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As filed with the Securities and Exchange Commission
on June 30, 1999
Registration No. 811-8162
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
FORM N-1A
AMENDMENT NO. 10 TO THE
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
MASTER INVESTMENT PORTFOLIO
(Exact Name of Registrant as Specified in Charter)
111 Center Street, Little Rock, Arkansas 72201
(Address of Principal Executive Offices, including Zip Code)
_______________________________________
Registrant's Telephone Number, including Area Code:
(800) 643-9691
Richard H. Blank, Jr.
c/o Stephens Inc.
111 Center Street
Little Rock, Arkansas 72201
(Name and Address of Agent for Service)
With a copy to:
Robert M. Kurucza, Esq.
Marco E. Adelfio, Esq.
Morrison & Foerster LLP
2000 Pennsylvania Avenue, N.W., Suite 5500
Washington, D.C. 20006-1812
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EXPLANATORY NOTE
----------------
This Amendment relates to the Trust's Asset Allocation, Bond Index,
Extended Index, LifePath 2000, LifePath 2010, LifePath 2020, LifePath 2030,
LifePath 2040, Money Market, S&P 500 Index, U.S. Equity Index and U.S. Treasury
Allocation Master Portfolios. This amendment includes the annual update of all
audited financial information pertaining to each Master Series. This Amendment
does not effect the registration statement.
This Amendment has been filed by the Registrant pursuant to Section 8(b)
of the Investment Company Act of 1940. However, beneficial interests in the
Registrant are not being registered under the Securities Act of 1933 (the "1933
Act") because such interests will be issued solely in private placement
transactions that do not involve any "public offering" within the meaning of
Section 4(2) of the 1933 Act. Investments in the Registrant may only be made by
registered broker/dealers or by investment companies, insurance company separate
accounts, common commingled trust funds, group trusts or similar organizations
or entities that are "accredited investors" within the meaning of Regulation D
under the 1933 Act. This Registration Statement does not constitute an offer to
sell, or the solicitation of an offer to buy, any beneficial interest in the
Registrant.
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Master Investment Portfolio
Cross Reference Sheet
---------------------
Form N-1A Item Number
- ---------------------
Part A Prospectus Caption
- ------ ------------------
4 Investment Objectives, Principal Investment Strategies and
Related Risks
6 Management, Organization and Capital Structure
7 Shareholder Information
8 Distribution Arrangements
Part B Statement of Additional Information
- ------ -----------------------------------
10 Cover Page and Table of Contents
11 Trust History
12 Description of the Master Portfolios and Their Investments and
Risks
13 Management of the Trust
14 Control Persons and Principal Holders of Securities
15 Investment Advisory and Other Services
16 Brokerage Allocation and Other Practices
17 Capital Stock and Other Securities
18 Purchase, Redemption and Pricing of Interests
19 Taxation of the Trust
20 Underwriters
21 Calculations of Performance Data
22 Financial Statements
Part C Other Information
- ------ -----------------
23-30 Information required to be included in Part C is set forth under
the appropriate Item, so numbered, in Part C of this Document.
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MASTER INVESTMENT PORTFOLIO
ALLOCATION MASTER PORTFOLIOS
ASSET ALLOCATION MASTER PORTFOLIO
U.S. TREASURY ALLOCATION MASTER PORTFOLIO
PART A
July 1, 1999
Responses to Items 1 through 3 have been omitted pursuant to paragraph B(2)(b)
of the General Instructions to Form N-1A.
ITEM 4. INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND RELATED
RISKS.
General. Master Investment Portfolio ("MIP") is an open-end, management
investment company, organized on October 21, 1993 as a business trust under the
laws of the State of Delaware. MIP is a "series fund," which is a mutual fund
divided into separate portfolios. By this offering document, MIP is offering
two diversified portfolios - the Asset Allocation and U.S. Treasury Allocation
Master Portfolios (each, a "Master Portfolio" and collectively, the "Master
Portfolios"). Each Master Portfolio is treated as a separate entity for certain
matters under the Investment Company Act of 1940, as amended (the "1940 Act"),
and for other purposes an interestholder of one Master Portfolio is not deemed
to be an interestholder of the other Master Portfolio. As described below, for
certain matters MIP interestholders vote together as a group; as to others they
vote separately by Master Portfolio. MIP currently offers ten other portfolios
pursuant to other offering documents. From time to time, other portfolios may
be established and sold pursuant to other offering documents.
Beneficial interests in each Master Portfolio are issued solely in private
placement transactions which do not involve any "public offering" within the
meaning of Regulation D under the Securities Act of 1933, as amended (the "1933
Act"). Investments in a Master Portfolio may be made only by investment
companies or certain other entities which are "accredited investors" within the
meaning of Regulation D under the 1933 Act. This registration statement does
not constitute an offer to sell, or the solicitation of an offer to buy, any
"security" within the meaning of the 1933 Act.
INVESTMENT OBJECTIVES
. The Asset Allocation Master Portfolio seeks to maximize total return,
consisting of capital appreciation and current income, without assuming
undue risk. This Master Portfolio will follow an asset allocation strategy
by investing in a wide range of publicly traded common stocks, U.S.
Treasury bonds and money market instruments.
. The U.S. Treasury Allocation Master Portfolio seeks to maximize total
return, consisting of capital appreciation and current income, without
assuming undue risk. This Master Portfolio will follow an asset allocation
strategy by investing primarily among long-, intermediate- and short-term
U.S. Treasury securities.
The investment objective of each Master Portfolio cannot be changed without
approval by the holders of a majority (as defined in the 1940 Act) of such
Master Portfolio's outstanding voting securities. The differences in investment
objectives and policies between each Master Portfolio determines the types of
portfolio securities in which each Master Portfolio invests and can be expected
to affect the degree of risk to which each Master Portfolio is subject and the
performance of each Master Portfolio. There can be no assurance that the
investment objective of each Master Portfolio will be achieved.
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INVESTMENT POLICIES
The Asset Allocation and U.S. Treasury Allocation Master Portfolios each
follow an asset allocation strategy. For each Master Portfolio, Barclays Global
Fund Advisors ("BGFA") uses proprietary investment models ("Asset Allocation
Models"), that analyze extensive financial and economic data, including risk,
correlation and expected return statistics, to recommend a portfolio allocation
as described below. BGFA may, from time to time, develop and refine the Asset
Allocation Models.
The Asset Allocation Master Portfolio will invest its assets among three asset
classes -- common stocks, U.S. Treasury bonds and money market instruments as
follows:
. COMMON STOCKS. The Asset Allocation Master Portfolio will invest in the
common stocks which compose the Standard & Poor's 500 Stock Index (the "S&P
500 Index")./1/ The S&P 500 Index is composed of 500 common stocks, most of
which are listed on the New York Stock Exchange. The weightings of stocks
in the S&P 500 Index are based on each stock's relative total market
capitalization; that is, its market price per share times the number of
shares outstanding. No attempt is made to manage this portion of the Master
Portfolio's investment portfolio in the traditional sense using economic,
financial and market analysis. Instead, the Master Portfolio uses for this
portion of its portfolio a computer program to determine which securities
are to be purchased or sold to replicate the total return performance of
the S&P 500 Index to the extent feasible. The percentage of the Asset
Allocation Master Portfolio's assets invested in each stock will be
approximately the same as the percentage such stock represents in the S&P
500 Index.
. U.S. TREASURY BONDS. The Asset Allocation Master Portfolio will invest in
U.S. Treasury bonds with remaining maturities of at least 20 years. The
Master Portfolio will invest this portion of its assets in an effort to
replicate the total return performance of the Lehman Brothers 20+ Year
Treasury Index which is composed of U.S. Treasury securities with 20 years
or more to maturity.
. MONEY MARKET INSTRUMENTS. The Master Portfolio will invest in money market
instruments.
The U.S. Treasury Allocation Master Portfolio will invest its assets among
three maturity classes -- long-, intermediate- and short-term -- of U.S.
Treasury debt securities and repurchase agreements in respect thereof as
follows:
. LONG-TERM U.S. TREASURY BONDS. The U.S. Treasury Allocation Master
Portfolio will invest in U.S. Treasury bonds with remaining maturities of
at least 20 years.
. INTERMEDIATE-TERM U.S. TREASURY NOTES. The U.S. Treasury Allocation Master
Portfolio will invest in U.S. Treasury notes and other U.S. Treasury
securities with remaining maturities ranging from one to 10 years.
. SHORT-TERM U.S. TREASURY BILLS. The U.S. Treasury Allocation Master
Portfolio will invest in U.S. Treasury bills with remaining maturities of
one year or less.
It is a fundamental policy of the U.S. Treasury Allocation Master Portfolio
that it will invest at least 65% of the value of its total assets in U.S.
Treasury securities.
_____________
/1/ S&P does not sponsor the Master Portfolio, nor is it affiliated in any way
with BGFA or the Master Portfolio. "Standard & Poor's ,"S&P ,"S&P 500," and
"Standard & Poor's 500 " are trademarks of McGraw-Hill, Inc. The Master
Portfolio is not sponsored, endorsed, sold, or promoted by S&P and S&P makes no
representation or warranty, express or implied, regarding the advisability of
investing in the Master Portfolio.
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RISK CONSIDERATIONS
General -- The net asset value per interest of each Master Portfolio is neither
insured nor guaranteed, is not fixed and should be expected to fluctuate.
Equity Securities -- The stock investments of the Asset Allocation Master
Portfolio are subject to equity market risk. Equity market risk is the
possibility that common stock prices will fluctuate or decline over short or
even extended periods. The U.S. stock market tends to be cyclical, with periods
when stock prices generally rise and periods when prices generally decline.
Throughout the first six months of 1999, the stock market, as measured by the
S&P 500 Index and other commonly used indices, was trading at or close to record
levels. There can be no guarantee that these performance levels will continue.
Debt Securities -- The debt instruments in which the Master Portfolios may
invest are subject to credit and interest rate risk. Credit risk is the risk
that issuers of the debt instruments in which the Master Portfolios invest may
default on the payment of principal and/or interest. Interest rate risk is the
risk that increases in market interest rates may adversely affect the value of
the debt instruments in which the Master Portfolios invest. The value of the
debt instruments generally changes inversely to market interest rates. Debt
securities with longer maturities, which tend to produce higher yields, are
subject to potentially greater capital appreciation and depreciation than
obligations with shorter maturities. Changes in the financial strength of an
issuer or changes in the ratings of any particular security may also affect the
value of these investments. Although some of the Master Portfolios' portfolio
securities are guaranteed by the U.S. Government, its agencies or
instrumentalities, such securities are subject to interest rate risk and the
market value of these securities, upon which the Master Portfolios' daily net
asset value is based, will fluctuate. No assurance can be given that the U.S.
Government would provide financial support to its agencies or instrumentalities
where it is not obligated to do so.
Foreign Securities -- The Asset Allocation Master Portfolio may invest in the
securities of foreign issuers. Investing in the securities of issuers in any
foreign country, including American Depository Receipts ("ADRs") and European
Depository Receipts ("EDRs") and similar securities, involves special risks and
considerations not typically associated with investing in U.S. companies. These
include differences in accounting, auditing and financial reporting standards;
generally higher commission rates on foreign portfolio transactions; the
possibility of nationalization, expropriation or confiscatory taxation; adverse
changes in investment or exchange control regulations (which may include
suspension of the ability to transfer currency from a country); and political,
social and monetary or diplomatic developments that could affect U.S.
investments in foreign countries. Additionally, dispositions of foreign
securities and dividends and interest payable on those securities may be subject
to foreign taxes, including withholding taxes. Foreign securities often trade
with less frequency and volume than domestic securities and, therefore, may
exhibit greater price volatility. Additional costs associated with an
investment in foreign securities may include higher custodial fees than apply to
domestic custodial arrangements and transaction costs of foreign currency
conversions. Changes in foreign exchange rates also will affect the value of
securities denominated or quoted in currencies other than the U.S. dollar. The
Master Portfolio's performance may be affected either unfavorably or favorably
by fluctuations in the relative rates of exchange between the currencies of
different nations, by exchange control regulations and by indigenous economic
and political developments.
Other Investment Considerations -- Because the Master Portfolios may shift
investment allocations significantly from time to time, their performance may
differ from funds which invest in one asset class or from funds with a stable
mix of assets. Further, shifts among asset classes may result in relatively
high turnover and transaction (i.e., brokerage commission) costs. Portfolio
turnover also can generate short-term capital gains tax consequences. During
those periods in which a higher percentage of a Master Portfolio's assets are
invested in long-term bonds, the Master Portfolio's exposure to interest rate
risk will be greater because the longer maturity of such securities means they
are generally more sensitive to changes in market interest rates than short-term
securities.
Asset allocation and modeling strategies are employed by BGFA for other
investment companies and accounts advised or sub-advised by BGFA. If these
strategies indicate particular securities should be purchased or
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sold, at the same time, by a Master Portfolio and one or more of these
investment companies or accounts, available investments or opportunities for
sales are allocated equitably to each by the investment advice. In some cases,
this procedure may adversely affect the size of the position obtained for or
disposed of by a Master Portfolio or the price paid or received by such Master
Portfolio.
The Master Portfolios may enter into futures transactions which involves risk.
The futures contracts and options on futures contracts that the Master
Portfolios may purchase may be considered derivatives. Certain of the floating-
and variable-rate instruments that each Master Portfolio may purchase may also
be considered derivatives. Derivatives are financial instruments whose values
are derived, at least in part, from the prices of other securities or specified
assets, indices or rates. Each Master Portfolio may use some derivatives as
part of its short-term liquidity holdings and/or as substitutes for comparable
market positions in the underlying securities. Some derivatives may be more
sensitive than direct securities to changes in interest rates or sudden market
moves. Some derivatives also may be susceptible to fluctuations in yield or
value due to their structure or contract terms. Master Portfolio may not use
derivatives to create leverage without establishing adequate "cover" in
compliance with SEC leverage rules.
Year 2000 -- Many computer software systems in use today cannot distinguish the
Year 2000 from the Year 1900. Most of the services provided to the Master
Portfolios depend on the smooth functioning of computer systems. Any failure to
adapt these systems in time could hamper a Master Portfolio's operations and
services. The Master Portfolios' principal service providers have advised the
Master Portfolios that they are working on necessary changes to their systems
and that they expect their systems to be adapted in time. There can, of course,
be no assurance of success. In addition, because the Year 2000 issue affects
virtually all organizations, the companies or entities in which the Master
Portfolios invest also could be adversely impacted by the Year 2000 issue. The
extent of such impact cannot be predicted.
ITEM 5. MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE.
The response to Item 5 has been omitted pursuant to paragraph B(2)(b) of the
General Instructions to Form N-1A.
ITEM 6. MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE.
INVESTMENT ADVISER -- BGFA serves as investment adviser to each Master
Portfolio. BGFA is a direct subsidiary of Barclays Global Investors, N.A.
(which, in turn, is an indirect subsidiary of Barclays Bank PLC) and is located
at 45 Fremont Street, San Francisco, CA 94105. As of December 31, 1998 BGFA and
its affiliates provided investment advisory services for over approximately $615
billion of assets under management.
BGFA provides each Master Portfolio with investment guidance and policy
direction in connection with the daily portfolio management of such Master
Portfolio, subject to the supervision of MIP's Board of Trustees and in
conformity with Delaware law and the stated policies of each Master Portfolio.
BGFA furnishes to MIP's Board of Trustees periodic reports on the investment
strategy and performance of each Master Portfolio.
BGFA is entitled to receive monthly fees at the annual rate of 0.35% and 0.30%
of the average daily net assets of the Asset Allocation Master Portfolio and
U.S. Treasury Allocation Master Portfolio, respectively, as compensation for its
advisory services. From time to time, BGFA may waive such fees in whole or in
part. Any such waiver will reduce the expenses of a Master Portfolio and,
accordingly, have a favorable impact on its performance. For the year ended
February 28, 1999, BGFA received amounts equal to 0.35% and 0.30% of the average
daily net assets of the Asset Allocation and U.S. Treasury Allocation Master
Portfolios, respectively, as compensation for its advisory services.
Purchase and sale orders of the securities held by a Master Portfolio may be
combined with those of other accounts that BGFA manages or advises, and for
which it has brokerage placement authority, in the interest of seeking the most
favorable overall net results. When BGFA, subject to the supervision of and the
overall authority of MIP's Board of Trustees, determines that a particular
security should be bought or sold for a
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Master Portfolio and other accounts managed by BGFA, it undertakes to allocate
those transactions among the participants equitably.
BGFA may deal, trade and invest for its own account in the types of securities
in which the Master Portfolios may invest. BGFA has informed MIP that in making
its investment decisions it does not obtain or use material inside information
in its possession.
Morrison & Foerster LLP, counsel to MIP and special counsel to BGFA, has
advised MIP and BGFA that BGFA and its affiliates may perform the services
contemplated by the BGFA Advisory Contracts and this Part A without violation of
the Glass-Steagall Act. Such counsel has pointed out, however, that there are
no controlling judicial or administrative interpretations or decisions and that
future judicial or administrative interpretations of, or decisions relating to,
present federal or state statutes, including the Glass-Steagall Act, and
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, as well as future changes in such statutes,
regulations and judicial or administrative decisions or interpretations, could
prevent such entities from continuing to perform, in whole or in part, such
services. If any such entity were prohibited from performing any such services,
it is expected that new agreements would be proposed or entered into with
another entity or entities qualified to perform such services.
ITEM 7. SHAREHOLDER INFORMATION.
PRICING OF INTERESTS
Interests in the Master Portfolios are sold on a continuous basis at the net
asset value per unit of beneficial interest ("NAV") next determined after an
order in proper form is received by the Transfer Agent. NAV for each Master
Portfolio is determined as of the close of trading of the New York Stock
Exchange (currently 1:00 p.m., Pacific Standard Time), on each day the New York
Stock Exchange is open for business (a "Business Day"). NAV is computed by
dividing the value of the Master Portfolio's net assets (i.e., the value of its
assets less liabilities) by the total number of interests of such Master
Portfolio outstanding. Each Master Portfolio's investments are valued each
Business Day generally by using available market quotations or at fair value
determined in good faith by MIP's Board of Trustees. For further information
regarding the methods employed in valuing each Master Portfolio's investments,
see Item 18, "Purchase, Redemption and Pricing of Interests" in Part B.
PURCHASE OF INTERESTS
Beneficial interests in a Master Portfolio are issued solely in private
placement transactions which do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. Investments in a Master Portfolio may
be made only by investment companies or certain other entities which are
"accredited investors" within the meaning of Regulation D under the Securities
Act of 1933, as amended. This registration statement does not constitute an
offer to sell, or the solicitation of an offer to buy, any "security" within the
meaning of the Securities Act of 1933, as amended.
REDEMPTION OR REPURCHASE
An investor in MIP may withdraw all or any portion of its investment on any
Business Day at the net asset value next determined after a withdrawal request
in proper form is furnished by the investor to the Transfer Agent. When a
request is received in proper form, MIP will redeem the shares at the next
determined net asset value.
Each Master Portfolio will make payment for all shares redeemed within three
days after receipt by the Transfer Agent of a redemption request in proper form,
except as provided by the rules of the Securities and Exchange Commission.
Investments in a Master Portfolio may not be transferred.
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The right of any investor to receive payment with respect to any withdrawal
may be suspended or the payment of the withdrawal proceeds postponed during any
period in which the New York Stock Exchange is closed (other than weekends or
holidays) or trading on such Exchange is restricted, or, to the extent otherwise
permitted by the 1940 Act, if an emergency exists.
DIVIDENDS AND DISTRIBUTIONS
The net investment income of a Master Portfolio generally will be declared and
paid as a dividend daily to all investors of record as of 1:00 p.m. (Pacific
time) with respect to each Master Portfolio. Net investment income for a
Saturday, Sunday or Holiday will be declared as a dividend to investors of
record as of 1:00 p.m. (Pacific time) on the previous business day with respect
to each Master Portfolio. All the net investment income of a Master Portfolio so
determined is allocated pro rata among the investors in such Master Portfolio at
the time of such determination.
Dividends and capital gain distributions, if any, paid by a Master Portfolio
will be reinvested in the investor's interest in such Master Portfolio at net
asset value and credited to the investor's account on the payment date.
TAXES
Based upon the anticipated classification of each Master Portfolio for federal
income tax purposes, MIP believes that each Master Portfolio will qualify as a
partnership for such purposes. MIP therefore believes that each Master Portfolio
will not be subject to any federal income tax on its income and net capital
gains (if any). However, each investor in a Master Portfolio will be taxable on
its distributive share of such Master Portfolio's taxable income in determining
its federal income tax liability. The determination of such share will be made
in accordance with the Internal Revenue Code of 1986, as amended (the "Code"),
and regulations promulgated thereunder.
It is intended that each Master Portfolio's assets, income and distributions
will be managed in such a way that a regulated investment company investing in
such Master Portfolio may satisfy the requirements of Subchapter M of the Code
by investing substantially all of its assets in such Master Portfolio.
Investor inquiries should be directed to Master Investment Portfolio, 111
Center Street, Little Rock, Arkansas 72201.
ITEM 8. DISTRIBUTION ARRANGEMENTS.
MIP is registered as an open-end management investment company under the
1940 Act. MIP was organized as a business trust under the laws of the State of
Delaware. Investors in MIP are each liable for all obligations of MIP. However,
the risk of an investor incurring financial loss on account of such liability is
limited to circumstances in which both inadequate insurance existed and itself
was unable to meet its obligations.
The Board of Trustees has authorized several series of which twelve are
active. All consideration received by MIP for interests in one of the series
and all assets in which such consideration is invested will belong to that
series (subject only to the rights of creditors of MIP) and will be subject to
the liabilities related thereto. The income attributable to, and the expenses
of, one series are treated separately from those of the other series. From time
to time, MIP may create new series without shareholder approval.
The business and affairs of MIP are managed under the direction of its
Board of Trustees. The office of MIP is located at 111 Center Street, Little
Rock, Arkansas 72201.
MASTER/FEEDER STRUCTURE
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The Master Portfolio is a "master" fund in a "master/feeder" structure. A
non-accredited investor does not directly purchase an interest in the Master
Portfolio, but instead purchases shares in a corresponding "feeder" fund which
invests all of its assets in the Master Portfolio. Other investors may also be
permitted to invest in the Master Portfolio. All other investors will invest in
the Master Portfolio on the same terms and conditions as the feeder funds,
although there may be different administrative and other expenses. Therefore,
the feeder funds may have different returns than other investors of the Master
Portfolio.
ITEM 9. FINANCIAL HIGHLIGHTS.
The response to Item 9 has been omitted pursuant to paragraph B(2)(b) of the
General Instructions to Form N-1A.
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MASTER INVESTMENT PORTFOLIO
INDEX MASTER PORTFOLIOS
S&P 500 INDEX MASTER PORTFOLIO
BOND INDEX MASTER PORTFOLIO
PART A
July 1, 1999
Responses to Items 1 through 3 have been omitted pursuant to paragraph B(2)(b)
of the General Instructions to Form N-1A.
ITEM 4. INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND RELATED
RISKS.
General. Master Investment Portfolio ("MIP") is an open-end, management
investment company, organized on October 21, 1993 as a business trust under the
laws of the State of Delaware. MIP is a "series fund," which is a mutual fund
divided into separate portfolios. By this offering document, MIP is offering
two diversified portfolios - the S&P 500 Index and Bond Index Master Portfolios
(each, a "Master Portfolio" and collectively, the "Master Portfolios"). Each
Master Portfolio is treated as a separate entity for certain matters under the
Investment Company Act of 1940, as amended (the "1940 Act"), and for other
purposes an interestholder of one Master Portfolio is not deemed to be an
interestholder of the other Master Portfolio. As described below, for certain
matters MIP interestholders vote together as a group; as to others they vote
separately by Master Portfolio. MIP currently offers ten other portfolios
pursuant to other offering documents. From time to time, other portfolios may
be established and sold pursuant to other offering documents.
Beneficial interests in each Master Portfolio are issued solely in private
placement transactions which do not involve any "public offering" within the
meaning of Regulation D under the Securities Act of 1933, as amended (the "1933
Act"). Investments in a Master Portfolio may be made only by investment
companies or certain other entities which are "accredited investors" within the
meaning of Regulation D under the 1933 Act. This registration statement does
not constitute an offer to sell, or the solicitation of an offer to buy, any
"security" within the meaning of the 1933 Act. Organizations or other entities
that hold shares of beneficial interest of a Master Portfolio may be referred to
herein as "feeder funds."
INVESTMENT OBJECTIVES
. The S&P 500 Index Master Portfolio/1/ seeks to provide investment
results that correspond to the total return performance of publicly
traded common stocks in the aggregate, as represented by the Standard
& Poor's 500 Stock Index.
. The Bond Index Master Portfolio seeks to provide investment
results that correspond to the total return performance of fixed-
income securities in the aggregate, as represented by the Lehman
Brothers Government/Corporate Bond Index.
The investment objective of each Master Portfolio cannot be changed without
approval by the holders of a majority (as defined in the 1940 Act) of such
Master Portfolio's outstanding voting securities. The differences in objectives
and policies among each Master Portfolio determines the types of portfolio
securities in which each Master Portfolio invests and can be expected to affect
the degree of risk to which each
_____________________
/1/ S&P does not sponsor the Master Portfolio, nor is it affiliated in any way
with BGFA or the Master Portfolio. "Standard & Poor's(R),"S&P(R),"S&P 500(R),"
and "Standard & Poor's 500(R)" are trademarks of McGraw-Hill, Inc. The Master
Portfolio is not sponsored, endorsed, sold, or promoted by S&P and S&P makes no
representation or warranty, express or implied, regarding the advisability of
investing in the Master Portfolio.
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Master Portfolio is subject and the performance of each Master Portfolio. There
can be no assurance that the investment objective of each Master Portfolio will
be achieved.
INVESTMENT POLICIES
. The S&P 500 Index Master Portfolio seeks to replicate the total
return performance of the S&P 500 Index, which is composed of 500
selected common stocks, most of which are listed on the New York Stock
Exchange. The weightings of stocks in the S&P 500 Index are based on
each stock's relative total market capitalization; that is, its market
price per share times the number of shares outstanding. The percentage
of the S&P 500 Index Master Portfolio's assets invested in a given
stock is approximately the same as the percentage such stock
represents in the S&P 500 Index.
. The Bond Index Master Portfolio seeks to replicate the total
return performance of the Lehman Brothers Government/Corporate Bond
Index, which is composed of approximately 5,000 fixed-income
securities, including U.S. Government securities and investment grade
corporate bonds, each with an outstanding market value of at least $25
million and remaining maturity of greater than one year. The Bond
Index Master Portfolio invests in a sample of these securities. It
invests at least 65% of its total assets in bonds and debentures.
Securities are selected for investment by the Bond Index Master
Portfolio in accordance with their relative proportion of the Lehman
Brothers Government/Corporate Bond Index as well as based on credit
quality, issuer sector, maturity structure, coupon rates and
callability, among other factors, as described below.
No attempt is made to manage the portfolio of each Master Portfolio using
economic, financial and market analysis. Each Master Portfolio is managed by
determining which securities are to be purchased or sold to replicate, to the
extent feasible, the investment characteristics of its respective benchmark
Index. Under normal market conditions, at least 90% of the value of each Master
Portfolio's total assets is invested in securities comprising such Master
Portfolio's Index. Each Master Portfolio attempts to achieve, in both rising
and falling markets, a correlation of at least 95% between the total return of
its net assets before expenses and the total return of such Master Portfolio's
benchmark Index. Notwithstanding the factors described below, perfect (100%)
correlation would be achieved if the total return of a Master Portfolio's net
assets increased or decreased exactly as the total return of such Master
Portfolio's benchmark Index increased or decreased. A Master Portfolio's
ability to match its investment performance to the investment performance of its
respective benchmark Index may be affected by, among other things, the Master
Portfolio's expenses, the amount of cash and cash equivalents held by the Master
Portfolio, the manner in which the total return of the Master Portfolio's
benchmark Index is calculated; the size of the Master Portfolio's investment
portfolio; and the timing, frequency and size of shareholder purchases and
redemptions. Each Master Portfolio uses cash flows from shareholder purchase
and redemption activity to maintain, to the extent feasible, the similarity of
its portfolio to the securities comprising such Master Portfolio's benchmark
Index. Barclays Global Fund Advisors ("BGFA") regularly monitors each Master
Portfolio's correlation to its respective benchmark Index and adjusts the
portfolio of each Master Portfolio to the extent necessary to achieve a
correlation of at least 95% with its respective Index. Inclusion of a security
in an Index in no way implies an opinion by the sponsor of the Index as to its
attractiveness as an investment. The Master Portfolios are not sponsored,
endorsed, sold or promoted by the sponsor of their respective Indices.
The sampling techniques utilized by each Master Portfolio are expected to
be an effective means of substantially duplicating the investment performance of
their respective Indices. However, no Master Portfolio is expected to track its
benchmark Index with the same degree of accuracy that complete replication of
such Index would have provided. Over time, the portfolio composition of each
Master Portfolio may be altered (or "rebalanced") to reflect changes in the
characteristics of its respective Index.
In seeking to replicate the performance of its respective Index, each
Master Portfolio also may engage in futures and options transactions and other
derivative securities transactions and lend its portfolio securities, each of
which involves risk. Each Master Portfolio attempts to be fully invested at all
times in securities comprising
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such Master Portfolio's Index and in futures and options. Each Master Portfolio
may invest up to 10% of its assets in high-quality money market instruments to
provide liquidity.
