IMPORTANT NOTICE: PLEASE COMPLETE THE ENCLOSED PROXY BALLOT
AND RETURN IT AS SOON AS POSSIBLE
For your convenience, you may also vote by calling [Shareholder
Communications Corp. ("SCC")] toll-free at 1-800-733-8481, Ext. 460
from 6:00 a.m. to 8:00 p.m. Pacific time.] You may
also vote by faxing your
Proxy Ballot to [SCC at 1-800-733-1885.]
A confirmation of your telephone or telefacsimile
vote will be mailed to you.
MASTERWORKS FUNDS INC.
111 Center Street
Little Rock, Arkansas 72201
July 2, 1998
Dear Shareholder of the Money Market Fund:
We are pleased to invite you to a Special Meeting of Shareholders
of the Money Market Fund (the "Fund") of MasterWorks Funds Inc.(the "Company")
to be held on Friday, August 14, 1998. At the Special Meeting, shareholders of
the Fund will be asked to approve a reorganization to a master/feeder structure
(the "Reorganization") as described below and in the accompanying Proxy
Statement. You will also be asked to approve a proposed investment policy
authorizing the Fund to invest its assets without limitation in bank
obligations.
The accompanying proxy materials describe a transaction involving
the conversion of the Fund into a master/feeder fund that would invest
substantially all of its assets in the new Money Market Master Portfolio (the
"Master Portfolio"). Barclays Global Fund Advisors ("BGFA") will continue in
its capacity as investment adviser to the Master Portfolio.
BGFA has indicated that the Master Portfolio will continue
operation with the Fund's existing management, investment professionals and
resources essentially intact. BGFA has advised the Board of Directors of the
Company that under the proposed Reorganization no material changes to the
Funds' investment philosophy, policies or strategies are contemplated.
The Board of Directors believes that the proposed Reorganization
of the Fund into a master/feeder structure offers significant potential
benefits to shareholders. Under this structure, the Fund will become a feeder
fund and will invest all of its assets in a newly established master
portfolio. The Reorganization will not result in any changes to the
Fund's investment objectives. Initially, overall expense levels may increase
slightly, although Barclays Global Investors, N.A. ("BGI") has agreed to
absorb the additional expenses for one year after the Reorganization.
An eventual reduction in fee levels is the principal potential benefit of
the proposed Reorganization.
The Company also asks for your approval of a proposed investment
policy to invest its assets without limitation in bank obligations. Approval of
this proposal will include, in effect, approval of an amendment to a certain
fundamental investment restriction that would otherwise preclude the Fund from
engaging in transactions in obligations of foreign banks and obligations of
foreign branches of U.S. banks.
As described in detail in the accompanying proxy materials, the
Special Meeting is being called to request shareholder approval to approve the
following specific proposals:
1. To approve the Reorganization of the Fund into a master/feeder
structure. Under this structure, the Fund would pursue its investment objective
by investing in a newly established Master Portfolio of another investment
company that would be advised by BGFA, instead of investing directly in a
portfolio of securities. The Master Portfolio will have the same investment
objective, policies and restrictions as the Fund. As part of this
1
<PAGE>
approval, Fund shareholders will be approving, in effect, amendments to certain
fundamental investment restrictions of the Fund that would otherwise preclude
the Fund from investing all of its assets in a Master Portfolio. The
purpose of the Reorganization is to provide the Fund with the opportunity to
achieve certain benefits, including cost savings, associated with the
Master Portfolio's potentially larger asset base.
2. To approve a proposed investment policy to authorize the Fund to invest
its assets without limitation in bank obligations. Approval of this proposal
will include, in effect, approval of an amendment to a certain fundamental
investment restriction that would otherwise preclude the Fund from engaging in
transactions in obligations of foreign banks and obligations of foreign branches
of U.S. banks. The Master Portfolio will have identical authority to pursue
this concentration policy.
THE COMPANY'S BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THESE PROPOSALS AND
RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE PROPOSALS.
The formal Notice of Special Meeting, a Proxy Statement and a
Proxy Ballot are enclosed. Whether or not you intend to attend the Special
Meeting, please complete and return your Proxy Ballot. You may vote by proxy in
any of three ways:
1. Mark, sign, date and return the enclosed Proxy Ballot in
the enclosed postage-paid envelope; or
2. Vote by telephone by calling [SCC toll-free at 1-800-733-
8481, Ext. 460 from 6:00 a.m. to 8:00 p.m. (Pacific time)
(a confirmation of your telephone vote will be mailed to you)];
or
3. Mark, sign, date and fax the enclosed Proxy Ballot to
[SCC at 1-800-733-1885 (a confirmation of your telefacsimile
vote will be mailed to you)].
YOUR VOTE IS VERY IMPORTANT TO US REGARDLESS OF THE NUMBER OF
SHARES THAT YOU OWN.PLEASE VOTE BY RETURNING YOUR PROXY BALLOT TODAY, EITHER IN
THE ENCLOSED POSTAGE-PAID ENVELOPE OR BY TELEFACSIMILE AT [1-800-733-1885,
OR BY CALLING SCC TOLL-FREE AT 1-800-733-8481, EXT. 460.]
