MASTERWORKS FUNDS INC, 485APOS, 1999-04-30

MASTERWORKS FUNDS INC
485APOS, 1999-04-30

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<PAGE>

As filed with the Securities and Exchange Commission
on April 30, 1999
Registration No. 33-54126; 811-7332

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [_]
Post-Effective Amendment No. 19 [X]

And
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [_]
Amendment No. 23 [X]
(Check appropriate box or boxes)
________________________

MASTERWORKS FUNDS INC.
(formerly, Stagecoach Inc.)

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

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

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

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

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

[_] Immediately upon filing pursuant [_] on _________ pursuant
to Rule 485(b), or to Rule 485(b)

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

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

If appropriate, check the following box:

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

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

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

This Post-Effective Amendment No. 19 (the "Amendment") to the Registration
Statement of MasterWorks Funds Inc. (the "Company") is being filed to add to the
Company's Registration Statement audited financial statements and certain
related financial information for the Company's Asset Allocation, Bond Index,
S&P 500 Stock, U.S. Treasury Allocation, LifePath 2000, LifePath 2010, LifePath
2020, LifePath 2030 and LifePath 2040 Funds and corresponding Master Portfolios,
and for the Company's Money Market Fund for the fiscal year ended February 28,
1999. This Amendment also makes certain other non-material changes to the
Registration Statement.

<PAGE>

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

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

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

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

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

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

23 Financial Information

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

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

[cover]

Barclays Global Investors Funds

Bond Index Fund
S&P 500 Stock Fund
Asset Allocation Fund
US Treasury Allocation Fund

A pioneer in asset allocation and index investing since 1971

Prospectus
June 30, 1999

Like shares of all mutual funds, these securities have not been approved or
disapproved by the Securities and Exchange Commission nor has the Securities and
Exchange Commission passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
<PAGE>

TABLE OF CONTENTS

INDEX FUND BASICS

INVESTMENT OBJECTIVES

PRINCIPAL INVESTMENT STRATEGIES

PRINCIPAL RISK FACTORS

INVESTMENT RETURNS AND OPERATING EXPENSES

ALLOCATION FUND BASICS

INVESTMENT OBJECTIVES

PRINCIPAL INVESTMENT STRATEGIES

PRINCIPAL RISK FACTORS

INVESTMENT RETURNS AND OPERATING EXPENSES

FUND DETAILS

INDEX FUNDS

ALLOCATION FUNDS

INVESTING IN FUTURES

A FURTHER DISCUSSION OF RISK

DETAILS IN COMMON

MANAGEMENT OF THE FUNDS

SHAREHOLDER INFORMATION

FINANCIAL HIGHLIGHTS
<PAGE>

INDEX FUND BASICS

INVESTMENT OBJECTIVES/1/

The Bond Index Fund seeks to approximate as closely as practicable, before fees
and expenses, the TOTAL RATE OF RETURN of the US market for issued and
outstanding US government and high-grade corporate bonds as measured by the
LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX./2/

SIDEBAR: DEFINING TERMS. The TOTAL RATE OF RETURN (also referred to as
"total return") takes into account the two elements of an investment's
performance: the amount of income it earns from interest or dividend
payments and the change in the investment's market price during a given
time period (an increase in the price adds to total return, a decrease
reduces it). The calculation assumes the reinvestment of all income.

The LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX tracks the market for
high-quality taxable US bonds. It consists of roughly 6,500 different debt
issues, each with an issue size of at least $150 million and a remaining
time to maturity of one year or more. Issuers include the US government and
top-rated "investment grade" corporations.

The S&P 500 Stock Fund/3/ seeks to approximate as closely as practicable, before
fees and expenses, the CAPITALIZATION-WEIGHTED TOTAL RATE OF RETURN of the S&P
500 Index.

_________________________
/1/ Each Fund invests all of its assets in a separate mutual fund, called a
Master Portfolio, that has a substantially similar investment objective.
For simplicity's sake, all discussion of investment objectives, strategies
and risks of a particular Fund refers also to the objectives, strategies
and risks of its Master Portfolio, unless otherwise indicated. A detailed
examination of the relationship of the Funds to their Master Portfolios
appears on page TK.

/2/ Lehman Brothers, Inc. does not sponsor the Bond Index Fund or the Bond
Index Master Portfolio, nor is it affiliated in any way with Barclays
Global Fund Advisors, the Bond Index Fund or the Master Portfolio.

/3/ S&P does not sponsor, endorse, sell or promote the S&P 500 Stock Fund, the
S&P 500 Index Master Portfolio, the Asset Allocation Fund or the Asset
Allocation Master Portfolio, nor is it affiliated in any way with Barclays
Global Fund Advisors, the Funds or their Master Portfolios. "Standard &
Poor's/(R)/," "S&P/(R)/," and "S&P 500/(R)/" are trademarks of McGraw-Hill,
Inc., and have been licensed for use by the S&P 500 Stock Fund, the Asset
Allocation Fund and their Master Portfolios. S&P makes no representation or
warranty, expressed or implied, regarding the advisability of investing in
the Funds or their Portfolios.
<PAGE>

SIDEBAR: DEFINING TERMS. The S&P 500 Composite Index is a widely used
measure of large US-company stock performance. It consists of the common
stocks of 500 major corporations selected according to:

. size

. frequency and ease by which their stocks trade

. range and diversity of the American economy

The stocks in the S&P 500 account for nearly three-quarters of the value of
all US stocks.

In CAPITALIZATION-WEIGHTED TOTAL RATE OF RETURN, each stock in an index
contributes to the index in the same proportion as the value of its shares.
Thus, if the shares of Company A are worth twice as much as the shares of
Company B, A's return will count twice as much as B's in calculating the
index's overall return. This method contrasts with equal weighted return,
by which A's performance and B's performance and the performance of every
other stock in the index would count the same.

PRINCIPAL INVESTMENT STRATEGIES

Index Funds pursue their objectives by:

. investing in all the securities that make up the index (in the case of S&P
500 Stock Fund), or in a representative sample (in the case of the Bond Index
Fund)

. investing in these securities in proportions that match their index weights

PRINCIPAL RISK FACTORS

As with any investment, your investment in the Index Funds could lose money or
the Funds' performance could trail that of other alternative investments.

RISKS OF INVESTING IN THE BOND INDEX FUND

. value of the bonds in which this Fund invests may fall because of a rise in
interest rates, which generally reduces the value of bonds, even those issued
by the US government

. value of individual bonds may fall with the decline in a borrower's real or
apparent ability to meet its financial obligations

. prices of bonds may fall in response to economic events or trends
<PAGE>

. bonds that the Funds' investment adviser selects may not match the
performance of the market index

. requirements for cash balances may exert a drag on overall Fund performance

RISKS OF INVESTING IN THE S&P 500 STOCK FUND

. prices of the stocks in which this Fund invests may decline

. prices of stocks may fall in response to economic events or trends

. requirements for cash balances may exert a drag on overall Fund performance

Investments in either of the Index Funds discussed in this prospectus are not
bank deposits or obligations of Barclays Global Fund Advisors (BGFA) or Barclays
Global Investors, N.A. (BGI). They are not guaranteed or endorsed by the Federal
Deposit Insurance Corporation or any other government agency.

WHO MAY WANT TO INVEST IN THE FUNDS

The Index Funds are designed for investors who desire a convenient way to invest
either in a broad spectrum of US large-cap stocks (the S&P 500 Stock Fund) or
bonds issued in the United States (the Bond Index Fund). Although these markets
have gained over the long term, they have also decreased over the short-term.
This volatility is particularly characteristic of stocks.

The Index Funds do not by themselves constitute a balanced investment program.
Diversifying your investments by buying shares in both Funds or in other funds
may improve your long-term return as well as reduce short-term volatility.

INVESTMENT RETURNS AND OPERATING EXPENSES

TOTAL RETURNS (AFTER FEES AND EXPENSES)

The bar charts and tables in this section can help you evaluate the potential
risk and return of investing in either of the Funds by showing the changes in
their performance from year to year. The bar charts show the returns for each
Fund for each full calendar year since inception. The average annual return
tables compare each Fund's average annual return with the return of a
corresponding index for one and five years and since inception.

YEAR-BY-YEAR RETURNS
<PAGE>

BOND INDEX FUND*
[bar chart]

------------------------------------------------------------------------------
TK TK TK TK TK
------------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------------------------------------------------------------------------

* The Bond Index Fund's return for the quarter ending March 31, 1999 was TK%.

The highest quarterly return for the Bond Index Fund since inception is TK% for
_Q19__ and lowest is TK% for _Q19__.

S&P 500 STOCK FUND*
[bar chart]

* The S&P 500 Stock Fund's return for the quarter ending March 31, 1999 was
TK%.

The highest quarterly return for the S&P 500 Stock Fund since inception is TK%
for _Q19__ and lowest is TK% for _Q19__.

Past performance is no indication of how the Funds will perform in the future.

AVERAGE ANNUAL RETURNS
(as of December 31, 1998)

----------------------------------------
FIVE SINCE INCEPTION
ONE YEAR YEARS (JULY 2, 1993*)
------------------------------------------------------------------------------
Bond Index Fund TK% TK% TK%
------------------------------------------------------------------------------
Lehman Brothers Government/Corporate
Bond Index TK% TK% TK%
------------------------------------------------------------------------------
* The Lehman Brothers Government/Corporate Bond Index is calculated from June
30, 1993.

----------------------------------------
FIVE SINCE INCEPTION
------------------------------------------------------------------------------
ONE YEAR YEARS (JULY 2, 1993*)
------------------------------------------------------------------------------
S&P 500 Stock Fund TK% TK% TK%
------------------------------------------------------------------------------
S&P 500-stock Index TK% TK% TK%
------------------------------------------------------------------------------
* The S&P 500-stock Index is calculated from June 30, 1993.
<PAGE>

ANNUAL FUND OPERATING EXPENSES

The table below describes the fees and expenses that you may pay if you buy and
hold shares in either the S&P 500 Stock Fund or the Bond Index Fund. The
expenses are deducted from Fund assets, which means you pay them indirectly.

ANNUAL FUND OPERATING EXPENSES
(percentage of average daily net assets)

--------------------------
BOND S&P 500
INDEX STOCK
FUND FUND
---------------------------------------------------
Management fees 0.08% 0.05%
---------------------------------------------------
Other fees 0.15% 0.15%
---------------------------------------------------
Total fund operating 0.23% 0.20%
expenses*
---------------------------------------------------
* Information on annual Fund operating expenses
reflects the combined expenses of the Funds and
the Master Portfolios in which they invest.

Expense example
- ---------------

The example below is intended to help you compare each 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 each of the
Funds over the time periods shown. It assumes your investment earns an annual
return of 5% over the periods and that the Funds' expenses remain constant. The
5% annual return is hypothetical. It does not represent actual or expected
performance.

The Funds do not charge sales or redemption fees. This means that 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.

-----------------------------------------
1 YEAR 3 YEARS 5 YEARS 10
YEARS
------------------------------------------------------------------
Bond Index Fund $TK $TK $TK $TK
------------------------------------------------------------------
S&P 500 Stock Fund $TK $TK $TK $TK
------------------------------------------------------------------
<PAGE>

ALLOCATION FUND BASICS

INVESTMENT OBJECTIVES

ASSET ALLOCATION FUND

The Fund seeks a high level of long-term total return consistent with a
reasonable level of risk. It attempts to improve on the markets' long-term risk-
and-return tradeoff by shifting its investments among markets in response to
changes in the investment environment.

US TREASURY ALLOCATION FUND

The Fund seeks to improve upon the long-term total return of a static "buy-and-
hold" US Treasury bond portfolio. The Fund, consistent with a reasonable level
of risk, shifts its investments among bond maturities in response to measured
changes in the investment environment. Before fees, the Fund seeks returns over
time that will exceed the returns of its benchmark, the LEHMAN BROTHERS
INTERMEDIATE GOVERNMENT BOND INDEX.

SIDEBAR: DEFINING TERMS. The LEHMAN BROTHERS INTERMEDIATE GOVERNMENT BOND
INDEX consists of all US government bond issues with maturities of one to
ten years from their issue date and an issue size of at least $150 million.

PRINCIPAL INVESTMENT STRATEGIES

ASSET ALLOCATION FUND

The Asset Allocation Fund invests in a changing mix of S&P 500 stocks, long-term
Treasury bonds and MONEY MARKET INVESTMENTS. In its stock investments, the Asset
Allocation Fund seeks to approximate the return of the S&P 500-Stock Index,
before fees and expenses, and in its bond investments the Fund seeks to
approximate the before-fee return of the Lehman Brothers 20-Year Treasury Index,
a subset of the Lehman Brothers Government/Corporate Bond Index.

SIDEBAR: DEFINING TERMS. MONEY MARKET INVESTMENTS consist of debt
securities with remaining maturities of 397 days (about 13 months) or less,
including US government obligations, domestic and foreign bank obligations,
short-term corporate debt, repurchase agreements and time deposits.

The Fund attempts to benefit from the changing relative values of different
investment classes. If, for instance, the value of long-term Treasury bonds
appears low compared with its typical relationship to US stock values, the Fund
will emphasize Treasury bond investments over stocks
<PAGE>

in the expectation of rising bond prices relative to stock prices--or of stocks
falling relative to bonds.

US TREASURY ALLOCATION FUND

The US Treasury Allocation Fund invests in a mix of US Treasury LONG-TERM BONDS,
INTERMEDIATE-TERM NOTES and SHORT-TERM BILLS. Over time, these securities tend
toward a relatively stable relationship with one another: Those with longer
maturities offer greater interest income than those with shorter maturities. But
sometimes current market considerations upset the relationship: Long-term bonds
may still pay a higher rate of interest than, say, intermediate-term notes, but
not as high as usual. By the same token, the SPREAD between the two maturity
classes may be wider than usual. The Fund attempts to take advantage of these
movements to boost its return above that of the Lehman Brothers Intermediate
Government Bond Index.

SIDEBAR: DEFINING TERMS. LONG-TERM US TREASURY BONDS are Treasury
obligations with maturities of at least 20 years from the issue date.

INTERMEDIATE-TERM US TREASURY NOTES are Treasury obligations with
maturities between one and ten years from their issue date.

SHORT-TERM US TREASURY BILLS are Treasury obligations with maturities of
one year or less from their issue date.

A SPREAD is the difference between returns on securities of the same
quality but of different maturities.

PRINCIPAL RISK FACTORS

As with any investment, your investment in the Allocation Funds could lose money
or the Funds' performance could trail that of other alternative investments.

RISKS OF INVESTING IN THE ASSET ALLOCATION FUND

. prices of the stocks in which the Funds invest may decline

. value of the bonds in which the Funds invest may fall because of a rise in
interest rates, which generally reduces the value of bonds, even those issued
by the US government
<PAGE>

. prices of stocks and bonds may fall in response to economic events or trends

. the Funds' investment allocation may not perform in line with expectations

. requirements for cash balances may exert a drag on overall Fund performance

RISKS OF INVESTING IN THE US TREASURY ALLOCATION FUND

. prices of Treasury bonds may fall in response to economic events or trends

. the Funds' investment allocation may not perform to expectations

. requirements for large cash balances may exert a drag on overall Fund
performance.

Investments in either of the Allocation Funds discussed in this prospectus are
not bank deposits or obligations of BGFA or BGI. They are not guaranteed or
endorsed by the Federal Deposit Insurance Corporation or any other government
agency.

WHO MAY WANT TO INVEST IN THE FUNDS

The Allocation Funds are designed for longer-term investors. They operate on the
premise that over time the allocation and reallocation of capital across
different classes of investments will produce better returns than a static buy-
and-hold allocation. The Funds may not be appropriate for investors desiring
above-market short-term returns. To derive the full benefit of the asset
allocation approach, investors should not draw on their Fund investments for at
least five years.

INVESTMENT RETURNS AND OPERATING EXPENSES

TOTAL RETURNS (AFTER FEES AND EXPENSES)

ASSET ALLOCATION FUND*
[bar chart]

The highest quarterly return for the Asset Allocation Fund since inception is
TK% for _Q19__ and the lowest is TK% for _Q19__.

US TREASURY ALLOCATION FUND*
[bar chart]

The highest quarterly return for the US Treasury Allocation Fund since inception
is TK% (TK Q, TK YEAR) and the lowest is TK% (TK Q, TK YEAR).

-----------------------------------------
FIVE SINCE INCEPTION
ONE YEAR YEARS (JULY 2, 1993*)
--------------------------------------------------------------------------
Asset Allocation Fund TK% TK% TK%
--------------------------------------------------------------------------
Asset Allocation Benchmark** TK% TK% TK%
--------------------------------------------------------------------------
* The Asset Allocation Benchmark is calculated from June 30, 1993.
** The Asset Allocation Benchmark represents the return of a blended index
consisting of 60% S&P 500 stocks and 40% Lehman Brothers Long Government
Index bonds.

AVERAGE ANNUAL RETURNS
(as of December 31, 1998)

<TABLE>
<CAPTION>
---------------------------------------------
FIVE SINCE INCEPTION
ONE YEAR YEARS (JULY 2, 1993*)
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
US Treasury Allocation Fund TK% TK% TK%
------------------------------------------------------------------------------------------------
Lehman Brothers US Government TK% TK% TK%
Intermediate Index
------------------------------------------------------------------------------------------------
</TABLE>

* The Lehman Brothers US Government Intermediate Index is calculated from
June 30, 1993.

ANNUAL FUND OPERATING EXPENSES

The table below describes the fees and expenses that you may pay if you buy and
hold shares in either the Asset Allocation Fund or the US Treasury Allocation
Fund. The expenses are deducted from Fund assets, which means you pay them
indirectly.

ANNUAL FUND OPERATING EXPENSES
(percentage of average daily net assets)
<PAGE>

----------------------------------
ASSET US TREASURY
ALLOCATION ALLOCATION
FUND FUND
----------------------------------------------------------
Management fees 0.35% 0.30%
----------------------------------------------------------
Other fees 0.40% 0.40%
----------------------------------------------------------
Total Fund operating 0.75% 0.70%
expenses*
----------------------------------------------------------

* Information on annual Fund operating expenses reflects
the combined expenses of the Funds and the Master
Portfolios in which they invest.

Expense example
- ---------------

The Funds do 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.

--------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------------------------------------
Asset Allocation Fund $TK $TK $TK $TK
-------------------------------------------------------------------------
US Treasury Allocation Fund $TK $TK $TK $TK
-------------------------------------------------------------------------
<PAGE>

FUND DETAILS

INDEX FUNDS

A FURTHER DISCUSSION OF INVESTMENT OBJECTIVES

The Index Funds seek to come within 95% of a market index's total return, before
fees and expenses, in falling as well as rising markets. They do not seek to
"beat" the markets they track. BGFA, the Master Portfolios' INVESTMENT ADVISER,
makes no attempt to apply economic, financial or market analysis when managing
the Fund portfolios. BGFA selects securities because they will help the Funds
achieve returns corresponding to index returns. Including a security among a
Fund's holdings implies no opinion as to its attractiveness as an investment.

SIDEBAR: DEFINING TERMS. BGFA, a subsidiary of BGI, serves as the Funds'
INVESTMENT ADVISER. BGFA makes the day-to-day decisions on buying and
selling securities for the Funds and BGI conducts the research leading to
those decisions. Responsible for some $615 billion of global investments,
BGI is the world's largest asset manager for institutions, such as major
endowments, and corporate and government pension plans. BGI has pioneered
research in asset allocation, indexed investing and investment modeling
since 1971. To make this expertise available to individual investors BGFA
introduced its first index and asset-allocation mutual funds in 1993.

INVESTING IN INDEXES

Investors look to indexes as the standard of market performance. Indexes are
model portfolios, groups of stocks or bonds selected to represent an entire
market. One way an index fund can seek to match an index's performance, before
fees and expenses, is by buying all of the index's securities in the same
proportion as they are reflected in the index. This is what the S&P 500 Stock
Fund does.

The Bond Index Fund has a more difficult task. As a practical matter, it cannot
hold each of the 6,500 securities included in the Lehman Brothers
Government/Corporate Bond Index. It can, however, substantially replicate the
index's profile. It may, for example, hold US government obligations and
corporate bonds in a similar proportion to the index. And it can match such
index features as:

. average time to maturity for both government and corporate debt

. bonds' COUPON RATE
<PAGE>

. economic sectors represented by the bonds in the Fund's index are in roughly
the same proportion that they are represented in the entire index

. creditworthiness of the corporate bonds it holds (matching the
creditworthiness of US government bonds is not a relevant consideration,
since all US government debt qualifies for the highest credit ratings)

. whether or not corporate bonds that it holds are CALLABLE

Although this approach has proven an effective means of approximating index
performance in the past, the Fund's holdings are not expected to track index
performance with the accuracy achieved by completely replicating an index.

SIDEBAR: DEFINING TERMS. A bond's COUPON RATE is the interest rate it pays
based on its face value. Buyers who purchase the bond at face value will
receive the coupon rate. If they sell the bond before maturity for more or
less than they paid, the new owners will earn interest at a different rate
from the coupon.

Some corporate bonds are CALLABLE, which means the borrower has the right
to repay them before maturity. This feature usually benefits borrowers,
since they can pay off the bonds when interest rates have fallen. But it
puts bondholders at a disadvantage, since they have to reinvest the
proceeds of the repayment at a time when they may earn less interest
income. Lenders generally demand a higher interest rate from callable bonds
as a result.

ALLOCATION FUNDS

A FURTHER DISCUSSION OF INVESTMENT OBJECTIVES

The Asset Allocation Fund and the US Treasury Allocation Fund both seek to
achieve over the long term a high level of total return, including net realized
and unrealized capital gains and net investment income, consistent with
reasonable risk.

ASSET ALLOCATION FUND INVESTMENT MODEL

The Asset Allocation Fund's asset mix is determined by a sophisticated
mathematical model developed in 1973 and has since been continually refined.
BGFA's investment professionals conduct ongoing research to enhance the model
and ensure that it is keeping pace with the constantly changing financial
markets. Using this model, BGFA gains a consistent and objective structure for
making investment decisions. Unlike traditional investment funds that employ
individual portfolio managers who make decisions on a more subjective basis,
BGFA applies a scientific approach to investing through the use of mathematical
models.
<PAGE>

The model for the Asset Allocation Fund incorporates the following factors:

. comprehensive data on stock, Treasury bond and money market expected returns

. probable risk of losses in each of these markets

. information on how these risks correlate: whether, for example, Treasury
bonds' cyclical ups and downs have tended to moderate or amplify the cyclical
ups and downs in S&P 500 stocks

The model generates a recommended asset mix that is evaluated by a team of
investment professionals. The allocation may shift significantly in response to
changing market and economic conditions.

US TREASURY ALLOCATION FUND INVESTMENT MODEL

A similar model determines investment strategy for the US Treasury Allocation
Fund, but it concentrates its analysis on maturity classes of Treasury
securities. It combines:

. comprehensive return data

. statistically predictable variations from expected returns (these variations
have led to reduced returns but rarely losses in the Treasury securities
market, which is typically more stable than the market for stocks)

. information on how varying returns correlate--what impact, for example, have
reduced returns for short-term bills had on returns for long-term bonds

Unlike in the Asset Allocation model, where opportunities in other markets
influence allocation, transaction costs help determine modifications in the US
Treasury Allocation. The opportunities for additional return are relatively
small in a stable market like US Treasury securities, so the investment adviser
decides whether or not the cost of buying and selling securities outweighs the
potential gains identified by the model.

INVESTING IN FUTURES

Both Index and Allocation Funds may invest in INDEX FUTURES CONTRACTS. This
tactic can reduce the costs associated with direct investing. It also allows the
Funds to approach the returns of a fully invested portfolio while keeping cash
on hand, either in anticipation of shareholder redemptions or because they have
not yet invested new shareholder money.
<PAGE>

SIDEBAR: DEFINING TERMS: INDEX FUTURES CONTRACTS are standardized
agreements between two parties that commit one party to sell and the other
party to buy a stipulated quantity of a market index at a set price on or
before a given date in the future. The seller never actually delivers
"shares" of the index or shares of all the stocks in the index. Instead,
the buyer and the seller settle the difference in cash between the contract
price and the market price on the agreed-upon date--the buyer paying the
difference if the actual price is lower than the contract price and the
seller paying the difference if the actual price is higher.

A FURTHER DISCUSSION OF RISK

In addition to the general risks of investing, the Index and Allocation Funds
share several specific risks.

DERIVATIVES

A derivative is a financial contract whose value depends on, or is derived from,
the value of an underlying asset such as a security or an index. Index futures
contracts are considered derivatives because they derive their value from the
prices of the indexes. The floating rate or variable rate bonds that the Funds
may purchase are also considered derivatives. Compared to conventional
securities, derivatives can be more sensitive to changes in interest rates or to
sudden fluctuations in market prices.

YEAR 2000 RISK

Most of the services provided to the Funds 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 Funds' principal service providers have informed BGFA 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
Funds invest could also be negatively affected.

For a complete analysis of Fund risks, please refer to the Funds' Statement of
Additional Information, which is incorporated by reference and is available free
of charge from your shareholder servicing agent or directly by calling 1 888 204
3956.
<PAGE>

DETAILS IN COMMON

MANAGEMENT OF THE FUNDS

INVESTMENT ADVISER

The Funds are feeder funds that invest all of their assets in similarly named
Master Portfolios. BGFA provides investment guidance and policy direction for
each of the Master Portfolios. For its services to the Funds in the last fiscal
year, BGFA received monthly fees based on the following annual rates of each
Master Portfolio's average daily net assets:

-----------------------------------------------------------------------
FUND ANNUAL MANAGEMENT FEE
-----------------------------------------------------------------------
Bond Index Fund 0.08%
-----------------------------------------------------------------------
S&P 500 Stock Fund 0.05%
-----------------------------------------------------------------------
Asset Allocation Fund 0.35%
-----------------------------------------------------------------------
US Treasury Allocation Fund 0.30%
-----------------------------------------------------------------------

Unlike many traditional actively managed investment funds, there is no single
portfolio manager who makes investment decisions for the Funds. Instead, Index
Funds track their respective indexes, and a team of investment professionals
evaluate recommendations made by BGFA's mathematical models for the Allocation
Funds. The process reflects BGFA's commitment to an objective and consistent
investment management structure.

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. BGI, BGFA, Barclays Bank and their affiliates deal, trade and invest
for their own accounts in the types of securities in which the Funds' Master
Portfolios may also invest. BGFA does not obtain or use inside information in
making investment decisions on behalf of the Master Portfolios.

ADMINISTRATIVE SERVICES

The Funds' co-administrators, BGI and Stephens Inc., a full service
broker/dealer, provide services related to:

. management of the Funds' non-investment operations

. preparation of reports for each Fund's Board of Directors
<PAGE>

. preparation of reports required by the Securities and Exchange Commission and
required filings with state securities commissions

. preparation of proxy statements and shareholder reports

BGI and Stephens received a combined fee based on the following rates of each
Fund's average daily net assets in the last fiscal year. In return for this fee,
BGI and Stephens have also agreed to absorb all expenses of the Funds other than
the investment advisory fee.

----------------------------------------------------------------------
FUND ANNUAL ADMINISTRATIVE FEE
----------------------------------------------------------------------
Bond Index Fund 0.15%
----------------------------------------------------------------------
S&P 500 Stock Fund 0.15%
----------------------------------------------------------------------
Asset Allocation Fund 0.40%
----------------------------------------------------------------------
US Treasury Allocation Fund 0.40%
----------------------------------------------------------------------

SHAREHOLDER INFORMATION

WHO IS ELIGIBLE TO INVEST

To be eligible to purchase Index or Allocation Fund shares, you must:

. invest through an employer-sponsored or individual retirement savings plan

. invest the proceeds rolled over from such plan into an Individual Retirement
Account

. maintain an account with BGI or one of the Funds' SHAREHOLDER SERVICING
AGENTS authorized to sell and service Fund shares, or

. invest a minimum of $1 million directly through BGI.

SIDEBAR: DEFINING TERMS. BGI services individual Fund accounts through
SHAREHOLDER SERVICING AGENTS that it has appointed. In addition to
distributing shares to eligible investors, shareholder servicing agents may
answer shareholder inquiries, keep records and provide reports on the
status of individual accounts. The Funds do not charge extra for these
services but compensate shareholder servicing agents from the fees the
Funds receive for their operating expenses.

CALCULATING THE FUNDS' SHARE PRICE

BGFA calculates a Funds' share price (also known as a fund's net asset value) in
accordance with the standard formula for valuing mutual fund shares at the close
of regular trading (normally 4 p.m. Eastern time) every day the New York Stock
Exchange is open. The formula calls for deducting all of a Fund's liabilities
from the total value of its assets--the market value of the
<PAGE>

securities it holds, plus cash reserves--and dividing the result by the number
of shares outstanding. BGFA values most of the securities in the Funds at their
current market prices. If such prices are not readily available, the adviser
estimates the securities' fair value in accordance with guidelines approved by
the Master Portfolios' Boards of Trustees. Bonds and notes with remaining
maturities of 60 days or less are valued according to the AMORTIZED COST METHOD.

SIDEBAR: DEFINING TERMS. The AMORTIZED COST METHOD marks down any premium
on short-term debt that the Funds buy, or marks up any discount, at a
constant rate until maturity. It does not reflect daily fluctuations in
market value.

DIVIDENDS AND DISTRIBUTIONS

The S&P 500 Stock Fund pays out dividends to investors every quarter. The Bond
Index Fund, the Asset Allocation Fund and the US Treasury Allocation Fund pay
dividends to investors on a monthly basis. All the Funds distribute their
capital gains, if any, to stockholders annually. The Funds automatically
reinvest dividends and distributions, acquiring additional shares at net asset
value, unless you request payment in cash.

TAXES

The Funds' shareholders, not the Funds themselves, ordinarily pay taxes on the
Funds' earnings. You will owe the taxes whether or not you choose to receive
distributions and dividends as cash.

The amount of taxes you owe will vary from year to year, based on the amount of
dividends and capital gain distributions the Funds pay out. Normally, the taxes
will be due in the year dividends and distributions are paid, except for
dividends and 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:

------------------------------------------------------------------------------
TRANSACTION TAX STATUS
------------------------------------------------------------------------------
Income dividends Ordinary income
------------------------------------------------------------------------------
Short-term capital gain distributions Ordinary income
------------------------------------------------------------------------------
Long-term capital gain distributions Capital gain
------------------------------------------------------------------------------

In addition, if you sell Fund shares you may have a capital gain or loss.

------------------------------------------------------------------------------
TRANSACTION TAX STATUS
------------------------------------------------------------------------------
<PAGE>

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

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 advisor about
your investment.

MASTER/FEEDER MUTUAL FUND STRUCTURE

The Funds do not have their own investment adviser. Instead, each Fund invests
all of its assets in a separate mutual fund, called a Master Portfolio, that has
a substantially similar investment objective as the individual Funds. BGFA
serves as investment adviser to each Master Portfolio. The Master Portfolios may
accept investments from other feeder funds.

Feeder fund expenses
- --------------------

The feeders bear the Master Portfolio's expenses in proportion to the amount of
assets each invests in the Portfolio. Each feeder can set its own transaction
minimums, fund-specific expenses and conditions.

Feeder fund rights
- ------------------

Under the master/feeder structure, each 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 shareholders' best interests. If the Directors withdraw the
Fund's assets, they would then consider whether the Fund should hire its own
investment adviser, invest in another master portfolio or take other action.

FINANCIAL HIGHLIGHTS

The tables below provide a picture of each Fund's financial performance since
inception. The information selected reflects financial results for a single Fund
share. The total returns in the tables represent the rates of return that an
investor would have earned or lost on an investment in each of the Funds,
assuming reinvestment of all dividends and distributions. The information has
been audited by KPMG LLP, independent auditors, whose report, along with the
Funds' financial statements, is included in the Funds' annual reports. You may
obtain copies of the annual reports at no cost by calling 1 888 204 3956 toll-
free, 8 a.m. to 5 p.m. Eastern time, Monday through Friday.
<PAGE>

FINANCIAL HIGHLIGHTS TABLES TK

BACK COVER

For more detailed information on the Funds, request a copy of their annual and
semi-annual reports to shareholders and their Statements of Additional
Information (SAI). The annual and semi-annual reports discuss Fund investments
over the last fiscal year. They also review the market conditions and investment
strategies that affected Fund performance.

The SAI provides detailed information on the Funds. 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 Funds.

If you have any questions about the Funds or wish to obtain both the reports and
SAI free of charge, please call the Funds' toll-free number:

1 888 204 3956

Or you may write Barclays Global Investors Funds:

C/O INVESTORS BANK & TRUST CO.
P.O. BOX 9130
MAIL CODE MFD23
BOSTON, MA 02117-9130

You can also obtain this information through the Internet on the Securities and
Exchange Commission's Website:

HTTP://WWW.SEC.GOV
- ------------------

The Securities and Exchange Commission will furnish hard copies of the
documents, upon payment of a duplicating fee, through the Public Reference
Section. Address your request to:

PUBLIC REFERENCE SECTION OF THE SEC
WASHINGTON, D.C. 20549-6009

You can also review and copy the documents at the Securities and Exchange
Commission's Public Reference Room in Washington D.C. Call the Commission at 1
800 SEC 0330 for further details.

BARCLAYS GLOBAL INVESTORS FUNDS
[TK: BGI'S INVESTMENT COMPANY ACT FILE NUMBER]
<PAGE>

Barclays Global Investors Funds
Money Market Fund

Providing income and preserving capital

Prospectus
June 30, 1999

Barclays Global Fund Advisors
Investment Adviser

TABLE OF CONTENTS

FUND BASICS

Investment Objective

Principal Investment Strategy

Principal Risk Factors

Investment Returns and 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 Money Market Fund invests all of its assets in a Manager 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 idicated. A detailed examination of the relationship of
the Fund to its Master Potfolio appears on page TK.
<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 Money Market Fund shares, you must:

. invest through an employer-sponsored or individual retirement savings plan
. invest the proceeds rolled over from such a plan into an Individual
Retirement Account
. maintain an account with one of the Fund's SHAREHOLDER SERVICING AGENTS
authorized to sell and service Fund shares or
. invest a minimum of $1 million directly through Barclays Global Investors
(BGI)

SIDEBAR: DEFINING TERMS. BGI services individual Money Market Fund
accounts through SHAREHOLDER SERVICING AGENTS that it has appointed. In
addition to buying and selling shares on behalf of eligible investors,
shareholder servicing agents may answer shareholder inquiries, keep
records and provide reports on the status of individual accounts. The
Money Market Fund does not charge extra for these services, but
compensates shareholder servicing agents as part of their operating
expenses.

