<PAGE>
As filed with the Securities and Exchange Commission
on May 18, 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. 20 [X]
And
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 24 [X]
(Check appropriate box or boxes)
________________________
MASTERWORKS FUNDS INC.
(formerly, Stagecoach Inc.)
(Exact Name of Registrant as specified in Charter)
111 Center Street
Little Rock, Arkansas 72201
(Address of Principal Executive Offices, including Zip Code)
Registrant's Telephone Number, including Area code: (800) 643-9691
Richard H. Blank, Jr.
c/o Stephens Inc.
111 Center Street
Little Rock, Arkansas 72201
(Name and Address of Agent for Service)
With a copy to:
Robert M. Kurucza, Esq.
Marco E. Adelfio, Esq.
Morrison & Foerster LLP
2000 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
It is proposed that this filing will become effective (check appropriate box):
[ ] Immediately upon filing pursuant [ ] on _________ pursuant
to Rule 485(b), or to Rule 485(b)
[ ] 60 days after filing pursuant [ ] on _________ pursuant
to Rule 485(a)(1), or to Rule 485(a)(1)
[X] 75 days after filing pursuant [ ] on ___________pursuant
to Rule 485(a)(2), or to Rule 485(a)(2)
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
This Post-Effective Amendment to the Registrant's Registration Statement has
been executed by Master Investment Portfolio (a registered investment company
with separate series in which certain of the Registrant's series invest
substantially all of their assets) and its trustees and principal officer.
<PAGE>
EXPLANATORY NOTE
----------------
This Post-Effective Amendment No. 20 (the "Amendment") to the Registration
Statement of MasterWorks Funds Inc. (the "Company") is being filed in order to
add to the Company's Registration Statement a new Fund: Institutional Money
Market Fund. The Fund will have two classes of shares: Class D Shares and Class
I Shares.
<PAGE>
Cross Reference Sheet
---------------------
MONEY MARKET FUND
-----------------
Form N-1A Item Number
- ---------------------
Part A Prospectus Captions
- ------ -------------------
1 Front and Back Cover Pages
2 Risk/Return Summary: Investments, Risks, and Performance
3 Risk/Return Summary: Fee Table
4 Investment Objectives, Principal Investment Strategies, and Related
Risks
5 Management's Discussion of Fund Performance
6 Management, Organization, and Capital Structure
7 Shareholder Information
8 Distribution Agreements
9 Financial Highlights Information
Part B Statement of Additional Information Captions
- ------ --------------------------------------------
10 Cover Page and Table of Contents
11 Fund History
12 Description of the Fund and Its Investments and Risks
13 Management of the Fund
14 Control Persons and Principal Holders of Securities
15 Investment Advisory and Other Services
16 Brokerage Allocation and Other Practices
17 Capital Stock and Other Securities
18 Purchase, Redemption, and Pricing of Shares
19 Taxation of the Fund
20 Underwriters
21 Calculation of Performance Data
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>
[cover]
Barclays Global Investors Funds
Institutional Money Market Fund
Class D and Class I
Providing income and preserving capital
Prospectus
August __, 1999
Barclays Global Fund Advisors
Investment Adviser
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.
<PAGE>
Table of Contents
FUND BASICS
Investment Objective
Principal Investment Strategy
Principal Risk Factors
Operating Expenses
FUND DETAILS
Investment Objective
Principal Investments
A Further Discussion of Risk
Management of the Fund
Shareholder Information
Financial Highlights
<PAGE>
FUND BASICS
Investment Objective/1/
The Fund seeks a high level of income consistent with liquidity and the
preservation of capital.
Principal Investment Strategy
The Fund invests in high-quality, short-term government and corporate debt.
Principal Risk Factors
Although the Fund seeks to preserve the value of your investment at $1 per
share, Barclays Global Fund Advisors (BGFA), the investment adviser to the
Master Portfolio, can offer no guarantee that it will be able to do so. It is
possible to lose money by investing in the Fund. For example:
. 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.
Sidebar: Defining terms. Short-term securities have a maturity date
that falls within three years of the issue date.
Investments in the Fund are not bank deposits or obligations of BGFA or Barclays
Global Investors, N.A. (BGI). They are not insured against loss of principal or
guaranteed or endorsed by the Federal Deposit Insurance Corporation or any other
government agency.
