. Barclays Global
Fund Advisors ("BGFA") serves as investment adviser to the corresponding Master
Portfolio of each LifePath Fund. References to the investments, investment
policies and risks of the Funds unless otherwise indicated, should be understood
as references to the investments, investment policies and risks of the
corresponding Master Portfolios.

This SAI is not a prospectus and should be read in conjunction with the Funds'
current Prospectus, also dated June 30, 1997. All terms used in this SAI that
are defined in the Prospectus have the meanings assigned in the Prospectus. A
copy of the Prospectus may be obtained without charge by writing MasterWorks
Funds Inc., c/o Wells Fargo Bank, N.A. -- Transfer Agent, 525 Market Street, San
Francisco, CA 94105, or by calling 1-800-776-0179.
<PAGE>

TABLE OF CONTENTS
<TABLE>
<CAPTION>

PAGE
----
<S> <C>
General Information................................................ 1
Investment Objectives and Management Policies...................... 1
Management......................................................... 8
Purchase and Redemption of Shares.................................. 13
Determination of Net Asset Value................................... 14
Dividends, Distributions and Taxes................................. 15
Performance Information............................................ 18
Portfolio Transactions............................................. 19
Capital Stock...................................................... 21
Other.............................................................. 24
Counsel............................................................ 24
Independent Auditors............................................... 24
Financial Information.............................................. 24
Appendix........................................................... A-1
Financial Statements............................................... F-1
</TABLE>

i
<PAGE>

GENERAL INFORMATION

The Company is a registered investment company which currently offers twelve
series, including the Funds. MIP is a registered investment company consisting
of nine series including the LifePath Master Portfolios. Each Fund invests all
of its assets in the corresponding Master Portfolio of MIP (as shown below),
which has the same investment objective as the related Fund.
<TABLE>
<CAPTION>

LIFEPATH FUND CORRESPONDING MASTER PORTFOLIO
------------- ------------------------------
<S> <C>
LifePath 2000 Fund LifePath 2000 Master Portfolio
LifePath 2010 Fund LifePath 2010 Master Portfolio
LifePath 2020 Fund LifePath 2020 Master Portfolio
LifePath 2030 Fund LifePath 2030 Master Portfolio
LifePath 2040 Fund LifePath 2040 Master Portfolio
</TABLE>

On or about December 30, 1993, the Company's Board of Directors approved,
primarily for marketing purposes, the change of its corporate name from
"WellsFunds Inc." to "Stagecoach Inc." On or about March 15, 1996, the Company
changed its corporate name from "Stagecoach Inc." to "MasterWorks Funds
Inc."

On or about December 1, 1995, the LifePath Funds were added to the
registration statement of the Company with the filing of post-effective
amendment No. 11 on Form N-1A. The MasterWorks Funds Inc. LifePath Funds were
established to supersede the LifePath Institutional Class Shares of Stagecoach
Trust (another investment company in the Stagecoach Family of Funds). See
"Performance Information" in this SAI.

INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES

Investment Objectives. The LifePath Master Portfolios consist of five asset
---------------------
allocation funds, each of which is a diversified fund offered by MIP.
Organizations and other entities such as the Funds that hold shares of
beneficial interest of a Master Portfolio may be referred to herein as "feeder
funds."

The Master Portfolios seek to provide long-term investors in a feeder fund
with an asset allocation strategy designed to maximize assets consistent with
the quantitatively measured risk such investors, on average, may be willing to
accept given their investment time horizons. The Master Portfolios invest in a
wide range of U.S. and foreign equity and debt securities and money market
instruments. Each Master Portfolio is managed for investors in a feeder fund
planning to retire (or begin to withdraw substantial portions of their
investment) approximately in the year stated in the title of the Fund in which
they invest (e.g., investors in the LifePath 2000 Fund plan to retire in the
year 2000).

As with all mutual funds, there can be no assurance that the investment
objective of each Master Portfolio will be achieved. Each Master Portfolio's
investment objective cannot be changed without approval by the holders of a
majority (as defined in the Investment Company Act of 1940, as amended (the
"1940 Act")) of such Master Portfolio's outstanding voting shares.

Investment Restrictions. Each Fund and Master Portfolio has adopted investment
-----------------------
restrictions numbered 1 through 10 as fundamental policies. These restrictions
cannot be changed 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. Whenever a Fund is requested to vote on a
fundamental policy of the corresponding Master Portfolio in which it invests,
such Fund holds a meeting of its shareholders and casts its votes as instructed
by its shareholders. Investment restrictions numbered 11 through 20 are not
fundamental policies and may be changed by vote of a majority of the Trustees of
MIP, or a majority of the Directors of the Company, as the case may be, at any
time. The Funds and Master Portfolios may not:

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

1
<PAGE>

2. Hold more than 10% of the outstanding voting securities of any single
issuer. This investment restriction applies only with respect to 75% of its
total assets.

3. Invest in commodities, except that each Fund or Master Portfolio may
purchase and sell (i.e., write) options, forward contracts, futures contracts,
including those relating to indices, and options on futures contracts or
indices.

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

5. Borrow money, except to the extent permitted under the 1940 Act. For
purposes of this investment restriction, a Fund's or Master Portfolio's entry
into options, forward contracts, futures contracts, including those relating to
indices, and options on futures contracts or indices shall not constitute
borrowing to the extent certain segregated accounts are established and
maintained by the Master Portfolio as described in prospectus.

6. Make loans to others, except through the purchase of debt obligations and
the entry into repurchase agreements. However, each Fund or Master Portfolio may
lend its portfolio securities in an amount not to exceed one- third of the value
of its total assets. Any loans of portfolio securities will be made according to
guidelines established by the Securities and Exchange Commission and the Board
of Trustees of MIP or the Board of Directors of the Company, as the case may be.

7. Act as an underwriter of securities of other issuers, except to the extent
the Fund or Master Portfolio may be deemed an underwriter under the Securities
Act of 1933, as amended, by virtue of disposing of portfolio securities.

8. Invest 25% or more of its total assets in the securities of issuers in any
particular industry or group of closely related industries, except that, in the
case of each Fund or Master Portfolio, there shall be no limitation on the
purchase of obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.

9. Issue any senior security (as such term is defined in Section 18(f) of the
1940 Act), except to the extent the activities permitted in investment
restriction nos. 3, 5, 12 and 13 may be deemed to give rise to a senior security
or as otherwise permitted under the rules and regulations or an exemptive order
of the Securities and Exchange Commission.

10. Purchase securities on margin, but each Fund or Master Portfolio may make
margin deposits in connection with transactions in options, forward contracts,
futures contracts, including those relating to indices, and options on futures
contracts or indices.

11. Invest in the securities of a company for the purpose of exercising
management or control, but each Fund or Master Portfolio will vote the
securities it owns in its portfolio as a shareholder in accordance with its
views.

12. Pledge, mortgage or hypothecate its assets, except to the extent necessary
to secure permitted borrowings and to the extent related to the purchase of
securities on a when-issued or forward commitment basis and the deposit of
assets in escrow in connection with writing covered put and call options and
collateral and initial or variation margin arrangements with respect to options,
forward contracts, futures contracts, including those relating to indices, and
options on futures contracts or indices.

13. Purchase, sell or write puts, calls or combinations thereof, except as may
be described in the Fund's or Master Portfolio's offering documents.

14. Purchase securities of any company having less than three years'
continuous operations (including operations of any predecessors) if such
purchase would cause the value of its investments in all such companies to
exceed 5% of the value of its total assets.

2
<PAGE>

15. Enter into repurchase agreements providing for settlement in more than
seven days after notice or purchase securities which are illiquid, if, in the
aggregate, more than 15% of the value of its net assets would be so invested.
Although each Fund and Master Portfolio reserves the right to 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, 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 Fund
and Master Portfolio will comply with the lower limit. Each Fund and Master
Portfolio 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.

16. Purchase securities of other investment companies, except to the extent
permitted under the 1940 Act.

17. Purchase, hold or deal in real estate limited partnerships.

18. Purchase warrants that exceed 2% of the value of the Fund's or the Master
Portfolio's net assets, if those warrants are not listed on the New York or
American Stock Exchanges.

19. Purchase or retain securities of any issuer if the officers or directors
of the Company or the officers or trustees of MIP, its advisers or managers
owning beneficially more than one-half of one percent of the securities of an
issuer together own beneficially more than five percent of the securities of
that issuer.

20. Engage in any short sales other than short sales against the box.

As a fundamental policy, each Fund may invest, notwithstanding any other
investment restriction (whether or not fundamental), all of its assets in the
securities of a single open-end management investment company with substantially
the same fundamental investment objectives, policies and restrictions as such
Fund.

As a matter of general operating policy, each Fund and Master Portfolio may
invest up to 20% of the value of its total assets in foreign securities that are
not publicly traded in the United States.

If a percentage restriction is adhered to at the time of investment, a later
change in percentage resulting from a change in values or assets, except with
respect to compliance with investment restriction no. 5, will not constitute a
violation of such restriction.

The Company and MIP may make commitments more restrictive than the
restrictions listed above, so as to permit the sale of shares of a Fund in
certain states. Should the Company or MIP determine that a commitment is no
longer in the best interest of the Fund or Master Portfolio and its
shareholders, the Company or MIP reserves the right to revoke the commitment by
terminating the sale of such Fund's shares in the state involved.

PORTFOLIO SECURITIES.

Bank Obligations. Each LifePath Master Portfolio may invest in bank
----------------
obligations, including certificates of deposit, time deposits and other short-
term obligations of domestic banks, obligations of foreign branches of domestic
banks and obligations of domestic and foreign branches of foreign banks.
Domestic commercial banks organized under federal law are supervised and
examined by the Comptroller of the Currency and are required to be members of
the Federal Reserve System and to have their deposits insured by the Federal
Deposit Insurance Corporation (the "FDIC"). Domestic banks organized under state
law are supervised and examined by state banking authorities but are members of
the Federal Reserve System only if they elect to join. In addition, state banks
whose certificates of deposit ("CDs") may be purchased by each Master Portfolio
are insured by the FDIC (although such insurance may not be of material benefit
to the Master Portfolio, depending on the principal amount of the CDs of each
bank held by the Master Portfolio) and are subject to federal examination and to
a substantial body of federal law and regulation. As a result of federal or
state laws and regulations, domestic branches of domestic banks whose CDs may be
purchased by each Master Portfolio generally are required, among other things,
to maintain specified levels of reserves, are limited in the amounts which they
can loan to a single borrower and are subject to other

3
<PAGE>

regulations designed to promote financial soundness. However, not all of such
laws and regulations apply to the foreign branches of domestic banks.

Obligations of foreign branches of domestic banks, foreign subsidiaries of
domestic banks and domestic and foreign branches of foreign banks, such as CDs
and time deposits ("TDs"), may be general obligations of the parent banks in
addition to the issuing branch, or may be limited by the terms of a specific
obligation and/or governmental regulation. Such obligations are subject to
different risks than are those of domestic banks. These risks include foreign
economic and political developments, foreign governmental restrictions that may
adversely affect payment of principal and interest on the obligations, foreign
exchange controls and foreign withholding and other taxes on interest income.
These foreign branches and subsidiaries are not necessarily subject to the same
or similar regulatory requirements that apply to domestic banks, such as
mandatory reserve requirements, loan limitations, and accounting, auditing and
financial record keeping requirements. In addition, less information may be
publicly available about a foreign branch of a domestic bank or about a foreign
bank than about a domestic bank.

Obligations of U.S. branches of foreign banks may be general obligations of
the parent bank in addition to the issuing branch, or may be limited by the
terms of a specific obligation or by federal or state regulation as well as
governmental action in the country in which the foreign bank has its head
office. A domestic branch of a foreign bank with assets in excess of $1 billion
may be subject to reserve requirements imposed by the Federal Reserve System or
by the state in which the branch is located if the branch is licensed in that
state.

In addition, federal branches licensed by the Comptroller of the Currency and
branches licensed by certain states ("State Branches") may be required to: (1)
pledge to the appropriate regulatory authority, by depositing assets with a
designated bank within the relevant state, a certain percentage of their assets
as fixed from time to time by such regulatory authority; and (2) maintain assets
within the relevant state in an amount equal to a specified percentage of the
aggregate amount of liabilities of the foreign bank payable at or through all of
its agencies or branches within the state. The deposits of federal and State
Branches generally must be insured by the FDIC if such branches take deposits of
less than $100,000.

In view of the foregoing factors associated with the purchase of CDs and TDs
issued by foreign branches of domestic banks, by foreign subsidiaries of
domestic banks, by foreign branches of foreign banks or by domestic branches of
foreign banks, BGFA carefully evaluates such investments on a case-by-case
basis.

Each Master Portfolio may purchase CDs issued by banks, savings and loan
associations and similar thrift institutions with less than $1 billion in
assets, provided that such institutions are members of the FDIC, and further
provided such Master Portfolio purchases any such CD in a principal amount of
not more than $100,000, which amount would be fully insured by the Bank
Insurance Fund or the Savings Association Insurance Fund administered by the
FDIC. Interest payments on such a CD are not insured by the FDIC. No Master
Portfolio will own more than one such CD per such issuer.

Futures Contracts. Master Portfolios may use futures contracts as a hedge
-----------------
against the effects of interest rate changes or changes in the market value of
the stocks comprising the index in which such Master Portfolio invests. In
managing their cash flows, these Master Portfolios also may use futures
contracts as a substitute for holding the designated securities underlying the
futures contract. A futures contract is an agreement between two parties, a
buyer and a seller, to exchange a particular commodity at a specific price on a
specific date in the future. At the time it enters into a futures transaction, a
Master Portfolio is required to make a performance deposit (initial margin) of
cash or liquid securities in a segregated account in the name of the futures
broker. Subsequent payments of "variation margin" are then made on a daily
basis, depending on the value of the futures position which is continually
"marked to market."

A Master Portfolio may engage only in futures contract transactions involving
(i) the sale of a futures contract (i.e., short positions) to hedge the value of
securities held by such Master Portfolio; (ii) the purchase of a futures
contract when such Master Portfolio hold a short position having the same
delivery month (i.e., a long position offsetting a short position); or (iii) the
purchase of a futures contract to permit the Master Portfolio to, in effect,
participate in the market for the designated securities underlying the futures
contract without actually owning such

4
<PAGE>

designated securities. When a Master Portfolio purchases a futures contracts, it
will create a segregated account consisting of each or other liquid assets in an
amount equal to the total market value of such futures contract, less the amount
of initial margin for the contract.

If a Master Portfolio enters into a short position in a futures contract as a
hedge against anticipated adverse market movements and the market then rises,
the increase in the value of the hedged securities will be offset, in whole or
in part, by a loss on the futures contract. If instead a Master Portfolio
purchases a futures contract as a substitute for investing in the designated
underlying securities, a Master Portfolio experiences gains or losses that
correspond generally to gains or losses in the underlying securities. The latter
type of futures contract transactions permits a Master Portfolio to experience
the results of being fully invested in a particular asset class, while
maintaining the liquidity needed to manage cash flows into or out of the Master
Portfolio (e.g., from purchases and redemptions of Master Portfolio shares).
Under normal market conditions, futures contract positions may be closed out on
a daily basis. The LifePath Master Portfolio identified above expect to apply a
portion of their cash or cash equivalents maintained for liquidity needs to such
activities.

Transactions by a Master Portfolio in futures contracts involve certain risks.
One risk in employing futures contracts as a hedge against cash market price
volatility is the possibility that futures prices will correlate imperfectly
with the behavior of the prices of the securities in the Master Portfolio's
investment portfolio. Similarly, in employing futures contracts as a substitute
for purchasing the designated underlying securities, there is a risk that the
performance of the futures contract may correlate imperfectly with the
performance of the direct investments for which the futures contract is a
substitute. In addition, commodity exchanges generally limit the amount of
fluctuation permitted in futures contract prices during a single trading day,
and the existence of such limits may prevent the prompt liquidation of futures
positions in certain cases. Limits on price fluctuations are designed to
stabilize prices for the benefit of market participants; however, there could be
cases where the Master Portfolio could incur a larger loss due to the delay in
trading than it would have if no limit rules had been in effect.

In order to comply with undertakings made by the Master Portfolio pursuant to
Commodity Futures Trading Commission ("CFTC") Regulation 4.5, the Master
Portfolios will use futures and option contracts solely for bona fide hedging
purposes within the meaning and intent of CFTC Reg. 1.3(z); provided, however,
that in addition, with respect to positions in commodity futures or commodity
option contracts which do not come within the meaning and intent of CFTC Reg.
1.3(z), the aggregate initial margin and premiums required to establish such
positions will not exceed five percent of the liquidation value of the Master
Portfolio's portfolio, after taking into account unrealized profits and
unrealized losses on any such contract it has entered into; and provided
further, that in the case of an option that is in-the-money at the time of
purchase, the in-the-money amount as defined in CFTC Reg. 190.01(x) may be
excluded in computing such five percent.

Foreign Currency Transactions. 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 Funds intend to engage in foreign currency
transactions to maintain the same foreign currency exposure as the relevant
foreign securities index through which the Funds seek foreign equity market
exposure, but not as part of a defensive strategy to protect against
fluctuations in exchange rates. If a LifePath Master Portfolio enters into a
foreign currency transaction or forward contract, such Master Portfolio
deposits, if required by applicable regulations, with MIP's custodian cash or
high-grade debt securities in a segregated account of the LifePath Master
Portfolio in an amount at least equal to the value of the LifePath Master
Portfolio's total assets committed to the consummation of the forward contract.
If the value of the securities placed in the segregated account declines,
additional cash or securities is placed in the account so that the value of the
account equals the amount of the LifePath Master Portfolio's commitment with
respect to the contract.

At or before the maturity of a forward contract, a LifePath Master Portfolio
either may sell a portfolio security and make delivery of the currency, or may
retain the security and offset its contractual obligation to deliver the
currency by purchasing a second contract pursuant to which such Master Portfolio
obtains, on the same maturity

5
<PAGE>

date, the same amount of the currency which it is obligated to deliver. If the
LifePath Master Portfolio retains the portfolio security and engages in an
offsetting transaction, such Master Portfolio, at the time of execution of the
offsetting transaction, incurs a gain or a loss to the extent that movement has
occurred in forward contract prices. Should forward prices decline during the
period between the LifePath Master Portfolio's entering into a forward contract
for the sale of a currency and the date it enters into an offsetting contract
for the purchase of the currency, the Master Portfolio realizes a gain to the
extent the price of the currency it has agreed to sell exceeds the price of the
currency it has agreed to purchase. Should forward prices increase, the Master
Portfolio suffers a loss to the extent the price of the currency it has agreed
to purchase exceeds the price of the currency it has agreed to sell.

The cost to a LifePath Master Portfolio of engaging in currency transactions
varies with factors such as the currency involved, the length of the contract
period and the market conditions then prevailing. Because transactions in
currency exchange usually are conducted on a principal basis, no fees or
commissions are involved. BGFA considers on an ongoing basis the
creditworthiness of the institutions with which a LifePath Master Portfolio
enters into foreign currency transactions. The use of forward currency exchange
contracts does not eliminate fluctuations in the underlying prices of the
securities, but it does establish a rate of exchange that can be achieved in the
future. If a devaluation generally is anticipated, the LifePath Master Portfolio
may not be able to contract to sell the currency at a price above the
devaluation level it anticipates.

The purchase of options on currency futures allows a LifePath Master
Portfolio, for the price of the premium it must pay for the option, to decide
whether or not to buy (in the case of a call option) or to sell (in the case of
a put option) a futures contract at a specified price at any time during the
period before the option expires.

Future Developments. Each LifePath Master Portfolio may take advantage of
-------------------
opportunities in the areas of options and futures contracts and options on
futures contracts and any other derivative investments which are not presently
contemplated for use by such Master Portfolio or which are not currently
available but which may be developed, to the extent such opportunities are both
consistent with a LifePath Master Portfolio's investment objective and legally
permissible for the Master Portfolio. Before entering into such transactions or
making any such investment, a LifePath Master Portfolio would provide
appropriate disclosure in its prospectus or this SAI.

Lending Portfolio Securities. To a limited extent, each Master Portfolio may
lend its portfolio securities to brokers, dealers and other financial
institutions, provided it receives cash collateral which is maintained at all
times in an amount equal to at least 100% of the current market value of the
securities loaned. By lending its portfolio securities, a Master Portfolio can
increase its income through the investment of the cash collateral or by receipt
of a loan premium from the borrower. For purposes of this policy, each Master
Portfolio considers collateral consisting of U.S. Government obligations or
irrevocable letters of credit issued by banks whose securities meet the
standards for investment by such Master Portfolio to be the equivalent of cash.
From time to time, a Master Portfolio may return to the borrower, or to a third
party unaffiliated with MIP which is acting as a "placing broker," a part of the
interest earned from the investment of collateral received in exchange for
securities loaned.

The SEC currently requires that the following conditions must be met whenever
portfolio securities are loaned: (1) the Master Portfolio must receive at least
100% cash collateral from the borrower; (2) the borrower must increase such
collateral whenever the market value of the securities loaned rises above the
level of such collateral; (3) the Master Portfolio must be able to terminate the
loan at any time; (4) the Master Portfolio must receive reasonable interest on
the loan, as well as any dividends, interest or other distributions payable on
the loaned securities, and any increase in market value; (5) the Master
Portfolio may pay only reasonable custodian fees in connection with the loan;
and (6) while voting rights on the loaned securities may pass to the borrower,
MIP's Board of Trustees must terminate the loan and regain the right to vote the
securities if a material event adversely affecting the investment occurs. These
conditions may be subject to future modification.

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.

6
<PAGE>

Fixed-Income Obligations -- Investors should be aware that even though
------------------------
interest-bearing obligations 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 obligations are affected to a greater extent by interest
rates than shorter-term obligations. The values of fixed-income obligations 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 obligations 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. Obligations
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 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. Obligations
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 obligations and, therefore,
impair timely payment. Obligations 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
obligation until such time as BGFA determines it to be advantageous for the
LifePath Master Portfolio to sell the obligation. If such a policy would cause a
LifePath Master Portfolio to have 5% or more of its net assets invested in
obligations that have been downgraded below investment grade, the Master
Portfolio promptly would seek to dispose of such obligations in an orderly
manner.

Repurchase Agreements. Each Master Portfolio may engage in a repurchase
----------------------
agreement with respect to any security in which it is authorized to invest,
although the underlying security may mature in more than thirteen months. The
Master Portfolio may enter into repurchase agreements wherein the seller of a
security to the Master Portfolio agrees to repurchase that security from the
Master Portfolio at a mutually agreed-upon time and price that involves the
acquisition by the Master Portfolio of an underlying debt instrument, subject to
the seller's obligation to repurchase, and the Master Portfolio's obligation to
resell, the instrument at a fixed price usually not more than one week after its
purchase. The Master Portfolio's custodian has custody of, and holds in a
segregated account, securities acquired as collateral by the Master Portfolio
under a repurchase agreement. Repurchase agreements are considered by the staff
of the SEC to be loans by the Master Portfolio. The Master Portfolio may enter
into repurchase agreements only with respect to securities of the type in which
it may invest, including government securities and mortgage-related securities,
regardless of their remaining maturities, and requires that additional
securities be deposited with the custodian if the value of the securities
purchased should decrease below resale price. Wells Fargo Bank monitors on an
ongoing basis the value of the collateral to assure that it always equals or
exceeds the repurchase price. Certain costs may be incurred by the Master
Portfolio in connection with the sale of the underlying securities if the seller
does not repurchase them in accordance with the repurchase agreement. In
addition, if bankruptcy proceedings are commenced with respect to the seller of
the securities, disposition of the securities by the Master Portfolio may be
delayed or limited. While it does not presently appear possible to eliminate
all risks from these transactions (particularly the possibility of a decline in
the market value of the underlying securities, as well as delay and costs to the
Master Portfolio in connection with insolvency proceedings), it is the policy of
the Master Portfolio to limit repurchase agreements to selected creditworthy
securities dealers or domestic banks or other recognized financial institutions.
The Master Portfolio considers on an ongoing basis the creditworthiness of the
institutions with which it enters into repurchase agreements. Repurchase
agreements are considered to be loans by a Master Portfolio under the Investment
Company Act of 1940 (the "1940 Act").

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

7
<PAGE>

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 prepare 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 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 exerciseable within seven days.
Such obligations may be treated as liquid, provided that an active secondary
market exists.

MANAGEMENT

The following information supplements and should be read in conjunction with
the Prospectus section entitled "Management of the Funds". Directors and
officers of the Company, together with information as to their principal
business occupations during the last five years, are shown below. The address of
each, unless otherwise indicated, is 111 Center Street, Little Rock, Arkansas
72201. Directors who are deemed to be an "interested person" of the Company, as
defined in the 1940 Act, are indicated by an asterisk.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE POSITION DURING PAST 5 YEARS
- ----------------------------- ------------------ ----------------------------
<S> <C> <C>
Jack S. Euphrat, 75 Director Private Investor.
415 Walsh Road
Atherton, CA 94027

*R. Greg Feltus, 46 Director, Chairman Executive Vice President of
and President Stephens; Manager of
Financial Services Group;
President of Stephens
Insurance Services Inc.;
Senior Vice President
of Stephens Sports
Management Inc.; and
President of Investors
Brokerage Insurance Inc.

Thomas S. Goho, 55 Director Associate Professor of
P.O. Box 7285 Finance, Calloway School of
Reynolda Station Business and Accounting at
Winston-Salem, NC 27104 Wake Forest University
since 1982

*Zoe Ann Hines, 48 Director Senior Vice President of
Stephens and Director
of Brokerage Accounting;
Secretary of Stephens
Resource Management;
and Senior Vice
President of Link
Investments Inc.

*W. Rodney Hughes, 70 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901

</TABLE>

8
<PAGE>

<TABLE>

<S> <C> <C>
Robert M. Joses, 79 Director Private Investor.
47 Dowitcher Way
San Rafael, CA 94901

*J. Tucker Morse, 52 Director Chairman of Home Account
4 Beaufain Street Network, Inc.; Real Estate
Charleston, SC 29401 Developer; Chairman of
Renaissance Properties Ltd.;
President of Morse
Investment Corporation; and
Co-Managing Partner of Main
Street Ventures.

Richard H. Blank, Jr., 40 Chief Operating Associate of Financial
Officer, Secretary Services Group of
and Treasurer Stephens; Director of
Stephens Sports Management
Inc.; and Director of Capo
Inc.

</TABLE>

COMPENSATION TABLE
For the Fiscal Year Ended February 28, 1997
<TABLE>
<CAPTION>

TOTAL COMPENSATION
AGGREGATE COMPENSATION FROM REGISTRANT
NAME AND POSITION FROM REGISTRANT AND FUND COMPLEX
- -------------------- ------------------- ------------------
<S> <C> <C>
Jack S. Euphrat $9,250 $9,250
Director

*R. Greg Feltus 0 0
Director

Thomas S. Goho $9,250 $9,250
Director

*Zoe Ann Hines 0 0
Director

*W. Rodney Hughes $8,250 $8,250
Director

Robert M. Joses $9,250 $9,250
Director

*J. Tucker Morse $8,250 $8,250
Director
</TABLE>

Directors of the Company are compensated annually by the Company and by all
the registrants in the fund complex for their services as indicated above and
also are reimbursed for all out-of-pocket expenses relating to attendance at
board meetings. The Company, Master Investment Portfolio and Managed Series
Investment Trust are considered to be members of the same fund complex, as such
term is defined in Form N-1A under the 1940 Act ( the "BGFA Fund Complex" ).
Stagecoach Funds, Inc., Overland Express Funds, Inc., Stagecoach Trust, Life &
Annuity Trust and Master Investment Trust together form a separate fund complex
(the "Wells Fargo Fund Complex"). Each of the Directors and Officers of the
Company serves in the identical capacity as Directors/Trustees and Officers of
each registered open-end management investment company in both the Wells Fargo
and BGFA Fund Complexes, except for Zoe Ann Hines, who, after September 6, 1996,
only serves the aforementioned members of the BGFA Fund Complex. The Directors
are compensated by other companies and trusts within a fund complex for their
services as Directors/Trustees to such companies and trusts. Currently the
Directors do not receive any retirement benefits or deferred compensation from
the Company or any other member

9
<PAGE>

of each fund complex. As of the date of this SAI, Directors and officers of the
Company as a group beneficially owned less than 1% of the outstanding shares of
the Company.

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

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

The investment objective and other fundamental policies of a Master Portfolio
cannot be changed without approval by the holders of a majority (as defined in
the 1940 Act) of the Master Portfolio's outstanding interests. See "Investment
Objectives and Policies" in the Prospectus. Whenever a Fund, as an
interestholder of the corresponding Master Portfolio, is requested to vote on
any matter submitted to interestholders of the Master Portfolio, the Fund will
hold a meeting of its shareholders to consider such matters. The Fund will cast
its votes in proportion to the votes received from its shareholders. Shares for
which the Fund receives no voting instructions will be voted in the same
proportion as the votes received from the other Fund shareholders.

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

Investment Adviser. BGFA provides investment advisory services to each Master
------------------
Portfolio pursuant to separate Investment Advisory Contracts (each, a "BGFA
Advisory Contract") with MIP. Pursuant to the Advisory Contracts, BGFA furnishes
to the Trust's Board of Trustees periodic reports on the investment strategy and
performance of each Master Portfolio. BGFA has agreed to provide to the Master
Portfolios, among other things, money market security and fixed- income
research, analysis and statistical and economic data and information concerning
interest rate and security market trends, portfolio composition, credit
conditions and average maturities of each Master Portfolio's investment
portfolio.

BGFA is entitled to receive monthly fees at the annual rate of 0.55% of each
Master Portfolio's average daily net assets as compensation for its advisory
services to such Master Portfolio.

As to each Master Portfolio, the applicable BGFA Advisory Contract is subject
to annual approval by (i) MIP's Board of Trustees or (ii) vote of a majority (as
defined in the 1940 Act) of the outstanding voting securities of such
10
<PAGE>

Master Portfolio, provided that in either event the continuance also is approved
by a majority of MIP's Board of Trustees who are not "interested persons" (as
defined in the 1940 Act) of MIP or BGFA, by vote cast in person at a meeting
called for the purpose of voting on such approval. As to each Master Portfolio,
the applicable BGFA Advisory Contract is terminable without penalty, on 60 days'
written notice by MIP's Board of Trustees or by vote of the holders of a
majority of such Master Portfolio's shares, or, on not less than 60 days'
written notice, by BGFA. The applicable BGFA Advisory Contract terminates
automatically, as to the relevant Master Portfolio, in the event of its
assignment (as defined in the 1940 Act).

Prior to January 1, 1996, Wells Fargo Bank, N.A. ("Wells Fargo") provided
investment advisory services to each Master Portfolio pursuant to an Investment
Advisory Agreement with MIP.

For the fiscal year ended February 28, 1995 and the period beginning March 1,
1995 and ended December 31, 1995, the advisory fees paid to Wells Fargo by the
corresponding Master Portfolio of each LifePath Fund and the amount of such fees
waived by Wells Fargo is shown below.

FISCAL YEAR 3/1/95-
ENDED 2/28/95 12/31/95
------------- --------
MASTER PORTFOLIO FEES FEES FEES FEES
- --------------------------------- PAID WAIVED PAID WAIVED
----- ------ ---- ------
<S> <C> <C> <C> <C>
LifePath 2000 Master Portfolio $217,676 $0 $363,599 $0
LifePath 2010 Master Portfolio $158,218 $0 $312,512 $0
LifePath 2020 Master Portfolio $252,413 $0 $520,362 $0
LifePath 2030 Master Portfolio $156,397 $0 $343,916 $0
LifePath 2040 Master Portfolio $189,121 $0 $503,384 $0

</TABLE>

For the period beginning January 1, 1996 and ended February 29, 1996, and for
the fiscal year ended February 28, 1997, the advisory fees paid to BGFA by the
corresponding Master Portfolio of each LifePath Fund and the amount of such fees
waived by BGFA is shown below.
<TABLE>
<CAPTION>

1/1/96- FISCAL YEAR
2/29/96 ENDED 2/28/97
-------- -------------
MASTER PORTFOLIO FEES FEES FEES FEES
- --------------------------------- PAID WAIVED PAID WAIVED
------- ------- ------- ------
<S> <C> <C> <C> <C>
LifePath 2000 Master Portfolio $ 99,511 $0 $ 689,347 $0
LifePath 2010 Master Portfolio $ 86,919 $0 $ 757,505 $0
LifePath 2020 Master Portfolio $ 141,075 $0 $1,149,160 $0
LifePath 2030 Master Portfolio $ 93,240 $0 $ 714,647 $0
LifePath 2040 Master Portfolio $ 148,324 $0 $1,154,330 $0

</TABLE>

Sub-Investment Adviser. Prior to January 1, 1996, WFNIA provided sub-
----------------------
investment advisory services to each Master Portfolio pursuant to a
Sub-inVestment Advisory Agreement with Wells Fargo.

For the fiscal year ended February 28, 1995 and for the period beginning March
1, 1995 and ended December 31, 1995, Wells Fargo paid to WFNIA the following
sub-advisory fees and WFNIA waived the amounts shown:
<TABLE>
<CAPTION>

FISCAL YEAR 3/1/95 -
END 2/28/95 12/31/95
----------- --------
MASTER PORTFOLIO FEES PAID FEES WAIVED FEES PAID FEES WAIVED
- ---------------------------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C>
LifePath 2000 Master Portfolio $159,494 $0 $261,344 $0
LifePath 2010 Master Portfolio $115,647 $0 $224,903 $0
LifePath 2020 Master Portfolio $184,341 $0 $374,802 $0
LifePath 2030 Master Portfolio $114,426 $0 $247,703 $0
LifePath 2040 Master Portfolio $138,511 $0 $361,673 $0
</TABLE>

11
<PAGE>

Co-Administrators. The Company has engaged Stephens and Barclays Global
-----------------
Investors, N.A. ("BGI") to provide certain administration services to the Funds.
Pursuant to a Co-Administration Agreement with the Company, Stephens and BGI
provide as administrative services, among other things: (i) general supervision
of the operation of the Funds, including coordination of the services performed
by the investment adviser, transfer and dividend disbursing agent, custodians,
independent auditors and legal counsel; (ii) general supervision of regulatory
compliance matters, including the compilation of information for documents such
as reports to, and filings with, the SEC and state securities commissions, and
preparation of proxy statements and shareholder reports for the Company; and
(iii) general supervision relative to the compilation of data required for the
preparation of periodic reports distributed to the Company's officers and Board
of Directors. Stephens also furnishes office space and certain facilities
required for conducting the business of the Funds together with all other
administrative services reasonably necessary for the operation of the Funds,
other than those services provided by the Company's transfer and dividend
disbursing agent. Stephens also pays the compensation of the Company's
Directors, officers and employees who are affiliated with Stephens

In addition, except for advisory fees, extraordinary expenses, brokerage and
other expenses connected to the execution of portfolio transactions and certain
expenses which are borne by the LifePath Funds, Stephens and BGI have agreed to
bear all costs of the Funds' and the Company's operations. For providing such
services, Stephens and BGI are entitled to a fee of 0.40% of each Fund's average
daily net assets. Effective October 21, 1996, BGI contracted with Investors
Bank & Trust Company ("IBT") to provide certain sub-administration services.
Prior to October 21, 1996, Stephens served as sole administrator to the
Funds.

For the fiscal period beginning March 26, 1996 (commencement of operations)
and ended February 28, 1997, the LifePath Funds paid the following
administration and co-administration fees to Stephens:

FUND 3/26/96-2/28/97
- ---- ---------------
<S> <C>
LifePath 2000 Fund $ 48,666
LifePath 2010 Fund $ 90,007
LifePath 2020 Fund $109,730
LifePath 2030 Fund $ 58,134
LifePath 2040 Fund $ 62,981

</TABLE>

For the period beginning October 21, 1996 and ended February 28, 1997, the
LifePath Funds paid the following co-administration fees to BGI:
<TABLE>
<CAPTION>
FUND 10/21/96 - 2/28/97
- ---- ------------------
<S> <C>
LifePath 2000 Fund $ 28,780
LifePath 2010 Fund $ 55,628
LifePath 2020 Fund $ 64,702
LifePath 2030 Fund $ 36,321
LifePath 2040 Fund $ 48,300
</TABLE>

Distributor. Stephens acts as the exclusive distributor of each Fund's shares
-----------
pursuant to an Amended and Restated Distribution Agreement (the "Distribution
Agreement") with the Company on behalf of the Funds. Shares are sold on a
continuous basis by Stephens as agent, although Stephens is not obligated to
sell any particular amount of shares. No compensation is payable by the Company
to Stephens for its distribution services. The term and termination provisions
of the Distribution Agreement are substantially similar to those of the
Agreement with the Adviser discussed above.

Distribution 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 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 BGFA to Wells Fargo in connection with the sale
of WFNIA may

12
<PAGE>

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. The
Master Portfolio's do not currently pay any amounts pursuant to the Plan.

Shareholder Services Plan. The Company has adopted a Shareholder Services Plan
-------------------------
on behalf of the Funds. Pursuant to the Plan, financial institutions (which may
include Wells Fargo, its affiliates, and affiliates of BGFA or BGI) may act as
the shareholder servicing agent (an "Agent") for each Fund pursuant to
Shareholder Servicing Agreements. Such Agent will agree to perform certain
shareholder liaison services such as answering shareholder inquiries regarding
account status and history, and the manner in which purchases, exchanges and
redemptions of Fund shares may be made. For its services as the Agent for the
Funds, each Fund may pay Wells Fargo fees at the annual rate of up to 0.20% of
its average daily net assets.

For the fiscal period beginning March 26, 1996 and ended February 28, 1997,
the Funds paid shareholder services fees to Wells Fargo as follows:
<TABLE>
<CAPTION>

FUND FEES PAID
- ---- ---------
<S> <C>
LifePath 2000 Fund $36,660
LifePath 2010 Fund $66,315
LifePath 2020 Fund $82,842
LifePath 2030 Fund $40,826
LifePath 2040 Fund $50,114
</TABLE>

Custodian. IBT, concurrent with its appointment as sub-administrator for the
---------
Funds on October 21, 1996, also has been retained as custodian of each Fund's
investments, and performs such services at 200 Clarendon Street, Boston,
Massachusetts 02116. The custodian, among other things, maintains a custody
account or accounts in the name of the Funds, receives and delivers all assets
for the Funds upon purchase and upon sale or maturity; collects and receives all
income and other payments and distributions on account of the assets of the
Funds and pays all expenses of the Funds. IBT shall not be entitled to
compensation for providing custody services to the Funds pursuant to the Custody
Agreement so long as it receives fees from BGI for providing sub-administration
services to the Funds. Prior to October 21, 1996, BGI served as the Fund's
custodian and was not entitled to receive a fee.

Transfer and Dividend Disbursing Agent. Wells Fargo has been retained as the
--------------------------------------
transfer and dividend disbursing agent for the Funds and performs such services
at 525 Market Street, San Francisco, California 94105. For its services as
transfer and dividend disbursing agent, Wells Fargo is entitled to an annual fee
of 0.10% of each Fund's average daily net assets.

PURCHASE AND REDEMPTION OF SHARES

Terms of Purchase. The Funds are generally open Monday through Friday and are
-----------------
closed on weekends and NYSE holidays. The holidays on which the NYSE is closed
currently are: New Year's Day, Martin Luther King, Jr.'s, Birthday, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day. The Company reserves the right to reject any purchase order
and to change the amount of the minimum investment and subsequent purchases in
the Funds.

Payment for shares of a LifePath Fund may, at the discretion of the adviser,
be made in the form of securities that are permissible investments for the Fund
and must meet the investment objective, policies and limitations of the Fund as
described in the Prospectus. In connection with an in-kind securities payment, a
Fund may require, among other things, that the securities (i) be valued on the
day of purchase in accordance with the pricing methods used by the Fund; (ii)
are accompanied by satisfactory assurance that the Fund will have good and
marketable title to such securities received by it; (iii) are not subject to any
restrictions upon resale by the Fund; (iv) be in proper form for transfer to the
Fund; (v) are accompanied by adequate information concerning the basis and other
tax matters

13
<PAGE>

relating to the securities. All dividends, interest, subscription or other
rights pertaining to such securities shall become the property of the Fund
engaged in the in-kind purchase transaction and must be delivered to such Fund
by the investor upon receipt from the issuer. Securities acquired through an in-
kind purchase will be acquired for investment and not for immediate resale.
Shares purchased in exchange for securities generally cannot be redeemed for
until the transfer has settled. Each Fund immediately will transfer to its
corresponding Master Portfolio any and all securities received by it in
connection with an in-kind purchase transaction, in exchange for interests in
such Master Portfolio.

In addition, the Company may redeem shares involuntarily to reimburse a Fund
for any losses sustained by reason of the failure of a shareholder to make full
payment for shares purchased or to collect any charge relating to a transaction
effected for the benefit of a shareholder which is applicable to shares of a
Fund as provided from time to time in the Prospectus .

DETERMINATION OF NET ASSET VALUE

LifePath Master Portfolios. The securities of the LifePath Master Portfolios,
--------------------------
including covered call options written by a LifePath Master Portfolio, are
valued at the last sale price on the securities exchange or national securities
market on which such securities primarily are traded. Securities not listed on
an exchange or national securities market, or securities in which there were no
transactions, are valued at the most recent bid prices. Portfolio securities
which are traded primarily on foreign securities exchanges generally are valued
at the preceding closing values of such securities on their respective
exchanges, except that when an occurrence subsequent to the time a value was so
established is likely to have changed such value, then the fair value of those
securities is determined by consideration of other factors by or under the
direction of MIP's Board of Trustees or its delegates. Short-term investments
are carried at amortized cost, which approximates market value. Any securities
or other assets for which recent market quotations are not readily available are
valued at fair value as determined in good faith by MIP's Board of
Trustees.

Restricted securities, as well as securities or other assets for which market
quotations are not readily available, or are not valued by a pricing service
approved by MIP's Board of Trustees, are valued at fair value as determined in
good faith by or under the direction of MIP's Board of Trustees or its
delegates. MIP's Board of Trustees reviews the method of valuation on a current
basis. In making a good-faith valuation of restricted securities, the following
are generally considered: restricted securities that are, or are convertible
into, securities of the same class of securities for which a public market
exists usually are valued at market value less the same percentage discount at
which such securities were purchased. This discount may be revised periodically
if the Adviser believes that the discount no longer reflects the value of the
restricted securities. Restricted securities not of the same class as securities
for which a public market exists usually are valued initially at cost. Any
subsequent adjustment from cost is based upon considerations deemed relevant by
or under the direction of MIP's Board of Trustees or its delegates.