RISK CONSIDERATIONS
General -- The net asset value per interest of each Master Portfolio is neither
insured nor guaranteed, is not fixed and should be expected to fluctuate.
Equity Securities -- The stock investments of the S&P 500 Index Master Portfolio
are subject to equity market risk. Equity market risk is the possibility that
common stock prices will fluctuate or decline over short or even extended
periods. The U.S. stock market tends to be cyclical, with periods when stock
prices generally rise and periods when prices generally decline. Throughout the
first six months of 1999, the stock market, as measured by the S&P 500 Index and
other commonly used indices, was trading at or close to record levels. There
can be no guarantee that these performance levels will continue.
Debt Securities -- The debt instruments in which the Bond Index Master Portfolio
may invest are subject to credit and interest rate risk. Credit risk is the
risk that issuers of the debt instruments in which the Master Portfolio invests
may default on the payment of principal and/or interest. Interest rate risk is
the risk that increases in market interest rates may adversely affect the value
of the debt instruments in which the Master Portfolio invests. The value of the
debt instruments generally changes inversely to market interest rates. Debt
securities with longer maturities, which tend to produce higher yields, are
subject to potentially greater capital appreciation and depreciation than
obligations with shorter maturities. Changes in the financial strength of an
issuer or changes in the ratings of any particular security may also affect the
value of these investments. Although some of the Master Portfolio's portfolio
securities are guaranteed by the U.S. Government, its agencies or
instrumentalities, such securities are subject to interest rate risk and the
market value of these securities, upon which the Master Portfolio's daily net
asset value is based, will fluctuate. No assurance can be given that the U.S.
Government would provide financial support to its agencies or instrumentalities
where it is not obligated to do so.
Foreign Securities -- The Master Portfolios may invest in the securities of
foreign issuers. Investing in the securities of issuers in any foreign country,
including American Depository Receipts ("ADRs") and European Depository Receipts
("EDRs") and similar securities, involves special risks and considerations not
typically associated with investing in U.S. companies. These include difference
in accounting, auditing and financial reporting standards; generally higher
commission rates on foreign portfolio transactions; the possibility of
nationalization, expropriation or confiscatory taxation; adverse changes in
investment or exchange control regulations (which may include suspension of the
ability to transfer currency from a country); and political, social and monetary
or diplomatic developments that could affect U.S. investments in foreign
countries. Additionally, dispositions of foreign securities and dividends and
interest payable on those securities may be subject to foreign taxes, including
withholding taxes. Foreign securities often trade with less frequency and volume
than domestic securities and, therefore, may exhibit greater price volatility.
Additional costs associated with an investment in foreign securities may include
higher custodial fees than apply to domestic custodial arrangements and
transaction costs of foreign currency conversions. Changes in foreign exchange
rates also will affect the value of securities denominated or quoted in
currencies other than the U.S. dollar. A Master Portfolio's performance may be
affected either unfavorably or favorably by fluctuations in the relative rates
of exchange between the currencies of different nations, by exchange control
regulations and by indigenous economic and political developments.
Other Investment Considerations -- Because the Master Portfolios may shift
investment allocations significantly from time to time, their performance may
differ from funds which invest in one asset class or from funds with a stable
mix of assets. Further, shifts among asset classes may result in relatively
high turnover and transaction (i.e., brokerage commission) costs. Portfolio
turnover also can generate short-term capital gains tax consequences. During
those periods in which a higher percentage of a Master Portfolio's assets are
invested in long-term bonds, the Master Portfolio's exposure to interest-rate
risk will be greater because the longer maturity of such securities means they
are generally more sensitive to changes in market interest rates than short-term
securities.
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The Bond Index Master Portfolio may enter into futures transactions, which
involves risk. The futures contracts and options on futures contracts that this
Master Portfolio may purchase may be considered derivatives. Certain of the
floating- and variable-rate instruments that this Master Portfolio may purchase
also may be considered derivatives. Derivatives are financial instruments whose
values are derived, at least in part, from the prices of other securities or
specified assets, indices or rates. The Bond Index Master Portfolio may use
some derivatives as part of its short-term liquidity holdings and/or substitutes
for comparable market positions in the underlying securities. Some derivatives
may be more sensitive than direct securities to changes in interest rates or
sudden market moves. Some derivatives also may be susceptible to fluctuations
in yield or value due to their structure or contract terms. The Bond Index
Master Portfolio may not use derivatives to create leverage without establishing
adequate "cover" in compliance with SEC leverage rules.
Asset allocation and modeling strategies are employed by BGFA for other
investment companies and accounts advised or sub-advised by BGFA. If these
strategies indicate particular securities should be purchased or sold, at the
same time, by a Master Portfolio and one or more of these investment companies
or accounts, available investments or opportunities for sales will be allocated
equitably to each by BGFA. In some cases, this procedure may adversely affect
the size of the position obtained for or disposed of by a Master Portfolio or
the price paid or received by such Master Portfolio.
Year 2000 -- Many computer software systems in use today cannot distinguish the
Year 2000 from the Year 1900. Most of the services provided to the Master
Portfolios depend on the smooth functioning of computer systems. Any failure to
adapt these systems in time could hamper a Master Portfolio's operations and
services. The Master Portfolio's principal service providers have advised the
Master Portfolios that they are working on necessary changes to their systems
and that they expect their systems to be adapted in time. There can, of course,
be no assurance of success. In addition, because the Year 2000 issue affects
virtually all organizations, the companies or entities in which the Master
Portfolios invest also could be adversely impacted by the Year 2000 issue. The
extent of such impact cannot be predicted.
ITEM 5. MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE.
The response to Item 5 has been omitted pursuant to paragraph B(2)(b) of the
General Instructions to Form N-1A.
ITEM 6. MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE.
INVESTMENT ADVISER -- BGFA serves as investment adviser to each Master
Portfolio. BGFA is a direct subsidiary of Barclays Global Investors, N.A.
(which, in turn, is an indirect subsidiary of Barclays Bank PLC) and is located
at 45 Fremont Street, San Francisco, CA 94105. As of December 31, 1998, BGFA
and its affiliates provided investment advisory services for approximately $615
billion of assets under management.
BGFA provides each Master Portfolio with investment guidance and policy
direction in connection with the daily portfolio management of such Master
Portfolio, subject to the supervision of MIP's Board of Trustees and in
conformity with Delaware law and the stated policies of each Master Portfolio.
BGFA furnishes to MIP's Board of Trustees periodic reports on the investment
strategy and performance of each Master Portfolio.
BGFA is entitled to receive monthly fees at the annual rate of 0.08% and
0.05% of the average daily net assets of the Bond Index Master Portfolio and S&P
500 Index Master Portfolio, respectively, as compensation for its advisory
services. From time to time, BGFA may waive such fees in whole or in part. Any
such waiver will reduce the expenses of a Master Portfolio and, accordingly,
have a favorable impact on its performance. For the year ended February 28,
1999, BGFA received amounts equal to 0.05% and 0.08% of the average daily net
assets of the S&P 500 Index and Bond Index Master Portfolios, respectively, as
compensation for its advisory services.
Purchase and sale orders of the securities held by a Master Portfolio may
be combined with those of other accounts that BGFA manages or advises, and for
which it has brokerage placement authority, in the interest of seeking the most
favorable overall net results. When BGFA, subject to the supervision of, and the
overall
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authority of MIP's Board of Trustees, determines that a particular security
should be bought or sold for the Master Portfolio and other accounts managed by
BGFA, it undertakes to allocate those transactions among the participants
equitably.
BGFA may deal, trade and invest for its own account in the types of
securities in which the Master Portfolios may invest. BGFA has informed MIP
that in making its investment decisions it does not obtain or use material
inside information in its possession.
Morrison & Foerster LLP, counsel to MIP and special counsel to BGFA, has
advised MIP and BGFA that BGFA and its affiliates may perform the services
contemplated by the BGFA Advisory Contracts and this Part A without violation of
the Glass-Steagall Act. Such counsel has pointed out, however, that there are
no controlling judicial or administrative interpretations or decisions and that
future judicial or administrative interpretations of, or decisions relating to,
present federal or state statutes, including the Glass-Steagall Act, and
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, as well as future changes in such statutes,
regulations and judicial or administrative decisions or interpretations, could
prevent such entities from continuing to perform, in whole or in part, such
services. If any such entity were prohibited from performing any such services,
it is expected that new agreements would be proposed or entered into with
another entity or entities qualified to perform such services.
ITEM 7. SHAREHOLDER INFORMATION.
PRICING OF INTERESTS
Interests in the Master Portfolio are sold on a continuous basis at the net
asset value per unit of beneficial interest ("NAV") next determined after an
order in proper form is received by the Transfer Agent. NAV for each Master
Portfolio is determined as of the close of trading of the New York Stock
Exchange (currently 1:00 p.m., Pacific Standard Time), on each day the New York
Stock Exchange is open for business (a "Business Day"). NAV is computed by
dividing the value of the Master Portfolio's net assets (i.e., the value of its
assets less liabilities) by the total number of interests of such Master
Portfolio outstanding. Each Master Portfolio's investments are valued each
Business Day generally by using available market quotations or at fair value
determined in good faith by MIP's Board of Trustees. For further information
regarding the methods employed in valuing each Master Portfolio's investments,
see Item 18, "Purchase, Redemption and Pricing of Interests" in Part B.
PURCHASE OF INTERESTS
Beneficial interests in a Master Portfolio are issued solely in private
placement transactions which do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. Investments in a Master Portfolio may
be made only by investment companies or certain other entities which are
"accredited investors" within the meaning of Regulation D under the Securities
Act of 1933, as amended. This registration statement does not constitute an
offer to sell, or the solicitation of an offer to buy, any "security" within the
meaning of the Securities Act of 1933, as amended.
REDEMPTION AND REPURCHASE
An investor in MIP may withdraw all or any portion of its investment on any
Business Day at the net asset value next determined after a withdrawal request
in proper form is furnished by the investor to the Transfer Agent. When a
request is received in proper form, MIP will redeem the shares at the next
determined net asset value.
Each Master Portfolio will make payment for all shares redeemed within
three days after receipt by the Transfer Agent of a redemption request in proper
form, except as provided by the rules of the Securities and Exchange Commission.
Investments in a Master Portfolio may not be transferred.
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The right of any investor to receive payment with respect to any withdrawal
may be suspended or the payment of the withdrawal proceeds postponed during any
period in which the New York Stock Exchange is closed (other than weekends or
holidays) or trading on such Exchange is restricted, or, to the extent otherwise
permitted by the 1940 Act, if an emergency exists.
DIVIDENDS AND DISTRIBUTIONS
The net investment income of a Master Portfolio generally will be declared
and paid as a dividend daily to all investors of record as of 1:00 p.m. (Pacific
time) with respect to each Master Portfolio. Net investment income for a
Saturday, Sunday or Holiday will be declared as a dividend to investors of
record as of 1:00 p.m. (Pacific time) on the previous business day with respect
to each Master Portfolio. All of the net investment income of a Master Portfolio
so determined is allocated pro rata among the investors in such Master Portfolio
at the time of such determination.
Dividends and capital gain distributions, if any, paid by a Master
Portfolio will be reinvested in the investor's interest in such Master Portfolio
at net asset value and credited to the investor's account on the payment date.
TAXES
Based upon the anticipated classification of each Master Portfolio for
federal income tax purposes, MIP believes that each Master Portfolio will
qualify as a partnership for such purposes. MIP therefore believes that each
Master Portfolio will not be subject to any federal income tax on its income and
net capital gains (if any). However, each investor in a Master Portfolio will be
taxable on its distributive share of such Master Portfolio's taxable income in
determining its federal income tax liability. The determination of such share
will be made in accordance with the Internal Revenue Code of 1986, as amended
(the "Code"), and regulations promulgated thereunder.
It is intended that each Master Portfolio's assets, income and
distributions will be managed in such a way that a regulated investment company
investing in such Master Portfolio may satisfy the requirements of Subchapter M
of the Code by investing substantially all of its assets in such Master
Portfolio.
Investor inquiries should be directed to Master Investment Portfolio, 111
Center Street, Little Rock, Arkansas 72201.
ITEM 8. DISTRIBUTION ARRANGEMENTS.
MIP is registered as an open-end management investment company under the
1940 Act. MIP was organized as a business trust under the laws of the State of
Delaware. Investors in MIP are each liable for all obligations of MIP.
However, the risk of an investor incurring financial loss on account of such
liability is limited to circumstances in which both inadequate insurance existed
and itself was unable to meet its obligations.
The Board of Trustees has authorized several series of which twelve are
active. All consideration received by MIP for interests in one of the series
and all assets in which such consideration is invested will belong to that
series (subject only to the rights of creditors of MIP) and will be subject to
the liabilities related thereto. The income attributable to, and the expenses
of, one series are treated separately from those of the other series. From time
to time, MIP may create new series without shareholder approval.
The business and affairs of MIP are managed under the direction of its
Board of Trustees. The office of MIP is located at 111 Center Street, Little
Rock, Arkansas 72201.
MASTER/FEEDER STRUCTURE
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The Master Portfolio is a "master" fund in a "master/feeder" structure. A non-
accredited investor does not directly purchase an interest in the Master
Portfolio, but instead purchases shares in a corresponding "feeder" fund which
invests all of its assets in the Master Portfolio. Other investors may also be
permitted to invest in the Master Portfolio. All other investors will invest in
the Master Portfolio on the same terms and conditions as the feeder funds,
although there may be different administrative and other expenses. Therefore,
the feeder funds may have different returns than other investors of the Master
Portfolio.
ITEM 9. FINANCIAL HIGHLIGHTS.
The response to Item 9 has been omitted pursuant to paragraph B(2)(b) of
the General Instructions to Form N-1A.
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MASTER INVESTMENT PORTFOLIO
LIFEPATH 2000 MASTER PORTFOLIO
LIFEPATH 2010 MASTER PORTFOLIO
LIFEPATH 2020 MASTER PORTFOLIO
LIFEPATH 2030 MASTER PORTFOLIO
LIFEPATH 2040 MASTER PORTFOLIO
PART A
July 1, 1999
Responses to Items 1 through 3 have been omitted pursuant to Instruction B(2)(b)
of the General Instructions to Form N-1A.
ITEM 4. INVESTMENT OBJECTIVES, PRINCIPAL STRATEGIES AND RELATED RISKS.
General. Master Investment Portfolio ("MIP") is an open-end, management
investment company, organized on October 21, 1993 as a business trust under the
laws of the State of Delaware. MIP is a "series fund," which is a mutual fund
divided into separate portfolios. By this offering document, MIP is offering
five asset allocation portfolios-- the LifePath 2000, LifePath 2010, LifePath
2020, LifePath 2030 and LifePath 2040 Master Portfolios (each, a "Master
Portfolio" or "LifePath Master Portfolio", and collectively, the "Master
Portfolios" or "LifePath Master Portfolios"). Each LifePath Master Portfolio is
treated as a separate entity for certain matters under the Investment Company
Act of 1940, as amended (the "1940 Act"), and for other purposes an
interestholder of one LifePath Master Portfolio is not deemed to be an
interestholder of any other LifePath Master Portfolio. As described below, for
certain matters MIP interestholders vote together as a group; as to others they
vote separately by Master Portfolio. MIP currently offers seven other series
pursuant to other offering documents. From time to time, other portfolios may
be established and sold pursuant to other offering documents.
Beneficial interests in each Master Portfolio are issued solely in private
placement transactions which do not involve any "public offering" within the
meaning of Regulation D under the Securities Act of 1933, as amended (the "1933
Act"). Investments in a Master Portfolio may be made only by investment
companies or certain other entities which are "accredited investors" within the
meaning of Regulation D under the 1933 Act. This registration statement does
not constitute an offer to sell, or the solicitation of an offer to buy, any
"security" within the meaning of the 1933 Act. Organizations or other entities
that hold shares of beneficial interest of a Master Portfolio may be referred to
herein as "feeder funds."
INVESTMENT OBJECTIVES. Each Master Portfolio seeks to provide long-term
investors in a feeder fund with an asset allocation strategy designed to
maximize assets for retirement or for other purposes consistent with the
quantitatively measured risk such investors, on average, may be willing to
accept given their investment time horizons. Specifically:
. LifePath 2000 Master Portfolio is managed for investors in a feeder fund
planning to retire (or begin to withdraw substantial portions of their
investment) approximately in the year 2000.
. LifePath 2010 Master Portfolio is managed for investors in a feeder fund
planning to retire (or begin to withdraw substantial portions of their
investment) approximately in the year 2010.
. LifePath 2020 Master Portfolio is managed for investors in a feeder fund
planning to retire (or begin to withdraw substantial portions of their
investment) approximately in the year 2020.
. LifePath 2030 Master Portfolio is managed for investors in a feeder fund
planning to retire (or begin to withdraw substantial portions of their
investment) approximately in the year 2030.
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. LifePath 2040 Master Portfolio is managed for investors in a feeder fund
planning to retire (or begin to withdraw substantial portions of their
investment) approximately in the year 2040.
Each LifePath Master Portfolio's investment objective cannot be changed
without approval by the holders of a majority (as defined in the 1940 Act) of
such Master Portfolio's outstanding voting securities. The differences in
objectives and policies among the Master Portfolios determine the types of
portfolio securities in which each Master Portfolio invests and can be expected
to affect the degree of risk to which each Master Portfolio is subject and the
performance of each Master Portfolio. There can be no assurance that the
investment objective of each Master Portfolio will be achieved.
INTRODUCTION. The LifePath 2000, LifePath 2010, LifePath 2020, LifePath 2030,
and LifePath 2040 Master Portfolios follow an asset allocation strategy among
three broad investment classes: equity and debt securities of issuers located
throughout the world and cash in the form of money market instruments. Each
LifePath Master Portfolio differs in the weighting assigned to each such
investment class, with the later-dated LifePath Master Portfolio generally
bearing more risk than the earlier-dated LifePath Master Portfolio, with the
expectation of greater total return. Thus, the investment class weightings of
the LifePath 2040 Master Portfolio initially might be 100%, 0% and 0% among
equity securities, debt securities and cash, respectively, while the weightings
of the LifePath 2000 Master Portfolio initially might be 25%, 50% and 25%,
respectively. These weightings will change periodically. The difference in the
investment class weightings is based on the statistically determined risk that
investors, on average, may be willing to accept given their investment time
horizons in an effort to maximize assets in anticipation of retirement or for
other purposes. As each LifePath Master Portfolio approaches its designated time
horizon, it generally is managed more conservatively, on the premise that
individuals investing for retirement desire to reduce investment risk in their
retirement accounts as they age.
The LifePath 2000 Master Portfolio will not terminate when it reaches its
target date on the first day of the year 2000. Instead, it will enter its
"retirement phase" during which it will seek to maximize assets consistent with
the risk that an average investor in retirement may be willing to accept. The
LifePath 2000 Master Portfolio will continue to follow an asset allocation
strategy among three broad investment classes: equity and debt securities of
domestic and foreign issuers and cash in the form of money market instruments.
However, unlike the remaining Master Portfolios with target dates, during its
retirement phase a Master Portfolio will no longer reduce its investment risk
through time. Instead, a retirement phase Master Portfolio is expected to have
a long-term average mix of approximately 20% equity securities, with the
remainder in debt securities and some cash. In the same manner as all LifePath
Master Portfolios, a Master Portfolio in its retirement phase will continue to
employ a tactical asset allocation component, which will alter the investment
mix to account for changing expected risks and opportunities. When other Master
Portfolios reach their target dates, it is expected that they will be combined
with the retirement phase Master Portfolio under the same investment strategy.
To manage the LifePath Master Portfolios, Barclays Global Fund Advisors
("BGFA") employs a proprietary investment model (the "Model"), that analyzes
extensive financial and economic data, including risk, correlation and expected
return statistics, to recommend the portfolio allocation among the investment
classes described below. At its simplest, for each point in time, the Model
recommends a portfolio allocation designed to maximize total return for each
LifePath Master Portfolio based on each such LifePath Master Portfolio's
evolving risk profile. As a result, while each LifePath Master Portfolio
invests in substantially the same securities within an investment class, the
amount of each LifePath Master Portfolio's aggregate assets invested in a
particular investment class, and thus in particular securities, differs, but the
relative percentage that a particular security comprises within an investment
class ordinarily remains substantially the same. As of December 31, 1998, the
asset allocations in the LifePath Master Portfolios were approximately as
follows:
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<TABLE>
<CAPTION>
LifePath 2000 LifePath 2010 LifePath 2020 LifePath 2030 LifePath 2040
Master Portfolio Master Portfolio Master Portfolio Master Portfolio Master Portfolio
------------------ ------------------ ------------------ ------------------ -------------------
<S> <C> <C> <C> <C> <C>
Equity Securities
Domestic 16% 36% 53% 64% 77%
International 6% 10% 14% 18% 20%
Bonds 52% 43% 27% 15% 2%
Money Market Instruments 26% 11% 6% 3% 1%
</TABLE>
The relative weightings for each LifePath Master Portfolio of the various
investment classes are expected to change over time, with the LifePath 2040
Master Portfolio adopting in the 2030s characteristics similar to the LifePath
2000 Master Portfolio today. BGFA may in the future refine the Model, or the
financial and economic data analyzed by the Model, in ways that could result in
changes to recommended allocations.
PRINCIPAL STRATEGIES.
The LifePath Model contains both "strategic" and "tactical" components,
with the strategic component weighted more heavily than the tactical component.
The strategic component of the Model evaluates the risk that investors, on
average, may be willing to accept given their investment time horizons. The
strategic component thus determines the changing investment risk level of each
LifePath Master Portfolio as time passes. The tactical component of the Model,
on the other hand, addresses short-term market conditions. The tactical
component thus adjusts the amount of investment risk taken by each LifePath
Master Portfolio without regard to time horizon, but rather in consideration of
the relative risk-adjusted short-term attractiveness of various asset classes.
Through the strategic and tactical components the asset allocation strategy
contemplates shifts, that may be frequent, among a wide range of U.S. and
foreign investments and market sectors. Each LifePath Master Portfolio may
invest up to approximately 20% of the value of its total assets in foreign
securities that are not publicly traded in the United States. Rather than
choosing specific securities, BGFA selects indices representing segments of the
global equity and debt markets and invests to create market exposure to these
market segments by purchasing representative samples of securities comprising
the indices in an attempt to replicate their performance. From time to time,
other indices may be selected in addition to, or as a substitute for, any of the
indices listed herein and market exposure may be broadened. Investors will be
notified of any such change.
The Model has broad latitude to allocate the Master Portfolios' investments
among equity securities, debt securities and money market instruments. The
LifePath Master Portfolios are not managed as balanced portfolios and are not
required to maintain a portion of their investments in each of the permitted
investment categories at all times. Until a LifePath Master Portfolio attains an
asset level of approximately $100 to $150 million, the Model will allocate
assets across fewer of the investment categories identified below than it
otherwise would. As a Master Portfolio approaches this minimum asset level, the
Model will add investment categories from among those identified below, thereby
approaching the desired investment mix over time. The portfolio of investments
of each Master Portfolio is compared from time to time to the Model's
recommended allocation. Recommended reallocations are implemented subject to
BGFA's assessment of current economic conditions and investment opportunities.
BGFA may change from time to time the criteria and methods it uses to implement
the recommendations of the Model. Recommended reallocations are implemented in
accordance with trading policies designed to take advantage of market
opportunities and reduce transaction costs. The asset allocation mix selected by
the Model is a primary determinant in the respective LifePath Master Portfolio's
investment performance.
BGFA manages other portfolios that also invest in accordance with the
Model. The performance of each of those other portfolios is likely to vary among
themselves and from the performance of each LifePath Master Portfolio. Such
variation in performance is primarily due to different equilibrium asset mix
assumptions used for the various portfolios, timing differences in the
implementation of the Model's recommendations and differences in expenses and
liquidity requirements. The overall management of each Master Portfolio is based
on the recommendation of the Model, and no person is primarily responsible for
recommending the mix of asset
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classes in each Master Portfolio or the mix of securities within the asset
classes. Decisions relating to the Model are made by BGFA's investment
committee.
Equity Securities -- The LifePath Master Portfolios seek U.S. equity market
exposure through investment in securities representative of the following
indices of common stock:
. The S&P/BARRA Value Stock Index (consisting of primarily large-
capitalization U.S. stocks with lower-than-average price/book ratios).
. The S&P/BARRA Growth Stock Index (consisting of primarily large-
capitalization U.S. stocks with higher-than-average price/book
ratios).
. The Intermediate Capitalization Value Stock Index (consisting of
primarily medium-capitalization U.S. stocks with lower-than-average
price/book ratios).
. The Intermediate Capitalization Growth Stock Index (consisting of
primarily medium-capitalization U.S. stocks with higher-than-average
price/book ratios).
. The Intermediate Capitalization Utility Stock Index (consisting
of primarily medium-capitalization U.S. utility stocks).
. The Micro Capitalization Market Index (consisting of primarily
small-capitalization U.S. stocks).
. The Small Capitalization Value Stock Index (consisting of
primarily small-capitalization U.S. stocks with lower-than-average
price/book ratios).
. The Small Capitalization Growth Stock Index (consisting of
primarily small-capitalization U.S. stocks with higher-than-average
price/book ratios).
The LifePath Master Portfolios seek foreign equity market exposure
through investment in foreign equity securities, American Depositary Receipts or
European Depositary Receipts of issuers whose securities are representative of
the following indices of foreign equity securities:
. The Morgan Stanley Capital International (MSCI) Japan Index
(consisting of primarily large-capitalization Japanese stocks).
. The Morgan Stanley Capital International Europe, Australia, Far
East Index (MSCI EAFE) Ex-Japan Index (consisting of primarily large-
capitalization foreign stocks, excluding Japanese stocks).
The LifePath Master Portfolios also may seek U.S. and foreign equity
market exposure through investment in equity securities of U.S. and foreign
issuers that are not included in the indices listed above.
Debt Securities -- The LifePath Master Portfolios seek U.S. debt market exposure
through investment in securities representative of the following indices of U.S.
debt securities:
. The Lehman Brothers Long-Term Government Bond Index (consisting
of all U.S. Government bonds with maturities of at least ten years).
. The Lehman Brothers Intermediate-Term Government Bond Index
(consisting of all U.S. Government bonds with maturities of less than
ten years and greater than one year).
. The Lehman Brothers Long-Term Corporate Bond Index (consisting of all
U.S. investment grade corporate bonds with maturities of at least ten
years).
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. The Lehman Brothers Intermediate-Term Corporate Bond Index (consisting
of all U.S. investment-grade corporate bonds with maturities of less
than ten years and greater than one year).
. The Lehman Brothers Mortgage-Backed Securities Index (consisting of
all fixed-coupon mortgage pass-throughs (issued by the Federal
National Mortgage Association, Government National Mortgage
Association and Federal Home Loan Mortgage Corporation with maturities
greater than one year).
The LifePath Master Portfolios seek foreign debt market exposure
through investment in securities representative of the following index of
foreign debt securities:
. The Salomon Brothers Non-U.S. World Government Bond Index (consisting
of foreign government bonds with maturities of greater than one year).
Each U.S. and foreign debt security is expected to be part of an
issuance with a minimum outstanding amount at the time of purchase of
approximately $50 million and $100 million, respectively. Each security in
which a LifePath Master Portfolio invests must be rated at least Baa by Moody's
Investors Service, Inc. ("Moody's"), or BBB by Standard & Poor's Corporation
("S&P"), Fitch Investors Service, Inc. ("Fitch") or Duff & Phelps, Inc. ("Duff")
or, if unrated, deemed to be of comparable quality by BGFA. See "Risk
Considerations--Debt Securities" below, and "Appendix" in Part B.
Money Market Instruments -- The money market instrument portion of each LifePath
Master Portfolio's investment portfolio generally is invested in high-quality
money market instruments, including U.S. Government obligations, obligations of
domestic and foreign banks, short-term corporate debt instruments and repurchase
agreements. See Item 12, "Description of the Master Portfolios and Their
Investments and Risks-- Portfolio Securities" in Part B.
RISK CONSIDERATIONS.
General -- The net asset value per interest of each LifePath Master Portfolio is
neither insured nor guaranteed, is not fixed and should be expected to
fluctuate.
Equity Securities -- The stock investments of the LifePath Master Portfolios are
subject to equity market risk. Equity market risk is the possibility that
common stock prices will fluctuate or decline over short or even extended
periods. The U.S. stock market tends to be cyclical, with periods when stock
prices generally rise and periods when prices generally decline. Throughout the
first six months of 1999, the stock market, as measured by the S&P 500 Index and
other commonly used indices, was trading at or close to record levels. There
can be no guarantee that these performance levels will continue.
Debt Securities -- The debt instruments in which the LifePath Master Portfolios
invest are subject to credit and interest rate risk. Credit risk is the risk
that issuers of the debt instruments in which the Master Portfolios invest may
default on the payment of principal and/or interest. Interest rate risk is the
risk that increases in market interest rates may adversely affect the value of
the debt instruments in which the Master Portfolios invest. The value of the
debt instruments generally changes inversely to market interest rates. Debt
securities with longer maturities, which tend to produce higher yields, are
subject to potentially greater capital appreciation and depreciation than
obligations with shorter maturities. Changes in the financial strength of an
issuer or changes in the ratings of any particular security may also affect the
value of these investments. Although some of the Master Portfolios' portfolio
securities are guaranteed by the U.S. Government, its agencies or
instrumentalities, such securities are subject to interest rate risk and the
market value of these securities, upon which the Master Portfolios' daily net
asset value is based, will fluctuate. No assurance can be given that the U.S.
