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IMPORTANT NOTICE: Please vote using the
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Enclosed Proxy Ballot as soon as possible.
For your convenience, you may vote by calling Shareholder
Communications Corp. ("SCC") toll-free at 1-800-733-8481 Ext. 435
from 6:00 a.m. to 8:00 p.m. (Pacific time). You may
also vote by faxing the front and back of your
Proxy Ballot to SCC at 1-800-733-1885.
A confirmation of your telephonic or facsimile
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vote will be sent to you.
BARCLAYS GLOBAL INVESTORS FUNDS, INC.
111 Center Street
Little Rock, Arkansas 72201
September 29, 1999
Dear Shareholder of the U.S. Treasury Allocation Fund:
We are pleased to invite you to a Special Meeting of the Shareholders of
the U.S. Treasury Allocation Fund (the "U.S. Treasury Fund") of Barclays Global
Investors Funds, Inc. ("BGI Funds") to be held on Thursday, October 28, 1999.
The Special Meeting is being held to consider a proposal to consolidate the U.S.
Treasury Fund into the Bond Index Fund of BGI Funds. If the proposed
consolidation is approved, you will receive shares of the Bond Index Fund equal
in value to your shares of the U.S. Treasury Fund.
The Board of Directors of BGI Funds unanimously recommends that
you vote in favor of the proposal.
This booklet describes the proposed consolidation and the Board of
Directors' reasons for recommending approval. The booklet includes this cover
letter, a formal notice, a Combined Prospectus/Proxy Statement and several
exhibits. Please take the time to review all of the information before casting
your vote. You may attend the Special Meeting in person or you may use the
enclosed Proxy Ballot to cast your vote.
You should weigh several considerations in particular:
o Reasons for the Proposed Consolidation
The investment adviser to both the U.S. Treasury Fund and the Bond
Index Fund is Barclays Global Fund Advisors ("BGFA"). BGFA has been primarily
responsible for supervisory, overall management and reporting responsibilities,
as well as responsible for the day-to-day portfolio management of the Funds. For
various reasons that are described further in the Combined Prospectus/Proxy
Statement, BGFA has advised the Board of Directors of BGI Funds that it does not
believe that the U.S. Treasury Fund, with only $33 million in assets as of June
30, 1999, is viable on a long-term basis. As an alternative to liquidation, the
proposed consolidation allows shareholders to continue to benefit from BGFA's
day-to-day portfolio management services, in a similar fund with somewhat
similar investment objectives and policies.
o Important Facts About The Funds and the Consolidation
o Objectives and Policies--The investment objectives and
policies of the Funds are somewhat similar, although there are
some important differences that you should consider. The
principal similarities and differences are described in the
Combined Prospectus/Proxy Statement that is part of this
booklet.
o Access Arrangements--The shareholder servicing, transaction and other
access arrangements are similar for both Funds. o Share Values--The total dollar
value of shares you will receive in the Bond Index Fund will be equal to the
total dollar value of your shares in the U.S. Treasury Fund.
o Tax Considerations--Shareholders of the U.S. Treasury Fund who
hold their shares in a taxable account will recognize a gain
or loss for federal income tax purposes as a result of the
consolidation.
o Expenses-- The total operating expense ratio of the Bond Index Fund is
substantially lower than the total operating expense ratio of the U.S.
Treasury Fund. Barclays Global Investors, N.A. will pay the expenses of the
consolidation.
Whether or not you attend the Special Meeting of Shareholders, you
may vote by proxy in any of three ways:
o By Mail--Mark, sign, date and return the enclosed Proxy Ballot in the enclosed
postage-paid envelope; o By Phone--Call SCC toll-free at 1-800-733-8481 Ext. 435
from 6:00 a.m. to 8:00 p.m. (Pacific time); or o By Fax--Mark, sign, date and
fax both sides of the enclosed Proxy Ballot to SCC at 1-800-733-1885.
A confirmation of your telephonic or fax vote will be sent to you.
Every vote is important to us.
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If you have any questions, please call BGI Funds at
1-888-204-3956.
Very truly yours,
Barclays Global Investors Funds, Inc.
R. Greg Feltus
President
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2
dc-179536
1
dc-179536
BARCLAYS GLOBAL INVESTORS FUNDS, INC.
111 Center Street
Little Rock, Arkansas 72201
Telephone: 1-888-204-3956
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
U.S. TREASURY ALLOCATION FUND
To Be Held on October 28, 1999
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To the Shareholders of the U.S. Treasury Allocation Fund (the "U.S. Treasury
Fund") of Barclays Global Investors Funds, Inc. ("BGI Funds"):
PLEASE TAKE NOTE that a SPECIAL MEETING OF SHAREHOLDERS (the
"Special Meeting") of the U.S. Treasury Fund will be held on Thursday, October
28, 1999, at 11:00 a.m. (Central time) at the principal office of BGI Funds, 111
Center Street, Little Rock, Arkansas 72201. The Special Meeting is being called
for the following purposes:
(1) To approve an Agreement and Plan of Consolidation (the
"Plan") for the U.S. Treasury Fund and the transactions
contemplated thereby, which include (a) the transfer of all
of the assets of the U.S. Treasury Fund to the Bond Index of
BGI Funds, and the assumption by the Bond Index Fund of all
of the liabilities of the U.S. Treasury Fund, in exchange
for shares of the Bond Index Fund; and (b) the distribution
to shareholders of the U.S. Treasury Fund of the shares of
the Bond Index Fund so received.
(2) To transact such other business as may properly come before
the meeting, or any adjournment(s) thereof, including any
adjournment(s) necessary to obtain requisite quorums and/or
approvals.
The Board of Directors of BGI Funds has fixed the close of
business on Friday, August 13, 1999, as the record date (the "Record Date") for
the determination of Fund shareholders entitled to receive notice of and to vote
at the Special Meeting or any adjournment(s) thereof. The Combined
Prospectus/Proxy Statement contains further information regarding the meeting
and the proposal.
Even if you do not attend the Special Meeting in person, you may vote in any one
of three ways:
1. Mark, sign, date and return the enclosed Proxy Ballot in
the enclosed postage-paid envelope; or
2. Vote by telephone by calling Shareholder Communications Corp.
("SCC") toll-free at 1-800-733-8481 Ext. 435 from 6:00 a.m. to 8:00 p.m.
(Pacific time) (a confirmation of your telephonic vote will be sent to you); or
3. Mark, sign, date and fax the enclosed Proxy Ballot (both front
and back) to SCC at 1-800-733-1885 (a confirmation of your facsimile vote will
be sent to you).
In order for the Plan to be approved, the holders of a majority of
the U.S. Treasury Fund's shares outstanding on the Record Date must be present
in person or by proxy. Therefore, your proxy is very important to us. Whether or
not you plan to attend the meeting in person, please mark, sign, date and return
the enclosed Proxy Ballot today, either in the enclosed postage-paid envelope or
by telefacsimile (front and back) at 1-800-733-1885, or by calling toll-free at
1-800-733-8481 Ext. 435. Signed but unmarked Proxy Ballots will be counted in
determining whether a quorum is present and will be voted in favor of the
proposal.
By Order of the Board of Directors
Richard H. Blank, Jr.
Secretary
September 29, 1999
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YOUR VOTE IS VERY IMPORTANT TO US REGARDLESS
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OF THE NUMBER OF SHARES THAT YOU OWN.
PLEASE VOTE BY MAIL, FACSIMILE OR
OR TELEPHONE IMMEDIATELY.
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<PAGE>
COMBINED PROSPECTUS/PROXY STATEMENT
September 29, 1999
Barclays Global Investors Funds, Inc.
111 Center Street
Little Rock, Arkansas 72201
Telephone: 1-888-204-3956
This Combined Prospectus/Proxy Statement is being furnished to
shareholders of the U.S. Treasury Allocation Fund ("U.S. Treasury Fund") of
Barclays Global Investors Funds, Inc. ("BGI Funds") in connection with the
solicitation of proxies by the Board of Directors of BGI Funds, for a special
meeting of Shareholders of the U.S. Treasury Fund (the "Special Meeting") to be
held at the principal office of BGI Funds, 111 Center Street, Little Rock,
Arkansas 72201, on Thursday, October 28, 1999 beginning at 11:00 a.m. (Central
time). The Special Meeting has been called to consider the following proposal,
and to transact such other business as may properly come before the meeting.
Proposal: To approve an Agreement and Plan of Consolidation (the
"Plan"), between the U.S. Treasury Fund and the Bond Index Fund
(collectively, the "Funds") of BGI Funds. The Plan provides for the
transfer of the assets and liabilities of the U.S. Treasury Fund to the
Bond Index Fund in exchange for shares of equal value of the Bond Index
Fund (the "Consolidation"). As a result of the Consolidation,
shareholders of the U.S. Treasury Fund will become shareholders of the
Bond Index Fund.
This Combined Prospectus/Proxy Statement, which should be retained
for future reference, sets forth concisely the information about the Bond Index
Fund that prospective investors, including shareholders of the U.S. Treasury
Fund, should know before investing. Additional information, incorporated by
reference herein, is contained in a separate Statement of Additional
Information, dated July 1, 1999, which has been filed with the Securities and
Exchange Commission (the "SEC") and is available without charge by calling BGI
Funds at 1-888-204-3956.
The Prospectus for the U.S. Treasury Fund and the Bond Index Fund
is incorporated by reference in this Combined Prospectus/Proxy Statement and
accompanies this Combined Prospectus/Proxy Statement. The Prospectus also is
available without charge by calling BGI Funds at 1-888-204-3956.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
PAGE
I. THE PROPOSED TRANSACTION - Item 3...................................................................... 1
o Overview - Item 3(b)............................................................................... 1
o Comparison of Fees and Expenses - Item 3(a)........................................................ 3
o Comparison of Investment Objectives, Policies and Restrictions - Item 3(b)(1)...................... 4
o Comparison of Risks - Item 3(b).................................................................... 5
o Comparison of Advisory and Other Service Arrangements and Fees - Item 3(b)(2)...................... 7
o Comparison of Purchase and Redemption Procedures and Other Considerations -
Items 3(b)(3) and (4).............................................................................. 8
o........Comparison of Performance - Item 3(b).............................................................. 9
o A Discussion of Principal Risk Factors - Item 3(c)................................................. 11
II. DESCRIPTION OF THE AGREEMENT AND PLAN
OF CONSOLIDATION - Item 4.......................................................................... 12
o Reasons for the Consolidation and Board Consideration - Item 4(a) and 4(a)(3)...................... 13
o Material Federal Income Tax Consequences - Item 4(a)(4)............................................ 16
o Capitalization - Item (4)(b)...................................................................... 18
III. INFORMATION ABOUT THE FUNDS - Items 5 and 6 ........................................................... 18
o Organization of BGI Funds ......................................................................... 18
o Substantial Shareholders .......................................................................... 19
o Additional Information - Items 5(e), 5(f) and 6(b)(1) ............................................. 20
o Items 5(a) and 6(a) are incorporated by reference to each Fund's Prospectus.
o Item 5(a) of Form N-1A is incorporated by reference into the U.S. Treasury Fund's Annual Report. See Exhibit B for Bond
Index
Fund.
o Items 5(b),5(c),5(d), 6(c) and 6(d) are not applicable.
IV. VOTING INFORMATION - Item 7 ........................................................................... 20
o Approval and Consummation of the Proposed Transaction ............................................. 20
o Solicitation of Proxies and Payment of Expenses ................................................... 21
V. INTEREST OF CERTAIN PERSONS AND EXPERTS - Item 8 ...................................................... N/A
VI. ADDITIONAL INFORMATION REQUIRED FOR REOFFERING BY PERSONS
DEEMED TO BE UNDERWRITERS - Item 9 .................................................................. N/A
MISCELLANEOUS .............................................................................................. 22
o Other Business .................................................................................... 22
o Future Shareholder Proposals ...................................................................... 22
EXHIBIT A - FORM OF AGREEMENT AND PLAN OF CONSOLIDATION
EXHIBIT B - MANAGEMENT'S DISCUSSION OF BOND INDEX FUND
PERFORMANCE
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22
dc-179536
BARCLAYS GLOBAL INVESTORS FUNDS, INC.
111 Center Street
Little Rock, Arkansas 72201
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SPECIAL MEETING OF SHAREHOLDERS
U.S. TREASURY ALLOCATION FUND
To Be Held on October 28, 1999
I. THE PROPOSED TRANSACTION
Important information about the matter to be considered at the
Special Meeting of Shareholders follows. This information is qualified by
reference to the Exhibits at the end of this document.
Overview
The Directors are seeking your approval of an Agreement and Plan
of Consolidation, which contemplates that the Bond Index Fund of BGI Funds will
acquire all of the assets of the U.S. Treasury Fund of BGI Funds and assume all
of the liabilities of the U.S. Treasury Fund in exchange for shares of the Bond
Index Fund. The shares of the Bond Index Fund received by the U.S. Treasury Fund
will then be distributed to the U.S. Treasury Fund's shareholders and the U.S.
Treasury Fund will be dissolved and liquidated.
The Plan must be approved by a vote of a majority of the shareholders of the
U.S. Treasury Fund. The Shareholder Meeting of the U.S. Treasury Fund
shareholders is scheduled for Thursday, October 28, 1999. The Consolidation, if
approved, is expected to occur on or about Friday, October 29, 1999. For more
information about the Plan, see "Description of the Agreement and Plan of
Consolidation."
As a result of the Consolidation, you will receive full and
fractional shares of the Bond Index Fund equal in value to the shares of the
U.S. Treasury Fund owned by you immediately prior to the transaction. No
commissions or sales loads will be charged in connection with the Consolidation.
Shareholders of the U.S. Treasury Fund whose shares are held in a
taxable account will recognize a taxable gain or loss for federal income tax
purposes. For each such shareholder, this gain or loss will be measured by the
difference between their tax basis in the U.S. Treasury Fund shares and their
net asset value at the closing date of the Consolidation ("Closing").
Shareholders who hold U.S. Treasury Fund shares in a tax-deferred retirement
account will not recognize a taxable gain or loss as a result of the
Consolidation. See "Federal Income Tax Consequences" for additional information.
You should separately consider any state tax consequences in consultation with
your tax advisor.
The U.S. Treasury Fund seeks to provide a high level of long-term
total return, consisting of capital appreciation and current income, consistent
with a reasonable level of risk, before fees and expenses. 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.
The U.S. Treasury Fund pursues this objective by investing all of its assets in
the U.S. Treasury Allocation Master Portfolio (the "U.S. Treasury Master
Portfolio") of Master Investment Portfolio ("MIP"), which has the same
investment objective and policies as the Fund. The U.S. Treasury Master
Portfolio invests directly in a portfolio of securities. This is sometimes
called a "master-feeder structure."
