<PAGE>
INSTITUTIONAL MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
<TABLE>
<S> <C>
ASSETS
Investment:
Interest in Master Portfolio, at market value (Note 1) ................................. $10,125
=======
Total Assets ........................................................................... 10,125
-------
LIABILITIES
Payables:
Other accrued expenses............................................................. 1
=======
Total Liabilities ...................................................................... 1
=======
TOTAL NET ASSETS ....................................................................... $10,124
=======
Net assets consist of:
Paid-in capital.................................................................... 10,124
=======
TOTAL NET ASSETS $10,124
=======
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE
PER SHARE
Distributor Shares
Net Assets ............................................................................. $ 5,062
Shares outstanding ..................................................................... 5,062
Net asset value and offering price per share ........................................... $ 1.00
Institutional Shares
Net Assets ............................................................................. $ 5,062
Shares outstanding ..................................................................... 5,062
Net asset value and offering price per share ........................................... $ 1.00
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
INSTITUTIONAL MONEY MARKET FUND
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Period Ended
December 31, 1999*
---------------------
<S> <C>
NET INVESTMENT INCOME
ALLOCATED FROM MASTER PORTFOLIO
Interest................................................................................ $ 128
Expenses (Note 2) ...................................................................... (3)
--------------------
Net Investment Income Allocated from Master Portfolio 125
EXPENSES (NOTE 2)
Distribution costs - Distributor Shares ................................................ 1
Administration fees .................................................................... - **
====================
Total Expenses ................................................................................ 1
====================
NET INVESTMENT INCOME ......................................................................... 124
--------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .......................................... $ 124
====================
</TABLE>
* Period from August 1, 1999 (commencement of operations) to December 31,
1999.
** Rounds to less than $1.
The accompanying notes are an integral part of these financial statements.
<PAGE>
INSTITUTIONAL MONEY MARKET FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Period Ended
December 31, 1999*
--------------------
<S> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income ................................................................... $ 124
==================
Net increase in net assets resulting from operations ......................................... 124
------------------
Distributions to shareholders:
From net investment income
Distributor Shares........................................................... (62)
Institutional Shares......................................................... (62)
===================
Net distributions to shareholders ............................................................ (124)
Capital share transactions:
Distributor Shares
Proceeds from shares sold.............................................................. 5,000
Reinvestment of dividends and distributions............................................ 62
Cost of shares redeemed................................................................ -
-------------------
Net increase resulting from capital share transactions - Distributor Shares .................. 5,062
-------------------
Institutional Shares
Proceeds from shares sold.............................................................. 5,000
Reinvestment of dividends and distributions............................................ 62
Cost of shares redeemed................................................................ -
-------------------
Net increase resulting from capital share transactions - Institutional Shares ................ 5,062
-------------------
Increase in Net Assets ....................................................................... 10,124
NET ASSETS:
Beginning net assets ......................................................................... -
Ending net assets ............................................................................ $ 10,124
===================
SHARES ISSUED AND REDEEMED:
Distributor Shares
Shares sold............................................................................ 5,000
Shares issued in reinvestment of dividends and distributions........................... 62
Shares redeemed........................................................................ -
-------------------
Net increase in shares outstanding ........................................................... 5,062
===================
Institutional Shares
Shares sold............................................................................ 5,000
Shares issued in reinvestment of dividends and distributions........................... 62
Shares redeemed........................................................................ -
===================
Net increase in shares outstanding ........................................................... 5,062
===================
</TABLE>
* Period from August 1, 1999 (commencement of operations) to December 31, 1999.
The accompanying notes are an integral part of these financial statements.