Government would provide financial support to its agencies or instrumentalities
where it is not obligated to do so.
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Foreign Securities -- The LifePath Master Portfolios may invest in debt
obligations and equity securities of foreign issuers and may invest in American
Depositary Receipts ("ADRs") and European Depositary Receipts ("EDRs") of such
issuers. Investing in the securities of issuers in any foreign country, ADRs and
EDRs, involves special risks and considerations not typically associated with
investing in U.S. companies. These include differences in accounting, auditing
and financial reporting standards; generally higher commission rates on foreign
portfolio transactions; the possibility of nationalization, expropriation or
confiscatory taxation; adverse changes in investment or exchange control
regulations (which may include suspension of the ability to transfer currency
from a country); and political, social and monetary or diplomatic developments
that could affect U.S. investments in foreign countries. Additionally,
dispositions of foreign securities and dividends and interest payable on those
securities may be subject to foreign taxes, including withholding taxes.
Foreign securities often trade with less frequency and volume than domestic
securities and, therefore, may exhibit greater price volatility. Additional
costs associated with an investment in foreign securities may include higher
custodial fees than apply to domestic custodial arrangements and transaction
costs of foreign currency conversions. Changes in foreign exchange rates also
will affect the value of securities denominated or quoted in currencies other
than the U.S. dollar. A Master Portfolio's performance may be affected either
unfavorably or favorably by fluctuations in the relative rates of exchange
between the currencies of different nations, by exchange control regulations and
by indigenous economic and political developments.
Other Investment Considerations -- Because the Master Portfolios may shift
investment allocations significantly from time to time, their performance may
differ from funds which invest in one asset class or from funds with a stable
mix of assets. Further, shifts among asset classes may result in relatively
high turnover and transaction (i.e., brokerage commission) costs. Portfolio
turnover also can generate short-term capital gains tax consequences. During
those periods in which a high percentage of a Master Portfolio's assets are
invested in long-term bonds, the Master Portfolio's exposure to interest rate
risk will be greater because the longer maturity of such securities means they
are generally more sensitive to changes in market interest rates than short-term
securities.
Each LifePath Master Portfolio also may lend its portfolio securities
and enter into futures transactions, each of which involves risk. The futures
contracts and options on futures contracts that each Master Portfolio may
purchase may be considered derivatives. Derivatives are financial instruments
whose values are derived, at least in part, from the prices of other securities
or specified assets, indices or rates. Each Master Portfolio may use some
derivatives as part of its short-term liquidity holdings and/or as substitutes
for comparable market positions in the underlying securities. Some derivatives
may be more sensitive than direct securities to changes in interest rates or
sudden market moves. Some derivatives also may be susceptible to fluctuations in
yield or value due to their structure or contract terms.
Asset allocation and modeling strategies are employed by BGFA for
other investment companies and accounts advised or sub-advised by BGFA. If
these strategies indicate particular securities should be purchased or sold, at
the same time, by a LifePath Master Portfolio and one or more of these
investment companies or accounts, available investments or opportunities for
sales are allocated equitably to each by BGFA. In some cases, this procedure
may adversely affect the size of the position obtained for or disposed of by a
LifePath Master Portfolio or the price paid or received by such LifePath Master
Portfolio.
Under normal market conditions, the portfolio turnover rate for each
LifePath Master Portfolio is not expected to exceed 100%. A portfolio turnover
rate of 100% would occur, for example, if all of a LifePath Master Portfolio's
securities were replaced within one year. Higher portfolio turnover rates are
likely to result in comparatively greater brokerage commissions. In addition,
short-term gains realized from portfolio transactions are taxable to
interestholders as ordinary income. Portfolio turnover is not a limiting factor
for the investment adviser in making investment decisions.
Year 2000 -- Many computer software systems in use today cannot distinguish the
Year 2000 from the Year 1900. Most of the services provided to the Master
Portfolios depend on the smooth functioning of computer systems. Any failure to
adapt these systems in time could hamper a Master Portfolio's operations and
services.
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The Master Portfolios' principal service providers have advised the Master
Portfolios that they are working on necessary changes to their systems and that
they expect their systems to be adapted in time. There can, of course, be no
assurance of success. In addition, because the Year 2000 issue affects
virtually all organizations, the companies or entities in which the Master
Portfolios invest also could be adversely impacted by the Year 2000 issue. The
extent of such impact cannot be predicted.
ITEM 5. MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE.
The response to Item 5 has been omitted pursuant to paragraph B(2)(b) of
the General Instructions to Form N-1A.
ITEM 6. MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE.
INVESTMENT ADVISER -- BGFA serves as investment adviser to each LifePath Master
Portfolio. BGFA is a direct subsidiary of Barclays Global Investors, N.A.
(which, in turn, is an indirect subsidiary of Barclays Bank PLC) and is located
at 45 Fremont Street, San Francisco, CA 94105. As of December 31, 1998, BGFA
and its affiliates provided investment advisory services for approximately $615
billion of assets under management.
BGFA provides each LifePath Master Portfolio with investment guidance and
policy direction in connection with the daily portfolio management of such
Master Portfolio, subject to the supervision of MIP's Board of Trustees and in
conformity with Delaware law and the stated policies of each Master Portfolio.
BGFA furnishes to MIP's Board of Trustees periodic reports on the investment
strategy and performance of each LifePath Master Portfolio.
BGFA is entitled to receive monthly fees at the annual rate of 0.55% of the
average daily net assets of each LifePath Master Portfolio as compensation for
its advisory services. From time to time, BGFA may waive such fees in whole or
in part. Any such waiver will reduce the expenses of a Master Portfolio and,
accordingly, have a favorable impact on its performance. For the year ended
February 28, 1999, BGFA received amounts equal to 0.55% of the average daily net
assets of each of the LifePath Master Portfolios as compensation for its
advisory services.
Purchase and sale orders of the securities held by a Master Portfolio may
be combined with those of other accounts that BGFA manages or advises, and for
which it has brokerage placement authority, in the interest of seeking the most
favorable overall net results. When BGFA, subject to the supervision of, and the
overall authority of MIP's Board of Trustees, determines that a particular
security should be bought or sold for a Master Portfolio and other accounts
managed by BGFA, it undertakes to allocate those transactions among the
participants equitably.
BGFA may deal, trade and invest for its own account in the types of
securities in which the Master Portfolios may invest. BGFA has informed MIP that
in making its investment decisions it does not obtain or use material inside
information in its possession.
Morrison & Foerster LLP, counsel to MIP and special counsel to BGFA, has
advised MIP and BGFA that BGFA and its affiliates may perform the services
contemplated by the BGFA Advisory Contracts and this Part A without violation of
the Glass-Steagall Act. Such counsel has pointed out, however, that there are no
controlling judicial or administrative interpretations or decisions and that
future judicial or administrative interpretations of, or decisions relating to,
present federal or state statutes, including the Glass-Steagall Act, and
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, as well as future changes in such statutes,
regulations and judicial or administrative decisions or interpretations, could
prevent such entities from continuing to perform, in whole or in part, such
services. If any such entity were prohibited from performing any such services,
it is expected that new agreements would be proposed or entered into with
another entity or entities qualified to perform such services.
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ITEM 7. SHAREHOLDER INFORMATION.
PRICING OF INTERESTS
Shares of each Master Portfolio are sold on a continuous basis at the net
asset value per unit of beneficial interest ("NAV") next determined after an
order in proper form is received by the Transfer Agent. NAV for each LifePath
Master Portfolio is determined as of the close of trading on the New York Stock
Exchange ("NYSE") (currently 1:00 p.m., Pacific Standard Time) on each day the
NYSE is open for business (a "Business Day"). Net asset value per share is
computed by dividing the value of a Master Portfolio's net assets (i.e., the
value of its assets less liabilities) by the total number of shares of such
Master Portfolio outstanding. A Master Portfolio's investments are valued each
Business Day generally by using available market quotations or at fair value
determined in good faith by the investment adviser or sub-adviser pursuant to
guidelines approved by MIP's Board of Trustees. For further information
regarding the methods employed in valuing each Master Portfolio's investments,
see Item 18, "Purchase, Redemption and Pricing of Interests" in Part B.
PURCHASE OF INTERESTS
Beneficial interests in the Master Portfolios are issued solely in private
placement transactions which do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. Investments in the Master Portfolios
may be made only by investment companies or certain other entities which are
"accredited investors" within the meaning of Regulation D under the 1933 Act.
This registration statement does not constitute an offer to sell, or the
solicitation of an offer to buy, any "security" within the meaning of the 1933
Act.
REDEMPTION OR REPURCHASE
An investor in MIP may withdraw all or any portion of its investment on any
Business Day at the net asset value next determined after a withdrawal request
in proper form is furnished by the investor to the Transfer Agent. When a
request is received in proper form, MIP redeems the shares at the next
determined net asset value.
Each Master Portfolio makes payment for all shares redeemed within five
days after receipt by the Transfer Agent of a redemption request in proper form,
except as provided by the rules of the Securities and Exchange Commission.
Investments in a Master Portfolio may not be transferred.
The right of any investor to receive payment with respect to any withdrawal
may be suspended or the payment of the withdrawal proceeds postponed during any
period in which the New York Stock Exchange is closed (other than weekends or
holidays) or trading on such Exchange is restricted, or, to the extent otherwise
permitted by the 1940 Act, if an emergency exists.
DIVIDENDS AND DISTRIBUTIONS
The net investment income of the Master Portfolio generally will be
declared and paid as a dividend daily to all investors of record as of 1:00 p.m.
(Pacific time) with respect to each LifePath Master Portfolio. Net investment
income for a Saturday, Sunday or Holiday will be declared as a dividend to
investors of record as of 1:00 p.m. (Pacific time) on the previous business day
with respect to the Master Portfolios. All of the net investment income of the
Master Portfolios so determined is allocated pro rata among the investors in the
Master Portfolio at the time of such determination.
Dividends and capital gain distributions, if any, paid by the Master
Portfolio will be reinvested in the investor's interest in the Master Portfolio
at net asset value and credited to the investor's account on the payment date.
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TAXES
MIP believes that the Master Portfolio will qualify as a non-publicly
traded partnership for federal income tax purposes. MIP therefore believes that
the Master Portfolio will not be subject to any federal income tax on its income
and net capital gains (if any). However, each investor in the Master Portfolio
will be taxable on its distributive share of the Master Portfolio's taxable
income in determining its federal income tax liability. As a non-publicly traded
partnership, the Master Portfolio will be deemed to have "passed through" to
interestholders any interests, dividends, gains or losses. The determination of
such share will be made in accordance with the Internal Revenue Code of 1986, as
amended (the "Code"), and regulations promulgated thereunder.
It is intended that the Master Portfolio's assets, income and distributions
will be managed in such a way that a regulated investment company investing in
the Master Portfolio may satisfy the requirements of Subchapter M of the Code by
investing substantially all of its assets in the Master Portfolio.
ITEM 8. DISTRIBUTION ARRANGEMENTS.
MIP is registered as an open-end management investment company under the
1940 Act. MIP was organized as a business trust under the laws of the State of
Delaware. Investors in MIP are each liable for all obligations of MIP. However,
the risk of an investor incurring financial loss on account of such liability is
limited to circumstances in which both inadequate insurance exists and MIP
itself is unable to meet its obligations.
To date, the Board of Trustees has authorized the creation of twelve
separate series. All consideration received by MIP for interests of one of the
series and all assets in which such consideration is invested belong to that
series (subject only to the rights of creditors of MIP) and is subject to the
liabilities related thereto. The income attributable to, and the expenses of,
one series are treated separately from those of the other series. MIP has the
ability to create, from time to time, new series without interestholder
approval.
The business and affairs of MIP are managed under the direction of its
Board of Trustees. The office of MIP is located at 111 Center Street, Little
Rock, Arkansas 72201.
RULE 12B-1 FEES
MIP's Board of Trustees has adopted, on behalf of each Master Portfolio, a
"defensive" distribution plan under Section 12(b) of the 1940 Act and Rule 12b-1
thereunder (the "Plan"). The Plan provides that if any portion of a Master
Portfolio's advisory fees (up to 0.25% of the average daily net assets of each
Master Portfolio on an annual basis) were deemed to constitute an indirect
payment for activities that are primarily intended to result in the sale of
interests in a Master Portfolio such payment would be authorized pursuant to the
Plan. These fees, if any, are paid out of the Master Portfolios' assets on an
on-going basis. Over time, these fees will increase the cost of your investment
and may cost you more than paying other types of sales charges. The Master
Portfolios currently do not pay any amounts pursuant to the Plan.
MASTER/FEEDER STRUCTURE
The Master Portfolios are "master" funds in a "master/feeder" structure. A
non-accredited investor does not directly purchase an interest in a Master
Portfolio, but instead purchases shares in a corresponding "feeder" fund which
invests all of its assets in the Master Portfolio. Other investors may also be
permitted to invest in the Master Portfolios. All other investors will invest in
a Master Portfolio on the same terms and conditions as the feeder funds,
although there may be different administrative and other expenses. Therefore,
the feeder funds may have different returns than other investors of the Master
Portfolios.
ITEM 9. FINANCIAL HIGHLIGHTS.
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The response to Item 9 has been omitted pursuant to paragraph B(2)(b) of
the General Instructions to Form N-1A.
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MASTER INVESTMENT PORTFOLIO
MONEY MARKET MASTER PORTFOLIO
PART A
July 1, 1999
Responses to Items 1 through 3 have been omitted pursuant to paragraph B(2)(b)
of the General Instructions to Form N-1A.
ITEM 4. INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND RELATED
RISKS.
General. Master Investment Portfolio ("MIP") is an open-end, management
investment company, organized on October 21, 1993 as a business trust under the
laws of the State of Delaware. MIP is a "series fund," which is a mutual fund
divided into separate portfolios. By this offering document, MIP is offering
one diversified portfolio - the Money Market Master Portfolio (the "Master
Portfolio"). The Master Portfolio is treated as a separate entity for certain
matters under the Investment Company Act of 1940, as amended (the "1940 Act")
and for other purposes an interestholder of one master portfolio of MIP is not
deemed to be an interestholder of any other portfolio of MIP. As described
below, for certain matters MIP interestholders vote together as a group; as to
others they vote separately by master portfolio. MIP currently offers eleven
other portfolios pursuant to other offering documents. From time to time, other
portfolios may be established and sold pursuant to other offering documents.
Beneficial interests in the Master Portfolio are issued solely in private
placement transactions which do not involve any "public offering" within the
meaning of Regulation D under the Securities Act of 1933, as amended (the "1933
Act"). Investments in the Master Portfolio may be made only by investment
companies or certain other entities which are "accredited investors" within the
meaning of Regulation D under the 1933 Act. This registration statement does
not constitute an offer to sell, or the solicitation of an offer to buy, any
"security" within the meaning of the 1933 Act. Organizations or other entities
that hold shares of beneficial interest in the Master Portfolio may be referred
to herein as "feeder funds."
INVESTMENT OBJECTIVE
. The Money Market Master Portfolio seeks to provide investors with a
high level of income, while preserving capital and liquidity, by investing in
high quality, short-term investments. These securities include obligations of
the U.S. Government, its agencies and instrumentalities (including government-
sponsored enterprises), certificates of deposit and U.S. Treasury bills, high-
quality debt obligations, such as corporate debt, certain obligations of U.S.
banks and certain repurchase agreements.
The investment objective of the Master Portfolio cannot be changed without
approval by the holders of a majority (as defined in the 1940 Act) of the Master
Portfolio's outstanding voting securities. The investment objective and
policies of the Master Portfolio determine the types of portfolio securities in
which it invests and can be expected to affect the degree of risk to which the
Master Portfolio is subject and the performance of the Master Portfolio. There
can be no assurance that the Master Portfolio's investment objective will be
achieved.
RISK CONSIDERATIONS
The Master Portfolio's investments are expected to present minimal risks
because of their relatively short maturities and the high credit quality
(financial strength) of the issuers. The Master Portfolio seeks to
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maintain a portfolio of investments that will permit interestholders to maintain
a net asset value of $1.00 per share; however, there is no assurance that this
will be achieved.
Pursuant to the Investment Company Act of 1940, as amended (the "1940
Act"), the Master Portfolio must comply with certain investment criteria
designed to provide liquidity and reduce risk to allow the interestholders to
maintain a stable net asset value of $1.00 per share. The Master Portfolio seeks
to reduce risk by investing its assets in securities of various issuers. As
such, the Master Portfolio is considered to be diversified for purposes of the
1940 Act.
The Master Portfolio emphasizes safety of principal and high credit
quality. In particular, the internal investment policies of the Master
Portfolio's investment adviser, Barclays Global Fund Advisors ("BGFA"), have
always prohibited the purchase by the Master Portfolio of many types of
floating-rate instruments commonly referred to as derivatives that are
considered to be potentially volatile. The Master Portfolio may only invest in
floating-rate securities that bear interest at a rate that resets quarterly or
more frequently, and that resets based on changes in standard money market rate
indices such as U.S. Government Treasury bills, London Interbank Offered Rate,
the prime rate, published commercial paper rates, federal funds rates, Public
Securities Associates floaters or JJ Kenney index floaters.
The Master Portfolio's dollar-weighted average portfolio maturity must not
exceed 90 days. Any security that the Master Portfolio purchases must have a
remaining maturity of not more than 397 days (13 months). In addition, any
security that the Master Portfolio purchases must present minimal credit risks
and be of "high quality." "High quality" means to be rated in the top two
rating categories by the requisite NRSROs or, if unrated, determined to be of
comparable quality to such rated securities by BGFA, as the Master Portfolio's
investment adviser, under guidelines adopted by MIP's Board of Trustees. The
Master Portfolio may not achieve as high a level of current income as other
mutual funds that do not limit their investment to the high credit quality
instruments in which the Master Portfolio invests.
The Master Portfolio may invest up to 10% of its assets in illiquid
securities. Illiquid securities, which may include certain restricted
securities, may be difficult to sell promptly at an acceptable price. Certain
restricted securities may be subject to legal restrictions on resale. Delay or
difficulty in selling securities may result in a loss or be costly to the Master
Portfolio.
Year 2000 -- Many computer software systems in use today cannot distinguish the
Year 2000 from the Year 1900. Most of the services provided to the Master
Portfolio depend on the smooth functioning of computer systems. Any failure to
adapt these systems in time could hamper the Master Portfolio's operations and
services. The Master Portfolio's principal service providers have advised the
Master Portfolio that they are working on necessary changes to their systems and
that they expect their systems to be adapted in time. There can, of course, be
no assurance of success. In addition, because the Year 2000 issue affects
virtually all organizations, the companies or entities in which the Master
Portfolio invests also could be adversely impacted by the Year 2000 issue. The
extent of such impact cannot be predicted.
ITEM 5. MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE.
The response to Item 5 has been omitted pursuant to paragraph B(2)(b) of the
General Instructions to Form N-1A.
ITEM 6. MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE.
INVESTMENT ADVISER -- BGFA serves as investment adviser to the Master Portfolio.
BGFA is a direct subsidiary of Barclays Global Investors, N.A. (which, in turn,
is an indirect subsidiary of Barclays Bank PLC) and is located at 45 Fremont
Street, San Francisco, CA 94105. As of December 31, 1999, BGFA and its
affiliates provided investment advisory services for approximately $615 billion
of assets under management.
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BGFA provides the Master Portfolio with investment guidance and policy
direction in connection with daily portfolio management, subject to the
supervision of MIP's Board of Trustees and in conformity with Delaware law and
the stated policies of the Master Portfolio. BGFA furnishes to MIP's Board of
Trustees periodic reports on the investment strategy and performance of the
Master Portfolio.
BGFA is entitled to receive monthly fees at the annual rate of 0.10% of the
average daily net assets of the Master Portfolio as compensation for its
advisory services. From time to time, BGFA may waive such fees in whole or in
part. Any such waiver will reduce the expenses of the Master Portfolio and,
accordingly, have a favorable impact on its performance.
Purchase and sale orders of the securities held by the Master Portfolio may
be combined with those of other accounts that BGFA manages or advises, and for
which it has brokerage placement authority, in the interest of seeking the most
favorable overall net results. When BGFA, subject to the supervision of, and the
overall authority of MIP's Board of Trustees, determines that a particular
security should be bought or sold for the Master Portfolio and other accounts
managed by BGFA, it undertakes to allocate those transactions among the
participants equitably.
BGFA may deal, trade and invest for its own account in the types of
securities in which the Master Portfolio may invest. BGFA has informed MIP that
in making its investment decisions it does not obtain or use material inside
information in its possession.
Morrison & Foerster LLP, counsel to MIP and special counsel to BGFA, has
advised MIP and BGFA that BGFA and its affiliates may perform the services
contemplated by the BGFA Advisory Contracts and this Part A without violation of
the Glass-Steagall Act. Such counsel has pointed out, however, that there are
no controlling judicial or administrative interpretations or decisions and that
future judicial or administrative interpretations of, or decisions relating to,
present federal or state statutes, including the Glass-Steagall Act, and
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, as well as future changes in such statutes,
regulations and judicial or administrative decisions or interpretations, could
prevent such entities from continuing to perform, in whole or in part, such
services. If any such entity were prohibited from performing any such services,
it is expected that new agreements would be proposed or entered into with
another entity or entities qualified to perform such services.
ITEM 7. SHAREHOLDER INFORMATION.
PRICING OF INTERESTS
Interests in the Master Portfolios are sold on a continuous basis at the
net asset value per unit of beneficial interest ("NAV") next determined after an
order in proper form is received by the Transfer Agent. NAV for the Master
Portfolio is determined as of the close of trading of the New York Stock
Exchange (currently 1:00 p.m., Pacific Time), on each day the New York Stock
Exchange is open for business (a "Business Day"). On any day the trading
markets for both U.S. government securities and money market instruments close
early, the NAV calculation time and the dividend, purchase and redemption cut-
off times for the Fund may be earlier than 1:00 p.m. (Pacific time).
NAV is computed by dividing the value of the Master Portfolio's net assets
(i.e., the value of its assets less liabilities) by its total number of
interests outstanding. All expenses are accrued daily and taken into account
for the purpose of calculating NAV. The Master Portfolio uses the amortized
cost method to value its portfolio securities. The amortized cost method
involves valuing a security at its cost and amortizing any discount or premium
over the period until maturity, generally without regard to the impact of
fluctuating interest rates on the market value of the security. MIP's Board of
Trustees believes that this valuation method accurately reflects fair value.
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PURCHASE OF INTERESTS
Beneficial interests in the Master Portfolio are issued solely in private
placement transactions which do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. Investments in the Master Portfolio
may be made only by investment companies or certain other entities which are
"accredited investors" within the meaning of Regulation D under the Securities
Act of 1933, as amended. This registration statement does not constitute an
offer to sell, or the solicitation of an offer to buy, any "security" within the
meaning of the Securities Act of 1933, as amended.
REDEMPTION OR REPURCHASE
An investor in MIP may withdraw all or any portion of its investment on any
Business Day at the net asset value next determined after a withdrawal request
in proper form is furnished by the investor to the Transfer Agent. When a
request is received in proper form, MIP will redeem the shares at the next
determined net asset value.
The Master Portfolio will make payment for all shares redeemed within three
days after receipt by the Transfer Agent of a redemption request in proper form,
except as provided by the rules of the Securities and Exchange Commission.
Investments in the Master Portfolio may not be transferred.
The right of any investor to receive payment with respect to any withdrawal
may be suspended or the payment of the withdrawal proceeds postponed during any
period in which the New York Stock Exchange is closed (other than weekends or
holidays) or trading on such Exchange is restricted, or, to the extent otherwise
permitted by the 1940 Act, if an emergency exists.
DIVIDENDS AND DISTRIBUTIONS
The net investment income of the Master Portfolio generally will be
declared as a dividend daily and paid monthly to all investors of record as of
1:00 p.m. (Pacific time). Net investment income for a Saturday, Sunday or
Holiday will be declared as a dividend to investors of record as of 1:00 p.m.
(Pacific time) on the previous business day. All of the net investment income of
the Master Portfolio so determined is allocated pro rata among the investors in
the Master Portfolio at the time of such determination.
Dividends and capital gain distributions, if any, paid by the Master
Portfolio will be reinvested in the investor's interest in the Master Portfolio
at net asset value and credited to the investor's account on the payment date.
TAXES
Based upon the anticipated classification of the Master Portfolio for
federal income tax purposes, MIP believes that the Master Portfolio will qualify
as a partnership for such purposes. MIP therefore believes that the Master
Portfolio will not be subject to any federal income tax on its income and net
capital gains (if any). However, each investor in the Master Portfolio will be
taxable on its distributive share of the Master Portfolio's taxable income in
determining its federal income tax liability. The determination of such share
will be made in accordance with the Internal Revenue Code of 1986, as amended
(the "Code"), and regulations promulgated thereunder.
It is intended that the Master Portfolio's assets, income and distributions
will be managed in such a way that a regulated investment company investing in
the Master Portfolio may satisfy the requirements of Subchapter M of the Code by
investing substantially all of its assets in the Master Portfolio.
Investor inquiries should be directed to Master Investment Portfolio, 111
Center Street, Little Rock, Arkansas 72201.
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ITEM 8. DISTRIBUTION ARRANGEMENTS.
MIP is registered as an open-end management investment company under the
1940 Act. MIP was organized as a business trust under the laws of the State of
Delaware. Investors in MIP are each liable for all obligations of MIP.
However, the risk of an investor incurring financial loss on account of such
liability is limited to circumstances in which both inadequate insurance existed
and itself was unable to meet its obligations.
The Board of Trustees has authorized several series of which twelve are
active. All consideration received by MIP for interests in one of the series and
all assets in which such consideration is invested will belong to that series
(subject only to the rights of creditors of MIP) and will be subject to the
liabilities related thereto. The income attributable to, and the expenses of,
one series are treated separately from those of the other series. From time to
time, MIP may create new series without shareholder approval.
The business and affairs of MIP are managed under the direction of its
Board of Trustees. The office of MIP is located at 111 Center Street, Little
Rock, Arkansas 72201.
MASTER/FEEDER STRUCTURE
he Master Portfolio is a "master" fund in a "master/feeder" structure. A
non-accredited investor does not directly purchase an interest in the Master
Portfolio, but instead purchases shares in a corresponding "feeder" fund which
invests all of its assets in the Master Portfolio. Other investors may also be
permitted to invest in the Master Portfolio. All other investors will invest in
the Master Portfolio on the same terms and conditions as the feeder funds,
although there may be different administrative and other expenses. Therefore,
the feeder funds may have different returns than other investors of the Master
Portfolio.
ITEM 9. FINANCIAL HIGHLIGHTS.
The response to Item 9 has been omitted pursuant to paragraph B(2)(b) of
the General Instructions to Form N-1A.
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MASTER INVESTMENT PORTFOLIO
U.S. EQUITY INDEX MASTER PORTFOLIO
PART A
July 1, 1999
Responses to Items 1 through 3 have been omitted pursuant to Instruction B(2)(b)
of the General Instructions to Form N-1A.
ITEM 4. INVESTMENT OBJECTIVES, PRINCIPAL STRATEGIES AND RELATED RISKS.
General. Master Investment Portfolio ("MIP") is an open-end, management
investment company, organized on October 21, 1993 as a business trust under the
laws of the State of Delaware. MIP is a "series fund," which is a mutual fund
divided into separate portfolios. By this offering document, MIP is offering
one of its diversified portfolios - the U.S. Equity Index Master Portfolio (the
"Master Portfolio"). The Master Portfolio is treated as a separate entity for
certain matters under the Investment Company Act of 1940, as amended (the "1940
Act"), and for other purposes an interestholder of the Master Portfolio is not
deemed to be an interestholder of any other portfolio of MIP. As described
below, for certain matters MIP interestholders vote together as a group; as to
others they vote separately by portfolio. MIP currently offers eleven other
portfolios pursuant to other offering documents. From time to time, other
portfolios may be established and sold pursuant to other offering documents.
Beneficial interests in the Master Portfolio are issued solely in private
placement transactions which do not involve any "public offering" within the
meaning of Regulation D under the Securities Act of 1933, as amended (the "1933
Act"). Investments in the Master Portfolio may be made only by investment
companies or certain other entities which are "accredited investors" within the
meaning of Regulation D under the 1933 Act. This registration statement does
not constitute an offer to sell, or the solicitation of an offer to buy any
"security" within the meaning of the 1933 Act. Investment companies that hold
shares of beneficial interest ("interests") in the Master Portfolio are
sometimes referred to herein as "feeder funds."
INVESTMENT OBJECTIVE - Master Portfolio.
. The U.S. Equity Index Master Portfolio seeks to match as closely as
practicable, before fees and expenses, the performance of the Wilshire
5000 Equity Index (the "Wilshire 5000 Index")./1/ The Master Portfolio
uses a "fund of funds" structure to track the Wilshire 5000 Index,
which is comprised of the stocks in the Standard & Poor's 500 Stock
Index ("S&P 500 Index"), except for a small number of foreign stocks
that represent approximately 3% of the S&P 500 Index, and the stocks
in the Wilshire 4500 Equity Index (the "Wilshire 4500 Index"). In this
regard, the Master Portfolio seeks to achieve its objective by
investing substantially all of its assets in two other portfolios of
MIP -- the Extended Index Portfolio
________________
/1/ McGraw-Hill, Inc. ("McGraw-Hill") and Wilshire Associates, Inc. ("Wilshire
Associates") do not sponsor any portfolios of MIP, nor are they affiliated in
any way with BGFA or MIP. "Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," and
"Standard & Poor's 500(R)" are trademarks of McGraw-Hill. "Wilshire 5000 Equity
Index(R)" and "Wilshire 4500 Equity Index(R)" and related marks are trademarks
of Wilshire Associates. None of the portfolios of MIP are sponsored, endorsed,
sold, or promoted by these indices or their sponsors and neither the indices nor
their sponsors make any representation or warranty, express or implied,
regarding the advisability of investing in MIP portfolios.