The Bond Index Fund seeks to approximate as closely as
practicable, before fees and expenses, the total rate of return of the U.S.
market for issued and outstanding U.S. government and investment-grade corporate
bonds as measured by the Lehman Brothers Government/Corporate Bond Index ("LB
Bond Index"). The Bond Index Fund pursues this objective by investing all of its
assets in the Bond Index Master Portfolio of MIP, which has the same investment
objective and policies as the Bond Index Fund. The Master Portfolio invests
directly in a portfolio of securities. This is another example of a
master-feeder structure.
Although both Funds, through their respective Master Portfolios,
invest primarily in fixed-income securities, there are differences in the types
of fixed-income securities that the Funds generally purchase for investment. The
U.S. Treasury Fund has a policy of investing, under normal market condition, at
least 65% of its total assets in U.S. Treasury securities such as long-term U.S.
Treasury Bonds, intermediate-term U.S. Treasury Notes and short-term U.S.
Treasury Bills. In addition, the U.S. Treasury Fund may hold money market
instruments for liquidity purposes. The Bond Index Fund invests, under normal
market conditions, at least 90% of its total assets in securities representing
the LB Bond Index. The LB Bond Index is composed of approximately 6,500 debt
issues of fixed-income securities, including U.S. Government Securities and
investment grade corporate bonds, each with an issue size of at least $150
million and a remaining time to maturity of one year or more. As a practical
matter, the Bond Index Fund cannot hold each of the 6,500 securities included in
the LB Bond Index. It can, however, substantially replicate the index's profile
by holding U.S.
Government obligations and corporate bonds in a similar proportion to the index.
If the Consolidation is approved, the master-feeder structure of
the U.S. Treasury Fund will be dissolved. The dissolution of the master-feeder
structure does not require shareholder approval and is expected to occur shortly
after the proposed Consolidation.
The risk factors of investing in the Bond Index Fund are somewhat
comparable to those of investing in the U.S. Treasury Fund. However, the Bond
Index Fund will be subject to a greater degree of credit risk because the Bond
Index Fund invests a portion of its assets in corporate bonds. For a more
detailed comparison of the Funds' risks see "Comparison of Risks."
Comparison of Fees and Expenses
The following comparison is based on current information for the
U.S. Treasury and Bond Index Funds. The table below describes the fees and
expenses that you may pay if you buy and hold shares of the Funds. The expenses
are deducted from Fund assets, which means you pay them indirectly.
Annual Fund Operating Expenses (expenses that are deducted from Fund assets)
Bond Index Fund
Pro Forma
U.S. Treasury Bond Index (After Consolidation)
Fund Fund
Management Fees 0.30% 0.08% 0.08%
Other Expenses 0.40% 0.15% 0.15%
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Total Annual Fund Operating Expenses* 0.70% 0.23% 0.23%
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* Total annual Fund operating expenses in the above table and the following
example reflect the expenses of both the Funds and the Master Portfolios in
which they invest.
Total Annual Fund operating expenses for the Funds are based on
amounts incurred during the most recent fiscal year.
Example of Expenses: 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 a sales load or other fee upon redemption. 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
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U.S. Treasury Fund $72 $224 $390 $871
Bond Index Fund $24 $ 74 $130 $293
Bond Index Fund Pro Forma (after $24 $ 74 $130 $293
consolidation)
Comparison of Investment Objectives, Policies and Restrictions
The investment objective, policies and strategies of the U.S.
Treasury Fund are somewhat similar to those of the Bond Index Fund. The
investment objective of each Fund is fundamental and may not be changed without
shareholder approval. Below is a table comparing the investment objectives and
key policies of the Funds.
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U.S. Treasury Fund Bond Index Fund
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Objective: Seeks to achieve a high level of Objective: Seeks to approximate as closely as
long-term total return, consisting of capital practicable, before fees and expenses, the total
appreciation and current income, consistent with rate of return of the U.S. markets for issued and
reasonable risk. outstanding U.S. and high-grade corporate bonds as
measured by the LB Bond Index.
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In Pursuing its Objective: The Fund allocates and In Pursuing its Objective: The Fund invests
reallocates its investments among the three classes substantially all of its assets in the LB Bond
of U.S. Treasury debt securities, long-term bonds Index, which is composed of approximately 6,500
(Treasury obligations with maturities of at least issues of fixed-income securities, including U.S.
twenty years from their issue date), Government securities and investment grade
intermediate-term notes (Treasury obligations with corporate bonds, each with an issue size of at
maturities between one and ten years from their issue least $150 million and a remaining maturity of
date) and bonds and short-term bills (Treasury greater than one year.
obligations with maturities of one year or less from
their issue date).
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U.S. Treasury Fund Bond Index Fund
Key Investment Policies: Key Investment Policies:
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o The U.S. Treasury Fund invests at least 65% o The Bond Index Fund invests at least 65%
of its total assets in U.S. Treasury of its total assets in bonds and
securities, such as long-term bonds, debentures.
intermediate-term notes and bonds and
short-term bills. o Securities are selected for investment by
the Fund based on a mix of factors, such
o The U.S. Treasury Allocation Fund uses an as the relative proportion of such
investment model to determine the investment securities in the LB Bond Index, credit
mix for the Fund (the "Model"). quality, issue sector, maturity structure,
coupon rates and callability.
o The Model concentrates its analysis on
maturity classes of U.S. Treasury o The Bond Index Fund seeks to come within
securities, combining: (i) comprehensive 95% of the total rate of return of the LB
return data; (ii) statistically predictable Bond Index, before fees and expenses, in
variations from expected returns; and falling as well as rising markets.
(iii) information on how varying returns
correlate. o BGFA, makes no attempt to apply economic,
financial or market analysis when managing
o When the Model identifies potential gains the Fund's portfolio. BGFA selects
for the Fund, transaction costs help securities because they will help the Fund
determine modifications in the Fund's achieve returns corresponding to the LB
investment allocation. Barclays Global Fund Bond Index.
Advisors ("BGFA"), the Fund's investment
adviser, decides whether or not the cost of o Under normal market conditions, the Bond
buying and selling securities outweighs the Index Fund invests at least 90% of its
potential gains identified by the Model. total assets in securities representing
the LB Bond Index.
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Investments in either the U.S. Treasury Fund or the Bond Index Fund
discussed in this Combined Prospectus/Proxy Statement are not bank deposits or
obligations of Barclays Global Investors, N.A. ("BGI") or BGFA. They are not
guaranteed or endorsed by the Federal Deposit Insurance Corporation or any other
government agency.
Comparison of Risks
Debt instruments are subject to credit risk and interest rate
risk. Credit risk is the risk that issuers of the debt instruments may default
on the payment of principal and/or interest. Interest-rate risk increases if
changes in market interest rates adversely affect the value of the debt
instruments. 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. By investing in
corporate bonds, the Bond Index Fund has greater exposure to credit risk than
the U.S. Treasury Fund. Both Funds are exposed to interest rate risk.
Securities that are guaranteed by the U.S. Government, its
agencies or instrumentalities, are subject to interest rate risk and the market
value of these securities, upon which each Fund's daily NAV is based, will
fluctuate. No assurance can be given that the U.S. Government would provide
financial support to its agencies or instrumetalities where it is not obligated
to do so.
Market risk is the risk that the value of a bond or other security
will be reduced by market activity. By investing in corporate bonds, the Bond
Index Fund has greater market risk exposure than the U.S. Treasury Fund. Counter
party risk is the risk that the other party in a repurchase agreement or other
transaction will not fulfill its contract obligation. Both Funds invest in
repurchase agreements.
Because the investment objective, policies and strategies of the
Funds are somewhat similar, the overall level of investment risk would likewise
be somewhat similar as a result of the Consolidation. For a more complete
description of the Bond Index Fund's and the U.S. Treasury Fund's investment
policies and restrictions, see the Funds' Prospectus and Statement of Additional
Information.
Risks of investing in the Bond Index Fund
? value of the bonds in which the Fund invests may fall because of a rise in interest rates
? 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 ? bonds that the Bond Index Fund's
investment adviser selects may not match the performance of the market index ?
requirements for cash balances may exert a drag on overall Bond Index Fund
performance o issuer may be unable to make interest payments or repay principal
on time and the bond could lose all of its value, or be
renegotiated at a lower interest rate or principal amount
o no attempt is made to individually select bonds because the Bond Index
Master Portfolio is managed by determining which securities are to be
purchased or sold to maintain, to the extent feasible, a representative
sample of securities in the LB Bond Index
Risks of investing in the U.S. Treasury Fund
o value of Treasury bonds may fall in response to economic events or trends
o the U.S. Treasury Fund's investment allocation may not perform to expectations
o requirements for cash balances may exert a drag on overall U.S. Treasury Fund performance
Comparison of Advisory and Other Service Arrangements and Fees
The Funds have the same service providers. Upon completion of the
Consolidation, these service providers will continue to serve the Funds in the
capacities indicated below.
U.S. Treasury and Bond Index Funds
Investment Adviser BGFA (to the Master Portfolio)
Distributor Stephens Inc. ("Stephens")
Co-Administrators Stephens, BGI
Custodian Investors Bank & Trust Company ("IBT")
Transfer Agent IBT
Independent Auditors KPMG LLP
Investment Advisory Services. BGFA provides investment advisory
services to both Master Portfolios in which each Fund invests. The maximum
advisory fee payable by each Master Portfolio is a monthly fee at an annual rate
of 0.30% and 0.08% of the U.S. Treasury and Bond Index Master Portfolios'
average daily net assets, respectively. BGFA provides investment guidance and
policy direction in connection with the management of the Master Portfolios'
assets. BGFA is an indirect subsidiary of Barclays Bank PLC and is located at 45
Fremont Street, San Francisco, California 94105. As of December 31, 1998, BGFA
and its affiliates provided investment advisory services for approximately $615
billion of assets.
Administrative Services. Stephens and BGI are the
co-administrators for the Funds. Stephens and BGI provide the Funds with
administrative services, including, among other things, general supervision of
the Funds' non-investment operations, preparation of proxy statements and
shareholder reports and general supervision of data completion in connection
with preparing periodic reports to the Board of Directors and officers of BGI
Funds. Stephens and BGI have agreed to assume all of the ordinary operating
expenses of the Funds (other than investment advisory fees, portfolio
transaction expenses and administrative fees). For these services and the
assumption of expenses, Stephens and BGI are entitled to a monthly fee, in the
aggregate, at the annual rate of 0.40% and 0.15% of the U.S. Treasury and Bond
Index Funds' average daily net assets, respectively.
Distribution and Shareholder Servicing Arrangements. Shares of the
Funds are distributed by Stephens, a full service broker-dealer, pursuant to a
Distribution Agreement. For performing the services contemplated by the
Distribution Agreement, Stephens does not receive compensation so long as it is
entitled to receive compensation for providing co-administration services to the
Funds.
The Directors of BGI Funds also have approved Shareholder
Servicing Plans for the Funds (the "Servicing Plans") pursuant to which they
have entered into Shareholder Servicing Agreements. For these services, the U.S.
Treasury Fund and Bond Index Fund may pay monthly fees equal to 0.20% and 0.07%,
respectively, of the average daily net assets of the Funds 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. (the "NASD") 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.
Comparison of Purchase and Redemption Procedures and Other Considerations
Sales Loads: The shares of the U. S Treasury and Bond Index Funds do not have a
sales load. There are no sales charges on reinvested distributions for either
Fund.
Minimum Investments: Both Funds require a minimum initial
investment amount of $1 million from direct buyers, although the requirement may
be waived under certain circumstances. Both Funds typically waive the minimum in
connection with retirement, benefit and pension plans.
Purchases: Both Funds' shares may be purchased by mail, by wire or
by phone, directly from the Fund, through a brokerage account with an approved
selling or shareholder servicing agent, through certain retirement, benefit and
pension plans, or through certain packaged investment products. Both Funds
process requests at net asset value on the same day if the request is proper and
received before 1 p.m. (Pacific Time) on a business day. Shareholder servicing
agents with Approved Bank Accounts may transmit orders for Fund shares on behalf
of qualified buyers through the transfer agent.
Redemptions: Investors may redeem their shares free of charge on
any business day by mail or telephone. Redemption proceeds are calculated at the
next determined net asset value after a proper request is received, and are
remitted generally within seven days. Benefit, pension, retirement and similar
plan investors usually have separate established withdrawal procedures. Proceeds
may sent by check or credited to a designated account for certain investors.
Exchanges: 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 BGI Funds at 1-888-204-3956. 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.
Dividends: Both Funds pay monthly dividends from net investment
income and distribute capital gains, if any, at least annually. Each Fund allows
shareholders to reinvest the dividends in the Fund or receive cash payments.
Portfolio Management: Unlike traditional actively managed
investment funds, there is no single portfolio manager who makes investment
decisions for the Funds. Instead, the Bond Index Fund tracks the LB Bond Index,
and a team of investment professionals evaluate recommendations made by BGFA's
mathematical models for the U.S. Treasury Fund.
Comparison of Performance
Total returns
The bar chart and tables in this section provide some indication
of the risks of investing in the Bond Index Fund as compared with investing in
the U.S. Treasury Fund 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 total return tables compare each Fund's
average annual total return with the return of a broad-based index for one and
five years, as well as since inception. How the Funds have performed in the past
is not necessarily an indication of how the Funds will perform in the future.
[CHART]
<PAGE>
US Treasury Allocation Fund*/Bond Index Fund**
Year-By-Year Returns
* The U.S. Treasury Fund's year-to-date return as of June 30, 1999 was -0.36%.
** The Bond Index Fund's year-to-date return as of June 30, 1999 was -2.80%.
The highest quarterly return for the U.S. Treasury Fund since inception is 5.11%
(2nd Q, 1995) and the lowest is -4.63% (1st Q, 1994).
The highest quarterly return for the Bond Index Fund since inception is 6.50%
(2nd Q, 1995) and the lowest is -2.87% (1st Q, 1994).
<PAGE>
Average Annual Total Returns
(as of December 31, 1998)
------------ ---------- ---------------------
One Five Since inception
year years (July 2, 1993*)
- ------------------------------------------------------------------ ------------ ---------- ---------------------
- ------------------------------------------------------------------ ------------ ---------- ---------------------
U.S. Treasury Allocation Fund 6.05% 5.04% 5.51%
- ------------------------------------------------------------------ ------------ ---------- ---------------------
- ------------------------------------------------------------------ ------------ ---------- ---------------------
Lehman Brothers U.S. Government/Corporate Bond 8.49% 6.45% 6.28%
Intermediate Index*
- ------------------------------------------------------------------ ------------ ---------- ---------------------
- ------------------------------------------------------------------ ------------ ---------- ---------------------
Bond Index Fund 9.34% 6.98% 6.77%
- ------------------------------------------------------------------ ------------ ---------- ---------------------
- ------------------------------------------------------------------ ------------ ---------- ---------------------
Lehman Brothers Government/Corporate 9.47% 7.30% 7.19%
Bond Index*
- ------------------------------------------------------------------ ------------ ---------- ---------------------
* Calculated from June 30, 1993.