INVESTMENT RETURNS AND OPERATING EXPENSES
Total returns (after fees and expenses)

The bar chart and the table in this section can help you evaluate the potential
risk and return of investing in the Money Market Fund by showing the changes in
the Fund's performance from year to year. The returns for the Fund are shown for
each full calendar year since its inception.

Year-by-year returns*
(each full calendar year since inception)

MONEY MARKET FUND
[bar chart]
<PAGE>

* The Money Market Fund's return for the quarter ending March 31, 1999 was TK%

The highest quarterly return for the Money Market Fund since inception is TK%
for Q 19__ and the lowest is TK% for Q 19__.

The Fund's past performance is no indication of how it will perform in the
future.

AVERAGE ANNUAL RETURNS
(as of December 31, 1998)

<TABLE>
<CAPTION>
SINCE INCEPTION
ONE YEAR FIVE YEARS (JULY 2, 1993)
------------------------------------------------------
TK% TK% TK%
------------------------------------------------------
<S> <C> <C>
</TABLE>

As of December 31, 1998, the Fund's SEVEN-DAY YIELD was TK%. 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.

ANNUAL FUND OPERATING 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.

ANNUAL FUND OPERATING EXPENSES

<TABLE>
<CAPTION>
PERCENTAGE OF AVERAGE
DAILY NET ASSETS
---------------------------------------------------------------------
<S> <C>
Management fees 0.10%
---------------------------------------------------------------------
Other fees 0.35%
---------------------------------------------------------------------
</TABLE>
<PAGE>

---------------------------------------------------------------------
Total Fund operating expenses* 0.45%
---------------------------------------------------------------------

* Information on annual Fund operating expenses reflects the
combined expenses of the Fund and the Master Portfolio in which
it invests.

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>
----------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------------------------------------------------------
$45 $TK $TK $TK
----------------------------------------------------------
<S> <C> <C> <C>
</TABLE>

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 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.
<PAGE>

. If the securities are unrated, the Investment Adviser must have determined
that their credit compares with the credit of the rated securities it is
permitted to buy. It must make this comparison in accordance with
guidelines adopted by the Master Portfolio's Board of Trustees./1/
. The principal and interest of all securities in the Master Portfolio are
payable in US dollars.

Within these guidelines, the Fund may invest in US and foreign government debt,
including the debt of agencies and instrumentalities, such as Fannie Mae and the
Student Loan Marketing Association, US and foreign BANK OBLIGATIONS, CORPORATE
OBLIGATIONS, REPURCHASE AGREEMENTS, and ASSET-BACKED SECURITIES.

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.

CORPORATE OBLIGATIONS include unsecured debt instruments, such as
commerical paper and corporate notes, issued by financial institutions,
insurance companies and industrial corporations.

REPURCHASE AGREEMENTS obligate a seller of US government or other high-
quality securities to buy them back from the Fund within a specified period
of time at an agreed-upon price.

ASSET-BACKED SECURITIES are financial instruments collateralized by one or
more types of assets, including loans and receivables.

A FURTHER DISCUSSION OF RISK
YEAR 2000 RISK

__________________
/1/ A detailed examination of the relationship of the Fund to its Master
Portfolio appears on page TK.
<PAGE>

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 of the same name. BGFA provides investment guidance and policy
direction for the Master Portfolio. For its services in the last fiscal year,
BGFA received a fee of 0.10% of the Master Portfolio's average daily net assets.

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
<PAGE>

. preparation of required reports for the Securities and Exchange Commission
and state securities commissions.
. preparation of proxy statements and shareholder reports

BGI and Stephens received a combined monthly fee of 0.35% of the Fund's average
daily net assets during the last fiscal year. 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.

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.

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.
<PAGE>

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.

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.
<PAGE>

MASTER/FEEDER MUTUAL FUND STRUCTURE
The Fund does not have its own investment adviser. Instead, the Fund invests all
of its assets in a separate mutual fund, called a Master Portfolio, that has a
substantially similar investment objective as the Fund. BGFA serves as
Investment Adviser to the Master Portfolio. The Master Portfolios may accept
investments from other feeder funds.

Feeder fund expenses
- --------------------
The feeders bear the Master Portfolio's expenses in proportion to the amount of
assets each invests in the Portfolio. Each feeder can set its own transaction
minimums, fund-specific expenses and conditions.

Feeder fund rights
- ------------------
Under the master/feeder structure, the Fund's Board of Directors retains the
right to withdraw the Fund's assets from the Master Portfolio if it believes
doing so is in the shareholders' best interests. If the Fund's Board of
Directors withdraws the 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.

FINANCIAL HIGHLIGHTS
The table below provides a picture of the Money Market Fund's financial
performance since inception. The information selected reflects financial results
for a single Fund share. The total returns in the table represent the rates of
return that an investor would have earned or lost on an investment in the Fund,
assuming reinvestment of all dividends and distributions. The information has
been audited by KPMG LLP, independent auditors, whose report, along with the
Fund's financial statements, is included in the Fund's annual reports. You may
obtain copies of the annual reports at no cost by calling 1 888 204 3956 toll-
free, 8 a.m. to 5 p.m. Eastern time, Monday through Friday.

FINANCIAL HIGHLIGHTS TABLE TK
<PAGE>

BACK COVER

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 Funds.

If you have any questions about the Funds or wish to obtain both the reports and
SAI free of charge, please call the Funds' toll-free number:

1 888 204 3956

Or you may write Barclays Global Investors Funds:

C/O INVESTORS BANK & TRUST CO.
P.O. BOX 9130
MAIL CODE MFD23
BOSTON, MA 02117-9130

You can also obtain this information through the Internet on the Securities and
Exchange Commission's Website:

HTTP://WWW.SEC.GOV
- ------------------

The Securities and Exchange Commission will furnish hard copies of the
documents, upon payment of a duplicating fee, through the Public Reference
Section. Address your request to:

PUBLIC REFERENCE SECTION OF THE SEC
WASHINGTON, D.C. 20549-6009

You can also review and copy the documents at the Securities and Exchange
Commission's Public Reference Room in Washington D.C. Call the Commission at 1
800 SEC 0330 for further details.

BARCLAYS GLOBAL INVESTORS FUNDS
[TK: BGI'S INVESTMENT COMPANY ACT FILE NUMBER]
<PAGE>

[cover]

LifePath Funds
LifePath 2000/(R)/
LifePath 2010/(R)/
LifePath 2020/(R)/
LifePath 2030/(R)/
LifePath 2040/(R)/

The first mutual funds designed to provide comprehensive asset allocation
strategies for the individual investor

Prospectus
June 30, 1999

Barclays Global Fund Advisors
Investment Adviser

TABLE OF CONTENTS

LIFEPATH BASICS

LIFEPATH GOAL AND INVESTMENT OBJECTIVE

PRINCIPAL INVESTMENT STRATEGIES

PRINCIPAL RISK FACTORS

INVESTMENT RETURNS AND OPERATING EXPENSES

LIFEPATH DETAILS

THE LIFEPATH INVESTMENT MISSION

THE LIFEPATH INVESTMENT MODEL

PRINCIPAL INVESTMENTS

A FURTHER DISCUSSION OF RISK

MANAGEMENT OF THE FUNDS

SHAREHOLDER INFORMATION

FINANCIAL HIGHLIGHTS
<PAGE>

LIFEPATH BASICS

LIFEPATH GOAL AND INVESTMENT OBJECTIVE

GOAL: A COMPREHENSIVE INVESTMENT STRATEGY

The LifePath Funds/1/ offer investors comprehensive ASSET ALLOCATION investment
strategies tailored to the time when they expect to begin withdrawing assets.

SIDEBAR: DEFINING TERMS. Your ASSET ALLOCATION, or investment mix, divides
your investments among broad classes of assets: stocks, bonds and money-
market instruments

INVESTMENT OBJECTIVE

Each Fund seeks to maximize assets available for retirement or other purposes,
consistent with the QUANTITATIVELY MEASURED RISK that investors on average may
be willing to accept. Each Fund has a different level of risk and the amount of
risk is reflected in the year (2000, 2010, 2020, etc.) in its name. The Funds
with shorter TIME HORIZONS (LifePath 2000 and LifePath 2010, for instance) will
tend to be less risky and have lower expected returns than the Funds with longer
time horizons (LifePath 2030 and LifePath 2040).

SIDEBAR: DEFINING TERMS. QUANTITATIVELY MEASURED RISK gauges both the
frequency and degree to which an asset class will perform below the long-
term expected average.

An investment's TIME HORIZON marks the point when investors plan to start
making net withdrawals. As a general rule, investors with a longer time
horizon have a greater tolerance for risk than investors with a shorter
time horizon. Long-term investors are more likely to accept a greater risk
of short-term loss for the opportunity of achieving greater long-term
gains.

____________________
/1/ Each LifePath 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. For simplicity's sake, all discussion of investment
objectives, strategies and risks of a particular LifePath Fund refers also
to the objectives, strategies and risks of the its Master Portfolio, unless
otherwise indicated. A detailed examination of the relationship of the Funds
to their Master Portfolios appears on page TK.

1
<PAGE>

PRINCIPAL INVESTMENT STRATEGIES

Each LifePath Fund holds stocks, bonds and short-term money market instruments
in proportions suggested by its own comprehensive strategy. The strategies go
further, allocating assets among INDEXES and sub-categories within various
investment classes. Some of the sub-categories are well-known broad-based market
indexes, such as the S&P 500 index of large-company stocks, and others were
specifically created to reflect a particular market segment. This broad
diversification is designed to produce the highest expected returns for a given
level of risk.

SIDEBAR: DEFINING TERMS. INDEXES are composed of groups of securities
chosen to represent an entire stock or bond market, or a major segment.
Indexes may include securities that meet objective criteria, such as
country of origin, industry sector or company size. Including a security in
an index means merely that it has satisfied the selection criteria. It
implies no expectation about performance.

ASSET ALLOCATION DECISIONS

In buying securities for each Fund, Barclays Global Fund Advisors (BGFA), the
Funds' INVESTMENT ADVISER, does not select individual companies. Instead, BGFA
focuses on selecting a mix of indexes by measuring their risk level and expected
returns based on a proprietary set of criteria. The Funds then allocate a
portion of their assets to each index appropriate for each individual Fund.
Where possible, the Funds buy all the securities that comprise the index. If the
index includes too many securities to buy them all, the Funds buy a
representative sample. The Funds seek to match the index's return as closely as
possible. The Funds focus on the selection of indexes or asset classes and do
not try to avoid individual under-performing securities investments nor do they
try to pick individual investments that might outperform the index.

This strategy stems from the belief that asset allocation decisions--which index
or investment category you choose--matter more to overall investment performance
than individual security selection--which stock or bond you choose.
<PAGE>

SIDEBAR: DEFINING TERMS. BGFA, a subsidiary of Barclays Global Investors,
N.A. (BGI), serves as the LifePath Funds' INVESTMENT ADVISER. BGFA makes
the day-to-day decisions on buying and selling securities for the Funds and
BGI conducts the research leading to those decisions. Responsible for
assets worth in excess of $615, BGI is the world's largest asset manager
for institutions such as major endowments and corporate and government
pension plans. BGI pioneered research in asset allocation, indexed
investing and investment modeling. To make this experience available to
individual investors, BGFA introduced the first comprehensive allocation
mutual funds to match changing time horizons in 1994.

RISK TOLERANCE

Two general rules of investing have shaped the Funds' strategies:

. Higher investment returns usually go hand-in-hand with higher risk; put
another way, the greater an investment's potential return, the greater its
potential for loss. Historically, for example, stocks have outperformed
bonds, but the worst year for stocks on record was much worse than the worst
year for bonds.

. The longer the investors' time horizon, the greater their risk tolerance;
their investments have more time to recoup their losses.

The LifePath Funds with longer time horizons take more risks. This normally
gives investors the potential for greater returns than the Funds with shorter
time horizons. As a Fund approaches its time horizon, and its investors have
less time to recover from market declines, the Fund systematically reduces the
level of risk. This systematic shift toward more stable investments should help
secure the value of your LifePath investment as the time nears for you to begin
drawing on it.

BGFA does not limit the analysis to long-term expectations. The Funds also take
into account short-term market conditions. If conditions in a market have
increased risk levels of an investment type or index to a point that its risk
outweighs its expected returns, the Funds will not allocate as much of their
assets to it as they otherwise might. The Funds may reduce their allocation,
even when risks have not increased, because the expected return of the
investment has fallen. This
<PAGE>

usually happens because prices in a market have risen so high that the potential
for further gains appears limited.

MODEL-DRIVEN DECISIONS

The Funds' assets are allocated across investment groups according to a
sophisticated mathematical model that was developed in 1993 and is continually
refined. BGFA's investment professionals conduct ongoing research to enhance the
model and to ensure it is keeping pace with the world's constantly changing
financial markets. Using this model, BGFA gains a consistent and objective
structure for making investment decisions. Unlike traditional investment funds
that employ individual portfolio managers who make decisions on a more
subjective basis, BGFA applies a scientific approach to investing through the
use of such models.

AFTER A FUND REACHES ITS TIME HORIZON

By the time a Fund reaches the decade identified by its name, it has reached its
least aggressive state in terms of building capital. This does not mean that it
invests exclusively in money market instruments. Rather, because BGFA believes
that most investors are still willing to take some risks in pursuing returns
even while drawing on their investments, the Fund continues to allocate a
portion of its assets to stocks and bonds, in addition to money market
instruments. On average, BGFA expects that about 20% of the Fund's assets will
be invested in stocks, with the rest in bonds and money market instruments.

PRINCIPAL RISK FACTORS

STOCK INVESTMENT RISK

The LifePath Funds are subject to the risks of stock investing. These include
both short-term and prolonged price declines. Because the Funds do not select
individual companies within each index, the Funds may hold stocks in companies
that present risks that an investment adviser researching individual stocks
might seek to avoid.

BOND INVESTMENT RISK
<PAGE>

The bonds held by the Funds are subject to the risks of fixed income investing.
Although these risks include short-term and prolonged price declines, such price
declines in the bond market have tended to be more moderate than stock declines.

Bonds also face credit risk--the risk that the borrowers that issued a bond may
not repay principal or interest when due. US Treasury bonds have minimal credit
risk because they are backed by the US government's full faith and credit.
However, not all securities issued by government agencies are backed by the
government's full faith and credit.

All bonds, including those issued by the government and its agencies, are
subject to interest rate risk. Their prices tend to move in the opposite
direction from market interest rate movements. When interest rates go up, bond
prices tend to fall; when rates fall, prices tend to rise. Bonds with longer
maturities are affected more by interest rate movements than bonds with shorter
maturities.

RISKS OF FOREIGN INVESTMENT

Foreign securities often trade on markets that have lower transaction volumes
than stock markets in the United States. Stock prices can be more volatile as a
result. Investing in foreign markets is generally more expensive, with higher
commissions on trades and currency exchanges and higher custodial fees.
Currencies may weaken relative to the US dollar, eroding the dollar value of
investments denominated in foreign currencies.

MODEL RISK

Although the model used to manage the Funds' assets has been developed and
refined over many years, BGFA can offer no assurance that its recommended
allocation will either maximize returns or minimize risks. Nor can BGFA offer
assurance that a recommended allocation will provide the ideal allocation in all
circumstances for every investor with a particular time horizon.
<PAGE>

LifePath Fund investments are not bank deposits or obligations of BGFA or BGI.
They are not guaranteed or endorsed by the Federal Deposit Insurance Corporation
or any other government agency.

WHO MAY WANT TO INVEST IN LIFEPATH FUNDS

Which Fund to consider
- ----------------------

In making your investment decision, you should keep in mind:

. each Fund's investment strategy derives from the risk tolerance of average
investors with a particular time horizon

. the Fund's time horizon is the decade that begins with the year in its name

Based strictly on statistical considerations, you would want to invest in the
LifePath Fund corresponding to the decade when you expect to begin withdrawing
your investment (2010, 2020, etc.). But statistical considerations alone may not
govern your investment decision, and the five LifePath Funds allow for that,
too. If you are willing to assume greater risk in exchange for the possibility
of higher returns, you might direct some or all of your assets to a Lifepath
Fund with a longer time horizon. If you desire a more secure investment, and are
willing to forego some potential returns, you might direct some or all of your
assets to a Lifepath Fund with a shorter time horizon. The final choice is
yours.

Who is eligible
- ---------------

The LifePath Funds are designed, in part, as vehicles for retirement savings. To
be eligible to purchase LifePath shares, you must:

. invest through an employer-sponsored or individual retirement savings plan

. invest the proceeds "rolled over" from such a plan into an Individual
Retirement Account

. maintain an account with one of the SHAREHOLDER SERVICING AGENTS authorized
to sell and service LifePath shares, or

. invest a minimum of $1 million directly through BGI.

SIDEBAR: DEFINING TERMS. BGI services individual LifePath Fund accounts
through SHAREHOLDER SERVICING AGENTS that it has appointed. In addition to
buying and selling
<PAGE>

Fund shares on behalf of eligible investors, shareholder servicing agents
may answer shareholder inquiries, keep records and provide reports on the
status of individual accounts. The LifePath Funds do not charge extra for
these services, but compensate shareholder servicing agents as part of
their operating expenses.

INVESTMENT RETURNS AND OPERATING EXPENSES

TOTAL RETURNS (AFTER FEES AND EXPENSES)

The bar charts and tables in this section can help you evaluate the potential
risk and return of investing in each of the Funds by showing the changes in
their performance from year to year. The bar charts show the returns for each
Fund for each full calendar year since its inception. The average annual return
tables compare each Fund's average annual return with the return of a
corresponding index for one year and since inception:

YEAR-BY-YEAR RETURNS*
[bar chart]

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
TK TK TK TK TK TK TK TK TK TK
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997 1998 1997 1998 1997 1998 1997 1998 1997 1998
----------------------------------------------------------------------------------
LIFEPATH 2000 LIFEPATH 2010 LIFEPATH 2020 LIFEPATH 2030 LIFEPATH 2040
----------------------------------------------------------------------------------
</TABLE>

* Listed below is each Fund's return for the quarter ending March 31, 1999:
LifePath 2000 TK%
LifePath 2010 TK%
LifePath 2020 TK%
LifePath 2030 TK%
LifePath 2040 TK%

The highest quarterly returns for each LifePath Fund since inception are listed
below:

<TABLE>
<CAPTION>
-------------------------------------------
HIGHEST
QUARTERLY RETURN QUARTER YEAR
---------------------------------------------------------------
<S> <C> <C> <C>
LifePath 2000 TK% TK TK
---------------------------------------------------------------
LifePath 2010 TK% TK TK
---------------------------------------------------------------
LifePath 2020 TK% TK TK
---------------------------------------------------------------
LifePath 2030 TK% TK TK
---------------------------------------------------------------
LifePath 2040 TK% TK TK
---------------------------------------------------------------
</TABLE>
<PAGE>

The lowest quarterly returns for each LifePath Fund since inception are listed
below:

<TABLE>
<CAPTION>
-------------------------------------------
LOWEST
QUARTERLY RETURN QUARTER YEAR
---------------------------------------------------------------
<S> <C> <C> <C>
LifePath 2000 TK% TK TK
---------------------------------------------------------------
LifePath 2010 TK% TK TK
---------------------------------------------------------------
LifePath 2020 TK% TK TK
---------------------------------------------------------------
LifePath 2030 TK% TK TK
---------------------------------------------------------------
LifePath 2040 TK% TK TK
---------------------------------------------------------------
</TABLE>

The Funds' past performance is not an indication of how they will perform in the
future.

AVERAGE ANNUAL RETURNS
(as of December 31, 1998)

<TABLE>
<CAPTION>
---------------------------------------------
SINCE INCEPTION
ONE YEAR (MARCH 26, 1996)
----------------------------------------------------------------------------
<S> <C> <C>
LifePath 2000 TK% TK%
----------------------------------------------------------------------------
LifePath 2010 TK% TK%
----------------------------------------------------------------------------
LifePath 2020 TK% TK%
----------------------------------------------------------------------------
LifePath 2030 TK% TK%
----------------------------------------------------------------------------
LifePath 2040 TK% TK%
----------------------------------------------------------------------------
S&P 500 TK% TK%
----------------------------------------------------------------------------
TK Index TK% TK%
----------------------------------------------------------------------------
</TABLE>

ANNUAL FUND OPERATING EXPENSES

This table describes the fees and expenses that you may pay if you buy and hold
LifePath Fund shares. The expenses are deducted from Fund assets, which means
you pay them indirectly.

LIFEPATH FUNDS ANNUAL OPERATING EXPENSES
(percentage of average daily net assets)

<TABLE>
<CAPTION>
----------------------------------------------------------
LIFEPATH LIFEPATH LIFEPATH LIFEPATH LIFEPATH
2000 2010 2020 2030 2040
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Management fees 0.55% 0.55% 0.55% 0.55% 0.55%
-----------------------------------------------------------------------------------
Other fees 0.40% 0.40% 0.40% 0.40% 0.40%
-----------------------------------------------------------------------------------
Total Fund operating 0.95% 0.95% 0.95% 0.95% 0.95%
expenses*
-----------------------------------------------------------------------------------
</TABLE>

* Information on annual operating expenses reflects the combined expenses of
the Funds and the Master Portfolios in which they invest.
<PAGE>

EXPENSE EXAMPLE

The example below is intended to help you compare the Funds' 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
LifePath Funds over the time periods shown. It assumes your investment earns an
annual return of 5% over the periods and that the Funds' expenses remain
constant. The 5% annual return is hypothetical. It does not represent actual or
expected performance.

<TABLE>
<CAPTION>
----------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
LifePath 2000 $TK $TK $TK $TK
---------------------------------------------------------------------
LifePath 2010 $TK $TK $TK $TK
---------------------------------------------------------------------
LifePath 2020 $TK $TK $TK $TK
---------------------------------------------------------------------
LifePath 2030 $TK $TK $TK $TK
---------------------------------------------------------------------
LifePath 2040 $TK $TK $TK $TK
---------------------------------------------------------------------
</TABLE>

LIFEPATH DETAILS

THE LIFEPATH INVESTMENT MISSION

With their comprehensive and methodical allocation strategies, the LifePath
Funds can serve as the core of an investor's portfolio.

The Funds seek to provide an asset allocation strategy designed to maximize
assets for retirement or other purposes consistent with the quantitatively
measured risk that investors, on average, may be willing to accept given their
investment time horizons. The Funds attempt to manage the investment risk in
each strategy for investors whose time horizons correspond to the decade in the
Fund's name. For example, LifePath 2000 is suggested for investors who plan to
begin withdrawing a substantial portion of their investment in the decade
beginning in the year 2000.
<PAGE>

Similarly, LifePath 2040 for investors who plan to begin withdrawing a
substantial portion of their investment in the decade beginning in the year
2040.

THE LIFEPATH INVESTMENT MODEL

Each LifePath Fund seeks to achieve its goal through an investment strategy that
relies on the BGFA's proprietary investment model. The model, developed in 1993
and continuously refined, combines:

. comprehensive data on the returns of the world's equity and bond markets

. the statistical risk of losses in each of these markets

. information on how these risks correlate: whether, for example, the cyclical
ups and downs in one market, such as bonds, tend to moderate or amplify the
cyclical ups and downs in another, such as stocks of large US companies

The model sets the Funds' strategic allocation targets. From an extensive
database, it calculates the expected return over time for a range of asset
allocations. Then the model selects the allocation, or investment mix, with the
highest expected return for a statistically determined risk of loss.

A Fund's allocation may shift significantly in response to changing market
conditions--since BGFA Funds' investment approach allows the Funds to adjust the
strategic allocation according to short-term investment considerations.

Long-term strategic considerations generally account for about 75% of a LifePath
Fund's asset allocation, and the short-term outlook accounts for about 25%.

HOW IT WORKS: SPENDING YOUR "RISK BUDGET" WISELY

One way to understand how the Lifepath Funds adjust their asset allocation is to
regard the statistically determined risk in each Fund as its "risk budget." Each
Fund's analysis of investor needs begins from how much its investors can afford
to lose--not from their investments' likely returns. This tolerance for loss is
the Fund's risk budget.
<PAGE>

Different investment allocations can have the same risk of loss but with
different expected returns. BGFA seeks the Fund allocations that offer the
highest expected return while keeping within a Fund's statistically determined
risk of loss. In other words, the Funds seek the highest expected return in
exchange for the various levels of risk most investors are willing to take.

Remember, expected returns are not guaranteed returns. They are average
projections based on comprehensive research and accepted principles of market
behavior. Likewise, statistically determined risk is not a projection of
potential loss. It covers the most likely scenarios, but it does not cover all
possible losses.

PRINCIPAL INVESTMENTS

The charts below illustrate the actual asset allocation as of year-end 1998 for
each LifePath Fund.

LIFEPATH ASSET WEIGHTINGS
(as of December 31, 1998)

LIFEPATH 2000 LIFEPATH 2010 LIFEPATH 2020 LIFEPATH 2030 LIFEPATH 2040

PIE CHARTS TK
(broken into 5 classes)

The LifePath Funds invest in the following widely recognized asset classes:

. money market instruments

. bonds

. stocks of the largest US companies

. stocks of all other publicly traded US corporations

. stocks that trade outside the United States

Within stocks and bonds are sub-categories of securities whose performance
correlates closely:

. Each of the stock capitalization categories can be cut in half according to
their price-to-book ratio--the ratio of the value of their traded stock to
the book value of their plant, equipment
<PAGE>

and other tangible assets. The half with the higher price-to-book ratio are
considered growth stocks and the half with the lower price-to-book ratio are
value stocks.

. US stocks outside the largest segment can be separated again, according to
the value of their traded stock (or capitalization), into mid-cap and small-
cap groupings.

. Utilities--closely regulated power generating companies--are generally mid-
size, but their performance differs enough from other mid-cap stocks to
warrant a distinct grouping.

. Micro-cap stocks--the smallest 5% of publicly traded companies--also
constitute their own grouping apart from the rest of the small-cap universe.

. US government bonds, bonds issued by corporations, mortgage-backed bonds and
foreign bonds form four separate sub-categories of bond investments.

Conventional asset allocation strategies target only the three broadest asset
classes--money market investments, bonds and stocks. Comprehensive asset
allocation strategies distribute investments methodically among the full range
of asset classes. The charts below list the indexes adopted or constructed to
track the performance of each of the asset classes in which the LifePath Funds
may invest.

INVESTMENT-GRADE BOND MARKET INDEXES

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
SUB-CATEGORY MATURITY RANGE INDEX PROVIDER
------------------------------------------------------------------------------------
<S> <C> <C>
Long-term government 10 years or more Lehman Brothers*
------------------------------------------------------------------------------------
Intermediate-term government More than 1 year/ Lehman Brothers
less than 10 years
------------------------------------------------------------------------------------
Long-term corporate 10 years or more Lehman Brothers
------------------------------------------------------------------------------------
Intermediate-term corporate More than 1 year/ Lehman Brothers
less than 10 years
------------------------------------------------------------------------------------
Mortgage-backed** More than 1 year Lehman Brothers
------------------------------------------------------------------------------------
Non-US world government One year or more Salomon Smith Barney *
------------------------------------------------------------------------------------
</TABLE>

* Lehman Brothers, Inc. and Salomon Smith Barney do not sponsor the LifePath
Funds or their Master Portfolios, nor are they affiliated in any way with
Barclays Global Fund Advisors.
** All fixed-coupon mortgage pass-throughs issued by the Federal National
Mortgage Association, the Government National Mortgage Association and the
Federal Home Loan Mortgage Corporation.
<PAGE>

SIDEBAR: DEFINING TERMS. INVESTMENT-GRADE BONDS rank in the four highest
categories, according to the statistical criteria established by rating
services such as Moody's Investors Services and Standard & Poor's Corp. to
determine a bond's creditworthiness and a bond issuer's financial strength.

MATURITY measures the number of years from the time a borrower issues a
bond to the date when the borrower must fully repay the loan, interest
included.

STOCK MARKET INDEXES

<TABLE>
<CAPTION>
------------------------------------------------------------------------------
CAPITALIZATION GROWTH/VALUE STOCK MARKET INDEX PROVIDER
------------------------------------------------------------------------------
<S> <C> <C> <C>
Large Value United States S&P/BARRA*
------------------------------------------------------------------------------
Large Growth United States S&P/BARRA
------------------------------------------------------------------------------
Large Both Major world markets, Morgan Stanley
excluding Japan Capital
International**
------------------------------------------------------------------------------
Large Both Japan Morgan Stanley
Capital
International
------------------------------------------------------------------------------
Medium Value United States BGI
------------------------------------------------------------------------------
Medium Growth United States BGI
------------------------------------------------------------------------------
Medium Electrical power United States BGI
and utility
companies
------------------------------------------------------------------------------
Small Value United States BGI
------------------------------------------------------------------------------
Small Growth United States BGI
------------------------------------------------------------------------------
Smallest 5% Both United States BGI
------------------------------------------------------------------------------
</TABLE>

* TK: S&P AND BARRA DISCLAIMER
** TK: MSCI DISCLAIMER

OPTIMIZING THE FUNDS' INVESTMENTS

In the case of some asset categories, most notably US large capitalization
growth and value stocks, the LifePath Funds can own every stock listed in the
index. Many of the other indexes consist of thousands of securities. As a
practical matter, the Funds cannot hold them all. Instead, the Funds employ a
technique known as optimization. The Funds select a group of securities
<PAGE>

whose diversity, fundamental characteristics and typical risks and returns will
closely match the index as a whole. Including a particular security in one of
the LifePath Funds in no way implies an opinion as to its attractiveness as an
investment on its own.

Just as the Funds may not invest in all the securities in the indexes, they may
invest in securities not included in any of the indexes. They may, for instance,
invest in American and European depositary receipts to gain exposure to foreign
stock markets. They may also invest in index futures contracts. This tactic can
reduce the costs associated with direct investing. It also allows the Funds to
closely match the returns of a fully invested portfolio while keeping currency
on hand to meet the Funds' cash requirements.

The LifePath Funds do not have to invest in every available index. Indeed, until
a LifePath Fund has reached a net asset level of $100 million to $150 million,
it is unlikely to invest in all the asset classes. More importantly, every asset
category may not be appropriate for every Fund. Some may be too volatile for the
Lifepath Funds with relatively short time horizons. Others may not offer enough
expected return for the Lifepath Funds with relatively distant time horizons.

SIDEBAR: DEFINING TERMS. DEPOSITARY RECEIPTS are receipts for shares of
foreign stocks held on deposit in US banks or banks of major European
countries. The receipts trade on the US or local European stock markets as
would normal stocks, entitling their owners to the dividends and capital
gains earned by the real shares stored in bank vaults.

INDEX FUTURES CONTRACTS are standardized agreements between two parties
that commit one party to sell and the other to buy a stipulated quantity
of a market index at a set price on or before a given date in the future.
The seller never actually delivers "shares" of the index or shares of all
the stocks in the index. Instead, the buyer and the seller settle the
difference in cash between the contract price and the market price on the
agreed-upon date--the buyer paying the difference if the actual price is
lower than the contract price and the seller paying the difference if the
actual price is higher.

THE FUNDS' MONEY MARKET INVESTMENTS

The Funds' money market investments consist of high-quality, short-term debt
obligations selected for their safety record and ability to maintain value. They
all must have remaining maturities of 397 days (about 13 months) or less. They
include:

. US government debt securities

. foreign and domestic bank obligations
<PAGE>

. corporate borrowings with less than a year to maturity

. REPURCHASE AGREEMENTS

SIDEBAR: DEFINING TERMS. REPURCHASE AGREEMENTS obligate a seller of US
government or other high-quality securities to buy them back from one of
the Funds within a specified period of time (usually one week or less) at
an agreed-upon price.

A FURTHER DISCUSSION OF RISK

Besides the general risks of investing, the LifePath Funds face several specific
risks.

DERIVATIVES

A derivative is a financial contract whose value depends on, or is derived from,
the value of an underlying asset such as a security or index. Index futures
contracts are considered derivatives because they derive their value from the
prices of the indexes. The floating rate or variable rate bonds that the Funds
may purchase are also considered derivatives. Compared to conventional
securities, derivatives can be more sensitive to changes in interest rates or to
sudden fluctuations in market prices.

YEAR 2000 RISK

For a complete analysis of LifePath Fund risks, please refer to the Funds'
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.
<PAGE>

MANAGEMENT OF THE FUNDS

INVESTMENT ADVISER

The LifePath Funds are feeder funds that invest all of their assets in similarly
named Master Portfolios. BGFA provides investment guidance and policy direction
for each of the Master Portfolios. For its services to the LifePath Funds in the
last fiscal year, BGFA received 0.55% of each Master Portfolio's average daily
net assets. Unlike many traditional actively managed funds, there is no single
portfolio manager who makes investment decisions for the LifePath Funds.
Instead, a team of investment professionals evaluate recommendations made by the
Funds' proprietary mathematical model. This process reflects BGFA's commitment
to an objective and consistent investment management structure.

BGI, BGFA, Barclays Bank and their affiliates deal, trade and invest for their
own accounts in the types of securities in which the LifePath Funds' Master
Portfolios may also invest. BGFA does not obtain or use inside information in
making investment decisions on behalf of the Master Portfolios.