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(which invests substantially all of its assets in a representative
sample of stocks comprising the Wilshire 4500 Index) and the S&P 500
Index Portfolio (which invests substantially all of its assets in
stocks comprising the S&P 500 Index) (together, the "Underlying
Portfolios"). The Master Portfolio's assets will be invested in the
Underlying Portfolios of MIP in proportions adjusted periodically to
maintain the capitalization range of the Wilshire 5000 Index. The
performance of the Master Portfolio will correspond directly to the
performance of the Underlying Portfolios. The Fund may not track its
index perfectly, as differences between the index and the Fund's
Underlying Portfolios may cause differences in performance.
INVESTMENT OBJECTIVES - Underlying Portfolios.
. The S&P 500 Index Portfolio seeks to provide investment results,
before fees and expenses, that correspond to the total return
performance of publicly traded common stocks in the aggregate, as
represented by the Standard & Poor's 500 Stock Index.
. The Extended Index Portfolio seeks to approximate, before fees and
expenses, the capitalization range and performance of the Wilshire
4500 Index.
The Master Portfolio's investment objective can be changed by MIP's Board
of Trustees without interestholder approval. The objective and policies of the
Master Portfolio determines the types of portfolio securities in which it
invests, the degree of risk to which it is subject and, ultimately, its
performance. There can be no assurance that the Master Portfolio's investment
objective will be achieved.
ABOUT THE INDICES
. The Wilshire 5000 Index was created December 31, 1980. It measures the
performance of all U.S. headquartered equity securities with readily
available price data. Over 7,000 capitalization weighted security
returns are used to adjust the index.
. The Wilshire 4500 Index was created December 31, 1983. It is the
Wilshire 5000 Index with most of the companies in the S&P 500 Index
removed. Over 6,500 capitalization weighted security returns are used
to adjust the index.
. The S&P 500 Index was created March 5, 1957. It is composed of 500
selected common stocks, most of which are listed on the NYSE.
The securities comprising the S&P 500 Index represent the stocks of
primarily large-cap companies. The securities comprising the Wilshire 4500
Index represent the smaller- and medium-sized companies of the Wilshire 5000
Index. In order for the Master Portfolio to maintain a capitalization weighted
representative sample of the Wilshire 5000 Index, it will invest in the
Underlying Portfolios in proportion to the overall capitalization of their
respective indices. Based on their relative overall capitalizations as of the
date of this Part A, roughly two thirds of the Master Portfolio's portfolio will
be invested in the S&P 500 Index Portfolio and the other third in the Extended
Index Portfolio. Historically, the overall capitalization of the indices have
varied, and as a result, the Master Portfolio's portfolio is also likely to
vary.
INVESTMENT POLICIES - Master Portfolio.
. The U.S. Equity Index Master Portfolio seeks to match the total return
performance of the Wilshire 5000 Index, which is composed of over
7,000 selected common stocks traded on the New York Stock Exchange,
American Stock Exchange and Nasdaq Stock Market. The weightings of
stocks in the Wilshire 5000 Index are based on each stock's relative
total market
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capitalization; that is, its market price per share times the number
of shares outstanding. The percentage of the Master Portfolio's assets
invested in the Underlying Portfolios is approximately the same as the
percentage such Portfolios are invested in stocks represented in the
Wilshire 5000 Index. Securities are selected for investment by the
Underlying Portfolios as indicated below.
INVESTMENT POLICIES - Underlying Portfolios.
. The Extended Index Portfolio seeks to match the total return
performance of U.S. stocks, excluding the large-cap stocks included in
the S&P 500 Index. The Fund defines these stocks as those comprising
the Wilshire 4500 Index, which is composed of over 6,500 equity stocks
of issuers headquartered in the United States. The Index is almost
entirely comprised of common stocks listed on the New York Stock
Exchange, American Stock Exchange or Nasdaq Stock Market. The
weightings of stocks in the Wilshire 4500 Index are based on each
stock's relative total market capitalization; that is, its market
price per share times the number of shares outstanding. The Extended
Index Portfolio invests in a representative sample of these
securities. Securities are selected for investment by the Extended
Index Portfolio in accordance with their capitalization, industry
sector and valuation, among other factors.
. The S&P 500 Index Portfolio seeks to match the total return
performance of the S&P 500 Index, which is composed of 500 selected
common stocks, most of which are listed on the New York Stock
Exchange. The weightings of stocks in the S&P 500 Index are based on
each stock's relative total market capitalization; that is, its market
price per share times the number of shares outstanding. The percentage
of the S&P 500 Index Portfolio's assets invested in a given stock is
approximately the same as the percentage such stock represents in the
S&P 500 Index.
Unlike the Extended Index Portfolio, which invests in a representative
sample of the over 6,500 stocks represented by its benchmark, the Wilshire 4500
Index, the S&P 500 Index Portfolio invests in all 500 of the stocks represented
by its benchmark, the S&P 500 Index.
No attempt is made to manage the portfolio of the Master Portfolio using
economic, financial or market analysis. The Master Portfolio is managed by
determining which proportion of its assets will be invested in each Underlying
Portfolio to match, to the extent feasible, the capitalization range and returns
of the Wilshire 5000 Index. In turn, the Underlying Portfolios determine which
securities are to be purchased or sold to match or sample their respective
benchmarks. Under normal market conditions, at least 90% of the value of the
Master Portfolio's total assets is invested, through the Underlying Portfolios,
in securities comprising the Wilshire 5000 Index. The Master Portfolio's
ability to match its investment performance to the investment performance of the
Wilshire 5000 Index may be affected by, among other things, the Master
Portfolio's and Underlying Portfolios' expenses, the amount of cash and cash
equivalents held by the Master Portfolio and the Underlying Portfolios, the
manner in which the total returns of the Wilshire 5000 Index, the Wilshire 4500
Index and the S&P 500 Index are calculated; the size of the Master Portfolio's
investment portfolio; and the timing, frequency and size of shareholder
purchases and redemptions.
The Underlying Portfolios use cash flows from interestholder purchase and
redemption activity to maintain, to the extent feasible, the similarity of their
portfolio to the securities comprising their respective benchmarks. In turn,
the Master Portfolio uses cash flows from its interestholder purchase and
redemption activity to periodically adjust its investment in the Underlying
Portfolios to maintain, to the extent feasible, the similarity of its
capitalization range and returns to those of the securities comprising the
Wilshire 5000 Index. Barclays Global Fund Advisors ("BGFA") regularly monitors
the Master Portfolio's correlation to the Wilshire 5000 Index and adjusts the
Master Portfolio's investment in the Underlying Portfolios to the extent
necessary. Inclusion of a security in an Index in no way implies an opinion by
the sponsor of the Index as to its attractiveness as an investment.
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The sampling techniques utilized by the Master Portfolio and the Extended
Index Portfolio are designed to allow said portfolios to substantially duplicate
the investment performance of their respective benchmarks. However, the Master
Portfolio is not expected to track the Wilshire 5000 Index with the same degree
of accuracy that complete replication of such Index would provide. In addition,
at times, the portfolio composition of the Master Portfolio may be altered (or
"rebalanced") to reflect changes in the characteristics of the Wilshire 5000
Index, primarily by adjusting the Master Portfolio's investment in the
Underlying Portfolios. The S&P 500 Index seeks to replicate completely the
investments and capitalization range of the S&P 500 Index.
The investment policies, strategies, techniques and restrictions employed
by the Master Portfolio in pursuing its investment objective vis-a-vis the
Wilshire 5000 Index are substantially similar to those employed by the
Underlying Portfolios in pursuing their respective investment objectives vis-a-
vis their respective benchmarks. Unless otherwise indicated, references to the
investment policies, strategies, techniques and restrictions of the Master
Portfolio also are references to the investment policies, strategies, techniques
and restrictions of the Underlying Portfolios in which the Master Portfolio
invests substantially all of its assets.
In seeking to match the performance of the Wilshire 5000 Index, the Master
Portfolio also may engage in futures and options transactions and other
derivative securities transactions and lend its portfolio securities, each of
which involves risk. The Master Portfolio attempts to be fully invested at all
times in securities comprising the Wilshire 5000 Index and in futures contracts
and options on futures contracts, although the Master Portfolio may invest up to
10% of its assets in high-quality money market instruments to provide liquidity.
The Master Portfolio also may invest up to 15% of the value of its net assets in
illiquid securities, including repurchase agreements providing for settlement in
more than seven days. See Item 12, "Description of the Master Portfolio and Its
Investments and Risks," in Part B.
RISK CONSIDERATIONS.
General -- The value of the Master Portfolio's interests is neither insured nor
guaranteed, is not fixed and should be expected to fluctuate.
Equity Securities -- The stock investments of the Master Portfolio are subject
to equity market risk. Equity market risk is the possibility that common stock
prices will fluctuate or decline over short or even extended periods. The U.S.
stock market tends to be cyclical, with periods when stock prices generally rise
and periods when prices generally decline. In addition, many of the companies
whose securities comprise the Wilshire 4500 Index are small- to medium-sized
companies which, historically, have been more susceptible to market fluctuations
than securities of larger capitalization companies such as those comprising the
S&P 500 Index. As of the date of this registration statement, the U.S. stock
market, as measured by the Wilshire 5000 Index and other commonly used indices,
was trading at or close to record levels. There can be no assurance that these
record levels will continue.
Debt Securities -- The debt instruments in which the Master Portfolio may invest
are subject to credit and interest rate risk. Credit risk is the risk that
issuers of debt instruments may default on the payment of principal and/or
interest. Interest rate risk is the risk that increases in market interest
rates may adversely affect the value of 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 debt instruments. Although some debt instruments are guaranteed by the
U.S. Government, its agencies or instrumentalities, such instruments are subject
to interest rate risk and the market value of these instruments will fluctuate.
No assurance can be given that the U.S. Government would provide financial
support to the agencies or instrumentalities that issue or guarantee these
instruments where it is not obligated to do so.
Other Investment Considerations -- The Master Portfolio may enter into
transactions in futures contracts and options on futures contracts, each of
which involves risk. The futures contracts and options on futures contracts
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that the Master Portfolio may purchase may be considered derivatives.
Derivatives are financial instruments whose values are derived, at least in
part, from the prices of other securities or specified assets, indices or rates.
The Master Portfolio intends to use futures contracts and options thereon as
part of its short-term liquidity holdings and/or substitutes for comparable
market positions in the underlying securities. Some derivatives may be more
sensitive than direct securities to changes in interest rates or sudden market
moves. Some derivatives also may be susceptible to fluctuations in yield or
value due to their structure or contract terms.
Year 2000 -- Many computer software systems in use today cannot distinguish the
Year 2000 from the Year 1900. Most of the services provided to the Master
Portfolio and the Underlying Portfolios depend on the smooth functioning of
computer systems. Any failure to adapt these systems in time could hamper the
operations and services of said portfolios. The principal service providers to
said portfolios have advised that they are working on necessary changes to their
systems and that they expect their systems to be adapted in time. There can, of
course, be no assurance of success. In addition, because the Year 2000 issue
affects virtually all organizations, the companies or entities in which said
portfolios invest also could be adversely impacted by the Year 2000 issue. The
extent of such impact cannot be predicted.
ITEM 5. MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE.
The response to Item 5 has been omitted pursuant to paragraph B(2)(b) of
the General Instructions to Form N-1A.
ITEM 6. MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE.
INVESTMENT ADVISER -- BGFA serves as investment adviser to the Master Portfolio
and the Underlying Portfolios. BGFA is a direct subsidiary of Barclays Global
Investors, N.A. (which, in turn, is an indirect subsidiary of Barclays Bank PLC)
and is located at 45 Fremont Street, San Francisco, CA 94105. As of December
31, 1998, BGFA and its affiliates provided investment advisory services for
approximately $615 billion of assets under management.
BGFA provides the Master Portfolio and the Underlying Portfolios with
investment guidance and policy direction in connection with the daily portfolio
management of each, subject to the supervision of MIP's Board of Trustees and in
conformity with Delaware law and the stated policies of each such portfolio.
BGFA furnishes to MIP's Board of Trustees periodic reports on the investment
strategy and performance of the Master Portfolio and the Underlying Portfolios.
BGFA is entitled to receive monthly fees at the annual rate of 0.01% of the
average daily net assets of the Master Portfolio, 0.08% of the average daily
net assets of the Extended Index Portfolio and 0.05% of the average daily net
assets of the S&P 500 Index Portfolio as compensation for its advisory services.
The Master Portfolio bears its pro rata share of the advisory fees of the
Underlying Portfolios. Based on these fee levels and the expected allocation of
assets between the two Underlying Portfolios, the advisory fees payable to BGFA
by the Master Portfolio on a combined basis will be approximately 0.07% of the
average daily net assets of the Master Portfolio. From time to time, BGFA may
waive such fees in whole or in part. Any such waiver will reduce the expenses
of the Master Portfolio and, accordingly, have a favorable impact on its
performance.
Purchase and sale orders for portfolio securities of the Master Portfolio
may be combined with those of other accounts that BGFA manages or advises, and
for which it has brokerage placement authority, in the interest of seeking the
most favorable overall net results. When BGFA, subject to the supervision of,
and the overall authority of MIP's Board of Trustees, determines that a
particular security should be bought or sold for the Master Portfolio and other
accounts managed by BGFA, it undertakes to allocate those transactions among the
participants equitably.
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BGFA may deal, trade and invest for its own account in the types of
securities in which the Master Portfolio may invest. BGFA has informed MIP that
in making its investment decisions it does not obtain or use material inside
information in its possession.
Morrison & Foerster LLP, counsel to MIP and special counsel to BGFA, has
advised MIP and BGFA that BGFA and its affiliates may perform the services
contemplated by the BGFA Advisory Contracts and this Part A without violation of
the Glass-Steagall Act. Such counsel has pointed out, however, that there are
no controlling judicial or administrative interpretations or decisions and that
future judicial or administrative interpretations of, or decisions relating to,
present federal or state statutes, including the Glass-Steagall Act, and
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, as well as future changes in such statutes,
regulations and judicial or administrative decisions or interpretations, could
prevent such entities from continuing to perform, in whole or in part, such
services. If any such entity were prohibited from performing any such services,
it is expected that new agreements would be proposed or entered into with
another entity or entities qualified to perform such services.
ITEM 7. SHAREHOLDER INFORMATION.
PRICING OF INTERESTS
Interests in the Master Portfolio are sold at the net asset value per unit
of beneficial interest ("NAV") next determined after an order in proper form is
received by MIP. NAV for the Master Portfolio is determined as of the close of
trading of the New York Stock Exchange (currently 1:00 p.m., Pacific Standard
Time), on each day the New York Stock Exchange is open for business (a "Business
Day"). NAV is computed by dividing the value of the Master Portfolio's net
assets (i.e., the value of its assets less liabilities) by the total number of
interests in the Master Portfolio outstanding. The Master Portfolio's
investments are valued each Business Day generally by using available market
quotations or at fair value determined in good faith by MIP's Board of Trustees.
For further information regarding the methods employed in valuing the Master
Portfolio's investments, see Item 18, "Purchase, Redemption and Pricing of
Interests" in Part B.
PURCHASE OF INTERESTS
Beneficial interests in the Master Portfolio are issued solely in private
placement transactions which do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. Investments in the Master Portfolio
may be made only by investment companies or certain other entities which are
"accredited investors" within the meaning of Regulation D under the Securities
Act of 1933, as amended.
REDEMPTION OR REPURCHASE
An investor in MIP may redeem all or any portion of its investment on any
Business Day at the NAV next determined after a redemption request in proper
form is furnished by the investor to MIP. When a request is received in proper
form, MIP will redeem the interests at the next determined NAV.
The Master Portfolio will make payment for all interests redeemed within
three days after receipt by MIP of a redemption request in proper form, except
as provided by the rules of the Securities and Exchange Commission. MIP
reserves the right to pay redemption proceeds, in whole or in part, by
distributing portfolio securities in lieu of cash if, in the opinion of
management, it is advisable to do so. Interests in the Master Portfolio may not
be transferred.
The right of any investor to receive payment with respect to any redemption
may be suspended or the payment of the redemption proceeds postponed during any
period in which the New York Stock Exchange is closed (other than weekends or
holidays) or trading on such Exchange is restricted, or, to the extent otherwise
permitted by the 1940 Act, if an emergency exists.
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DIVIDENDS AND DISTRIBUTIONS
The net investment income of the Master Portfolio generally will be
declared and paid as a dividend daily to all investors of record as of 1:00 p.m.
(Pacific time). Net investment income for a Saturday, Sunday or Holiday will be
declared as a dividend to investors of record as of 1:00 p.m. (Pacific time) on
the previous business day with respect to the Master Portfolio. All of the net
investment income of the Master Portfolio so determined is allocated pro rata
among the investors in the Master Portfolio at the time of such determination.
Dividends and capital gain distributions, if any, paid by the Master
Portfolio will be reinvested in the investor's interest in the Master Portfolio
at net asset value and credited to the investor's account on the payment date.
TAXES
MIP believes that the Master Portfolio will qualify as a non-publicly
traded partnership for federal income tax purposes. MIP therefore believes that
the Master Portfolio will not be subject to any federal income tax on its income
and net capital gains (if any). However, each investor in the Master Portfolio
will be taxable on its distributive share of the Master Portfolio's taxable
income in determining its federal income tax liability. As a non-publicly traded
partnership, the Master Portfolio will be deemed to have "passed through" to
interest holders any interests, dividends, gains or losses. The determination of
such share will be made in accordance with the Internal Revenue Code of 1986, as
amended (the "Code"), and regulations promulgated thereunder.
It is intended that the Master Portfolio's assets, income and distributions
will be managed in such a way that a regulated investment company investing in
the Master Portfolio may satisfy the requirements of Subchapter M of the Code by
investing substantially all of its assets in the Master Portfolio.
Investor inquiries should be directed to Master Investment Portfolio, 111
Center Street, Little Rock, Arkansas 72201.
ITEM 8. DISTRIBUTION ARRANGEMENTS
MIP is registered as an open-end management investment company under the
1940 Act. MIP was organized as a business trust under the laws of the State of
Delaware. Investors in MIP are each liable for all obligations of MIP. However,
the risk of an investor incurring financial loss on account of such liability is
limited to circumstances in which both inadequate insurance exists and MIP
itself is unable to meet its obligations.
To date, the Board of Trustees has authorized the creation of twelve
separate series. All consideration received by MIP for interests of one of the
series and all assets in which such consideration is invested belong to that
series (subject only to the rights of creditors of MIP) and is subject to the
liabilities related thereto. The income attributable to, and the expenses of,
one series are treated separately from those of the other series. MIP has the
ability to create, from time to time, new series without interestholder
approval.
The business and affairs of MIP are managed under the direction of its
Board of Trustees. The office of MIP is located at 111 Center Street, Little
Rock, Arkansas 72201.
MASTER/FEEDER STRUCTURE
The Master Portfolios are "master" funds in a "master/feeder" structure. A
non-accredited investor does not directly purchase an interest in a Master
Portfolio, but instead purchases shares in a corresponding "feeder" fund which
invests all of its assets in the Master Portfolio. Other investors may also be
permitted to invest in the Master Portfolios. All other investors will invest in
a Master Portfolio on the same terms and conditions as the feeder funds,
although there may be different administrative and other expenses. Therefore,
the feeder funds may have different returns than other investors of the Master
Portfolios.
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ITEM 9. FINANCIAL HIGHLIGHTS
The response to Item 9 has been omitted pursuant to paragraph B(2)(b) of
the General Instructions to Form N-1A.
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MASTER INVESTMENT PORTFOLIO
EXTENDED INDEX MASTER PORTFOLIO
PART A
July 1, 1999
Responses to Items 1 through 3 have been omitted pursuant to Instruction B(2)(b)
of the General Instructions to Form N-1A.
ITEM 4. INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND RELATED
RISKS.
General. Master Investment Portfolio ("MIP") is an open-end, management
investment company, organized on October 21, 1993 as a business trust under the
laws of the State of Delaware. MIP is a "series fund," which is a mutual fund
divided into separate portfolios. By this offering document, MIP is offering
one of its diversified portfolios - the Extended Index Master Portfolio (the
"Master Portfolio"). The Master Portfolio is treated as a separate entity for
certain matters under the Investment Company Act of 1940, as amended (the "1940
Act"), and for other purposes an interestholder of the Master Portfolio is not
deemed to be an interestholder of any other portfolio of MIP. As described
below, for certain matters MIP interestholders vote together as a group; as to
others they vote separately by portfolio. MIP currently offers eleven other
portfolios pursuant to other offering documents. From time to time, other
portfolios may be established and sold pursuant to other offering documents.
Beneficial interests in the Master Portfolio are issued solely in private
placement transactions which do not involve any "public offering" within the
meaning of Regulation D under the Securities Act of 1933, as amended (the "1933
Act"). Investments in the Master Portfolio may be made only by investment
companies or certain other entities which are "accredited investors" within the
meaning of Regulation D under the 1933 Act. Investment companies that hold
shares of beneficial interest ("interests") in the Master Portfolio are
sometimes referred to herein as "feeder funds."
INVESTMENT OBJECTIVE
. The Extended Index Master Portfolio seeks to match as closely as
practicable, before fees and expenses, the performance of the
Wilshire 4500 Equity Index (the "Wilshire 4500 Index" or the
"Index")./1/
The Master Portfolio's investment objective can be changed by MIP's Board
of Trustees without interestholder approval. The objective and policies of the
Master Portfolio determines the types of portfolio securities in which it
invests, the degree of risk to which it is subject and, ultimately, its
performance. There can be no assurance that the Master Portfolio's investment
objective will be achieved.
_______________________
/1/ Wilshire Associates, Inc. ("Wilshire Associates") does not sponsor the
Master Portfolio, nor is it affiliated in any way with BGFA or the Master
Portfolio. "Wilshire 4500 Equity Index(R)," "Wilshire 4500 Index(R)," and
"Wilshire 4500(R)," are trademarks of Wilshire Associates of Santa Monica,
California. The Master Portfolio is not sponsored, endorsed, sold, or promoted
by the Wilshire 4500 Index, and neither Wilshire Associates nor the Wilshire
4500 Index makes any representation or warranty, express or implied, regarding
the advisability of investing in the Master Portfolio.
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PRINCIPAL STRATEGIES
. The Extended Index Master Portfolio seeks to match the total return
performance of U.S. stocks. The Fund defines these stocks as those
comprising the Wilshire 4500 Index, which is composed of over 6,500
equity stocks of issuers headquartered in the United States. The Index
is almost entirely comprised of common stocks listed on the New York
Stock Exchange, American Stock Exchange or Nasdaq Stock Market. The
weightings of stocks in the Wilshire 4500 Index are based on each
stock's relative total market capitalization; that is, its market
price per share times the number of shares outstanding. The Master
Portfolio invests in a representative sample of these securities.
Securities are selected for investment by the Master Portfolio in
accordance with their capitalization, industry sector and valuation,
among other factors.
No attempt is made to manage the portfolio of the Master Portfolio using
economic, financial and market analysis. The Master Portfolio is managed by
determining which securities are to be purchased or sold to match, to the extent
feasible, the capitalization range and returns of the Wilshire 4500 Index.
Under normal market conditions, at least 90% of the value of the Master
Portfolio's total assets is invested in securities comprising the Wilshire 4500
Index. The Master Portfolio's ability to match its investment performance to
the investment performance of the Wilshire 4500 Index may be affected by, among
other things: the Master Portfolio's expenses; the amount of cash and cash
equivalents held by the Master Portfolio; the manner in which the total return
of the Wilshire 4500 Index is calculated; the size of the Master Portfolio's
investment portfolio; and the timing, frequency and size of interestholder
purchases and redemptions. The Master Portfolio uses cash flows from
interestholder purchase and redemption activity to maintain, to the extent
feasible, the similarity of its capitalization range and returns to those of the
securities comprising the Wilshire 4500 Index. Barclays Global Fund Advisors
("BGFA") regularly monitors the Master Portfolio's correlation to the Wilshire
4500 Index and adjusts the Master Portfolio's portfolio to the extent necessary.
Inclusion of a security in the Wilshire 4500 Index in no way implies an opinion
by Wilshire Associates as to its attractiveness as an investment.
The sampling techniques utilized by the Master Portfolio are designed to
allow the Master Portfolio to substantially duplicate the investment
performance of the Wilshire 4500 Index. However, the Master Portfolio is not
expected to track the Wilshire 4500 Index with the same degree of accuracy that
complete replication of such Index would provide. In addition , at times, the
portfolio composition of the Master Portfolio may be altered (or "rebalanced")
to reflect changes in the characteristics of the Wilshire 4500 Index.
In seeking to match the performance of the Wilshire 4500 Index, the Master
Portfolio also may engage in futures and options transactions and other
derivative securities transactions and lend its portfolio securities, each of
which involves risk. The Master Portfolio attempts to be fully invested at all
times in securities comprising the Wilshire 4500 Index and in futures contracts
and options on futures contracts, although the Master Portfolio may invest up to
10% of its assets in high-quality money market instruments to provide liquidity.
The Master Portfolio may invest up to 15% of the value of its net assets in
illiquid securities, including repurchase agreements providing for settlement in
more than seven days. See Item 12, "Description of the Master Portfolio and Its
Investments and Risks," in Part B.
RISK CONSIDERATIONS
General -- The value of the Master Portfolio's interests is neither insured nor
guaranteed, is not fixed and should be expected to fluctuate.
Equity Securities -- The stock investments of the Master Portfolio are subject
to equity market risk. Equity market risk is the possibility that common stock
prices will fluctuate or decline over short or even extended periods. The U.S.
stock market tends to be cyclical, with periods when stock prices generally rise
and periods when prices generally decline. In addition, many of the companies
whose securities comprise the Wilshire 4500
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Index are small to medium size companies which, historically, have been more
susceptible to market fluctuations than securities of larger capitalization
companies. As of the date of this registration statement, the U.S. stock market,
as measured by the Wilshire 4500 Index and other commonly used indices, was
trading at or close to record levels. There can be no assurance that these
record levels will continue.
Debt Securities -- The debt instruments in which the Master Portfolio may invest
are subject to credit and interest rate risk. Credit risk is the risk that
issuers of debt instruments may default on the payment of principal and/or
interest. Interest rate risk is the risk that increases in market interest
rates may adversely affect the value of debt instruments. The value of 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 debt instruments. Although some debt instruments are guaranteed by the
U.S. Government, its agencies or instrumentalities, such instruments are subject
to interest rate risk and the market value of these instruments will fluctuate.
No assurance can be given that the U.S. Government would provide financial
support to the agencies or instrumentalities that issue or guarantee these
instruments where it is not obligated to do so.
Other Investment Considerations -- The Master Portfolio may enter into
transactions in futures contracts and options on futures contracts, each of
which involves risk. The futures contracts and options on futures contracts
that the Master Portfolio may purchase may be considered derivatives.
Derivatives are financial instruments whose values are derived, at least in
part, from the prices of other securities or specified assets, indices or rates.
The Master Portfolio intends to use futures contracts and options as part of its
short-term liquidity holdings and/or substitutes for comparable market positions
in the underlying securities. Some derivatives may be more sensitive than
direct securities to changes in interest rates or sudden market moves. Some
derivatives also may be susceptible to fluctuations in yield or value due to
their structure or contract terms.
Year 2000 -- Many computer software systems in use today cannot distinguish the
Year 2000 from the Year 1900. Most of the services provided to the Master
Portfolio depend on the smooth functioning of computer systems. Any failure to
adapt these systems in time could hamper the Master Portfolio's operations and
services. The Master Portfolio's principal service providers have advised the
Master Portfolio that they are working on necessary changes to their systems and
that they expect their systems to be adapted in time. There can, of course, be
no assurance of success. In addition, because the Year 2000 issue affects
virtually all organizations, the companies or entities in which the Master
Portfolio invests also could be adversely impacted by the Year 2000 issue. The
extent of such impact cannot be predicted.
ITEM 5. MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE.
The response to Item 5 has been omitted pursuant to paragraph B(2)(b) of the
General Instructions to Form N-1A.
ITEM 6. MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE.
INVESTMENT ADVISER -- BGFA serves as investment adviser to the Master Portfolio.
BGFA is a direct subsidiary of Barclays Global Investors, N.A. (which, in turn,
is an indirect subsidiary of Barclays Bank PLC) and is located at 45 Fremont
Street, San Francisco, CA 94105. As of December 31, 1999, BGFA and its
affiliates provided investment advisory services for approximately $615 billion
of assets under management.
BGFA provides the Master Portfolio with investment guidance and policy
direction in connection with the daily portfolio management of the Master
Portfolio, subject to the supervision of MIP's Board of Trustees and in
conformity with Delaware law and the stated policies of the Master Portfolio.
BGFA furnishes to MIP's Board of Trustees periodic reports on the investment
strategy and performance of the Master Portfolio.