Who may want to invest in the fund
The Fund is designed as an investment that:
- --------------
/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 TK.
1
<PAGE>
. provides income comparable to money market rates
. maintains its value in the long and short term
. can be readily converted to cash
Who is eligible
- ---------------
To be eligible to purchase shares of the Fund you must be an institutional
investor and invest the minimum initial investment amount for the Class D or
Class I shares:
. The minimum initial investment amount for the Class D shares of the Fund is
generally $10 million. Class D shares may be purchased through BGI or through
third party distributors of the Fund's shares.
. The minimum initial investment amount for the Class I shares of the Fund is
generally $25 million. Class I shares must typically be purchased directly
through BGI.
Operating Expenses
To learn the current seven-day yield, call the Fund's transfer agent, Investors
Bank & Trust Co. (IBT), at 1-888-204-3956.
Sidebar: 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.
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.
2
<PAGE>
Annual Fund Operating Expenses*
<TABLE>
<CAPTION>
Percentage of average
daily net assets
---------------------------------
Class D Class I
- -----------------------------------------------------------------------
<S> <C> <C>
Management fees 0.10% 0.10%
- -----------------------------------------------------------------------
Distribution (12b-1) Fees 0.10% None
- -----------------------------------------------------------------------
Other fees** 0.02% 0.02%
- -----------------------------------------------------------------------
Total Fund operating expenses 0.22% 0.12%
- -----------------------------------------------------------------------
</TABLE>
* Information on annual Fund operating expenses
reflects the combined expenses of the Fund
and the Master Portfolio in which it invests.
** "Other fees" are based on estimated amounts
for the current fiscal year.
Expense example
- -----------------
The example below is intended to help you compare the Fund's expenses with those
of other mutual funds. Actual costs may vary. The example illustrates the
expenses 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 expenses remain the same. The 5%
annual return is hypothetical. It does not represent actual or expected
performance.
The Fund does not charge sales or redemption fees. 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>
<S> <C> <C>
1 year 3 years
----------------------------------------------
Class D $TK $TK
----------------------------------------------
Class I $TK $TK
----------------------------------------------
</TABLE>
3
<PAGE>
FUND DETAILS
Investment Objective
The Fund seeks to provide investors with a high level of income, while
preserving capital and liquidity, by investing in high-quality, short-term
investments.
Principal Investments
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./2/
. 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.
Defining terms: Bank obligations are backed by funds deposited at 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.
- --------------
/2/ A detailed examination of the relationship of the Fund to its Master
Portfolio appears on page TK.
4
<PAGE>
Corporate obligations include unsecured debt instruments, such as
commercial paper and corporate notes, issued by financial institutions,
insurance companies and industrial corporations.
Asset-backed securities are financial instruments collateralized by one or
more types of assets, including loans and receivables.
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.
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.
Management of the Fund
Investment adviser
The Fund is a feeder fund that invests all of its assets in a similarly named
Master Portfolio. BGFA provides investment guidance and policy direction for
the Master Portfolio. For its
5
<PAGE>
services, BGFA is entitled to receive a 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 BGI, which in turn is an indirect subsidiary of
Barclays Bank PLC. BGI 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 monthly a combined fee at an annual
rate 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 of the Fund other than the
investment advisory fee.
Shareholder Information
Calculating the Fund's share price
The Fund calculates the price of its shares (also known as net asset value) in
accordance with the standard formula for valuing mutual fund shares at the close
of regular trading (normally 4 p.m. 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.
The Fund uses the amortized cost method to account for any premiums or discounts
above or below the face value of the securities it buys.
6
<PAGE>
Sidebar: Defining terms. The amortized cost method marks down any premium
on short-term debt that the Fund buys, or marks up any discount, at a
constant rate until maturity. It does not reflect daily fluctuations in
market value.
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.
Distribution Plan
We have adopted a Distribution Plan pursuant to Rule 12b-1 under the Investment
Company Act of 1940 for the Class D shares 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 average daily net asset value of the Class D shares of the Fund. The
Class I shares of the Fund do not pay Rule 12b-1 distribution fees.
Dividends and distributions
The Fund declares dividends daily and pays them out on a monthly basis to
investors. It distributes capital gains, if any, the investors annually. It
automatically reinvests dividends and distributions, acquiring additional shares
at net asset value.
