<PAGE>
- --------------------------------------------------------------------------------
THE STRONG
INDEX 500 FUND
SEMI-ANNUAL REPORT o AUGUST 31, 1997
[PHOTO OF FAMILY WALKING]
[STRONG LOGO]
STRONG FUNDS
<PAGE>
8
EIGHT BASIC PRINCIPLES FOR SUCCESSFUL MUTUAL FUND INVESTING
These common-sense rules are followed by many successful investors. They make
sense for beginners, too. If you have a question on these principles, or would
like to discuss them with us, please contact us at 1-800-368-3863. We're here 24
hours a day, seven days a week to take your call.
- --------------------------------------------------------------------------------
[PICTURE OF FOLDER LABELED INVESTMENTS]
1. HAVE A PLAN. Even a simple plan can help you take control of your financial
future. Review your plan once a year, or if your circumstances change.
- --------------------------------------------------------------------------------
[PICTURE OF CLOCK]
2. START INVESTING AS SOON AS POSSIBLE. Make time a valuable ally. Let it put
the power of compounding to work for you, while helping to reduce your potential
investment risk.
- --------------------------------------------------------------------------------
[PICTURE OF PIE CHART OF ASSET DIVERSIFICATION]
3. DIVERSIFY YOUR PORTFOLIO. By investing in different asset classes - stocks,
bonds, and cash - you help protect against poor performance in one type of
investment while including investments most likely to help you achieve your
important goals.
- --------------------------------------------------------------------------------
[PICTURE OF MEMO REMINDER TO INVEST]
4. INVEST REGULARLY. Investing is a process, not a one-time event. By investing
regularly over the long term, you reduce the impact of short-term market
gyrations, and you attend to your long-term plan before you're tempted to spend
those assets on short-term needs.
- --------------------------------------------------------------------------------
[PICTURE OF GRAPH SLOPING UPWARD]
5. MAINTAIN A LONG-TERM PERSPECTIVE. For most individuals, the best discipline
is staying invested as market conditions change. Reactive, emotional investment
decisions are all too often a source of regret - and of principal loss.
- --------------------------------------------------------------------------------
[PICTURE OF PIE CHART OF ASSET DIVERSIFICATION EMPHASIZING STOCKS]
6. CONSIDER STOCKS TO HELP ACHIEVE MAJOR LONG-TERM GOALS. Over time, stocks have
provided the more powerful returns needed to help the value of your investments
stay well ahead of inflation.
- --------------------------------------------------------------------------------
[PICTURE OF DOLLAR SIGN]
7. KEEP A COMFORTABLE AMOUNT OF CASH IN YOUR PORTFOLIO. To meet current needs,
including emergencies, use a money market fund or a bank account - not your
long-term investment assets.
- --------------------------------------------------------------------------------
[PICTURE OF MAGNIFYING GLASS]
8. KNOW WHAT YOU'RE BUYING. Make sure you understand the potential risks and
rewards associated with each of your investments. Ask questions...request
information...make up your own mind. And choose a fund company that helps you
make informed investment decisions.
<PAGE>
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THE STRONG
INDEX 500 FUND
SEMI-ANNUAL REPORT o AUGUST 31, 1997
TABLE OF CONTENTS
INVESTMENT REVIEW
The Index 500 Fund ...................................................2
FINANCIAL INFORMATION--STRONG INDEX 500 FUND
Statement of Assets and Liabilities ..................................4
Statement of Operations ..............................................4
Statement of Changes in Net Assets ...................................5
Notes to Financial Statements ........................................5
Financial Highlights .................................................6
FINANCIAL INFORMATION--MASTER INVESTMENT PORTFOLIO - S&P 500 INDEX MASTER
PORTFOLIO
Schedule of Investments in Securities ................................7
Statement of Assets and Liabilities .................................12
Statement of Operations .............................................12
Statement of Changes in Net Assets ..................................13
Notes to Financial Statements .......................................14
<PAGE>
THE STRONG INDEX 500 FUND
THIS FUND IS DESIGNED TO PROVIDE INVESTORS WITH BROAD EXPOSURE TO THE
LARGE-CAPITALIZATION SECTOR OF THE U.S. MARKET.
The Strong Index 500 Fund seeks to replicate, as closely as practical (before
fees and expenses), the market capitalization-weighted total return of the
Standard & Poor's 500 Index.(R)* The Fund is designed to provide investors with
broad exposure to the large-capitalization sector of the U.S. market. As such,
it represents more than 70% of overall U.S. stock market valuation. This allows
investors wide diversification, and serves as a complement to actively managed
funds.
NEW RECORDS FOR THE S&P 500 INDEX
Economic conditions have remained favorable for U.S. equities since the
inception of the Strong Index 500 Fund. A 30-year low for inflation,
unemployment at its lowest level since 1973, and unchanged short-term interest
rates combined to sustain a strong equities market. The S&P 500 Index set record
highs several times this year, closing just under 900 on August 31, 1997. The
Strong Index 500 Fund returned 13.20% from its inception on May 1, 1997 through
August 31, 1997.(1)
MARKET CONDITIONS IN 1997
The U.S. equity market, as measured by the S&P 500 Index, returned 20.58% for
the first half of 1997. This half-year return almost matches the 22.95% return
posted for the entire 1996 calendar year. During the year, growth stocks in the
S&P 500 Index outperformed the value stocks, returning 24.49% versus 16.49%,
respectively. The high returns of the first half were largely concentrated in
the second quarter, as the market responded to the reporting of healthy
first-quarter earnings which were 19% above those of the previous year. August
experienced substantial volatility with the market down 5.60% for the month.
Overall, however, performance for the period remained positive.
ADDITIONS AND DELETIONS TO THE S&P 500 INDEX IN 1997
A deletion and subsequent addition to the S&P 500 Index is usually the result of
a corporate action (e.g. mergers, restructurings, tenders) which causes a
vacancy in the S&P 500 Index. Standard & Poor's will occasionally remove a name
due to lack of representation or other factors. Following are the list of
additions and deletions to the S&P 500 Index year-to-date through August 1997:
ADDITIONS:
Healthsouth Corp.
Conseco Inc.
Parametric Technology
Adobe Systems
Cardinal Health, Inc.
Charles Schwab
Countrywide Credit Industries
Equifax Inc.
Washington Mutual, Inc.
SunAmerica Inc.
NextLevel Systems
Apache Corp.
Anadarko Petroleum
Owens Illinois
Progressive Corp.
Huntington Bancshares
Mirage Resorts
Fort James Corp.
State Street Corp.
ClearChannel Communications
2
<PAGE>
DELETIONS:
Boatmen's Bancshares
Alexander & Alexander Services Inc.
Pacific Telesis
Santa Fe Pacific Gold
Conrail Inc.
Morgan Stanley
USLIFE Corp.
PanEnergy Corp.
Great Western Financial
Giddings & Lewis
General Instrument
Intergraph Corp.
Santa Fe Energy Resources
US Bancorp
McDonnell Douglas
Ensearch Corp.
NorAm Energy
James River
Nynex Corp.
Tandem Computers
Thank you for your investment in the Strong Index 500 Fund. We look forward to
serving your investment needs in the future.