Additional information regarding the performance of the Bond Index
Fund is contained in Exhibit B to this Combined Prospectus/Proxy Statement.
- --------------------------------------------------------------------------------------------------------------
Portfolio Diversification as of June 30, 1999:
- ------------------------------------------------------- ------------------------------------------------------
U.S. Treasury Fund Bond Index Fund
- ------------------------------------------------------- ------------------------------------------------------
- ------------------------------------------------------- ------------------------------------------------------
U.S. Treasury Bonds 19% U.S. Treasury Bonds 16%
U.S. Treasury Notes 78% U.S. Treasury Notes 34%
U.S. Government Agencies 0% U.S. Government Agencies 14%
Corporate Bonds 0% Corporate Bonds 31%
Foreign Issuer Bonds 0% Foreign Issuer Bonds 2%
Cash 3% Cash 3%
- ------------------------------------------------------- ------------------------------------------------------
A Discussion of Principal Risk Factors
In addition to the general risks of investing in the Funds, which
are described above, the Funds have similar 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.
II. DESCRIPTION OF THE AGREEMENT AND PLAN OF CONSOLIDATION
The Plan provides that all of the assets of the U.S. Treasury Fund
as of the Closing Date will be transferred to the Bond Index Fund, and that the
Bond Index Fund will assume all of the liabilities of the U.S. Treasury Fund, in
exchange for shares of the Bond Index Fund. The "Closing Date" is expected to be
on or about October 29, 1999. A copy of the Plan is attached as Exhibit A to
this Combined Prospectus/Proxy Statement.
Promptly after the Closing Date, the U.S. Treasury Fund will
distribute the shares of the Bond Index Fund received to the U.S. Treasury
Fund's shareholders of record as of the close of business on the Closing Date.
The shares of the Bond Index Fund that will be issued for distribution to the
U.S. Treasury Fund's shareholders will be equal in value to the shares of the
U.S. Treasury Fund held as of the Closing Date. BGI Funds will then take all
necessary steps to terminate the qualification, registration and classification
of the U.S. Treasury Fund. All issued and outstanding shares of the U.S.
Treasury Fund will be cancelled on the U.S. Treasury Fund's books. Shares of the
Bond Index Fund will be represented only by book entries; no share certificates
will be issued unless expressly requested in writing. Certificates are not
issued for fractional shares. All remaining organizational expenses of the U.S.
Treasury Fund will be offset against the original shares of such Fund prior to
consolidation.
The consummation of the proposed Consolidation is subject to the
satisfaction of a number of conditions set forth in the Plan, including approval
by the shareholders of the U.S. Treasury Fund. The U.S. Treasury Fund may waive
certain conditions at any time before or after approval of the Plan by the
shareholders. The Plan also may be terminated and the Consolidation abandoned at
any time by BGI Funds if any of the conditions precedent to the Closing are not
satisfied.
Shareholders of the U.S. Treasury Fund will have no dissenters'
rights or appraisal rights. All shareholders of the U.S. Treasury Fund as of the
Closing Date, including those that vote against the approval of the Plan and
those that do not vote, will receive shares of the Bond Index Fund if the
Consolidation is approved. All shareholders of the U.S. Treasury Fund have the
right at any time up to the business day preceding the Closing Date to redeem
their shares at net asset value according to the procedures set forth in the
U.S. Treasury Fund's Prospectus. In addition, up until the business day
preceding the Closing Date, shareholders of the U.S. Treasury Fund may exchange
their shares for shares of other funds in the BGI Funds Family of Funds, in
accordance with the exchange privilege described in the U.S. Treasury Fund's
Prospectus.
Reasons for the Consolidation and Board Consideration
The business and affairs of BGI Funds are managed under the
direction of its Board of Directors. The Board unanimously voted to approve the
Agreement and Plan of Consolidation at a meeting held on April 28, 1999. In
considering the proposed Consolidation, the Board members were advised by Fund
counsel and counsel to the disinterested directors, as defined under Section
2(a)(19) of the Investment Company Act of 1940 (the "1940 Act"), as to their
fiduciary duties under 1940 Act. Specifically, the Board members were advised
that, pursuant to Rule 17a-8 under the 1940 Act, they would have to determine
that the proposed transaction is in the "best interests" of each Fund's
shareholders and that the interests of existing shareholders "will not be
diluted as a result of its effecting the transaction."
After considering various alternatives and relevant factors, the
Board, including a majority of the disinterested directors, found, on behalf of
the U.S. Treasury Fund, that participation in the Consolidation, as contemplated
by the Plan, is in the best interests of the U.S. Treasury Fund and its
shareholders and that the interests of the existing shareholders will not be
diluted as a result of the Consolidation. They made similar findings on behalf
of the Bond Index Fund.
Alternatives Considered by the Board of Directors. During its
deliberations, the Board considered three alternatives to the proposed
Consolidation: (1) continuing the U.S. Treasury Fund in its present form; (2)
merging the U.S. Treasury Fund into a different fund of BGI Funds; and (3)
liquidating the U.S. Treasury Fund. The Board determined that the first
alternative, continuing the U.S. Treasury Fund, was not a viable option because
of the relatively small size of the U.S. Treasury Fund and because it has
experienced net redemptions with little or no expectation of a material addition
of assets in the near future, and also because it is being dropped by its most
significant plan sponsor as an investment option. The Board dismissed the second
alternative after determining that no other BGI Fund resembles the U.S. Treasury
Fund as closely as the Bond Index Fund. The Board acknowledged that the third
alternative, liquidation of the U.S. Treasury Fund, was a feasible alternative
to the Consolidation. However, based on the factors discussed below, the Board
concluded that, on balance, the Consolidation was a preferable alternative that
would better serve shareholder interests.
Factors Considered by the Board of Directors. As is discussed in
greater detail below, the Board reviewed: (1) the future viability of the U.S.
Treasury Fund; (2) the investment objective, policies, restrictions and risks of
the U.S. Treasury Fund, their compatibility with those of the Bond Index Fund
and the relative performance of the Funds; (3) the terms and conditions of the
Consolidation, including those provisions that were intended to avoid dilution
of shareholder interests; (4) the anticipated tax consequences of the
Consolidation for the U.S. Treasury Fund and its shareholders; (5) the
investment advisory and other fees paid by the Bond Index Fund and the
historical and projected expense ratios of the Bond Index Fund as compared with
those of the U.S. Treasury Fund, as well as the expected cost savings for
shareholders of the U.S. Treasury Fund as a result of the Consolidation; and (6)
the potential marketing and shareholder benefits obtained by having a combined
fund. The Board also considered the relevant corresponding factors on behalf of
the Bond Index Fund.
(1) Future Viability of the U.S. Treasury Fund
As noted above, the U.S. Treasury Fund is of a relatively small
size. As of June 30, 1999, the U.S. Treasury Fund had approximately $33 million
in net assets as compared to the Bond Index Fund that had approximately $117
million in net assets. The U.S. Treasury Fund has experienced net redemptions
with little or no expectation of a material addition of assets in the near
future. Therefore, the Board determined that the U.S. Treasury Fund's continued
viability was in jeopardy.
In comparing the possible liquidation of the U.S. Treasury Fund
with the Consolidation, the Board noted that the Consolidation would trigger
some repositioning of the U.S. Treasury Fund's portfolio through the sale of
U.S. Treasury securities and the purchase of other fixed-income securities. A
liquidation, of course, would involve the sale of 100% of the assets held by the
U.S.
Treasury Fund.
In addition, implicit in the Board's approval of the Consolidation
was the fact that shareholders of the U.S. Treasury Fund had determined to
invest in the U.S. Treasury Fund so that BGFA, the Funds' investment adviser,
would manage fixed income holdings for them. The Consolidation would permit such
shareholders to remain so invested. The Board also noted that, if the U.S.
Treasury Fund was liquidated, shareholders desiring to reestablish similar
exposure to U.S. Treasury securities in a different fund, would, in all
likelihood, have incurred various costs, perhaps even front-end sales loads. The
Board determined that even with the costs of repositioning, it was in the best
interests of the U.S. Treasury Fund shareholders to have the U.S. Treasury Fund
consolidate into a somewhat similar investment product that would minimize
disruption to their investment and be consistent with their desire to have BGFA
manage fixed income assets for them. The Consolidation is, of course, subject to
U.S. Treasury Fund shareholder approval and shareholders are, of course, free to
redeem their shares up to the time of (and indeed any time after) the
Consolidation, without paying any redemption fee or deferred sales charge.
(2) Compatibility of Objectives, Policies, Restrictions and Risks of the Funds
The Board considered that the investment objectives, policies and
restrictions of the Funds are somewhat similar. The U.S. Treasury Fund seeks to
provide a high level of long-term total return, consisting of capital
appreciation and current income, consistent with a reasonable level of risk,
before fees and expenses. The Bond Index Fund seeks to approximate as closely as
practicable, before fees and expenses, the total rate of return of the U.S.
market for issued and outstanding U.S. government and investment-grade corporate
bonds as measured by the LB Bond Index. The U.S. Treasury Fund invests at least
65% of its total assets in U.S. Treasury securities. The Bond Index Fund has a
policy of investing at least 65% of its total assets in bonds and debentures,
and holds substantial Treasury securities. As of June 30, 1999, the Bond Index
Fund held 50% of its total assets in U.S. Treasury securities (other holdings
include government and corporate debt, debt of U.S. government agencies and a
small amount of foreign bonds). In addition, the Board, on behalf of the Bond
Index Fund shareholders, considered the positive impact of the Consolidation on
its shareholders through strengthening the long-term viability of a combined
fund.
When evaluating the risks of the U.S. Treasury Fund as compared to
the Bond Index Fund, the Board determined that the Consolidation would subject
U.S. Treasury Fund shareholders to a greater degree of credit risk. The Bond
Index Fund invests a portion of its assets in corporate debt obligations. This
additional incremental credit risk, however, is mitigated by the Bond Index
Fund's stated policy of purchasing only investment-grade bonds and past practice
of significant exposure to government securities. The Board also considered that
income from corporate debt obligations of the Bond Index Fund, unlike income
from Treasury securities, may be subject to state and local taxes. As of June
30, 1999, the Bond Index Fund held 31% of its total assets in corporate
instruments.
(3) Terms and Conditions of the Consolidation
The Plan provides that all of the cash, investments and other
assets of the U.S. Treasury Fund will be acquired by the Bond Index Fund in
exchange for shares of the Bond Index Fund and the assumption by the Bond Index
Fund of the liabilities of the U.S. Treasury Fund. At the closing, the Bond
Index Fund will deliver to the U.S. Treasury Fund Bond Index Fund shares having
an aggregate net asset value equal to the value of the aggregate net assets of
the U.S. Treasury Fund. Following the delivery of the Bond Index Fund's shares
to the U.S. Treasury Fund, the Bond Index Fund's shares will be distributed to
the shareholders of the U.S. Treasury Fund pro rata in proportion to the number
of U.S. Treasury Fund shares owned on the closing date and the U.S. Treasury
Fund will be liquidated and dissolved.
The terms and conditions of the Consolidation were considered by
the Board on behalf of each Fund. The Board also considered that BGI would pay
the expenses of the Consolidation out of its portion of the co-administration
fees paid by the U.S. Treasury Fund, and that shareholders of the Fund would not
incur any additional costs as a result of the consolidation. The Board concluded
that U.S. Treasury Fund shareholders would receive equal value in shares of the
Bond Index Fund for their shares of the U.S.
Treasury Fund and that no dilution would occur as a result of the Consolidation.
(4) Tax Considerations
The Consolidation will not qualify as a "reorganization," within
the meaning of Section 368(a) of the Code, and the Funds will each not be a
"party to a reorganization," within the meaning of Section 368(b) of the Code,
with respect to the Consolidation.
It is very important to note, as did the Board, that the U.S.
Treasury Fund is sold almost exclusively through retirement plan sponsors to
retirement plan investors, and that almost all of the shares issued by the U.S.
Treasury Fund are held in tax-deferred retirement accounts. The Board also noted
that, unlike some equity funds that have substantial unrealized appreciation,
the U.S. Treasury Fund has little or no unrealized appreciation. The tax
consequences of the Consolidation are, therefore, minimal.
(5) Expense Ratios and Expense Savings
The Board considered that the investment advisory and other fees
paid by the Bond Index Fund, as well as the historical and projected expense
ratios of the Bond Index Fund, are less than half of those of the U.S. Treasury
Fund. Specifically, the U.S. Treasury Fund charges a management fee of 30 basis
points, as well as another 40 basis points for other expenses. The Board
compared this with the Bond Index Fund's management fee of 8 basis points and
the 15 basis points charged for other expenses.
The Board considered that shareholders of the U.S. Treasury Fund
would benefit from the Bond Index Fund's significantly lower total expense
ratio. The Board also determined that there would not be a significant
difference between the cost of a consolidation or a liquidation, since either
transaction would require a proxy statement.
(6) Potential Marketing and Shareholder Benefits
The Board also considered the marketing and shareholder benefits
likely to accrue to shareholders of the combined fund. Specifically, the Board
determined that, due to the greater interest expressed by plan sponsors and
shareholders for the Bond Index Fund as compared with the U.S. Treasury Fund,
the combined Bond Index Fund would benefit from a greater potential for
increased asset levels. The Board also considered that shareholders of the U.S.
Treasury Fund will have access to the same features and service providers after
the Consolidation as a shareholder of the Bond Index Fund.
Based upon their evaluation of these factors, and in light of
their fiduciary duties under federal and state law, the Boards have determined
that the proposed Consolidation is in the best interests of the shareholders of
the respective Funds and that the interests of the shareholders of the
respective Funds will not be diluted as a result of the Consolidation.
BGI Funds' Board of Directors unanimously recommends that
shareholders vote FOR the Plan of Consolidation.
Material Federal Income Tax Consequences
The applicants intend that the Consolidation will not qualify as a
"reorganization," within the meaning of Section 368(a) of the Code, and that the
U.S. Treasury Fund and the Bond Index Fund will each not be a "party to a
reorganization," within the meaning of Section 368(b) of the Code, with respect
to the Consolidation. Accordingly, the Consolidation is expected to be a taxable
event to the U.S. Treasury Fund and its shareholders with the exception of
shareholders who hold shares in a tax deferred account. Effectively, for federal
income tax purposes, the Consolidation will resemble a transaction in which a
shareholder in the U.S. Treasury Fund sold his or her shares and purchased new
shares in the Bond Index Fund.
