<PAGE>
As filed with the Securities and Exchange Commission
on July 2, 1998
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. 16 [X]
And
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [_]
Amendment No. 20 [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):
[_]Immediately upon filing pursuant [_]on _________ pursuant
to Rule 485(b), or to Rule 485(b)
[X]60 days after filing pursuant [_]on _________ pursuant
to Rule 485(a)(1), or to Rule 485(a)(1)
[_]75 days after filing pursuant [_]on ___________pursuant
to Rule 485(a)(2), or to Rule 485(a)(2)
If appropriate, check the following box:
[_]this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
This Post-Effective Amendment to the Registrant's Registration Statement has
been executed by Master Investment Portfolio (a registered investment company
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. 16 to the Registration Statement of
MasterWorks Funds Inc. (the "Company") is being filed to describe the
conversion to master/feeder structure of the Company's existing Money Market
Fund (the "Fund"). The Fund will invest substantially all of its assets in a
corresponding master portfolio of Master Investment Portfolio, a management
investment company organized as a Delaware business trust (SEC File No. 811-
8162).
<PAGE>
MASTERWORKS FUNDS INC.
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>
MUTUAL FUND PROSPECTUS
August 31, 1998
[GRAPHIC APPEARS HERE]
MONEY MARKET FUND
Advised by Barclays Global Fund Advisors
Sponsored and distributed by Stephens Inc.,
Member NYSE/SIPC
MasterWorks(R) 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. The Fund seeks to achieve
its investment objective by investing substantially all of its assets in the
Money Market Master Portfolio (the "Master Portfolio") of Master Investment
Portfolio ("MIP"), an open-end management investment company, rather than in a
portfolio of securities. The Fund has the same investment objective as the
Master Portfolio and the investment experience of the Fund corresponds
directly to the investment experience of the Master Portfolio. References to the
-----------------
investments, investment policies and risks of the Fund unless otherwise
- -----------------------------------------------------------------------
indicated, should be understood as references to the investments, investment
- ----------------------------------------------------------------------------
policies and risks of the corresponding Master Portfolio.
- --------------------------------------------------------
Please read this Prospectus before investing and retain it for future
reference. It sets forth concisely the information about the Fund that an
investor should know before investing. A Statement of Additional Information
("SAI") dated August 31, 1998 describing the Fund 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
1-888-204-3956 or by writing the Company at the address printed on the back of
the Prospectus. The SAI and other information is also available on the SEC's
website (http://www.sec.gov).
--------------
AS WITH ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES
COMMISSION OR ANY OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF THESE AUTHORITIES
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
--------------
FUND SHARES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR ISSUED, ENDORSED OR
GUARANTEED BY, BARCLAYS GLOBAL INVESTORS, N.A., INVESTORS BANK & TRUST CO. OR
ANY OF THEIR AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S. GOVERNMENT,
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY
OTHER GOVERNMENT AGENCY. AN INVESTMENT IN 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 MASTER
PORTFOLIO AND TOGETHER WITH ITS AFFILIATES AND INVESTORS BANK & TRUST CO.
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
AUGUST 31, 1998
<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................................................. 9
How to Buy Shares...................................................... 12
How to Redeem Shares................................................... 15
Exchange Privilege..................................................... 19
Share Value............................................................ 19
Dividends and Distributions............................................ 20
Taxes.................................................................. 20
General Information.................................................... 21
<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
Prospectus 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
retirement 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 individuals who invest
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")
pursuant to arrangements between the sponsor or other agent of the
qualified Benefit Plan and a Selling Agent, or who have established a
tax-deferred 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
enterprises), high-quality debt obligations, such as corporate debt, certain
obligations of U.S. banks and certain repurchase agreements. The Fund
seeks to achieve its investment objective by investing all of its assets
in the Money Market Master Portfolio of MIP, which has the same investment
objective as the Fund. 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 --
Additional 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
Deposit Insurance Corporation ("FDIC"). An investment in the Fund is not
insured or guaranteed against loss of principal. Therefore, investors should
be willing to accept some risk with the money invested in the Fund.
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 can be no assurance that the Fund will achieve its
investment objective.
See "The Fund -- Risk Considerations" and "Appendix -- Additional
Investment 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 Master Portfolio is managed by BGFA. A separate investment adviser has
not been retained for the Fund because this Fund invests all of its assets
in the Master Portfolio. As of April 30, 1998, BGFA and its affiliates
provided investment advisory services for approximately $575 billion of
assets.
See "Management of the Fund and Master Portfolio."
Q. WHAT ARE THE FEES FOR INVESTING?
A. Unlike certain other mutual funds which charge sales loads or other
transaction 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
arrangements, 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" ("NAV") 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 payment 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 NAV unless 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 NAV without the imposition of a
sales charge or redemption fee on any Business Day by letter or by
telephone (provided you have completed the "Redemption by Telephone" portion
of your account application). For more information, contact your Selling
Agent.
See "How to Redeem Shares."
3
<PAGE>
SUMMARY OF FUND EXPENSES
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily net assets)
<TABLE>
<S> <C>
Management Fees........................................................... 0.10%
Co-Administration Fees.................................................... 0.35%
----
TOTAL FUND OPERATING EXPENSES............................................. 0.45%
</TABLE>
EXAMPLE OF EXPENSES
An investor would pay the following expenses on a $1,000 investment,
assuming (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
understanding the various fees and expenses that an investor in the Fund will
pay directly or indirectly. The tables do not reflect any charges that may be
imposed 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 and 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 "Management of the Fund and Master Portfolio."
EXAMPLE OF EXPENSES is a hypothetical illustration of the expenses
associated 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
- -------------------------------------------------------------------------
expected 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 Fund and Master
Portfolio, the Company's Board of Directors has considered whether various costs
and benefits of investing all of the Fund's assets in the 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 the Fund will not be
more than the expenses incurred by the Fund if the Fund invested directly in the
type of securities held by the Master Portfolio. The Company's Board of
Directors believes that if other investors invest their assets in the Master
Portfolio, certain economic efficiencies may be realized with respect to the
Master Portfolio. For example, fixed expenses that otherwise would have been
borne solely by the Fund would be spread across a larger asset base provided by
more than one fund investing in the Master Portfolio. There can be no assurance
that these economic efficiencies will be achieved. In addition, the Master
Portfolio may sell its interests to other mutual funds or accredited investors.