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BGFA is entitled to receive monthly fees at the annual rate of 0.08% of the
average daily net assets of the Master Portfolio as compensation for its
advisory services. From time to time, BGFA may waive such fees in whole or in
part. Any such waiver will reduce the expenses of the Master Portfolio and,
accordingly, have a favorable impact on its performance.
Purchase and sale orders for portfolio securities of the Master Portfolio
may be combined with those of other accounts that BGFA manages or advises, and
for which it has brokerage placement authority, in the interest of seeking the
most favorable overall net results. When BGFA, subject to the supervision of,
and the overall authority of MIP's Board of Trustees, determines that a
particular security should be bought or sold for the Master Portfolio and other
accounts managed by BGFA, it undertakes to allocate those transactions among the
participants equitably.
BGFA may deal, trade and invest for its own account in the types of
securities in which the Master Portfolio may invest. BGFA has informed MIP that
in making its investment decisions it does not obtain or use material inside
information in its possession.
Morrison & Foerster LLP, counsel to MIP and special counsel to BGFA, has
advised MIP and BGFA that BGFA and its affiliates may perform the services
contemplated by the BGFA Advisory Contracts and this Part A without violation of
the Glass-Steagall Act. Such counsel has pointed out, however, that there are
no controlling judicial or administrative interpretations or decisions and that
future judicial or administrative interpretations of, or decisions relating to,
present federal or state statutes, including the Glass-Steagall Act, and
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, as well as future changes in such statutes,
regulations and judicial or administrative decisions or interpretations, could
prevent such entities from continuing to perform, in whole or in part, such
services. If any such entity were prohibited from performing any such services,
it is expected that new agreements would be proposed or entered into with
another entity or entities qualified to perform such services.
ITEM 7. SHAREHOLDER INFORMATION.
PRICING OF INTERESTS
Interests in the Master Portfolio are sold at the net asset value per unit
of beneficial interest ("NAV") next determined after an order in proper form is
received by MIP. NAV for the Master Portfolio is determined as of the close of
trading of the New York Stock Exchange (currently 1:00 p.m., Pacific Standard
Time), on each day the New York Stock Exchange is open for business (a "Business
Day"). NAV is computed by dividing the value of the Master Portfolio's net
assets (i.e., the value of its assets less liabilities) by the total number of
interests in the Master Portfolio outstanding. The Master Portfolio's
investments are valued each Business Day generally by using available market
quotations or at fair value determined in good faith by MIP's Board of Trustees.
For further information regarding the methods employed in valuing the Master
Portfolio's investments, see Item 18, "Purchase, Redemption and Pricing of
Interests" in Part B.
PURCHASE OF INTERESTS
Beneficial interests in the Master Portfolio are issued solely in private
placement transactions which do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. Investments in the Master Portfolio
may be made only by investment companies or certain other entities which are
"accredited investors" within the meaning of Regulation D under the Securities
Act of 1933, as amended.
REDEMPTION OR REPURCHASE
An investor in MIP may redeem all or any portion of its investment on any
Business Day at the net asset value next determined after a redemption request
in proper form is furnished by the investor to MIP. When a request is received
in proper form, MIP will redeem the interests at the next determined net asset
value.
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The Master Portfolio will make payment for all interests redeemed within
three days after receipt by MIP of a redemption request in proper form, except
as provided by the rules of the Securities and Exchange Commission. MIP reserves
the right to pay redemption proceeds, in whole or in part, by distributing
portfolio securities in lieu of cash if, in the opinion of management, it is
advisable to do so. Interests in the Master Portfolio may not be transferred.
The right of any investor to receive payment with respect to any redemption
may be suspended or the payment of the withdrawal proceeds postponed during any
period in which the New York Stock Exchange is closed (other than weekends or
holidays) or trading on such Exchange is restricted, or, to the extent otherwise
permitted by the 1940 Act, if an emergency exists.
DIVIDENDS AND DISTRIBUTIONS
The net investment income of the Master Portfolio generally will be
declared and paid as a dividend daily to all investors of record as of 1:00 p.m.
(Pacific time). Net investment income for a Saturday, Sunday or Holiday will be
declared as a dividend to investors of record as of 1:00 p.m. (Pacific time) on
the previous business day with respect to the Master Portfolio. All of the net
investment income of the Master Portfolio so determined is allocated pro rata
among the investors in the Master Portfolio at the time of such determination.
Dividends and capital gain distributions, if any, paid by the Master
Portfolio will be reinvested in the investor's interest in the Master Portfolio
at net asset value and credited to the investor's account on the payment date.
TAXES
MIP believes that the Master Portfolio will qualify as a non-publicly
traded partnership for federal income tax purposes. MIP therefore believes that
the Master Portfolio will not be subject to any federal income tax on its income
and net capital gains (if any). However, each investor in the Master Portfolio
will be taxable on its distributive share of the Master Portfolio's taxable
income in determining its federal income tax liability. As a non-publicly traded
partnership, the Master Portfolio will be deemed to have "passed through" to
interestholders any interests, dividends, gains or losses. The determination of
such share will be made in accordance with the Internal Revenue Code of 1986, as
amended (the "Code"), and regulations promulgated thereunder.
It is intended that the Master Portfolio's assets, income and distributions
will be managed in such a way that a regulated investment company investing in
the Master Portfolio may satisfy the requirements of Subchapter M of the Code by
investing substantially all of its assets in the Master Portfolio.
Investor inquiries should be directed to Master Investment Portfolio, 111
Center Street, Little Rock, Arkansas 72201.
ITEM 8. DISTRIBUTION ARRANGEMENTS.
MIP is registered as an open-end management investment company under the
1940 Act. MIP was organized as a business trust under the laws of the State of
Delaware. Investors in MIP are each liable for all obligations of MIP. However,
the risk of an investor incurring financial loss on account of such liability is
limited to circumstances in which both inadequate insurance existed and itself
was unable to meet its obligations.
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The Board of Trustees has authorized several series of which twelve are
active. All consideration received by MIP for interests in one of the series
and all assets in which such consideration is invested will belong to that
series (subject only to the rights of creditors of MIP) and will be subject to
the liabilities related thereto. The income attributable to, and the expenses
of, one series are treated separately from those of the other series. From time
to time, MIP may create new series without shareholder approval.
The business and affairs of MIP are managed under the direction of its
Board of Trustees. The office of MIP is located at 111 Center Street, Little
Rock, Arkansas 72201.
MASTER/FEEDER STRUCTURE
The Master Portfolio is a "master" fund in a "master/feeder" structure. A
non-accredited investor does not directly purchase an interest in the Master
Portfolio, but instead purchases shares in a corresponding "feeder" fund which
invests all of its assets in the Master Portfolio. Other investors may also be
permitted to invest in the Master Portfolio. All other investors will invest in
the Master Portfolio on the same terms and conditions as the feeder funds,
although there may be different administrative and other expenses. Therefore,
the feeder funds may have different returns than other investors of the Master
Portfolio.
ITEM 9. FINANCIAL HIGHLIGHTS.
The response to Item 9 has been omitted pursuant to paragraph B(2)(b) of
the General Instructions to Form N-1A.
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MASTER INVESTMENT PORTFOLIO
ALLOCATION MASTER PORTFOLIOS
ASSET ALLOCATION MASTER PORTFOLIO
U.S. TREASURY ALLOCATION MASTER PORTFOLIO
PART B - STATEMENT OF ADDITIONAL INFORMATION
July 1, 1999
ITEM 10. COVER PAGE AND TABLE OF CONTENTS.
Master Investment Portfolio ("MIP," or the "Trust") is an open-end,
management investment company. MIP is a "series fund," which is a mutual fund
divided into separate portfolios. This Part B is not a prospectus and should be
read in conjunction with MIP's Part A, also dated July 1, 1999. All terms used
in this Part B that are defined in Part A have the meanings assigned in Part A.
A copy of Part A may be obtained without charge by writing Master Investment
Portfolio, c/o Investors Bank & Trust Co., -- Transfer Agent, P.O. Box 9130,
Mail Code MFD23, Boston, MA 02117-9130, or by calling 1-800-204-3956. MIP's
Registration Statement may be examined at the office of the Securities and
Exchange Commission ("SEC") in Washington, D.C.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Trust History..................................................................................... 1
Description of the Master Portfolios and Their Investments and.................................... 2
Management of the Trust........................................................................... 9
Control Persons and Principal Holders of Securities............................................... 10
Investment Advisory and Other Services............................................................ 10
Brokerage Allocation and Other Practices.......................................................... 12
Capital Stock and Other Securities................................................................ 13
Purchase, Redemption and Pricing of Interests..................................................... 13
Taxation of the Trust............................................................................. 15
Underwriters...................................................................................... 15
Calculations of Performance Data.................................................................. 15
Financial Statements.............................................................................. 15
Appendix.......................................................................................... A-1
</TABLE>
ITEM 11. TRUST HISTORY.
MIP is an open-end, management investment company, organized on October 21,
1993 as a business trust under the laws of the State of Delaware. MIP is a
"series fund," which is a mutual fund divided into separate portfolios. By this
offering document, MIP is offering two of its diversified portfolios - the Asset
Allocation and U.S. Treasury Allocation Master Portfolios (each, a "Master
Portfolio" and collectively, the "Master Portfolios"). The Master Portfolios are
treated as a separate entities for certain matters under the Investment Company
Act of 1940, as amended (the "1940 Act"), and for other purposes and an
interestholder of a Master Portfolio is not deemed to be an interestholder of
any other portfolio of MIP. As described below, for certain matters MIP
interestholders vote together as a group; as to others they vote separately by
portfolio. MIP currently offers ten other portfolios pursuant to other offering
documents. From time to time, other portfolios may be established and sold
pursuant to other offering documents.
Beneficial interests in the Master Portfolios are issued solely in private
placement transactions which do not involve any "public offering" within the
meaning of Regulation D under the Securities Act of 1933, as amended
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(the "1933 Act"). Investments in the Master Portfolios may be made only by
investment companies or certain other entities which are "accredited investors"
within the meaning of Regulation D under the 1933 Act. Investment companies that
hold shares of beneficial interest ("interests") in the Master Portfolios are
sometimes referred to herein as "feeder funds."
ITEM 12. DESCRIPTION OF THE MASTER PORTFOLIOS AND THEIR INVESTMENTS AND RISKS.
The following information supplements and should be read in conjunction
with Item 4 in Part A.
Investment Objectives. Each Master Portfolio's investment objective is set forth
in Item 4, "Investment Objectives, Principal Strategies and Related Risks," of
Part A. There can be no assurance that the investment objectives of each Master
Portfolio will be achieved. Each Master Portfolio's investment objective is
fundamental, and therefore cannot be changed without approval by the holders of
a majority (as defined in the Investment Company Act of 1940, as amended (the
"1940 Act")) of such Master Portfolio's outstanding voting interests.
Investment Restrictions
Fundamental Investment Restrictions. The Master Portfolios have adopted the
following investment restrictions as fundamental policies. These restrictions
cannot be changed, as to a Master Portfolio, without approval by the holders of
a majority (as defined in the 1940 Act) of the Master Portfolio's outstanding
voting securities. The Master Portfolios may not:
(1) Invest more than 5% of its assets in the obligations of any single
issuer, except that up to 25% of the value of its total assets may be invested,
and securities issued or guaranteed by the U.S. Government, or its agencies or
instrumentalities may be purchased, without regard to any such limitation.
(2) Hold more than 10% of the outstanding voting securities of any single
issuer. This Investment Restriction applies only with respect to 75% of its
total assets.
(3) Invest in commodities, except that each Master Portfolio may purchase
and sell (i.e., write) options, forward contracts, futures contracts, including
those relating to indexes, and options on futures contracts or indexes.
(4) Purchase, hold or deal in real estate, or oil, gas or other mineral
leases or exploration or development programs, but each Master Portfolio may
purchase and sell securities that are secured by real estate or issued by
companies that invest or deal in real estate.
(5) Borrow money, except to the extent permitted under the 1940 Act,
provided that each Master Portfolio may borrow up to 20% of the current value of
its net assets for temporary purposes only in order to meet redemptions, and
these borrowings may be secured by the pledge of up to 20% of the current value
of its net assets (but investments may not be purchased while any such
outstanding borrowing in excess of 5% of its net assets exists). For purposes of
this investment restriction, a Master Portfolio's entry into options, forward
contracts, futures contracts, including those relating to indexes, and options
on futures contracts or indexes shall not constitute borrowing to the extent
certain segregated accounts are established and maintained by the Master
Portfolio.
(6) Make loans to others, except through the purchase of debt obligations
and the entry into repurchase agreements. However, each Master Portfolio may
lend its portfolio securities in an amount not to exceed one-
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third of the value of its total assets. Any loans of portfolio securities will
be made according to guidelines established by the Securities and Exchange
Commission and MIP's Board of Trustees.
(7) Act as an underwriter of securities of other issuers, except to the
extent the Master Portfolio may be deemed an underwriter under the Securities
Act of 1933, as amended, by virtue of disposing of portfolio securities.
(8) Invest 25% or more of its total assets in the securities of issuers in
any particular industry or group of closely related industries, except that
there shall be no limitation with respect to investments in (i) obligations of
the U.S. Government, its agencies or instrumentalities; (ii) in the case of the
stock portion of the Asset Allocation Master Portfolio, any industry in which
the S&P 500 Index becomes concentrated to the same degree during the same period
(provided that, with respect to the stock and money market portions of the Asset
Allocation Master Portfolio, the Master Portfolio will be concentrated as
specified above only to the extent the percentage of its assets invested in
those categories of investments is sufficiently large that 25% or more of its
total assets would be invested in a single industry); and (iii) in the case of
the money market portion of the Asset Allocation Master Portfolio, its money
market instruments may be concentrated in the banking industry (but it will not
do so unless the SEC staff confirms that it does not object to the Master
Portfolio reserving freedom of action to concentrate investments in the banking
industry).
(9) Issue any senior security (as such term is defined in Section 18(f) of
the 1940 Act), except to the extent the activities permitted in Investment
Restriction Nos. 3 and 5 may be deemed to give rise to a senior security.
(10) Purchase securities on margin, but each Master Portfolio may make
margin deposits in connection with transactions in options, forward contracts,
futures contracts, including those related to indexes, and options on futures
contracts or indexes.
Non-Fundamental Investment Restrictions. The Master Portfolios have adopted the
following investment restrictions as non-fundamental policies. These
restrictions may be changed without shareholder approval by vote of a majority
of the Trustees of MIP, at any time. The Master Portfolios are subject to the
following investment restrictions, all of which are non-fundamental policies.
(1) The Master Portfolios may invest in shares of other open-end
management investment companies, subject to the limitations of Section 12(d)(1)
of the 1940 Act. Under the 1940 Act, a Master Portfolio's investment in such
securities currently is limited, subject to certain exceptions, to (i) 3% of the
total voting stock of any one investment company, (ii) 5% of such Master
Portfolio's net assets with respect to any one investment company, and (iii) 10%
of such Master Portfolio's net assets in the aggregate. Other investment
companies in which the Master Portfolios invest can be expected to charge fees
for operating expenses, such as investment advisory and administration fees,
that would be in addition to those charged by the Master Portfolio.
(2) Each Master Portfolio may not invest more than 15% of its net assets
in illiquid securities. For this purpose, illiquid securities include, among
others, (a) securities that are illiquid by virtue of the absence of a readily
available market or legal or contractual restrictions on resale, (b) fixed time
deposits that are subject to withdrawal penalties and that have maturities of
more than seven days, and (c) repurchase agreements not terminable within seven
days.
(3) Each Master Portfolio may lend securities from its portfolio to
brokers, dealers and financial institutions, in amounts not to exceed (in the
aggregate) one-third of a Master Portfolio's total assets. Any such loans of
portfolio securities will be fully collateralized based on values that are
marked to market daily. The Master Portfolios will not enter into any portfolio
security lending arrangement having a duration of longer than one year.
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Portfolio Securities
Borrowing Money.
---------------
As a fundamental policy, each Master Portfolio is permitted to borrow to
the extent permitted under the 1940 Act. However, each Master Portfolio
currently intends to borrow money only for temporary or emergency (not
leveraging) purposes, and may borrow up to one-third of the value of its total
assets (including the amount borrowed) valued at the lesser of cost or market,
less liabilities (not including the amount borrowed) at the time the borrowing
is made. While borrowings exceed 5% of a Master Portfolio's total assets, the
Master Portfolio will not make any new investments.
Floating- and Variable-Rate Obligations.
---------------------------------------
Each Master Portfolio may purchase floating- and variable-rate obligations
as described in the Prospectus. The Master Portfolio may purchase floating- and
variable-rate demand notes and bonds, which are obligations ordinarily having
stated maturities in excess of thirteen months, but which permit the holder to
demand payment of principal at any time, or at specified intervals not exceeding
thirteen months. Variable rate demand notes include master demand notes that are
obligations that permit the Master Portfolio to invest fluctuating amounts,
which may change daily without penalty, pursuant to direct arrangements between
the Master Portfolio, as lender, and the borrower. The interest rates on these
notes fluctuate from time to time. The issuer of such obligations ordinarily has
a corresponding right, after a given period, to prepay in its discretion the
outstanding principal amount of the obligations plus accrued interest upon a
specified number of days' notice to the holders of such obligations. The
interest rate on a floating-rate demand obligation is based on a known lending
rate, such as a bank's prime rate, and is adjusted automatically each time such
rate is adjusted. The interest rate on a variable-rate demand obligation is
adjusted automatically at specified intervals. Frequently, such obligations are
secured by letters of credit or other credit support arrangements provided by
banks. Because these obligations are direct lending arrangements between the
lender and borrower, it is not contemplated that such instruments generally will
be traded, and there generally is no established secondary market for these
obligations, although they are redeemable at face value. Accordingly, where
these obligations are not secured by letters of credit or other credit support
arrangements, the Master Portfolio's right to redeem is dependent on the ability
of the borrower to pay principal and interest on demand. Such obligations
frequently are not rated by credit rating agencies and the Master Portfolio may
invest in obligations which are not so rated only if BGFA determines that at the
time of investment the obligations are of comparable quality to the other
obligations in which the Master Portfolio may invest. BGFA, on behalf of the
Master Portfolio, considers on an ongoing basis the creditworthiness of the
issuers of the floating- and variable-rate demand obligations in the Master
Portfolio's portfolio. The Master Portfolio will not invest more than 10% of the
value of its total net assets in floating- or variable-rate demand obligations
whose demand feature is not exercisable within seven days. Such obligations may
be treated as liquid, provided that an active secondary market exists.
Forward Commitments, When-Issued Purchases and Delayed-Delivery
---------------------------------------------------------------
Transactions.
------------
Each Master Portfolio may purchase or sell securities on a when-issued or
delayed-delivery basis and make contracts to purchase or sell securities for a
fixed price at a future date beyond customary settlement time. Securities
purchased or sold on a when-issued, delayed-delivery or forward commitment basis
involve a risk of loss if the value of the security to be purchased declines, or
the value of the security to be sold increases, before the settlement date.
Although a Master Portfolio will generally purchase securities with the
intention of acquiring them, a Master Portfolio may dispose of securities
purchased on a when-issued, delayed-delivery or a forward commitment basis
before settlement when deemed appropriate by the adviser.
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Futures Contracts and Options on Futures Contracts.
--------------------------------------------------
The Master Portfolio may enter into futures contracts and may purchase and
write options thereon. Upon exercise of an option on a futures contract, the
writer of the option delivers to the holder of the option the futures position
and the accumulated balance in the writer's futures margin account, which
represents the amount by which the market price of the futures contract exceeds,
in the case of a call, or is less than, in the case of a put, the exercise price
of the option on the futures contract. The potential loss related to the
purchase of options on futures contracts is limited to the premium paid for the
option (plus transaction costs). Because the value of the option is fixed at the
time of sale, there are no daily cash payments to reflect changes in the value
of the underlying contract; however, the value of the option does change daily
and that change would be reflected in the net asset value of the relevant Master
Portfolio.
Future Developments. Each Master Portfolio may take advantage of
opportunities in the area of options and futures contracts and options on
futures contracts and any other derivative investments which are not presently
contemplated for use by such Master Portfolio or which are not currently
available but which may be developed, to the extent such opportunities are both
consistent with a Master Portfolio's investment objective and legally
permissible for the Master Portfolio. Before entering into such transactions or
making any such investment, the Master Portfolio will provide appropriate
disclosure in its prospectus.
Stock Index Futures and Options on Stock Index Futures. The Asset
Allocation Master Portfolio may invest in stock index futures and options on
stock index futures as a substitute for a comparable market position in the
underlying securities. A stock index future obligates the seller to deliver (and
the purchaser to take), effectively, an amount of cash equal to a specific
dollar amount times the difference between the value of a specific stock index
at the close of the last trading day of the contract and the price at which the
agreement is made. No physical delivery of the underlying stocks in the index is
made. With respect to stock indices that are permitted investments, the Master
Portfolio intends to purchase and sell futures contracts on the stock index for
which it can obtain the best price with consideration also given to liquidity.
There can be no assurance that a liquid market will exist at the time when a
Master Portfolio seeks to close out a futures contract or a futures option
position. Lack of a liquid market may prevent liquidation of an unfavorable
position.
Interest-Rate Futures Contracts and Options on Interest-Rate Futures
Contracts. Each Master Portfolio may invest in interest-rate futures contracts
and options on interest-rate futures contracts as a substitute for a comparable
market position in the underlying securities. The Master Portfolios may also
sell options on interest-rate futures contracts as part of closing purchase
transactions to terminate their options positions. No assurance can be given
that such closing transactions can be effected or the degree of correlation
between price movements in the options on interest rate futures and price
movements in the Master Portfolios' portfolio securities which are the subject
of the transaction.
Interest-Rate and Index Swaps. Each Master Portfolio may enter into
interest rate and index swaps in pursuit of their investment objectives.
Interest-rate swaps involve the exchange by a Master Portfolio with another
party of their respective commitments to pay or receive interest (for example,
an exchange of floating-rate payments on fixed-rate payments). Index swaps
involve the exchange by a Master Portfolio with another party of cash flows
based upon the performance of an index of securities or a portion of an index of
securities that usually include dividends or income. In each case, the exchange
commitments can involve payments to be made in the same currency or in different
currencies. A Master Portfolio will usually enter into swaps on a net basis. In
so doing, the two payment streams are netted out, with a Master Portfolio
receiving or paying, as the case may be, only the net amount of the two
payments. If a Master Portfolio enters into a swap, it will maintain a
segregated account on a gross basis, unless the contract provides for a
segregated account on a net basis. If there is a default by the other party to
such a transaction, a Master Portfolio will have contractual remedies pursuant
to the agreements related to the transaction.
5
<PAGE>
The use of interest-rate and index swaps is a highly specialized activity
which involves investment techniques and risks different from those associated
with ordinary portfolio security transactions. There is no limit, except as
provided below, on the amount of swap transactions that may be entered into by a
Master Portfolio. These transactions generally do not involve the delivery of
securities or other underlying assets or principal. Accordingly, the risk of
loss with respect to swaps generally is limited to the net amount of payments
that a Master Portfolio is contractually obligated to make. There is also a risk
of a default by the other party to a swap, in which case a Master Portfolio may
not receive net amount of payments that a Master Portfolio contractually is
entitled to receive.
Illiquid Securities.
-------------------
Each Master Portfolio may invest up to 15% of the value of its net assets
in securities as to which a liquid trading market does not exist, provided such
investments are consistent with its investment objective. Such securities may
include securities that are not readily marketable, such as privately issued
securities and other securities that are subject to legal or contractual
restrictions on resale, floating- and variable-rate demand obligations as to
which the Master Portfolio cannot exercise a demand feature on not more than
seven days' notice and as to which there is no secondary market and repurchase
agreements providing for settlement more than seven days after notice.
Investment Company Securities.
-------------------------------
Each Master Portfolio may invest in securities issued by other open-end
management investment companies which principally invest in securities of the
type in which such Master Portfolio invests. Under the 1940 Act, a Master
Portfolio's investment in such securities currently is limited to, subject to
certain exceptions, (i) 3% of the total voting stock of any one investment
company, (ii) 5% of the Master Portfolio's net assets with respect to any one
investment company and (iii) 10% of the Master Portfolio's net assets in the
aggregate. Investments in the securities of other investment companies generally
will involve duplication of advisory fees and certain other expenses. The Master
Portfolios may also purchase shares of exchange-listed closed-end funds.
Loans of Portfolio Securities.
-----------------------------
Each Master Portfolio may lend securities from its portfolio to brokers,
dealers and financial institutions (but not individuals) if cash, U.S.
Government securities or other high quality debt obligations equal to at least
100% of the current market value of the securities loaned (including accrued
interest thereon) plus the interest payable to such Master Portfolio with
respect to the loan is maintained with the Master Portfolio. In determining
whether or not to lend a security to a particular broker, dealer or financial
institution, each Master Portfolio's investment adviser or such-adviser
considers all relevant facts and circumstances, including the size,
creditworthiness and reputation of the broker, dealer, or financial institution.
Any loans of portfolio securities are fully collateralized based on values that
are marked to market daily. The Master Portfolios do not enter into any
portfolio security lending arrangements having a duration longer than one year.
Any securities that a Master Portfolio receives as collateral do not become part
of its portfolio at the time of the loan and, in the event of a default by the
borrower, such Master Portfolio will, if permitted by law, dispose of such
collateral except for such part thereof that is a security in which the Master
Portfolio is permitted to invest. During the time securities are on loan, the
borrower will pay the Master Portfolio any accrued income on those securities,
and the Master Portfolio may invest the cash collateral and earn income or
receive an agreed-upon fee from a borrower that has delivered cash- equivalent
collateral. The Master Portfolios will not lend securities having a value that
exceeds one-third of the current value of their respective total assets. Loans
of securities by a Master Portfolio are subject to termination at such Master
Portfolio's or the borrower's option. Each Master Portfolio may pay reasonable
administrative and custodial fees in connection with a securities loan and may
pay a negotiated portion of the interest or fee earned with respect to the
collateral to the borrower or the placing broker. Borrowers and placing brokers
are not permitted to be affiliated, directly or indirectly, with the Master
Portfolios, BGFA or Stephens.
6
<PAGE>
Securities of Non-U.S. Issuers.
------------------------------
The Master Portfolios may invest in certain securities of non-U.S. issuers
as discussed below.
Obligations of Foreign Governments, Banks and Corporations. Each Master
Portfolio may invest in U.S. dollar-denominated short-term obligations issued or
guaranteed by one or more foreign governments or any of their political
subdivisions, agencies or instrumentalities that are determined by BGFA to be of
comparable quality to the other obligations in which such Master Portfolio may
invest. The Master Portfolios may also invest in debt obligations of
supranational entities. Supranational entities include international
organizations designated or supported by governmental entities to promote
economic reconstruction or development and international banking institutions
and related government agencies. Examples include the International Bank for
Reconstruction and Development (the World Bank), the European Coal and Steel
Community, the Asian Development Bank and the InterAmerican Development Bank.
The percentage of each Fund's assets invested in obligations of foreign
governments and supranational entities will vary depending on the relative
yields of such securities, the economic and financial markets of the countries
in which the investments are made and the interest rate climate of such
countries.
Each Master Portfolio may invest a portion of its total assets in high-
quality, short-term (one year or less) debt obligations of foreign branches of
U.S. banks or U.S. branches of foreign banks that are denominated in and pay
interest in U.S. dollars.
Short-Term Instruments and Temporary Investments.
------------------------------------------------
The Master Portfolios may invest in high-quality money market instruments
on an ongoing basis to provide liquidity, for temporary purposes when there is
an unexpected level of shareholder purchases or redemptions or when "defensive"
strategies are appropriate. The instruments in which the Master Portfolios may
invest include: (i) short-term obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities (including government-sponsored
enterprises); (ii) negotiable certificates of deposit ("CDs"), bankers'
acceptances, fixed time deposits and other obligations of domestic banks
(including foreign branches) that have more than $1 billion in total assets at
the time of investment and that are members of the Federal Reserve System or are
examined by the Comptroller of the Currency or whose deposits are insured by the
FDIC; (iii) commercial paper rated at the date of purchase "Prime-1" by Moody's
or "A-1+" or "A-1" by S&P, or, if unrated, of comparable quality as determined
by BGFA or Wells Fargo Bank; (iv) non-convertible corporate debt securities
(e.g., bonds and debentures) with remaining maturities at the date of purchase
of not more than one year that are rated at least "Aa" by Moody's or "AA" by
S&P; (v) repurchase agreements; and (vi) short-term, U.S. dollar-denominated
obligations of foreign banks (including U.S. branches) that, at the time of
investment have more than $10 billion, or the equivalent in other currencies, in
total assets and in the opinion of BGFA or Wells Fargo Bank are of comparable
quality to obligations of U.S. banks which may be purchased by the Master
Portfolio.
Bank Obligations. Each Master Portfolio may invest in bank obligations,
including certificates of deposit, time deposits, bankers' acceptances and other
short-term obligations of domestic banks, foreign subsidiaries of domestic
banks, foreign branches of domestic banks, and domestic and foreign branches of
foreign banks, domestic savings and loan associations and other banking
institutions.
Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period of
time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate. Time
deposits which may be held by a Master Portfolio will not benefit from insurance
from the Bank Insurance Fund or the Savings Association Insurance Fund
administered by the Federal Deposit Insurance Corporation.
Bankers' acceptances are credit instruments evidencing the obligation of a
bank to pay a draft drawn on it by a customer. These instruments reflect the
obligation both of the bank and of the drawer to pay the face amount of the
instrument upon maturity. The other short-term obligations may include
uninsured, direct obligations, bearing fixed, floating- or variable-interest
rates.
