<PAGE>
As filed with the Securities and Exchange Commission
on July 30, 1999
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. 22 [X]
And
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [_]
Amendment No. 26 [X]
(Check appropriate box or boxes)
________________________
BARCLAYS GLOBAL INVESTORS FUNDS, INC.
(formerly, MasterWorks Funds 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)
60 days after filing pursuant [_] on _________ pursuant
to Rule 485(a)(1), or to Rule 485(a)(1)
75 days after filing pursuant [X] on July 30, 1999 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 its trustees and principal officer.
<PAGE>
EXPLANATORY NOTE
----------------
This Post-Effective Amendment No. 22 (the "Amendment") to the Registration
Statement of Barclays Global Investors Funds, Inc. (the "Company") is being
filed to add to the Company's Registration Statement the new Institutional Money
Market Fund.
<PAGE>
Cross Reference Sheet
---------------------
Form N-1A Item Number
- ---------------------
Part A Prospectus Captions
- ------ -------------------
1 Cover page
Back cover
2 Investment Objectives
Principal Investment Strategies
Principal Risk Factors
Investment Returns
3 Fees and Expenses
4 Fund Details
A Further Discussion of Risk
5 Not Applicable
6 Management of the Fund
7 Shareholder Information
8 Shareholder Information
9 Financial Highlights
Part B Statement of Additional Information Captions
- ------ --------------------------------------------
10 Cover Page
Table of Contents
11 Fund History
12 Description of the Fund and Its Investments and Risks
Portfolio Securities
Risk Considerations
13 Management
14 Control Persons and Principal Holders of Securities
15 Investment Adviser and Other Service Providers
16 Investment Adviser and Other Service Providers
17 Capital Stock
18 Purchase, Redemption and Pricing of Shares
Determination of Net Asset Value
19 Dividends, Distributions and Taxes
20 Investment Adviser and Other Service Providers
21 Performance Information
22 Financial Statements
Part C General Information
- ------ -------------------
23-30 Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C of this Document.
<PAGE>
PROSPECTUS/AUGUST 1, 1999
Like shares of all
mutual funds, these
securities have not been
approved or disapproved
by the Securities and
Exchange Commission nor
has the Securities and
Exchange Commission
passed upon the accuracy
or adequacy of this
prospectus.
Any representation to
the contrary is a
criminal offense.
Institutional
Money Market Fund
Distributor Shares
Providing income and preserving capital
BARCLAYS GLOBAL INVESTORS FUNDS, INC.
<PAGE>
Table of Contents
FUND BASICS
<TABLE>
<S> <C>
2 Investment Objective
2 Principal Investment Strategy
3 Principal Risk Factors
4 Investment Returns
5 Fees and Expenses
FUND DETAILS
6 Principal Investments
7 A Further Discussion of Risk
8 Management of the Fund
9 Shareholder Information
</TABLE>
<PAGE>
FUND BASICS
Investment Objective/1/
[LOGO OF AUTO ICON APPEARS HERE]
Principal Investment Strategy
[LOGO OF AUTO ICON APPEARS HERE]
The Fund seeks a high level of income consistent with liquidity and the
preservation of capital.
The Fund invests in high-quality, short-term government and corporate debt.
/1/The Institutional Money Market Fund invests all of its assets in a Master
Portfolio that has a substantially similar investment objective. For
simplicity's sake, all discussion of investment objectives, strategies and
risks of the Fund refer also to the objectives, strategies and risks of its
Master Portfolio, unless otherwise indicated. A detailed examination of the
relationship of the Fund to its Master Portfolio appears on page 8.
BARCLAYS GLOBAL INVESTORS FUNDS, INC.
2
<PAGE>
Principal Risk Factors
[LOGO OF SPEEDING AUTO APPEARS HERE]
- --------------------------------------------------------------------------------
Defining Terms
Short-term
securities have
a remaining
maturity of 397
days or less.
The Fund will
maintain an
average-weighted
maturity of 90
days or less.
.The value of the short-term securities in which the Fund invests may fall
because of an increase in interest rates. Increasing interest rates reduce the
value of debt securities generally, even the value of debt securities issued by
the US government.
.The value of individual securities held by the Fund may fall with the decline
in a borrower's real or apparent ability to meet its financial obligations.
An investment in the Fund is not a deposit of the bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. Although the Fund seeks to preserve the value of your investment at $1
per share, it is possible to lose money by investing in the Fund.
Who May Want to Invest in the Fund
The Fund may be appropriate for investors who:
.seek income comparable to money market rates
.wish to maintain the value of their investment in the long and short term
.desire an investment that can be readily converted to cash
FUND BASICS
3
<PAGE>
Investment Returns
speedometer icon
- -------------------
Defining Terms
The Fund's
seven-day yield,
also called the
current yield,
annualizes the
amount of income
the Fund
generates over a
seven-day period
by projecting
the amount for
an entire year.
Total Returns
The bar chart and table in this section provide some indication of the risks of
investing in the Institutional Money Market Fund by showing changes in the
performance of the Money Market Fund of Barclays Global Investors Funds, Inc.
("BGIF") from year to year, and the Money Market Fund's average annual returns.
The Money Market Fund is a separate fund from the Institutional Money Market
Fund, but both Funds invest all of their assets in the same master portfolio.
The total annual fund operating expenses of the Money Market Fund did not
change as a result of the Fund's conversion from a stand-alone fund to a feeder
fund on September 2, 1998. The returns of the Funds would differ due to
differences in their respective operating expenses.
The bar chart shows the returns for the Money Market Fund for each full
calendar year since its inception. The average annual total return table
compares the Money Market Fund's average annual total return for one and five
calendar years and for the period since inception, and compares it to a widely-
followed average of money market fund returns. How the Money Market Fund
performed in the past is not necessarily an indication of how the Institutional
Money Market Fund will perform in the future.
[BAR GRAPH APPEARS HERE]
*The total annual fund operating expenses for the periods reflected in the bar
chart above for the Money Market Fund are 0.45%, but the Institutional Money
Market Fund's annual fund operating expenses are 0.22%.
**The Money Market Fund's year-to-date return as of June 30, 1999 was 1.14%
The highest and lowest quarterly returns for the Money Market Fund for the
periods covered by the bar charts above are listed below:
<TABLE>
<CAPTION>
HIGHEST QUARTERLY LOWEST QUARTERLY
RETURN: 2ND QTR. '95 RETURN: 1ST QTR. '94
<S> <C>
1.42% 0.73%
</TABLE>
<TABLE>
<CAPTION>
MONEY MARKET FUND AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1998)
SINCE INCEPTION
ONE YEAR FIVE YEARS (July 2, 1993)
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Money Market Fund 5.26% 5.05% 4.84%
- -----------------------------------------------------------------------------------
IBC Financial Data Inc.* 5.33% 5.16% 4.96%
</TABLE>
*The Institutional Money Market Fund is tracked against the IBC Financial Data
Inc.'s First Tier Institutional Taxable Money Market Fund Average.
To learn the current seven-day yield, call the Fund's Transfer Agent, Investors
Bank & Trust Co. (IBT), at 1 888 204 3956.
BARCLAYS GLOBAL INVESTORS FUNDS, INC.
4
<PAGE>
Fees and Expenses
The table below describes the fees and expenses that you may pay if you buy and
hold shares in the Fund. The expenses are deducted from Fund assets, which
means you pay them indirectly.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
<S> <C>
Management fees 0.10%
- ------------------------------------------------------------------------------
Rule 12-b-1 fees 0.10%
- ------------------------------------------------------------------------------
Other expenses* 0.02%
- ------------------------------------------------------------------------------
Total annual Fund operating expenses** 0.22%
</TABLE>
*Other expenses" are based on estimated amounts for the current fiscal year.
**Total annual Fund operating expenses in the above table and the following
example reflect the expenses of both the Fund and the Master Portfolio in which
it invests.
Example
The example below is intended to help you compare the Fund's costs with those
of other mutual funds. The example illustrates the costs you would have
incurred on an initial $10,000 investment in the Fund over the time periods
shown. It assumes your investment earns an annual return of 5% over the periods
and that the Fund's operating expenses remain the same.
The Fund does not charge a sales load or other fee upon redemption. Your
expenses for each period would be the same whether or not you sell your shares
at the end of a period. Your actual costs may be higher or lower than this
hypothetical example.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional Money Market Fund $23 $71
</TABLE>
FUND BASICS
5
<PAGE>
FUND DETAILS
Principal Investments
- --------------------------------------------------------------------------------
Defining Terms:
Floating rate
and variable
rate debt
securities are
instruments with
interest rates
that are
adjusted either
on a schedule or
when an index or
benchmark
changes.
Bank obligations
are backed by
funds of a
financial
institution. In
addition to
domestic bank
obligations, the
Fund may invest
in obligations
of foreign bank
branches located
inside and
outside the
United States
and US bank
branches located
outside the
United States.
Corporate
obligations
include
unsecured debt
instruments,
such as
commercial paper
and corporate
notes, issued by
financial
institutions,
insurance
companies and
industrial
corporations.
Repurchase
agreements
obligate a
seller of US
government or
other high-
quality
securities to
buy them back
from the Fund
within a
specified period
of time at an
agreed-upon
price.
Asset-backed
securities are
financial
instruments
collateralized
by one or more
types of assets,
including loans
and receivables.
The Institutional Money Market Fund invests in fixed rate, floating rate and
variable rate debt securities that meet the following requirements:
.They have remaining maturities of 397 days (about 13 months) or less.
.They rank in the top two quality short-term categories, according to credit
rating agencies such as Moody's Investors Services or Standard & Poor's Corp.
.If the securities are unrated, the Investment Adviser must have determined
that their credit compares with the credit of the rated securities it is
permitted to buy. It must make this comparison in accordance with guidelines
adopted by the Master Portfolio's Board of Trustees./1/
.The principal and interest of all securities in the Master Portfolio are
payable in US dollars.
Within these guidelines, the Fund may invest in US and foreign government debt,
including the debt of agencies and instrumentalities, such as Fannie Mae and
the Student Loan Marketing Association, US and foreign bank obligations,
corporate obligations, repurchase agreements, and asset-backed securities.
/1/A detailed examination of the relationship of the Fund to its Master
Portfolio appears on page 13.
BARCLAYS GLOBAL INVESTORS FUNDS, INC.
6
<PAGE>
A Further Discussion of Risk
Year 2000 Risk
Most of the services provided to the Fund depend on the smooth functioning of
computer systems. Any failure of these systems to adapt to the changes
necessary from dates in the year 1999 to the year 2000 could hamper Fund
operations and services. The Fund's principal service providers have informed
the Fund that they are working on the changes necessary and they expect their
systems to be ready in time. But there can be no assurance of success.
Moreover, since the changes will affect virtually every organization, the
companies or entities in which the Fund invests could also be negatively
affected.
For a complete analysis of Fund risks, please refer to the Fund's Statement of
Additional Information (SAI), which is incorporated by reference and is
available free of charge from your shareholder servicing agent or directly by
calling 1 888 204 3956.
FUND DETAILS
7
<PAGE>
Management of the Fund
Investment Adviser
The Fund is a feeder fund that invests all of its assets in a similarly named
Master Portfolio with substantially similar investment objectives, strategies
and policies. Barclays Global Fund Advisors, ("BGFA") provides investment
guidance and policy direction for the Master Portfolio. For its services to the
Master Portfolio, BGFA is entitled to receive an annual fee of 0.10% of the
Master Portfolio's average daily net assets.
BGFA is located at 45 Fremont Street, San Francisco, California 94105. It is a
wholly owned subsidiary of Barclays Global Investors, N.A. ("BGI"), which in
turn is an indirect subsidiary of Barclays Bank PLC. BGI, and its affiliates,
is the world's largest manager of institutional investment assets. As of
December 31, 1998, BGI and its affiliates, including BGFA, provided investment
advisory services for assets worth in excess of $615 billion.
Administrative Services
BGI and Stephens Inc., a full service broker/dealer, provide the following
services as the Fund's co-administrators:
.management of the Fund's non-investment operations
.preparation of reports for the Fund's Board of Directors
.preparation of required reports for the Securities and Exchange Commission and
state securities commissions.
.preparation of proxy statements and shareholder reports
BGI and Stephens are entitled to receive a combined annual fee of 0.02% of the
Fund's average daily net assets. In return for this fee, BGI and Stephens have
agreed to absorb all expenses for the Fund other than the investment advisory
fee, extraordinary expenses, brokerage and other expenses connected to the
execution of portfolio transactions and certain expenses which are borne by the
Fund.
BARCLAYS GLOBAL INVESTORS FUNDS, INC.
8
<PAGE>
Shareholder Information
- --------------------------------------------------------------------------------
Defining Terms
Investors Bank &
Trust is the
Fund's
custodian,
transfer agent
and dividend
disbursing
agent.
Additional shareholder information, including how to buy and sell shares of the
Fund is available free of charge by calling toll-free 1 888 204 3956.
Who is Eligible.
To be eligible to purchase Institutional Money Market Fund shares, you must be
an institutional investor and invest a minimum initial investment amount for
the Distributor Class shares which is generally $10 million. Distributor Class
shares may be purchased through BGI or through third party distributors of the
Fund's Shares.
Contacting BGI Funds
Call the Fund's Transfer Agent, Investors Bank & Trust (IBT), at 1 888 204
3956, toll-free, Monday through Friday 8 am to 4 pm (Eastern time).
Buying Shares
You must submit your purchase order by the close of regular trading on the New
York Stock Exchange (normally 4pm Eastern time) to purchase shares at that
day's net asset value. Orders received after the close of regular trading on
the New York Stock Exchange will be executed on the next business day. IBT must
receive a completed application before it can open an account and receive wire
orders.
You should instruct your bank to wire funds as follows:
Investors Bank & Trust Co.
ABA #011-001-438
Attn: Transfer Agent
Account # DDA 555555535
For Further Credit to: Barclays Global Investors Funds, Inc.
Shareholder Account Name:
Shareholder Account Number:
FUND DETAILS
9
<PAGE>
Selling Shares
You must submit your redemption order by the close of regular trading on the
New York Stock Exchange (normally 4pm Eastern time) to redeem shares at that
day's net asset value. Orders received after the close of regular trading on
the New York Stock Exchange will be executed on the next business day.
IBT will employ procedures designed to confirm that your order is valid, but
neither IBT nor the Fund may be held liable for acting on telephone
instructions IBT reasonably believes to be valid. IBT will wire proceeds
directly to your designated bank account.*
Important Notes:
It is important that you call the Fund before executing a large transaction. In
consideration of the interests of all shareholders, the Fund reserves the right
to reject any purchase orders or delay delivery of your redemption proceeds--up
to seven days--if the amount will disrupt the Fund's operation or performance.
Please contact IBT for further clarification.
Federal regulations require you to furnish a valid taxpayer identification
number when you open your account.
*If you wish to change your bank wire instructions, you must make your request
in writing and include a signature guarantee to help prevent fraud. You can
obtain a signature guarantee from most banks and securities dealers. A
signature guarantee is not a notarized signature.
BARCLAYS GLOBAL INVESTORS FUNDS, INC.
10
<PAGE>
- --------------------------------------------------------------------------------
Defining Terms
The amortized
cost method
marks down any
premium, or
marks up any
discount, on
short-term debt
that the Fund
buys at a
constant rate
until maturity.
It does not
reflect daily
fluctuations in
market value.
Calculating the Fund's Share Price
IBT calculates the Fund's share price (also known as a Fund's net asset value)
in accordance with the standard formula for valuing mutual fund shares at the
close of regular trading (normally 4pm Eastern time) every day the New York
Stock Exchange is open. The formula calls for deducting all of the Fund's
liabilities from the total value of its assets--the market value of the
securities it holds, plus cash reserves--and dividing the result by the number
of shares outstanding. IBT uses the amortized cost method to account for any
premiums or discounts above or below the face value of the securities it buys.
BGFA, the Fund's Investment Adviser, seeks to maintain a constant price of $1
per share, although it can offer no assurance that it will do so.
The price at which a purchase or redemption is made is based on the next
calculation of net asset value after the order is placed.
Dividends and Distributions
The Fund declares dividends daily and pays them out on a monthly basis
to investors. It distributes capital gains, if any, to the investors annually.
It automatically reinvests dividends and distributions, acquiring additional
shares at net asset value.
You begin earning dividends on your shares the day your purchase order
takes effect. You continue earning daily dividends on the shares up to but not
including the date you sell them.
Please Note:
.The Fund credits dividends earned on weekends and holidays to the preceding
business day.
.If you sell shares before the monthly dividend payment date, the Fund remits
to the investor any dividends declared but not yet paid to the investor on the
next dividend payment date.
.If you sell all shares before the monthly dividend payment date, the Fund
remits to the investor all dividends accrued with the sale proceeds.
FUND DETAILS
11
<PAGE>
Taxes
The Fund's shareholders, not the Fund itself, ordinarily pay taxes on the
Fund's net income and capital gains through distribution of such income and
gains by the Fund to its shareholders. The amount of taxes you owe will vary
from year to year, based on the amount of dividends of net investment income
and capital gain distributions the Fund pays out. Normally, the taxes will be
due in the year dividends and distributions are paid. However, when
distributions are declared in the last three months of a year and paid in
January of the next year, they are taxable as if paid on December 31 of the
prior year.
Dividends and capital gain distributions usually create the following tax
liability:
<TABLE>
<CAPTION>
TRANSACTION TAX STATUS
<S> <C>
Income dividends Ordinary income
- ----------------------------------------------
Short-term capital gain
distributions Ordinary income
- ----------------------------------------------
Long-term capital gain
distributions Capital gain
</TABLE>
As long as the Fund maintains a $1.00 net asset value per share, your sales
and exchanges of Fund shares will not be taxable.
After December 31 of a year, the Fund will send you a notice that tells you
how much you've received in dividends and distributions during the year and
their federal tax status. You could also be subject to foreign, state and
local taxes on such dividends and distributions.
Please provide the correct Taxpayer Identification Number (TIN) and note if
you are subject to backup withholding. If the Internal Revenue Service (IRS)
notifies the Fund that the TIN provided is incorrect or that you are otherwise
subject to backup withholding, the Fund is required to withhold 31% as "backup
withholding" on any payments made to you by the Fund, including exchanges. Any
amounts withheld can be applied against your federal income tax liability.
In general, the Fund is also required to withhold on dividends paid to foreign
shareholders.
Because each investor's tax circumstances are unique and because tax laws are
subject to change, it is recommended that you consult your tax adviser about
your investment.
BARCLAYS GLOBAL INVESTORS FUNDS, INC.
12
<PAGE>
We have adopted a Distribution Plan pursuant to Rule 12b-1 under the Investment
Company Act of 1940 for the Distributor Class of the Fund. This plan is used to
pay for distribution-related services, including ongoing compensation to
selling agents. The fees are paid out of the Fund's assets on an ongoing basis.
Over time, these fees will increase the cost of your investment and may cost
you more than paying other types of sales charges. The fees paid under the plan
are 0.10% of the average daily net asset value of the Distributor Class shares
of the Fund.
Master/Feeder Mutual Fund Structure
The Fund does not have its own investment adviser. Instead, the Fund invests
all of its assets in a separate mutual fund, called a Master Portfolio, that
has a substantially similar investment objective as the Fund. BGFA serves as
Investment Adviser to the Master Portfolio. The Master Portfolios may accept
investments from other feeder funds.
Feeder Fund Expenses. The feeders bear the Master Portfolio's expenses in
proportion to the amount of assets each invests in the Portfolio. Each feeder
can set its own transaction minimums, fund-specific expenses and conditions.
Feeder Fund Rights. Under the master/feeder structure, the Fund's Board of
Directors retains the right to withdraw the Fund's assets from the Master
Portfolio if it believes doing so is in the shareholders' best interests. If
the Fund's Board of Directors withdraws the Institutional Money Market Fund's
assets, it would then consider whether the Fund should hire its own investment
adviser, invest in another master portfolio or take other action.
Share Class. The Fund offers an additional share class with different expenses
and expected returns than those described here. Call IBT for additional
information, at 1 888 204 3956.
FUND DETAILS
13
<PAGE>
[This page intentionally left blank.]
<PAGE>
[This page intentionally left blank.]
<PAGE>
[This page intentionally left blank.]
<PAGE>
For more detailed information on the Fund, request a copy of the annual and
semi-annual reports to shareholders and the Statement of AdditionalInformation
(SAI). The annual and semi-annual reports discuss Fund investments over the
last fiscal year.They also review the market conditions and investment
strategies thatmaterially affected Fund performance.
The SAI provides detailed information on the Fund. BGFA has electronically
filed the SAI, dated August 1, 1999, with the Securities and
ExchangeCommission. It is incorporated by reference into this prospectus.
If you have any questions about theFund or wish to obtain both the reports and
SAI free of charge, please call the Fund's toll-free number:
1 888 204 3956
Or you may write Barclays Global Investors Funds:
c/o Investors Bank & Trust Co.
P.O. Box 9130
Mail Code MFD23
Boston, MA 02117-9130
You can also obtain this information through the Internet on the Securities and
Exchange Commission's Website:
http://www.sec.gov
The Securities and Exchange Commission will furnish hard copies of the
documents, upon payment of a duplicating fee, through the Public Reference
Section. Address your request to:
Public Reference Section of the SEC Washington, D.C. 20549-6009
You can also review and copy the documents at the Securities and Exchange
Commission's Public Reference Room in Washington D.C. Call the Commission at 1
800 SEC 0330 for further details.
811-7332
BARCLAYS GLOBAL INVESTORS FUNDS, INC.
<PAGE>
Institutional Shares
PROSPECTUS/AUGUST 1, 1999
Like shares of all
mutual funds, these
securities have not been
approved or disapproved
by the Securities and
Exchange Commission nor
has the Securities and
Exchange Commission
passed upon the accuracy
or adequacy of this
prospectus.
Any representation to
the contrary is a
criminal offense.
Institutional
Money Market Fund
Providing income and preserving capital
BARCLAYS GLOBAL INVESTORS FUNDS, INC.
<PAGE>
Table of Contents
FUND BASICS
<TABLE>
<C> <S>
2 Investment Objective
2 Principal Investment Strategy
3 Principal Risk Factors
4 Investment Returns
5 Fees and Expenses
FUND DETAILS
6 Principal Investments
7 A Further Discussion of Risk
8 Management of the Fund
9 Shareholder Information
</TABLE>
<PAGE>
FUND BASICS
Investment Objective/1/
[LOGO OF AUTO ICON APPEARS HERE]
Principal Investment Strategy
[LOGO OF AUTO ICON APPEARS HERE]
The Fund seeks a high level of income consistent with liquidity and the
preservation of capital.
The Fund invests in high-quality, short-term government and corporate debt.
/1/The Institutional Money Market Fund invests all of its assets in a Master
Portfolio that has a substantially similar investment objective. For
simplicity's sake, all discussion of investment objectives, strategies and
risks of the Fund refer also to the objectives, strategies and risks of its
Master Portfolio, unless otherwise indicated. A detailed examination of the
relationship of the Fund to its Master Portfolio appears on page 8.
BARCLAYS GLOBAL INVESTORS FUNDS, INC.
2
<PAGE>
Principal Risk Factors
[LOGO OF SPEEDING AUTO APPEARS HERE]
- --------------------------------------------------------------------------------
Defining Terms
Short-term
securities have
a remaining
maturity of 397
days or less.
The Fund will
maintain an
average-weighted
maturity of 90
days or less.
.The value of the short-term securities in which the Fund invests may fall
because of an increase in interest rates. Increasing interest rates reduce the
value of debt securities generally, even the value of debt securities issued by
the US government.
.The value of individual securities held by the Fund may fall with the decline
in a borrower's real or apparent ability to meet its financial obligations.
An investment in the Fund is not a deposit of the bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. Although the Fund seeks to preserve the value of your investment at $1
per share, it is possible to lose money by investing in the Fund.
Who May Want to Invest in the Fund
The Fund may be appropriate for investors who:
.seek income comparable to money market rates
.wish to maintain the value of their investment in the long and short term
.desire an investment that can be readily converted to cash
FUND BASICS
3
<PAGE>
Investment Returns
speedometer icon
- -------------------
Defining Terms
The Fund's
seven-day yield,
also called the
current yield,
annualizes the
amount of income
the Fund
generates over a
seven-day period
by projecting
the amount for
an entire year.
Total Returns
The bar chart and table in this section provide some indication of the risks of
investing in the Institutional Money Market Fund by showing changes in the
performance of the Money Market Fund of Barclays Global Investors Funds, Inc.
("BGIF") from year to year, and the Money Market Fund's average annual returns.
The Money Market Fund is a separate fund from the Institutional Money Market
Fund, but both Funds invest all of their assets in the same master portfolio.
The total annual fund operating expenses of the Money Market Fund did not
change as a result of the Fund's conversion from a stand-alone fund to a feeder
fund on September 2, 1998. The returns of the Funds would differ due to
differences in their respective operating expenses.
The bar chart shows the returns for the Money Market Fund for each full
calendar year since its inception. The average annual total return table
compares the Money Market Fund's average annual total return for one and five
calendar years and for the period since inception, and compares it to a widely-
followed average of money market fund returns. How the Money Market Fund
performed in the past is not necessarily an indication of how the Institutional
Money Market Fund will perform in the future.
[BAR GRAPH APPEARS HERE]
*The total annual fund operating expenses for the periods reflected in the bar
chart above for the Money Market Fund are 0.45%, but the Institutional Money
Market Fund's annual fund operating expenses are 0.12%.
**The Money Market Fund's year-to-date return as of June 30, 1999 was 1.14%
The highest and lowest quarterly returns for the Money Market Fund for the
periods covered by the bar charts above are listed below:
<TABLE>
<CAPTION>
HIGHEST QUARTERLY LOWEST QUARTERLY
RETURN: 2ND QTR. '95 RETURN: 1ST QTR. '94
<S> <C>
1.42% 0.73%
</TABLE>
<TABLE>
<CAPTION>
MONEY MARKET FUND AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1998)
SINCE INCEPTION
ONE YEAR FIVE YEARS (July 2, 1993)
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Money Market Fund 5.26% 5.05% 4.84%
- -----------------------------------------------------------------------------------
IBC Financial Data Inc.* 5.33% 5.16% 4.96%
</TABLE>
*The Institutional Money Market Fund is tracked against the IBC Financial Data
Inc.'s First Tier Institutional Taxable Money Market Fund Average.
To learn the current seven-day yield, call the Fund's Transfer Agent, Investors
Bank & Trust Co. (IBT), at 1 888 204 3956.
BARCLAYS GLOBAL INVESTORS FUNDS, INC.
4
<PAGE>
Fees and Expenses
The table below describes the fees and expenses that you may pay if you buy and
hold shares in the Fund. The expenses are deducted from Fund assets, which
means you pay them indirectly.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
<S> <C>
Management fees 0.10%
- ------------------------------------------------------------------------------
Other expenses* 0.02%
- ------------------------------------------------------------------------------
Total annual Fund operating expenses** 0.12%
</TABLE>
*"Other expenses" are based on estimated amounts for the current fiscal year.
**Total annual Fund operating expenses in the above table and the following
example reflect the expenses of both the Fund and the Master Portfolio in which
it invests.
Example
The example below is intended to help you compare the Fund's costs with those
of other mutual funds. The example illustrates the costs you would have
incurred on an initial $10,000 investment in the Fund over the time periods
shown. It assumes your investment earns an annual return of 5% over the periods
and that the Fund's operating expenses remain the same.
The Fund does not charge a sales load or other fee upon redemption. Your
expenses for each period would be the same whether or not you sell your shares
at the end of a period. Your actual costs may be higher or lower than this
hypothetical example.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional Money Market Fund $12 $39
</TABLE>
FUND BASICS
5
<PAGE>
FUND DETAILS
Principal Investments
- --------------------------------------------------------------------------------
Defining Terms:
Floating rate
and variable
rate debt
securities are
instruments with
interest rates
that are
adjusted either
on a schedule or
when an index or
benchmark
changes.
Bank obligations
are backed by
funds of a
financial
institution. In
addition to
domestic bank
obligations, the
Fund may invest
in obligations
of foreign bank
branches located
inside and
outside the
United States
and US bank
branches located
outside the
United States.