In anticipation of the Consolidation, the U.S. Treasury Fund expects
to sell a substantial portion of its portfolio securities prior to the Closing.
The proceeds of such sales will be held in temporary investments or reinvested
in assets that qualify to be held by the Bond Index Fund. The gain from such
sales, if any, will be distributed to the U.S. Treasury Fund's shareholders, and
will be taxable to shareholders whose shares are held in taxable (i.e.,
non-retirement) accounts. In addition, shareholders of the U.S. Treasury Fund
whose shares are held in taxable accounts generally will recognize a gain or
loss, for federal income tax purposes, on the difference between the fair market
value of the Bond Index Fund shares, as of the closing, received in the
Consolidation and their federal income tax basis in their shares of the U.S.
Treasury Fund. The federal income tax basis in shares of the Bond Index Fund
received in the exchange by all U.S. Treasury Fund shareholders will be the fair
market value of those shares as of the Closing and the holding period for such
shares will begin the day following the Closing. Consummation of the
Consolidation is subject to the condition that BGI Funds receive an opinion from
Morrison & Foerster LLP substantially to the effect that the Consolidation will
have the foregoing federal income tax consequences.
BGI Funds has not sought a and will not seek ruling from the
Internal Revenue Service ("IRS") regarding the federal income tax consequences
of the Consolidation. The opinion of counsel described above is not binding on
the IRS and does not preclude the IRS from adopting a contrary position.
Shareholders of the U.S. Treasury Fund are urged to consult with their own tax
advisors concerning the potential tax consequences to them of the Consolidation,
including foreign, state and local income tax consequences.
<PAGE>
Capitalization
The following table shows the capitalization of each Fund as of
February 28, 1999, and the pro forma capitalization adjusted to give effect to
the Consolidation:
Bond Index
U.S. Treasury Pro Forma
Fund Bond Index Fund Combined
Net assets $35,338,195 $126,732,838 $162,071,033
Net asset value per share $9.38 $9.73 $9.73
Shares outstanding 3,768,853 13,021,489 16,656,838
Shares authorized 300 million 100 million 400 million
The Bond Index Fund's financial highlights can be found in its
Prospectus, which accompanies and is incorporated by reference into this
Combined Prospectus/Proxy Statement. The Bond Index Fund's financial statements
are incorporated by reference in the Statement of Additional Information to this
Combined Prospectus/Proxy Statement.
III. INFORMATION ABOUT THE FUNDS
Organization of BGI Funds
BGI Funds is registered as open-end management investment companies under the
1940 Act. BGI Funds currently consists of
11 series of shares.
BGI Funds is organized as a Maryland Corporation and is subject to
the provisions of its respective Articles of Incorporation and By-Laws. BGI
Funds was incorporated on October 15, 1992. Shares of each Fund have a par value
of $.001 per share. The Bond Index Fund consists of 500 million shares. Shares
of each Fund are entitled to one vote for each full share held and fractional
votes for fractional shares held, and will vote in the aggregate and not by
portfolio or class except as otherwise required by law. Shares of the Funds have
no preemptive rights and have only such conversion and exchange rights as the
Board of Directors of BGI Funds may grant in its discretion. When issued for
payment as described in their respective prospectuses, each Fund's shares are
fully paid and non-assessable.
Each share of the U.S. Treasury Fund and each share of the Bond
Index Fund represents an equal proportionate interest in the Fund with other
shares of the same class. Each share is entitled to cash dividends and
distributions earned on such shares as may be declared in the discretion of the
Board of Directors. Shares of the Bond Index Fund bear a pro rata portion of all
operating expenses paid by the Fund.
Substantial Shareholders
As of June 30, 1999,* the shareholders identified below were known by BGI Funds
to own 5% or more of the U.S. Treasury
Fund's outstanding shares in the following capacity:
Percentage
Name and Address of Shareholder Type of Ownership of Fund
Merrill Lynch Pierce Fenner & Smith Record 97.49%
Qualified Retirement Plan
265 Davidson Ave., 4th Floor
Somerset, NJ 08873
- ------------- *As of the close of business on June 30, 1999, the officers and
Directors of BGI Funds as a group beneficially owned less than 1% of the
outstanding shares of BGI Funds.
As of June 30, 1999,* the shareholders identified below were known
by BGI Funds to own 5% or more of the Bond Index Fund's outstanding shares in
the following capacity:
Percentage
Name and Address of Shareholder Type of Ownership of Fund
Merrill Lynch Pierce Fenner & Smith TTEE Record 45.99%
Qualified Retirement Plan
265 Davidson Ave., 4th Floor
Somerset, NJ 08873
State Street Bank & Trust Co. TTEE Record 36.49%
FBO American Bar Association Members
State Street Collective Trust
1 Heritage Drive
North Quincy, MA 02171
Wells Fargo Bank FBO Record 11.73%
Business Retirement Programs Omnibus Act
HF HAC 9139-027
P.O. Box 9800
Calabasas, CA 91372
- ------------
*As of the close of business on June 30, 1999, the officers and Directors of BGI
Funds as a group beneficially owned less than 1% of
the outstanding shares of BGI Funds.
Additional Information
BGI Funds is subject to certain informational requirements of the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and the 1940 Act,
and in accordance therewith files reports, proxy materials and other information
with the SEC. Such reports, proxy materials and other information may be
inspected and copied at the public reference facilities of the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549, or at the Northeast Regional Office of the
SEC at 7 World Trade Center, Suite 1300, New York, NY 10048. Copies of such
materials can be obtained from the Public Reference Branch, Office of Consumer
Affairs and Information Services, Securities and Exchange Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates, or on the SEC's
website at www.sec.gov.
IV. VOTING INFORMATION
Approval and Consummation of the Proposed Transaction
Only shareholders of record at the close of business on August 13,
1999, will be entitled to vote at the Special Meeting. On that date, 1,855,499
U.S. Treasury Fund shares were outstanding and entitled to be voted. The date of
the first mailing of this Combined Prospectus/Proxy Statement to shareholders is
approximately September 24, 1999.
Shareholders holding more than one-third of the outstanding shares
of the U.S. Treasury Fund at the close of business on the Record Date will be
deemed sufficient to constitute a quorum for the transaction of business at the
Special Meeting. Pursuant to Maryland law, the affirmative vote of the holders
of a majority of the outstanding voting securities of the U.S. Treasury Fund, is
required for approval of the Plan. If the U.S. Treasury Fund's shareholders do
not approve the proposed Consolidation, BGI Funds' Board of Directors will
consider what other alternatives would be in the shareholders' best interests,
including possibly, approving a Plan of Liquidation.
Any proxy which is properly executed and received in time to be
voted at the Special Meeting will be counted in determining whether a quorum is
present and will be voted in accordance with the instructions marked thereon. In
the absence of any instructions, such proxy will be voted in favor of the Plan.
Any shareholder giving a proxy may revoke it at any time before it is exercised
(i) by submitting to BGI Funds a written notice of revocation, (ii) by
submitting to BGI Funds a subsequently executed proxy, (iii) by attending the
Special Meeting and voting in person or (iv) by toll-free telephone call.
Abstentions and "broker non-votes" (i.e., proxies from brokers or nominees
indicating that such persons have not received instructions from the beneficial
owners or other persons entitled to vote shares as to a particular matter with
respect to which the brokers or nominees do not have discretionary power to
vote) will not be counted for or against any proxy to which they relate, but
will be counted for purposes of determining whether a quorum is present and will
be counted as votes present at the Special Meeting. For this reason, abstentions
and broker non-votes will have the effect of a vote against the proposal.
The duly appointed Proxies may, in their discretion, vote upon such
other matters as properly may come before the Special Meeting or any
adjournment(s) thereof, including any proposal to adjourn a meeting at which a
quorum is present to permit the continued solicitation of proxies in favor of
the Consolidation. Any such adjournment(s) will require the affirmative vote of
a majority of the shares present in person or by proxy at the session of the
Special Meeting to be adjourned. In case any such adjournment is proposed, the
duly appointed Proxies will vote those proxies which they are entitled to vote
for the Plan in favor of adjournment, and will vote those proxies required to be
voted against the Plan against adjournment.
Solicitation of Proxies and Payment of Expenses
It is expected that the solicitation of proxies will be primarily
by mail. Officers and agents of BGI Funds also may solicit proxies by telephone,
telegraph or personal interview. Shareholders may vote by (1) mail, by marking,
signing, dating and returning the enclosed Proxy Ballot in the enclosed
postage-paid envelope; (2) telephone, by calling Shareholder Communications
Corp. ("SCC") toll-free at 1-800-733-8481, Ext. 435 from 6:00 a.m. to 8:00 p.m.
Pacific time; or (3) telefacsimile, by marking, signing, dating and faxing the
enclosed Proxy Ballot to SCC at 1-800-733-1885. SCC has been retained by BGI
Funds to assist in both the tabulation and solicitation of proxy votes for the
Consolidation.
The cost of soliciting proxies for the Special Meeting, consisting
principally of printing and mailing expenses, together with the costs of any
supplementary solicitation and proxy soliciting services provided by third
parties, will be borne by BGI in its capacity as co-administrator. Shareholders
of the U.S. Treasury Fund will not incur any additional expenses as a result of
the Consolidation. Proxies will be solicited in the initial, and any
supplemental, solicitation by mail and may be solicited in person, by telephone,
telegraph, telefacsimile or other electronic means by officers of BGI Funds,
personnel of BGFA or Stephens, or an agent of BGI Funds, such as SCC.
As the Special Meeting date approaches, certain shareholders of
the U.S. Treasury Fund may receive a telephone call from a representative of SCC
if their votes have not yet been received. Authorization to permit SCC to
execute proxies may be obtained by telephonic instructions from shareholders of
the U.S. Treasury Fund. Proxies that are obtained telephonically will be
recorded in accordance with the procedures set forth below. The Directors
believe that these procedures are reasonably designed to ensure that the
identity of the shareholder casting the vote is accurately determined and that
the voting instructions of the shareholder are accurately determined. In all
cases where a telephonic proxy is solicited, the SCC representatives required to
ask for each shareholder's full name, address, social security or employer
identification number, title (if the shareholder is authorized to act on behalf
of an entity, such as a corporation), and the number of shares owned, and to
confirm that the shareholder has received the proxy materials in the mail. If
the information solicited agrees with the information provided to SCC, then the
SCC representative has the responsibility to explain the process, read the
proposal on the proxy card, and ask for the shareholder's instructions on the
proposal.
The SCC representative, although he or she is permitted to answer
questions about the process, is not permitted to recommend to the shareholder
how to vote, other than to read any recommendation set forth in the Proxy
Statement. SCC will record the shareholder's instructions on the card. Within 72
hours, but in any event before the Special Meeting, the shareholder will be sent
a letter or mailgram to confirm his or her vote and asking the shareholder to
call SCC immediately if his or her instructions are not correctly reflected in
the confirmation. If a shareholder wishes to participate in the Special Meeting,
but does not wish to give a proxy by telephone, the shareholder may still submit
the proxy card originally sent with the Proxy Statement or attend in person.
Should shareholders require additional information regarding the proxy or
replacement proxy cards, they may contact SCC toll-free at 1-800-733-8481, Ext.
435. Shareholders may give a proxy by telephone at any time before 8:00 p.m.
Pacific Time on October 27, 1999. Any proxy given by a shareholder, whether in
writing or by telephone, is revocable until voted at the Special Meeting.
MISCELLANEOUS
Other Business
The Board of Directors of BGI Funds knows of no other business to
be brought before the Special Meeting. However, if any other matters come before
the Special Meeting, including any proposal to adjourn the meeting to permit the
continued solicitation of proxies in favor of the Consolidation, it is their
intention that proxies which do not contain specific restrictions to the
contrary will be voted on such matters in accordance with the judgment of the
persons named in the enclosed Proxy Ballot.
Future Shareholder Proposals
Pursuant to rules adopted by the SEC under the 1934 Act, investors
may request inclusion in the Board's proxy statement for shareholder meetings
certain proposals for action which they intend to introduce at such meeting. Any
shareholder proposals must be presented a reasonable time before the proxy
materials for the next meeting are sent to shareholders. The submission of a
proposal does not guarantee its inclusion in BGI Fund's proxy statement and is
subject to limitations under the 1934 Act. Because BGI Funds does not hold
regular meetings of shareholders, no anticipated date of the next meeting can be
provided.
<PAGE>
i
dc-106734v2
dc-179536
dc-179536
EXHIBIT A
FORM OF
AGREEMENT AND
PLAN OF CONSOLIDATION
FOR THE
U.S. TREASURY ALLOCATION FUND
AND THE
BOND INDEX FUND
OF
BARCLAYS GLOBAL INVESTORS FUNDS, INC.
[ ], 1999
<PAGE>
12
dc-179536
This AGREEMENT AND PLAN OF CONSOLIDATION (the "Plan") is made as of
this [___] day of [_______], 1999 by Barclays Global Investors Funds, Inc.
("BGIF"), a Maryland corporation, for itself and on behalf of the U.S. Treasury
Allocation Fund ("Treasury Fund") and the Bond Index Fund (together, the
"Funds"), each a portfolio of BGIF.
WHEREAS, BGIF is an open-end management investment companies registered
with the Securities and Exchange Commission (the "SEC") under the Investment
Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Treasury Fund pursues its investment objective by
investing substantially all of its assets in the U.S. Treasury Master Portfolio
of Master Investment Portfolio ("MIP") and the Bond Index Fund pursues its
investment objective by investing substantially all of its assets in the Bond
Index Master Portfolio of MIP; and
WHEREAS, BGIF desires that the assets and liabilities of the Treasury
Fund as stated herein, be conveyed to and be acquired and assumed by, the Bond
Index Fund, in exchange for shares of equal value of the Bond Index Fund which
shall thereafter promptly be distributed to the shareholders of the Treasury
Fund in connection with its liquidation as described in this Plan (the
"Consolidation"); and
WHEREAS, the parties intend that the Consolidation does not qualify as
a "reorganization," within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), and the Funds will each not be a "party
to a reorganization," within the meaning of Section 368(b) of the Code, with
respect to the Consolidation.