================================================================================
GROWTH OF AN ASSUMED $10,000 INVESTMENT
From 5-1-97 to 8-31-97
================================================================================
[GRAPH]
Lipper S & P 500
THE STRONG S & P 500 Index Objective
INDEX 500 FUND Stock Index (R)* Funds Index*
4-97 10,000 10,000 10,000
5-97 10,640 10,642 10,644
6-97 11,110 11,119 11,117
7-97 11,991 12,003 12,001
8-97 11,320 11,331 11,327
This graph, provided in accordance with SEC regulations, compares a $10,000
investment in the Fund, made at its inception, with a similar investment in the
Standard & Poor's 500 Stock Index(R)("S&P 500") and the Lipper S&P 500 Index
Objective Funds Index. Results include the reinvestment of all dividends and
capital gains distributions. Performance is historical and does not represent
future results. Investment returns and principal value vary, and you may have a
gain or loss when you sell shares.
================================================================================
==============================
TOTAL RETURN(1)
As of 8-31-97
==============================
Since Inception 13.20%
(on 5-1-97)
==============================
- --------------------------------------------------------------------------------
* The S&P 500 Stock Index(R) is an unmanaged index generally representative
of the U.S. stock market, without regard to company size. The Lipper S&P
500 Index Objective Funds Index is an equally-weighted performance index of
the largest funds in this Lipper category. Source of the S&P index data is
Micropal. Source of the Lipper index data is Lipper Analytical Services,
Inc.
1 Total return is not annualized and measures aggregate change in the value
of an investment in the Fund, assuming reinvestment of dividends.
3
<PAGE>
STRONG INDEX 500 FUND
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1997 (Unaudited)
ASSETS:
Investment in S & P 500 Portfolio, at Value (Note 2) $11,605,453
Other Assets 20,148
----------
Total Assets 11,625,601
LIABILITIES:
Accrued Operating Expenses and Other Liabilities 11,751
-----------
NET ASSETS $11,613,850
===========
NET ASSETS CONSIST OF:
Capital Stock (par value and paid-in capital) $11,474,088
Undistributed Net Investment Income 28,498
Undistributed Net Realized Gain 94,169
Net Unrealized Appreciation 17,095
-----------
Net Assets $11,613,850
===========
Capital Shares Outstanding (Unlimited Number Authorized) 1,026,913
NET ASSET VALUE PER SHARE $11.31
======
STRONG INDEX 500 FUND
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Period Ended August 31, 1997 (Unaudited)
INVESTMENT INCOME:
Income Allocated from S & P 500 Portfolio, Net $ 41,536
EXPENSES:
Custodian Fees 606
Shareholder Servicing Costs 6,479
Reports to Shareholders 808
Federal and State Registration Fees 4,562
Administration Fee 1,028
Other 1,375
--------
Total Expenses before Waivers 14,858
Voluntary Expense Waivers by Advisor (7,063)
--------
Expenses, Net 7,795
--------
NET INVESTMENT INCOME 33,741
REALIZED AND UNREALIZED GAIN (LOSS) FROM S & P 500 PORTFOLIO:
Net Realized Gain on:
Investments 13,526
Futures Contracts, Options and Forward Foreign
Currency Contracts 80,643
--------
Net Realized Gain 94,169
Change in Unrealized Appreciation/Depreciation on:
Investments 96,677
Futures Contracts, Options and Forward Foreign
Currency Contracts (79,581)
--------
Net Change in Unrealized Appreciation/Depreciation 17,096
--------
NET GAIN 111,265
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $145,006
========
See notes to financial statements.
4
<PAGE>
STRONG INDEX 500 FUND
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
PERIOD ENDED
AUGUST 31, 1997
---------------
(UNAUDITED)
OPERATIONS:
Net Investment Income $ 33,741
Net Realized Gain 94,169
Change in Unrealized Appreciation/Depreciation 17,096
----------
Increase in Net Assets Resulting from Operations 145,006
DISTRIBUTIONS:
From Net Investment Income (5,243)
CAPITAL SHARE TRANSACTIONS:
Proceeds from Shares Sold 12,072,337
Proceeds from Reinvestment of Dividends 4,790
Payment for Shares Redeemed (603,040)
----------
Increase in Net Assets from Capital Share Transactions 11,474,087
----------
TOTAL INCREASE IN NET ASSETS 11,613,850
NET ASSETS:
Beginning of Period __
-----------
End of Period $11,613,850
===========
TRANSACTIONS IN SHARES OF THE FUND:
Shares Sold 1,079,240
Shares Issued in Reinvestment of Distributions 426
Shares Redeemed (52,753)
---------
Net Increase 1,026,913
=========
See notes to financial statements.
STRONG INDEX 500 FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
August 31, 1997 (Unaudited)
1. ORGANIZATION
The Strong Index 500 Fund (the "Fund") commenced operations on May 1, 1997
and is a diversified series of the Strong Equity Funds, Inc., an open-end
management investment company registered under the Investment Company Act
of 1940. The Fund invests all of its assets in the S & P 500 Index Master
Portfolio (the "Master Portfolio") of Master Investment Portfolio ("MIP"),
an open-end management investment company registered under the Investment
Company Act of 1940, rather than in a portfolio of securities. The Master
Portfolio has substantially the same investment objective as the Fund.
Barclays Global Fund Advisors serves as Investment Advisor for the Master
Portfolio. The financial statements of the Master Portfolio, including the
schedule of investments in securities, are contained elsewhere in this
report and should be read in conjunction with the Fund's financial
statements.
5
<PAGE>
STRONG INDEX 500 FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
August 31, 1997 (Unaudited)
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements.
(A) Security Valuation -- The Fund records its investment in the Master
Portfolio at value. Valuation of securities by the Master Portfolio is
discussed in Note 1 of the Master Portfolio's Notes to Financial
Statements, which are included elsewhere in this report.
(B) Federal Income and Excise Taxes and Distributions to Shareholders --
It is the Fund's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and
to distribute substantially all of its taxable income to its
shareholders in a manner which results in no tax cost to the Fund.
Therefore, no federal income or excise tax provision is required.
The character of distributions made during the period from net
investment income or net realized gains may differ from the
characterization for federal income tax purposes due to differences in
the recognition of income and expense items for financial statement
and tax purposes. Where appropriate, reclassifications between net
asset accounts are made for such differences that are permanent in
nature.
(C) Accounting for Investments -- The Fund earns income, net of Master
Portfolio expenses, daily based on its investment in the Master
Portfolio. All the net investment income, realized and unrealized gain
or loss of the Master Portfolio is allocated pro rata, based on
respective ownership interests, among the Fund and the other investors
in the Master Portfolio at the time of such determination. Dividend
income and other distributions from portfolio securities are recorded
on the ex-dividend date. Interest income is accrued daily.
(D) Expenses -- The Fund bears all costs of its operations other than
expenses specifically assumed by Strong Capital Management, Inc., the
Fund's shareholder servicing agent and transfer and
dividend-disbursing agent. Expenses incurred by the Master Portfolio
with respect to any two or more Funds or series are allocated pro
rata.
(E) Use of Estimates -- 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 increases and decreases in net assets from
operations during the reporting period. Actual results could differ
from those estimates.