Corporate
obligations
include
unsecured debt
instruments,
such as
commercial paper
and corporate
notes, issued by
financial
institutions,
insurance
companies and
industrial
corporations.
Repurchase
agreements
obligate a
seller of US
government or
other high-
quality
securities to
buy them back
from the Fund
within a
specified period
of time at an
agreed-upon
price.
Asset-backed
securities are
financial
instruments
collateralized
by one or more
types of assets,
including loans
and receivables.
The Institutional Money Market Fund invests in fixed rate, floating rate and
variable rate debt securities that meet the following requirements:
.They have remaining maturities of 397 days (about 13 months) or less.
.They rank in the top two quality short-term categories, according to credit
rating agencies such as Moody's Investors Services or Standard & Poor's Corp.
.If the securities are unrated, the Investment Adviser must have determined
that their credit compares with the credit of the rated securities it is
permitted to buy. It must make this comparison in accordance with guidelines
adopted by the Master Portfolio's Board of Trustees./1/
.The principal and interest of all securities in the Master Portfolio are
payable in US dollars.
Within these guidelines, the Fund may invest in US and foreign government debt,
including the debt of agencies and instrumentalities, such as Fannie Mae and
the Student Loan Marketing Association, US and foreign bank obligations,
corporate obligations, repurchase agreements, and asset-backed securities.
/1/A detailed examination of the relationship of the Fund to its Master
Portfolio appears on page 13.
BARCLAYS GLOBAL INVESTORS FUNDS, INC.
6
<PAGE>
A Further Discussion of Risk
Year 2000 Risk
Most of the services provided to the Fund depend on the smooth functioning of
computer systems. Any failure of these systems to adapt to the changes
necessary from dates in the year 1999 to the year 2000 could hamper Fund
operations and services. The Fund's principal service providers have informed
the Fund that they are working on the changes necessary and they expect their
systems to be ready in time. But there can be no assurance of success.
Moreover, since the changes will affect virtually every organization, the
companies or entities in which the Fund invests could also be negatively
affected.
For a complete analysis of Fund risks, please refer to the Fund's Statement of
Additional Information (SAI), which is incorporated by reference and is
available free of charge from your shareholder servicing agent or directly by
calling 1 888 204 3956.
FUND DETAILS
7
<PAGE>
Management of the Fund
Investment Adviser
The Fund is a feeder fund that invests all of its assets in a similarly named
Master Portfolio with substantially similar investment objectives, strategies
and policies. Barclays Global Fund Advisors ("BGFA") provides investment
guidance and policy direction for the Master Portfolio. For its services to the
Master Portfolio, BGFA is entitled to receive an annual fee of 0.10% of the
Master Portfolio's average daily net assets.
BGFA is located at 45 Fremont Street, San Francisco, California 94105. It is a
wholly owned subsidiary of Barclays Global Investors, N.A. ("BGI"), which in
turn is an indirect subsidiary of Barclays Bank PLC. BGI, and its affiliates,
is the world's largest manager of institutional investment assets. As of
December 31, 1998, BGI and its affiliates, including BGFA, provided investment
advisory services for assets worth in excess of $615 billion.
Administrative Services
BGI and Stephens Inc., a full service broker/dealer, provide the following
services as the Fund's co-administrators:
.management of the Fund's non-investment operations
.preparation of reports for the Fund's Board of Directors
.preparation of required reports for the Securities and Exchange Commission and
state securities commissions.
.preparation of proxy statements and shareholder reports
BGI and Stephens are entitled to receive a combined annual fee of 0.02% of the
Fund's average daily net assets. In return for this fee, BGI and Stephens have
agreed to absorb all expenses for the Fund other than the investment advisory
fee, extraordinary expenses, brokerage and other expenses connected to the
execution of portfolio transactions and certain expenses which are borne by the
Fund.
BARCLAYS GLOBAL INVESTORS FUNDS, INC.
8
<PAGE>
Shareholder Information
- --------------------------------------------------------------------------------
Defining Terms
Investors Bank &
Trust is the
Fund's
custodian,
transfer agent
and dividend
disbursing
agent.
Additional shareholder information, including how to buy and sell shares of the
Fund is available free of charge by calling toll-free 1 888 204 3956.
Who is Eligible.
To be eligible to purchase Institutional Money Market Fund shares, you must be
an institutional investor and invest a minimum initial investment amount for
the Institutional Class shares which is generally $25 million. Institutional
Class shares must typically be purchased directly through BGI.
Contacting BGI Funds
Call the Fund's Transfer Agent, Investors Bank & Trust (IBT), at 1 888 204
3956, toll-free, Monday through Friday 8 am to 4 pm (Eastern time).
Buying Shares
You must submit your purchase order by the close of regular trading on the New
York Stock Exchange (normally 4pm Eastern time) to purchase shares at that
day's net asset value. Orders received after the close of regular trading on
the New York Stock Exchange will be executed on the next business day. IBT must
receive a completed application before it can open an account and receive wire
orders.
You should instruct your bank to wire funds as follows:
Investors Bank & Trust Co.
ABA #011-001-438
Attn: Transfer Agent
Account # DDA 555555535
For Further Credit to: Barclays Global Investors Funds, Inc.
Shareholder Account Name:
Shareholder Account Number:
FUND DETAILS
9
<PAGE>
Selling Shares
You must submit your redemption order by the close of regular trading on the
New York Stock Exchange (normally 4pm Eastern time) to redeem shares at that
day's net asset value. Orders received after the close of regular trading on
the New York Stock Exchange will be executed on the next business day.
IBT will employ procedures designed to confirm that your order is valid, but
neither IBT nor the Fund may be held liable for acting on telephone
instructions IBT reasonably believes to be valid. IBT will wire proceeds
directly to your designated bank account.*
Important Notes:
It is important that you call the Fund before executing a large transaction. In
consideration of the interests of all shareholders, the Fund reserves the right
to reject any purchase orders or delay delivery of your redemption proceeds--up
to seven days--if the amount will disrupt the Fund's operation or performance.
Please contact IBT for further clarification.
Federal regulations require you to furnish a valid taxpayer identification
number when you open your account.
*If you wish to change your bank wire instructions, you must make your request
in writing and include a signature guarantee to help prevent fraud. You can
obtain a signature guarantee from most banks and securities dealers. A
signature guarantee is not a notarized signature.
BARCLAYS GLOBAL INVESTORS FUNDS, INC.
10
<PAGE>
- --------------------------------------------------------------------------------
Defining Terms
The amortized
cost method
marks down any
premium, or
marks up any
discount, on
short-term debt
that the Fund
buys at a
constant rate
until maturity.
It does not
reflect daily
fluctuations in
market value.
Calculating the Fund's Share Price
IBT calculates the Fund's share price (also known as a Fund's net asset value)
in accordance with the standard formula for valuing mutual fund shares at the
close of regular trading (normally 4pm Eastern time) every day the New York
Stock Exchange is open. The formula calls for deducting all of the Fund's
liabilities from the total value of its assets--the market value of the
securities it holds, plus cash reserves--and dividing the result by the number
of shares outstanding. IBT uses the amortized cost method to account for any
premiums or discounts above or below the face value of the securities it buys.
BGFA, the Fund's Investment Adviser, seeks to maintain a constant price of $1
per share, although it can offer no assurance that it will do so.
The price at which a purchase or redemption is made is based on the next
calculation of net asset value after the order is placed.
Dividends and Distributions
The Fund declares dividends daily and pays them out on a monthly basis
to investors. It distributes capital gains, if any, to the investors annually.
It automatically reinvests dividends and distributions, acquiring additional
shares at net asset value.
You begin earning dividends on your shares the day your purchase order
takes effect. You continue earning daily dividends on the shares up to but not
including the date you sell them.
Please Note:
.The Fund credits dividends earned on weekends and holidays to the preceding
business day.
.If you sell shares before the monthly dividend payment date, the Fund remits
to the investor any dividends declared but not yet paid to the investor on the
next dividend payment date.
.If you sell all shares before the monthly dividend payment date, the Fund
remits to the investor all dividends accrued with the sale proceeds.
FUND DETAILS
11
<PAGE>
Taxes
The Fund's shareholders, not the Fund itself, ordinarily pay taxes on the
Fund's net income and capital gains through distribution of such income and
gains by the Fund to its shareholders. The amount of taxes you owe will vary
from year to year, based on the amount of dividends of net investment income
and capital gain distributions the Fund pays out. Normally, the taxes will be
due in the year dividends and distributions are paid. However, when
distributions are declared in the last three months of a year and paid in
January of the next year, they are taxable as if paid on December 31 of the
prior year.
Dividends and capital gain distributions usually create the following tax
liability:
<TABLE>
<CAPTION>
TRANSACTION TAX STATUS
<S> <C>
Income dividends Ordinary income
- ----------------------------------------------
Short-term capital gain
distributions Ordinary income
- ----------------------------------------------
Long-term capital gain
distributions Capital gain
</TABLE>
As long as the Fund maintains a $1.00 net asset value per share, your sales
and exchanges of Fund shares will not be taxable.
After December 31 of a year, the Fund will send you a notice that tells you
how much you've received in dividends and distributions during the year and
their federal tax status. You could also be subject to foreign, state and
local taxes on such dividends and distributions.
Please provide the correct Taxpayer Identification Number (TIN) and note if
you are subject to backup withholding. If the Internal Revenue Service (IRS)
notifies the Fund that the TIN provided is incorrect or that you are otherwise
subject to backup withholding, the Fund is required to withhold 31% as "backup
withholding" on any payments made to you by the Fund, including exchanges. Any
amounts withheld can be applied against your federal income tax liability.
In general, the Fund is also required to withhold on dividends paid to foreign
shareholders.
Because each investor's tax circumstances are unique and because tax laws are
subject to change, it is recommended that you consult your tax adviser about
your investment.
BARCLAYS GLOBAL INVESTORS FUNDS, INC.
12
<PAGE>
Master/Feeder Mutual Fund Structure
The Fund does not have its own investment adviser. Instead, the Fund invests
all of its assets in a separate mutual fund, called a Master Portfolio, that
has a substantially similar investment objective as the Fund. BGFA serves as
Investment Adviser to the Master Portfolio. The Master Portfolios may accept
investments from other feeder funds.
Feeder Fund Expenses. The feeders bear the Master Portfolio's expenses in
proportion to the amount of assets each invests in the Portfolio. Each feeder
can set its own transaction minimums, fund-specific expenses and conditions.
Feeder Fund Rights. Under the master/feeder structure, the Fund's Board of
Directors retains the right to withdraw the Fund's assets from the Master
Portfolio if it believes doing so is in the shareholders' best interests. If
the Fund's Board of Directors withdraws the Institutional Money Market Fund's
assets, it would then consider whether the Fund should hire its own investment
adviser, invest in another master portfolio or take other action.
Share Class. The Fund offers an additional share class with different expenses
and expected returns than those described here. Call IBT for additional
information, at 1 888 204 3956.
FUND DETAILS
13
<PAGE>
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<PAGE>
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<PAGE>
[This page intentionally left blank.]
<PAGE>
For more detailed information on the Fund, request a copy of the annual and
semi-annual reports to shareholders and the Statement of Additional Information
(SAI). The annual and semi-annual reports discuss Fund investments over the
last fiscal year. They also review the market conditions and investment
strategies that materially affected Fund performance.
The SAI provides detailed information on the Fund. BGFA has electronically
filed the SAI, dated August 1, 1999, with the Securities and Exchange
Commission. It is incorporated by reference into this prospectus.
If you have any questions about the Fund or wish to obtain both the reports and
SAI free of charge, please call the Fund's toll-free number:
1 888 204 3956
Or you may write Barclays Global Investors Funds:
c/o Investors Bank & Trust Co.
P.O. Box 9130
Mail Code MFD23
Boston, MA 02117-9130
You can also obtain this information through the Internet on the Securities and
Exchange Commission's Website:
http://www.sec.gov
The Securities and Exchange Commission will furnish hard copies of the
documents, upon payment of a duplicating fee, through the Public Reference
Section. Address your request to:
Public Reference Section of the SEC Washington, D.C. 20549-6009
You can also review and copy the documents at the Securities and Exchange
Commission's Public Reference Room in Washington D.C. Call the Commission at 1
800 SEC 0330 for further details.
811-7332
BARCLAYS GLOBAL INVESTORS FUNDS, INC.
<PAGE>
BARCLAYS GLOBAL INVESTORS FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION
INSTITUTIONAL MONEY MARKET FUND
Class D and Class I
August 1, 1999
_______________________
Barclays Global Investors Funds, Inc. (the "Company") is an open-end,
management investment company. This Statement of Additional Information ("SAI")
contains additional information about the Company's Institutional 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.
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 1, 1999. 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 Barclays
Global Investors 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>
Fund History............................................................................... 1
Description of the Fund and Its Investments and Risks...................................... 1
Portfolio Securities....................................................................... 3
Management................................................................................. 10
Control Persons and Principal Holders of Securities........................................ 12
Investment Adviser and Other Service Providers............................................. 12
Performance Information.................................................................... 15
Determination of Net Asset Value........................................................... 17
Purchase, Redemption and Pricing of Shares................................................. 17
Portfolio Transactions..................................................................... 18
Dividends, Distributions and Taxes......................................................... 20
Capital Stock.............................................................................. 23
Additional Information on the Fund......................................................... 25
Appendix................................................................................... A-1
</TABLE>
<PAGE>
FUND HISTORY
The Company, an open-end management investment company, was incorporated in
Maryland on October 15, 1992 and currently offers eleven series including the
Fund. MIP, organized as a Delaware business trust on October 21, 1993, consists
of twelve series including the Money Market Master Portfolio. The Company's
principal office is located at 111 Center Street, Little Rock, Arkansas 72201.
The Fund invests all of its assets in the corresponding Money Market Master
Portfolio of the Trust which has the same or substantially the same investment
objective as 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."
On April 28, 1999, the Company's Board of Directors approved the change of its
corporate name from "MasterWorks Funds Inc." to "Barclays Global Investors
Funds, Inc."
DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISKS
Investment Restrictions. The Fund and Master Portfolio have adopted
-----------------------
investment policies which may be fundamental or non-fundamental. Fundamental
policies cannot be changed without approval by the holders of a majority (as
defined in the Investment Company Act of 1940, as amended (the "1940 Act")) of
the outstanding voting securities of such Fund or Master Portfolio, as the case
may be. Non-fundamental policies may be changed without shareholder approval by
vote of a majority of the Directors of the Company or the Trustees of the Trust,
as the case may be, at any time.
FUNDAMENTAL INVESTMENT RESTRICTIONS. The Fund is subject to the following
investment restrictions, all of which are fundamental policies.
The Institutional 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; and (ii) obligations of banks to
the extent that the U.S. Securities and Exchange Commission ("SEC"), by rule or
interpretation, permits funds 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;
1
<PAGE>
(4) purchase interests, leases, or limited partnership interests in oil, gas,
or other mineral exploration or development programs;
(5) purchase securities on margin (except for short-term credits necessary for
the clearance of transactions and except for margin payments in connection with
options, futures and options on futures) or make short sales of securities;
(6) underwrite securities of other issuers, except to the extent that the
purchase of permitted investments directly from the issuer thereof or from an
underwriter for an issuer and the later disposition of such securities in
accordance with the Fund's investment program may be deemed to be an
underwriting; and provided further, that the purchase by the Fund of securities
issued by a diversified, open-end management investment company, or a series
thereof, with substantially the same investment objective, policies and
restrictions as the Fund shall not constitute an underwriting for purposes of
this paragraph (6);
(7) make investments for the purpose of exercising control or management;
provided that the Fund may invest all its assets in a diversified, open-end
management investment company, or a series thereof, with substantially the same
investment objective, policies and restrictions as the Fund, without regard to
the limitations set forth in this paragraph (7);
(8) borrow money or issue senior securities as defined in the 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 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.
As a matter of non-fundamental policy:
(1) 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.
Under the 1940 Act, the Fund's investments in such securities currently is
limited, subject to certain exceptions, to (i) 3% of the total voting stock of
any one investment company, (ii) 5% of the Fund's net assets with respect to
any one investment company, and
2
<PAGE>
(iii) 10% of the Fund's net assets in the aggregate. Other investment companies
in which the Fund invests can be expected to charge fees for operating expenses,
such as investment advisory and administration fees, that would be in addition
to those charged by the Fund.
(2) The Fund may not invest more than 10% of its net assets in illiquid
securities. For this purpose, illiquid securities include, among others, (i)
securities that are illiquid by virtue of the absence of a readily available
market or legal or contractual restrictions on resale, (ii) fixed time deposits
that are subject to withdrawal penalties and that have maturities of more than
seven days, and (iii) repurchase agreements not terminable within seven days.
(3) The Fund may lend securities from its portfolio to brokers, dealers and
financial institutions, in amounts not to exceed (in the aggregate) one-third of
the Fund's total assets. Any such loans of portfolio securities will be fully
collateralized based on values that are marked to market daily. The Fund will
not enter into any portfolio security lending arrangement having a duration of
longer than one year.
Notwithstanding any other investment policy or limitation (whether or not
fundamental), the Fund may invest all of its assets in the securities of a
single open-end management investment company with substantially the same
fundamental investment objective, policies and limitations as the Fund.
PORTFOLIO SECURITIES
To the extent set forth in this SAI, the Fund through its investment in the
corresponding Master Portfolio may invest in the securities described below. To
avoid the need to refer to both the Fund and the Master Portfolio in every
instance, the following sections generally refers only to the Fund.
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.
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 pro-vide 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.
3
<PAGE>
Asset-Backed Securities. The Fund may purchase asset-backed securities, which
------------------------
are securities backed by installment contracts, credit-card receivables or other
assets. Asset-backed securities represent interests in ``pools'' of assets in
which payments of both interest and principal on the securities are made
monthly, thus in effect ``passing through'' monthly payments made by the
individual borrowers on the assets that underlie the securities, net of any fees
paid to the issuer or guarantor of the securities. The average life of asset-
backed securities varies with the maturities of the underlying instruments and
is likely to be substantially less than the original maturity of the assets
underlying the securities as a result of prepayments. For this and other
reasons, an asset-backed security's stated maturity may be shortened, and the
security's total return may be difficult to predict precisely. The Fund may
invest in such securities up to the limits prescribed by Rule 2a-7 and other
provisions of the 1940 Act.
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 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. 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. The investment adviser
and/or sub-adviser to each Fund monitors on an ongoing basis the ability of an
issuer of a demand instrument to pay principal and interest on demand. The Fund
also may invest in high quality non-convertible corporate debt securities (e.g.,
bonds and debentures). 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
4
<PAGE>
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.
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 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 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.
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. Securities acquired as collateral by the
Fund under a repurchase agreement will be held in a segregated account at a
bank. Repurchase agreements are considered by the staff of the SEC to be loans
by the Fund. The Fund 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
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.
Letters of Credit. Certain of the debt obligations, certificates of
------------------
participation, commercial paper and other short-term obligations which the Fund
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 Fund may invest in securities issued by
------------------------------
other investment companies which principally invest in securities of the type in
which the Fund invests. Under the 1940 Act, the Fund'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 Fund's net
assets with respect to any one investment company and (iii) 10% of the Fund'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.
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
5
<PAGE>
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 high-quality (as
defined in Rule 2a-7 of the 1940 Act) long-term municipal bonds, municipal notes
and short-term municipal commercial paper, with remaining maturities not
exceeding 13 months.
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.
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 whose demand feature is not
exercisable within seven days may be treated as liquid, provided that an
active secondary market exists.
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.
Participation Interests. The Fund may invest in participation interests in
------------------------
any type of security in which the Fund may invest. A participation interest
gives the Fund an undivided interest in the underlying securities in the
proportion that the Fund's participation interest bears to the total principal
amount of the underlying securities.
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.
Unrated Investments. The Fund may purchase instruments that are not rated if,
-------------------
in the opinion of BGFA, as sub-adviser, such obligations are of investment
quality comparable to other rated investments that are permitted for purchase by
the Fund, if they are purchased in accordance with the Fund's procedures adopted
by the Company's Board of Directors in accordance with Rule 2a-7 under the 1940
Act. Such procedures require approval or ratification by the Board of 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. To the extent the ratings given by a nationally
recognized statistical ratings organization ("NRSRO") 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
said NRSROs 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.
7
<PAGE>
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. Government securities or an
irrevocable letter of credit which is marked to market daily to ensure that each
loan is fully collateralized; (2) the Fund may at any time recall 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.
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 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.
8
<PAGE>
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, and the ability to enforce contractual obligations with respect
to, securities of issuers located in those countries.
Loan Participation Agreements. The Fund may purchase interests in loan
-----------------------------
participations that typically represent direct participation in a loan to a
corporate borrower, and generally are offered by an intermediary bank or other
financial institution or lending syndicate. Under these loan participation
arrangements, the Fund will have the right to receive payments of principal,
interest and any fees to which it is entitled from the bank selling the loan
participation upon receipt by the bank of the payments from the borrower. The
borrower in the underlying loan will be deemed to be the issuer of the
participation interest. Such loans must be to issuers in whose obligations the
Fund may invest. Any participation purchased by a Fund must be sold by an
intermediary bank in the United States with assets exceeding $1 billion.
Because the bank issuing the loan participation does not guarantee the
participation in any way, the participation is subject to the credit risks
associated with the underlying corporate borrower. In addition, it may be
necessary, under the terms of the loan participation, for the Fund to assert its
rights against the underlying corporate borrower, in the event that the
underlying corporate borrower should fail to pay principal and interest when
due. Thus, the Fund could be subject to delays, expenses, and risks which are
greater than those that would have been involved if the Fund had purchased a
direct obligation of the borrower. Moreover, under the terms of the loan
participation, the Fund may be regarded as a creditor of the issuing bank
(rather than of the underlying corporate borrower), so that the Fund also may be
subject to the risk that the issuing bank may become insolvent. Further, in the
event of the bankruptcy or insolvency of the corporate borrower, the loan
participation might be subject to certain defenses that can be asserted by the
borrower as a result of improper conduct by the issuing bank.
The Secondary market, if any, for these loan participation interests is
limited; thus, such participations purchased by the Fund may be treated as
illiquid. If a loan participation is determined to be illiquid it will be valued
at its fair market value as determined by procedures approved by the Board of
Directors. Valuation of illiquid indebtedness involves a greater degree of
judgment in determining the Fund's net asset value than if the value were based
on available market quotations.
Funding Agreements. The Fund may invest in short-term funding agreements. A
------------------
funding agreement is a contract between an issuer and a purchaser that obligates
the issuer to pay a guaranteed rate of interest on a principal sum deposited by
the purchaser. Funding agreements will also guarantee the return of principal
and may guarantee a stream of payments over time. A funding agreement has a
fixed maturity and may have either a fixed, variable or floating interest rate
that is based on an index and guaranteed for a fixed time period. The Fund will
purchase short-term funding agreements only from banks and insurance companies
that, at the time of purchase, are rated in one of the three highest rating
categories and have assets of $1 billion or more.
9
<PAGE>
The secondary market, if any, for these funding agreements is limited; thus,
such investments purchased by the Fund may be treated as illiquid. If a funding
agreement is determined to be illiquid it will be valued at its fair market
value as determined by procedures approved by the Board of Directors. Valuation
of illiquid indebtedness involves a greater degree of judgment in determining
the Fund's net asset value than if the value were based on available market
quotations.
MANAGEMENT
The business and affairs of the Company are managed under the direction of its
Board of Directors in conformity with Maryland law. The Board of Directors of
the Company supervises the Fund's activities and monitors the Fund's contractual
arrangements with various service providers. The Company's Directors are also
MIP's Trustees. The Company's Board, including a majority of the Directors who
are not ``interested persons'' (as that term is defined in the 1940 Act) of the
Company, has adopted procedures to address potential conflicts of interest that
may arise as a result of the structure of the Boards.
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(s) During Past 5 Years
- --------------------- ----------- ---------------------
<S> <C> <C>
Jack S. Euphrat, 77 Director Private Investor.
415 Walsh Road
Atherton, CA 94027
*R. Greg Feltus, 47 Director, Chairman Executive Vice President of Stephens Inc.;
and President President of Stephens Insurance Services Inc.;
Senior Vice President of Stephens Sports
Management Inc.; and President of Investors
Brokerage Insurance Inc.
W. Rodney Hughes, 72 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Richard H. Blank, Jr., 42 Chief Operating Vice President of Stephens Inc.; Director of
Officer, Secretary Stephens Sports Management Inc.; and Director
and Treasurer of Capo Inc.
</TABLE>
10
<PAGE>
Compensation Table
For the Fiscal Year Ended February 28, 1999
<TABLE>
<CAPTION>
Aggregate Total Compensation
Compensation from Registrant
Name and Position from Registrant and Fund Complex
- ---------------------------------------------------------- --------------------- -------------------------
<S> <C> <C>
Jack S. Euphrat $ 5,000 $ 5,000
Director
*R. Greg Feltus $ 0 $ 0
Director
Thomas S. Goho $ 5,000 $ 5,000
Director
W. Rodney Hughes $ 4,500 $ 4,500
Director
*J. Tucker Morse $ 4,500 $ 4,500
Director
</TABLE>
Directors of the Company are compensated annually by the Company and by all
the registrants in the fund complex for their services as indicated above and
also are reimbursed for all out-of-pocket expenses relating to attendance at
board meetings. The Company and MIP are considered to be members of the same
fund complex, as such term is defined in Form N-1A under the 1940 Act. The
Directors are compensated by the Company and MIP for their services as
Directors/Trustees. Currently the Directors do not receive any retirement
benefits or deferred compensation from the Company or MIP. 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
11
<PAGE>
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.
Whenever the Fund, as an interstholder 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.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of August 1, 1999, the Fund had not yet commenced operations. As such, no
person owned 5% or more of the Fund's outstanding securities.
INVESTMENT ADVISER AND OTHER SERVICE PROVIDERS
Investment Adviser. The Fund is a feeder fund in a master/feeder structure.
------------------
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 on an annual basis. BGFA does not engage 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 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 Master Portfolio 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 Trust or BGFA, by vote cast in person at a meeting
called for the purpose of voting on such approval. The Advisory Contract is
terminable without penalty, on 60 days' written notice by the Master Portfolio's
Board of Trustees or by vote of the holders of a majority of the Master
Portfolio's shares, or, after the Reapproval Date, on not less than 60 days'
written notice, by BGFA. The Advisory Contract terminates automatically in the
event of an assignment as defined in the 1940 Act.
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-
12
<PAGE>
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.
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 monthly fee at an annual rate of 0.02% of the
Fund's average daily net assets. BGI has contracted with Investors Bank & Trust
Company ("IBT") to provide certain sub-administrative services.
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. The term and termination provisions of the Distribution Agreement are
substantially similar to those of the Agreement with the Adviser discussed
above.
The Fund has adopted a distribution plan (a "Plan") under Section 12(b) of the
1940 Act and Rule 12b-1 thereunder (the "Rule") for its Class D shares. The Plan
was adopted by the Company's Board of Directors, including a majority of the
Directors who were not "interested persons" (as defined in the 1940 Act) of the
Fund and who have no direct or indirect financial interest in the operation of
the Plans or in any agreement related to the Plans (the "Non-Interested
Directors"). The Fund currently does not have a distribution plan in place for
its Class I shares. Class I shareholders do not pay any fees for distribution
services.
Under the Plan and pursuant to the related Distribution Agreement, the Fund
pays Stephens an annual fee of 0.10% of the average daily net asset value of the
Fund's Class D shares as compensation for distribution-related services or as
reimbursement for distribution-related expenses.
The actual fee payable to the Distributor by the Fund's Class D shares is
determined, within such limits, from time to time by mutual agreement between
the Company and the Distributor and will not exceed the maximum sales charges
payable by mutual funds sold by members of the National Association of
Securities Dealers, Inc. ("NASD") under the Conduct Rules of the NASD. The
Distributor may enter into selling agreements with one or more selling agents
under which such agents may receive compensation for distribution-related
services from the Distributor, including, but not limited to, commissions or
other payments to such agents based on the average daily net assets of Fund
shares attributable to their customers. The Distributor may retain any portion
of the total distribution fee payable thereunder to compensate it for
distribution-related services provided by it or to reimburse it for other
distribution-related expenses.