NOW, THEREFORE, in accordance with the terms and conditions described
herein, the Funds shall be consolidated as follows:
1. Conveyance of Assets of Treasury Fund.
(a) At the Effective Time of the Consolidation, as defined in
Section 7, all assets of every kind, and all interests, rights, privileges and
powers of the Treasury Fund, subject to all liabilities of such Fund, whether
accrued, absolute, contingent or otherwise existing as of the Effective Time of
the Consolidation, shall be transferred and conveyed by the Treasury Fund to the
Bond Index Fund (as set forth below) and shall be accepted and assumed by the
Bond Index Fund as more particularly set forth in this Plan, such that at and
after the Effective Time of the Consolidation: (i) all assets of the Treasury
Fund shall become and be the assets of the Bond Index Fund; and (ii) all
liabilities of the Treasury Fund shall attach to the Bond Index Fund as
aforesaid and may thenceforth be enforced against the Bond Index Fund to the
same extent as if incurred by it. Notwithstanding the foregoing, the Treasury
Fund and the Bond Index Fund shall mutually agree upon liabilities (the
"Retained Liabilities") as shall be retained by the Treasury Fund and not
transferred, accepted or assumed by the Bond Index Fund pursuant to this
Subsection 1(a).
(b) At least fifteen (15) business days prior to the Effective
Time of the Consolidation, the Treasury Fund shall provide the Bond Index Fund
with a schedule of its securities and other assets and its known liabilities
(the "Asset List"). The Bond Index Fund will simultaneously provide the Treasury
Fund with a copy of the current investment objective and policies applicable to
the Bond Index Fund. The Treasury Fund reserves the right to sell any of the
securities or other assets shown on the list Assets List of the Treasury Fund
prior to the Effective Time of the Consolidation but will not, without the prior
approval of the Bond Index Fund, acquire any additional securities other than
securities which the Bond Index Fund is permitted to purchase in accordance with
its stated investment objective and policies. At least ten (10) business days
prior to the Effective Time of the Consolidation, the Bond Index Fund will
advise the Treasury Fund of any investments of the Treasury Fund shown on the
Assets List which the Bond Index Fund would not be permitted to hold, pursuant
to its stated investment objective and policies or otherwise. In the event that
the Treasury Fund holds any investments that the Bond Index Fund would not be
permitted to hold under its stated investment objective or policies, the
Treasury Fund, if requested by the Bond Index Fund, will dispose of such
securities prior to the Effective Time of the Consolidation to the extent
practicable. In addition, if it is determined that the portfolios of the
Treasury Fund and the Bond Index Fund, when aggregated, would contain
investments exceeding certain percentage limitations to which the Bond Index
Fund is or will be subject with respect to such investments, the Treasury Fund,
if requested by the Bond Index Fund, will dispose of and/or reinvest a
sufficient amount of such investments as may be necessary to avoid violating
such limitations as of the Effective Time of the Consolidation.
(c) The Treasury Fund will endeavor to discharge all of its
known liabilities and obligations prior to the targeted closing date of the
Consolidation, on or about October 29, 1999 (the "Closing Date").
(d) Without limiting the generality of the foregoing, it is
understood that the Treasury Fund assets shall include all property and assets
of any nature whatsoever, including, without limitation, all cash, cash
equivalents, securities, claims (whether absolute or contingent, known or
unknown, accrued or unaccrued) and receivables (including dividend and interest
receivables) owned by the Treasury Fund, and any deferred or prepaid expenses
shown as an asset on the Treasury Fund's books, at the Effective Time of the
Consolidation, and all goodwill, all other intangible property and all books and
records belonging to the Treasury Fund.
(e) The Treasury Fund assets shall be transferred and conveyed
to the Bond Index Fund, as set forth below:
(1) In exchange for the transfer of the Treasury Fund
assets, the Bond Index Fund shall simultaneously issue to the Treasury
Fund at the Effective Time of the Consolidation full and fractional
shares of Common Stock in the Bond Index Fund having an aggregate net
asset value equal to the net value of the Treasury Fund assets so
conveyed, all determined and adjusted as provided in this Section 1. In
particular, the Bond Index Fund shall deliver to the Treasury Fund the
number of shares, including fractional shares, determined by dividing
the value of the assets of the Treasury Fund that are so conveyed and
are attributable to the Bond Index Fund's shares, computed in the
manner and as of the time and date set forth in this Section, by the
net asset value of one Bond Index Fund share that is to be delivered
with respect thereto, computed in the manner and as of the time and
date set forth in this Section.
(2) The net asset value of shares to be delivered by the
Bond Index Fund, and the net value of the Treasury Fund assets minus
liabilities to be conveyed by the Treasury Fund, shall, in each case,
be determined as of the Valuation Time specified in Section 3. The net
asset value of shares of the Bond Index Fund shall be computed in the
manner set forth in the Bond Index Fund's then current prospectus under
the Securities Act of 1933, as amended (the "1933 Act"). In determining
the value of the securities transferred by the Treasury Fund to the
Bond Index Fund, each security shall be priced in accordance with the
pricing policies and procedures of the Bond Index Fund as described in
its then current prospectus.
2. Liquidation of Treasury Fund. At the Effective Time of the
Consolidation, the Treasury Fund shall make a liquidating distribution to its
shareholders as follows: Shareholders of record of the Treasury Fund shall be
credited with full and fractional shares of common stock that is issued by the
Bond Index Fund in connection with the Consolidation with respect to the shares
that are held of record by the shareholder. In addition, each shareholder of
record of the Treasury Fund shall have the right to receive any unpaid dividends
or other distributions which were declared before the Effective Time of the
Consolidation with respect to the shares of the Treasury Fund that are held by
the shareholder at the Effective Time of the Consolidation. BGIF shall record on
its books the ownership of the respective Bond Index Fund shares by the
shareholders of record of the Treasury Fund (the "Transferor Record Holders").
All of the issued and outstanding shares of the Treasury Fund at the Effective
Time of the Consolidation shall be redeemed and canceled on the books of BGIF at
such time. After the Effective Time of the Consolidation, BGIF shall wind up the
affairs of the Treasury Fund and shall file any final regulatory reports,
including but not limited to any Form N-SAR and Rule 24f-2 filings with respect
to the Treasury Fund, and also shall take all other steps as are necessary and
proper to effect the termination or declassification of the Treasury Fund in
accordance with the laws of the State of Maryland and other applicable
requirements. In conjunction with the foregoing, the Treasury Fund, prior to the
winding up of its affairs, shall utilize any Cash Transfer made pursuant to
Subsection 1(e)(1) to repay any and all Retained Liabilities.
3. Valuation Time. The Valuation Time for the Treasury Fund and the
Bond Index Fund shall be a mutually agreed upon time on [___________], or such
earlier or later date as may be determined by BGIF's duly authorized officers.
4. Certain Representations, Warranties and Agreements of BGIF. BGIF,
for itself and, where appropriate, on behalf of the Funds, represents and
warrants to the following, such representations, warranties and agreements being
made on behalf of each Fund on a several (and not joint, or joint and several)
basis:
(a) BGIF is a Maryland corporation duly created pursuant to
its Articles of Incorporation for the purpose of acting as
a management investment company under the 1940 Act, and is
validly existing under the laws of the State of Maryland.
BGIF is registered as an open-end management investment
company under the 1940 Act and its registration with the
SEC as an investment company is in full force and effect.
(b) BGIF has the power to own all of its properties and assets
and to consummate the transactions contemplated herein,
and has all necessary federal, state and local
authorizations to carry on its business as now being
conducted and to consummate the transactions contemplated
by this Plan.
(c) The execution and delivery of the Plan have been duly
authorized by the Board of Directors of BGIF, and executed
and delivered by the duly authorized officers of BGIF, and
represents a valid and binding contract, enforceable in
accordance with its terms, subject as to enforcement to
bankruptcy, insolvency, reorganization, arrangement,
moratorium and other similar laws of general applicability
relating to or affecting creditors' rights and to general
equity principles. The execution and delivery of this Plan
does not, and the consummation of the transactions
contemplated by this Plan will not, violate BGIF'S Restated
Articles of Incorporation or By-Laws or any material
agreement, obligation, decree or arrangement to which it is
a party or by which it is bound. No other action by BGIF is
necessary to authorize its officers to effectuate this Plan
and the transactions contemplated herein.
(d) BGIF has qualified, and will continue to qualify, as a
regulated investment company under Part I of Subchapter M
of the Code, and with respect to the Funds as operating
prior to the Effective Time of the Consolidation, has
elected to qualify and has qualified as a regulated
investment company under Part I of Subchapter M of
Subtitle A, Chapter 1, of the Code, as of and since its
first taxable year; has been a regulated investment
company under such Part of the Code at all times since the
end of its first taxable year when it so qualified; and
qualifies and shall continue to qualify as a regulated
investment company for its current taxable year.
(e) BGIF has valued, and will continue to value, its portfolio
securities and other assets in accordance with applicable
legal requirements.
(f) The Form N-14 Registration Statement and the Consolidation
Proxy Materials, from their effective and clearance dates
with the SEC, through the time of the shareholders meeting
referred to in Section 7 and at the Effective Time of the
Consolidation, insofar as they relate to BGIF (i) shall
comply in all material respects with the provisions of the
1933 Act, the Exchange Act of 1934 and the 1940 Act, the
rules and regulations thereunder, and state securities
laws, and (ii) shall not contain any untrue statement of a
material fact or omit to state a material fact required to
be stated therein or necessary to make the statements made
therein not misleading.
(g) The shares of the Bond Index Fund to be issued and
delivered to the Treasury Fund for the account of the
shareholders of the Treasury Fund, pursuant to the terms
hereof, shall have been duly authorized as of the
Effective Time of the Consolidation and, when so issued
and delivered, shall be duly and validly issued, fully
paid and non-assessable, and no shareholder of the Bond
Index Fund shall have any preemptive right of subscription
or purchase in respect thereto.
(h) All of the issued and outstanding shares of the Bond Index
Fund have been validly issued and are fully paid and
non-assessable, and were offered for sale and sold in
conformity with the registration requirements of all
applicable federal and state securities laws.
(i) BGIF shall operate its business in the ordinary course
between the date hereof and the Effective Time of the
Consolidation. It is understood that such ordinary course
of business will include the declaration and payment of
customary dividends and distributions and any other
dividends and distributions deemed advisable.
Notwithstanding anything herein to the contrary, BGIF may
take all appropriate action necessary in order for BGIF to
receive the opinion provided for in Sections 8(b).
(j) At the Effective Time of the Consolidation, the Treasury
Fund will have good and marketable title to its assets and
full right, power and authority to assign, deliver and
otherwise transfer such assets.
5. Shareholder Action. As soon as practicable after the effective date
of the N-14 Registration Statement and SEC clearance of the proxy solicitation
materials referred to in Section 7, but in any event prior to the Effective Time
of the Consolidation and as a condition thereto, the Board of Directors of BGIF
shall call, and BGIF shall hold, meeting(s) of the shareholders of the Treasury
Fund for the purpose of considering and voting upon:
(a) approval of this Plan and the transactions contemplated hereby; and
(b) such other matters as may be determined by the Board of
Directors of BGIF.
6. Regulatory Filings. BGIF shall file a post-effective amendment (the
"N-1A Post-Effective Amendment") to its registration statement on Form N-1A
(File Nos. 33-54126; 811-7332) with the SEC, and the appropriate state
securities commissions, as promptly as practicable so that the shares of the
Bond Index Fund required to complete the Consolidation are registered under the
1933 Act, 1940 Act and applicable state securities laws. In addition, BGIF shall
file an N-14 Registration Statement, which shall include the Consolidation Proxy
Materials, with the SEC, and with the appropriate state securities commissions,
in connection with the Treasury Fund shareholder approval referenced in Section
5 as promptly as practicable.
7. Effective Time of the Consolidation. Delivery of the Treasury Fund
assets and the shares of the Bond Index Fund to be issued pursuant to Section 1
and the liquidation of the Treasury Fund pursuant to Section 2 shall occur on
the day following the Valuation Time, whether or not such day is a business day,
or on such other date, and at such place and time and date, as may be agreed to
by each of the parties. The date and time at which such actions are taken are
referred to herein as the "Effective Time of the Consolidation." To the extent
any Treasury Fund assets are, for any reason, not transferred at the Effective
Time of the Consolidation, BGIF shall cause such Treasury Fund assets to be
transferred in accordance with this Plan at the earliest practicable date
thereafter.
8. Conditions to BGIF's Obligations. The obligations of BGIF hereunder
shall be subject to the following conditions precedent:
(a) BGIF shall have received a certificate executed in its
name by its President or Vice President and its Treasurer
or Assistant Treasurer, dated as of the Effective Time of
the Consolidation, to the effect that its representations
and warranties made in this Plan are true and correct at
and as of the Effective Time of the Consolidation, except
as they may be affected by the transactions contemplated
by this Plan.
(b) BGIF shall have received an opinion of Morrison & Foerster
LLP, counsel to BGIF, in form reasonably satisfactory to
BGIF and dated the Effective Time of the Consolidation,
substantially to the effect that (i) BGIF is a Maryland
corporation duly established and validly existing under the
laws of the State of Maryland; (ii) this Plan has been duly
authorized, executed and delivered by BGIF; (iii) the
execution and delivery of this Plan did not, and the
consummation of the transactions contemplated by this Plan
will not, violate the Restated Articles of Incorporation or
By-Laws of BGIF or any material contract known to such
counsel to which BGIF is a party or by which it is bound.
Such opinion may rely on the opinion of other counsel to the
extent set forth in such opinion, provided such other
counsel is reasonably acceptable to BGIF; (iv) the shares of
the Bond Index Fund to be delivered to the Treasury Fund as
provided for by this Plan are duly authorized and upon
delivery will be validly issued, fully paid and
non-assessible by BGIF; and (v) no consent, approval,
authorization, or order of any court or governmental
authority is required for the consummation by BGIF of the
transaction contemplated by this Plan, except such as have
been obtained under the 1933 Act, the 1934 Act, the 1940
Act, the rules and regulations under those Acts and such as
may be required by state securities laws or such as may be
required subsequent to the Effective Time of the
Consolidation. Such opinion may rely on the opinion of other
counsel to the extent set forth in such opinion, provided
such other counsel is reasonably acceptable to BGIF.
(c) The Treasury Fund assets to be transferred to the Bond
Index Fund under this Plan shall include no assets which
the Bond Index Fund may not properly acquire pursuant to
its investment limitations or objectives or may not
otherwise lawfully acquire.
(d) The Board of Directors of BGIF, including a majority of
the "non-interested" Directors shall have determined that
the Consolidation is in the best interest of each Fund and
that the shares of existing shareholders of each Fund
would not be diluted as a result of the Consolidation.
(e) The N-1A Post-Effective Amendment and the N-14
Registration Statement shall have become effective under
the 1933 Act and no stop order suspending such
effectiveness shall have been instituted or, to the
knowledge of BGIF, contemplated by the SEC and the parties
shall have received all permits and other authorizations
necessary under state securities laws to consummate the
transactions contemplated by this Plan.