ADMINISTRATIVE SERVICES

BGI and Stephens Inc., a full service broker/dealer, provide the following
services as the LifePath Funds' co-administrators:

. management of the Funds' non-investment operations

. preparation of reports for each Fund's Board of Directors

. preparation of reports required by the Securities and Exchange Commission and
state securities commissions

. preparation of proxy statements and shareholder reports
<PAGE>

BGI and Stephens received a combined monthly fee of 0.40% of each Fund's average
daily net assets during the last fiscal year. 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 FUNDS' SHARE PRICE

BGFA calculates the price (also known as a fund's net asset value) in
accordance with the standard formula for valuing mutual fund shares at the close
of regular trading (normally 4 p.m. Eastern time) every day the New York Stock
Exchange is open. The formula calls for deducting all of a 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.
BGFA values most of the securities in the Funds at their current market prices.
If such prices are not readily available, an estimate of the securities' fair
value in accordance with guidelines approved by the Master Portfolios' Boards of
Trustees. Bonds and notes with remaining maturities of 60 days or less are
valued according to the AMORTIZED COST METHOD.

Prices for securities that trade on foreign exchanges can fluctuate when the New
York Stock Exchange is closed and you cannot buy or sell Fund shares. Such price
fluctuations may ultimately affect the price of Fund shares when the New York
Stock Exchange reopens.

DIVIDENDS AND DISTRIBUTIONS

The Funds pay dividends every quarter. They distribute capital gains, if any,
annually. They automatically reinvest dividends and distributions, acquiring
additional shares at net asset value, unless you request payment in cash
instead.

TAXES
<PAGE>

The Funds' shareholders, not the Funds themselves, ordinarily pay taxes on the
Funds' earnings. You will owe the taxes whether or not you choose to receive
distributions and dividends as cash.

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 distribution Ordinary income
----------------------------------------------------------------------------
Long-term capital gain distribution Capital gain
----------------------------------------------------------------------------
</TABLE>

In addition, if 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 advisor about
your investment.

MASTER/FEEDER MUTUAL FUND STRUCTURE

The LifePath Funds do not have their own investment adviser. Instead, each
LifePath 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 each Master Portfolio. The Master
Portfolios may accept investments from other feeder funds.
<PAGE>

Feeder fund expenses
- --------------------

Feeder fund rights
- ------------------

FINANCIAL HIGHLIGHTS

The tables below provide a picture of each LifePath Fund's financial performance
since inception. The information selected reflects financial results for a
single Fund share. The total returns in the tables represent the rates of return
that an investor would have earned or lost on an investment in each of the
Funds, assuming reinvestment of all dividends and distributions. The information
has been audited by KPMG LLP, independent auditors, whose report, along with the
Funds' financial statements, is included in the Funds' annual reports. You may
obtain copies of the annual reports at no cost by calling 1 888 204 3956 toll-
free, 8 a.m. to 5 p.m. Eastern time, Monday through Friday.

FINANCIAL HIGHLIGHTS TABLE TK
<PAGE>

BACK COVER

For more detailed information on the LifePath Funds, request a copy of the
Funds' annual and semi-annual reports to shareholders and their Statements of
Additional Information (SAI). The annual and semi-annual reports discuss Fund
investments over the last fiscal year. They also review the market conditions
and investment strategies that affected Fund performance.

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 LifePath Funds.

If you have any questions about LifePath Funds or wish to obtain both the
reports and SAI free of charge, please call the Funds' toll-free number:

1 888 204 3956

Or you may write LifePath Funds:

C/O INVESTORS BANK & TRUST CO.
P.O. BOX 9130
MAIL CODE MFD23
BOSTON, MA 02117-9130

You can also obtain this information through the Internet on the Securities and
Exchange Commission's Website:

HTTP://WWW.SEC.GOV
- ------------------

The Securities and Exchange Commission will furnish hard copies of the
documents, upon payment of a duplicating fee, through the Public Reference
Section. Address your request to:

PUBLIC REFERENCE SECTION OF THE SEC
WASHINGTON, D.C. 20549-6009

You can also review and copy the documents at the Securities and Exchange
Commission's Public Reference Room in Washington, D.C. Call the Securities and
Exchange Commission at 1 800 SEC 0330 for further details.

BARCLAYS GLOBAL INVESTORS FUNDS
[TK: BGFA'S INVESTMENT COMPANY ACT FILE NUMBER]
<PAGE>

[COVER]

BARCLAYS GLOBAL INVESTORS FUNDS

SHAREHOLDER GUIDE

The information you need to manage you barclays global investors funds
investment

1
<PAGE>

SHAREHOLDER GUIDE

OWNING SHARES

WHO IS ELIGIBLE

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
IF YOU ARE A SPECIAL REQUIREMENTS INVESTOR'S PRIMARY CONTACT
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Participant in an Plans must have appointed a Employer's benefits or human
employer-sponsored shareholder servicing agent as Plan resources department
benefit plan Trustee or Plan Administrator
- ---------------------------------------------------------------------------------------------------
Other tax-deferred IRA, Keogh or other individual Shareholder servicing agent
investor retirement plan maintained with a
shareholder servicing agent that
offers the Funds
- ---------------------------------------------------------------------------------------------------
Qualified buyer Maintain an account with a Shareholder servicing agent
shareholder servicing agent that
offers BGI Funds
- ---------------------------------------------------------------------------------------------------
Direct buyer Make prior arrangements with BGI and BGI
invest at least $1 million (may be
waived in certain cases)
- ---------------------------------------------------------------------------------------------------
</TABLE>

Please note
- -----------
. The Funds have no investment minimums (except as indicated in the table
above).
. Shareholder servicing agents may have investment minimums or account
balance requirements that differ from those of the Funds.
. Barclays Global Fund Advisors (BGFA) must receive a completed application
before it can open your account
. Federal regulations require you to furnish a valid taxpayer identification
number when you open your account.

BUYING SHARES

HOW TO BUY SHARES

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
IF YOU ARE A INVEST THROUGH
- -------------------------------------------------------------------------------------------
<S> <C>
Plan participant Payroll deductions or make a direct
contribution by rolling over an amount from
another 401(k) plan or from a rollover IRA
(make arrangements through your employer)
- -------------------------------------------------------------------------------------------
Tax-deferred investor A shareholder servicing agent as provided in
- -------------------------------------------------------------------------------------------
</TABLE>

2
<PAGE>

<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------
your benefit plan documents*
- -------------------------------------------------------------------------------------------
Qualified buyer An account set up with your shareholder
servicing agent
- -------------------------------------------------------------------------------------------
Direct buyer BGI's transfer agent, Investors Bank & Trust
Company
- -------------------------------------------------------------------------------------------
</TABLE>

* Your shareholder servicing agent is responsible for supplying plan documents
itemizing account maintenance fees and describing the amount and nature of
the investments allowed by law.

Please note
- -----------
. You must submit your purchase order by the close of regular trading on the
New York Stock Exchange (4 p.m. Eastern time) to purchase shares at the day's
net asset value.
. Your shareholder servicing agent is responsible for transmitting your
purchase order and may impose an earlier deadline.
. If you are a direct buyer and your check bounces, the Funds reserve the right
to cancel the purchase and hold you responsible for any losses or fees.
. The Funds reserve the right to suspend the availability of any Fund shares.
They also have the right to reject any purchase request.
. The Funds do not issue share certificates.
. Direct buyers can add to their Funds by telephoned wire instructions or
through the mail.
- To invest by wire, just check that option on your account application when
you open your account. If you already have an account, call the toll-free
number to receive a bank-by-wire application.
- To invest by mail, make your check payable to the Fund of your choice.

Please include the Fund number and account number on your check. You will find
them on your monthly statements.

SELLING SHARES

HOW TO SELL SHARES AND AVOID TAX PENALTIES

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
IF YOU ARE A RESTRICTIONS*
- -----------------------------------------------------------------------------------------
<S> <C>
Plan participant Contact your Plan Sponsor or shareholder
servicing agent
- -----------------------------------------------------------------------------------------
Tax-deferred investor Contact your Plan Sponsor or shareholder
- -----------------------------------------------------------------------------------------
</TABLE>

3
<PAGE>

<TABLE>
<S> <C>
-----------------------------------------------------------------------------------------
servicing agent
-----------------------------------------------------------------------------------------
Qualified buyer Contact your shareholder servicing agent
-----------------------------------------------------------------------------------------
Direct buyer See information below
-----------------------------------------------------------------------------------------
</TABLE>

. The Funds reserve the right to send your sale proceeds in the form of
securities from their Master Portfolio.

SALES INSTRUCTIONS FOR DIRECT BUYERS

By phone
- --------
. Call the toll-free number listed any business day between 8 a.m. and 4 p.m.,
Eastern time.
. BGFA's transfer agent, Investors Bank and Trust (IBT), will employ procedures
to make sure your order is valid, but neither IBT nor the Funds may be held
liable for acting on telephone instructions IBT reasonably believes to be
valid.

By mail
- -------
. Indicate the dollar amount you wish to receive or the number of shares you
wish to sell in your sales order.
. Include your fund, account and taxpayer identification numbers.
. All account signatories must sign the order.

Please note
- -----------
. When a direct buyer purchases Fund shares and then quickly sells, the Funds
may delay the payment of proceeds up to ten days to ensure that purchase
checks have cleared.
. Direct buyers can request IBT to wire proceeds directly to their designated
bank account.*

_____________________
* If you direct the sale's proceeds to someone other than your account's owner
of record, to an address other than your account's address of record or to a
bank not designated previously, you must make your request in writing and
include a signature guarantee to help prevent fraud. You can obtain a
signature guarantee from most banks and securities dealers. A signature
guarantee is not a notarized signature.

4
<PAGE>

BACK FLAP

MANAGING YOUR BARCLAYS GLOBAL INVESTORS FUNDS INVESTMENT

IMPORTANT FACTS ABOUT BARCLAYS GLOBAL INVESTORS (BGI) FUNDS

CONTACTING BGI FUNDS

By telephone
- ------------
Call 1 888 204 3956, toll free, Monday through Friday 8a.m. to 4p.m.

By mail
- -------
Send your correspondence to: BGI Funds
c/o Investors Bank & Trust Co.
PO Box 9130
Mail Code MFD 23
Boston, MA 02117-9130

EXCHANGING SHARES

The Funds allow investors to exchange shares free of charge between BGI Funds.
You can obtain a prospectus of the Fund for which you wish to exchange your
shares by calling the toll-free number listed above.

The Funds may limit the number of times you may exchange shares if they believe
doing so is in the best interest of other Fund shareholders. They may also
modify or terminate this exchange privilege by giving 60 days' written notice.

SALE TERMS
. You may sell Fund shares at any time without paying a sales charge.
. You may sell Fund shares on any business day.
. You must submit your sales order by the close of regular trading on the New
York Stock Exchange (4 p.m. Eastern time) to receive the day's net asset
value.
. Your shareholder servicing agent is responsible for transmitting your sales
order and may impose an earlier deadline.

5
<PAGE>

. IBT will wire the proceeds from a sale directly to the bank account that you
designate in your Fund application.
. The Funds generally remit the proceeds from a sale within seven days after
receiving a properly executed order.

6
<PAGE>

BACK COVER

THE BGI FUNDS

LIFEPATH FUNDS
The first comprehensive asset allocation strategies geared to individual
investors' investment time horizons
LifePath 2000
LifePath 2010
LifePath 2020
LifePath 2030
LifePath 2040

INDEX AND ALLOCATION FUNDS
A pioneer in asset allocation and index investing since 1971
Index Funds
Bond Index Fund
S&P 500 Stock Fund
ALLOCATION FUNDS
Asset Allocation Fund
US Treasury Allocation Fund

MONEY MARKET FUND
Providing income and preserving capital

7
<PAGE>

MASTERWORKS FUNDS INC.

STATEMENT OF ADDITIONAL INFORMATION

ASSET ALLOCATION FUND
BOND INDEX FUND
S&P 500 STOCK FUND
U.S. TREASURY ALLOCATION FUND

JUNE 30, 1999

MasterWorks Funds Inc. ("Company") is an open-end, management investment
company. This Statement of Additional Information ("SAI") contains information
about four funds of the Company __ ASSET ALLOCATION FUND, BOND INDEX FUND, S&P
500 STOCK FUND AND U.S. TREASURY ALLOCATION FUND (each, a "Fund" and
collectively, the "Funds").

Each of the Asset Allocation, Bond Index, S&P 500 Stock and U.S. Treasury
Allocation Funds seeks to achieve its investment objective by investing
substantially all of its assets in the Asset Allocation, Bond Index, S&P 500
Index and U.S. Treasury Allocation Master Portfolios (collectively, the "Master
Portfolios"), respectively, of Master Investment Portfolio ("MIP," at times the
"Trust"). Barclays Global Fund Advisors ("BGFA") serves as investment advisor to
the corresponding Master Portfolios. References to the investments, investment
policies and risks of the Funds unless otherwise indicated, should be understood
as references to the investments, investment policies and risks of the
corresponding Master Portfolios.

This SAI is not a prospectus and should be read in conjunction with the
Funds' current Prospectus, also dated June 30, 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
MasterWorks Funds Inc., c/o Investors Bank & Trust Co., __ Transfer Agent, P.O.
Box 9130, Mail Code MFD23, Boston, MA 02117-9130, or by calling 1-888-204-3956.
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Fund History.........................................................
Description of the Funds and Their Investments and Risks.............
Portfolio Securities.................................................
Risk Considerations..................................................
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........................................................
Additional Information on the Funds..................................
Financial Information................................................
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 ten series including the
Funds. MIP, organized as a Delaware business trust on October 21, 1993, consists
of twelve series including the S&P 500 Index, Asset Allocation, Bond Index and
U.S. Treasury Allocation Master Portfolios. The Company's principal office is
located at 111 Center Street, Little Rock, Arkansas 72201. Each Fund invests
all of its assets in the corresponding Master Portfolio of the Trusts (as
illustrated below), which has the same or substantially the same investment
objective as the related Fund.

FUND CORRESPONDING MASTER PORTFOLIO
---- ------------------------------
Asset Allocation Fund Asset Allocation Master Portfolio
Bond Index Fund Bond Index Master Portfolio
S&P 500 Stock Fund S&P 500 Index Master Portfolio
U.S. Treasury Allocation Fund U.S. Treasury Allocation Master Portfolio

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."

DESCRIPTION OF THE FUNDS AND THEIR INVESTMENTS AND RISKS

Investment Restrictions. Each Fund and Master Portfolio has adopted
-----------------------
investment policies which may be fundamental or non-fundamental. Fundamental
policies cannot be changed without approval by the holders of a majority (as
defined in the Investment Company Act of 1940, as amended (the "1940 Act")) of
the outstanding voting securities of such Fund or Master Portfolio, as the case
may be. Non-fundamental policies may be changed without shareholder approval by
vote of a majority of the Directors of the Company or the Trustees of the
Trusts, as the case may be, at any time.

1
<PAGE>

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

The Funds may not:

(1) purchase the securities of issuers conducting their principal business
activity in the same industry if, immediately after the purchase and as a result
thereof, the value of any Fund's investments in that industry would be 25% or
more of the current value of such Fund's total assets, provided that there is no
limitation with respect to investments in (i) obligations of the U.S.
Government, its agencies or instrumentalities; (ii) in the case of the S&P 500
Stock Fund, and the stock portion of the Asset Allocation Fund, any industry in
which the S&P 500 Index becomes concentrated to the same degree during the same
period (provided that, with respect to the stock and money market portions of
the Asset Allocation Fund, the Fund will be concentrated as specified above only
to the extent the percentage of its assets invested in those categories of
investments is sufficiently large that 25% or more of its total assets would be
invested in a single industry); (iii) in the case of the Bond Index Fund, any
industry in which the Lehman Brothers Government/Corporate Bond Index (the "LB
Bond Index") becomes concentrated to the same degree during the same period; and
(iv) in the case of the money market portion of the Asset Allocation Fund, its
money market instruments may be concentrated in the banking industry (but will
not do so unless the SEC staff confirms that it does not object to the Fund
reserving freedom of action to concentrate investments in the banking industry);
and provided further, that a Fund may invest all its assets in a diversified
open-end management investment company, or series thereof, with substantially
the same investment objective, policies and restrictions as such Fund, without
regard for the limitations set forth in this paragraph (1);

(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 a Fund may purchase securities of an issuer which
invests or deals in commodities or commodity contracts, and except that the
Funds may enter into futures and options contracts in accordance with their
respective investment policies;

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

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

(6) underwrite securities of other issuers, except to the extent that the
purchase of permitted investments directly from the issuer thereof or from an
underwriter for an issuer and the later disposition of such securities in
accordance with a Fund's investment program may be deemed to be an underwriting
and provided further, that the purchase by a Fund of securities issued by a
diversified, open-end management investment company, or a series thereof, with
substantially the same investment objective,

2
<PAGE>

policies and restrictions as such Fund shall not constitute an underwriter for
purposes of this paragraph (6);

(7) make investments for the purpose of exercising control or management;
provided that a Fund may invest all its assets in a diversified, open-end
management investment company, or a series thereof, with substantially the same
investment objective, policies and restrictions as such Fund, without regard to
the limitations set forth in this paragraph (7);

(8) borrow money or issue senior securities as defined in the 1940 Act,
except that the Bond Index 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), and
except that each of the Asset Allocation, U.S. Treasury Allocation and S&P 500
Stock Funds may borrow up to 20% of the current value of its net assets for
temporary purposes only in order to meet redemptions, and these borrowings may
be secured by the pledge of up to 20% of the current value of its net assets
(but investments may not be purchased while any such outstanding borrowing in
excess of 5% of its net assets exists);

(9) write, purchase or sell puts, calls, straddles, spreads, warrants,
options or any combination thereof, except that each Fund may enter into futures
and options contracts in accordance with their respective investment policies,
and except that the Asset Allocation Fund may purchase securities with put
rights in order to maintain liquidity, and except that the S&P 500 Stock Fund
may invest up to 5% of their net assets in warrants in accordance with their
investment policies stated below;

(10) purchase securities of any issuer (except securities issued or
guaranteed by the U.S. Government, its agencies and instrumentalities) if, as a
result, with respect to 75% of its total assets, more than 5% of the value of a
Fund's, total assets would be invested in the securities of any one issuer or,
with respect to 100% of its total assets a Fund's ownership would be more than
10% of the outstanding voting securities of such issuer; provided that a Fund
may invest all its assets in a diversified, open-end management investment
company, or a series thereof, with substantially the same investment objective,
policies and restrictions as such Fund, without regard to the limitations set
forth in this paragraph (10); or

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

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

(1) The Funds may invest in shares of other open-end management investment
companies, subject to the limitations of Section 12(d)(1) of the 1940 Act. Under
the 1940 Act, a Fund's investment 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 such Fund's net assets with respect to any one
investment company, and (iii) 10% of such Fund's net assets in the aggregate.
Other investment companies in which the Funds invest 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 a Fund.

3
<PAGE>

subject to withdrawal penalties and that have maturities of more than seven
days, and (c) repurchase agreements not terminable within seven days.

(3) Each Fund may lend securities from its portfolio to brokers, dealers
and financial institutions, in amounts not to exceed (in the aggregate) one-
third of a Fund's total assets. Any such loans of portfolio securities will be
fully collateralized based on values that are marked to market daily. The Funds
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), each 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. A
decision to so invest all of its assets may, depending on the circumstances
applicable at the time, require approval of shareholders.

The Master Portfolios to the Funds are subject to the following investment
restrictions.

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

Each Master Portfolio may not:

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

(2) hold more than 10% of the outstanding voting securities of any single
issuer. This Investment Restriction applies only with respect to 75% of its
total assets.

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

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

(5) borrow money, except that the Bond Index Master Portfolio may borrow
from banks up to 10% of the current value of its net assets for temporary
purposes only in order to meet redemptions, and these borrowings may be secured
by the pledge of up to 10% of the current value of its net assets (but
investments may not be purchased while any such outstanding borrowing in excess
of 5% of its net assets exists), and except that each of the Asset Allocation,
U.S. Treasury Allocation and S&P 500 Index Master Portfolios may borrow up to
20% of the current value of its net assets for temporary purposes only in order
to meet redemptions, and these borrowings may be secured by the pledge of up to
20% of the current value of its net assets (but investments may not be purchased
while any such outstanding borrowing in excess of 5% of its net assets exists).
For purposes of this investment restriction, a Master Portfolio's entry into
options, forward contracts, futures contracts, including those relating to
indexes, and options on futures contracts or indexes shall not constitute
borrowing to the extent certain segregated accounts are established and
maintained by such Master Portfolio.

4
<PAGE>

(6) make loans to others, except through the purchase of debt obligations
and the entry into repurchase agreements. However, each Master Portfolio may
lend its portfolio securities in an amount not to exceed one-third of the value
of its total assets. Any loans of portfolio securities will be made according to
guidelines established by the SEC and the Trusts Board of Trustees.

(7) act as an underwriter of securities of other issuers, except to the
extent that the Master Portfolios may be deemed an underwriter under the
Securities Act of 1933, as amended, by virtue of disposing of portfolio
securities.

(8) invest 25% or more of its total assets in the securities of issuers in
any particular industry or group of closely related industries except that, in
the case of each Master Portfolio, there shall be no limitation with respect to
investments in (i) obligations of the U.S. Government, its agencies or
instrumentalities; (ii) in the case of the S&P 500 Index Master Portfolio, and
the stock portion of the Asset Allocation Master Portfolio, any industry in
which the S&P 500 Index becomes concentrated to the same degree during the same
period (provided that, with respect to the stock and money market portions of
the Asset Allocation Master Portfolio, the Master Portfolio will be concentrated
as specified above only to the extent the percentage of its assets invested in
those categories of investments is sufficiently large that 25% or more of its
total assets would be invested in a single industry); (iii) in the case of the
Bond Index Master Portfolio, any industry in which the Lehman Brothers
Government/Corporate Bond Index (the "LB Bond Index") becomes concentrated to
the same degree during the same period; and (iv) in the case of the money market
portion of the Asset Allocation Master Portfolio, its money market instruments
may be concentrated in the banking industry (but will not do so unless the SEC
staff confirms that it does not object to the Master Portfolio reserving freedom
of action to concentrate investments in the banking industry).

(9) issue any senior security (as such term is defined in Section 18(f) of
the 1940 Act), except to the extent the activities permitted in the Master
Portfolios' fundamental policies (3) and (5) and non-fundamental policies (2)
and (3), may be deemed to give rise to a senior security.

(10) purchase securities on margin, but each Master Portfolio may make
margin deposits in connection with transactions in options, forward contracts,
futures contracts, including those related to indexes, and options on futures
contracts or indexes.

NON-FUNDAMENTAL INVESTMENT RESTRICTIONS. The Master Portfolios are subject
to the following non-fundamental policies.

(1) The Master Portfolios may invest in shares of other open-end
management investment companies, subject to the limitations of Section 12(d)(1)
of the 1940 Act. Under the 1940 Act, a Master Portfolio's investment 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 such Master
Portfolio's net assets with respect to any one investment company, and (iii) 10%
of such Master Portfolio's net assets in the aggregate. Other investment
companies in which the Master Portfolios invest 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 Master Portfolio.

(2) Each Master Portfolio may not invest more than 15% of its net assets
in illiquid securities. For this purpose, illiquid securities include, among
others, (a) securities that are illiquid by virtue of the absence of a readily
available market or legal or contractual restrictions on resale, (b) fixed time
deposits that are

5
<PAGE>

subject to withdrawal penalties and that have maturities of more than seven
days, and (c) repurchase agreements not terminable within seven days.

(3) Each Master Portfolio may lend securities from its portfolio to
brokers, dealers and financial institutions, in amounts not to exceed (in the
aggregate) one-third of a Master Portfolio's total assets. Any such loans of
portfolio securities will be fully collateralized based on values that are
marked to market daily. The Master Portfolios will not enter into any portfolio
security lending arrangement having a duration of longer than one year.

The Asset Allocation Fund and U.S. Treasury Allocation Fund invest in
corresponding Master Portfolios that use allocation models to select portfolio
securities. A description of the Asset Allocation Model and U.S. Treasury
Allocation Model follows.

Asset Allocation Model. A key component of the Asset Allocation Model is
----------------------
a set of assumptions concerning expected risk and return and investor attitudes
toward risk which are incorporated into the asset allocation decision. The
principal inputs of financial data to the Asset Allocation Model for the Asset
Allocation Master Portfolio currently are (i) consensus estimates of the
earnings, dividends and payout ratios on a broad cross-section of common stocks
as reported by independent financial reporting services which survey a broad
cross-section of Wall Street analysts; (ii) the estimated current yield to
maturity on new long-term corporate bonds rated "AA" by S&P; (iii) the present
yield on money market instruments; (iv) the historical statistical standard
deviation in investment return for each class of asset; and (v) the historical
statistical correlation of investment returns among the various asset classes in
which the Asset Allocation Master Portfolio invests.

U.S. Treasury Allocation Model. The principal inputs of the U.S. Treasury
------------------------------
Allocation Model for the U.S. Treasury Allocation Master Portfolio currently are
(i) the current yields on 91-day U.S. Treasury bills, 5-year U.S. Treasury
notes, and 30-year U.S. Treasury bonds; (ii) the expected statistical standard
deviation in investment return for each maturity class of fixed income security;
and (iii) the expected statistical correlation of investment return among the
three maturity classes of U.S. Treasury securities. Using this data, the U.S.
Treasury Allocation Model is run daily by the sub-adviser to determine the
recommended asset allocation. The model's recommendations are presently made in
10% increments.

PORTFOLIO SECURITIES

To the extent set forth in this SAI, each Fund through its investment in
the corresponding Master Portfolio may invest in the securities described below.
To avoid the need to refer to both the Funds and the Master Portfolios in every
instance, the following sections generally refer to the Funds only.

REFERENCES TO THE INVESTMENTS AND INVESTMENT POLICIES AND RESTRICTIONS OF A
FUND, UNLESS OTHERWISE INDICATED, SHOULD BE UNDERSTOOD AS REFERENCES TO THE
INVESTMENTS AND INVESTMENT POLICIES AND RESTRICTIONS OF THE CORRESPONDING MASTER
PORTFOLIO.

Repurchase Agreements. Each Fund may engage in a repurchase agreement with
---------------------
respect to any security in which it is authorized to invest, although the
underlying security may mature in more than thirteen months. The Fund may enter
into repurchase agreements wherein the seller of a security to the Fund agrees
to repurchase that security from the Fund at a mutually agreed-upon time and
price that involves the acquisition by the Fund of an underlying debt
instrument, subject to the seller's obligation to repurchase, and the Fund's
obligation to resell, the instrument at a fixed price usually not more than one
week after its purchase. The period of maturity is usually quite short, often
overnight or a few days, although it may extend over a number of months. A Fund
may enter into repurchase agreements only with respect to securities that could
otherwise be purchased by the Fund, and all repurchase transactions must be
collateralized. The Funds may participate in pooled repurchase agreement
transactions with other funds advised by BGFA.

The Fund's custodian has custody of, and holds in a segregated account,
securities acquired as collateral by the Fund under a repurchase agreement. The
Fund may enter into repurchase agreements only with respect to securities of the
type in which it may invest, including government securities and mortgage-
related securities, regardless of their remaining maturities, and requires that
additional securities be deposited with the custodian if the value of the
securities purchased should decrease below resale price. BGFA monitors on an
ongoing basis the value of the collateral to assure that it always equals or
exceeds the repurchase price. Certain costs may be incurred by the Fund in
connection with the sale of the underlying securities if the seller does not
repurchase them in accordance with the repurchase agreement. In addition, if
bankruptcy proceedings are commenced with respect to the seller of the
securities, disposition of the securities by the Fund may be delayed or limited.
While it does not presently appear possible to eliminate all risks from these
transactions (particularly the possibility of a decline in the market value of
the underlying securities, as well as delay and costs to the Fund in connection
with insolvency proceedings), it is the policy of the Fund to limit repurchase
agreements to selected creditworthy securities dealers or domestic banks or
other recognized financial institutions. The Fund considers on an ongoing basis
the creditworthiness of the institutions with which it enters into repurchase
agreements. Repurchase agreements are considered to be loans by a Fund under the
1940 Act.

6
<PAGE>

Floating- and Variable-Rate Obligations. Each 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 a 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 may be treated as liquid, provided that an
active secondary market exists.

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

Securities of Non-U.S. Issuers. The Funds may invest in certain
-------------------------------
securities of non-U.S. issuers as discussed below. Obligations of Foreign
Governments, Banks and Corporations -- Each Fund may

7
<PAGE>

invest in U.S. dollar-denominated short-term obligations issued or guaranteed by
one or more foreign governments or any by BGFA to be of comparable quality to
the other obligations in which such Fund may invest. The Funds may also invest
in debt obligations of supranational entities. Supranational entities include
international organizations designated or supported by governmental entities to
promote economic reconstruction or development and international banking
institutions and related government agencies. Examples include the International
Bank for Reconstruction and Development (the World Bank), the European Coal and
Steel Community, the Asian Development Bank and the InterAmerican Development
Bank. The percentage of each Fund's assets invested in obligations of foreign
governments and supranational entities will vary depending on the relative
yields of such securities, the economic and financial markets of the countries
in which the investments are made and the interest rate climate of such
countries. Each Fund may invest a portion of its total assets in high-quality,
short-term (one year or less) debt obligations of foreign branches of U.S. banks
or U.S. branches of foreign banks that are denominated in and pay interest in
U.S. dollars. The Funds also may invest in U.S. dollar-denominated debt
obligations issued by foreign corporations.

Bonds. Certain of the debt instruments purchased by the Asset Allocation,
------
Bond Index and U.S. Treasury Allocation Funds may be bonds. A bond is an
interest-bearing security issued by a company or governmental unit. The issuer
of a bond has a contractual obligation to pay interest at a stated rate on
specific dates and to repay principal (the bond's face value) periodically or on
a specified maturity date. An issuer may have the right to redeem or "call" a
bond before maturity, in which case the investor may have to reinvest the
proceeds at lower market rates. Most bonds bear interest income at a "coupon"
rate that is fixed for the life of the bond. The value of a fixed rate bond
usually rises when market interest rates fall, and falls when market interest
rates rise. Accordingly, a fixed rate bond's yield (income as a percent of the
bond's current value) may differ from its coupon rate as its value rises or
falls. Other types of bonds bear income at an interest rate that is adjusted
periodically. Because of their adjustable interest rates, the value of
"floating-rate" or "variable-rate" bonds fluctuates much less in response to
market interest rate movements than the value of fixed rate bonds. Also, the
Funds may treat some of these bonds as having a shorter maturity for purposes of
calculating the weighted average maturity of their investment portfolios. Bonds
may be senior or subordinated obligations. Senior obligations generally have the
first claim on a corporation's earnings and assets and, in the event of
liquidation, are paid before subordinated debt. Bonds may be unsecured (backed
only by the issuer's general creditworthiness) or secured (also backed by
specified collateral).

Unrated, Downgraded and Below Investment Grade Investments. The Funds may
----------------------------------------------------------
purchase instruments that are not rated if, in the opinion of the adviser, BGFA,
such obligation is of investment quality comparable to other rated investments
that are permitted to be purchased by such Fund. After purchase by a Fund, a
security may cease to be rated or its rating may be reduced below the minimum
required for purchase by such Fund. Neither event will require a sale of such
security by a Fund provided that the amount of such securities held by a Fund
does not exceed 5% of the Fund's net assets. To the extent the ratings given by
Moody's or S&P may change as a result of changes in such organizations or their
rating systems, each Fund will attempt to use comparable ratings as standards
for investments in accordance with the investment policies contained in its
Prospectus and in this SAI. The ratings of Moody's and S&P are more fully
described in the SAI Appendix.

The Funds are not required to sell downgraded securities, and each Fund
could hold up to 5% of its net assets in debt securities rated below "Baa" by
Moody's or below "BBB" by S&P or if unrated, low quality (below investment
grade) securities.

8
<PAGE>

Although they may offer higher yields than do higher rated securities, low
rated and unrated low quality debt securities generally involve greater
volatility of price and risk of principal and income, including the possibility
of default by, or bankruptcy of, the issuers of the securities. In addition, the
markets in which low rated and unrated low quality debt are traded are more
limited than those in which higher rated securities are traded. The existence of
limited markets for particular securities may diminish a Fund's ability to sell
the securities at fair value either to meet redemption requests or to respond to
changes in the economy or in the financial markets and could adversely affect
and cause fluctuations in the daily net asset value of a Fund's shares.

Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of low rated or
unrated low quality debt securities, especially in a thinly traded market.
Analysis of the creditworthiness of issuers of low rated or unrated low quality
debt securities may be more complex than for issuers of higher rated securities,
and the ability of a Fund to achieve its investment objective may, to the extent
it holds low rated or unrated low quality debt securities, be more dependent
upon such creditworthiness analysis than would be the case if the Fund held
exclusively higher rated or higher quality securities.

Low rated or unrated low quality debt securities may be more susceptible to
real or perceived adverse economic and competitive industry conditions than
investment grade securities. The prices of such debt securities have been found
to be less sensitive to interest rate changes than higher rated or higher
quality investments, but more sensitive to adverse economic downturns or
individual corporate developments. A projection of an economic downturn or of a
period of rising interest rates, for example, could cause a decline in low rated
or unrated low quality debt securities prices because the advent of a recession
could dramatically lessen the ability of a highly leveraged company to make
principal and interest payments on its debt securities. If the issuer of the
debt securities defaults, the Funds may incur additional expenses to seek
recovery.

Letters of Credit. Certain of the debt obligations (including municipal
-----------------
securities, certificates of participation, commercial paper and other short-term
obligations) which the Funds may purchase may be backed by an unconditional and
irrevocable letter of credit of a bank, savings and loan association or
insurance company which assumes the obligation for payment of principal and
interest in the event of default by the issuer. Only banks, savings and loan
associations and insurance companies which, in the opinion of BGFA, as
investment adviser, are of comparable quality to issuers of other permitted
investments of such Fund may be used for letter of credit-backed investments.