13
<PAGE>
The Plan will continue in effect from year to year if such continuance is
approved by a majority vote of both the Directors of the Company and the Non-
Interested Directors. The Distribution Agreement related to the Plan also must
be approved by such vote of the Directors and the Non-Interested Directors. Such
Agreement will terminate automatically if assigned, and may be terminated at any
time, without payment of any penalty, by a vote of a majority of the outstanding
voting securities of the Class D shares of the Fund or by vote of a majority of
the Non-Interested Directors on not more than 60 days written notice. The Plan
may not be amended to increase materially the amounts payable thereunder without
the approval of a majority of the outstanding voting securities of the Fund, and
no material amendment to the Plan may be made except by a majority of both the
Directors of the Company and the Non-Interested Directors.
The Plan requires that the Treasurer of Company shall provide to the
Directors, and the Directors shall review, at least quarterly, a written report
of the amounts expended (and purposes therefor) under the Plans. The Rule also
requires that the selection and nomination of Directors who are not "interested
persons" of the Company be made by such disinterested Directors.
Custodian. IBT 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.
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 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.
Stephens and BGI as co-administrators have agreed to pay these fees and expenses
out of the fees each receives for co-administration services. The annual
maintenance fee is paid as follows:
<TABLE>
<CAPTION>
Annual Fee
----------
<S> <C>
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
</TABLE>
_______________
* 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.
Independent Auditors. KPMG 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.
14
<PAGE>
Expenses. Except for extraordinary expenses, brokerage and other expenses
---------
connected with 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.
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.
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.
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 investments 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.
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.
Effective yield for the Institutional Money Market Fund is calculated by
determining the net change exclusive of capital changes in the value of a
hypothetical pre-existing account having a balance of one share at the beginning
of the period, subtracting a hypothetical charge reflecting deductions from
shareholder accounts, and dividing the difference by the value of the account at
the beginning of the base period to obtain the base period return, and then
compounding the base period return by adding one, raising the sum to a power
equal to 365 divided by seven, and subtracting one from the result.
In addition, investors should recognize that changes in the net asset values
of shares of the Institutional 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.
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.
15
<PAGE>
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, IBC Money Fund Monitor
Index, Salomon Three-Month Treasury Bill Index, or Bank Averages, which are
calculated from figures supplied by the U.S. League of Savings Institutions
based on effective annual rates of interest on both passbook and certificate
accounts. Savings accounts offer a guaranteed return of principal and a fixed
rate of interest. The Fund's performance also may be compared to the Consumer
Price Index, as published by the U.S. Bureau of Labor Statistics, which is an
established measure of change over time in the prices of goods and services in
major expenditure groups.
In addition, the Company also may use, in advertisements and other types of
literature, information and statements: (1) showing that bank savings accounts
offer a guaranteed return of principal and a fixed rate of interest, but no
opportunity for capital growth; and (2) describing Wells Fargo Bank, and its
affiliates and predecessors, as one of the first investment managers to advise
investment accounts using asset allocation and index strategies. The Company
also may include in advertising and other types of literature information and
other data from reports and studies prepared by the Tax Foundation, including
information regarding federal and state tax levels and the related "Tax Freedom
Day." The Company also may disclose in advertising and other types of sales
literature the level and categories of assets under management by the Fund's
investment adviser, sub-adviser or their affiliates.
The Fund's performance also may be compared to those of other mutual funds
having similar objectives. This comparative performance could be expressed as a
ranking prepared by Lipper Analytical Services, Inc., Donoghue's Money Fund
Report, including Donoghue's Taxable Money Market Fund Average or Morningstar,
Inc., independent services which monitor the performance of mutual funds. The
Fund's performance will be calculated by relating net asset value per share at
the beginning of a stated period to the net asset value of the investment,
assuming reinvestment of all gains distributions and dividends paid, at the end
of the period. Any such comparisons may be useful to investors who wish to
compare the Fund's past performance with that of its competitors. Of course,
past performance cannot be a guarantee of future results.
Other Advertising Items. The Company also may discuss in advertising and other
-----------------------
types of literature that the Fund has been assigned a rating by an 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.
16
<PAGE>
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 Fund's portfolio on a particular
day, a prospective investor in the Fund would be able to obtain a somewhat
higher yield than would result from investment in a fund using solely market
values, and existing 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 Fund must maintain a dollar-weighted average portfolio maturity
of 90 days or less, purchase securities having remaining maturities (as defined
in Rule 2a-7) of thirteen months or less and invest only in those high-quality
securities that are determined by the Board of Directors to present minimal
credit risks. The maturity of an instrument is generally deemed to be the period
remaining until the date when the principal amount thereof is due or the date on
which the instrument is to be redeemed. However, Rule 2a-7 provides that the
maturity of an instrument may be deemed shorter in the case of certain
instruments, including certain variable- and floating-rate instruments subject
to demand features. Pursuant to the Rule, the Board is required to establish
procedures designed to stabilize, to the extent reasonably possible, the Fund's
price per share as computed for the purpose of sales and redemptions at $1.00.
Such procedures include review of the Fund's portfolio holdings by the Board of
Directors, at such intervals as it may deem appropriate, to determine whether
the Fund's net asset value calculated by using available market quotations
deviates from the $1.00 per share based on amortized cost. The extent of any
deviation will be examined by the Board of Directors. If such deviation exceeds
1/2 of 1%, the Board will promptly consider what action, if any, will be
initiated. In the event the Board determines that a deviation exists that may
result in material dilution or other unfair results to shareholders, the Board
will take such corrective action as it regards as necessary and appropriate,
including the sale of portfolio instruments prior to maturity to realize capital
gains or losses or to shorten average portfolio maturity, withholding dividends
or establishing a net asset value per share by using available market
quotations.
PURCHASE, REDEMPTION AND PRICING OF SHARES
Terms of Purchase. The 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 Fund.
In-Kind Purchases. Payment for shares of the 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
17
<PAGE>
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) during which trading is restricted, or during which, as determined by
the SEC by rule or regulation, an emergency exists as a result of which disposal
or valuation of portfolio securities is not reasonably practicable, or for such
periods as the SEC may permit.
The Company may suspend redemption rights or postpone redemption payments for
such periods as are permitted under the 1940 Act. The Company also may redeem
shares involuntarily or make payment for redemption in securities or other
property if it appears appropriate to do so in light of the Company's
responsibilities under the 1940 Act.
In addition, the Company may redeem shares involuntarily to reimburse the Fund
for any losses sustained by reason of the failure of a shareholder to make full
payment for shares purchased or to collect any charge relating to a transaction
effected for the benefit of a shareholder which is applicable to shares of the
Fund as provided from time to time in the Prospectus.
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.
18
<PAGE>
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 provided by such broker/dealer, viewed in terms
of either the particular transaction or the overall responsibilities of BGFA.
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 BGFA 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 BGFA may furnish statistical, research and other
information or services which are deemed by BGFA to be beneficial to the Fund's
investment programs. Research services received from brokers supplement BGFA'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 BGFA 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 BGFA since the brokers utilized
by BGFA as a group tend to follow a broader universe of securities and other
matters than the staff of BGFA can follow. In addition, this research provides
BGFA with a diverse perspective on financial markets. Research services which
are
19
<PAGE>
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 August 1, 1999, the Fund owned
------------------------------------
no securities of its "regular brokers or dealers" or their parents, as defined
in the 1940 Act.
DIVIDENDS, DISTRIBUTIONS AND 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 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 that 25% of the value of its assets
is invested in the securities of any one issuer (other that U.S. Government
obligations and the securities of other regulated investment companies), or in
two or more issuers which the Fund controls and which are determined to be
engaged in the same or similar trades or businesses.
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 and certain other items) 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 twelve months following the taxable year. The Fund intends to pay out
substantially all of its net investment income and net realized capital gains
(if any) for each year.
The Fund seeks to qualify as a regulated investment company by investing
substantially all of its assets in the 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 corresponding
distribution. However, the Master Portfolio will seek to minimize recognition by
its investors (such as the Fund) of interest, dividends and gains without a
corresponding distribution.
20
<PAGE>
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 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; or (iii) a futures or forward contract.
Foreign Taxes. Income and dividends received by the Fund (through the Master
-------------
Portfolio) from foreign securities and gains realized by the Fund on the
disposition of foreign securities may be subject to withholding and other taxes
imposed by foreign countries. Tax conventions between certain countries and the
United States may reduce or eliminate such taxes. Although in some circumstances
a regulated investment company can elect to "pass through" foreign tax credits
to its shareholders, the Fund does not expect to be eligible to make such an
election.
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.
Other Distributions. Although distributions will be declared daily based on
-------------------
the Fund's daily earnings, for federal income tax purposes, the Fund's earnings
and profits will be determined at the end of each taxable year and will be
allocated pro rata over the entire year. For federal income tax purposes, only
amounts paid out of earnings and profits will qualify as taxable dividend
distribution. Thus, if during a taxable year the Fund's declared dividends (as
declared daily throughout the year) exceed the Fund's earnings and profits
(generally the Fund's net investment income and capital gains) as determined at
the end of the year, only that portion of the year's distributions which equals
the year's earnings and profits will be deemed to have constituted a taxable
distribution. Distributions in excess of earnings and profits will first be
treated as a return of capital up to the amount of a shareholder's basis in its
Fund Shares and then capital gains. It is expected that the Fund's net income,
on an annual basis, will equal the dividends declared during the year.
22
<PAGE>
Disposition of Fund Shares. A disposition of Fund shares pursuant to
--------------------------
redemption (including a redemption in-kind) or a exchanges ordinarily will
result in a taxable capital gain or loss, depending on the amount received for
the shares (or are deemed to be received 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 will 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.
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 20%; 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.
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 withholding tax
(at a rate of 30% or, if an income tax treaty applies, at the lower treaty rate,
if any). Such tax withheld generally is not refundable. Withholding will not
apply if a 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. persons will apply. Disposition of Fund shares and
distributions of net capital gains are generally not subject to tax withholding
applicable to foreign shareholders.
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 will generally be
effective for payments made after December 31, 2000, subject to certain
transition rules. Among other things, the New Regulations will permit the Fund
to estimate the portion of its distributions qualifying as capital gain
distributions for purposes of determining the portion of such distributions paid
to foreign shareholders which will be subject to U.S. income tax withholding.
Prospective investors are urged to consult their own tax advisors regarding the
New Regulations.
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 (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 the individual shareholder's 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 also could subject the investor to penalties
imposed by the IRS. Foreign shareholders of the Fund generally are not subject
to backup withholding.
23
<PAGE>
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 the 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 authorized capital stock of the Company consists of 13,900,000,000 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
24
<PAGE>
of ten 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.
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.
The Company may dispense with an annual meeting of shareholders in any year in
which it is not required to elect Directors under the 1940 Act. However, the
Company has undertaken to hold a special meeting of its shareholders for the
purpose of voting on the question of removal of a Director or Directors if
requested in writing by the holders of at least 10% of the Company's outstanding
voting securities, and to assist in communicating with other shareholders as
required by Section 16(c) of the 1940 Act.
Voting. 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 the 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 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.
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.
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.
25
<PAGE>
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.
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 is 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 the
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.
ADDITIONAL 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
calling 1-888-204-3956.
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.
26
<PAGE>
APPENDIX
Description of certain ratings assigned by Standard & Poor's Corporation
("S&P"), Moody's Investors Service, Inc. ("Moody's"), Fitch Investors Service,
Inc. ("Fitch"), Duff & Phelps, Inc. ("Duff") and IBCA Inc. and IBCA Limited
("IBCA"):
S&P Bond Ratings
"AAA"
Bonds rated AAA have the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
"AA"
Bonds rated AA have a very strong capacity to pay interest and repay principal
and differ from the highest rated issues only in small degree.
"A"
Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than obligations in higher rated
categories.
"BBB"
Bonds rated "BBB" are regarded as having an adequate capacity to pay interest
and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.
S&P's letter ratings may be modified by the addition of a plus (+) or minus
(-) sign designation, which is used to show relative standing within the major
rating categories, except in the AAA (Prime Grade) category.
Commercial Paper Rating. The designation A-1 by S&P indicates that the degree
- ------------------------
of safety regarding timely payment is either overwhelming or very strong. Those
issues determined to possess overwhelming safety characteristics are denoted
with a plus sign (+) designation. Capacity for timely payment on issues with an
A-2 designation is strong. However, the relative degree of safety is not as
high as for issues designated A-1.
Moody's Bond Ratings
"Aaa"
Bonds which are rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
1
<PAGE>
"Aa"
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what generally are known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
"A"
Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa"
Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Moody's applies the numerical modifiers "1", "2" and "3" to show relative
standing within the major rating categories, except in the "Aaa" category. The
modifier "1" indicates a ranking for the security in the higher end of a rating
category; the modifier "2" indicates a mid-range ranking; and the modifier "3"
indicates a ranking in the lower end of a rating category.
Commercial Paper Rating. The rating ("P-1") Prime-1 is the highest commercial
- ------------------------
paper rating assigned by Moody's. Issuers of "P-1" paper must have a superior
capacity for repayment of short-term promissory obligations, and ordinarily will
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.
Issuers (or relating supporting institutions) rated ("P-2") Prime-2 have a
strong capacity for repayment of short-term promissory obligations. This
ordinarily will be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.
Fitch Bond Ratings
The ratings represent Fitch's assessment of the issuer's ability to meet the
obligations of a specific debt issue or class of debt. The ratings take into
consideration special features of the issue, its relationship to other
obligations of the issuer, the current financial condition and operative
performance of the issuer and of any guarantor, as well as the political and
economic environment that might affect the issuer's future financial strength
and credit quality.
2
<PAGE>
"AAA"
Bonds rated "AAA" are considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events.
"AA"
Bonds rated "AA" are considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA". Because bonds rated
in the "AAA" and "AA" categories are not significantly vulnerable to foreseeable
future developments, short- term debt of these issuers is generally rated
"F-1+".
"A"
Bonds rated "A" are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
"BBB"
Bonds rated "BBB" are considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these bonds
and, therefore, impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
Plus (+) and minus (-) signs are used with a rating symbol to indicate the
relative position of a credit within the rating category.
Short-Term Ratings. Fitch's short-term ratings apply to debt obligations that
- -------------------
are payable on demand or have original maturities of up to three years,
including commercial paper, certificates of deposit, medium-term notes, and
municipal and investment notes.
Although the credit analysis is similar to Fitch's bond rating analysis, the
short-term rating places greater emphasis than bond ratings on the existence of
liquidity necessary to meet the issuer's obligations in a timely manner.
"F-1+"
Exceptionally Strong Credit Quality. Issues assigned this rating are regarded
as having the strongest degree of assurance for timely payment.
"F-1"
Very Strong Credit Quality. Issues assigned this rating reflect an assurance
of timely payment only slightly less in degree than issues rated F-1+.
3
<PAGE>
"F-2"
Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payments, but the margin of safety is not as great as
the F-1+ and F-1 categories.
Duff Bond Ratings
"AAA"
Bonds rated AAA are considered highest credit quality. The risk factors are
negligible, being only slightly more than for risk-free U.S. Treasury debt.
"AA"
Bonds rated AA are considered high credit quality. Protection factors are
strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
"A"
Bonds rated A have protection factors which are average but adequate.
However, risk factors are more variable and greater in periods of economic
stress.
"BBB"
Bonds rated BBB are considered to have below average protection factors but
still considered sufficient for prudent investment. Considerable variability in
risk during economic cycles.
Plus (+) and minus (-) signs are used with a rating symbol (except AAA) to
indicate the relative position of a credit within the rating category.
Commercial Paper Rating. The rating "Duff-1" is the highest commercial paper
- ----------------------
rating assigned by Duff. Paper rated Duff-1 is regarded as having very high
certainty of timely payment with excellent liquidity factors which are supported
by ample asset protection. Risk factors are minor. Paper rated "Duff-2" is
regarded as having good certainty of timely payment, good access to capital
markets and sound liquidity factors and company fundamentals. Risk factors are
small.
IBCA
Bond and Long-Term Rating. Obligations rated AAA by IBCA have the lowest
- --------------------------
expectation of investment risk. Capacity for timely repayment of principal and
interest is substantial, such that adverse changes in business, economic or
financial conditions are unlikely to increase investment risk significantly.
Obligations for which there is a very low expectation of investment risk are
rated AA by IBCA. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions may
increase investment risk albeit not very significantly.
Commercial Paper and Short-Term Rating. The designation A1 by IBCA indicates
- ---------------------------------------
that the obligation is supported by a very strong capacity for timely repayment.
Those obligations rated A1+ are supported by the highest capacity for timely
repayment. Obligations rated A2 are supported by a strong capacity for timely
4
<PAGE>
repayment, although such capacity may be susceptible to adverse changes in
business, economic or financial conditions.
International and U.S. Bank Rating. An IBCA bank rating represents IBCA's
- -----------------------------------
current assessment of the strength of the bank and whether such bank would
receive support should it experience difficulties. In its assessment of a bank,
IBCA uses a dual rating system comprised of Legal Ratings and Individual
Ratings. In addition, IBCA assigns banks Long- and Short-Term Ratings as used
in the corporate ratings discussed above. Legal Ratings, which range in
gradation from 1 through 5, address the question of whether the bank would
receive support provided by central banks or interestholders if it experienced
difficulties, and such ratings are considered by IBCA to be a prime factor in
its assessment of credit risk. Individual Ratings, which range in gradations
from A through E, represent IBCA's assessment of a bank's economic merits and
address the question of how the bank would be viewed if it were entirely
independent and could not rely on support from state authorities or its owners.
Bank Watch. BankWatch ratings are based upon a qualitative and quantitative
- -----------
analysis of all segments of the organization including, where applicable,
holding company and operating subsidiaries. BankWatch ratings do not constitute
a recommendation to buy or sell securities of any of these companies. Further,
BankWatch does not suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the three highest investment grade ratings used
by BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
5
<PAGE>
BARCLAYS GLOBAL INVESTORS FUNDS, INC.
FILE NO. 33-54126; 811-7332
PART C
OTHER INFORMATION
Item 23. Exhibits.
--------
Exhibit
Number Description
------ -----------
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 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.
6 Not applicable.
7 Custody Agreement with Investors Bank & Trust Company on behalf
of the Funds, dated October 21, 1996, filed herewith.
8(a) Transfer Agency and Service Agreement with Investors Bank &
Trust Company on behalf of the Funds, dated February 27, 1998,
filed herewith.
8(b)(i) - Shareholder Servicing Plan and Form of Shareholder Servicing
Agreement for the Asset Allocation, U.S. Treasury Allocation,
Bond Index, S&P 500 Stock and Money Market Funds, dated
February 1, 1994, as amended October 29, 1998, incorporated by
reference to Post-Effective Amendment No. 18, filed November
20, 1998.
C-1
<PAGE>
Exhibit
Number Description
------ -----------
8(b)(ii) - Shareholder Servicing Plan and Form of Shareholder Servicing
Agreement for the LifePath 2000, LifePath 2010, LifePath
2020, LifePath 2030 and LifePath 2040 Funds, dated March 15,
1996, as amended October 28, 1998, incorporated by reference
to Post-Effective Amendment No. 18, filed November 20, 1998.
8(c)(i) - Co-Administration Agreement with Stephens Inc. and Barclays
Global Investors, N.A. on behalf of the Funds, dated October
21, 1996, as amended on June 11, 1998, filed herewith.
8(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.
8(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. 16,
filed July 2, 1998.
8(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. 16, filed July 2, 1998.
9 - Opinion and Consent of Counsel, filed herewith.
10 - Not applicable
11 - Not applicable
12 - Not applicable
13(a) - Distribution Plan dated October 28, 1998, on behalf of the
Asset Allocation, Institutional Money Market, LifePath 2000,
LifePath 2010, LifePath 2020, LifePath 2030 and LifePath 2040
Funds, filed herewith.
14 - Not applicable
15 - Rule 18f-3 Multi-Class Plan, filed herewith.
C-2
<PAGE>
Exhibit
Number Description
------ -----------
19 - Powers of Attorney for Jack S. Euphrat, R. Greg Feltus,
Thomas S. Goho, W. Rodney Hughes and J. Tucker Morse,
incorporated by reference to Post-Effective Amendment No. 14,
filed June 30, 1997.
27 - Financial Data Schedules for the fiscal period ended February
28, 1999, incorporated by reference to the Form N-SAR filed
on April 28, 1999.
Item 24. Persons Controlled by or Under
Common Control with the Fund
----------------------------
As of May 31, 1999, each Fund owned the following percentages of the
outstanding beneficial interests of the corresponding Master Portfolios of MIP.
As such, each Fund could be considered a controlling person of the corresponding
Master Portfolio for purposes of the 1940 Act, with the exception of the
Institutional Money Market Fund. No person is controlled by or under common of
the Institutional Money Market Fund.
<TABLE>
<CAPTION>
Corresponding Percentage
Fund Master Portfolio of beneficial
- ---- ----------------------------
interests held
--------------
<S> <C> <C>
Asset Allocation Fund Asset Allocation Master Portfolio (MIP) 99.99%
Bond Index Fund Bond Index Master Portfolio (MIP) 29.76%
LifePath 2000 Fund LifePath 2000 Master Portfolio (MIP) 40.68%
LifePath 2010 Fund LifePath 2010 Master Portfolio (MIP) 51.37%
LifePath 2020 Fund LifePath 2020 Master Portfolio (MIP) 42.17%
LifePath 2030 Fund LifePath 2030 Master Portfolio (MIP) 40.09%
LifePath 2040 Fund LifePath 2040 Master Portfolio (MIP) 32.38%
Money Market Fund Money Market Master Portfolio (MIP) 73.00%
S&P 500 Fund S&P 500 Master Portfolio (MIP) 64.56%
U.S. Treasury Allocation Fund U.S. Treasury Allocation Master Portfolio (MIP) 99.99%
</TABLE>
Item 25. 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
C-3
<PAGE>
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.
Item 26. Business and Other Connections
of Investment Adviser.
------------------------------
The Funds currently do not retain an investment adviser. The
corresponding MIP Master Portfolio to the Fund is advised by Barclays Global
Fund Advisors ("BGFA"), a wholly-owned subsidiary of Barclays Global Investors,
N.A. ("BGI", formerly, Wells Fargo Institutional Trust Company). BGFA's
business is that of a registered investment 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
C-4
<PAGE>
has been at any time during the past two fiscal years engaged in any other
business, profession, vocation or employment of a substantial nature.
Name and Position Principal Business(es) During at
at BGFA Least the Last Two Fiscal Years
- ----------- -------------------------------
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
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
Item 27. 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 Barclays Global Investors
Funds, Inc., Stagecoach Funds, Inc., Stagecoach Trust, Nations Fund, Inc.,
Nations Fund Trust, Nations Fund Portfolios, Inc., Nations LifeGoal Funds, Inc.
Nations Institutional Reserves and Nations Annuity Trust, and is the exclusive
placement agent for Life & Annuity Trust, Master Investment Portfolio and
Nations Master Investment Trust, 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.
Item 28. 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.
C-5
<PAGE>
(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) Stephens maintains all Records relating to its services as
sponsor, co-administrator and distributor at 111 Center Street, Little Rock,
Arkansas 72201.
(d) IBT maintains all Records relating to its services as sub-
administrator and custodian at 89 South Street, Boston, Massachusetts 02111.
Item 29. Management Services.
-------------------
Other than as set forth under the caption "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 30. Undertakings.
------------
Not Applicable.
C-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Amendment to its Registration
Statement pursuant to Rule 485(a) under the Securities Act of 1933 and has duly
caused this Registration Statement on Form N-1A to be signed on its behalf by
the undersigned, thereto duly authorized, in the City of Little Rock, State of
Arkansas on the 1st day of August, 1999.
BARCLAYS GLOBAL INVESTORS 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 Post-
Effective Amendment No. 22 to the 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 7/30/99
-------------------------
(R. Greg Feltus) President (Principal Executive
Officer)
/s/ Richard H. Blank, Jr. Secretary and Treasurer 7/30/99
-------------------------
(Richard H. Blank, Jr.) (Principal Financial Officer)
* Director 7/30/99
-------------------------
(Jack S. Euphrat
* Director 7/30/99
-------------------------
(W. Rodney Hughes)
*By: /s/ Richard H. Blank, Jr.
-------------------------
Richard H. Blank, Jr.
As Attorney-in-Fact
July 30, 1999
<PAGE>
BARCLAYS GLOBAL INVESTORS FUNDS, INC.
SEC FILE Nos. 33-54126; 811-7332
EXHIBIT INDEX
Exhibit Number Description
EX-99.B7 . Custody Agreement with IBT
EX-99.B8(a) . Transfer Agency and Service Agreement with IBT
EX-99.B8(c)(1) . Co-administration Agreement with Stephens and BGI
EX-99.B9 . Opinion and Consent of Counsel - Morrison & Foerster LLP
EX-99.B13(a) . Distribution Plan
EX-99.B15 . Rule 18f-3 Multi-Class Plan
<PAGE>
CUSTODY AGREEMENT
between
MASTERWORKS FUNDS INC.
and
INVESTORS BANK & TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
1. Bank Appointed Custodian........................................
2. Definitions.....................................................
2.1 Authorized Person.......................................
2.2 Board...................................................
2.3 Security................................................
2.4 Portfolio Security......................................
2.5 Officer's Certificate...................................
2.6 Book-Entry System.......................................
2.7 Depository..............................................
2.8 Proper Instructions.....................................
2.9 Foreign Securities......................................
2.10 Performance Calculations................................
3. Separate Accounts...............................................
4. Certification as to Authorized Persons..........................
5. Custody of Cash.................................................
5.1 Purchase of Securities..................................
5.2 Redemptions.............................................
5.3 Distributions and Expenses of the Funds.................
5.4 Payment in Respect of Securities........................
5.5 Repayment of Loans......................................
5.6 Repayment of Cash
5.7 Foreign Exchange Transactions...........................
5.8 Other Authorized Payments...............................
5.9 Termination.............................................
6. Securities......................................................
6.1 Segregation and Registration............................
6.2 Voting and Proxies......................................
6.3 Corporate Action........................................
6.4 Book-Entry System.......................................
6.5 Use of a Depository.....................................
6.6 Use of Book-Entry System for Commercial Paper...........
6.7 Use of Immobilization Programs..........................
6.8 Eurodollar CDs..........................................
6.9 Options and Futures Transactions........................
6.10 Segregated Account......................................
6.11 Interest Bearing Call or Time Deposits..................
6.12 Transfer of Securities..................................
i
<PAGE>
7. Redemptions.........................................................
8. Merger, Dissolution, etc. of the Company or a Fund..................
9. Actions of the Bank Without Prior Authorization.....................
10. Collections and Defaults............................................
11. Maintenance of Records and Accounting Services......................
12. Fund Evaluation and Performance Calculation.........................
12.1 Fund Evaluation.............................................
12.2 Performance Calculations....................................
13. Concerning the Bank.................................................
13.1 Bank Warranty...............................................
13.2 Standard of Care and Performance of Duties .................
13.3 Agents and Sub-custodians with Respect to Property
of the Funds Held in the United States......................
13.4 Duties of the Bank with Respect to Property
Held Outside of the United States...........................
13.5 Insurance...................................................
13.6 Fees and Expenses of Bank...................................
13.7 Advances by Bank............................................
14. Termination.........................................................
15. Confidentiality.....................................................
16. Notices.............................................................
17. Amendments..........................................................
18. Parties.............................................................
19. Governing Law.......................................................
20. Counterparts........................................................
21. Limitations of Liability............................................
22. Single Agreement....................................................
ii
<PAGE>
CUSTODY AGREEMENT
AGREEMENT made as of this 21st day of October, 1996, between
MASTERWORKS FUNDS INC., a Maryland corporation (the "Company"), and INVESTORS
BANK & TRUST COMPANY (the "Bank" or, at times, "IBT").