Commercial Paper and Short-Term Corporate Debt Instruments. Each Master
Portfolio may invest in commercial paper (including variable amount master
demand notes), which consists of short-term, unsecured promissory notes issued
by corporations to finance short-term credit needs. Commercial paper is usually
sold on a discount basis and has a maturity at the time of issuance not
exceeding nine months. Variable amount master demand notes are demand
obligations that permit the investment of fluctuating amounts at varying market
rates of interest pursuant to arrangements between the issuer and a commercial
bank acting as agent for the payee of such notes whereby both parties have the
right to vary the amount of the outstanding indebtedness on the notes. The
investment adviser and/or sub-adviser to each Master Portfolio monitors on an
ongoing basis the ability of an issuer of a demand instrument to pay principal
and interest on demand.
7
<PAGE>
Each Master Portfolio also may invest in non-convertible corporate debt
securities (e.g., bonds and debentures) with not more than one year remaining to
maturity at the date of settlement. A Master Portfolio will invest only in such
corporate bonds and debentures that are rated at the time of purchase at least
"Aa" by Moody's or "AA" by S&P. Subsequent to its purchase by the Master
Portfolio, an issue of securities may cease to be rated or its rating may be
reduced below the minimum rating required for purchase by the Master Portfolio.
The investment adviser and/or sub-adviser to each Master Portfolio will consider
such an event in determining whether the Master Portfolio should continue to
hold the obligation. To the extent the Master Portfolio continues to hold such
obligations, it may be subject to additional risk of default.
Repurchase Agreements. Each Master Portfolio may enter into repurchase
agreements wherein the seller of a security to a Master Portfolio agrees to
repurchase that security from the Master Portfolio at a mutually-agreed upon
time and price. The period of maturity is usually quite short, often overnight
or a few days, although it may extend over a number of months. A Master
Portfolio may enter into repurchase agreements only with respect to securities
that could otherwise be purchased by the Master Portfolio, and all repurchase
transactions must be collateralized. A Master Portfolio may incur a loss on a
repurchase transaction if the seller defaults and the value of the underlying
collateral declines or is otherwise limited or if receipt of the security or
collateral is delayed. The Master Portfolios may participate in pooled
repurchase agreement transactions with other funds advised by BGFA. See
"Additional Permitted Investment Activities" in the SAI for additional
information.
U.S. Government Obligations. The Master Portfolios may invest in various
types of U.S. Government obligations. U.S. Government obligations include
securities issued or guaranteed as to principal and interest by the U.S.
Government, its agencies or instrumentalities. Payment of principal and interest
on U.S. Government obligations (i) may be backed by the full faith and credit of
the United States (as with U.S. Treasury obligations and GNMA certificates) or
(ii) may be backed solely by the issuing or guaranteeing agency or
instrumentality itself (as with FNMA notes). In the latter case, the investor
must look principally to the agency or instrumentality issuing or guaranteeing
the obligation for ultimate repayment, which agency or instrumentality may be
privately owned. There can be no assurance that the U.S. Government would
provide financial support to its agencies or instrumentalities where it is not
obligated to do so. As a general matter, the value of debt instruments,
including U.S. Government obligations, declines when market interest rates
increase and rises when market interest rates decrease. Certain types of U.S.
Government obligations are subject to fluctuations in yield or value due to
their structure or contract terms.
8
<PAGE>
ITEM 13. MANAGEMENT OF THE TRUST
The following information supplements and should be read in conjunction
with the Part A section entitled "Management of the Master Portfolio." The
Trustees and Principal Officer of MIP, together with information as to their
principal business occupations during at least the last five years, are shown
below. The address of each, unless otherwise indicated, is 111 Center Street,
Little Rock, Arkansas 72201. Each Trustee who is deemed to be an "interested
person" of MIP, as defined in the 1940 Act, is indicated by an asterisk.
<TABLE>
<CAPTION>
Principal Occupations
Name, Address and Age Position During Past 5 Years
- --------------------- -------- -------------------
<S> <C> <C>
Jack S. Euphrat, 76 Trustee Private Investor.
415 Walsh Road
Atherton, CA 94027
*R. Greg Feltus, 47 Trustee, Executive Vice President of
Chairman and President Stephens; President of Stephens
Insurance Services Inc.; Senior
Vice President of Stephens Sports
Management Inc.; and President of
Investors Brokerage Insurance Inc.
W. Rodney Hughes, 72 Trustee Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Richard H. Blank, Jr., 42 Chief Operating Officer, Vice President of Stephens;
Secretary and Treasurer Director of Stephens Sports
Management Inc.; and Director of
Capo Inc.
</TABLE>
9
<PAGE>
Compensation Table
For the Fiscal Year Ended February 28, 1999
<TABLE>
<CAPTION>
Total Compensation
Aggregate Compensation from Registrant
Name and Position from Registrant and Fund Complex
----------------- --------------- ----------------
<S> <C> <C>
Jack S. Euphrat $0 $5,000
Trustee
*R. Greg Feltus $0 $ 0
Trustee
Thomas S. Goho $0 $5,000
Trustee
W. Rodney Hughes $0 $4,500
Trustee
*J. Tucker Morse $0 $4,500
Trustee
</TABLE>
Trustees of MIP are compensated annually by all the registrants in the
fund complex for their services as indicated above and also are reimbursed for
all out-of-pocket expenses relating to attendance at board meetings. MIP and
Barclays Global Investors Funds, Inc. ("BGIF"), formerly known as MasterWorks
Funds Inc., are considered to be members of the same fund complex as such term
is defined in Form N-1A under the 1940 Act. The Trustees are compensated by BGIF
and MIP for their services as Directors/Trustees to the company and Trust.
Currently, the Trustees do not receive any retirement benefits or deferred
compensation from MIP or BGIF.
As of the date of this SAI, the Trustees and Principal Officer of MIP as a
group beneficially owned less than 1% of the outstanding beneficial interest of
MIP.
ITEM 14. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.
As of May 31, 1999, the Asset Allocation Fund and U.S. Treasury Allocation
Fund of BGIF, 111 Center Street, Little Rock, Arkansas 72201, owned
approximately 99% of the outstanding voting securities of the Asset Allocation
Master Portfolio and approximately 99% of the outstanding voting securities of
the U.S. Treasury Allocation Master Portfolio, respectively, and each Fund may
be presumed to control its corresponding Master Portfolio for purposes of the
1940 Act.
ITEM 15. INVESTMENT ADVISORY AND OTHER SERVICES.
The following information supplements and should be read in conjunction
with Item 6 in Part A.
Investment Adviser. Barclays Global Fund Advisors ("BGFA") provides
investment advisory services to each Master Portfolio pursuant to separate
Investment Advisory Contracts (each, a "BGFA Advisory Contract") dated January
1, 1996 with MIP. As to each Master Portfolio, the applicable BGFA Advisory
Contract is subject to annual approval by (i) MIP's Board of Trustees or (ii)
vote of a majority (as defined in the 1940 Act) of the outstanding voting
securities of such Master Portfolio, provided that in either event the
continuance also is approved by a majority of MIP's Board of Trustees who are
not "interested persons" (as defined in the 1940 Act)
10
<PAGE>
of MIP or BGFA, by vote cast in person at a meeting called for the purpose of
voting on such approval. As to each Master Portfolio, the applicable BGFA
Advisory Contract is terminable without penalty on 60 days' written notice by
either party. The BGFA Advisory Contracts terminate automatically in the event
of assignment (as defined in the 1940 Act).
Advisory Fees Paid. For the fiscal years ended February 28, 1997,
February 28, 1998 and February 28, 1999, the Master Portfolios paid to BGFA the
following advisory fees, without waivers.
<TABLE>
<CAPTION>
FYE 2/28/97 FYE 2/28/98 FYE 2/28/99
Fees Paid Fees Paid Fees Paid
--------- --------- ---------
<S> <C> <C> <C>
Asset Allocation Master $ 1,531,951 $ 1,616,380 $ 1,941,048
Portfolio
U.S. Treasury Allocation $ 148,606 $ 136,672 $ 130,490
Master Portfolio
</TABLE>
Investment Sub-Adviser. Effective January 1, 1996, the Master Portfolios no
longer retained WFNIA as investment sub-adviser.
Co-Administrators. Stephens and BGI are the Master Portfolio's co-
administrators. Stephens and BGI provide the Master Portfolios with
administrative services, including general supervision of the Master Portfolios'
non-investment operations, coordination of the other services provided to the
Master Portfolios, compilation of information for reports to the SEC and the
state securities commissions, preparation of proxy statements and shareholder
reports, and general supervision of data compilation in connection with
preparing periodic reports to the MIP's trustees and officers. Stephens also
furnishes office space and certain facilities to conduct the Master Portfolios'
business, and compensates the MIP's trustees, officers and employees who are
affiliated with Stephens. In addition, except as outlined below under
"Expenses," Stephens and BGI will be responsible for paying all expenses
incurred by the Master Portfolios other than the fees payable to BGFA. Stephens
and BGI are not entitled to compensation for providing administration services
to a Master Portfolio. BGI has delegated certain of its duties as co-
administrator to Investors Bank & Trust Company ("IBT"). IBT, as sub-
administrator, is compensated by BGI for performing certain administration
services.
Prior to October 21, 1996, Stephens alone provided administration services
to MIP pursuant to an Administration Agreement dated February 25, 1994 (the
"Administration Agreement"). Stephens was not entitled to compensation for
providing administration services to the Master Portfolios so long as Stephens
received fees for providing similar services to a feeder fund of another
investment company investing all of its assets in a Master Portfolio. The Master
Portfolios did not pay any administration fees to Stephens.
Placement Agent. Stephens is the placement agent for the Master Portfolios.
Stephens is a full service broker/dealer and investment advisory firm located at
111 Center Street, Little Rock, Arkansas 72201. Stephens and its predecessor
have been providing securities and investment services for more than 60 years,
including discretionary portfolio management services since 1983. Stephens
currently manages investment portfolios for pension and profit sharing plans,
individual investors, foundations, insurance companies and university
endowments. Stephens does not receive compensation for acting as placement
agent.
Custodian. IBT currently acts as the Master Portfolios' custodian. The
principal business address of IBT is 200 Clarendon Street, Boston, Massachusetts
02116. IBT is not entitled to receive compensation for its custodial services so
long as it is entitled to receive compensation for providing sub-administration
services to the Master Portfolios. Prior to October 21, 1996, BGI acted as the
Master Portfolios' custodian. BGI did not receive compensation for its custodial
services.
11
<PAGE>
Transfer and Dividend Disbursing Agent. IBT also acts as each Master
Portfolio's Transfer and Dividend Disbursing Agent (the "Transfer Agent"). IBT
is not entitled to receive compensation for providing such services to MIP so
long as it receives fees for providing similar services to the funds which
invest substantially all of their assets in the Master Portfolios. Prior to
March 2, 1998, Wells Fargo Bank acted as each Master Portfolio's Transfer Agent.
To date, the Master Portfolios have not paid any transfer and dividend
disbursing agency fees.
Distribution Plan. MIP's Board of Trustees has adopted, on behalf of each
Master Portfolio, a "defensive" distribution plan under Section 12(b) of the
1940 Act and Rule 12b-1 thereunder (the "Plan"). The Plan was adopted by a
majority of MIP's Board of Trustees (including a majority of those Trustees who
are not "interested persons" as defined in the 1940 Act of MIP) on October 10,
1995. The Plan was intended as a precaution designed to address the possibility
that certain ongoing payments by Barclays to Wells Fargo Bank in connection with
the sale of WFNIA may be characterized as indirect payments by each Master
Portfolio to finance activities primarily intended to result in the sale of
interests in such Master Portfolio. The Plan provides that if any portion of a
Master Portfolio's advisory fees (up to 0.25% of the average daily net assets of
each Master Portfolio on an annual basis) were deemed to constitute an indirect
payment for activities that are primarily intended to result in the sale of
interests in a Master Portfolio such payment would be authorized pursuant to the
Plan. The Master Portfolios do not currently pay any amounts pursuant to the
Plan.
Expenses. Except for extraordinary expenses, brokerage and other expenses
connected with to the execution of portfolio transactions and certain other
expenses which are borne by the Master Portfolios, Stephens and BGI have agreed
to bear all costs of the Master Portfolios' and MIP's operations.
ITEM 16. BROKERAGE ALLOCATION AND OTHER PRACTICES.
General. BGFA assumes general supervision over placing orders on behalf of
each Master Portfolio for the purchase or sale of portfolio securities.
Allocation of brokerage transactions, including their frequency, is made in the
best judgment of BGFA and in a manner deemed fair and reasonable to
shareholders. In executing portfolio transactions and selecting brokers or
dealers, BGFA seeks to obtain the best overall terms available for each Master
Portfolio. In assessing the best overall terms available for any transaction,
BGFA considers factors deemed relevant, including the breadth of the market in
the security, the price of the security, the financial condition and execution
capability of the broker or dealer, and the reasonableness of the commission, if
any, both for the specific transaction and on a continuing basis. The primary
consideration is prompt execution of orders at the most favorable net price.
Certain of the brokers or dealers with whom the Master Portfolios may transact
business offer commission rebates to the Master Portfolios. BGFA considers such
rebates in assessing the best overall terms available for any transaction. The
overall reasonableness of brokerage commissions paid is evaluated by BGFA based
upon its knowledge of available information as to the general level of
commission paid by other institutional investors for comparable services.
Asset Allocation Master Portfolio. Brokers also are selected because of
their ability to handle special executions such as are involved in large block
trades or broad distributions, provided the primary consideration is met.
Portfolio turnover may vary from year to year, as well as within a year. High
turnover rates over 100% are likely to result in comparatively greater brokerage
expenses.
U.S. Treasury Allocation Master Portfolio. Purchases and sales of portfolio
securities for the U.S. Treasury Allocation Master Portfolio usually are
principal transactions. Portfolio securities ordinarily are purchased directly
from the issuer or from an underwriter or market maker. Usually no brokerage
commissions are paid by the U.S. Treasury Allocation Master Portfolio for such
purchases and sales. The prices paid to the underwriters of newly-issued
securities usually include a concession paid by the issuer to the underwriter,
and purchases of securities from market makers may include the spread between
the bid and asked price.
12
<PAGE>
Brokerage Commissions. For the fiscal years ended February 28, 1997,
February 28, 1998 and February 28, 1999, the Master Portfolios paid brokerage
commissions in the dollar amounts shown below. None of the brokerage commissions
were paid to affiliated brokers.
<TABLE>
<CAPTION>
Master Portfolio FYE 2/28/97 FYE 2/28/98 FYE 2/28/99
- ---------------- ----------- ----------- -----------
<S> <C> <C> <C>
Asset Allocation Master Portfolio $28,606 $ 11,933 $ 35,317
U.S. Treasury Allocation Master Portfolio $ 0 $ 0 $ 0
</TABLE>
Securities of Regular Broker/Dealers. On February 28, 1999, the Master
Portfolios owned securities of their "regular brokers or dealers" or their
parents, as defined in the 1940 Act, as follows:
<TABLE>
<CAPTION>
Master Portfolio Regular Broker/Dealer Amount
- ---------------- --------------------- ------
<S> <C> <C>
Asset Allocation Master Portfolio Lehman Bros. Holdings $ 296,800
Merrill Lynch $ 1,319,026
Morgan Stanley $ 5,403,719
J.P. Morgan $ 941,647
U.S. Treasury Allocation Master Portfolio None
</TABLE>
ITEM 17. CAPITAL STOCK AND OTHER SECURITIES.
Pursuant to MIP's Declaration of Trust, the Trustees are authorized to
issue shares of beneficial interests in each Master Portfolio. Investors in a
Master Portfolio are entitled to participate pro rata in distributions of
taxable income, loss, gain and credit of such Master Portfolio. Upon liquidation
or dissolution of a Master Portfolio, investors are entitled to share pro rata
in such Master Portfolio's net assets available for distribution to its
investors. Investments in a Master Portfolio have no preference, pre-exemptive,
conversion or similar rights and are fully paid and non-assessable, except as
set forth below. Investments in the Master Portfolio may not be transferred. No
certificates are issued.
Each investor is entitled to vote, with respect to matters affecting each
of MIP's series, in proportion to the amount of its investment in MIP. Investors
in MIP do not have cumulative voting rights, and investors holding more than 50%
of the aggregate beneficial interest in MIP may elect all of the Trustees of MIP
if they choose to do so and in such event the other investors in MIP would not
be able to elect any Trustee. MIP is not required to hold annual meetings of
investors but MIP may hold special meetings of investors when in the judgment of
MIP's Trustees it is necessary or desirable to submit matters for an investor
vote.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted under the provisions of the 1940 Act or applicable state law or
otherwise to the holders of the outstanding voting securities of an investment
company, such as MIP, will not be deemed to have been effectively acted upon
unless approved by the holders of a majority of the outstanding shares of each
Master Portfolio affected by such matter. Rule 18f-2 further provides that a
Master Portfolio shall be deemed to be affected by a matter unless it is clear
that the interests of such Master Portfolio in the matter are identical or that
the matter does not affect any interest of such Master Portfolio. However, the
Rule exempts the selection of independent accountants and the election of
Trustees from the separate voting requirements of the Rule.
ITEM 18. PURCHASE, REDEMPTION AND PRICING OF INTERESTS.
The following information supplements and should be read in conjunction
with Item 7 in Part A.
Purchase of Securities. Beneficial interests in each Master Portfolio are
issued solely in private placement transactions which do not involve any "public
offering" within the meaning of Section 4(2) of the Securities Act of 1933, as
amended (the "1933 Act"). Investments in the Master Portfolio may only be made
by investment companies or certain other entities which are "accredited
investors" within the meaning of Regulation D under the
13
<PAGE>
1933 Act. This registration statement does not constitute an offer to sell, or
the solicitation of an offer to buy, any "security" within the meaning of the
1933 Act.
Payment for shares of a Master Portfolio may, at the discretion of the
adviser, be made in the form of securities that are permissible investments for
the Master Portfolio and must meet the investment objective, policies and
limitations of the Master Portfolio as described in the Part A. In connection
with an in-kind securities payment, a Master Portfolio may require, among other
things, that the securities (i) be valued on the day of purchase in accordance
with the pricing methods used by the Master Portfolio; (ii) are accompanied by
satisfactory assurance that the Master Portfolio will have good and marketable
title to such securities received by it; (iii) are not subject to any
restrictions upon resale by the Master Portfolio; (iv) be in proper form for
transfer to the Master Portfolio; and (v) are accompanied by adequate
information concerning the basis and other tax matters relating to the
securities. All dividends, interest, subscription or other rights pertaining to
such securities shall become the property of the Master Portfolio engaged in the
in-kind purchase transaction and must be delivered to such Master Portfolio by
the investor upon receipt from the issuer. Securities acquired through an in-
kind purchase will be acquired for investment and not for immediate resale.
Shares purchased in exchange for securities generally cannot be redeemed until
the transfer has settled.
Pricing of Securities.
Asset Allocation Master Portfolio. The securities of the Asset Allocation
Master Portfolio, including covered call options written by the Master
Portfolio, are valued as discussed below. Domestic securities are valued at the
last sale price on the domestic securities or commodities exchange or national
securities market on which such securities primarily are traded. Securities not
listed on a domestic exchange or national securities market, or securities in
which there were no transactions, are valued at the most recent bid prices.
Short-term investments are carried at amortized cost, which approximates value.
Any securities or other assets for which recent market quotations are not
readily available are valued at fair value as determined in good faith by BGFA
pursuant to guidelines approved by MIP's Board of Trustees. Expenses and fees,
including advisory fees, are accrued daily and taken into account for the
purpose of determining the net asset value of the Master Portfolio's shares.
Restricted securities, as well as securities or other assets for which
market quotations are not readily available, or are not valued by a pricing
service approved by MIP's Board of Trustees, are valued at fair value as
determined in good faith by BGFA in accordance with guidelines approved by MIP's
Board of Trustees. BGFA and MIP's Board of Trustees periodically review the
method of valuation. In making its good faith valuation of restricted
securities, BGFA generally takes the following factors into consideration:
restricted securities which are, or are convertible into, securities of the same
class of securities for which a public market exists usually are valued at
market value less the same percentage discount at which purchased. This discount
is revised periodically if it is believed that the discount no longer reflects
the value of the restricted securities. Restricted securities not of the same
class as securities for which a public market exists usually will be valued
initially at cost. Any subsequent adjustments from cost are made in accordance
with guidelines approved by MIP's Board of Trustees.
U.S. Treasury Allocation Master Portfolio. The investments of the U.S.
Treasury Allocation Master Portfolio are valued each business day using
available market quotations or at fair value as determined by one or more
independent pricing services (collectively, the "Services") approved by MIP's
Board of Trustees. The Services may use available market quotations, employ
electronic data processing techniques and/or a matrix system to determine
valuations. Each Service's procedures are reviewed by MIP's officers in
accordance with guidelines approved by MIP's Board of Trustees. Expenses and
fees, including advisory fees, are accrued daily and are taken into account for
the purpose of determining the net asset value of the Master Portfolio's shares.
New York Stock Exchange Closings. The holidays on which the New York Stock
Exchange is closed currently are: New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
14
<PAGE>
ITEM 19. TAXATION OF THE TRUST.
MIP is organized as a business trust under Delaware law. Under MIP's
current classification for federal income tax purposes, it is intended that each
Master Portfolio will be treated as a partnership for such purposes and,
therefore, such Master Portfolio will not be subject to any federal income tax.
However, each investor in a Master Portfolio will be taxable on its share (as
determined in accordance with the governing instruments of MIP) of such Master
Portfolio's ordinary income and capital gain in determining its federal income
tax liability. The determination of such share will be made in accordance with
the Internal Revenue Code of 1986, as amended (the "Code"), and regulations
promulgated thereunder.
MIP's taxable year-end is the last day of December. Although MIP will not
be subject to Federal income tax, it will file appropriate Federal income tax
returns.
Each Master Portfolio's assets, income and distributions will be managed in
such a way that an investor in such Master Portfolio may satisfy the
requirements of Subchapter M of the Code, by investing substantially all of its
investable assets in the Master Portfolio. Investors are advised to consult
their own tax advisors as to the tax consequences of an investment in a Master
Portfolio.
ITEM 20. UNDERWRITERS.
The exclusive placement agent for MIP is Stephens, which receives no
compensation for serving in this capacity. Registered broker/dealers and
investment companies, insurance company separate accounts, common and commingled
trust funds, group trust and similar organizations and entities which constitute
accredited investors as defined in the regulations adopted under the 1933 Act,
may continuously invest in a Master Portfolio of MIP.
ITEM 21. CALCULATIONS OF PERFORMANCE DATA.
Not applicable.
ITEM 22. FINANCIAL STATEMENTS.
KPMG LLP provides audit services, tax return preparation and assistance and
consultation in connection with the review of certain SEC filings. KPMG LLP's
address is Three Embarcadero Center, San Francisco, California 94111.
The audited financial statements, including the portfolio of investments,
and independent auditors report for the Master Portfolios for the fiscal year
ended February 28, 1999 are hereby incorporated by reference to the MasterWorks
Funds Inc. (SEC File Nos. 33-54126; 811-7322) Annual Report, as filed with the
SEC on May 1, 1999. The audited financial statements are attached to all Part Bs
delivered to interestholders or prospective interestholders.
15
<PAGE>
APPENDIX
Description of certain ratings assigned by Standard & Poor's Corporation
("S&P"), Moody's Investors Service, Inc. ("Moody's"), Fitch Investors Service,
Inc. ("Fitch"), Duff & Phelps, Inc. ("Duff") and IBCA Inc. and IBCA Limited
("IBCA"):
S&P
Bond Ratings
"AAA"
Bonds rated AAA have the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
"AA"
Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
"A"
Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than obligations in higher rated
categories.
"BBB"
Bonds rated BBB are regarded as having an adequate capacity to pay interest
and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.
S&P's letter ratings may be modified by the addition of a plus (+) or minus
(-) sign designation, which is used to show relative standing within the major
rating categories, except in the AAA (Prime Grade) category.
Commercial Paper Rating
The designation A-1 by S&P indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus sign (+)
designation. Capacity for timely payment on issues with an A-2 designation is
strong. However, the relative degree of safety is not as high as for issues
designated A-1.
Moody's
Bond Ratings
"Aaa"
Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally
A-1
<PAGE>
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
"Aa"
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what generally are known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
"A"
Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa"
Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Moody's applies the numerical modifiers "1", "2" and "3" to show relative
standing within the major rating categories, except in the "Aaa" category. The
modifier "1" indicates a ranking for the security in the higher end of a rating
category; the modifier "2" indicates a mid-range ranking; and the modifier "3"
indicates a ranking in the lower end of a rating category.
Commercial Paper Rating
The rating Prime-1 ("P-1") is the highest commercial paper rating assigned
by Moody's. Issuers of P-1 paper must have a superior capacity for repayment of
short-term promissory obligations, and ordinarily will be evidenced by leading
market positions in well established industries, high rates of return on funds
employed, conservative capitalization structures with moderate reliance on debt
and ample asset protection, broad margins in earnings coverage of fixed
financial charges and high internal cash generation, and well established access
to a range of financial markets and assured sources of alternate liquidity.
Issuers (or relating supporting institutions) rated Prime-2 ("P-2") have a
strong capacity for repayment of short-term promissory obligations. This
ordinarily will be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.
Fitch
Bond Ratings
The ratings represent Fitch's assessment of the issuer's ability to meet
the obligations of a specific debt issue or class of debt. The ratings take into
consideration special features of the issue, its relationship to other
obligations of the issuer, the current financial condition and operative
performance of the issuer and of any
A-2
<PAGE>
guarantor, as well as the political and economic environment that might affect
the issuer's future financial strength and credit quality.
"AAA"
Bonds rated AAA are considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events.
"AA"
Bonds rated AA are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short- term debt of these issuers is generally
rated F-1+.
"A"
Bonds rated A are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is considered
to be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
"BBB"
Bonds rated BBB are considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these bonds
and, therefore, impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
Plus (+) and minus (-) signs are used with a rating symbol to indicate the
relative position of a credit within the rating category.
Short-Term Ratings
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
Although the credit analysis is similar to Fitch's bond rating analysis,
the short-term rating places greater emphasis than bond ratings on the existence
of liquidity necessary to meet the issuer's obligations in a timely manner.
"F-1+"
Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
"F-1"
Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
A-3
<PAGE>
"F-2"
Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payments, but the margin of safety is not as great as
the F-1+ and F-1 categories.
Duff
Bond Ratings
"AAA"
Bonds rated AAA are considered highest credit quality. The risk factors are
negligible, being only slightly more than for risk-free U.S. Treasury debt.
"AA"
Bonds rated AA are considered high credit quality. Protection factors are
strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
"A"
Bonds rated A have protection factors which are average but adequate.
However, risk factors are more variable and greater in periods of economic
stress.
"BBB"
Bonds rated BBB are considered to have below average protection factors but
still considered sufficient for prudent investment. Considerable variability in
risk during economic cycles.
Plus (+) and minus (-) signs are used with a rating symbol (except AAA) to
indicate the relative position of a credit within the rating category.
Commercial Paper Rating
The rating "Duff-1" is the highest commercial paper rating assigned by
Duff. Paper rated Duff-1 is regarded as having very high certainty of timely
payment with excellent liquidity factors which are supported by ample asset
protection. Risk factors are minor. Paper rated "Duff-2" is regarded as having
good certainty of timely payment, good access to capital markets and sound
liquidity factors and company fundamentals. Risk factors are small.
IBCA
Bond and Long-Term Ratings
Obligations rated AAA by IBCA have the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is substantial,
such that adverse changes in business, economic or financial conditions are
unlikely to increase investment risk significantly. Obligations for which there
is a very low expectation of investment risk are rated AA by IBCA. Capacity for
timely repayment of principal and interest is substantial. Adverse changes in
business, economic or financial conditions may increase investment risk albeit
not very significantly.
A-4
<PAGE>
Commercial Paper and Short-Term Ratings
The designation A1 by IBCA indicates that the obligation is supported by a
very strong capacity for timely repayment. Those obligations rated A1+ are
supported by the highest capacity for timely repayment. Obligations rated A2 are
supported by a strong capacity for timely repayment, although such capacity may
be susceptible to adverse changes in business, economic or financial conditions.
International and U.S. Bank Ratings
An IBCA bank rating represents IBCA's current assessment of the strength of
the bank and whether such bank would receive support should it experience
difficulties. In its assessment of a bank, IBCA uses a dual rating system
comprised of Legal Ratings and Individual Ratings. In addition, IBCA assigns
banks Long- and Short-Term Ratings as used in the corporate ratings discussed
above. Legal Ratings, which range in gradation from 1 through 5, address the
question of whether the bank would receive support provided by central banks or
shareholders if it experienced difficulties, and such ratings are considered by
IBCA to be a prime factor in its assessment of credit risk. Individual Ratings,
which range in gradations from A through E, represent IBCA's assessment of a
bank's economic merits and address the question of how the bank would be viewed
if it were entirely independent and could not rely on support from state
authorities or its owners.
A-5
<PAGE>
MASTER INVESTMENT PORTFOLIO
INDEX MASTER PORTFOLIOS
S&P 500 INDEX MASTER PORTFOLIO
BOND INDEX MASTER PORTFOLIO
Part B -- STATEMENT OF ADDITIONAL INFORMATION
July 1, 1999
ITEM 10. COVER PAGE AND TABLE OF CONTENTS.