If you have any questions regarding the enclosed materials or
the Special Meeting, please call the Company at 1-888-204-3956. We look
forward to receiving your vote very soon.
Sincerely,
--------------------------
R. Greg Feltus
President and Chairman of the Board
2
<PAGE>
MasterWorks Funds Inc.
111 Center Street
Little Rock, Arkansas 72201
1-888-204-3956
- ------------------------------------------------------------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
OF THE
MONEY MARKET FUND
to be held on August 14, 1998
- ------------------------------------------------------------------------------
To the Shareholders of the MONEY MARKET FUND (the "Fund") of MasterWorks Funds
Inc. (the "Company"):
PLEASE TAKE NOTE that a SPECIAL MEETING OF SHAREHOLDERS (the
"Special Meeting") of the Fund will be held on Friday, August 14, 1998 at 11:00
a.m. (Central time) at the Company's principal executive office, 111 Center
Street, Little Rock, Arkansas 72201.
The Special Meeting is being called for the following purposes:
1. To consider approval of the proposal to reorganize the Fund
into a master/feeder structure, with amendments to certain
fundamental investment restrictions to permit the Fund to
invest all of its assets in another investmentcompany (as set
forth in the accompanying Proxy Statement and Appendix A
thereto) (the "Reorganization").
2. To approve a proposed investment policy to authorize the Fund
to invest its assets without limitation in bank obligations.
Approval of this proposal will include, in effect, approval of
an amendment to a certain fundamental investment restriction
that would otherwise preclude the Fund from engaging in
transactions in obligations of foreign banks and obligations of
foreign branches of U.S. banks. The Master Portfolio will have
identical authority to pursue this concentration policy.
The terms of the proposed advisory contract are identical in all
material respects to the terms of the current advisory contract for the Fund
with BGFA except that Wells Fargo Bank will no-longer act as sub-adviser. BGFA
will assume Wells Fargo's duties as sub-adviser.
These proposals and any other matters that are properly raised at,
or are incident to the conduct of, the Special Meeting may be considered either
at the Special Meeting or any adjournment(s) thereof, including any
adjournment(s) necessary to obtain requisite quorums and/or approvals.
Your Board of Directors recommends that you vote FOR the
proposals.
The Board of Directors of the Company has fixed the close of
business on June 19, 1998 as the record date for the determination of Fund
shareholders entitled to receive notice of and to vote at the Special Meeting
or at any adjournment(s) thereof. The enclosed Proxy Statement contains further
information regarding the Special Meeting and the proposals to be considered.
Your proxy is very important to us. Signed but unmarked Proxy Ballots will be
counted in determining whether a quorum is present and (except for broker
"non-votes" as described in the accompanying Proxy Statement) will be voted in
favor of the proposals and in the discretion of the proxy agents as to other
matters that may come properly before, or on matters incident to the conduct
of, the Special Meeting. Whether or not you intend to attend the Special
Meeting in person, please return your Proxy Ballot. You may vote in any
one of the following three ways:
1. Mark, sign, date and return the enclosed Proxy Ballot
in the enclosed postage-paid envelope; or
2. Vote by telephone by calling [SCC toll-free at 1-800-733-8481,
Ext. 460 from 6:00 a.m. to 8:00 p.m.(Pacific time)(a
confirmation of your telephone vote will be mailed to you)];
or
3. Mark, sign, date and fax the enclosed Proxy Ballot to
[SCC at 1-800-733-1885 (a confirmation of your telefacsimile
vote will be mailed to you)].
1
<PAGE>
By Order of the Board of Directors
Richard H. Blank, Jr.
Secretary
July 2, 1998
- -----------------------------------------------------------------------------
YOUR VOTE IS VERY IMPORTANT TO US REGARDLESS
OF THE NUMBER OF SHARES THAT YOU OWN.
PLEASE VOTE BY MAIL, TELEPHONE
OR TELEFACSIMILE IMMEDIATELY.
- -----------------------------------------------------------------------------
2
<PAGE>
PROXY STATEMENT
July 2, 1998
SPECIAL MEETING OF SHAREHOLDERS
OF THE
MONEY MARKET FUND
OF
MASTERWORKS FUNDS INC.
111 Center Street
Little Rock, Arkansas 72201
1-888-204-3956
INTRODUCTION
This Proxy Statement is being furnished to shareholders of the
Money Market Fund (the "Fund") and MasterWorks Funds Inc. (the "Company") in
connection with the olicitation of proxies by the Company's Board of Directors
to be used at a Special Meeting of Shareholders (the "Special Meeting"), and at
any adjournment(s) thereof, to be held on Friday, August 14, 1998 beginning at
11:00 a.m. (Central time) at the Company's principal office, 111 Center Street,
Little Rock, Arkansas 72201. Your proxy is being solicited for the purposes set
forth below and in the accompanying Notice of Special Meeting.