3. RELATED PARTY TRANSACTIONS
Strong Capital Management, Inc. ("SCMI"), the Fund's transfer agent and
dividend-disbursing agent, provides shareholder recordkeeping and related
services to the Fund. Fees for these services are based on contractually
established rates for each open and closed shareholder account. In
addition, SCMI is compensated for certain other services related to costs
incurred for reports to shareholders.
<TABLE>
STRONG INDEX 500 FUND
- ---------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER-SHARE DATA (a)
-------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS
-------------------------------------- -------------------------
<CAPTION>
Net Asset Net Realized Total Net Asset
Value, Net and Unrealized from From Net Value,
Beginning Investment Gains on Investment Investment Total End of
of Period Income Investments Operations Income Distributions Period
<S> <C> <C> <C> <C> <C> <C> <C>
August 31, 1997 (b) $10.00 $0.04 $1.28 $1.32 ($0.01) ($0.01) $11.31
</TABLE>
STRONG INDEX 500 FUND (Continued)
- --------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
-----------------------------------------------------------
Net Ratio of Ratio of Net
Assets, Ratio of Expenses to Investment
End of Expenses Average Net Income
Total Period (In to Average Assets Without to Average
Return Thousands) Net Assets Waivers Net Assets
August 31, 1997 (b) +13.2% $11,614 0.4%* 0.7%* 1.6%*
* Calculated on an annualized basis.
(a) Information presented relates to a share of capital stock of the Fund
outstanding for the entire period.
(b) For the period from May 1, 1997 (inception) to August 31, 1997. (Unaudited)
Total return is not annualized.
6
<PAGE>
MASTER INVESTMENT PORTFOLIO - S&P 500 INDEX MASTER PORTFOLIO
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS August 31, 1997 (Unaudited)
SHARES OR
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS 94.83%
AEROSPACE & DEFENSE 2.26%
Allied Signal Inc 74,166 $ 6,123,330
Boeing Co 260,084 14,158,323
Briggs & Stratton Corp 7,364 355,773
General Dynamics Corp 16,302 1,298,047
Lockheed Martin Corp 50,650 5,251,772
Northrop Grumman Corp 17,353 2,031,386
Raytheon Co 61,931 3,406,205
Rockwell International Corp 55,565 3,333,900
Textron Inc 43,204 2,692,149
United Technologies Corp 62,070 4,845,339
-------------
43,496,224
AIRLINES 0.30%
AMR Corp+ 23,820 2,399,865
Delta Air Lines Inc 19,212 1,661,838
Southwest Airlines Co 37,812 1,058,736
USAir Group Inc+ 20,465 698,368
-------------
5,818,807
APPAREL 0.54%
CVS Corp 43,706 2,463,926
Fruit of the Loom Inc Class A+ 19,727 527,697
Liz Claiborne Inc 18,235 812,597
Nike Inc Class B 75,522 4,030,987
Reebok International Ltd 14,722 646,848
Russell Corp 9,786 278,901
Stride Rite Corp 12,732 151,193
VF Corp 16,759 1,481,077
-------------
10,393,226
AUTO PARTS & EQUIPMENT 0.86%
Cooper Tire & Rubber Co 20,858 524,057
Dana Corp 26,954 1,241,569
Deluxe Corp 21,538 709,408
Eaton Corp 20,211 1,820,253
Echlin Inc 16,338 605,527
Genuine Parts Co 47,120 1,454,830
Goodyear Tire & Rubber Co 40,790 2,513,684
Illinois Tool Works Inc 65,046 3,146,600
ITT Industries Inc 30,933 974,390
Navistar International Corp+ 18,868 468,162
PACCAR Inc 20,752 983,126
Pep Boys-Manny Moe & Jack 15,844 419,866
TRW Inc 32,542 1,696,252
-------------
16,557,724
AUTOMOBILES 1.65%
Chrysler Corp 180,046 6,324,116
Ford Motor Co 312,114 13,420,902
General Motors Corp Class A 190,864 11,976,716
-------------
31,721,734
BANK & FINANCE 10.90%
Ahmanson (H F) & Co 26,954 1,367,916
American Express Corp 123,706 9,618,142
Banc One Corp 150,500 8,070,563
Bank of New York Inc 102,066 4,554,695
BankAmerica Corp 185,654 12,218,354
BankBoston Corp 38,863 3,230,487
Bankers Trust Corp 20,887 2,167,026
Barnett Banks Inc 51,936 3,538,140
Beneficial Corp 14,046 1,005,167
Chase Manhattan Bank 112,768 12,538,392
Citicorp 121,277 15,477,977
Comerica Inc 27,557 1,951,380
CoreStates Financial Corp 53,989 3,320,324
Countrywide Credit Industries Inc 27,183 915,727
Equifax Inc 39,307 1,157,100
Federal Home Loan Mortgage Corp 181,556 5,911,917
Federal National Mortgage Assoc 277,764 12,221,616
Fifth Third Bancorp 41,442 2,424,357
First Chicago NBD Corp 81,740 5,864,845
First Union Corp 149,866 7,202,935
Fleet Financial Group Inc 68,651 4,423,699
Golden West Financial 15,003 1,234,934
Green Tree Financial Inc 35,659 1,566,767
Household International Inc 27,808 3,084,950
Huntington Bancshares Inc 41,460 1,342,268
Keycorp 58,609 3,553,171
MBNA Corp 87,500 3,363,281
Mellon Bank Corp 67,640 3,255,175
Merrill Lynch & Co Inc 86,584 5,324,916
MGIC Investment Corp 30,836 1,551,436
Morgan (J P) & Co Inc 48,220 5,171,595
Morgan Stanley Dean Witter 149,975 7,217,552
National City Corp 58,093 3,282,255
NationsBank Corp 191,131 11,348,403
Norwest Corp 97,863 5,621,006
PNC Bank Corp 83,894 3,628,416
Republic New York Corp 14,195 1,519,752
Ryder System Inc 20,749 740,480
Salomon Inc 28,274 1,692,906
Schwab (Charles) Corp 45,695 1,939,182
State Street Corp 42,422 2,115,797
SunTrust Banks Inc 58,107 3,631,688
U.S. Bancorp 64,357 5,635,260
Wachovia Corp 42,429 2,641,205
Washington Mutual Inc 65,447 3,918,639
Wells Fargo & Co 23,386 5,945,891
-------------
209,507,684
BASIC INDUSTRIES 2.14%
ASARCO Inc 10,889 334,837
Avery-Dennison Corp 26,778 1,099,572
Baker Hughes Inc 43,076 1,825,346
Bemis Co 13,894 610,468
Boise Cascade Corp 12,707 502,721
Champion International Corp 25,088 1,484,896
Cyprus Amax Minerals 24,186 610,697
Dover Corp 29,349 2,026,915
Echo Bay Mines Ltd 35,315 178,782
Fort James Corp 49,215 2,067,030
Georgia-Pacific Corp 23,864 2,177,590
Harnischfeger Industries Inc 12,582 504,853
Homestake Mining Co 37,488 524,832
Ikon Office Solutions Inc 34,462 896,012
Inco Ltd 43,186 1,168,721