The Company, an open-end management investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), on behalf of the
individual Funds listed on Schedule A hereto, as such Schedule may be amended
from time to time, desires to place and maintain all of the Funds' portfolio
securities and other assets including cash in the custody of the Bank, and the
Bank has indicated its willingness to so act, subject to the terms and
conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained herein, the parties hereto agree as follows:
1. Bank Appointed Custodian. The Company hereby appoints the Bank as
------------------------
custodian of the Funds' portfolio securities and cash delivered to the Bank as
hereinafter described, and the Bank agrees to act as such upon the terms and
conditions hereinafter set forth.
2. Definitions. Whenever used herein, the terms listed below will have
-----------
the following meaning:
2.1 Authorized Person. Authorized Person will mean any of the persons
-----------------
duly authorized to give Proper Instructions or otherwise act on behalf of the
Company and its Funds by appropriate resolution of the Board of Directors of the
Company, and set forth in a certificate as required by Section 4 hereof.
2.2 Board. Board will mean the Company's Board of Directors.
-----
2.3 Security. The term security as used herein will have the same
--------
meaning as when such term is used in the Securities Act of 1933, as amended (the
"1933 Act"), including, without limitation, any note, stock, treasury stock,
bond, debenture, evidence of indebtedness, certificate of interest or
participation in any profit sharing agreement, collateral-trust certificate,
preorganization certificate or subscription, transferable share, investment
contract, voting-trust certificate, certificate of deposit for a security,
fractional undivided interest in oil, gas, or other mineral rights, any put,
call, straddle, option, or privilege on any security, certificate of deposit, or
group or index of securities (including any interest therein or based on the
value thereof), or any put, call, straddle, option, or privilege entered into on
a national securities exchange relating to a foreign currency, or, in general,
any interest or instrument commonly known as a "security", or any certificate of
interest or participation in, temporary or interim certificate for, receipt for,
guarantee of, or warrant or right to subscribe to, or option contract to
purchase or sell any of the foregoing, and futures, forward contracts and
options thereon.
1
<PAGE>
2.4 Portfolio Security. Portfolio Security will mean any security
------------------
owned by a Fund of the Company.
2.5 Officer's Certificate. Officer's Certificate will mean, unless
---------------------
otherwise indicated, any request, direction, instruction, or certification in
writing signed by an Authorized Person of the Company.
2.6 Book-Entry System. Book-Entry System shall mean the Federal
-----------------
Reserve-Treasury Department Book Entry System for United States government,
instrumentality and agency securities operated by the Federal Reserve Bank, its
successor(s) and its nominee(s).
2.7 Depository. Depository shall mean The Depository Trust Company
----------
("DTC") and any other clearing agency registered with the Securities and
Exchange Commission under Section 17A of the Securities Exchange Act of 1934, as
amended ("Exchange Act"), and its successor(s) and its nominee(s). The term
"Depository" shall further mean and include any other person authorized to act
as a depository under the 1940 Act, its successor(s) and its nominee(s),
specifically identified in a certified copy of a resolution of the Board.
2.8 Proper Instructions. Proper Instructions shall mean (i)
-------------------
instructions regarding the purchase or sale of Portfolio Securities, and
payments and deliveries in connection therewith, given by an Authorized Person,
such instructions to be given in such form and manner as the Bank and the
Company shall agree upon from time to time, and (ii) instructions (which may be
continuing instructions) regarding other matters signed or initialed by an
Authorized Person. Oral instructions will be considered Proper Instructions if
the Bank reasonably believes them to have been given by an Authorized Person.
The Company shall cause all oral instructions to be promptly confirmed in
writing or by facsimile. The Bank shall act upon and comply with any subsequent
Proper Instruction which modifies a prior instruction, and the sole obligation
of the Bank with respect to any follow-up or confirmatory instruction shall be
to make reasonable efforts to detect any discrepancy between the original
instruction and such confirmation and to report such discrepancy to the Company.
The Company shall be responsible, at the expense of the applicable Fund, for
taking any action, including any reprocessing, necessary to correct any such
discrepancy or error, and, to the extent such action requires the Bank to act,
the Company shall give the Bank specific Proper Instructions as to the action
required. Upon receipt by the Bank of an Officer's Certificate as to the
authorization by the Board accompanied by a detailed description of procedures
approved by the Company, Proper Instructions may include communication effected
directly between electromechanical or electronic devices provided that the
Company and the Bank are satisfied that such procedures afford adequate
safeguards for a Fund's assets.
2.9 Foreign Securities. The term Foreign Securities as used herein
------------------
will have the same meaning as when such term is used in Rule 17f-5 of the 1940
Act.
2.10 Performance Calculations. Performance Calculations as used
------------------------
herein shall include standard performance calculations required pursuant to the
1933 Act, the 1940 Act, and any applicable rules and interpretations of the
staff of the Securities and Exchange Commission,
2
<PAGE>
and shall also include other non-standard performance calculations as shall be
agreed upon by both parties to this Agreement from time to time.
3. Separate Accounts. The Bank will segregate the assets of each Fund to
-----------------
which this Agreement relates into a separate account for each such Fund
containing the assets of such Fund (and all investment earnings thereon).
Unless the context otherwise requires, any reference in this Agreement to any
actions to be taken by the Company shall be deemed to refer to the Company
acting on behalf of one or more of its Funds, any reference in this Agreement to
any assets of the Company, including, without limitation, any Portfolio
Securities and other assets including cash and any earnings thereon, shall be
deemed to refer only to assets of the applicable Fund, any duty or obligation of
the Bank hereunder to the Company shall be deemed to refer to duties and
obligations with respect to the individual Funds, and any obligation or
liability of the Company hereunder shall be binding only with respect to the
individual Fund and shall be discharged only out of the assets of such Fund.
4. Certification as to Authorized Persons. The Secretary or an Assistant
--------------------------------------
Secretary of the Company will at all times maintain on file with the Bank his or
her certification to the Bank, in such form as may be acceptable to the Bank, of
(i) the names and signatures of the Authorized Persons and (ii) the names of the
Board, it being understood that upon the occurrence of any change in the
information set forth in the most recent certification on file (including
without limitation any person named in the most recent certification who is no
longer an Authorized Person as designated therein), the Secretary or an
Assistant Secretary of the Company, will sign a new or amended certification
setting forth the change of the new, additional or omitted names or signatures.
The Bank will be entitled to rely and act upon any Officer's Certificate given
to it by the Company that has been signed by Authorized Persons named in the
most recent certification received by the Bank.
5. Custody of Cash. As custodian, the Bank will open and maintain a
---------------
separate account or accounts in the name of each Fund or in the name of the
Bank, as custodian of the Funds, and will deposit to the account of a Fund all
of the cash of the Fund, except for cash held by a sub-custodian appointed
pursuant to subsections 13.3 or 13.4 hereof, including borrowed funds, delivered
to the Bank, subject only to draft or order by the Bank acting pursuant to the
terms of this Agreement. Upon receipt by the Bank of Proper Instructions (which
may be continuing instructions) or in the case of payments for redemptions and
repurchases of outstanding interests of a Fund, notification from the Fund's
transfer agent as provided in Section 7, requesting such payment, designating
the payee or the account or accounts to which the Bank will release funds for
deposit, and stating that it is for a purpose permitted under the terms of this
Section 5, specifying the applicable subsection, the Bank will make payments of
cash held for the accounts of the Fund, insofar as funds are available for that
purpose, only as permitted in subsections 5.1-5.9 below.
5.1 Purchase of Securities. Upon the purchase of securities for a
----------------------
Fund, against contemporaneous receipt of such securities by the Bank, or against
delivery of such securities to the Bank, in accordance with generally accepted
settlement practices or customs in the jurisdiction or market in which the
transaction occurs, such securities to be registered in the name
3
<PAGE>
of the Fund or in the name of, or properly endorsed and in form for transfer to,
the Bank, or a nominee of the Bank, or receipt for the account of the Bank
pursuant to the provisions of Section 6 below, each such payment to be made at
the purchase price shown on a broker's confirmation (or transaction report in
the case of Book Entry Paper) of purchase of the securities that is received by
the Bank before such payment is made and that has been confirmed in the Proper
Instructions also received by the Bank before such payment is made.
5.2 Redemptions. In such amount as may be necessary for the
-----------
repurchase or redemption of interests of a Fund offered for repurchase or
redemption in accordance with Section 7 of this Agreement.
5.3 Distributions and Expenses of the Funds. For the payment on the
---------------------------------------
account of a Fund of dividends or other distributions to interestholders as may
from time to time be declared by the Board, interest, taxes, investment advisory
or administration fees, and, as and to the extent provided on Schedule B hereto,
any fees of the Bank for its services hereunder and any reimbursement of the
expenses and liabilities of the Bank related to such services with respect to a
Fund of the Company as provided pursuant to subsection 13.6 hereunder and on
Schedule B hereto.
5.4 Payment in Respect of Securities. For payments in connection with
--------------------------------
the conversion, exchange or surrender of Portfolio Securities or securities
subscribed to by a Fund held by or to be delivered to the Bank.
5.5 Repayment of Loans. To repay loans of money made to a Fund, but,
------------------
in the case of final payment, only upon redelivery to the Bank of any Portfolio
Securities pledged or hypothecated therefor and upon surrender of documents
evidencing the loan.
5.6 Repayment of Cash. To repay the cash delivered to a Fund for the
-----------------
purpose of collateralizing the obligation to return to a Fund certificates
borrowed from the Fund representing Portfolio Securities, but only upon
redelivery to the Bank of such borrowed certificates.
5.7 Foreign Exchange Transactions. For payments in connection with
-----------------------------
foreign exchange contracts or options to purchase and sell foreign currencies
for spot and future delivery ("Foreign Exchange Agreements") that may be entered
into by the Bank on behalf of a Fund upon the receipt of Proper Instructions,
such Proper Instructions to specify the currency broker or banking institution
(which may be the Bank, or any other sub-custodian or agent hereunder, acting as
principal) with which the contract or option is made, and the Bank shall have no
duty with respect to the selection of such currency brokers or banking
institutions with which a Fund deals or for their failure to comply with the
terms of any contract or option.
5.8 Other Authorized Payments. For other authorized transactions of a
-------------------------
Fund, or other obligations of a Fund incurred for proper purposes with respect
to a Fund; provided that before making any such payment, the Bank also will
receive Proper Instructions or a certified copy of a resolution of the Board
signed by an Authorized Person (other than the Person certifying such
resolution) and certified by its Secretary or Assistant Secretary, naming the
4
<PAGE>
person or persons to whom such payment is to be made, and either describing the
transaction for which payment is to be made and declaring it to be an authorized
transaction of a Fund, or specifying the amount of the obligation for which
payment is to be made, setting forth the purpose for which such obligation was
incurred and declaring such purpose to be a proper corporate purpose.
5.9 Termination. Upon the termination of this Agreement as
-----------
hereinafter set forth pursuant to Section 8 and Section 14 of this Agreement.
6. Securities.
----------
6.1 Segregation and Registration. Except as otherwise provided
----------------------------
herein, and except for Portfolio Securities to be delivered to any sub-custodian
appointed pursuant to subsections 13.2 or 13.3 hereof, the Bank as custodian,
will receive and hold pursuant to the provisions hereof, in a separate account
or accounts and physically segregated at all times from those of other persons,
any and all Portfolio Securities which may now or hereafter be delivered to it
by or for the account of a Fund. All such Portfolio Securities will be held or
disposed of by the Bank for, and subject at all times to, the instructions of
the Company pursuant to the terms of this Agreement. Subject to the specific
provisions herein relating to Portfolio Securities that are not physically held
by the Bank, the Bank will register all Portfolio Securities (unless otherwise
directed by Proper Instructions or an Officer's Certificate), in the name of a
registered nominee of the Bank as defined in the Internal Revenue Code and any
Regulations of the Treasury Department issued thereunder, and will execute and
deliver all such certificates in connection therewith as may be required by such
laws or regulations or under the laws of any state. The Bank will use its best
efforts to the end that the specific Portfolio Securities held by it hereunder
will be at all times identifiable.
The Company, on behalf of a Fund, will from time to time furnish to the
Bank appropriate instruments to enable it to hold or deliver in proper form for
transfer, or to register in the name of its registered nominee, any Portfolio
Securities which may from time to time be registered in the name of a Fund
6.2 Voting and Proxies. Neither the Bank nor any nominee of the Bank
------------------
will vote any of the Portfolio Securities held hereunder, except in accordance
with Proper Instructions or an officers' Certificate. The Bank will execute and
deliver, or will cause to be executed and delivered, to the Company or its
designated agent all notices, proxies and proxy soliciting materials with
respect to such Portfolio Securities, but without indicating the manner in which
such proxies are to be voted, such proxy to be executed by the registered holder
of such Portfolio Securities (if registered otherwise than in the name of a
Fund), in accordance with the Proper Instructions or an Officer's Certificate.
6.3 Corporate Action. If at any time the Bank is notified that an
----------------
issuer of a Portfolio Security has taken or intends to take a corporate action
(a "Corporate Action") that affects the rights, privileges, powers, preferences,
qualifications or ownership of the Portfolio Security, including, without
limitation, liquidation, consolidation, merger, recapitalization,
reorganization, reclassification, subdivision, combination, stock split or stock
dividend, which
5
<PAGE>
Corporate Action requires an affirmative response or action on the part of the
holder of such Portfolio Security (a "Response"), the Bank shall notify the
Company's designee, Barclays Global Fund Advisors ("BGFA"), promptly of the
Corporate Action, the Response required in connection with the Corporate Action,
and the Bank's deadline for receipt from the Company's designee, BGFA, of Proper
Instructions regarding the Response (the "Response Deadline"). Except as
provided in subsection 6.3(c) below, the date specified as the Response Deadline
shall not be more than 24 hours prior to the Response expiration day set by the
depository processing such Corporate Action. The Bank shall forward to the
Company's designee, BGFA, via facsimile and/or overnight courier all notices,
information statements or other materials relating to the Corporate Action
within twenty-four (24) hours of receipt of such materials by the Bank.
(a) The Bank shall act upon a required Response only after receipt by
the Bank of Proper Instructions from the Company's designee, BGFA, no later than
4:00 p.m. (Pacific time) on the date specified as the Response Deadline and only
if the Bank (or its agent or sub-custodian hereunder) has actual possession of
all Portfolio Securities (but only if such Portfolio Securities are necessary
for the consummation of the Corporate Action ("Necessary Portfolio
Securities")), consents and other materials no later than 4:00 p.m. (Pacific
time) on the date specified as the Response Deadline. Portfolio Securities in
the possession of a broker or other borrower pursuant to the Bank's securities
lending program shall be deemed to be in the possession of the Bank for the
purposes of this subsection 6.3.
(b) The Bank shall have no duty to act upon a required Response if
Proper Instructions relating to such Response and all Necessary Portfolio
Securities, consents and other materials are not received by and in the
possession of the Bank no later than 4:00 p.m. (Pacific time) on the date
specified as the Response Deadline. Notwithstanding, the Bank may, in its sole
discretion, use its best efforts to act upon a Response for which Proper
Instructions and/or Necessary Portfolio Securities, consents or other materials
are received by the Bank after 4:00 p.m. (Pacific time) on the date specified as
the Response Deadline, it being acknowledged and agreed by the parties that any
undertaking by the Bank to use its best efforts in such circumstances shall in
no way create any duty upon the Bank to complete such Response prior to its
expiration.
(c) In the event that the Company's designee, BGFA, notifies the Bank
of a Corporate Action requiring a Response and the Bank has received no other
notice of such Corporate Action, the Response Deadline shall be 48 hours prior
to the Response expiration time set by the depository processing such Corporate
Action.
(d) Subsection 13.4(g) of this Agreement shall govern any Corporate
Action involving Foreign Portfolio Securities held by a Selected Foreign Sub-
custodian.
6.4 Book-Entry System. Provided (i) the Bank has received a certified copy
-----------------
of a resolution of the Board specifically approving deposits of a Fund assets in
the Book-Entry System, and (ii) for any subsequent changes to such arrangements
following such approval, the Board has reviewed and approved the arrangement and
has not delivered an Officers Certificate to the Bank indicating that the Board
has withdrawn its approval:
6
<PAGE>
(a) The Bank may keep Portfolio Securities in the Book-Entry System
provided that such Portfolio Securities are represented in an account
("Account") of the Bank (or its agent) in such System that shall not include any
assets of the Bank (or such agent) other than assets held as a fiduciary,
custodian, or otherwise for customers:
(b) The records of the Bank (and any such agent) with respect to a
Fund's participation in the Book-Entry System through the Bank (or any such
agent) will identify by book entry Portfolio Securities that are included with
other securities deposited in the Account and shall at all times during the
regular business hours of the Bank (or such agent) be open for inspection by
duly authorized officers, employees or agents of the Company. Where securities
are transferred to a Fund's account, the Bank shall also, by book entry or
otherwise, identify as belonging to the Fund a quantity of Portfolio Securities
in a fungible bulk of securities (i) registered in the name of the Bank or its
nominee, or (ii) shown on the Bank's account on the books of the Federal Reserve
Bank;
(c) The Bank (or its agent) shall pay for securities purchased for
the account of a Fund or shall pay cash collateral against the return of
Portfolio Securities loaned by a Fund upon (i) receipt of advice from the Book-
Entry System that such Securities have been transferred to the Account, and (ii)
the making of an entry on the records of the Bank (or its agent) to reflect such
payment and transfer for the account of the Fund. The Bank (or its agent) shall
transfer Portfolio Securities sold or loaned for the account of a Fund upon:
(i) receipt of advice from the Book-Entry System that payment
for securities sold or payment of the initial cash collateral against the
delivery of Portfolio Securities loaned by the Fund has been transferred to the
Account: and
(ii) the making of an entry on the records of the Bank (or its
agent) to reflect such transfer and payment for the account of a Fund. Copies of
all advices from the Book-Entry System of transfers of Portfolio Securities for
the account of a Fund shall identify the Fund, be maintained for the Fund by the
Bank and shall be provided to the Fund at its request. The Bank shall send a
Fund a confirmation, as defined by Rule 17f-4 of the 1940 Act, of any transfers
to or from the account of the Fund;
(d) The Bank will promptly provide the Company with any report
obtained by the Bank or its agent on the Book-Entry System's accounting system,
internal accounting control and procedures for safeguarding securities deposited
in the Book-Entry System;
(e) The Bank shall be liable to the Company and a Fund for any loss
or damage to the Fund resulting from use of the Book-Entry System by reason of
any negligent actions or inactions of the Bank or any of its agents or of any of
its or their employees, or from any failure by the Bank or any such agent to use
its best efforts to enforce such rights as it may have against the Book-Entry
System; at the election of the Fund, it shall be entitled to be subrogated for
the Bank in any claim against the Book-Entry System or any other person that the
Bank or its agent may have as a consequence of any such loss or damage if and to
the extent that the Fund has not been made whole for any loss or damage;
7
<PAGE>
6.5 Use of a Depository. Provided (i) the Bank has received a
-------------------
certified copy of a resolution of the Board specifically approving deposits in
DTC or other such Depository and (ii) for any subsequent changes to such
arrangements following such approval, the Board has reviewed and approved the
arrangement and has not delivered an Officer's Certificate to the Bank
indicating that the Board has withdrawn its approval:
(a) The Bank may use a Depository to hold, receive, exchange,
release, lend, deliver and otherwise deal with Portfolio Securities including
stock dividends, rights and other items of like nature, and to receive and remit
to the Bank on behalf of a Fund all income and other payments thereon and to
take all steps necessary and proper in connection with the collection thereof;
(b) Registration of Portfolio Securities may be made in the name
of any nominee or nominees used by such Depository;
(c) Payment for securities purchased and sold may be made
through the clearing medium employed by such Depository for transactions of
participants acting through it. Upon any purchase of Portfolio Securities,
payment will be made only upon delivery of the securities to or for the account
of a Fund and the Fund shall pay cash collateral against the return of Portfolio
Securities loaned by the Fund only upon delivery of the Securities to or for the
account of the Fund; and upon any sale of Portfolio Securities, delivery of the
Securities will be made only against payment thereof or, in the event Portfolio
Securities are loaned, delivery of Securities will be made only against receipt
of the initial cash collateral to or for the account of the Fund: and
(d) The Bank shall be liable to a Fund for any loss or damage to
a Fund resulting from use of a Depository by reason of any negligent actions or
inactions of the Bank or its employees or from any failure by the Bank to use
its best efforts to enforce such rights as it may have against a Depository. In
this connection, the Bank shall use its best efforts to ensure that:
(i) The Depository obtains replacement of any certificated
Portfolio Security deposited with it in the event such Security is lost,
destroyed, wrongfully taken or otherwise not available to be returned to the
Bank upon its request;
(ii) Any proxy materials received by a Depository with
respect to Portfolio Securities deposited with such Depository are forwarded
immediately to the Bank for voting in accordance with subsection 6.2 above;
(iii) Such Depository immediately forwards to the Bank
confirmation of any purchase or sale of Portfolio Securities and of the
appropriate book entry made by such Depository to a Fund's account;
(iv) Such Depository prepares and delivers to the Bank such
records with respect to the performance of the Bank's obligations and duties
hereunder as may be
8
<PAGE>
necessary for the a Fund to comply with the recordkeeping requirements of
Section 31(a) of the 1940 Act and Rule 31(a) thereunder; and
(v) Such Depository delivers to the Bank and the Company
all internal accounting control reports, whether or not audited by an
independent public accountant, as well as such other reports as the Company may
reasonably request in order to verify the Portfolio Securities held by such
Depository.
6.6 Use of Book-Entry System for Commercial Paper. Provided (i) the
---------------------------------------------
Bank has received a certified copy of a resolution of the Board specifically
approving participation in a system maintained by the Bank for the holding of
commercial paper in book-entry form ("Book-Entry Paper") and (ii) for each year
following such approval the Board has received and approved the arrangements,
upon receipt of Proper Instructions and upon receipt of confirmation from an
Issuer (as defined below) that a Fund has purchased such Issuer's Book-Entry
Paper, the Bank shall issue and hold in book-entry form, on behalf of the Fund,
commercial paper issued by issuers with whom the Bank has entered into a book-
entry agreement (the "Issuers"). In maintaining its procedures for Book-Entry
Paper, the Bank agrees that:
(a) The Bank will maintain all Book-Entry Paper held by a Fund
in an account of the Bank that includes only assets held by it for customers;
(b) The records of the Bank with respect to a Fund's purchase of
Book-Entry Paper through the Bank will identify, by book-entry, commercial paper
belonging to the Fund that is included in the Book-Entry Paper System and shall
at all times during the regular business hours of the Bank be open for
inspection by duly authorized officers, employees or agents of the Company;
(c) The Bank shall pay for Book-Entry Paper purchased for the
account of a Fund upon contemporaneous (i) receipt of advice from the Issuer
that such sale of Book-Entry Paper has been effected, and (ii) the making of an
entry on the records of the Bank to reflect such payment and transfer for the
account of the Fund;
(d) The Bank shall cancel such Book-Entry Paper obligation upon
the maturity thereof upon contemporaneous (i) receipt of advice that payment for
such Book-Entry Paper has been transferred to the Fund, and (ii) the making of
an entry on the records of the Bank to reflect such payment for the account of
the Fund;
(e) The Bank shall transmit to the Company a transaction journal
confirming each transaction in Book-Entry Paper for the account of a Fund on the
next business day following the transaction: and
(f) The Bank will send to the Company such reports on its system
of internal accounting control with respect to Book-Entry Paper as the Company
may reasonably request from time to time.
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6.7 Use of Immobilization Programs. Provided (i) the Bank has
------------------------------
received a certified copy of a resolution of the Board specifically approving
the maintenance of Portfolio Securities in an immobilization program operated by
a bank which meets the requirements of Section 26(a)(1) of the 1940 Act, and
(ii) for each year following such approval the Board has reviewed and approved
the arrangement and has not delivered an Officer's Certificate to the Bank
indicating that the Board has withdrawn its approval, the Bank shall enter into
such immobilization program with such bank acting as a sub-custodian hereunder.
6.8 Eurodollar CDs. Any Portfolio Securities that are Eurodollar CDs
--------------
may be physically held by the European branch of the U.S. banking institution
that is the issuer of such Eurodollar CD (a "European Branch"), provided that
such Portfolio Securities are identified on the books of the Bank as belonging
to a Fund and that the books of the Bank identify the European Branch holding
such Portfolio Securities. Notwithstanding any other provision of this
Agreement to the contrary, except as stated in the first sentence of this
subsection 6.8, the Bank shall be under no other duty with respect to such
Eurodollar CDs belonging to a Fund, and the Bank shall have no liability to the
Fund or its interestholders with respect to the actions, inactions, whether
negligent or otherwise of such European Branch in connection with such
Eurodollar CDs, except for any loss or damage to the Fund resulting from the
Bank's own negligent actions or inactions or lack of reasonable care in the
performance of its duties hereunder.
6.9 Options and Futures Transactions.
--------------------------------
(a) Puts and Calls Traded on Securities Exchanges, NASDAQ or
Over-the Counter.
(i) The Bank shall take action as to put options ("puts")
and call options ("calls") purchased or sold (written) by a Fund regarding
escrow or other arrangements in accordance with the provisions of any agreement
entered into upon receipt of Proper Instructions between the Bank, any broker-
dealer registered under the Exchange Act and a member of the National
Association of Securities Dealers, Inc. (the "NASD"), and, if necessary, the
Company, on behalf of the Fund, relating to the compliance with the rules of the
Options Clearing Corporation and of any registered national securities exchange,
or of any similar organization or organizations.
(ii) Unless another agreement requires it to do so, the Bank
shall be under no duty or obligation to see that a Fund has deposited or is
maintaining adequate margin, if required, with any broker in connection with any
option, nor shall the Bank be under duty or obligation to present such option to
the broker for exercise unless it receives Proper Instructions from the Company.
The Bank shall have no responsibility for the legality of any put or call
purchased or sold on behalf of a Fund, the propriety of any such purchase or
sale, or the adequacy of any collateral delivered to a broker in connection with
an option or deposited to or withdrawn from a Segregated Account (as defined in
subsection 6.10 below). The Bank specifically, but not by way of limitation,
shall not be under any duty or obligation to: (1) periodically check or notify a
Fund that the amount of such collateral held by a broker or held in
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<PAGE>
a Segregated Account is sufficient to protect such broker or the Fund against
any loss; (2) effect the return of any collateral delivered to a broker; or (3)
advise the Fund that any option it holds, has or is about to expire. Such duties
or obligations shall be the sole responsibility of a Company.
(b) Puts, Calls and Futures Traded on Commodities Exchanges
(i) The Bank shall take action, upon receipt of Proper
Instructions, as to puts, calls and futures contracts ("futures") purchased or
sold by a Fund in accordance with the provisions of any agreement among the
Company, on behalf of a Fund, the Bank and a Futures Commission Merchant
registered under the Commodity Exchange Act, relating to compliance with the
rules of the Commodity Futures Trading Commission and/or any Contract Market, or
any similar organization(s), regarding account deposits in connection with
transactions by the Fund.
(ii) The responsibilities and liabilities of the Bank as to
futures, puts and calls traded on commodities exchanges, any Futures Commission
Merchant account and the Segregated Account shall be limited as set forth in
subparagraph (a)(ii) of this subsection 6.9 as if such subparagraph referred to
Futures Commission Merchants rather than brokers, and futures and puts and calls
thereon instead of options.
6.10 Segregated Account. The Bank shall upon receipt of Proper
------------------
Instructions establish and maintain a Segregated Account or Accounts for and on
behalf of a Fund, into which Account or Accounts may be transferred upon receipt
of Proper Instructions, cash and/or Portfolio Securities.
(a) Cash and/or Portfolio Securities may be transferred into a
Segregated Account in the following circumstances, upon receipt of Proper
Instructions:
(i) in accordance with the provisions of any agreement
among the Company, on behalf of a Fund, the Bank and a broker-dealer registered
under the Exchange Act and a member of the NASD or any Futures Commission
Merchant registered under the Commodity Exchange Act, relating to compliance
with the rules of the Options Clearing Corporation and of any registered
national securities exchange or the Commodity Futures Trading Commission or any
registered Contract Market, or of any similar organizations regarding escrow or
other arrangements in connection with transactions by a Fund;
(ii) for the purpose of segregating cash or Securities in
connection with options purchased or written by a Fund or commodity futures
purchased or written by a Fund;
(iii) for the deposit of liquid assets, such as cash, U.S.