4
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING AS SHOWN)
The following information has been derived from the Financial Highlights
included in the Fund's financial statements for the fiscal year ended February
28, 1998. The financial statements are incorporated by reference into the
Fund's SAI and have been audited by KPMG Peat Marwick LLP, independent
auditors, whose report thereon dated April 3, 1998, also is incorporated by
reference 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 YEAR ENDED PERIOD ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1998 1997 1996 1995 1994*
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
beginning of period..... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment
operations:
Net investment income.. 0.05 0.05 0.05 0.04 0.02
Net realized and
unrealized gain on
investments............ 0.00 0.00 0.00 0.00 0.00
-------- -------- -------- -------- -------
Total from investment
operations.............. 0.05 0.05 0.05 0.04 0.02
Less distributions:
From net investment
income................. (0.05) (0.05) (0.05) (0.04) (0.02)
From net realized
gains.................. 0.00 0.00 0.00 0.00 0.00
-------- -------- -------- -------- -------
Total distributions..... (0.05) (0.05) (0.05) (0.04) (0.02)
-------- -------- -------- -------- -------
Net Asset Value, end of
period.................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== =======
Total return (not
annualized)............. 5.35% 5.10% 5.60% 4.40% 1.81%
Ratios/Supplemental
data:
Net assets, end of
period (000)........... $180,375 $177,046 $156,852 $147,269 $81,649
Number of shares
outstanding, end of
period (000)........... 180,437 177,103 156,910 147,280 81,648
Ratios to average net
assets (annualized):
Ratio of expenses to
average net assets(1).. 0.45% 0.45% 0.45% 0.45% 0.49%
Ratio of net investment
income to average net
assets(2).............. 5.23% 4.96% 5.44% 4.44% 2.77%
(1) Ratio of expenses to
average net assets
prior to waived fees
and reimbursed
expenses............ N/A 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............ N/A 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
preserving capital and liquidity, by investing in high-quality, short-term
securities. The Fund, which is a diversified portfolio, seeks to achieve its
investment objective by investing all of its assets in the Master Portfolio,
which has the same investment objective as the Fund. The Master Portfolio seeks
to achieve its investment objective by investing 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. Permitted
investments include U.S. Government short-term obligations, obligations of
domestic and foreign banks, commercial paper, corporate notes and repurchase
agreements. A more complete description of these investments and investment
activities is contained in "Appendix -- Additional Investment Policies."
RISK CONSIDERATIONS
General
-------
Investments in the Fund are not bank deposits and are not insured or
guaranteed 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
criteria 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 Master
Portfolio'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
reset 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.
Year 2000
---------
Many computer software systems in use today cannot distinguish the Year 2000
from the Year 1900. Most of the services provided to the Fund and Master
Portfolio depend on the smooth functioning of computer systems. Any failure to
adapt these systems in time could hamper the Fund's and Master Portfolio's
operations and services. The Fund's and Master Portfolio's principal service
providers have advised the Fund and Master Portfolio that they are working on
necessary changes to their systems and that they expect their systems to be
adapted in time. There can, of course, be no assurance of success. In addition,
because the Year 2000 issue affects virtually all organizations, the companies
or entities in which the Master Portfolio invests also could be adversely
impacted by the Year 2000 issue. The extent of such impact cannot be predicted.
PERFORMANCE
The Fund's performance may be advertised in terms of current yield or
effective 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
reinvestment of income earned.
7
<PAGE>
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
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 the Fund is contained in the
Annual Report for the Fund. The Annual Report may be obtained by calling the
Company at 1-888-204-3956.
8
<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 Company
is included in the SAI under "Management."
INVESTMENT ADVISER -- BGFA serves as investment adviser to the Master
Portfolio and provides investment guidance and policy direction in connection
with the management of the Master Portfolio's assets. BGFA is a direct
subsidiary of BGI (which, in turn, is an indirect subsidiary of Barclays Bank
PLC) and is located at 45 Fremont Street, San Francisco, California 94105. As of
April 30, 1998, BGFA and its affiliates provided investment advisory services
for approximately $575 billion of assets.
The Company has agreed to pay BGFA a monthly fee at the annual rate of 0.10%
of the Master Portfolio's average daily net assets (of which the Fund bears its
pro rata portion) as compensation for its advisory services. BGFA furnishes
investment guidance and policy direction in connection with the daily portfolio
management of the Master Portfolio. Prior to the conversion of the Fund to a
master/feeder structure (the "Reorganization"), BGFA received a monthly fee at
an annual rate of 0.35% of the Fund's average daily net assets, out of which
BGFA paid a sub-adviser, Wells Fargo Bank, N.A., 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, 1998, no advisory or
sub-advisory fees were waived.
9
<PAGE>
BGFA no longer engages an investment sub-adviser, but instead will manage
the Master Portfolio's assets itself.
Morrison & Foerster LLP, counsel to the Company and MIP and special counsel to
BGFA, has advised the Company, BGFA, and MIP that BGFA and its affiliates may
perform the services contemplated by the Investment Advisory Contract 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
interpretations of, or decisions relating to, present federal or state statutes,
including the Glass-Steagall Act, and regulations relating to the permissible
activities of banks and their subsidiaries or affiliates, as well as future
changes in such statutes, regulations and judicial or administrative decisions
or interpretations, could prevent such entities from continuing to perform, in
whole or in part, such services. If any such entity were prohibited from
performing any such services, it is expected that new agreements would be
proposed or entered into with another entity or entities qualified to perform
such services.
CO-ADMINISTRATORS -- Stephens Inc. ("Stephens") and BGI are the Fund's
co-administrators. Stephens and BGI provide the Fund with administration
services, including general supervision of the Fund's non-investment operations,
coordination of the other services provided to the Fund, compilation of
information 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 directors and officers. Stephens also furnishes office space and
certain facilities to conduct the Fund's business, and compensates the Company's
directors, officers and employees who are affiliated with Stephens. In addition,
10
<PAGE>
except as outlined below under "Expenses," 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, in the
aggregate, at the annual rate of 0.35% of the Fund's average daily net assets.
Prior to the Reorganization, Stephens and BGI were entitled to receive 0.10% of
the average daily net assets of the Fund for such services. The Reorganization
did not result in an increase in overall fee levels of the Fund because the
increase in administration fees is offset by the reduction in advisory fees.
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. 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.
Additionally, 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 principal
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
business 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
services to the Fund.
TRANSFER AND DIVIDEND DISBURSING AGENT -- IBT also acts as the Fund's
transfer and dividend disbursing agent.
EXPENSES -- Except for advisory fees, extraordinary expenses, brokerage and
other expenses connected to the execution of portfolio transactions and certain
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.
11
<PAGE>
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
retirement 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 Selling
Agent.
. Investors using proceeds that are being rolled over directly from a
qualified Benefit Plan to an Individual Retirement Account ("IRA") pursuant
to arrangements between the sponsor or other agent of the qualified Benefit
Plan and a Selling Agent.
. Investors who have an account arrangement with one of the Company's
Selling Agents that permits investments in Fund shares ("Qualified Buyers").
. 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
described below. For more information or additional forms, call 1-888-204-3596.
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
representative, the Company or Stephens will transmit or cause to be transmitted
promptly, without charge, a paper copy of the electronic Prospectus.
MINIMUM INVESTMENT AMOUNT
In most cases, investors in Fund shares are not required to establish or
maintain a minimum investment amount. However, 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
investor responsible
12
<PAGE>
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 issued. Selling Agents
may establish investment amount and account balance requirements different from
those of the Funds and may charge fees in addition to those charged by the Fund.
GENERAL
Shares of 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 NAV 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 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.
Federal regulations require that an investor provide a valid taxpayer
identification number ("TIN"), which is usually the investor's social security
number or employee identification number, upon opening or reopening an
account.
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
arrangement with a Selling Agent that permits investments 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 Selling Agent.
Fund investments by participants in 401(k) plans are typically made by
payroll deductions arranged between participants and their employers.
Participants in the MasterWorks 401(k) program are included in this
13
<PAGE>
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 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.
- -------------------
Application materials for opening an IRA rollover, Keogh retirement plan or
other individual retirement plan can be obtained from a Selling Agent. Completed
retirement plan applications should be returned to the investor's Selling Agent
for approval and processing. If a retirement plan application is incomplete or
improperly filled out, there may be a delay before the Fund account 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
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").
14
<PAGE>
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.