Louisiana-Pacific Corp 28,410 628,571
Mead Corp 13,606 965,176
Minnesota Mining & Manufacturing Co 108,986 9,795,117
NACCO Industries Inc Class A 2,067 178,279
Newmont Mining Corp 40,583 1,717,168
Potlatch Corp 7,332 342,313
Stone Container Corp 25,264 435,804
Union Camp Corp 18,068 1,071,658
Westinghouse Electric Corp 166,405 4,284,929
Westvaco Corp 26,655 902,938
Weyerhauser Co 51,742 2,988,101
Whitman Corp 26,673 653,489
Willamette Industries Inc 14,510 1,157,173
-------------
41,133,988
BEVERAGES 3.17%
Anheuser-Busch Inc 129,910 5,537,414
Coca-Cola Co 648,966 37,193,864
Coors (Adolph) Co Class B 9,681 356,987
Pepsico Inc 401,221 14,443,956
Seagrams Co Ltd 97,005 3,389,112
-------------
60,921,333
7
<PAGE>
MASTER INVESTMENT PORTFOLIO - S&P 500 INDEX MASTER PORTFOLIO
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (continued) August 31, 1997 (Unaudited)
SHARES OR
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
BROADCASTING 0.40%
Kingworld Productions 9,583 $ 380,924
Tele-Communications Inc Class A 173,803 3,041,553
Tribune Co 32,142 1,589,020
Viacom Inc Class B+ 92,151 2,729,973
-------------
7,741,470
BUILDING MATERIALS & SERVICES 0.59%
Cooper Industries Inc 30,927 1,648,796
Corning Inc 60,063 3,175,831
Owens Corning Fiberglass Corp 13,902 563,900
Owens Illinois Inc+ 35,927 1,250,709
PPG Industries Inc 47,067 2,965,221
Snap-On Inc 15,901 667,842
Stanley Works 23,248 989,493
-------------
11,261,792
BUSINESS SERVICES 0.24%
Ecolab Inc 17,111 771,064
Waste Management Inc 118,597 3,795,104
-------------
4,566,168
CHEMICALS 2.67%
Air Products & Chemicals Inc 28,699 2,340,762
Clorox Co 13,479 1,769,119
Dow Chemical Co 60,962 5,395,137
Du Pont (E I) De Nemours 295,418 18,408,234
Eastman Chemical Co 20,428 1,221,850
FMC Corp+ 9,754 810,192
Goodrich (B F) Co 14,085 593,331
Grace (W R) Co 18,908 1,301,107
Great Lakes Chemical Corp 15,575 724,238
Hercules Inc 26,272 1,357,934
International Flavor & Fragrances 28,581 1,461,204
Monsanto Co 154,536 6,789,926
Morton International Inc 36,524 1,214,423
Nalco Chemical Co 17,231 689,240
Praxair Inc 41,149 2,198,900
Rohm & Haas Co 16,479 1,578,894
Rubbermaid Inc 39,222 980,550
Sigma-Aldrich Corp 26,188 854,384
Union Carbide Corp 32,926 1,689,515
-------------
51,378,940
COMPUTER SOFTWARE 4.26%
3Com Corp+ 86,937 4,341,416
Adobe Systems Inc 18,752 738,360
Autodesk Inc 12,484 546,175
Automatic Data Processing 76,700 3,494,644
Bay Networks Inc+ 51,983 1,838,899
Computer Associates International Inc 95,122 6,361,284
Computer Sciences Corp+ 20,024 1,489,285
First Data Corp 117,506 4,825,090
Microsoft Corp 313,700 41,467,219
Netscape Communications Corp+ 173 6,868
Novell Inc+ 90,652 849,863
Oracle Systems Corp 256,578 9,782,036
Parametric Technology Corp+ 33,322 1,547,390
Sun Microsystems Inc 96,608 4,637,184
-------------
81,925,713
COMPUTER SYSTEMS 4.76%
Amdahl Corp+ 30,939 380,936
Apple Computer Inc+ 33,012 718,011
Cabletron Systems Inc 40,822 1,234,866
Ceridian Corp+ 21,046 727,402
Cisco Systems Inc+ 173,615 13,086,231
Cognizant Corp 43,697 1,835,274
Compaq Computer Corp 179,670 11,768,385
Data General Corp+ 12,298 441,959
Dell Computer Corp 87,752 7,201,149
Digital Equipment Corp+ 40,309 1,733,287
EMC Corp+ 64,274 3,298,060
Harris Corp 10,422 908,017
Hewlett-Packard Co 266,088 16,314,521
International Business Machine Corp 259,982 26,225,684
Seagate Technology Inc 64,005 2,444,191
Shared Medical System Corp 7,489 366,961
Silicon Graphics Inc+ 46,194 1,267,448
Tandem Computers Inc+ 30,095 1,023,230
Unisys Corp+ 44,667 505,295
-------------
91,480,907
CONTAINER & PACKAGING 0.51%
Ball Corp 7,865 258,562
Crown Cork & Seal Co 33,582 1,708,484
International Paper Co 78,745 4,153,799
Temple-Inland Inc 14,601 941,765
Tenneco Inc 44,682 2,169,870
Tupperware Corp 15,867 532,536
-------------
9,765,016
ELECTRICAL EQUIPMENT 3.69%
Aeroquip-Vickers Inc 7,125 398,109
General Electric Co 858,732 53,670,750
Grainger ( W W) Inc 13,546 1,203,054
Masco Corp 42,140 1,872,596
Motorola Inc 155,603 11,417,370
National Service Industries Inc 12,083 534,673
Raychem Corp 11,526 1,072,638
Thomas & Betts Corp 14,128 791,168
-------------
70,960,358
ELECTRONICS 4.20%
Advanced Micro Devices+ 36,657 1,372,346
AMP Inc 57,420 2,871,000
Applied Materials Inc+ 47,294 4,463,371
EG&G Inc 12,101 257,146
Emerson Electric Co 116,630 6,378,203
General Semiconductor Inc 6,286 88,783
General Signal Corp 13,174 571,422
Honeywell Inc 33,272 2,299,927
Intel Corp 428,748 39,498,410
Johnson Controls Inc 21,896 1,044,166
LSI Logic Corp+ 37,017 1,191,485
Micron Technology Inc+ 54,893 2,446,169
National Semiconductor+ 36,793 1,260,160
Nextlevel Systems Inc+ 38,322 768,835
Perkin-Elmer Corp 11,306 836,644
Pitney Bowes Inc 38,221 2,919,129
Tektronix Inc 8,695 483,116
Texas Instruments Inc 49,937 5,674,092
Xerox Corp 84,579 6,385,715
-------------
80,810,119
ENERGY & RELATED 9.06%
Amerada Hess Corp 24,279 1,411,217
Amoco Corp 129,438 12,239,981
Anadarko Petroleum Corp 15,564 1,142,981
Apache Corp 23,598 936,546
Ashland Inc 19,426 973,728
Atlantic Richfield Corp 84,282 6,321,150
Burlington Resources Inc 32,684 1,654,628
Chevron Corp 171,067 13,247,001
Coastal Corp 27,589 1,593,265
Columbia Gas System Inc 14,586 962,676
Consolidated Natural Gas Co 24,953 1,473,787
Dresser Industries Inc 46,018 1,921,252
Eastern Enterprises 5,235 186,824
Enron Corp 79,990 3,084,614
Exxon Corp 650,050 39,774,934
Halliburton Co 66,012 3,152,073
Helmerich & Payne Inc 6,485 458,003
Kerr--McGee Corp 12,431 772,276
Louisiana Land & Exploration Co 8,809 674,439
8
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (continued) August 31, 1997 (Unaudited)
SHARES OR
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Mobil Corp 205,922 $ 14,980,826
NICOR Inc 12,722 461,968