When-Issued Securities. Certain of the securities in which the U.S.
----------------------
Treasury Allocation, Bond Index, and Asset Allocation Funds may invest will be
purchased on a when-issued basis, in which case delivery and payment normally
take place within 45 days after the date of the commitment to purchase. These
Funds only will make commitments to purchase securities on a when-issued basis
with the intention of actually acquiring the securities, but may sell them
before the settlement date if it is deemed advisable. When-issued securities are
subject to market fluctuation, and no income accrues to the purchaser during the
period prior to issuance. The purchase price and the interest rate that will be
received on debt securities are fixed at the time the purchaser enters into the
commitment. Purchasing a security on a when-issued basis can involve a risk that
the market price at the time of delivery may be lower than the agreed-upon
purchase price, in which case there could be an unrealized loss at the time of
delivery. None of the Funds currently intend to invest more than 5% of its
assets in when-issued securities during the coming year. Each Fund will
establish a segregated account in which it will maintain cash or liquid, high-
grade debt securities in an amount at least equal in value to the Fund's
commitments to purchase when-issued securities. If the value of these assets
declines, the Fund will place additional liquid assets in the

9
<PAGE>

account on a daily basis so that the value of the assets in the account is equal
to the amount of such commitments.

Loans of Portfolio Securities. The Funds may lend securities from their
-----------------------------
portfolios to brokers, dealers and financial institutions (but not individuals)
if cash, U.S. Government securities or other high-quality debt obligations equal
to at least 100% of the current market value of the securities loan (including
accrued interest thereon) plus the interest payable to such Fund with respect to
the loan is maintained with the Fund. In determining whether to lend a security
to a particular broker, dealer or financial institution, the Fund's investment
adviser will consider all relevant facts and circumstances, including the size,
creditworthiness and reputation of the broker, dealer, or financial institution.
Any loans of portfolio securities will be fully collateralized based on values
that are marked to market daily. The Funds will not enter into any portfolio
security lending arrangement having a duration of longer than one year. Any
securities that a Fund may receive as collateral will not become part of the
Fund's investment portfolio at the time of the loan and, in the event of a
default by the borrower, the Fund will, if permitted by law, dispose of such
collateral except for such part thereof that is a security in which the Fund is
permitted to invest. During the time securities are on loan, the borrower will
pay the Fund any accrued income on those securities, and the Fund may invest the
cash collateral and earn income or receive an agreed-upon fee from a borrower
that has delivered cash-equivalent collateral. None of the Funds will lend
securities having a value that exceeds one-third of the current value of its
total assets. Loans of securities by any of the Funds will be subject to
termination at the Fund's or the borrower's option. The Fund may pay reasonable
administrative and custodial fees in connection with a securities loan and may
pay a negotiated portion of the interest or fee earned with respect to the
collateral to the borrower or the placing broker. Borrowers and placing brokers
may not be affiliated, directly or indirectly, with the Company, BGFA, or the
Distributor.

The principal risk of portfolio lending is potential default or insolvency
of the borrower. In either of these cases, a Fund could experience delays in
recovering securities or collateral or could lose all or part of the value of
the loaned securities. The Funds may pay reasonable administrative and custodial
fees in connection with loans of portfolio securities and may pay a portion of
the interest or fee earned thereon the borrower or a placing broker.

Futures Contracts and Options Transactions. The Funds may use futures
------------------------------------------
contracts as a hedge against the effects of interest rate changes or changes in
the market value of the stocks comprising the index in which such Fund invests.
In managing their cash flows, these Funds also may use futures contracts as a
substitute for holding the designated securities underlying the futures
contract. A futures contract is an agreement between two parties, a buyer and a
seller, to exchange a particular commodity at a specific price on a specific
date in the future. An option transaction generally involves a right, which may
or may not be exercised, to buy or sell a commodity or financial instrument at a
particular price on a specified future date. At the time it enters into a
futures transaction, a Fund is required to make a performance deposit (initial
margin) of cash or liquid securities in a segregated account in the name of the
futures broker. Subsequent payments of "variation margin" are then made on a
daily basis, depending on the value of the futures position which is continually
"marked to market."

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

10
<PAGE>

account consisting of cash or other liquid assets in an amount equal to the
total market value of such futures contract, less the amount of initial margin
for the contract.

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

Transactions by a Fund in futures contracts involve certain risks. One risk
in employing futures contracts as a hedge against cash market price volatility
is the possibility that futures prices will correlate imperfectly with the
behavior of the prices of the securities in the Fund's investment portfolio (the
portfolio securities of the Bond Index and U.S. Treasury Allocation Funds and
the bond portion of the Asset Allocation Fund will not be identical to the
securities underlying the futures contracts). Similarly, in employing futures
contracts as a substitute for purchasing the designated underlying securities,
there is a risk that the performance of the futures contract may correlate
imperfectly with the performance of the direct investments for which the futures
contract is a substitute. In addition, commodity exchanges generally limit the
amount of fluctuation permitted in futures contract prices during a single
trading day, and the existence of such limits may prevent the prompt liquidation
of futures positions in certain cases. Limits on price fluctuations are designed
to stabilize prices for the benefit of market participants; however, there could
be cases where the Fund could incur a larger loss due to the delay in trading
than it would have if no limit rules had been in effect.

Futures contracts and options are standardized and traded on exchanges,
where the exchange serves as the ultimate counterparty for all contracts.
Consequently, the primary credit risk on futures contracts is the
creditworthiness of the exchange. Futures contracts are subject to market risk
(i.e., exposure to adverse price changes). Although each of the indicated Funds
intends to purchase or sell futures contracts only if there is an active market
for such contracts, no assurance can be given that a liquid market will exist
for any particular contract at any particular time. Many futures exchanges and
boards of trade limit the amount of fluctuation permitted in futures contract
prices during a single trading day. Once the daily limit has been reached in a
particular contract, no trades may be made that day at a price beyond that limit
or trading may be suspended for specified periods during the trading day.
Futures contract prices could move to the limit for several consecutive trading
days with little or no trading, thereby preventing prompt liquidation of futures
positions and potentially subjecting a Fund to substantial losses. If it is not
possible, or if a Fund determines not to close a futures position in
anticipation of adverse price movements, the Fund will be required to make daily
cash payments on variation margin.

In order to comply with undertakings made by the Fund pursuant to Commodity
Futures Trading Commission ("CFTC") Regulation 4.5, the Funds will use futures
and option contracts solely for bona fide hedging purposes within the meaning
and intent of CFTC Reg. 1.3(z); provided, however, that in addition, with
respect to positions in commodity futures or commodity option contracts which do
not come within the meaning and intent of CFTC Reg. 1.3(z), the aggregate
initial margin and premiums required to establish such positions will not exceed
five percent of the liquidation value of the Fund's portfolio, after taking into
account unrealized profits and unrealized losses on any such contract it has

11
<PAGE>

entered into; and provided further, that in the case of an option that is in-
the-money at the time of purchase, the in-the-money amount as defined in CFTC
Reg. 190.01(x) may be excluded in computing such five percent.

Stock Index Futures and Options on Stock Index Futures. The S&P 500 Stock
-------------------------------------------------------
and Asset Allocation Funds may invest in stock index futures and options on
stock index futures as a substitute for a comparable market position in the
underlying securities. A stock index future obligates the seller to deliver (and
the purchaser to take), effectively, an amount of cash equal to a specific
dollar amount times the difference between the value of a specific stock index
at the close of the last trading day of the contract and the price at which the
agreement is made. No physical delivery of the underlying stocks in the index is
made. With respect to stock indices that are permitted investments, each Fund
intends to purchase and sell futures contracts on the stock index for which it
can obtain the best price with consideration also given to liquidity. There can
be no assurance that a liquid market will exist at the time when a Fund seeks to
close out a futures contract or a futures option position. Lack of a liquid
market may prevent liquidation of an unfavorable position.

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

Interest-Rate and Index Swaps. The Asset Allocation, Bond Index and U.S.
------------------------------
Treasury Allocation Funds may enter into interest-rate and index swaps in
pursuit of their investment objectives. Interest-rate swaps involve the exchange
by a Fund with another party of their respective commitments to pay or receive
interest (for example, an ex-change of floating-rate payments on fixed-rate
payments). Index swaps involve the exchange by a Fund with another party of cash
flows based upon the performance of an index of securities or a portion of an
index of securities that usually include dividends or income. In each case, the
exchange commitments can involve payments to be made in the same currency or in
different currencies. A Fund will usually enter into swaps on a net basis. In so
doing, the two payment streams are netted out, with a Fund receiving or paying,
as the case may be, only the net amount of the two payments. If a Fund enters
into a swap, it will maintain a segregated account on a gross basis, unless the
contract provides for a segregated account on a net basis. If there is a default
by the other party to such a transaction, a Fund will have contractual remedies
pursuant to the agreements related to the transaction. The use of interest-rate
and index swaps is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
security transactions. There is no limit, except as provided below, on the
amount of swap transactions that may be entered into by a Fund. These
transactions generally do not involve the delivery of securities or other
underlying assets or principal. Accordingly, the risk of loss with respect to
swaps generally is limited to the net amount of payments that a Fund is
contractually obligated to make. There is also a risk of a default by the other
party to a swap, in which case a Fund may not receive net amount of payments
that a Fund contractually is entitled to receive.

Investment Company Securities. Each 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, a Fund's investment in such
securities currently is limited to, subject to certain exceptions, (i) 3% of

12
<PAGE>

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. The Funds may also purchase shares of exchange listed closed-end
funds.

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

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

Bank Obligations. Each Fund may invest in bank obligations, including
-----------------
certificates of deposit, time deposits, bankers' acceptances and other short-
term obligations of domestic banks, foreign subsidiaries of domestic banks,
foreign branches of domestic banks, and domestic and foreign branches of foreign
banks, domestic savings and loan associations and other banking institutions.
Certificates of deposit are negotiable certificates evidencing the obligation of
a bank to repay funds deposited with it for a specified period of time. Time
deposits are non-negotiable deposits maintained in a banking institution for a
specified period of time at a stated interest rate. Time deposits which may be
held by a Fund will not benefit from insurance from the Bank Insurance Fund or
the Savings Association Insurance Fund administered by the FDIC. Bankers'
acceptances are credit instruments evidencing the obligation of a bank to pay a
draft drawn on it by a customer. These instruments reflect the obligation both
of the bank and of the drawer to pay the face amount of the instrument upon
maturity. The other short-term obligations may include uninsured, direct
obligations, bearing fixed, floating- or variable-interest rates.

Commercial Paper and Short-Term Corporate Debt Instruments. Each Fund may
-----------------------------------------------------------
invest in commercial paper (including variable amount master demand notes),
which consists of short-term, unsecured promissory notes issued by 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.

13
<PAGE>

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

Forward Commitments, When-Issued Purchases and Delayed- Delivery
-----------------------------------------------------------------
Transactions. Each Fund may purchase or sell securities on a when-issued or
- ------------
delayed-delivery basis and make contracts to purchase or sell securities for a
fixed price at a future date beyond customary settlement time. Securities
purchased or sold on a when-is-sued, delayed-delivery or forward commitment
basis involve a risk of loss if the value of the security to be purchased
declines, or the value of the security to be sold increases, before the
settlement date. Although a Fund will generally purchase securities with the
intention of acquiring them, a Fund may dispose of securities purchased on a
when-issued, delayed-delivery or a forward commitment basis before settlement
when deemed appropriate by the adviser.

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

Investment in Warrants. The S&P 500 Index Fund may invest up to 5% of net
----------------------
assets at the time of purchase in warrants (other than those that have been
acquired in units or attached to other securities), including not more than 2%
of each of their net assets in warrants which are not listed on the New York or
American Stock Exchange. A warrant is an instrument issued by a corporation
which gives the holder the right to subscribe to a specified amount of the
corporation's capital stock at a set price for a specified period of time. The
prices of warrants do not necessarily correlate with the prices of the
underlying securities. The S&P 500 Index Fund may only purchase warrants on
securities in which the Fund may invest directly.

THE S&P 500 STOCK FUND AND S&P 500 INDEX MASTER PORTFOLIO:

Neither the Fund nor the Master Portfolio is sponsored, endorsed, sold or
promoted by Standard & Poor's ("S&P"). S&P makes no representation or warranty,
express or implied, to the Fund, the Master Portfolio or any member of the
public regarding the advisability of investing in securities generally or in the
Fund particularly or the ability of the S&P 500 Index to track general stock
market performance. S&P's only relationship to the Fund is the licensing of
certain trademarks and trade names of S&P and of the S&P 500 Index which is
determined, composed and calculated by S&P without regard to the Fund. S&P has
no obligation to take the needs of the Fund into consideration in determining,
composing or calculating the S&P 500 Index. S&P is not responsible for and has
not participated in the determination

14
<PAGE>

of the prices and amount of the Fund's shares or the timing of the issuance or
sale of the Fund's shares or in the determination or calculation of the equation
by which the Fund's shares are to be converted into cash. S&P has no obligation
or liability in connection with the administration, marketing or trading of the
Fund's shares.

S&P does not guarantee the accuracy and/or the completeness of the S&P 500
Index or any data included therein and S&P shall have no liability for any
errors, omissions, or interruptions therein. S&P makes no warranty, express or
implied, as to results to be obtained by the Fund, or any other person or entity
from the use of the S&P 500 Index or any data included therein. S&P makes no
express or implied warranties, and expressly disclaims all warranties of
merchantability or fitness for a particular purpose or use with respect to the
S&P 500 index or any data included therein. Without limiting any of the
foregoing, in no event shall S&P have any liability for any special, punitive,
indirect, or consequential damages (including lost profits), even if notified of
the possibility of such damages.

RISK CONSIDERATIONS

General. Since the investment characteristics and, therefore, investment
-------
risks directly associated with such characteristics of each Fund correspond to
those of the Master Portfolio in which such Fund invests, the following is a
discussion of the risks associated with the investments of the Master
Portfolios. Once again, unless otherwise specified, references to the investment
policies and risks of a Fund also should be understood as references to the
investment policies and risks of the corresponding Master Portfolio. The NAV per
share of each class of a Fund is neither insured nor guaranteed, is not fixed
and should be expected to fluctuate.

Equity Securities. The stock investments of the Funds are subject to equity
-----------------
market risk. Equity market risk is the possibility that common stock prices will
fluctuate or decline over short or even extended periods. The U.S. stock market
tends to be cyclical, with periods when stock prices generally rise and periods
when prices generally decline. Throughout 1998, the stock market, as measured by
the S&P 500 Index and other commonly used indices, was trading at or close to
record levels. There can be no guarantee that these performance levels will
continue.

Debt Securities. The debt instruments in which the Funds invest are subject
---------------
to credit and interest rate risk. Credit risk is the risk that issuers of the
debt instruments in which the Funds invest may default on the payment of
principal and/or interest. Interest-rate risk is the risk that in-creases in
market interest rates may adversely affect the value of the debt instruments in
which the Funds invest. The value of the debt instruments generally changes
inversely to market interest rates. Debt securities with longer maturities,
which tend to produce higher yields, are subject to potentially greater capital
appreciation and depreciation than obligations with shorter maturities. Changes
in the financial strength of an issuer or changes in the ratings of any
particular security may also affect the value of these investments. Although
some of the Funds' securities are guaranteed by the U.S. Government, its
agencies or instrumentalities, such securities are subject to interest rate risk
and the market value of these securities, upon which the Funds' daily NAV is
based, will fluctuate. No assurance can be given that the U.S. Government would
provide financial support to its agencies or instrumentalities where it is not
obligated to do so.

Foreign Securities. Investing in the securities of issuers in any foreign
------------------
country, including through American Depository Receipts ("ADRs"), European
Depository Receipts ("EDRs") and similar securities, involves special risks
and considerations not typically associated with investing in U.S. companies.
These include differences in accounting, auditing and financial reporting
standards; generally

15
<PAGE>

higher commission rates on foreign portfolio transactions; the possibility of
nationalization, expropriation or confiscatory taxation; adverse changes in
investment or exchange control regulations (which may include suspension of the
ability to transfer currency from a country); and political, social and monetary
or diplomatic developments that could affect U.S. investments in foreign
countries. Additionally, dispositions of foreign securities and dividends and
interest payable on those securities may be subject to foreign taxes, including
withholding taxes. Foreign securities often trade with less frequency and volume
than domestic securities and, therefore, may exhibit greater price volatility.
Additional costs associated with an investment in foreign securities may include
higher custodial fees than apply to domestic custodial arrangements and
transaction costs of foreign currency conversions. Changes in foreign exchange
rates also will affect the value of securities denominated or quoted in
currencies other than the U.S. dollar. A Fund's performance may be affected
either unfavorably or favorably by fluctuations in the relative rates of
exchange between the currencies of different nations, by exchange control
regulations and by indigenous economic and political developments.

Other Investment Considerations. Because the Funds may shift investment
-------------------------------
allocations significantly from time to time, their performance may differ from
funds which invest in one asset class or from funds with a stable mix of assets.
Further, shifts among asset classes may result in relatively high turnover and
transaction (i.e., brokerage commission) costs. Portfolio turnover also can
generate short-term capital gains tax consequences. During those periods in
which a higher percentage of certain Funds' assets are invested in long-term
bonds, those Master Portfolios' exposure to interest-rate risk will be greater
because the longer maturity of such securities means they are generally more
sensitive to changes in market interest rates than short-term securities. The
Asset Allocation, Bond Index and U.S. Treasury Allocation Funds may enter into
futures transactions, each of which involves risk. The futures contracts and
options on futures contracts that these Funds may purchase may be considered
derivatives. Certain of the floating-and- variable-rate instruments that each
Fund may purchase also may be considered derivatives. Derivatives are financial
instruments whose values are derived, at least in part, from the prices of other
securities or specified assets, indices or rates. Each Fund may use some
derivatives as part of its short-term liquidity holdings and/or substitutes for
comparable market positions in the underlying securities. Some derivatives may
be more sensitive than direct securities to changes in interest rates or sudden
market moves. Some derivatives also may be susceptible to fluctuations in yield
or value due to their structure or contract terms. A Fund may not use
derivatives to create leverage without establishing adequate "cover" in
compliance with SEC leverage rules. Asset allocation and modeling strategies are
employed by BGFA for other investment companies and accounts advised or sub-
advised by BGFA. If these strategies indicate particular securities should be
purchased or sold, at the same time, by a Fund and one or more of these
investment companies or accounts, available investments or opportunities for
sales will be allocated equitably to each by BGFA. In some cases, this procedure
may adversely affect the size of the position obtained for or disposed of by a
Fund or the price paid or received by such Fund.

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 Funds' activities and monitors the Funds'
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.

16
<PAGE>

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>

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>

17
<PAGE>

Directors of the Company are compensated annually by the Company and by all
the registrants in the fund complex for their services as indicated above and
also are reimbursed for all out-of-pocket expenses relating to attendance at
board meetings. The Company 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" ). Stagecoach Funds, Inc., Stagecoach Trust
and Life & Annuity Trust together form a separate fund complex (the "Wells Fargo
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. Each Fund seeks to achieve its investment
-----------------------
objective by investing all of its assets into the corresponding Master Portfolio
of MIP. The Funds and other entities investing in a Master Portfolio are each
liable for all obligations of such Master Portfolio. However, the risk of a Fund
incurring financial loss on account of such liability is limited to
circumstances in which both inadequate insurance existed and MIP itself is
unable to meet its obligations. Accordingly, the Company's Board of Directors
believes that neither a Fund nor its shareholders will be adversely affected by
investing Fund assets in a Master Portfolio. However, if a mutual fund or other
investor withdraws its investment from such Master Portfolio, the economic
efficiencies (e.g., spreading fixed expenses among a larger asset base) that the
Company's Board believes may be available through investment in the Master
Portfolio may not be fully achieved. In addition, given the relative novelty of
the master/feeder structure, accounting or operational difficulties, although
unlikely, could arise.

A Fund may withdraw its investment in a Master Portfolio only if the
Company's Board of Directors determines that such action is in the best
interests of such Fund and its shareholders. Upon any such withdrawal, the
Company's Board would consider alternative investments, including investing all
of the Fund's assets in another investment company with the same investment
objective as the Fund or hiring an investment adviser to manage the Fund's
assets in accordance with the investment policies described below with respect
to the Master Portfolio.

The investment objective and other fundamental policies of a Master
Portfolio cannot be changed without approval by the holders of a majority (as
defined in the 1940 Act) of the Master Portfolio's outstanding interests.
Whenever a Fund, as an interestholder of the corresponding Master Portfolio, is
requested to vote on any matter submitted to interestholders of the Master
Portfolio, the Fund will hold a meeting of its shareholders to consider such
matters. the fund will cast its votes in proportion to the votes received from
its shareholders. Shares for which the Fund receives no voting instructions will
be voted in the same proportion as the votes received from the other Fund
shareholders.

Certain policies of the Master Portfolio which are non-fundamental may be
changed by vote of a majority of MIP's Trustees without interestholder approval.
If the Master Portfolio's investment objective or fundamental or non-fundamental
policies are changed, the Fund may elect to change its objective or policies to
correspond to those of the Master Portfolio. A Fund also may elect to redeem its
interests in the corresponding Master Portfolio and either seek a new investment
company with a matching objective in which to invest or retain its own
investment adviser to manage the Fund's portfolio in accordance with its
objective. In the latter case, a Fund's inability to find a substitute
investment company in which to invest or equivalent management services could
adversely affect shareholders' investments in the Fund. The Funds will provide
shareholders with 30 days' written notice prior to the implementation of any
change in the investment objective of the Fund or the Master Portfolio, to the
extent possible.

18
<PAGE>

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

As of [JUNE 1, 1999], the shareholders identified below were known by the
Company to own 5% or more of the indicated Fund's outstanding shares in the
following capacity:

[UPDATE]

<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE NATURE OF
NAME OF FUND OF SHAREHOLDER OF FUND OWNERSHIP
- ------------ ---------------- ---------- ---------
<S> <C> <C> <C>
Asset Allocation Merrill Lynch Trust Co FSB [_____%] Record
FBO Various 401 K Plans
P.O. Box 62000
San Francisco, CA 94162

Bond Index Fund Merrill Lynch Trust Co FSB [_____%] Record
FBO Various 401 K Plans
P.O. Box 62000
San Francisco, CA 94162

State Street Bank & Trust Co TEEE [_____%] Record
FBO American Bar Association Members
State Street Collective Trust
1 Heritage Drive, #2PS
North Quincy, MA 02171

Wells Fargo Bank FBO [_____%] Record
Business Retirement Programs Omnibus Act
MF MAC 9139-027
P.O. Box 9800
Calabasas, CA 91372

S&P 500 Stock Bankers Trust Co TR [_____%] Record
FBO Betchel Master Trust for Qualified
Employee Benefit Plan
P.O. Box 1742
New York, NY 10008

Merrill Lynch Trust Co FSB [_____%] Record
FBO Various 401 K Plans
P.O. Box 62000
San Francisco, CA 94162

U.S. Treasury Merrill Lynch Trust Co FSB [_____%] Record
Allocation Fund FBO Various 401 K Plans
P.O. Box 62000
San Francisco, CA 94162
</TABLE>

For purposes of the 1940 Act, any person who owns directly or through one
or more controlled companies more than 25% of the voting securities of a company
is presumed to "control" such company. Accordingly, to the extent that a
shareholder identified in the foregoing table is identified as the beneficial
holder of more than 25% of a Fund, or is identified as the holder of record of
more than 25% of a Fund and has voting and/or investment powers, it may be
presume to control such Fund.

19
<PAGE>

INVESTMENT ADVISER AND OTHER SERVICES PROVIDERS

Investment Adviser. BGFA provides investment advisory services to each
------------------
Master Portfolio pursuant to separate Investment Advisory Contracts (each, a
"BGFA Advisory Contract") with MIP. Pursuant to the Advisory Contracts, BGFA
furnishes to the Trust's Board of Trustees periodic reports on the investment
strategy and performance of each Master Portfolio. BGFA has agreed to provide to
the Master Portfolios, among other things, money market security and fixed-
income research, analysis and statistical and economic data and information
concerning interest rate and security market trends, portfolio composition,
credit conditions and average maturities of each Master Portfolio's investment
portfolio.

BGFA is entitled to receive monthly fees at the annual rate of 0.35%,
0.08%, 0.05% and 0.30% of the average daily net assets of the Asset Allocation,
Bond Index, S&P 500 Index, and U.S. Treasury Allocation Portfolios,
respectively, as compensation for its advisory services to such Master
Portfolio. The Advisory Contracts provide that the advisory fee is accrued daily
and paid monthly. BGFA is compensated for its custodial services to the Master
Portfolio and the Funds out of the advisory fee from each Master Portfolio.

As to each Master Portfolio, the applicable BGFA Advisory Contract is
subject to annual approval by (i) MIP's Board of Trustees or (ii) vote of a
majority (as defined in the 1940 Act) of the outstanding voting securities of
such Master Portfolio, provided that in either event the continuance also is
approved by a majority of MIP's Board of Trustees who are not "interested
persons" (as defined in the 1940 Act) of MIP or BGFA, by vote cast in person at
a meeting called for the purpose of voting on such approval. As to each Master
Portfolio, the applicable BGFA Advisory Contract is terminable without penalty,
on 60 days' written notice by MIP's Board of Trustees or by vote of the holders
of a majority of such Master Portfolio's shares, or, on not less than 60 days'
written notice, by BGFA. The applicable BGFA Advisory Contract terminates
automatically, as to the relevant Master Portfolio, in the event of its
assignment (as defined in the 1940 Act).

For the fiscal years ended February 28, 1997, February 28, 1998, and
February 28, 1999, the corresponding Master Portfolio of each Fund paid to BGFA
the advisory fees indicated below, without waivers:

<TABLE>
<CAPTION>
FYE 2/28/97 FYE 2/28/98 FYE 2/28/99
MASTER PORTFOLIO FEES PAID FEES PAID FEES PAID
- ---------------- ----------- ----------- -----------
<S> <C> <C> <C>
Asset Allocation Master Portfolio $1,153,951 $1,616,380 [$__________]
Bond Index Master Portfolio $ 147,204 $ 147,755 [$__________]
S&P 500 Index Master Portfolio $ 577,637 $ 939,051 [$__________]
U.S. Treasury Allocation Master Portfolio $ 148,606 $ 136,672 [$__________]
</TABLE>

Morrison & Foerster LLP, counsel to the Company and MIP and special counsel
to BGFA, has advised the Company, MIP and BGFA that BGFA and its affiliates may
perform the services contemplated by the Investment Advisory Contracts and this
prospectus without violation of the Glass-Steagall Act. Such counsel has pointed
out, however, that there are no controlling judicial or administrative
interpretations or decisions and that future judicial or administrative
interpretations of, or decisions related to, present federal or state statutes,
including the Glass-Steagall Act, and regulations relating to the permissible
activities of banks and their subsidiaries and affiliates, as well as future
changes in such statutes, regulations and judicial or administrative decisions
or interpretations, could prevent such entities from continuing to perform, in
whole or in part, such services. If any such entity

20
<PAGE>

were prohibited from performing any such services, it is expected that new
agreements would be proposed or entered into with another entity or entities
qualified to perform such services.

Investment Sub-Adviser. Effective January 1, 1996, the Master Portfolios no
----------------------
longer retained Wells Fargo Nikko Investment Adviser ("WFNIA") as investment
sub-adviser.

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

In addition, except for advisory fees, extraordinary expenses, brokerage and
other expenses connected to the execution of portfolio transactions and certain
expenses which are borne by the Funds, Stephens and BGI have agreed to bear all
costs of the Funds' and the Company's operations including, but not limited to,
transfer and dividend disbursing agency fees, shareholder servicing fees and
expenses of preparing and printing prospectuses, SAIs and other Fund materials.
For providing such services, Stephens and BGI are entitled to 0.15% of the
average daily net assets of each of the Bond Index and S&P 500 Index Funds; and
0.40% of the average daily net assets of each of the Asset Allocation and U.S.
Treasury Allocation Funds. Effective October 21, 1996, BGI contracted with
Investors Bank & Trust Company ("IBT") to provide certain sub-administration
services. Prior to October 21, 1996, Stephens served as sole administrator to
the Funds.

For the fiscal years ended February 29, 1996 and February 28, 1997, the Funds
paid administration and co-administration fees to Stephens as follows:

<TABLE>
<CAPTION>
FUND FYE 2/29/96 FYE 2/28/97
- ---- ----------- -----------
<S> <C> <C>
Asset Allocation Fund $ 349,680 $ 572,552
Bond Index Fund $ 18,131 $ 60,713
S&P 500 Stock Fund $ 331,823 $ 713,041
U.S. Treasury Allocation Fund $ 59,609 $ 73,610
</TABLE>

For the period beginning October 21, 1996 and ended February 28, 1997, the
Funds paid co-administration fees to BGI as follows:

21
<PAGE>

<TABLE>
<CAPTION>
FUND 10/21/96 - 2/28/97
- ---- ------------------
<S> <C>
Asset Allocation Fund $ 337,801
Bond Index Fund $ 32,155
S&P 500 Stock Fund $ 289,821
U.S. Treasury Allocation Fund $ 35,547
</TABLE>

For the fiscal years ended February 28, 1998 and February 28, 1999, the Funds
paid co-administration fees jointly to Stephens and BGI as follows:

<TABLE>
<CAPTION>
FUND FYE 2/28/98 FYE 2/28/99
- ---- ----------- -----------
<S> <C> <C>
Asset Allocation Fund $ 1,844,243 [$_________]
Bond Index Fund $ 158,187 [$_________]
S&P 500 Stock Fund $ 2,698,151 [$_________]
U.S. Treasury Allocation Fund $ 182,037 [$_________]
</TABLE>

Shareholder Servicing Plan. Each of the Funds has adopted a Shareholder
--------------------------
Servicing Plan (each a "Servicing Plan" and collectively the "Servicing Plans").
Under each Servicing Plan and pursuant to each Servicing Agreement, a Fund may
pay one or more servicing agents, as compensation for performing certain
services, monthly fees at the annual rate of up to 0.07% of the average daily
net assets of the S&P 500 Stock and Bond Index Funds, and 0.20% of the average
daily net assets of the Asset Allocation and U.S. Treasury Allocation Funds.
Payments to a servicing agent by a Fund will be based upon the average daily net
assets of the shares of the Fund owned of record by the servicing agent on
behalf of customers, or by its customers directly, during the period for which
payment is made.

The Servicing Plans will continue in effect from year to year if such
continuance is approved by a majority vote of both the Directors of the Company
and the Servicing Plan Qualified Directors. The Servicing Agreement may be
terminated automatically if assigned, or may be terminated at any time not more
than 60 days' nor less than 30 day's after notice, by a vote of a majority of
the Disinterested Directors or by a vote of the majority of the outstanding
voting securities of the Shares of a Fund of the Company or the affected
Fund(s). The Servicing Plans may not be amended to increase materially the
amount payable thereunder without the approval of a majority of the Company's
Board of Directors, including a majority of the Disinterested Directors cast at
a meeting called for that specific purpose.

The Servicing Plans require that the servicing agent shall provide to the
Treasurer of the Company, at least quarterly, a written report of the amounts
expended by the servicing agent (and purposes therefor) under each Servicing
Plan, and shall provide to the Company's Board of Directors such information as
may reasonably be necessary to an informed determination of whether the
Agreement shall be implemented or continued.

For the fiscal year ended February 28, 1997/1/ the Funds paid shareholder
servicing fees as follows and the indicated amounts were waived:

<TABLE>
<CAPTION>
FEES FEES
FUND PAID WAIVED
- ---- ---- ------
<S> <C> <C>
Asset Allocation Fund $555,606 $ 0
Bond Index Fund $ 31,663 $ 31,663
S&P 500 Stock Fund $454,547 $287,325
U.S. Treasury Allocation Fund $ 48,458 $ 0
</TABLE>
________________
/1/ Beginning October 21, 1996, shareholder servicing fees were paid out of co-
administration fees.

22
<PAGE>

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

A Shareholder Servicing Agent also may impose certain conditions on its
customers, subject to the terms of this Prospectus, in addition to or different
from those imposed by the Company, such as requiring a minimum initial
investment or payment of a separate fee for additional services. Each
Shareholder Servicing Agent is required to agree to disclose any fees it may
directly charge its customers who are Fund shareholders and to notify them in
writing at least 30 days before it imposes any transaction fees.

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

Custodian. IBT, concurrent with its appointment as sub-administrator for the
---------
Funds on October 21, 1996, also has been retained as custodian to each Fund and
Master Portfolio and performs such services at 200 Clarendon Street, Boston,
Massachusetts 02116. The custodian, among other things, maintains a custody
account or accounts in the name of each Fund; receives and delivers all assets
for each Fund upon purchase and upon sale or maturity; collects and receives all
income and other payments and distributions on account of the assets of each
Fund and pays all expenses of each Fund. IBT is not entitled to receive
compensation for its services as custodian so long as it is entitled to receive
fees from BGI for providing sub-administration services to the Funds. Prior to
October 21, 1996, BGI served as custodian to the Funds and was not entitled to
receive a fee. For the fiscal year ended February 28, 1998, the Funds did not
pay any custody fees.

Transfer and Dividend Disbursing Agent. IBT has been retained to act as the
--------------------------------------
transfer and dividend disbursing agent for the Funds. 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

23
<PAGE>

accounts that it maintains for the Funds and to be reimbursed for out-of-pocket
expenses or advances incurred by it in performing its obligations under the
agreement. The annual maintenance fee is paid as follows:

ANNUAL FEE
----------
Up to 200 accounts* $6,000 per feeder/class
From 201 to 250 accounts $8,500 per feeder/class
Over 250 accounts $10,000 per feeder/class

_______________
* Defined as each account that is set up for an individual or plan sponsor on
a fund by fund basis.

In addition, the agreement contemplates that IBT will be reimbursed for other
expenses incurred by it at the request or with the written consent of the Funds,
including, without limitation, any equipment or supplies which the Company
specifically orders or requires IBT to order.