TO PURCHASE FUND SHARES:
By Check: Initial and subsequent investments should be sent to MasterWorks
--------
Funds, Inc., c/o Investors Bank and Trust Co., P.O. Box 9130, Mail Code MFD23,
Boston, MA 02117-9130.
By Wire: Investors establishing new accounts should telephone Investors Bank
-------
& Trust Co., at 1-888-204-3956 prior to sending the bank wire.
Investors should instruct their bank to wire funds as follows:
Investors Bank & Trust Co.
ABA #011-001-438
Attn: Transfer Agent
Account #DDA 555555535
For Further Credit to: MasterWorks Funds, Inc.
Shareholder Account Name:
Shareholder Account Number:
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
"Purchase and Redemption of Shares" in the SAI.
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.
15
<PAGE>
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 by the Master
Portfolio in which such Fund invests of securities owned by the Master Portfolio
is not reasonably practicable or (b) it is not reasonably practicable for the
Fund or the Master Portfolio 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 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
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
investor'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 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.
Investors may obtain more information by contacting their employer and/or their
Selling Agent. The redemption procedures outlined
16
<PAGE>
in the remainder of this section do not apply to investors in Benefit Plans or
retirement plans. Investors in these types of plans should contact their
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
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.
Written requests for redemptions should be mailed to MasterWorks Funds,
Inc., c/o Investors Bank and Trust Co., P.O. Box 9130, Mail Code MFD23,
Boston, MA 02117-9130.
Unless other instructions are given in proper form, a check for the
redemption proceeds is sent to the investor's address of record.
Redemptions by Telephone
------------------------
Telephone redemption or exchange privileges are made available to Direct
Buyers who have completed the "Redemption by Telephone" section when opening
their Fund account. 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 reasonable procedures, such as
requiring a form of personal identification, to confirm that instructions are
genuine and, if it does not follow such procedures, the Company 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.
17
<PAGE>
If you have completed the Redemption by Telephone portion of a Fund's
account application, you may redeem Fund shares on any Business Day by calling
the Transfer Agent at 1-888-204-3956 before the close of regular trading on
the NYSE, generally 4:00p.m. Eastern Time.
During times of drastic economic or market conditions, investors may
experience difficulty in contacting the Transfer Agent by telephone to request a
redemption or exchange of Fund shares. In such cases, investors should consider
using the other redemption procedures made available to such investors. Use of
these other redemption procedures may result in the investor's redemption
request being processed at a later time than it would have been if telephone
redemption had been used. During the delay, the 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.
Telephone 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
receipt of redemption proceeds and the Fund's receipt of the investor's
redemption request would be expedited.
Direct Buyers may request expedited redemption by telephone by calling the
Transfer Agent at 1-888-204-3956.
Direct Buyers may request expedited redemption by mailing an expedited
redemption 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
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 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
18
<PAGE>
investor's redemption proceeds are transmitted to the investor's Approved Bank
Account on the next Business Day (assuming the investor's investment check has
cleared as described above), absent extraordinary circumstances. Such
extraordinary circumstances could include those described above as potentially
delaying redemptions, and also could include situations involving an unusually
heavy volume of wire transfer orders on a national or regional basis or
communication or transmittal delays that could cause a brief delay in the wiring
or crediting of funds.
EXCHANGE PRIVILEGE
The exchange privilege enables an investor to 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 1-888-204-3956.
Shares are exchanged at the next determined net asset value. No fees are
currently charged to shareholders directly in connection with exchanges,
although the Company reserves the right, upon not less than 60 days' written
notice, to charge shareholders a nominal exchange fee in accordance with rules
promulgated by the SEC. The Company reserves the right to limit the number of
times shares may be exchanged and to reject in whole or in part any exchange
request into a fund when management believes that such action would be in the
best interests of such fund's other shareholders, such as when management
believes such action would be appropriate to protect 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 privilege
may be modified or terminated at any time upon 60 days' written notice to
shareholders.
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
19
<PAGE>
trading markets for both U.S. Government 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 or an interest in the Master Portfolio 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 Master Portfolio'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 value. The Company's Board of
Directors and MIP's Board of Trustees believe that this valuation method
accurately reflects fair value. As noted above, the Fund seeks to maintain a
constant $1.00 NAV share price, although there can be no assurance that it will
be able to do so. The Fund's investments in the Master Portfolio are valued at
the NAV of the Master Portfolio's interests. The Master Portfolio calculates the
NAV of its interests on the same day and at the same time as the Fund. 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
investor's account are paid on the following dividend payment date. The Fund
declares 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.
TAXES
GENERAL
Distributions from the 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 the 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. Noncorporate
shareholders may be taxed on such gain at preferential rates. In general, your
distributions will be taxable when
20
<PAGE>
paid, whether you take such distributions in cash or have them automatically
reinvested in additional Fund shares. However, distributions declared in
October, November and December, and distributed by the following January will be
taxable as if they were paid by December 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
withholding 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
investment income and capital gain distributions.
However, such tax-exempt investors may be subject to tax on certain
unrelated taxable income which could arise, for example, when such investors
acquire shares in the Fund through the use of leverage. Tax-exempt investors
should consult their tax advisors regarding the Unrelated Business Taxable
Income Rules.
The foregoing 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
important 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 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.
21
<PAGE>
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
included in the Fund's SAI under "Management." Although the Company is not
required to hold regular annual shareholder meetings, occasional annual or
special meetings may be required for purposes such as electing and removing
Directors, approving advisory contracts, and changing the Fund's investment
objective 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
submitted 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
description of the voting rights and attributes of the shares is contained in
the "Capital Stock" section of the SAI.
The Master Portfolio
--------------------
Whenever the Fund, as an interestholder of the 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. If the
Master Portfolio's investment objective or policies are changed, the 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 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.
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 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 1-888-204-3956.
22
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN THE
COMPANY'S OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFER OF THE 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
OFFERING MAY NOT LAWFULLY BE MADE.
23
<PAGE>
APPENDIX -- ADDITIONAL INVESTMENT POLICIES
FUND INVESTMENTS
Set forth below is a description of certain investments and additional
investment policies for the Fund, except where otherwise indicated. REFERENCES
TO THE INVESTMENTS AND INVESTMENT POLICIES AND RESTRICTIONS OF THE FUND,
UNLESS OTHERWISE INDICATED, SHOULD BE UNDERSTOOD AS REFERENCES TO THE
INVESTMENTS AND INVESTMENT POLICIES AND RESTRICTIONS OF THE MASTER PORTFOLIO
IN WHICH SUCH FUND INVESTS ITS ASSETS.
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
agencies or instrumentalities. Payment of principal and interest on U.S.
Government obligations (i) may be backed by the full faith and credit of the
United States (as with U.S. Treasury obligations and GNMA certificates) or (ii)
may be backed solely by the issuing or guaranteeing agency or instrumentality
itself (as with FNMA notes). In the latter case, the investor must look
principally to the agency or instrumentality issuing or guaranteeing the
obligation for ultimate repayment, which agency or instrumentality may be
privately owned. There can be no assurance that the U.S. Government would
provide financial support to its agencies or instrumentalities where it is not
obligated to do so. As a general matter, the value of debt instruments,
including U.S. Government obligations, declines when market interest rates
increase and rises when market interest rates decrease. Certain types of U.S.
Government obligations are subject to fluctuations in yield or value due to
their structure or contract terms.