Occidental Petroleum Corp 86,203 2,020,383
ONEOK Inc 6,911 223,744
Oryx Energy Co+ 27,520 727,560
Pacific Enterprises Co 21,831 719,059
Pennzoil Co 12,264 946,628
Peoples Energy Corp 8,954 337,454
Phillips Petroleum Co 69,090 3,286,093
Rowan Co Inc+ 22,436 670,276
Royal Dutch Petroleum Corp 561,372 28,489,629
Schlumberger Ltd 129,218 9,844,796
Sonat Offshore Drilling Co 22,592 1,125,364
Sun Co Inc 19,224 747,333
Texaco Inc 68,875 7,937,844
Union Pacific Resources Group 66,275 1,656,875
Unocal Corp 65,202 2,546,953
USX--Marathon Group 75,192 2,448,440
Western Atlas Inc+ 14,096 1,117,108
Williams Co Inc 41,352 1,925,453
-------------
174,195,161
ENGINEERING & CONSTRUCTION 0.18%
Armstrong World Industries Inc 10,524 720,236
Centex Corp 7,343 399,276
Fleetwood Enterprises Inc 9,037 281,277
Fluor Corp 22,042 1,237,107
Foster Wheeler Corp 10,629 485,612
Kaufman & Broad Home Corp 9,868 197,360
Pulte Corp 5,881 215,392
-------------
3,536,260
ENTERTAINMENT & LEISURE 1.61%
Brunswick Corp 25,942 791,231
Disney (Walt) Co 176,707 13,573,306
Harrah's Entertainment Inc+ 26,336 590,914
Hasbro Inc 33,162 891,215
Mattel Inc 76,141 2,545,965
Mirage Resorts Inc+ 46,036 1,234,340
Polaroid Corp 11,662 615,899
Time Warner Inc 146,333 7,536,150
U.S. West Media Group+ 158,245 3,164,900
-------------
30,943,920
ENVIRONMENTAL CONTROL 0.12%
Browning-Ferris Industries Inc 55,567 1,941,372
Safety-Kleen Corp 14,867 300,128
-------------
2,241,500
FOOD & RELATED 3.90%
Albertson's Inc 65,465 2,250,359
American Stores Co 71,074 1,683,565
Archer-Daniels-Midland Co 148,430 3,209,789
Brown-Forman Corp Class B 18,024 869,658
Campbell Soup Co 121,636 5,640,870
ConAgra Inc 62,505 4,019,853
CPC International Inc 37,406 3,333,810
Darden Restaurants Inc 40,772 410,268
Fleming Co Inc 9,712 183,314
General Mills Inc 42,086 2,698,765
Giant Food Inc Class A 15,286 496,795
Great Atlantic & Pacific Tea Co 9,783 245,186
Harcourt General Inc 18,488 879,336
Heinz (H J) Co 95,963 3,994,460
Hershey Foods Corp 39,298 2,097,531
Kellogg Co 109,678 4,908,091
Kroger Co 66,314 1,997,709
McDonald's Corp 180,526 8,541,136
Pioneer Hi Bred International Inc 21,510 1,843,138
Quaker Oats Co 35,792 1,682,224
Ralston-Purina Group 27,735 2,496,150
Sara Lee Corp 125,773 5,062,363
Super Value Inc 16,966 665,916
Sysco Corp 45,573 1,617,842
Unilever NV (Netherlands) 41,867 8,425,734
UST Inc 47,789 1,379,907
Wendy's International Inc 34,276 824,766
Winn-Dixie Stores Inc 38,610 1,300,674
Wrigley (W M) Jr Co 30,396 2,203,710
-------------
74,962,919
FURNITURE & APPLIANCES 0.10%
Maytag Corp 25,607 702,592
Whirlpool Corp 19,476 1,115,001
-------------
1,817,593
HEALTHCARE 0.39%
Cardinal Health Inc 28,378 1,880,043
Healthsouth Corp 89,454 2,230,759
St Jude Medical Inc+ 23,956 911,825
United Healthcare Corp 48,694 2,367,746
-------------
7,390,373
HOSPITAL & MEDICAL SUPPLIES 2.48%
Bard (C R) Inc 14,633 504,839
Bausch & Lomb Inc 14,585 598,897
Baxter International Inc 72,639 3,863,487
Becton Dickinson & Co 31,775 1,523,214
Beverly Enterprises+ 25,214 411,303
Biomet Inc 29,408 610,216
Boston Scientific Corp+ 51,064 3,600,012
Columbia/HCA Healthcare Corp 174,761 5,515,882
Guidant Corp 19,360 1,700,050
Johnson & Johnson 348,690 19,766,364
Mallinckrodt Group Inc 18,927 688,470
Manor Care Inc 16,592 512,278
Medtronic Inc 62,480 5,646,630
Tenet Healthcare Corp+ 78,681 2,144,057
United States Surgical 19,125 629,930
-------------
47,715,629
HOUSEHOLD PRODUCTS 2.61%
Alberto-Culver Co Class B 14,428 421,117
Avon Products Inc 34,523 2,211,630
Colgate-Palmolive Co 77,368 4,854,842
Gillette Co 145,741 12,069,177
Kimberly-Clark Corp 147,044 6,975,400
Procter & Gamble Co 177,350 23,598,634
-------------
50,130,800
INSURANCE 4.44%
Aetna Inc 39,527 3,772,358
Allstate Corp 115,721 8,454,866
American General Corp 63,077 3,039,501
American International Group Inc 184,403 17,403,033
Aon Corp 43,472 2,214,355
Chubb Corp 45,680 3,054,850
CIGNA Corp 19,491 3,574,162
Conseco Inc 49,581 2,131,983
General Re Corp 21,270 4,123,721
Hartford Financial Services Group 30,849 2,460,208
Humana Inc+ 42,637 1,004,634
Jefferson-Pilot Corp 18,481 1,285,585
Lincoln National Corp 26,832 1,796,067
Loews Corp 29,973 3,055,373
Marsh & McLennan Companies Inc 43,304 2,955,498
MBIA Inc 11,379 1,288,672
Progressive Corp Ohio 18,644 1,845,756
Providian Financial Corp 24,506 912,849
SAFECO Corp 32,942 1,618,276
St Paul Co 21,873 1,604,931
Sunamerica Inc 34,083 1,836,222
Torchmark Corp 36,508 1,375,895
Transamerica Corp 17,267 1,701,879
Travelers Inc 167,915 10,662,603
9
<PAGE>
MASTER INVESTMENT PORTFOLIO - S&P 500 INDEX MASTER PORTFOLIO
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (continued)
SHARES OR
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
UNUM Corp 37,598 $ 1,550,918
USF & G Corp 29,463 646,345
-------------
85,370,540
LODGING 0.34%
HFS Inc+ 41,225 2,295,717
Hilton Hotels Corp 65,112 1,998,125
Marriott International 33,134 2,205,482
-------------
6,499,324
MACHINERY 0.97%
Black & Decker Corp 24,769 948,962
Case Corp 19,343 1,297,190
Caterpillar Inc 99,556 5,780,470
Cincinnati Milacron Inc 10,313 265,560
Cummins Engine Co Inc 10,100 777,069
Deere & Co 66,705 3,735,480
Ingersoll-Rand Co 28,397 1,707,370
McDermott International Inc 14,171 457,015
Pall Corp 33,038 782,588
Parker Hannifin Corp 19,476 1,252,550
Thermo Electron Corp+ 39,179 1,576,955
-------------
18,581,209
MANUFACTURING 0.26%
Tyco International Ltd+ 63,994 5,019,529
METAL FABRICATORS 1.05%
Alcan Aluminum Ltd 59,261 2,070,431
Allegheny Teledyne Inc 45,902 1,417,224
Aluminum Co of America 45,466 3,739,579
Armco Inc+ 26,955 160,045
Barrick Gold Corp 97,357 2,214,872
Battle Mountain Gold Co 60,079 341,699
Bethlehem Steel Corp+ 29,083 348,996