14
<PAGE>

Any assets or liabilities initially expressed in terms of foreign currency are
translated into dollars using information provided by pricing entities, such as
Morgan Stanley Capital International or Gelderman Data Service, or at a quoted
market exchange rate as may be determined to be appropriate by the Adviser.
Forward currency contracts are valued at the current cost of offsetting the
contract. Because of the need to obtain prices as of the close of trading on
various exchanges throughout the world, the calculation of net asset value does
not take place contemporaneously with the determination of prices of the foreign
securities held by the LifePath Master Portfolios. In addition, foreign
securities held by a LifePath Master Portfolio may be traded actively in
securities markets which are open for trading on days when the Master Portfolio
does not determine its net asset value. Accordingly, there may be occasions when
a LifePath Master Portfolio does not calculate its net asset value but when the
value of such Master Portfolio's portfolio securities is affected by such
trading activity.

Fixed-income securities are valued each business day using available market
quotations or at fair value as determined by one or more independent pricing
services (collectively, the "Service") approved by MIP's Board of Trustees. The
Service may use available market quotations and employ electronic data
processing techniques and/or a matrix system to determine valuations. The
Service's procedures are reviewed by MIP's officers under the general
supervision of MIP's Board of Trustees.

Expenses and fees, including advisory fees, are accrued daily and are taken
into account for the purpose of determining the net asset value of each LifePath
Master Portfolio's shares.

DIVIDENDS, DISTRIBUTIONS AND TAXES

In 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 Funds' shareholders. Each Fund will be treated as a separate
entity for tax purposes; thus, the provisions of the Code applicable to
regulated investment companies will generally be applied to each Fund, 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.

Qualification as a regulated investment company under the Code requires, among
other things, that (a) each Fund derive at least 90% of its annual gross income
from interest, payments with respect to securities loans, dividends and gains
from the sale or other disposition of securities or options thereon; (b) each
Fund derive less than 30% of its gross income from gains from the sale or other
disposition of securities or options thereon held for less than three months;
and (c) each Fund diversify its holdings so that, at the end of each quarter of
the taxable year, (i) at least 50% of the market value of the Fund's assets is
represented by cash, government securities and other securities limited in
respect of any one issuer to an amount not greater than 5% of the Fund's assets
and 10% of the outstanding voting securities of such issuer, and (ii) not more
than 25% of the value of its assets is invested in the securities of any one
issuer (other than U.S. Government securities and the securities of other
regulated investment companies), or in two or more issuers which the Fund
controls and which are determined to be engaged in the same or similar trades or
businesses. For purposes of determining such qualification, each Fund will be
deemed to own a proportionate share of the corresponding Master Portfolio's
assets. As a regulated investment company, each Fund will not be subject to
federal income tax on its net investment income and net capital gains
distributed to its shareholders, provided that it distributes to its
shareholders at least 90% of its net investment income, including net tax-exempt
income, earned in each year. Each Fund intends to pay out substantially all of
its net investment income and net realized capital gains (if any) for each
year.

15
<PAGE>

In addition, a 4% nondeductible excise tax will be imposed on each Fund (other
than to the extent of the Fund's tax-exempt income) to the extent it does not
meet certain minimum distribution requirements by the end of each, if any,
calendar year. Each Fund either will actually or be deemed to distribute
substantially all of its net investment income and net capital gains by the end
of each calendar year and, thus, expects not to be subject to the excise
tax.

Income and dividends received by a Fund from sources within foreign countries
may be subject to withholding and other taxes imposed by such countries. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. Because not more than 50% of the value of the total
assets of any Fund is expected to consist of securities of foreign issuers, no
Fund will be eligible to elect to "pass-through" foreign tax credits to
shareholders.

Each Fund seeks to qualify as a regulated investment company by investing
substantially all of its assets in a Master Portfolio. Under the Code, each
Master Portfolio will be treated as a non-publicly traded partnership rather
than as a regulated investment company or a corporation. As a non-publicly
traded partnership, any interest, dividends, gains and losses of a Master
Portfolio shall be deemed to have been "passed through" to the corresponding
Fund (and the Master Portfolio's other investors) in proportion to such Fund's
ownership interest in the Master Portfolio. Therefore, to the extent that the
Master Portfolio were to accrue but not distribute any interest, dividends or
gains, the corresponding Fund would be deemed to have realized and recognized
its proportionate share of interest, dividends or gains without receipt of any
corresponding distribution. However, the Master Portfolio will seek to minimize
recognition by its investors (such as a Fund) of interest, dividends, or gains
without a corresponding distribution.

Capital Gain Distributions. To the extent that each Fund recognizes net long-
--------------------------
term capital gains, such gains will be distributed at least annually. These
distributions will be taxable to Fund shareholders as long-term capital gains,
regardless of how long a shareholder has held Fund shares. The Funds intend to
designate such distributions as capital gain distributions in a written notice
to the shareholders mailed by the Fund not later than 60 days after the close of
the Fund's taxable year.

If a shareholder exchanges or otherwise disposes of Fund shares within 90 days
of having acquired such shares and if, as a result of having acquired those
shares, the shareholder subsequently pays a reduced sales charge on a new
purchase of shares of the Fund or of a different regulated investment company
(the "new shares"), the sales charge previously incurred in acquiring the Fund's
shares shall not be taken into account (to the extent such previous sales
charges do not exceed the reduction in sales charges on the purchase of the new
shares) for the purpose of determining the amount of gain or loss on the
disposition, but will be treated as having been incurred in the acquisition of
the new shares. Also, any loss realized on a redemption or exchange of Fund
shares will be

16
<PAGE>

disallowed to the extent that substantially identical shares are reacquired
within the 61-day period beginning 30 days before and ending 30 days after the
shareholder disposes of the Fund shares.

Taxation of Master Portfolio Investments. Gains or losses on sales of
----------------------------------------
portfolio securities by each Master Portfolio will generally be long-term
capital gains or losses if the securities have been held by it for more than one
year, except in certain cases such as where a Master Portfolio acquires a put or
writes a call thereon. Gains recognized on the disposition of a debt obligation
(including tax-exempt obligations purchased after April 30, 1993) purchased by a
Fund at a market discount (generally, at a price less than its principal amount)
will be treated as ordinary income to the extent of the portion of market
discount which accrued, but was not previously included in income of the Master
Portfolio pursuant to ____ an available elective during the period of time the
Master Portfolio held the debt obligation. Except as provided herein, other
gains or losses on the sale of portfolio securities will be short-term capital
gains or losses.

If an option written by a Master Portfolio lapses or is terminated through a
closing transaction, such as a repurchase by the Master Portfolio of the option
from its holder, the Master Portfolio will realize a short-term capital gain or
loss, depending on whether the premium income is greater or less than the amount
paid by the Master Portfolio in the closing transaction. Some realized capital
losses may be deferred if they result from a position which is part of a
"straddle," discussed below. If securities are sold by the Master Portfolio
pursuant to the exercise of a call option written by it, the Master Portfolio
will add the premium received to the sale price of the securities delivered in
determining the amount of gain or loss on the sale. If securities are purchased
by the Master Portfolio pursuant to the exercise of a put option written by it,
the Master Portfolio will subtract the premium received from its cost basis in
the securities purchased. The requirement that a Fund derive less than 30% of
its gross income from gains from the sale of securities held for less than three
months may limit the corresponding Master Portfolio's ability to write
options.

The amount of any gain or loss realized by a Master Portfolio on closing out
certain regulated futures contracts will generally result in a realized capital
gain or loss for tax purposes. Such futures contracts held at the end of each
fiscal year will be required to be "marked to market" for federal income tax
purposes pursuant to Section 1256 of the Code. In this regard, such futures
contracts will be deemed to have been sold at market value. Sixty percent (60%)
of any net gain or loss recognized on these deemed sales and sixty percent (60%)
of any net realized gain or loss from any actual sales, generally will be
treated as long-term capital gain or loss, and the remaining forty percent (40%)
will be treated as short-term capital gain or loss. Transactions that qualify
as designated hedges are excepted from the "marked to market" and "60%/40%"
rules. Currency transactions may be subject to Section 988 of the Code, under
which such marked to market and foreign currency gains or losses would generally
be computed separately and treated as ordinary income or losses. The Master
Portfolio will attempt to monitor Section 988 transactions to avoid an adverse
tax impact.

Offsetting positions held by a Master Portfolio involving certain
financial forward futures or option contracts may be considered, for tax
purposes, to constitute "straddles." Straddles are defined to include
"offsetting positions" in actively traded personal property. The tax treatment
of straddles is governed by Section 1092 of the Code which, in certain
circumstances, overrides or modifies the provisions of Sections 1256 and 988.
If a Master Portfolio were treated as entering into straddles by reason of its
engaging in certain financial forward, futures or option contracts, such
straddles may be characterized as "mixed straddles" if the futures, forwards, or
options comprising a part of such straddles were governed by the applicable
provisions of Section 1256 or 988 of the Code. The Master Portfolio may make
one or more elections with respect to mixed straddles. Depending upon which
election is made, if any, the results with respect to the Master Portfolio may
differ.

Generally, to the extent the straddle rules apply to positions
established by the Master Portfolio, losses realized by the Master Portfolio may
be deferred to the extent of unrealized gain in any offsetting positions.
Moreover, as a result of the foregoing rules, short-term capital loss on
straddle positions may be recharacterized as long-term capital loss and long-
term capital gain may be characterized as short-term capital gain or ordinary
income.

17
<PAGE>

If a Master Portfolio purchases shares in a "passive foreign investment
company" ("PFIC"), its corresponding Fund may be subject to federal income tax
and an interest charge imposed by the IRS upon certain distributions from the
PFIC or the Master Portfolio's disposition of its PFIC shares. If a Master
Portfolio invests in a PFIC, the corresponding Fund intends to make an election
under proposed Treasury Regulations to mark-to-market its interest in PFIC
shares (through the Master Portfolio). Under the election, the Fund will be
treated as recognizing at the end of each taxable year the excess, if any, of
the fair market value of its interest in PFIC shares over its basis in such
shares. Although such excess will be taxable to the Fund as ordinary income
notwithstanding any distributions by the PFIC, the Fund will not be subject to
federal income tax or the interest charge with respect to its interest in the
PFIC.

Foreign Shareholders. Under the Code, distributions of net investment
--------------------
income by a Fund to a nonresident alien individual, nonresident alien fiduciary
of a trust or estate, foreign corporation, or foreign partnership (a "foreign
shareholder") will be subject to U.S. withholding tax at a rate of 30% or a
lower treaty rate. Withholding will not apply if a dividend paid by a Fund to a
foreign shareholder is "effectively connected" with a U.S. trade or business, in
which case the reporting and withholding requirements applicable to U.S.
citizens, U.S. residents or domestic corporations will apply. Distributions of
net long-term capital gains are not subject to tax withholding, but in the case
of a foreign shareholder who is a nonresident alien individual, such
distributions ordinarily will be subject to U.S. income tax at a rate of 30% if
the individual is physically present in the U.S. for more than 182 days during
the taxable year.

Backup Withholding. 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 the
shareholder certifies that the Taxpayer Identification Number ("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 that the
shareholder is subject to backup withholding. Such tax withheld does not
constitute any additional tax imposed on the shareholder, and may be claimed as
a tax payment on the shareholder's federal income tax return. An investor must
provide a valid TIN upon opening or reopening an account. Failure to furnish a
valid TIN to the Company could subject the investor to penalties imposed by the
IRS.

Other Matters. Investors should be aware that the investments to be made by
-------------
the Master Portfolios may involve sophisticated tax rules that may result in
income or gain recognition by the Fund without corresponding current cash
receipts. Although each Master Portfolio will seek to avoid significant noncash
income, such noncash income could be recognized by the Fund, in which case the
corresponding Fund may distribute cash derived from other sources in order to
meet the minimum distribution requirements described above.

The foregoing discussion and the discussions in the Prospectuses address only
some of the federal tax considerations generally affecting investments in a
Fund. Each investor is urged to consult his or her tax advisor regarding
specific questions as to federal, state or local taxes and foreign taxes.

PERFORMANCE INFORMATION

LifePath Funds. Average annual total return is calculated by determining the
--------------
ending redeemable value of an investment purchased with a hypothetical $1,000
payment made at the beginning of the period (assuming the reinvestment of
dividends and distributions), dividing by the amount of the initial investment,
taking the "n"th root of the quotient (where "n" is the number of years in the
period) and subtracting 1 from the result.

Total return is calculated by subtracting the amount of the net asset value
per share at the beginning of a stated period from the net asset value per share
at the end of the period (after giving effect to the reinvestment of dividends
and distributions during the period), and dividing the result by the net asset
value per share at the beginning of the period.

The LifePath Funds are successors to the assets of the Institutional Class
shares of the Stagecoach Trust LifePath Funds (the "Predecessor Funds"), which
commenced operations on March 1, 1994. The performance information

18
<PAGE>

shown below for periods prior to March 26, 1996, the Company's LifePath Funds'
commencement of operations, reflects the performance of the Predecessor
Funds.

For the fiscal period from March 1, 1994 (commencement of operations) to
February 28, 1997, the average annual total returns on the LifePath Funds were
as follows:
<TABLE>

<S> <C>
LifePath 2000 7.44%
LifePath 2010 11.55%
LifePath 2020 13.96%
LifePath 2030 15.86%
LifePath 2040 18.05%
</TABLE>

For the fiscal year ended February 28, 1997, the average annual total returns
on the LifePath Funds were as follows:
<TABLE>

<S> <C>
LifePath 2000 7.00%
LifePath 2010 11.98%
LifePath 2020 15.06%
LifePath 2030 17.37%
LifePath 2040 20.47%
</TABLE>

For the fiscal period from March 1, 1994 (commencement of operations) to
February 28, 1997, the cumulative total returns on the LifePath Funds were as
follows:

<TABLE>
<S> <C>
LifePath 2000 23.99%
LifePath 2010 38.77%
LifePath 2020 47.95%
LifePath 2030 55.50%
LifePath 2040 64.44%
</TABLE>
From time to time, the Company may use, in advertisements and other types of
literature, information and statements: (1) describing the Adviser, and its
affiliates and predecessors, as one of the first investment managers to advise
investment accounts using asset allocation and index strategies; (2) describing
the Funds as one of the first mutual funds to offer a flexible investment
strategy designed to change over specific time horizons; (3) describing the
performance for the MasterWorks LifePath Funds; (4) describing the level of
assets under management by the Adviser and its affiliates; and (5) describing
the Adviser and its affiliates as managing approximately $429 billion in assets
as of April 30, 1997 for Fortune 500 companies, governments and other
institutions around the world.

From time to time and only to the extent the comparison is appropriate for a
Fund, the Company may quote the performance of a Fund in advertising and other
types of literature and may compare the performance of a Fund to the performance
of various indices and investments for which reliable performance data is
available. The performance of a Fund may be compared in advertising and other
recognized mutual fund statistical services.

PORTFOLIO TRANSACTIONS

Since each Fund invests all of its assets in a corresponding Master Portfolio
of MIP, set forth below is a description of the Master Portfolios' policies
governing portfolio securities transactions.

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

19
<PAGE>

underwritten offerings or directly from an issuer. Generally debt obligations
are traded on a net basis and do not involve brokerage commissions. The cost of
executing transactions in debt securities consists primarily of dealer spreads
and underwriting commissions. Under the 1940 Act, persons affiliated with MIP
are prohibited from dealing with MIP as a principal in the purchase and sale of
portfolio securities unless an exemptive order allowing such transactions is
obtained from the Commission or an exemption is otherwise available. The Master
Portfolios may purchase securities from underwriting syndicates of which
Stephens or BGFA is a member under certain conditions in accordance with the
provisions of a rule adopted under the 1940 Act and in compliance with
procedures adopted by MIP's Board of Trustees.

MIP has no obligation to deal with any dealer or group of dealers in the
execution of transactions in portfolio securities. Subject to policies
established by MIP's Board of Trustees, BGFA, as adviser, is responsible for the
Master Portfolio's investment decisions and the placing of portfolio
transactions. In placing orders, it is MIP's policy to obtain the best overall
terms taking into account the dealer's general execution and operational
facilities, the type of transaction involved and other factors such as the
dealer's risk in positioning the securities involved. BGFA generally seeks
reasonably competitive spreads or commissions.

In assessing the best overall terms available for any transaction, BGFA
considers factors deemed relevant, including the breadth of the market in the
security, the price of the security, the financial condition and execution
capability of the broker or dealer, and the reasonableness of the commission, if
any, both for the specific transaction and on a continuing basis. As a result, a
Master Portfolio may pay a broker/dealer which furnishes brokerage services a
higher commission than that which might be charged by another broker/dealer for
effecting the same transaction, provided that such commission is determined to
be reasonable in relation to the value of the brokerage services provided by
such broker/dealer. Certain of the broker/dealers with whom the Master
Portfolios may transact business may offer commission rebates to the Master
Portfolios. BGFA considers such rebates in assessing the best overall terms
available for any transaction. MIP's Board of Trustees will periodically review
the commissions paid by the Master Portfolios to consider whether the
commissions paid over representative periods of time appear to be reasonable in
relation to the benefits inuring to the Master Portfolios.

Under Section 28(e) of the Securities Exchange Act of 1934, an adviser shall
not be "deemed to have acted unlawfully or to have breached its fiduciary duty"
solely because under certain circumstances it has caused the account to pay a
higher commission than the lowest available. To obtain the benefit of Section
28(e), an adviser must make a good faith determination that the commissions paid
are "reasonable in relation to the value of the brokerage and research services
provided . . . viewed in terms of either that particular transaction or its
overall responsibilities with respect to the accounts as to which it exercises
investment discretion and that the services provided by a broker provide an
adviser with lawful and appropriate assistance in the performance of its
investment decision-making responsibilities." Accordingly, the price to a Master
Portfolio in any transaction may be less favorable than that available from
another broker/dealer if the difference is reasonably justified by other aspects
of the portfolio execution services offered.

Brokerage Commissions. For the fiscal years ended February 28, 1995, February
---------------------
29, 1996 and February 28, 1997, the corresponding Master Portfolio of each Fund
paid the dollar amounts of brokerage commissions indicated below. None of these
brokerage commissions were paid to affiliated brokers.
<TABLE>
<CAPTION>

MASTER PORTFOLIO COMMISSIONS PAID
- ----------------
1995 1996 1997
-------- ------- --------
<S> <C> <C> <C>
LifePath 2000 Master Portfolio $24,231 $ 8,311 $ 3,639
LifePath 2010 Master Portfolio $28,830 $12,053 $ 8,837
LifePath 2020 Master Portfolio $56,540 $29,666 $12,383
LifePath 2030 Master Portfolio $37,890 $33,786 $ 6,927
LifePath 2040 Master Portfolio $56,183 $71,608 $28,047
</TABLE>

Securities of Regular Broker Dealers. As of February 28, 1997, the
------------------------------------
corresponding Master Portfolio of each Fund owned securities of its "regular
brokers or dealers" or their parents, as defined in the 1940 Act, as
follows:

20
<PAGE>

MASTER PORTFOLIO BROKER/DEALER AMOUNT
- ---------------- ------------- ------
<S> <C> <C>
LifePath 2000 Salomon Inc. $ 6,619
Goldman Sachs 15,000,000
Morgan Stanley 12,499

LifePath 2010 Salomon Inc. 52,065
Goldman Sachs 13,000,000
Morgan Stanley 81,431

LifePath 2020 Salomon Inc. 101,238
Goldman Sachs 27,000,000
Morgan Stanley 164,756

LifePath 2030 Salomon Inc. 78,209
Goldman Sachs 15,000,000
Morgan Stanley 126,124

LifePath 2040 Salomon Inc. 144,347
Goldman Sachs 19,000,000
Morgan Stanley 227,313
</TABLE>

CAPITAL STOCK

All shares of the Company have equal voting rights and will be voted in the
aggregate, and not by series, except where voting by a series is required by law
or where the matter involved only affects one series. For example, a change in a
Fund's fundamental investment policy would be voted upon only by shareholders of
the Fund. Additionally, approval of an advisory contract is a matter to be
determined separately by fund. Approval by the shareholders of a fund is
effective as to that fund whether or not sufficient votes are received from the
shareholders of the other investment portfolios to approve the proposal as to
those investment portfolios. As used in the Prospectus of each Fund and in this
SAI, the term "majority," when referring to approvals to be obtained from
shareholders of the Fund, means the vote of the lesser of (i) 67% of the shares
of the Fund represented at a meeting if the holders of more than 50% of the
outstanding shares of the Fund are present in person or by proxy, or (ii) more
than 50% of the outstanding shares of the Fund. The term "majority," when
referring to the approvals to be obtained from shareholders of the Company as a
whole, means the vote of the lesser of (i) 67% of the Company's shares
represented at a meeting if the holders of more than 50% of the Company's
outstanding shares are present in person or by proxy, or (ii) more than 50% of
the Company's outstanding shares. Shareholders are entitled to one vote for each
full share held and fractional votes for fractional shares held.

21
<PAGE>

entitled to receive the assets attributable to the Fund that are available for
distribution, and a distribution of any general assets not attributable to a
particular investment portfolio that are available for distribution in such
manner and on such basis as the Directors in their sole discretion may
determine.

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

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

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

The interests in each Master Portfolio of MIP have substantially identical
voting and other rights as those rights enumerated above for shares of the
Funds. MIP also intend to dispense with annual meetings, but are required by
Section 16(c) of the Act to hold a special meeting and assist investor
communications under the circumstances described above with respect to a
Company. Whenever a Fund is requested to vote on a matter with respect to its
MIP, the Fund will hold a meeting of Fund shareholders and will cast its votes
as instructed by such shareholders.

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

As of May 30, 1997, the shareholders identified below were known by the
Company to own 5% or more of the LifePath Fund's outstanding shares in the
following capacity:

<TABLE>
<CAPTION>
<S> <C> <C> <C>
LifePath 2000 Fund Wells Fargo Bank 86.43% Record
401(K) MasterWorks
Omnibus Account
420 Montgomery Street
San Francisco, CA 94104

LifePath 2010 Fund Wachovia Bank of North 7.11% Record
Carolina
Peabody Holding Co.
Savings & Long
Term Investment Plan
301 North Main Street
Winston-Salem, NC 27150

</TABLE>

22
<PAGE>

<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE NATURE OF
NAME OF FUND OF SHAREHOLDER OF FUND OWNERSHIP
----------------------- ---------- ---------
<S> <C> <C> <C>
401(K) MasterWorks
Omnibus Account
420 Montgomery Street
San Francisco, CA 94104

LifePath 2020 Fund Siemens Corp. Savings 5.94% Record
Plan
Bankers Trust Company
P.O. Box 1992 -- MS D5
Boston, MA 02105

IFTCAS Trustee 7.08% Record
Custodian for
Retirement Plan
127 West 10th Street,
10th Floor
Kansas City, MO 64105

Wells Fargo Bank 72.93% Record
401(K) MasterWorks
Omnibus Account
420 Montgomery Street
San Francisco, CA 94104

LifePath 2030 Fund Siemens Corp. Savings 9.48% Record
Plan
Bankers Trust Company
P.O. Box 1992 -- MS D5
Boston, MA 02105

Wells Fargo Bank 74.23% Record
401(K) MasterWorks
Omnibus Account
420 Montgomery Street
San Francisco, CA 94104

LifePath 2040 Fund Wells Fargo Bank 6.56% Record
Business Retirement
Programs
Omnibus Account
420 Montgomery Street
San Francisco, CA 94104

Siemens Corp. Savings 15.40% Record
Plan
Bankers Trust Company
P.O. Box 1992 -- MS D5
Boston, MA 02105

Wells Fargo Bank 66.60% Record
401(K) MasterWorks
Omnibus Account
420 Montgomery Street
San Francisco, CA 94104

</TABLE>

For purposes of the 1940 Act, any person who owns directly or through one or
more controlled companies more than 25% of the voting securities of a company is
presumed to "control" such company. Accordingly, to the extent that a
shareholder identified in the foregoing table is identified as the beneficial
holder of more than 25% of a Fund, or is identified as the holder of record of
more than 25% of a Fund and has voting and/or investment powers, it may be
presumed to control such Fund.

23
<PAGE>

OTHER

Each Fund share has one vote and, when issued and paid for in accordance with
the terms of the offering, is fully paid and non-assessable. Shares have no
preemptive, subscription or conversion rights and are freely transferable. Each
share has identical voting rights with respect to the Fund that issues it. Rule
18f-2 under the 1940 Act provides that any matter required to be submitted under
the provisions of the 1940 Act or applicable state law or otherwise to the
holders of the outstanding voting securities of an investment company, such as
the Company, will not be deemed to have been effectively acted upon unless
approved by the holders of a majority of the outstanding shares of each Fund
affected by such matter. Rule 18f-2 further provides that a Fund shall be deemed
to be affected by a matter unless it is clear that the interests of such Fund in
the matter are identical or that the matter does not affect any interest of such
Fund. However, the Rule exempts the selection of independent auditors and the
election of Directors from the separate voting requirements of the Rule.

The Registration Statement, including the Prospectus for the LifePath Funds,
the SAI and the exhibits filed therewith, may be examined at the office of the
SEC in Washington, D.C. Statements contained in the Prospectus or the SAI as to
the contents of any contract or other document referred to herein or in the
Prospectus are not necessarily complete, and, in each instance, reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.

The Funds send annual and semi-annual financial statements to all its
shareholders of record.

COUNSEL

INDEPENDENT AUDITORS

KPMG Peat Marwick LLP, Three Embarcadero Center, San Francisco, California
94111, has been selected to serve as independent auditors for the Company. KPMG
Peat Marwick LLP provides audit services, tax return preparation and assistance
and consultation in connection with review of certain SEC filings.

FINANCIAL INFORMATION

The portfolio of investments, audited financial statements and independent
auditors' report for the fiscal period ended February 28, 1997 for each LifePath
Fund and corresponding LifePath Master Portfolio are hereby incorporated by
reference to the MasterWorks Funds, Inc. Annual Report, as filed with the SEC on
May 2, 1997. The portfolio of investments, audited financial statements and
independent auditors' report for the Funds are attached to all SAIs delivered to
shareholders or prospective shareholders.

24
<PAGE>

APPENDIX

Description of certain ratings assigned by Standard & Poor's Corporation
("S&P"), Moody's Investors Service, Inc. ("Moody's"), Fitch Investors Service,
Inc. ("Fitch"), Duff & Phelps, Inc. ("Duff") and IBCA Inc. and IBCA Limited
("IBCA"):

S&P

BOND RATINGS

AAA

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

Bonds rated "AA" have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.

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

BBB

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

S&P's letter ratings may be modified by the addition of a plus (+) or minus
(-) sign designation, which is used to show relative standing within the major
rating categories, except in the "AAA" (Prime Grade) category.

COMMERCIAL PAPER RATING

The designation "A-1" by S&P indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus sign (+)
designation. Capacity for timely payment on issues with an "A-2" designation is
strong. However, the relative degree of safety is not as high as for issues
designated "A-1".

MOODY'S

BOND RATINGS

AAA

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

A-1
<PAGE>

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

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

BAA

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

Moody's applies the numerical modifiers "1", "2" and "3" to show relative
standing within the major rating categories, except in the "Aaa" category. The
modifier "1" indicates a ranking for the security in the higher end of a rating
category; the modifier "2" indicates a mid-range ranking; and the modifier "3"
indicates a ranking in the lower end of a rating category.

COMMERCIAL PAPER RATING

The rating Prime-1 ("P-1") is the highest commercial paper rating assigned by
Moody's. Issuers of "P-1" paper must have a superior capacity for repayment of
short-term promissory obligations, and this ordinarily is evidenced by leading
market positions in well established industries, high rates of return on funds
employed, conservative capitalization structures with moderate reliance on debt
and ample asset protection, broad margins in earnings coverage of fixed
financial charges and high internal cash generation, and well established access
to a range of financial markets and assured sources of alternate liquidity.

Issuers (or relating supporting institutions) rated Prime-2 ("P-2") have a
strong capacity for repayment of short-term promissory obligations. This
ordinarily is evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, are more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.

FITCH

BOND RATINGS

The ratings represent Fitch's assessment of the issuer's ability to meet the
obligations of a specific debt issue or class of debt. The ratings take into
consideration special features of the issue, its relationship to other
obligations of the issuer, the current financial condition and operative
performance of the issuer and of any guarantor, as well as the political and
economic environment that might affect the issuer's future financial strength
and credit quality.

A-2
<PAGE>

AAA

Bonds rated "AAA" are considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events.

Bonds rated "AA" are considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA". Because bonds rated
in the "AAA" and "AA" categories are not significantly vulnerable to foreseeable
future developments, short- term debt of these issuers is generally rated
"F-1+".

Bonds rated "A" are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is considered
to be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.

BBB

Bonds rated "BBB" are considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these bonds
and, therefore, impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.

Plus (+) and minus (-) signs are used with a rating symbol to indicate the
relative position of a credit within the rating category.

SHORT-TERM RATINGS

Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.

Although the credit analysis is similar to Fitch's bond rating analysis, the
short-term rating places greater emphasis than bond ratings on the existence of
liquidity necessary to meet the issuer's obligations in a timely manner.

F-1+

Exceptionally Strong Credit Quality. Issues assigned this rating are regarded
as having the strongest degree of assurance for timely payment.

F-1

Very Strong Credit Quality. Issues assigned this rating reflect an assurance
of timely payment only slightly less in degree than issues rated "F-1+".

F-2

Good Credit Quality. Issues carrying this rating have a satisfactory degree of
assurance for timely payments, but the margin of safety is not as great as the
"F-1+" and "F-1" categories.

A-3
<PAGE>

DUFF

BOND RATINGS

AAA

Bonds rated "AAA" are considered highest credit quality. The risk factors are
negligible, being only slightly more than for risk-free U.S. Treasury debt.

Bonds rated "AA" are considered high credit quality. Protection factors are
strong. Risk is modest but may vary slightly from time to time because of
economic conditions.

Bonds rated "A" have protection factors which are average but adequate.
However, risk factors are more variable and greater in periods of economic
stress.

BBB

Bonds rated "BBB" are considered to have below average protection factors but
still considered sufficient for prudent investment. Considerable variability in
risk during economic cycles.

Plus (+) and minus (-) signs are used with a rating symbol (except "AAA") to
indicate the relative position of a credit within the rating category.

COMMERCIAL PAPER RATING

The rating "D-1" is the highest commercial paper rating assigned by Duff.
Paper rated "D-1" is regarded as having very high certainty of timely payment
with excellent liquidity factors which are supported by ample asset protection.
Risk factors are minor. Paper rated "D-2" is regarded as having good certainty
of timely payment, good access to capital markets and sound liquidity factors
and company fundamentals. Risk factors are small.

IBCA

BOND AND LONG-TERM RATINGS

Obligations rated "AAA" by IBCA have the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is substantial,
such that adverse changes in business, economic or financial conditions are
unlikely to increase investment risk significantly. Obligations for which there
is a very low expectation of investment risk are rated "AA" by IBCA. Capacity
for timely repayment of principal and interest is substantial. Adverse changes
in business, economic or financial conditions may increase investment risk
albeit not very significantly.

COMMERCIAL PAPER AND SHORT-TERM RATINGS

The designation "A1" by IBCA indicates that the obligation is supported by a
very strong capacity for timely repayment. Those obligations rated "A1+" are
supported by the highest capacity for timely repayment. Obligations rated "A2"
are supported by a strong capacity for timely repayment, although such capacity
may be susceptible to adverse changes in business, economic or financial
conditions.

A-4
<PAGE>

INTERNATIONAL AND U.S. BANK RATINGS

An IBCA bank rating represents IBCA's current assessment of the strength of
the bank and whether such bank would receive support should it experience
difficulties. In its assessment of a bank, IBCA uses a dual rating system
comprised of Legal Ratings and Individual Ratings. In addition, IBCA assigns
banks Long-and Short-Term Ratings as used in the corporate ratings discussed
above. Legal Ratings, which range in gradation from 1 through 5, address the
question of whether the bank would receive support provided by central banks or
interestholders if it experienced difficulties, and such ratings are considered
by IBCA to be a prime factor in its assessment of credit risk. Individual
Ratings, which range in gradations from A through E, represent IBCA's assessment
of a bank's economic merits and address the question of how the bank would be
viewed if it were entirely independent and could not rely on support from state
authorities or its owners.

A-5
<PAGE>
MASTERWORKS FUNDS INC.

STATEMENT OF ADDITIONAL INFORMATION

ASSET ALLOCATION FUND
BOND INDEX FUND
GROWTH STOCK FUND
SHORT-INTERMEDIATE TERM FUND
S&P 500 STOCK FUND
U.S. TREASURY ALLOCATION FUND

JUNE 30, 1997

MasterWorks Funds Inc. ("Company") is an open-end, management investment
company. This Statement of Additional Information ("SAI") contains information
about six funds of the Company -- ASSET ALLOCATION FUND, BOND INDEX FUND, GROWTH
STOCK FUND, SHORT-INTERMEDIATE TERM FUND, S&P 500 STOCK FUND AND U.S. TREASURY
ALLOCATION FUND (each, a "Fund" and collectively, the "Funds").

Each of the Short-Intermediate Term and Growth Stock Funds seeks to achieve
its investment objective by investing all of its assets in the Short-
Intermediate Term and Growth Stock Master Portfolios (collectively, the "MSIT
Master Portfolios") respectively, of Managed Series Investment Trust ("MSIT").
Each of the Asset Allocation, Bond Index, S&P 500 Stock and U.S. Treasury
Allocation Funds seeks to achieve its investment objective by investing
substantially all of its assets in the Asset Allocation, Bond Index, S&P 500
Index and U.S. Treasury Allocation Master Portfolios (collectively, the "MIP
Master Portfolios", with the MSIT Master Portfolios, the "Master Portfolios"),
respectively, of Master Investment Portfolio ("MIP" and collectively with MSIT,
the "Trusts"). Barclays Global Fund Advisors ("BGFA") serves as investment
advisor to the corresponding Master Portfolios and Wells Fargo Bank, N.A.
("Wells Fargo Bank") serves as sub-adviser to the Growth Stock and Short-
Intermediate Term Master Portfolios. References to the investments, investment
policies and risks of the Funds unless otherwise indicated, should be understood
as references to the investments, investment policies and risks of the
corresponding Master Portfolios.

This SAI is not a prospectus and should be read in conjunction with the
Funds' current Prospectus, also dated June 30, 1997. All terms used in this SAI
that are defined in the Prospectus will have the meanings assigned in the
Prospectus. A copy of the Prospectus may be obtained without charge by writing
Stephens Inc., the Company's sponsor, co-administrator and distributor, at 111
Center Street, Little Rock, Arkansas 72201 or by calling the Transfer Agent at
1-800-776-0179.

<PAGE>

TABLE OF CONTENTS
<TABLE>
<S> <C>
General Information.................................... 1
Investment Restrictions................................ 1
Additional Permitted Investment Activities............. 8
Management............................................. 13
Purchase and Redemption of Shares...................... 21
Determination of Net Asset Value....................... 22
Taxes.................................................. 23
Performance Information................................ 27
Portfolio Transactions................................. 30
Capital Stock.......................................... 33
Other.................................................. 36
Counsel................................................ 36
Independent Auditors................................... 36
Financial Information.................................. 37
SAI Appendix........................................... A-1
Financial Statements................................... F-1
</TABLE>

<PAGE>

GENERAL INFORMATION

The Company is a registered investment company which currently offers twelve
series, including the Funds. MSIT is a registered investment company consisting
of the Growth Stock and Short-Intermediate Term Master Portfolios. MIP is a
registered investment company consisting of nine series including the S&P 500
Index, Asset Allocation, Bond Index and U.S. Treasury Allocation Master
Portfolios. Each Fund invests all of its assets in the corresponding Master
Portfolio of the Trusts (as illustrated below), which has the same or
substantially the same investment objective as the related Fund.

FUND CORRESPONDING MASTER PORTFOLIO TRUST
- ---- ------------------------------ -----
<S> <C> <C>
Asset Allocation Fund Asset Allocation Master Portfolio MIP
Bond Index Fund Bond Index Master Portfolio MIP
Growth Stock Fund Growth Stock Master Portfolio MSIT
S&P 500 Stock Fund S&P 500 Index Master Portfolio MIP
Short-Intermediate Term Fund Short-Intermediate Term Master Portfolio MSIT
U.S. Treasury Allocation Fund U.S. Treasury Allocation Master Portfolio MIP
</TABLE>

INVESTMENT RESTRICTIONS

Each Fund and Master Portfolio has adopted investment policies which may be
fundamental or non-fundamental. Fundamental policies cannot be changed without
approval by the holders of a majority (as defined in the Investment Company Act
of 1940, as amended (the "1940 Act")) of the outstanding voting securities of
such Fund or Master Portfolio, as the case may be. Non-fundamental policies may
be changed without shareholder approval by vote of a majority of the Directors
of the Company or the Trustees of the Trusts, as the case may be, at any time.

FUNDAMENTAL INVESTMENT RESTRICTIONS. The Funds are subject to the following
investment restrictions, all of which are fundamental policies.

The Funds may not:

(1) purchase the securities of issuers conducting their principal business
activity in the same industry if, immediately after the purchase and as a result
thereof, the value of any Fund's investments in that industry would be 25% or
more of the current value of such Fund's total assets, provided that there is no
limitation with respect to investments in (i) obligations of the U.S.
Government, its agencies or instrumentalities; (ii) in the case of the S&P 500
Stock Fund, and the stock portion of the Asset Allocation Fund, any industry in
which the S&P 500 Index becomes concentrated to the same degree during the same
period (provided that, with respect to the stock and money market portions of
the Asset Allocation Fund, the Fund will be concentrated as specified above only
to the extent the percentage of its assets invested in those categories of
investments is sufficiently large that 25% or more of its total assets would be
invested in a single industry); (iii) in the case of the Bond Index Fund, any
industry in which the Lehman Brothers Government/Corporate Bond Index (the "LB
Bond Index") becomes concentrated to the same degree during the same period; and
(iv) in the case of the money market portion of the Asset Allocation Fund, its
money market instruments may be concentrated in the banking industry (but will
not

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<PAGE>

do so unless the SEC staff confirms that it does not object to the Fund
reserving freedom of action to concentrate investments in the banking industry);
and provided further, that a Fund may invest all its assets in a diversified
open-end management investment company, or series thereof, with substantially
the same investment objective, policies and restrictions as such Fund, without
regard for the limitations set forth in this paragraph (1);

(3) purchase commodities or commodity contracts (including futures
contracts), except that a Fund may purchase securities of an issuer which
invests or deals in commodities or commodity contracts, and except that the U.S.
Treasury Allocation, S&P 500 Stock, Growth Stock, Asset Allocation and Bond
Index Funds may enter into futures and options contracts in accordance with
their respective investment policies;

(4) purchase interests, leases, or limited partnership interests in oil, gas,
or other mineral exploration or development programs;

(5) purchase securities on margin (except for short-term credits necessary
for the clearance of transactions and except for margin payments in connection
with options, futures and options on futures) or make short sales of securities;

(6) underwrite securities of other issuers, except to the extent that the
purchase of permitted investments directly from the issuer thereof or from an
underwriter for an issuer and the later disposition of such securities in
accordance with a Fund's investment program may be deemed to be an underwriting
and provided further, that the purchase by a Fund of securities issued by a
diversified, open-end management investment company, or a series thereof, with
substantially the same investment objective, policies and restrictions as such
Fund shall not constitute an underwriter for purposes of this paragraph (6);

(7) make investments for the purpose of exercising control or management;
provided that a Fund may invest all its assets in a diversified, open-end
management investment company, or a series thereof, with substantially the same
investment objective, policies and restrictions as such Fund, without regard to
the limitations set forth in this paragraph (7);

(8) borrow money or issue senior securities as defined in the 1940 Act,
except that each of the Short-Intermediate Term, Growth Stock and Bond Index
Funds may borrow from banks up to 10% of the current value of its net assets for
temporary purposes only in order to meet redemptions, and these borrowings may
be secured by the pledge of up to 10% of the current value of its net assets
(but investments may not be purchased while any such outstanding borrowing in
excess of 5% of its net assets exists), and except that each of the Asset
Allocation, U.S. Treasury Allocation and S&P 500 Stock Funds may borrow up to
20% of the current value of its net assets for temporary purposes only in order
to meet redemptions, and these borrowings may be secured by the pledge of up to
20% of the current value of its net assets (but investments may not be purchased
while any such outstanding borrowing in excess of 5% of its net assets
exists);

(9) write, purchase or sell puts, calls, straddles, spreads, warrants,
options or any combination thereof, except that the U.S. Treasury Allocation,
S&P 500 Stock, Growth Stock, Asset Allocation and Bond Index Funds may enter
into futures and options contracts in accordance with their respective
investment

2
<PAGE>

policies, and except that the Asset Allocation and Growth Stock Funds may
purchase securities with put rights in order to maintain liquidity, and except
that the Short-Intermediate Term, S&P 500 Stock and Growth Stock Funds may
invest up to 5% of their net assets in warrants in accordance with their
investment policies stated below;

(10) purchase securities of any issuer (except securities issued or
guaranteed by the U.S. Government, its agencies and instrumentalities) if, as a
result, with respect to 75% of its total assets, more than 5% of the value of a
Fund's, total assets would be invested in the securities of any one issuer or,
with respect to 100% of its total assets a Fund's ownership would be more than
10% of the outstanding voting securities of such issuer; provided that a Fund
may invest all its assets in a diversified, open-end management investment
company, or a series thereof, with substantially the same investment objective,
policies and restrictions as such Fund, without regard to the limitations set
forth in this paragraph (10); or

(11) make loans, except that each Fund may purchase or hold debt instruments
or lend their portfolio securities in accordance with their investment policies,
and may enter into repurchase agreements.

NON-FUNDAMENTAL INVESTMENT RESTRICTIONS. The Funds are subject to the
following investment restrictions, all of which are non-fundamental
policies.