Shareholders of record of the Fund at the close of business on
June 19, 1998 (the "Record Date") are entitled to notice of and to vote at the
Special Meeting or any adjournment(s) thereof. As of the Record Date, there were
171,614,879.86 outstanding shares of the Fund, each of which is entitled to a
single vote. This Proxy Statement is first being mailed to shareholders on or
about July 2, 1998. The Company will furnish, without charge, a copy of its
annual report and most recent semi-annual report upon request directed to the
Company at its principal executive office or by calling the Company at
1-888-204-3956.
If, by the time scheduled for the Special Meeting, a quorum is not
present or if a quorum is present but sufficient votes in favor of the Proposals
are not received, the persons named as proxy agents may propose one or more
adjournments of the Special Meeting to permit further solicitation of proxies.
Any such adjournment(s) will require the affirmative vote of a majority of the
shares present in person or by proxy at the session of the Special Meeting to
be adjourned.
PROPOSALS
The Special Meeting has been called for the principal purpose of
considering a reorganization of the Company's Fund, as described in more detail
below (the "Reorganization"). If the Reorganization is approved in all respects,
the Fund will invest in a portfolio of another open-end management investment
company whose investment objective, policies and restrictions will be the
same as those of the Fund (the "Master Portfolio").
Fund shareholders are also being asked to approve a proposed
investment policy to authorize the Fund to invest its assets without limitation
in bank obligations.Approval of this proposal will include, in effect, approval
of an amendment to a certain fundamental investment restriction that would
otherwise preclude the Fund from engaging in transactions in obligations of
foreign banks and obligations of foreign branches of U.S. banks. The proposed
investment policy is expected to provide the Fund with greater flexibility in
pursuing its investment objective.
Your Board of Directors recommends that you vote FOR the
Reorganization and the investment policy to authorize the Fund to invest its
assets without limitation in other bank obligations as described more fully
below in this Proxy Statement.
For further discussion of the proposal, please refer to the
Question and Answer Summary that begins on page 2 below and the detailed
discussion under the proposal that begins on page 2 of this Proxy Statement.
1
<PAGE>
SUMMARY OF PROPOSALS
Q. Why is the Reorganization being recommended?
A. The purpose of the Reorganization is to provide the Fund with the oppor-
tunity to achieve certain benefits associated with a larger asset base.
Currently, the Fund's shares are offered for sale primarily to retail
investors. In contrast, it is anticipated that the Master Portfolio will
be available directly to institutional investors, and indirectly through
other mutual funds and similar collective investment vehicles to a broad
range of investors. Any significant increase in assets should provide
various benefits to Fund shareholders. Specifically, higher asset
levels at the Master Portfolio level should enable the Master
Portfolio to spread primarily advisory and custody fees, but also
certain fixed third-party expenses, over a larger asset base, thereby
reducing per-share expense levels. Reductions in per-share expense
levels should have a favorable impact on the total return of
the Fund. A larger asset base also could benefit portfolio management
by permitting larger individual portfolio investments,
which should result in reduced transaction costs and/or more favorable
pricing.
Q. How will the Reorganization affect overall fees and expenses?
A. The Reorganization will not result in any changes to the Fund's investment
objectives. Initially, overall expense levels may increase slightly,
although BGI has agreed to absorb the additional expenses for one year
after the Reorganization. An eventual reduction in fee levels is the
principal potential benefit of the proposed Reorganization. The
Reorganization will involve restructuring of the payment of customary fees
and expenses, such as advisory and custody fees and expenses, to the
Master Portfolio level.
Q. Is there any sales load, sales charge, commission, or other transactional
fee imposed in connection with the Reorganization?
A. No. The transfer of Fund assets to the Master Portfolio will be effected
without any sales load, sales charge, commission or other
transactional fee being imposed.
Q. Who will advise the Master Portfolio?
A. BGFA will provide advisory services to the Master Portfolio, under
arrangements that are substantially identical to those currently in effect
for the Fund with the exception that Wells Fargo Bank will not serve as
sub-adviser. Stephens Inc.("Stephens") will continue to serve as sponsor,
distributor and administrator of the Fund and will serve as placement
agent and co-administrator of the Master Portfolio. BGI will also serve
as co-administrator.
Q. What aspects of the current investment restrictions limit the Fund's
ability to invest its assets in other bank obligations?
A. Currently, the Fund is permitted to invest its assets without
limitation in obligations of domestic banks which does not include
obligations of foreign banks, U.S. branches of foreign banks or
obligations of foreign branches of U.S. banks. The Fund now
desires the ability to invest its assets without limitation in these
types of bank obligations.
Q. Why is it recommended that the Fund be permitted to invest its assets
in other bank obligations?
A. The ability to invest in other bank obligations would provide the Fund
with greater flexibility in pursuing its investment objective.