Crane Co 11,799 520,609
Engelhard Corp 37,681 786,591
Freeport McMoRan Inc 52,374 1,466,472
Inland Steel Industries Inc 12,545 264,229
Nucor Corp 22,964 1,301,772
Phelps Dodge Corp 16,681 1,341,778
Placer Dome Inc 62,616 1,040,991
Reynolds Metals Co 19,131 1,352,323
Timken Co 16,380 613,226
USX--U.S. Steel Group 22,494 790,102
Worthington Industries Inc 24,730 459,051
-------------
20,229,990
PHARMACEUTICALS 7.03%
Abbott Laboratories 202,591 12,142,798
Allergan Inc 17,270 559,116
ALZA Corp+ 22,350 648,150
American Home Products Corp 168,509 12,132,648
Amgen Inc 69,414 3,440,331
Bristol-Myers Squibb Co 261,682 19,887,832
Lilly (Eli) & Co 145,391 15,211,533
Merck & Co Inc 315,931 29,006,415
Millipore Corp 11,398 564,201
Pfizer Inc 338,042 18,719,076
Pharmacia and Upjohn Inc 132,874 4,526,021
Schering-Plough Corp 192,284 9,229,632
Warner Lambert Co 70,991 9,020,294
-------------
135,088,047
PUBLISHING 0.89%
American Greetings Corp Class A 21,264 738,924
Comcast Corp Class A 91,606 2,147,016
Donnelley (R R) & Sons Co 38,808 1,511,087
Dow Jones & Co Inc 25,157 1,077,034
Gannett Co Inc 37,077 3,612,690
Harland (John H) Co 7,872 155,964
Interpublic Group Co Inc 32,163 1,567,922
Knight-Ridder Inc 24,031 1,216,569
McGraw-Hill Inc 26,044 1,596,823
Meredith Corp 14,020 420,600
Moore Corp Ltd 25,491 505,040
New York Times Co Class A 24,881 1,175,627
Times Mirror Co Class A 25,283 1,281,532
-------------
17,006,828
RETAIL & RELATED 4.35%
AutoZone Inc+ 39,565 1,117,711
Charming Shoppes Inc+ 26,456 159,561
Circuit City Stores Inc 25,632 913,140
Costco Co Inc+ 55,369 1,996,745
Dayton-Hudson Corp 56,896 3,243,072
Dillards Inc Class A 29,716 1,188,640
Eastman Kodak Co 86,806 5,674,942
Federated Department Stores Inc+ 54,294 2,280,348
Gap Inc 72,123 3,204,966
Home Depot Inc 190,637 8,995,684
Jostens Inc 9,929 239,537
K Mart Corp+ 126,719 1,758,226
Limited Inc 70,441 1,602,533
Longs Drug Stores Corp 9,984 252,720
Lowe's Co Inc 45,192 1,561,949
May Department Stores Co 62,075 3,340,411
Mercantile Stores Co Inc 9,501 593,219
Newell Co 41,502 1,634,141
Nordstrom Inc 20,707 1,211,360
Penney (J C) Co Inc 64,629 3,877,740
Rite Aid Corp 32,157 1,609,860
Sears Roebuck & Co 102,528 5,818,464
Sherwin Williams Co 45,034 1,235,620
Tandy Corp 14,887 988,125
TJX Companies Inc 40,734 1,120,185
Toys R Us Inc+ 74,871 2,587,729
Walgreen Co 128,636 3,465,132
Walmart Stores Inc 593,071 21,054,021
Woolworth (F W) Co+ 35,094 785,228
-------------
83,511,009
SERVICES 0.43%
Block (H R) Inc 27,209 1,067,953
CUC International Inc 106,717 2,507,850
Dun & Bradstreet Corp 44,697 1,251,516
Public Service Enterprise Group 61,150 1,517,284
Service Corp International+ 62,554 2,001,728
-------------
8,346,331
TELECOMMUNICATIONS 6.82%
Airtouch Communications+ 131,689 4,452,734
Alltel Corp 48,852 1,544,945
Ameritech Corp 143,775 9,012,895
Andrew Corp 23,844 593,107
AT & T Corp 425,324 16,587,636
Bell Atlantic Corp 203,130 14,701,540
BellSouth Corp 259,819 11,432,036
DSC Communications Corp+ 30,680 893,555
Frontier Corp 42,904 946,570
GTE Corp 250,376 11,157,381
ITT Corp+ 30,429 1,911,322
Lucent Technologies Inc 167,495 13,043,673
MCI Communications Corp 179,481 5,115,209
Northern Telecom Ltd 68,103 6,750,710
SBC Communication Inc 238,641 12,976,104
Scientific-Atlanta Inc 19,816 430,998
Sprint Corp 112,622 5,293,234
Tellabs Inc 47,254 2,820,473
U.S. West Inc 125,516 4,495,042
WorldCom Inc+ 233,739 6,997,561
-------------
131,156,725
TEXTILES 0.01%
Springs Industries Inc Class A 5,089 239,183
10
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (continued) August 31, 1997 (Unaudited)
SHARES OR
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
TOBACCO 1.52%
Fortune Brands Inc 44,839 $ 1,541,341
Philip Morris Co Inc 635,928 27,742,359
-------------
29,283,700
TRANSPORTATION 0.94%
Burlington Northern Santa Fe 40,323 3,697,115
Caliber Systems Inc 9,949 415,371
CSX Corp 57,063 3,263,290
Federal Express Corp 29,958 1,990,335
Laidlaw Inc Class B 85,931 1,256,741
Norfolk Southern Corp 32,942 3,228,316
Union Pacific Corp 64,657 4,198,664
-------------
18,049,832
UTILITIES 2.19%
American Electric Power Inc 49,257 2,151,915
Baltimore Gas & Electric Co 38,620 1,042,740
Carolina Power & Light Co 39,509 1,333,429
Central & South West Corp 55,516 1,148,487
Cinergy Corp 41,181 1,361,547
Consolidated Edison Co 61,399 1,880,344
Dominion Resources Inc 48,121 1,732,356
DTE Energy Co 38,040 1,126,935
Duke Power Co 93,985 4,552,399
Edison International 106,986 2,581,037
Entergy Corp 62,101 1,540,881
FPL Group Inc 47,671 2,216,702
GPU Inc 31,497 1,059,087
Houston Industries Inc 70,943 1,436,591
Niagara Mohawk Power Corp+ 36,832 329,186
Northern States Power Co 18,040 868,175
Ohio Edison Co 39,938 878,636
Pacificorp 77,197 1,601,838
PECO Energy Co 58,243 1,386,911
PG & E Corp 114,734 2,660,395
PP & L Resources Inc 43,002 943,356
Southern Co 178,070 3,750,599
Texas Utilities Co 62,797 2,190,058
Unicom Corp 56,559 1,336,206
Union Electric Co 26,667 991,679
-------------
42,101,489
-------------
TOTAL COMMON STOCKS (COST $1,206,415,191) 1,822,859,094
SHORT-TERM INVESTMENTS 9.17%
CASH EQUIVALENTS 2.15%
Dreyfus Cash Management Fund++ $ 1,035,819 1,035,819
Janus Institutional Money Market Fund++ 26,000,000 26,000,000
Merrimac Premium Money Market Fund++ 14,370,000 14,370,000
-------------
41,405,819
REPURCHASE AGREEMENTS 2.03%
Goldman Sachs Repurchase Agreement++, dated
8/29/97, due 9/03/97, with a maturity value
of $39,000,000 and an effective yield of
5.67%, collateralized by a Federal National
Mortgage Association obligation with a rate
of 6.07% with a maturity date of 02/01/31
and with an aggregate market value of
$39,780,000. 39,000,000 39,000,000
U.S. TREASURY BILLS 4.99%+++