Government obligations or other high-grade debt obligations, having a market
value (marked-to-market on a daily basis) at all times equal to not less than
the aggregate purchase price due on the settlement dates of all a Fund's then
outstanding forward commitment or "when-issued agreements relating to the
purchase of Portfolio Securities and all a Fund's then outstanding commitments
under any reverse repurchase agreements entered into with broker-dealer firms;
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<PAGE>
(iv) for the purposes of compliance by a Fund with the
procedures required by Investment Company Act Release No. 10666, or any
subsequent release or releases of the Securities and Exchange Commission
relating to the maintenance of Segregated Accounts by registered investment
companies;
(v) for other proper corporate purposes, but only, in the
case of this clause (v), upon receipt of, in addition to Proper Instructions, a
certified copy of a resolution of the Board, or of the Executive Committee,
signed by an officer of the Company and certified by the Secretary or an
Assistant Secretary, setting forth the purpose(s) of such Segregated Account and
declaring such purpose(s) to be a proper corporate purpose(s).
(b) assets may be withdrawn from the Segregated Account pursuant
to Proper Instructions only:
(i) with respect to assets deposited in accordance with
the provisions of any agreements referenced in (a)(i) or (a)(ii) above, in
accordance with the provisions of such agreements;
(ii) with respect to assets deposited pursuant to (a)(iii)
or (a)(iv) above, for sale or delivery to meet a Fund's obligations under
outstanding forward-commitment, delayed-settlement or when-issued agreements for
the purchase of Portfolio Securities and under reverse repurchase agreements;
(iii) for exchange for other liquid assets of equal or
greater value deposited in the Segregated Account;
(iv) to the extent that a Fund's outstanding forward-
commitment or when-issued agreements for the purchase of portfolio securities or
any reverse repurchase agreements are sold to other parties or the Fund's
obligations thereunder are met from assets of the Fund other than those in the
Segregated Account;
(v) for delivery upon settlement of a forward-commitment,
delayed-settlement or when-issued agreement for the sale of Portfolio
Securities: or
(vi) with respect to assets deposited pursuant to (a)(v)
above, in accordance with the purposes of such account as set forth in Proper
Instructions.
6.11 Interest Bearing Call or Time Deposits. The Bank shall, upon
--------------------------------------
receipt of Proper Instructions relating to the purchase by a Fund of interest-
bearing fixed-term and call deposits, transfer cash, by wire or otherwise, in
such amounts and to such bank(s) as shall be indicated in such Proper
Instructions. The Bank shall include in its records with respect to the assets
of a Fund appropriate notation as to the amount of each such deposit, the
banking institution with which such deposit is made (the "Deposit Bank"), and
shall retain such forms of advice or receipt evidencing the deposit, if any, as
may be forwarded to the Bank by the Deposit Bank. Such deposits shall be deemed
Portfolio Securities of a Fund and the responsibility of the
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Bank therefore shall be the same as and no greater than the Bank's
responsibility in respect of other Portfolio Securities of the Fund.
6.12 Transfer of Securities. The Bank will transfer, exchange,
----------------------
deliver or release Portfolio Securities held by it hereunder, insofar as such
Securities are available for such purpose, provided that before making any
transfer, exchange, delivery or release under this Section, the Bank will
receive Proper Instructions requesting such transfer, exchange or delivery
stating that it is for a purpose permitted under the terms of this subsection
6.12, specifying the applicable subsection, or describing the purpose of the
transaction with sufficient particularity to permit the Bank to ascertain the
applicable subsection, only:
(a) upon sales of Portfolio Securities for the account of a
Fund, against contemporaneous receipt by the Bank of payment therefor in full,
or against payment to the Bank in accordance with generally accepted settlement
practices and customs in the jurisdiction or market in which the transaction
occurs, each such payment to be in the amount of the sale price shown in a
broker's confirmation of sale of the Portfolio Securities received by the Bank
before such payment is made, as confirmed in the Proper Instructions received by
the Bank before such payment is made;
(b) in exchange for, or upon conversion into, other securities
alone or other securities and cash pursuant to any plan of merger,
consolidation, reorganization, share split-up, change in par value,
recapitalization or readjustment or otherwise, upon exercise of subscription,
purchase or sale or other similar rights represented by such Portfolio
Securities, or for the purpose of tendering shares in the event of a tender
offer therefor, provided however that in the event of an offer of exchange,
tender offer, or other exercise of rights requiring the physical tender or
delivery of Portfolio Securities, the Bank shall have no liability for failure
to so tender in a timely manner unless such Proper Instructions are received by
the Bank at least two business days prior to the date required for tender, and
unless the Bank (or its agent or sub-custodian hereunder) has actual possession
of such Portfolio Security at least two business days prior to the date of
tender
(c) upon conversion of Portfolio Securities pursuant to their
terms into other securities;
(d) for the purpose of redeeming in kind interests of a Fund
upon authorization from the Fund;
(e) in the case of option contracts owned by a Fund, for
presentation to the endorsing broker;
(f) when such Portfolio Securities are called, redeemed or
retired or otherwise become payable;
(g) for the purpose of effectuating the pledge of Portfolio
Securities held by the Bank in order to collateralize loans made to a Fund by
any bank, including the Bank; provided, however, that such Securities will be
released only upon payment to the Bank for the
13
<PAGE>
account of the Fund of the moneys borrowed, except that in cases where
additional collateral is required to secure a borrowing already made, and such
fact is made to appear in the Proper Instructions, further Portfolio Securities
may be released for that purpose without any such payment. In the event that any
such pledged Portfolio Securities are held by the Bank, they will be so held for
the account of the lender, and after notice to the Fund from the lender in
accordance with the normal procedures of the lender, that an event of deficiency
or default on the loan has occurred, the Bank may deliver such pledged Portfolio
Securities to or for the account of the lender,
(h) for the purpose of releasing certificates representing
Portfolio Securities, against contemporaneous receipt by the Bank of the fair
market value of such security, as set forth in the Proper Instructions received
by the Bank before such payment is made;
(i) for the purpose of delivering Portfolio Securities lent by a
Fund to a bank or broker dealer, but only against receipt in accordance with
street delivery custom except as otherwise provided herein, of adequate
collateral as agreed upon from time to time by the Fund and the Bank, and upon
receipt of payment in connection with any repurchase agreement relating to such
Securities entered into by the Fund;
(j) for other authorized transactions of a Fund or for other
proper corporate purposes; provided that before making such transfer, the Bank
will also receive a certified copy of resolutions of the Board, signed by an
authorized officer of the Company (other than the officer certifying such
resolution) and certified by its Secretary or an Assistant Secretary, specifying
the Portfolio Securities to be delivered, setting forth the transaction in or
purpose for which such delivery is to be made, declaring such transaction to be
an authorized transaction of the Fund or such purpose to be a proper corporate
purpose, and naming the person or persons to whom delivery of such Securities
shall be made; and
(k) upon termination of this Agreement as hereinafter set forth
pursuant to Section 8 and Section 14 of this Agreement.
As to any deliveries made by the Bank pursuant to subsections (a), (b),
(c), (e), (f), (g), (h) and (i) securities or cash receivable in exchange
therefor shall be delivered to the Bank.
7. Redemptions. In the case of payment of assets of a Fund held by the
-----------
Bank in connection with redemptions and repurchases by the Fund of outstanding
interests, the Bank will rely on notification by the Company's transfer agent of
receipt of a request for redemption before such payment is made. Payment shall
be made in accordance with the Amended and Restated Articles of Incorporation
(the "Company Articles") and By-Laws of the Company, from assets available for
said purpose.
8. Merger, Dissolution. etc. of the Company or a Fund. In the case of the
--------------------------------------------------
following transactions, not in the ordinary course of business, namely, the
merger of a Fund into or the consolidation of the Company with another
investment company, the sale by the Company of all, or substantially all, of the
assets of one or more Funds to another investment company, or the liquidation or
dissolution of a Fund and distribution of its assets, the Bank will deliver the
14
<PAGE>
Portfolio Securities held by it under this Agreement and disburse cash only upon
the order of the Company, on behalf of such Fund(s) set forth in an Officer's
Certificate, accompanied by a certified copy of a resolution of the Board
authorizing any of the foregoing transactions. Upon completion of such delivery
and disbursement and the payment of the fees, disbursements and expenses of the
Bank, this Agreement will terminate with respect to such Fund or Company, as
applicable.
9. Actions of the Bank Without Prior Authorization. Notwithstanding
-----------------------------------------------
anything herein to the contrary, unless and until the Bank receives an Officer's
Certificate to the contrary, it will without prior authorization or instruction
of the Company or the transfer agent:
(a) Endorse for collection and collect on behalf of and in the name
of a Fund all checks, drafts, or other negotiable or transferable instruments or
other orders for the payment of money received by it for the account of the Fund
and hold for the account of the Fund all income, dividends, interest and other
payments or distributions of cash with respect to the Portfolio Securities held
thereunder;
(b) Present for payment all coupons and other income items held by it
for the account of a Fund that call for payment upon presentation and hold the
cash received by it upon such payment for the account of the Fund;
(c) Receive and hold for the account of a Fund all securities
received as a distribution on Portfolio Securities as a result of a stock
dividend, share split-up, reorganization, recapitalization, merger,
consolidation, readjustment, distribution of rights and similar securities
issued with respect to any Portfolio Securities held by it hereunder.
(d) execute as agent on behalf of a Fund all necessary ownership and
other certificates and affidavits required by the Internal Revenue Code or the
regulations of the Treasury Department issued thereunder, or by the laws of any
state, now or hereafter in effect, inserting a Fund's name on such certificates
as the owner of the securities covered thereby, to the extent it may lawfully do
so and as may be required to obtain payment in respect thereof. The Bank will
execute and deliver such certificates in connection with Portfolio Securities
delivered to it or by it under this Agreement as may be required under the
provisions of the Internal Revenue Code and any Regulations of the Treasury
Department issued thereunder, or under the laws of any State;
(e) present for payment all Portfolio Securities that are called,
redeemed, retired or otherwise become payable, and hold cash received by it upon
payment for the account of a Fund; and
(f) exchange interim receipts or temporary securities for
definitive securities.
10. Collections and Defaults. The Bank will use all reasonable efforts to
------------------------
collect any funds that may to its knowledge become collectible arising from
Portfolio Securities, including dividends, interest and other income, and to
transmit to the Company, on behalf of a Fund, notice actually received by the
Bank of any call for redemption, offer of exchange, right of subscription,
15
<PAGE>
reorganization or other proceedings affecting such Portfolio Securities. If
Portfolio Securities upon which such income is payable are in default or payment
is refused after due demand or presentation, the Bank will notify the Company,
on behalf of a Fund, in writing of any default or refusal to pay within two
business days from the day on which it receives knowledge of such default or
refusal. In addition, the Bank will send the Company a written report once each
month showing any income on any Portfolio Security held by Bank on behalf of a
Fund that is more than ten days overdue on the date of such report.
11. Maintenance of Records and Accounting Services. The Bank will
----------------------------------------------
maintain records with respect to transactions for which the Bank is responsible
pursuant to the terms and conditions of this Agreement, and in compliance with
the applicable rules and regulations of the 1940 Act and will furnish the
Company daily with a statement of condition of each Fund. The Bank will furnish
to the Company at the end of every month, and at the close of each quarter of
the Company's fiscal year, a list of the Portfolio Securities and the aggregate
amount of cash held by Bank on behalf of each Fund. The books and records of
the Bank pertaining to its actions under this Agreement and reports by the Bank
or its independent accountants concerning its accounting system, procedures for
safeguarding securities and internal accounting controls will be open to
inspection and audit at reasonable times by officers of or auditors employed by
the Company and will be preserved by the Bank in the manner and in accordance
with the applicable rules and regulations under the 1940 Act.
The Bank shall perform the fund accounting services listed on Schedule
C hereto and shall keep the books of account and render statements or copies
from time to time as reasonably requested by the Treasurer or any executive
officer of the Company.
The Bank shall assist generally in the preparation of reports to
shareholders and others, audits of accounts, and other ministerial matters of
like nature.
12. Fund Evaluation and Performance Calculations.
--------------------------------------------
12.1 Fund Evaluation. The Bank shall compute and, unless otherwise
---------------
directed by the Board, determine as of the close of regular trading on the New
York Stock Exchange on each day on which said Exchange is open for unrestricted
trading and as of such other days, or hours, if any, as may be authorized by the
Board, the net asset value and the offering price of an interest of each Fund,
such determination to be made in accordance with the provisions of the Company
Articles and By-Laws and Registration Statement of the Company relating to the
Funds, as it may from time to time be amended, and any applicable resolutions of
the Board at the time in force and applicable; and promptly to notify the
Company, any applicable exchange, the NASD or such other persons as the Company
may request of the results of such computation and determination. In computing
the net asset value hereunder, the Bank may rely in good faith upon information
that the Bank reasonably believes to be accurate and reliable furnished to it by
any Authorized Person in respect of (i) the manner of accrual of the liabilities
of each Fund and in respect of liabilities of a Fund not appearing on its books
of account kept by the Bank, (ii) reserves, if any, authorized by the Board or
that no such reserves have been authorized, (iii) the source of the quotations
to be used in computing the net asset value, (iv) the value to be assigned
16
<PAGE>
to any security for which no price quotations are available, and (v) the method
of computation of the offering price on the basis of the net asset value of the
interests, and the Bank shall not be responsible for any loss occasioned by its
reasonable and good faith reliance on any quotations received from a source
pursuant to (iii) above.
12.2. Performance Calculations. The Bank will compute the performance
------------------------
results of each Fund (the "Performance Calculations") in accordance with
applicable provisions of the 1933 Act and 1940 Act and the rules under such Acts
related to the computations to be undertaken by the Bank pursuant to this
Agreement, as promulgated by the Securities and Exchange Commission, as such
provisions and or rules may be amended from time to time, and any published
interpretations of or general conventions accepted by the staff of the
Securities and Exchange Commission with respect to such rules or the subject
matter thereof ("Subsequent Staff Positions"), subject to the Registration
Statement, as amended from time to time, and the terms set forth below:
(a) The Bank shall compute the Performance Calculations for each
Fund for the stated periods of time as shall be mutually agreed upon, and
communicate in a timely manner the result of such computation to the Company.
(b) In performing the Performance Calculations, the Bank will
derive from the records it generates and maintains for each Fund pursuant
Section 11 hereof, the data necessary for the computation. The Bank shall have
no responsibility to review, confirm, or otherwise assume any duty or liability
with respect to the accuracy or correctness of any such data supplied to it by
the Company, any of the its designated agents or any of its designated third-
party providers.
(c) At the request of the Bank, the Company shall provide, and
the Bank shall be entitled to rely on, written standards and guidelines to be
followed by the Bank in interpreting and applying the computation methods
pursuant to the rules or any Subsequent Staff Positions as they specifically
apply to a Fund, provided that the Bank shall be responsible for general
knowledge of such rules and any Subsequent Staff Positions. In the event that
the computation methods in a rule or the Subsequent Staff Positions or the
application to a Fund of a standard or guideline is not free from doubt or in
the event there is any question of interpretation as to the characterization of
a particular security or any aspect of a security or a payment with respect
thereto (e.g., original issue discount, participating debt security, income or
return of capital, etc.) or otherwise or as to any other element of the
computation that is pertinent to the Fund, the Company or its designated agent,
BGFA, shall have the full responsibility for making the determination of how the
security, or payment, is to be treated for purposes of the computation and how
the computation is to be made and shall inform the Bank thereof on a timely
basis. The Bank shall have no responsibility to make independent determinations
with respect to any item that is covered by this Section, and the Bank shall not
be responsible for its computations made in accordance with such determinations
so long as such computations are mathematically correct.
17
<PAGE>
(d) The Company shall keep the Bank informed of all publicly
available information, and of any non-public advice or information, obtained by
the Company from its independent auditors or by its personnel or the personnel
of its investment adviser, related to the computations to be undertaken by the
Bank pursuant to this Agreement, and the Bank shall not be deemed to have
knowledge of such information (except as contained in the Registration
Statement) unless it has been furnished to the Bank in writing.; provided that
the Bank shall be charged with knowledge of any material changes to the 1933
Act, the 1940 Act, and any related rules under such acts related to the
computations to be undertaken by the Bank pursuant to this Agreement without
specific notice from the Company.
13. Concerning the Bank.
-------------------
13.1 Bank Warranty. The Bank warrants that it has and will maintain
-------------
at least the minimum qualifications required by Section 17(f)(1) of the 1940 Act
to act as custodian of the Portfolio Securities and other assets including cash
of the Company's Funds.
13.2 Standard of Care and Performance of Duties.
------------------------------------------
(a) The Bank agrees to use reasonable care with regard to its
obligations under this Agreement and the safekeeping of property of the Funds.
In performing its duties hereunder and any other duties listed on the Schedules
hereto, the Bank will be entitled to receive and act upon the advice of
independent counsel of its own selection, which may be counsel for the Company,
and the Bank will be without liability for any action taken or thing done, or
omitted to be done, so long as the Bank's actions or inactions are without
negligence and in accordance with this Agreement in good faith in conformity
with such advice. The Bank shall be liable to, and shall indemnify and hold
harmless the Company from and against any loss which shall occur as the result
of the failure of the Bank or a sub-custodian (other than a foreign securities
depository or clearing agency and except as provided in subsections 6.8, 13.2
and 13.3(i) hereof) to exercise reasonable care with respect to their respective
obligations under this Agreement and the safekeeping of such property. Subject
to the foregoing, the Bank will not be responsible for any act, omission,
default or for the solvency of any foreign securities depository or clearing
agency utilized in connection with the provision of services under this
Agreement.
(b) In the performance of its duties hereunder, the Bank will be
protected and not be liable, and will be indemnified and held harmless for any
action taken or omitted to be taken by it with reasonable care and in good faith
reliance upon the terms of this Agreement, any Officer's Certificate, Proper
Instructions, resolution of the Board, facsimile, telegram, notice, request,
certificate or other instrument reasonably believed by the Bank to be genuine
and for any other loss to the Fund except in the case of its negligent actions
or inactions or lack of good faith or reasonable care in the performance of its
obligations or duties hereunder.
(c) The Bank will be under no duty or obligation to inquire into
and will not be liable for:
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<PAGE>
(i) the validity of the issue of any Portfolio Securities
purchased by or for a Fund, the legality of the purchases thereof or the
propriety of the price incurred therefor;
(ii) the legality of any sale of any Portfolio Securities by or
for the Fund or the propriety of the amount for which the same are sold;
(iii) the legality of an issue or sale of any interests of a
Fund or the sufficiency of the amount to be received therefor;
(iv) the legality of the repurchase of any interests of a Fund
or the propriety of the amount to be paid therefor;
(v) the legality of the declaration of any dividend by a Fund
or the legality of the distribution of any Portfolio Securities as payment in
kind of such dividend; and
(vi) any property or moneys of a Fund unless and until received
by it, and any such property or moneys delivered or paid by it pursuant to the
terms hereof.
(d) Moreover, the Bank will not be under any duty or obligation to
ascertain whether any Portfolio Securities at any time delivered to or held by
it for the account of a Fund are such as may properly be held by the Fund under
the provisions of its Company Articles, By-Laws, any federal or state statutes
or any rule or regulation of any governmental agency.
(e) Notwithstanding anything in this Agreement to the contrary, in no
event shall the Bank be liable hereunder or to any third party:
(i) for any losses or damages of any kind resulting from acts
of God, earthquakes, fires, floods, storms or other disturbances of nature,
epidemics, strikes, riots, nationalization, expropriation, currency
restrictions, acts of war, civil war or terrorism, insurrection, nuclear fusion,
fission or radiation, the interruption, loss or malfunction of utilities,
transportation, or computers (hardware or software) and computer facilities, the
unavailability of energy sources and other similar happenings or events, except
as results from the Bank's own negligence, provided that the Bank shall make all
reasonable efforts, whenever necessary, to use data processing back-up
facilities provided by Electronic Data Systems, Inc.; or
(ii) for special, punitive or consequential damages arising from
the provision of services hereunder, even if the Bank has been advised of the
possibility of such damages; provided, however, that the parties specifically
acknowledge and agree that damages, if any, incurred by the Company, its Funds
or its agents (including, but not limited to, BGFA or the Company's transfer or
shareholder servicing agents) on account of late or incorrect net asset values
and related information provided to the Company, its Funds, its agents or other
third parties as may be agreed in writing by BGI and IBT from time to time, are
not to be considered special, punitive or consequential damages for purposes of
this subsection 13.2(e)(ii).
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<PAGE>
(f) The Bank shall supply BGI with such daily information
regarding the cash and securities positions and activity of each Fund as the
Bank and BGI shall from time to time agree.
(g) The Bank need not maintain any insurance for the exclusive
benefit of the Company, but hereby warrants that as of the date of this
Agreement it is maintaining a bankers Blanket Bond and hereby agrees to notify
the Company in the event that such bond is canceled or otherwise lapses.
13.3 Agents and Sub-custodians with Respect to Property of the Funds
---------------------------------------------------------------
Held in the United States. The Bank may employ agents in the performance of its
- -------------------------
duties hereunder and shall be responsible for the acts and omissions of such
agents as if performed by the Bank hereunder. Without limiting the foregoing,
certain duties of the Bank hereunder may be performed by one or more affiliates
of the Bank.
Upon receipt of Proper Instructions, the Bank may employ sub-custodians,
provided that any such sub-custodian meets at least the minimum qualifications
required by Section 17(f)(1) of the 1940 Act to act as a custodian of a Fund's
assets with respect to property of the Fund held in the United States. The Bank
shall have no liability to the Company or any other person by reason of any act
or omission of any sub-custodian and the Company shall indemnify the Bank and
hold it harmless from and against any and all actions, suits and claims, arising
directly or indirectly out of the performance of any sub-custodian. Upon
request of the Bank, the Company shall assume the entire defense of any action,
suit, or claim subject to the foregoing indemnity. All fees and expenses of any
sub-custodian shall be paid in accordance with Schedule B hereto.
13.4 Duties of the Bank with Respect to Property of the Fund Held
------------------------------------------------------------
Outside of the United States.
- ----------------------------
(a) Appointment of Foreign Sub-custodians. The Company hereby
-------------------------------------
authorizes and instructs the Bank to employ as sub-custodians for the Company's
Portfolio Securities and other assets maintained outside the United States the
foreign banking institutions and foreign securities depositories designated by
the Board (each, a "Selected Foreign Sub-custodian"). Upon receipt of Proper
Instructions, together with a certified resolution of the Company's Board of
Directors, the Bank and the Company may agree to designate additional foreign
banking institutions and foreign securities depositories to act as Selected
Foreign Sub-custodians hereunder. Upon receipt of Proper Instructions, the
Company may instruct the Bank to cease the employment of any one or more such
Selected Foreign Sub-custodians for maintaining custody of a Fund's assets, and
the Bank shall so cease to employ such sub-custodian as soon as alternate
custodial arrangements have been implemented.
(b) Foreign Securities Depositories. Except as may otherwise be
-------------------------------
agreed upon in writing by the Bank and the Company, assets of a Fund shall be
maintained in foreign securities depositories only through arrangements
implemented by the foreign banking institutions serving as Selected Foreign Sub-
custodians pursuant to the terms hereof. Where possible, such arrangements
shall include entry into agreements containing the provisions set forth in
subparagraph (d) hereof. Notwithstanding the foregoing, except as may otherwise
be
20
<PAGE>
agreed upon in writing by the Bank and the Company, the Company authorizes the
deposit in Euro-Clear, the securities clearance and depository facilities
operated by Morgan Guaranty Trust Company of New York in Brussels, Belgium, of
Foreign Securities eligible for deposit therein and to utilize such securities
depository in connection with settlements of purchases and sales of securities
and deliveries and returns of securities, until notified to the contrary
pursuant to subparagraph (a) hereunder.
(c) Segregation of Securities. The Bank shall identify on its books
-------------------------
as belonging to a Fund the Foreign Securities held by each Selected Foreign Sub-
custodian. Each agreement pursuant to which the Bank employs a foreign banking
institution shall require that such institution establish a custody account for
the Bank and hold in that account, Foreign Securities and other assets of the
Funds, and, in the event that such institution deposits Foreign Securities in a
foreign securities depository, that it shall identify on its books as belonging
to the Bank the securities so deposited.
(d) Agreements with Foreign Banking Institutions. Each of the
--------------------------------------------
agreements pursuant to which a foreign banking institution holds assets of the
Company's Funds (each, a "Foreign Sub-custodian Agreement") shall be
substantially in the form previously made available to the Company and shall
provide that: (a) such assets will not be subject to any right, charge, security
interest, lien or claim of any kind in favor of the foreign banking institution
or its creditors or agent, except a claim of payment for their safe custody or
administration (including, without limitation, any fees or taxes payable upon
transfers or reregistration of securities); (b) beneficial ownership of such
assets will be freely transferable without the payment of money or value other
than for custody or administration (including, without limitation, any fees or
taxes payable upon transfers or reregistration of securities); (c) adequate
records will be maintained identifying the assets as belonging to the Bank; (d)
officers of or auditors employed by, or other representatives of the Bank,
including to the extent permitted under applicable law, the independent auditors
for the Company, will be given access to the books and records of the foreign
banking institution relating to its actions under its agreement with the Bank;
and (e) assets of a Fund held by the Selected Foreign Sub-custodian will be
subject only to the instructions of the Bank or its agents.
(e) Access of Independent Auditors of the Company. Upon request of
---------------------------------------------
the Company, the Bank will use its best efforts to arrange for the Company's
independent auditors to be afforded access to the books and records of any
foreign banking institution employed as a Selected Foreign Sub-custodian insofar
as such books and records relate to the performance of such foreign banking
institution under its Foreign Sub-custodian Agreement.
(f) Reports by the Bank. The Bank will supply to the Company from
-------------------
time to time, as mutually agreed upon, statements in respect of the securities
and other assets of a Fund held by Selected Foreign Sub-custodians, including
but not limited to an identification of entities having possession of the
Foreign Portfolio Securities and other assets of the Fund.
(g) Transactions in Foreign Custody Accounts. Transactions with
----------------------------------------
respect to the assets of a Fund held by a Selected Foreign Sub-custodian shall
be effected pursuant to
21
<PAGE>
Proper Instructions from the Company to the Bank and shall be effected in
accordance with the applicable Foreign Sub-custodian Agreement. If at any time
any Foreign Portfolio Securities shall be registered in the name of the nominee
of the Selected Foreign Sub-custodian, the Company agrees to hold any such
nominee harmless from any liability by reason of the registration of such
securities in the name of such nominee.
Notwithstanding any provision of this Agreement to the contrary, settlement
and payment for Foreign Securities received for the account of a Fund and
delivery of Foreign Securities maintained for the account of a Fund may be
effected in accordance with the customary established securities trading or
securities processing practices and procedures in the jurisdiction or market in
which the transaction occurs, including, without limitation, delivering
securities to the purchaser thereof or to a dealer therefor (or an agent for
such purchaser or dealer) against a receipt with the expectation of receiving
later payment for such securities from such purchaser or dealer.
In connection with any action to be taken with respect to the Foreign
Securities held hereunder, including, without limitation, the exercise of any
voting rights, subscription rights, redemption rights, exchange rights,
conversion rights or tender rights, or any other action in connection with any
other right, interest or privilege with respect to such Securities
(collectively, the "Rights"), the Bank shall promptly transmit to the Company or
its investment adviser such information in connection therewith as is made
available to the Bank by the Foreign Sub-custodian, and the Bank shall promptly
forward to the applicable Foreign Sub-custodian any instructions, forms or
certifications with respect to such Rights, and any instructions relating to the
actions to be taken in connection therewith, as the Bank shall receive pursuant
to Proper Instructions. The Bank agrees to use its best efforts to obtain and
forward to the Company or its designated agent, BGFA, information regarding
Rights with respect to Foreign Securities held hereunder. Notwithstanding the
foregoing, the Bank shall have no further duty or obligation with respect to
such Rights, including, without limitation, the determination of whether a Fund
is entitled to participate in such Rights under applicable U.S. and foreign
laws, or the determination of whether any action proposed to be taken with
respect to such Rights by the Fund or by the applicable Foreign Sub-custodian
will comply with all applicable terms and conditions of any such Rights or any
applicable laws or regulations, or market practices within the market in which
such action is to be taken or omitted.