(1) None of the Funds may, unless required by their investment strategy of
replicating the composition of a published market index:

(a) purchase or retain securities of any issuer if the officers or
Directors of the Company or the investment adviser owning beneficially more than
one-half of one percent (0.5%) of the securities of the issuer together owned
beneficially more than 5% of such securities;

(2) The Funds reserve the right to invest up to 15% of the current value of
their net assets in fixed time deposits that are subject to withdrawal penalties
and that have maturities of more than seven days, repurchase agreements maturing
in more than seven days or other illiquid securities. However, as long as a
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, the Funds will comply
with such lower limit. The Funds presently are limited to investing 10% of their
net asset in such securities due to limits applicable in several states.
However, these limits should not prevent a Fund from investing all of its assets
in the corresponding Master Portfolio of the Trusts.

(3) The Funds may invest in shares of other open-end, management investment
companies, subject to the limitations of Section 12(d)(1) of the 1940 Act,
provided that any such purchases will be limited to temporary investments in
shares of unaffiliated investment companies and the Investment Adviser will
waive its advisory fees for that portion of the Master Portfolio's assets so
invested, except when such purchase is part of a plan of merger, consolidation,
reorganization or acquisition.

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<PAGE>

The Master Portfolios to the Funds are subject to the following investment
restrictions.

FUNDAMENTAL INVESTMENT RESTRICTIONS. The MSIT Master Portfolios are subject to
the following investment restrictions, all of which are fundamental
policies.

The MSIT Master Portfolios may not:

(3) purchase commodities or commodity contracts (including futures
contracts), except that an MSIT Master Portfolio may purchase securities of an
issuer which invests or deals in commodities or commodity contracts;

(4) purchase interests, leases, or limited partnership interests in oil, gas,
or other mineral exploration or development programs;

(5) purchase securities on margin (except for short-term credits necessary
for the clearance of transactions and except for margin payments in connection
with options, futures and options on futures) or make short sales of securities;

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

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

(9) write, purchase or sell puts, calls, straddles, spreads, warrants,
options or any combination thereof, except that the Growth Stock Master
Portfolio may purchase securities with put rights in order to maintain
liquidity, and except that the MSIT Master Portfolios may invest up to 5% of
their net assets in warrants in accordance with their investment policies stated
below;

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<PAGE>

or, with respect to 100% of its total assets such MSIT Master Portfolio's
ownership would be more than 10% of the outstanding voting securities of such
issuer; or

(11) make loans, except that the MSIT Master Portfolios may purchase or hold
debt instruments or lend their portfolio securities in accordance with their
investment policies, and may enter into repurchase agreements.

NON-FUNDAMENTAL INVESTMENT RESTRICTIONS. The MSIT Master Portfolios are
subject to the following non-fundamental policies.

(1) The MSIT Master Portfolios may not:

(a) purchase or retain securities of any issuer if the officers or
Trustees of the Trust or the investment adviser owning beneficially more than
one-half of one percent (0.5%) of the securities of the issuer together owned
beneficially more than 5% of such securities;

(2) The MSIT Master Portfolios reserve the right to invest up to 15% of the
current value of their net assets in fixed time deposits that are subject to
withdrawal penalties and that have maturities of more than seven days,
repurchase agreements maturing in more than seven days or other illiquid
securities. However, as long as a 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, each of the MSIT Master Portfolios will comply with such lower
limit. The MSIT Master Portfolios presently are limited to investing 10% of
their net asset in such securities due to limits applicable in several states.

(3) The MSIT Master Portfolios may invest in shares of other open-end,
management investment companies, subject to the limitations of Section 12(d)(1)
of the 1940 Act, provided that any such purchases will be limited to temporary
investments in shares of unaffiliated investment companies and the Investment
Adviser will waive its advisory fees for that portion of the MSIT Master
Portfolio's assets so invested, except when such purchase is part of a plan of
merger, consolidation, reorganization or acquisition.

FUNDAMENTAL INVESTMENT RESTRICTIONS. The MIP Master Portfolios are subject to
the following investment restrictions, all of which are fundamental
policies.

The MIP Master Portfolios may not:

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

(2) hold more than 10% of the outstanding voting securities of any single
issuer. This Investment Restriction applies only with respect to 75% of its
total assets.

5
<PAGE>

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

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

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

(6) make loans to others, except through the purchase of debt obligations and
the entry into repurchase agreements. However, each MIP Master Portfolio may
lend its portfolio securities in an amount not to exceed one-third of the value
of its total assets. Any loans of portfolio securities will be made according to
guidelines established by the SEC and the Trusts Board of Trustees.

(7) act as an underwriter of securities of other issuers, except to the
extent that the MIP Master Portfolios may be deemed an underwriter under the
Securities Act of 1933, as amended, by virtue of disposing of portfolio
securities.

(8) invest 25% or more of its total assets in the securities of issuers in
any particular industry or group of closely related industries except that, in
the case of each MIP Master Portfolio, there shall be no limitation with respect
to investments in (i) obligations of the U.S. Government, its agencies or
instrumentalities; (ii) in the case of the S&P 500 Index Master Portfolio, and
the stock portion of the Asset Allocation Master Portfolio, any industry in
which the S&P 500 Index becomes concentrated to the same degree during the same
period (provided that, with respect to the stock and money market portions of
the Asset Allocation Master Portfolio, the Master Portfolio will be concentrated
as specified above only to the extent the percentage of its assets invested in
those categories of investments is sufficiently large that 25% or more of its
total assets would be invested in a single industry); (iii) in the case of the
Bond Index Master Portfolio, any industry in which the Lehman Brothers
Government/Corporate Bond Index (the "LB Bond Index") becomes concentrated to
the same degree during the same period; and (iv) in the case of the money market
portion of the Asset Allocation Master Portfolio, its money market instruments
may be concentrated in the banking industry (but will not do so unless the SEC
staff confirms that it does not object to the Master Portfolio reserving freedom
of action to concentrate investments in the banking industry).

(9) issue any senior security (as such term is defined in Section 18(f) of
the 1940 Act), except to the extent the activities permitted in the MIP Master
Portfolios' fundamental policies (3) and (5) and non-fundamental policies (2)
and (3), may be deemed to give rise to a senior security.

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<PAGE>

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

NON-FUNDAMENTAL INVESTMENT RESTRICTIONS. The MIP Master Portfolios are
subject to the following non-fundamental policies.

The MIP Master Portfolios may not:

(1) invest in the securities of a company for the purpose of exercising
management or control, but each MIP Master Portfolio will vote the securities it
owns in its portfolio as a shareholder in accordance with its views.

(2) pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
purchase of securities on a when-issued or forward commitment basis and the
deposit of assets in escrow in connection with writing covered put and call
options and collateral and initial or variation margin arrangements with respect
to options, forward contracts, futures contracts, including those relating to
indexes, and options on futures contracts or indexes.

(3) purchase, sell or write puts, calls or combinations thereof, except as
may be described in the MIP Master Portfolios' offering documents.

(4) purchase securities of any company having less than three years'
continuous operations (including operations of any predecessors) unless the
securities are fully guaranteed or insured by the U.S. Government, a state,
commonwealth, possession, territory, the District of Columbia or by an entity in
existence at least three years, or the securities are backed by the assets and
revenues of any of the foregoing if such purchase would cause the value of its
investments in all such companies to exceed 5% of the value of its total assets.

(5) enter into repurchase agreements providing for settlement in more than
seven days after notice or purchase securities which are illiquid, if, in the
aggregate, more than 15% of the value of a MIP Master Portfolio's net assets
would be so invested.

(6) purchase securities of other investment companies, except to the extent
permitted under the 1940 Act.

(7) purchase or retain securities of any issuer if the officers or Directors
of the Company, the Trusts or the investment adviser owning beneficially more
than one-half of one percent (0.5%) of the securities of the issuer together
owned beneficially more than 5% of such securities.

If a percentage restriction is adhered to at the time of investment, a later
change in percentage resulting from a change in values or assets will not
constitute a violation of such restriction.

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<PAGE>

ADDITIONAL PERMITTED INVESTMENT ACTIVITIES

THE ASSET ALLOCATION AND THE U.S. TREASURY ALLOCATION MASTER PORTFOLIOS ONLY:

Asset Allocation Model. A key component of the Asset Allocation Model is a
----------------------
set of assumptions concerning expected risk and return and investor attitudes
toward risk which are incorporated into the asset allocation decision. The
principal inputs of financial data to the Asset Allocation Model for the Asset
Allocation Master Portfolio currently are (i) consensus estimates of the
earnings, dividends and payout ratios on a broad cross-section of common stocks
as reported by independent financial reporting services which survey a broad
cross-section of Wall Street analysts; (ii) the estimated current yield to
maturity on new long-term corporate bonds rated "AA" by S&P; (iii) the present
yield on money market instruments; (iv) the historical statistical standard
deviation in investment return for each class of asset; and (v) the historical
statistical correlation of investment returns among the various asset classes in
which the Asset Allocation Master Portfolio invests.

U.S. Treasury Allocation Model. The principal inputs of the U.S. Treasury
------------------------------
Allocation Model for the U.S. Treasury Allocation Master Portfolio currently are
(i) the current yields on 91-day U.S. Treasury bills, 5-year U.S. Treasury
notes, and 30-year U.S. Treasury bonds; (ii) the expected statistical standard
deviation in investment return for each maturity class of fixed income security;
and (iii) the expected statistical correlation of investment return among the
three maturity classes of U.S. Treasury securities. Using this data, the U.S.
Treasury Allocation Model is run daily by the sub-adviser to determine the
recommended asset allocation. The model's recommendations are presently made in
10% increments.

ALL MASTER PORTFOLIOS:

Repurchase Agreements. Each Master Portfolio may engage in a repurchase
---------------------
agreement with respect to any security in which it is authorized to invest,
although the underlying security may mature in more than thirteen months. The
Master Portfolio may enter into repurchase agreements wherein the seller of a
security to the Master Portfolio agrees to repurchase that security from the
Master Portfolio Fund at a mutually agreed-upon time and price that involves the
acquisition by the Master Portfolio of an underlying debt instrument, subject to
the seller's obligation to repurchase, and the Master Portfolio's obligation to
resell, the instrument at a fixed price usually not more than one week after its
purchase. The Master Portfolio's custodian has custody of, and holds in a
segregated account, securities acquired as collateral by the Master Portfolio
under a repurchase agreement. Repurchase agreements are considered by the staff
of the SEC to be loans by the Master Portfolio. The Master Portfolio may enter
into repurchase agreements only with respect to securities of the type in which
it may invest, including government securities and mortgage-related securities,
regardless of their remaining maturities, and requires that additional
securities be deposited with the custodian if the value of the securities
purchased should decrease below resale price. Wells Fargo Bank monitors on an
ongoing basis the value of the collateral to assure that it always equals or
exceeds the repurchase price. Certain costs may be incurred by the Master
Portfolio in connection with the sale of the underlying securities if the seller
does not repurchase them in accordance with the repurchase agreement. In
addition, if bankruptcy proceedings are commenced with respect to the seller of
the securities, disposition of the securities by the Master Portfolio may be
delayed or limited. While it does not presently appear possible to eliminate
all risks from these transactions (particularly the possibility of a decline in
the market value of the underlying securities, as well as delay and costs to the
Master Portfolio in connection with insolvency proceedings), it is the policy of
the Master Portfolio to limit repurchase agreements to selected creditworthy
securities dealers or domestic banks or other recognized financial institutions.
The Master Portfolio considers on an ongoing basis the creditworthiness of the
institutions with which it enters into repurchase agreements. Repurchase
agreements are considered to be loans by a Master Portfolio under the Investment
Company Act of 1940 (the "1940 Act").

Floating- and Variable-Rate Obligations. Each Master Portfolio may purchase
---------------------------------------
floating- and variable-rate obligations as described in the Prospectus. The
Master Portfolio may purchase floating- and variable-rate demand notes

8
<PAGE>

and bonds, which are obligations ordinarily having stated maturities in excess
of thirteen months, but which permit the holder to demand payment of principal
at any time, or at specified intervals not exceeding thirteen months. Variable
rate demand notes include master demand notes that are obligations that permit
the Master Portfolio to invest fluctuating amounts, which may change daily
without penalty, pursuant to direct arrangements between the Master Portfolio ,
as lender, and the borrower. The interest rates on these notes fluctuate from
time to time. The issuer of such obligations ordinarily has a corresponding
right, after a given period, to prepay in its discretion the outstanding
principal amount of the obligations plus accrued interest upon a specified
number of days' notice to the holders of such obligations. The interest rate on
a floating-rate demand obligation is based on a known lending rate, such as a
bank's prime rate, and is adjusted automatically each time such rate is
adjusted. The interest rate on a variable-rate demand obligation is adjusted
automatically at specified intervals. Frequently, such obligations are secured
by letters of credit or other credit support arrangements provided by banks.
Because these obligations are direct lending arrangements between the lender and
borrower, it is not contemplated that such instruments generally will be traded,
and there generally is no established secondary market for these obligations,
although they are redeemable at face value. Accordingly, where these obligations
are not secured by letters of credit or other credit support arrangements, the
Master Portfolio 's right to redeem is dependent on the ability of the borrower
to pay principal and interest on demand. Such obligations frequently are not
rated by credit rating agencies and the Master Portfolio Fund may invest in
obligations which are not so rated only if Wells Fargo Bank determines that at
the time of investment the obligations are of comparable quality to the other
obligations in which the Master Portfolio may invest. Wells Fargo Bank, on
behalf of the Master Portfolio , considers on an ongoing basis the
creditworthiness of the issuers of the floating- and variable-rate demand
obligations in the Master Portfolio 's portfolio. The Master Portfolio will not
invest more than 10% of the value of its total net assets in floating- or
variable-rate demand obligations whose demand feature is not exercisable within
seven days. Such obligations may be treated as liquid, provided that an active
secondary market exists.

Unrated, Downgraded and Below Investment Grade Investments. The Master
----------------------------------------------------------
Portfolios may purchase instruments that are not rated if, in the opinion of the
adviser, BGFA, such obligation is of investment quality comparable to other
rated investments that are permitted to be purchased by such Master Portfolio.
After purchase by a Master Portfolio, a security may cease to be rated or its
rating may be reduced below the minimum required for purchase by such Master
Portfolio. Neither event will require a sale of such security by a Master
Portfolio provided that the amount of such securities held by a Master Portfolio
does not exceed 5% of the Master Portfolio's net assets. To the extent the
ratings given by Moody's or S&P may change as a result of changes in such
organizations or their rating systems, each Master Portfolio will attempt to use
comparable ratings as standards for investments in accordance with the
investment policies contained in its Prospectus and in this SAI. The ratings of
Moody's and S&P are more fully described in the SAI Appendix.

Because the Master Portfolios are not required to sell downgraded securities,
and because the Growth Stock Master Portfolio is permitted to purchase
securities that are rated below investment grade, or if unrated are of
comparable quality, each Master Portfolio could hold up to 5% of its net assets
in debt securities rated below "Baa" by Moody's or below "BBB" by S&P or if
unrated, low quality (below investment grade) securities.

Although they may offer higher yields than do higher rated securities, low
rated and unrated low quality debt securities generally involve greater
volatility of price and risk of principal and income, including the possibility
of default by, or bankruptcy of, the issuers of the securities. In addition, the
markets in which low rated and unrated low quality debt are traded are more
limited than those in which higher rated securities are traded. The existence of
limited markets for particular securities may diminish a Master Portfolio's
ability to sell the securities at fair value either to meet redemption requests
or to respond to changes in the economy or in the financial markets and could
adversely affect and cause fluctuations in the daily net asset value of a Master
Portfolio's shares.

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<PAGE>

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

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

Letters of Credit. Certain of the debt obligations (including municipal
-----------------
securities, certificates of participation, commercial paper and other short-term
obligations) which the Master Portfolios may purchase may be backed by an
unconditional and irrevocable letter of credit of a bank, savings and loan
association or insurance company which assumes the obligation for payment of
principal and interest in the event of default by the issuer. Only banks,
savings and loan associations and insurance companies which, in the opinion of
BGFA, as investment adviser, are of comparable quality to issuers of other
permitted investments of such Master Portfolio may be used for letter of credit-
backed investments.

Pass-Through Obligations. Certain of the debt obligations in which the Short-
------------------------
Intermediate Term Master Portfolio may invest may be pass-through obligations
that represent an ownership interest in a pool of mortgages and the resultant
cash flow from those mortgages. Payments by homeowners on the loans in the pool
flow through to certificate holders in amounts sufficient to repay principal and
to pay interest at the pass-through rate. The stated maturities of pass-through
obligations may be shortened by unscheduled prepayments of principal on the
underlying mortgages. Therefore, it is not possible to predict accurately the
average maturity of a particular pass-through obligation. Variations in the
maturities of pass-through obligations will affect the yield of any Master
Portfolio investing in such obligations. Furthermore, as with any debt
obligation, fluctuations in interest rates will inversely affect the market
value of pass-through obligations. The Short-Intermediate Term Master Portfolio
may invest in pass-through obligations that are supported by the full faith and
credit of the U.S. Government (such as those issued by the Government National
Mortgage Association) or those that are guaranteed by an agency or
instrumentality of the U.S. Government or government-sponsored enterprise (such
as the Federal National Mortgage Association or the Federal Home Loan Mortgage
Corporation) or bonds collateralized by any of the foregoing.

When-Issued Securities. Certain of the securities in which the U.S. Treasury
----------------------
Allocation, Short-Intermediate Term, Bond Index, Growth Stock and Asset
Allocation Master Portfolios may invest will be purchased on a when-issued
basis, in which case delivery and payment normally take place within 45 days
after the date of the commitment to purchase. These Master Portfolios only will
make commitments to purchase securities on a when-issued basis with the
intention of actually acquiring the securities, but may sell them before the
settlement date if it is deemed advisable. When-issued securities are subject to
market fluctuation, and no income accrues to the purchaser during the period
prior to issuance. The

10
<PAGE>

purchase price and the interest rate that will be received on debt securities
are fixed at the time the purchaser enters into the commitment. Purchasing a
security on a when-issued basis can involve a risk that the market price at the
time of delivery may be lower than the agreed-upon purchase price, in which case
there could be an unrealized loss at the time of delivery. None of the Master
Portfolios currently intend to invest more than 5% of its assets in when-issued
securities during the coming year. Each Master Portfolio will establish a
segregated account in which it will maintain cash or liquid, high-grade debt
securities in an amount at least equal in value to the Master Portfolio's
commitments to purchase when-issued securities. If the value of these assets
declines, the Master Portfolio will place additional liquid assets in the
account on a daily basis so that the value of the assets in the account is equal
to the amount of such commitments.

Loans of Portfolio Securities. The Master Portfolios may lend securities from
-----------------------------
their portfolios to brokers, dealers and financial institutions (but not
individuals) if cash, U.S. Government securities or other high-quality debt
obligations equal to at least 100% of the current market value of the securities
loan (including accrued interest thereon) plus the interest payable to such
Master Portfolio with respect to the loan is maintained with the Master
Portfolio. In determining whether to lend a security to a particular broker,
dealer or financial institution, the Master Portfolio's investment adviser will
consider all relevant facts and circumstances, including the size,
creditworthiness and reputation of the broker, dealer, or financial institution.
Any loans of portfolio securities will be fully collateralized based on values
that are marked to market daily. The Master Portfolios will not enter into any
portfolio security lending arrangement having a duration of longer than one
year. Any securities that a Master Portfolio may receive as collateral will not
become part of the Master Portfolio's investment portfolio at the time of the
loan and, in the event of a default by the borrower, the Master Portfolio will,
if permitted by law, dispose of such collateral except for such part thereof
that is a security in which the Master Portfolio is permitted to invest. During
the time securities are on loan, the borrower will pay the Master Portfolio any
accrued income on those securities, and the Master Portfolio may invest the cash
collateral and earn income or receive an agreed-upon fee from a borrower that
has delivered cash-equivalent collateral. None of the Master Portfolios will
lend securities having a value that exceeds one-third of the current value of
its total assets. Loans of securities by any of the Master Portfolios will be
subject to termination at the Master Portfolio's or the borrower's option. The
Master Portfolio may pay reasonable administrative and custodial fees in
connection with a securities loan and may pay a negotiated portion of the
interest or fee earned with respect to the collateral to the borrower or the
placing broker. Borrowers and placing brokers may not be affiliated, directly or
indirectly, with the Company, BGFA, Wells Fargo Bank (the sub-adviser to certain
of the Master Portfolios) or the Distributor.

Futures Contracts. The S&P 500 Index, Bond Index, Asset Allocation and U.S.
-----------------
Treasury Allocation Master Portfolios may use futures contracts as a hedge
against the effects of interest rate changes or changes in the market value of
the stocks comprising the index in which such Master Portfolio invests. In
managing their cash flows, these Master Portfolios also may use futures
contracts as a substitute for holding the designated securities underlying the
futures contract. A futures contract is an agreement between two parties, a
buyer and a seller, to exchange a particular commodity at a specific price on a
specific date in the future. At the time it enters into a futures transaction, a
Master Portfolio is required to make a performance deposit (initial margin) of
cash or liquid securities in a segregated account in the name of the futures
broker. Subsequent payments of "variation margin" are then made on a daily
basis, depending on the value of the futures position which is continually
"marked to market."

11
<PAGE>

month (i.e., a long position offsetting a short position); or (iii) the
purchase of a futures contract to permit the Master Portfolio to, in effect,
participate in the market for the designated securities underlying the futures
contract without actually owning such designated securities. When a Master
Portfolio purchases a futures contract, it will create a segregated account
consisting of cash or other liquid assets in an amount equal to the total market
value of such futures contract, less the amount of initial margin for the
contract.

If a Master Portfolio enters into a short position in a futures contract as a
hedge against anticipated adverse market movements and the market then rises,
the increase in the value of the hedged securities will be offset, in whole or
in part, by a loss on the futures contract. If instead a Master Portfolio
purchases a futures contract as a substitute for investing in the designated
underlying securities, a Master Portfolio experiences gains or losses that
correspond generally to gains or losses in the underlying securities. The latter
type of futures contract transactions permits a Master Portfolio to experience
the results of being fully invested in a particular asset class, while
maintaining the liquidity needed to manage cash flows into or out of the Master
Portfolio (e.g., from purchases and redemptions of Master Portfolio shares).
Under normal market conditions, futures contract positions may be closed out on
a daily basis. The Master Portfolios identified above expect to apply a portion
of their cash or cash equivalents maintained for liquidity needs to such
activities.

Transactions by a Master Portfolio in futures contracts involve certain
risks. One risk in employing futures contracts as a hedge against cash market
price volatility is the possibility that futures prices will correlate
imperfectly with the behavior of the prices of the securities in the Master
Portfolio's investment portfolio (the portfolio securities of the Bond Index and
U.S. Treasury Allocation Master Portfolios and the bond portion of the Asset
Allocation Master Portfolio will not be identical to the securities underlying
the futures contracts). Similarly, in employing futures contracts as a
substitute for purchasing the designated underlying securities, there is a risk
that the performance of the futures contract may correlate imperfectly with the
performance of the direct investments for which the futures contract is a
substitute. In addition, commodity exchanges generally limit the amount of
fluctuation permitted in futures contract prices during a single trading day,
and the existence of such limits may prevent the prompt liquidation of futures
positions in certain cases. Limits on price fluctuations are designed to
stabilize prices for the benefit of market participants; however, there could be
cases where the Master Portfolio could incur a larger loss due to the delay in
trading than it would have if no limit rules had been in effect.

Investment in Warrants. Each of the Short-Intermediate Term, S&P 500 Index
----------------------
and Growth Stock Master Portfolios may invest up to 5% of their net assets at
the time of purchase in warrants (other than those that have been acquired in
units or attached to other securities), including not more than 2% of each of
their net assets in warrants which are not listed on the New York or American
Stock Exchange. A

12
<PAGE>

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. The Short-
Intermediate Term, S&P 500 Index and Growth Stock Master Portfolios each may
only purchase warrants on securities in which the respective Master Portfolios
may invest directly.

THE S&P 500 STOCK FUND AND S&P 500 INDEX MASTER PORTFOLIO:

Neither the Fund nor the Master Portfolio is sponsored, endorsed, sold or
promoted by Standard & Poor's ("S&P"). S&P makes no representation or warranty,
express or implied, to the Fund, the Master Portfolio or any member of the
public regarding the advisability of investing in securities generally or in the
Fund particularly or the ability of the S&P 500 Index to track general stock
market performance. S&P's only relationship to the Fund is the licensing of
certain trademarks and trade names of S&P and of the S&P 500 Index which is
determined, composed and calculated by S&P without regard to the Fund. S&P has
no obligation to take the needs of the Fund into consideration in determining,
composing or calculating the S&P 500 Index. S&P is not responsible for and has
not participated in the determination of the prices and amount of the Fund's
shares or the timing of the issuance or sale of the Fund's shares or in the
determination or calculation of the equation by which the Fund's shares are to
be converted into cash. S&P has no obligation or liability in connection with
the administration, marketing or trading of the Fund's shares.

S&P does not guarantee the accuracy and/or the completeness of the S&P 500
Index or any data included therein and S&P shall have no liability for any
errors, omissions, or interruptions therein. S&P makes no warranty, express or
implied, as to results to be obtained by the Fund, or any other person or entity
from the use of the S&P 500 Index or any data included therein. S&P makes no
express or implied warranties, and expressly disclaims all warranties of
merchantability or fitness for a particular purpose or use with respect to the
S&P 500 index or any data included therein. Without limiting any of the
foregoing, in no event shall S&P have any liability for any special, punitive,
indirect, or consequential damages (including lost profits), even if notified of
the possibility of such damages.

MANAGEMENT

Directors and Officers. The following information supplements and should be
----------------------
read in conjunction with the Prospectus section entitled "Management of the
Funds". Directors and officers of the Company, together with information as to
their principal business occupations during the last five years, are shown
below. Each of the Officers and Directors of the Company serve in the identical
capacity as Officers and Trustees of the Trusts. The address of each, unless
otherwise indicated, is 111 Center Street, Little Rock, Arkansas 72201.
Directors who are deemed to be an "interested person" of the Company, as defined
in the 1940 Act, are indicated by an asterisk.

*R. Greg Feltus, 46 Director, Senior Vice President of Stephens;
Chairman and Manager of Financial Services Group;
President President of Stephens Insurance Services

</TABLE>

13
<PAGE>

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE POSITION DURING PAST 5 YEARS
- --------------------- -------- ---------------------
<S> <C> <C>
Inc.; Senior Vice President of Stephens
Sports Management Inc.; and President of
Investors Brokerage Insurance Inc.

Thomas S. Goho, 55 Director Associate Professor of Finance, Calloway
P.O. Box 7285 School of Business and Accounting
Reynold Station Wake Forest University, since 1982.
Winston-Salem, NC 27109

*Zoe Ann Hines, 48 Director Senior Vice President of Stephens and
Director of Brokerage Accounting;
Secretary of Stephens Resource
Management; and Senior Vice President
of Link Investments Inc.

*W. Rodney Hughes, 70 Director Private Investor
31 Dellwood Court
San Rafael, CA 94901

Robert M. Joses, 79 Director Private Investor
47 Dowitcher Way
San Rafael, CA 94901

*J. Tucker Morse, 52 Director Chairman of Home Account Network, Inc.;
4 Beaufain Street Real Estate Developer; Chairman
Charleston, SC 29401 of Renaissance Properties Ltd.;
President of Morse Investment
Corporation; and Co-Managing Partner
of Main Street Ventures.

Richard H. Blank, Jr., 40 Chief Associate of Financial Services
Operating Group of Stephens; Director of Stephens
Officer, Sports Management Inc.; and Director of
Secretary and Capo Inc.
Treasurer
</TABLE>

14
<PAGE>

COMPENSATION TABLE
For the Fiscal Year Ended February 28, 1997
<TABLE>
<CAPTION>

*R. Greg Feltus
Director 0 0

Thomas S. Goho
Director $9,250 $9,250

*Zoe Ann Hines
Director 0 0

*W. Rodney Hughes
Director $8,250 $8,250

Robert M. Joses $9,250 $9,250
Director

*J. Tucker Morse
Director $8,250 $8,250

</TABLE>

Directors of the Company are compensated annually by the Company and by all
the registrants in the fund complex for their services as indicated above and
also are reimbursed for all out-of-pocket expenses relating to attendance at
board meetings. The Company, MIP and MSIT are considered to be members of the
same fund complex, as such term is defined in Form N-1A under the 1940 Act (the
"BGFA Fund Complex"). Stagecoach Funds, Inc., Overland Express Funds, Inc.,
Stagecoach Trust, Life & Annuity Trust and Master Investment Trust together form
a separate fund complex (the "Wells Fargo Fund Complex"). Each of the Directors
and the Officers of the Company serves in the identical capacity as
Directors/Trustees and Officers of each registered open-end management
investment company in both the BGFA and Wells Fargo Fund Complexes, except for
Zoe Ann Hines who, after September 6, 1996, only serves the aforementioned
members of the BGFA Fund Complex. The Directors are compensated by other
companies and trusts within the fund complex for their services as
Directors/Trustees to such companies and trusts. Currently the Directors do not
receive any retirement benefits or deferred compensation from the Company or any
other member of each fund complex.

As of the date of this SAI, Directors and officers of the Company as a group
beneficially owned less than 1% of the outstanding shares of the Company.

Master/Feeder Structure. Each Fund seeks to achieve its investment objective
-----------------------
by investing all of its assets into the corresponding Master Portfolio of MIP or
MSIT. The Funds and other entities investing in a Master Portfolio are each
liable for all obligations of such Master Portfolio. However, the risk of a Fund
incurring financial loss on account of such liability is limited to
circumstances in which both inadequate insurance existed and the Trust itself is
unable to meet its obligations. Accordingly, the Company's Board of Directors
believes that neither a Fund nor its shareholders will be adversely affected by
investing Fund

15
<PAGE>

assets in a Master Portfolio. However, if a mutual fund or other investor
withdraws its investment from such Master Portfolio, the economic efficiencies
(e.g., spreading fixed expenses among a larger asset base) that the Company's
Board believes may be available through investment in the Master Portfolio may
not be fully achieved. In addition, given the relative novelty of the
master/feeder structure, accounting or operational difficulties, although
unlikely, could arise. See "Management of the Funds" in the Prospectus for
additional description of the Funds' and Master Portfolios' expenses and
management.

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

The investment objective and other fundamental policies of a Master Portfolio
cannot be changed without approval by the holders of a majority (as defined in
the 1940 Act) of the Master Portfolio's outstanding interests. See "Investment
Objectives and Policies" in the Prospectus. Whenever a Fund, as an
interestholder of the corresponding Master Portfolio, is requested to vote on
any matter submitted to interestholders of such Master Portfolio, the Fund will
hold a meeting of its shareholders to consider such matters. The Fund will cast
its votes in proportion to the votes received from its shareholders. Shares for
which a Fund receives no voting instructions will be voted in the same
proportion as the votes received from the other Fund shareholders.

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

Investment Adviser. 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 Portfolios' assets. Pursuant to
the Advisory Contracts, BGFA furnishes to the Trusts' Boards of Trustees
periodic reports on the investment strategy and performance of each Master
Portfolio. BGFA has agreed to provide to the Master Portfolios, among other
things, money market security and fixed- income research, analysis and
statistical and economic data and information concerning interest rate and
security market trends, portfolio composition, credit conditions and average
maturities of each Master Portfolio's investment portfolio.

BGFA is entitled to receive monthly fees at the annual rate of 0.35%, 0.08%,
0.05%, 0.30%, 0.60% and 0.45% of the average daily net assets of the Asset
Allocation, Bond Index, S&P 500 Index, U.S.

16
<PAGE>

Treasury Allocation, Growth Stock and Short-Intermediate Term Master Portfolios,
respectively, as compensation for its advisory services to such Master
Portfolio.

Each Advisory Contract will continue in effect for more than two years
provided the continuance is approved annually (i) by the holders of a majority
of the respective Master Portfolio's outstanding voting securities or by the
Trusts' Boards of Trustees and (ii) by a majority of the Trustees of the Trusts
who are not parties to the Advisory Contract or "interested persons" (as defined
in the 1940 Act) of any such party. Each Advisory Contract may be terminated on
60 days' written notice by either party and will terminate automatically if
assigned.

The Advisory Contracts provide that the advisory fee is accrued daily and
paid monthly. Out of the fees that BGFA receives from the Growth Stock and
Short-Intermediate Term Master Portfolios, it pays Wells Fargo Bank, for its
sub-advisory services a percentage of each of these Master Portfolio's average
daily net assets as agreed by BGFA and Wells Fargo Bank. BGFA is compensated for
its custodial services to the Master Portfolio and the Funds out of the advisory
fee from each Master Portfolio.

For the period beginning March 1, 1994 and ended May 25, 1994, the Funds paid
to Wells Fargo Bank the advisory fees indicated below and Wells Fargo Bank
waived the indicated amounts:

3/1/94-5/25/94
FEES FEES
FUND PAID WAIVED
---- -------- ------
<S> <C> <C>
Asset Allocation Fund $329,064 $ -0-
Bond Index Fund $ -0- $6,449
Growth Stock Fund $ 70,792 $ -0-
Short-Intermediate Term Fund $ -0- $7,590
S&P 500 Stock Fund $ 33,202 $ -0-
U.S. Treasury Allocation Fund $ 82,068 $ -0-
</TABLE>

For the period beginning May 26, 1994 (commencement of master/feeder structure),
and ended February 28, 1995, and the period beginning March 1, 1995 and ended
December 31, 1995, the corresponding Master Portfolio of each Fund paid to Wells
Fargo Bank the advisory fees indicated below and Wells Fargo Bank waived the
indicated amounts:

<TABLE>
<CAPTION>
5/26/94 - 2/28/95 3/1/95 - 12/31/95
FEES FEES FEES FEES
MASTER PORTFOLIO PAID WAIVED PAID WAIVED
- ---------------- -------- -------- --------- --------
<S> <C> <C> <C> <C>
Asset Allocation Master Portfolio $666,053 $ -0- $997,003 $ 0
Bond Index Master Portfolio $ 34,581 $ 8,713 $ 91,365 $ 0
Growth Stock Master Portfolio $283,463 $16,451 $662,204 $ 0
Short-Intermediate Term Master Portfolio $ 10,673 $16,510 $279,843 $ 0
S&P 500 Index Master Portfolio $138,830 $17,864 $ 47,460 $ 0
U.S. Treasury Allocation Master Portfolio $128,994 $ -0- $152,657 $ 0
</TABLE>

For the period beginning January 1, 1996 and ended February 29, 1996 and for
the fiscal year ended February 28, 1997, the corresponding Master Portfolio of
each Fund paid to BGFA the advisory fees indicated below, without waivers:

17
<PAGE>

1/1/96 - 2/29/96 FISCAL YEAR ENDED 2/28/97
MASTER PORTFOLIO FEES PAID FEES PAID
- ---------------- --------- ---------
<S> <C> <C>
Asset Allocation Master Portfolio $225,669 $1,153,951
Bond Index Master Portfolio $ 20,123 $ 147,204
Growth Stock Master Portfolio $164,817 $1,334,600
Short-Intermediate Term Master Portfolio $ 73,598 $ 58,891
S&P 500 Index Master Portfolio $ 9,923 $ 577,637
U.S. Treasury Allocation Master $ 25,863 $ 148,606
Portfolio
</TABLE>

Sub-Investment Adviser. Effective January 1, 1996, the MIP Master Portfolios
----------------------
no longer retained Wells Fargo Nikko Investment Adviser ("WFNIA") as sub-
investment adviser and the MSIT Master Portfolios, pursuant to separate sub-
investment advisory contracts with Wells Fargo Bank, retained Wells Fargo Bank
as its sub-investment adviser. Wells Fargo Bank is responsible for the day-to-
day portfolio management of each MSIT Master Portfolio. The same Wells Fargo
Bank investment professionals that previously managed the investment portfolio
of each MSIT Master Portfolio will continue, subject to the overall supervision
of BGFA, to manage each such Master Portfolio's investment portfolio. Subject to
the direction of the Trusts' Boards of Trustees and the overall supervision and
control of BGFA and the Trusts, Wells Fargo Bank is responsible for investing
and reinvesting these Master Portfolio's assets. In this regard, Wells Fargo
Bank is responsible for implementing and monitoring the performance of the
investment model employed with respect to each Master Portfolio, in accordance
with the investment objective, policies and restrictions set forth in the
Prospectus, and furnishes to BGFA periodic reports on the investment activity
and performance of the Master Portfolios, and such additional reports and
information as BGFA and the Trusts' Boards of Trustees and officers shall
reasonably request. Wells Fargo Bank is entitled to receive from BGFA an amount
equal to 0.15% and 0.10% of the average daily net assets of the Growth Stock and
Short-Intermediate Term Master Portfolios, respectively, as compensation for its
sub-advisory services.

For the period beginning March 1, 1994 and ended May 25, 1994, Wells Fargo
Bank paid to WFNIA the following fees for sub-advisory services provided to each
Fund, without waivers:

3/1/94 - 5/25/94
FUND FEES PAID
- ---- -----------------
<S> <C>
Asset Allocation Fund $86,119
Bond Index Fund $ 1,264
S&P 500 Stock Fund $13,586
U.S. Treasury Allocation Fund $13,257
</TABLE>

For the period beginning May 26, 1994 (commencement of master/feeder
structure) and ended February 28, 1995, and the period beginning March 1, 1995
and ended December 31, 1995, Wells Fargo Bank paid to WFNIA the following sub-
advisory fees for services provided to the corresponding Master Portfolio of
each Fund, without waivers:

18
<PAGE>

5/26/94 - 2/28/95 3/1/95 - 12/31/95
MASTER PORTFOLIO FEES PAID FEES PAID
---------------- ----------------- -----------------
<S> <C> <C>
Asset Allocation Master Portfolio $375,907 $567,009
Bond Index Master Portfolio $ 39,197 $ 72,919
S&P 500 Index Master Portfolio $117,651 $224,069
U.S. Treasury Allocation Master Portfolio $ 64,439 $ 75,895
</TABLE>

For the period beginning January 1, 1996 and ended February 29, 1996, AND FOR
THE FISCAL YEAR ENDED FEBRUARY 28, 1997, BGFA paid to Wells Fargo Bank the
following sub-advisory fees for services provided to the corresponding Master
Portfolio of each Fund, without waivers:

1/1/96 - 2/29/96 FISCAL YEAR ENDED 2/28/97
MASTER PORTFOLIO FEES PAID FEES PAID
---------------- ---------------- -------------------------
<S> <C> <C>
Growth Stock Master Portfolio $41,297 $332,700
Short-Intermediate Term Master Portfolio $12,801 $ 13,020
</TABLE>

Co-Administrators. The Company has engaged Stephens and Barclays Global
-----------------
Investors, N.A. ("BGI") to provide certain administration services to the Funds.
Pursuant to a Co-Administration Agreement with the Company, Stephens and BGI
provide as administration services, among other things: (i) general supervision
of the operation of the Funds, including coordination of the services performed
by the investment adviser, transfer and dividend disbursing agent, custodian,
shareholder servicing agent, independent auditors and legal counsel; (ii)
general supervision of regulatory compliance matters, including the compilation
of information for documents such as reports to, and filings with, the SEC and
state securities commissions, and preparation of proxy statements and
shareholder reports for the Funds; and (iii) general supervision relative to the
compilation of data required for the preparation of periodic reports distributed
to the Company's officers and Board of Directors. Stephens also furnishes office
space and certain facilities required for conducting the business of the Company
together with those ordinary clerical and bookkeeping services that are not
being furnished by the Fund's investment adviser. Stephens also pays the
compensation of the Company's Directors, officers and employees who are
affiliated with Stephens.

In addition, except for advisory fees, extraordinary expenses, brokerage and
other expenses connected to the execution of portfolio transactions and certain
expenses which are borne by the Funds, Stephens and BGI have agreed to bear all
costs of the Funds' and the Company's operations. For providing such services,
Stephens and BGI are entitled to 0.15% of the average daily net assets of each
of the Bond Index and S&P 500 Index Funds; 0.18% of the average daily net assets
of each of the Growth Stock and Short-Intermediate Term Funds and 0.40% of the
average daily net assets of each of the Asset Allocation and U.S. Government
Allocation Funds. Effective October 21, 1996, BGI contracted with Investors
Bank & Trust Company ("IBT") to provide certain sub-administration services.
Prior to October 21, 1996, Stephens served as sole administrator to the
Funds.

For the fiscal years ended February 28, 1995, February 29, 1996 and February
28, 1997 the Funds paid administration and co-administration fees to Stephens as
follows:

19
<PAGE>

FUND 1995 1996 1997
---- --------- --------- --------
<S> <C> <C> <C>
Asset Allocation Fund $215,978 $349,680 $572,552
Bond Index Fund $ -0- $ 18,131 $ 60,713
Growth Stock Fund $ 30,409 $ 68,886 $149,995
Short-Intermediate Term Fund $ -0- $ 6,381 $ 8,685
S&P 500 Stock Fund $158,245 $331,823 $713,041
U.S. Treasury Allocation Fund $ 49,418 $ 59,609 $ 73,610
</TABLE>

For the period beginning October 21, 1996 and ended February 28, 1997, the
Funds paid co-administration fees to BGI as follows:

FUND 10/21/96 - 2/28/97
---- ------------------
<S> <C>
Asset Allocation Fund $337,801
Bond Index Fund $ 32,155
Growth Stock Fund $ 69,346
Short-Intermediate Term Fund $ 3,817
S&P 500 Stock Fund $289,821
U.S. Treasury Allocation Fund $ 35,547
</TABLE>

Distributor. Stephens acts as the exclusive distributor of each Fund's shares
-----------
pursuant to an Amended and Restated Distribution Agreement (the "Distribution
Agreement") with the Company on behalf of the Funds. Shares are sold on a
continuous basis by Stephens as agent, although Stephens s not obligated to sell
any particular amount of shares. No compensation is payable by the Company to
Stephens for its distribution services. The term and termination provisions of
the Distribution Agreement are substantially similar to those of the Agreement
with the Adviser discussed above.

Shareholder Servicing Plan. Each of the Funds has adopted a Shareholder
--------------------------
Servicing Plan (each a "Servicing Plan" and collectively the "Servicing Plans").
Under each Servicing Plan and pursuant to each Servicing Agreement, a Fund may
pay one or more servicing agents, as compensation for performing certain
services, monthly fees at the annual rate of up to (i) 0.07% of the average
daily net assets of the S&P 500 Stock and Bond Index Funds, (ii) 0.10% of the
average daily net assets of the Short-Intermediate Term and Growth Stock Funds
and (iii) 0.20% of the average daily net assets of the Asset Allocation and U.S.
Treasury Allocation Funds. Payments to a servicing agent by a Fund will be based
upon the average daily net assets of the shares of the Fund owned of record by
the servicing agent on behalf of customers, or by its customers directly, during
the period for which payment is made.