(f) No action, suit or other proceeding shall be threatened or
pending before any court or governmental agency in which
it is sought to restrain or prohibit or obtain damages or
other relief in connection with this Plan or the
transactions contemplated herein.
(g) Prior to the Valuation Time, the Treasury Fund shall have
declared a dividend or dividends, with a record date and
ex-dividend date prior to the Valuation Time, which,
together with all previous dividends, shall have the
effect of distributing to its shareholders all of its net
investment company taxable income, if any, for the taxable
periods or years ending [_____________] and for the
taxable periods from said date to and including the
Effective Time of the Consolidation (computed without
regard to any deduction for dividends paid), and all of
its net capital gain, if any, realized in taxable periods
or years ending [____________], and in the taxable periods
from said date to and including the Effective Time of the
Consolidation.
(h) BGIF shall have performed and complied in all material
respects with each of its agreements and covenants
required by this Plan to be performed or complied with by
it prior to or at the Valuation Time and the Effective
Time of the Consolidation.
(i) BGIF shall have received a duly executed instrument
whereby the Bond Index Fund assumes all of the liabilities
of the Treasury Fund (except in respect of the Retained
Liabilities to be retained by the Treasury Fund and not
transferred, accepted or assumed by the Bond Index Fund
pursuant to Subsection 1(a)).
(j) BGIF shall have received a letter from KPMG LLP addressed to
BGIF and MIP in a form reasonably satisfactory to them, and
dated the Effective Time of the Consolidation, to the effect
that on the basis of limited procedures agreed to by BGIF
and described in such letter (but not an examination in
accordance with generally accepted auditing standards): (i)
the data used in the pro forma adjustment and calculation of
the current and pro forma expense ratios of the Funds
appearing in the N-14 Registration Statement and
Consolidation Proxy Materials agree with underlying
accounting records of the BGIF Fund or to written estimates
provided by officers of BGIF having responsibility for
financial and reporting matters and were found to be
mathematically correct, and (ii) the calculation of the net
value of the Treasury Fund assets and the net asset value of
the Bond Index Fund shares, in each case as of the Valuation
Time, was determined in accordance with the pricing policies
and procedures of BGIF as described in its then current
prospectus.
9. Further Assurances. Subject to the terms and conditions herein
provided, BGIF shall use its best efforts to take, or cause to be taken, such
action, to execute and deliver, or cause to be executed and delivered, such
additional documents and instruments and to do, or cause to be done, all things
necessary, proper or advisable under the provisions of this Plan and under
applicable law to consummate and make effective the transactions contemplated by
this Plan, including without limitation, delivering and/or causing to be
delivered each of the items required under this Plan as a condition to such
obligations hereunder.
10. Survival of Representations and Warranties. The representations and
warranties of BGIF set forth in this Plan shall survive the delivery of the
Treasury Fund assets to the Bond Index Fund and the issuance of the shares of
the Bond Index Fund at the Effective Time of the Consolidation.
11. Termination of Plan. This Plan may be terminated by BGIF at, or at
any time prior to, the Effective Time of the Consolidation, by a majority vote
of its Board of Directors/Trustees if the conditions set forth in Section 8 are
not satisfied as specified in said section.
12. Governing Law. This Plan and the transactions contemplated hereby
shall be governed, construed and enforced in accordance with the laws of the
State of Maryland.
13. Brokerage Fees and Expenses
(a) BGIF, for itself and on behalf of the Funds, represents and
warrants that there are no brokers or finders entitled to receive any payments
in connection with the transactions provided for herein.
(b) Except as may be otherwise provided herein, the Treasury
Fund shall be liable for its expenses incurred in connection with entering into
and carrying out the provisions of this Plan, whether or not the transactions
contemplated hereby are consummated. The expenses payable by the Treasury Fund
hereunder are not limited to, but shall include (i) fees and expenses of its
counsel and independent auditors incurred in connection with the Consolidation;
(ii) expenses associated with printing and mailing the Prospectus/Proxy
Statement and soliciting proxies in connection with the meeting of shareholders
of the Treasury Fund; (iii) all fees and expenses related to the liquidation of
the Treasury Fund; (iv) fees and expenses of the Treasury Fund's custodian and
transfer agent(s) incurred in connection with the Consolidation; and (v) any
special pricing fees associated with the valuation of the Treasury Fund's
portfolio on the Applicable Valuation Date. The expenses payable by the Bond
Index Fund hereunder shall include (i) fees and expenses of its counsel and
independent auditors incurred in connection with the Consolidation; (ii)
expenses associated with preparing this Agreement and preparing and filing the
Registration Statement under the 1933 Act covering the Bond Index Fund Shares to
be issued in the Consolidation; (iii) registration or qualification fees and
expenses of preparing and filing such forms, if any, as are necessary under
applicable state securities laws to qualify the Bond Index Fund shares to be
issued in connection with the Consolidation; (iv) any fees and expenses of the
Bond Index Fund's custodian and transfer agent(s) incurred in connection with
the Consolidation; and (v) any special pricing fees associated with the
valuation of the Bond Index Fund's portfolio on the applicable Valuation Date.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their duly authorized officers designated below as of the date
first written above.
BARCLAYS GLOBAL INVESTORS
FUNDS, INC., on behalf of the
U.S. Treasury Allocation Fund
ATTEST:
By:
R. Greg Feltus Richard H. Blank, Jr.
President Chief Operating Officer
Secretary and Treasurer
BARCLAYS GLOBAL INVESTORS
FUNDS, INC., on behalf of the
Bond Index Fund
ATTEST:
By:
R. Greg Feltus Richard H. Blank, Jr.
President Chief Operating Officer,
Secretary and Treasurer
<PAGE>
EXHIBIT B
This Exhibit reproduces in its entirety the discussion of Fund
performance for shares from the Bond Index Fund's February 28, 1999, Annual
Report. The discussion reviews some of the factors that affected the Fund's
performance during this fiscal year and shows the performance of the Fund for
various periods. The discussion has not been updated to reflect events occurring
after February 28, 1999.
Bond Index Fund
The BGI Funds Bond Index Fund (the "Fund") seeks to approximate as
closely as practicable before fees and expenses the total rate of return of the
U.S. markets for issued and outstanding U.S. and high-grade corporate bonds as
measured by the Lehman Brothers Government/Corporate Bond Index ("LB Bond
Index").
Performance Summary
Average Annual
PERFORMANCE AS OF 2/28/99 Total Return
- ----------------------------------------------- --------------------------------------- -------------------
One Year 6.24%
Five Year 6.76%
Since Inception Date (7/2/93-2/28/99) 6.21%
Average and total return represents the Bond Index Fund's average annual
increase in value during the time periods noted above. These figures assume that
dividends and capital gain distributions have been reinvested in the Fund at net
asset value. The Fund's past performance is no guarantee of future results. The
investment return and principal value of shares of the Fund will vary with
changes in market conditions. Shares of the Fund may be worth more or less than
their original cost when they are redeemed.
A fund's "net asset value," or NAV, is the market value of one share of a fund.
The Bond Index Fund's NAV remained the same at $9.73 on February 28, 1998, and
February 28, 1999. "Net investment income" includes income from dividends and
interest on the Fund's investments after management and administrative fees have
been deducted. Cumulative dividends on net investment income were approximately
$0.60 per share during this period. Of course, past performance is no guarantee
of future results.
The Bond Index Fund tracks the Lehman Brothers Government/Corporate Bond Index.
For the fiscal year that ended February 28, 1999, the Fund returned 6.24%, while
the index returned 6.35% for the same period. The Fund's performance lagged
slightly behind the performance of the index because administrative and
management fees are deducted from the total return, and because a small
percentage of the Fund's assets are invested in low-risk, low-return money
market securities used to process transactions.
The Fund invests in the same proportions of the same securities that comprise
the index it tracks. At the close of the fiscal year, the Fund had invested 54%
of its assets in U.S. Treasury bonds, 33% in long-term corporate bonds, and 13%
in U.S. agency securities.
The bond market fluctuated dramatically during the last fiscal year due to
investors' uncertainty about the strength of the U.S. economy and the
devaluation of the Russian ruble. Economic and political turmoil in foreign
markets such as Brazil and Southeast Asia also contributed to the bond market's
volatility.
During the second quarter of the fiscal year, the Bond Index Fund returned
2.73%. When Japan's economy started to weaken and riots erupted in Indonesia,
bond investors looks to the U.S. market for safety and stability. The Bond Index
Fund benefited from having more than half of its assets in U.S. Treasury
securities, which performed better than other fixed-income securities. Although
a strong economy can lead to increased inflation, which in turn can cause bond
prices to drop, the bond market rallied as reports showed inflation remained at
historically low levels in the U.S.
Interest rates dropped dramatically in the third quarter of the fiscal year,
partially in response to Russia's devaluation of its currency and concerns that
Brazil would default on its debt. These events created a renewed demand for
high-quality U.S. investments. Even though the U.S. economy did not appear to be
slowing down, the Federal Reserve Board reduced short-term interest rates from
5.5% to 5.25% to reassure investors that uncertainty in international markets
would not affect the U.S. economy. The bond market rallied and the Bond Index
Fund returned 5.05% for the third quarter of the fiscal year. The
U.S.-government securities and high-quality corporate bonds in which the Fund
was invested contributed to its strong performance during this period.
In the fourth quarter of the fiscal year, investors became more confident that
foreign markets were beginning to stabilize. This increased confidence lessened
the demand for safer, more secure investments, which resulted in lower returns
on bond investments. Despite the Federal Reserve Board's lowering interest rates
to 4.75%, U.S. Treasury security rates rose and the Bond Index Fund returned
only .07% for the quarter.
The first two months of 1999 resulted in negative returns for bondholders.
Inflation remained at record lows, the U.S. economy showed no signs of slowing
down after last year's foreign-market shocks, and some investors were concerned
that the Federal Reserve Board would raise interest rates in the immediate
future. The potential for interest rate hikes and the decreased demand for U.S.
Treasury market securities from international investors caused interest rates on
these securities to rise in January and February 1999. In fact, February was the
worst month for the performance of U.S. Treasury bonds since 1981. The Bond
Index Fund returned -- 1.89% for the first two months of 1999.
The accompanying chart compares the performance of the BGI Funds Bond Index Fund
shares since inception with the Lehman Brothers Government/Corporate Bond Index.
The chart assumes a hypothetical $10,000 initial investment, reflects all
operating expenses. The Lehman Brothers Government/Corporate Bond Index is
composed of approximately 6,500 issues of fixed-income securities, including
U.S. Government securities and investment grade corporate bonds, each with an
outstanding market value of at least $150 million and a remaining maturity of
greater than one year. The Fund is a professionally managed mutual fund. The
index presented here does not incur expenses and is not available directly for
investment. Had this Index incurred operating expenses, its performance would
have been lower.
[CHART]
The Bond Index Fund is organized as a "feeder" fund in a "master-feeder"
structure. Instead of investing directly in the individual securities in the
portfolio, the feeder fund, which is offered to the public, holds interests in
the net assets of the Master Portfolio. It is the Master Portfolio that actually
invests in the individual securities. References to "the fund" are to the feeder
fund or the Master Portfolio. Barclays Global Fund Advisors (BGFA) advises the
Master Portfolio.
<PAGE>
10
dc-179536
Statement of Additional Information
Dated September 21, 1999
BARCLAYS GLOBAL INVESTORS FUNDS, INC.
(formerly MasterWorks Funds Inc.)
111 Center Street
Little Rock, Arkansas 72201
Telephone: 1-888-204-3956
October 25, 1999 Special Meeting of Shareholders
of the U.S. Treasury Allocation Fund of Barclays Global Investor Funds, Inc.
This Statement of Additional Information is not a prospectus
but should be read in conjunction with the Combined Prospectus/Proxy Statement
dated the date hereof, for the Special Meeting of Shareholders of U.S. Treasury
Allocation Fund to be held on October 25, 1999. Copies of the Combined
Prospectus/Proxy Statement may be obtained at no charge by writing or calling
Barclays Global Investors Funds, Inc. ("BGI Funds") at the address or telephone
number set forth above. Unless otherwise indicated, capitalized terms used
herein and not otherwise defined have the same meanings as are given to them in
the Combined Prospectus/Proxy Statement.
Incorporation of Documents by Reference in Statement of Additional Information
Further information about the U.S. Treasury Allocation Fund
and Bond Index Fund is contained in and incorporated herein by reference to the
Statement of Additional Information for the U.S. Treasury Allocation and Bond
Index Fund, dated July 1, 1999.
The audited financial statements and related Report of
Independent Accountants for the year ended February 28, 1999 for the U.S.
Treasury Allocation Fund and Bond Index Fund are incorporated herein by
reference. No other parts of the annual report is incorporated herein by
reference.
<PAGE>
Table of Contents
General Information........................................................................................... 3
Introductory Note to Pro Forma Financial Information.......................................................... 4
<PAGE>
General Information
......... The Consolidation contemplates the transfer of all of the assets and
liabilities of the U.S. Treasury Allocation Fund to the Bond Index Fund in
exchange for shares of the Bond Index Fund.
The shares issued by the Bond Index Fund will have an aggregate value
equal to the aggregate value of the shares of the U.S. Treasury Allocation Fund
that were outstanding immediately before the Closing.
After the transfer of their assets and liabilities in exchange for
shares of the Bond Index Fund, BGI Funds will distribute the shares of the Bond
Index Fund to the U.S. Treasury Allocation Fund shareholders in liquidation of
that Fund. Each shareholder owning shares of the U.S. Treasury Allocation Fund
at the Closing will receive shares of the of the Bond Index Fund of equal value,
and will receive any unpaid dividends or distributions that were declared before
the Closing on shares of the U.S. Treasury Allocation Fund. BGI Funds will
establish an account for each former shareholder of the U.S. Treasury Allocation
Fund reflecting the appropriate number of Bond Index Fund shares distributed to
the shareholder. These accounts will be substantially identical to the accounts
maintained by BGI Funds for each shareholder. Upon completion of the
consolidation with respect to the U.S. Treasury Allocation Fund, all outstanding
shares of that Fund will have been redeemed and cancelled in exchange for shares
of the Bond Index Fund distributed.
For further information about the transaction, see the Combined
Prospectus/Proxy Statement.
<PAGE>
Introductory Note to Pro Forma Financial Information
......... The following unaudited pro forma information gives effect to the
proposed transfer of the assets and liabilities of the U.S. Treasury Allocation
Fund to the Bond Index Fund, accounted for as if the transfer had occurred as of
February 28, 1999. In addition, the pro forma combined statement has been
prepared based upon the proposed fee and expense structure of the surviving
combined Fund (i.e., Bond Index Fund).