<PAGE>
INSTITUTIONAL MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
For a share outstanding throughout the period:
<TABLE>
<CAPTION>
For the Period Ended
December 31, 1999*
-------------------------------
Distributor Institutional
Shares Shares
------------- -------------
<S> <C> <C>
Net Assets Value, beginning of period....................... $ 1.00 $ 1.00
Income from investment operations:
Net investment income................................... 0.02 0.02
------------- -------------
Total from investment operations............................ 0.02 0.02
Less distributions:
From net investment income.............................. (0.02) (0.02)
------------- -------------
Total distributions......................................... (0.02) (0.02)
------------- -------------
Net Asset Value, end of period.............................. $ 1.00 $ 1.00
============= =============
Total Return (not annualized)............................... 2.22% 2.26%
Ratios/Supplemental data:
Net assets, end of period (000)......................... $ 5 $ 5
Ratios to average net assets**:
Ratio of expenses to average net assets................. 0.09% 0.07%
Ratio of net investment income to average net assets.... 2.95% 2.97%
</TABLE>
* Period from August 1, 1999 (commencement of operations) to December 31,
1999.
** Annualized.
The accompanying notes are an integral part of these financial statements.
<PAGE>
INSTITUTIONAL MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Institutional Money Market Fund (the "Fund") is a series of the Barclays
Global Investor's Funds, Inc. (formerly, MasterWorks Funds Inc.) (the
"Company"), a diversified open-end management investment company registered
under the Investment Company Act of 1940, as amended. The Company was
established as a Maryland corporation on October 15, 1993 (commenced operations
on July 2, 1993), and currently offers the following Funds: Asset Allocation,
Bond Index, Institutional Money Market, LifePath Income (formerly LifePath
2000), LifePath 2010, LifePath 2020, LifePath 2030, LifePath 2040, Money Market
and S&P 500 Stock Index Funds (each, a "Fund", collectively, the "Funds"). These
financial statements relate to the Institutional Money Market Fund.
The investment objective of the Fund is to provide a high level of income
while preserving capital and liquidity by investing in high quality, short-term
investments. The Fund pursues its investment objective by investing all of its
assets in the Money Market Master Portfolio (the " Master Portfolio"), a
series of Master Investment Portfolio ("MIP"). The Master Portfolio has the
same investment objective and substantially the same investment policies as the
Fund. The performance of the Fund is directly affected by the performance of the
Master Portfolio. The financial statements of the Master Portfolio, including
the Portfolio of Investments, are included elsewhere in this report and should
be read in conjunction with the Fund's financial statements. The Fund presently
offers two classes of shares, Distributor Shares and Institutional Shares.
Shares of each class have identical interests in the Master Portfolio and have
the same rights, however, differ principally in their respective distribution
fees.
The following significant accounting policies are consistently followed by
the Fund in the preparation of its financial statements, and such policies are
in conformity with generally accepted accounting principles for investment
companies. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Investment Policy and Security Valuation
The value of the Fund's investment in the Master Portfolio reflects the
Fund's interest in the net assets of the Master Portfolio. As of December 31,
1999, the value of the Fund's investment in the Master Portfolio was less than
0.01% of the outstanding interests of the Master Portfolio. The Master Portfolio
uses the amortized cost method of valuation to determine the value of its
portfolio securities in accordance with Rule 2a-7 under the 1940 Act. The
amortized cost method, which involves valuing a security at its cost and
accreting or amortizing any discount or premium, respectively, over the period
until maturity, approximates market value.
Security Transactions and Income Recognition
Security transactions are accounted for by the Master Portfolio on the date
the securities are purchased or sold (trade date). Revenue is recognized by the
Master Portfolio as follows: Interest income is recognized on a daily accrual
basis. Realized gains and losses are reported on the basis of identified cost of
securities delivered. All net investment income and realized capital gains and
losses of the Master Portfolio are allocated as required by the Internal Revenue
Code of 1986, as amended (the "Code").
<PAGE>
INSTITUTIONAL MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS--Continued
Federal Income Taxes
The Fund is treated as a separate entity for federal income tax purposes.
It is the policy of the Trust that the Fund continue to qualify as a regulated
investment company by complying with the provisions of the Code applicable to
regulated investment companies, as defined by the Code, and to make
distributions of substantially all of its investment company taxable income and
any net realized capital gains (after reduction for capital loss carryforwards)
sufficient to relieve it from all, or substantially all, federal income and
excise taxes. Accordingly, no provision for federal taxes was required at
December 31, 1999.