The Servicing Plans will continue in effect from year to year if such
continuance is approved by a majority vote of both the Directors of the Company
and the Servicing Plan Qualified Directors. The Servicing Agreement may be
terminated automatically if assigned, or may be terminated at any time not more
than 60 days' nor less than 30 day's after notice, by a vote of a majority of
the Disinterested Directors or by a vote of the majority of the outstanding
voting securities of the Shares of a Fund of the Company or the affected
Fund(s). The Servicing Plans may not be amended to increase materially the
amount payable thereunder without the approval of a majority of the Company's
Board of Directors, including a majority of the Disinterested Directors cast at
a meeting called for that specific purpose.

The Servicing Plans require that the servicing agent shall provide to the
Treasurer of the Company, at least quarterly, a written report of the amounts
expended by the servicing agent (and purposes therefor) under each Servicing
Plan, and shall provide to the Company's Board of Directors such information as
may reasonably be necessary to an informed determination of whether the
Agreement shall be implemented or continued.

20
<PAGE>

For the fiscal year ended February 28, 1997 the Funds paid shareholder
servicing fees as follows and the indicated amounts were waived:

<TABLE>
<CAPTION>
FEES FEES
FUND PAID WAIVED
---- -------- --------
<S> <C> <C>
Asset Allocation Fund $555,606 $ 0
Bond Index Fund $ 31,663 $ 31,663
Growth Stock Fund $139,134 $112,482
Short-Intermediate Term Fund $ 8,448 $ 8,448
S&P 500 Stock Fund $454,547 $287,325
U.S. Treasury Allocation Fund $ 48,458 $ 0
</TABLE>

Custodian. IBT, concurrent with its appointment as sub-administrator for the
---------
Funds on October 21, 1996, also has been retained as custodian to each Fund and
Master Portfolio and performs such services at 200 Clarendon Street, Boston,
Massachusetts 02116. The custodian, among other things, maintains a custody
account or accounts in the name of each Fund; receives and delivers all assets
for each Fund upon purchase and upon sale or maturity; collects and receives all
income and other payments and distributions on account of the assets of each
Fund and pays all expenses of each Fund. IBT is not entitled to receive
compensation for its services as custodian so long as it is entitled to receive
fees from BGI for providing sub-administration services to the Funds. Prior to
October 21, 1996, BGI served as custodian to the Funds and was not entitled to
receive a fee. For the fiscal year ended February 28, 1997, the Funds did not
pay any custody fees.

Transfer and Dividend Disbursing Agent. Wells Fargo Bank has been retained as
--------------------------------------
the transfer and dividend disbursing agent for the Funds and performs such
services at 515 Market Street, San Francisco, CA 94105. For its services as
transfer and dividend disbursing agent, Wells Fargo Bank is entitled to 0.10% of
the average daily net assets of each of the Asset Allocation and U.S. Treasury
Allocation Funds; and 0.03% of the average daily net assets of each of the Bond
Index, Growth Stock, S&P 500 Stock and Short-Intermediate Term Funds.

PURCHASE AND REDEMPTION OF SHARES

Terms of Purchase. The Funds are generally open Monday through Friday and are
-----------------
closed on weekends and NYSE holidays. The holidays on which the NYSE is closed
currently are: New Year's Day, Martin Luther King, Jr.'s. Birthday, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day. The Company reserves the right to reject any purchase order
and to change the amount of the minimum investment and subsequent purchases in
the Funds.

Payment for shares of a Fund may, at the discretion of the adviser, be made
in the form of securities that are permissible investments for the Fund and must
meet the investment objective, policies and limitations of the Fund as described
in the Prospectus. In connection with an in-kind securities payment, a Fund may
require, among other things, that the securities (i) be valued on the day of
purchase in accordance with the pricing methods used by the Fund; (ii) are
accompanied by satisfactory assurance that the Fund will have good and
marketable title to such securities received by it; (iii) are not subject to any
restrictions upon resale by the Fund; (iv) be in proper form for transfer to the
Fund; (v) are accompanied by adequate information concerning the basis and other
tax matters relating to the securities.

21
<PAGE>

All dividends, interest, subscription or other rights pertaining to such
securities shall become the property of the Fund engaged in the in-kind purchase
transaction and must be delivered to such Fund by the investor upon receipt from
the issuer. Securities acquired through an in-kind purchase will be acquired for
investment and not for immediate resale. Shares purchased in exchange for
securities generally cannot be redeemed until the transfer has settled. Each
Fund immediately will transfer to its corresponding Master Portfolio any and all
securities received by it in connection with an in-kind purchase transaction, in
exchange for interests in such Master Portfolio.

DETERMINATION OF NET ASSET VALUE

Net asset value per share for a Fund is determined on each day the Fund is
open for trading. Each Fund's investment in the corresponding Master Portfolio
of the Trusts are valued at the net asset value of such Master Portfolio'
shares.

Because the Master Portfolios are closed on certain days when the NYSE is
open for business, shareholders would not be able to redeem their shares on
certain days when there may be significant changes in the value of a Master
Portfolio's portfolio securities.

Master Portfolio securities for which market quotations are available are
valued at latest prices. Securities of a Master Portfolio for which the primary
market is a national securities exchange or the National Association of
Securities Dealers Automated Quotations National Market System are valued at
last sale prices. In the absence of any sale of such securities on the valuation
date and in the case of other securities, including U.S. Government securities
but excluding money market instruments maturing in 60 days or less, the
valuations are based on latest quoted bid prices. Money market instruments
maturing in 60 days or less are valued at amortized cost with cost being the
value of the security on the preceding day (61st day). Futures contracts will be
marked to market daily at their respective settlement prices determined by the
relevant exchange. Options listed on a national exchange are valued at the last
sale price on the exchange on which they are traded at the close of the NYSE,
or, in the absence of any sale

22
<PAGE>

on the valuation date, at latest quoted bid prices. Options not listed on a
national exchange are valued at latest quoted bid prices. Debt securities
maturing in 60 days or less are valued at amortized cost. In all cases, bid
prices will be furnished by an independent pricing service approved by the
Boards of Trustees. Prices provided by an independent pricing service may be
determined without exclusive reliance on quoted prices and may take into account
appropriate factors such as institutional-size trading in similar groups of
securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics and other market data. Securities held under a repurchase
agreement will be valued at a price equal to the amount of the cash investment
at the time of valuation on the valuation date. The market value of the
underlying securities shall be determined in accordance with the applicable
procedures, as described above, for the purpose of determining the adequacy of
collateral. All other securities and other assets of the Funds for which current
market quotations are not readily available are valued at fair value as
determined in good faith by MIP and MSIT Boards of Trustees and in accordance
with procedures adopted by the Trustees.

TAXES

The Prospectus describes generally the tax treatment of distributions by the
Master Portfolios and the Funds. This section of the SAI includes additional
information concerning federal income taxes.

In General. The Company intends to qualify each Fund as a regulated
----------
investment company under Subchapter M of the Code as long as such qualification
is in the best interest of the Funds' shareholders. Each Fund will be treated
as a separate entity for tax purposes; thus, the provisions of the Code
applicable to regulated investment companies will generally be applied to each
Fund, 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.

Qualification as a regulated investment company under the Code requires,
among other things, that (a) each Fund derive at least 90% of its annual gross
income from interest, payments with respect to securities loans, dividends and
gains from the sale or other disposition of securities or options thereon; (b)
each Fund derive less than 30% of its gross income from gains from the sale or
other disposition of securities or options thereon held for less than three
months; and (c) each Fund diversify its holdings so that, at the end of each
quarter of the taxable year, (i) at least 50% of the market value of the Fund's
assets is represented by cash, government securities and other securities
limited in respect of any one issuer to an amount not greater than 5% of the
Fund's assets and 10% of the outstanding voting securities of such issuer, and
(ii) not more than 25% of the value of its assets is invested in the securities
of any one issuer (other than U.S. Government securities and the securities of
other regulated investment companies), or in two or more issuers which the Fund
controls and which are determined to be engaged in the same or similar trades or
businesses. For purposes of determining qualification, each Fund will be deemed
to own a proportionate share of the corresponding Master Portfolio's assets. As
a regulated investment company, each Fund will not be subject to federal income
tax on its net investment income and net capital gains distributed to its
shareholders, provided that it distributes to its shareholders at least 90% of
its net investment income, including net tax-exempt income, earned in each year.
Each Fund intends to pay out substantially all of its net investment income and
net realized capital gains (if any) for each year.

23
<PAGE>

paid in January of the following year. Accordingly, such dividends and
distributions will be taxable to the recipient shareholders in the year in which
the record date falls.

In addition, a 4% nondeductible excise tax will be imposed on each Fund
(other than to the extent of the Fund's tax-exempt income) to the extent it does
not meet certain minimum distribution requirements by the end of each calendar
year. Each Fund either will actually or be deemed to distribute substantially
all of its net investment income and net capital gains by the end of each
calendar year and, thus, expects not to be subject to the excise tax.

Each Fund seeks to qualify as a regulated investment company by investing
substantially all of its assets in a Master Portfolio. Under the Code, each
Master Portfolio will be treated as a non-publicly traded partnership rather
than as a regulated investment company or a corporation. As a non-publicly
traded partnership, any interest, dividends, gains and losses of the Master
Portfolio shall be deemed to have been "passed through" to the corresponding
Fund (and the Master Portfolio's other investors) in proportion to each Fund's
ownership interest in the Master Portfolio. Therefore, to the extent that a
Master Portfolio were to accrue but not distribute any interest, dividends or
gains, the corresponding Fund would be deemed to have realized and recognized
its proportionate share of interest, dividends or gains without receipt of any
corresponding distribution. However, each Master Portfolio will seek to
minimize recognition by its investors (such as a Fund) of interest, dividends,
gains or losses without a corresponding distribution.

24
<PAGE>

held less than six months is disallowed to the extent of any exempt-interest
dividends received thereon by the shareholder. These rules shall not apply,
however, to losses incurred under a periodic redemption plan.

If a shareholder exchanges or otherwise disposes of Fund shares within 90
days of having acquired such shares and if, as a result of having acquired those
shares, the shareholder subsequently pays a reduced sales charge on a new
purchase of shares of the Fund or of a different regulated investment company
(the "new shares"), the sales charge previously incurred in acquiring the Fund's
shares shall not be taken into account (to the extent such previous sales
charges do not exceed the reduction in sales charges on the purchase of the new
shares) for the purpose of determining the amount of gain or loss on the
disposition, but will be treated as having been incurred in the acquisition of
the new shares. Also, any loss realized on a redemption or exchange of Fund
shares will be disallowed to the extent that substantially identical shares are
reacquired within the 61-day period beginning 30 days before and ending 30 days
after the shareholder disposes of the Fund shares.

Taxation of Master Portfolio Investments. Gains or losses on sales of
----------------------------------------
portfolio securities by each Master Portfolio will generally be long-term
capital gains or losses if the securities have been held by it for more than one
year, except in certain cases such as where a Master Portfolio acquires a put or
writes a call thereon. Gains recognized on the disposition of a debt obligation
(including tax-exempt obligations purchased after April 30, 1993) purchased by a
Master Portfolio at a market discount (generally, at a price less than its
principal amount) will be treated as ordinary income to the extent of the
portion of market discount which accrued, but were not previously included in
income of the Master Portfolio under an available election during the period of
time the Master Portfolio held the debt obligation. Except as provided herein,
other gains or losses on the sale of portfolio securities will be short-term
capital gains or prevailing losses.

If an option written by a Master Portfolio lapses or is terminated through a
closing transaction, such as a repurchase by the Master Portfolio of the option
from its holder, the Master Portfolio will realize a short-term capital gain or
loss, depending on whether the premium income is greater or less than the amount
paid by the Master Portfolio in the closing transaction. Some realized capital
losses may be deferred if they result from a position which is part of a
"straddle," discussed below. If securities are sold by the Master Portfolio
pursuant to the exercise of a call option written by it, the Master Portfolio
will add the premium received to the sale price of the securities delivered in
determining the amount of gain or loss on the sale. If securities are purchased
by the Master Portfolio pursuant to the exercise of a put option written by it,
the Master Portfolio will subtract the premium received from its cost basis in
the securities purchased. The requirement that the Fund derive less than 30% of
its gross income from gains from the sale of securities held for less than three
months may limit the corresponding Master Portfolio's ability to write
options.

25
<PAGE>

separately and treated as ordinary income or losses. The Master Portfolio will
attempt to monitor Section 988 transactions to avoid an adverse tax impact.

Offsetting positions held by a Master Portfolio involving certain financial
forward futures or option contracts may be considered, for tax purposes, to
constitute "straddles." Straddles are defined to include "offsetting positions"
in actively traded personal property. The tax treatment of straddles is governed
by Section 1092 of the Code which, in certain circumstances, overrides or
modifies the provisions of Sections 1256 and 988. If a Master Portfolio were
treated as entering into straddles by reason of its engaging in certain
financial forward, futures or option contracts, such straddles may be
characterized as "mixed straddles" if the futures, forwards, or options
comprising a part of such straddles were governed by the applicable provisions
of Section 1256 or 988 of the Code. The Master Portfolio may make one or more
elections with respect to mixed straddles. Depending upon which election is
made, if any, the results with respect to the Master Portfolio may differ.

Generally, to the extent the straddle rules apply to positions established by
the Master Portfolio, losses realized by the Master Portfolio may be deferred to
the extent of unrealized gain in any offsetting positions. Moreover, as a result
of the foregoing rules, short-term capital loss on straddle positions may be
recharacterized as long-term capital loss and long-term capital gain may be
characterized as short-term capital gain or ordinary income.

Foreign Shareholders. Under the Code, distributions of net investment income
--------------------
by a Fund to a nonresident alien individual, nonresident alien fiduciary of a
trust or estate, foreign corporation, or foreign partnership (a "foreign
shareholder") will be subject to U.S. withholding tax at a rate of 30% or a
lower treaty rate. Withholding will not apply if a dividend paid by a Fund to a
foreign shareholder is "effectively connected" with a U.S. trade or business, in
which case the reporting and withholding requirements applicable to U.S.
citizens, U.S. residents or domestic corporations will apply. Distributions of
net long-term capital gains are not subject to tax withholding, but in the case
of a foreign shareholder who is a nonresident alien individual, such
distributions ordinarily will be subject to U.S. income tax at a rate of 30% if
the individual is physically present in the U.S. for more than 182 days during
the taxable year.

Backup Withholding. 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 the
shareholder certifies that the Taxpayer Identification Number ("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 that the
shareholder is subject to backup withholding. Such tax withheld does not
constitute any additional tax imposed on the shareholder, and may be claimed as
a tax payment on the

26
<PAGE>

shareholder's federal income tax return. An investor must provide a valid TIN
upon opening or reopening an account. Failure to furnish a valid TIN to the
Company could subject the investor to penalties imposed by the IRS.

PERFORMANCE INFORMATION

As indicated in the Prospectus, the Funds may advertise certain total return
information computed in the manner described in the Prospectus. As and to the
extent required by the SEC, an average annual compound rate of return ("T") will
be computed by using the value at the end of a specified period ("ERV") of a
hypothetical initial investment ("P") over a period of years ("n") according to
the following formula: P(1+T)n = ERV. In addition, as indicated in the
Prospectus, the Funds, at times, also may calculate total return based on net
asset value per share (rather than the public offering price) in which case the
figures would not reflect the effect of any sales charge that would have been
paid by an investor, or based on the assumption that a sales charge other than
the maximum sales charge (reflecting a Volume Discount) was assessed provided
that total return data derived pursuant to the calculation described above also
are presented.

The average annual total returns on the Funds from July 2, 1993 (commencement
of operations) to February 28, 1997 and for the fiscal year ended February 28,
1997 were as follows:

COMMENCEMENT FISCAL
THROUGH YEAR ENDED
FUND 2/28/97 2/28/97
---- ------- -------
<S> <C> <C>
Asset Allocation Fund 12.06% 13.09%
Bond Index Fund 5.10% 4.32%
Growth Stock Fund 14.76% (3.46)
Short-Intermediate Term Fund 4.49% 4.29%
S&P 500 Stock Fund 18.13% 25.82%
U.S. Treasury Allocation Fund 4.70% 4.99%
</TABLE>

The cumulative total returns on the Funds from July 2, 1993 (commencement of
operations) to February 28, 1997 were as follows:

27
<PAGE>

<TABLE>
<CAPTION>
COMMENCEMENT
THROUGH
FUND 2/28/97
---- -------
<S> <C>
Asset Allocation Fund 51.73%
Bond Index Fund 19.96%
Growth Stock Fund 65.54%
Short-Intermediate Term Fund 17.46%
S&P 500 Stock Fund 91.75%
U.S. Treasury Allocation Fund 18.31%
</TABLE>

As indicated in the Prospectus, the U.S. Treasury Allocation, Asset
Allocation, Short-Intermediate Term and Bond Index Funds may advertise certain
yield information. As, and to the extent required by the SEC, yield will be
calculated based on a 30-day (or one-month) period, computed by dividing the net
investment income per share earned during the period by the maximum offering
price per share on the last day of the period, according to the following
formula: YIELD = 2[(((a-b)/cd)+1)6-1], where a = dividends and interest earned
during the period; b = expenses accrued for the period (net of reimbursements);
c = the average daily number of shares outstanding during the period that were
entitled to receive dividends; and d = the maximum offering price per share on
the last day of the period. The net investment income of a Fund includes actual
interest income, plus or minus amortized purchase discount (which may include
original issue discount) or premium, less accrued expenses. Realized and
unrealized gains and losses on portfolio securities are not included in a Fund's
net investment income. For purposes of sales literature, yield also may be
calculated on the basis of the net asset value per share rather than public
offering price, provided that the yield data derived pursuant to the calculation
described above also are presented.

The yields of the Funds for the 30-day period ended February 28, 1997 were as
follows:

CURRENT
FUND YIELD
---- --------
<S> <C>
Bond Index Fund 6.32%
Short-Intermediate Term Fund 5.85%
U.S. Treasury Allocation Fund 5.37%
</TABLE>

Generally. The yield for a Fund fluctuates from time to time, unlike bank
---------
deposits or other investments that pay a fixed yield for a stated period of
time, and does not provide a basis for determining future yields since it is
based on historical data. Yield is a function of portfolio quality, composition,
maturity and market conditions as well as the expenses allocated to the
Fund.

Yield information for a Fund may be useful in reviewing the performance of
the Fund and for providing a basis for comparison with investment alternatives.
A Fund's yield, however, may not be comparable to the yields from investment
alternatives because of differences in the foregoing variables and differences
in the methods used to value portfolio securities, compute expenses and
calculate yield.

In addition, investors should recognize that changes in the net asset values
of shares of a Fund affect the yield of such Fund for any specified period, and
such changes should be considered together with the Fund's yield in ascertaining
the Fund's total return to shareholders for the period. Yield information for
the Funds may be useful in reviewing the performance of such Funds and for
providing a basis for comparison with investment alternatives. The yield of a
Fund, however, may not be comparable to the yields from investment alternatives
because of differences in the foregoing variables and differences in the methods
used to value portfolio securities, compute expenses and calculate yield.

28
<PAGE>

Performance Comparisons. From time to time and only to the extent the
-----------------------
comparison is appropriate for a Fund, the Company may quote the performance of a
Fund in advertising and other types of literature and may compare the
performance of a Fund to the performance of various indices and investments for
which reliable performance data is available. The performance of a Fund may be
compared in advertising and other literature to advertising, performance
rankings and other information prepared by recognized mutual fund statistical
services.

The performance information for the Short-Intermediate Term Fund and the Bond
Index Fund also may be compared, in reports and promotional literature, to the
Consumer Price Index, the Salomon One Year Treasury Benchmark Index, Ten Year
U.S. Government Bond Average, S&P's Corporate Bond Yield Averages, Schabacker
Investment Management Indices, Salomon Brothers High Grade Bond Index, Lipper
General Bond Fund Average, Lipper Intermediate Investment Grade Debt Fund
Average, Lehman Brothers Government/Corporate Bond Index, Lehman Brothers
Intermediate Government/Corporate Bond Index, and Lehman Brothers Long-Term High
Quality Government/Corporate Bond Index. The performance information for the
Short-Intermediate Term Fund and the Bond Index Fund also may be compared to the
S&P Index, the Dow Jones Industrial Average, the Lehman Brothers 20+ Treasury
Index, the Lehman Brothers 5-7 Year Treasury Index, Bank Averages (which is
calculated from figures supplied by the U.S. League of Savings Institutions
based on effective annual rates of interest on both passbook and certificate
accounts), or to other indices of bonds, stocks, or government securities, or by
other services, companies, publications, or persons who monitor mutual funds on
overall performance or other criteria, but not to money market mutual funds.

Performance information for the U.S. Treasury Allocation Fund, Asset
Allocation Fund, Growth Stock Fund and the S&P 500 Stock Fund may be compared,
in reports and promotional literature, to the S&P 500 Index, the Wilshire 5000
Equity Index, the Lehman Brothers 20+ Treasury Index, Donoghue's Money Fund
Averages, the Lehman Brothers 5-7 Year Treasury Index, Lehman Brothers
Government Bond Index, Lehman Brothers Treasury Bond Index, Lipper Balanced Fund
Average, Lipper Growth Fund Average, Lipper Flexible Portfolio Fund Average,
Lehman Brothers Intermediate Treasury Index, 91-Day Treasury Bill Average, or
other appropriate managed or unmanaged indices of the performance of various
types of investments, so that investors may compare a Fund's results with those
of indices widely regarded by investors as representative of the security
markets in general. Unmanaged indices may assume the reinvestment of dividends,
but generally do not reflect deductions for administrative and management costs
and expenses. Managed indices generally do reflect such deductions.

The Company also may use the following information in advertisements and
other types of literature, only to the extent the information is appropriate for
a Fund: (i) the Consumer Price Index may be used to assess the real rate of
return from an investment in a Fund; (ii) other government statistics,
including, but not limited to, The Survey of Current Business, may be used to
illustrate investment attributes of a Fund or the general economic, business,
investment, or financial environment in which a Fund operates; (iii) the effect
of tax-deferred compounding on the investment returns of a Fund, or on returns
in general, may be illustrated by graphs, charts, etc., where such graphs or
charts would compare, at various points in time, the return from an investment
in a Fund (or returns in general) on a tax-deferred basis (assuming reinvestment
of capital gains and dividends and assuming one or more tax rates) with the
return on a taxable basis; and (iv) the sectors or industries in which a Fund
invests may be compared to relevant indices of stocks or surveys (e.g., S&P
Industry Surveys) to evaluate a Fund's historical performance or current or
potential value with respect to the particular industry or sector.

29
<PAGE>

predecessors, as one of the first investment managers to advise investment
accounts using asset allocation and index strategies. The Company also may
include in advertising and other types of literature information and other data
from reports and studies prepared by the Tax Foundation, including information
regarding federal and state tax levels and the related "Tax Freedom Day." The
Company also may disclose in advertising and other types of sales literature the
assets and categories of assets under management by the Master Portfolios'
investment adviser, sub-investment adviser or their affiliates.

A Fund's performance also may be compared to those of other mutual funds
having similar objectives. This comparative performance could be expressed as a
ranking prepared by Lipper Analytical Services, Inc., (including the Lipper
General Bond Fund Average, the Lipper Intermediate Investment Grade Debt Fund
Average, the Lipper Bond Fund Average, the Lipper Growth Fund Average, the
Lipper Flexible Fund Average), Donoghue's Money Fund Report, including
Donoghue's Taxable Money Market Fund Average or Morningstar, Inc., independent
services which monitor the performance of mutual funds. A Fund's performance
will be calculated by relating net asset value per share at the beginning of a
stated period to the net asset value of the investment, assuming reinvestment of
all gains distributions and dividends paid, at the end of the period. Any such
comparisons may be useful to investors who wish to compare a Fund's past
performance with that of its competitors. Of course, past performance cannot be
a guarantee of future results.

Other Advertising Items. From time to time, the Company also may include in
-----------------------
advertisements or other marketing materials a discussion of certain of the
objectives of the investment strategy of the Asset Allocation Fund and the U.S.
Treasury Allocation Fund and a comparison of this strategy with other investment
strategies. In particular, the responsiveness of these Funds to changing market
conditions may be discussed. For example, the Company may describe the benefits
derived by having BGFA, as investment adviser, or Wells Fargo Bank, as sub-
investment adviser, monitor and reallocate investments among the three asset
categories described in a Fund's Prospectus. The Company's advertising or other
marketing materials also might set forth illustrations depicting examples of
recommended allocations in different market conditions.

The Company also may discuss in advertising and other types of literature
that a Fund has been assigned a rating by a nationally recognized statistical
rating organization ("NRSRO"), such as Standard & Poor's Corporation. Such
rating would assess the creditworthiness of the investments held by the Fund.
The assigned rating would not be a recommendation to purchase, sell or hold the
Fund's shares since the rating would not comment on the market price of the
Fund's shares or the suitability of the Fund for a particular investor. In
addition, the assigned rating would be subject to change, suspension or
withdrawal as a result of changes in, or unavailability of, information relating
to the Fund or its investments. The Company may compare a Fund's performance
with other investments which are assigned ratings by NRSROs. Any such
comparisons may be useful to investors who wish to compare a Fund's past
performance with other rated investments. Of course past performance cannot be a
guarantee of future results. The Company also may include from time to time, a
reference to certain marketing approaches of the Distributor, including, for
example, a reference to a potential shareholder being contacted by a selected
broker or dealer. General mutual fund statistics provided by the Investment
Company Institute may also be used.

PORTFOLIO TRANSACTIONS

Since each Fund invests all of its assets in a corresponding Master Portfolio
of MIP or MSIT, set forth below is a description of the Master Portfolios'
policies governing portfolio securities transactions.

30
<PAGE>

Purchases and sales of equity securities on a securities exchange usually are
effected through brokers who charge a negotiated commission for their services.
Commission rates are established pursuant to negotiations with the broker based
on the quality and quantity of execution services provided by the broker in
light of generally prevailing rates. Orders may be directed to any broker
including, to the extent and in the manner permitted by applicable law,
Stephens, Barclays Global Investors Services or Wells Fargo Securities Inc. In
the over- the-counter-market, securities are generally traded on a "net" basis
with dealers acting as principal for their own accounts without a stated
commission, although the price of the security usually includes a profit to the
dealer. In underwritten offerings, securities are purchased at a fixed price
that includes an amount of compensation to the underwriter, generally referred
to as the underwriter's concession or discount.

Purchases of debt securities generally are principal transactions. Debt
securities normally are purchased or sold from or to dealers serving as market
makers for the securities at a net price. Debt securities also may be purchased
in underwritten offerings or directly from an issuer. Generally debt obligations
are traded on a net basis and do not involve brokerage commissions. The cost of
executing transactions in debt securities consists primarily of dealer spreads
and underwriting commissions.

Under the 1940 Act, persons affiliated with a Master Portfolio are prohibited
from dealing with the Master Portfolio as a principal in the purchase and sale
of portfolio securities unless an exemptive order allowing such transactions is
obtained from the Commission or an exemption is otherwise available. A Master
Portfolio may purchase securities from underwriting syndicates of which Stephens
or Wells Fargo Bank is a member under certain conditions in accordance with the
provisions of a rule adopted under the 1940 Act and in compliance with
procedures adopted by MIP's or MSIT's Board of Trustees.

A Master Portfolio has no obligation to deal with any dealer or group of
dealers in the execution of transactions in portfolio securities. Subject to
policies established by a Master Portfolio's Board of Trustees, BGFA and Wells
Fargo Bank are responsible for the Master Portfolio's investment decisions and
the placing of portfolio transactions. In placing orders, it is the policy of
each Master Portfolio to obtain the best overall terms taking into account the
dealer's general execution and operational facilities, the type of transaction
involved and other factors such as the dealer's risk in positioning the
securities involved. BGFA and Wells Fargo Bank generally seek reasonably
competitive spreads or commissions.

In assessing the best overall terms available for any transaction, BGFA and
Wells Fargo Bank each consider factors deemed relevant, including the breadth of
the market in the security, the price of the security, the financial condition
and execution capability of the broker or dealer, and the reasonableness of the
commission, if any, both for the specific transaction and on a continuing basis.
Certain of the brokers or dealers with whom the Master Portfolios may transact
business offer commission rebates to the Master Portfolios. BGFA considers such
rebates in assessing the best overall terms available for any transaction. Wells
Fargo Bank may cause the Growth Stock and Short-Intermediate Term Master
Portfolios to pay a broker/dealer which furnishes brokerage and research
services a higher commission than that which might be charged by another
broker/dealer for effecting the same transaction, provided that Wells Fargo Bank
determines in good faith that such commission is reasonable in relation to the
value of the brokerage and research services provided by such broker/dealer,
viewed in terms of either the particular transaction or the overall
responsibilities of Wells Fargo Bank. Such brokerage and research services might
consist of reports and statistics relating to specific companies or industries,
general summaries of groups of stocks or bonds and their comparative earnings
and yields, or broad overviews of the stock, bond, and government securities
markets and the economy.

31
<PAGE>

Supplementary research information so received is in addition to, and not in
lieu of, services required to be performed by Wells Fargo Bank and does not
reduce the advisory fees payable by the Master Portfolio. MSIT's Board of
Trustees will periodically review the commissions paid by the Master Portfolio
to consider whether the commissions paid over representative periods of time
appear to be reasonable in relation to the benefits inuring to the Master
Portfolio. It is possible that certain of the supplementary research or other
services received will primarily benefit one or more other investment companies
or other accounts for which Wells Fargo Bank exercises investment discretion.
Conversely, the Master Portfolio may be the primary beneficiary of the research
or services received as a result of portfolio transactions effected for such
other account or investment company.

Under Section 28(e) of the Securities Exchange Act of 1934, an adviser shall
not be "deemed to have acted unlawfully or to have breached its fiduciary duty"
solely because under certain circumstances it has caused the account to pay a
higher commission than the lowest available. To obtain the benefit of Section
28(e), an adviser must make a good faith determination that the commissions paid
are "reasonable in relation to the value of the brokerage and research services
provided . . . viewed in terms of either that particular transaction or its
overall responsibilities with respect to the accounts as to which it exercises
investment discretion and that the services provided by a broker provide an
adviser with lawful and appropriate assistance in the performance of its
investment decision-making responsibilities." Accordingly, the price to the
Master Portfolio in any transaction may be less favorable than that available
from another broker/dealer if the difference is reasonably justified by other
aspects of the portfolio execution services offered.

Broker/dealers utilized by Wells Fargo Bank may furnish statistical, research
and other information or services which are deemed by Wells Fargo Bank to be
beneficial to the Growth Stock and Short-Intermediate Term Master Portfolios'
investment programs. Research services received from brokers supplement Wells
Fargo Bank's own research and may include the following types of information:
statistical and background information on industry groups and individual
companies; forecasts and interpretations with respect to U.S. and foreign
economies, securities, markets, specific industry groups and individual
companies; information on political developments; portfolio management
strategies; performance information on securities and information concerning
prices of securities; and information supplied by specialized services to Wells
Fargo Bank and to MSIT's Trustees with respect to the performance, investment
activities and fees and expenses of other mutual funds. Such information may be
communicated electronically, orally or in written form. Research services may
also include the providing of equipment used to communicate research
information, the arranging of meetings with management of companies and the
providing of access to consultants who supply research information.

The outside research assistance is useful to Wells Fargo Bank since the
brokers utilized by Wells Fargo Bank as a group tend to follow a broader
universe of securities and other matters than the staff of Wells Fargo Bank can
follow. In addition, this research provides Wells Fargo Bank with a diverse
perspective on financial markets. Research services which are provided to Wells
Fargo Bank by brokers are available for the benefit of all accounts managed or
advised by Wells Fargo Bank. It is the opinion of Wells Fargo Bank that this
material is beneficial in supplementing its research and analysis; and,
therefore, it may benefit the Growth Stock and Short-Intermediate Term Master
Portfolios by improving the quality of Wells Fargo Bank's investment advice.

Portfolio Turnover. The portfolio turnover rates for the U.S. Treasury
------------------
Allocation, Short-Intermediate Term, Bond Index, Asset Allocation, S&P 500 Index
and Growth Stock Master Portfolios generally are not expected to exceed 450%,
300%, 100%, 450%, 50% and 200%, respectively. The higher portfolio turnover
rates for the U.S. Treasury Allocation, Short-Intermediate Term, Bond Index,
Asset Allocation

32
<PAGE>

and Growth Stock Master Portfolios may result in higher transaction (i.e.,
principal markup/markdown, brokerage, and other transaction) costs. The
portfolio turnover rate will not be a limiting factor when BGFA or Wells Fargo
Bank deem portfolio changes appropriate.

MASTER PORTFOLIO COMMISSIONS PAID
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Asset Allocation Master Portfolio $ 14,321 $ 9,782 $ 28,606
Bond Index Master Portfolio $ 0 $ 0 $ 0
Growth Stock Master Portfolio $207,258 $355,046 $394,483
S&P 500 Index Master Portfolio $244,742 $ 80,902 $ 69,826
Short-Intermediate Term Master Portfolio $ 0 $ 0 $ 0
U.S. Treasury Allocation Master Portfolio $ 0 $ 0 $ 0
</TABLE>

Securities of Regular Broker/Dealers. As of [FEBRUARY 28, 1997,] the
------------------------------------
corresponding Master Portfolio of each Fund owned securities of their "regular
brokers or dealers" or their parents, as defined in the 1940 Act, as
follows:

MASTER PORTFOLIO BROKER/DEALER AMOUNT
- ---------------- ------------- ------
<S> <C> <C>
Growth Stock Master Portfolio Morgan Stanley $ 275,000
Asset Allocation Master Portfolio Goldman Sachs & Co. $26,000,000
Bond Index Master Portfolio Goldman Sachs & Co. $16,000,000
S&P 500 Index Master Portfolio Goldman Sachs & Co. $27,000,000
U.S. Treasury Allocation Master Portfolio Goldman Sachs & Co. $ 7,000,000
</TABLE>

CAPITAL STOCK

33
<PAGE>

outstanding shares of the Fund are present in person or by proxy, or (ii) more
than 50% of the outstanding shares of the Fund. The term "majority," when
referring to the approvals to be obtained from shareholders of the Company as a
whole, means the vote of the lesser of (i) 67% of the Company's shares
represented at a meeting if the holders of more than 50% of the Company's
outstanding shares are present in person or by proxy, or (ii) more than 50% of
the Company's outstanding shares. Shareholders are entitled to one vote for each
full share held and fractional votes for fractional shares held.

The Company may dispense with an annual meeting of shareholders in any year
in which it is not required to elect Directors under the 1940 Act. However, the
Company has undertaken to hold a special meeting of its shareholders for the
purpose of voting on the question of removal of a Director or Directors if
requested in writing by the holders of at least 10% of the Company's outstanding
voting securities, and to assist in communicating with other shareholders as
required by Section 16(c) of the 1940 Act.

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

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

MSIT and MIP are each open-end, series management investment companies
organized as Delaware business trusts. MSIT was organized on October 28, 1993.
MIP was organized on October 21 1993. In accordance with Delaware law and in
connection with the tax treatment sought by the Trusts, each Trust's Declaration
of Trust provides that its investors would be personally responsible for Trust
liabilities and obligations, but only to the extent the Trust property is
insufficient to satisfy such liabilities and obligations. The Declaration of
Trust also provides that a Trust shall maintain appropriate insurance (for
example, fidelity bonding and errors and omissions insurance) for the protection
of the Trust, its investors, Trustees, officers, employees and agents covering
possible tort and other liabilities, and that investors will be indemnified to
the extent they are held liable for a disproportionate share of Trust
obligations. Thus, the risk of an investor incurring financial loss on account
of investor liability is limited to circumstances in which both inadequate
insurance existed and the Trust itself was unable to meet its obligations.

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

The interests in each Master Portfolio of the Trusts have substantially
identical voting and other rights as those rights enumerated above for shares of
the Funds. The Trusts also intend to dispense with annual meetings, but are
required by Section 16(c) of the Act to hold a special meeting and assist
investor communications under the circumstances described above with respect to
a Company. Whenever a Fund is requested to vote on a matter with respect to its
Trust, the Fund will hold a meeting of Fund shareholders and will cast its votes
as instructed by such shareholders.

34
<PAGE>

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

As of May 30, 1997, the shareholders identified below were known by the
Company to own 5% or more of the indicated Fund's outstanding shares in the
following capacity:

NAME AND ADDRESS PERCENTAGE NATURE OF
NAME OF FUND OF SHAREHOLDER OF FUND OWNERSHIP
- ------------ ----------------- ----------- ---------
<S> <C> <C> <C>
Asset Allocation Wells Fargo Bank 85.78% Record
401(K) MasterWorks Omnibus Account
420 Montgomery Street
San Francisco, CA 94104

Bond Index Fund Wells Fargo Bank 9.20% Record
Business Retirement Programs
Omnibus Account
420 Montgomery Street
San Francisco, CA 94104

State Street Bank & Trust Co 17.18% Record
as Trustee for the American
Bar Association Members
State Street Collective Trust
1 Heritage Drive, #2PS
North Quincy, MA 02171

Wells Fargo Bank 66.08% Record
401(K) MasterWorks Omnibus Account
420 Montgomery Street
San Francisco, CA 94104

Growth Stock Fund Fidelity Investments 10.33% Record
Institutional Operations
Co. As Agent for Employee
Benefit Plans
100 Magellan Way
Covington, KY 41015

Wells Fargo Bank 80.50% Record
401(K) MasterWorks Omnibus Account
420 Montgomery Street
San Francisco, CA 94104

Short-Intermediate Wells Fargo Bank 24.04% Record
Term Fund Large Group IRA Omnibus Account
420 Montgomery Street
San Francisco, CA 94104
</TABLE>

35
<PAGE>

<TABLE>
<S> <C> <C> <C>
Wells Fargo Bank 68.97% Record
401(K) MasterWorks Omnibus Account
420 Montgomery Street
San Francisco, CA 94104

S&P 500 Stock Mass Mutual Life Insurance Co. 5.75% Record
Separate Investment Account
1925 State Street
Springfield, MA 01111

Wells Fargo Bank 33.24% Record
401(K) MasterWorks Omnibus Account
420 Montgomery Street
San Francisco, CA 94105

Bankers Trust as Trustee 34.89% Record
for Betchel Master Trust
Benefit Plan
P.O. Box 1742
New York, NY 10008

U.S. Treasury Wells Fargo Bank 90.27% Record
Allocation Fund 401(K) MasterWorks Omnibus Account
420 Montgomery Street
San Francisco, CA 94104
</TABLE>

OTHER

The Registration Statement of the Trusts and the Company, including the
Prospectus for each Fund, the SAI and the exhibits filed therewith, may be
examined at the office of the SEC in Washington, D.C. Statements contained in a
Prospectus or the SAI as to the contents of any contract or other document
referred to herein or in a Prospectus are not necessarily complete, and, in each
instance, reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference.

COUNSEL

Morrison & Foerster LLP, 2000 Pennsylvania Avenue, NW, Suite 5500,
Washington, D.C. 20006-1812, as counsel for the Company, has rendered its
opinion as to certain legal matters regarding the due authorization and valid
issuance of the shares being sold pursuant to the Funds' Prospectus.

INDEPENDENT AUDITORS

KPMG Peat Marwick LLP has been selected as the independent auditor for the
Company and the Trusts. KPMG Peat Marwick LLP provides audit services, tax
return preparation and assistance and

36
<PAGE>

consultation in connection with review of certain SEC filings. KPMG Peat Marwick
LLP's address is Three Embarcadero Center, San Francisco, California 94111.

FINANCIAL INFORMATION

The portfolio of investments, audited financial statements and independent
auditors' report for the fiscal year ended February 28, 1997 for the Asset
Allocation, Bond Index, Growth Stock, Short-Intermediate Term, S&P 500 Stock and
U.S. Treasury Allocation Funds and corresponding Master Portfolios are hereby
incorporated by reference to the MasterWorks Funds Inc. Annual Report, as filed
with the SEC on May 2, 1997. The portfolio of investments, audited financial
statements and independent auditors' report for the Funds are attached to all
SAIs delivered to shareholders or prospective shareholders.

37
<PAGE>

SAI APPENDIX

The following is a description of the ratings given by Moody's and S&P to
corporate bonds and commercial paper.

CORPORATE BONDS

Moody's: The four highest ratings for corporate bonds are "Aaa," "Aa," "A"
and "Baa." Bonds rated "Aaa" are judged to be of the "best quality" and carry
the smallest amount of investment risk. Bonds rated "Aa" are of "high quality by
all standards," but margins of protection or other elements make long-term risks
appear somewhat greater than "Aaa" rated bonds. Bonds rated "A" possess many
favorable investment attributes and are considered to be upper medium grade
obligations. Bonds rated "Baa" are considered to be medium grade obligations;
interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds have speculative
characteristics as well. Moody's applies numerical modifiers "1," "2" and "3" in
each rating category from "Aa" through "Baa" in its rating system. The modifier
"1" indicates that the security ranks in the higher end of its category; the
modifier "2" indicates a mid-range ranking; and the modifier "3" indicates that
the issue ranks in the lower end.

CORPORATE COMMERCIAL PAPER

Moody's: The highest rating for corporate commercial paper is "Prime-1".
Issuers rated "Prime-1" have a "superior capacity for repayment of short-term
promissory obligations." Issuers rated "Prime-2" "have a strong capacity for
repayment of short-term promissory obligations," but earnings trends, while
sound, will be subject to more variation.

A-1
<PAGE>

MASTERWORKS FUNDS INC.
FILE NO. 33-54126; 811-7332

PART C

OTHER INFORMATION

Item 24. Financial Statements and Exhibits.
----------------------------------

(a) Financial Statements:

The portfolio of investments, audited financial statements and
independent auditors' report for the fiscal year ended February 28, 1997 for
the Asset Allocation, Bond Index, Growth Stock, LifePath 2000, LifePath 2010,
LifePath 2020, LifePath 2030, LifePath 2040, Money Market, Short-Intermediate
Term, S&P 500 Stock and U.S. Treasury Allocation Funds are hereby
incorporated by reference to the Company's Annual Report, as filed with the
SEC on May 2, 1997.