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
demand 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
beneficial 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
marketable than comparable obligations of U.S. banks, that a foreign
jurisdiction might impose withholding taxes on interest income payable on those
obligations, that foreign deposits may be seized or nationalized, that 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 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 examination 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
corporations to finance short-term credit needs. Commercial paper is usually
sold on a discount basis and has a maturity at the time of issuance not
exceeding nine months. Variable amount master demand notes are demand
obligations that permit the investment of fluctuating amounts at varying market
rates of interest pursuant to arrangements between the issuer and a commercial
bank acting as agent for the payee of such notes whereby both parties have the
right to vary the amount of the outstanding indebtedness on the notes. BGFA, as
investment adviser to the Master Portfolio, 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 to the Master Portfolio will
consider such an event in determining whether the Master Portfolio should
continue to hold the obligation. To the extent the Master Portfolio continues to
hold such obligations, it may be subject to additional risk of default.
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
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. 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
repurchase agreement transactions with other funds advised by BGFA.
LETTERS OF CREDIT -- Certain of the debt obligations, certificates of
participation, 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 BGFA, as adviser, be of investment quality comparable to other
permitted investments of the Fund.
INVESTMENT COMPANY SECURITIES -- The Master Portfolio may invest in securities
issued by other investment companies which principally invest in securities of
the type in which the Master Portfolio invests. Under the 1940 Act, the Master
Portfolio's investment in such securities currently is limited to, subject to
certain exceptions, (i) 3% of the total voting stock of any one investment
company, (ii) 5% of 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. Investments in the securities of other investment companies generally
will involve duplication of advisory fees and certain other expenses. The Master
Portfolio also may purchase shares of exchange listed closed-end funds.
MUNICIPAL OBLIGATIONS -- The Fund may invest in municipal obligations.
Municipal 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
revenues. The ability of an issuer to make payments on notes is therefore
especially dependent on such tax receipts, proceeds from bond sales or other
revenues, 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
working 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
better 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
purchase "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
instruments with interest rates that are periodically adjusted at specified
intervals or whenever a benchmark rate or index changes. The floating- and
variable-rate instruments that the Fund may purchase include certificates of
participation in such instruments. 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.
ILLIQUID SECURITIES -- The Fund may invest in securities not registered
under 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
difficulty 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
majority 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
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
A-4
<PAGE>
borrowing in excess of 5% of its net assets exists); (ii) make loans of
portfolio 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,
repurchase agreements, commercial paper and other short-term obligations, and
other types of debt instruments commonly sold in a public or private offering;
loans for purposes of this restriction will not include the Fund's purchase of
interests in the Master Portfolio; and (iii) not invest 25% or more of its total
assets (i.e., concentrate) in any particular industry, excluding: a) U.S.
Government obligations, b) obligations of domestic banks (for purposes of this
restriction, domestic bank obligations do not include obligations of foreign
branches of U.S. banks, obligations of U.S. branches of foreign banks except
- --------------------------------------------------------------------------------
to the extent that the SEC, by rule or interpretation, permits a fund to treat
- --------------------------------------------------------------------------------
such issuers as domestic banks, or permits a fund to reserve freedom to
- --------------------------------------------------------------------------------
concentrate in such obligations); or c) obligations of foreign branches of
- --------------------------------------------------------------------------------
foreign banks if and to the extent the SEC, by rule or interpretation, permits
- --------------------------------------------------------------------------------
funds in the future to reserve freedom to concentrate in such obligations. And
- --------------------------------------------------------------------------------
provide 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. These fundamental policies
- --------------------------------------------------------------------------------
do not restrict the Fund's ability to invest all of its assets in the Master
- --------------------------------------------------------------------------------
Portfolio.
- ---------
As a matter of non-fundamental policy, the Fund may: (i) not purchase
securities of any issuer (except U.S. Government obligations, for certain
temporary purposes and for certain guarantees and unconditional puts) if as a
result 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
outstanding 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
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 because
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.
COMMERCIAL PAPER AND LOAN PARTICIPATION RATINGS -- Moody's employs the
designations of "Prime-1," "Prime-2" and "Prime-3" to indicate the relative
capacity 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
obligations, and will normally be 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.
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
Investors Bank & Trust Company
Boston, Massachusetts
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(R) Funds
c/o Investors Bank and Trust Co.
200 Clarendon Street
Boston, MA 02116
<PAGE>
MASTERWORKS FUNDS INC.
STATEMENT OF ADDITIONAL INFORMATION
MONEY MARKET FUND
AUGUST 31, 1998
_______________________
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 Fund seeks
to achieve its investment objective by investing all of its assets in the Money
Market Master Portfolio (the "Master Portfolio") of Master Investment Portfolio
("MIP"). The Master Portfolio has the same investment objective as the Fund
as described in its Prospectus. See "The Fund--Investment Objective and
Policies."
Barclays Global Fund Advisors ("BGFA") serves as investment adviser to the
Master Portfolio. References to the investments, investment policies and risks
of the Fund, unless otherwise indicated, should be understood as references to
the investments, investment policies and risks of the Master Portfolio.
This SAI is not a prospectus and should be read in conjunction with the Fund's
current Prospectus, also dated August 31, 1998. 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 MasterWorks
Funds Inc., c/o Investors Bank & Trust Co., --Transfer Agent, P.O. Box 9130,
Mail Code MFD23, Boston, MA 02117-9130, or by calling 1-888-204-3956.
<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
Purchase and Redemption of Shares................................................... 15
Portfolio Transactions.............................................................. 16
Taxes............................................................................... 18
Capital Stock....................................................................... 22
Other............................................................................... 23
Counsel............................................................................. 23
Independent Auditors................................................................ 23
Financial Information............................................................... 23
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." REFERENCES TO THE INVESTMENTS, INVESTMENT POLICIES AND
------------------------------------------------------
RISKS OF THE FUND UNLESS OTHERWISE INDICATED, SHOULD BE UNDERSTOOD AS REFERENCES
- --------------------------------------------------------------------------------
TO THE INVESTMENTS, INVESTMENT POLICIES AND RISKS OF THE MASTER PORTFOLIO.
- -------------------------------------------------------------------------
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:
(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, except to the extent that the SEC, by rule or
interpretation, permits funds to treat such issuers as domestic banks, or
permits funds to reserve freedom to concentrate in such obligations); or (iii)
obligations of foreign branches of foreign banks, if and to the extent the SEC,
by rule or interpretation, permits funds in the future to reserve freedom to
concentrate in such obligations 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);
1
<PAGE>
(8) borrow money or issue senior securities as defined in the Investment
Company Act of 1940 (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 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
(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 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 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 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 Fund, as provided in Rule 2a-7 under the Investment Company Act of
1940 ("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 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.
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
General. The assets of the 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 Fund may purchase instruments that are not rated if,
-------------------
in the opinion of BGFA, as 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 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 securities exceed 5% of the Fund's
net assets. To the extent the ratings given by Moody's Investor Service, Inc.
("Moody's") or
3
<PAGE>
Standard & Poors Corporation ("S&P") may change as a result of changes in such
organizations or their rating systems, the 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 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 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 Fund does not currently intend to lend its portfolio
securities.
Repurchase Agreements. The 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. BGFA monitors on an ongoing basis the value of the collateral to
assure that it always equals or exceeds the repurchase price. Certain costs may
be incurred by the Fund 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 Fund may be
delayed or
4
<PAGE>
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 1940 Act.