You begin earning dividends on shares on the day after your purchase order takes
effect. You continue earning daily dividends on the shares until 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.
7
<PAGE>
Taxes
The Fund's shareholders, not the Fund itself, ordinarily pay taxes on the Fund's
earnings. The amount of taxes you owe will vary from year to year, based on the
amount of dividends and capital gain distributions the Fund pays out. Normally,
the taxes will be due in the year dividends and distributions are paid, except
for distributions declared in the last three months of the year and paid in
January of the next year, which are taxable as if paid December 31.
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>
In addition, when you sell Fund shares you may have a capital gain or loss.
<TABLE>
<CAPTION>
Transaction Tax status
- ------------------------------------------------------------------------------------------------
<S> <C>
You sell shares owned for more than one year Capital gain or loss
- ------------------------------------------------------------------------------------------------
You sell shares owned for one year or less Gains treated as ordinary
income, losses subject to
special rules
- ------------------------------------------------------------------------------------------------
</TABLE>
Tax considerations for tax-deferred accounts, such as benefit plans or non-
taxable entities, will be different.
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.
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 Portfolio may accept
investments from other feeder funds.
8
<PAGE>
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.
9
<PAGE>
BACK COVER
The SAI provides more detailed information on the Fund. BGFA has electronically
filed the SAI, dated [DATE], with the Securities and Exchange Commission. It is
incorporated by reference into this prospectus.
The Barclays Global Investors Funds "Shareholder Guide," also incorporated by
reference into this prospectus, provides information on how to buy and sell
shares of the Institutional Money Market Fund.
If you have any questions about the Institutional Money Market Fund or wish to
obtain the SAI or Shareholder Guide 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:
10
<PAGE>
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.
Barclays Global Investors Funds
[TK: BGI's Investment Company Act file number]
11
<PAGE>
BARCLAYS GLOBAL INVESTORS FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION
INSTITUTIONAL MONEY MARKET FUND
Class D and Class I
August , 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 __, 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...............................................................................
Description of the Fund and Its Investments and Risks......................................
Investments and Investment Policies........................................................
Management.................................................................................
Control Persons and Principal Holders of Securities........................................
Investment Adviser and Other Service Providers.............................................
Performance Information....................................................................
Determination of Net Asset Value...........................................................
Purchase, Redemption and Pricing of Shares.................................................
Portfolio Transactions.....................................................................
Dividends, Distributions and Taxes.........................................................
Capital Stock..............................................................................
Appendix...................................................................................
Financial Statements.......................................................................
</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 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. The Company's principal office is located at 111 Center Street, Little
Rock, Arkansas 72201.
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.
References to the investments and investment policies and restrictions of the
Fund, unless otherwise indicated, should be understood to also apply to the
investments and investment policies and restrictions of the Master Portfolio in
which the Fund invests its assets.
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 hold debt instruments or
lend its portfolio securities in accordance with its investment policies, and
may enter into repurchase agreements.
Non-Fundamental Investment Restrictions. The Fund is subject to the following
investment restrictions, all of which are non-fundamental policies.
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.
INVESTMENTS AND INVESTMENT POLICIES
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.
Loan participations will be treated as liquid if they have a demand feature
that is exercisable within seven days. Loan participations whose demand
feature is not exercisable within seven days may be deemed to be illiquid if it
is determined that an active secondary market for such participations does not
exist. 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, and could result in significant
variations in the Fund's daily share price.
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>
Funding agreements will be treated as liquid if they mature within seven
days or have a demand feature that is exercisable within seven days. Funding
agreements whose demand feature is not exercisable within seven days may be
deemed to be illiquid if it is determined that an active secondary market for
such agreements does not exist. 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,
and could result in significant variations in the Fund's daily share price.
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, 76 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 [$_________] [$_________]
Director
*R. Greg Feltus [$_________] [$_________]
Director
Thomas S. Goho [$_________] [$_________]
Director
W. Rodney Hughes [$_________] [$_________]
Director
*J. Tucker Morse [$_________] [$_________]
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 Master Investment Portfolio are considered to
be members of the same fund complex, as such term is defined in Form N-1A under
the 1940 Act (the "BGFA Fund Complex" ). The Directors are compensated by other
companies and trusts within a fund complex for their services as
Directors/Trustees to such companies and trusts. Currently the Directors do not
receive any retirement benefits or deferred compensation from the Company or any
other member of the fund complex. As of the date of this SAI, Directors and
officers of the Company as a group beneficially owned less than 1% of the
outstanding shares of the Company.