(h) Liability of Selected Foreign Sub-custodians. Each Foreign Sub-
--------------------------------------------
custodian Agreement with a foreign banking institution shall require the
institution to exercise reasonable care in the performance of its duties and to
indemnify, and hold harmless, the Bank and Company from and against certain
losses, damages, costs, expenses, liabilities or claims arising out of or in
connection with the institution's performance of such obligations, all as set
forth in the applicable Foreign Sub-custodian Agreement. The Company
acknowledges that the Bank, as a participant in Euroclear, is subject to the
Terms and Conditions Governing the Euroclear System, a copy of which has been
made available to the Company. The Company acknowledges that pursuant to such
Terms and Conditions, Morgan Guaranty Brussels shall have the sole right to
exercise or assert any and all rights or claims in respect of actions or
omissions
22
<PAGE>
of, or the bankruptcy or insolvency of, any other depository, clearance system
or custodian utilized by Euroclear in connection with a Fund's Portfolio
Securities and other assets.
(i) Liability of Bank. The Bank shall have no more or less
-----------------
responsibility or liability on account of the acts or omissions of any Selected
Foreign Sub-custodian employed hereunder than any such Selected Foreign Sub-
custodian has to the Bank and, without limiting the foregoing, the Bank shall
not be liable for any loss, damage, cost, expense, liability or claim resulting
from nationalization, expropriation, currency restrictions, or acts of war or
terrorism, political risk (including, but not limited to, exchange control
restrictions, confiscation, insurrection, civil strife or armed hostilities)
other losses due to Acts of God, nuclear incident or any loss where the Selected
Foreign Sub-custodian has otherwise exercised reasonable care.
(j) Monitoring Responsibilities. The Bank shall furnish annually
---------------------------
to the Company, information concerning the Selected Foreign Sub-custodians
employed hereunder for use by the Company's Board or its designated agent in
evaluating such Selected Foreign Sub-custodians to ensure compliance with the
requirements of Rule 17f-5 of the 1940 Act. In addition, the Bank will promptly
inform the Company in the event that the Bank is notified by a Selected Foreign
Sub-custodian that there appears to be a substantial likelihood that its
shareholders' equity will decline below $200 million (U.S. dollars or the
equivalent thereof) or that its shareholders' equity has declined below $200
million (in each case computed in accordance with generally accepted U.S.
accounting principles) or any other capital adequacy test applicable to it by
exemptive order, or if the Bank has actual knowledge of any material loss of the
assets of a Fund held by a Foreign Sub-custodian.
(k) Tax Law. The Bank shall have no liability for any
-------
obligations now or hereafter imposed on the Trust, or its Funds, or the Bank as
custodian of the Trust by the tax laws of any jurisdiction. The sole
responsibility of the Bank with regard to such taxes shall be to use reasonable
efforts to assist the Company with respect to the withholding and payment by the
Company of such taxes and with respect to any claim for exemption or refund
under the tax law of jurisdictions for which the Company is entitled to such
exemptions or refunds.
13.5 Insurance. The Bank shall use the same care with respect to the
---------
safekeeping of Portfolio Securities and cash of the Company's Funds held by it
as it uses in respect of its own similar property but need not maintain any
special insurance for the benefit of the Company.
13.6. Fees and Expenses of Bank. The Company, on behalf of a Fund,
-------------------------
will pay or reimburse the Bank from time to time for any transfer taxes payable
upon transfer of Portfolio Securities made hereunder. All necessary proper
disbursements, expenses and charges made or incurred by the Bank in the
performance of this Agreement (including any duties listed on Schedule C hereto)
including any indemnities for any loss, liabilities or expense to the Bank as
provided above shall be paid in accordance with Schedule B hereto, provided that
the Bank shall not be entitled to compensation and/or reimbursement for services
and/or expenses and liabilities by the Company, with respect to the Funds,
hereunder so long as the Bank is entitled to receive compensation and
reimbursements from Barclays Global Investors, N.A. ("BGI") for providing sub-
administration services to the Company on behalf of the Funds. If the Bank no
longer is
23
<PAGE>
entitled to receive such compensation and reimbursements from BGI, the Bank
shall be entitled hereunder to such compensation or fees and reimbursements at
such rate and at such times as it may from time to time negotiate with the
Company, and such Schedule B shall be amended accordingly.
13.7 Advances by Bank. The Bank may, in its sole discretion, advance
----------------
funds on behalf of a Fund to make any payment permitted by this Agreement upon
receipt of any proper authorization required by this Agreement for such
payments. Should such a payment or payments, with advanced funds, result in an
overdraft (due to insufficiencies of a Fund's account with the Bank, or for any
other reason) this Agreement deems any such overdraft or related indebtedness, a
loan made by the Bank to the Fund payable on demand and bearing interest at the
current rate charged by the Bank for such loans unless the Fund shall provide
the Bank with agreed upon compensating balances. The Company agrees that the
Bank shall have a continuing lien and security interest to the extent of any
overdraft or indebtedness, in and to any property at any time held by it for a
Fund's benefit or in which the Fund has an interest and which is then in the
Bank's possession or control (or in the possession or control of any third party
acting on the Bank's behalf). The Company authorizes the Bank, in its sole
discretion, at any time to charge any overdraft or indebtedness, together with
interest due thereon against any balance of account standing to the credit of a
Fund on the Bank's books.
14. Termination.
-----------
(a) This Agreement shall be effective for an initial term of two
(2) years commencing upon the date hereof (the "Initial Term") unless earlier
terminated as provided in subsection (b) below. Thereafter, the Agreement may be
terminated at any time, without penalty upon sixty (60) days' written notice
delivered by either party to the other by means of registered mail, and upon the
expiration of such sixty (60) days, this Agreement will terminate; provided,
however, that the effective date of such termination may be postponed to a date
not more than ninety (90) days from the date of delivery of such notice (i) by
the Bank in order to prepare for the transfer by the Bank of all of the assets
of the Funds held hereunder, or (ii) by the Company in order to give it an
opportunity to make suitable arrangements for a successor custodian. At any time
after the termination of this Agreement, the Bank agrees to make available to
the Company, at its request, the records maintained by the Bank relating to the
performance of its duties as custodian and to preserve such records for the
periods prescribed in Rule 31a-2 under the 1940 Act.
(b) Notwithstanding subsection (a) above, either party hereto
may terminate this Agreement at any time prior to the expiration of the Initial
Term in the event that the other party violates any material provision of this
Agreement, provided that the violating party does not cure such violation within
ninety (90) days of receipt of written notice from the non -violating party of
such violation.
(c) Notwithstanding subsection (a) above, the Company may
terminate this Agreement at any time prior to the expiration of the Initial Term
in the event that (i) the Board of Directors determines that the performance of
the Bank does not meet the reasonable satisfaction
24
<PAGE>
(considered in light of industry standards) of the Board of Directors, provided
that the Bank does not cure such unsatisfactory performance within ninety (90)
days of receipt of written notice specifying such unsatisfactory performance; or
(ii) if the Bank becomes the subject of any state or federal bankruptcy
proceeding that is not dismissed within sixty (60) days of the initiation of
such proceeding.
(d) In the event of the termination of this Agreement, the Bank
will immediately upon receipt or transmittal, as the case may be, of notice of
termination, commence and prosecute diligently to completion the transfer of all
cash and the delivery of all Portfolio Securities duly endorsed and all records
maintained under Section 11 to the successor custodian when appointed by the
Company. The obligation of the Bank to deliver and transfer over the assets of
the Company's Funds held by the Bank directly to such successor custodian will
commence as soon as such successor is appointed and will continue until
completed as aforesaid. If the Company does not select a successor custodian
within ninety (90) days from the date of delivery of notice of termination the
Bank may, subject to the provisions of subsection 14(c), deliver the Portfolio
Securities and cash of the Company's Fund held by the Bank to a bank or trust
company of its own selection that meets the requirements of Section 17(f)(1) of
the 1940 Act and has a reported capital, surplus and undivided profits
aggregating not less than $2,000,000, to be held as the property of the
Company's Funds under terms similar to those on which they were held by the
Bank, whereupon such bank or trust company so selected by the Bank will become
the successor custodian of such assets of the Company's Funds with the same
effect as though selected by the Board.
(e) Prior to the expiration of ninety (90) days after notice of
termination has been given, the Company may furnish the Bank with an order of
the Company advising that a successor custodian cannot be found willing and able
to act upon reasonable and customary terms and that there has been submitted to
the Fund's interestholders the question of whether a Fund will be liquidated or
will function without a custodian for the assets of the Fund. In that event the
Bank will deliver the Portfolio Securities and cash of the Company's Funds,
subject as aforesaid, in accordance with one of such alternatives that may be
approved by the requisite vote of shareholders, upon receipt by the Bank of a
copy of the minutes of the meeting of shareholders at which action was taken,
certified by the Company's Secretary and an opinion of counsel to the Company in
form and content satisfactory to the Bank.
15. Confidentiality. Both parties hereto agree than any non-public
---------------
information obtained hereunder concerning the other party is confidential and
may not be disclosed to any other person without the consent of the other party,
except as may be required by applicable law or at the request of a governmental
agency. The parties further agree that a breach of this provision would
irreparably damage the other party and accordingly agree that each of them is
entitled, in addition to all other remedies at law or in equity and without bond
or other security, to an injunction or injunctions to prevent breaches of this
provision.
16. Notices. Any notice or other instrument in writing authorized or
-------
required by this Agreement to be given to either party hereto will be
sufficiently given if addressed to such party
25
<PAGE>
and delivered, via registered U.S. Mail or facsimile with written confirmation
via registered U.S. Mail, to it at its office at the address set forth below;
namely:
(a) In the case of notices sent to the Company or a Fund to:
MasterWorks Funds Inc.
111 Center Street
Little Rock, AR 72201
Attention: Richard H. Blank, Jr.
With a copy to:
Barclays Global Investors
45 Fremont Street
San Francisco, CA 94105
Attention: Legal Department
(b) In the case of notices sent to the Bank to:
Investors Bank & Trust Company
89 South Street
Boston, Massachusetts 02111
Attention: Andrew Nesvet
With a copy to: John E. Henry
or at such other place as such party may from time to time designate in
writing.
17. Amendments. This Agreement may not be altered or amended, except by
----------
an instrument in writing, executed by both parties, and in the case of the
Company, such alteration or amendment will be authorized and approved by its
Board.
18. Parties. This Agreement will be binding upon and shall inure to the
-------
benefit of the parties hereto and their respective successors and assigns;
provided, however, that this Agreement will not be assignable by the Company
without the written consent of the Bank or by the Bank without the written
consent of the Company, authorized and approved by its Board; and provided
further that termination proceedings pursuant to Section 14 hereof will not be
deemed to be an assignment within the meaning of this provision.
19. Governing Law. This Agreement and all performance hereunder will be
-------------
governed by the laws of the Commonwealth of Massachusetts.
20. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.
26
<PAGE>
21. Limitation of Liability. The Company and the Bank agree that the
-----------------------
Company's obligations under this Agreement shall not be binding upon any
Trustee, interestholder, officer, employee or agent of the Company individually
but are binding only upon the assets and property of the appropriate Fund.
22. Single Agreement. This Agreement (including any exhibits, appendices
----------------
and schedules hereto) constitutes the entire agreement between the Bank and the
Company as to the subject matter hereof and supersedes any and all agreements,
representations and warranties, written or oral, regarding such subject matter
made prior to the time at which this Agreement has been executed and delivered
between the Bank and the Company.
23. This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original, but such counterparts shall, together,
constitute only one instrument.
27
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first written above.
MasterWorks Funds Inc.
By /s/ Richard H. Blank, Jr.
-----------------------------
Name: Richard H. Blank, Jr.
Title: Chief Operating Officer
Investors Bank & Trust Company
By: /s/ Robert D. Mancusco
-----------------------------
Name: Robert D. Mancuso
Title: Managing Director
Investors Bank & Trust Company
By: /s/ John E. Henry
----------------------------
Name: John E. Henry
Title: General Counsel
28
<PAGE>
Schedule A
----------
Custody Agreement
MasterWorks Funds Inc.
List of Funds
-------------
LifePath 2000 Fund
LifePath 2010 Fund
LifePath 2020 Fund
LifePath 2030 Fund
LifePath 2040 Fund
Asset Allocation Fund
Bond Index Fund
International Money Market Fund
Money Market Fund
S & P 500 Index Fund
U.S. Treasury Allocation Fund
Dated: October 21, 1996
Amended: April 28, 1999
A-1
<PAGE>
Schedule B
----------
Custody Agreement
MasterWorks Funds Inc.
IBT shall not be entitled to separate compensation from MasterWorks
Funds Inc. for providing custody and fund accounting services to the Company's
Funds pursuant to this Agreement so long as IBT is entitled to receive fees and
related expenses from BGI, pursuant to the Sub-administration Agreement between
BGI and IBT, for providing such custody and fund accounting services to the
Company's Funds. If IBT is no longer entitled to receive such fees and
expenses under such Sub-administration Agreement, then IBT shall be entitled to
receive compensation from the Company as IBT may from time to time negotiate
with the Company, and this Schedule B shall be amended accordingly.
B-1
<PAGE>
Schedule C
----------
Custody Agreement
MasterWorks Funds Inc.
Fund Accounting Duties
----------------------
I. A. Journals containing an itemized daily record in detail of all
purchases and sales of securities, all receipts and disbursements of cash and
all other debits and credits, as required by subsection (b)(1) of rule 31a-1
under the 1940 Act (the "Rule");
B. General and auxiliary ledgers reflecting all asset, liability,
reserve, capital, income and expense accounts, including interest accrued and
interest received, as required by subsection (b)(2)(i) of the Rule;
C. Separate ledger accounts required by subsection (b) (2) (ii) and
(iii) of the Rule; and
D. A monthly trial balance of all ledger accounts (except shareholder
accounts) as required by subsection (b)(8) of the Rule.
II. All such books and records shall be the property of the Company, and
IBT agrees to make such books and records available for inspection by the
Company or by the Securities and Exchange Commission at reasonable times and
otherwise to keep confidential all records and other information relative to the
Company; except when requested to divulge such information by duly constituted
authorities or court process, or when requested by the Company.
III. In addition to the maintenance of the books and records specified
above, IBT shall perform the following accounting services daily for each Fund;
A. Calculate the net asset value per interest;
B. Calculate changes in net asset value;
C-1
<PAGE>
C. Calculate the per share dividend distribution rates:
D. Calculate dividends and any capital-gain distributions;
E. Calculate performance figures, including any yield or total
return and other performance figures, as appropriate;
F. Provide the following reports:
1. a current security position report;
2. a summary report of transactions and pending maturities
(including the principal cost, and accrued interest on each
portfolio security in maturity date order); and
3. a current cash position report (including cash available
from portfolio sales and maturities and sales of a Fund's
interests less cash needed for redemptions and settlement of
portfolio purchases);
G. Such other similar services with respect to a Fund as may be
reasonably requested by the Company.
IV. IBT shall forward the information contained in Section III of this
Schedule to third-party service providers reasonably requested by the Company,
the Co-Administrators or BGFA.
C-2
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the 27th day of February, 1998 by and between
MASTERWORKS FUNDS INC., a corporation organized under the laws of Maryland (the
"Company"), and INVESTORS BANK & TRUST COMPANY, a Massachusetts trust company
(the "Bank").
WHEREAS, the Company desires to appoint the Bank as its transfer agent,
dividend disbursing agent and agent in connection with certain other activities,
and the Bank desires to accept such appointment;
WHEREAS, the Bank is duty registered as a transfer agent as provided in
Section 17A(c) of the Securities Exchange Act of 1934, as amended, (the "1934
Act");
WHEREAS, the Company is authorized to issue shares in separate series, with
each such series representing interests in a separate portfolio of securities
and other assets;
WHEREAS, the Company has offered shares in each of the series and classes
listed on Appendix A hereto (such series and classes, together with all other
-----------
series and classes subsequently established by the Company and made subject to
this Agreement in accordance with Section 17, being herein referred to as the
"Fund(s)");
NOW, THEREFORE, in consideration of the mutual covenants herein set forth,
the Company and the Bank agree as follows:
1. Terms of Appointment.
---------------------
Subject to the terms and conditions set forth in this Agreement, the
Company on behalf of the Funds hereby employs and appoints the Bank to act, and
the Bank agrees to act, as transfer agent for each of the Fund(s)' authorized
and issued shares of common stock ("Shares"), dividend disbursing agent and
agent in connection with any accumulation, open-account or similar plans
provided to the shareholders of the Company ("Shareholders") and set out in the
currently effective prospectus and statement of additional information, as each
may be amended from time to time, (the "Prospectus") of the Company, including
without limitation any periodic investment plan or periodic withdrawal program.
For purposes of this Agreement, Shareholder shall refer to a record holder of
Shares.
2. Definitions. Whenever used herein, the terms listed below will have the
-----------
following meaning:
2.1 Authorized Company Person. Authorized Company Person will mean any of
-------------------------
the persons duly authorized to give Proper Instructions or otherwise act on
behalf of the Company by appropriate resolution of its Board of Directors. Each
Authorized Company Person shall be set forth in a certificate as required by
Section 4 hereof
2.2 Other Authorized Person. Other Authorized Person will mean:
-----------------------
(a) Any of the persons duly authorized to give Proper Instructions or
otherwise act on behalf of one or more of the third-party administrators,
institutional investors or other parties listed on a schedule provided by the
Company to the Bank from time to time (the "Providers") by appropriate
resolution of their respective governing bodies; or
<PAGE>
(b) Any shareholder of record of a Fund who has delivered to the Bank
a signature guarantee.
Each person authorized to give Proper Instructions on behalf of a Provider
hereunder shall be set forth in a certificate as required by Section 4 hereof.
2.3 Board. Board will mean the Board of Directors of the Company.
-----
2.4 Proper Instructions. Proper Instructions shall mean (i) instructions
-------------------
regarding the purchase or sale of the authorized and issued shares of the Funds'
common stock ("Shares"), and payments and deliveries in connection therewith,
given by an Authorized Company Person or Other Authorized Person, as the case
may be, such instructions to be given In such form and manner as the Bank and
the Company shall agree upon from time to time; (ii) instructions from an Other
Authorized Person with respect to payments, checks, wire transfers and
shareholder account information as to the shareholder accounts over which such
Provider has authority; and (iii) Instructions (which may be continuing
instructions) regarding other matters signed or initialed by an Authorized
Company Person. With regard only to purchases and sales of Shares, oral
instructions will be considered Proper Instructions if the Bank reasonably
believes them to have been given by an Authorized Company Person or Other
Authorized Person. The Company or the Other Authorized Person, as the case may
be, shall cause all oral instructions to be promptly confirmed in writing. The
Bank shall act upon and comply with any subsequent Proper Instruction which
modifies a prior instruction and the sole obligation of the Bank with respect to
any follow-up or confirmatory Instruction shall be to make reasonable efforts to
detect any discrepancy between the original instruction and such confirmation
and to report such discrepancy to the Company or a Provider, as the case may be.
The Company shall be responsible, at the Company's expense, for taking any
action, including any reprocessing, necessary to correct any such discrepancy or
error, and to the extent such action requires the Bank to act, the Company shall
give the Bank specific Proper Instructions as to the action required. Upon
receipt by the Bank of a certificate of an Authorized Company Person as to the
authorization by the Board accompanied by a detailed description of procedures
approved by the Company, Proper Instructions may include communication effected
directly between electro-mechanical or electronic devices provided that the
Board and the Bank agree in writing that such procedures afford adequate
safeguards for the Fund's assets.
3. Duties of the Bank
3.1 The Bank agrees that it will perform the following services:
(a) In connection with procedures established from time to time by
agreement between the Company and the Bank, the Bank shall:
(i) Receive for acceptance from the Company and the Providers
orders for the purchase of Shares and promptly deliver payment and appropriate
documentation therefor to the custodian of the Company appointed by the Board of
Directors of the Company (the "Custodian");
(ii) Pursuant to purchase orders received from the Company and
the Providers, issue the appropriate number of Shares and hold such Shares in
the appropriate Shareholder account;
(iii) Receive for acceptance from the Company and the Providers
redemption requests and redemption directions and deliver the appropriate
documentation therefor to the Custodian;
(iv) At the appropriate time as and when it receives monies paid
to it by the Custodian with respect to any redemption, pay over or cause to be
paid over in the appropriate manner such monies as instructed by the redeeming
Shareholders;
<PAGE>
(v) Effect exchanges, account registration changes and
transfers of Shares by the registered owners thereof upon receipt of appropriate
instructions;
(vi) Prepare and transmit payments for dividends and
distributions declared by the Company on behalf of a Fund;
(vii) Create and maintain all necessary records including those
specified in Article 10 hereof, in accordance with all applicable laws, rules
and regulations, including but not limited to records required by Section 31 (a)
of the Investment Company Act of 1940, as amended (the " 1940 Act") and the
rules thereunder, records required by Section 17A of the 1934 Act and the rules
thereunder and those records pertaining to the various functions performed by it
hereunder. All records shall be available for inspection and use by the Company.
Where applicable, such records shall be maintained by the Bank for the periods
and in the places required by Rule 3la-2 under the 1940 Act;
(viii) Make available during regular business hours all records
and other data created and maintained pursuant to this Agreement for reasonable
audit and inspection by the Company, or any-person retained by the Company. Upon
reasonable notice by the Company, the Bank shall make available during regular
business hours its facilities and premises employed in connection with its
performance of this Agreement for reasonable visitation by the Company, or any
person retained by the Company;
(ix) (a) Record the issuance of Shares of the Company and
maintain, pursuant to Rule 17Ad-10(e) under the 1934 Act, a record of the total
number of Shares of the Company which are authorized, based upon data provided
to it by the Company, and issued and outstanding. The Bank shall also provide
the Company on a regular basis with the total number of Shares which are
authorized and issued and outstanding and shall have no obligation, when
recording the issuance of Shares, to monitor the issuance of such Shares or to
take cognizance of any laws relating to the issue or sale of such Shares, which
functions shall be the sole responsibility of the Company.
(b) In addition to and not in lieu of the services set forth in the
above paragraph (a) or in any Schedule hereto, the Bank shall: (i) perform all
of the customary services of a transfer agent, dividend disbursing agent and, as
relevant, agent in connection with accumulation, open-account or similar plans
(including without limitation any periodic investment plan or periodic
withdrawal program); including but not limited to maintaining all Shareholder
accounts, preparing Shareholder meeting lists, withholding taxes on all
accounts, including nonresident alien accounts, preparing and filing U.S.
Treasury Department Forms 1099 and other appropriate forms required by federal
authorities with respect to dividends and distributions for all Shareholders,
preparing and mailing confirmation forms and statements of account to
Shareholders for all purchases and redemptions of Shares and other confirmable
transactions in Shareholder accounts, monitoring, reporting and remitting as
directed by appropriate authorities for state escheat, tax lien and similar
purposes, responding to Shareholder telephone calls and Shareholder
correspondence, preparing and mailing activity statements for Shareholders, and
providing Shareholder account information; and (ii) provide a system which will
enable the Company to monitor the total number of shares sold in each State. The
Company shall (i) identify to the Bank in writing those transactions and assets
to be treated as exempt from blue sky reporting for each State and (ii) verify
the establishment of transactions for each State on the system prior to
activation and thereafter monitor the daily activity for each State. The
responsibility of the Bank for a Fund's blue sky state registration status is
solely limited to the initial establishment of transactions subject to blue sky
compliance by such Fund(s) and the reporting of such transactions to the Fund(s)
as provided above.
<PAGE>
(c) Additionally, the Bank shall utilize a system to identify all
share transactions which involve purchase and redemption orders that are
processed at a time other than the time of the computation of net asset value
per share next computed after receipt of such orders, and shall compute the net
effect upon the Fund(s) of such transactions so identified on a daily and
cumulative basis.
4. Certification as to Authorized Persons. The Secretary or Assistant
---------------------------------------
Secretary of the Company and each Provider will at all times maintain on file
with the Bank his or her certification to the Bank, in such form as may be
acceptable to the Bank, of the names and signatures of the Authorized Company
Persons and Other Authorized Persons acting on behalf of such Provider, it being
understood that upon the occurrence of any change in the information set forth
in the most recent certification on file (including without limitation any
person named in the most recent certification who is no longer an Authorized
Company Person or Other Authorized Person as designated therein), the Secretary
or Assistant Secretary of the Company and each Provider will sign a new or
amended certification setting forth the change and the new, additional or
omitted names or signatures. The Bank will be entitled to rely and act upon any
certificate given to it by the Company or a Provider, as the case may be, which
has been signed by Authorized Company Persons or Other Authorized Persons, as
the case may be, named in the most recent certification received by the Bank.
5. Sale of Company Shares.
-----------------------
5.1 Whenever a Fund shall sell or cause to be sold any Shares of such
Fund, it shall deliver or cause to be delivered to the Bank a document duly
specifying: (i) the name of the Fund whose Shares were sold; (ii) the trade
date; (iii) the amount of money to be delivered to the Custodian for the sale of
such Shares and specifically allocated to such Fund; and (iv) in the case of a
new account, a new account application or sufficient information to establish an
account.
5.2 The Bank will, upon receipt by it of a check, wire transfer or other
payment identified by it as an investment in Shares of one of the Funds and
drawn or endorsed to the Bank as agent for, or identified as being for the
account of, one of the Funds, promptly deposit such check or other payment to
the appropriate account postings necessary to reflect the investment. The Bank
will notify the Company, or its designee, and the Custodian of all purchases and
related account adjustments.
5.3 Under written procedures as established by mutual agreement between
the Company and the Bank, the Bank shall issue to the purchaser or its
authorized agent such Shares, computed to the nearest three decimal points, as
he is entitled to receive, based on the appropriate net asset value of the
Funds' Shares, determined in accordance with the prospectus and any applicable
federal law or regulation. In issuing Shares to a purchaser or its authorized
agent, the Bank shall be entitled to rely upon the latest directions, if any,
previously received by the Bank from the purchaser or its authorized agent
concerning the delivery of such Shares.
5.4 The Bank shall not be required to issue any Shares of the Company
where it has received a written instruction from the Company or written
notification from any appropriate federal or state authority that the sale of
the Shares of the Fund(s) in question has been suspended or discontinued , and
the Bank shall be entitled to rely upon such written instructions or written
notification.
5.5 Upon the issuance of any Shares of any Fund(s) in accordance with the
foregoing provisions of this Section, the Bank shall not be responsible for the
payment of any original issue or other taxes, if any, required to be paid by the
Company in connection with such issuance.
<PAGE>
5.6 The Bank may establish such additional rules and regulations
governing the transfer or registration of Shares as it may deem advisable and
consistent with such rules and regulations generally adopted by transfer agents,
or with the written consent of the Company, any other rules and regulations.
6. Returned Checks. In the event that any check or other order for the
---------------
transfer of money is returned unpaid for any reason, the Bank will take such
steps as the Bank may, in its discretion, deem appropriate to protect the
Company from financial loss or as the Company or its designee may instruct.
Provided that the standard procedures, as agreed upon in writing from time to
time, between the Company and the Bank, regarding purchases and redemptions of
Shares, are adhered to by the Bank, the Bank shall not be liable for any loss
suffered by a Fund as a result of returned or unpaid purchase or redemption
transactions. Legal or other expenses incurred to collect amounts owed to a Fund
as a consequence of returned or unpaid purchase or redemption transactions shall
be an expense of that Fund.
7. Redemptions. Shares of any Fund may be redeemed in accordance with the
-----------
procedures set forth in the Prospectus of the Company and the Bank will duly
process all redemption requests.