Floating- and Variable-Rate Obligations. The 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 BGFA
determines that at the time of investment the obligations are of comparable
quality to the other obligations in which the Fund may invest. BGFA, 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 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 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
5
<PAGE>
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 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 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 instability or
diplomatic developments that could adversely affect investments in, the
liquidity of,
6
<PAGE>
and the ability to enforce contractual obligations with respect to, securities
of issuers located in those countries. The 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.
<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, 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
Reynolda Station Wake Forest University since 1982.
Winston-Salem, NC 27109
*W. Rodney Hughes, 71 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Principal Occupations
Name, Address and Age Position During Past 5 Years
- --------------------- -------- ---------------------
<S> <C> <C>
*J. Tucker Morse, 53 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., 41 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, 1998
<TABLE>
<CAPTION>
Aggregate Total Compensation
Compensation from Registrant
Name and Position from Registrant and Fund Complex
- ----------------- --------------- ----------------
<S> <C> <C>
Jack S. Euphrat $11,250 $11,250
Director
*R. Greg Feltus
Director 0 0
Thomas S. Goho
Director $11,250 $11,250
*Zoe Ann Hines/1/
Director 0 0
*W. Rodney Hughes
Director $11,000 $11,000
Robert M. Joses/2/
Director $ 1,000 $ 1,000
*J. Tucker Morse
Director $11,000 $11,000
</TABLE>
- ---------------
/1/ Zoe Ann Hines retired as of January 28, 1998.
/2/ Robert M. Joses retired as of December 31, 1997.
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" ). Stagecoach
Funds, Inc., Stagecoach Trust and Life & Annuity Trust are considered to be
members of the same fund complex (the "Wells Fargo Fund Complex"). Prior to
December 15, 1997, the Wells Fargo Fund Complex also included Overland Express
Funds, Inc. and Master Investment Trust. On that date, Overland Express Funds,
Inc. was consolidated with and into Stagecoach Funds, Inc., and Master
Investment Trust was dissolved. 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. 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.
Master/Feeder Structure. The Fund seeks to achieve its investment objective
-----------------------
by investing all of its assets in the Money Market Master Portfolio of MIP. The
Fund and other entities investing in the Master Portfolio are each liable for
all obligations of the Master Portfolio. However, the risk of the 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 the Fund nor its shareholders will be adversely affected
by investing Fund assets in the Master Portfolio. However, if a mutual fund or
other investor withdraws its investment from the 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.
The Fund may withdraw its investment in the Master Portfolio only if the
Company's Board of Directors determines that such action is in the best
interests of the Fund and its shareholders. Upon 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 the 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." Whenever the Fund, as an interestholder of
the 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. The Fund may also elect to redeem
its interests in the 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 Fund 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 Objective and Policies" for additional information
regarding the Fund's and the Master Portfolio's investment objectives and
policies. Additional information regarding the officers and Directors/Trustees
of the Company and MIP is located in the Fund's SAI under "Management."
Investment Adviser. At a special meeting held on August 14, 1998, the Fund's
------------------
Shareholders approved a plan to reorganize the Fund from its current
stand-alone structure to a master/feeder structure (the "Reorganization").
As a result the Fund will invest all of its assets in the Master Portfolio of
MIP. The Master Portfolio has the same investment objective and invests in the
same kinds of securities as the Fund. The Master Portfolio retained BGFA, the
investment adviser to the Fund, to manage its assets. The advisory fee level is
0.10% of average net assets per annum, compared to the previous level of 0.35%.
BFGA no longer engages an investment sub-adviser, but instead manages the Master
Portfolio's assets itself. Pursuant to the Advisory Contract, BGFA furnishes the
Company's Board of Directors with periodic reports on the investment strategy
and performance of the Master Portfolio.
The Investment Advisory Contract is subject to the 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 the Fund or by MIP's Board of Trustees,
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 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).
For the period beginning January 1, 1996 and ended February 29, 1996, and
for the fiscal years ended February 28, 1997 and February 28, 1998, the Fund
paid advisory fees to BGFA, without waivers:
<TABLE>
1/1/96 - 2/29/96 FYE 2/28/97 FYE 2/28/98
Fees Paid Fees Paid Fees Paid
--------- --------- ---------
<S> <C> <C> <C>
Money Market Fund $89,609 $570,332 $630,279
</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>
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>
As of the Conversion Date, BGFA no longer engages Wells Fargo Bank to
provide sub-investment advisory services pursuant to a Sub-Advisory Contract.
Wells Fargo Bank received fees 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 years ended February 28, 1997 and February 28,
1998, BGFA paid to Wells Fargo Bank the sub-advisory fees indicated below,
without waivers:
<TABLE>
1/1/96-2/29/96 FYE 2/28/97 FYE 2/28/98
FEES PAID FEES PAID FEES PAID
--------- --------- ---------
<S> <C> <C> <C>
Money Market Fund $12,801 $80,773 $90,190
</TABLE>
Co-Administrators. The Company has engaged Stephens Inc. ("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,
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. Stephens also pays the
compensation of the Company's Directors, officers and employees who are
affiliated with Stephens.
10
<PAGE>
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 0.35% 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 29, 1996, February 28, 1997, and
February 28, 1998, the Fund paid the following administration fees:
<TABLE>
<CAPTION>
FYE 2/29/96 FYE 2/28/97 FYE 2/28/98
----------- ----------- -----------
<S> <C> <C> <C>
Money Market Fund $76,777 $111,048(1) $179,427(2)
</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.
(2) For this period all co-administration fees were paid jointly to Stephens and
BGI.
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.
Transfer and Dividend Disbursing Agent. IBT also acts as the transfer
--------------------------------------
and dividend disbursing agent for the Fund. For its services as transfer and
dividend disbursing agent to the Fund, IBT is
11
<PAGE>
entitled to receive an annual maintenance fee computed on the basis of the
number of shareholder accounts that it maintains for the Fund and to be
reimbursed for out-of-pocket expenses or advances incurred by it in performing
its obligations under the agreement. The annual maintenance fee is paid as
follows:
ANNUAL FEE
------------------------------
Up to 200 accounts* $6,000 per feeder/class
From 201 to 250 accounts $8,500 per feeder/class
Over 250 accounts $10,000 per feeder/class
_______________
* Defined as each account that is set up for an individual or plan sponsor
on a fund by fund basis.
In addition, the agreement contemplates that IBT will be reimbursed for other
expenses incurred by it at the request or with the written consent of the Fund,
including, without limitation, any equipment or supplies which the Company
specifically orders or requires IBT to order.
Prior to March 2, 1998, Wells Fargo Bank served as transfer and dividend
disbursing agent to the Fund, and was entitled to receive a monthly fee at an
annual rate of 0.05% of the average daily net assets of each Fund for such
services.
PERFORMANCE INFORMATION
Generally. The yield for the 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 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, 1998
were 5.24% and 5.27%, 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
12
<PAGE>
subtracting one from the result. The effective yield for the Fund for the seven-
day period ended February 28, 1998 was 5.38%.
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
the 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.
From time to time, the Company may quote the 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
13
<PAGE>
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.