PROPOSAL 1
TO CONSIDER APPROVAL OF THE PROPOSAL TO REORGANIZE THE FUND
Reorganization to Invest Fund Assets in the Master Portfolio
The Board of Directors of the Company is asking shareholders of
the Fund to authorize the exchange of the Fund's investable assets (securities
and cash) for a beneficial interest in the Master Portfolio having the same
investment objective, policies and restrictions as the Fund. The Master
Portfolio is one of a newly formed series of an exiting open-end management
investment company, Master Investment Portfolio ("MIP" or the "Trust"). After
the Reorganization, the only investment securities that will be held by the
Fund will be the interests in the Master Portfolio. BGFA, which presently
serves as the Fund's adviser, will serve as investment adviser to the Master
2
<PAGE>
Portfolio.The Fund will no longer directly engage an adviser or sub-adviser to
manage its assets because all of its investable assets will be invested in
the Master Portfolio. If the Proposal is approved by the Fund's
shareholders, the Reorganization is expected to occur as of August 28, 1998
or as promptly as practicable thereafter following the Special Meeting.
Under this proposed operating structure, which is known as a
master/feeder structure (the Fund being known as a "feeder" and a Master
Portfolio as a "master"), the Fund will pursue its existing investment objective
through investment in the Master Portfolio, rather than through direct
investments in securities. The Master Portfolio in turn will invest in
securities of the same type and in accordance with the same objective, policies
and restrictions of the Fund. Shareholders will continue to hold shares of the
Fund, and the Fund will hold interests in the Master Portfolio. The value of a
shareholder's investment in the Fund will be the same immediately after the
Fund's investment in the Master Portfolio as immediately before that investment.
Of course, the value of a shareholder's investment in the Fund will fluctuate
thereafter, based on the investment performance of the Master Portfolio. The
investment experience of the Fund will be based directly upon the investment
experience of the Master Portfolio. After the Reorganization, fees and expenses
will be restructured between the Fund and Master Portfolio, with advisory and
custodial fee and expense obligations being transferred to the Master Portfolio
level and distribution, transfer agency and shareholder servicing fee
obligations being retained at the Fund level. The Master Portfolio will incur
an additional minimal miscellaneous expense but BGI has agreed to absorb
such expenses for at least one year following the Reorganization. Fund
shareholders will have no appraisal rights, since the proposed Reorganization
will involve no exchange of their securities for other securities. Of course,
Fund shareholders may still redeem their shares at any time before,
during or after the Reorganization.
The Master Portfolio constitutes series in MIP, which is organized
as a Delaware business trust. The Master Portfolio has been established to serve
as the investment portfolio for various institutional investors, including
collective investment vehicles, that have the same investment objectives and
policies as the Master Portfolio. These vehicles may include, among other types
of investors, registered mutual funds and private or off-shore investment funds.
Other mutual funds that may invest in the Master Portfolio may hav different
expenses and, therefore, different yields/returns than the Fund.The interests
in MIP's Master Portfolio are not available for purchase directly by members of
the general public. The Money Market Fund of MasterWorks Funds Inc., which is a
registered management investment company organized as a Maryland corporation,
will invest in MIP's Master Portfolio.
Investors
As of February 28, 1998, the net assets of the Fund were
approximately $180,323,004. The Company was organized as a Maryland corporation
on October 15, 1992, and currently offers shares of twelve series, including
the Fund.
Comparative Expenses
Following are tables showing the actual fees and expenses of the
Fund for the annual period ended February 28, 1998, and a pro forma adjustment
thereof, assuming that the Fund had invested all of its investable assets in the
Master Portfolio for the entire period then ended. The pro forma adjustment
assumes that: (i) there were no holders of interests in Master Portfolio other
than the Fund; and (ii) the average daily net assets of the Master Portfolio
during the period was equal to the actual average daily net assets of the Fund
during the period. All amounts are annualized and reflect certain fee waivers
and expense reimbursements as more fully described below.
<TABLE>
Money Market Fund
For the period ended February 28, 1998
Actual Pro Forma
Master
Fund Portfolio Total
<S> <C> <C> <C> <C>
Annual Fund Operating Expenses
Management Fees...................0.35% 0.00% 0.10% 0.10%
Co-Administration fees......... 0.10% 0.35% 0.00% 0.35%
Total Fund Operating Expenses.... 0.45% 0.35% 0.10% 0.45%
</TABLE>
The fees and expenses are described more fully in the Prospectus
for the Fund. The investment advisory fee for the Fund is an effective
fee based on the Fund's total net assets at the time of calculation. The
3
<PAGE>
Company has agreed to pay BGFA a monthly fee at the annual rate of 0.35%
of the Fund'saverage daily net assets as compensation for its advisory services.
Wells Fargo Bank served as sub-adviser to the Fund and was 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. BGFA may elect,
in its sole discretion, to waive or reimburse all or a portion of its
respective fees charged to, or expenses paid by, the Fund. Any such waiver or
reimbursement will reduce a Fund's expenses and, accordingly, have a
favorable impact on such Fund's total return. However, there can be no
assurances that such waivers or reimbursements will occur.