8. Transfers and Exchanges. The Bank is authorized to review and process
-----------------------
transfers of Shares of each Fund, exchanges between Funds on the records of the
Funds maintained by the Bank, and exchanges between the Company and any other
entity as may be permitted by the Prospectus of the Company. If Shares to be
transferred are represented by outstanding certificates, the Bank will, upon
surrender to it of the certificates in proper form for transfer, and upon
cancellation thereof, countersign and issue new certificates for a like number
of Share's and deliver the same. If the Shares to be transferred are not
represented by outstanding certificates, the Bank will, upon an order therefor
by or on behalf of the registered holder thereof in proper form, credit the same
to the transferee on its books. If Shares are to be exchanged for Shares of
another Fund, the Bank will process such exchange in the same manner as a
redemption and sale of Shares, except that it may in its discretion waive
requirements for information and documentation.
9. Right to Seek Assurances. The Bank reserves the right to refuse to transfer
------------------------------
or redeem Shares until it is satisfied that the requested transfer or redemption
is legally authorized, and it shall incur no liability for the refusal, in good
faith, to make transfers or redemptions which the Bank, in its judgment, deems
improper or unauthorized or until it is satisfied that there is no basis for any
claims adverse to such transfer or redemption. The Bank may, in effecting
transfers, rely upon the provisions of the Uniform Act for the Simplification of
Fiduciary Security Transfers or the Uniform Commercial Code, as the same may be
amended from time to time, which in the opinion of legal counsel for the Company
or the Bank's own legal counsel, do not require certain documents in connection
with the transfer or redemption of Shares of any Fund, and the Company shall
indemnify the Bank for any act done or omitted by it in compliance with such
laws or in reliance upon opinions of counsel of the Company or of the Bank.
10. Distributions.
--------------
10.1 The Company will promptly notify the Bank of the declaration of any
dividend or distribution. The Company shall furnish to the Bank a resolution of
the Board of Directors of the Company certified by the Secretary (a
"Certificate"): (i) authorizing the declaration of dividends on a specified
periodic basis and authorizing the Bank to rely on Proper Instructions provided
by an Authorized Company Person specifying the date of the declaration of such
dividend or distribution, the date of payment thereof, the record date as of
which Shareholders entitled to payment shall be determined and the amount
payable per share to Shareholders of record as of such record date and the total
amount payable to the Bank on the payment date; or (ii) setting forth the date
of the declaration of any dividend or distribution by
<PAGE>
a Fund, the date of payment thereof, the record date as of which Shareholders
entitled to payment shall be determined, and the amount payable per share to the
Shareholders of record as of that date and the total amount payable to the Bank
on the payment date.
10.2 The Bank, on behalf of the Company, shall instruct the Custodian to
place in a dividend disbursing account funds equal to the cash amount of any
dividend or distribution to be paid out. The Bank will calculate, prepare and
mail checks to (at the address as it appears on the records of the Bank), or
(where appropriate) credit such dividend or distribution to the account of, Fund
Shareholders, and maintain and safeguard all underlying records.
10.3 The Bank will replace lost checks at its discretion and in conformity
with regular business practices.
10.4 The Bank will maintain all records necessary to reflect the crediting
of dividends which are reinvested in Shares of the Company, including without
limitation daily dividends.
10.5 The Bank shall not be liable for any improper payments made in
accordance with a resolution of the Board of Directors of the Company.
10.6 If the Bank shall not receive from the Custodian sufficient cash to
make payment to all Shareholders of the Company as of the record date, the Bank
shall, upon notifying the Company, withhold payment to all Shareholders of
record as of the record date until such sufficient cash is provided to the Bank
and shall not be liable for any claim arising out of such withholding.
11. Other Duties. In addition to the duties expressly provided for herein, the
--------------
Bank shall perform such other duties and functions and shall be paid such
amounts therefor as may from time to time be agreed to in writing.
12. Taxes. It is understood that the Bank shall file such appropriate
-------
information returns concerning the payment of dividends and capital gain
distributions and tax withholding with the proper Federal, State and local
authorities as are required by law to be filed by the Company and shall withhold
such sums as are required to be withheld by applicable law.
13. Books and Records.
------------------
13.1 The Bank shall maintain confidential records showing for each
Shareholder's account the following: (i) names, addresses and tax identification
numbers; (ii) numbers of Shares held; (iii) historical information (as available
from prior transfer agents) regarding the account of each Shareholder, including
dividends paid and date and price of all transactions on a Shareholder's
account; (iv) any stop or restraining order placed against a Shareholder's
account; (v) information with respect to withholdings; (vi) any capital gain or
dividend reinvestment order, plan application, dividend address and
correspondence relating to the current maintenance of a Shareholder's account;
(vii) certificate numbers and denominations for any Shareholders holding
certificates; (viii) any information required in order for the Bank to perform
the calculations contemplated or required by this Agreement; and (ix) such other
information and data as may be required by applicable law.
13.2 Any records required to be maintained by Rule 31a-1 under the 1940
Act will be preserved for the periods prescribed in Rule 31a-2 under the 1940
Act. Such records may be inspected by the Company during regular business hours
upon reasonable notice. The Bank may, at its option at any
<PAGE>
time, and shall forthwith upon the Company's demand, turn over to the Company
and cease to retain in the Bank's files, records and documents created and
maintained by the Bank in performance of its service or for its protection. At
the end of the six-year retention period, such documents will either be turned
over to the Company, or destroyed in accordance with the Company's
authorization.
13.3 Written procedures applicable to the services to be performed
hereunder may be established from time to time by agreement between the Fund(s)
and the Bank. The Bank shall have the right to utilize any shareholder
accounting and recordkeeping system which, in its opinion, qualifies to perform
any services to be performed hereunder. The Bank shall keep records relating to
the services performed hereunder in accordance with the requirements of this
Agreement, in the form and manner as it may deem advisable.
14. Fees and Expenses.
------------------
14.1 For performance by the Bank pursuant to this Agreement, the Fund(s)
agree to pay the Bank an annual maintenance fee as set out in the initial fee
schedule attached as Appendix B hereto. Such fees and out-of-pocket expenses and
----------
advances identified under Section 14.2 below may be changed from time to time by
mutual written agreement between the Fund(s) and the Bank.
14.2 In addition to the fee paid under Section 14.1 above, the Fund(s)
agree to reimburse the Bank for out-of-pocket expenses or advances incurred by
the Bank in performing its obligations under this Agreement for the items set
out in the fee schedule attached as Appendix B hereto. In addition your, any
----------
other expenses incurred by the Bank at the request or with the written consent
of the Fund(s) including, without limitation, any equipment or supplies which
the Company specifically orders or requires the Bank to purchase, will be
reimbursed by the Fund(s).
14.3 Advances by the Bank. The Bank may, in its sole discretion, advance
--------------------
funds on behalf of a Fund to make any payment permitted by this Agreement upon
receipt of any proper authorization or Proper Instruction required by this
Agreement for such payments by the Fund. Should such a payment or payments, with
advanced funds, result in an overdraft (due to insufficiencies of the Fund's
account with the Bank, or for any other reason) this Agreement deems any such
overdraft or related indebtedness a loan made by the Bank to the Fund payable on
demand. Such overdraft shall bear interest at the current rate charged by the
Bank for such loans. The Fund agrees that the Bank shall have a continuing lien
and security interest to the extent of any overdraft or indebtedness, in and to
any property at any time held by it for the Fund's benefit or in which the Fund
has an interest and which is then in the Bank's possession or control (or in the
possession or control of any third party acting on the Bank's behalf). The Fund
authorizes the Bank, in the Bank's sole discretion, at any time to charge any
overdraft or indebtedness, together with interest due thereon, against any
balance of account standing to the credit of the Fund on the Bank's books.
14.4 The Fund(s) agree to pay all fees and reimbursable expenses within
thirty days following the mailing of the respective billing notice, Postage for
mailing of dividends, proxies, Fund reports and other mailings to all
shareholder accounts shall be advanced to the Bank by the Fund(s) at least seven
(7) days prior to the mailing date of such materials. Any waiver or extension by
the Bank of the thirty and seven day time periods enumerated in this section
14.4 shall not constitute a dismissal of any monies due under this Agreement nor
shall such waiver or extension apply to any future monies due to the Bank
hereunder.
<PAGE>
15. Representations and Warranties of the Bank.
-------------------------------------------
The Bank represents and warrants to the Company that:
15.1 It is a trust company duly organized and existing and in good
standing under the laws of the Commonwealth of Massachusetts.
15.2 It is empowered under applicable laws and by its charter and by-laws
to enter into and perform this Agreement.
15.3 All requisite corporate proceedings have been taken to authorize it
to enter into and perform this Agreement.
15.4 It has and will continue to have access to the necessary facilities,
equipment, computer systems and personnel to perform its duties and obligations
under this Agreement, including, but not limited to, reasonable back-up and data
recovery facilities, equipment, computer systems and personnel.
15.5 It will perform its duties and obligations under this Agreement
without: (a) any failure of its computer systems properly to record store,
process, calculate or present calendar dates falling on and after, and time
spans including, January 1, 2000 as a result of the occurrence, or use of data
containing, such date; (b) any failure of its computer systems to calculate any
information dependent on or relating to dates on or after January 1, 2000; or
(c) any loss of functionality or performance with respect to the maintenance of
records or processing of data containing dates failing on or after January 1,
2000 ((a), (b), and (c) above shall be referred to as "Y2K Failures").
Notwithstanding the above, the Bank shall not be liable for any Y2K Failures
caused by Y2K Failures in a third party system with which the Bank interfaces or
from which the Bank receives data in connection with the performance of its
duties hereunder.
16. Representations and Warranties of the Company.
----------------------------------------------
The Company represents and warrants to the Bank that:
16.1 It is a corporation duly organized and existing and in good standing
under the laws of the State of its incorporation as set forth in the preamble
hereto.
16.2 It is empowered under applicable laws and by its charter documents
and by-laws to enter into and perform this Agreement.
16.3 All proceedings required by said charter documents and by-laws have
been taken to authorize it to enter into and perform this Agreement.
16.4 It is a open-end investment company registered under the 1940 Act.
16.5 A registration statement on Form N-1A (including a prospectus and
statement of additional information) under the Securities Act of 1933 and the
1940 Act is currently effective and will remain effective and appropriate state
securities law filings have been made and will continue to be made, with respect
to all Shares of the Company being offered for sale.
16.6 When Shares are hereafter issued in accordance with the terms of the
Prospectus, such Shares shall be validly issued, fully paid and nonassessable by
the Fund(s).
<PAGE>
17. Indemnification.
----------------
17.1 Notwithstanding anything in this Agreement to the contrary, in no
event shall the Bank or any of its officers, directors, employees or agents
(collectively, the "Indemnified Parties") be liable to the Company, any Fund,
any Provider, or any third party, and the Company and each Fund shall indemnify
and hold the Bank and the Indemnified Parties harmless from and against any and
all loss, damage, liability, actions, suits, claims, costs and expenses,
including legal fees, (a "Claim") arising as a result of any act or omission of
the Bank or any Indemnified Party under this Agreement, except for any Claim
resulting solely from the negligence, willful misfeasance or bad faith of the
Bank or any Indemnified Party. Without limiting the foregoing, neither the Bank
nor the Indemnified Parties shall be liable for, and the Bank and the
Indemnified Parties shall be indemnified against, any Claim arising as a result
of:
(a) Any actions taken or omitted to be taken by the Bank or its
agents or subcontractors in good faith in reliance on, or use by the Bank or its
agents or subcontractors of, information, records and documents which (i) are
received by the Bank or its agents or subcontractors and furnished to such party
by or on behalf of the Fund(s), (ii) have been prepared and/or maintained by the
Fund(s) or any other person or firm on behalf of the Fund(s), or (iii) were
received by the Bank or its agents or subcontractors from a prior transfer
agent.
(b) Any action taken or omitted to be taken by the Bank in good
faith reliance upon any then effective law, act, regulation- (a "Regulation") or
interpretation of a Regulation even though such Regulation may thereafter have
been altered, changed, amended or repealed.
(c) The Fund(s)' refusal or failure to comply with the terms of this
Agreement, or which arise out of the Funds' lack of good faith, negligence or
willful misconduct or which arise out of the breach of any representation or
warranty of the Fund(s) hereunder.
(d) The reliance on, or the carrying out by the Bank or its agents
or subcontractors of any Proper Instructions in accordance with the terms
thereof.
(e) The offer or sale of Shares by the Company in violation of (i)
any requirement under the federal securities laws or regulations; (ii) any
requirement under the securities laws or regulations of any state; or (iii) any
stop order or other determination or ruling by any federal or state agency with
respect to the offer or sale of such Shares.
17.2 The Bank shall indemnify and hold the Fund(s) harmless from and
against any and all losses, damages, costs, charges, legal fees, payments,
expenses and liability arising out of or attributed to any action or failure or
omission to act by the Bank as a result of the Bank's lack of good faith,
negligence, willful misconduct, knowing violation of law or fraud.
17.3 At any time the Bank may apply to any officer of the Company for
instructions, and may consult with legal counsel of the Bank or the Company with
respect to any matter arising in connection with the services to be performed by
the Bank under this Agreement, and the Bank and its agents or subcontractors
shall not be liable and shall be indemnified by the Company for any action taken
or omitted by it in reliance upon such instructions or upon the opinion of such
counsel except for a knowing violation of law. The Bank, its agents and
subcontractors shall be protected and indemnified in acting upon any paper or
document furnished by or on behalf of the Fund(s), including any information
furnished by Provider(s), reasonably believed to be genuine and to have been
signed by the proper person or persons and
<PAGE>
within the scope of their authority, or upon any instruction, information, data,
records or documents provided to the Bank or its agents or subcontractors by
machine readable input, telex, CRT data entry or other similar means authorized
by the Fund(s), and the Bank, its agents and subcontractors shall not be held to
have notice of any change of authority of any person, until receipt of written
notice thereof from the Fund(s). The Bank, its agents and subcontractors shall
also be protected and indemnified in recognizing stock certificates which are
reasonably believed to bear the proper manual or facsimile signatures of an
officer of the Company, and one proper countersignature of any former transfer
agent or registrar, or of a co-transfer agent or co-registrar.
17.4 In the event either party is unable to perform its obligations under
the terms of this Agreement because of acts of God, strikes, interruption of
electrical power or other utilities, equipment or transmission failure or damage
reasonably beyond its control, or other causes reasonably beyond its control,
such party shall not be liable to the other for any damages resulting from such
failure to perform or otherwise from such causes.
17.5 Neither party to this Agreement shall be liable to the other party
for special, incidental or consequential damages, even if the other party has
been advised of the possibility of such damages, under any provision of this
Agreement or for any act or failure to act hereunder as contemplated by this
Agreement.
17.6 In order that the indemnification provisions contained in this
Article 14 shall apply, upon the assertion of a claim for which either party may
be required to indemnify the other, the party seeking the indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
seeking indemnification shall give the indemnifying party full and complete
authority, information and assistance to defend such claim or proceeding, and
the indemnifying party shall have, at its option, sole control of the defense of
such claim or proceeding and all negotiations for its compromise or settlement.
The party seeking indemnification shall in no case confess any claim or make any
compromise in any case in which the other party may be required to indemnify it
except with the other party's prior written consent, which consent shall not be
unreasonably withheld.
18. Covenants of the Company and the Bank.
--------------------------------------
18.1 The Company shall promptly furnish or cause to be furnished to the
Bank the following:
(a) A certified copy of the resolution of the Directors of the Company
authorizing the appointment of the Bank and the execution and delivery of this
Agreement.
(b) A copy, of the charter documents and by-laws of the Company and
all amendments thereto.
(c) Copies of each vote of the Board designating authorized persons to
give instructions to the Bank, and a certificate providing specimen signatures
for such authorized persons.
(d) Certificates as to any change in any officer or Director of the
Company.
(e) Copies of each vote of the governing body of the Provider(s)
designating authorized persons to give instructions to the Bank, and a
certificate providing specimen signatures for such authorized persons.
<PAGE>
(f) Certificates as to any change in any officer or Director of the
Provider(s).
(g) If applicable a specimen of the certificate of Shares in each Fund
of the Company in the form approved by the Directors, with a certificate as to
such approval.
(h) All account application forms and other documents relating to
shareholder amounts or relating to any plan, program or service offered by the
Company.
(i) A list of all Shareholders of the Fund(s) with the name, address
and tax identification number of each Shareholder, and the number of Shares of
the Fund(s) held by each, certificate numbers and denominations (if any
certificates have been issued), lists of any account against which stops have
been placed, together with the reasons for said stops, and the number of Shares
redeemed by the Fund(s).
(j) An opinion of counsel for the Company with respect to the validity
of the Shares and the status of such Shares under the Securities Act of 1933.
(k) Copies of the Fund(s) registration statement on Form N-1A (if
applicable) as amended and declared effective by the Securities and Exchange
Commission and all post-effective amendments thereto.
(1) Such other certificates, documents or opinions as the Bank may
deem necessary or appropriate for the Bank in the proper performance of its
duties hereunder.
18.2 The Bank hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Company for safekeeping of stock
certificates, check forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of, such certificates,
forms and devices.
18.3 The Bank agrees that all records prepared or maintained by the Bank
pursuant to Section 31 of the 1940 Act and the Rules thereunder relating to the
services to be performed by the Bank hereunder are the confidential property of
the Company and will be preserved, maintained and made available in accordance
with such Section and Rules, and will be surrendered to the Company on and in
accordance with its request.
18.4 The Bank and the Company agree that all books, records, information
and data pertaining to the business of the other party which are exchanged or
received pursuant to the negotiation or the carrying out of this Agreement shall
remain confidential, and shall not be voluntarily disclosed to any other person,
except as may be required by law.
18.5 In case of any requests or demands for the inspection of the
Shareholder records of the Company, the Bank will endeavor to notify the Company
and to secure instructions from an authorized officer of the Company as to such
request or demand. The Bank reserves the right however, to exhibit the
Shareholder records to any person whenever it is advised by its counsel that it
may be subject to enforcement or other action by any court or regulatory body
for the failure to exhibit the Shareholder records to such person.
<PAGE>
19. Term of Agreement.
------------------
19.1 Termination of Agreement . The initial term of this Agreement shall
-------------------------
be two years commencing upon the date hereof (the "Initial Term"), unless
earlier terminated as provided herein. After the expiration of the Initial Term,
the term of this Agreement shall automatically renew for successive one year
terms (each a "Renewal Term") unless notice of non-renewal is delivered by the
non-renewing party to the other party no later than ninety days prior to the
expiration of the Initial Term or any Renewal Term, as the case may be.
(a) Either party hereto may terminate this Agreement prior to the
expiration of the Initial Term in the event the other party violates any
material provision of this Agreement, provided that the non-violating party
gives written notice of such violation to the violating party and the violating
party does not cure such violation within ninety days of receipt of such notice.
(b) Either party may terminate this Agreement during any Renewal Term
upon ninety days written notice to the other party. Any termination pursuant to
this paragraph 16.1 (b) shall be effective upon expiration of such ninety days,
provided, however, that the effective date of such termination may be postponed
to a date not more than one hundred twenty days after delivery of the written
notice: (i) at the request of the Bank, in order to prepare for the transfer by
the Bank of its duties hereunder; or (ii) at the request of the Fund, in order
to give the Fund an opportunity to make suitable arrangements for a successor
transfer agent.
19.2 Should the Company exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and material will be borne by
the Company. Additionally, the Bank reserves the right to recover from the
Company any other reasonable expenses associated with such termination.
20. Additional Funds. In the event that the Company establishes one or more
----------------
series or classes of Shares in addition to the series listed on Appendix A
----------
hereto with respect to which it desires to have the Bank render services as
transfer agent under the terms hereof, it shall so notify the Bank in writing,
and, unless the Bank declines in writing to provide such services, such series
of Shares shall become a Fund hereunder and Appendix A shall be appropriately
----------
amended.
21. Assignment.
-----------
21.1 Except as provided in Section 18.3 below, neither this Agreement nor
any rights or obligations hereunder may be assigned by either party without the
written consent of the other party.
21.2 This Agreement shall inure to the benefit of and be binding upon the
parties and their respective successors and permitted assigns.
21.3 The Bank, may without further consent on the part of the Company,
subcontract for the performance of any of the services to be provided hereunder
to third parties, including any affiliate of the Bank, provided that the Bank
shall remain liable hereunder for any acts or omissions of any subcontractor as
if performed by the Bank.
22. Amendment. This Agreement may be amended or modified only by a written
---------
agreement executed by both parties.
<PAGE>
23. Governing Law. This Agreement shall be construed and the provisions thereof
--------------
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts, without regard to its conflict of laws provisions.
24. Merger of Agreement and Severability.
-------------------------------------
24.1 This Agreement constitutes the entire agreement between the parties
hereto with respect to the matters addresses hereby, and supersedes any prior
agreement with respect to the subject hereof whether oral or written.
24.2 In the event any provision of this Agreement shall be held
unenforceable or invalid for any reason, the remainder of the Agreement shall
remain in full force and effect.
24.3 This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original; but such counterparts shall together,
constitute only one instrument.
25. Notices. Any notice or other instrument in writing authorized or required
-------
by this Agreement to be given to either party hereto will be sufficiently given
if addressed to such party and delivered, via registered U.S. Mail or facsimile
with written confirmation via registered U.S. Mail, to it at its office at the
address set forth below, namely:
For the Company or the Fund(s):
MasterWorks Funds Inc.
111 Center Street
Little Rock, AR 72201
Attention: Richard H. Blank, Jr.
With a copy to:
Barclays Global Investors
45 Fremont Street
San Francisco, CA 94105
Attention: Legal Department
For the Bank:
Investors Bank & Trust Company
200 Clarendon Street, P.O. Box 9130
Boston, Massachusetts 02117-9130
Attention: Andrew M. Nesvet, Director, Client Management
With a copy to: John E. Henry, General Counsel
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf under their seals by and through
their duly authorized officers, as of the day and the year first above written.
MASTERWORKS FUNDS INC.
By: _____________________________
Name:
Title:
INVESTORS BANK & TRUST COMPANY
By:______________________________
Name:
Title:
<PAGE>
Appendices
----------
Appendix A............................ Funds
Appendix B............................ Fee Schedule
<PAGE>
Appendix A
MasterWorks Funds Inc.
----------------------
List of Funds
-------------
LifePath 2000 Fund
LifePath 2010 Fund
LifePath 2020 Fund
LifePath 2030 Fund
LifePath 2040 Fund
Asset Allocation Fund
Bond Index Fund
Institutional Money Market Fund
Money Market Fund
S&P 500 Index Fund
U.S. Treasury Allocation Fund
Dated: February 27, 1998
Approved as amended: April 28, 1999
<PAGE>
APPENDIX B
----------
Barclays Global Investors
MasterWorks Funds Inc.
Transfer Agency Fee Schedule
December 10, 1997
================================================================================
INSTITUTIONAL TRANSFER AGENCY
================================================================================
A. Transfer Agency
---------------
. The following fees apply to the 12 existing MasterWorks
feeders/classes for which we are transfer agent. This fee does not
include enhancements or customized reporting (see below). Since the
funds are institutional, we assume all subscriptions and redemptions
will be transferred by wire and can be recorded on a net basis.
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.
================================================================================
MISCELLANEOUS
================================================================================
A. Out-of-Pocket
-------------
. These charges consist of:
-Printing, Delivery & Postage -Wires ($5.00 in, $7.00 out)
-Transfer Agency Forms & Supplies -Ad Hoc Reporting
-Legal Expenses -Returned Checks
-Customized Systems Development/Reporting/Statements
B. Systems
-------
. The details of any systems work will be determined after a thorough
business analysis. System's work will be billed on a time and
material basis. This would include an automated conversion of current
balances and account history (to the extent required) from the
current provider and establishing any systems/communications
interfaces with current or future plan record keepers.
<PAGE>
C. Legal Expense
-------------
. Investors Bank will charge the funds for any legal costs/expenses
associated with materially changing the Bank's standard transfer
agency agreement.
D. Other
-----
. This fee schedule assumes that the existing Stagecoach LifePath
classes related to Schwab will be terminated prior to converting to
IBT. If this is not the case, the above per feeder/class charges will
apply to these classes as an incremental charge for as long as the
classes are active.
<PAGE>
CO-ADMINISTRATION AGREEMENT
MASTERWORKS FUNDS INC.
111 Center Street
Little Rock, Arkansas 72201
October 21, 1996
Stephens Inc.
111 Center Street
Little Rock, Arkansas 72201
Barclays Global Investors, N.A.
45 Fremont Street
San Francisco, CA 94105
Ladies and Gentlemen:
This will confirm the agreement among MasterWorks Funds Inc. (the
"Company") on behalf of its funds listed in the attached Appendix A, as such
Appendix may be amended from time to time (each, a "Fund" and, collectively, the
"Funds"), Barclays Global Investors, N.A. ("BGI") and Stephens Inc. ("Stephens",
together with BGI, the "Co-administrators") as follows:
1. The Company is a registered open-end, management investment company.
The Company engages in the business of investing and reinvesting the assets of
each Fund in the manner and in accordance with the applicable investment
objective, policies and restrictions specified in the Company's currently
effective prospectuses and statements of additional information incorporated
therein relating to the Funds and the Company (such prospectuses and such
statements of additional information being collectively referred to as the
"Prospectuses") included in the Company's Registration Statement, as amended
from time to time (the "Registration Statement"), filed by the Company under the
Investment Company Act of 1940 (the "Act") and the Securities Act of 1933.
Copies of the documents referred to in the preceding sentence have been
furnished to the Co-administrators. Any amendments to those documents shall be
furnished to the Co-administrators promptly.
2. The Company is engaging the Co-administrators to provide, or cause to
be provided, the administrative services specified elsewhere in this agreement,
subject to the overall supervision of the Company's Board of Directors.
Pursuant to an advisory contract between the Company and Barclays Global Fund
Advisors (the "Adviser") on behalf of the Money Market Fund, the Company has
engaged the Adviser to manage the
1
<PAGE>
investing and reinvesting of the assets of the Fund and to provide advisory
services as specified in such advisory contracts. MasterWorks' remaining Funds
are feeder funds that invest all of their assets in corresponding master
portfolios of other registered investment companies and, accordingly, have not
engaged an adviser to manage the investing and reinvesting of the assets of such
Funds.
3. The Co-administrators agree, at their expense, to supervise the
administrative operations and undertake to provide, or cause to be provided, the
services described on Appendix B, as such Appendix may be amended from time to
time by the mutual consent of the parties, the provision of, and liability
thereto, for certain of such services to be allocated on such Appendix, in
connection with the operations of the Company and the Funds, and take all
reasonable action in the performance of their obligations under this agreement
to assure that the necessary information is made available to other service
providers, as such may be required by the Company from time to time; and to
provide all other administrative services reasonably necessary for the operation
of the Funds, other than those services that are to be provided by the Adviser
pursuant to the advisory contracts and by the Company's transfer and dividend
disbursing agent and custodian.
4. Except as provided in the Money Market Fund's advisory contract and
this agreement, the Co-administrators agree to bear all costs of the operations
of each Fund, including a pro rata portion of the compensation of the Company's
directors who are not affiliated with the Co-administrators or any of their
affiliates; governmental fees; interest charges; fees and expenses of its
independent auditors, legal counsel (other than in connection with litigation),
transfer agent and dividend disbursing agent; fees paid to shareholder servicing
and other special purpose agents; expenses of preparing and printing any stock
certificates, prospectuses, statements of additional information, shareholders'
reports, notices, proxy statements and reports to regulatory agencies; travel
expenses of directors of the Company in connection with their attendance at
Board and other meetings relating to the Company; office supplies; premiums for
fidelity bonds and errors and omissions and/or officers and directors liability
insurance; trade association membership dues; pricing services, if any; fees and
expenses of any custodian and fund accountant, including those for keeping books
and accounts and calculating the net asset value per share in the Funds;
expenses of shareholders' meetings; expenses relating to the issuance,
registration, qualification and redemption of shares of the Funds; and
organizational expenses. Notwithstanding anything to the contrary, the Co-
administrators shall not be required to bear any portion of brokerage or other
expenses connected with the execution of portfolio securities transactions, fees
payable to the Adviser under its advisory contract with the Company, litigation
expenses, taxes (including income, excise, transfer and withholding taxes), or
cost or expense that a majority of the disinterested directors of the Company
deems to be an extraordinary expense . Expenses attributable to one or more,
but not all, of the Funds shall be charged against the assets of the relevant
Funds. General expenses of the Company shall be allocated among the Funds in a
2
<PAGE>
manner proportionate to the net assets of each Fund, on a transactional basis or
on such other basis as the Board of Directors deems equitable.