Prior to March 2, 1998, Wells Fargo Bank served as transfer and dividend
disbursing agent to the Funds, and was entitled to receive a monthly fee at an
annual rate of 0.10% of the average daily net assets of the Asset Allocation and
U.S. Treasury Allocation Funds and 0.03% of the average daily net assets of each
of the Bond Index and S&P 500 Stock Funds for such services.

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.

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 Funds, Stephens and BGI have agreed to bear all
costs of the Funds' and the Company's operations.

Brokerage Commissions. For the fiscal years ended February Commissions Paid
---------------------
28, 1997, February 28, 1998 and February 28, 1999, the corresponding Master
Portfolio of each Fund paid the dollar amounts of brokerage commissions
indicated below. None of these brokerage commissions were paid to affiliated
brokers.

<TABLE>
<CAPTION>
COMMISSIONS PAID
MASTER PORTFOLIO FYE 2/28/97 FYE 2/28/98 FYE 2/28/99
- ---------------- ----------- ----------- -----------
<S> <C> <C> <C>
Asset Allocation Master Portfolio $28,606 $ 11,933 [$_______]
Bond Index Master Portfolio $ 0 $ 0 [$_______]
S&P 500 Index Master Portfolio $69,826 $112,100 [$_______]
U.S. Treasury Allocation Master Portfolio $ 0 $ 0 [$_______]
</TABLE>

Securities of Regular Broker/Dealers. As of February 28, 1999, the
------------------------------------
corresponding Master Portfolio of each Fund owned securities of their "regular
brokers or dealers" or their parents, as defined in the 1940 Act, as follows:

24
<PAGE>

<TABLE>
<CAPTION>
MASTER PORTFOLIO BROKER/DEALER AMOUNT
- ---------------- ------------- ----------
<S> <C> <C>
Asset Allocation Master Portfolio Goldman Sachs & Co. [$_______]
J.P. Morgan [$_______]
Bond Index Master Portfolio Goldman Sachs & Co. [$_______]
Lehman Bros., Inc. [$_______]
Salomon Inc. [$_______]
S&P 500 Index Master Portfolio Goldman Sachs & Co. [$_______]
J.P. Morgan [$_______]
Lehman Bros. Holdings [$_______]
Morgan Stanley [$_______]
U.S. Treasury Allocation Master Portfolio Goldman Sachs & Co. [$_______]
</TABLE>

PERFORMANCE INFORMATION

For purposes of advertising, the performance of the Funds may be calculated on
the basis of average annual total return and/or cumulative total return of
shares. Average annual total return of shares is calculated pursuant to a
standardized formula which assumes that an investment in shares of a Fund was
purchased with an initial payment of $1,000 and that the investment was
redeemed at the end of a stated period of time, after giving effect to the
reinvestment of dividends and distributions during the period. The return of
shares is expressed as a percentage rate which, if applied on a compounded
annual basis, would result in the redeemable value of the investment in shares
at the end of the period. Advertisements of the performance of shares of a Fund
include the Fund's average annual total return of shares for one, five and ten
year periods, or for shorter time periods depending upon the length of time
during which such Fund has operated. Cumulative total return of shares is
computed on a per share basis and assumes the reinvestment of dividends and
distributions. Cumulative total return of shares generally is expressed as a
percentage rate which is calculated by combining the income and principal
charges for a specified period and dividing by the NAV per share at the
beginning of the period.

Advertisements may include the percentage rate of total return of shares or
may include the value of a hypothetical investment in shares at the end of the
period which assumes the application of the percentage rate of total return. The
performance of the Bond Index and U.S. Treasury Allocation Funds may be
advertised in terms of yield. The yield on shares of these Funds is calculated
by dividing each Fund's net investment income per share earned during a
specified period (usually 30 days) by its NAV per share on the last day of such
period and annualizing the result. Performance figures are based on historical
results and are not intended to indicate future performance. Investors should
remember that performance is a function of the type and quality of portfolio
securities held by the Master Portfolio in which the Fund invests and is
affected by operating expenses. Performance information, such as that described
above, may not provide a basis for comparison with other investments or other
investment companies using a different method of calculating performance.

As and to the extent required by the SEC, an average annual compound rate of
return ("T") will be computed by using the value at the end of a specified
period ("ERV") of a hypothetical initial investment ("P") over a period of years
("n") according to the following formula: P(1+T)n = ERV. In addition, as
indicated in the Prospectus, the Funds, at times, also may calculate total
return based on net asset value per share (rather than the public offering
price) in which case the figures would not reflect the effect of any sales
charge that would have been paid by an investor, or based on the assumption that
a sales charge

25
<PAGE>

other than the maximum sales charge (reflecting a Volume Discount) was assessed
provided that total return data derived pursuant to the calculation described
above also are presented.

The average annual total returns on the Funds from July 2, 1993 (commencement
of operations) to February 28, 1999 and for the fiscal year ended February 28,
1999 were as follows:

<TABLE>
<CAPTION>
COMMENCEMENT
THROUGH
FUND 2/28/99 FYE 2/28/99
- ---- ------- -----------
<S> <C> <C>
Asset Allocation Fund [______%] [______%]
Bond Index Fund [______%] [______%]
S&P 500 Stock Fund [______%] [______%]
U.S. Treasury Allocation Fund [______%] [______%]
</TABLE>

The cumulative total returns on the Funds from July 2, 1993 (commencement of
operations) to February 28, 1999 were as follows:

<TABLE>
<CAPTION>
COMMENCEMENT
THROUGH
FUND 2/28/99
- ---- -------
<S> <C>
Asset Allocation Fund [______%]
Bond Index Fund [______%]
S&P 500 Stock Fund [______%]
U.S. Treasury Allocation Fund [______%]
</TABLE>

The U.S. Treasury Allocation, Asset Allocation, and Bond Index Funds may
advertise certain yield information. As, and to the extent required by the SEC,
yield will be calculated based on a 30-day (or one-month) period, computed by
dividing the net investment income per share earned during the period by the
maximum offering price per share on the last day of the period, according to the
following formula: YIELD = 2[(((a-b)/cd)+1)6-1], where a = dividends and
interest earned during the period; b = expenses accrued for the period (net of
reimbursements); c = the average daily number of shares outstanding during the
period that were entitled to receive dividends; and d = the maximum offering
price per share on the last day of the period. The net investment income of a
Fund includes actual interest income, plus or minus amortized purchase discount
(which may include original issue discount) or premium, less accrued expenses.
Realized and unrealized gains and losses on portfolio securities are not
included in a Fund's net investment income. For purposes of sales literature,
yield also may be calculated on the basis of the net asset value per share
rather than public offering price, provided that the yield data derived pursuant
to the calculation described above also are presented.

The yields of the Funds for the 30-day period ended February 28, 1999 were as
follows:

<TABLE>
<CAPTION>
CURRENT
FUND YIELD
- ---- -----
<S> <C>
Bond Index Fund [______%]
U.S. Treasury Allocation Fund [______%]
</TABLE>

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

26
<PAGE>

Yield information for a Fund may be useful in reviewing the performance of the
Fund and for providing a basis for comparison with investment alternatives. A
Fund's yield, however, may not be comparable to the yields from investment
alternatives because of differences in the foregoing variables and differences
in the methods used to value portfolio securities, compute expenses and
calculate yield.

In addition, investors should recognize that changes in the net asset values
of shares of a Fund affect the yield of such Fund for any specified period, and
such changes should be considered together with the Fund's yield in ascertaining
the Fund's total return to shareholders for the period. Yield information for
the Funds may be useful in reviewing the performance of such Funds and for
providing a basis for comparison with investment alternatives. The yield of a
Fund, however, may not be comparable to the yields from investment alternatives
because of differences in the foregoing variables and differences in the methods
used to value portfolio securities, compute expenses and calculate yield.
Additional information about the performance of each Fund is contained in the
Annual Report which may be obtained by calling the Company at 1-888-204-3956.

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

The performance information for the Bond Index Fund also may be compared, in
reports and promotional literature, to the Consumer Price Index, the Salomon One
Year Treasury Benchmark Index, Ten Year U.S. Government Bond Average, S&P's
Corporate Bond Yield Averages, Schabacker Investment Management Indices, Salomon
Brothers High Grade Bond Index, Lipper General Bond Fund Average, Lipper
Intermediate Investment Grade Debt Fund Average, Lehman Brothers
Government/Corporate Bond Index, Lehman Brothers Intermediate
Government/Corporate Bond Index, and Lehman Brothers Long-Term High Quality
Government/Corporate Bond Index. The performance information for the Bond Index
Fund also may be compared to the S&P Index, the Dow Jones Industrial Average,
the Lehman Brothers 20+ Treasury Index, the Lehman Brothers 5-7 Year Treasury
Index, Bank Averages (which is calculated from figures supplied by the U.S.
League of Savings Institutions based on effective annual rates of interest on
both passbook and certificate accounts), or to other indices of bonds, stocks,
or government securities, or by other services, companies, publications, or
persons who monitor mutual funds on overall performance or other criteria, but
not to money market mutual funds.

Performance information for the U.S. Treasury Allocation Fund, Asset
Allocation Fund, and the S&P 500 Stock Fund may be compared, in reports and
promotional literature, to the S&P 500 Index, the Wilshire 5000 Equity Index,
the Lehman Brothers 20+ Treasury Index, Donoghue's Money Fund Averages, the
Lehman Brothers 5-7 Year Treasury Index, Lehman Brothers Government Bond Index,
Lehman Brothers Treasury Bond Index, Lipper Balanced Fund Average, Lipper Growth
Fund Average, Lipper Flexible Portfolio Fund Average, Lehman Brothers
Intermediate Treasury Index, 91-Day Treasury Bill Average, or other appropriate
managed or unmanaged indices of the performance of various types of investments,
so that investors may compare a Fund's results with those of indices widely
regarded by investors as representative of the security markets in general.
Unmanaged indices may assume the reinvestment of dividends, but generally do not
reflect deductions for administrative and management costs and expenses. Managed
indices generally do reflect such deductions.

27
<PAGE>

The Company also may use the following information in advertisements and other
types of literature, only to the extent the information is appropriate for a
Fund: (i) the Consumer Price Index may be used to assess the real rate of return
from an investment in a Fund; (ii) other government statistics, including, but
not limited to, The Survey of Current Business, may be used to illustrate
investment attributes of a Fund or the general economic, business, investment,
or financial environment in which a Fund operates; (iii) the effect of tax-
deferred compounding on the investment returns of a Fund, or on returns in
general, may be illustrated by graphs, charts, etc., where such graphs or charts
would compare, at various points in time, the return from an investment in a
Fund (or returns in general) on a tax-deferred basis (assuming reinvestment of
capital gains and dividends and assuming one or more tax rates) with the return
on a taxable basis; and (iv) the sectors or industries in which a Fund invests
may be compared to relevant indices of stocks or surveys (e.g., S&P Industry
Surveys) to evaluate a Fund's historical performance or current or potential
value with respect to the particular industry or sector.

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 BGFA, 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
assets and categories of assets under management by the Master Portfolios'
investment adviser, sub-investment adviser or their affiliates.

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

Other Advertising Items. From time to time, the Company also may include in
-----------------------
advertisements or other marketing materials a discussion of certain of the
objectives of the investment strategy of the Asset Allocation Fund and the U.S.
Treasury Allocation Fund and a comparison of this strategy with other investment
strategies. In particular, the responsiveness of these Funds to changing market
conditions may be discussed. For example, the Company may describe the benefits
derived by having BGFA, as investment adviser, monitor and reallocate
investments among the three asset categories described in a Fund's Prospectus.
The Company's advertising or other marketing materials also might set forth
illustrations depicting examples of recommended allocations in different market
conditions.

The Company also may discuss in advertising and other types of literature that
a Fund has been assigned a rating by a nationally recognized statistical rating
organization ("NRSRO"), such as Standard & Poor's Corporation. Such rating would
assess the creditworthiness of the investments held by the Fund. The assigned
rating would not be a recommendation to purchase, sell or hold the Fund's shares
since the rating would not comment on the market price of the Fund's shares or
the suitability of the Fund for a

28
<PAGE>

particular investor. In addition, the assigned rating would be subject to
change, suspension or withdrawal as a result of changes in, or unavailability
of, information relating to the Fund or its investments. The Company may compare
a Fund's performance with other investments which are assigned ratings by
NRSROs. Any such comparisons may be useful to investors who wish to compare a
Fund's past performance with other rated investments. Of course past performance
cannot be a guarantee of future results. The Company also may include from time
to time, a reference to certain marketing approaches of the Distributor,
including, for example, a reference to a potential shareholder being contacted
by a selected broker or dealer. General mutual fund statistics provided by the
Investment Company Institute may also be used.

DETERMINATION OF NET ASSET VALUE

Net asset value per share for a Fund is determined on each day the Fund is
open for trading. Each Fund's investment in the corresponding Master Portfolio
of the Trusts are valued at the net asset value of such Master Portfolio'
shares.

Because the Master Portfolios are closed on certain days when the NYSE is open
for business, shareholders would not be able to redeem their shares on certain
days when there may be significant changes in the value of a Master Portfolio's
portfolio securities.

Master Portfolio securities for which market quotations are available are
valued at latest prices. Securities of a Master Portfolio for which the primary
market is a national securities exchange or the National Association of
Securities Dealers Automated Quotations National Market System are valued at
last sale prices. In the absence of any sale of such securities on the valuation
date and in the case of other securities, including U.S. Government securities
but excluding money market instruments maturing in 60 days or less, the
valuations are based on latest quoted bid prices. Money market instruments
maturing in 60 days or less are valued at amortized cost with cost being the
value of the security on the preceding day (61st day). Futures contracts will be
marked to market daily at their respective settlement prices determined by the
relevant exchange. Options listed on a national exchange are valued at the last
sale price on the exchange on which they are traded at the close of the NYSE,
or, in the absence of any sale on the valuation date, at latest quoted bid
prices. Options not listed on a national exchange are valued at latest quoted
bid prices. Debt securities maturing in 60 days or less are valued at amortized
cost. In all cases, bid prices will be furnished by an independent pricing
service approved by the Board of Trustees. Prices provided by an independent
pricing service may be determined without exclusive reliance on quoted prices
and may take into account appropriate factors such as institutional-size trading
in similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics and other market data. Securities held under a
repurchase agreement will be valued at a price equal to the amount of the cash
investment at the time of valuation on the valuation date. The market value of
the underlying securities shall be determined in accordance with the applicable
procedures, as described above, for the purpose of determining the adequacy of
collateral. All other securities and other assets of the Funds for which current
market quotations are not readily available are valued at fair value as
determined in good faith by MIP's Board of Trustees and in accordance with
procedures adopted by the Trustees.

PURCHASES, REDEMPTION AND PRICING OF SHARES

Terms of Purchase. The Funds are generally open Monday through Friday and are
-----------------
closed on weekends and NYSE holidays. The holidays on which the NYSE is closed
currently are: New Year's

29
<PAGE>

Day, Martin Luther King, Jr.'s. Birthday, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The
Company reserves the right to reject any purchase order and to change the amount
of the minimum investment and subsequent purchases in the Funds.

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

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

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

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

PORTFOLIO TRANSACTIONS

Since each Fund invests all of its assets in a corresponding Master Portfolio
of MIP, set forth below is a description of the Master Portfolios' policies
governing portfolio securities transactions.

Purchases and sales of equity securities on a securities exchange usually are
effected through brokers who charge a negotiated commission for their services.
Commission rates are established pursuant to negotiations with the broker based
on the quality and quantity of execution services provided by the broker in
light of generally prevailing rates. Orders may be directed to any broker
including, to the extent and in the manner permitted by applicable law, Stephens
or Barclays Global Investors Services. In the over- the-counter-market,
securities are generally traded on a "net" basis with dealers acting as
principal for their

30
<PAGE>

own accounts without a stated commission, although the price of the security
usually includes a profit to the dealer. In underwritten offerings, securities
are purchased at a fixed price that includes an amount of compensation to the
underwriter, generally referred to as the underwriter's concession or discount.

Under the 1940 Act, persons affiliated with a Master Portfolio are prohibited
from dealing with the Master Portfolio as a principal in the purchase and sale
of portfolio securities unless an exemptive order allowing such transactions is
obtained from the Commission or an exemption is otherwise available. A Master
Portfolio may purchase securities from underwriting syndicates of which Stephens
is a member under certain conditions in accordance with the provisions of a rule
adopted under the 1940 Act and in compliance with procedures adopted by MIP's
Board of Trustees.

A Master Portfolio has no obligation to deal with any dealer or group of
dealers in the execution of transactions in portfolio securities. Subject to
policies established by the Board of Trustees, BGFA is responsible for each
Master Portfolio's investment decisions and the placing of portfolio
transactions. In placing orders, it is the policy of each Master Portfolio to
obtain the best overall terms taking into account the dealer's general execution
and operational facilities, the type of transaction involved and other factors
such as the dealer's risk in positioning the securities involved. BGFA generally
seeks reasonably competitive spreads or commissions.

In assessing the best overall terms available for any transaction, BGFA
considers factors deemed relevant, including the breadth of the market in the
security, the price of the security, the financial condition and execution
capability of the broker or dealer, and the reasonableness of the commission, if
any, both for the specific transaction and on a continuing basis. Certain of the
brokers or dealers with whom the Master Portfolios may transact business offer
commission rebates to the Master Portfolios. BGFA considers such rebates in
assessing the best overall terms available for any transaction. BGFA may cause
the Asset Allocation and S&P 500 Index Master Portfolios to pay a broker/dealer
which furnishes brokerage and research services a higher commission than that
which might be charged by another broker/dealer for effecting the same
transaction, provided that 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 Master Portfolio. MIP's Board of Trustees will
periodically review the commissions paid by the Master Portfolio to consider
whether the commissions paid over representative periods of time appear to be
reasonable in relation to the benefits inuring to the Master Portfolio. It is
possible that certain of the supplementary research or other services received
will primarily benefit one or more other investment companies or other accounts
for which BGFA exercises investment discretion. Conversely, the Master Portfolio
may be the primary beneficiary of the research or services received as a result
of portfolio transactions effected for such other account or investment company.

31
<PAGE>

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

Portfolio Turnover. The portfolio turnover rates for the U.S. Treasury
------------------
Allocation, Bond Index, Asset Allocation and S&P 500 Index Master Portfolios
generally are not expected to exceed 450%, 100%, 450% and 50%, respectively. The
higher portfolio turnover rates for the U.S. Treasury Allocation, Bond Index and
Asset Allocation Master Portfolios may result in higher transaction (i.e.,
principal markup/markdown, brokerage, and other transaction) costs. The
portfolio turnover rate will not be a limiting factor when BGFA deem portfolio
changes appropriate.

DIVIDENDS, DISTRIBUTIONS AND TAXES

General. The S&P 500 Stock Fund intends to pay quarterly dividends consisting
-------
of substantially all of its net investment income and annual distributions
consisting of substantially all of its net realized capital gains. The Asset
Allocation Fund, Bond Index Fund and the U.S. Treasury Allocation Fund intend to
pay monthly dividends consisting of substantially all of their net investment
income and annual distributions consisting of substantially all of their net
realized capital gains. All dividends and distributions are automatically
reinvested at NAV in shares of the Fund paying such dividend or distribution,
unless payment in cash is requested and your arrangement with a Shareholder
Servicing Agent permits the processing of cash payments. Dividends and capital
gain distributions have the effect of reducing the NAV per share by the amount
distributed on the payment date. Although a dividend or distribution paid to an
investor on newly acquired shares shortly after purchase would represent, in
substance, a return of capital, the dividend or distribution may consist of net
investment income or net realized capital gain and, accordingly, would be
taxable to the investor.

The Company intends to qualify each 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. Each 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 each Fund, rather than to the Company
as a whole. Accordingly, net capital gain, net investment income, and operating
expenses will be determined separately for each Fund. As a regulated investment
company, each Fund will not be taxed on its net investment income and capital
gains distributed to its shareholders.

32
<PAGE>

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 Funds must also distribute or be deemed to distribute to their
shareholders at least 90% of their net investment income (which, for this
purpose includes net short-term capital gains) earned in each taxable year. In
general, these distributions must actually or be deemed to be made in the
taxable year. However, in certain circumstances, such distributions may be made
in the 12 months following the taxable year. The Funds intend to pay out
substantially all of their 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.

Each Fund seeks to qualify as a regulated investment company by investing
substantially all of its assets in a Master Portfolio. Under the Code, each
Master Portfolio will be treated as a non-publicly traded partnership rather
than as a regulated investment company or a corporation. As a non-publicly
traded partnership, any interest, dividends, gains and losses of the Master
Portfolio shall be deemed to have been "passed through" to the corresponding
Fund (and the Master Portfolio's other investors) in proportion to each Fund's
ownership interest in the Master Portfolio. Therefore, to the extent that a
Master Portfolio were to accrue but not distribute any interest, dividends or
gains, the corresponding Fund would be deemed to have realized and recognized
its proportionate share of interest, dividends or gains without receipt of any
corresponding distribution. However, each Master Portfolio will seek to
minimize recognition by its investors (such as a Fund) of interest, dividends,
gains or losses without a corresponding distribution.

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 dividend and capital gain distributions. However, such tax-exempt
investors may be subject to tax on certain unrelated taxable income which could
arise, for example, when such investors acquire shares in the Fund through the
use of leverage. Tax-exempt investors should consult their tax advisors
regarding the unrelated business taxable income rules. The foregoing discussion
regarding taxes is based on tax laws which were in effect as of the date of this
Prospectus and summarizes only some of the important federal tax considerations
generally affecting the Funds and their 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.

Excise Tax. A 4% nondeductible excise tax will be imposed on each 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.
Each Fund intends to actually or be deemed to distribute substantially

33
<PAGE>

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

Taxation of Master Portfolio Investments. Except as otherwise provided
----------------------------------------
herein, gains and losses realized by a 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 a Master Portfolio at a
market discount (generally at a price less than its principal amount) will be
treated as ordinary income to the extent of the portion of market discount which
accrued, but was not previously recognized pursuant to an available election,
during the term the Master Portfolio held the debt obligation.

If an option granted by a Master Portfolio lapses or is terminated through a
closing transaction, such as a repurchase by the Master Portfolio of the option
from its holder, the Master Portfolio will realize a short-term capital gain or
loss, depending on whether the premium income is greater or less than the amount
paid by the Master Portfolio in the closing transaction. Some realized capital
losses may be deferred if they result from a position which is part of a
"straddle," discussed below. If securities are sold by a Master Portfolio
pursuant to the exercise of a call option granted by it, the Master Portfolio
will add the premium received to the sale price of the securities delivered in
determining the amount of gain or loss on the sale.

Under Section 1256 of the Code, a Master Portfolio will be required to "mark
to market" its positions in "Section 1256 contracts," which generally include
regulated futures contracts and listed non-equity options. In this regard,
Section 1256 contracts will be deemed to have been sold at market value. Under
Section 1256 of the Code, sixty percent (60%) of any net gain or loss realized
on all dispositions of Section 1256 contracts, including deemed dispositions
under the mark-to-market regime, will generally be treated as long-term capital
gain or loss, and the remaining forty percent (40%) will be treated as short-
term capital gain or loss. Transactions that qualify as designated hedges are
excepted from the mark-to-market and 60%/40% rules.

Under Section 988 of the Code, a Master Portfolio will generally recognize
ordinary income or loss to the extent gain or loss realized on the disposition
of portfolio securities is attributable to changes in foreign currency exchange
rates. In addition, gain or loss realized on the disposition of a foreign
currency forward contract, futures contract, option or similar financial
instrument, or of foreign currency itself, will generally be treated as ordinary
income or loss. The Master Portfolios will attempt to monitor Section 988
transactions, where applicable, to avoid adverse federal income tax impact to
the Funds and their shareholders.

34
<PAGE>

upon which election is made, if any, the results with respect to the regulated
investment company may differ. Generally, to the extent the straddle rules apply
to positions established by a regulated investment company, losses realized by
the regulated investment company may be deferred to the extent of unrealized
gain in any offsetting positions. Moreover, as a result of the straddle and the
conversion transaction rules, short-term capital loss on straddle positions may
be recharacterized as long-term capital loss, and long-term capital gain may be
characterized as short-term capital gain or ordinary income.

If a Master Portfolio enters into a "constructive sale" of any appreciated
position in stock, a partnership interest, or certain debt instruments, the
Master Portfolio must recognize gain (but not loss) with respect to that
position. For this purpose, a constructive sale occurs when the Master
Portfolio enters into one of the following transactions with respect to the same
or substantially identical property: (i) a short sale; (ii) an offsetting
notional principal contract; (iii) a futures or forward contract, or (iv) other
transactions identified in future Treasury Regulations.

If a Master Portfolio purchases shares in a "passive foreign investment
company" ("PFIC"), the Master Portfolio may be subject to federal income tax and
an interest charge imposed by the Internal Revenue Service ("IRS") upon certain
distributions from the PFIC or the Master Portfolio's disposition of its PFIC
shares. If the Master Portfolio invests in a PFIC, the Master Portfolio intends
to make an available election to mark-to-market its interest in PFIC shares.
Under the election, the Master Portfolio will be treated as recognizing at the
end of each taxable year the difference, if any, between the fair market value
of its interest in the PFIC shares and its basis in such shares. In some
circumstances, the recognition of loss may be suspended. The Master Portfolio
will adjust its basis in the PFIC shares by the amount of income (or loss)
recognized. Although such income (or loss) will be taxable to the Master
Portfolio as ordinary income (or loss) notwithstanding any distributions by the
PFIC, the Master Portfolio will not be subject to federal income tax or the
interest charge with respect to its interest in the PFIC, if it makes the
available election.

Foreign Taxes. Income and dividends received by a Fund (through a Master
-------------
Portfolio) from foreign securities and gains realized by the Fund on the
disposition of foreign securities may be subject to withholding and other taxes
imposed by foreign countries. Tax conventions between certain countries and the
United States may reduce or eliminate such taxes. Although in some
circumstances a regulated investment company can elect to "pass through" foreign
tax credits to its shareholders, the Funds do not expect to be eligible to make
such an election.

Capital Gain Distributions. Distributions which are designated by a 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.

The Taxpayer Relief Act of 1997 (the "1997 Act") created several new
categories of capital gains applicable to noncorporate taxpayers. Under prior
law, noncorporate taxpayers generally were taxed at a maximum rate of 28% on
net capital gain (generally, the excess of net long-term capital gain over net
short-term capital loss). Noncorporate taxpayers generally are now taxed at a
maximum rate of 20% on net capital gain attributable to gains realized on the
sale of property held for greater than 18 months, and a maximum rate of 28% on
net capital gain attributable to gain realized on the sale of property held for
greater than one year and not more than 18 months, and a maximum rate of 25% for
certain gains attributable to the sale of real property. The 1997 Act retains
the treatment of short term capital gain or

35
<PAGE>

loss (generally, gain or loss attributable to capital assets held for 1 year or
less) and did not affect the taxation of capital gains in the hands of corporate
taxpayers.

Under the 1997 Act, the Treasury is authorized to issue regulations for
application of the reduced capital gains tax rates to pass-through entities,
including regulated investment companies, such as the Funds. The IRS has
published a notice applicable to pass-through entities until regulations are
promulgated. Pursuant to the notice, each Fund is permitted (but not required)
to designate the portion of its capital gain distributions, if any, to which the
28%, 25% and 20% rates described in the preceding paragraph apply, based on the
net amount of each class of capital gain realized by the Fund determined as if
the Fund is a noncorporate taxpayer. Noncorporate shareholders of the Funds may
therefore qualify for the reduced rate of tax on capital gain distributions paid
by the Funds.

Disposition of Fund Shares. A disposition of Fund shares pursuant to
--------------------------
redemption (including a redemption in-kind) or exchanges ordinarily will result
in a taxable capital gain or loss, depending on the amount received for the
shares (or are deemed to receive in the case of an exchange) and the cost of the
shares.

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

Federal Income Tax Rates. As of the printing of this SAI, the maximum
------------------------
individual tax rate applicable to ordinary income is 39.6% (marginal tax rates
may be higher for some individuals to reduce or eliminate the benefit of
exemptions and deductions); the maximum individual marginal tax rate applicable
to net capital gain is 28% (however, see "Capital Gain Distributions" above);
and the maximum corporate tax rate applicable to ordinary income and net capital
gain is 35% (marginal tax rates may be higher for some corporations to reduce or
eliminate the benefit of lower marginal income tax rates). Obviously, the
amount of tax payable by any taxpayer will be affected by a combination of tax
laws covering, for example, deductions, credits, deferrals, exemptions, sources
of income and other matters.

36
<PAGE>

is not subject to backup withholding, or the IRS notifies the Company that the
shareholder's TIN is incorrect or that the shareholder is subject to backup
withholding. Such tax withheld does not constitute any additional tax imposed on
the shareholder, and may be claimed as a credit against the shareholder's
federal income tax liability, if any, or otherwise will be refundable. An
investor must provide a valid TIN to the Company upon opening or reopening an
account. Failure to furnish a valid TIN to the Company could also subject the
investor to penalties imposed by the IRS. Foreign shareholders of the Funds
(described below) generally are not subject to backup withholding.

Corporate Shareholders. Corporate shareholders of the Funds may be eligible
----------------------
for the dividends-received deduction on dividends distributed out of a Fund's
net investment income attributable to dividends received from domestic
corporations, which, if received directly by the corporate shareholder, would
qualify for such deduction. A distribution by a Fund attributable to dividends
of a domestic corporation will only qualify for the dividends-received deduction
if (i) the corporate shareholder generally holds the Fund shares upon which the
distribution is made for at least 46 days during the 90 day period beginning 45
days prior to the date upon which the shareholder becomes entitled to the
distribution; and (ii) the Fund generally holds the shares of the domestic
corporation producing the dividend income for at least 46 days during the 90 day
period beginning 45 days prior to the date upon which the Fund becomes entitled
to such dividend income.

Foreign Shareholders. Under the Code, distributions of net investment income
--------------------
by a Fund to a nonresident alien individual, foreign trust (i.e., trust which a
U.S. court is able to exercise primary supervision over administration of that
trust and one or more U.S. persons have authority to control substantial
decisions of that trust), foreign estate (i.e., the income of which is not
subject to U.S. tax regardless of source), foreign corporation, or foreign
partnership (a "foreign shareholder") will be subject to federal income tax
withholding (at a rate of 30% or a lower treaty rate, if applicable).
Withholding will not apply if a dividend distribution paid by a 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 Funds
to estimate the portion of their distributions paid to foreign shareholders
which is subject to federal income tax withholding. Prospective investors are
urged to consult their own tax advisors regarding the application to them of the
New Regulations.

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

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

37
<PAGE>

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 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 or funds.

Voting. All shares of the Company have equal voting rights and will
-------
be voted in the aggregate, rather than by fund, unless otherwise required by law
(such as when a matter affects only one Fund). Shareholders of the Fund are
entitled to one vote for each share owned and fractional votes for fractional
shares owned. Depending on the terms of a particular Benefit Plan and the matter
being submitted to a vote, a sponsor may request direction from individual
participants regarding a shareholder vote. The Directors of the Company will
vote shares for which they receive no voting instructions in the same proportion
as the shares for which they do receive voting instructions.

The Master Portfolio. Whenever a 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 shareholder. 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.

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

38
<PAGE>

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

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

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

MIP is an open-end, series 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 Declarations of Trust protects a Trustee against any liability to
which the Trustee would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties involved in the
conduct of the Trustee's office.

The interests in each Master Portfolio of MIP have substantially identical
voting and other rights as those rights enumerated above for shares of the
Funds. MIP also intends to dispense with annual meetings, but are required by
Section 16(c) of the Act to hold a special meeting and assist investor
communications under the circumstances described above with respect to a
Company. Whenever a Fund is requested to vote on a matter with respect to its
Master Portfolio, the Fund will hold a meeting of Fund shareholders and will
cast its votes as instructed by such shareholders.

In a situation where a Fund does not receive instruction from certain of its
shareholders on how to vote the corresponding shares of a Master Portfolio, such
Fund will vote such shares in the same proportion as the shares for which the
Fund does receive voting instructions.

39
<PAGE>

ADDITIONAL INFORMATION ON THE FUNDS

The Company provides annual and semi-annual reports to all shareholders. The
annual reports contain audited financial statements and other information about
the Fund including additional information on performance. Shareholders may
obtain a copy of the Company's most recent annual report without charge by
phoning 1-888-204-3956.

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

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 FUNDS'
SHARES AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH
OFFERING MAY NOT LAWFULLY BE MADE.

FINANCIAL INFORMATION

The audited financial statements, including the portfolio of investments, and
independent auditors' report for the fiscal year ended February 28, 1999 for the
Asset Allocation, Bond Index, S&P 500 Stock and U.S. Treasury Allocation Funds
and corresponding Master Portfolios are hereby incorporated by reference to the
MasterWorks Funds Inc. Annual Report, as filed with the SEC on May 1, 1998. The
audited financial statements are attached to all SAIs delivered to shareholders
or prospective shareholders.

40
<PAGE>

APPENDIX
--------

INVESTMENT RATINGS

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

STANDARD & POOR'S RATINGS

Bond Ratings. Bonds rated "AAA" have the highest rating assigned by S&P to a
debt obligation. Capacity to pay interest and repay principal is extremely
strong. Bonds rated "AA" have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in a small degree. Bonds
rated "A" have a strong capacity to pay interest and repay principal although
it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
Bonds rated "BBB" by S&P are regarded as having an adequate capacity to pay
interest and repay principal. Whereas such bonds normally exhibit 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 debt in this category than in higher rated categories. Commercial Paper
Ratings. Commercial paper with the greatest capacity for timely payment is rated
"A" by S&P. Issues within this category are further redefined with
designations "1", "2" and "3" to indicate the relative degree of safety;
"A-1," the highest of the three, indicates the degree of safety is very high.

MOODY'S INVESTORS SERVICE RATINGS

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

A-1
<PAGE>

Commercial Paper Ratings. Moody's employs the designations of "Prime-1,"
- -------------------------
"Prime-2" and "Prime-3" to indicate the relative capacity of the rated issuers
to repay punctually. "Prime-1" is the highest commercial paper rating assigned
by Moody's. Issuers of "Prime-1" obligations must have a superior capacity for
repayment of short-term promissory obligations, and will normally be evidenced
by leading market positions in well established industries, high rates of 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.