The fee summary above reflects voluntary fee waivers and expense
reimbursements by BGFA and Stephens for the year ending February 28, 1998.
Absent such fee waivers and expense reimbursements, the percentages shown above
under "Total Fund Operating Expenses" would be as follows:
<TABLE>
Money Market Fund
For the period ended February 28, 1998
Actual Pro Forma
Master
Fund Portfolio Total
<S> <C> <C> <C> <C>
Total Fund Operating Expenses....... 0.45% 0.35% 0.10% 0.45
</TABLE>
The Fund would be able to withdraw its investment in the Master
Portfolio at any time if the Company's Board of Directors were to determine that
to do so would be in the best interests of the Fund and the Fund's shareholders.
Upon any such withdrawal, the Board of Directors would consider what action
might be taken, including the investment of all of the investable assets of the
Fund in another pooled investment vehicle.
The proposed transfer of assets of the Fund is expected to have no
tax consequences for the Fund or its shareholders. The Fund intends to continue
to qualify for treatment as a regulated investment company under Subchapter M of
the Internal Revenue Code of 1986, as amended. In each taxable year the Fund so
qualifies, it will be relieved of federal income tax on that part of its
investment company taxable income that is distributed to shareholders. The
Master Portfolio intends to be treated as partnerships for tax purposes and does
not expect to be required to pay any federal income or excise taxes. Of course,
distributions from the Fund will continue to be taxable to Fund shareholders as
ordinary income or capital gain, as the case may be. If you hold shares of the
Fund within a retirement plan, distributions from the Fund will not be subject
to income tax unless you take withdrawals from your retirement plan account.
Risks of Master-Feeder Structure
There are certain potential risks to the Fund related to
investment of all of its assetsin the Master Portfolio. Large-scale redemptions
by other investors of their interests in the Master Portfolio could have adverse
effects on the Fund, such as requiring the liquidation of a significant portion
of the Master Portfolio's holdings at a time when it could be disadvantageous to
do so. The absence of substantial industry experience with the master-feeder
structure could result in accounting or other operational difficulties. Other
interestholders in the Master Portfolio may have a greater ownership interest
in the Master Portfolio than the Fund's interest and, therefore,
could have effective voting control over the operation of the Master Portfolio.
In the event the Fund is required to redeem its interests in the
Master Portfolio for any reason (for instance, because its shareholders did not
approve changes in the Fund's investment policies parallel to changes approved
for the Master Portfolio by a majority of its interestholders), the Fund's Board
of Directors might attempt to find an appropriate substitute investment vehicle
in which to invest Fund assets. The Board's inability to find a suitable
substitute investment vehicle could have a significant effect on the Fund's
shareholders.
The Fund may cease investing in the Master Portfolio only if the
Board of Directors of the Company were to determine that such action is in the
best interests of the Fund and its shareholders. In that event, the Board of
Directors would consider alternative arrangements, including investing all of
the Fund's assets in another investment company with substantially the same
investment objective, policies and restrictions as the Fund.
Amendments to Fundamental Investment Restrictions
In conjunction with the approval of the Reorganization, the Board
of Directors also approved the amendment of certain fundamental investment
restrictions of the Fund necessary to permit the Reorganization.
4
<PAGE>
Certain investment restrictions of the Fund currently prohibit the Fund from
pursuing its investment objective by investing in the Master Portfolio.
Amendments to the fundamental restrictions may be made only with the approval
of shareholders. Accordingly, in approving the Reorganization, shareholders
also are being asked to approve, in effect, the following amendments to the
fundamental investment restrictions necessary to permit the Reorganization of
the Fund.
Basically, certain fundamental investment restrictions for the
Fund would be amended by adding, where appropriate, express authority for the
Fund to invest its investable assets in an open-end management investment
company with the same investment objective, policies and restrictions as the
Fund. The Fund's current fundamental restrictions with the changes approved are
discussed below and a complete list is in Appendix A to this Proxy Statement.