DETERMINATION OF NET ASSET VALUE
The 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 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 MIP's Board of Trustees
to present minimal credit risks. The maturity of an instrument is generally
deemed to be the period remaining until the date when the principal amount
thereof is due or the date on which the instrument is to be redeemed. However,
Rule 2a-7 provides that the maturity of an instrument may be deemed shorter in
the case of certain instruments, including certain variable- and floating-rate
instruments subject to demand features. Pursuant to the Rule, MIP's Board of
Trustees is required to establish procedures designed to stabilize, to the
extent reasonably possible, the
14
<PAGE>
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 MIP's Board of Trustees, 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, 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.
15
<PAGE>
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.
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 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 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, BGFA 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 BGFA 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, 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. BGFA 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 BGFA
determines in good faith that such commission is reasonable in relation to the
value of the brokerage and research services
16
<PAGE>
provided by such broker/dealer, viewed in terms of either the particular
transaction or the overall responsibilities of BFGA. 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 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
investment companies or other accounts for which BFGA 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 BFGA may furnish statistical, research and other
information or services which are deemed by BFGA to be beneficial to the Fund's
investment programs. Research services received from brokers supplement BFGA'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 BFGA 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 BFGA since the brokers utilized
by BFGA as a group tend to follow a broader universe of securities and other
matters than the
17
<PAGE>
staff of BGFA can follow. In addition, this research provides BGFA
with a diverse perspective on financial markets. Research services which are
provided to BGFA by brokers are available for the benefit of all accounts
managed or advised by BGFA. It is the opinion of BGFA that this material is
beneficial in supplementing their research and analysis; and, therefore, it may
benefit the Fund by improving the quality of BGFA's investment advice.
Portfolio Turnover. Because the portfolio of the 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 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.
Securities of Regular Broker/Dealers. As of February 28, 1998 the Fund owned
------------------------------------
no securities of its "regular brokers or dealers" or their parents, as defined
in the 1940 Act.
TAXES
The following information supplements and should be read in conjunction with
the Prospectus section entitled "Taxes." The Prospectus describes generally the
tax treatment of distributions by the Fund. This section of the SAI includes
additional information concerning income taxes.
General. The Company intends to qualify the Fund as a regulated investment
-------
company under Subchapter M of the Internal Revenue Code of 1986, as amended (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
and thus the provisions of the Code applicable to regulated investment companies
will generally be applied individually to the Fund, rather than to the Company
as a whole. Accordingly, net capital gain, net investment income, and operating
expenses will be determined separately for the Fund. As a regulated investment
company, the Fund will not be taxed on its net investment income and net
realized capital gains distributed to its shareholders.
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 dividends, interest, certain payments with respect to securities loans,
gains from the sale or other disposition of stock or securities or foreign
currencies (to the extent such currency gains are directly related to the
regulated investment company's principal business of investing in stock or
securities) and other income (including but not limited to gains from options,
futures or forward contracts) derived with respect to its business of investing
in such stock, securities or currencies; and (b) 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
obligations and the securities of other regulated investment companies), or in
two or more issuers
18
<PAGE>
which the Fund controls and which are determined to be engaged in the same or
similar trades or businesses.
The Fund must also distribute or be deemed to distribute to its shareholders
at least 90% of its net investment income(which, for this purpose includes net
short-term capital gains) earned in each taxable year. In general, these
distributions must actually or be deemed to be made in the taxable year.
However, in certain circumstances, such distributions may be made in the 12
months following the taxable year. The Fund intends to pay out substantially
all of its net investment income for each year.
In addition, a regulated investment company must, in general, derive less than
30% of its gross income for a taxable year from the sale or other disposition of
securities or options thereon held for less than three months. However, this
restriction has been repealed with respect to a regulated investment company's
taxable years beginning after August 5, 1997.
The Fund seeks to qualify as a regulated investment company by investing
substantially all of its assets in a Master Portfolio. Under the Code, the
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 Fund (and the
Master Portfolio's other investors) in proportion to the 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 Fund would be deemed to have realized and recognized its proportionate share
of interest, dividends or gains without receipt of any distribution. However,
the Master Portfolio will seek to minimize recognition by its investors (such as
a Fund) of interest, dividends, gains or losses without a distribution.
Excise Tax. A 4% nondeductible excise tax will be imposed on the Fund (other
----------
than to the extent of its tax-exempt interest income) to the extent it does not
meet certain minimum distribution requirements by the end of each calendar year.
The Fund intends to actually or be deemed to distribute substantially all of its
net investment income and net realized capital gains by the end of each calendar
year and, thus, expects not to be subject to the excise tax.
Taxation of Master Portfolio Investments. Except as otherwise provided
----------------------------------------
herein, gains and losses realized by the Master Portfolio on the sale of
portfolio securities generally will be capital gains and losses. Such gains and
losses ordinarily will be long-term capital gains and losses if the securities
have been held by the Master Portfolio for more than one year at the time of
disposition of the securities.
Gains recognized on the disposition of a debt obligation (including tax-exempt
obligations purchased after April 30, 1993) purchased by the 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 was not previously recognized pursuant to an available election,
during the term the Master Portfolio held the debt obligation.
If the Master Portfolio enters into a "constructive sale" of any appreciated
position in stock, a partnership interest, or certain debt instruments, the
Master Portfolio must recognize gain (but not loss) with respect to that
position. For this purpose, a constructive sale occurs when the Master Portfolio
enters into one of the following transactions with respect to the same or
substantially identical property: (i) a short sale; (ii) an offsetting notional
principal contract; (iii) a futures or forward contract, or (iv) other
transactions identified in future Treasury Regulations.
Capital Gain Distributions. Distributions which are designated by the Fund as
--------------------------
capital gain distributions will be taxed to shareholders as long-term capital
gain (to the extent such dividends do not exceed the Fund's actual net capital
gain for the taxable year), regardless of how long a shareholder has held Fund
shares. Such distributions will be designated as capital gain distributions in
a written notice mailed by the Fund to its shareholders not later than 60 days
after the close of the Fund's taxable year.
19
<PAGE>
The Taxpayer Relief Act of 1997 (the "1997 Act") created several new
categories of capital gains applicable to noncorporate taxpayers. Under prior
law, noncorporate taxpayers generally were taxed at a maximum rate of 28% on
net capital gain (generally, the excess of net long-term capital gain over net
short-term capital loss). Noncorporate taxpayers generally are now taxed at a
maximum rate of 20% on net capital gain attributable to gains realized on the
sale of property held for greater than 18 months, and a maximum rate of 28% on
net capital gain attributable to gain realized on the sale of property held for
greater than one year and not more than 18 months, and a maximum rate of 25% for
certain gains attributable to the sale of real property. The 1997 Act retains
the treatment of short term capital gain or loss (generally, gain or loss
attributable to capital assets held for 1 year or less) and did not affect the
taxation of capital gains in the hands of corporate taxpayers.
Under the 1997 Act, the Treasury is authorized to issue regulations for
application of the reduced capital gains tax rates to pass-through entities,
including regulated investment companies, such as the Fund. The IRS has
published a notice applicable to pass-through entities until regulations are
promulgated. Pursuant to the notice, the Fund is permitted (but not required)
to designate the portion of its capital gain distributions, if any, to which the
28%, 25% and 20% rates described in the preceding paragraph apply, based on the
net amount of each class of capital gain realized by the Fund determined as if
the Fund is a noncorporate taxpayer. Noncorporate shareholders of the Fund may
therefore qualify for the reduced rate of tax on any capital gain distributions
paid by the Fund.