U.S. Treasury Bills, Due 9/04/97 thru 11/28/97 96,643,000 95,950,573
-------------
TOTAL SHORT-TERM INVESTMENTS
(COST $176,311,532) 176,356,392
--------------
TOTAL INVESTMENTS IN SECURITIES
(COST $1,382,726,723)*
(NOTES 1 AND 3) 104.00% 1,999,215,486
Other Assets and Liabilities, Net (4.00%) (76,953,176)
--------------
TOTAL NET ASSETS 100.00% $1,922,262,310
==============
+ Non-income earning securities.
++ Represents collateral received from securities lending transactions. See
Note 4.
+++ These U.S. Treasury Bills are held in Segregated Accounts in connection
with the Fund's holdings of S&P 500 Futures Contracts. See Note 1.
* Cost for federal income tax purposes is the same as for financial statement
purposes and net unrealized appreciation consists of:
Gross Unrealized Appreciation $623,462,073
Gross Unrealized Depreciation (6,973,310)
------------
Net Unrealized Appreciation $616,488,763
============
The accompanying notes are an integral part of these financial statements.
11
<PAGE>
MASTER INVESTMENT PORTFOLIO - S&P 500 INDEX MASTER PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS & LIABILITIES
August 31, 1997 (Unaudited)
ASSETS:
INVESTMENTS:
In securities, at market value (see cost below) (Note 1) $1,999,215,486
Cash 952
RECEIVABLES:
Investments sold 0
Dividends and interest 3,196,201
Variation margin on futures 374,276
--------------
TOTAL ASSETS 2,002,786,915
LIABILITIES:
PAYABLES:
Cash overdraft due to custodian (Note 2) 0
Variation margin on futures contracts 0
Investment securities purchased 0
Collateral for securities loaned (Note 4) 80,405,819
Due to BGI (Note 2) 118,786
--------------
TOTAL LIABILITIES 80,524,605
--------------
TOTAL NET ASSETS $1,922,262,310
==============
INVESTMENTS AT COST $1,382,726,723
==============
The accompanying notes are an integral part of these financial statements.
MASTER INVESTMENT PORTFOLIO - S&P 500 INDEX MASTER PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Six Months Ended August 31, 1997 (Unaudited)
INVESTMENT INCOME
Dividends $ 14,112,327
Interest* 3,533,223
------------
TOTAL INVESTMENT INCOME 17,645,550
EXPENSES (NOTE 2)
Advisory fees 424,610
------------
TOTAL EXPENSES 424,610
LESS:
Waived fees by BGI (Note 2) 0
- ------------
NET EXPENSES 424,610
------------
NET INVESTMENT INCOME (LOSS) 17,220,940
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on sale of investments 4,788,786
Net realized gain (loss) on sale of futures contracts 18,163,342
Net change in unrealized appreciation (depreciation)
of investments 191,818,867
Net change in unrealized appreciation (depreciation)
of futures contracts (3,272,475)
------------
NET GAIN (LOSS) ON INVESTMENTS 211,498,520
------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $228,719,460
============
* Interest income includes security lending income of: $19,868
The accompanying notes are an integral part of these financial statements.
12
<PAGE>
<TABLE>
MASTER INVESTMENT PORTFOLIO - S&P 500 INDEX MASTER PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
For the For the
Six Months Ended Year Ended
August 31, 1997 February 28, 1997
---------------- -----------------
(Unaudited)
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
<S> <C> <C>
Net investment income $ 17,220,940 $ 26,709,655
Net realized gain (loss) on sale of investments 4,788,786 10,656,049
Net realized gain on sale of futures contracts 18,163,342 12,210,399
Net change in unrealized appreciation (depreciation) of investments 191,818,867 229,538,430
Net change in unrealized appreciation (depreciation) of futures contracts (3,272,475) 160,200
-------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 228,719,460 279,274,733
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM BENEFICIAL
INTEREST TRANSACTIONS 209,206,404 274,728,651
-------------- --------------
INCREASE (DECREASE) IN NET ASSETS 437,925,864 554,003,384
NET ASSETS:
Beginning net assets $1,484,336,446 $ 930,333,062
-------------- --------------
ENDING NET ASSETS $1,922,262,310 $1,484,336,446
============== ==============
The accompanying notes are an integral part of these financial statements.
13
</TABLE>
<PAGE>
MASTER INVESTMENT PORTFOLIO - S&P 500 INDEX MASTER PORTFOLIO
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
August 31, 1997 (Unaudited)
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 May 26, 1994. MIP currently issues,
the following separate portfolios (the "Master Portfolios"), the Asset
Allocation, Bond Index, LifePath 2000, LifePath 2010, LifePath 2020, LifePath
2030, LifePath 2040, S&P 500 Index and U.S. Treasury Allocation Master
Portfolios.
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.
SECURITY VALUATION
The equity securities of each Master Portfolio are valued at the last
reported sale price on the primary securities exchange or national securities
market on which such securities are traded. Securities not listed on an
exchange or national securities market, or securities in which there was no
last reported sales price, are valued at the most recent bid prices. Debt
securities maturing in 60 days or less are valued at amortized cost, which
approximates market value. Debt securities, other than those maturing in 60
days or less, are valued at the latest quoted bid price. Any securities,
restricted securities or other assets for which market quotations are not
readily available, are valued at fair value as determined in good faith in
accordance with policies approved by MIP's Board of Trustees.
SECURITY TRANSACTIONS AND INCOME RECOGNITION
Security transactions are accounted for on the date the securities are
purchased or sold (trade date). Dividend income is recognized on the
ex-dividend date, and interest income is recognized on a daily accrual basis.