Restriction No. 1
Following is fundamental Investment Restriction No. 1 of the
Fund with the proposed additional language in bold face, italicized type:
The Fund may not:
(1) purchase the securities of issuers conducting their principal
business activity in the same industry if, immediately after the purchase and as
a result thereof, the value of the Fund's investments in that industry would be
25% or more of the current value of the 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) obligations of domestic
banks (for the purpose of this exception, domestic bank obligations do not
include obligations of U.S. branches of foreign banks or obligations of foreign
branches of U.S. banks); and provided further, that the 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 the Fund, without regard to the limitations set forth in this
paragraph (1);
Restriction No. 6
Following is fundamental Investment Restriction No. 6 of the
Fund with the proposed additional language in bold face, italicized type:
The Fund may not:
(6) underwrite securities of other issuers, except to the extent
that the purchase of permitted investments directly from the issuer thereof or
from an underwriter for an issuer and the later disposition of such securities
in accordance with the Fund's investment program may be deemed to be an
underwriting; and provided further, that the purchase by the 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 the Fund shall not constitute an underwriting for purposes of
this paragraph (6);
Restriction No. 7
Following is fundamental Investment Restriction No. 7 of the
Fund with the proposed additional language in bold face, italicized type:
The Fund may not:
(7) make investments for the purpose of exercising control or
management; provided that the Fund may invest all its assets in a iversified,
open-end management investment company, or a series thereof, with substantially
the same investment objective, policies and restrictions as the Fund, without
regard to the limitations set forth in this paragraph (7);
Restriction No. 10
Following is fundamental Investment Restriction No. 10 of the
Fund with the proposed additional language in bold face, italicized type:
The Fund may not:
(10) purchase securities of any issuer (except securities issued
or guaranteed by the U.S.Government, its agencies and instrumentalities) if, as
a result, with respect to 75% of its total assets, more than 5% of the value of
the Fund's total assets would be invested in the securities of any one issuer
or, with respect to 100%
5
<PAGE>
of its total assets, the Fund's ownership would be more than 10% of the
outstanding voting securities of such issuer, provided that the
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 the Fund, without regard to the limitations set
forth in this paragraph (10); or.
If the shareholders of the Fund do not approve the proposed
Reorganization, or the Reorganization is not consummated for any other reason,
the Company's Board of Directors will consider what action to take, including
considering whether to retain the current Fund structure.
Recommendation of the Board of Directors
The Board of Directors has carefully considered Proposal 1, which
will authorize the Reorganization of the Fund to a master-feeder structure,
including necessary amendments to the Fund's fundamental investment
restrictions. At a meeting held on June 11, 1998, the Board approved this
proposal and determined to seek shareholder authorization of the actions
necessary for the Fund to invest all its investable assets in the Master
Portfolio of the Trust. The Board believes, based primarily on its discussions
with Stephens and BGFA, that, over time, the Master Portfolio will attract
assets from other collective investment vehicles that have complementary or
differing distribution arrangements and from other investors who may not
otherwise invest in the Fund.
The purpose of the Reorganization is to provide the Fund with the
opportunity to achieve certain potential benefits associated with a larger asset
base. Currently, the Fund's shares are offered for sale primarily to retail
investors. In contrast, it is anticipated that the Master Portfolio in which
Fund assets will be invested after the Reorganization will be available directly
to institutional investors, and indirectly through other mutual funds and
similar collective investment vehicles to a broad range of investors. Other
existing mutual funds with similar investment objectives that already have
significant assets also may elect to invest in the Master Portfolio. Any
significant increase should provide various benefits to Fund shareholders. For
example, higher asset levels should enable the Master Portfolio to spread
advisory and custody fees and expenses and non-asset-based third-party costs
over a larger asset base, thereby reducing per-share expense levels. Higher
asset levels also could benefit portfolio management by permitting larger
individual portfolio investments, which should result in reduced transaction
costs and/or more favorable pricing. Reductions in expenses, costs and fees
borne by the Master Portfolio/Fund should have a favorable effect on the total
return of the Fund. Initially overall expense levels of the Fund may increase
slightly, although BGI has agreed to absorb the additional miscellaneous
expenses for one year after the Reorganization. The anticipated benefits would
be likely to arise only if assets of the Master Portfolio were to grow through
investments in the Master Portfolio by entities in addition to the Fund. Even if
other entities invest in the Master Portfolio, there is no assurance that such
expense savings or other benefits will be realized.
The Board of Directors also recognized that Stephens, BGI and BGFA
could benefit from the proposed Reorganization. Stephens and BGI could receive
greater payments under their Administration Agreements with the Fund because of
increased assets in the Fund resulting from lower expense ratios. Additionally,
Stephens and BGI could reduce their risk in sponsoring and distributing new
collective investment vehicles by having such vehicles invest in the Master
Portfolio. The proposed Reorganization could benefit BGFA by increasing their
assets under management through the Master Portfolio, thereby allowing BGFA to
earn additional advisory and related fees.
The Directors of the Company believe that the aggregate per share
fees and expenses of the Fund and the Master Portfolio will be no higher than
the fees and expenses that would be incurred by the Fund if it continued to
operate under the arrangements and structure that are currently in force.
Based on their consideration, analysis and evaluation of the above
factors, the Company's Board of Directors, including a majority of the Directors
who are not "interested persons" of the Fund as defined in the Investment
Company Act of 1940 (the "1940 Act"), believe that it is in the best interests
of the Fund and its shareholders for shareholders to approve all actions
necessary to enable the Fund to invest all of its investable assets in the
corresponding Master Portfolio of the Company. It is the intention of the
persons named in the accompanying proxy to treat any properly authorized proxy
that lacks specific voting instruction as authorizing them to vote FOR the
proposed Reorganization.