Disposition of Fund Shares. A disposition of Fund shares pursuant to
--------------------------
redemption (including a redemption in-kind) or exchanges ordinarily will result
in a taxable capital gain or loss, depending on the amount received for the
shares (or are deemed to receive in the case of an exchange) and the cost of the
shares.
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 a different regulated investment company, the
sales charge previously incurred 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 such other shares. Also, any loss realized
on a redemption or exchange of shares of the Fund will be disallowed to the
extent that substantially identical shares are acquired within the 61-day period
beginning 30 days before and ending 30 days after the shares are disposed
of.
If a shareholder receives a designated capital gain distribution (to be
treated by the shareholder as 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 long-term capital loss to the extent of the designated capital gain
distribution. This loss disallowance rule does not apply to losses realized
under a periodic redemption plan.
20
<PAGE>
Federal Income Tax Rates. As of the printing of this SAI, the maximum
------------------------
individual tax rate applicable to ordinary income is 39.6% (marginal tax rates
may be higher for some individuals to reduce or eliminate the benefit of
exemptions and deductions); the maximum individual marginal tax rate applicable
to net capital gain is 28% (however, see "Capital Gain Distributions" above);
and the maximum corporate tax rate applicable to ordinary income and net capital
gain is 35% (marginal tax rates may be higher for some corporations to reduce or
eliminate the benefit of lower marginal income tax rates). Obviously, the
amount of tax payable by any taxpayer will be affected by a combination of tax
laws covering, for example, deductions, credits, deferrals, exemptions, sources
of income and other matters.
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 and redemptions in-kind) paid or credited to an individual Fund
shareholder, unless the shareholder certifies that his or her taxpayer
identification number ("TIN"), which usually is his or her social security
number, provided to the Company 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 credit against the shareholder's
federal income tax liability, if any, or otherwise will be refundable. An
investor must provide a valid TIN to the Company upon opening or reopening an
account. Failure to furnish a valid TIN to the Company could also subject the
investor to penalties imposed by the IRS. Foreign shareholders of the Fund
(described below) generally are not subject to backup withholding.
Foreign Shareholders. Under the Code, distributions of net investment income
--------------------
by the Fund to a nonresident alien individual, foreign trust (i.e., trust which
a U.S. court is able to exercise primary supervision over administration of that
trust and one or more U.S. persons have authority to control substantial
decisions of that trust), foreign estate (i.e., the income of which is not
subject to U.S. tax regardless of source), foreign corporation, or foreign
partnership (a "foreign shareholder") will be subject to federal income tax
withholding (at a rate of 30% or a lower treaty rate, if applicable).
Withholding will not apply if a dividend distribution paid by the Fund to a
foreign shareholder is "effectively connected" with a U.S. trade or business
(or, if an income tax treaty applies, is attributable to a U.S. permanent
establishment of the foreign shareholder), in which case the reporting and
withholding requirements applicable to U.S. residents will apply. Distributions
of net capital gain generally are not subject to federal income tax
withholding.
New Regulations. On October 6, 1997, the Treasury Department issued new
---------------
regulations (the "New Regulations") which make certain modifications to the
backup withholding, U.S. income tax withholding and information reporting rules
applicable to foreign shareholders. The New Regulations generally will be
effective for payments made after December 31, 1999, subject to certain
transition rules. Among other things, the New Regulations will permit the Fund
to estimate the portion of its distributions paid to foreign shareholders which
is subject to federal
21
<PAGE>
income tax withholding. Prospective investors are urged to consult their own tax
advisors regarding the application to them of the New Regulations.
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 applicable to
each shareholder address only some of the federal income 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, local
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 12,100,000,000 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% 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
22
<PAGE>
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.
MIP is an open-end, series of management investment companies organized as a
Delaware business trust. MIP was organized on October 21, 1993. In accordance
with Delaware law and in connection with the tax treatment sought by MIP, 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 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 MIP itself was unable to meet its obligations.
The Declaration of Trust further provides that obligations of MIP are not
binding upon its Trustees individually but only upon the property of the Trust
and that the Trustees will not be liable for any action or failure to act, but
nothing in the Declaration of Trust protects a Trustee against any liability to
which the Trustee would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties involved in the
conduct of the Trustee's office.
The interests in the Master Portfolio of MIP have substantially identical
voting and other rights as those rights enumerated above for shares of the
Fund. MIP also intends to dispense with annual meetings, but are required by
Section 16(c) of the 1940 Act to hold a special meeting and assist investor
communications under the circumstances described above with respect to a
Company. Whenever the Fund is requested to vote on a matter with respect to its
Master Portfolio, the Fund will hold a meeting of Fund shareholders and will
cast its votes as instructed by such shareholders.
In a situation where the Fund does not receive instruction from certain of its
shareholders on how to vote the corresponding shares of the Master Portfolio,
the Fund will vote such shares in the same proportion as the shares for which
the Fund does receive voting instructions.
As of May 30, 1998, Merrill Lynch Trust Co. FSB, FBO Various 401(K) Plans,
P.O. Box 62000, San Francisco, CA 94162, was the record owner of approximately
97.09% 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.
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.
23
<PAGE>
FINANCIAL INFORMATION
The audited financial statements, including the portfolio of investments and
independent auditors' report for the fiscal year ended February 28, 1998 for the
Fund are hereby incorporated by reference to the MasterWorks Funds Inc. Annual
Report, as filed with the SEC on May 1, 1998. The audited financial statements
are 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."
<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, 1998 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 1, 1998.
The portfolio of investments, audited financial statements and
independent auditors' report for the fiscal year ended February 28, 1998 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 1, 1998.
(b) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description
- --------------------------- --------------------------------------------------------------------------------------------------
<S> <C>
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>
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
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.
6 - Amended and Restated Distribution Agreement with Stephens Inc. on behalf of the Funds, dated February 16, 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,
incorporated by reference to Post-Effective Amendment No. 14, filed June 30, 1997.
9(a) - Transfer Agency and Service Agreement with Investors Bank & Trust Company on behalf of the Funds, dated February
27, 1998, incorporated by reference to Post-Effective Amendment No. 15, filed June 30, 1998.
9(b) - Shareholder Servicing Plan and Form of Shareholder Servicing Agreement for the Growth, Growth Stock, Short-
Intermediate Term, Asset Allocation, U.S. Treasury Allocation, Bond Index, S&P 500 Stock and Money Market Funds,
incorporated by reference to Post-Effective Amendment No. 15, filed June 30, 1998.
9(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.
9(c)(i) - Co-Administration Agreement with Stephens Inc. and Barclays Global Investors, N.A. on behalf of the Funds, dated
October 21, 1996, incorporated by reference to Post-Effective Amendment No. 14, filed June 30, 1997.
9(c)(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, incorporated by reference to Post-Effective Amendment No. 14, filed
June 30, 1997.
9(d) - Service Agreement with Merrill Lynch, Pierce, Fenner & Smith Incorporated on behalf of the Funds, dated December
31, 1997, incorporated by reference to Post-Effective Amendment No. 15, filed June 30, 1998.
9(e) - Financial Services Agreement with Merrill Lynch, Pierce, Fenner & Smith Incorporated on behalf of the Funds,
dated December 31, 1997, incorporated by reference to Post-Effective Amendment No. 15, filed June 30, 1998.
10 - Opinion and Consent of Counsel, filed herewith.
11 - Not applicable
12 - Not applicable
</TABLE>
C-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
-------- -----------
<S> <C>
13 - Not applicable
14 - Not applicable
15 - Not applicable
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, incorporated by reference to Post-Effective Amendment
No. 14, filed June 30, 1997.