Realized gains or losses are reported on the basis of identified cost of
securities delivered. Bond discounts and premiums are amortized as required
by the Internal Revenue Code of 1986, as amended (the "Code").
FEDERAL INCOME TAXES
Each Master Portfolio intends to qualify as a partnership for federal
income tax purposes. Each 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 a Master Portfolio will be
taxed on its allocable share of the partnership's income and capital gains
for purposes of determining its federal income tax liability. The
determination of such share will be made in accordance with the applicable
sections of the Code.
It is intended that each Master Portfolio's assets, income and allocations
will be managed in such a way that a regulated investment company investing
in a Master Portfolio will be able to satisfy the requirements of Subchapter
M of the Code, assuming that the investment company invested all of its
assets in the corresponding Master Portfolio.
FUTURES CONTRACTS
The S&P 500 Index Master Portfolio may purchase futures contracts to gain
exposure to market changes as this may be more efficient or cost effective
than actually buying the securities. A futures contract is an agreement
between two parties to buy and sell a security at a set price on a future
date and is exchange traded. Upon entering into a futures contract, the S&P
500 Index Master Portfolio is required to pledge to the broker an amount of
cash, U.S. Government securities or other high-quality debt securities equal
to the minimum "initial margin" requirements of the exchange. Pursuant to the
contract, the Master Portfolio agrees to receive from or pay to the broker an
amount of cash equal to the daily fluctuation in the value of the contract.
Such receipts or payments are known as "variation margin" and are recorded by
the Master Portfolio as unrealized gains or losses. When the contract is
closed, the Master Portfolio records a gain or loss equal to the difference
between the value of the contract at the time it was opened and the value at
the time it was closed. Pursuant to regulations and/or published positions of
the Securities and Exchange Commission, the Master Portfolio is required to
segregate cash, U.S. Government obligations or high quality, liquid debt
instruments in connection with futures transactions in an amount generally
equal to the entire futures
14
<PAGE>
- --------------------------------------------------------------------------------
contract amount. Risks of entering into futures contracts include the
possibility that there may be an illiquid market and that a change in the
value of the contracts may not correlate with changes in the value of the
underlying securities. As of August 31, 1997, the S&P 500 Index Master
Portfolio had open futures contracts outstanding:
<TABLE>
S&P 500 Index Master Portfolio
<CAPTION>
Expiration Notional Net Unrealized
Number of Contracts Type Date Contract Value Depreciation
<S> <C> <C> <C> <C>
207 S&P 500 Index December 1997 $94,474,800 $(2,458,075)
</TABLE>
The S&P 500 Index Master Portfolio has pledged to brokers U.S. Treasury
Bills for initial margin requirements with a par value of $346,725.
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 each Master Portfolio's Portfolio of Investments. The adviser to the
Master Portfolio may pool each Master Portfolio's cash and invest in
repurchase agreements entered into by the other Master Portfolios. Each
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 adviser'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
August 31, 1997 by the Master Portfolio is collateralized by U.S. Government
Securities.
2. AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
Pursuant to an Investment Advisory Contract with each 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 0.05% of the average daily net assets of
the S&P 500 Index Master Portfolio as compensation for advisory services.
BFGA is an indirect subsidiary of Barclays Bank PLC.
Investors Bank & Trust Company ("IBT") serves as the custodian to each
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 BGI for its
services as Sub-Administrator of the MasterWorks Funds.
Certain officers and directors of MIP are also officers of Stephens. As of
August 31, 1997, these officers of Stephens collectively owned less than 1%
of the Master Portfolios' outstanding beneficial interest.
ORGANIZATION EXPENSES
Stephens, the co-administrator, sponsor and placement agent for the Master
Portfolios, has paid all expenses in connection with the Master Portfolios'
organization and initial registration.
3. INVESTMENT PORTFOLIO TRANSACTIONS
Purchases and sales of investments, exclusive of short-term securities, for
the S&P 500 Index Master Portfolio for the six months ended August 31, 1997
is as follows:
Aggregate Purchases S&P 500 Index
and Sales of: Master Portfolio
U.S. GOVERNMENT
OBLIGATIONS:
Purchases at cost $ 0
Sales proceeds 0
OTHER SECURITIES:
Purchases at cost 260,359,891
Sales proceeds 20,268,015
15
<PAGE>
MASTER INVESTMENT PORTFOLIO - S&P 500 INDEX MASTER PORTFOLIO
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
August 31, 1997 (Unaudited)
4. PORTFOLIO SECURITIES LOANED
As of August 31, 1997, the S&P 500 Index Master Portfolio had loaned
securities which were collateralized by cash, money market mutual funds, and
repurchase agreements. Each Master Portfolio receives transaction fees for
providing services in connection with the securities lending program. The
value of the securities on loan and the value of the related collateral were
as follows:
Securities Collateral
S&P 500 Index Master Portfolio $77,673,939 $80,405,819
5. FINANCIAL HIGHLIGHTS
The portfolio turnover rates, excluding short-term securities, for the S&P
500 Index Master Portfolio is as follows:
<TABLE>
<CAPTION>
For the
For the Period from
Six Months For the For the May 26, 1994
Ended Year Ended Year Ended (commencement
August 31, 1997 February 28, February 29, of operations) to
(Unaudited) 1997 1996 February 28, 1995
<S> <C> <C> <C> <C>
S&P 500 Index Master Portfolio 1% 4% 2% 5%
</TABLE>
The average commission rates paid by the S&P 500 Index Master Portfolio is
as follows:
For the
Six Months Ended For the
August 31, 1997 Year Ended
(Unaudited) February 28, 1997
S&P 500 Index Master Portfolio $0.0370 $0.0625
16
<PAGE>
DIRECTORS
Richard S. Strong
Willie D. Davis
Stanley Kritzik
Marvin E. Nevins
William F. Vogt
OFFICERS
Richard S. Strong, Chairman of the Board
Lawrence A. Totsky, Vice President
Thomas P. Lemke, Vice President
John S. Weitzer, Vice President
Stephen J. Shenkenberg, Vice President and Secretary
John A. Flanagan, Treasurer
CUSTODIAN
Investors Bank & Trust Company
89 South Street, Boston, Massachusetts 02111
AUDITOR
KPMG Peat Marwick LLP
3 Embarcadero Center, San Francisco, California 94111
LEGAL COUNSEL
Godfrey & Kahn, S.C.
780 North Water Street, Milwaukee, Wisconsin 53202
<PAGE>
For a prospectus containing more complete information, including management fees
and expenses, please call 1-800-368-1030. Please read it carefully before
investing or sending money. This report does not constitute an offer for the
sale of securities. Strong Funds are offered for sale by prospectus only.
[PICTURE OF TELEPHONE]
To order a free prospectus kit,
CALL 1-800-368-1030.
To learn more about our funds,
discuss an existing account,
or conduct a transaction,
CALL 1-800-368-3863.
--------------------
If you are a
Financial Professional,
CALL 1-800-368-1683
[PICTURE OF STRONG WEB SITE ON COMPUTER]
Strong On-line
www.strong-funds.com
[STRONG LOGO]
STRONG FUNDS
P.O. Box 2936 o Milwaukee, Wisconsin 53201
Strong Funds Distributors, Inc. 6026H97 97SIND