Master Investment Portfolio ("MIP," or the "Trust") is an open-end,
management investment company. MIP is a "series fund," which is a mutual fund
divided into separate portfolios. This Part B is not a prospectus and should be
read in conjunction with MIP's Part A, also dated July 1, 1999. All terms used
in this Part B that are defined in Part A have the meanings assigned in Part A.
A copy of Part A may be obtained without charge by writing Master Investment
Portfolio, c/o Investors Bank & Trust Co., -- Transfer Agent, P.O. Box 9130,
Mail Code MFD23, Boston, MA 02117-9130, or by calling 1-800-204-3956. MIP's
Registration Statement may be examined at the office of the Securities and
Exchange Commission ("SEC") in Washington, D.C.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Trust History..................................................................................... 1
Description of the Master Portfolios and Their Investments and Risks.............................. 2
Management of the Trust .......................................................................... 9
Control Persons and Principal Holders of Securities............................................... 10
Investment Advisory and Other Services............................................................ 10
Brokerage Allocation and Other Practices.......................................................... 12
Capital Stock and Other Securities................................................................ 13
Purchase, Redemption and Pricing of Interests..................................................... 13
Taxation of the Trust............................................................................. 15
Underwriters...................................................................................... 15
Calculations of Performance Data.................................................................. 15
Financial Statements.............................................................................. 15
Appendix.......................................................................................... A-1
</TABLE>
ITEM 11. TRUST HISTORY.
MIP is an open-end, management investment company, organized on October 21,
1993 as a business trust under the laws of the State of Delaware. MIP is a
"series fund," which is a mutual fund divided into separate portfolios. By this
offering document, MIP is offering two of its diversified portfolios - the S&P
500 Index and Bond Index Master Portfolios (each, a "Master Portfolio" and
collectively, the "Master Portfolios"). The Master Portfolios are treated as a
separate entities for certain matters under the Investment Company Act of 1940,
as amended (the "1940 Act"), and for other purposes and an interestholder of a
Master Portfolio is not deemed to be an interestholder of any other portfolio of
MIP. As described below, for certain matters MIP interestholders vote together
as a group; as to others they vote separately by portfolio. MIP currently offers
ten other portfolios pursuant to other offering documents. From time to time,
other portfolios may be established and sold pursuant to other offering
documents.
Beneficial interests in the Master Portfolios are issued solely in private
placement transactions which do not involve any "public offering" within the
meaning of Regulation D under the Securities Act of 1933, as amended
1
<PAGE>
(the "1933 Act"). Investments in the Master Portfolios may be made only by
investment companies or certain other entities which are "accredited investors"
within the meaning of Regulation D under the 1933 Act. Investment companies that
hold shares of beneficial interest ("interests") in the Master Portfolios are
sometimes referred to herein as "feeder funds."
ITEM 12. DESCRIPTION OF THE MASTER PORTFOLIOS AND THEIR INVESTMENTS AND RISKS.
The following information supplements and should be read in conjunction
with Item 4 in Part A.
Investment Objectives. Each Master Portfolio's investment objective is set forth
in Item 4, "Investment Objectives, Principal Strategies and Related Risks," of
Part A. There can be no assurance that the investment objectives of each Master
Portfolio will be achieved. Each Master Portfolio's investment objective is
fundamental and, therefore, cannot be changed without approval by the holders of
a majority (as defined in the Investment Company Act of 1940, as amended (the
"1940 Act")) of such Master Portfolios' outstanding voting interests.
Investment Restrictions
Fundamental Investment Restrictions. The Master Portfolios have adopted the
following investment restrictions as fundamental policies. These restrictions
cannot be changed, as to a Master Portfolio, without approval by the holders of
a majority (as defined in the 1940 Act) of the Master Portfolio's outstanding
voting securities. The Master Portfolios may not:
(1) Invest more than 5% of its assets in the obligations of any single
issuer, except that up to 25% of the value of its total assets may be invested,
and securities issued or guaranteed by the U.S. Government, or its agencies or
instrumentalities may be purchased, without regard to any such limitation.
(2) Hold more than 10% of the outstanding voting securities of any single
issuer. This Investment Restriction applies only with respect to 75% of its
total assets.
(3) Invest in commodities, except that each Master Portfolio may purchase
and sell (i.e., write) options, forward contracts, futures contracts, including
those relating to indexes, and options on futures contracts or indexes.
(4) Purchase, hold or deal in real estate, or oil, gas or other mineral
leases or exploration or development programs, but each Master Portfolio may
purchase and sell securities that are secured by real estate or issued by
companies that invest or deal in real estate.
(5) Borrow money, except to the extent permitted under the 1940 Act,
provided that the Bond Index Master Portfolio may borrow from banks up to 10% of
the current value of its net assets for temporary purposes only in order to meet
redemptions, and these borrowings may be secured by the pledge of up to 10% of
the current value of its net assets (but investments may not be purchased while
any such outstanding borrowing in excess of 5% of its net assets exists), and
except that the S&P 500 Stock Master Portfolio may borrow up to 20% of the
current value of its net assets for temporary purposes only in order to meet
redemptions, and these borrowings may be secured by the pledge of up to 20% of
the current value of its net assets (but investments may not be purchased while
any such outstanding borrowing in excess of 5% of its net assets exists). For
purposes of this investment restriction, a Master Portfolio's entry into
options, forward contracts, futures contracts, including those relating to
indexes, and options on futures contracts or indexes shall not constitute
borrowing to the extent certain segregated accounts are established and
maintained by the Master Portfolio.
2
<PAGE>
(6) Make loans to others, except through the purchase of debt obligations
and the entry into repurchase agreements. However, each Master Portfolio may
lend its portfolio securities in an amount not to exceed one-third of the value
of its total assets. Any loans of portfolio securities will be made according to
guidelines established by the Securities and Exchange Commission and the MIP's
Board of Trustees.
(7) Act as an underwriter of securities of other issuers, except to the
extent the Master Portfolio may be deemed an underwriter under the Securities
Act of 1933, as amended, by virtue of disposing of portfolio securities.
(8) Invest 25% or more of its total assets in the securities of issuers in
any particular industry or group of closely related industries and except that,
in the case of each Master Portfolio, there shall be no limitation with respect
to investments in (i) obligations of the U.S. Government, its agencies or
instrumentalities; (ii) in the case of the S&P 500 Stock Master Portfolio, any
industry in which the S&P 500 Index becomes concentrated to the same degree
during the same period, the Master Portfolio will be concentrated as specified
above only to the extent the percentage of its assets invested in those
categories of investments is sufficiently large that 25% or more of its total
assets would be invested in a single industry); (iii) in the case of the Bond
Index Master Portfolio, any industry in which the Lehman Brothers
Government/Corporate Bond Index (the "LB Bond Index") becomes concentrated to
the same degree during the same period.
(9) Issue any senior security (as such term is defined in Section 18(f) of
the 1940 Act), except to the extent the activities permitted in Investment
Restriction Nos. 3 and 5 may be deemed to give rise to a senior security.
(10) Purchase securities on margin, but each Master Portfolio may make
margin deposits in connection with transactions in options, forward contracts,
futures contracts, including those related to indexes, and options on futures
contracts or indexes.
Non-Fundamental Investment Restrictions. The Master Portfolios have adopted the
following investment restrictions as non-fundamental policies. These
restrictions may be changed without shareholder approval by vote of a majority
of the Trustees of MIP, at any time. The Master Portfolios are subject to the
following investment restrictions, all of which are non-fundamental policies.
(1) The Master Portfolios may invest in shares of other open-end
management investment companies, subject to the limitations of Section 12(d)(1)
of the 1940 Act. Under the 1940 Act, a Master Portfolio's investment in such
securities currently is limited, subject to certain exceptions, to (i) 3% of the
total voting stock of any one investment company, (ii) 5% of such Master
Portfolio's net assets with respect to any one investment company, and (iii) 10%
of such Master Portfolio's net assets in the aggregate. Other investment
companies in which the Master Portfolios invest can be expected to charge fees
for operating expenses, such as investment advisory and administration fees,
that would be in addition to those charged by the Master Portfolio.
(2) Each Master Portfolio may not invest more than 15% of its net assets
in illiquid securities. For this purpose, illiquid securities include, among
others, (a) securities that are illiquid by virtue of the absence of a readily
available market or legal or contractual restrictions on resale, (b) fixed time
deposits that are subject to withdrawal penalties and that have maturities of
more than seven days, and (c) repurchase agreements not terminable within seven
days.
(3) Each Master Portfolio may lend securities from its portfolio to
brokers, dealers and financial institutions, in amounts not to exceed (in the
aggregate) one-third of a Master Portfolio's total assets. Any such loans of
portfolio securities will be fully collateralized based on values that are
marked to market daily. The Master Portfolios will not enter into any portfolio
security lending arrangement having a duration of longer than one year.
3
<PAGE>
Portfolio Securities
Borrowing Money.
---------------
As a fundamental policy, each Master Portfolio is permitted to borrow to
the extent permitted under the 1940 Act. However, each Master Portfolio
currently intends to borrow money only for temporary or emergency (not
leveraging) purposes, and may borrow up to one-third of the value of its total
assets (including the amount borrowed) valued at the lesser of cost or market,
less liabilities (not including the amount borrowed) at the time the borrowing
is made. While borrowings exceed 5% of a Master Portfolio's total assets, the
Master Portfolio will not make any new investments.
Floating- and Variable-Rate Obligations.
----------------------------------------
Each Master Portfolio may purchase floating- and variable-rate obligations
as described in the Prospectus. The Master Portfolio may purchase floating- and
variable-rate demand notes and bonds, which are obligations ordinarily having
stated maturities in excess of thirteen months, but which permit the holder to
demand payment of principal at any time, or at specified intervals not exceeding
thirteen months. Variable rate demand notes include master demand notes that are
obligations that permit the Master Portfolio to invest fluctuating amounts,
which may change daily without penalty, pursuant to direct arrangements between
the Master Portfolio, as lender, and the borrower. The interest rates on these
notes fluctuate from time to time. The issuer of such obligations ordinarily has
a corresponding right, after a given period, to prepay in its discretion the
outstanding principal amount of the obligations plus accrued interest upon a
specified number of days' notice to the holders of such obligations. The
interest rate on a floating-rate demand obligation is based on a known lending
rate, such as a bank's prime rate, and is adjusted automatically each time such
rate is adjusted. The interest rate on a variable-rate demand obligation is
adjusted automatically at specified intervals. Frequently, such obligations are
secured by letters of credit or other credit support arrangements provided by
banks. Because these obligations are direct lending arrangements between the
lender and borrower, it is not contemplated that such instruments generally will
be traded, and there generally is no established secondary market for these
obligations, although they are redeemable at face value. Accordingly, where
these obligations are not secured by letters of credit or other credit support
arrangements, the Master Portfolio's right to redeem is dependent on the ability
of the borrower to pay principal and interest on demand. Such obligations
frequently are not rated by credit rating agencies and the Master Portfolio may
invest in obligations which are not so rated only if BGFA determines that at the
time of investment the obligations are of comparable quality to the other
obligations in which the Master Portfolio may invest. BGFA, on behalf of the
Master Portfolio, considers on an ongoing basis the creditworthiness of the
issuers of the floating- and variable-rate demand obligations in the Master
Portfolio's portfolio. The Master Portfolio will not invest more than 10% of the
value of its total net assets in floating- or variable-rate demand obligations
whose demand feature is not exercisable within seven days. Such obligations may
be treated as liquid, provided that an active secondary market exists.
Forward Commitments, When-Issued Purchases and Delayed-Delivery
---------------------------------------------------------------
Transactions.
- ------------
Each Master Portfolio may purchase or sell securities on a when-issued or
delayed-delivery basis and make contracts to purchase or sell securities for a
fixed price at a future date beyond customary settlement time. Securities
purchased or sold on a when-issued, delayed-delivery or forward commitment basis
involve a risk of loss if the value of the security to be purchased declines, or
the value of the security to be sold increases, before the settlement date.
Although a Master Portfolio will generally purchase securities with the
intention of acquiring them, a Master Portfolio may dispose of securities
purchased on a when-issued, delayed-delivery or a forward commitment basis
before settlement when deemed appropriate by the adviser.
Futures Contracts and Options Transactions.
------------------------------------------
4
<PAGE>
Each Master Portfolio may use futures as a substitute for a comparable
market position in the underlying securities.
A futures contract is an agreement between two parties, a buyer and a
seller, to exchange a particular commodity or financial statement at a specific
price on a specific date in the future. An option transaction generally involves
a right, which may or may not be exercised, to buy or sell a commodity or
financial instrument at a particular price on a specified future date. Futures
contracts and options are standardized and traded on exchanges, where the
exchange serves as the ultimate counterparty for all contracts. Consequently,
the primary credit risk on futures contracts is the creditworthiness of the
exchange. Futures contracts are subject to market risk (i.e., exposure to
adverse price changes).
Although each Master Portfolio intends to purchase or sell futures
contracts only if there is an active market for such contracts, no assurance can
be given that a liquid market will exist for any particular contract at any
particular time. Many futures exchanges and boards of trade limit the amount of
fluctuation permitted in futures contract prices during a single trading day.
Once the daily limit has been reached in a particular contract, no trades may be
made that day at a price beyond that limit or trading may be suspended for
specified periods during the trading day. Futures contract prices could move to
the limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and potentially
subjecting a Master Portfolio to substantial losses. If it is not possible, or
if a Master Portfolio determines not to close a futures position in anticipation
of adverse price movements, the Master Portfolio will be required to make daily
cash payments on variation margin.
Stock Index Futures and Options on Stock Index Futures The S&P 500 Stock
Master Portfolio may invest in stock index futures and options on stock index
futures as a substitute for a comparable market position in the underlying
securities. A stock index future obligates the seller to deliver (and the
purchaser to take), effectively, an amount of cash equal to a specific dollar
amount times the difference between the value of a specific stock index at the
close of the last trading day of the contract and the price at which the
agreement is made. No physical delivery of the underlying stocks in the index is
made. With respect to stock indices that are permitted investments, each Master
Portfolio intends to purchase and sell futures contracts on the stock index for
which it can obtain the best price with consideration also given to liquidity.
There can be no assurance that a liquid market will exist at the time when a
Master Portfolio seeks to close out a futures contract or a futures option
position. Lack of a liquid market may prevent liquidation of an unfavorable
position.
Interest-Rate Futures Contracts and Options on Interest-Rate Futures
Contracts The Bond Index Master Portfolio may invest in interest-rate futures
contracts and options on interest-rate futures contracts as a substitute for a
comparable market position in the underlying securities. The Master Portfolios
may also sell options on interest-rate futures contracts as part of closing
purchase transactions to terminate their options positions. No assurance can be
given that such closing transactions can be effected or the degree of
correlation between price movements in the options on interest rate futures and
price movements in the Master Portfolio's portfolio securities which are the
subject of the transaction.
Interest-Rate and Index Swaps The Bond Index Master Portfolio may enter
into interest-rate and index swaps in pursuit of its investment objectives.
Interest-rate swaps involve the exchange by the Master Portfolio with another
party of their respective commitments to pay or receive interest (for example,
an exchange of floating-rate payments on fixed-rate payments). Index swaps
involve the exchange by the Master Portfolio with another party of cash flows
based upon the performance of an index of securities or a portion of an index of
securities that usually include dividends or income. In each case, the exchange
commitments can involve payments to be made in the same currency or in different
currencies. The Master Portfolio will usually enter into swaps on a net basis.
In so doing, the two payment streams are netted out, with the Master Portfolio
receiving or paying, as the case may be, only the net amount of the two
payments. If the Master Portfolio
5
<PAGE>
enters into a swap, it will maintain a segregated account on a gross basis,
unless the contract provides for a segregated account on a net basis. If there
is a default by the other party to such a transaction, the Master Portfolio will
have contractual remedies pursuant to the agreements related to the transaction.
The use of interest-rate and index swaps is a highly specialized activity
which involves investment techniques and risks different from those associated
with ordinary portfolio security transactions. There is no limit, except as
provided below, on the amount of swap transactions that may be entered into by
the Master Portfolio. These transactions generally do not involve the delivery
of securities or other underlying assets or principal. Accordingly, the risk of
loss with respect to swaps generally is limited to the net amount of payments
that the Master Portfolio is contractually obligated to make. There is also a
risk of a default by the other party to a swap, in which case the Master
Portfolio may not receive net amount of payments that a Master Portfolio
contractually is entitled to receive.
Illiquid Securities.
--------------------
Each Master Portfolio may invest up to 15% of the value of its net assets
in securities as to which a liquid trading market does not exist, provided such
investments are consistent with its investment objective. Such securities may
include securities that are not readily marketable, such as privately issued
securities and other securities that are subject to legal or contractual
restrictions on resale, floating- and variable-rate demand obligations as to
which the Master Portfolio cannot exercise a demand feature on not more than
seven days' notice and as to which there is no secondary market and repurchase
agreements providing for settlement more than seven days after notice.
Investment Company Securities.
-----------------------------
Each Master Portfolio may invest in securities issued by open-end other
investment companies which principally invest in securities of the type in which
the Master Portfolio invests. Under the 1940 Act, a Master Portfolio's
investment in such securities currently is limited to, subject to certain
exceptions, (i) 3% of the total voting stock of any one investment company, (ii)
5% of the Master Portfolio's net assets with respect to any one investment
company and (iii) 10% of the Master Portfolio's net assets in the aggregate.
Investments in the securities of other investment companies generally will
involve duplication of advisory fees and certain other expenses. The Master
Portfolios may also purchase shares of exchange-listed closed-end funds.
Loans of Portfolio Securities.
------------------------------
Each Master Portfolio may lend securities from its portfolio to brokers,
dealers and financial institutions (but not individuals) if cash, U.S.
Government securities or other high quality debt obligations equal to at least
100% of the current market value of the securities loaned (including accrued
interest thereon) plus the interest payable to such Master Portfolio with
respect to the loan is maintained with the Master Portfolio. In determining
whether or not to lend a security to a particular broker, dealer or financial
institution, each Master Portfolio's investment adviser or such-adviser
considers all relevant facts and circumstances, including the size,
creditworthiness and reputation of the broker, dealer, or financial institution.
Any loans of portfolio securities are fully collateralized based on values that
are marked to market daily. The Master Portfolios do not enter into any
portfolio security lending arrangements having a duration longer than one year.
Any securities that a Master Portfolio receives as collateral do not become part
of its portfolio at the time of the loan and, in the event of a default by the
borrower, such Master Portfolio will, if permitted by law, dispose of such
collateral except for such part thereof that is a security in which the Master
Portfolio is permitted to invest. During the time securities are on loan, the
borrower will pay the Master Portfolio any accrued income on those securities,
and the Master Portfolio may invest the cash collateral and earn income or
receive an agreed-upon fee from a borrower that has delivered cash- equivalent
collateral. The Master Portfolios will not lend securities having a value that
exceeds one-third of the current value of their respective total assets. Loans
of securities by a Master Portfolio are subject to termination at such Master
Portfolio's or the borrower's option.
6
<PAGE>
Each Master Portfolio may pay reasonable administrative and custodial fees in
connection with a securities loan and may pay a negotiated portion of the
interest or fee earned with respect to the collateral to the borrower or the
placing broker. Borrowers and placing brokers are not permitted to be
affiliated, directly or indirectly, with the Master Portfolios, BGFA or
Stephens.
Securities of Non-U.S. Issuers.
------------------------------
The Master Portfolios may invest in certain securities of non-U.S. issuers
as discussed below.
Obligations of Foreign Governments, Banks and Corporations Each Master
Portfolio may invest in U.S. dollar-denominated short-term obligations issued or
guaranteed by one or more foreign governments or any of their political
subdivisions, agencies or instrumentalities that are determined by BGFA to be of
comparable quality to the other obligations in which such Master Portfolio may
invest. The Master Portfolios may also invest in debt obligations of
supranational entities. Supranational entities include international
organizations designated or supported by governmental entities to promote
economic reconstruction or development and international banking institutions
and related government agencies. Examples include the International Bank for
Reconstruction and Development (the World Bank), the European Coal and Steel
Community, the Asian Development Bank and the InterAmerican Development Bank.
The percentage of each Master Portfolio's assets invested in obligations of
foreign governments and supranational entities will vary depending on the
relative yields of such securities, the economic and financial markets of the
countries in which the investments are made and the interest rate climate of
such countries.
Each Master Portfolio may invest a portion of its total assets in high-
quality, short-term (one year or less) debt obligations of foreign branches of
U.S. banks or U.S. branches of foreign banks that are denominated in and pay
interest in U.S. dollars.
Short-Term Instruments and Temporary Investments.
------------------------------------------------
The Master Portfolios may invest in high-quality money market instruments
on an ongoing basis to provide liquidity, for temporary purposes when there is
an unexpected level of shareholder purchases or redemptions or when "defensive"
strategies are appropriate. The instruments in which the Master Portfolios may
invest include: (i) short-term obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities (including government-sponsored
enterprises); (ii) negotiable certificates of deposit ("CDs"), bankers'
acceptances, fixed time deposits and other obligations of domestic banks
(including foreign branches) that have more than $1 billion in total assets at
the time of investment and that are members of the Federal Reserve System or are
examined by the Comptroller of the Currency or whose deposits are insured by the
FDIC; (iii) commercial paper rated at the date of purchase "Prime-1" by Moody's
or "A-1+" or "A-1" by S&P, or, if unrated, of comparable quality as determined
by BGFA or Wells Fargo Bank; (iv) non-convertible corporate debt securities
(e.g., bonds and debentures) with remaining maturities at the date of purchase
of not more than one year that are rated at least "Aa" by Moody's or "AA" by
S&P; (v) repurchase agreements; and (vi) short-term, U.S. dollar-denominated
obligations of foreign banks (including U.S. branches) that, at the time of
investment have more than $10 billion, or the equivalent in other currencies, in
total assets and in the opinion of BGFA or Wells Fargo Bank are of comparable
quality to obligations of U.S. banks which may be purchased by the Master
Portfolio.
Bank Obligations Each Master Portfolio may invest in bank obligations,
including certificates of deposit, time deposits, bankers' acceptances and other
short-term obligations of domestic banks, foreign subsidiaries of domestic
banks, foreign branches of domestic banks, and domestic and foreign branches of
foreign banks, domestic savings and loan associations and other banking
institutions.
Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period of
time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate. Time
deposits which may be held by a Master Portfolio will not benefit from insurance
from the Bank Insurance Fund or the Savings Association Insurance Fund
administered by the Federal Deposit Insurance Corporation.
Bankers' acceptances are credit instruments evidencing the obligation of a
bank to pay a draft drawn on it by a customer. These instruments reflect the
obligation both of the bank and of the drawer to pay the face amount of the
instrument upon maturity. The other short-term obligations may include
uninsured, direct obligations, bearing fixed, floating- or variable-interest
rates.
Commercial Paper and Short-Term Corporate Debt Instruments Each Master
Portfolio may invest in commercial paper (including variable amount master
demand notes), which consists of short-term, unsecured promissory notes issued
by corporations to finance short-term credit needs. Commercial paper is usually
sold on a discount basis and has a maturity at the time of issuance not
exceeding nine months. Variable amount master demand notes are demand
obligations that permit the investment of fluctuating amounts at varying market
rates of interest pursuant to arrangements between the issuer and a commercial
bank acting as agent for
7
<PAGE>
the payee of such notes whereby both parties have the right to vary the amount
of the outstanding indebtedness on the notes. The investment adviser and/or sub-
adviser to each Master Portfolio monitors on an ongoing basis the ability of an
issuer of a demand instrument to pay principal and interest on demand.
Each Master Portfolio also may invest in non-convertible corporate debt
securities (e.g., bonds and debentures) with not more than one year remaining to
maturity at the date of settlement. A Master Portfolio will invest only in such
corporate bonds and debentures that are rated at the time of purchase at least
"Aa" by Moody's or "AA" by S&P. Subsequent to its purchase by the Master
Portfolio, an issue of securities may cease to be rated or its rating may be
reduced below the minimum rating required for purchase by the Master Portfolio.
The investment adviser and/or sub-adviser to each Master Portfolio will consider
such an event in determining whether the Master Portfolio should continue to
hold the obligation. To the extent the Master Portfolio continues to hold such
obligations, it may be subject to additional risk of default.
Repurchase Agreements Each Master Portfolio may engage in a repurchase
agreement with respect to any security in which it is authorized to invest,
although the underlying security may mature in more than thirteen months. The
Master Portfolio may enter into repurchase agreements wherein the seller of a
security to the Master Portfolio agrees to repurchase that security from the
Master Portfolio at a mutually agreed-upon time and price that involves the
acquisition by the Master Portfolio of an underlying debt instrument, subject to
the seller's obligation to repurchase, and the Master Portfolio's obligation to
resell, the instrument at a fixed price usually not more than one week after its
purchase. The Master Portfolio's custodian has custody of, and holds in a
segregated account, securities acquired as collateral by the Master Portfolio
under a repurchase agreement. Repurchase agreements are considered by the staff
of the SEC to be loans by the Master Portfolio. The Master Portfolio may enter
into repurchase agreements only with respect to securities of the type in which
it may invest, including government securities and mortgage-related securities,
regardless of their remaining maturities, and requires that additional
securities be deposited with the custodian if the value of the securities
purchased should decrease below resale price. BGFA monitors on an ongoing basis
the value of the collateral to assure that it always equals or exceeds the
repurchase price. Certain costs may be incurred by the Master Portfolio in
connection with the sale of the underlying securities if the seller does not
repurchase them in accordance with the repurchase agreement. In addition, if
bankruptcy proceedings are commenced with respect to the seller of the
securities, disposition of the securities by the Master Portfolio may be delayed
or limited. While it does not presently appear possible to eliminate all risks
from these transactions (particularly the possibility of a decline in the market
value of the underlying securities, as well as delay and costs to the Master
Portfolio in connection with insolvency proceedings), it is the policy of the
Master Portfolio to limit repurchase agreements to selected creditworthy
securities dealers or domestic banks or other recognized financial institutions.
The Master Portfolio considers on an ongoing basis the creditworthiness of the
institutions with which it enters
8
<PAGE>
into repurchase agreements. Repurchase agreements are considered to be loans by
a Master Portfolio under the 1940 Act.
U.S. Government Obligations The Master Portfolios may invest in various types
of U.S. Government obligations. U.S. Government obligations include securities
issued or guaranteed as to principal and interest by the U.S. Government, its
agencies or instrumentalities. Payment of principal and interest on U.S.
Government obligations (i) may be backed by the full faith and credit of the
United States (as with U.S. Treasury obligations and GNMA certificates) or (ii)
may be backed solely by the issuing or guaranteeing agency or instrumentality
itself (as with FNMA notes). In the latter case, the investor must look
principally to the agency or instrumentality issuing or guaranteeing the
obligation for ultimate repayment, which agency or instrumentality may be
privately owned. There can be no assurance that the U.S. Government would
provide financial support to its agencies or instrumentalities where it is not
obligated to do so. As a general matter, the value of debt instruments,
including U.S. Government obligations, declines when market interest rates
increase and rises when market interest rates decrease. Certain types of U.S.
Government obligations are subject to fluctuations in yield or value due to
their structure or contract terms.
ITEM 13. MANAGEMENT OF THE TRUST.
The following information supplements and should be read in conjunction
with the Part A section entitled "Management of the Master Portfolio." The
Trustees and Principal Officer of MIP, together with information as to their
principal business occupations during at least the last five years, are shown
below. The address of each, unless otherwise indicated, is 111 Center Street,
Little Rock, Arkansas 72201. Each Trustee who is deemed to be an "interested
person" of the MIP, as defined in the 1940 Act, is indicated by an asterisk.
<TABLE>
<CAPTION>
Principal Occupations
Name, Address and Age Position During Past 5 Years
--------------------- -------- ---------------------
<S> <C> <C>
Jack S. Euphrat, 76 Trustee Private Investor.
415 Walsh Road
Atherton, CA 94027
*R. Greg Feltus, 47 Trustee, Executive Vice President of
President Stephens; President of Stephens
and Chairman Insurance Services Inc.; Senior
Vice President of Stephens
Sports Management Inc.; and
President of Investors
Brokerage Insurance Inc.
W. Rodney Hughes, 72 Trustee Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Richard H. Blank, Jr., 42 Chief Operating Officer, Vice President of Stephens;
Secretary and Treasurer Director of Stephens Sports
Management Inc.; and Director of
Capo Inc.
</TABLE>
9
<PAGE>
Compensation Table
For the Fiscal Year Ended February 28, 1999
Total Compensation
Aggregate Compensation from Registrant
Name and Position from Registrant and Fund Complex
----------------- --------------- ----------------
Jack S. Euphrat $0 $5,000
Trustee
*R. Greg Feltus $0 $ 0
Trustee
Thomas S. Goho $0 $5,000
Trustee
W. Rodney Hughes $0 $4,500
Trustee
*J. Tucker Morse $0 $4,500
Trustee
Trustees of MIP are compensated annually by all the registrants in the fund
complex for their services as indicated above and also are reimbursed for all
out-of-pocket expenses relating to attendance at board meetings. MIP and
Barclays Global Investors Funds, Inc. ("BGIF"), formerly known as MasterWorks
Funds Inc., are considered to be members of the same fund complex as such term
is defined in Form N-1A under the 1940 Act. The Trustees are compensated by BGIF
and MIP for their services as Directors/Trustees to the company and Trust.
Currently, the Trustees do not receive any retirement benefits or deferred
compensation from MIP or BGIF.