The portfolio of investments, audited financial statements and
independent auditors' report for the fiscal year ended February 28, 1997 for
the Asset Allocation, Bond Index, LifePath 2000, LifePath 2010, LifePath
2020, LifePath 2030, LifePath 2040, S&P 500 Index and U.S. Treasury
Allocation Master Portfolios of Master Investment Portfolio ("MIP"), and for
the Growth Stock and Short-Intermediate Term Master Portfolios of Managed
Series Investment Trust ("MSIT") are hereby incorporated by reference to the
Company's Annual Report, as filed with the SEC on May 2, 1997.

(b) Exhibits:

Exhibit
Number Description
------ -----------
<C> <S>
1 - Restated Articles of Incorporation dated October 31, 1995, incorporated by
reference to Post-Effective Amendment No. 11, filed December 1, 1995.

2 - By-Laws, incorporated by reference to Post-Effective Amendment No. 8, filed
June 27, 1995.

3 - Not applicable

4 - Not applicable

5(a)(i) - Investment Advisory Contract with Barclays Global Fund Advisors on behalf of
the Money Market Fund dated January 1, 1996, incorporated by reference to Post-
Effective Amendment No. 13, filed June 28, 1996.
</TABLE>
C-1
<PAGE>

Exhibit
Number Description
------- -----------
<C> <S>
5(a)(ii) - Sub-Advisory Contract by and among Barclays Global Fund Advisors and Wells
Fargo Bank, N.A. on behalf of the Money Market Fund dated January 1, 1996,
incorporated by reference to Post-Effective Amendment No. 13, filed June 28,
1996.

5(b)(i) - Co-Administration Agreement with Stephens Inc. and Barclays Global Investors,
N.A. on behalf of the Funds dated October 21, 1996, filed herewith.

(b)(ii) - Sub-Administration Agreement by and among Barclays Global Investors, N.A.
and Investors Bank & Trust Company on behalf of the Funds dated October 21,
1996, filed herewith.

6 - Amended and Restated Distribution Agreement with Stephens Inc. on behalf of
the Funds dated February 6, 1996, incorporated by reference to Post-Effective
Amendment No. 13, filed June 28, 1996.

7 - Not applicable.

8 - Custody Agreement with Investors Bank & Trust Company on behalf of the
Funds dated October 21, 1996, filed herewith.

9(a) - Amended Agency Agreement with Wells Fargo Bank, N.A. on behalf of the
Funds dated February 1, 1994, incorporated by reference to Post-Effective
Amendment No. 11, filed December 1, 1995.

(a)(i) - Amendment to the Amended Agency Agreement with Wells Fargo Bank, N.A.
on behalf of the Funds dated February 16, 1996, incorporated by reference to
Post-Effective Amendment No. 13, filed June 28, 1996.

(b) - Shareholder Servicing Plan and Shareholder Servicing Agreement for the Growth
Stock, Short-Intermediate Term, Asset Allocation, U.S. Treasury Allocation,
Bond Index and S&P 500 Stock Funds, incorporated by reference to Post-
Effective Amendment No. 9, filed July 19, 1995.

(b)(i) - Shareholder Servicing Plan and Form of Shareholder Servicing Agreement for
the LifePath 2000, LifePath 2010, LifePath 2020, LifePath 2030 and LifePath
2040 Funds, incorporated by reference to Post-Effective Amendment No. 11, filed
December 1, 1995.

10 - Opinion and Consent of Counsel, filed herewith.

11 - Consent of Auditors - KPMG Peat Marwick LLP, filed herewith.

12 - Not applicable

13 - Not applicable

14 - Not applicable

15 - Not applicable
</TABLE>
C-2
<PAGE>

Exhibit
Number Description
------ -----------
<C> <S>
16 - Not applicable

17 - See Exhibit 27
------------------------

18 - Not applicable

19 - Powers of Attorney for Jack S. Euphrat, R. Greg Feltus, Thomas S. Goho, Zoe
Ann Hines, W. Rodney Hughes, Robert M. Joses and J. Tucker Morse, filed herewith

27.1 - Financial Data Schedule for the Asset Allocation Fund, filed herewith.

27.2 - Financial Data Schedule for the Bond Index Fund, filed herewith.

27.3 - Financial Data Schedule for the Growth Stock Fund , filed herewith.

27.4 - Financial Data Schedule for the Money Market Fund, filed herewith.

27.5 - Financial Data Schedule for the S&P 500 Stock Fund, filed herewith.

27.6 - Financial Data Schedule for the Short-Intermediate Term Fund, filed herewith.

27.7 - Financial Data Schedule for the U.S. Treasury Allocation Fund, filed herewith

27.9 - Financial Data Schedule for the LifePath 2000 Fund, filed herewith.

27.10 - Financial Data Schedule for the LifePath 2010 Fund, filed herewith.

27.11 - Financial Data Schedule for the LifePath 2020 Fund, filed herewith.

27.12 - Financial Data Schedule for the LifePath 2030 Fund, filed herewith.

27.13 - Financial Data Schedule for the LifePath 2040 Fund, filed herewith.
</TABLE>

C-3
<PAGE>

Item 25. Persons Controlled by or under
Common Control with Registrant
------------------------------

As of May 30, 1997, each Fund owned the following percentages of the
------------
outstanding beneficial interests of the corresponding Master Portfolios of MIP
or MSIT. As such, each Fund could be considered a controlling person of the
corresponding Master Portfolio for purposes of the 1940 Act.

<TABLE>
<CAPTION>
Corresponding Percentage
Fund Master Portfolio of beneficial
- ---- ---------------- interests held
----------------
<S> <C> <C>
LifePath 2000 Fund LifePath 2000 Master Portfolio (MIP) 36.40%
LifePath 2010 Fund LifePath 2010 Master Portfolio (MIP) 51.45%
LifePath 2020 Fund LifePath 2020 Master Portfolio (MIP) 43.36%
LifePath 2030 Fund LifePath 2030 Master Portfolio (MIP) 37.10%
LifePath 2040 Fund LifePath 2040 Master Portfolio (MIP) 27.28%
Asset Allocation Fund Asset Allocation Master Portfolio (MIP) 99.99%
Bond Index Fund Bond Index Master Portfolio (MIP) 57.15%
S&P 500 Stock Fund S&P 500 Index Master Portfolio (MIP) 95.58%
U.S. Treasury Allocation Fund U.S. Treasury Allocation Master Portfolio (MIP) 99.99%
Growth Stock Fund Growth Stock Master Portfolio (MSIT) 99.99%
Short-Intermediate Term Fund Short-Intermediate Term Master Portfolio (MSIT) 99.99%
</TABLE>

Item 26. Number of Holders of Securities.
--------------------------------

As of May 30, 1997, the number of record holders of each class of
securities of the Registrant for the following funds were as follows:

Number of
Title of Class Record Holders
- -------------- --------------
<S> <C>
Asset Allocation Fund 9
Bond Index Fund 7
Growth Stock 6
LifePath 2000 Fund 12
LifePath 2010 Fund 12
LifePath 2020 Fund 12
LifePath 2030 Fund 12
LifePath 2040 Fund 12
Money Market Fund 7
Short-Intermediate Term Fund 5
S&P 500 Stock Fund 42
U.S. Treasury Allocation Fund 6
</TABLE>

C-4
<PAGE>

Item 27. Indemnification.
----------------

The following paragraphs of Article VIII of the Registrant's Articles
of Incorporation provide:

(h) The Corporation shall indemnify (1) its Directors and
officers, whether serving the Corporation or at its request any other
entity, to the full extent required or permitted by the General Laws of
the State of Maryland now or hereafter in force, including the advance of
expenses under the procedures and to the full extent permitted by law, and
(2) its other employees and agents to such extent as shall be authorized
by the Board of Directors or the Corporation's By-Laws and be permitted by
law. The foregoing rights of indemnification shall not be exclusive of
any other rights to which those seeking indemnification may be entitled.
The Board of Directors may take such action as is necessary to carry out
these indemnification provisions and is expressly empowered to adopt,
approve and amend from time to time such By-Laws, resolutions or contracts
implementing such provisions or such further indemnification arrangements
as may be permitted by law. No amendment of these Articles of
Incorporation of the Corporation shall limit or eliminate the right to
indemnification provided hereunder with respect to acts or omissions
occurring prior to such amendment or repeal. Nothing contained herein
shall be construed to authorize the Corporation to indemnify any Director
or officer of the Corporation against any liability to the Corporation or
to any holders of securities of the Corporation to which he is subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office. Any
indemnification by the Corporation shall be consistent with the
requirements of law, including the 1940 Act.

(i) To the fullest extent permitted by Maryland statutory and
decisional law and the 1940 Act, as amended or interpreted, no Director or
officer of the Corporation shall be personally liable to the Corporation
or its stockholders for money damages; provided, however, that nothing
herein shall be construed to protect any Director or officer of the
Corporation against any liability to which such Director or officer would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of
his office. No amendment, modification or repeal of this Article VIII
shall adversely affect any right or protection of a Director or officer
that exists at the time of such amendment, modification or repeal.

C-5
<PAGE>

Item 28. Business and Other Connections
of Investment Adviser.
---------------------

The Funds, other than the Money Market Fund, currently do not retain an
investment adviser. The corresponding MIP Master Portfolios to the LifePath
2000, LifePath 2010, LifePath 2020, LifePath 2030, LifePath 2040, Asset
Allocation, Bond Index, S&P 500 Stock and U.S. Treasury Allocation Funds are
advised by Barclays Global Fund Advisors ("BGFA"), a wholly-owned subsidiary of
Barclays Global Investors, N.A. ("BGI", formerly, Wells Fargo Institutional
Trust Company). The Money Market Fund and the corresponding MSIT Master
Portfolios to the Growth Stock and Short-Intermediate Term Funds are advised by
BGFA and sub-advised by Wells Fargo Bank, N.A. ("Wells Fargo Bank"), a wholly-
owned subsidiary of Wells Fargo & Company.

BGFA's business is that of a registered investment adviser to certain
open-end, management investment companies and various other institutional
investors. Wells Fargo Bank's business is that of a national banking
association with respect to which it conducts a variety of commercial banking
and trust activities, including acting as investment adviser and/or sub-adviser
to certain open-end management investment companies and various other
institutional investors.

The directors and officers of BGFA consist primarily of persons who
during the past two years have been active in the investment management business
of the former sub-adviser to the Registrant, Wells Fargo Nikko Investment
Advisors ("WFNIA") and, in some cases, the service business of BGI. With the
exception of Irving Cohen, each of the directors and executive officers of BGFA
will also have substantial responsibilities as directors and/or officers of BGI.
To the knowledge of the Registrant, except as set forth below, none of the
directors or executive officers of BGFA is or has been at any time during the
past two fiscal years engaged in any other business, profession, vocation or
employment of a substantial nature.

Name and Position Principal Business(es) During at
at BGFA Least the Last Two Fiscal Years
- ------- -------------------------------
<S> <C>
Frederick L.A. Grauer Director of BGFA and Co-Chairman and Director of BGI
Director 45 Fremont Street, San Francisco, CA 94105

Patricia Dunn Director of BGFA and Co-Chairman and Director of BGI
Director 45 Fremont Street, San Francisco, CA 94105

Lawrence G. Tint Chairman of the Board of Directors of BGFA and
Chairman and Director Chief Executive Officer of BGI
45 Fremont Street, San Francisco, CA 94105

Geoffrey Fletcher Chief Financial Officer of BGFA and BGI since since May 1997
Chief Financial Officer 45 Fremont Street, San Francisco, CA 94105
Managing Director and Principal Accounting
Officer of Bankers Trust Company from 1988-1997
505 Montgomery Street, San Francisco, CA 94105

</TABLE>
C-6
<PAGE>

To the knowledge of Registrant, none of the directors or executive
officers of Wells Fargo Bank, except those set forth below, is or has been at
any time during the past two fiscal years engaged in any other business,
profession, vocation or employment of a substantial nature, except that certain
executive officers also hold various positions with and engage in business for
Wells Fargo & Company. Set forth below are the names and principal businesses of
the directors and executive officers of Wells Fargo Bank who are or during the
past two fiscal years have been engaged in any other business, profession,
vocation or employment of a substantial nature for their own account or in the
capacity of director, officer, employee, partner or trustee. All the directors
of Wells Fargo Bank also serve as directors of Wells Fargo & Company.

Name and Position Principal Business(es) and Address(es)
at Wells Fargo Bank During at Least the Last Two Fiscal Years
- ------------------- -----------------------------------------
<S> <C>
H. Jesse Arnelle Senior Partner of Arnelle, Hastie, McGee, Willis & Greene
Director 455 Market Street
San Francisco, CA 94105

Director of Armstrong World Industries, Inc.
5037 Patata Street
South Gate, CA 90280

Director of Eastman Chemical Corporation
12805 Busch Place
Santa Fe Springs, CA 90670

Director of FPL Group, Inc.
700 Universe Blvd.
P.O. Box 14000
North Palm Beach, FL 33408

Michael R. Bowlin Chairman of the Board of Directors, Chief Executive Officer,
Director Chief Operating Officer and President of
Atlantic Richfield Co. (ARCO)
Highway 150
Santa Paula, CA 93060

Edward Carson Chairman of the Board and Chief Executive Officer of
Director First Interstate Bancorp
633 West Fifth Street
Los Angeles, CA 90071

Director of Aztar Corporation
2390 East Camelback Road Suite 400
Phoenix, AZ 85016

Director of Castle & Cook, Inc.
10900 Wilshire Blvd.
Los Angeles, CA 90024

Director of Terra Industries, Inc.
1321 Mount Pisgah Road
Walnut Creek, CA 94596
</TABLE>
C-7
<PAGE>

<TABLE>
<S> <C>
William S. Davilla President (Emeritus) and a Director of
Director The Vons Companies, Inc.
618 Michillinda Ave.
Arcadia, CA 91007

Director of Pacific Gas & Electric Company
788 Taylorville Road
Grass Valley, CA 95949

Rayburn S. Dezember Director of CalMat Co.
Director 3200 San Fernando Road
Los Angeles, CA 90065

Director of Tejon Ranch Company
P.O. Box 1000
Lebec, CA 93243

Director of The Bakersfield Californian
1707 I Street
P.O. Box 440
Bakersfield, CA 93302

Trustee of Whittier College
13406 East Philadelphia Ave.
P.O. Box 634
Whittier, CA 90608

Paul Hazen Chairman of the Board of Directors of
Chairman of the Board of Wells Fargo & Company
Directors 420 Montgomery Street
San Francisco, CA 94105

Director of Phelps Dodge Corporation
2600 North Central Ave.
Phoenix, AZ 85004

Director of Safeway, Inc.
4th and Jackson Streets
Oakland, CA 94660

Robert K. Jaedicke Professor (Emeritus) of Accounting
Director Graduate School of Business at Stanford University
MBA Admissions Office
Stanford, CA 94305

Director of Bailard Biehl & Kaiser
Real Estate Investment Trust, Inc.
2755 Campus Dr.
San Mateo, CA 94403
</TABLE>
C-8
<PAGE>

<TABLE>
<S> <C>
Director of Boise Cascade Corporation
1111 West Jefferson Street
P.O. Box 50
Boise, ID 83728

Director of California Water Service Company
1720 North First Street
San Jose, CA 95112

Director of Enron Corporation
1400 Smith Street
Houston, TX 77002

Director of GenCorp, Inc.
175 Ghent Road
Fairlawn, OH 44333

Director of Homestake Mining Company
650 California Street
San Francisco, CA 94108

Thomas L. Lee Chairman and Chief Executive Officer of
Director The Newhall Land and Farming Company
10302 Avenue 7 1-2
Firebaugh, CA 93622

Director of Calmat Co.
501 El Charro Road
Pleasanton, CA 94588

Director of First Interstate Bancorp
633 West Fifth Street
Los Angeles, CA 90071

Ellen Newman President of Ellen Newman Associates
Director 323 Geary Street
Suite 507
San Francisco, CA 94102

Chair (Emeritus) of the Board of Trustees
University of California at San Francisco Foundation
250 Executive Park Blvd.
Suite 2000
San Francisco, CA 94143

Director of the California Chamber of Commerce
1201 K Street 12th Floor
Sacremento, CA 95814

Philip J. Quigley Chairman, President and Chief Executive Officer of
Director Pacific Telesis Group
130 Kearney Street Rm. 3700
San Francisco, CA 94108
</TABLE>
C-9
<PAGE>

<TABLE>
<S> <C>
Carl E. Reichardt Director of Columbia/HCA Healthcare Corporation
Director One Park Plaza
Nashville, TN 37203

Director of Ford Motor Company
The American Road
Dearborn, MI 48121

Director of Newhall Management Corporation
23823 Valencia Blvd.
Valencia, CA 91355

Director of Pacific Gas and Electric Company
77 Beale Street
San Francisco, CA 94105

Retired Chairman of the Board of Directors
and Chief Executive Officer of Wells Fargo & Company
420 Montgomery Street
San Francisco, CA 94105

Donald B. Rice President and Chief Executive Officer of Teledyne, Inc.
Director 2049 Century Park East
Los Angeles, CA 90067

Retired Secretary of the Air Force

Director of Vulcan Materials Company
One MetroPlex Drive
Birmingham, AL 35209

Richard J. Stegemeier Chairman (Emeritus) of Unocal Corp
Director 44141 Yucca Avenue
Lancaster, CA 93534

Director of Foundation Health Corporation
166 4th
Fort Irwin, CA 92310

Director of Halliburton Company
3600 Lincoln Plaza
500 North Alcard Street
Dallas, TX 75201

Director of Northrop Grumman Corp.
1840 Century Park East
Los Angeles, CA 90067

Director of Outboard Marine Corporation
100 SeaHorse Drive
Waukegan, IL 60085
</TABLE>
C-10
<PAGE>

<TABLE>
<S> <C>
Director of Pacific Enterprises
555 West Fifth Street
Suite 2900
Los Angeles, CA 90031

Director of First Interstate Bancorp
633 West Fifth Street
Los Angeles, CA 90071

Susan G. Swenson President and Chief Executive Officer of Cellular One
Director 651 Gateway Blvd.
San Francisco, CA 94080

David M. Tellep Retired Chairman of the Board and Chief Executive Officer of
Director Martin Lockheed Corp
6801 Rockledge Drive
Bethesda, MD 20817

Director of Edison International
and Southern California Edison Company
2244 Walnut Grove Ave.
Rosemead, CA 91770

Director of First Interstate
633 West Fifth Street
Los Angeles, CA 90071

Chang-Lin Tien Chancellor of the University of California at Berkeley
Director Berkeley, CA 94720

Director of Raychem Corporation
300 Constitution Drive
Menlo Park, CA 94025

John A. Young President, Chief Executive Officer and Director
Director of Hewlett-Packard Company
3000 Hanover Street
Palo Alto, CA 9434

Director of Chevron Corporation
225 Bush Street
San Francisco, CA 94104

Director of Lucent Technologies
25 John Glenn Drive
Amherst, NY 14228

Director of Novell, Inc.
11300 West Olympic Blvd.
Los Angeles, CA 90064

Director of Shaman Pharmaceuticals Inc.
213 East Grand Ave. South
</TABLE>
C-11
<PAGE>

<TABLE>
<S> <C>
San Francisco, CA 94080

William F. Zuendt President of Wells Fargo & Company
President 420 Montgomery Street
San Francisco, CA 94105

Director of 3Com Corporation
5400 Bayfront Plaza
P.O. Box 58145
Santa Clara, CA 95052

Director of the California Chamber of Commerce
</TABLE>

Prior to January 1, 1996, WFNIA served as sub-adviser to the Asset
Allocation, U.S. Treasury Allocation, Bond Index and S&P 500 Stock Funds, and as
adviser or sub-adviser to various other open-end management investment
companies. For additional information, see "Management of the Funds" in the
Prospectuses and "Management" in the Statements of Additional Information. For
information as to the business, profession, vocation or employment of a
substantial nature of each of the officers and management committees of WFNIA,
reference is made to WFNIA's Form ADV and Schedules A and D filed under the
Investment Advisers Act of 1940, SEC File No. 801-36479, incorporated herein by
reference.

Item 29. Principal Underwriters.
-----------------------

(a) Stephens Inc., distributor for the Registrant, does not presently
act as investment adviser for any other registered investment companies, but
does act as principal underwriter for Overland Express Funds, Inc., Stagecoach
Funds, Inc., Stagecoach Trust, Life & Annuity Trust, Nations Fund, Inc., Nations
Fund Trust, Nations Fund Portfolios, Inc., Nations LifeGoal Funds, Inc. and
Nations Institutional Reserves, and is the exclusive placement agent for Master
Investment Trust, Master Investment Portfolio and Managed Series Investment
Trust, which are registered open-end management investment companies, and has
acted as principal underwriter for the Liberty Term Trust, Inc., Nations
Government Income Term Trust 2003, Inc., Nations Government Income Term Trust
2004, Inc. and Managed Balanced Target Maturity Fund, Inc., which are closed-end
management investment companies.

(b) Information with respect to each director and officer of the
principal underwriter is incorporated by reference to Form ADV and Schedules A
and D filed by Stephens Inc. with the Securities and Exchange Commission
pursuant to The Investment Advisers Act of 1940 (SEC File No. 501-15510).

C-12
<PAGE>

Item 30. Location of Accounts and Records.
---------------------------------

(a) The Registrant maintains accounts, books and other documents
required by Section 31(a) of the Investment Company Act of 1940 and the rules
thereunder (collectively, "Records") at the offices of Stephens Inc., 111 Center
Street, Little Rock, Arkansas 72201.

(b) BGFA and BGI maintain all Records relating to their services as
adviser and co-administrator, respectively, at 45 Fremont Street, San Francisco,
California 94105.

(c) Wells Fargo Bank maintains all Records relating to its services as
sub-adviser and, for the period prior to January 1, 1996, as investment adviser
and custodian and transfer and dividend disbursing agent at 525 Market Street,
San Francisco, California 94105.

(d) Stephens maintains all Records relating to its services as
sponsor, co-administrator and distributor at 111 Center Street, Little Rock,
Arkansas 72201.

(e) IBT maintains all Records relating to its services as sub-
administrator and custodian at 89 South Street, Boston, Massachusetts 02111.

Item 31. Management Services.
--------------------

Other than as set forth under the caption "Management of the Fund(s)"
in the Prospectuses constituting Part A of this Registration Statement and
"Management" in the Statements of Additional Information constituting Part B of
this Registration Statement, the Registrant is not a party to any management-
related service contract.

Item 32. Undertakings.
-------------

(a) Not Applicable

(b) Not Applicable

(c) Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions set forth above in response
to Item 27, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in such Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court

C-13
<PAGE>

of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

(d) Registrant undertakes to hold a special meeting of its shareholders
for the purpose of voting on the question of removal of a director or directors
if requested in writing by the holders of at least 10% of the Company's
outstanding voting securities, and to assist in communicating with other
shareholders as required by Section 16(c) of the Investment Company Act of 1940.

(e) Registrant undertakes to furnish each person to whom a prospectus
is delivered with a copy of its most current annual report to shareholders, upon
request and without charge.

C-14
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment to its
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Amendment to its Registration Statement on Form N-1A to
be signed on its behalf by the undersigned, thereto duly authorized, in the City
of Little Rock, State of Arkansas on the 27th day of June, 1997.
-- ----

MASTERWORKS FUNDS INC.

By /s/Richard H. Blank, Jr.
------------------------
(Richard H. Blank, Jr.)
Secretary and Treasurer
(Principal Financial Officer)

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form N-1A has been signed below by the following
persons in the capacities and on the date indicated:

Signature Title
--------- -----

*
------------------------- Director, Chairman and President
(R. Greg Feltus) (Principal Executive Officer)

/s/ Richard H. Blank, Jr.
------------------------ Secretary and Treasurer
(Richard H. Blank, Jr.) (Principal Financial Officer)

*
------------------------- Director
(Jack S. Euphrat)

*
------------------------- Director
(Thomas S. Goho)

*
------------------------- Director
(Zoe Ann Hines)

*
------------------------- Director
(W. Rodney Hughes)

*
------------------------- Director
(Robert M. Joses)

*
------------------------- Director
(J. Tucker Morse)

*By /s/Richard H. Blank, Jr.
------------------------
(Richard H. Blank, Jr.)
As Attorney-in-Fact
June 27, 1997
-------------
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Amendment to the Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Registration Statement on Form N-1A to be signed on its behalf by
the undersigned, thereto duly authorized, in the City of Little Rock, State of
Arkansas on the 27th day of June, 1997
-- ----

MASTER INVESTMENT PORTFOLIO

By /s/Richard H. Blank, Jr.
------------------------
(Richard H. Blank, Jr.)
Secretary and Treasurer
(Principal Financial Officer)

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form N-1A has been signed below by the following
persons in the capacities and on the date indicated:

Signature Title
--------- -----

*
-------------------------- Trustee, Chairman and President
(R. Greg Feltus) (Principal Executive Officer)

/s/Richard H. Blank, Jr.
-------------------------- Secretary and Treasurer
(Richard H. Blank, Jr.) (Principal Financial Officer)

*
-------------------------- Trustee
(Jack S. Euphrat)

*
-------------------------- Trustee
(Thomas S. Goho)

*
-------------------------- Trustee
(Zoe Ann Hines)

*
-------------------------- Trustee
(W. Rodney Hughes)

*
-------------------------- Trustee
(Robert M. Joses)

*
-------------------------- Trustee
(J. Tucker Morse)

*By /s/Richard H. Blank, Jr.
------------------------
(Richard H. Blank, Jr.)
As Attorney-in-Fact
June 27, 1997
-------------
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Amendment to the Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Registration Statement on Form N-1A to be signed on its behalf by
the undersigned, thereto duly authorized, in the City of Little Rock, State of
Arkansas on the 27th day of June, 1997
-- ----

MANAGED SERIES INVESTMENT TRUST

By /s/Richard H. Blank, Jr.
------------------------
(Richard H. Blank, Jr.)
Secretary and Treasurer
(Principal Financial Officer)

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form N-1A has been signed below by the following
persons in the capacities and on the date indicated:

Signature Title
--------- -----

*
------------------------- Trustee, Chairman and President
(R. Greg Feltus) (Principal Executive Officer)

/s/ Richard H. Blank, Jr.
------------------------- Secretary and Treasurer
(Richard H. Blank, Jr.) (Principal Financial Officer)

*
------------------------- Trustee
(Jack S. Euphrat)

*
------------------------- Trustee
(Thomas S. Goho)

*
------------------------- Trustee
(Zoe Ann Hines)

*
------------------------- Trustee
(W. Rodney Hughes)

*
------------------------- Trustee
(Robert M. Joses)

*
------------------------- Trustee
(J. Tucker Morse)

*By /s/Richard H. Blank, Jr.
------------------------
(Richard H. Blank, Jr.)
As Attorney-in-Fact
June 27, 1997
-------------
<PAGE>

MASTERWORKS FUNDS INC.
SEC FILE NOS. 33-54126; 811-7332

EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit Number Description
<S> <C>
EX-27.1 . Financial Data Schedule for the Asset Allocation Fund

EX-27.2 . Financial Data Schedule for the Bond Index Fund

EX-27.3 . Financial Data Schedule for the Growth Stock Fund

EX-27.4 . Financial Data Schedule for the Money Market Fund

EX-27.5 . Financial Data Schedule for the S&P 500 Stock Fund

EX-27.6 . Financial Data Schedule for the Short-Intermediate Term Fund

EX-27.7 . Financial Data Schedule for the U.S. Treasury Allocation Fund

EX-27.9 . Financial Data Schedule for the LifePath 2000 Fund

EX-27.10 . Financial Data Schedule for the LifePath 2010 Fund

EX-27.11 . Financial Data Schedule for the LifePath 2020 Fund

EX-27.12 . Financial Data Schedule for the LifePath 2030 Fund

EX-27.13 . Financial Data Schedule for the LifePath 2040 Fund

EX-99.B5(b)(i) . Co-Administration Agreement with Stephens Inc. and Barclays Global
Investors, N.A.

EX-99.B5(b)(ii) . Sub-Administration Agreement with Barclays Global Investors, N.A.
and Investors Bank & Trust Company

EX-99.B8 . Custody Agreement with Investors Bank & Trust Company

EX-99.B10 . Opinion and Consent of Counsel - Morrison & Foerster LLP

EX-99.B11 . Consent of Auditors - KPMG Peat Marwick LLP

EX-99.B19 . Powers of Attorney
</TABLE>

<PAGE>

<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> ASSET ALLOCATION FUND

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> FEB-28-1997
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 431,959,826
<RECEIVABLES> 794,031
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 432,753,857
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,168,754
<TOTAL-LIABILITIES> 1,168,754
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 364,404,931
<SHARES-COMMON-STOCK> 35,613,051
<SHARES-COMMON-PRIOR> 33,634,283
<ACCUMULATED-NII-CURRENT> 42,975
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 10,172,895
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 56,964,302
<NET-ASSETS> 431,585,103
<DIVIDEND-INCOME> 4,369,958
<INTEREST-INCOME> 16,181,201
<OTHER-INCOME> 0
<EXPENSES-NET> 3,275,823
<NET-INVESTMENT-INCOME> 17,275,336
<REALIZED-GAINS-CURRENT> 38,140,198
<APPREC-INCREASE-CURRENT> (1,289,056)
<NET-CHANGE-FROM-OPS> 54,126,478
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 17,247,080
<DISTRIBUTIONS-OF-GAINS> 26,664,455
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 12,906,366
<NUMBER-OF-SHARES-REDEEMED> 14,682,595
<SHARES-REINVESTED> 3,754,997
<NET-CHANGE-IN-ASSETS> 33,654,897
<ACCUMULATED-NII-PRIOR> 12,662,723
<ACCUMULATED-GAINS-PRIOR> 253,536
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,275,823
<AVERAGE-NET-ASSETS> 437,145,062
<PER-SHARE-NAV-BEGIN> 11.83
<PER-SHARE-NII> 0.47
<PER-SHARE-GAIN-APPREC> 1.02
<PER-SHARE-DIVIDEND> 0.47
<PER-SHARE-DISTRIBUTIONS> 0.73
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.12
<EXPENSE-RATIO> 0.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>

<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> BOND INDEX FUND

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> FEB-28-1997
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 129,458,039
<RECEIVABLES> 212,421
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 129,670,460
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 201,231
<TOTAL-LIABILITIES> 201,231
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 132,112,638
<SHARES-COMMON-STOCK> 13,735,863
<SHARES-COMMON-PRIOR> 6,016,195
<ACCUMULATED-NII-CURRENT> 53,660
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (993,123)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (1,703,946)
<NET-ASSETS> 129,469,229
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6,398,727
<OTHER-INCOME> 0
<EXPENSES-NET> 210,114
<NET-INVESTMENT-INCOME> 6,188,613
<REALIZED-GAINS-CURRENT> (257,556)
<APPREC-INCREASE-CURRENT> (1,931,019)
<NET-CHANGE-FROM-OPS> 4,000,038
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 6,134,953
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 12,158,949
<NUMBER-OF-SHARES-REDEEMED> 5,119,468
<SHARES-REINVESTED> 680,187
<NET-CHANGE-IN-ASSETS> 71,379,428
<ACCUMULATED-NII-PRIOR> 2,430,763
<ACCUMULATED-GAINS-PRIOR> (403,203)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 297,606
<AVERAGE-NET-ASSETS> 92,548,950
<PER-SHARE-NAV-BEGIN> 9.66
<PER-SHARE-NII> 0.63
<PER-SHARE-GAIN-APPREC> (0.23)
<PER-SHARE-DIVIDEND> 0.63
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.43
<EXPENSE-RATIO> 0.23
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>

<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> GROWTH STOCK FUND

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> FEB-28-1997
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 212,992,473
<RECEIVABLES> 680,980
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 213,673,453
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 455,311
<TOTAL-LIABILITIES> 455,311
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 190,491,795
<SHARES-COMMON-STOCK> 15,155,840
<SHARES-COMMON-PRIOR> 12,083,993
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 12,159,142
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10,567,205
<NET-ASSETS> 213,218,142
<DIVIDEND-INCOME> 253,969
<INTEREST-INCOME> 507,985
<OTHER-INCOME> 0
<EXPENSES-NET> 1,682,121
<NET-INVESTMENT-INCOME> (920,167)
<REALIZED-GAINS-CURRENT> 15,318,009
<APPREC-INCREASE-CURRENT> (25,141,390)
<NET-CHANGE-FROM-OPS> (10,743,548)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 3,202,048
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10,851,913
<NUMBER-OF-SHARES-REDEEMED> 7,988,397
<SHARES-REINVESTED> 208,331
<NET-CHANGE-IN-ASSETS> 34,634,321
<ACCUMULATED-NII-PRIOR> (169,318)
<ACCUMULATED-GAINS-PRIOR> 14,846,540
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,794,603
<AVERAGE-NET-ASSETS> 222,923,088
<PER-SHARE-NAV-BEGIN> 14.78
<PER-SHARE-NII> (0.06)
<PER-SHARE-GAIN-APPREC> (0.43)
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.22
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 14.07
<EXPENSE-RATIO> 0.76
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>

<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> MONEY MARKET FUND

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> FEB-28-1997
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 172,965,904
<RECEIVABLES> 511,183
<ASSETS-OTHER> 4,424,660
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 177,901,747
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 855,565
<TOTAL-LIABILITIES> 855,565
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 177,103,686
<SHARES-COMMON-STOCK> 177,103,191
<SHARES-COMMON-PRIOR> 156,910,067
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (57,504)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 177,046,182
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 8,836,775
<OTHER-INCOME> 0
<EXPENSES-NET> 733,033
<NET-INVESTMENT-INCOME> 8,103,742
<REALIZED-GAINS-CURRENT> 1,533
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 8,105,275
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8,103,742
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 176,002,509
<NUMBER-OF-SHARES-REDEEMED> 163,761,261
<SHARES-REINVESTED> 7,951,876
<NET-CHANGE-IN-ASSETS> 20,194,681
<ACCUMULATED-NII-PRIOR> 8,366,175
<ACCUMULATED-GAINS-PRIOR> (47,092)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 570,332
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 787,342
<AVERAGE-NET-ASSETS> 163,302,583
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> (0.00)
<PER-SHARE-DIVIDEND> 0.05
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>

<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> S&P 500 STOCK FUND

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> FEB-28-1997
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 1,422,722,577
<RECEIVABLES> 3,026,598
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,425,749,175
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,724,951
<TOTAL-LIABILITIES> 2,724,951
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,004,573,533
<SHARES-COMMON-STOCK> 83,551,262
<SHARES-COMMON-PRIOR> 62,950,542
<ACCUMULATED-NII-CURRENT> 4,299,135
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 11,960,497
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 402,191,059
<NET-ASSETS> 1,423,024,224
<DIVIDEND-INCOME> 21,818,912
<INTEREST-INCOME> 4,187,042
<OTHER-INCOME> 0
<EXPENSES-NET> 2,190,262
<NET-INVESTMENT-INCOME> 23,815,692
<REALIZED-GAINS-CURRENT> 21,513,935
<APPREC-INCREASE-CURRENT> 219,020,476
<NET-CHANGE-FROM-OPS> 264,350,103
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 22,785,673
<DISTRIBUTIONS-OF-GAINS> 16,780,931
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 35,425,415
<NUMBER-OF-SHARES-REDEEMED> 16,520,854
<SHARES-REINVESTED> 1,696,159
<NET-CHANGE-IN-ASSETS> 540,327,803
<ACCUMULATED-NII-PRIOR> 16,771,211
<ACCUMULATED-GAINS-PRIOR> 18,059,645
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,477,587
<AVERAGE-NET-ASSETS> 1,106,217,354
<PER-SHARE-NAV-BEGIN> 14.02
<PER-SHARE-NII> 0.32
<PER-SHARE-GAIN-APPREC> 3.23
<PER-SHARE-DIVIDEND> 0.32
<PER-SHARE-DISTRIBUTIONS> 0.22
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 17.03
<EXPENSE-RATIO> 0.20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>

<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> SHORT-INTERMEDIATE TERM FUND

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> FEB-28-1997
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 13,065,703
<RECEIVABLES> 5,577
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 13,071,280
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 17,703
<TOTAL-LIABILITIES> 17,703
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 13,420,300
<SHARES-COMMON-STOCK> 1,419,648
<SHARES-COMMON-PRIOR> 1,458,470
<ACCUMULATED-NII-CURRENT> 5,350
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (251,758)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (120,315)
<NET-ASSETS> 13,053,577
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 929,839
<OTHER-INCOME> 0
<EXPENSES-NET> 83,546
<NET-INVESTMENT-INCOME> 846,293
<REALIZED-GAINS-CURRENT> (86,579)
<APPREC-INCREASE-CURRENT> (214,500)
<NET-CHANGE-FROM-OPS> 545,214
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 840,943
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 468,606
<NUMBER-OF-SHARES-REDEEMED> 606,156
<SHARES-REINVESTED> 98,728
<NET-CHANGE-IN-ASSETS> (650,105)
<ACCUMULATED-NII-PRIOR> 872,301
<ACCUMULATED-GAINS-PRIOR> 215,150
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 155,975
<AVERAGE-NET-ASSETS> 13,069,166
<PER-SHARE-NAV-BEGIN> 9.40
<PER-SHARE-NII> 0.60
<PER-SHARE-GAIN-APPREC> (0.21)
<PER-SHARE-DIVIDEND> 0.60
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.19
<EXPENSE-RATIO> 0.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>

<ARTICLE> 6
<SERIES>
<NUMBER> 7
<NAME> U.S. TREASURY ALLOCATION FUND

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> FEB-28-1997
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 47,532,268
<RECEIVABLES> 78,260
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 47,610,528
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 68,111
<TOTAL-LIABILITIES> 68,111
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 52,325,397
<SHARES-COMMON-STOCK> 5,147,118
<SHARES-COMMON-PRIOR> 5,521,901
<ACCUMULATED-NII-CURRENT> 8,665
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (4,530,488)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (261,157)
<NET-ASSETS> 47,542,417
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,348,832
<OTHER-INCOME> 0
<EXPENSES-NET> 380,180
<NET-INVESTMENT-INCOME> 2,968,652
<REALIZED-GAINS-CURRENT> (142,717)
<APPREC-INCREASE-CURRENT> (507,060)
<NET-CHANGE-FROM-OPS> 2,318,875
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,959,987
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,321,414
<NUMBER-OF-SHARES-REDEEMED> 2,042,217
<SHARES-REINVESTED> 346,020
<NET-CHANGE-IN-ASSETS> (4,089,720)
<ACCUMULATED-NII-PRIOR> 3,259,100
<ACCUMULATED-GAINS-PRIOR> 1,744,910
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 385,180
<AVERAGE-NET-ASSETS> 49,762,578
<PER-SHARE-NAV-BEGIN> 9.35
<PER-SHARE-NII> 0.56
<PER-SHARE-GAIN-APPREC> (0.11)
<PER-SHARE-DIVIDEND> 0.56
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.24
<EXPENSE-RATIO> 0.70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>

<ARTICLE> 6
<SERIES>
<NUMBER> 9
<NAME> LIFEPATH 2000 FUND

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> FEB-28-1997
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 46,433,506
<RECEIVABLES> 248,534
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 46,682,040
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 104,277
<TOTAL-LIABILITIES> 104,277
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 45,416,263
<SHARES-COMMON-STOCK> 4,245,290
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 306,020
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 162,746
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 692,734
<NET-ASSETS> 46,577,763
<DIVIDEND-INCOME> 138,481
<INTEREST-INCOME> 1,580,560
<OTHER-INCOME> 0
<EXPENSES-NET> 315,285
<NET-INVESTMENT-INCOME> 1,403,756
<REALIZED-GAINS-CURRENT> 162,746
<APPREC-INCREASE-CURRENT> 692,734
<NET-CHANGE-FROM-OPS> 2,259,236
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,097,736
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,021,502
<NUMBER-OF-SHARES-REDEEMED> 1,878,773
<SHARES-REINVESTED> 102,561
<NET-CHANGE-IN-ASSETS> 46,577,763
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 315,285
<AVERAGE-NET-ASSETS> 35,662,248
<PER-SHARE-NAV-BEGIN> 10.55
<PER-SHARE-NII> 0.39
<PER-SHARE-GAIN-APPREC> 0.35
<PER-SHARE-DIVIDEND> 0.32
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.97
<EXPENSE-RATIO> 0.95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>

<ARTICLE> 6
<SERIES>
<NUMBER> 10
<NAME> LIFEPATH 2010 FUND

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> FEB-28-1997
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 87,089,474
<RECEIVABLES> 298,570
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 87,388,044
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 184,460
<TOTAL-LIABILITIES> 184,460
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 81,649,555
<SHARES-COMMON-STOCK> 7,000,228
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 425,540
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 656,791
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,471,698
<NET-ASSETS> 87,203,584
<DIVIDEND-INCOME> 555,441
<INTEREST-INCOME> 2,032,372
<OTHER-INCOME> 0
<EXPENSES-NET> 582,107
<NET-INVESTMENT-INCOME> 2,005,706
<REALIZED-GAINS-CURRENT> 656,791
<APPREC-INCREASE-CURRENT> 4,471,698
<NET-CHANGE-FROM-OPS> 7,134,195
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,580,166
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9,702,222
<NUMBER-OF-SHARES-REDEEMED> 2,835,384
<SHARES-REINVESTED> 133,390
<NET-CHANGE-IN-ASSETS> 87,203,584
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 582,107
<AVERAGE-NET-ASSETS> 65,798,105
<PER-SHARE-NAV-BEGIN> 11.44
<PER-SHARE-NII> 0.33
<PER-SHARE-GAIN-APPREC> 0.96
<PER-SHARE-DIVIDEND> 0.27
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.46
<EXPENSE-RATIO> 0.95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>

<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> LIFEPATH 2020 FUND

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> FEB-28-1997
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 105,184,707
<RECEIVABLES> 448,923
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 105,633,630
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 219,577
<TOTAL-LIABILITIES> 219,577
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 96,473,404
<SHARES-COMMON-STOCK> 7,867,683
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 389,361
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,057,105
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7,494,183
<NET-ASSETS> 105,414,053
<DIVIDEND-INCOME> 1,024,523
<INTEREST-INCOME> 1,622,687
<OTHER-INCOME> 0
<EXPENSES-NET> 709,018
<NET-INVESTMENT-INCOME> 1,938,192
<REALIZED-GAINS-CURRENT> 1,202,749
<APPREC-INCREASE-CURRENT> 7,494,183
<NET-CHANGE-FROM-OPS> 10,635,124
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,548,831
<DISTRIBUTIONS-OF-GAINS> 145,644
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11,957,914
<NUMBER-OF-SHARES-REDEEMED> 4,214,056
<SHARES-REINVESTED> 123,825
<NET-CHANGE-IN-ASSETS> 105,414,053
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 709,018
<AVERAGE-NET-ASSETS> 80,610,823
<PER-SHARE-NAV-BEGIN> 11.97
<PER-SHARE-NII> 0.29
<PER-SHARE-GAIN-APPREC> 1.40
<PER-SHARE-DIVIDEND> 0.24
<PER-SHARE-DISTRIBUTIONS> 0.02
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 13.40
<EXPENSE-RATIO> 0.95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>

<ARTICLE> 6
<SERIES>
<NUMBER> 12
<NAME> LIFEPATH 2030 FUND

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> FEB-28-1997
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 58,116,400
<RECEIVABLES> 617,674
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 58,734,074
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 158,582
<TOTAL-LIABILITIES> 158,582
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 52,920,708
<SHARES-COMMON-STOCK> 4,135,174
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 152,749
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 499,497
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,002,538
<NET-ASSETS> 58,575,492
<DIVIDEND-INCOME> 658,010
<INTEREST-INCOME> 529,147
<OTHER-INCOME> 0
<EXPENSES-NET> 372,614
<NET-INVESTMENT-INCOME> 814,543
<REALIZED-GAINS-CURRENT> 645,645
<APPREC-INCREASE-CURRENT> 5,002,538
<NET-CHANGE-FROM-OPS> 6,462,726
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 661,794
<DISTRIBUTIONS-OF-GAINS> 146,148
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,498,688
<NUMBER-OF-SHARES-REDEEMED> 1,424,675
<SHARES-REINVESTED> 61,161
<NET-CHANGE-IN-ASSETS> 58,575,492
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 372,614
<AVERAGE-NET-ASSETS> 42,584,930
<PER-SHARE-NAV-BEGIN> 12.39
<PER-SHARE-NII> 0.23
<PER-SHARE-GAIN-APPREC> 1.79
<PER-SHARE-DIVIDEND> 0.20
<PER-SHARE-DISTRIBUTIONS> 0.04
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 14.17
<EXPENSE-RATIO> 0.95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>

<ARTICLE> 6
<SERIES>
<NUMBER> 13
<NAME> LIFEPATH 2040 FUND

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> FEB-28-1997
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 69,438,673
<RECEIVABLES> 432,197
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 69,870,870
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 395,365
<TOTAL-LIABILITIES> 395,365
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 62,372,645
<SHARES-COMMON-STOCK> 4,569,011
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 123,647
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 832,154
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6,147,059
<NET-ASSETS> 69,475,505
<DIVIDEND-INCOME> 870,478
<INTEREST-INCOME> 258,316
<OTHER-INCOME> 0
<EXPENSES-NET> 942,292
<NET-INVESTMENT-INCOME> 686,259
<REALIZED-GAINS-CURRENT> 847,438
<APPREC-INCREASE-CURRENT> 6,147,059
<NET-CHANGE-FROM-OPS> 7,680,756
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 562,612
<DISTRIBUTIONS-OF-GAINS> 15,284
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,394,187
<NUMBER-OF-SHARES-REDEEMED> 1,865,900
<SHARES-REINVESTED> 40,724
<NET-CHANGE-IN-ASSETS> 69,475,505
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 942,292
<AVERAGE-NET-ASSETS> 50,377,044
<PER-SHARE-NAV-BEGIN> 12.91
<PER-SHARE-NII> 0.18
<PER-SHARE-GAIN-APPREC> 2.27
<PER-SHARE-DIVIDEND> 0.15
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 15.21
<EXPENSE-RATIO> 0.95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>

EXHIBIT 99.B5(b)(i)

CO-ADMINISTRATION AGREEMENT

MASTERWORKS FUNDS INC.
111 Center Street
Little Rock, Arkansas 72201

October 21, 1996

Stephens Inc.
111 Center Street
Little Rock, Arkansas 72201

Barclays Global Investors, N.A.
45 Fremont Street
San Francisco, CA 94105

Ladies and Gentlemen:

This will confirm the agreement among MasterWorks Funds Inc. (the
"Company") on behalf of its funds listed in the attached Appendix A, as such
Appendix may be amended from time to time (each, a "Fund" and, collectively, the
"Funds"), Barclays Global Investors, N.A. ("BGI") and Stephens Inc. ("Stephens",
together with BGI, the "Co-administrators") as follows:

1. The Company is a registered open-end, management investment company.
The Company engages in the business of investing and reinvesting the assets of
each Fund in the manner and in accordance with the applicable investment
objective, policies and restrictions specified in the Company's currently
effective prospectuses and statements of additional information incorporated
therein relating to the Funds and the Company (such prospectuses and such
statements of additional information being collectively referred to as the
"Prospectuses") included in the Company's Registration Statement, as amended
from time to time (the "Registration Statement"), filed by the Company under the
Investment Company Act of 1940 (the "Act") and the Securities Act of 1933.
Copies of the documents referred to in the preceding sentence have been
furnished to the Co-administrators. Any amendments to those documents shall be
furnished to the Co-administrators promptly.