27.1 - Financial Data Schedule for the Asset Allocation Fund, incorporated by reference to Post-Effective
Amendment No. 15, filed June 30, 1998.
27.2 - Financial Data Schedule for the Bond Index Fund, incorporated by reference to Post-Effective
Amendment No. 15, filed June 30, 1998.
27.3 - Financial Data Schedule for the Growth Stock Fund, incorporated by reference to Post-Effective
Amendment No. 15, filed June 30, 1998.
27.4 - Financial Data Schedule for the Money Market Fund, incorporated by reference to Post-Effective
Amendment No. 15, filed June 30, 1998.
27.5 - Financial Data Schedule for the S&P 500 Stock Fund, incorporated by reference to Post-Effective
Amendment No. 15, filed June 30, 1998.
27.6 - Financial Data Schedule for the Short-Intermediate Term Fund, incorporated by reference to
Post-Effective Amendment No. 15, filed June 30, 1998.
27.7 - Financial Data Schedule for the U.S. Treasury Allocation Fund, incorporated by reference to
Post-Effective Amendment No. 15, filed June 30, 1998.
27.9 - Financial Data Schedule for the LifePath 2000 Fund, incorporated by reference to Post-Effective
Amendment No. 15, filed June 30, 1998.
27.10 - Financial Data Schedule for the LifePath 2010 Fund, incorporated by reference to Post-Effective
Amendment No. 15, filed June 30, 1998.
27.11 - Financial Data Schedule for the LifePath 2020 Fund, incorporated by reference to Post-Effective
Amendment No. 15, filed June 30, 1998.
27.12 - Financial Data Schedule for the LifePath 2030 Fund, incorporated by reference to Post-Effective
Amendment No. 15, filed June 30, 1998.
</TABLE>
C-3
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
27.13 - Financial Data Schedule for the LifePath 2040 Fund, incorporated by reference to Post-Effective
Amendment No. 15, filed June 30, 1998.
</TABLE>
Item 25. Persons Controlled by or under
Common Control with Registrant
------------------------------
As of June 1, 1998, 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> Percentage
Corresponding of beneficial
Fund Master Portfolio interests held
- ---- ---------------- ---------------
<S> <C> <C>
LifePath 2000 Fund LifePath 2000 Master Portfolio (MIP) 43.13%
LifePath 2010 Fund LifePath 2010 Master Portfolio (MIP) 54.90%
LifePath 2020 Fund LifePath 2020 Master Portfolio (MIP) 45.87%
LifePath 2030 Fund LifePath 2030 Master Portfolio (MIP) 41.10%
LifePath 2040 Fund LifePath 2040 Master Portfolio (MIP) 32.68%
Asset Allocation Fund Asset Allocation Master Portfolio (MIP) 99.99%
Bond Index Fund Bond Index Master Portfolio (MIP) 99.99%
S&P 500 Stock Fund S&P 500 Index Master Portfolio (MIP) 88.41%
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 June 1, 1998, the number of record holders of each class of
securities of the Registrant for the following funds were as follows:
<TABLE>
<CAPTION>
Number of
Title of Class Record Holders
- --------------------------------------------------------- --------------------
<S> <C>
Asset Allocation Fund 14
Bond Index Fund 18
Growth Stock Fund 8
LifePath 2000 Fund 11
LifePath 2010 Fund 12
LifePath 2020 Fund 12
LifePath 2030 Fund 12
LifePath 2040 Fund 11
Money Market Fund 5
Short-Intermediate Term Fund 5
S&P 500 Stock Fund 66
U.S. Treasury Allocation Fund 8
</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. 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.
<TABLE>
<CAPTION>
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 C-Chairman and Director of BGI
Director 45 Fremont Street, San Francisco, CA 94105
Lawrence G. Tint Chairman of the Board of Directors of BGFA
Chairman and Director and Chief Executive Officer of BGI
45 Fremont Street, San Francisco, CA 94105
</TABLE>
C-6
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Geoffrey Fletcher Chief Financial Officer of BGFA and BGI since May 1997
Chief Financial Officer 45 Fremont Street, San Francisco, CA 94105
Managing Director and Principal Accounting Officer at
Bankers Trust Company from 1988 - 1997
505 Market Street, San Francisco, CA 94105
</TABLE>
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.
<TABLE>
<CAPTION>
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
</TABLE>
C-7
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
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
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
</TABLE>
C-8
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Director of Bailard Biehl & Kaiser
Real Estate Investment Trust, Inc.
2755 Campus Dr.
San Mateo, CA 94403
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
</TABLE>
C-9
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Philip J. Quigley Chairman, President and Chief Executive Officer of
Director Pacific Telesis Group
130 Kearney Street Rm. 3700
San Francisco, CA 94108
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
</TABLE>
C-10
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Director of Outboard Marine Corporation
100 SeaHorse Drive
Waukegan, IL 60085
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
</TABLE>
C-11
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Director of Shaman Pharmaceuticals Inc.
213 East Grand Ave. South
San Francisco, CA 94080
William F. Zuendt Director 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 MasterWorks Funds Inc., Stagecoach Funds,
Inc., Stagecoach 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 Life & Annuity Trust, Managed
Series Investment Trust and Master Investment Portfolio, all of which are
registered open-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) Not applicable.
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
C-13
<PAGE>
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by the
final adjudication of such 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 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 30th day of June, 1998.
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
------------------------- (Principal Executive Officer)
(R. Greg Feltus)
/s/ Richard H. Blank, Jr. Secretary and Treasurer
------------------------- (Principal Financial Officer)
(Richard H. Blank, Jr.)
* Director
-------------------------
(Jack S. Euphrat)
* Director
-------------------------
(Thomas S. Goho)
* Director
-------------------------
(W. Rodney Hughes)
* Director
-------------------------
(J. Tucker Morse)
*By: /s/ Richard H. Blank, Jr.
-------------------------
Richard H. Blank, Jr.
As Attorney-in-Fact
June 30, 1998
<PAGE>
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940, the
Registrant 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 30th day of June, 1998.
MASTER INVESTMENT PORTFOLIO
By /s/ Richard H. Blank, Jr.
-------------------------
(Richard H. Blank, Jr.)
Secretary and Treasurer
(Principal Financial Officer)
Signature Title
--------- -----
* Trustee, Chairman and President
------------------------- (Principal Executive Officer)
(R. Greg Feltus)
/s/ Richard H. Blank, Jr. Secretary and Treasurer
------------------------- (Principal Financial Officer)
(Richard H. Blank, Jr.)
* Trustee
-------------------------
(Jack S. Euphrat)
* Trustee
-------------------------
(Thomas S. Goho)
* Trustee
-------------------------
(W. Rodney Hughes)
* Trustee
-------------------------
(J. Tucker Morse)
*By: /s/ Richard H. Blank, Jr.
-------------------------
Richard H. Blank, Jr.
As Attorney-in-Fact
June 30, 1998
<PAGE>
MASTERWORKS FUNDS INC.
SEC FILE NOS. 33-54126; 811-7332
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
EX-99.B10 * Opinion and Consent of Counsel - Morrison & Foerster LLP
<PAGE>
[MORRISON & FOERSTER LLP LETTERHEAD]
July 2, 1998
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. 16 and Amendment No. 20 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, 1998.
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.
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