Master/Feeder Structure. The Fund seeks to achieve its investment objective
-----------------------
by investing all of its assets in the Money Market Master Portfolio of MIP. The
Fund and other entities investing in the Master Portfolio are each liable for
all obligations of the Master Portfolio. However, the risk of the Fund
incurring financial loss on account of such liability is limited to
circumstances in which both inadequate insurance existed and MIP itself is
unable to meet its obligations. Accordingly, the Company's Board of Directors
believes that neither the Fund nor its shareholders will be adversely affected
by investing Fund assets in the Master Portfolio. However, if a mutual fund or
other investor withdraws its investment from the Master Portfolio, the economic
efficiencies (e.g., spreading fixed expenses among a larger asset base) that the
Company's Board believes may be available through investment in the Master
Portfolio may not be fully achieved. In addition, given the relative novelty of
the master/feeder structure, accounting or operational difficulties, although
unlikely, could arise.
The Fund may withdraw its investment in the Master Portfolio only if the
Company's Board of Directors determines that such action is in the best
interests of the Fund and its shareholders. Upon such withdrawal, the Company's
Board would consider alternative investments, including investing all of the
Fund's assets in another investment company with the same investment objective
as the Fund or hiring an
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
[INSERT]
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. 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 [ ] 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 Fund intends to declare dividends daily and pay dividends
-------
monthly. An investor begins earning dividends on the day after the date such
investor's purchase order for shares is effective and continues to earn
dividends through the date the investor redeems such shares. Dividends for a
Saturday, Sunday or Holiday are credited on the preceding Business Day. If an
investor redeems shares before the dividend payment date, any dividends credited
to such investor's account are paid on the following dividend payment date. The
Fund declares and distributes capital gains (if any) at least annually.
Dividends and capital gain distributions are automatically reinvested in
additional Fund shares at net asset value.
Distributions from a Fund's net investment income and net short-term capital
gains, if any, are designated as dividend distributions and taxable to the
Fund's shareholders as ordinary income. Distributions from a Fund's net capital
gain (generally, the excess of net long-term capital gains over net short-term
capital loss) are designated as capital gain distributions and taxable to the
Fund's shareholders as net capital gain. Noncorporate shareholders may be taxed
on such gain at preferential rates. In general, your distributions will be
taxable when paid, whether you take such distributions in cash or have them
automatically reinvested in additional Fund shares. However, distributions
declared in October, November, and December and distributed by the following
January will be taxable as if they were paid by December 31. A portion of Fund
distributions made to corporate shareholders may qualify for the dividends-
received deduction in the hands of such shareholders. Your redemptions
(including redemptions in-kind) and exchanges of Fund shares will ordinarily
result in a taxable capital gain or loss, depending on the amount you receive
for your shares (or are deemed to receive in the case of exchanges) and the cost
of your shares. See "Dividends, Distributions and Taxes -- Disposition of Fund
Share." If you buy shares of the Fund shortly before it distributes its annual
gains, your distribution from the Fund will, in effect, be a taxable return of
part of your investment. Similarly, if you buy shares of the Fund that holds
appreciated securities in its portfolio, you will receive a taxable return of
part of your investment if and when the Fund sells the appreciated securities
and realizes the gain. The Fund may have built up, or have the potential to
build up, high levels of unrealized appreciation. Foreign shareholders may be
subject to different tax treatment, including withholding taxes. See "Dividends,
Distributions and Taxes -- Foreign Shareholders." In certain circumstances, U.S.
residents may also be subject to withholding taxes. See "Dividends,
Distributions and Taxes -- Backup Withholding."