2. The Company is engaging the Co-administrators to provide, or cause to
be provided, the administrative services specified elsewhere in this agreement,
subject to the overall supervision of the Company's Board of Directors.
Pursuant to an advisory contract between the Company and Barclays Global Fund
Advisors (the "Adviser") on behalf of the Money Market Fund, the Company has
engaged the Adviser to manage the investing and reinvesting of the assets of the
Fund and to provide advisory services as

1
<PAGE>

specified in such advisory contracts. MasterWorks' remaining Funds are feeder
funds that invest all of their assets in corresponding master portfolios of
other registered investment companies and, accordingly, have not engaged an
adviser to manage the investing and reinvesting of the assets of such Funds.

3. The Co-administrators agree, at their expense, to supervise the
administrative operations and undertake to provide, or cause to be provided, the
services described on Appendix B, as such Appendix may be amended from time to
time by the mutual consent of the parties, the provision of, and liability
thereto, for certain of such services to be allocated on such Appendix, in
connection with the operations of the Company and the Funds, and take all
reasonable action in the performance of their obligations under this agreement
to assure that the necessary information is made available to other service
providers, as such may be required by the Company from time to time; and to
provide all other administrative services reasonably necessary for the operation
of the Funds, other than those services that are to be provided by the Adviser
pursuant to the advisory contracts and by the Company's transfer and dividend
disbursing agent and custodian.

4. Except as provided in the Money Market Fund's advisory contract and
this agreement, the Co-administrators agree to bear all costs of the operations
of each Fund, including a pro rata portion of the compensation of the Company's
directors who are not affiliated with the Co-administrators or any of their
affiliates; governmental fees; interest charges; fees and expenses of its
independent auditors, legal counsel (other than in connection with litigation),
transfer agent and dividend disbursing agent; fees paid to shareholder servicing
and other special purpose agents; expenses of preparing and printing any stock
certificates, prospectuses, statements of additional information, shareholders'
reports, notices, proxy statements and reports to regulatory agencies; travel
expenses of directors of the Company in connection with their attendance at
Board and other meetings relating to the Company; office supplies; premiums for
fidelity bonds and errors and omissions and/or officers and directors liability
insurance; trade association membership dues; pricing services, if any; fees and
expenses of any custodian and fund accountant, including those for keeping books
and accounts and calculating the net asset value per share in the Funds;
expenses of shareholders' meetings; expenses relating to the issuance,
registration, qualification and redemption of shares of the Funds; and
organizational expenses. Notwithstanding anything to the contrary, the Co-
administrators shall not be required to bear any portion of brokerage or other
expenses connected with the execution of portfolio securities transactions, fees
payable to the Adviser under its advisory contract with the Company, litigation
expenses, taxes (including income, excise, transfer and withholding taxes), or
cost or expense that a majority of the disinterested directors of the Company
deems to be an extraordinary expense . Expenses attributable to one or more,
but not all, of the Funds shall be charged against the assets of the relevant
Funds. General expenses of the Company shall be allocated among the Funds in a
manner proportionate to the net assets of each Fund, on a transactional basis or
on such other basis as the Board of Directors deems equitable.

2
<PAGE>

5. Each Co-administrator shall exercise reasonable care and shall give the
Company the benefit of the Co-administrator's best judgment and efforts in
rendering services under this agreement. As an inducement to the Co-
administrators' undertaking to render services hereunder, the Company agrees
that a Co-administrator shall not be liable under this agreement for any mistake
in judgment or in any other event whatsoever, provided that nothing in this
agreement shall be deemed to protect or purport to protect the Co-administrators
against any liability to the Company or its shareholders to which the Co-
administrator would otherwise be subject by reason of willful misfeasance, bad
faith or negligence in the performance of the Co-administrators' duties under
this agreement or by reason of reckless disregard of its obligations and duties
hereunder.

6. In consideration of the services to be provided by the Co-
administrators under this agreement, the Company shall pay the Co-
administrators' a monthly fee on behalf of each Fund on the first business day
of each month at the applicable annual rates specified on Appendix C attached to
this agreement. If the fees payable to the Co-administrators under this
paragraph begin to accrue after the beginning of any month or if this agreement
terminates before the end of any month, the fee for the period from the
effective date to the end of the month or from the beginning of the month to the
termination date, respectively, shall be prorated according to the proportion
that the period bears to the full month in which the effectiveness or
termination occurs. For purposes of calculating each such monthly fee, the
value of each Fund's net assets shall be computed in the manner specified in the
Prospectus and the Company's Articles of Incorporation as amended and
supplemented from time to time (the "Articles") for the computation of the value
of the Fund's net assets in connection with the determination of the net asset
value of a Fund's shares. For purposes of this agreement, a "business day" is
any day the Company is open for business.

7. If in any fiscal year the total expenses incurred by, or allocated to,
a Fund, excluding extraordinary expenses of the Fund but including the fees
provided for in paragraph 6 and those fees payable under the Advisory Contract
for the Money Market Fund or the corresponding master portfolio in which a Fund
invests, as applicable, exceed the most restrictive expense limitation
applicable to a Fund imposed by state securities laws or regulations thereunder,
as these limitations may be raised or lowered from time to time, the Co-
administrators agree to waive or reimburse a pro rata portion of such fees, but
only to the extent of the fee hereunder for the fiscal year. For purposes of
computing the excess, if any, over the most restrictive applicable expense
limitation, the value of each Fund's net assets shall be computed in the manner
specified in the last sentence of paragraph 6, and any reimbursements required
to be made by the Co-administrators shall be made once a year promptly after the
end of the Company's fiscal year.

8. This agreement shall become effective on its execution date.
Thereafter, this agreement shall continue with respect to a Fund for successive
annual periods only so long as the continuance is specifically approved at least
annually (a) by the vote of a majority of the Fund's outstanding voting
securities (as defined in the Act) or by the Company's

3
<PAGE>

Board of Directors and (b) by the vote, cast in person at a meeting called for
the purpose, of a majority of the Company's Directors who are not parties to
this contract or "interested persons" (as defined in the Act) of any such party.
This contract may be terminated at any time, without the payment of any penalty,
by the Company by a vote of a majority of the Company's outstanding voting
securities (as defined in the Act) or by a vote of a majority of the Company's
Board of Directors on 60 days' written notice to the Co-administrators, or by
the Co-administrators on 60 days' written notice to the Company. This contract
shall terminate automatically in the event of its assignment (as defined in the
Act).

9. Except to the extent necessary to perform the Co-administrators'
obligations under this agreement, nothing herein shall be deemed to limit or
restrict the right of the Co-administrators, or any affiliate of the Co-
administrators, or any employee of the Co-administrators, to engage in any other
business or to devote time and attention to the management or other aspects of
any other business, whether of a similar or dissimilar nature, or to render
services of any kind to any other corporation, firm, individual or association.

10. This agreement shall be governed by and construed in accordance with
the laws of the State of Arkansas.

11. The Company hereby agrees and acknowledges that each Co-administrator
may allocate or further delegate responsibility for any or all of the services
to be provided hereunder between each Co-administrator; provided that the Co-
administrators shall have joint and several liability for the provision of the
services under this agreement, except that: BGI or Stephens each agree to
assumes sole responsibility, and related liability thereto, for providing the
duties and services identified as the sole responsibility of BGI or Stephens on
such Appendix B; and further provided that each Co-administrator agrees to
remain fully liable to the Company for the provision of any service that such
Co-administrator delegates to another entity.

12. This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original, but such counterpart shall, together,
constitute only one instrument.

4
<PAGE>

If the foregoing correctly sets forth the agreement between the Company and
the Co-administrators, please so indicate by signing and returning to the
Company the enclosed copy hereof.

Very truly yours,

MASTERWORKS FUNDS INC.,
on behalf of LifePath 2000, LifePath 2010,
LifePath 2020, LifePath 2030, LifePath
2040, Asset Allocation, Bond Index, Growth
Stock, Money Market, S&P 500 Index,
Short-Intermediate Term and U.S. Treasury
Allocation Funds

By: /s/Richard H. Blank, Jr.
-------------------------
Name: Richard H. Blank, Jr.
Title: Chief Operating Officer,
Secretary and Treasurer

ACCEPTED as of the date
set forth above:

BARCLAYS GLOBAL INVESTORS, N.A.

By: /s/Donald Luskin
----------------
Name: Donald Luskin
Title: Vice Chairman

BARCLAYS GLOBAL INVESTORS, N.A.

By: /s/Matthew Shelton
------------------
Name: Matthew Shelton
Title: Principal

STEPHENS INC.

By: /s/Richard H. Blank, Jr.
------------------------
Name: Richard H. Blank, Jr.
Title: Vice President

5
<PAGE>

Appendix A

MasterWorks Funds Inc.
----------------------

LifePath 2000 Fund

LifePath 2010 Fund

LifePath 2020 Fund

LifePath 2030 Fund

LifePath 2040 Fund

Asset Allocation Fund

Bond Index Fund

Growth Stock Fund

Money Market Fund

S & P 500 Index Fund

Short-Intermediate Term Fund

U.S. Treasury Allocation Fund

Dated: October 21, 1996

A-1
<PAGE>

APPENDIX B

MasterWorks Funds Inc.
----------------------

LIST OF ADMINISTRATIVE SERVICES
-------------------------------

Stephens Inc.
-------------

(1) Review agenda and assemble Board materials for quarterly Board meetings;
prepare supporting information when necessary; prepare minutes of Board and
committee meetings.

(2) Review and approve Board material.

(3) Provide expense budgets.

(4) Monitor actual expenses and update budgets/expense accruals as necessary.

(5) Review and authorize filing of Forms N-SAR.

(6) Maintain records of sales and file appropriate registrations and renewals,
sales information and other required material for Blue Sky purposes.

(7) Review and provide advice to the distributor and the Company and investment
adviser regarding sales literature and marketing plans to assure regulatory
compliance.

Barclays Global Investors
-------------------------

(8) Continuously monitor portfolio activity and related functions in
conjunction with all applicable regulatory requirements. Take corrective
action as necessary.

(9) Identify the services to which the Funds report performance information.
Provide information as requested on performance questionnaires.

(10) Prepare appropriate management letter and coordinate production of
Management Discussion and Analysis, with respect to the preparation and
printing of shareholder reports.

(11) Coordinate review and approval by portfolio managers of portfolio listings
to be included in financial statements, with respect to the preparation and
printing of shareholder reports.

B-1
<PAGE>

(12) Prepare selected portfolio and financial information for inclusion in Board
material.

(13) Assist in presentation to Board as desired by Fund Officer(s).

(14) Calculate total return information and other statistical information
including undistributed income and capital gains with respect to condensed
financial information for review by management.

(15) Perform tests of specific portfolio activities against compliance
checklists designed from the Fund's current Prospectus and SAI.

(16) Calculate dividend amounts available for distribution.

(17) Coordinate review of dividend amounts by management and auditors.

(18) Notify fund accounting and transfer agent of authorized dividends rates.

(19) Prepare responses to various performance questionnaires; coordinate as
necessary, and submit responses to the appropriate agency;

(20) Prepare Forms N-SAR for filing; obtain any necessary supporting documents;
file with the SEC via EDGAR.

(21) Draft semi-annual and annual shareholder reports and coordinate auditor and
management review.

(22) Coordinate printing of reports and EDGAR conversion with outside printer
and filing with the SEC via EDGAR.

(23) Provide information for Financial Highlights and expense tables.

(24) Continuously monitor portfolio activity regarding diversification in
conjunction with IRS requirements to registered investment companies.

(25) Continuously monitor portfolio activity regarding "short short" income and
qualifying income in conjunction with IRS requirements to registered
investment companies.

B-2
<PAGE>

Stephens Inc. and Barclays Global Investors
-------------------------------------------

(26) Prepare, or assist in the preparation, and file with the SEC and state
securities regulators, if applicable, registration statements, notices,
reports, and other material required to be filed under applicable laws.

(27) Review financial information and take any necessary action.

(28) Develop and implement procedures for monitoring compliance with regulatory
requirements and compliance with each Fund's investment objective, policies
and restrictions as established by the Company's Board, perform compliance
testing and approve resolution of compliance issues.

(29) Approve dividend rates; obtain Board approval when required.

(30) Determine allocation of invoices among funds. Authorize and send to fund
accountants for payment of expenses.

(31) Coordinate activities of other vendors as necessary.

(32) Provide appropriate responses to Forms N-SAR.

(33) Provide marketing input of shareholder report style and graphics.

(34) Review and approve entire shareholder report.

(35) Review drafts and coordinate review process of Forms N-1A updates and
prospectus supplements.

(36) Coordinate printing, EDGAR conversion, and filing with the SEC with outside
printers of Forms N-1A.

(37) Maintain and preserve the corporate records of the Company, including each
Master Portfolio.

(38) Make appropriate representations in conjunction with audit.

(39) Review diversification test results and corrective actions taken, with
respect to qualifications as a registered investment company.

(40) Approve tax positions taken regarding qualification as a registered
investment company.

(41) Review "short short" income and qualifying income test results and
corrective actions taken, with respect to qualifications as a registered
investment company.

B-3
<PAGE>

(42) Approve tax positions taken regarding "short short" income and qualifying
income, with respect to qualifications as a registered investment company..

(43) Approve tax accounting positions to be taken.

(44) Approve distributions.

(45) Review tax returns and coordinate signature thereof with a Fund Officer.

Approved: October 21, 1996

Signed: /s/Donald Luskin Signed: /s/Richard H. Blank, Jr.
---------------- -------------------------
By: Donald Luskin By: Richard H. Blank, Jr.
Vice Chairman Vice President
Barclays Global Investors, N.A. Stephens Inc

Signed: /s/Matthew Shelton
------------------
By: Matthew Shelton
Principal
Barclays Global Investors, N.A.

Signed: /s/Richard H. Blank, Jr.
------------------------
By: Richard H. Blank, Jr..
Chief Operating Officer,
Secretary and Treasurer
Masterworks Funds, Inc.

B-4
<PAGE>

Appendix C

MasterWorks Funds Inc.
----------------------

FEE SCHEDULE
------------

Fund Fee
---- ---
(as a % age of daily net assets)

LifePath 2000 Fund 0.40%

LifePath 2010 Fund 0.40%

LifePath 2020 Fund 0.40%

LifePath 2030 Fund 0.40%

LifePath 2040 Fund 0.40%

Asset Allocation Fund 0.40%

Bond Index Fund 0.15%

Growth Stock Fund 0.18%

Money Market Fund 0.10%

S & P 500 Index Fund 0.15%

Short-Intermediate Term Fund 0.18%

U.S. Treasury Allocation Fund 0.40%

Dated: October 21, 1996

C-1

<PAGE>

EXHIBIT 99.B5(b)(ii)

SUB-ADMINISTRATION AGREEMENT

October 21, 1996

Investors Bank & Trust Company
89 South Street
Boston, MA 02111

Ladies and Gentlemen:

This will confirm the agreement between Investors Bank & Trust Company
("IBT" or, at times, the "Sub-administrator") and Barclays Global Investors,
N.A. ("BGI" or, at times, the "Co-administrator") with respect to Master
Investment Portfolio ("MIP"), on behalf of its Master Portfolios, Managed Series
Investment Trust ("MSI Trust"), on behalf of its Master Portfolios, and
MasterWorks Funds Inc. ("MasterWorks"), on behalf of its Funds, listed in the
attached Appendix A, as such Appendix may be amended from time to time (the
"Master Portfolios" and Funds are, collectively, the "Portfolios"), as follows:

1. (a) MIP is a registered open-end, management investment company
consisting of a number of operating investment portfolios in accordance with
MIP's Amended and Restated Declaration of Trust (the "MIP Declaration"). MIP
engages in the business of investing and reinvesting the assets of each Master
Portfolio in the manner and in accordance with the applicable investment
objective, policies and restrictions specified in MIP's currently effective
Registration Statement, as amended from time to time (the "Registration
Statement"), filed under the Investment Company Act of 1940 (the "Act"). MIP
has retained BGI and Stephens Inc. as co-administrators pursuant to a co-
administration agreement. Copies of MIP's agreements with all service
providers, the MIP Declaration, its By-Laws and most recent amendment to its
Registration Statement have been furnished to the Sub-administrator.

(b) MSI Trust is a registered open-end, management investment company
consisting of a number of operating investment portfolios in accordance with MSI
Trust's Declaration of Trust (the " MSI Trust Declaration"). MSI Trust engages
in the business of investing and reinvesting the assets of each Master Portfolio
in the manner and in accordance with the applicable investment objective,
policies and restrictions specified in MSI Trust's currently effective
Registration Statement, as amended from time to time, filed under the Act. MSI
Trust has retained BGI and Stephens Inc. as co-administrators pursuant to a co-
administration agreement. Copies of MSI Trust's agreements with all service
providers, the MSI Trust Declaration, its By-Laws and most recent amendment to
its Registration Statement have been furnished to the Sub-administrator.

1
<PAGE>

(c) MasterWorks is a registered open-end, management investment company
consisting of a number of operating investment portfolios in accordance with
MasterWorks' Articles of Incorporation (the "Articles"). MasterWorks engages in
the business of investing and reinvesting the assets of each Fund in the manner
and in accordance with the applicable investment objective, policies and
restrictions specified in MasterWorks' currently effective Registration
Statement, as amended from time to time, filed under the Act and the Securities
Act of 1933. MasterWorks has retained BGI and Stephens Inc. as co-
administrators pursuant to a co-administration agreement. Copies of
MasterWorks' agreements with all service providers, MasterWorks' Articles, its
By-Laws and most recent amendment to its Registration Statement and prospectuses
and statements of additional information thereto have been furnished to the Sub-
administrator.

(d) Any amendments to MIP's, MSI Trust's or MasterWorks' documents
listed above shall be furnished to the Sub-administrator promptly.

2. BGI is engaging the Sub-administrator to provide certain administrative
services specified on Appendix B hereto, subject to the supervision of BGI and
the overall supervision of the applicable Board of Trustees/Directors of MIP,
MSI Trust or MasterWorks. Pursuant to advisory contracts between MIP, MSI Trust
or MasterWorks, respectively, and Barclays Global Fund Advisors (the "Adviser")
on behalf of each Master Portfolio or Fund, as applicable, the Adviser has been
engaged to manage the investing and reinvesting of the assets of each Master
Portfolio or Fund and to provide advisory services as specified in such advisory
contracts.

3. The Sub-administrator agrees to provide the administrative services, as
described on Appendix B hereto, as such Appendix may be amended from time to
time by the consent of the parties to this Agreement, in connection with the
operations of MIP, MSI Trust and MasterWorks and the Master Portfolios and
Funds, and to take all reasonable action in the performance of its obligations
under this Agreement to assure that the necessary information is made available
to other service providers, as such may be required by BGI from time to time.

4. (a) For the services to be rendered and the facilities to be furnished
by the Sub-administrator to BGI and/or MIP, MSI Trust, or MasterWorks, BGI
agrees to compensate the Sub-administrator in accordance with the fee schedule
attached as Appendix C to this Agreement. BGI also agrees to reimburse the Sub-
administrator for its out-of-pocket disbursements connected with the services
provided hereunder and for other expenses, which, with BGI's prior written
approval, the Sub-administrator shall be entitled to bill separately. The
compensation rates to be paid to the Sub-administrator hereunder shall not be
increased for a period of three (3) years from the effective date of this
Agreement.

(b) The Sub-administrator agrees that MIP, MSI Trust and MasterWorks and
their Master Portfolios and Funds shall have no obligation to compensate
the Sub-

2
<PAGE>

administrator for services provided or facilities furnished under, or expenses
incurred in connection with, this Agreement.

(c) The Sub-administrator shall have no obligation to pay for any
expenses incurred by MIP, MSI Trust and MasterWorks or their Master
Portfolios or Funds.

(d) The Sub-administrator and BGI each agree to exercise reasonable care
in performing its duties under this Agreement, and each party agrees to be
liable to the other party for direct damages resulting from a failure to
exercise reasonable care in performing such duties.

5. (a) BGI agrees to hold harmless and indemnify the Sub-administrator,
its directors, officers, employees and agents (the "Sub-administrator
Indemnitees") against and from any and all losses, expenses or liabilities
incurred by or claims or actions asserted against any Sub-administrator
Indemnitee to the extent resulting from (i) a violation or alleged
violation by BGI of any law, rule or regulation, (ii) a material violation
or alleged material violation by BGI of any provision of this Agreement,
(iii) any failure of BGI to exercise reasonable care in rendering services
hereunder, or (iv) any erroneous or incomplete information provided by or
through BGI to the Sub-administrator in connection with the Sub-
administrator's performance of its duties hereunder, such indemnification
to include any reasonable counsel fees and expenses incurred in connection
with investigating and/or defending such claims or actions.

(b) The Sub-administrator may apply to BGI at any time for instructions
and may consult counsel for BGI, or its own counsel, and with auditors and
other experts with respect to any matter arising in connection with its
duties hereunder, and the Sub-administrator shall not be liable or
accountable for any action reasonably taken or omitted by it in good faith
in accordance with such instruction, or with the opinion of such counsel,
auditors, or other experts. The Sub-administrator shall not be liable for
any action reasonably taken or omitted by it in good faith reliance upon
any document, certificate or instrument that it reasonably believes to be
genuine and to be signed or presented by the proper person(s). The Sub-
administrator shall not be held to have notice of any change of authority
of any officers, employees or agents of MIP, MSI Trust or MasterWorks or
their Master Portfolios or Funds until the Sub-administrator has received
written notice thereof from BGI.

(c) The Sub-administrator agrees to hold harmless and indemnify BGI,
MIP, MSI Trust and MasterWorks and their Master Portfolios and Funds,
including any principals, directors or trustees, officers, and employees
(the "BGI Indemnitees") against and from any and all losses, expenses or
liabilities incurred by or claims or actions asserted against any BGI
Indemnitee to the extent resulting from a

3
<PAGE>

violation or alleged violation by the Sub-administrator of any law, rule or
regulation or material violation or alleged material violation by the Sub-
administrator of any provision of this Agreement, or any failure of the
Sub-administrator to exercise reasonable care in rendering services
hereunder, such indemnification to include any reasonable counsel fees and
expenses incurred in connection with investigating of defending such claims
or actions.

(d) In the event that the Sub-administrator is unable to perform, or is
delayed in performing, its obligations under the terms of this Agreement
because of acts of God, strikes, legal constraint, government actions, war,
emergency conditions, interruption of electrical power or other utilities,
equipment or transmission failure or damage reasonably beyond its control
or other causes reasonably beyond its control, the Sub-administrator shall
not be liable to BGI for any damages resulting from such failure to
perform, delay in performance, or otherwise from such causes, provided that
the Sub-administrator shall make all reasonable efforts, whenever
necessary, to use data processing back-up facilities provided by Electronic
Data Systems, Inc.

(e) In no event shall the Sub-administrator be liable for special,
incidental, or consequential damages, even if advised in advance of the
possibility of such damages.

(f) In no event shall either BGI or the Sub-administrator be liable to
the other party for actions taken or omitted or information provided that
is based upon information originally provided by such other party.

6. The term of this Agreement shall be two (2) years commencing upon the
date hereof (the "Initial Term"), unless earlier terminated as provided herein.
After the expiration of the Initial Term, this Agreement shall automatically
renew for successive one-year terms (each a "Renewal Term") unless notice of
non-renewal is delivered by the non-renewing party to the other party no later
than sixty (60) days prior to the expiration of the Initial Term or any Renewal
Term, as the case may be.

(a) Either party hereto may terminate this Agreement prior to the
expiration of the Initial Term in the event the other party violates any
material provision of this Agreement, provided that the violating party
does not cure such violation within ninety (90) days of receipt of written
notice from the non-violating party of such violation.

(b) BGI may terminate this Agreement prior to the expiration of the
Initial Term in the event (i) the Board of Trustees/Directors of MIP, MSI
Trust or MasterWorks determines that the performance of the Sub-
Administrator does not meet the reasonable satisfaction (considered in
light of industry standards) of the Board of Trustees/Directors, provided
that the Sub-Administrator does not cure

4
<PAGE>

such unsatisfactory performance within ninety (90) days of receipt of
written notice specifying such unsatisfactory performance; or (ii) if the
Sub-administrator becomes the subject of any state or federal bankruptcy
proceeding which is not dismissed within sixty (60) days of the initiation
of such proceeding.

(c) Either party may terminate this Agreement during any Renewal Term
upon sixty (60) days written notice to the other party. Any termination
pursuant to this paragraph 6(b) shall be effective upon expiration of such
sixty (60) days, provided, however, that the effective date of such
termination may be postponed, at the request of BGI, to a date not more
than ninety (90) days after delivery of the written notice in order to give
BGI an opportunity to make suitable arrangements for a successor Sub-
administrator.

(d) At any time after the termination of this Agreement, BGI may, upon
written request, have reasonable access to the records of Sub-administrator
relating to its performance of its duties as Sub-administrator.

(e) BGI may terminate this Agreement if the Co-administration
Agreement between BGI and MIP, MSI Trust or MasterWorks is terminated and
no successor agreement between BGI and MIP, MSI Trust or MasterWorks for
the provision of administrative services is subsequently executed within 90
days after the termination of the Co-administration Agreement.

(f) Section 5 hereof shall survive any termination of this Agreement.

7. (a) Any notice or other instrument authorized or required by this
Agreement to be given in writing to BGI or the Sub-administrator shall be
sufficiently given if addressed to that party and received by it at its office
set forth below or at such other place as it may from time to time designate in
writing.

To BGI: Barclays Global Investors, N.A.
45 Fremont Street, 17th Floor
San Francisco, CA 94105
Attention: Legal Group

To the Sub-administrator: Investors Bank & Trust Company
89 South Street
Boston, MA 02111
Attention: Andrew Nesvet
With a copy to: John E. Henry, Esq.

(b) This Agreement shall extend to and shall be binding upon the
parties hereto and their respective successors and assigns; provided,
however, that this Agreement shall not be assignable without the written
consent of the other party.

5
<PAGE>

8. This Agreement shall be construed in accordance with the laws of the
Commonwealth of Massachusetts.

9. BGI and the Sub-administrator agree that each party may disclose the
existence of this Agreement to third parties; provided that each agrees to keep
confidential all proprietary data, software, processes, information, and
documentation related to this Agreement, except as may be necessary to perform
obligations under this Agreement or otherwise as may be agreed to, from time to
time, in writing by the parties.

10. Neither the Sub-administrator nor any of its employees or agents are
authorized to make any representation concerning the interests of MIP, MSI
Trust, MasterWorks or their Master Portfolios or Funds without prior written
consent, except those contained in the then current Registration Statement or
applicable prospectuses and statements of additional information, copies of
which will be supplied to the Sub-administrator as described above; and the Sub-
administrator shall have no authority under this Agreement to act as agent for
MIP, MSI Trust, or MasterWorks or their Master Portfolios or Funds or for BGI,
except where necessary to perform specific services under this Agreement.

11. This Agreement may be amended only by a written instrument executed by
both BGI and the Sub-administrator.

12. This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original, but such counterparts shall, together,
constitute only one instrument.

6
<PAGE>

If the foregoing correctly sets forth the agreement between BGI and the
Sub-administrator, please so indicate by signing and returning to BGI the
enclosed copy hereof.

Very truly yours,

BARCLAYS GLOBAL INVESTORS, N.A.,

By: /s/Donald Luskin
--------------------------------------
Name: Donald Luskin
Title: Vice Chairman

By: /s/Matthew Shelton
--------------------------------------
Name: Matthew Shelton
Title: Principal

ACCEPTED as of the date
set forth above:

INVESTORS BANK & TRUST

By: /s/Robert D. Mancuso
-------------------------------------
Name: Robert D. Mancuso,
Title: Managing Director

By: /s/John E. Henry
---------------------------------------
Name: John E. Henry,
Title: General Counsel

7
<PAGE>

Appendix A

Master Investment Portfolio
---------------------------

LifePath 2000 Master Portfolio
LifePath 2010 Master Portfolio
LifePath 2020 Master Portfolio
LifePath 2030 Master Portfolio
LifePath 2040 Master Portfolio
Asset Allocation Master Portfolio
Bond Index Master Portfolio
S & P 500 Index Master Portfolio
U.S. Treasury Allocation Master Portfolio

Managed Series Investment Trust
-------------------------------

Growth Stock Master Portfolio
Short-Intermediate Term Master Portfolio

MasterWorks Funds, Inc.
-----------------------

LifePath 2000 Fund
LifePath 2010 Fund
LifePath 2020 Fund
LifePath 2030 Fund
LifePath 2040 Fund
Asset Allocation Fund
Bond Index Fund
Growth Stock Fund
Money Market Fund
S&P 500 Index Fund
Short-Intermediate Term Fund
U.S. Treasury Allocation Fund

Dated : October 21, 1996

A-1
<PAGE>

APPENDIX B

LIST OF ADMINISTRATIVE SERVICES
-------------------------------

(1) Prepare selected portfolio and financial information for inclusion in Board
material

(2) Assist in presentation to Board as desired by Fund Officer(s);

(3) Calculate total return information and other statistical information
including undistributed income and capital gains with respect to condensed
financial information for review by management;

(4) Perform tests of specific portfolio activities against compliance
checklists designed from the provisions of the Masters' and Money Market
Fund's current Prospectus and SAI;

(5) Calculate dividend amounts available for distribution;

(6) Coordinate review of dividend amounts by management and auditors;

(7) Notify fund accounting and transfer agent of authorized dividends rates;

(8) Prepare responses to various performance questionnaires; coordinate as
necessary, and submit responses to the appropriate agency;

(9) Prepare Forms N-SAR for filing; obtain any necessary supporting documents;
file with the SEC via EDGAR;

(10) Draft semi-annual and annual shareholder reports and coordinate auditor and
management review;

(11) Coordinate printing of reports and EDGAR conversion with outside printer
and filing with the SEC via EDGAR;

(12) Provide information for Financial Highlights and expense tables;

(13) Coordinate the preparation of required reports and confirmations for audit
packages with IBT fund accounting.

(14) Assist in resolution of audit issues.

(15) Perform diversification testing pursuant to the Internal Revenue Code of
1986, as amended (the "Tax Code") -- preliminary at each month end, final
at quarter end, and as may otherwise be necessary. Follow-up on any issues
until Tax Code qualification issues are resolved.

B-1
<PAGE>

(16) Perform short-short income and qualifying income tests monthly or more
frequently, as test results dictate, with respect to qualification as a
regulated investment company under the Tax Code.

(17) Identify book-tax accounting differences with auditors and management.

(18) Track required information relating to accounting differences and determine
appropriate allocations to feeders.

(19) Follow appropriate Tax Code treatment for all passive foreign investment
company ("PFIC") lots identified by BGI.

Approved: October 21, 1996

Signed: /s/ Donald Luskin Signed: /s/ Robert D. Mncuso
---------------------------- ----------------------------

By: Donald Luskin, Vice Chairman By: Robert D. Mancuso, Managing
Barclays Global Investors, N.A. Director
Investors Bank & Trust

Signed: /s/ Matthew Shelton Signed: /s/ John E. Henry
----------------------------- ---------------------------

By: Matthew Shelton, Principal By: John E. Henry, General Counsel
Barclays Global Investors, N.A. Investors Bank & Trust

B-2
<PAGE>

Appendix C

FEE SCHEDULE
------------

CUSTODY, FUND ACCOUNTING & CALCULATION OF N.A.V.

A. Fund Accounting and Calculation of N.A.V
----------------------------------------

The following annual fee will be charged for each Master Portfolio of MIP and
MSI Trust and stand-alone Fund of MasterWorks for which IBT serves as fund
accountant. This fee does not include domestic or global custody or
transaction costs.
<TABLE>
<CAPTION>

Annual Fee
----------
<S> <C>

Domestic Funds $25,000
International/Foreign Funds $40,000

Per Feeder Annual Charge $12,000
</TABLE>

B. Domestic Custody and Transactions**
-----------------------------------

In addition to the transaction charges below, there will be a basis point
charge on all domestic assets that IBT is custodian as follows:
<TABLE>
<CAPTION>

FOR ALL ASSETS .67 BASIS POINT
<S> <C>

Transactions CHARGES
------------ -------
. DTC $ 4
. Fed Book Entry $ 5
. Physical Securities 35
. Options and Futures 18
. GNMA Securities 40
. Principal Paydown 5
. Foreign Currency 18***
. Cross Border 50
. Outgoing Wires 7
. Incoming Wires 5

</TABLE>

C-1
<PAGE>

**Trade information will be sent to IBT electronically. If the trades are not
sent electronically, the price per trade for DTC and Fed Book items will
increase to $12 per trade.

***There are no transaction charges for F/X contracts executed by IBT.

C. Global Custody:
---------------

. Incremental basis point and transaction fees will be charged for all
foreign assets for which IBT serves as custodian. The asset based fees
and transaction fees vary by country, based upon the attached global
custody fee schedule. Local duties, script fees, registration, exchange
fees, and other market charges are out-of-pocket.

. IBT will require international assets to be held within its international
custody network.

MUTUAL FUND ADMINISTRATION

A. Mutual Fund Administration
--------------------------

. The following basis point fees are based on all assets for which IBT
serves as Administrator. This fee does not include preparation of tax
returns and provisions.

Annual Fee
----------

First $1 billion of assets $2.75 Basis Points
Assets in excess of $1 billion 1.0 Basis Point

. For any new funds beyond the existing 1 stand-alone fund, 11 master
portfolios and 11 feeder funds there will be a minimum fee as described
below.
<TABLE>
<CAPTION>

<S> <C>
First 6 months $10,000
Next 6 months $12,500
Each Year thereafter $35,000
</TABLE>

This minimum fee includes 1 master portfolios and 1 feeder fund or stand-
alone fund. Each additional feeder will be charged a yearly minimum fee
of $7,500.

C-2
<PAGE>

The minimum fees will apply until the basis point fee above exceeds the
minimum charge.

MISCELLANEOUS

A. Out-of-Pocket
-------------

. These charges consist of:

- Printing, Delivery & Postage
- Board Meeting Attendance
- Extraordinary Travel Expenses
- InvestView
- Legal Expenses
- Customized Systems Development/Reporting
- Pricing & Verification Services (Per day/issue; Bonds $.50, Stocks $.03)
- Int'l stocks and bonds $.40; Int'l corporate actions $3.00 per
month/issue.

B. Domestic Balance Credit
-----------------------

. IBT allows use of balance credit against fees (excluding out-of-pocket
charges) for fund balances arising out of the custody relationship. The
credit is based on collected balances reduced by balances required to
support the activity charges of the accounts. The monthly earnings
allowance is equal to 75% of the 90-day T-bill rate.

C. Securities Lending, Foreign Exchange & Cash Management
------------------------------------------------------

. This proposal is based upon IBT performing securities lending, foreign
exchange and cash management for the portfolios. Securities Lending
revenue is split between a master portfolio or a fund and IBT on a 60/40%
basis; 60% going to the master portfolio or fund.

D. Payment
-------

. An invoice with respect to the above fees will be sent to BGI and will be
payable within ten (10) business days after the invoice is received.

E. Systems
-------

. The details of any systems work will be determined after a thorough
business analysis. System's work will be billed on a time and material
basis.

C-3
<PAGE>

F. Legal & Audit Expertise
-----------------------

. IBT will rely on the outside counsel to MIP, MSI Trust and MasterWorks and
auditors for opinions on any structural changes to the master portfolios
or funds.

* This fee schedule is valid for the time frames described in the individual
contracts.

C-4
<PAGE>

<TABLE>
<CAPTION>
- -----------------------------------------------------------------
COUNTRY BP CHARGE TRADE CHARGE
- -----------------------------------------------------------------
<S> <C> <C>
Argentina 22.00 $ 75.00
Australia 5.00 $ 60.00
Austria 7.00 $ 60.00
Bangladesh 41.00 $150.00
Belgium 7.00 $ 60.00
Bharain 41.00 $140.00
Botswana 50.00 $175.00
Brazil** 29.00 $ 80.00
Canada 5.00 $ 30.00
Chile*** 45.00 $100.00
China 20.00 $ 75.00
Colombia** 45.00 $140.00
Cyprus 50.00 $150.00
Czech Republic 20.00 $ 75.00
Denmark 5.00 $ 60.00
Ecuador 45.00 $100.00
Egypt 41.00 $100.00
Euroclear-Eurobonds 5.00 $ 20.00
Euroclear Non-Eurobond Issues 5.00 $ 60.00
Finland 7.00 $ 70.00
France 5.00 $ 60.00
France Debt 5.00 $ 60.00
Germany 5.00 $ 30.00
Ghana 50.00 $200.00
Greece 45.00 $130.00
Hong Kong 10.00 $ 65.00
Hungary 50.00 $200.00
India**** 50.00 .50BP
Indonesia 13.00 $ 65.00
Ireland 7.00 $ 60.00
Israel 50.00 $150.00
Italy Debt 5.00 $ 50.00
Italy Equity 5.00 $ 50.00
Japan 5.00 $ 30.00
Jordan 41.00 $120.00
Kenya 50.00 $200.00
Korea 13.00 $ 65.00
Lebanon 41.00 $140.00
Luxembourg 7.00 $ 60.00
Malaysia 10.00 $ 70.00
Mauritius 41.00 $140.00
</TABLE>

C-5
<PAGE>

<TABLE>
<CAPTION>
- -----------------------------------------------------------------
COUNTRY BP CHARGE TRADE CHARGE
- -----------------------------------------------------------------
<S> <C> <C>
Mexico 10.00 $ 40.00
Morocco 40.00 $150.00
Namibia 50.00 $200.00
Netherlands 5.00 $ 40.00
New Zealand 5.00 $ 60.00
Norway 7.00 $ 90.00
Oman 41.00 $140.00
Pakistan 41.00 $140.00
Peru 50.00 $150.00
Philippines 13.00 $ 65.00
Poland 50.00 $150.00
Poland T Bills 29.00 $110.00
Portugal 20.00 $125.00
Russia Equities 41.00 $250.00
Russia Min Fins 35.00 $140.00
Singapore 10.00 $ 65.00
Slovakia 20.00 $ 75.00
South Africa 7.00 $ 40.00
Spain Eq & Corp. Debt 7.00 $ 60.00
Spain Gvt Debt 5.00 $ 60.00
Sri Lanka 13.00 $ 65.00
Swaziland 50.00 $200.00
Sweden 5.00 $ 40.00
Sweden Debt 5.00 $ 40.00
Switzerland 5.00 $ 60.00
Taiwan 13.00 $ 65.00
Thailand 10.00 $ 65.00
Turkey 41.00 $140.00
UK 5.00 $ 50.00
Uruguay 50.00 $150.00
Venezuela** 45.00 $140.00
Zambia 50.00 $200.00
Zimbabwe 50.00 $175.00
</TABLE>

C-6
<PAGE>

*Bonds billed at Residual Value
**Local Administrator Fees included in Custody fee
***20 BP Local Administration Charge Applied to Trades
****Trades billed at 50 BP

Out-of-Pocket Charges are passed through as actuals in all markets

Dated: October 21, 1996

C-7

<PAGE>

EXHIBIT 99.B8

CUSTODY AGREEMENT

BETWEEN

MASTERWORKS FUNDS INC.

and

INVESTORS BANK & TRUST COMPANY
<PAGE>

TABLE OF CONTENTS

1. Bank Appointed Custodian.........................................

2. Definitions......................................................
2.1 Authorized Person.........................................
2.2 Board.....................................................
2.3 Security..................................................
2.4 Portfolio Security........................................
2.5 Officer's Certificate.....................................
2.6 Book-Entry System.........................................
2.7 Depository................................................
2.8 Proper Instructions.......................................
2.9 Foreign Securities........................................
2.10 Performance Calculations..................................