Dividends and Distributions to Shareholders
Dividends to shareholders from net investment income of the Fund are
declared and distributed monthly. Distributions to shareholders from capital
gains, if any, are declared and distributed annually, generally in December.
2. Agreements and Other Transactions with Affiliates
Stephens Inc. ("Stephens") and Barclays Global Investors ("BGI") (the
"Administrators") provide administrative services to the Fund. Pursuant to a Co-
Administration Agreement, services provided by the Administrators include, but
are not limited to: managing the daily operations and business affairs of the
Fund, subject to the supervision of the Board of Directors; overseeing the
preparation and maintenance of all documents and records required to be
maintained by the Fund; preparing or assisting in the preparation of regulatory
filings, prospectuses and shareholder reports; providing, at its own expense,
the services of its personnel to serve as officers of the Company; and preparing
and disseminating material for meetings of the Board of Directors and
shareholders. The Fund pays the Administrators a monthly fee calculated at an
annual rate of 0.02% of the Fund's average daily net assets. This fee is an
"all-in" or "semi-unified" fee and BGI and Stephens, in consideration thereof,
have agreed to bear all of the Fund's ordinary operating expenses, excluding,
generally, advisory fees, distribution fees and costs related to securities
transactions. BGI and Stephens may delegate certain of their administration
duties to sub-administrators.
Stephens serves as the Distributor of the Fund's shares. The Trust has
adopted a plan pursuant to Rule 12b-1 under the Investment Company Act, which
allows the Fund to pay expenses relating to the distribution of its Distributor
Shares. Under the plan, the Fund pays a fee to Stephens, calculated at an annual
rate of 0.10% of the average daily net assets of the Fund's Distributor Shares
as compensation for services rendered in connection with the sale and
distribution of the Distributor Shares. This fee is an expense of Distributor
Shares only and is not borne by the Institutional Shares.
Certain officers and directors of the Company are also officers of
Stephens. As of December 31, 1999, these officers of Stephens collectively owned
less than 1% of the outstanding shares of the Fund.
3. Capital Shares Transactions
As of December 31, 1999, there were 21.3 billion shares of $.001 par value
capital stock authorized by the Company. As of December 31, 1999, the Fund was
authorized 7 billion shares of $.001 par value capital stock. Transactions in
capital shares for the Fund are disclosed in detail in the Statement of Changes
in Net Assets.
<PAGE>
Independent Auditors' Report
- ----------------------------
To the Shareholders and Board of Directors of
Barclays Global Investors Funds, Inc.:
We have audited the accompanying statement of assets and liabilities of
Institutional Money Market Fund (one fund of Barclays Global Investors Funds,
Inc.) as of December 31, 1999 and the related statements of operations, changes
in net assets and financial highlights for the period from August 1, 1999
(commencement of operations) to December 31, 1999. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Institutional Money Market Fund as of December 31, 1999, the results of its
operations, changes in its net assets, and its financial highlights for the
period from August 1, 1999 to December 31, 1999 in conformity with generally
accepted accounting principles.