......... The pro forma financial information should be read in conjunction with
the historical financial statements and notes thereto of the U.S. Treasury
Allocation Fund and Bond Index Fund included or incorporated herein by reference
in this Statement of Additional Information. The combination of such Funds will
be accounted for as a taxable consolidation.
<PAGE>
Barclays Global Investors Funds, Inc.
Pro Forma Portfolio of Investments for Bond Index Fund and U. S. Treasury Allocation Fund
Pro Forma 2/28/99 (unaudited)
U.S. Bond
Bond Index Treasury Index Fund
Fund Fund Pro Forma Pro Forma
Shares/ Shares/ Adjustment Shares/ Interest Maturity Market
Value Value (b) Value Description Rate Date Value
---------------------------------------------------------------------------- ---------------------------------
AEROSPACE & DEFENSE-0.23%
1,000,000 1,000,000 Lockheed Martin Corp 6.85% 5/15/2001 $1,020,841 0.63%
------------
AUTO PARTS & EQUIPMENT-0.23%
1,000,000 1,000,000 Goodyear Tire & Rubber Co 6.63% 12/1/2006 $1,016,725 0.63%
------------
AUTOMOBILES-2.04%
3,500,000 3,500,000 Chrysler Corp 7.45% 3/1/2027 $3,854,197
500,000 500,000 Ford Motor Co 8.88 4/1/2006 574,423
4,500,000 4,500,000 General Motors 5.8 4/9/2001 4,497,939
------------
$8,926,559 5.50%
------------
BANK & FINANCE-10.77%
500,000 500,000 ABN Amro Bank NV 7.30% 12/1/2026 $487,367
500,000 500,000 African Development Bank 7.75 12/15/2001 526,158
1,000,000 1,000,000 American General Finance 5.88 7/1/2000 1,002,148
1,000,000 1,000,000 Associates Corp NA 6.95 11/1/2018 1,030,566
2,500,000 2,500,000 Associates Corp NA 6.25 11/1/2008 2,496,400
1,000,000 1,000,000 Bank Of New York Co 6.5 12/1/2003 1,016,017
1,000,000 1,000,000 BankAmerica Corp 6.25 4/1/2008 993,326
1,000,000 1,000,000 CIT Group Holdings 6.63 6/15/2005 1,024,901
1,000,000 1,000,000 Citigroup Inc 7.88 5/15/2025 1,096,128
1,000,000 1,000,000 Commercial Credit Corp 8.7 6/15/2010 1,159,789
1,000,000 1,000,000 Diageo PLC 6.13 8/15/2005 999,590
1,000,000 1,000,000 Dresdner Bank AG 6.63 9/15/2005 1,012,754
2,000,000 2,000,000 Duke Energy Corp 6 12/1/2028 1,842,340
1,285,000 1,285,000 Financing Corp 9.8 4/6/2018 1,815,501
2,000,000 2,000,000 First Union Capital Corp 8.04 12/1/2026 2,132,048
500,000 500,000 First Union Corp 6.63 7/15/2005 509,332
5,400,000 5,400,000 Ford Motor Credit Co 6.5 2/28/2002 5,473,240
1,000,000 1,000,000 General Motors Acceptance 7.12 5/1/2003 1,036,619
Corp
1,000,000 1,000,000 Household Finance Corp 6.7 6/15/2002 1,022,044
4,000,000 4,000,000 Houston Lighting & Power Co 6.5 4/21/2003 4,046,232
450,000 450,000 Interamerica Development 8.5 3/15/2011 544,559
Bank
200,000 200,000 Interamerica Development 8.4 9/1/2009 236,824
Bank
3,500,000 3,500,000 KFW International Finance 7.63 2/15/2004 3,788,302
250,000 250,000 KFW International Finance 8 2/15/2010 292,757
Inc
500,000 500,000 Lehman Brothers Inc 9.88 10/15/2000 524,357
1,000,000 1,000,000 Mellon Capital II 7.99 1/15/2027 1,064,589
3,000,000 3,000,000 Mellon Financial 6 3/1/2004 2,977,647
1,000,000 1,000,000 Merrill Lynch & Co Inc 6.38 10/15/2008 992,643
500,000 500,000 Skandinaviska Enskilda 6.88 2/15/2009 507,669
1,500,000 1,500,000 U.S. West Capital Funding 6.88 7/15/2028 1,527,588
Inc
4,000,000 4,000,000 Westdeutsche NY 6.05 1/15/2009 3,903,004
------------
$47,082,439 29.01%
------------
BEVERAGES-0.68%
1,500,000 1,500,000 Anheuser Busch 9.00% 12/1/2009 $1,856,070
1,000,000 1,000,000 Coca-Cola Enterprises 8 9/15/2022 1,136,569
------------
$2,992,639 1.84%
------------
BROADCASTING-2.11%
2,000,000 2,000,000 Comcast Cable 8.38% 5/1/2007 $2,251,298
Communications
1,000,000 1,000,000 TCI Communications Inc 7.12 2/15/2028 1,055,964
2,000,000 2,000,000 Time Warner Inc 9.63 5/1/2002 2,207,308
3,500,000 3,500,000 Viacom Inc 7.75 6/1/2005 3,727,129
------------
$9,241,699 5.69%
------------
CHEMICALS-0.36%
1,000,000 1,000,000 American Home Product 6.50% 10/15/2002 $1,022,342
500,000 500,000 Dow Chemical Co 8.62 4/1/2006 560,080
------------
$1,582,422 0.97%
------------
ELECTRONICS-1.10%
1,000,000 1,000,000 Raytheon Co 7.38% 7/15/2025 $998,736
3,800,000 3,800,000 Raytheon Co 5.95 3/15/2001 3,813,042
------------
$4,811,778 2.96%
------------
ENERGY & RELATED-0.23%
1,000,000 1,000,000 Phillips 66 Capital Trust 8.00% 1/15/1937 $1,015,358 0.63%
II
------------
ENTERTAINMENT & LEISURE-1.68%
500,000 500,000 Disney (Walt) Co 6.75% 3/30/2006 $521,721
4,000,000 4,000,000 Disney (Walt) Co 5.13 12/15/2003 3,908,188
2,500,000 2,500,000 Time Warner Entertainment 8.38 3/15/2023 2,912,433
------------
$7,342,342 4.52%
------------
FOOD & RELATED-0.25%
500,000 500,000 Archer-Daniels-Midland Co 8.38% 4/15/2017 $594,860
500,000 500,000 McDonald's Corp 6.75 2/15/2003 503,326
------------
$1,098,186 0.68%
------------
HEALTHCARE-0.24%
1,000,000 1,000,000 Baxter International Inc 7.63% 11/15/2002 $1,053,751 0.65%
------------
INSURANCE-0.23%
1,000,000 1,000,000 Aetna Services Inc 7.12% 8/15/2006 $1,013,676 0.62%
------------
INVESTMENT BANKING & BROKERAGE-1.46%
4,000,000 4,000,000 Merrill Lynch & Co 6.00% 2/17/2009 $3,853,060
1,500,000 1,500,000 Morgan Stanley Group Inc 6.7 5/1/2001 1,518,521
1,000,000 1,000,000 Salomon Inc 6.5 3/1/2000 1,005,831
------------
$6,377,412 3.93%
------------
MANUFACTURING-0.80%
500,000 500,000 ICI Wilmington 8.75% 5/1/2001 $518,644
3,000,000 3,000,000 Tyco Intl Group 6.88 1/15/2029 2,961,360
------------
$3,480,004 2.14%
------------
PHARMACEUTICALS-0.12%
500,000 500,000 American Home Products 7.70% 2/15/2000 $510,552 0.31%
------------
PUBLIC ADMINISTRATION-1.30%
1,500,000 1,500,000 Northern State Power 6.50% 3/1/2028 $1,502,523
1,500,000 1,500,000 Saks Inc 7.5 12/1/2010 1,539,132
2,600,000 2,600,000 Tennessee Valley 6.25 12/15/2017 2,642,949
------------
$5,684,604 3.50%
------------
RETAIL & RELATED-0.78%
2,000,000 2,000,000 Walmart 8.50% 9/15/2024 $2,294,440
1,000,000 1,000,000 Walmart 7.25 6/1/2013 1,107,548
------------
$3,401,988 2.10%
------------
SERVICES-0.48%
2,000,000 2,000,000 Amoco Canada 7.25% 12/1/2002 $2,089,280 1.29%
------------
TELECOMMUNICATIONS-1.70%
250,000 250,000 Bell Telephone Canada 9.50% 10/15/2010 $311,613
2,500,000 2,500,000 Motorola Inc 7.5 5/15/2025 2,698,100
500,000 500,000 New York Telecom 6 4/15/2008 502,829
4,000,000 4,000,000 Sprint Cap Corp 6.13 11/15/2008 3,937,884
------------
$7,450,426 4.59%
------------
TRANSPORTATION-0.26%
1,000,000 1,000,000 Norfolk Southern Corp 7.80% 5/15/2027 $1,126,231 0.69%
------------
UTILITIES-0.83%
1,500,000 1,500,000 Central Power & Lighting 7.50% 12/1/2002 $1,577,964
Inc
1,000,000 1,000,000 Texas Utilities 6.38 1/1/2008 992,152
1,000,000 1,000,000 Virginia Electric & Power 7.38 7/1/2002 1,047,271
Co
------------
$3,617,387 2.23%
------------
FOREIGN GOV BONDS & NOTES^^-2.18%
1,000,000 1,000,000 British Columbia (Province 6.50% 1/15/2026 $1,001,420
of)
2,000,000 2,000,000 Hydro Quebec 8.4 1/15/2022 2,391,820
1,200,000 1,200,000 New Brunswick 7.63 6/29/2004 1,295,784
3,300,000 3,300,000 Ontario (Province of) 7.75 6/4/2002 3,493,347
750,000 750,000 Ontario (Province of) 7.63 6/22/2004 810,030
500,000 500,000 Victoria 8.45 10/1/2001 532,053
------------
$9,524,454 5.87%
FEDERAL AGENCY-OTHER-0.12%
500,000 500,000 Tennessee Valley Authority 6.13% 7/15/2003 $508,281 0.31%
------------
FEDERAL HOME LOAN BANK-2.15%
1,000,000 1,000,000 Federal Home Loan Bank 5.50% 1/21/2003 $993,436
1,500,000 1,500,000 Federal Home Loan Bank 5.4 1/15/2003 1,485,102
500,000 500,000 Federal Home Loan Bank 5.26 6/29/2001 496,650
5,500,000 5,500,000 Federal Home Loan Bank 5.02 2/11/2002 5,432,900
1,000,000 1,000,000 Federal Home Loan Bank 4.38 10/23/2000 984,264
------------
$9,392,352 5.79%
------------
FEDERAL HOME LOAN MORTGAGE CORP-2.50%
700,000 700,000 Federal Home Loan Mortgage 7.22% 5/17/2005 $713,976
Corp
4,000,000 4,000,000 Federal Home Loan Mortgage 5.75 7/15/2003 4,028,848
Corp
3,000,000 3,000,000 Federal Home Loan Mortgage 5.25 2/16/2001 2,986,389
Corp
3,400,000 3,400,000 Federal Home Loan Mortgage 5.13 10/15/2008 3,207,720
Corp.