FITCH INVESTORS SERVICE RATINGS

Bond Ratings. Bonds rated "BBB" by Fitch are considered to be in-vestment grade
and of satisfactory 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 weaken this ability than with
bonds having higher ratings.

A-2
<PAGE>

MASTERWORKS FUNDS INC.

STATEMENT OF ADDITIONAL INFORMATION

MONEY MARKET FUND

JUNE 30, 1999

_______________________

MasterWorks Funds Inc. (the "Company") is an open-end, management investment
company. This Statement of Additional Information ("SAI") contains additional
information about the Company's MONEY MARKET FUND (the "Fund"). The Fund seeks
to achieve its investment objective by investing all of its assets in the Money
Market Master Portfolio (the "Master Portfolio") of Master Investment Portfolio
("MIP"). The Master Portfolio has the same investment objective as the Fund as
described in its Prospectus.

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 June 30, 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
MasterWorks Funds Inc., c/o Investors Bank & Trust Co., -- Transfer Agent, P.O.
Box 9130, Mail Code MFD23, Boston, MA 02117-9130, or by calling 1-888-204-3956.
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fund History...............................................................................
Description of the Fund and Its Investments and Risks......................................
Portfolio Securities.......................................................................
Management.................................................................................
Control Persons and Principal Holders of Securities........................................
Investment Adviser and Other Service Providers.............................................
Performance Information....................................................................
Determination of Net Asset Value...........................................................
Purchases, Redemption and Pricing of Shares................................................
Portfolio Transactions.....................................................................
Dividends, Distributions and Taxes.........................................................
Capital Stock..............................................................................
Additional Information on the Fund.........................................................
Financial Information......................................................................
Appendix...................................................................................
Financial Statements.......................................................................
</TABLE>

i
<PAGE>

FUND HISTORY

The Company, an open-end management investment company, was incorporated in
Maryland on October 15, 1992 and currently offers ten series including the Fund.
MIP, organized as a Delaware business trust on October 21, 1993, consists of
twelve series including the Money Market Master Portfolio. The Company's
principal office is located at 111 Center Street, Little Rock, Arkansas 72201.
The Fund invests all of its assets in the corresponding Money Market Master
Portfolio of the Trust which has the same or substantially the same investment
objective as the Fund.

DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISKS

Investment Restrictions. The Fund and Master Portfolio have adopted
-----------------------
investment policies which may be fundamental or non-fundamental. Fundamental
policies cannot be changed without approval by the holders of a majority (as
defined in the Investment Company Act of 1940, as amended (the "1940 Act")) of
the outstanding voting securities of such Fund or Master Portfolio, as the case
may be. Non-fundamental policies may be changed without shareholder approval by
vote of a majority of the Directors of the Company or the Trustees of the Trust,
as the case may be, at any time.

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

The Money Market Fund may not:

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

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

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

1
<PAGE>

(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 (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
<PAGE>

(2) The Fund may not invest more than 10% of its net assets in illiquid
securities. For this purpose, illiquid securities include, among others, (i)
securities that are illiquid by virtue of the absence of a readily available
market or legal or contractual restrictions on resale, (ii) fixed time deposits
that are subject to withdrawal penalties and that have maturities of more than
seven days, and (iii) repurchase agreements not terminable within seven days.

(3) The Fund may lend securities from its portfolio to brokers, dealers and
financial institutions, in amounts not to exceed (in the aggregate) one-third of
the Fund's total assets. Any such loans of portfolio securities will be fully
collateralized based on values that are marked to market daily. The Fund will
not enter into any portfolio security lending arrangement having a duration of
longer than one year.

Notwithstanding any other investment policy or limitation (whether or not
fundamental), the Fund may invest all of its assets in the securities of a
single open-end management investment company with substantially the same
fundamental investment objective, policies and limitations as the Fund.

PORTFOLIO SECURITIES

To the extent set forth in this SAI, each Fund through its investment in the
corresponding Master Portfolio may invest in the securities described below. To
avoid the need to refer to both the Funds and the Master Portfolios in every
instance, the following sections generally refer to the Funds only.

REFERENCES TO THE INVESTMENTS AND INVESTMENT POLICIES AND RESTRICTIONS OF THE
FUND, UNLESS OTHERWISE INDICATED, SHOULD BE UNDERSTOOD AS REFERENCES TO THE
INVESTMENTS AND INVESTMENT POLICIES AND RESTRICTIONS OF THE MASTER PORTFOLIO IN
WHICH SUCH FUND INVESTS ITS ASSETS.

The 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 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 accept-able 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.

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

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>

9
<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" ). Stagecoach Funds, Inc., Stagecoach
Trust and Life & Annuity Trust together form a separate fund complex (the "Wells
Fargo 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

10
<PAGE>

withdrawal, the Company's Board would consider alternative investments,
including investing all of the Fund's assets in another investment company with
the same investment objective as the Fund or hiring an investment adviser to
manage the Fund's assets in accordance with the investment policies described
below with respect to the Master Portfolio.

The investment objective and other fundamental policies of the Master
Portfolio cannot be changed without approval by the holders of a majority (as
defined in the 1940 Act) of the Master Portfolio's outstanding interests.
Whenever the Fund, as an interstholder of the Master Portfolio, is requested to
vote on any matter submitted to interestholders of the Master Portfolio, the
Fund will hold a meeting of its shareholders to consider such matters. The Fund
will cast its votes in proportion to the votes received from its shareholders.
Shares for which the Fund receives no voting instructions will be voted in the
same proportion as the votes received from the other Fund shareholders.

Certain policies of the Master Portfolio which are non-fundamental may be
changed by vote of a majority of MIP's Trustees without interestholder approval.
If the Master Portfolio's investment objective or fundamental or non-fundamental
policies are changed, the Fund may elect to change its objective or policies to
correspond to those of the Master Portfolio. The Fund may also elect to redeem
its interests in the Master Portfolio and either seek a new investment company
with a matching objective in which to invest or retain its own investment
adviser to manage the Fund's portfolio in accordance with its objective. In the
latter case, the Fund's inability to find a substitute investment company in
which to invest or equivalent management services could adversely affect
shareholders' investments in the Fund. The Fund will provide shareholders with
30 days' written notice prior to the implementation of any change in the
investment objective of the Fund or the Master Portfolio, to the extent
possible.

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

As of [_________________], Merrill Lynch Trust Co. FSB, FBO Various 401(K)
Plans, P.O. Box 62000, San Francisco, CA 94162, was the record owner of
approximately [97.09%] of the outstanding voting securities of the Fund, and may
be presumed to "control" the Fund as that term is defined in the 1940 Act.

INVESTMENT ADVISER AND OTHER SERVICE PROVIDERS

Investment Adviser. At a special meeting held on August 14, 1998, the
------------------
Fund's Shareholders approved a plan to reorganize the Fund from its current
stand-alone structure to a master/feeder structure (the "Reorganization"). As a
result the Fund will invest all of its assets in the Master Portfolio of MIP.
The Master Portfolio has the same investment objective and invests in the same
kinds of securities as the Fund. The Master Portfolio retained BGFA, the
investment adviser to the Fund, to manage its assets. The advisory fee level is
0.10% of average net assets on an annual basis. BGFA no longer engages an
investment sub-adviser, but instead manages the Master Portfolio's assets
itself. Pursuant to the Advisory Contract, BGFA furnishes the Company's Board of
Directors with periodic reports on the investment strategy and performance of
the Master Portfolio.

The 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

11
<PAGE>

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).

For the fiscal years ended February 28, 1997, February 28, 1998, and
February 28, 1999, the Fund paid the following advisory fees to BGFA, without
waivers:

<TABLE>
<CAPTION>
FYE 2/28/97 FYE 2/28/98 FYE 2/28/99
FEES PAID FEES PAID FEES PAID
--------- --------- ---------
<S> <C> <C> <C>
MONEY MARKET FUND $ 570,332 $ 630,279 [$______]
</TABLE>

As of the date the Fund converted to a Master/Feeder structure, BGFA no
longer engages Wells Fargo Bank to provide sub-investment advisory services
pursuant to a Sub-Advisory Contract. Wells Fargo Bank received fees at an annual
rate of 0.05% of the Fund's average daily net assets. For the fiscal years ended
February 28, 1997, February 28, 1998, and February 28, 1999, BGFA paid to Wells
Fargo Bank the sub-advisory fees indicated below, without waivers:

<TABLE>
<CAPTION>
FYE 2/28/97 FYE 2/28/98 FYE 2/28/99
FEES PAID FEES PAID FEES PAID
--------- --------- ---------
<S> <C> <C> <C>
MONEY MARKET FUND $ 80,773 $ 90,190 [$______]
</TABLE>

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

For the fiscal years ended February 28, 1997, February 28, 1998 and
February 28, 1999, the Fund paid the following administration fees:

12
<PAGE>

<TABLE>
<CAPTION>
FYE 2/28/97 FYE 2/28/98 FYE 2/28/99
----------- ----------- -----------
<S> <C> <C> <C>
Money Market Fund $111,048(1) $179,427(2) [$________](2)
</TABLE>

_______________

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

(2) Co-administration fees paid jointly to Stephens and BGI.

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

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

Custodian. IBT, concurrent with its appointment as sub-administrator for the
---------
Fund on October 21, 1996, also has been retained to act as Custodian for the
Fund and performs such services at 200 Clarendon Street, Boston, Massachusetts
02116. The custodian, among other things, maintains a custody account or
accounts in the name of the Fund; receives and delivers all assets for the Fund
upon purchase and upon sale or maturity and collects and receives all income and
other payments and distributions on account of the assets of the Fund. IBT shall
not be entitled to compensation for providing custody services to the Fund
pursuant to the Custody Agreement so long as it receives compensation from BGI
for providing sub-administration services to the Company, on behalf of the Fund.
For the fiscal years ended February 28, 1997, February 28, 1998, and February
28, 1999, the Fund did not pay any custody fees.

13
<PAGE>

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.

Prior to March 2, 1998, Wells Fargo Bank served as transfer and dividend
disbursing agent to the Fund, and was entitled to receive a monthly fee at an
annual rate of 0.05% of the average daily net assets of each Fund for such
services.

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.

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

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

14
<PAGE>

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.
The current yields for the Fund for the seven-day and thirty day periods ended
February 28, 1999 were [_____%] and [_____%], respectively.

Effective yield for the Money Market Fund is calculated by determining the
net change exclusive of capital changes in the value of a hypothetical pre-
existing account having a balance of one share at the beginning of the period,
subtracting a hypothetical charge reflecting deductions from shareholder
accounts, and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return, and then
compounding the base period return by adding one, raising the sum to a power
equal to 365 divided by seven, and subtracting one from the result. The
effective yield for the Fund for the seven-day period ended February 28, 1999
was [___].

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

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.

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

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

15
<PAGE>

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.

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-

16
<PAGE>

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 Funds.

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 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.

In-Kind Purchases. Payment for shares of a Fund may, at the discretion of
------------------
BGFA as investment adviser, be made in the form of securities that are
permissible investments for such Fund. Shares purchased in exchange for
securities can not be redeemed until the exchange transaction has settled.

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.

17
<PAGE>

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

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

PORTFOLIO TRANSACTIONS

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

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

In assessing the best overall terms available for any transaction, BGFA
considers factors deemed relevant, including the breadth of the market in the
security, the price of the security, the financial condition and execution
capability of the broker or dealer, and the reasonableness of the commission, if
any, both for the specific transaction and on a continuing basis. BGFA may cause
the Fund to pay a broker/dealer which furnishes brokerage and research services
a higher commission than that which might be charged by another broker/dealer
for effecting the same transaction, provided that BGFA determines in good faith
that such commission is reasonable in relation to the value of the brokerage and
research services 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.

18
<PAGE>

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 provided to BGFA by brokers are available for the benefit of all
accounts managed or advised by BGFA. It is the opinion of BGFA that this
material is beneficial in supplementing their research and analysis; and,
therefore, it may benefit the Fund by improving the quality of BGFA's investment
advice.

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

Securities of Regular Broker/Dealers. As of February 28, 1999 the Fund
------------------------------------
owned no securities of its "regular brokers or dealers" or their parents, as
defined in the 1940 Act.

19
<PAGE>

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 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

20
<PAGE>

"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 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.

21
<PAGE>

Excise Tax. A 4% nondeductible excise tax will be imposed on the Fund
----------
(other than to the extent of its tax-exempt interest income) to the extent it
does not meet certain minimum distribution requirements by the end of each
calendar year. The Fund intends to actually or be deemed to distribute
substantially all of its net investment income and net realized capital gains by
the end of each calendar year and, thus, expects not to be subject to the excise
tax.

Taxation of Master Portfolio Investments. Except as otherwise provided
----------------------------------------
herein, gains and losses realized by the Master Portfolio on the sale of
portfolio securities generally will be capital gains and losses. Such gains and
losses ordinarily will be long-term capital gains and losses if the securities
have been held by the Master Portfolio for more than one year at the time of
disposition of the securities.

Gains recognized on the disposition of a debt obligation (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.

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

22
<PAGE>

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.

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.

23
<PAGE>

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 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.

24
<PAGE>

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

Shareholders of the Fund are entitled to one vote for each share owned and
fractional votes for fractional shares owned. Depending on the terms of a
particular Benefit Plan and the matter being submitted to a vote, a sponsor may
request direction from individual participants regarding a shareholder vote. The
Directors of the Company will vote shares for which they receive no voting
instructions in the same proportion as the shares for which they do receive
voting instructions.

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

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

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 shareholder. 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

25
<PAGE>

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.

In a situation where the Fund does not receive instruction from certain of
its shareholders on how to vote the corresponding shares of the Master
Portfolio, the Fund will vote such shares in the same proportion as the shares
for which the Fund does receive voting instructions.

ADDITIONAL INFORMATION ON THE FUND

The Company provides annual and semi-annual reports to all shareholders.
The annual reports contain audited financial statements and other information
about the Fund including additional information on performance. Shareholders may
obtain a copy of the Company's most recent annual report without charge by
calling 1-888-204-3956.

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN THE
COMPANY'S OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFER OF THE FUND'S
SHARES AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH
OFFERING MAY NOT LAWFULLY BE MADE.

26
<PAGE>

FINANCIAL INFORMATION

The audited financial statements, including the portfolio of investments
and independent auditors' report for the fiscal year ended February 28, 1999 for
the Fund are hereby incorporated by reference to the MasterWorks Funds Inc.
Annual Report, as filed with the SEC on May 1, 1999. The audited financial
statements are attached to all SAIs delivered to shareholders or prospective
shareholders.

27
<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' BOND RATINGS

"Aaa"

Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.

A-1
<PAGE>

"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.

A-2
<PAGE>

"AAA"

Bonds rated "AAA" are considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events.

"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+.

A-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

A-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".

A-5
<PAGE>

MASTERWORKS LIFEPATH(R) FUNDS
MASTERWORKS FUNDS INC.

STATEMENT OF ADDITIONAL INFORMATION

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

June 30, 1999

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

This SAI is not a prospectus and should be read in conjunction with the Funds'
current Prospectus, also dated June 30, 1999. All terms used in this SAI that
are defined in the Prospectus have the meanings assigned in the Prospectus. A
copy of the Prospectus may be obtained without charge by writing MasterWorks
Funds Inc., c/o Investors Bank & Trust Co., -- Transfer Agent, P.O. Box 9130,
Mail Code MFD23, Boston, MA 02117-9130, or by calling 1-888-204-3956.
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TABLE OF CONTENTS

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Page
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Fund History....................................................
Description of the Funds and Their Investments and Risks........
Portfolio Securities............................................
Risk Considerations.............................................
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...................................................
Additional Information on the Funds.............................
Financial Information...........................................
Appendix........................................................
Financial Statements............................................
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FUND HISTORY

The Company, an open-end management investment company, was incorporated in
Maryland on October 15, 1992 and currently offers ten series including the
Funds. MIP, organized as a Delaware business trust on October 21, 1993, consists
of twelve series including the LifePath Master Portfolios. The Company's
principal office is located at 111 Center Street, Little Rock, Arkansas 72201.
Each Fund invests all of its assets in the corresponding Master Portfolio of MIP
(as shown below), which has the same investment objective as the related Fund.
BGFA has granted the Company a non-exclusive license to use the name
"LifePath." If the license agreement is terminated, the Company, at BGFA's
request, will cease using the "LifePath" name.

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LIFEPATH FUND Corresponding Master Portfolio
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LifePath 2000 Fund LifePath 2000 Master Portfolio
LifePath 2010 Fund LifePath 2010 Master Portfolio
LifePath 2020 Fund LifePath 2020 Master Portfolio
LifePath 2030 Fund LifePath 2030 Master Portfolio
LifePath 2040 Fund LifePath 2040 Master Portfolio
</TABLE>

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

DESCRIPTION OF THE FUNDS AND THEIR INVESTMENTS AND RISKS

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

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

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

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The LifePath Funds contain both "strategic" and "tactical" components,
with the strategic component weighted more heavily than the tactical component.
The strategic component of the Funds evaluates the risk that investors, on
average, may be willing to accept given their investment time horizons. The
strategic component thus determines the changing investment risk level of each
LifePath Fund as time passes. The tactical component addresses short-term market
conditions. The tactical component thus adjusts the amount of investment risk
taken by each LifePath Fund without regard to time horizon, but rather in
consideration of the relative risk-adjusted short-term attractiveness of various
asset classes. The LifePath Funds may invest in a wide range of U.S. and foreign
investments and market sectors and may shift their allocations among investments
and sectors from time to time. To manage the LifePath Funds, BGFA employs a
proprietary investment model (the "Model") that analyzes extensive financial
and economic data, including risk correlation and expected return statistics.
The Model selects indices representing segments of the global equity and debt
markets and the Funds invest to create market exposure by purchasing
representative samples of the indices in an attempt to replicate their
performance.

The Model has broad latitude to allocate the Funds' investments among equity
securities, debt securities and money market instruments. The LifePath Funds are
not managed as balanced portfolios and are not required to maintain a portion of
their investments in each of the permitted investment categories at all times.
Until a LifePath Fund attains an asset level of approximately $100 to $150
million, the Model will allocate assets across fewer of the investment
categories identified below than it otherwise would. As a LifePath Fund
approaches this minimum asset level, the Model will add investment categories
from among those identified below, thereby approaching the desired investment
mix over time. The portfolio of investments of each LifePath Fund is compared
from time to time to the Model's recommended allocation. Recommended
reallocations are implemented subject to BGFA's assessment of current economic
conditions and investment opportunities. BGFA may change from time to time the
criteria and methods it uses to implement the recommendations of the Model.
Recommended reallocations are implemented in accordance with trading policies
designed to take advantage of market opportunities and reduce transaction costs.
The asset allocation mix selected by the Model is a primary determinant in the
respective LifePath Fund's investment performance. BGFA manages other portfolios
which also invest in accordance with the Model. The performance of each of those
other portfolios is likely to vary from the performance of LifePath Funds. Such
variation in performance is primarily due to different equilibrium asset-mix
assumptions used for the various portfolios, timing differences in the
implementation of the Model's recommendations and differences in expenses and
liquidity requirements. The overall management of each LifePath Fund is based on
the recommendation of the Model, and no person is primarily responsible for
recommending the mix of asset classes in each Fund or the mix of securities
within the asset classes. Decisions relating to the Model are made by BGFA's
investment committee.

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

Each LifePath Fund may not:

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

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

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

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

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

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

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

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

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

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

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

As a matter of non-fundamental policy:

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(2) Each Fund may not invest more than 15% of its net assets in illiquid
securities. For this purpose, illiquid securities include, among others, (a)
securities that are illiquid by virtue of the absence of a readily available
market or legal or contractual restrictions on resale, (b) fixed time deposits
that are subject to withdrawal penalties and that have maturities of more than
seven days, and (c) repurchase agreements not terminable within seven days.

(3) Each Fund may lend securities from its portfolio to brokers, dealers and
financial institutions, in amounts not to exceed (in the aggregate) one-third of
a Fund's total assets. Any such loans of portfolio securities will be fully
collateralized based on values that are marked to market daily. The Funds will
not enter into any portfolio security lending arrangement having a duration of
longer than one year.

PORTFOLIO SECURITIES

To the extent set forth in this SAI, each Fund through its investment in the
corresponding Master Portfolio may invest in the securities described below. To
avoid the need to refer to both the Funds and the Master Portfolios in every
instance, the following sections generally refer to the Funds only.

REFERENCES TO THE INVESTMENTS AND INVESTMENT POLICIES AND RISKS OF THE
LIFEPATH FUNDS, UNLESS OTHERWISE INDICATED, SHOULD BE UNDERSTOOD AS REFERENCES
TO THE INVESTMENTS AND INVESTMENT POLICIES AND RISKS OF THE CORRESPONDING MASTER
PORTFOLIOS.

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

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

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

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

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

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

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

U.S. Government Obligations. The LifePath Funds may invest in various types
----------------------------
of U.S. Government obligations. U.S. Government obligations include securities
issued or guaranteed as to principal and interest by the U.S. Government, its
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

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repayment, which agency or instrumentality may be privately owned. There can be
no assurance that the U.S. Government would provide financial support to its
agencies or instrumentalities where it is not obligated to do so. As a general
matter, the value of debt instruments, including U.S. Government obligations,
declines when market interest rates increase and rises when market interest
rates decrease. Certain types of U.S. Government obligations are subject to
fluctuations in yield or value due to their structure or contract terms.

Securities of Non-U.S. Issuers. The LifePath Funds may invest in certain
-------------------------------
securities of non-U.S. issuers as discussed below.

Obligations of Foreign Governments, Supranational Entities and Banks. Each
LifePath Fund may invest in U.S. dollar-denominated short-term obligations
issued or guaranteed by one or more foreign governments or any of their
political subdivisions, agencies or instrumentalities that are determined by
BGFA to be of comparable quality to the other obligations in which such Fund may
invest. The Funds may also invest in debt obligations of supranational entities.
Supranational entities include international organizations designated or
supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government
agencies. Examples include the International Bank for Reconstruction and
Development (the World Bank), the European Coal and Steel Community, the Asian
Development Bank and the InterAmerican Development Bank. The percentage of each
Fund's assets invested in obligations of foreign governments and supranational
entities will vary depending on the relative yields of such securities, the
economic and financial markets of the countries in which the investments are
made and the interest rate climate of such countries. Each Fund may invest a
portion of its total assets in high-quality, short-term (one year or less)
debt obligations of foreign branches of U.S. banks or U.S. branches of foreign
banks that are denominated in and pay interest in U.S. dollars.

Foreign Equity Securities and Depositary Receipts -- Each LifePath Fund's assets
may be invested in equity securities of foreign issuers and American Depositary
Receipts ("ADRs") and European Depositary Receipts ("EDRs") of such issuers.
ADRs and EDRs may not necessarily be denominated in the same currency as the
securities into which they may be converted. ADRs are receipts typically issued
by a United States bank or trust company which evidence ownership of underlying
securities issued by a foreign corporation. EDRs, which are sometimes referred
to as Continental Depositary Receipts ("CDRs"), are receipts issued in Europe
typically by non-United States banks and trust companies that evidence ownership
of either foreign or domestic securities. Generally, ADRs in registered form are
designed for use in the United States securities markets and EDRs and CDRs in
bearer form are designed for use in Europe. Each LifePath Fund may invest in
ADRs, EDRs and CDRs through "sponsored" or "unsponsored" facilities. A
sponsored facility is established jointly by the issuer of the underlying
security and a depositary, whereas a depositary may establish an unsponsored
facility without participation by the issuer of the deposited security. Holders
of unsponsored depositary receipts generally bear all the costs of such
facilities and the depositary of an unsponsored facility frequently is under no
obligation to distribute shareholder communications received from the issuer of
the deposited security or to pass through voting rights to the holders of such
receipts in respect of the deposited securities.

Futures Contracts and Options Transactions. LifePath Funds may use futures
------------------------------------------
contracts as a hedge against the effects of interest rate changes or changes in
the market value of the stocks comprising the index in which such Fund invests.
In managing their cash flows, these Funds also may use futures contracts as a
substitute for holding the designated securities underlying the futures
contract. A futures contract is an agreement between two parties, a buyer and a
seller, to exchange a particular commodity at

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a specific price on a specific date in the future. An option transaction
generally involves a right, which may or may not be exercised, to buy or sell a
commodity or financial instrument at a particular price on a specified future
date. Futures contracts and options are standardized and traded on exchanges,
where the exchange serves as the ultimate counterparty for all contracts. At the
time it enters into a futures transaction, a Fund is required to make a
performance deposit (initial margin) of cash or liquid securities in a
segregated account in the name of the futures broker. Subsequent payments of
"variation margin" are then made on a daily basis, depending on the value of the
futures position which is continually "marked to market."

A LifePath Fund may engage only in futures contract transactions involving (i)
the sale of a futures contract (i.e., short positions) to hedge the value of
securities held by such Fund; (ii) the purchase of a futures contract when such
Fund hold a short position having the same delivery month (i.e., a long position
offsetting a short position); or (iii) the purchase of a futures contract to
permit the Fund to, in effect, participate in the market for the designated
securities underlying the futures contract without actually owning such
designated securities. When a Fund purchases a futures contract, it will create
a segregated account consisting of cash or other liquid assets in an amount
equal to the total market value of such futures contract, less the amount of
initial margin for the contract.

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

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

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

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purchase, the in-the-money amount as defined in CFTC Reg. 190.01(x) may be
excluded in computing such five percent.

Stock Index Futures and Options on Stock Index Futures. Each LifePath Fund may
invest in stock index futures and options on stock index futures as a substitute
for a comparable market position in the underlying securities. A stock index
future obligates the seller to deliver (and the purchaser to take), effectively,
an amount of cash equal to a specific dollar amount times the difference between
the value of a specific stock index at the close of the last trading day of the
contract and the price at which the agreement is made. No physical delivery of
the underlying stocks in the index is made. With respect to stock indices that
are permitted investments, each Fund intends to purchase and sell futures
contracts on the stock index for which it can obtain the best price with
consideration also given to liquidity. There can be no assurance that a liquid
market will exist at the time when a Fund seeks to close out a futures contract
or a futures option position. Lack of a liquid market may prevent liquidation of
an unfavorable position.

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

Interest-Rate and Index Swaps. Each LifePath Fund may enter into interest-rate
and index swaps in pursuit of their investment objectives. Interest-rate swaps
involve the exchange by a Fund with another party of their respective
commitments to pay or receive interest (for example, an exchange of floating-
rate payments on fixed-rate payments). Index swaps involve the exchange by a
Fund with another party of cash flows based upon the performance of an index of
securities or a portion of an index of securities that usually include dividends
or income. In each case, the exchange commitments can involve payments to be
made in the same currency or in different currencies. A Fund will usually enter
into swaps on a net basis. In so doing, the two payment streams are netted out,
with a Fund receiving or paying, as the case may be, only the net amount of the
two payments. If a Fund enters into a swap, it will maintain a segregated
account on a gross basis, unless the contract provides for a segregated account
on a net basis. If there is a default by the other party to such a transaction,
a Fund will have contractual remedies pursuant to the agreements related to the
transaction. The use of interest-rate and index swaps is a highly specialized
activity which involves investment techniques and risks different from those
associated with ordinary portfolio security transactions. There is no limit,
except as provided below, on the amount of swap transactions that may be entered
into by a Fund. These transactions generally do not involve the delivery of
securities or other underlying assets or principal. Accordingly, the risk of
loss with respect to swaps generally is limited to the net amount of payments
that a Fund is contractually obligated to make. There is also a risk of a
default by the other party to a swap, in which case a Fund may not receive net
amount of payments that a Fund contractually is entitled to receive.

Foreign Currency Transactions. Currency exchange rates may fluctuate
-----------------------------
significantly over short periods of time. They generally are determined by the
forces of supply and demand in the foreign exchange markets and the relative
merits of investments in different countries, actual or perceived changes in
interest rates and other complex factors, as seen from an international
perspective. Currency exchange rates also can be affected unpredictably by the
intervention of U.S. or foreign governments or central banks, or by the failure
to intervene, or by currency controls or political developments in the

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

At or before the maturity of a forward contract, a LifePath Fund either may
sell a portfolio security and make delivery of the currency, or may retain the
security and offset its contractual obligation to deliver the currency by
purchasing a second contract pursuant to which such Fund obtains, on the same
maturity date, the same amount of the currency which it is obligated to deliver.
If the LifePath Fund retains the portfolio security and engages in an offsetting
transaction, such Fund, at the time of execution of the offsetting transaction,
incurs a gain or a loss to the extent that movement has occurred in forward
contract prices. Should forward prices decline during the period between the
LifePath Fund's entering into a forward contract for the sale of a currency and
the date it enters into an offsetting contract for the purchase of the currency,
the Fund realizes a gain to the extent the price of the currency it has agreed
to sell exceeds the price of the currency it has agreed to purchase. Should
forward prices increase, the Fund suffers a loss to the extent the price of the
currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell.

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

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

Forward Commitments, When-Issued Purchases and Delayed-Delivery Transactions.
-----------------------------------------------------------------------------
Each Fund may purchase or sell securities on a when-issued or delayed-delivery
basis and make contracts to purchase or sell securities for a fixed price at a
future date beyond customary settlement time. Securities purchased or sold on a
when-issued, delayed-delivery or forward commitment basis involve a risk of loss
if the value of the security to be purchased declines, or the value of the
security to be sold increases, before the settlement date. Although a Fund will
generally purchase securities with the intention of acquiring them, a Fund may
dispose of securities purchased on a when issued, delayed-delivery or a forward
commitment basis before settlement when deemed appropriate by the adviser.

Investment Company Securities. Each LifePath Fund may invest in securities
------------------------------
issued by other investment companies which principally invest in securities of
the type in which the Fund invests. Under

9
<PAGE>

the 1940 Act, a 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. The Fund may
also purchase shares of exchange listed closed-end funds.

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

Mortgage-Related Securities. Each LifePath Fund may invest in mortgage-
---------------------------
related securities ("MBSs"), which are securities representing interests in a
pool of loans secured by mortgages. The resulting cash flow from these mortgages
is used to pay principal and interest on the securities. MBSs are assembled for
sale to investors by various government sponsored enterprises such as the
Federal National Mortgage Association ("FNMA") and the Federal Home Loan
Mortgage Corporation ("FHLMC") or are guaranteed by such governmental agencies
as the Government National Mortgage Association ("GNMA"). Regardless of the
type of guarantee, all MBSs are subject to interest rate risk (i.e., exposure to
loss due to changes in interest rates). GNMA MBSs include GNMA Mortgage Pass-
Through Certificates (also known as "Ginnie Maes") which are guaranteed as to
the full and timely payment of principal and interest by GNMA and such guarantee
is backed by the authority of GNMA to borrow funds from the U.S. Treasury to
make payments under its guarantee. GNMA is a wholly-owned U.S. Government
corporation within the Department of Housing and Urban Development and, as such,
Ginnie Maes are backed by the full faith and credit of the federal government.
In contrast, MBSs issued by FNMA include FNMA Guaranteed Mortgage Pass-Through
Certificates ("Fannie Maes") which are solely the obligations of FNMA and are
neither backed by nor entitled to the full faith and credit of the federal
government). FNMA is a government-sponsored enterprise which is also a private
corporation whose stock trades on the NYSE. Fannie Maes are guaranteed as to
timely payment of principal and interest by FNMA. MBSs issued by FHLMC include
FHLMC Mortgage Participation Certificates ("Freddie Macs" or "PCs"). FHLMC
is a government-sponsored enterprise whose MBSs are solely obligations of FHLMC.
Therefore, Freddie Macs are not guaranteed by the United States or by any
Federal Home Loan Bank and do not constitute a debt or obligation of the United
States or of any Federal Home Loan Bank. FHLMC guarantees timely payment of
interest, but only ultimate payment of principal due under the obligations it
issues. FHLMC may, under certain circumstances, remit the guaranteed payment of
principal at any time after default on an underlying mortgage, but in no event
later than one year after the guarantee becomes payable.

Warrants -- Each LifePath Fund may invest generally up to 5% of its net assets
--------
at the time of purchase in warrants, except that this limitation does not apply
to warrants acquired in units or attached to securities. A warrant is an
instrument issued by a corporation which gives the holder the right to subscribe
to a specified amount of the corporation's capital stock at a set price for a
specified period of time. The prices of warrants do not necessarily correlate
with the prices of the underlying securities.

Fixed-Income Obligations -- Investors should be aware that even though
------------------------
interest-bearing obligations are investments which promise a stable stream of
income, the prices of such securities are inversely affected by changes in
interest rates and, therefore, are subject to the risk of market price
fluctuations.

10
<PAGE>

Long-term obligations are affected to a greater extent by interest rates than
shorter-term obligations. The values of fixed-income obligations also may be
affected by changes in the credit rating or financial condition of the issuing
entities. Once the rating of a portfolio security has been changed to a rating
below investment grade, the particular LifePath Fund considers all circumstances
deemed relevant in determining whether to continue to hold the security. Certain
obligations that may be purchased by the LifePath Fund, such as those rated
"Baa" by Moody's and "BBB" by S&P, Fitch and Duff, may be subject to such risk
with respect to the issuing entity and to greater market fluctuations than
certain lower yielding, higher rated fixed-income securities. Securities which
are rated "Baa" by Moody's are considered medium-grade obligations; they are
neither highly protected nor poorly secured, and are considered by Moody's to
have speculative characteristics. Obligations rated "BBB" by S&P are regarded as
having adequate capacity to pay interest and repay principal, and, while such
debt securities ordinarily exhibit adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for securities in this
category than in higher rated categories. Obligations rated "BBB" by Fitch are
considered investment grade and of satisfactory credit quality; however, adverse
changes in economic conditions and circumstances are more likely to have an
adverse impact on these obligations and, therefore, impair timely payment.
Obligations rated "BBB" by Duff have below average protection factors but
nonetheless are considered sufficient for prudent investment. If a security held
by a LifePath Fund is downgraded to a rating below investment grade, such Fund
may continue to hold the obligation until such time as BGFA determines it to be
advantageous for the LifePath Fund to sell the obligation. If such a policy
would cause a LifePath Fund to have 5% or more of its net assets invested in
obligations that have been downgraded below investment grade, the Fund promptly
would seek to dispose of such obligations in an orderly manner.