Benefit Plan Investors. As a general matter, benefit plans, their sponsors
----------------------
and their participants are not subject to federal income taxes at the time of
receipt of net investment income and capital gain
20
<PAGE>
distributions. However, such tax-deferred investors may be subject to tax on
certain unrelated business taxable income which could arise, for example, when
such investors acquire shares in the Fund through the use of leverage. Tax-
deferred investors should consult their tax advisors regarding the unrelated
business taxable income rules. The foregoing discussion regarding taxes is based
on tax laws which were in effect as of the date of this Prospectus and
summarizes only some of the important federal tax considerations generally
affecting the Fund and its shareholders. It is not intended as a substitute for
careful tax planning; you should consult your tax advisor with respect to your
specific tax situation as well as with respect to foreign, state and local
taxes. Further federal tax considerations are discussed in this SAI.
Qualification Under Subchapter M. The Company intends to qualify the Fund as
--------------------------------
a regulated investment company under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"), as long as such qualification is in the best
interest of the Fund's shareholders. The Fund will be treated as a separate
entity for tax purposes and thus the provisions of the Code applicable to
regulated investment companies will generally be applied individually to the
Fund, rather than to the Company as a whole. Accordingly, net capital gain, net
investment income, and operating expenses will be determined separately for the
Fund. As a regulated investment company, the Fund will not be taxed on its net
investment income and net realized capital gains distributed to its
shareholders.
Qualification as a regulated investment company under the Code requires, among
other things, that (a) the Fund derive at least 90% of its annual gross income
from dividends, interest, certain payments with respect to securities loans,
gains from the sale or other disposition of stock or securities or foreign
currencies (to the extent such currency gains are directly related to the
regulated investment company's principal business of investing in stock or
securities) and other income (including but not limited to gains from options,
futures or forward contracts) derived with respect to its business of investing
in such stock, securities or currencies; and (b) the Fund diversify its holdings
so that, at the end of each quarter of the taxable year, (i) at least 50% of the
market value of the Fund's assets is represented by cash, government securities
and other securities limited in respect of any one issuer to an amount not
greater than 5% of the Fund's assets and 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its assets
is invested in the securities of any one issuer (other than U.S. Government
obligations and the securities of other regulated investment companies), or in
two or more issuers which the Fund controls and which are determined to be
engaged in the same or similar trades or businesses.
The Fund also must distribute or be deemed to distribute to its shareholders
at least 90% of its net investment income (which, for this purpose includes net
short-term capital gains) earned in each taxable year. In general, these
distributions must actually, or be deemed to be, made in the taxable year.
However, in certain circumstances, such distributions may be made in the 12
months following the taxable year. Furthermore, distributions declared in
October, November or December of one taxable year and paid by January 31 of the
following taxable year will be treated as paid by December 31 of the first
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.
In addition, a regulated investment company must, in general, derive less than
30% of its gross income for a taxable year from the sale or other disposition of
securities or options thereon held for less than three months. However, this
restriction has been repealed with respect to a regulated investment company's
taxable years beginning after August 5, 1997.
The Fund seeks to invest 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
21
<PAGE>
company or a corporation. The Fund will be treated as owning the Master
Portfolio's assets in the proportion of the Fund's ownership interest in the
Master Portfolio. The Master Portfolio's assets, income and distributions will
be managed in a manner that enables the Fund to satisfy the requirements, set
forth above, imposed on regulated investment companies. Furthermore, any
interest, dividends, gains and losses of the Master Portfolio shall be deemed to
have been "passed through" to the Fund (and the Master Portfolio's other
investors) in proportion to the Fund's ownership interest in the Master
Portfolio. Therefore, to the extent that the Master Portfolio were to accrue but
not distribute any interest, dividends or gains, the Fund would be deemed to
have realized and recognized its proportionate share of interest, dividends or
gains without receipt of any distribution. However, the Master Portfolio will
seek to minimize recognition by its investors (such as the Fund) of interest,
dividends, gains or losses without a distribution.
Excise Tax. A 4% nondeductible excise tax will be imposed on the Fund (other
----------
than to the extent of its tax-exempt interest income) to the extent it does not
meet certain minimum distribution requirements by the end of each calendar year.
The Fund intends to actually or be deemed to distribute substantially all of its
net investment income and net realized capital gains by the end of each calendar
year and, thus, expects not to be subject to the excise tax.
Taxation of Master Portfolio Investments. Except as otherwise provided
----------------------------------------
herein, gains and losses realized by the Master Portfolio on the sale of
portfolio securities generally will be capital gains and losses. Such gains and
losses ordinarily will be long-term capital gains and losses if the securities
have been held by the Master Portfolio for more than one year at the time of
disposition of the securities.