3. Separate Accounts................................................

4. Certification as to Authorized Persons...........................

5. Custody of Cash..................................................
5.1 Purchase of Securities....................................
5.2 Redemptions...............................................
5.3 Distributions and Expenses of the Funds...................
5.4 Payment in Respect of Securities..........................
5.5 Repayment of Loans........................................
5.6 Repayment of Cash.........................................
5.7 Foreign Exchange Transactions.............................
5.8 Other Authorized Payments.................................
5.9 Termination...............................................

6. Securities.......................................................
6.1 Segregation and Registration..............................
6.2 Voting and Proxies........................................
6.3 Corporate Action..........................................
6.4 Book-Entry System.........................................
6.5 Use of a Depository.......................................
6.6 Use of Book-Entry System for Commercial Paper.............
6.7 Use of Immobilization Programs............................
6.8 Eurodollar CDs............................................
6.9 Options and Futures Transactions..........................
6.10 Segregated Account........................................
6.11 Interest Bearing Call or Time Deposits....................
6.12 Transfer of Securities....................................

i
<PAGE>

7. Redemptions.............................................................

8. Merger, Dissolution, etc. of the Company or a Fund......................

9. Actions of the Bank Without Prior Authorization.........................

10. Collections and Defaults................................................

11. Maintenance of Records and Accounting Services..........................

12. Fund Evaluation and Performance Calculation.............................
12.1 Fund Evaluation...................................................
12.2 Performance Calculations..........................................

13. Concerning the Bank.....................................................
13.1 Bank Warranty.....................................................
13.2 Standard of Care and Performance of Duties........................
13.3 Agents and Sub-custodians with Respect to Property
of the Funds Held in the United States............................
13.4 Duties of the Bank with Respect to Property
Held Outside of the United States.................................
13.5 Insurance.........................................................
13.6 Fees and Expenses of Bank.........................................
13.7 Advances by Bank..................................................

14. Termination.............................................................

15. Confidentiality.........................................................

16. Notices.................................................................

17. Amendments..............................................................

18. Parties.................................................................

19. Governing Law...........................................................

20. Counterparts............................................................

21. Limitations of Liability................................................

22. Single Agreement........................................................

ii
<PAGE>

CUSTODY AGREEMENT

AGREEMENT made as of this 21st day of October, 1996, between
MASTERWORKS FUNDS INC., a Maryland corporation (the "Company"), and INVESTORS
BANK & TRUST COMPANY (the "Bank" or, at times, "IBT").

The Company, an open-end management investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), on behalf of the
individual Funds listed on Schedule A hereto, as such Schedule may be amended
from time to time, desires to place and maintain all of the Funds' portfolio
securities and other assets including cash in the custody of the Bank, and the
Bank has indicated its willingness to so act, subject to the terms and
conditions of this Agreement.

NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained herein, the parties hereto agree as follows:

1. Bank Appointed Custodian. The Company hereby appoints the Bank as
------------------------
custodian of the Funds' portfolio securities and cash delivered to the Bank as
hereinafter described, and the Bank agrees to act as such upon the terms and
conditions hereinafter set forth.

2. Definitions. Whenever used herein, the terms listed below will have
-----------
the following meaning:

2.1 Authorized Person. Authorized Person will mean any of the persons
-----------------
duly authorized to give Proper Instructions or otherwise act on behalf of the
Company and its Funds by appropriate resolution of the Board of Directors of the
Company, and set forth in a certificate as required by Section 4 hereof.

2.2 Board. Board will mean the Company's Board of Directors.
-----

2.3 Security. The term security as used herein will have the same
--------
meaning as when such term is used in the Securities Act of 1933, as amended (the
"1933 Act"), including, without limitation, any note, stock, treasury stock,
bond, debenture, evidence of indebtedness, certificate of interest or
participation in any profit sharing agreement, collateral-trust certificate,
preorganization certificate or subscription, transferable share, investment
contract, voting-trust certificate, certificate of deposit for a security,
fractional undivided interest in oil, gas, or other mineral rights, any put,
call, straddle, option, or privilege on any security, certificate of deposit, or
group or index of securities (including any interest therein or based on the
value thereof), or any put, call, straddle, option, or privilege entered into on
a national securities exchange relating to a foreign currency, or, in general,
any interest or instrument commonly known as a "security", or any certificate of
interest or participation in, temporary or interim certificate for, receipt for,
guarantee of, or warrant or right to subscribe to, or option contract to
purchase or sell any of the foregoing, and futures, forward contracts and
options thereon.

1
<PAGE>

2.4 Portfolio Security. Portfolio Security will mean any security
------------------
owned by a Fund of the Company.

2.5 Officer's Certificate. Officer's Certificate will mean, unless
---------------------
otherwise indicated, any request, direction, instruction, or certification in
writing signed by an Authorized Person of the Company.

2.6 Book-Entry System. Book-Entry System shall mean the Federal
-----------------
Reserve-Treasury Department Book Entry System for United States government,
instrumentality and agency securities operated by the Federal Reserve Bank, its
successor(s) and its nominee(s).

2.7 Depository. Depository shall mean The Depository Trust Company
----------
("DTC") and any other clearing agency registered with the Securities and
Exchange Commission under Section 17A of the Securities Exchange Act of 1934, as
amended ("Exchange Act"), and its successor(s) and its nominee(s). The term
"Depository" shall further mean and include any other person authorized to act
as a depository under the 1940 Act, its successor(s) and its nominee(s),
specifically identified in a certified copy of a resolution of the Board.

2.8 Proper Instructions. Proper Instructions shall mean (i)
-------------------
instructions regarding the purchase or sale of Portfolio Securities, and
payments and deliveries in connection therewith, given by an Authorized Person,
such instructions to be given in such form and manner as the Bank and the
Company shall agree upon from time to time, and (ii) instructions (which may be
continuing instructions) regarding other matters signed or initialed by an
Authorized Person. Oral instructions will be considered Proper Instructions if
the Bank reasonably believes them to have been given by an Authorized Person.
The Company shall cause all oral instructions to be promptly confirmed in
writing or by facsimile. The Bank shall act upon and comply with any subsequent
Proper Instruction which modifies a prior instruction, and the sole obligation
of the Bank with respect to any follow-up or confirmatory instruction shall be
to make reasonable efforts to detect any discrepancy between the original
instruction and such confirmation and to report such discrepancy to the Company.
The Company shall be responsible, at the expense of the applicable Fund, for
taking any action, including any reprocessing, necessary to correct any such
discrepancy or error, and, to the extent such action requires the Bank to act,
the Company shall give the Bank specific Proper Instructions as to the action
required. Upon receipt by the Bank of an Officer's Certificate as to the
authorization by the Board accompanied by a detailed description of procedures
approved by the Company, Proper Instructions may include communication effected
directly between electromechanical or electronic devices provided that the
Company and the Bank are satisfied that such procedures afford adequate
safeguards for a Fund's assets.

2.9 Foreign Securities. The term Foreign Securities as used herein
------------------
will have the same meaning as when such term is used in Rule 17f-5 of the 1940
Act.

2.10 Performance Calculations. Performance Calculations as used
------------------------
herein shall include standard performance calculations required pursuant to the
1933 Act, the 1940 Act, and any applicable rules and interpretations of the
staff of the Securities and Exchange Commission , and shall also include other
non-standard performance calculations as shall be agreed upon by both parties to
this Agreement from time to time.

2
<PAGE>

3. Separate Accounts. The Bank will segregate the assets of each Fund to
-----------------
which this Agreement relates into a separate account for each such Fund
containing the assets of such Fund (and all investment earnings thereon).
Unless the context otherwise requires, any reference in this Agreement to any
actions to be taken by the Company shall be deemed to refer to the Company
acting on behalf of one or more of its Funds, any reference in this Agreement to
any assets of the Company, including, without limitation, any Portfolio
Securities and other assets including cash and any earnings thereon, shall be
deemed to refer only to assets of the applicable Fund, any duty or obligation of
the Bank hereunder to the Company shall be deemed to refer to duties and
obligations with respect to the individual Funds, and any obligation or
liability of the Company hereunder shall be binding only with respect to the
individual Fund and shall be discharged only out of the assets of such Fund.

4. Certification as to Authorized Persons. The Secretary or an Assistant
--------------------------------------
Secretary of the Company will at all times maintain on file with the Bank his or
her certification to the Bank, in such form as may be acceptable to the Bank, of
(i) the names and signatures of the Authorized Persons and (ii) the names of the
Board, it being understood that upon the occurrence of any change in the
information set forth in the most recent certification on file (including
without limitation any person named in the most recent certification who is no
longer an Authorized Person as designated therein), the Secretary or an
Assistant Secretary of the Company, will sign a new or amended certification
setting forth the change of the new, additional or omitted names or signatures.
The Bank will be entitled to rely and act upon any Officer's Certificate given
to it by the Company that has been signed by Authorized Persons named in the
most recent certification received by the Bank.

5. Custody of Cash. As custodian, the Bank will open and maintain a
---------------
separate account or accounts in the name of each Fund or in the name of the
Bank, as custodian of the Funds, and will deposit to the account of a Fund all
of the cash of the Fund, except for cash held by a sub-custodian appointed
pursuant to subsections 13.3 or 13.4 hereof, including borrowed funds, delivered
to the Bank, subject only to draft or order by the Bank acting pursuant to the
terms of this Agreement. Upon receipt by the Bank of Proper Instructions (which
may be continuing instructions) or in the case of payments for redemptions and
repurchases of outstanding interests of a Fund, notification from the Fund's
transfer agent as provided in Section 7, requesting such payment, designating
the payee or the account or accounts to which the Bank will release funds for
deposit, and stating that it is for a purpose permitted under the terms of this
Section 5, specifying the applicable subsection, the Bank will make payments of
cash held for the accounts of the Fund, insofar as funds are available for that
purpose, only as permitted in subsections 5.1-5.9 below.

5.1 Purchase of Securities. Upon the purchase of securities for a
----------------------
Fund, against contemporaneous receipt of such securities by the Bank, or against
delivery of such securities to the Bank, in accordance with generally accepted
settlement practices or customs in the jurisdiction or market in which the
transaction occurs, such securities to be registered in the name of the Fund or
in the name of, or properly endorsed and in form for transfer to, the Bank, or a
nominee of the Bank, or receipt for the account of the Bank pursuant to the
provisions of Section 6 below, each such payment to be made at the purchase
price shown on a broker's confirmation (or transaction report in the case of
Book Entry Paper) of purchase of the securities that is

3
<PAGE>

received by the Bank before such payment is made and that has been confirmed in
the Proper Instructions also received by the Bank before such payment is made.

5.2 Redemptions. In such amount as may be necessary for the
-----------
repurchase or redemption of interests of a Fund offered for repurchase or
redemption in accordance with Section 7 of this Agreement.

5.3 Distributions and Expenses of the Funds. For the payment on the
---------------------------------------
account of a Fund of dividends or other distributions to interestholders as may
from time to time be declared by the Board, interest, taxes, investment advisory
or administration fees, and, as and to the extent provided on Schedule B hereto,
any fees of the Bank for its services hereunder and any reimbursement of the
expenses and liabilities of the Bank related to such services with respect to a
Fund of the Company as provided pursuant to subsection 13.6 hereunder and on
Schedule B hereto.

5.4 Payment in Respect of Securities. For payments in connection with
--------------------------------
the conversion, exchange or surrender of Portfolio Securities or securities
subscribed to by a Fund held by or to be delivered to the Bank.

5.5 Repayment of Loans. To repay loans of money made to a Fund, but,
------------------
in the case of final payment, only upon redelivery to the Bank of any Portfolio
Securities pledged or hypothecated therefor and upon surrender of documents
evidencing the loan.

5.6 Repayment of Cash. To repay the cash delivered to a Fund for the
-----------------
purpose of collateralizing the obligation to return to a Fund certificates
borrowed from the Fund representing Portfolio Securities, but only upon
redelivery to the Bank of such borrowed certificates.

5.7 Foreign Exchange Transactions. For payments in connection with
-----------------------------
foreign exchange contracts or options to purchase and sell foreign currencies
for spot and future delivery ("Foreign Exchange Agreements") that may be entered
into by the Bank on behalf of a Fund upon the receipt of Proper Instructions,
such Proper Instructions to specify the currency broker or banking institution
(which may be the Bank, or any other sub-custodian or agent hereunder, acting as
principal) with which the contract or option is made, and the Bank shall have no
duty with respect to the selection of such currency brokers or banking
institutions with which a Fund deals or for their failure to comply with the
terms of any contract or option.

5.8 Other Authorized Payments. For other authorized transactions of a
-------------------------
Fund, or other obligations of a Fund incurred for proper purposes with respect
to a Fund; provided that before making any such payment, the Bank also will
receive Proper Instructions or a certified copy of a resolution of the Board
signed by an Authorized Person (other than the Person certifying such
resolution) and certified by its Secretary or Assistant Secretary, naming the
person or persons to whom such payment is to be made, and either describing the
transaction for which payment is to be made and declaring it to be an authorized
transaction of a Fund, or specifying the amount of the obligation for which
payment is to be made, setting forth the purpose for which such obligation was
incurred and declaring such purpose to be a proper corporate purpose.

4
<PAGE>

5.9 Termination. Upon the termination of this Agreement as
-----------
hereinafter set forth pursuant to Section 8 and Section 14 of this Agreement.

6. Securities.
-----------

6.1 Segregation and Registration. Except as otherwise provided
----------------------------
herein, and except for Portfolio Securities to be delivered to any sub-custodian
appointed pursuant to subsections 13.2 or 13.3 hereof, the Bank as custodian,
will receive and hold pursuant to the provisions hereof, in a separate account
or accounts and physically segregated at all times from those of other persons,
any and all Portfolio Securities which may now or hereafter be delivered to it
by or for the account of a Fund. All such Portfolio Securities will be held or
disposed of by the Bank for, and subject at all times to, the instructions of
the Company pursuant to the terms of this Agreement. Subject to the specific
provisions herein relating to Portfolio Securities that are not physically held
by the Bank, the Bank will register all Portfolio Securities (unless otherwise
directed by Proper Instructions or an Officer's Certificate), in the name of a
registered nominee of the Bank as defined in the Internal Revenue Code and any
Regulations of the Treasury Department issued thereunder, and will execute and
deliver all such certificates in connection therewith as may be required by such
laws or regulations or under the laws of any state. The Bank will use its best
efforts to the end that the specific Portfolio Securities held by it hereunder
will be at all times identifiable.

The Company, on behalf of a Fund, will from time to time furnish to the
Bank appropriate instruments to enable it to hold or deliver in proper form for
transfer, or to register in the name of its registered nominee, any Portfolio
Securities which may from time to time be registered in the name of a Fund

6.2 Voting and Proxies. Neither the Bank nor any nominee of the Bank
------------------
will vote any of the Portfolio Securities held hereunder, except in accordance
with Proper Instructions or an officers' Certificate. The Bank will execute and
deliver, or will cause to be executed and delivered, to the Company or its
designated agent all notices, proxies and proxy soliciting materials with
respect to such Portfolio Securities, but without indicating the manner in which
such proxies are to be voted, such proxy to be executed by the registered holder
of such Portfolio Securities (if registered otherwise than in the name of a
Fund), in accordance with the Proper Instructions or an Officer's Certificate.

6.3 Corporate Action. If at any time the Bank is notified that an
----------------
issuer of a Portfolio Security has taken or intends to take a corporate action
(a "Corporate Action") that affects the rights, privileges, powers, preferences,
qualifications or ownership of the Portfolio Security, including, without
limitation, liquidation, consolidation, merger, recapitalization,
reorganization, reclassification, subdivision, combination, stock split or stock
dividend, which Corporate Action requires an affirmative response or action on
the part of the holder of such Portfolio Security (a "Response"), the Bank shall
notify the Company's designee, Barclays Global Fund Advisors ("BGFA"), promptly
of the Corporate Action, the Response required in connection with the Corporate
Action, and the Bank's deadline for receipt from the Company's designee, BGFA,
of Proper Instructions regarding the Response (the "Response Deadline"). Except
as provided in subsection 6.3(c) below, the date specified as the Response
Deadline shall

5
<PAGE>

not be more than 24 hours prior to the Response expiration day set by the
depository processing such Corporate Action. The Bank shall forward to the
Company's designee, BGFA, via facsimile and/or overnight courier all notices,
information statements or other materials relating to the Corporate Action
within twenty-four (24) hours of receipt of such materials by the Bank.

(a) The Bank shall act upon a required Response only after
receipt by the Bank of Proper Instructions from the Company's designee, BGFA, no
later than 4:00 p.m. (Pacific time) on the date specified as the Response
Deadline and only if the Bank (or its agent or sub-custodian hereunder) has
actual possession of all Portfolio Securities (but only if such Portfolio
Securities are necessary for the consummation of the Corporate Action
("Necessary Portfolio Securities")), consents and other materials no later than
4:00 p.m. (Pacific time) on the date specified as the Response Deadline.
Portfolio Securities in the possession of a broker or other borrower pursuant to
the Bank's securities lending program shall be deemed to be in the possession of
the Bank for the purposes of this subsection 6.3.

(b) The Bank shall have no duty to act upon a required Response
if Proper Instructions relating to such Response and all Necessary Portfolio
Securities, consents and other materials are not received by and in the
possession of the Bank no later than 4:00 p.m. (Pacific time) on the date
specified as the Response Deadline. Notwithstanding, the Bank may, in its sole
discretion, use its best efforts to act upon a Response for which Proper
Instructions and/or Necessary Portfolio Securities, consents or other materials
are received by the Bank after 4:00 p.m. (Pacific time) on the date specified as
the Response Deadline, it being acknowledged and agreed by the parties that any
undertaking by the Bank to use its best efforts in such circumstances shall in
no way create any duty upon the Bank to complete such Response prior to its
expiration.

(c) In the event that the Company's designee, BGFA, notifies the
Bank of a Corporate Action requiring a Response and the Bank has received no
other notice of such Corporate Action, the Response Deadline shall be 48 hours
prior to the Response expiration time set by the depository processing such
Corporate Action.

(d) Subsection 13.4(g) of this Agreement shall govern any
Corporate Action involving Foreign Portfolio Securities held by a Selected
Foreign Sub-custodian.

6.4 Book-Entry System. Provided (i) the Bank has received a certified
-----------------
copy of a resolution of the Board specifically approving deposits of a Fund
assets in the Book-Entry System, and (ii) for any subsequent changes to such
arrangements following such approval, the Board has reviewed and approved the
arrangement and has not delivered an Officers Certificate to the Bank indicating
that the Board has withdrawn its approval:

(a) The Bank may keep Portfolio Securities in the Book-Entry
System provided that such Portfolio Securities are represented in an account
("Account") of the Bank (or its agent) in such System that shall not include any
assets of the Bank (or such agent) other than assets held as a fiduciary,
custodian, or otherwise for customers:

6
<PAGE>

(b) The records of the Bank (and any such agent) with respect to
a Fund's participation in the Book-Entry System through the Bank (or any such
agent) will identify by book entry Portfolio Securities that are included with
other securities deposited in the Account and shall at all times during the
regular business hours of the Bank (or such agent) be open for inspection by
duly authorized officers, employees or agents of the Company. Where securities
are transferred to a Fund's account, the Bank shall also, by book entry or
otherwise, identify as belonging to the Fund a quantity of Portfolio Securities
in a fungible bulk of securities (i) registered in the name of the Bank or its
nominee, or (ii) shown on the Bank's account on the books of the Federal Reserve
Bank;

(c) The Bank (or its agent) shall pay for securities purchased
for the account of a Fund or shall pay cash collateral against the return of
Portfolio Securities loaned by a Fund upon (i) receipt of advice from the Book-
Entry System that such Securities have been transferred to the Account, and (ii)
the making of an entry on the records of the Bank (or its agent) to reflect such
payment and transfer for the account of the Fund. The Bank (or its agent) shall
transfer Portfolio Securities sold or loaned for the account of a Fund upon:

(i) receipt of advice from the Book-Entry System that
payment for securities sold or payment of the initial cash collateral against
the delivery of Portfolio Securities loaned by the Fund has been transferred to
the Account: and

(ii) the making of an entry on the records of the Bank (or
its agent) to reflect such transfer and payment for the account of a Fund.
Copies of all advices from the Book-Entry System of transfers of Portfolio
Securities for the account of a Fund shall identify the Fund, be maintained for
the Fund by the Bank and shall be provided to the Fund at its request. The Bank
shall send a Fund a confirmation, as defined by Rule 17f-4 of the 1940 Act, of
any transfers to or from the account of the Fund;

(d) The Bank will promptly provide the Company with any report
obtained by the Bank or its agent on the Book-Entry System's accounting system,
internal accounting control and procedures for safeguarding securities deposited
in the Book-Entry System;

(e) The Bank shall be liable to the Company and a Fund for any
loss or damage to the Fund resulting from use of the Book-Entry System by reason
of any negligent actions or inactions of the Bank or any of its agents or of any
of its or their employees, or from any failure by the Bank or any such agent to
use its best efforts to enforce such rights as it may have against the Book-
Entry System; at the election of the Fund, it shall be entitled to be subrogated
for the Bank in any claim against the Book-Entry System or any other person that
the Bank or its agent may have as a consequence of any such loss or damage if
and to the extent that the Fund has not been made whole for any loss or damage;

6.5 Use of a Depository. Provided (i) the Bank has received a
-------------------
certified copy of a resolution of the Board specifically approving deposits in
DTC or other such Depository and (ii) for any subsequent changes to such
arrangements following such approval, the Board has reviewed and approved the
arrangement and has not delivered an Officer's Certificate to the Bank
indicating that the Board has withdrawn its approval:

7
<PAGE>

(a) The Bank may use a Depository to hold, receive, exchange,
release, lend, deliver and otherwise deal with Portfolio Securities including
stock dividends, rights and other items of like nature, and to receive and remit
to the Bank on behalf of a Fund all income and other payments thereon and to
take all steps necessary and proper in connection with the collection thereof;

(b) Registration of Portfolio Securities may be made in the name
of any nominee or nominees used by such Depository;

(c) Payment for securities purchased and sold may be made through
the clearing medium employed by such Depository for transactions of participants
acting through it. Upon any purchase of Portfolio Securities, payment will be
made only upon delivery of the securities to or for the account of a Fund and
the Fund shall pay cash collateral against the return of Portfolio Securities
loaned by the Fund only upon delivery of the Securities to or for the account of
the Fund; and upon any sale of Portfolio Securities, delivery of the Securities
will be made only against payment thereof or, in the event Portfolio Securities
are loaned, delivery of Securities will be made only against receipt of the
initial cash collateral to or for the account of the Fund: and

(d) The Bank shall be liable to a Fund for any loss or damage to
a Fund resulting from use of a Depository by reason of any negligent actions or
inactions of the Bank or its employees or from any failure by the Bank to use
its best efforts to enforce such rights as it may have against a Depository. In
this connection, the Bank shall use its best efforts to ensure that:

(i) The Depository obtains replacement of any certificated
Portfolio Security deposited with it in the event such Security is lost,
destroyed, wrongfully taken or otherwise not available to be returned to the
Bank upon its request;

(ii) Any proxy materials received by a Depository with
respect to Portfolio Securities deposited with such Depository are forwarded
immediately to the Bank for voting in accordance with subsection 6.2 above;

(iii) Such Depository immediately forwards to the Bank
confirmation of any purchase or sale of Portfolio Securities and of the
appropriate book entry made by such Depository to a Fund's account;

(iv) Such Depository prepares and delivers to the Bank such
records with respect to the performance of the Bank's obligations and duties
hereunder as may be necessary for the a Fund to comply with the recordkeeping
requirements of Section 31(a) of the 1940 Act and Rule 31(a) thereunder; and

(v) Such Depository delivers to the Bank and the Company
all internal accounting control reports, whether or not audited by an
independent public accountant, as well as such other reports as the Company may
reasonably request in order to verify the Portfolio Securities held by such
Depository.

8
<PAGE>

6.6 Use of Book-Entry System for Commercial Paper. Provided (i) the
---------------------------------------------
Bank has received a certified copy of a resolution of the Board specifically
approving participation in a system maintained by the Bank for the holding of
commercial paper in book-entry form ("Book-Entry Paper") and (ii) for each year
following such approval the Board has received and approved the arrangements,
upon receipt of Proper Instructions and upon receipt of confirmation from an
Issuer (as defined below) that a Fund has purchased such Issuer's Book-Entry
Paper, the Bank shall issue and hold in book-entry form, on behalf of the Fund,
commercial paper issued by issuers with whom the Bank has entered into a book-
entry agreement (the "Issuers"). In maintaining its procedures for Book-Entry
Paper, the Bank agrees that:

(a) The Bank will maintain all Book-Entry Paper held by a Fund in
an account of the Bank that includes only assets held by it for customers;

(b) The records of the Bank with respect to a Fund's purchase of
Book-Entry Paper through the Bank will identify, by book-entry, commercial paper
belonging to the Fund that is included in the Book-Entry Paper System and shall
at all times during the regular business hours of the Bank be open for
inspection by duly authorized officers, employees or agents of the Company;

(c) The Bank shall pay for Book-Entry Paper purchased for the
account of a Fund upon contemporaneous (i) receipt of advice from the Issuer
that such sale of Book-Entry Paper has been effected, and (ii) the making of an
entry on the records of the Bank to reflect such payment and transfer for the
account of the Fund;

(d) The Bank shall cancel such Book-Entry Paper obligation upon
the maturity thereof upon contemporaneous (i) receipt of advice that payment for
such Book-Entry Paper has been transferred to the Fund, and (ii) the making of
an entry on the records of the Bank to reflect such payment for the account of
the Fund;

(e) The Bank shall transmit to the Company a transaction journal
confirming each transaction in Book-Entry Paper for the account of a Fund on the
next business day following the transaction: and

(f) The Bank will send to the Company such reports on its system
of internal accounting control with respect to Book-Entry Paper as the Company
may reasonably request from time to time.

6.7 Use of Immobilization Programs. Provided (i) the Bank has
------------------------------
received a certified copy of a resolution of the Board specifically approving
the maintenance of Portfolio Securities in an immobilization program operated by
a bank which meets the requirements of Section 26(a)(1) of the 1940 Act, and
(ii) for each year following such approval the Board has reviewed and approved
the arrangement and has not delivered an Officer's Certificate to the Bank
indicating that the Board has withdrawn its approval, the Bank shall enter into
such immobilization program with such bank acting as a sub-custodian hereunder.

9
<PAGE>

6.8 Eurodollar CDs. Any Portfolio Securities that are Eurodollar CDs
--------------
may be physically held by the European branch of the U.S. banking institution
that is the issuer of such Eurodollar CD (a "European Branch"), provided that
such Portfolio Securities are identified on the books of the Bank as belonging
to a Fund and that the books of the Bank identify the European Branch holding
such Portfolio Securities. Notwithstanding any other provision of this
Agreement to the contrary, except as stated in the first sentence of this
subsection 6.8, the Bank shall be under no other duty with respect to such
Eurodollar CDs belonging to a Fund, and the Bank shall have no liability to the
Fund or its interestholders with respect to the actions, inactions, whether
negligent or otherwise of such European Branch in connection with such
Eurodollar CDs, except for any loss or damage to the Fund resulting from the
Bank's own negligent actions or inactions or lack of reasonable care in the
performance of its duties hereunder.

6.9 Options and Futures Transactions.
---------------------------------

(a) Puts and Calls Traded on Securities Exchanges, NASDAQ or
Over-the Counter.

(i) The Bank shall take action as to put options ("puts")
and call options ("calls") purchased or sold (written) by a Fund regarding
escrow or other arrangements in accordance with the provisions of any agreement
entered into upon receipt of Proper Instructions between the Bank, any broker-
dealer registered under the Exchange Act and a member of the National
Association of Securities Dealers, Inc. (the "NASD"), and, if necessary, the
Company, on behalf of the Fund, relating to the compliance with the rules of the
Options Clearing Corporation and of any registered national securities exchange,
or of any similar organization or organizations.

(ii) Unless another agreement requires it to do so, the Bank
shall be under no duty or obligation to see that a Fund has deposited or is
maintaining adequate margin, if required, with any broker in connection with any
option, nor shall the Bank be under duty or obligation to present such option to
the broker for exercise unless it receives Proper Instructions from the Company.
The Bank shall have no responsibility for the legality of any put or call
purchased or sold on behalf of a Fund, the propriety of any such purchase or
sale, or the adequacy of any collateral delivered to a broker in connection with
an option or deposited to or withdrawn from a Segregated Account (as defined in
subsection 6.10 below). The Bank specifically, but not by way of limitation,
shall not be under any duty or obligation to: (1) periodically check or notify a
Fund that the amount of such collateral held by a broker or held in a Segregated
Account is sufficient to protect such broker or the Fund against any loss; (2)
effect the return of any collateral delivered to a broker; or (3) advise the
Fund that any option it holds, has or is about to expire. Such duties or
obligations shall be the sole responsibility of a Company.

(b) Puts, Calls and Futures Traded on Commodities Exchanges

(i) The Bank shall take action, upon receipt of Proper
Instructions, as to puts, calls and futures contracts ("futures") purchased or
sold by a Fund in accordance with the provisions of any agreement among the
Company, on behalf of a Fund, the Bank and a Futures Commission Merchant
registered under the Commodity Exchange Act, relating to compliance

10
<PAGE>

with the rules of the Commodity Futures Trading Commission and/or any Contract
Market, or any similar organization(s), regarding account deposits in connection
with transactions by the Fund.

(ii) The responsibilities and liabilities of the Bank as to
futures, puts and calls traded on commodities exchanges, any Futures Commission
Merchant account and the Segregated Account shall be limited as set forth in
subparagraph (a)(ii) of this subsection 6.9 as if such subparagraph referred to
Futures Commission Merchants rather than brokers, and futures and puts and calls
thereon instead of options.

6.10 Segregated Account. The Bank shall upon receipt of Proper
------------------
Instructions establish and maintain a Segregated Account or Accounts for and on
behalf of a Fund, into which Account or Accounts may be transferred upon receipt
of Proper Instructions, cash and/or Portfolio Securities.

(a) Cash and/or Portfolio Securities may be transferred into a
Segregated Account in the following circumstances, upon receipt of Proper
Instructions:

(i) in accordance with the provisions of any agreement
among the Company, on behalf of a Fund, the Bank and a broker-dealer registered
under the Exchange Act and a member of the NASD or any Futures Commission
Merchant registered under the Commodity Exchange Act, relating to compliance
with the rules of the Options Clearing Corporation and of any registered
national securities exchange or the Commodity Futures Trading Commission or any
registered Contract Market, or of any similar organizations regarding escrow or
other arrangements in connection with transactions by a Fund;

(ii) for the purpose of segregating cash or Securities in
connection with options purchased or written by a Fund or commodity futures
purchased or written by a Fund;

(iii) for the deposit of liquid assets, such as cash, U.S.
Government obligations or other high-grade debt obligations, having a market
value (marked-to-market on a daily basis) at all times equal to not less than
the aggregate purchase price due on the settlement dates of all a Fund's then
outstanding forward commitment or "when-issued agreements relating to the
purchase of Portfolio Securities and all a Fund's then outstanding commitments
under any reverse repurchase agreements entered into with broker-dealer firms;

(iv) for the purposes of compliance by a Fund with the
procedures required by Investment Company Act Release No. 10666, or any
subsequent release or releases of the Securities and Exchange Commission
relating to the maintenance of Segregated Accounts by registered investment
companies;

(v) for other proper corporate purposes, but only, in the
case of this clause (v), upon receipt of, in addition to Proper Instructions, a
certified copy of a resolution of the Board, or of the Executive Committee,
signed by an officer of the Company and certified by the Secretary or an
Assistant Secretary, setting forth the purpose(s) of such Segregated Account and
declaring such purpose(s) to be a proper corporate purpose(s).

11
<PAGE>

(b) assets may be withdrawn from the Segregated Account pursuant
to Proper Instructions only:

(i) with respect to assets deposited in accordance with the
provisions of any agreements referenced in (a)(i) or (a)(ii) above, in
accordance with the provisions of such agreements;

(ii) with respect to assets deposited pursuant to (a)(iii)
or (a)(iv) above, for sale or delivery to meet a Fund's obligations under
outstanding forward-commitment, delayed-settlement or when-issued agreements for
the purchase of Portfolio Securities and under reverse repurchase agreements;

(iii) for exchange for other liquid assets of equal or
greater value deposited in the Segregated Account;

(iv) to the extent that a Fund's outstanding forward-
commitment or when-issued agreements for the purchase of portfolio securities or
any reverse repurchase agreements are sold to other parties or the Fund's
obligations thereunder are met from assets of the Fund other than those in the
Segregated Account;

(v) for delivery upon settlement of a forward-commitment,
delayed-settlement or when-issued agreement for the sale of Portfolio
Securities: or

(vi) with respect to assets deposited pursuant to (a)(v)
above, in accordance with the purposes of such account as set forth in Proper
Instructions.

6.11 Interest Bearing Call or Time Deposits. The Bank shall, upon
--------------------------------------
receipt of Proper Instructions relating to the purchase by a Fund of interest-
bearing fixed-term and call deposits, transfer cash, by wire or otherwise, in
such amounts and to such bank(s) as shall be indicated in such Proper
Instructions. The Bank shall include in its records with respect to the assets
of a Fund appropriate notation as to the amount of each such deposit, the
banking institution with which such deposit is made (the "Deposit Bank"), and
shall retain such forms of advice or receipt evidencing the deposit, if any, as
may be forwarded to the Bank by the Deposit Bank. Such deposits shall be deemed
Portfolio Securities of a Fund and the responsibility of the Bank therefore
shall be the same as and no greater than the Bank's responsibility in respect of
other Portfolio Securities of the Fund.

6.12 Transfer of Securities. The Bank will transfer, exchange,
----------------------
deliver or release Portfolio Securities held by it hereunder, insofar as such
Securities are available for such purpose, provided that before making any
transfer, exchange, delivery or release under this Section, the Bank will
receive Proper Instructions requesting such transfer, exchange or delivery
stating that it is for a purpose permitted under the terms of this subsection
6.12, specifying the applicable subsection, or describing the purpose of the
transaction with sufficient particularity to permit the Bank to ascertain the
applicable subsection, only:

(a) upon sales of Portfolio Securities for the account of a
Fund, against contemporaneous receipt by the Bank of payment therefor in full,
or against payment to the Bank

12
<PAGE>

in accordance with generally accepted settlement practices and customs in the
jurisdiction or market in which the transaction occurs, each such payment to be
in the amount of the sale price shown in a broker's confirmation of sale of the
Portfolio Securities received by the Bank before such payment is made, as
confirmed in the Proper Instructions received by the Bank before such payment is
made;

(b) in exchange for, or upon conversion into, other securities
alone or other securities and cash pursuant to any plan of merger,
consolidation, reorganization, share split-up, change in par value,
recapitalization or readjustment or otherwise, upon exercise of subscription,
purchase or sale or other similar rights represented by such Portfolio
Securities, or for the purpose of tendering shares in the event of a tender
offer therefor, provided however that in the event of an offer of exchange,
tender offer, or other exercise of rights requiring the physical tender or
delivery of Portfolio Securities, the Bank shall have no liability for failure
to so tender in a timely manner unless such Proper Instructions are received by
the Bank at least two business days prior to the date required for tender, and
unless the Bank (or its agent or sub-custodian hereunder) has actual possession
of such Portfolio Security at least two business days prior to the date of
tender

(d) for the purpose of redeeming in kind interests of a Fund
upon authorization from the Fund;

(e) in the case of option contracts owned by a Fund, for
presentation to the endorsing broker;

(f) when such Portfolio Securities are called, redeemed or
retired or otherwise become payable;

(g) for the purpose of effectuating the pledge of Portfolio
Securities held by the Bank in order to collateralize loans made to a Fund by
any bank, including the Bank; provided, however, that such Securities will be
released only upon payment to the Bank for the account of the Fund of the moneys
borrowed, except that in cases where additional collateral is required to secure
a borrowing already made, and such fact is made to appear in the Proper
Instructions, further Portfolio Securities may be released for that purpose
without any such payment. In the event that any such pledged Portfolio
Securities are held by the Bank, they will be so held for the account of the
lender, and after notice to the Fund from the lender in accordance with the
normal procedures of the lender, that an event of deficiency or default on the
loan has occurred, the Bank may deliver such pledged Portfolio Securities to or
for the account of the lender,

(h) for the purpose of releasing certificates representing
Portfolio Securities, against contemporaneous receipt by the Bank of the fair
market value of such security, as set forth in the Proper Instructions received
by the Bank before such payment is made;

13
<PAGE>

(i) for the purpose of delivering Portfolio Securities lent by a
Fund to a bank or broker dealer, but only against receipt in accordance with
street delivery custom except as otherwise provided herein, of adequate
collateral as agreed upon from time to time by the Fund and the Bank, and upon
receipt of payment in connection with any repurchase agreement relating to such
Securities entered into by the Fund;

(j) for other authorized transactions of a Fund or for other
proper corporate purposes; provided that before making such transfer, the Bank
will also receive a certified copy of resolutions of the Board, signed by an
authorized officer of the Company (other than the officer certifying such
resolution) and certified by its Secretary or an Assistant Secretary, specifying
the Portfolio Securities to be delivered, setting forth the transaction in or
purpose for which such delivery is to be made, declaring such transaction to be
an authorized transaction of the Fund or such purpose to be a proper corporate
purpose, and naming the person or persons to whom delivery of such Securities
shall be made; and

(k) upon termination of this Agreement as hereinafter set forth
pursuant to Section 8 and Section 14 of this Agreement.

As to any deliveries made by the Bank pursuant to subsections (a), (b),
(c), (e), (f), (g), (h) and (i) securities or cash receivable in exchange
therefor shall be delivered to the Bank.

7. Redemptions. In the case of payment of assets of a Fund held by the
-----------
Bank in connection with redemptions and repurchases by the Fund of outstanding
interests, the Bank will rely on notification by the Company's transfer agent of
receipt of a request for redemption before such payment is made. Payment shall
be made in accordance with the Amended and Restated Articles of Incorporation
(the "Company Articles") and By-Laws of the Company, from assets available for
said purpose.

8. Merger, Dissolution. etc. of the Company or a Fund. In the case of the
--------------------------------------------------
following transactions, not in the ordinary course of business, namely, the
merger of a Fund into or the consolidation of the Company with another
investment company, the sale by the Company of all, or substantially all, of the
assets of one or more Funds to another investment company, or the liquidation or
dissolution of a Fund and distribution of its assets, the Bank will deliver the
Portfolio Securities held by it under this Agreement and disburse cash only upon
the order of the Company, on behalf of such Fund(s) set forth in an Officer's
Certificate, accompanied by a certified copy of a resolution of the Board
authorizing any of the foregoing transactions. Upon completion of such delivery
and disbursement and the payment of the fees, disbursements and expenses of the
Bank, this Agreement will terminate with respect to such Fund or Company, as
applicable.

9. Actions of the Bank Without Prior Authorization. Notwithstanding
-----------------------------------------------
anything herein to the contrary, unless and until the Bank receives an Officer's
Certificate to the contrary, it will without prior authorization or instruction
of the Company or the transfer agent:

(a) Endorse for collection and collect on behalf of and in the
name of a Fund all checks, drafts, or other negotiable or transferable
instruments or other orders for the payment

14
<PAGE>

of money received by it for the account of the Fund and hold for the account of
the Fund all income, dividends, interest and other payments or distributions of
cash with respect to the Portfolio Securities held thereunder;

(b) Present for payment all coupons and other income items held
by it for the account of a Fund that call for payment upon presentation and hold
the cash received by it upon such payment for the account of the Fund;

(c) Receive and hold for the account of a Fund all securities
received as a distribution on Portfolio Securities as a result of a stock
dividend, share split-up, reorganization, recapitalization, merger,
consolidation, readjustment, distribution of rights and similar securities
issued with respect to any Portfolio Securities held by it hereunder.

(d) execute as agent on behalf of a Fund all necessary ownership
and other certificates and affidavits required by the Internal Revenue Code or
the regulations of the Treasury Department issued thereunder, or by the laws of
any state, now or hereafter in effect, inserting a Fund's name on such
certificates as the owner of the securities covered thereby, to the extent it
may lawfully do so and as may be required to obtain payment in respect thereof.
The Bank will execute and deliver such certificates in connection with Portfolio
Securities delivered to it or by it under this Agreement as may be required
under the provisions of the Internal Revenue Code and any Regulations of the
Treasury Department issued thereunder, or under the laws of any State;

(e) present for payment all Portfolio Securities that are
called, redeemed, retired or otherwise become payable, and hold cash received by
it upon payment for the account of a Fund; and

(f) exchange interim receipts or temporary securities for
definitive securities.