Vote Required
The Reorganization of the Fund into a master-feeder structure has
been approved by the Board of Directors for the reasons specified above. The
favorable vote of the holders of a "majority" (as defined in the 1940 Act) of
the outstanding shares of the Fund is required to approve the proposed
Reorganization, including the changes in the fundamental investment
restrictions. Under the 1940 Act, the vote of the holders of a "majority" means
the vote of the holders of the lesser of (a) 67% or more of the shares of the
Fund present at the meeting or represented by proxy if the holders of 50% or
more of such shares are so present or represented, or (b) more than 50% of such
outstanding shares. Proxy votes will be voted as instructed, and properly
authorized proxies for which
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no voting instructions are received will be voted in favor of the Proposal,
except that broker "non-vote" shares will not be voted but will count towards
the meeting quorum.
The Board of Directors recommends that shareholders of the Fund vote FOR
Proposal 1. The persons named in the accompanying Proxy Ballot intend to treat
any proxy that lacks a specific voting instruction as authorizing them to vote
FOR the Proposal for the Fund.
PROPOSAL 2
TO CONSIDER AND ACT UPON A PROPOSED
INVESTMENT POLICY TO AUTHORIZE THE FUND TO
INVEST WITHOUT LIMITATION IN OTHER BANK OBLIGATIONS
On June 11, 1998 the Board of Directors of the Company, including
a majority of the independent Directors, approved a proposed investment policy
to authorize each Fund to invest without limitation in other types of bank
obligations. In conjunction with the approval, the Board approved an amendment
to a certain fundamental investment restriction that would otherwise preclude
the Fund from investing its assets without limitation in other bank obligations.
Any amendments to Fund's fundamental investment restriction are subject to
approval by each Fund's shareholders and cannot be implemented by a Fund until
such shareholder approval has been granted. Accordingly, in approving the
proposed investment policy for the Fund to invest in other bank obligations,
shareholders also are approving, in effect, an amendment to a certain investment
restriction necessary to permit the Fund to make such investments.
Basically, the description below summarizes the concentration
policy for the Fund. In addition, this fundamental investment restriction of
this Fund would be amended by deleting any, or portions of any, fundamental
investment restriction limiting a Fund's ability to make such investments. The
Directors voted to amend Restrictions No. One (1) as discussed below. The
complete fundamental investment restrictions for the Fund are set forth in
Appendix A to this Proxy Statement.
The Directors believe that approval of this investment policy with
the accompanying amendment to the fundamental investment restriction is in the
best interests of the Fund and its shareholders.
Amendment to Investment Restriction No. 1
Following is fundamental Investment Restriction No. 1 of the
Fund with the proposed deletions shown below in [brackets] and bold:
The Fund may not:
(1) purchase the securities of issuers conducting their principal
business activity in the same industry if, immediately after the purchase and as
a result thereof, the value of the Fund's investments in that industry would be
25% or more of the current value of the 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) obligations of domestic
banks [(for the purpose of this exception, domestic bank obligaions do not
include obligations of U.S. branches of foreign banks or obligations of foreign
branches of U.S. banks)]; and provided further, that the 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 the Fund, without regard to the limitations set forth in this
paragraph (1);
MISCELLANEOUS
Procedural Matters
Each shareholder of the Fund will be entitled to one vote for each
share and a fractional vote for each fractional share held by such shareholder
with respect to any proposal on which the shareholder is entitled to vote.
Shareholders holding a one-third of the outstanding shares of the Fund at the
close of business on the Record Date will constitute a quorum for the approval
of the Proposal described in the accompanying Notice of Special Meeting and in
this Proxy Statement.
If, by the time scheduled for the Special Meeting, a quorum is not
present, or if a quorum is present but sufficient votes in favor of the Proposal
are not received, the persons named as proxy agents may move for one or more
adjournments of the Special Meeting to permit further solicitation of proxies
with respect to the Proposal.
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Any such adjournment(s) will require the affirmative vote of a majority
of the shares present in person or by proxy at the session of the Special
Meeting to be adjourned. The persons named as proxy agents will vote in favor
of such adjournment(s) those shares that they are entitled to vote that do
not contain specific instructions to the contrary including abstentions
(but excluding broker non-votes). They will vote against any such adjournment(s)
only those proxies required to be voted against such Proposal.
The duly appointed proxy agents may, in their discretion, vote
upon such other matters as may come properly before, or on matters incident to
the conduct of, the Special Meeting or any adjournment(s) thereof, including any
proposal to adjourn a meeting at which a quorum is present to permit the
continued solicitation of proxies in favor of the Proposal. The Company believes
that the voting procedures described herein are valid in accordance with state
law that governs such matters.