5. Each Co-administrator shall exercise reasonable care and shall give the
Company the benefit of the Co-administrator's best judgment and efforts in
rendering services under this agreement. As an inducement to the Co-
administrators' undertaking to render services hereunder, the Company agrees
that a Co-administrator shall not be liable under this agreement for any mistake
in judgment or in any other event whatsoever, provided that nothing in this
agreement shall be deemed to protect or purport to protect the Co-administrators
against any liability to the Company or its shareholders to which the Co-
administrator would otherwise be subject by reason of willful misfeasance, bad
faith or negligence in the performance of the Co-administrators' duties under
this agreement or by reason of reckless disregard of its obligations and duties
hereunder.
6. In consideration of the services to be provided by the Co-
administrators under this agreement, the Company shall pay the Co-
administrators' a monthly fee on behalf of each Fund on the first business day
of each month at the applicable annual rates specified on Appendix C attached to
this agreement. If the fees payable to the Co-administrators under this
paragraph begin to accrue after the beginning of any month or if this agreement
terminates before the end of any month, the fee for the period from the
effective date to the end of the month or from the beginning of the month to the
termination date, respectively, shall be prorated according to the proportion
that the period bears to the full month in which the effectiveness or
termination occurs. For purposes of calculating each such monthly fee, the value
of each Fund's net assets shall be computed in the manner specified in the
Prospectus and the Company's Articles of Incorporation as amended and
supplemented from time to time (the "Articles") for the computation of the value
of the Fund's net assets in connection with the determination of the net asset
value of a Fund's shares. For purposes of this agreement, a "business day" is
any day the Company is open for business.
7. If in any fiscal year the total expenses incurred by, or allocated to,
a Fund, excluding extraordinary expenses of the Fund but including the fees
provided for in paragraph 6 and those fees payable under the Advisory Contract
for the Money Market Fund or the corresponding master portfolio in which a Fund
invests, as applicable, exceed the most restrictive expense limitation
applicable to a Fund imposed by state securities laws or regulations thereunder,
as these limitations may be raised or lowered from time to time, the Co-
administrators agree to waive or reimburse a pro rata portion of such fees, but
only to the extent of the fee hereunder for the fiscal year. For purposes of
computing the excess, if any, over the most restrictive applicable expense
limitation, the value of each Fund's net assets shall be computed in the manner
specified in the last sentence of paragraph 6, and any reimbursements required
to be made by the Co-administrators shall be made once a year promptly after the
end of the Company's fiscal year.
3
<PAGE>
8. This agreement shall become effective on its execution date.
Thereafter, this agreement shall continue with respect to a Fund for successive
annual periods only so long as the continuance is specifically approved at least
annually (a) by the vote of a majority of the Fund's outstanding voting
securities (as defined in the Act) or by the Company's Board of Directors and
(b) by the vote, cast in person at a meeting called for the purpose, of a
majority of the Company's Directors who are not parties to this contract or
"interested persons" (as defined in the Act) of any such party. This contract
may be terminated at any time, without the payment of any penalty, by the
Company by a vote of a majority of the Company's outstanding voting securities
(as defined in the Act) or by a vote of a majority of the Company's Board of
Directors on 60 days' written notice to the Co-administrators, or by the Co-
administrators on 60 days' written notice to the Company. This contract shall
terminate automatically in the event of its assignment (as defined in the Act).
9. Except to the extent necessary to perform the Co-administrators'
obligations under this agreement, nothing herein shall be deemed to limit or
restrict the right of the Co-administrators, or any affiliate of the Co-
administrators, or any employee of the Co-administrators, to engage in any other
business or to devote time and attention to the management or other aspects of
any other business, whether of a similar or dissimilar nature, or to render
services of any kind to any other corporation, firm, individual or association.
10. This agreement shall be governed by and construed in accordance with
the laws of the State of Arkansas.
11. The Company hereby agrees and acknowledges that each Co-administrator
may allocate or further delegate responsibility for any or all of the services
to be provided hereunder between each Co-administrator; provided that the Co-
administrators shall have joint and several liability for the provision of the
services under this agreement, except that: BGI or Stephens each agree to
assumes sole responsibility, and related liability thereto, for providing the
duties and services identified as the sole responsibility of BGI or Stephens on
such Appendix B; and further provided that each Co-administrator agrees to
remain fully liable to the Company for the provision of any service that such
Co-administrator delegates to another entity.
12. This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original, but such counterpart shall, together,
constitute only one instrument.
4
<PAGE>
If the foregoing correctly sets forth the agreement between the Company and
the Co-administrators, please so indicate by signing and returning to the
Company the enclosed copy hereof.
Very truly yours,
MASTERWORKS FUNDS INC.,
on behalf of LifePath 2000, LifePath 2010,
LifePath 2020, LifePath 2030, LifePath 2040, Asset
Allocation, Bond Index, Growth Stock, Money
Market, S&P 500 Index, Short-Intermediate Term and
U.S. Treasury Allocation Funds
By: /s/Richard H. Blank, Jr.
-------------------------
Name: Richard H. Blank, Jr.
Title: Chief Operating Officer,
Secretary and Treasurer
ACCEPTED as of the date
set forth above:
BARCLAYS GLOBAL INVESTORS, N.A.
By: /s/Donald Luskin
----------------
Name: Donald Luskin
Title: Vice Chairman
BARCLAYS GLOBAL INVESTORS, N.A.
By: /s/Matthew Shelton
------------------
Name: Matthew Shelton
Title: Principal
STEPHENS INC.
By: /s/Richard H. Blank, Jr.
------------------------
Name: Richard H. Blank, Jr.
Title: Vice President
5
<PAGE>
Appendix A
MasterWorks Funds Inc.
----------------------
LifePath 2000 Fund
LifePath 2010 Fund
LifePath 2020 Fund
LifePath 2030 Fund
LifePath 2040 Fund
Asset Allocation Fund
Bond Index Fund
Institutional Money Market Fund
Money Market Fund
S & P 500 Index Fund
U.S. Treasury Allocation Fund
Dated: October 21, 1996
Amended:February 10, 1999
Amended: April 28, 1999
A-1
<PAGE>
Appendix B
MasterWorks Funds Inc.
----------------------
LIST OF ADMINISTRATIVE SERVICES
-------------------------------
Stephens Inc.
- -------------
(1) Review agenda and assemble Board materials for quarterly Board
meetings; prepare supporting information when necessary; prepare
minutes of Board and committee meetings.
(2) Review and approve Board materials.
(3) Provide expense budgets.
(4) Monitor actual expenses and update budgets/expense accruals as
necessary.
(5) Maintain records of sales and file appropriate registrations and
renewals, sales information and other required material for Blue Sky
purposes.
(6) Review and provide advice to the distributor and the Company and
investment adviser regarding sales literature and marketing plans to
assure regulatory compliance.
(7) Prepare Forms N-SAR for filing; obtain any necessary supporting
documents; file with the SEC via EDGAR.
Barclays Global Investors
- -------------------------
(8) Continuously monitor portfolio activity and related functions in
conjunction with all applicable regulatory requirements. Take
corrective action as necessary.
(9) Identify the services to which the Funds report performance
information. Provide information as requested on performance
questionnaires.
(10) Prepare appropriate management letter and coordinate production of
Management Discussion and Analysis, with respect to the preparation
and printing of shareholder reports.
B-1
<PAGE>
(11) Coordinate review and approval by portfolio managers of portfolio
listings to be included in financial statements, with respect to the
preparation and printing of shareholder reports.
(12) Prepare selected portfolio and financial information for inclusion in
Board material.
(13) Assist in presentations to Board as desired by Fund Officer(s).
(14) Calculate total return information and other statistical information
including undistributed income and capital gains with respect to
condensed financial information for review by management.
(15) Perform tests of specific portfolio activities against compliance
checklists designed from the Fund's current Prospectus and SAI.
(16) Calculate dividend amounts available for distribution.
(17) Coordinate review of dividend amounts by management and auditors.
(18) Notify fund accounting and transfer agent of authorized dividends
rates.
(19) Prepare responses to various performance questionnaires; coordinate as
necessary, and submit responses to the appropriate agency.
(20) Draft semi-annual and annual shareholder reports and coordinate
auditor and management review.
(21) Coordinate printing of semi-annual and annual shareholder reports and
EDGAR conversion with outside printer and filing with the SEC via
EDGAR.
(22) Provide information for Financial Highlights and expense tables.
(23) Continuously monitor portfolio activity regarding diversification in
conjunction with IRS requirements applicable to regulated investment
companies.
(24) Continuously monitor portfolio activity regarding qualifying income in
conjunction with IRS requirements applicable to regulated investment
companies.
(25) Review diversification test results and corrective actions taken, with
respect to qualification as a regulated investment company.
(26) Approve tax positions taken regarding qualification as a regulated
investment company.
B-2
<PAGE>
(27) Prepare, or assist in the preparation, and file with the SEC and state
securities regulators, if applicable, registration statements,
notices, reports, and other material required to be filed under
applicable laws.
Stephens Inc. and Barclays Global Investors
- -------------------------------------------
(28) Review qualifying income test results and corrective actions taken,
with respect to qualification as a regulated investment company.
(29) Review financial information and take any necessary action.
(30) Develop and implement procedures for monitoring compliance with
regulatory requirements and compliance with each Fund's investment
objective, policies and restrictions as established by the Company's
Board, perform compliance testing and approve resolution of compliance
issues.
(31) Approve dividend rates; obtain Board approval when required.
(32) Determine allocation of invoices among funds. Authorize and send to
fund accountants for payment of expenses.
(33) Coordinate activities of other vendors as necessary.
(34) Review and approve entire shareholder report.
(35) Review drafts and coordinate review process of Forms N-1A updates and
prospectus supplements.
(36) Coordinate printing, EDGAR conversion, and filing with the SEC with
outside printers of Forms N-1A.
(37) Maintain and preserve the corporate records of the Company, including
each Master Portfolio.
(38) Make appropriate representations in conjunction with audit.
(39) Approve tax positions taken regarding qualifying income with respect
to qualification as a regulated investment company.
(40) Approve tax accounting positions to be taken.
B-3
<PAGE>
(41) Approve distributions.
(42) Review tax returns and coordinate signature thereof with a Fund
Officer. Approved: October 21, 1996
Signed: /s/ Donald Luskin Signed: /s/ Richard H. Blank, Jr.
----------------- -------------------------
By: Donald Luskin By: Richard H. Blank, Jr.
Vice Chairman Vice President
Barclays Global Investors, N.A. Stephens Inc.
Signed: /s/ Matthew Shelton
-------------------
By: Matthew Shelton
Principal
Barclays Global Investors, N.A.
Signed: /s/ Richard H. Blank, Jr.
-------------------------
By: Richard H. Blank, Jr.
Chief Operating Officer,
Secretary and Treasurer
Masterworks Funds Inc.
B-4
<PAGE>
Appendix C
MasterWorks Funds Inc.
----------------------
FEE SCHEDULE
------------
Fund Fee
---- ---
(as a % age of daily net assets)
LifePath 2000 Fund 0.40%
LifePath 2010 Fund 0.40%
LifePath 2020 Fund 0.40%
LifePath 2030 Fund 0.40%
LifePath 2040 Fund 0.40%
Asset Allocation Fund 0.40%
Bond Index Fund 0.15%
Institutional Money Market Fund 0.02%
Money Market Fund 0.35%
S & P 500 Index Fund 0.15%
U.S. Treasury Allocation Fund 0.40%
Dated: October 21, 1996
Approved as amended: June 11, 1998
Approved as amended: April 28, 1999
C-1
<PAGE>
Addendum
--------
ALLOCATION
----------
Current Allocation of Joint Responsibilities Between Stephens
------------------------------------------------------------
Inc. and Barclays Global Investors Under MasterWorks Fund
---------------------------------------------------------
Inc. Co-Administration Agreement dated October 21, 1996
-------------------------------------------------------
(28) Review qualifying income test results and corrective actions taken,
with respect to qualification as a regulated investment company.
(BOTH)
(29) Review financial information and take any necessary action. (BOTH)
(30) Develop and implement procedures for monitoring compliance with
regulatory requirements and compliance with each Fund's investment
objective, policies and restrictions as established by the Company's
Board, perform compliance testing and approve resolution of compliance
issues. (BGI)
(31) Approve dividend rates; obtain Board approval when required. (BOTH)
(32) Determine allocation of invoices among funds. Authorize and send to
fund accountants for payment of expenses. (BOTH)
(33) Coordinate activities of other vendors as necessary. (BGI)
(34) Review and approve entire shareholder report. (BOTH)
(35) Review drafts and coordinate review process of Forms N-1A updates and
prospectus supplements. (BGI)
(36) Coordinate printing, EDGAR conversion, and filing with the SEC with
outside printers of Forms N-1A. (BGI)
(37) Maintain and preserve the corporate records of the Company, including
each Master Portfolio. (BOTH)
(38) Make appropriate representations in conjunction with audit. (BOTH)
(39) Approve tax positions taken regarding qualifying income, with respect
to qualification as a regulated investment company. (BGI)
(40) Approve tax accounting positions to be taken. (BOTH)
(41) Approve distributions. (BOTH)
<PAGE>
(42) Review tax returns and coordinate signature thereof with a Fund
Officer. (BOTH)
Dated: December 1998
Amended: February 10, 1999
<PAGE>
[MORRISON & FOERSTER LLP LETTERHEAD]
July 30, 1999
Barclays Global Investors Funds, Inc.
111 Center Street
Little Rock, AR 72201
Re: Shares of Common Stock of Barclays Global Investors Funds, Inc.
(Formerly MasterWorks Funds Inc.)
---------------------------------------------------------------
Ladies/Gentlemen:
We refer to Post-Effective Amendment No. 22 and Amendment No. 26 to the
Registration Statement on Form N-1A (SEC File Nos. 33-54126 and 811-7332) (the
"Registration Statement") of Barclays Global Investors 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, 1999.
Based upon and subject to the foregoing, we are of the opinion that:
The issuance and sale of the Shares by the Company has been duly and
validly authorized by all appropriate corporate action, and assuming delivery by
sale or in accord with the Company's dividend reinvestment plan in accordance
with the description set forth in the Funds' current prospectuses, the Shares
will be validly issued, fully paid and nonassessable by the Company.
We consent to the inclusion of this opinion as an exhibit to the
Registration Statement.
<PAGE>
In addition, we hereby consent to the description of advice rendered by our
firm under the heading "Management of the Fund(s)" in the Prospectuses and to
the use of our name and to the reference to our firm under the caption "Counsel"
in the Statements of Additional Information, which are included as part of this
Registration Statement.
Very truly yours,
/s/ MORRISON & FOERSTER LLP
MORRISON & FOERSTER LLP
<PAGE>
MASTERWORKS FUNDS INC.
DISTRIBUTION PLAN
WHEREAS, MasterWorks Funds Inc. ("Company") is an open-end management
investment company and is registered as such under the Investment Company Act of
1940, as amended ("Act"); and
WHEREAS, the Company desires to adopt a Distribution Plan ("Plan")
pursuant to Rule 12b-1 under the Act on behalf of the classes of shares of each
Fund listed on the attached Appendix A as it may be amended from time to time
(each, a "Fund" and, collectively, the "Funds") and the Board of Directors,
including a majority of the Qualified Directors (as defined below), has
determined that there is a reasonable likelihood that adoption of the plan will
benefit each class of each Fund and its shareholders;
NOW THEREFORE, each Fund hereby adopts the Plan in accordance with Rule
12b-1 under the Act on the following terms and conditions:
Section 1. Pursuant to the Plan, the Company, on behalf of each classes
of each Fund listed in Appendix A, may pay to the distributor engaged by the
Company on behalf of the class ("Distributor"), as compensation for
distribution-related services provided, or reimbursement for distribution
related expenses incurred, a monthly fee at annual rates as set forth on
Appendix A. The actual fee payable to the Distributor shall, within such limit,
be determined from time to time by mutual agreement between the Company and the
Distributor. The Distributor may enter into selling agreements with one or more
selling agents under which such agents may receive compensation for
distribution-related services from the Distributor, including, but not limited
to, commissions or other payments to such agents based on the average daily net
assets of Fund shares attributable to them. The Distributor may retain any
portion of the total distribution fee payable hereunder to compensate it for
distribution-related services provided by it or to reimburse it for other
distribution-related expenses.
Section 2. The Plan (and each related agreement) will, unless earlier
terminated in accordance with its terms, remain in effect from year to year
after the first anniversary of its effectiveness if such continuance is
specifically approved at least annually by vote of a majority of both (a) the
Directors of the Company and (b) the Qualified Directors, cast in person at a
meeting (or meetings) called for the purpose of voting on such approval.
Section 3. The Company shall provide to the Company's Board of Directors
and the Directors shall review, at least quarterly, a written report of the
amounts expended by the Company under the Plan and each related agreement and
the purposes for which such expenditures were made.
1
<PAGE>
Section 4. The Plan may be terminated with respect to any class at any
time by vote of a majority of the Qualified Directors or by vote of a majority
of the outstanding voting securities of the class.
Section 5. All agreements related to the Plan shall be in writing and
shall be approved by vote of a majority of both (a) the Directors of the Company
and (b) the Qualified Directors, cast in person at a meeting called for the
purpose of voting on such approval. Any agreement related to the Plan shall
provide:
A. That such agreement may be terminated at any time, without payment of
any penalty, by the Company upon 60 days' written notice to
Distributor or by Distributor at any time after the second
anniversary of the effective date of such agreement on 60 days'
written notice to the Company; and
B. That such agreement shall terminate automatically in the event of its
"assignment" (as defined below).
Section 6. The Plan may not be amended to increase materially the amount
that may be expended by a class of a Fund pursuant to the Plan without the
approval by a vote of a majority of the outstanding voting securities of such
class of such Fund, and no material amendment to the Plan shall be made unless
approved by vote of a majority of both (a) the Directors of the Company and (b)
the Qualified Directors, cast in person at a meeting (or meetings) called for
the purpose of voting on such approval.
Section 7. While the Plan is in effect, the selection and nomination of
each Director who is not an "interested person" (as defined below) of the
Company shall be committed to the discretion of the Directors who are not
interested persons.
Section 8. To the extent any payments made by the Fund pursuant to a
Servicing Agreement are deemed to be payments for the financing of any activity
primarily intended to result in the sale of shares within the context of Rule
12b-1 under the Act, such payments shall be deemed to have been approved
pursuant to this Plan. Notwithstanding anything herein to the contrary, the
Fund shall not be obligated to make any payments under this Plan that exceed the
maximum amounts payable under Rule 2830 of the Conduct Rules of the National
Association of Securities Dealers, Inc.
Section 9. The Company shall preserve copies of the Plan, each related
agreement and each report made pursuant to Section 4 hereof, for a period of not
less than six years from the date of the Plan, such agreement or such report, as
the case may be, the first two years in an easily accessible place.
Section 10. As used in the Plan, (a) the terms "interested person" and
"vote of a majority of the outstanding voting securities" shall have the
respective meanings specified in the Act and the rules and regulations
thereunder, subject to such exemption as may be granted by the Securities and
Exchange Commission and (b) the term "Qualified Directors" shall mean the
2
<PAGE>
Directors of the Company who are not interested persons of the Company and have
no direct or indirect financial interest in the operation of the Plan or in any
agreements related to the Plan.
3
<PAGE>
APPENDIX A
----------
Asset Allocation Fund
Class R 0.25%
LifePath 2000 Fund
Class R 0.25%
LifePath 2010 Fund
Class R 0.25%
LifePath 2020 Fund
Class R 0.25%
LifePath 2030 Fund
Class R 0.25%
LifePath 2040 Fund
Class R 0.25%
Institutional Money Market Fund
Class D 0.25%
Approved: October 28, 1998
Amended: April 28, 1999
A-1
<PAGE>
MASTERWORKS FUNDS INC.
RULE 18f-3 MULTI-CLASS PLAN
---------------------------
I. Introduction.
------------
Pursuant to Rule 18f-3 under the Investment Company Act of 1940, as amended
(the "1940 Act"), this Rule 18f-3 Multi-Class Plan (the "Plan") sets forth the
method for allocating fees and expenses among each class of shares in the
separate investment portfolios (the "Funds") of MasterWorks Funds Inc. (the
"Company"). In addition, the Plan sets forth the maximum initial sales charges,
contingent deferred sales charges ("CDSCs"), Rule 12b-1 distribution fees,
shareholder servicing fees, conversion features, exchange privileges and other
shareholder services applicable to each class of shares of the Funds.
The Company is an open-end series investment company registered under the
1940 Act, the shares of which are registered on Form N-1A under the Securities
Act of 1933. The Company hereby elects to offer multiple classes of shares of
the Funds pursuant to the provisions of Rule 18f-3 and the Plan. Appendix A, as
it may be amended from time to time, lists the Funds that have approved the Plan
and the classes of each such Fund. Each such Fund that has authorized the
issuance of multiple classes of shares is referred to as a "Multi-Class Fund"
hereunder.
II. Allocation of Expenses.
----------------------
A. Mandatory Class Expenses. Pursuant to Rule 18f-3, the Company
------------------------
allocates to each class of shares of a Multi-Class Fund: (i) any fees and
expenses incurred by the Fund in connection with the distribution of such class
of shares under a distribution plan adopted for such class of shares pursuant to
Rule 12b-1; and (ii) any fees and expenses incurred by the Fund under a
shareholder servicing plan in connection with the provision of shareholder
administrative or liaison services to the holders of such class of shares.
B. Discretionary Class Expenses. In addition, pursuant to Rule 18f-3, the
----------------------------
Company may allocate the following fees and expenses to a particular class of
shares of a Multi-Class Fund:
(i) transfer agent fees identified by the transfer agent as being
attributable to such class of shares;
(ii) printing and postage expenses related to preparing and distributing
materials such as shareholder reports, notices, prospectuses,
reports, and proxies to current shareholders of that class or to
regulatory agencies with respect to such class of shares;
(iii) blue sky notification or other filing fees incurred with respect to
such class of shares;
<PAGE>
(iv) Securities and Exchange Commission registration fees incurred with
respect to such class of shares;
(v) the expense of administrative personnel and services (including, but
not limited to, those of a portfolio accountant, custodian or
dividend paying agent charged with calculating net asset values or
determining or paying dividends) as required to support the
shareholders of such class of shares;
(vi) litigation or other legal expenses incurred with respect to such
class of shares;
(vii) fees of the Company's Directors incurred with respect to matters
affecting such class of shares;
(viii) independent accountants' fees incurred with respect to such class of
shares; and
(ix) any other fees and expenses, not including advisory or custodial
fees or other expenses related to the management of the Fund's
assets, incurred with respect to such class of shares.
For all purposes under this Plan, fees and expenses incurred "with respect
to" a class of shares are those fees and expenses that are actually incurred in
a different amount by the class or that relate to a different kind or degree of
services provided to the class. Any decision to treat expenses referenced in
this Subsection B as class expenses and any subsequent changes to such decision
will be reviewed and approved by the Board of Directors of the Company,
including a majority of the Directors who are not interested persons of the
Company.
C. Relative Net Asset Value Allocation. Income, realized and unrealized
-----------------------------------
capital gains and losses, and any expenses of a Multi-Class Fund not allocable
to a particular class of the Fund pursuant to this Plan shall be allocated to
each class of the Fund based upon the relative net asset value of that class in
relation to the aggregate net asset value of the Fund. In certain cases, a
service provider for a Multi-Class Fund may waive or reimburse all or a portion
of the expenses of a specific class of shares of the Multi-Class Fund. The
Board of Directors will monitor any such waivers or reimbursements to ensure
that they do not generate inappropriate cross-subsidization between classes.
III. Class Arrangements.
------------------
The following summarizes the maximum initial sales charges, CDSCs, Rule
12b-1 distribution fees, shareholder servicing fees, conversion features,
exchange privileges and other shareholder services applicable to a particular
class of shares of the Multi-Class Funds. Appendix A sets forth the actual
sales charges, Rule 12b-1 fees and shareholder servicing fees of each class of
shares of each Multi-Class Fund. Additional details and restrictions regarding
such fees and services are set forth in the relevant Fund's current Prospectus
and Statement of Additional Information.
A. Class D Shares-- Multi-Class Funds
1. Maximum Initial Sales Charge: None
----------------------------
<PAGE>
2. Contingent Deferred Sales Charge: None
--------------------------------
3. Maximum Annual Rule 12b-1 Distribution Fee: 0.25%
------------------------------------------
4. Maximum Annual Shareholder Servicing Fee: None
----------------------------------------
5. Conversion Features: None
-------------------
6. Exchange Privileges: None
-------------------
7. Other Class-Specific Shareholders Services: None
------------------------------------------
B. Class I Shares-- Multi-Class Funds
----------------------------------
1. Maximum Initial Sales Charge: None
----------------------------
2. Contingent Deferred Sales Charge: None
--------------------------------
3. Maximum Annual Rule 12b-1 Distribution Fee: None
------------------------------------------
4. Maximum Annual Shareholder Servicing Fee: 0.20%
----------------------------------------
5. Conversion Features: None
-------------------
6. Exchange Privileges: Class I shares of any MasterWorks Fund may be
-------------------
exchanged for Class I shares of any other MasterWorks Fund, or for
shares of the Company's single-class Funds.
7. Other Class-Specific Shareholders Services: None
------------------------------------------
C. Class R Shares-- Multi-Class Funds
----------------------------------
1. Maximum Initial Sales Charge: None
----------------------------
2. Contingent Deferred Sales Charge: None
--------------------------------
3. Maximum Annual Rule 12b-1 Distribution Fee: None
------------------------------------------
4. Shareholder Servicing Fee: 0.20%
-------------------------
5. Conversion Features: None
-------------------
6. Exchange Privileges: Class R shares of any Multi-Class Fund may be
-------------------
exchanged for shares of the same class of any other Fund, provided
that if the other Fund charges a sales load on the purchase of its
shares that is higher than the sales load paid in connection
<PAGE>
with the shares the investor is exchanging, the investor pays the
difference.
7. Other Class-Specific Shareholder Services: None
-----------------------------------------
IV. Board Review.
-------------
The Board of Directors of the Company shall review the Plan as it deems
necessary. Prior to any material amendment(s) to the Plan with respect to any
Multi-Class Fund's shares, the Company's Board of Directors, including a
majority of the Directors that are not interested persons of the Company, shall
find that the Plan, as proposed to be amended (including any proposed amendments
to the method of allocating class and/or fund expenses), is in the best interest
of each class of shares of the Fund individually and the Fund as a whole. In
considering whether to approve any proposed amendment(s) to the Plan, the
Directors of the Company shall request and evaluate such information as they
consider reasonably necessary to evaluate the proposed amendment(s) to the Plan.
Adopted: October 28, 1998
Amended: April 28, 1998
<PAGE>
APPENDIX A
----------
<TABLE>
<CAPTION>
MasterWorks Maximum Maximum
Multi Class Funds Initial Maximum Maximum 12b-1 Shareholder
Sales Charge CDSC Fee Servicing Fee
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1. LifePath 2000 Fund
Class I None None None 0.20%
Class R None None 0.25% 0.20%
- --------------------------------------------------------------------------------------------------------------
2. LifePath 2010 Fund
Class I None None None 0.20%
Class R None None 0.25% 0.20%
- --------------------------------------------------------------------------------------------------------------
3. LifePath 2020 Fund
Class I None None None 0.20%
Class R None None 0.25% 0.20%
- --------------------------------------------------------------------------------------------------------------
4. LifePath 2030 Fund
Class I None None None 0.20%
Class R None None 0.25% 0.20%
- --------------------------------------------------------------------------------------------------------------
5. LifePath 2040 Fund
Class I None None None 0.20%
Class R None None 0.25% 0.20%
- --------------------------------------------------------------------------------------------------------------
6. Asset Allocation Fund
Class I None None None 0.20%
Class R None None 0.25% 0.20%
- --------------------------------------------------------------------------------------------------------------
7. Institutional Money Market Fund
Class D None None 0.25% None
Class I None None None None
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Adopted: October 28, 1998
Amended: April 28, 1998