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

Commercial Paper and Short-Term Corporate Debt Instruments. Each Fund may invest
in commercial paper (including variable amount master demand notes), which
consists of short-term, unsecured promissory notes issued by 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

11
<PAGE>

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

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

Convertible Securities. Each LifePath Fund may purchase fixed-income
-----------------------
convertible securities, such as bonds or preferred stock, which may be converted
at a stated price within a specified period of time into a specified number of
shares of common stock of the same or a different issuer. Convertible securities
are senior to common stock in a corporation's capital structure, but usually are
subordinated to non-convertible debt securities. While providing a fixed-income
stream (generally higher in yield than the income from a common stock but lower
than that afforded by a non-convertible debt security), a convertible security
also affords an investor the opportunity, through its conversion feature, to
participate in the capital appreciation of the common stock into which it is
convertible. In general, the market value of a convertible security is the
higher of its "investment value" (i.e., its value as a fixed-income security)
or its "conversion value" (i.e., the value of the underlying shares of common
stock if the security is converted). As a fixed-income security, the market
value of a convertible security generally increases when interest rates decline
and generally decreases when interest rates rise. However, the price of a
convertible security also is influenced by the market value of the security's
underlying common stock. Thus, the price of a convertible security generally
increases as the market value of the underlying stock increases, and generally
decreases as the market value of the underlying stock declines. Investments in
convertible securities generally entail less risk than investments in the common
stock of the same issuer.

12
<PAGE>

Floating- and Variable-Rate Obligations. Each LifePath Fund may purchase
----------------------------------------
floating- and variable-rate demand notes and bonds, which are obligations
ordinarily having stated maturities in excess of 13 months, but which permit the
holder to demand payment of principal at any time or at specified intervals not
exceeding 13 months. Variable-rate demand notes include master demand notes
which are obligations that permit a 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 prepare in its discretion the outstanding
principal amount of the obligations plus accrued interest upon a specified
number of days' notice to the holders of such obligations. The interest rate on
a floating-rate demand obligation is based on a known lending rate, such as a
bank's prime rate, and is adjusted automatically at specified intervals.
Frequently, such obligations are secured by letters of credit or other credit
support arrangements provided by banks. Because these obligations are direct
lending arrangements between the lender and borrower, it is not contemplated
that such instruments generally will be traded. There generally is no
established secondary market for these obligations, although they are redeemable
at face value. Accordingly, where these obligations are not secured by letters
of credit or other credit support arrangements, the 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
each Fund may invest in obligations which are not so rated only if the Adviser
determines that at the time of investment the obligations are of comparable
quality to the other obligations in which such Fund may invest. The Adviser, on
behalf of each Fund, considers on an ongoing basis the creditworthiness of the
issuers of the floating- and variable-rate demand obligations in such Fund's
portfolio. No Fund invests more than 15% of the value of its net assets in
illiquid securities including floating- or variable-rate demand obligations
whose demand feature is not exercisable within seven days. Such obligations may
be treated as liquid, provided that an active secondary market exists.

Ratings. The ratings of Moody's, S&P, Fitch and Duff represent their opinions
--------
as to the quality of the obligations which they undertake to rate. It should be
emphasized, however, that ratings are relative and subjective and, although
ratings may be useful in evaluating the safety of interest and principal
payments, they do not evaluate the market value risk of such obligations.
Therefore, although these ratings may be an initial criterion for selection of
portfolio investments, BGFA also evaluates such obligations and the ability of
their issuers to pay interest and principal. Each Fund relies on BGFA's
judgment, analysis and experience in evaluating the creditworthiness of an
issuer. In this evaluation, BGFA takes into consideration, among other things,
the issuer's financial resources, its sensitivity to economic conditions and
trends, the quality of the issuer's management and regulatory matters. It also
is possible that a rating agency might not timely change the rating on a
particular issue to reflect subsequent events.

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

Lending Portfolio Securities. To a limited extent, each LifePath Fund may lend
----------------------------
its portfolio securities to brokers, dealers and other financial institutions,
provided it receives cash collateral which is maintained at all times in an
amount equal to at least 100% of the current market value of the securities
loaned. By lending its portfolio securities, a Fund can increase its income
through the investment of the cash collateral or by receipt of a loan premium
from the borrower. For purposes of this policy, each Fund

13
<PAGE>

considers collateral consisting of U.S. Government obligations or irrevocable
letters of credit issued by banks whose securities meet the standards for
investment by such Fund to be the equivalent of cash. From time to time, a Fund
may return to the borrower, or to a third party unaffiliated with MIP which is
acting as a "placing broker," a part of the interest earned from the investment
of collateral received in exchange for securities loaned.

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

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

RISK CONSIDERATIONS

General. Since the investment characteristics and, therefore, investment
--------
risks directly associated with each LifePath Fund correspond to those of the
Master Portfolio in which such Fund invests, the following is a discussion of
the risks associated with the investments of the Master Portfolios. Once again,
unless otherwise specified, references to the investment policies and risks of a
Fund also should be understood as references to the investment policies and
risks of the corresponding Master Portfolio. The net asset value per share of
each LifePath Fund is neither insured nor guaranteed, is not fixed and should be
expected to fluctuate.

Equity Securities. The stock investments of the LifePath Funds are subject to
-----------------
equity market risk. Equity market risk is the possibility that common stock
prices will fluctuate or decline over short or even extended periods. The U.S.
stock market tends to be cyclical, with periods when stock prices generally rise
and periods when prices generally decline. Throughout 1998, the stock market, as
measured by the S&P 500 Index and other commonly used indices, was trading at or
close to record levels. There can be no guarantee that these performance levels
will continue.

Debt Securities. The debt instruments in which the LifePath Funds invest are
----------------
subject to credit and interest rate risk. Credit risk is the risk that issuers
of the debt instruments in which the Funds invest may default on the payment of
principal and/or interest. Interest rate risk is the risk that increases in
market interest rates may adversely affect the value of the debt instruments in
which the Funds invest. The value of the debt instruments generally changes
inversely to market interest rates. Debt securities with longer maturities,
which tend to produce higher yields, are subject to potentially greater capital
appreciation and depreciation than obligations with shorter maturities. Changes
in the financial strength of an issuer or changes in the ratings of any
particular security may also affect the value of these investments. Although
some of the Funds' portfolio securities are guaranteed by the U.S. Government,
its agencies or

14
<PAGE>

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

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

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

Each LifePath Fund also may lend its portfolio securities and enter into
futures transactions, each of which involves risk. The futures contracts and
options on futures contracts that each Fund may purchase may be considered
derivatives. Derivatives are financial instruments whose values are derived, at
least in part, from the prices of other securities or specified assets, indices
or rates.

Asset allocation and modeling strategies are employed by BGFA for other
investment companies and accounts advised or sub-advised by BGFA. If these
strategies indicate particular securities should be purchased or sold, at the
same time, by a LifePath Fund and one or more of these investment companies or
accounts, available investments or opportunities for sales will be allocated
equitably to each by BGFA. In some cases, this procedure may adversely affect
the size of the position obtained for or disposed of by a LifePath Fund or the
price paid or received by such Fund.

15
<PAGE>

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 Funds' activities and monitors the Funds' 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.

PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE POSITION(S) DURING PAST 5 YEARS
--------------------- ------------- ---------------------
Jack S. Euphrat, 76 Director Private Investor.
415 Walsh Road
Atherton, CA 94027

*R. Greg Feltus, 47 Director, Chairman Executive Vice
and President President of Stephens
Inc.; 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
Officer, Secretary Stephens Inc.;
and Treasurer Director of Stephens
Sports Management
Inc.; and Director of
Capo Inc.

16
<PAGE>

COMPENSATION TABLE
For the Fiscal Year Ended February 28, 1999

AGGREGATE TOTAL COMPENSATION
COMPENSATION FROM REGISTRANT
NAME AND POSITION FROM REGISTRANT AND FUND COMPLEX
- ----------------- --------------- ----------------
Jack S. Euphrat [$_________] [$_________]
Director

*R. Greg Feltus [$_________] [$_________]
Director

Thomas S. Goho [$_________] [$_________]
Director

W. Rodney Hughes [$_________] [$_________]
Director

*J. Tucker Morse [$_________] [$_________]
Director

17
<PAGE>

Master/Feeder Structure. Each LifePath Fund seeks to achieve its investment
------------------------
objective by investing all of its assets into the corresponding LifePath Master
Portfolio of MIP. The Funds and other entities investing in a Master Portfolio
are each liable for all obligations of such Master Portfolio. However, the risk
of a Fund incurring financial loss on account of such liability is limited to
circumstances in which both inadequate insurance existed and MIP itself is
unable to meet its obligations. Accordingly, the Company's Board of Directors
believes that neither a Fund nor its shareholders will be adversely affected by
investing Fund assets in a Master Portfolio. However, if a mutual fund or other
investor withdraws its investment from such Master Portfolio, the economic
efficiencies (e.g., spreading fixed expenses among a larger asset base) that the
Company's Board believes may be available through investment in the Master
Portfolio may not be fully achieved. In addition, given the relative novelty of
the master/feeder structure, accounting or operational difficulties, although
unlikely, could arise.

A Fund may withdraw its investment in a Master Portfolio only if the Company's
Board of Directors determines that such action is in the best interests of such
Fund and its shareholders. Upon any such withdrawal, the Company's Board would
consider alternative investments, including investing all of the Fund's assets
in another investment company with the same investment objective as the Fund or
hiring an investment adviser to manage the Fund's assets in accordance with the
investment policies described below with respect to the Master Portfolio.

The investment objective and other fundamental policies of a Master Portfolio
cannot be changed without approval by the holders of a majority (as defined in
the 1940 Act) of the Master Portfolio's outstanding interests. Whenever a Fund,
as an interestholder of the corresponding Master Portfolio, is requested to vote
on any matter submitted to interestholders of the Master Portfolio, the Fund
will hold a meeting of its shareholders to consider such matters. The Fund will
cast its votes in proportion to the votes received from its shareholders. Shares
for which the Fund receives no voting instructions will be voted in the same
proportion as the votes received from the other Fund shareholders.

18
<PAGE>

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

As of [_________________], the shareholders identified below were known by the
Company to own 5% or more of the LifePath Fund's outstanding shares in the
following capacity:

[UPDATE]

<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE NATURE OF
NAME OF FUND OF SHAREHOLDER OF FUND OWNERSHIP
------------ --------------------------- ---------- ---------
<S> <C> <C> <C>
LifePath 2000 Fund Merrill Lynch Trust Co. FSB [______%] Record
FBO Various 401 K Plans
P.O. Box 62000
San Francisco, CA 94162

Siemens Corp. Savings Plan [______%] Record
Bankers Trust Company TR
P.O. Box 1992 MS D5
Boston, MA 02105

LifePath 2010 Fund Merrill Lynch Trust Co. FSB [______%] Record
FBO Various 401 K Plans
P.O. Box 62000
San Francisco, CA 94162

Wachovia Bank NA [______%] Record
P.O. Box 3073
301 N. Main Street
Winston Salem, NC 27150

Siemens Corp. Savings Plan [______%] Record
Bankers Trust Company TR
P.O. Box 1992 MS D5
Boston, MA 02105

Bankers Trust Co. of CA NA TEEE [______%] Record
FBO Pacificorp K Plus Employee
Savings & Stock Ownership Plan
300 S. Grand Avenue, 40th Floor
Los Angeles, CA 90071

LifePath 2020 Fund Merrill Lynch Trust Co. FSB [______%] Record
FBO Various 401 K Plans
P.O. Box 62000
San Francisco, CA 94162

LifePath 2020 Fund Siemens Corp. Savings Plan [______%] Record
Bankers Trust Company TR
P.O. Box 1992 MS D5
Boston, MA 02105
</TABLE>

19
<PAGE>

<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE NATURE OF
NAME OF FUND OF SHAREHOLDER OF FUND OWNERSHIP
------------ --------------------------- ---------- ---------
<S> <C> <C> <C>
IFTC as Trustee [______%] Record
Custodian for Retirement Plan
801 Pennsylvania
Kansas City, MO 64105

LifePath 2030 Fund Merrill Lynch Trust Co. FSB [______%] Record
FBO Various 401 K Plans
P.O. Box 62000
San Francisco, CA 94162

Siemens Corp. Savings Plan [______%] Record
Bankers Trust Company TR
P.O. Box 1992 MS D5
Boston, MA 02105

LifePath 2040 Fund Merrill Lynch Trust Co. FSB [______%] Record
FBO Various 401 K Plans
P.O. Box 62000
San Francisco, CA 94162

Siemens Corp. Savings Plan [______%] Record
Bankers Trust Company TR
P.O. Box 1992 MS D5
Boston, MA 02105

Bankers Trust Co. of CA NA TEEE [______%] Record
FBO Pacificorp K Plus Employee
Savings & Stock Ownership Plan
300 S. Grand Avenue, 40th Floor
Los Angeles, CA 90071

Wells Fargo Bank FBO [______%] Record
Business Retirement Programs
Omnibus Act
MF MAC 9139-027
P.O. Box 9800
Calabasas, CA 91372
</TABLE>

For purposes of the 1940 Act, any person who owns directly or through one or
more controlled companies more than 25% of the voting securities of a company is
presumed to "control" such company. Accordingly, to the extent that a
shareholder identified in the foregoing table is identified as the beneficial
holder of more than 25% of a Fund, or is identified as the holder of record of
more than 25% of a Fund and has voting and/or investment powers, it may be
presumed to control such Fund.

INVESTMENT ADVISER AND OTHER SERVICE PROVIDERS

Investment Adviser. BGFA provides investment advisory services to each Master
------------------
Portfolio pursuant to separate Investment Advisory Contracts (each, a "BGFA
Advisory Contract") with MIP. Pursuant to the Advisory Contracts, BGFA furnishes
to the Trust's Board of Trustees periodic reports on the

20
<PAGE>

investment strategy and performance of each Master Portfolio. BGFA has agreed to
provide to the Master Portfolios, among other things, money market security and
fixed-income research, analysis and statistical and economic data and
information concerning interest rate and security market trends, portfolio
composition, credit conditions and average maturities of each Master Portfolio's
investment portfolio.

BGFA is entitled to receive monthly fees at the annual rate of 0.55% of each
Master Portfolio's average daily net assets as compensation for its advisory
services to such Master Portfolio.

As to each Master Portfolio, the applicable BGFA Advisory Contract is subject
to annual approval by (i) MIP's Board of Trustees or (ii) vote of a majority (as
defined in the 1940 Act) of the outstanding voting securities of such Master
Portfolio, provided that in either event the continuance also is approved by a
majority of MIP's Board of Trustees who are not "interested persons" (as defined
in the 1940 Act) of MIP or BGFA, by vote cast in person at a meeting called for
the purpose of voting on such approval. As to each Master Portfolio, the
applicable BGFA Advisory Contract is terminable without penalty, on 60 days'
written notice by MIP's Board of Trustees or by vote of the holders of a
majority of such Master Portfolio's shares, or, on not less than 60 days'
written notice, by BGFA. The applicable BGFA Advisory Contract terminates
automatically, as to the relevant Master Portfolio, in the event of its
assignment (as defined in the 1940 Act).

For the fiscal years ended February 28, 1997, February 28, 1998, and February
28, 1999, the advisory fees paid to BGFA by the corresponding Master Portfolio
of each LifePath Fund is shown below, without waivers.

<TABLE>
<CAPTION>
FYE 2/28/97 FYE 2/28/98 FYE 2/28/99
MASTER PORTFOLIO FEES PAID FEES PAID FEES PAID
---------------- --------- --------- ---------
<S> <C> <C> <C>
LifePath 2000 Master Portfolio $ 689,347 $ 656,142 [$______]
LifePath 2010 Master Portfolio $ 757,505 $1,018,984 [$______]
LifePath 2020 Master Portfolio $1,149,160 $1,572,634 [$______]
LifePath 2030 Master Portfolio $ 714,647 $1,048,151 [$______]
LifePath 2040 Master Portfolio $1,154,330 $1,767,632 [$______]
</TABLE>

Morrison & Foerster LLP, counsel to the Company and MIP and special counsel to
BGFA, has advised the Company, MIP and BGFA that BGFA and its affiliates may
perform the services contemplated by the Investment Advisory Contracts and the
prospectus without violation of the Glass-Steagall Act. Such counsel has pointed
out, however, that there are no controlling judicial or administrative
interpretations or decisions and that future judicial or administrative
interpretations of, or decisions related to, present federal or state statutes,
including the Glass-Steagall Act, and regulations relating to the permissible
activities of banks and their subsidiaries and affiliates, as well as future
changes in such statutes, regulations and judicial or administrative decisions
or interpretations, could prevent such entities from continuing to perform, in
whole or in part, such services. If any such entity were prohibited from
performing any such services, it is expected that new agreements would be
proposed or entered into with another entity or entities qualified to perform
such services.

21
<PAGE>

including the compilation of information for documents such as reports to, and
filings with, the SEC and state securities commissions, and preparation of proxy
statements and shareholder reports for the Company; and (iii) general
supervision relative to the compilation of data required for the preparation of
periodic reports distributed to the Company's officers and Board of Directors.
Stephens also furnishes office space and certain facilities required for
conducting the business of the Funds together with all other administrative
services reasonably necessary for the operation of the Funds, other than those
services provided by the Company's transfer and dividend disbursing agent.
Stephens also pays the compensation of the Company's Directors, officers and
employees who are affiliated with Stephens.

In addition, except for advisory fees, extraordinary expenses, brokerage and
other expenses connected to the execution of portfolio transactions and certain
expenses which are borne by the LifePath Funds, Stephens and BGI have agreed to
bear all costs of the Funds' and the Company's operations including, but not
limited to, transfer and dividend disbursing agency fees, shareholder servicing
fees, and expenses of printing and preparing prospectuses, SAIs and other Fund
materials. For providing such services, Stephens and BGI are entitled to a fee
of 0.40% of each Fund's average daily net assets. Effective October 21, 1996,
BGI contracted with Investors Bank & Trust Company ("IBT") to provide certain
sub-administration services. Prior to October 21, 1996, Stephens served as sole
administrator to the Funds.

For the fiscal period beginning March 26, 1996 (commencement of operations)
and ended February 28, 1997, the LifePath Funds paid the following
administration and co-administration fees to Stephens:

FUND 3/26/96-2/28/98
- ---- ---------------
LifePath 2000 Fund $ 48,666
LifePath 2010 Fund $ 90,007
LifePath 2020 Fund $109,730
LifePath 2030 Fund $ 58,134
LifePath 2040 Fund $ 62,981

For the period beginning October 21, 1996 and ended February 28, 1997, the
LifePath Funds paid the following co-administration fees to BGI:

FUND 10/21/96 - 2/28/97
- ---- ------------------
LifePath 2000 Fund $28,780
LifePath 2010 Fund $55,628
LifePath 2020 Fund $64,702
LifePath 2030 Fund $36,321
LifePath 2040 Fund $48,300

For the fiscal years ended February 28, 1998 and February 28, 1999, the
Funds paid co-administration fees jointly to Stephens and BGI as follows:

FUND FYE 2/28/98 FYE 2/28/99
- ---- ----------- -----------
LifePath 2000 Fund $183,550 [$______]
LifePath 2010 Fund $388,764 [$______]
LifePath 2020 Fund $502,717 [$______]
LifePath 2030 Fund $293,010 [$______]
LifePath 2040 Fund $372,862 [$______]

22
<PAGE>

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

A Shareholder Servicing Agent also may impose certain conditions on its
customers, subject to the terms of this Prospectus, in addition to or different
from those imposed by the Company, such as requiring a minimum initial
investment or payment of a separate fee for additional services. Each
Shareholder Servicing Agent is required to agree to disclose any fees it may
directly charge its customers who are Fund share-holders and to notify them in
writing at least 30 days before it imposes any transaction fees.

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

Custodian. IBT, concurrent with its appointment as sub-administrator for the
---------
Funds on October 21, 1996, also has been retained as custodian of each Fund's
investments, and performs such services at 200 Clarendon Street, Boston,
Massachusetts 02116. The custodian, among other things, maintains a custody
account or accounts in the name of the Funds, receives and delivers all assets
for the Funds upon purchase and upon sale or maturity; collects and receives all
income and other payments and distributions on account of the assets of the
Funds and pays all expenses of the Funds. IBT shall not be entitled to
compensation for providing custody services to the Funds pursuant to the Custody
Agreement so long as it receives fees from BGI for providing sub-administration
services to the Funds.

Transfer and Dividend Disbursing Agent. IBT has been retained as the
--------------------------------------
transfer and dividend disbursing agent for the Funds. For its services as
transfer and dividend disbursing agent to the Funds, IBT is entitled to receive
an annual maintenance fee computed on the basis of the number of shareholder
accounts that it maintains for the Funds 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:

23
<PAGE>

ANNUAL FEE
----------
Up to 200 accounts* $6,000 per feeder/class
From 201 to 250 accounts $8,500 per feeder/class
Over 250 accounts $10,000 per feeder/class

- ---------------
* Defined as each account that is set up for an individual or plan sponsor on a
Fund by Fund basis.

In addition, the agreement contemplates that IBT will be reimbursed for
other expenses incurred by it at the request or with the written consent of the
Funds, including, without limitation, any equipment or supplies which the
Company specifically orders or requires IBT to order.

Distribution Plan. MIP's Board of Trustees has adopted, on behalf of each
-----------------
Master Portfolio, a "defensive" distribution plan under Section 12(b) of the
1940 Act and Rule 12b-1 thereunder (the "Plan"). The Plan was adopted by a
majority of MIP's Board of Trustees (including a majority of those Trustees who
are not "interested persons" of MIP as defined in the 1940 Act ) on October 10,
1995. The Plan was intended as a precaution designed to address the possibility
that certain ongoing payments by BGFA to Wells Fargo in connection with the sale
of WFNIA may be characterized as indirect payments by each Master Portfolio to
finance activities primarily intended to result in the sale of interests in such
Master Portfolio. The Plan provides that if any portion of a Master Portfolio's
advisory fees (up to 0.25% of the average daily net assets of each Master
Portfolio on an annual basis) were deemed to constitute an indirect payment for
activities that are primarily intended to result in the sale of interests in a
Master Portfolio such payment would be authorized pursuant to the Plan. The
Master Portfolio's do not currently pay any amounts pursuant to the Plan.

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.

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

Brokerage Commissions. For the fiscal years ended February 28, 1997,
---------------------
February 28, 1998, and February 28, 1999, the corresponding Master Portfolio of
each Fund paid the dollar amounts of brokerage commissions indicated below. None
of these brokerage commissions were paid to affiliated brokers.

24
<PAGE>

<TABLE>
<CAPTION>
COMMISSIONS PAID

MASTER PORTFOLIO FYE 2/28/97 FYE 2/28/98 FYE 2/28/99
- ----------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
LifePath 2000 Master Portfolio $ 3,639 $ 9,361 [$_____]
LifePath 2010 Master Portfolio $ 8,837 $ 15,306 [$_____]
LifePath 2020 Master Portfolio $12,383 $29,153 [$_____]
LifePath 2030 Master Portfolio $ 6,927 $28,908 [$_____]
LifePath 2040 Master Portfolio $ 28,047 $ 94,717 [$_____]
</TABLE>

Securities of Regular Broker Dealers. As of February 28, 1999, the
------------------------------------
corresponding Master Portfolio of each Fund owned securities of its "regular
brokers or dealers" or their parents, as defined in the 1940 Act, as follows:

LIFEPATH 2000 MASTER
--------------------

GOLDMAN SACHS [$_________]
J.P. MORGAN [$_________]
LEHMAN BROS HOLDINGS [$_________]
MERRILL LYNCH [$_________]
MORGAN STANLEY [$_________]

LIFEPATH 2010 MASTER
--------------------

GOLDMAN SACHS [$_________]
J.P. MORGAN [$_________]
LEHMAN BROS HOLDINGS [$_________]
MERRILL LYNCH [$_________]
MORGAN STANLEY [$_________]

LIFEPATH 2020 MASTER
--------------------

GOLDMAN SACHS [$_________]
J.P. MORGAN [$_________]
LEHMAN BROS HOLDINGS [$_________]
MERRILL LYNCH [$_________]
MORGAN STANLEY [$_________]

LIFEPATH 2030 MASTER
--------------------

GOLDMAN SACHS [$_________]
J.P. MORGAN [$_________]
LEHMAN BROS HOLDINGS [$_________]
MERRILL LYNCH [$_________]
MORGAN STANLEY [$_________]

LIFEPATH 2040 MASTER
--------------------

GOLDMAN SACHS [$_________]
J.P. MORGAN [$_________]
LEHMAN BROS HOLDINGS [$_________]
MERRILL LYNCH [$_________]
MORGAN STANLEY [$_________]

25
<PAGE>

PERFORMANCE INFORMATION

LifePath Funds. Average annual total return is calculated by determining the
--------------
ending redeemable value of an investment purchased with a hypothetical $1,000
payment made at the beginning of the period (assuming the reinvestment of
dividends and distributions), dividing by the amount of the initial investment,
taking the "n"th root of the quotient (where "n" is the number of years in the
period) and subtracting 1 from the result.

Total return is calculated by subtracting the amount of the net asset value
per share at the beginning of a stated period from the net asset value per share
at the end of the period (after giving effect to the reinvestment of dividends
and distributions during the period), and dividing the result by the net asset
value per share at the beginning of the period.

The LifePath Funds are successors to the assets of the Institutional Class
shares of the Stagecoach Trust LifePath Funds (the "Predecessor Funds"), which
commenced operations on March 1, 1994. The performance information shown below
for periods prior to March 26, 1996, the Company's LifePath Funds' commencement
of operations, reflects the performance of the Predecessor Funds.

For the fiscal year ended February 28, 1999 and the fiscal period from March
1, 1994 (commencement of operations) to February 28, 1999, the average annual
total returns on the LifePath Funds were as follows:

<TABLE>
<CAPTION>
FUND 3/1/94-2/28/99 FYE 2/28/99
---- -------------- -----------
<S> <C> <C>
LifePath 2000 Fund [______] [______]
LifePath 2010 Fund [______] [______]
LifePath 2020 Fund [______] [______]
LifePath 2030 Fund [______] [______]
LifePath 2040 Fund [______] [______]
</TABLE>

For the fiscal period from March 1, 1994 (commencement of operations) to
February 28, 1999, the cumulative total returns on the LifePath Funds were as
follows:

<TABLE>
<CAPTION>
FUND 3/1/94-2/28/99
---- --------------
<S> <C>
LifePath 2000 Fund [______]
LifePath 2010 Fund [______]
LifePath 2020 Fund [______]
LifePath 2030 Fund [______]
LifePath 2040 Fund [______]
</TABLE>

The Master Portfolios have in effect a defensive Rule 12b-1 plan, which does
not result in any additional expenses either for the funds or for the Master
Portfolios in which they invest. Under the plan, up to 0.25% of Management Fees
may be designated as Rule 12b-1 fees to cover continuing payments to the
Investment Advisor for the activities relating to the sale of Master Portfolio
interests.

From time to time, the Company may use, in advertisements and other types of
literature, information and statements: (1) describing the Adviser, and its
affiliates and predecessors, as one of the first investment managers to advise
investment accounts using asset allocation and index strategies; (2) describing
the Funds as one of the first mutual funds to offer a flexible investment
strategy designed to

26
<PAGE>

change over specific time horizons; (3) describing the performance for the
MasterWorks LifePath Funds; (4) describing the level of assets under management
by the Adviser; and (5) describing the Advisers as managing approximately $619
billion in assets as of December 31, 1998 for Fortune 500 companies, governments
and other institutions around the world.

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

For purposes of advertising, performance of the LifePath Funds may be
calculated on the basis of average annual total return and/or cumulative total
return of shares. Average annual total return of shares is calculated pursuant
to a standardized formula which assumes that an investment in shares of a Fund
was purchased with an initial payment of $1,000 and that the investment was
redeemed at the end of a stated period of time, after giving effect to the
reinvestment of dividends and distributions during the period. The return of
shares is expressed as a percentage rate which, if applied on a compounded
annual basis, would result in the redeemable value of the investment in shares
at the end of the period. Advertisements of the performance of shares of a
LifePath Fund include the Fund's average annual total return of shares for one,
five and ten year periods, or for shorter time periods depending upon the length
of time during which such Fund has operated.

Cumulative total return of shares is computed on a per share basis and
assumes the reinvestment of dividends and distributions. Cumulative total return
of shares generally is expressed as a percentage rate which is calculated by
combining the income and principal changes for a specified period and dividing
by the net asset value per share at the beginning of the period. Advertisements
may include the percentage rate of total return of shares or may include the
value of a hypothetical investment in shares at the end of the period which
assumes the application of the percentage rate of total return.

Performance figures are based on historical results and are not intended to
indicate future performance. Investors should remember that performance is a
function of the type and quality of portfolio securities held by the Master
Portfolio in which the Fund invests and is affected by operating expenses.
Performance information, such as that described above, may not provide a basis
for comparison with other investments or other investment companies using a
different method of calculating performance.

Additional information about the performance of each Fund will be contained
in the Annual Report for each Fund. The Annual Reports may be obtained by
calling the Company at 1-888-204-3956.

DETERMINATION OF NET ASSET VALUE

LifePath Master Portfolios. The securities of the LifePath Master
--------------------------
Portfolios, including covered call options written by a LifePath Master
Portfolio, are valued at the last sale price on the securities exchange or
national securities market on which such securities primarily are traded.
Securities not listed on an exchange or national securities market, or
securities in which there were no transactions, are valued at the most recent
bid prices. Portfolio securities which are traded primarily on foreign
securities exchanges generally are valued at the preceding closing values of
such securities on their respective exchanges,

27
<PAGE>

except that when an occurrence subsequent to the time a value was so established
is likely to have changed such value, then the fair value of those securities is
determined by consideration of other factors by or under the direction of MIP's
Board of Trustees or its delegates. Short-term investments are carried at
amortized cost, which approximates market value. Any securities or other assets
for which recent market quotations are not readily available are valued at fair
value as determined in good faith by MIP's Board of Trustees.

Restricted securities, as well as securities or other assets for which
market quotations are not readily available, or are not valued by a pricing
service approved by MIP's Board of Trustees, are valued at fair value as
determined in good faith by or under the direction of MIP's Board of Trustees or
its delegates. MIP's Board of Trustees reviews the method of valuation on a
current basis. In making a good-faith valuation of restricted securities, the
following are generally considered: restricted securities that are, or are
convertible into, securities of the same class of securities for which a public
market exists usually are valued at market value less the same percentage
discount at which such securities were purchased. This discount may be revised
periodically if the Adviser believes that the discount no longer reflects the
value of the restricted securities. Restricted securities not of the same class
as securities for which a public market exists usually are valued initially at
cost. Any subsequent adjustment from cost is based upon considerations deemed
relevant by or under the direction of MIP's Board of Trustees or its delegates.

Any assets or liabilities initially expressed in terms of foreign currency
are translated into dollars using information provided by pricing entities, such
as Morgan Stanley Capital International or Gelderman Data Service, or at a
quoted market exchange rate as may be determined to be appropriate by the
Adviser. Forward currency contracts are valued at the current cost of offsetting
the contract. Because of the need to obtain prices as of the close of trading on
various exchanges throughout the world, the calculation of net asset value does
not take place contemporaneously with the determination of prices of the foreign
securities held by the LifePath Master Portfolios. In addition, foreign
securities held by a LifePath Master Portfolio may be traded actively in
securities markets which are open for trading on days when the Master Portfolio
does not determine its net asset value. Accordingly, there may be occasions when
a LifePath Master Portfolio does not calculate its net asset value but when the
value of such Master Portfolio's portfolio securities is affected by such
trading activity.

Fixed-income securities are valued each business day using available market
quotations or at fair value as determined by one or more independent pricing
services (collectively, the "Service") approved by MIP's Board of Trustees. The
Service may use available market quotations and employ electronic data
processing techniques and/or a matrix system to determine valuations. The
Service's procedures are reviewed by MIP's officers under the general
supervision of MIP's Board of Trustees.

Expenses and fees, including advisory fees, are accrued daily and are taken
into account for the purpose of determining the net asset value of each LifePath
Master Portfolio's shares.

PURCHASE, REDEMPTION AND PRICING OF SHARES

A copy of the Shareholder Guide is available at no charge for additional
information regarding the purchase, redemption and exchange of shares.

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

28
<PAGE>

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

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

In-Kind Purchases. Payment for shares of a Fund may, at the discretion of
-----------------
BGFA as investment adviser, be made in the form of securities that are
permissible investments for such Fund. Shares purchased in exchange for
securities can not be redeemed until the exchange transaction has settled.

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.

PORTFOLIO TRANSACTIONS

Since each Fund invests all of its assets in a corresponding Master
Portfolio of MIP, set forth below is a description of the Master Portfolios'
policies governing portfolio securities transactions.

29
<PAGE>

in light of generally prevailing rates. Orders may be directed to any broker
including, to the extent and in the manner permitted by applicable law, Stephens
or Barclays Global Investors Services. In the over-the-counter market,
securities are generally traded on a "net" basis with dealers acting as
principal for their own accounts without a stated commission, although the price
of the security usually includes a profit to the dealer. In underwritten
offerings, securities are purchased at a fixed price that includes an amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount.