Revocation of Proxy
Any shareholder may revoke his or her proxy at any time prior to
its exercise by (i) furnishing written notification of such revocation, which,
to be effective, must be signed, include the shareholder's name and account
number, be addressed to the Secretary of the Company at its principal executive
office, 111 Center Street, Little Rock, Arkansas 72201, and be received prior to
the Special Meeting; (ii) signing another proxy of a later date; or (iii)
personally casting his or her vote at the Special Meeting or any adjournment(s)
thereof.
Substantial Shareholders
As of the close of business on June 19, 1998, there were no
beneficial owners of 5% or more of the outstanding shares of the Fund.
As of the close of business on June 19, 1998, the Record Date, the
Officers and Directors of the Company as a group did not own beneficially in
excess of 1% of the outstanding shares of the Fund.
Voting Procedures
If the accompanying Proxy Ballot is executed properly and
returned, shares represented by it will be voted at the Special Meeting in
accordance with the instructions on the proxy. If no instructions are specified,
however, shares will be voted for the approval of the Proposal; and, in the
discretion of the proxy agents, on any other matter properly presented at, or
incident to the conduct of, the Special Meeting. If a proxy represents a broker
"non-vote" (that is, a proxy from a broker or nominee indicating that such
person has not received instructions from the beneficial owner or other person
entitled to vote shares on a particular matter with respect to which the broker
or nominee does not have discretionary power) or is marked with an abstention,
the shares represented thereby will be considered to be present at the Special
Meeting for purposes of determining the existence of a quorum for the
transaction of business, but broker non-votes will not constitute a vote "for"
or "against" the Proposal. Abstentions will have the effect of a vote against a
Proposal.
Affiliated Broker Commissions; Other Affiliated Payments; Distributor
For the year ended February 28, 1998, the Fund paid no brokerage
commissions in connection with purchases and sales of portfolio securities to
any parties that would be treated, for purposes of Item 22(a)(1)(ii) of Schedule
14A under the Securities Exchange Act of 1934 (the "1934 Act"), as an affiliated
broker. Stephens Inc., 111 Center Street, Little Rock, Arkansas 72201, also
serves as the Fund's sponsor, administrator and distributor.
Solicitation of Proxies and Payment of Expenses
The cost of soliciting proxies for the Special Meeting, consisting
principally of printing and mailing expenses, will be borne by BGI and/or
Stephens. Proxies will be solicited in the initial, and any supplemental,
solicitation by mail and may be solicited in person, by telephone, telegraph or
other electronic means by personnel or agents of the Company, BGFA, and/or
Stephens.
Other Business
The Board of Directors of the Company knows of no other business
to be brought before the Special Meeting. If any other matters come before the
Special Meeting, however, including any proposal to adjourn the Special Meeting
to permit the continued solicitation of proxies in favor of the Proposal, it is
their intention that proxy ballots that do not contain specific instructions to
the contrary will be voted on such matters in accordance with the judgment of
the persons named therein as proxy agents.
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Future Shareholder Proposals
Pursuant to rules adopted by the Securities and Exchange
Commission under the Securities Exchange Act of 1934 (the "1934 Act"), investors
may request inclusion in the Board's proxy statement for shareholder meetings
certain proposals for action which they intend to introduce at such meeting.
Any shareholder proposals must be presented a reasonable time before the proxy
materials for the next meeting are sent to shareholders. The submission of a
proposal does not guarantee its inclusion in the Company's proxy statement and
is subject to limitations under the 1934 Act. It is not presently anticipated
that the Company will hold regular meetings of shareholders, and no anticipated
date of the next meeting can be provided.
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APPENDIX A
Investment Restrictions
Set forth below are the investment restrictions of the Fund of the
Company with the modifications proposed in the Proxy Statement. Proposed
additions are in bold face, italicized type, deletions are also shown in bold
face and [brackets].
The Fund is subject to the following investment restrictions, all
of which are fundamental policies.
The Fund 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 the 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) obligations of domestic
banks [(for the purpose of this exception, domestic bank obligations do not
include obligations of U.S. branches of foreign banks or obligations of foreign
branches of U.S. banks)]; and provided further, that the 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 the Fund, without regard to the limitations set forth in this
paragraph (1);
(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;
(6) underwrite securities of other issuers, except to the extent
that the purchase of permitted investments directly from the issuer thereof or
from an underwriter for an issuer and the later disposition of such securities
in accordance with the Fund's investment program may be deemed to be an
underwriting; and provided further, that the purchase by the 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 the Fund shall not constitute an underwriting for purposes of
this paragraph (6);
(7) make investments for the purpose of exercising control or
management; provided that the 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 the 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 the 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;
(10) purchase securities of any issuer (except securities issued
or guaranteed by the U.S. Government, its agencies and instrumentalities) if, as
a result, with respect to 75% of its total assets, more than 5% of the value of
the Fund's total assets would be invested in the securities of any one issuer
or, with respect to 100% of its total assets the Fund's ownership would be more
than 10% of the outstanding voting securities of such issuer, provided that the
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 the Fund, without regard to the limitations set
forth in this paragraph (10); or
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PRELIMINARY PROXY MATERIAL
(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.
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