Gains recognized on the disposition of a debt obligation (including tax-exempt
obligations purchased after April 30, 1993) purchased by the Master Portfolio at
a market discount (generally at a price less than its principal amount) will be
treated as ordinary income to the extent of the portion of market discount which
accrued, but was not previously recognized pursuant to an available election,
during the term the Master Portfolio held the debt obligation.
If the Master Portfolio enters into a "constructive sale" of any appreciated
position in stock, a partnership interest, or certain debt instruments, the
Master Portfolio must recognize gain (but not loss) with respect to that
position. For this purpose, a constructive sale occurs when the Master
Portfolio enters into one of the following transactions with respect to the same
or substantially identical property: (i) a short sale; (ii) an offsetting
notional principal contract; or (iii) a futures or forward contract.
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. For federal income tax purposes, the Fund's earnings and
-------------------
profits will be determined at the end of each taxable year and will be allocated
pro rata over the entire year. For federal income tax purposes, only amounts
paid out of earnings and profits will qualify as dividends. Thus, if during a
taxable year the Fund's declared dividends (as declared daily throughout the
year) exceed the Fund's net income (as determined at the end of the year), only
that portion of the year's distributions which equals the year's earnings and
profits will be deemed to have constituted a dividend. It is expected that the
Fund's net income, on an annual basis, will equal the dividends declared during
the year.
22
<PAGE>
Disposition of Fund Shares. A disposition of Fund shares pursuant to a
--------------------------
redemption (including a redemption in-kind) or an exchange ordinarily will
result in a taxable capital gain or loss, depending on the amount received for
the shares (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. In addition, if a shareholder holds Fund shares for six months or
less, any loss on the sale or exchange of those shares will be disallowed to the
extent of the amount of exempt-interest dividends received with respect to those
shares. The Treasury Department is authorized to issue regulations reducing the
six-month holding requirement to a period of not less than the greater of 31
days or the period between regular dividend distributions where the Fund
regularly distributes at least 90% of its net tax-exempt interest, if any. No
such regulations have been issued as of the date of this SAI. 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). The amount of tax payable by any taxpayer will be affected
by a combination of tax laws covering, for example, deductions, credits,
deferrals, exemptions, sources of income and other matters.
Backup Withholding. The Company may be required to withhold, subject to
------------------
certain exemptions, at a rate of 31% ("backup withholding") on dividends,
capital gain distributions, and redemption proceeds (proceeds from exchanges and
redemptions in-kind) paid or credited to an individual Fund shareholder, if the
shareholder fails to certify the 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 (described below)
generally are not subject to backup withholding.
23
<PAGE>
Foreign Shareholders. Under the Code, distributions of net investment income
--------------------
by the Fund to a nonresident alien individual, foreign trust (i.e., trust which
a U.S. court is able to exercise primary supervision over administration of that
trust and one or more U.S. persons have authority to control substantial
decisions of that trust), foreign estate (i.e., the income of which is not
subject to U.S. tax regardless of source), foreign corporation, or foreign
partnership (a "foreign shareholder") will be subject to federal income
withholding tax (at a rate of 30% or a lower treaty rate, if applicable).
Withholding will not apply if a dividend distribution paid by the Fund to a
foreign shareholder is "effectively connected" with a U.S. trade or business
(or, if an income tax treaty applies, is attributable to a U.S. permanent
establishment of the foreign shareholder), in which case the reporting and
withholding requirements applicable to U.S. residents will apply. Distributions
of net capital gain generally are not subject to federal income tax withholding.
New Regulations. On October 6, 1997, the Treasury Department issued new
---------------
regulations (the "New Regulations") which make certain modifications to the
backup withholding, U.S. income tax withholding and information reporting rules
applicable to foreign shareholders. The New Regulations generally will be
effective for payments made after December 31, 1999, subject to certain
transition rules. Among other things, the New Regulations will permit the Fund
to estimate the portion of its distributions qualifying as capital gain
distribution for purposes of determining the portion of such distributions paid
to foreign shareholders which will be subject to federal income tax withholding.
Prospective investors are urged to consult their own tax advisors regarding the
application of the New Regulations.
Foreign Taxes. Income and dividends received by a Fund 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 able to make such an election.