KPMG LLP
San Francisco, California
February 11, 2000
<PAGE>
MASTER INVESTMENT PORTFOLIO--MONEY MARKET
MASTER PORTFOLIO--DECEMBER 31, 1999
Portfolio of Investments
<TABLE>
<CAPTION>
Yield to Maturity
Principal Security Name Maturity Date Value
CERTIFICATES OF DEPOSIT--13.85%
<S> <C> <C> <C> <C>
$ 5,000,000 Abbey National Treasury Service 5.04% 02/08/00 $ 4,999,997
5,000,000 ABN Amro Bank NV 5.14% 02/22/00 4,999,725
3,000,000 American Express Centurion 5.97% 02/03/00 3,000,000
10,000,000 Bank of Montreal 5.09% 04/14/00 9,998,902
3,000,000 Bayerische Hypo-Und Vereinsbank AG 5.23% 03/01/00 3,000,048
5,000,000 Chase Manhattan Bank 5.18% 03/15/00 4,999,414
3,000,000 Credit Suisse First Boston 5.60% 06/04/00 3,000,000
------------
TOTAL CERTIFICATES OF DEPOSIT $ 33,998,086
Yield to Maturity
Principal Security Name Maturity Date Value
COMMERCIAL PAPER--52.39%
3,000,000 Accor BNP 6.12% 02/04/00 2,982,660
1,195,000 Atlantis One Funding Corp 5.93% 03/23/00 1,178,859
8,096,000 BMW US Capital Corp 5.00% 01/03/00 8,093,751
3,528,000 Countrywide Home Loans Inc 6.12% 02/15/00 3,501,011
6,000,000 Countrywide Home Loans Inc 6.55% 02/03/00 5,963,975
9,000,000 Dorada Finance Inc 5.82% 03/08/00 8,902,515
5,000,000 Edison Asset Securization 5.86% 02/11/00 4,966,659
4,270,000 Enterprises Funding Corp 6.50% 01/14/00 4,259,977
2,977,000 Falcon Asset Securization 5.85% 02/18/00 2,953,779
5,000,000 Falcon Asset Securization 5.86% 02/08/00 4,969,072
2,184,000 Forrestal Funding 6.17% 01/18/00 2,177,637
4,166,000 Forrestal Funding 6.22% 01/18/00 4,153,763
3,000,000 General Electric Capital Corp 5.95% 03/16/00 2,962,812
2,100,000 General Electric Capital Corp 6.00% 02/07/00 2,087,050
3,000,000 General Electric Financial Assurance Holding 5.93% 04/10/00 2,950,584
8,000,000 Greenwich Funding Corp 5.85% 02/10/00 7,948,000
3,000,000 International Securitization Corp 6.20% 01/27/00 2,986,567
2,000,000 International Securitization Corp 6.85% 01/18/00 1,993,531
5,000,000 Intrepid Funding 5.88% 04/12/00 4,916,700
1,500,000 Kitty Hawk Funding Corp 5.86% 02/15/00 1,489,013
2,000,000 Lexington Parker Capital Corp 6.10% 01/28/00 1,990,850
8,000,000 Lexington Parker Capital Corp 6.59% 02/07/00 8,000,000
2,296,000 Liberty Street Funding Corp 5.93% 03/15/00 2,268,013
2,000,000 Liberty Street Funding Corp 5.95% 02/07/00 1,987,770
2,000,000 Liberty Street Funding Corp 6.09% 02/17/00 1,984,098
8,000,000 Merrill Lynch & Co Inc 6.15% 02/02/00 7,956,267
4,300,000 Monte Rosa Capital Corp 5.87% 02/04/00 4,276,161
2,000,000 Monte Rosa Capital Corp 5.95% 03/21/00 1,973,556
2,204,000 Monte Rosa Capital Corp 6.00% 03/20/00 2,174,980
2,000,000 Moriarty LLC 6.17% 01/26/00 1,991,431
1,258,000 Silver Tower US Funding LLC 5.90% 02/07/00 1,250,371
2,000,000 Special Purpose Accounts Receivable Corp 5.86% 02/10/00 1,986,978
2,000,000 Thames Asset Global Securitization No. 1 Inc 6.00% 01/18/00 1,994,333
3,000,000 Thames Asset Global Securitization No. 1 Inc 6.02% 02/15/00 2,977,425
3,000,000 Transportadora de Gas del Sur SA 6.00% 03/31/00 2,955,000
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
1,411,000 Variable Funding Capital Corp 7.00% 01/18/00 1,406,336
------------
TOTAL COMMERCIAL PAPER $128,611,484
Yield to Maturity
Principal Security Name Maturity Date Value
MEDIUM TERM NOTES--4.89%
7,000,000 Morgan Guaranty Trust Co 5.36% 04/05/00 7,000,000
5,000,000 SNB Key Bank Bank Notes 5.60% 06/16/00 4,998,464
------------
TOTAL MEDIUM TERM NOTES $ 11,998,464
Yield to Maturity
Principal Security Name Maturity Date Value
TIME DEPOSITS--5.30%
8,000,000 Bayerische Hypo-Und Vereinsbank AG 5.50% 01/03/00 8,000,000
5,000,000 Canadian Imperial Bank of Commerce 5.00% 01/03/00 5,000,000
------------
TOTAL TIME DEPOSITS $ 13,000,000
Yield to Maturity
Principal Security Name Maturity Date Value
U.S. GOVERNMENT AGENCY SECURITIES--2.04%
5,000,000 Federal Home Loan Bank 4.95% 02/17/00 4,999,693