Purchases of debt securities generally are principal transactions. Debt
securities normally are purchased or sold from or to dealers serving as market
makers for the securities at a net price. Debt securities may also be purchased
in underwritten offerings or directly from an issuer. Generally debt obligations
are traded on a net basis and do not involve brokerage commissions. The cost of
executing transactions in debt securities consists primarily of dealer spreads
and underwriting commissions. Under the 1940 Act, persons affiliated with MIP
are prohibited from dealing with MIP as a principal in the purchase and sale of
portfolio securities unless an exemptive order allowing such transactions is
obtained from the Commission or an exemption is otherwise available. The Master
Portfolios may purchase securities from underwriting syndicates of which
Stephens or BGFA is a member under certain conditions in accordance with the
provisions of a rule adopted under the 1940 Act and in compliance with
procedures adopted by MIP's Board of Trustees.

MIP has no obligation to deal with any dealer or group of dealers in the
execution of transactions in portfolio securities. Subject to policies
established by MIP's Board of Trustees, BGFA, as adviser, is responsible for the
Master Portfolio's investment decisions and the placing of portfolio
transactions. In placing orders, it is MIP's policy to obtain the best overall
terms taking into account the dealer's general execution and operational
facilities, the type of transaction involved and other factors such as the
dealer's risk in positioning the securities involved. BGFA generally seeks
reasonably competitive spreads or commissions.

In assessing the best overall terms available for any transaction, BGFA
considers factors deemed relevant, including the breadth of the market in the
security, the price of the security, the financial condition and execution
capability of the broker or dealer, and the reasonableness of the commission, if
any, both for the specific transaction and on a continuing basis. As a result, a
Master Portfolio may pay a broker/dealer which furnishes brokerage services a
higher commission than that which might be charged by another broker/dealer for
effecting the same transaction, provided that such commission is determined to
be reasonable in relation to the value of the brokerage services provided by
such broker/dealer. Certain of the broker/dealers with whom the Master
Portfolios may transact business may offer commission rebates to the Master
Portfolios. BGFA considers such rebates in assessing the best overall terms
available for any transaction. MIP's Board of Trustees will periodically review
the commissions paid by the Master Portfolios to consider whether the
commissions paid over representative periods of time appear to be reasonable in
relation to the benefits inuring to the Master Portfolios.

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

30
<PAGE>

DIVIDENDS, DISTRIBUTIONS AND TAXES

General. Distributions from a Fund's net investment income and net short-
-------
term capital gains, if any, are designated as dividend distributions and taxable
to the Fund's shareholders as ordinary income. Distributions from a Fund's net
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, de-pending 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
Shares." 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."

Qualification as a regulated investment company under the Code requires,
among other things, that (a) each Fund derive at least 90% of its annual gross
income from 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) each Fund diversify its
holdings so that, at the end of each quarter of the taxable year, (i) at least
50% of the market value of the Fund's assets is represented by cash, government
securities and other securities limited in respect of any one issuer to an
amount not greater than 5% of the Fund's assets and 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of its
assets is invested in the securities of any one issuer (other than U.S.
Government 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.

31
<PAGE>

The Funds must also distribute or be deemed to distribute to their
shareholders at least 90% of their net investment income(which, for this purpose
includes net short-term capital gains) earned in each taxable year. In general,
these distributions must actually or be deemed to be made in the taxable year.
However, in certain circumstances, such distributions may be made in the 12
months following the taxable year. The Funds intend to pay out substantially all
of their 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.

Each Fund seeks to qualify as a regulated investment company by investing
substantially all of its assets in a Master Portfolio. Under the Code, each
Master Portfolio will be treated as a non-publicly traded partnership rather
than as a regulated investment company or a corporation. As a non-publicly
traded partnership, any interest, dividends, gains and losses of the Master
Portfolio shall be deemed to have been "passed through" to the corresponding
Fund (and the Master Portfolio's other investors) in proportion to each Fund's
ownership interest in the Master Portfolio. Therefore, to the extent that a
Master Portfolio were to accrue but not distribute any interest, dividends or
gains, the corresponding Fund would be deemed to have realized and recognized
its proportionate share of interest, dividends or gains without receipt of any
corresponding distribution. However, each Master Portfolio will seek to minimize
recognition by its investors (such as a Fund) of interest, dividends, gains or
losses without a corresponding distribution.

Excise Tax. A 4% nondeductible excise tax will be imposed on each 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. Each Fund intends to actually or be deemed to distribute
substantially all of its net investment income and net capital gains by the end
of each calendar year and, thus, expects not to be subject to the excise tax.

Gains recognized on the disposition of a debt obligation (including
tax-exempt obligations purchased after April 30, 1993) purchased by a Master
Portfolio at a market discount (generally at a price less than its principal
amount) will be treated as ordinary income to the extent of the portion of
market discount which accrued, but was not previously recognized pursuant to an
available election, during the term the Master Portfolio held the debt
obligation.

32
<PAGE>

Under Section 1256 of the Code, a Master Portfolio will be required to "mark
to market" its positions in "Section 1256 contracts," which generally include
regulated futures contracts and listed non-equity options. In this regard,
Section 1256 contracts will be deemed to have been sold at market value. Under
Section 1256 of the Code, sixty percent (60%) of any net gain or loss realized
on all dispositions of Section 1256 contracts, including deemed dispositions
under the mark-to-market regime, will generally be treated as long-term capital
gain or loss, and the remaining forty percent (40%) will be treated as
short-term capital gain or loss. Transactions that qualify as designated hedges
are excepted from the mark-to-market and 60%/40% rules.

Offsetting positions held by a regulated investment company involving
certain financial forward, futures or options contracts may be considered, for
tax purposes, to constitute "straddles." "Straddles" are defined to include
"offsetting positions" in actively traded personal property. The tax treatment
of "straddles" is governed by Section 1092 of the Code which, in certain
circumstances, overrides or modifies the provisions of Section 1256 of the Code,
described above. If a regulated investment company were treated as entering into
"straddles" by engaging in certain financial forward, futures or option
contracts, such straddles could be characterized as "mixed straddles" if the
futures, forwards, or options comprising a part of such straddles were governed
by Section 1256 of the Code. The regulated investment company may make one or
more elections with respect to "mixed straddles." Depending upon which election
is made, if any, the results with respect to the regulated investment company
may differ. Generally, to the extent the straddle rules apply to positions
established by a regulated investment company, losses realized by the regulated
investment company may be deferred to the extent of unrealized gain in any
offsetting positions. Moreover, as a result of the straddle and the conversion
transaction rules, short-term capital loss on straddle positions may be
recharacterized as long-term capital loss, and long-term capital gain may be
characterized as short-term capital gain or ordinary income.

If a Master Portfolio enters into a "constructive sale" of any appreciated
position in stock, a partnership interest, or certain debt instruments, the
Master Portfolio must recognize gain (but not loss) with respect to that
position. For this purpose, a constructive sale occurs when the Master Portfolio
enters into one of the following transactions with respect to the same or
substantially identical property: (i) a short sale; (ii) an offsetting notional
principal contract; (iii) a futures or forward contract, or (iv) other
transactions identified in future Treasury Regulations.

33
<PAGE>

amount of income (or loss) recognized. Although such income (or loss) will be
taxable to the Master Portfolio as ordinary income (or loss) notwithstanding any
distributions by the PFIC, the Master Portfolio will not be subject to federal
income tax or the interest charge with respect to its interest in the PFIC, if
it makes the available election.

Foreign Taxes. Income and dividends received by a Fund (through a Master
-------------
Portfolio) from foreign securities and gains realized by the Fund on the
disposition of foreign securities may be subject to withholding and other taxes
imposed by foreign countries. Tax conventions between certain countries and the
United States may reduce or eliminate such taxes. Although in some circumstances
a regulated investment company can elect to "pass through" foreign tax credits
to its shareholders, the Funds do not expect to be eligible to make such an
election.

Capital Gain Distributions. Distributions which are designated by a 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.

The Taxpayer Relief Act of 1997 (the "1997 Act") created several new
categories of capital gains applicable to noncorporate taxpayers. Under prior
law, noncorporate taxpayers generally were taxed at a maximum rate of 28% on net
capital gain (generally, the excess of net long-term capital gain over net
short-term capital loss). Noncorporate taxpayers generally are now taxed at a
maximum rate of 20% on net capital gain attributable to gains realized on the
sale of property held for greater than 18 months, and a maximum rate of 28% on
net capital gain attributable to gain realized on the sale of property held for
greater than one year and not more than 18 months, and a maximum rate of 25% for
certain gains attributable to the sale of real property. The 1997 Act retains
the treatment of short term capital gain or loss (generally, gain or loss
attributable to capital assets held for 1 year or less) and did not affect the
taxation of capital gains in the hands of corporate taxpayers.

34
<PAGE>

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.

Federal Income Tax Rates. As of the printing of this SAI, the maximum
------------------------
individual tax rate applicable to ordinary income is 39.6% (marginal tax rates
may be higher for some individuals to reduce or eliminate the benefit of
exemptions and deductions); the maximum individual marginal tax rate applicable
to net capital gain is 28% (however, see "Capital Gain Distributions" above);
and the maximum corporate tax rate applicable to ordinary income and net capital
gain is 35% (marginal tax rates may be higher for some corporations to reduce or
eliminate the benefit of lower marginal income tax rates). Obviously, the amount
of tax payable by any taxpayer will be affected by a combination of tax laws
covering, for example, deductions, credits, deferrals, exemptions, sources of
income and other matters.

Backup Withholding. The Company may be required to withhold, subject to
------------------
certain exemptions, at a rate of 31% ("backup withholding") on dividends,
capital gain distributions, and redemption proceeds (including proceeds from
exchanges and redemptions in-kind) paid or credited to an individual Fund
shareholder, unless the shareholder certifies that his or her taxpayer
identification number ("TIN"), which usually is his or her social security
number, provided to the Company is correct and that the shareholder is not
subject to backup withholding, or the IRS notifies the Company that the
shareholder's TIN is incorrect or that the shareholder is subject to backup
withholding. Such tax withheld does not constitute any additional tax imposed on
the shareholder, and may be claimed as a credit against the shareholder's
federal income tax liability, if any, or otherwise will be refundable. An
investor must provide a valid TIN to the Company upon opening or reopening an
account. Failure to furnish a valid TIN to the Company could also subject the
investor to penalties imposed by the IRS. Foreign shareholders of the Funds
(described below) generally are not subject to backup withholding.

35
<PAGE>

to federal income tax withholding (at a rate of 30% or a lower treaty rate, if
applicable). Withholding will not apply if a dividend distribution paid by a
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.

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

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

CAPITAL STOCK

The 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 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 or funds.

Each Fund share has one vote and, when issued and paid for in accordance
with the terms of the offering, is fully paid and non-assessable. Shares have no
preemptive, subscription or conversion rights and are freely transferable. Each
share has identical voting rights with respect to the Fund that issues it. Rule
18f-2 under the 1940 Act provides that any matter required to be submitted under
the provisions of the 1940 Act or applicable state law or otherwise to the
holders of the outstanding voting securities of an investment company, such as
the Company, will not be deemed to have been effectively acted upon unless
approved by the holders of a majority of the outstanding shares of each Fund
affected by such matter. Rule 18f-2 further provides that a Fund shall be deemed
to be affected by a matter unless it is clear that the interests of such Fund in
the matter are identical or that the matter does not affect any interest of such
Fund. However, the Rule exempts the selection of independent auditors and the
election of Directors from the separate voting requirements of the Rule.

36
<PAGE>

separately by fund. Approval by the shareholders of a fund is effective as to
that fund whether or not sufficient votes are received from the shareholders of
the other investment portfolios to approve the proposal as to those investment
portfolios. As used in the Prospectus of each Fund and in this SAI, the term
"majority," when referring to approvals to be obtained from shareholders of the
Fund, means the vote of the lesser of (i) 67% of the shares of the Fund
represented at a meeting if the holders of more than 50% of the outstanding
shares of the Fund are present in person or by proxy, or (ii) more than 50% of
the outstanding shares of the Fund. The term "majority," when referring to the
approvals to be obtained from shareholders of the Company as a whole, means the
vote of the lesser of (i) 67% of the Company's shares represented at a meeting
if the holders of more than 50% of the Company's outstanding shares are present
in person or by proxy, or (ii) more than 50% of the Company's outstanding
shares. Shareholders are entitled to one vote for each full share held and
fractional votes for fractional shares held.

Depending on the terms of a particular Benefit Plan and the matter being
submitted to a vote, a sponsor may request direction from individual
participants regarding a shareholder vote. In addition, whenever a Fund is
requested to vote on matters pertaining to a Master Portfolio, the Company will
hold a meeting of the Fund's shareholders and will cast its vote as instructed
by Fund shareholders. The directors of the Company will vote shares for which
they receive no voting instructions in the same proportion as the shares for
which they do receive voting instructions. Whenever a Fund, as a Master
Portfolio interestholder, is requested to vote on any matter submitted to
interestholders of such Master Portfolio, the Fund will hold a meeting of its
shareholders to consider such matters. The Fund will cast its votes in
proportion to the votes received from its shareholders. Shares for which the
Fund receives no voting instructions are voted in the same proportion as the
votes received from Fund shareholders. If a Master Portfolio's investment
objective or policies are changed, the corresponding Fund may elect to change
its objective or policies to correspond to those of the Master Portfolio. The
Fund may also elect to redeem its interests in the Master Portfolio and either
seek a new investment company with a matching 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 that Fund.

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. Occasional annual or special meetings
may be required for purposes such as approving advisory contracts and changing a
Fund's investment objective or fundamental investment policies.

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

37
<PAGE>

MIP is an open-end, series management investment companies organized as
Delaware business trust on October 21, 1993. In accordance with Delaware law and
in connection with the tax treatment sought by MIP, MIP's Declaration of Trust
provides that its investors would be personally responsible for Trust
liabilities and obligations, but only to the extent MIP's property is
insufficient to satisfy such liabilities and obligations. The Declaration of
Trust also provides that MIP shall maintain appropriate insurance (for example,
fidelity bonding and errors and omissions insurance) for the protection of MIP,
its investors, Trustees, officers, employees and agents covering possible tort
and other liabilities, and that investors will be indemnified to the extent they
are held liable for a disproportionate share of MIP obligations. Thus, the risk
of an investor incurring financial loss on account of investor liability is
limited to circumstances in which both inadequate insurance existed and MIP
itself was unable to meet its obligations.

The interests in each Master Portfolio of MIP have substantially identical
voting and other rights as those rights enumerated above for shares of the
Funds. MIP also intends to dispense with annual meetings, but are required by
Section 16(c) of the Act to hold a special meeting and assist investor
communications under the circumstances described above with respect to a
Company. Whenever a Fund is requested to vote on a matter with respect to its
MIP, the Fund will hold a meeting of Fund shareholders and will cast its votes
as instructed by such shareholders.

In a situation where a Fund does not receive instruction from certain of its
shareholders on how to vote the corresponding shares of MIP, such Fund will vote
such shares in the same proportion as the shares for which the Fund does receive
voting instructions.

ADDITIONAL INFORMATION ON THE FUNDS

The Company provides annual and semi-annual reports to all shareholders. The
annual reports contain audited financial statements and other information about
the Funds including additional information on performance. Shareholders may
obtain a copy of the Company's most recent annual report without charge by
calling 1-888-204-3956.

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

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS STATEMENT OF ADDITIONAL
INFORMATION AND IN THE COMPANY'S OFFICIAL SALES LITERATURE IN CONNECTION WITH
THE OFFER OF THE FUNDS' SHARES AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR
TO ANY PERSON TO WHOM, SUCH OFFERING MAY NOT LAWFULLY BE MADE.

38
<PAGE>

FINANCIAL INFORMATION

The audited financial statements, including the portfolio of investments,
and independent auditors' report for the fiscal period ended February 28, 1999
for each LifePath Fund and corresponding LifePath Master Portfolio are hereby
incorporated by reference to the MasterWorks Funds Inc. Annual Report, as filed
with the SEC on May 1, 1999. The audited financial statements are attached to
all SAIs delivered to shareholders or prospective shareholders.

39
<PAGE>

APPENDIX

S&P

BOND RATINGS

AAA

Bonds rated "AAA" have the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.

Bonds rated "AA" have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.

Bonds rated "A" have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than obligations in higher rated
categories.

BBB

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

A-1
<PAGE>

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.

Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the Aaa group they comprise what generally are known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.

Bonds which are rated "A" possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.

Baa

Bonds which are rated "Baa" are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

COMMERCIAL PAPER RATING

The rating Prime-1 ("P-1") is the highest commercial paper rating assigned
by Moody's. Issuers of "P-1" paper must have a superior capacity for repayment
of short-term promissory obligations, and this ordinarily is evidenced by
leading market positions in well established industries, high rates of return on
funds employed, conservative capitalization structures with moderate reliance on
debt and ample asset protection, broad margins in earnings coverage of fixed
financial charges and high internal cash generation, and well established access
to a range of financial markets and assured sources of alternate liquidity.

Issuers (or relating supporting institutions) rated Prime-2 ("P-2") have a
strong capacity for repayment of short-term promissory obligations. This
ordinarily is evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, are more
subject to

A-2
<PAGE>

variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.

FITCH

BOND RATINGS

AAA

BBB

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.

A-3
<PAGE>

F-1+

Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.

F-1

Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated "F-
1+".

F-2

Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payments, but the margin of safety is not as great as
the "F-1+" and "F-1" categories.

DUFF

BOND RATINGS

AAA

Bonds rated "AAA" are considered highest credit quality. The risk factors
are negligible, being only slightly more than for risk-free U.S. Treasury debt.

Bonds rated "AA" are considered high credit quality. Protection factors are
strong. Risk is modest but may vary slightly from time to time because of
economic conditions.

Bonds rated "A" have protection factors which are average but adequate.
However, risk factors are more variable and greater in periods of economic
stress.

BBB

Bonds rated "BBB" are considered to have below average protection factors
but still considered sufficient for prudent investment. Considerable variability
in risk during economic cycles.

Plus (+) and minus (-) signs are used with a rating symbol (except "AAA")
to indicate the relative position of a credit within the rating category.

COMMERCIAL PAPER RATING

A-4
<PAGE>

The rating "D-1" is the highest commercial paper rating assigned by Duff.
Paper rated "D-1" is regarded as having very high certainty of timely payment
with excellent liquidity factors which are supported by ample asset protection.
Risk factors are minor. Paper rated "D-2" is regarded as having good certainty
of timely payment, good access to capital markets and sound liquidity factors
and company fundamentals. Risk factors are small.

IBCA

BOND AND LONG-TERM RATINGS

Obligations rated "AAA" by IBCA have the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is substantial,
such that adverse changes in business, economic or financial conditions are
unlikely to increase investment risk significantly. Obligations for which there
is a very low expectation of investment risk are rated "AA" by IBCA. Capacity
for timely repayment of principal and interest is substantial. Adverse changes
in business, economic or financial conditions may increase investment risk
albeit not very significantly.

COMMERCIAL PAPER AND SHORT-TERM RATINGS

The designation "A1" by IBCA indicates that the obligation is supported by
a very strong capacity for timely repayment. Those obligations rated "A1+" are
supported by the highest capacity for timely repayment. Obligations rated "A2"
are supported by a strong capacity for timely repayment, although such capacity
may be susceptible to adverse changes in business, economic or financial
conditions.

INTERNATIONAL AND U.S. BANK RATINGS

An IBCA bank rating represents IBCA's current assessment of the strength of
the bank and whether such bank would receive support should it experience
difficulties. In its assessment of a bank, IBCA uses a dual rating system
comprised of Legal Ratings and Individual Ratings. In addition, IBCA assigns
banks Long-and Short-Term Ratings as used in the corporate ratings discussed
above. Legal Ratings, which range in gradation from 1 through 5, address the
question of whether the bank would receive support provided by central banks or
interestholders if it experienced difficulties, and such ratings are considered
by IBCA to be a prime factor in its assessment of credit risk. Individual
Ratings, which range in gradations from A through E, represent IBCA's assessment
of a bank's economic merits and address the question of how the bank would be
viewed if it were entirely independent and could not rely on support from state
authorities or its owners.

A-5
<PAGE>

MASTERWORKS FUNDS INC.
FILE NO. 33-54126; 811-7332

PART C

OTHER INFORMATION

Item 24. Financial Statements and Exhibits.
---------------------------------

(a) Financial Statements:

The portfolio of investments, audited financial statements and
independent auditors' report for the fiscal year ended February 28, 1999 for
the Asset Allocation, Bond Index, LifePath 2000, LifePath 2010, LifePath
2020, LifePath 2030, LifePath 2040, Money Market, S&P 500, and U.S. Treasury
Allocation Funds are hereby incorporated by reference to the Company's Annual
Report, as filed with the SEC on May 1, 1999.

The portfolio of investments, audited financial statements and
independent auditors' report for the fiscal year ended February 28, 1999 for
the Asset Allocation, Bond Index, LifePath 2000, LifePath 2010, LifePath
2020, LifePath 2030, LifePath 2040, Money Market, S&P 500, and U.S. Treasury
Allocation Master Portfolios of Master Investment Portfolio ("MIP") are
hereby incorporated by reference to the Company's Annual Report, as filed
with the SEC on May 1, 1999.

(b) Exhibits:

Exhibit
Number Description
------- -----------

1 - Restated Articles of Incorporation dated October
31, 1995, incorporated by reference to Post-
Effective Amendment No. 11, filed December 1,
1995.

2 - By-Laws, incorporated by reference to Post-
Effective Amendment No. 8, filed June 27, 1995.

3 - Not applicable

4 - Not applicable

5 - Not applicable

1
<PAGE>

Exhibit
Number Description
------- -----------

6 - Amended and Restated Distribution Agreement with
Stephens Inc. on behalf of the Funds, dated
February 16, 1996, incorporated by reference to
Post-Effective Amendment No. 13, filed June 28,
1996.

7 - Not applicable.

8 - Custody Agreement with Investors Bank & Trust
Company on behalf of the Funds, dated October 21,
1996, incorporated by reference to Post-Effective
Amendment No. 14, filed June 30, 1997.

9(a) - Transfer Agency and Service Agreement with
Investors Bank & Trust Company on behalf of the
Funds, dated February 27, 1998, incorporated by
reference to Post-Effective Amendment No. 16,
filed July 2, 1998.

9(b) - Shareholder Servicing Plan and Form of
Shareholder Servicing Agreement for the Growth,
Growth Stock, Short-Intermediate Term, Asset
Allocation, U.S. Treasury Allocation, Bond Index,
S&P 500 Stock and Money Market Funds, dated
February 1, 1994, as amended October 29, 1998,
incorporated by reference to Post-Effective
Amendment No. 18, filed November 20, 1998.

9(b)(i) - Shareholder Servicing Plan and Form of
Shareholder Servicing Agreement for the LifePath
2000, LifePath 2010, LifePath 2020, LifePath 2030
and LifePath 2040 Funds, dated March 15, 1996, as
amended October 28, 1998, incorporated by
reference to Post-Effective Amendment No. 18,
filed November 20, 1998.

9(c)(i) - Co-Administration Agreement with Stephens Inc.
and Barclays Global Investors, N.A. on behalf of
the Funds, dated October 21, 1996, as amended on
June 11, 1998, filed September 1, 1998.

9(c)(ii) - Sub-Administration Agreement by and among
Barclays Global Investors, N.A. and Investors
Bank & Trust Company on behalf of the Funds,
dated October 21, 1996, incorporated by reference
to Post-Effective Amendment No. 14, filed June
30, 1997 (previously listed as exhibit 5(b)(ii)).

9(d) - Service Agreement with Merrill Lynch, Pierce,
Fenner & Smith Incorporated on behalf of the
Funds, dated December 31, 1997,

2
<PAGE>

incorporated by reference to Post-Effective
Amendment No. 16, filed July 2, 1998.

9(e) - Financial Services Agreement with Merrill Lynch,
Pierce, Fenner & Smith Incorporated on behalf of
the Funds, dated December 31, 1997, incorporated
by reference to Post-Effective Amendment No. 16,
filed July 2, 1998.

10 - Opinion and Consent of Counsel, filed herewith.

11 - Consent of Independent Auditors - to be filed.

12 - Not applicable

13 - Not applicable

14 - Not applicable

15(a) - Distribution Plan dated October 28, 1998, on
behalf of the Asset Allocation, LifePath 2000,
LifePath 2010, LifePath 2020, LifePath 2030 and
LifePath 2040 Funds, incorporated by reference to
Post-Effective Amendment No. 18, filed November
20, 1998.

15(b) - Amended and Restated Distribution Agreement on
behalf of the Funds, dated February 16, 1996,
incorporated by reference to Post-Effective
Amendment No. 18, filed November 20, 1998.

16 - Not applicable

17 - See Exhibit 27

18 - Rule 18f-3 Multi-Class Plan,incorporated by
reference to Post-Effective Amendment No. 18,
filed November 20, 1998.

19 - Powers of Attorney for Jack S. Euphrat, R. Greg
Feltus, Thomas S. Goho, Zoe Ann Hines, W. Rodney
Hughes, Robert M. Joses and J. Tucker Morse,
incorporated by reference to Post-Effective
Amendment No. 14, filed June 30, 1997.

27 - Financial Data Schedules for the fiscal period
ended February 28, 1998, incorporated by
reference to the Form N-SAR filed on April 28,
1998.

Item 25. Persons Controlled by or under
Common Control with Registrant
------------------------------

3
<PAGE>

As of [NOVEMBER 1, 1998], each Fund owned the following percentages of
the outstanding beneficial interests of the corresponding Master Portfolios of
MIP. As such, each Fund could be considered a controlling person of the
corresponding Master Portfolio for purposes of the 1940 Act. [TO BE UPDATED]

<TABLE>
<CAPTION>
Corresponding Percentage
Fund Master Portfolio of beneficial
- ---- ---------------- interests held
--------------
<S> <C> <C>
Asset Allocation Fund Asset Allocation Master Portfolio (MIP) 99.99%
Bond Index Fund Bond Index Master Portfolio (MIP)
LifePath 2000 Fund LifePath 2000 Master Portfolio (MIP) 43.13%
LifePath 2010 Fund LifePath 2010 Master Portfolio (MIP) 54.90%
LifePath 2020 Fund LifePath 2020 Master Portfolio (MIP) 45.87%
LifePath 2030 Fund LifePath 2030 Master Portfolio (MIP) 41.10%
LifePath 2040 Fund LifePath 2040 Master Portfolio (MIP) 32.68%
Money Market Fund Money Market Master Portfolio (MIP)
S&P 500 Fund S&P 500 Master Portfolio (MIP)
U.S. Treasury Allocation Fund U.S. Treasury Allocation Master Portfolio (MIP)
</TABLE>

Item 26. Number of Holders of Securities.
--------------------------------

As of [NOVEMBER 1, 1998], the number of record holders of each class
of securities of the Registrant for the following funds were as follows: [TO BE
UPDATED]

Number of
Title of Class Record Holders
- -------------- ------------------

Asset Allocation Fund 14
Bond Index Fund
LifePath 2000 Fund 11
LifePath 2010 Fund 12
LifePath 2020 Fund 12
LifePath 2030 Fund 12
LifePath 2040 Fund 11
Money Market Fund
S&P 500 Fund
U.S. Treasury Allocation Fund

Item 27. Indemnification.
---------------

The following paragraphs of Article VIII of the Registrant's Articles
of Incorporation provide:

4
<PAGE>

(h) The Corporation shall indemnify (1) its Directors and officers,
whether serving the Corporation or at its request any other entity, to the
full extent required or permitted by the General Laws of the State of
Maryland now or hereafter in force, including the advance of expenses under
the procedures and to the full extent permitted by law, and (2) its other
employees and agents to such extent as shall be authorized by the Board of
Directors or the Corporation's By-Laws and be permitted by law. The
foregoing rights of indemnification shall not be exclusive of any other
rights to which those seeking indemnification may be entitled. The Board of
Directors may take such action as is necessary to carry out these
indemnification provisions and is expressly empowered to adopt, approve and
amend from time to time such By-Laws, resolutions or contracts implementing
such provisions or such further indemnification arrangements as may be
permitted by law. No amendment of these Articles of Incorporation of the
Corporation shall limit or eliminate the right to indemnification provided
hereunder with respect to acts or omissions occurring prior to such
amendment or repeal. Nothing contained herein shall be construed to
authorize the Corporation to indemnify any Director or officer of the
Corporation against any liability to the Corporation or to any holders of
securities of the Corporation to which he is subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of his office. Any indemnification by the
Corporation shall be consistent with the requirements of law, including the
1940 Act.

(i) To the fullest extent permitted by Maryland statutory and
decisional law and the 1940 Act, as amended or interpreted, no Director or
officer of the Corporation shall be personally liable to the Corporation or
its stockholders for money damages; provided, however, that nothing herein
shall be construed to protect any Director or officer of the Corporation
against any liability to which such Director or officer would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his office. No
amendment, modification or repeal of this Article VIII shall adversely
affect any right or protection of a Director or officer that exists at the
time of such amendment, modification or repeal.

Item 28. Business and Other Connections
of Investment Adviser.
----------------------

The Funds currently do not retain an investment adviser. The
corresponding MIP Master Portfolios to the LifePath 2000, LifePath 2010,
LifePath 2020, LifePath 2030, LifePath 2040 and Asset Allocation Funds are
advised by Barclays Global Fund Advisors ("BGFA"), a wholly-owned subsidiary of
Barclays Global Investors, N.A. ("BGI", formerly, Wells Fargo Institutional
Trust Company).

BGFA's business is that of a registered investment adviser to certain
open-end, management investment companies and various other institutional
investors. Wells Fargo Bank's business is that of a national banking
association with respect to which it conducts a variety of commercial banking
and trust activities, including acting as investment adviser and/or

5
<PAGE>

sub-adviser to certain open-end management investment companies and various
other institutional investors.

The directors and officers of BGFA consist primarily of persons who
during the past two years have been active in the investment management business
of the former sub-adviser to the Registrant, Wells Fargo Nikko Investment
Advisors ("WFNIA") and, in some cases, the service business of BGI. Each of the
directors and executive officers of BGFA will also have substantial
responsibilities as directors and/or officers of BGI. To the knowledge of the
Registrant, except as set forth below, none of the directors or executive
officers of BGFA is or has been at any time during the past two fiscal years
engaged in any other business, profession, vocation or employment of a
substantial nature.

Name and Position Principal Business(es) During at
at BGFA Least the Last Two Fiscal Years
- ----------------- --------------------------------

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
Chief Financial Officer 1997 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

Prior to January 1, 1996, WFNIA served as sub-adviser to the Asset
Allocation, Fund, and as adviser or sub-adviser to various other open-end
management investment companies. For additional information, see "Management of
the Funds" in the Prospectuses and "Management" in the Statements of Additional
Information. For information as to the business, profession, vocation or
employment of a substantial nature of each of the officers and management
committees of WFNIA, reference is made to WFNIA's Form ADV and Schedules A and D
filed under the Investment Advisers Act of 1940, SEC File No. 801-36479,
incorporated herein by reference.

Item 29. Principal Underwriters.
----------------------

(a) Stephens Inc., distributor for the Registrant, does not presently
act as investment adviser for any other registered investment companies, but
does act as principal

6
<PAGE>

underwriter for MasterWorks Funds Inc., Stagecoach Funds, Inc., Stagecoach
Trust, Nations Fund, Inc., Nations Fund Trust, Nations Fund Portfolios, Inc.,
Nations LifeGoal Funds, Inc. and Nations Institutional Reserves, and is the
exclusive placement agent for Life & Annuity Trust 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).

Item 30. Location of Accounts and Records.
--------------------------------

(a) The Registrant maintains accounts, books and other documents
required by Section 31(a) of the Investment Company Act of 1940 and the rules
thereunder (collectively, "Records") at the offices of Stephens Inc., 111 Center
Street, Little Rock, Arkansas 72201.

(b) BGFA and BGI maintain all Records relating to their services as
adviser and co-administrator, respectively, at 45 Fremont Street, San Francisco,
California 94105.

(c) 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 31. Management Services.
-------------------

Other than as set forth under the caption "Management of the Fund(s)"
in the Prospectuses constituting Part A of this Registration Statement and
"Management" in the Statements of Additional Information constituting Part B of
this Registration Statement, the Registrant is not a party to any management-
related service contract.

Item 32. Undertakings.
------------

(a) Not Applicable

(b) Not Applicable

(c) Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to

7
<PAGE>

the provisions set forth above in response to Item 27, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in such
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.

(d) Registrant undertakes to hold a special meeting of its
shareholders for the purpose of voting on the question of removal of a director
or directors if requested in writing by the holders of at least 10% of the
Company's outstanding voting securities, and to assist in communicating with
other shareholders as required by Section 16(c) of the Investment Company Act of
1940.

(e) Registrant undertakes to furnish each person to whom a prospectus
is delivered with a copy of its most current annual report to shareholders, upon
request and without charge.

8
<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)(1) 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 26th day of April, 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. 19 to the Registration Statement on Form N-1A has been
signed below by the following persons in the capacities and on the date
indicated:

Signature Title
- --------- -----

* Director, Chairman and President 4/26/99
- ------------------------------
(R. Greg Feltus) (Principal Executive Officer)

/s/ Richard H. Blank, Jr. Secretary and Treasurer 4/26/99
- ------------------------------
(Richard H. Blank, Jr.) (Principal Financial Officer)

* Director 4/26/99
- ------------------------------
(Jack S. Euphrat)

* Director 4/26/99
- ------------------------------
(Thomas S. Goho)

* Director 4/26/99
- ------------------------------
(W. Rodney Hughes)

* Director 4/26/99
- ------------------------------
(J. Tucker Morse)

*By: /s/ Richard H. Blank, Jr.
-------------------------
Richard H. Blank, Jr.
As Attorney-in-Fact
April 26, 1999
<PAGE>

MASTERWORKS FUNDS INC.
SEC FILE NOS. 33-54126; 811-7332

EXHIBIT INDEX

EXHIBIT NUMBER DESCRIPTION

EX-99.B10 . Opinion and Consent of Counsel - Morrison & Foerster LLP

EX-99.B11 . Consent of Independent Auditors - KPMG LLP (to be filed
before the Effectiveness Date)

<PAGE>

[MORRISON & FOERSTER LLP LETTERHEAD]

April 30, 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. 19 and Amendment No. 23 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