10. Collections and Defaults. The Bank will use all reasonable efforts to
------------------------
collect any funds that may to its knowledge become collectible arising from
Portfolio Securities, including dividends, interest and other income, and to
transmit to the Company, on behalf of a Fund, notice actually received by the
Bank of any call for redemption, offer of exchange, right of subscription,
reorganization or other proceedings affecting such Portfolio Securities. If
Portfolio Securities upon which such income is payable are in default or payment
is refused after due demand or presentation, the Bank will notify the Company,
on behalf of a Fund, in writing of any default or refusal to pay within two
business days from the day on which it receives knowledge of such default or
refusal. In addition, the Bank will send the Company a written report once each
month showing any income on any Portfolio Security held by Bank on behalf of a
Fund that is more than ten days overdue on the date of such report.

11. Maintenance of Records and Accounting Services. The Bank will
----------------------------------------------
maintain records with respect to transactions for which the Bank is responsible
pursuant to the terms and conditions of this Agreement, and in compliance with
the applicable rules and regulations of the 1940 Act and will furnish the
Company daily with a statement of condition of each Fund. The Bank will furnish
to the Company at the end of every month, and at the close of each quarter of

15
<PAGE>

the Company's fiscal year, a list of the Portfolio Securities and the aggregate
amount of cash held by Bank on behalf of each Fund. The books and records of
the Bank pertaining to its actions under this Agreement and reports by the Bank
or its independent accountants concerning its accounting system, procedures for
safeguarding securities and internal accounting controls will be open to
inspection and audit at reasonable times by officers of or auditors employed by
the Company and will be preserved by the Bank in the manner and in accordance
with the applicable rules and regulations under the 1940 Act.

The Bank shall perform the fund accounting services listed on Schedule
C hereto and shall keep the books of account and render statements or copies
from time to time as reasonably requested by the Treasurer or any executive
officer of the Company.

The Bank shall assist generally in the preparation of reports to
shareholders and others, audits of accounts, and other ministerial matters of
like nature.

12. Fund Evaluation and Performance Calculations.
---------------------------------------------

12.1 Fund Evaluation. The Bank shall compute and, unless otherwise
---------------
directed by the Board, determine as of the close of regular trading on the New
York Stock Exchange on each day on which said Exchange is open for unrestricted
trading and as of such other days, or hours, if any, as may be authorized by the
Board, the net asset value and the offering price of an interest of each Fund,
such determination to be made in accordance with the provisions of the Company
Articles and By-Laws and Registration Statement of the Company relating to the
Funds, as it may from time to time be amended, and any applicable resolutions of
the Board at the time in force and applicable; and promptly to notify the
Company, any applicable exchange, the NASD or such other persons as the Company
may request of the results of such computation and determination. In computing
the net asset value hereunder, the Bank may rely in good faith upon information
that the Bank reasonably believes to be accurate and reliable furnished to it by
any Authorized Person in respect of (i) the manner of accrual of the liabilities
of each Fund and in respect of liabilities of a Fund not appearing on its books
of account kept by the Bank, (ii) reserves, if any, authorized by the Board or
that no such reserves have been authorized, (iii) the source of the quotations
to be used in computing the net asset value, (iv) the value to be assigned to
any security for which no price quotations are available, and (v) the method of
computation of the offering price on the basis of the net asset value of the
interests, and the Bank shall not be responsible for any loss occasioned by its
reasonable and good faith reliance on any quotations received from a source
pursuant to (iii) above.

12.2. Performance Calculations. The Bank will compute the performance
------------------------
results of each Fund (the "Performance Calculations") in accordance with
applicable provisions of the 1933 Act and 1940 Act and the rules under such Acts
related to the computations to be undertaken by the Bank pursuant to this
Agreement, as promulgated by the Securities and Exchange Commission, as such
provisions and or rules may be amended from time to time, and any published
interpretations of or general conventions accepted by the staff of the
Securities and Exchange Commission with respect to such rules or the subject
matter thereof ("Subsequent Staff Positions"), subject to the Registration
Statement, as amended from time to time, and the terms set forth below:

16
<PAGE>

(a) The Bank shall compute the Performance Calculations for each
Fund for the stated periods of time as shall be mutually agreed upon, and
communicate in a timely manner the result of such computation to the Company.

(b) In performing the Performance Calculations, the Bank will
derive from the records it generates and maintains for each Fund pursuant
Section 11 hereof, the data necessary for the computation. The Bank shall have
no responsibility to review, confirm, or otherwise assume any duty or liability
with respect to the accuracy or correctness of any such data supplied to it by
the Company, any of the its designated agents or any of its designated third-
party providers.

(c) At the request of the Bank, the Company shall provide, and
the Bank shall be entitled to rely on, written standards and guidelines to be
followed by the Bank in interpreting and applying the computation methods
pursuant to the rules or any Subsequent Staff Positions as they specifically
apply to a Fund, provided that the Bank shall be responsible for general
knowledge of such rules and any Subsequent Staff Positions. In the event that
the computation methods in a rule or the Subsequent Staff Positions or the
application to a Fund of a standard or guideline is not free from doubt or in
the event there is any question of interpretation as to the characterization of
a particular security or any aspect of a security or a payment with respect
thereto (e.g., original issue discount, participating debt security, income or
return of capital, etc.) or otherwise or as to any other element of the
computation that is pertinent to the Fund, the Company or its designated agent,
BGFA, shall have the full responsibility for making the determination of how the
security, or payment, is to be treated for purposes of the computation and how
the computation is to be made and shall inform the Bank thereof on a timely
basis. The Bank shall have no responsibility to make independent determinations
with respect to any item that is covered by this Section, and the Bank shall not
be responsible for its computations made in accordance with such determinations
so long as such computations are mathematically correct.

(d) The Company shall keep the Bank informed of all publicly
available information, and of any non-public advice or information, obtained by
the Company from its independent auditors or by its personnel or the personnel
of its investment adviser, related to the computations to be undertaken by the
Bank pursuant to this Agreement, and the Bank shall not be deemed to have
knowledge of such information (except as contained in the Registration
Statement) unless it has been furnished to the Bank in writing.; provided that
the Bank shall be charged with knowledge of any material changes to the 1933
Act, the 1940 Act, and any related rules under such acts related to the
computations to be undertaken by the Bank pursuant to this Agreement without
specific notice from the Company.

13. Concerning the Bank.
--------------------

13.1 Bank Warranty. The Bank warrants that it has and will maintain
-------------
at least the minimum qualifications required by Section 17(f)(1) of the 1940 Act
to act as custodian of the Portfolio Securities and other assets including cash
of the Company's Funds.

17
<PAGE>

13.2 Standard of Care and Performance of Duties.
-------------------------------------------

(a) The Bank agrees to use reasonable care with regard to its
obligations under this Agreement and the safekeeping of property of the Funds.
In performing its duties hereunder and any other duties listed on the Schedules
hereto, the Bank will be entitled to receive and act upon the advice of
independent counsel of its own selection, which may be counsel for the Company,
and the Bank will be without liability for any action taken or thing done, or
omitted to be done, so long as the Bank's actions or inactions are without
negligence and in accordance with this Agreement in good faith in conformity
with such advice. The Bank shall be liable to, and shall indemnify and hold
harmless the Company from and against any loss which shall occur as the result
of the failure of the Bank or a sub-custodian (other than a foreign securities
depository or clearing agency and except as provided in subsections 6.8, 13.2
and 13.3(i) hereof) to exercise reasonable care with respect to their respective
obligations under this Agreement and the safekeeping of such property. Subject
to the foregoing, the Bank will not be responsible for any act, omission,
default or for the solvency of any foreign securities depository or clearing
agency utilized in connection with the provision of services under this
Agreement.

(b) In the performance of its duties hereunder, the Bank will be
protected and not be liable, and will be indemnified and held harmless for any
action taken or omitted to be taken by it with reasonable care and in good faith
reliance upon the terms of this Agreement, any Officer's Certificate, Proper
Instructions, resolution of the Board, facsimile, telegram, notice, request,
certificate or other instrument reasonably believed by the Bank to be genuine
and for any other loss to the Fund except in the case of its negligent actions
or inactions or lack of good faith or reasonable care in the performance of its
obligations or duties hereunder.

(i) the validity of the issue of any Portfolio Securities
purchased by or for a Fund, the legality of the purchases thereof or the
propriety of the price incurred therefor;

(ii) the legality of any sale of any Portfolio Securities
by or for the Fund or the propriety of the amount for which the same are sold;

(iii) the legality of an issue or sale of any interests of a
Fund or the sufficiency of the amount to be received therefor;

(iv) the legality of the repurchase of any interests of a
Fund or the propriety of the amount to be paid therefor;

(v) the legality of the declaration of any dividend by a
Fund or the legality of the distribution of any Portfolio Securities as payment
in kind of such dividend; and

(vi) any property or moneys of a Fund unless and until
received by it, and any such property or moneys delivered or paid by it pursuant
to the terms hereof.

18
<PAGE>

(d) Moreover, the Bank will not be under any duty or obligation
to ascertain whether any Portfolio Securities at any time delivered to or held
by it for the account of a Fund are such as may properly be held by the Fund
under the provisions of its Company Articles, By-Laws, any federal or state
statutes or any rule or regulation of any governmental agency.

(e) Notwithstanding anything in this Agreement to the contrary,
in no event shall the Bank be liable hereunder or to any third party:

(i) for any losses or damages of any kind resulting from
acts of God, earthquakes, fires, floods, storms or other disturbances of nature,
epidemics, strikes, riots, nationalization, expropriation, currency
restrictions, acts of war, civil war or terrorism, insurrection, nuclear fusion,
fission or radiation, the interruption, loss or malfunction of utilities,
transportation, or computers (hardware or software) and computer facilities, the
unavailability of energy sources and other similar happenings or events, except
as results from the Bank's own negligence, provided that the Bank shall make all
reasonable efforts, whenever necessary, to use data processing back-up
facilities provided by Electronic Data Systems, Inc.; or

(ii) for special, punitive or consequential damages arising
from the provision of services hereunder, even if the Bank has been advised of
the possibility of such damages; provided, however, that the parties
specifically acknowledge and agree that damages, if any, incurred by the
Company, its Funds or its agents (including, but not limited to, BGFA or the
Company's transfer or shareholder servicing agents) on account of late or
incorrect net asset values and related information provided to the Company, its
Funds, its agents or other third parties as may be agreed in writing by BGI and
IBT from time to time, are not to be considered special, punitive or
consequential damages for purposes of this subsection 13.2(e)(ii).

(f) The Bank shall supply BGI with such daily information
regarding the cash and securities positions and activity of each Fund as the
Bank and BGI shall from time to time agree.

(g) The Bank need not maintain any insurance for the exclusive
benefit of the Company, but hereby warrants that as of the date of this
Agreement it is maintaining a bankers Blanket Bond and hereby agrees to notify
the Company in the event that such bond is canceled or otherwise lapses.

13.3 Agents and Sub-custodians with Respect to Property of the Funds
---------------------------------------------------------------
Held in the United States. The Bank may employ agents in the performance of its
- -------------------------
duties hereunder and shall be responsible for the acts and omissions of such
agents as if performed by the Bank hereunder. Without limiting the foregoing,
certain duties of the Bank hereunder may be performed by one or more affiliates
of the Bank.

Upon receipt of Proper Instructions, the Bank may employ sub-custodians,
provided that any such sub-custodian meets at least the minimum qualifications
required by Section 17(f)(1) of the 1940 Act to act as a custodian of a Fund's
assets with respect to property of the Fund held in the United States. The Bank
shall have no liability to the Company or any other person by reason of any act
or omission of any sub-custodian and the Company shall indemnify the Bank and
hold it

19
<PAGE>

harmless from and against any and all actions, suits and claims, arising
directly or indirectly out of the performance of any sub-custodian. Upon request
of the Bank, the Company shall assume the entire defense of any action, suit, or
claim subject to the foregoing indemnity. All fees and expenses of any sub-
custodian shall be paid in accordance with Schedule B hereto.

13.4 Duties of the Bank with Respect to Property of the Fund Held
------------------------------------------------------------
Outside of the United States.
- -----------------------------

(a) Appointment of Foreign Sub-custodians. The Company hereby
-------------------------------------
authorizes and instructs the Bank to employ as sub-custodians for the Company's
Portfolio Securities and other assets maintained outside the United States the
foreign banking institutions and foreign securities depositories designated by
the Board (each, a "Selected Foreign Sub-custodian"). Upon receipt of Proper
Instructions, together with a certified resolution of the Company's Board of
Directors, the Bank and the Company may agree to designate additional foreign
banking institutions and foreign securities depositories to act as Selected
Foreign Sub-custodians hereunder. Upon receipt of Proper Instructions, the
Company may instruct the Bank to cease the employment of any one or more such
Selected Foreign Sub-custodians for maintaining custody of a Fund's assets, and
the Bank shall so cease to employ such sub-custodian as soon as alternate
custodial arrangements have been implemented.

(b) Foreign Securities Depositories. Except as may otherwise be
-------------------------------
agreed upon in writing by the Bank and the Company, assets of a Fund shall be
maintained in foreign securities depositories only through arrangements
implemented by the foreign banking institutions serving as Selected Foreign Sub-
custodians pursuant to the terms hereof. Where possible, such arrangements
shall include entry into agreements containing the provisions set forth in
subparagraph (d) hereof. Notwithstanding the foregoing, except as may otherwise
be agreed upon in writing by the Bank and the Company, the Company authorizes
the deposit in Euro-Clear, the securities clearance and depository facilities
operated by Morgan Guaranty Trust Company of New York in Brussels, Belgium, of
Foreign Securities eligible for deposit therein and to utilize such securities
depository in connection with settlements of purchases and sales of securities
and deliveries and returns of securities, until notified to the contrary
pursuant to subparagraph (a) hereunder.

(c) Segregation of Securities. The Bank shall identify on its
-------------------------
books as belonging to a Fund the Foreign Securities held by each Selected
Foreign Sub-custodian. Each agreement pursuant to which the Bank employs a
foreign banking institution shall require that such institution establish a
custody account for the Bank and hold in that account, Foreign Securities and
other assets of the Funds, and, in the event that such institution deposits
Foreign Securities in a foreign securities depository, that it shall identify on
its books as belonging to the Bank the securities so deposited.

(d) Agreements with Foreign Banking Institutions. Each of the
--------------------------------------------
agreements pursuant to which a foreign banking institution holds assets of the
Company's Funds (each, a "Foreign Sub-custodian Agreement") shall be
substantially in the form previously made available to the Company and shall
provide that: (a) such assets will not be subject to any right, charge, security
interest, lien or claim of any kind in favor of the foreign banking institution
or its

20
<PAGE>

creditors or agent, except a claim of payment for their safe custody or
administration (including, without limitation, any fees or taxes payable upon
transfers or reregistration of securities); (b) beneficial ownership of such
assets will be freely transferable without the payment of money or value other
than for custody or administration (including, without limitation, any fees or
taxes payable upon transfers or reregistration of securities); (c) adequate
records will be maintained identifying the assets as belonging to the Bank; (d)
officers of or auditors employed by, or other representatives of the Bank,
including to the extent permitted under applicable law, the independent auditors
for the Company, will be given access to the books and records of the foreign
banking institution relating to its actions under its agreement with the Bank;
and (e) assets of a Fund held by the Selected Foreign Sub-custodian will be
subject only to the instructions of the Bank or its agents.

(e) Access of Independent Auditors of the Company. Upon request
---------------------------------------------
of the Company, the Bank will use its best efforts to arrange for the Company's
independent auditors to be afforded access to the books and records of any
foreign banking institution employed as a Selected Foreign Sub-custodian insofar
as such books and records relate to the performance of such foreign banking
institution under its Foreign Sub-custodian Agreement.

(f) Reports by the Bank. The Bank will supply to the Company
-------------------
from time to time, as mutually agreed upon, statements in respect of the
securities and other assets of a Fund held by Selected Foreign Sub-custodians,
including but not limited to an identification of entities having possession of
the Foreign Portfolio Securities and other assets of the Fund.

(g) Transactions in Foreign Custody Accounts. Transactions with
----------------------------------------
respect to the assets of a Fund held by a Selected Foreign Sub-custodian shall
be effected pursuant to Proper Instructions from the Company to the Bank and
shall be effected in accordance with the applicable Foreign Sub-custodian
Agreement. If at any time any Foreign Portfolio Securities shall be registered
in the name of the nominee of the Selected Foreign Sub-custodian, the Company
agrees to hold any such nominee harmless from any liability by reason of the
registration of such securities in the name of such nominee.

Notwithstanding any provision of this Agreement to the contrary, settlement
and payment for Foreign Securities received for the account of a Fund and
delivery of Foreign Securities maintained for the account of a Fund may be
effected in accordance with the customary established securities trading or
securities processing practices and procedures in the jurisdiction or market in
which the transaction occurs, including, without limitation, delivering
securities to the purchaser thereof or to a dealer therefor (or an agent for
such purchaser or dealer) against a receipt with the expectation of receiving
later payment for such securities from such purchaser or dealer.

In connection with any action to be taken with respect to the Foreign
Securities held hereunder, including, without limitation, the exercise of any
voting rights, subscription rights, redemption rights, exchange rights,
conversion rights or tender rights, or any other action in connection with any
other right, interest or privilege with respect to such Securities
(collectively, the "Rights"), the Bank shall promptly transmit to the Company or
its investment adviser such information in connection therewith as is made
available to the Bank by the Foreign Sub-

21
<PAGE>

custodian, and the Bank shall promptly forward to the applicable Foreign Sub-
custodian any instructions, forms or certifications with respect to such Rights,
and any instructions relating to the actions to be taken in connection
therewith, as the Bank shall receive pursuant to Proper Instructions. The Bank
agrees to use its best efforts to obtain and forward to the Company or its
designated agent, BGFA, information regarding Rights with respect to Foreign
Securities held hereunder. Notwithstanding the foregoing, the Bank shall have no
further duty or obligation with respect to such Rights, including, without
limitation, the determination of whether a Fund is entitled to participate in
such Rights under applicable U.S. and foreign laws, or the determination of
whether any action proposed to be taken with respect to such Rights by the Fund
or by the applicable Foreign Sub-custodian will comply with all applicable terms
and conditions of any such Rights or any applicable laws or regulations, or
market practices within the market in which such action is to be taken or
omitted.

(h) Liability of Selected Foreign Sub-custodians. Each Foreign
--------------------------------------------
Sub-custodian Agreement with a foreign banking institution shall require the
institution to exercise reasonable care in the performance of its duties and to
indemnify, and hold harmless, the Bank and Company from and against certain
losses, damages, costs, expenses, liabilities or claims arising out of or in
connection with the institution's performance of such obligations, all as set
forth in the applicable Foreign Sub-custodian Agreement. The Company
acknowledges that the Bank, as a participant in Euroclear, is subject to the
Terms and Conditions Governing the Euroclear System, a copy of which has been
made available to the Company. The Company acknowledges that pursuant to such
Terms and Conditions, Morgan Guaranty Brussels shall have the sole right to
exercise or assert any and all rights or claims in respect of actions or
omissions of, or the bankruptcy or insolvency of, any other depository,
clearance system or custodian utilized by Euroclear in connection with a Fund's
Portfolio Securities and other assets.

(i) Liability of Bank. The Bank shall have no more or less
-----------------
responsibility or liability on account of the acts or omissions of any Selected
Foreign Sub-custodian employed hereunder than any such Selected Foreign Sub-
custodian has to the Bank and, without limiting the foregoing, the Bank shall
not be liable for any loss, damage, cost, expense, liability or claim resulting
from nationalization, expropriation, currency restrictions, or acts of war or
terrorism, political risk (including, but not limited to, exchange control
restrictions, confiscation, insurrection, civil strife or armed hostilities)
other losses due to Acts of God, nuclear incident or any loss where the Selected
Foreign Sub-custodian has otherwise exercised reasonable care.

(j) Monitoring Responsibilities. The Bank shall furnish annually
---------------------------
to the Company, information concerning the Selected Foreign Sub-custodians
employed hereunder for use by the Company's Board or its designated agent in
evaluating such Selected Foreign Sub-custodians to ensure compliance with the
requirements of Rule 17f-5 of the 1940 Act. In addition, the Bank will promptly
inform the Company in the event that the Bank is notified by a Selected Foreign
Sub-custodian that there appears to be a substantial likelihood that its
shareholders' equity will decline below $200 million (U.S. dollars or the
equivalent thereof) or that its shareholders' equity has declined below $200
million (in each case computed in accordance with generally accepted U.S.
accounting principles) or any other capital adequacy test applicable to it by
exemptive order, or if the Bank has actual knowledge of any material loss of the
assets of a Fund held by a Foreign Sub-custodian.

22
<PAGE>

(k) Tax Law. The Bank shall have no liability for any
-------
obligations now or hereafter imposed on the Trust, or its Funds, or the Bank as
custodian of the Trust by the tax laws of any jurisdiction. The sole
responsibility of the Bank with regard to such taxes shall be to use reasonable
efforts to assist the Company with respect to the withholding and payment by the
Company of such taxes and with respect to any claim for exemption or refund
under the tax law of jurisdictions for which the Company is entitled to such
exemptions or refunds.

13.5 Insurance. The Bank shall use the same care with respect to the
---------
safekeeping of Portfolio Securities and cash of the Company's Funds held by it
as it uses in respect of its own similar property but need not maintain any
special insurance for the benefit of the Company.

13.6. Fees and Expenses of Bank. The Company, on behalf of a Fund,
-------------------------
will pay or reimburse the Bank from time to time for any transfer taxes payable
upon transfer of Portfolio Securities made hereunder. All necessary proper
disbursements, expenses and charges made or incurred by the Bank in the
performance of this Agreement (including any duties listed on Schedule C hereto)
including any indemnities for any loss, liabilities or expense to the Bank as
provided above shall be paid in accordance with Schedule B hereto, provided that
the Bank shall not be entitled to compensation and/or reimbursement for services
and/or expenses and liabilities by the Company, with respect to the Funds,
hereunder so long as the Bank is entitled to receive compensation and
reimbursements from Barclays Global Investors, N.A. ("BGI") for providing sub-
administration services to the Company on behalf of the Funds. If the Bank no
longer is entitled to receive such compensation and reimbursements from BGI, the
Bank shall be entitled hereunder to such compensation or fees and reimbursements
at such rate and at such times as it may from time to time negotiate with the
Company, and such Schedule B shall be amended accordingly.

13.7 Advances by Bank. The Bank may, in its sole discretion, advance
----------------
funds on behalf of a Fund to make any payment permitted by this Agreement upon
receipt of any proper authorization required by this Agreement for such
payments. Should such a payment or payments, with advanced funds, result in an
overdraft (due to insufficiencies of a Fund's account with the Bank, or for any
other reason) this Agreement deems any such overdraft or related indebtedness, a
loan made by the Bank to the Fund payable on demand and bearing interest at the
current rate charged by the Bank for such loans unless the Fund shall provide
the Bank with agreed upon compensating balances. The Company agrees that the
Bank shall have a continuing lien and security interest to the extent of any
overdraft or indebtedness, in and to any property at any time held by it for a
Fund's benefit or in which the Fund has an interest and which is then in the
Bank's possession or control (or in the possession or control of any third party
acting on the Bank's behalf). The Company authorizes the Bank, in its sole
discretion, at any time to charge any overdraft or indebtedness, together with
interest due thereon against any balance of account standing to the credit of a
Fund on the Bank's books.

14. Termination.
------------

(a) This Agreement shall be effective for an initial term
of two (2) years commencing upon the date hereof (the "Initial Term") unless
earlier terminated as provided in subsection (b) below. Thereafter, the
Agreement may be terminated at any time, without penalty

23
<PAGE>

upon sixty (60) days' written notice delivered by either party to the other by
means of registered mail, and upon the expiration of such sixty (60) days, this
Agreement will terminate; provided, however, that the effective date of such
termination may be postponed to a date not more than ninety (90) days from the
date of delivery of such notice (i) by the Bank in order to prepare for the
transfer by the Bank of all of the assets of the Funds held hereunder, or (ii)
by the Company in order to give it an opportunity to make suitable arrangements
for a successor custodian. At any time after the termination of this Agreement,
the Bank agrees to make available to the Company, at its request, the records
maintained by the Bank relating to the performance of its duties as custodian
and to preserve such records for the periods prescribed in Rule 31a-2 under the
1940 Act.

(b) Notwithstanding subsection (a) above, either party hereto
may terminate this Agreement at any time prior to the expiration of the Initial
Term in the event that the other party violates any material provision of this
Agreement, provided that the violating party does not cure such violation within
ninety (90) days of receipt of written notice from the non -violating party of
such violation.

(c) Notwithstanding subsection (a) above, the Company may
terminate this Agreement at any time prior to the expiration of the Initial Term
in the event that (i) the Board of Directors determines that the performance of
the Bank does not meet the reasonable satisfaction (considered in light of
industry standards) of the Board of Directors, provided that the Bank does not
cure such unsatisfactory performance within ninety (90) days of receipt of
written notice specifying such unsatisfactory performance; or (ii) if the Bank
becomes the subject of any state or federal bankruptcy proceeding that is not
dismissed within sixty (60) days of the initiation of such proceeding.

(d) In the event of the termination of this Agreement, the Bank
will immediately upon receipt or transmittal, as the case may be, of notice of
termination, commence and prosecute diligently to completion the transfer of all
cash and the delivery of all Portfolio Securities duly endorsed and all records
maintained under Section 11 to the successor custodian when appointed by the
Company. The obligation of the Bank to deliver and transfer over the assets of
the Company's Funds held by the Bank directly to such successor custodian will
commence as soon as such successor is appointed and will continue until
completed as aforesaid. If the Company does not select a successor custodian
within ninety (90) days from the date of delivery of notice of termination the
Bank may, subject to the provisions of subsection 14(c), deliver the Portfolio
Securities and cash of the Company's Fund held by the Bank to a bank or trust
company of its own selection that meets the requirements of Section 17(f)(1) of
the 1940 Act and has a reported capital, surplus and undivided profits
aggregating not less than $2,000,000, to be held as the property of the
Company's Funds under terms similar to those on which they were held by the
Bank, whereupon such bank or trust company so selected by the Bank will become
the successor custodian of such assets of the Company's Funds with the same
effect as though selected by the Board.

(e) Prior to the expiration of ninety (90) days after notice of
termination has been given, the Company may furnish the Bank with an order of
the Company advising that a successor custodian cannot be found willing and able
to act upon reasonable and customary terms

24
<PAGE>

and that there has been submitted to the Fund's interestholders the question of
whether a Fund will be liquidated or will function without a custodian for the
assets of the Fund. In that event the Bank will deliver the Portfolio Securities
and cash of the Company's Funds, subject as aforesaid, in accordance with one of
such alternatives that may be approved by the requisite vote of shareholders,
upon receipt by the Bank of a copy of the minutes of the meeting of shareholders
at which action was taken, certified by the Company's Secretary and an opinion
of counsel to the Company in form and content satisfactory to the Bank.

15. Confidentiality. Both parties hereto agree than any non-public
---------------
information obtained hereunder concerning the other party is confidential and
may not be disclosed to any other person without the consent of the other party,
except as may be required by applicable law or at the request of a governmental
agency. The parties further agree that a breach of this provision would
irreparably damage the other party and accordingly agree that each of them is
entitled, in addition to all other remedies at law or in equity and without bond
or other security, to an injunction or injunctions to prevent breaches of this
provision.

16. Notices. Any notice or other instrument in writing authorized or
-------
required by this Agreement to be given to either party hereto will be
sufficiently given if addressed to such party and delivered, via registered U.S.
Mail or facsimile with written confirmation via registered U.S. Mail, to it at
its office at the address set forth below; namely:

(a) In the case of notices sent to the Company or a Fund to:

MasterWorks Funds Inc.
111 Center Street
Little Rock, AR 72201
Attention: Richard H. Blank, Jr.

With a copy to:

Barclays Global Investors
45 Fremont Street
San Francisco, CA 94105
Attention: Legal Department

(b) In the case of notices sent to the Bank to:

Investors Bank & Trust Company
89 South Street
Boston, Massachusetts 02111
Attention: Andrew Nesvet

With a copy to: John E. Henry

or at such other place as such party may from time to time designate in
writing.

25
<PAGE>

17. Amendments. This Agreement may not be altered or amended, except by
----------
an instrument in writing, executed by both parties, and in the case of the
Company, such alteration or amendment will be authorized and approved by its
Board.

18. Parties. This Agreement will be binding upon and shall inure to the
-------
benefit of the parties hereto and their respective successors and assigns;
provided, however, that this Agreement will not be assignable by the Company
without the written consent of the Bank or by the Bank without the written
consent of the Company, authorized and approved by its Board; and provided
further that termination proceedings pursuant to Section 14 hereof will not be
deemed to be an assignment within the meaning of this provision.

19. Governing Law. This Agreement and all performance hereunder will be
-------------
governed by the laws of the Commonwealth of Massachusetts.

20. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.

21. Limitation of Liability. The Company and the Bank agree that the
-----------------------
Company's obligations under this Agreement shall not be binding upon any
Trustee, interestholder, officer, employee or agent of the Company individually
but are binding only upon the assets and property of the appropriate Fund.

22. Single Agreement. This Agreement (including any exhibits, appendices
----------------
and schedules hereto) constitutes the entire agreement between the Bank and the
Company as to the subject matter hereof and supersedes any and all agreements,
representations and warranties, written or oral, regarding such subject matter
made prior to the time at which this Agreement has been executed and delivered
between the Bank and the Company.

23. This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original, but such counterparts shall, together,
constitute only one instrument.

26
<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first written above.

MasterWorks Funds Inc.

By: /s/Richard H. Blank, Jr.
------------------------
Name: Richard H. Blank, Jr.
Title: Chief Operating Officer

Investors Bank & Trust Company

By: /s/Robert D. Mancusco
---------------------
Name: Robert D. Mancuso
Title: Managing Director

Investors Bank & Trust Company

By: /s/John E. Henry
----------------
Name: John E. Henry
Title: General Counsel

27
<PAGE>

SCHEDULE A
----------

CUSTODY AGREEMENT
MASTERWORKS FUNDS INC.

List of Funds
-------------

LifePath 2000 Fund

LifePath 2010 Fund

LifePath 2020 Fund

LifePath 2030 Fund

LifePath 2040 Fund

Asset Allocation Fund

Bond Index Fund

Growth Stock Fund

Money Market Fund

Short-Intermediate Term Fund

S & P 500 Index Fund

U.S. Treasury Allocation Fund

Dated: October 21, 1996

A-1
<PAGE>

Schedule B
----------

CUSTODY AGREEMENT
MASTERWORKS FUNDS INC.

IBT shall not be entitled to separate compensation from MasterWorks
Funds Inc. for providing custody and fund accounting services to the Company's
Funds pursuant to this Agreement so long as IBT is entitled to receive fees and
related expenses from BGI, pursuant to the Sub-administration Agreement between
BGI and IBT, for providing such custody and fund accounting services to the
Company's Funds. If IBT is no longer entitled to receive such fees and
expenses under such Sub-administration Agreement, then IBT shall be entitled to
receive compensation from the Company as IBT may from time to time negotiate
with the Company, and this Schedule B shall be amended accordingly.

B-1
<PAGE>

Schedule C
----------

CUSTODY AGREEMENT
MASTERWORKS FUNDS INC.

Fund Accounting Duties
----------------------

I. A. Journals containing an itemized daily record in detail of all
purchases and sales of securities, all receipts and disbursements of cash and
all other debits and credits, as required by subsection (b)(1) of rule 31a-1
under the 1940 Act (the "Rule");

B. General and auxiliary ledgers reflecting all asset, liability,
reserve, capital, income and expense accounts, including interest accrued and
interest received, as required by subsection (b)(2)(i) of the Rule;

C. Separate ledger accounts required by subsection (b) (2) (ii) and
(iii) of the Rule; and

D. A monthly trial balance of all ledger accounts (except shareholder
accounts) as required by subsection (b)(8) of the Rule.

II. All such books and records shall be the property of the Company, and
IBT agrees to make such books and records available for inspection by the
Company or by the Securities and Exchange Commission at reasonable times and
otherwise to keep confidential all records and other information relative to the
Company; except when requested to divulge such information by duly constituted
authorities or court process, or when requested by the Company.

III. In addition to the maintenance of the books and records specified
above, IBT shall perform the following accounting services daily for each Fund;

A. Calculate the net asset value per interest;

B. Calculate changes in net asset value;

C-1
<PAGE>

C. Calculate the per share dividend distribution rates:

D. Calculate dividends and any capital-gain distributions;

E. Calculate performance figures, including any yield or total return
and other performance figures, as appropriate;

F. Provide the following reports:

1. a current security position report;

2. a summary report of transactions and pending maturities
(including the principal cost, and accrued interest on each
portfolio security in maturity date order); and

3. a current cash position report (including cash available from
portfolio sales and maturities and sales of a Fund's interests
less cash needed for redemptions and settlement of portfolio
purchases);

G. Such other similar services with respect to a Fund as may be
reasonably requested by the Company.

IV. IBT shall forward the information contained in Section III of this
Schedule to third-party service providers reasonably requested by the Company,
the Co-Administrators or BGFA.

C-2

<PAGE>

EXHIBIT 99_B10

[MORRISON & FOERSTER LLP LETTERHEAD]

June 30, 1997

MasterWorks Funds Inc.
111 Center Street
Little Rock, AR 72201

Re: Shares of Common Stock of MasterWorks Funds Inc.
------------------------------------------------

Ladies/Gentlemen:

We refer to Post-Effective Amendment No. 14 and Amendment No. 18 to the
Registration Statement on Form N-1A (SEC File Nos. 33-54126 and 811-7332) (the
"Registration Statement") of MasterWorks Funds Inc. (the "Company") relating to
the registration of an indefinite number of shares of common stock of the
Company (collectively, the "Shares").

We have been requested by the Company to furnish this opinion as Exhibit 10
to the Registration Statement.

We have examined documents relating to the organization of the Company and
its series and the authorization and issuance of shares of its series. We have
also verified with the Company's transfer agent the maximum number of shares
issued by the Company during the fiscal year ended February 28, 1997.

Based upon and subject to the foregoing, we are of the opinion that:

The issuance and sale of the Shares by the Company has been duly and
validly authorized by all appropriate corporate action, and assuming delivery by
sale or in accord with the Company's dividend reinvestment plan in accordance
with the description set forth in the Funds' current prospectuses, the Shares
will be validly issued, fully paid and nonassessable by the Company.

We consent to the inclusion of this opinion as an exhibit to the
Registration Statement.
<PAGE>

Master Works Funds Inc.
June 30, 1997
Page Two

In addition, we hereby consent to the description of advice rendered by our
firm under the heading "Management of the Fund(s)" in the Prospectuses and to
the use of our name and to the reference to our firm under the caption "Counsel"
in the Statements of Additional Information, which are included as part of this
Registration Statement.

Very truly yours,

/s/ MORRISON & FOERSTER LLP

MORRISON & FOERSTER LLP

<PAGE>

EXHIBIT 99.B11

INDEPENDENT AUDITORS' CONSENT

The Board of Directors and Shareholders
MasterWorks Funds Inc.:

We consent to incorporation by reference in the MasterWorks Funds Inc. Post-
Effective Amendment No. 14 to the Registration Statement Number 33-54126 on Form
N-1A under the Securities Act of 1933 and Amendment No. 18 to the Registration
Statement Number 811-7332 on Form N-1A under the Investment Company Act of 1940
of our report dated April 11, 1997 on the financial statements and financial
highlights of the Asset Allocation Fund, Bond Index Fund, Growth Stock Fund, S&P
500 Stock Fund, Short-Intermediate Term Fund and U.S. Treasury Allocation Fund
(six of the series constituting MasterWorks Funds Inc.) (the "Funds") as of
February 28, 1997 and for the periods indicated therein, which report has been
incorporated by reference in the Statement of Additional Information.

We also consent to incorporation by reference of our report dated April 11,
1997, on the financial statements and portfolios of investments of the Growth
Stock Master Portfolio and the Short-Intermediate Term Master Portfolio (two of
the series constituting Managed Series Investment Trust) as of February 28, 1997
and for the periods indicated therein, which report has been incorporated by
reference in the Statement of Additional Information.

We also consent to incorporation by reference of our report dated April 11,
1997, on the financial statements and portfolios of investments of the Asset
Allocation Master Portfolio, Bond Index Master Portfolio, S&P 500 Index Master
Portfolio and U.S. Treasury Allocation Master Portfolio (four of the series
constituting Master Investment Portfolio) as of February 28, 1997 and for the
periods indicated therein, which report has been incorporated by reference in
the Statements of Additional Information.

We also consent to the reference to our firm under the headings "Financial
Highlights" and "Independent Auditors" in the prospectus and "Independent
Auditors" in the Statement of Additional Information.

/s/KPMG Peat Marwick LLP

San Francisco, California
June 27, 1997
<PAGE>

INDEPENDENT AUDITORS' CONSENT

The Board of Directors and Shareholders
MasterWorks Funds Inc.:

We consent to incorporation by reference in the MasterWorks Funds Inc. Post-
Effective Amendment No. 14 to the Registration Statement Number 33-54126 on Form
N-1A under the Securities Act of 1933 and Amendment No. 18 to the Registration
Statement Number 811-7332 on Form N-1A under the Investment Company Act of 1940
of our report dated April 11, 1997 on the financial statements and financial
highlights of the LifePath 2000 Fund, LifePath 2010 Fund, LifePath 2020 Fund,
LifePath 2030 Fund and LifePath 2040 Fund (five of the series constituting
MasterWorks Funds Inc.) (the "Funds") as of February 28, 1997 and for the
periods indicated therein, which report has been incorporated by reference in
the Statement of Additional Information.

We also consent to incorporation by reference of our report dated April 11,
1997, on the financial statements and portfolios of investments of the LifePath
2000 Master Portfolio, LifePath 2010 Master Portfolio, LifePath 2020 Master
Portfolio, LifePath 2030 Master Portfolio and LifePath 2040 Master Portfolio
(five of the series constituting Master Investment Portfolio) as of February 28,
1997 and for the periods indicated therein, which report has been incorporated
by reference in the Statement of Additional Information.

/s/ KPMG Peat Marwick LLP

San Francisco, California
June 27, 1997
<PAGE>

INDEPENDENT AUDITORS' CONSENT

The Board of Directors and Shareholders
MasterWorks Funds Inc.:

We consent to incorporation by reference in the MasterWorks Funds Inc. Post-
Effective Amendment No. 14 to the Registration Statement Number 33-54126 on Form
N-1A under the Securities Act of 1933 and Amendment No. 18 to the Registration
Statement Number 811-7332 on Form N-1A under the Investment Company Act of 1940
of our report dated April 11, 1997 on the financial statements and financial
highlights of the Money Market Fund (one of the series constituting MasterWorks
Funds Inc.) (the "Fund") as of February 28, 1997 and for the periods indicated
therein, which report has been incorporated by reference in the Statement of
Additional Information for the Fund.

/s/ KPMG Peat Marwick LLP

San Francisco, California
June 27, 1997

<PAGE>

EXHIBIT 99.B19

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Marco E. Adelfio, Richard H. Blank, Jr., R. Greg Feltus and Robert M.
Kurucza, and each of them, his true and lawful attorney-in-fact and agent (each,
an "Attorney-in Fact") with full power of substitution and resubstitution, for
him and in his name, place and stead, in any and all capacities, (i) to execute
the Registration Statement of each of MasterWorks Funds Inc., Managed Series
Investment Trust and Master Investment Portfolio, (each, a "Company") and any or
all amendments (including post-effective amendments) thereto and to file the
same, with any and all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission and any state securities
commissions or authorities, and (ii) to execute any and all federal or state
regulatory filings, including all applications with regulatory authorities,
state charter or organizational documents and any amendments or supplements
thereto, to be executed by, on behalf of, or for the benefit of, a Company. The
undersigned hereby grants to each Attorney-in-Fact full power and authority to
do and perform each and every act and thing contemplated above, as fully and to
all intents and purposes as he might or could do in person, and hereby ratifies
and confirms all that said Attorney-in-Fact may lawfully do or cause to be done
by virtue hereof.

Dated: October 24, 1996 /s/ Jack S. Euphrat
----------------------------
Jack S. Euphrat
<PAGE>

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Marco E. Adelfio, Richard H. Blank, Jr. and Robert M. Kurucza, and each
of them, his true and lawful attorney-in-fact and agent (each, an "Attorney-in
Fact") with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, (i) to execute the
Registration Statement of each of MasterWorks Funds Inc., Managed Series
Investment Trust and Master Investment Portfolio, (each, a "Company") and any or
all amendments (including post-effective amendments) thereto and to file the
same, with any and all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission and any state securities
commissions or authorities, and (ii) to execute any and all federal or state
regulatory filings, including all applications with regulatory authorities,
state charter or organizational documents and any amendments or supplements
thereto, to be executed by, on behalf of, or for the benefit of, a Company. The
undersigned hereby grants to each Attorney-in-Fact full power and authority to
do and perform each and every act and thing contemplated above, as fully and to
all intents and purposes as he might or could do in person, and hereby ratifies
and confirms all that said Attorney-in-Fact may lawfully do or cause to be done
by virtue hereof.

Dated: October 24, 1996 /s/ R. Greg Feltus
-----------------------------
R. Greg Feltus
<PAGE>

POWER OF ATTORNEY

Dated: October 24, 1996 /s/ Thomas S. Goho
-----------------------------
Thomas S. Goho
<PAGE>

POWER OF ATTORNEY

Dated: October 24, 1996 /s/ Zoe Ann Hines
-----------------------------
Zoe Ann Hines
<PAGE>

POWER OF ATTORNEY

Dated: October 24, 1996 /s/ W. Rodney Hughes
-----------------------------
W. Rodney Hughes
<PAGE>

POWER OF ATTORNEY

Dated: October 24, 1996 /s/ Robert M. Joses
----------------------------
Robert M. Joses
<PAGE>

POWER OF ATTORNEY

Dated: October 24, 1996 /s/ J. Tucker Morse
-----------------------------
J. Tucker Morse