Tax-Deferred Plans. The shares of the Fund are available for a variety of
------------------
tax-deferred retirement and other plans, including Individual Retirement
Accounts. Investors should contact their selling agents for details concerning
retirement and other plans.
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. The Fund is authorized to issue two classes of shares, both of which
-------
are sold primarily to institutional investors. Each class of shares in the Fund
represents an equal, proportionate interest in the Fund with other shares of the
same class. Shareholders of each class bear their pro rata portion of the
Fund's operating expenses, except for certain class-specific expenses (e.g., any
state securities registration fees, shareholder servicing fees or distribution
fees that may be paid under Rule 12b-1) that are allocated to a particular
class.
With respect to matters that affect one class but not another, shareholders
vote as a class; for example, the approval of a Plan. Subject to the foregoing,
all shares of a Fund have equal voting rights and will be voted in the
aggregate, and not by series, except where voting by a series is required by law
or where the matter involved only affects one series. For example, a change in
a Fund's fundamental investment policy affects only one series and would be
voted upon only by shareholders of the Fund involved. Additionally, approval of
an advisory contract, since it only affects one Fund, is a matter to be
determined separately by each series. Approval by the shareholders of one
series is effective as to that series whether or not sufficient votes are
received from the shareholders of the other series to approve the proposal as to
those series.
As used in the Prospectus and in this SAI, the term "majority" when referring
to approvals to be obtained from shareholders of a Class of the Fund, means the
vote of the lesser of (i) 67% of the shares of such class the Fund represented
at a meeting if the holders of more than 50% of the outstanding shares such
class of the Fund are present in person or by proxy, or (ii) more than 50% of
the outstanding shares of such class 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 are not entitled to any preemptive rights. All shares, when
issued for the consideration described in the Prospectus, will be fully paid and
non-assessable by the Company. 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.
Each share of a class of the Fund represents an equal proportional interest in
the Fund with each other share in the same class 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 relevant class of shares of
the Fund that are available for distribution, and a distribution
25
<PAGE>
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.
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.
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.
--------
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
1 - Restated Articles of Incorporation dated October 31, 1995, incorporated by reference to
Post-Effective Amendment No. 11, filed December 1, 1995.
2 - By-Laws, incorporated by reference to Post-Effective Amendment No. 8, filed June 27, 1995.
3 - Not applicable.
4 - Not applicable.
5 - Amended and Restated Distribution Agreement with Stephens Inc. on behalf of the Fund, dated
February 16, 1996--to be filed.
6 - Not applicable.
7 - Custody Agreement with Investors Bank & Trust Company on behalf of the Fund, dated October 21,
1996--to be filed.
8(a) - Transfer Agency and Service Agreement with Investors Bank & Trust Company on behalf of the Fund,
dated February 27, 1998--to be filed.
8(b) - Co-Administration Agreement with Stephens Inc. and Barclays Global Investors, N.A. on behalf of
the Fund, dated October 21, 1996--to be filed.
</TABLE>
C-1
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
8(c) - Sub-Administration Agreement by and among Barclays Global Investors, N.A. and Investors Bank &
Trust Company on behalf of the Fund, dated October 21, 1996--to be filed.
8(d) - Service Agreement with Merrill Lynch, Pierce, Fenner & Smith Incorporated on behalf of the Fund,
dated December 31, 1997--to be filed.
8(e) - Financial Services Agreement with Merrill Lynch, Pierce, Fenner & Smith Incorporated on behalf of
the Fund, dated December 31, 1997--to be filed.
9 - Opinion and Consent of Counsel, filed herewith.
10 - Consent of Independent Auditors--to be filed.
11 - Not applicable.
12 - Not applicable.
13 - Rule 12b-1 Distribution Plan dated October 28, 1998, on behalf of the Fund--to be filed.
14 - Not applicable.
15 - Rule 18f-3 Multi-Class Plan for the Funds--to be filed.
</TABLE>
Item 24. Persons Controlled by or Under
Common Control with the Fund
----------------------------
No person is controlled by or under common control with the Fund.
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 required or permitted by the General Laws of
the State of Maryland now or hereafter in
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<PAGE>
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
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<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.