------------
TOTAL U.S. GOVERNMENT AGENCY SECURITIES $ 4,999,693
Yield to Maturity
Principal Security Name Maturity Date Value
VARIABLE & FLOATING RATE NOTES--20.69%
4,818,056 Associates Manufactured Housing Certificates 6.69% 10/16/00 4,818,056
7,000,000 Ford Motor Credit Co 5.74% 08/18/00 6,995,629
10,000,000 GMAC Mortgage Corp 6.48% 01/04/00 9,994,603
8,000,000 National City Bank 6.46% 10/04/00 7,992,734
5,000,000 Norwest Financial Inc 6.49% 09/07/00 4,997,984
5,000,000 Sigma Finance Inc 5.90% 09/14/00 5,000,000
4,000,000 Sigma Finance Inc 5.99% 03/29/00 3,999,807
7,000,000 Special Purpose Accounts Receivable Corp 6.57% 02/07/00 7,000,000
------------
TOTAL VARIABLE & FLOATING RATE NOTES $ 50,798,813
Principal Security Name Value
REPURCHASE AGREEMENTS--0.00%
643 Morgan Stanley Tri-party Repurchase Agreement dated 12/31/99, due 643
01/03/00 with a maturity value of $643 and an effective yield of
2.40%, collateralized by U.S Treasury Notes with a rate of 6.25%,
a maturity of 04/30/01 and market value of $10,129.
------------
TOTAL REPURCHASE AGREEMENTS $ 643
TOTAL INVESTMENTS IN SECURITIES 99.16% $243,407,183
(Cost $243,407,183) * (Note 1)
Other Assets and Liabilities 0.84% 2,066,079
-------- ------------
TOTAL NET ASSETS 100.00% $245,473,262
======== ============
</TABLE>
________________________________________________________________________________
* Cost for income tax purposes is the same as for financial
statement purposes.
The accompanying notes are an integral part of these financial statements.
<PAGE>
Money Market Master Portfolio
Statement of Assets and Liabilities
December 31, 1999
================================================================================
ASSETS
Investments:
In securities, at market value (Cost $243,407,183) (Note 1).... $ 243,407,183
Receivables:
Interest....................................................... 2,140,308
--------------
Total Assets............................................ 245,547,491
--------------
LIABILITIES
Payables:
Due to BGI (Note 2)............................................ 74,229
--------------
Total Liabilities....................................... 74,229
--------------
TOTAL NET ASSETS............................................... $ 245,473,262
==============
The accompanying notes are an integral part of these financial statements.
<PAGE>
Money Market Master Portfolio
Statements of Operations
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
For the Period Ended For the Period Ended
December 31, 1999 * February 28, 1999 **
------------------------------- -------------------------------
<S> <C> <C>
NET INVESTMENT INCOME:
Interest............................................... $9,956,770 $5,516,159
------------------------------- -------------------------------
Total Investment Income............................ 9,956,770 5,516,159
------------------------------- -------------------------------
EXPENSES (NOTE 2):
Advisory fees.......................................... 189,564 104,611
------------------------------- -------------------------------
Total Expenses..................................... 189,564 104,611
------------------------------- -------------------------------
NET INVESTMENT INCOME................................... 9,767,206 5,411,548
------------------------------- -------------------------------
NET REALIZED GAIN ON INVESTMENTS
Net realized gain on sale of investments............... 4,552 -
Net Gain on Investments................................. 4,552 -
------------------------------- -------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS......................................... $9,771,758 $5,411,548
=============================== ===============================
</TABLE>
* For the ten months ended December 31, 1999. The Master Portfolio changed its
fiscal year end from February 28 to December 31.