------------
$10,936,933 6.74%
------------
FEDERAL NATIONAL MORTGAGE ASSOC-5.66%
500,000 500,000 Federal National Mortgage 7.55% 4/22/2002 $528,420
Assoc
500,000 500,000 Federal National Mortgage 6.7 8/10/2001 503,449
Assoc
1,000,000 1,000,000 Federal National Mortgage 6.45 2/14/2002 1,007,804
Assoc
1,500,000 1,500,000 Federal National Mortgage 6.44 6/21/2005 1,550,883
Assoc
5,000,000 5,000,000 Federal National Mortgage 6.26 2/25/2009 4,958,500
Assoc
5,700,000 5,700,000 Federal National Mortgage 6.18 2/19/2009 5,582,837
Assoc
400,000 400,000 Federal National Mortgage 6.16 12/18/2007 405,788
Assoc
1,000,000 1,000,000 Federal National Mortgage 5.91 2/25/2000 1,005,918
Assoc
1,000,000 1,000,000 Federal National Mortgage 5.75 6/15/2005 1,008,590
Assoc
2,000,000 2,000,000 Federal National Mortgage 5.75 2/15/2008 1,992,344
Assoc
4,500,000 4,500,000 Federal National Mortgage 5.63 2/20/2004 4,445,550
Assoc
1,000,000 1,000,000 Federal National Mortgage 5.25 1/15/2009 957,125
Assoc
500,000 500,000 Federal National Mortgage 5.13 2/13/2004 488,807
Assoc
1,000,000 1,000,000 Federal National Mortgage 0.00 6/1/2017 327,084
Assoc
------------
$24,763,099 15.26%
------------
U.S. TREASURY BONDS-13.85%
1,100,000 1,100,000 U.S. Treasury Bonds 12.00% 8/15/2013 $1,604,625
8,550,000 8,550,000 U.S. Treasury Bonds 11.25 2/15/2015 13,407,468
1,100,000 1,100,000 U.S. Treasury Bonds 10.38 11/15/2012 1,453,032
2,800,000 2,800,000 U.S. Treasury Bonds 9.13 5/15/2009 3,250,626
700,000 700,000 U.S. Treasury Bonds 9.13 5/15/2018 963,594
9,250,000 9,250,000 U.S. Treasury Bonds 8.13 8/15/2019 11,744,613
7,100,000 7,100,000 U.S. Treasury Bonds 8 11/15/2021 8,999,250
2,500,000 2,500,000 U.S. Treasury Bonds 7.88 2/15/2021 3,118,750
7,300,000 7,300,000 U.S. Treasury Bonds 7.63 2/15/2025 9,077,097
500,000 500,000 U.S. Treasury Bonds 7.5 11/15/2016 591,719
500,000 500,000 U.S. Treasury Bonds 7.25 5/15/2016 577,657
1,000,000 1,000,000 U.S. Treasury Bonds 7.12 2/15/2023 1,165,625
1,500,000 1,500,000 U.S. Treasury Bonds 6.5 11/15/2026 1,645,782
1,000,000 1,000,000 2,000,000 U.S. Treasury Bonds 6.13 11/15/2027 2,099,376
900,000 900,000 U.S. Treasury Bonds 5.5 8/15/2028 872,157
------------
$60,571,371 37.32%
------------
U.S. TREASURY NOTES-35.38%
500,000 500,000 U.S. Treasury Notes 5.63% 4/30/2000 $502,969
1,000,000 1,000,000 U.S. Treasury Notes 5.5 3/31/2000 1,004,688
2,300,000 2,300,000 U.S. Treasury Notes 7.88 8/15/2001 2,440,875
8,200,000 8,200,000 U.S. Treasury Notes 7.5 11/15/2001 8,666,375
1,300,000 1,300,000 U.S. Treasury Notes 7.5 2/15/2005 1,438,938
11,050,000 11,050,000 U.S. Treasury Notes 7.25 8/15/2004 12,030,687
1,000,000 1,000,000 U.S. Treasury Notes 7.12 2/29/2000 1,020,000
9,200,000 9,200,000 U.S. Treasury Notes 7 7/15/2006 10,071,129
2,250,000 2,250,000 U.S. Treasury Notes 6.5 5/31/2001 2,312,579
1,400,000 1,400,000 U.S. Treasury Notes 6.5 5/15/2005 1,482,250
2,800,000 2,800,000 U.S. Treasury Notes 6.5 8/15/2005 2,965,376
1,400,000 1,400,000 U.S. Treasury Notes 6.5 10/15/2006 1,492,750
11,500,000 11,500,000 U.S. Treasury Notes 6.38 3/31/2001 11,773,124
4,700,000 4,700,000 U.S. Treasury Notes 6.38 8/15/2002 4,860,096
1,800,000 1,800,000 U.S. Treasury Notes 6.25 5/31/2000 1,824,750
2,800,000 2,800,000 U.S. Treasury Notes 6.25 10/31/2001 2,872,626
1,000,000 1,000,000 U.S. Treasury Notes 6.25 1/31/2002 1,027,500
10,800,000 10,800,000 U.S. Treasury Notes 6.25 2/15/2003 11,161,129
1,200,000 1,200,000 U.S. Treasury Notes 6.13 12/31/2001 1,228,500
5,500,000 5,500,000 U.S. Treasury Notes 6.13 8/15/2007 5,756,097
1,000,000 1,000,000 U.S. Treasury Notes 5.88 6/30/2000 1,009,375
850,000 850,000 U.S. Treasury Notes 5.88 11/30/2001 864,610
1,000,000 1,000,000 U.S. Treasury Notes 5.88 2/15/2004 1,025,625
1,500,000 1,500,000 U.S. Treasury Notes 5.88 11/15/2005 1,539,375
1,600,000 1,600,000 U.S. Treasury Notes 5.75 11/30/2002 1,624,501
1,000,000 1,000,000 U.S. Treasury Notes 5.75 4/30/2003 1,016,250
14,000,000 14,000,000 U.S. Treasury Notes 5.75 8/15/2003 14,236,249
2,100,000 2,100,000 U.S. Treasury Notes 5.63 11/30/2000 2,115,750
1,000,000 1,000,000 U.S. Treasury Notes 5.63 2/28/2001 1,009,063
800,000 800,000 U.S. Treasury Notes 5.63 5/15/2008 815,500
4,900,000 4,900,000 U.S. Treasury Notes 5.5 5/31/2000 4,922,971
2,100,000 2,100,000 U.S. Treasury Notes 5.5 1/31/2003 2,115,095
1,000,000 1,000,000 U.S. Treasury Notes 5.13 8/31/2000 999,688
10,800,000 10,800,000 U.S. Treasury Notes 4.75 11/15/2008 10,367,999
5,500,000 5,500,000 U.S. Treasury Notes 4.63 12/31/2000 5,448,438
10,000,000 10,000,000 U.S. Treasury Notes 4.5 1/31/2001 9,884,380
10,000,000 10,000,000 U.S. Treasury Notes 4 10/31/2000 9,815,630
------------
$154,742,937 95.34%
------------
CASH EQUIVALENTS-8.18%
7,161,200 2,500 -2,500 7,161,200 Dreyfus Institutional Money Market $7,163,700
Fund
18,500,000 1,100,000 -1,100,000 18,500,000 Janus International Money Market 19,600,000
Fund
9,000,000 9,000,000 Merrimac Cash Fund-Premium 9,000,000
Class
------------
$35,763,700 22.04%
REPURCHASE AGREEMENTS-1.32%
5,763,108 5,763,108 Morgan Stanley Triparty Repurchase $5,763,108 3.55%
Agreement dated 2/26/99, due 3/1/99 with a
maturity value of $5,765,283 and
an effective yield of 4.53%
collateralized by U.S. Treasury
Bonds with a rate of 9.875%, a
maturity of 11/15/15 and a market
value of $5,875,689
U.S. TREASURY BONDS-1.30%
900,000 900,000 U.S. Treasury Bonds 8.88% 2/15/2019 $1,219,219
300,000 -300,000 0 U.S. Treasury Bonds 8.13% 5/15/2021 383,906
1,250,000 -1,250,000 0 U.S. Treasury Bonds 7.63% 11/15/2022 1,533,986
1,200,000 1,200,000 U.S. Treasury Bonds 7.25% 8/15/2022 1,412,626
1,000,000 1,000,000 U.S. Treasury Bonds 6.88% 8/15/2025 1,144,375
------------
$5,694,112 3.51%
------------
U.S. TREASURY BILLS-6.59%
28,885,000 -28,885,000 0 U.S. Treasury Bills 4.25% 4/1/1999 $28,769,893
36,000 -36,000 0 U.S. Treasury Bills 4.80% 5/13/1999 35,669
------------
$28,805,562 17.75%
------------
TOTAL MARKET VALUE FOR COMBINED FUND $436,828,708
Other Assets less -$306,098,183
Liabilities (a)
Pro Forma Adjustments to Other Assets and $31,573,500
Liabilities (b)
------------
Total Combined Investment in Master Portoflio $162,304,025
============
(a) The Pro Forma adjustment reflects the portion of
the underlying portfolio's net assets not owned by the
Bond Index Fund.
(b) The Pro Forma adjustment reflects securities of the
U.S. Treasury Allocation Fund that will be sold prior
to the Consolidation.
<PAGE>
Barclays Global Investors Funds, Inc.
Pro Forma combined financial statements for the Bond Index/ U.S. Treasury
Allocation Fund consolidation Pro Forma as of 2/28/99 (unaudited)
STATEMENT OF ASSET AND LIABILITIES
Bond Index Fund
Pro Forma Combined
U.S. Treasury Pro Forma Bond Index
Allocation Fund Adjustment Fund
------------------------------------------------------------------------------
ASSETS
Investments:
In corresponding Master Portfolio, at market $35,610,248 $126,693,777 $162,304,025
value
Receivables:
Fund Shares sold 48,916 103,161 152,077
---------------- ----------------- -------------------
Total Assets 35,659,164 126,796,938 162,456,102
---------------- ----------------- -------------------
LIABILITIES
Payables:
Capital Shares redeemed 313,853 42,268 356,121
Distribution to Shareholders 2,245 3,887 6,132
Due to BGI and Stephens 4,871 17,945 22,816
---------------- ----------------- -------------------
Total Liabilities 320,969 64,100 385,069
---------------- ----------------- -------------------
TOTAL NET ASSETS $35,338,195 $126,732,838 $162,071,033
================ ================= ===================
Net assets consist of:
Paid in capital 39,334,374 (3,999,959) (a) 127,668,181 163,002,596
Undistributed net investment income 3,780 19,349 23,129
Undistributed net realized gain (loss) on (3,705,319) 3,705,319 (a) 259,209 259,209
investments
Net unrealized appreciation (depreciation) on (294,640) 294,640 (a) (1,213,901) (1,213,901)
investments
---------------- ------------- ----------------- -------------------
TOTAL NET ASSETS $35,338,195 $0 $126,732,838 $162,071,033
================ ============= ================= ===================
Net Assets $35,338,195 $126,732,838 $162,071,033
Shares Outstanding 3,768,853 (133,502) 13,021,489 16,656,840
Net Asset value per share $9.38 $9.73 $9.73
(a) All securities will be merged into the Bond Index Fund with
cost being equal to market value on the merger date, capital gains will be
declared.
<PAGE>
Barclays Global Investors Funds, Inc.
Pro Forma combined financial statements for the Bond Index/ U.S. Treasury Allocation Fund consolidation
Pro Forma for the Year Ended 2/28/99 (unaudited)
STATEMENT OF OPERATIONS
Bond Index
Fund
US Treasury Pro Forma Pro Forma
Allocation Fund Bond Index Fund Adjustment (a) Combined
-----------------------------------------------------------------
NET INVESTMENT INCOME ALLOCATED
FROM MASTER PORTFOLIO
Interest $2,300,666 $6,773,786 $0 $9,074,452
Expenses (Note 2) (130,490) (85,135) (120,412)
95,213
-------------- --------------- --------------- ---------------
Net Investment Income (Loss) Allocated from Master 2,170,176 6,688,651 8,954,040
Portfolio 95,213
-------------- --------------- --------------- ---------------
EXPENSES
Administration Fees (Note 3) (173,856) (159,900) (225,773)
107,983
-------------- --------------- --------------- ---------------
Total Expenses (173,856) (159,900) (225,773)
107,983
-------------- --------------- --------------- ---------------
NET INVESTMENT INCOME (LOSS) 1,996,320 6,528,751 8,728,267
203,196
-------------- --------------- --------------- ---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS ALLOCATED FROM MASTER PORTFOLIO
Net realized gain (loss) on sale of investments 450,904 416,912 867,816
-
Net change in unrealized appreciation (depreciation) of (417,682) (1,350,936) (1,768,618)
investments -
-------------- --------------- --------------- ---------------
Net Gain (Loss) on Investments 33,222 (934,024) (900,802)
-
-------------- --------------- --------------- ---------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $2,029,542 $5,594,727 $203,196 $7,827,465
(a) Pro Forma adjustment made to show what the expenses would have been
based on the combined net assets of the Funds for the year ended
2/28/99.
<PAGE>
Consolidation of
Bond Index Fund & U.S. Treasury Allocation Fund
Notes to Pro Forma Combining Financial Statements (unaudited)
1. Basis of Consolidation
Barclays Global Investors Funds, Inc. (the "Company"), is registered
under the Investment Company Act of 1940, as amended (the "1940 Act"),
as an open-end series investment company. The Company commenced
operations on July 2, 1993, and currently offers eleven Funds. The
unaudited Pro Forma Combining Statement of Assets and Liabilities
assumes the consolidation described in the next paragraph occurred as
of February 28, 1999, and the Combining Statement of Operations for the
year ended February 28, 1999 assumes the exchange occurred as of March
1, 1999. These statement have been derived from the books and records
utilized in calculating daily net asset value of each Fund at February
28, 1999 and for the twelve-month period then ended.
The Pro Forma financial statements give effect to the proposed
consolidation of the assets and stated liabilities of the U.S. Treasury
Allocation Fund in exchange for shares of the Bond Index Fund. Certain
securities held by the U.S. Treasury Allocation Fund will be sold prior
to the consolidation date, with the remaining securities being
transferred to the surviving Bond Index Fund on the consolidation date.
The Pro Forma financial statements do not reflect the expenses of the
Funds in carrying out their obligations under the proposed Agreement
and Plan of Consolidation, which are not considered to be material. The
costs of the consolidation will be paid by Barclays Global Investors,
N.A. out of the co-administration fees paid by the U.S. Treasury
Allocation Fund. The Funds will not incur any additional expenses as a
result of the consolidation.
The unaudited Pro Forma Combining Financial Statements should be read
in conjunction with the historical financial statements of the Funds
incorporated by reference in the Statement of Additional Information.
2. This expense is allocated down from the Master Portfolio and is the
advisory fees paid at the rate of 0.08% of the Bond Index Fund's
average daily net assets. With the consolidation of the two Funds an
adjustment was made to the projected number to reflect what the
advisory fee would have been for one year based on the combined average
net assets of both portfolios multiplied by the 0.08% advisory fee.
3. This expense is a Fund level expense (not accrued at Master Portfolio)
and is the unified administration expense which is accrued at 0.15% of
the Bond Index Fund's average daily net assets. With the consolidation
of the two funds an adjustment was made to the projected number to
reflect what the administration expense would have been for one year
based on the combined average daily net assets of both Funds multiplied
by the 0.15% administration fee.
<PAGE>
dc-179536
BARCLAYS GLOBAL INVESTORS FUNDS, INC.
111 CENTER STREET
LITTLE ROCK, AR 77201
September 29, 1999
By my signature below, I appoint R. Greg Feltus, Richard H. Blank, Jr. and
Michael W. Nolte (officers of Barclays Global Investors Funds, Inc.), As my
proxies and attorneys to vote all fund shares of the portfolio identified below
that I am entitled to vote at the Special Meeting of Shareholders of Barclays
Global Investors Funds, Inc. (the "BGI Funds") to be held at the principal
office of BGI Funds, 111 Center Street, Little Rock, Arkansas 72201 on Thursday,
October 28, 1999 at 11:00 a.m. (central time), and at any adjournments of the
meeting. The proxies shall have all the powers that I would possess if present.
I hereby revoke any prior proxy, and ratify and confirm all that the proxies, or
any of them, may lawfully do. I acknowledge receipt of the notice of special
shareholders meeting and the combined proxy statement dated September 29, 1999.
This proxies shall vote my shares according to my instructions given below
with respect to the proposal. If I do not provide an instruction, I understand
that the proxies will vote my shares in favor of the proposal. The proxies will
vote on any other matter that may arise in the meeting according to their best
judgment.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF BGI FUNDS, WHICH
UNANIMOUSLY RECOMMEND THAT YOU VOTE IN FAVOR OF THE PROPOSAL.
PLEASE VOTE BY CHECKING THE APPROPRIATE BOX:
PLEASE DETACH AT PERFORATION
- -----------------------------------------------------------------------------------------------------------------------------------
1. To consolidate the U.S. Treasury Allocation Fund of BGI Funds into the Bond Index Fund of BGI Funds.
FOR AGAINST ABSTAIN
FOR YOUR CONVENIENCE, YOU MAY VOTE BY ENCLOSING THE PROXY BALLOT IN THE ENCLOSED
POSTAGE PAID ENVELOPE, OR BY FAXING IT TO SHAREHOLDER COMMUNICATIONS CORP.
("SCC") AT 1-800-733-1885. YOU ALSO MAY VOTE BY CALLING SCC AT 1-800-733-8481
EXT. 435 TOLL-FREE FROM 6:00 A.M.
TO 8:00 P.M. (PACIFIC TIME). A CONFIRMATION OF YOUR TELEPHONE OR FAXED VOTE WILL BE MAILED TO YOU.
NOTE: Please make sure that you complete, sign and date your proxy card.
Please sign exactly as your name(s) appear on your account. When signing as a
fiduciary, please give your full title as such. Each joint owner should sign
personally. Corporate proxies should be signed in full corporate name by an
authorized officer.
Date ________________________, 1999
- -------------------------------------
Signature
- -------------------------------------
Signature
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