<TABLE>
<CAPTION>
Name and Position Principal Business(es) During at
at BGFA Least the Last Two Fiscal Years
- ----------------- ----------------------------------------------------------------
<S> <C>
Frederick L.A. Grauer Director of BGFA and Co-Chairman and Director of BGI
Director 45 Fremont Street, San Francisco, CA 94105
Patricia Dunn Director of BGFA and C-Chairman and Director of BGI
Director 45 Fremont Street, San Francisco, CA 94105
Lawrence G. Tint Chairman of the Board of Directors of BGFA
Chairman and Director and Chief Executive Officer of BGI
45 Fremont Street, San Francisco, CA 94105
Geoffrey Fletcher Chief Financial Officer of BGFA and BGI since May 1997
Chief Financial Officer 45 Fremont Street, San Francisco, CA 94105
Managing Director and Principal Accounting Officer at
Bankers Trust Company from 1988 - 1997
505 Market Street, San Francisco, CA 94105
</TABLE>
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. and Nations
Institutional Reserves, and is the exclusive placement agent for Life & Annuity
Trust and Master Investment Portfolio, all of which are registered open-end
management investment companies.
(b) Information with respect to each director and officer of the
principal underwriter is incorporated by reference to Form ADV and Schedules A
and D filed by Stephens Inc. with the Securities and Exchange Commission
pursuant to The Investment Advisers Act of 1940 (SEC File No. 501-15510).
(c) Not applicable.
Item 28. Location of Accounts and Records.
--------------------------------
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<PAGE>
(a) The Registrant maintains accounts, books and other documents
required by Section 31(a) of the Investment Company Act of 1940 and the rules
thereunder (collectively, "Records") at the offices of Stephens Inc., 111 Center
Street, Little Rock, Arkansas 72201.
(b) BGFA and BGI maintain all Records relating to their services as
adviser and co-administrator, respectively, at 45 Fremont Street, San Francisco,
California 94105.
(c) 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 of the Fund" in
the Prospectus constituting Part A of this Registration Statement and
"Management" in the Statements of Additional Information constituting Part B of
this Registration Statement, the Registrant is not a party to any management-
related service contract.
Item 30. Undertakings.
------------
Not Applicable.
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<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 18th day of May, 1999.
MASTERWORKS FUNDS INC.
By /s/ Richard H. Blank, Jr.
-------------------------
Richard H. Blank, Jr.
Secretary and Treasurer
(Principal Financial Officer)
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment No. 20 to the Registration Statement on Form N-1A has been
signed below by the following persons in the capacities and on the date
indicated:
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C> <C>
* Director, Chairman and President 5/18/99
------------------------------ (Principal Executive Officer)
(R. Greg Feltus)
/s/ Richard H. Blank, Jr. Secretary and Treasurer 5/18/99
------------------------------ (Principal Financial Officer)
(Richard H. Blank, Jr.)
* Director 5/18/99
------------------------------
(Jack S. Euphrat)
* Director 5/18/99
------------------------------
(W. Rodney Hughes)
*By: /s/ Richard H. Blank, Jr.
-------------------------
Richard H. Blank, Jr.
As Attorney-in-Fact
May 18, 1999
</TABLE>
<PAGE>
MASTERWORKS FUNDS INC.
SEC FILE Nos. 33-54126; 811-7332
EXHIBIT INDEX
Exhibit Number Description
EX-99.B9 * Opinion and Consent of Counsel - Morrison &
Foerster LLP
<PAGE>
[MORRISON & FOERSTER LLP LETTERHEAD]
May 18, 1999
MasterWorks Funds Inc.
111 Center Street
Little Rock, AR 72201
Re: Shares of Common Stock of MasterWorks Funds Inc.
------------------------------------------------
Ladies/Gentlemen:
We refer to Post-Effective Amendment No. 20 and Amendment No. 24 to the
Registration Statement on Form N-1A (SEC File Nos. 33-54126 and 811-7332) (the
"Registration Statement") of MasterWorks Funds Inc. (the "Company") relating to
the registration of an indefinite number of shares of common stock of the
Company (collectively, the "Shares").
We have been requested by the Company to furnish this opinion as Exhibit 10
to the Registration Statement.
We have examined documents relating to the organization of the Company and
its series and the authorization and issuance of shares of its series. We have
also verified with the Company's transfer agent the maximum number of shares
issued by the Company during the fiscal year ended February 28, 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.
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