** Period from September 1, 1998 (commencement of operations) to February 28,
1999.
The accompanying notes are an integral part of these financial statements.
<PAGE>
Money Market Master Portfolio
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
For the Period Ended For the Period Ended
December 31, 1999 * February 28, 1999 **
------------------------------- -------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income.................................. $ 9,767,206 $ 5,411,548
Net realized gain on sale of investments............... 4,552 -
Net increase in net assets resulting from operations......... 9,771,758 5,411,548
------------------------------- -------------------------------
Net increase (decrease) in net assets resulting from
beneficial interest transactions....................... (26,944,817) 257,234,773
------------------------------- -------------------------------
Increase (Decrease) in Net Assets............................ (17,173,059) 262,646,321
NET ASSETS:
Beginning net assets......................................... 262,646,321 -
------------------------------- -------------------------------
Ending net assets............................................ $245,473,262 $262,646,321
=============================== ===============================
</TABLE>
* For the ten months ended December 31, 1999. The Master Portfolio changed its
fiscal year end from February 28 to December 31.
** Period from September 1, 1998 (commencement of operations) to February 28,
1999.
The accompanying notes are an integral part of these financial statements.
<PAGE>
MONEY MARKET MASTER PORTFOLIO
NOTES TO THE FINANCIAL STATEMENTS
1. Significant Accounting Policies
Master Investment Portfolio ("MIP") is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as an open-end management
investment company. MIP was organized on October 20, 1993 as a Delaware business
trust pursuant to an Agreement and Declaration of Trust dated May 14, 1993, and
had no operations prior to March 1, 1994. MIP currently issues the following
separate portfolios (the "Master Portfolios"), the Asset Allocation, Bond Index,
LifePath Income (formerly "LifePath 2000"), LifePath 2010, LifePath 2020,
LifePath 2030, LifePath 2040, Money Market, S&P 500 Index, Extended Index,
International Index and U.S. Equity Index Master Portfolios. These financial
statements relate only to the Money Market Master Portfolio (the "Master
Portfolio"). The Money Market Master Portfolio commenced operations on September
1, 1998, with the transfer of $170,362,016 in securities from Money Market Fund,
of MasterWorks Funds Inc. (now Barclays Global Investors Funds, Inc.).
The following significant accounting policies are consistently followed by
MIP in the preparation of its financial statements, and such policies are in
conformity with generally accepted accounting principles for investment
companies. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Effective February 10, 1999, the Board of Trustees of MIP approved a change
in fiscal year-end of the Master Portfolio from February 28 to December 31.
Accordingly, the financial statements are presented for the ten-month period
ended December 31, 1999.
Security Valuation
The Master Portfolio uses the amortized cost method of valuation to
determine the value of its portfolio securities in accordance with Rule 2a-7
under the 1940 Act. The amortized cost method, which involves valuing a security
at its cost and accreting or amortizing any discount or premium, respectively,
over the period until maturity, approximates market value.
Security Transactions and Income Recognition
Security transactions are accounted for on the date securities are
purchased or sold (trade date). Interest income is recognized on a daily accrual
basis. Realized gains or losses are reported on the basis of identified cost of
securities delivered.
Federal Income Taxes
The Master Portfolio intends to qualify as a partnership for federal income
tax purposes. The Master Portfolio, therefore, believes that it will not be
subject to any federal income tax on its income and net realized capital gains
(if any). However, each investor in the Master Portfolio will be taxed on its
allocable share of the partnership's income and capital gains for the purposes
of determining its federal income tax liability. The determination of such share
will be made in accordance with the applicable sections of the Internal Revenue
Code of 1986, as amended (the "Code").
It is intended that the Master Portfolio's assets, income and allocations
will be managed in such a way that a regulated investment company investing in
the Master Portfolio will be able to satisfy the requirements of Subchapter M of
the Code, assuming that the regulated investment company invested all of its
assets in the Master Portfolio.
<PAGE>
Repurchase Agreements
Transactions involving purchases of securities under agreements to resell
such securities at a specified price and time ("repurchase agreements") are
treated as collateralized financing transactions and are recorded at their
contracted resale amounts. These repurchase agreements, if any, are detailed in
the Master Portfolio's Portfolio of Investments. The advisor to the Master
Portfolio may pool the Master Portfolio's cash and invest in repurchase
agreements entered into by the other Master Portfolios. The Master Portfolio's
prospectus requires that the cash investments be fully collateralized based on
values that are marked to market daily. The collateral is generally held by an
agent bank under a tri-party agreement. It is the advisor's responsibility to
value collateral daily and to obtain additional collateral as necessary to
maintain the value at equal to or greater than 102% of market value. The
repurchase agreements entered into on December 31, 1999 by the Master Portfolio
are collateralized by U.S. Government securities.
2. Agreements and Other Transactions with Affiliates
Pursuant to an Investment Advisory Contract with the Master Portfolio,
Barclays Global Fund Advisors ("BGFA") provides investment guidance and policy
direction in connection with the management of each Master Portfolio's assets.
BGFA is entitled to receive 0.10% of the average daily net assets of the Money
Market Master Portfolio, as compensation for advisory services. BGFA is an
indirect subsidiary of Barclays Bank PLC.
Investors Bank & Trust Company ("IBT") serves as the custodian to the
Master Portfolio. IBT will not be entitled to receive fees for its custodial
services so long as it is entitled to receive a separate fee from Barclays
Global Investors, N.A. ("BGI") for its services as Sub-Administrator of the
Master Portfolio.
Stephens Inc. ("Stephens"), is the sponsor and placement agent for the
Master Portfolio.
The MIP has entered into administration services arrangements with BGI and
Stephens, as co-administrators, who have agreed jointly to provide general
administration services to the Master Portfolio, such as managing and
coordinating third-party service relationships. BGI and Stephens are not
entitled to compensation for providing administration services to the Master
Portfolio. BGI and Stephens may delegate certain of their administration duties
to sub-administrators.
Certain officers and trustees of MIP are also officers of Stephens. As of
December 31, 1999, these officers of Stephens collectively owned less than 1% of
the Master Portfolio's outstanding beneficial interests.
Financial Highlights
The ratios of expenses and net investment income to average net assets for
the Master Portfolio are as follows:
<TABLE>
<CAPTION>
For the For the
Period Ended Period Ended
December 31, February 28,
Money Market Master Portfolio 1999 * 1999 **
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<S> <C> <C>
Ratio of expenses to average net assets + 0.10% 0.10%
Ratio of net investment income to average net assets + 5.23% 5.17%
</TABLE>
* For the ten months ended December 31, 1999. The Master Portfolio changed
its fiscal year end from February 28 to December 31.
** For the period from September 1, 1998 (commencement of operations) to
February 28, 1999.
+ Annualized for period of less than one year.
<PAGE>
Independent Auditors' Report
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To the Interestholders and Board of Trustees of
Master Investment Portfolio:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Money Market Master Portfolio (one portfolio of
Master Investment Portfolio) as of December 31, 1999, and the related statements
of operations and changes in net assets, for the ten-month period then ended and
for the period from September 1, 1999 (commencement of operations) to February
28, 1999. These financial statements are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1999 by correspondence with
the custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Money Market Master
Portfolio as of December 31, 1999, the results of its operations and the changes
in its net assets for the periods indicated above in conformity with generally
accepted accounting principles.
KPMG LLP
San Francisco, California
February 11, 2000