As of the date of this SAI, the Trustees and Principal Officer of MIP as a
group beneficially owned less than 1% of the outstanding beneficial interest of
MIP.
ITEM 14. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.
As of May 31, 1999, the interestholders identified below were known by the
Trust to own 5% or more of the outstanding voting securities of the Master
Portfolios. Approximate percentages are indicated in the table below:
<TABLE>
<CAPTION>
Name and Address Percentage of
Name of Master Portfolio of Interestholder Master Portfolio
------------------------ ----------------- ----------------
<S> <C> <C>
S&P 500 Index Master S&P 500 Stock Fund 64.56%
Portfolio Barclays Global Investors Funds, Inc.
111 Center Street
Little Rock, Arkansas 72201
MassMutual Indexed Equity Fund 13.05%
1295 State Street
Springfield, Massachusetts 01111
U.S. Equity Index Master Portfolio 10.66%
Master Investment Portfolio
111 Center Street
Little Rock, Arkansas 72201
Bond Index Master Vantagepoint Core Bond Index Fund 70.24%
Portfolio 777 North Capital Street, NE, Suite 600
Washington, DC 20002
Bond Index Fund 26.76%
Barclays Global Investors Funds, Inc.
111 Center Street
Little Rock, Arkansas 72201
</TABLE>
For purposes of the 1940 Act, any person who owns directly or through one
or more controlled companies more than 25% of the voting securities of a company
is presumed to "control" such company. Accordingly, to the extent that a
shareholder identified in the foregoing table is identified as the beneficial
holder of more than 25% of a Master Portfolio, or is identified as the holder of
record of more than 25% of a Master Portfolio and has voting and/or investment
powers, it may be presumed to control such Master Portfolio.
ITEM 15. INVESTMENT ADVISORY AND OTHER SERVICES.
The following information supplements and should be read in conjunction
with Item 6 in Part A.
Investment Adviser. Barclays Global Fund Advisors ("BGFA") provides
investment advisory services to each Master Portfolio pursuant to separate
Investment Advisory Contracts (each, a "BGFA Advisory Contract") with MIP, dated
January 1, 1996. As to each Master Portfolio, the applicable BGFA Advisory
Contract is subject to annual approval by (i) MIP's Board of Trustees or (ii)
vote of a majority (as defined in the 1940 Act) of the outstanding voting
securities of such Master Portfolio, provided that in either event the
continuance also is approved by a majority of MIP's Board of Trustees who are
not "interested persons" (as defined in the 1940 Act)
10
<PAGE>
of MIP or BGFA, by vote cast in person at a meeting called for the purpose of
voting on such approval. As to each Master Portfolios, the applicable BGFA
Advisory Contract is terminable without penalty, on 60 days' written notice, by
either party. The applicable BGFA Advisory Contract will terminate
automatically, as to the relevant Master Portfolio, in the event of its
assignment (as defined in the 1940 Act).
Advisory Fees Paid. For the fiscal years ended February 28, 1997, February
28, 1998 and February 28, 1999, the Master Portfolios paid the following
advisory fees to BGFA, without waivers:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
February 28, 1997 February 28, 1998 February 28, 1999
Fees Paid Fees Paid Fees Paid
----------------- ----------------- -----------------
<S> <C> <C> <C>
Bond Index Master Portfolio $147,204 $147,755 $ 89,576
S&P 500 Index Master Portfolio $577,637 $939,051 $1,353,414
</TABLE>
Co-Administrators. Stephens and BGI are the Master Portfolio's co-
administrators. Stephens and BGI provide the Master Portfolios with
administrative services, including general supervision of the Master Portfolios'
non-investment operations, coordination of the other services provided to the
Master Portfolios, compilation of information for reports to the SEC and the
state securities commissions, preparation of proxy statements and shareholder
reports, and general supervision of data compilation in connection with
preparing periodic reports to the MIP's trustees and officers. Stephens also
furnishes office space and certain facilities to conduct the Master Portfolios'
business, and compensates the MIP's trustees, officers and employees who are
affiliated with Stephens. In addition, except as outlined below under "
Expenses," Stephens and BGI will be responsible for paying all expenses incurred
by the Master Portfolios other than the fees payable to BGFA. Stephens and BGI
are not entitled to compensation for providing administration services to a
Master Portfolio. BGI has delegated certain of its duties as co-administrator to
Investors Bank & Trust Company ("IBT"). IBT, as sub-administrator, is
compensated by BGI for performing certain administration services.
Prior to October 21, 1996, Stephens alone provided administration services
to MIP. Stephens was not entitled to compensation for providing administration
services to the Master Portfolios so long as Stephens received fees for
providing similar services to a feeder fund of another investment company
investing all of its assets in a Master Portfolio. The Master Portfolios did not
pay any administration fees to Stephens.
Placement Agent. Stephens is the placement agent for the Master Portfolios.
Stephens is a full service broker/dealer and investment advisory firm located at
111 Center Street, Little Rock, Arkansas 72201. Stephens and its predecessor
have been providing securities and investment services for more than 60 years,
including discretionary portfolio management services since 1983. Stephens
currently manages investment portfolios for pension and profit sharing plans,
individual investors, foundations, insurance companies and university
endowments. Stephens does not receive compensation for acting as placement
agent.
Custodian. IBT currently acts as the Master Portfolios' custodian. The
principal business address of IBT is 200 Clarendon Street, Boston, Massachusetts
02111. IBT is not entitled to receive compensation for its custodial services so
long as it is entitled to receive compensation for providing sub-administration
services to the Master Portfolios. Prior to October 21, 1996, Barclays Global
Investors, N.A. ("BGI") acted as the Master Portfolios' custodian. The principal
business address of BGI is 45 Fremont Street, San Francisco, California 94105.
BGI did not receive compensation for its custodial services.
Transfer and Dividend Disbursing Agent. IBT also acts as each Master
Portfolio's Transfer and Dividend Disbursing Agent (the "Transfer Agent"). IBT
is not entitled to receive compensation for providing such services to MIP so
long as it receives fees for providing similar services to the funds which
invest substantially all of their
11
<PAGE>
assets in the Master Portfolios. Prior to March 2, 1998, Wells Fargo Bank acted
as Transfer Agent to the Master Portfolios. To date, the Master Portfolios have
not paid any transfer and dividend disbursing agency fees.
Distribution Plan. MIP's Board of Trustees has adopted, on behalf of each
Master Portfolio, a "defensive" distribution plan under Section 12(b) of the
1940 Act and Rule 12b-1 thereunder (the "Plan"). The Plan was adopted by a
majority of MIP's Board of Trustees (including a majority of those Trustees who
are not "interested persons" as defined in the 1940 Act of MIP) on October 10,
1995. The Plan was intended as a precaution designed to address the possibility
that certain ongoing payments by Barclays to Wells Fargo Bank in connection with
the sale of WFNIA may be characterized as indirect payments by each Master
Portfolio to finance activities primarily intended to result in the sale of
interests in such Master Portfolio. The Plan provides that if any portion of a
Master Portfolio's advisory fees (up to 0.25% of the average daily net assets of
each Master Portfolio on an annual basis) were deemed to constitute an indirect
payment for activities that are primarily intended to result in the sale of
interests in a Master Portfolio such payment would be authorized pursuant to the
Plan. The Master Portfolios do not currently pay any amounts pursuant to the
Plan.
Expenses. Except for extraordinary expenses, brokerage and other expenses
connected with to the execution of portfolio transactions and certain other
expenses which are borne by the Master Portfolios, Stephens and BGI have agreed
to bear all costs of the Master Portfolios' and MIP's operations.
ITEM 16. BROKERAGE ALLOCATION AND OTHER PRACTICES.
General. BGFA assumes general supervision over placing orders on behalf of
each Master Portfolio for the purchase or sale of portfolio securities.
Allocation of brokerage transactions, including their frequency, is made in the
best judgment of BGFA and in a manner deemed fair and reasonable to
shareholders. In executing portfolio transactions and selecting brokers or
dealers, BGFA seeks to obtain the best overall terms available for each Master
Portfolio. In assessing the best overall terms available for any transaction,
BGFA considers factors deemed relevant, including the breadth of the market in
the security, the price of the security, the financial condition and execution
capability of the broker or dealer, and the reasonableness of the commission, if
any, both for the specific transaction and on a continuing basis. The primary
consideration is prompt execution of orders at the most favorable net price.
Certain of the brokers or dealers with whom the Master Portfolios may transact
business offer commission rebates to the Master Portfolios. BGFA considers such
rebates in assessing the best overall terms available for any transaction. The
overall reasonableness of brokerage commissions paid is evaluated by BGFA based
upon its knowledge of available information as to the general level of
commissions paid by other institutional investors for comparable services.
S&P 500 Index Master Portfolio. Brokers also are selected because of their
ability to handle special executions such as are involved in large block trades
or broad distributions, provided the primary consideration is met. Portfolio
turnover may vary from year to year, as well as within a year. High turnover
rates over 100% are likely to result in comparatively greater brokerage
expenses.
Bond Index Master Portfolio. Purchases and sales of portfolio securities
for the Bond Index Master Portfolio usually are principal transactions.
Portfolio securities ordinarily are purchased directly from the issuer or from
an underwriter or market maker. Usually no brokerage commissions are paid by the
Master Portfolio for such purchases and sales. The prices paid to the
underwriters of newly-issued securities usually include a concession paid by the
issuer to the underwriter, and purchases of securities from market makers may
include the spread between the bid and asked price.
Brokerage Commissions. For the fiscal years ended February 28, 1997,
February 28, 1998, and February 28, 1999, the Master Portfolios paid brokerage
commissions in the dollar amounts shown below. None of the brokerage commissions
were paid to affiliated brokers.
12
<PAGE>
Master Portfolio FYE 2/28/97 FYE 2/28/98 FYE 2/28/99
- ---------------- ----------- ----------- -----------
S&P 500 Index Master Portfolio $69,826 $ 112,100 $ 366,484
Bond Index Master Portfolio $ 0 $ 0 $ 0
Securities of Regular Broker/Dealers. On February 28, 1999, the Master
Portfolios owned securities of their "regular brokers or dealers" or their
parents, as defined in the 1940 Act, as follows:
Bond Index Master
- -----------------
Merrill Lynch $ 4,845,703
Lehman Bros. Holdings $ 524,357
S&P 500 Index Master
- --------------------
Merrill Lynch $ 9,327,888
J.P. Morgan $ 6,682,172
Lehman Bros. Holdings $ 2,116,979
Morgan Stanley $303,929,129
ITEM 17. CAPITAL STOCK AND OTHER SECURITIES.
Pursuant to MIP's Declaration of Trust, the Trustees are authorized to
issue shares of beneficial interests in each Master Portfolio. Investors in a
Master Portfolios are entitled to participate pro rata in distributions of
taxable income, loss, gain and credit of such Master Portfolios. Upon
liquidation or dissolution of a Master Portfolios, investors are entitled to
share pro rata in such Master Portfolios' net assets available for distribution
to its investors. Investments in a Master Portfolio have no preference, pre-
exemptive, conversion or similar rights and are fully paid and non-assessable,
except as set forth below. Investments in the Master Portfolios may not be
transferred. No certificates are issued.
Each investor is entitled to vote, with respect to matters affecting each
of MIP's portfolios, in proportion to the amount of its investment in the MIP.
Investors in the MIP do not have cumulative voting rights, and investors holding
more than 50% of the aggregate beneficial interest in MIP may elect all of the
Trustees of MIP if they choose to do so and in such event the other investors in
MIP would not be able to elect any Trustee. MIP is not required to hold annual
meetings of investors but MIP may hold special meetings of investors when in the
judgment of MIP's Trustees it is necessary or desirable to submit matters for an
investor vote.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted under the provisions of the 1940 Act or applicable state law or
otherwise to the holders of the outstanding voting securities of an investment
company, such as MIP, will not be deemed to have been effectively acted upon
unless approved by the holders of a majority of the outstanding shares of each
Master Portfolio affected by such matter. Rule 18f-2 further provides that a
Master Portfolio shall be deemed to be affected by a matter unless it is clear
that the interests of such Master Portfolio in the matter are identical or that
the matter does not affect any interest of such Master Portfolio. However, the
Rule exempts the selection of independent accountants and the election of
Trustees from the separate voting requirements of the Rule.
ITEM 18. PURCHASE, REDEMPTION AND PRICING OF INTERESTS.
The following information supplements and should be read in conjunction
with Item 7 in Part A.
Purchase of Securities. Beneficial interests in each Master Portfolio are
issued solely in private placement transactions which do not involve any "public
offering" within the meaning of Section 4(2) of the Securities Act of 1933, as
amended (the "1933 Act"). Investments in the Master Portfolios may only be made
by investment companies or certain other entities which are "accredited
investors" within the meaning of Regulation D under the
13
<PAGE>
1933 Act. This registration statement does not constitute an offer to sell, or
the solicitation of an offer to buy, any "security" within the meaning of the
1933 Act.
Payment for shares of a Master Portfolio may, at the discretion of the
adviser, be made in the form of securities that are permissible investments for
the Master Portfolio and must meet the investment objective, policies and
limitations of the Master Portfolio as described in the Part A. In connection
with an in-kind securities payment, a Master Portfolio may require, among other
things, that the securities (i) be valued on the day of purchase in accordance
with the pricing methods used by the Master Portfolio; (ii) are accompanied by
satisfactory assurance that the Master Portfolio will have good and marketable
title to such securities received by it; (iii) are not subject to any
restrictions upon resale by the Master Portfolio; (iv) be in proper form for
transfer to the Master Portfolio; and (v) are accompanied by adequate
information concerning the basis and other tax matters relating to the
securities. All dividends, interest, subscription or other rights pertaining to
such securities shall become the property of the Master Portfolio engaged in the
in-kind purchase transaction and must be delivered to such Master Portfolio by
the investor upon receipt from the issuer. Securities acquired through an in-
kind purchase will be acquired for investment and not for immediate resale.
Shares purchased in exchange for securities generally cannot be redeemed until
the transfer has settled.
Suspension of Redemptions. The right of redemption of Master Portfolio
shares may be suspended or the date of payment postponed (a) during any period
when the New York Stock Exchange is closed (other than customary weekend and
holiday closings), (b) when trading in the markets the Master Portfolios
ordinarily utilizes is restricted, or when an emergency exists as determined by
the Securities and Exchange Commission so that disposal of the Master
Portfolios' investments or determination of its net asset value is not
reasonably practicable, or (c) for such other periods as the Securities and
Exchange Commission by order may permit to protect the Master Portfolios'
shareholders.
Pricing of Securities.
S&P 500 Index Master Portfolio. The securities of the S&P 500 Index Master
Portfolio, including covered call options written by the Master Portfolios, are
valued as discussed below. Domestic securities are valued at the last sale price
on the domestic securities or commodities exchange or national securities market
on which such securities primarily are traded. Securities not listed on a
domestic exchange or national securities market, or securities in which there
were no transactions, are valued at the most recent bid prices. Portfolio
securities which are traded primarily on foreign securities or commodities
exchanges generally are valued at the preceding closing values of such
securities on their respective exchanges, except that when an occurrence
subsequent to the time a value was so established is likely to have changed such
value, then the fair value of those securities is determined by BGFA in
accordance with guidelines approved by MIP's Board of Trustees. Short-term
investments are carried at amortized cost, which approximates value. Any
securities or other assets for which recent market quotations are not readily
available are valued at fair value as determined in good faith by BGFA in
accordance with such guidelines.
Restricted securities, as well as securities or other assets for which
market quotations are not readily available, or are not valued by a pricing
service approved by MIP's Board of Trustees, are valued at fair value as
determined in good faith by BGFA in accordance with guidelines approved by MIP's
Board of Trustees. BFGA and MIP's Board of Trustees periodically review the
method of valuation. In making its good faith valuation of restricted
securities, BGFA generally takes the following factors into consideration:
restricted securities which are, or are convertible into, securities of the same
class of securities for which a public market exists usually will be valued at
market value less the same percentage discount at which purchased. This discount
is revised periodically if it is believed that the discount no longer reflects
the value of the restricted securities. Restricted securities not of the same
class as securities for which a public market exists usually are valued
initially at cost. Any subsequent adjustment from cost is based upon
considerations deemed relevant by MIP's Board of Trustees.
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<PAGE>
Bond Index Master Portfolio. The investments of the Bond Index Master
Portfolio are valued each business day using available market quotations or at
fair value as determined by one or more independent pricing services
(collectively, the "Services") approved by MIP's Board of Trustees. Services may
use available market quotations, employ electronic data processing techniques
and/or a matrix system to determine valuations. Each Service's procedures are
reviewed by MIP's officers under the general supervision of MIP's Board of
Trustees. Expenses and fees, including advisory fees, are accrued daily and are
taken into account for the purpose of determining the net asset value of a
Master Portfolio's shares. Expenses and fees, including advisory fees, are
accrued daily and are taken into account for the purpose of determining the net
asset value of a Master Portfolio's shares.
New York Stock Exchange Closings. The holidays on which the New York Stock
Exchange is closed currently are: New Year's Day, Martin Luther King, Jr.'s
Birthday, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.
ITEM 19. TAXATION OF THE TRUST.
MIP is organized as a business trust under Delaware law. Under MIP's
current classification for federal income tax purposes, it is intended that each
Master Portfolio will be treated as a partnership for such purposes and,
therefore, such Master Portfolio will not be subject to any federal income tax.
However, each investor in a Master Portfolio will be taxable on its share (as
determined in accordance with the governing instruments of MIP) of such Master
Portfolio's ordinary income and capital gain in determining its federal income
tax liability. The determination of such share will be made in accordance with
the Internal Revenue Code of 1986, as amended (the "Code"), and regulations
promulgated thereunder.
MIP's taxable year-end is the last day of December. Although MIP will not
be subject to Federal income tax, it will file appropriate Federal income tax
returns.
Each Master Portfolio's assets, income and distributions will be managed in
such a way that an investor in such Master Portfolio may satisfy the
requirements of Subchapter M of the Code, by investing substantially all of its
investable assets in the Master Portfolio. Investors are advised to consult
their own tax advisors as to the tax consequences of an investment in a Master
Portfolio.
ITEM 20. UNDERWRITERS.
The exclusive placement agent for MIP is Stephens, which receives no
compensation for serving in this capacity. Registered broker/dealers and
investment companies, insurance company separate accounts, common and commingled
trust funds, group trust and similar organizations and entities which constitute
accredited investors, as defined in the regulations adopted under the 1933 Act,
may continuously invest in a Master Portfolio of MIP.
ITEM 21. CALCULATIONS OF PERFORMANCE DATA.
Not applicable.
ITEM 22. FINANCIAL STATEMENTS.
KPMG LLP provides audit services, tax return preparation and assistance and
consultation in connection with the review of certain SEC filings. KPMG LLP's
address is Three Embarcadero Center, San Francisco, California 94111. Such
auditors expressed an unqualified opinion on the financial statements of the
MIP.
The audited financial statements, including the portfolio of investments,
and independent auditors' report for the Master Portfolios for the fiscal year
ended February 28, 1999 are hereby incorporated by reference to the
15
<PAGE>
MasterWorks Funds Inc. (SEC File Nos. 33-54126; 811-7322) Annual Report, as
filed with the SEC on May 1, 1999. The audited financial statements for the
Master Portfolios are attached to all Part Bs delivered to interestholders or
prospective interestholders.
16
<PAGE>
APPENDIX
Description of certain ratings assigned by Standard & Poor's Corporation
("S&P"), Moody's Investors Service, Inc. ("Moody's"), Fitch Investors Service,
Inc. ("Fitch"), Duff & Phelps, Inc. ("Duff") and IBCA Inc. and IBCA Limited
("IBCA"):
S&P
Bond Ratings
"AAA"
Bonds rated AAA have the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
"AA"
Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
"A"
Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than obligations in higher rated
categories.
"BBB"
Bonds rated "BBB" are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.
S&P's letter ratings may be modified by the addition of a plus (+) or minus
(-) sign designation, which is used to show relative standing within the major
rating categories, except in the AAA (Prime Grade) category.
Commercial Paper Rating
The designation A-1 by S&P indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus sign (+)
designation. Capacity for timely payment on issues with an A-2 designation is
strong. However, the relative degree of safety is not as high as for issues
designated A-1.
Moody's
Bond Ratings
"Aaa"
Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally
A-1
<PAGE>
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
"Aa"
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what generally are known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
"A"
Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa"
Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Moody's applies the numerical modifiers "1", "2" and "3" to show relative
standing within the major rating categories, except in the "Aaa" category. The
modifier "1" indicates a ranking for the security in the higher end of a rating
category; the modifier "2" indicates a mid-range ranking; and the modifier "3"
indicates a ranking in the lower end of a rating category.
Commercial Paper Rating
The rating ("P-1") Prime-1 is the highest commercial paper rating assigned
by Moody's. Issuers of "P-1" paper must have a superior capacity for repayment
of short-term promissory obligations, and ordinarily will be evidenced by
leading market positions in well established industries, high rates of return on
funds employed, conservative capitalization structures with moderate reliance on
debt and ample asset protection, broad margins in earnings coverage of fixed
financial charges and high internal cash generation, and well established access
to a range of financial markets and assured sources of alternate liquidity.
Issuers (or relating supporting institutions) rated ("P-2") Prime-2 have a
strong capacity for repayment of short-term promissory obligations. This
ordinarily will be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.
Fitch
Bond Ratings
The ratings represent Fitch's assessment of the issuer's ability to meet
the obligations of a specific debt issue or class of debt. The ratings take into
consideration special features of the issue, its relationship to other
obligations of the issuer, the current financial condition and operative
performance of the issuer and of any
A-2
<PAGE>
guarantor, as well as the political and economic environment that might affect
the issuer's future financial strength and credit quality.
"AAA"
Bonds rated "AAA" are considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events.
"AA"
Bonds rated "AA" are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated "AAA". Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short- term debt of these issuers is generally
rated "F-1+".
"A"
Bonds rated "A" are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is considered
to be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
"BBB"
Bonds rated "BBB" are considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these bonds
and, therefore, impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
Plus (+) and minus (-) signs are used with a rating symbol to indicate the
relative position of a credit within the rating category.
Short-Term Ratings
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
Although the credit analysis is similar to Fitch's bond rating analysis,
the short-term rating places greater emphasis than bond ratings on the existence
of liquidity necessary to meet the issuer's obligations in a timely manner.
"F-1+"
Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
"F-1"
Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
A-3
<PAGE>
"F-2"
Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payments, but the margin of safety is not as great as
the F-1+ and F-1 categories.
Duff
Bond Ratings
"AAA"
Bonds rated AAA are considered highest credit quality. The risk factors are
negligible, being only slightly more than for risk-free U.S. Treasury debt.
"AA"
Bonds rated AA are considered high credit quality. Protection factors are
strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
"A"
Bonds rated A have protection factors which are average but adequate.
However, risk factors are more variable and greater in periods of economic
stress.
"BBB"
Bonds rated BBB are considered to have below average protection factors but
still considered sufficient for prudent investment. Considerable variability in
risk during economic cycles.
Plus (+) and minus (-) signs are used with a rating symbol (except AAA) to
indicate the relative position of a credit within the rating category.
Commercial Paper Rating
The rating "Duff-1" is the highest commercial paper rating assigned by
Duff. Paper rated Duff-1 is regarded as having very high certainty of timely
payment with excellent liquidity factors which are supported by ample asset
protection. Risk factors are minor. Paper rated "Duff-2" is regarded as having
good certainty of timely payment, good access to capital markets and sound
liquidity factors and company fundamentals. Risk factors are small.
IBCA
Bond and Long-Term Ratings
Obligations rated AAA by IBCA have the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is substantial,
such that adverse changes in business, economic or financial conditions are
unlikely to increase investment risk significantly. Obligations for which there
is a very low expectation of investment risk are rated AA by IBCA. Capacity for
timely repayment of principal and interest is substantial. Adverse changes in
business, economic or financial conditions may increase investment risk albeit
not very significantly.
A-4
<PAGE>
Commercial Paper and Short-Term Ratings
The designation A1 by IBCA indicates that the obligation is supported by a
very strong capacity for timely repayment. Those obligations rated A1+ are
supported by the highest capacity for timely repayment. Obligations rated A2 are
supported by a strong capacity for timely repayment, although such capacity may
be susceptible to adverse changes in business, economic or financial conditions.
International and U.S. Bank Ratings
An IBCA bank rating represents IBCA's current assessment of the strength of
the bank and whether such bank would receive support should it experience
difficulties. In its assessment of a bank, IBCA uses a dual rating system
comprised of Legal Ratings and Individual Ratings. In addition, IBCA assigns
banks Long- and Short-Term Ratings as used in the corporate ratings discussed
above. Legal Ratings, which range in gradation from 1 through 5, address the
question of whether the bank would receive support provided by central banks or
shareholders if it experienced difficulties, and such ratings are considered by
IBCA to be a prime factor in its assessment of credit risk. Individual Ratings,
which range in gradations from A through E, represent IBCA's assessment of a
bank's economic merits and address the question of how the bank would be viewed
if it were entirely independent and could not rely on support from state
authorities or its owners.
A-5
<PAGE>
MASTER INVESTMENT PORTFOLIO
LIFEPATH(TM) MASTER PORTFOLIOS
LIFEPATH 2000 MASTER PORTFOLIO
LIFEPATH 2010 MASTER PORTFOLIO
LIFEPATH 2020 MASTER PORTFOLIO
LIFEPATH 2030 MASTER PORTFOLIO
LIFEPATH 2040 MASTER PORTFOLIO
PART B -- STATEMENT OF ADDITIONAL INFORMATION
July 1, 1999
ITEM 10. COVER PAGE AND TABLE OF CONTENTS.
Master Investment Portfolio ("MIP," or the "Trust") is an open-end,
management investment company. MIP is a "series fund," which is a mutual fund
divided into separate portfolios. This Part B is not a prospectus and should be
read in conjunction with MIP's Part A, also dated July 1, 1999. All terms used
in this Part B that are defined in Part A have the meanings assigned in Part A.
A copy of Part A may be obtained without charge by writing Master Investment
Portfolio, c/o Investors Bank & Trust Co., -- Transfer Agent, P.O. Box 9130,
Mail Code MFD23, Boston, MA 02117-9130, or by calling 1-800-204-3956. MIP's
Registration Statement may be examined at the office of the Securities and
Exchange Commission ("SEC") in Washington, D.C.
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
Trust History................................................................................. 1
Description of the Master Portfolios and Their Investments and Risks.......................... 2
Management of the Trust....................................................................... 13
Control Persons and Principal Holders of Securities........................................... 15
Investment Advisory and Other Services........................................................ 15
Brokerage Allocation and Other Practices...................................................... 17
Capital Stock and Other Securities............................................................ 18
Purchase, Redemption and Pricing of Interests................................................. 19
Taxation of the Trust......................................................................... 20
Underwriters.................................................................................. 21
Calculations of Performance Data.............................................................. 21
Financial Statements.......................................................................... 21
Appendix...................................................................................... A-1
</TABLE>
ITEM 11. TRUST HISTORY.
MIP is an open-end, management investment company, organized on October 21,
1993 as a business trust under the laws of the State of Delaware. MIP is a
"series fund," which is a mutual fund divided into separate portfolios. By this
offering document, MIP is offering five of its diversified portfolios -the
LifePath 2000, LifePath 2010, LifePath 2020, LifePath 2030 and LifePath 2040
Master Portfolios (each, a "Master Portfolio" and collectively, the "Master
Portfolios"). The Master Portfolios are treated as a separate entities for
certain matters under the Investment Company Act of 1940, as amended (the "1940
Act"), and for other purposes and an interestholder of a Master Portfolio is not
deemed to be an interestholder of any other portfolio of MIP. As described
below, for certain matters MIP interestholders vote together as a group; as to
others they vote separately by portfolio. MIP currently offers seven other
portfolios pursuant to other offering documents. From time to time, other
portfolios may be established and sold pursuant to other offering documents.
1
<PAGE>
Beneficial interests in the Master Portfolios are issued solely in private
placement transactions which do not involve any "public offering" within the
meaning of Regulation D under the Securities Act of 1933, as amended (the "1933
Act"). Investments in the Master Portfolios may be made only by investment
companies or certain other entities which are "accredited investors" within the
meaning of Regulation D under the 1933 Act. Investment companies that hold
shares of beneficial interest ("interests") in the Master Portfolios are
sometimes referred to herein as "feeder funds."
ITEM 12. DESCRIPTION OF THE MASTER PORTFOLIOS AND THEIR INVESTMENTS AND RISKS.
The following information supplements and should be read in conjunction
with Item 4 in Part A.
Investment Objectives. Each Master Portfolio's investment objective is set
forth in Item 4, "Investment Objectives, Principal Strategies and Related Risks
- --Investment Objectives," of Part A. The Master Portfolios' investment
objectives can be changed by MIP's Board of Trustees without interestholder
approval. The objectives and policies of the Master Portfolios determines the
types of portfolio securities in which they invest, the degree of risk to which
they are subject and, ultimately, their performance. There can be no assurance
that the investment objectives of the Master Portfolios will be achieved.
Investment Restrictions
Fundamental Investment Restrictions. The Master Portfolios have adopted the
following investment restrictions as fundamental policies. These restrictions
cannot be changed, as to a Master Portfolio, without approval by the holders of
a majority (as defined in the 1940 Act) of the Master Portfolio's outstanding
voting securities. The Master Portfolios may not:
(1) Invest more than 5% of their assets in the obligations of any
single issuer, except that up to 25% of the value of their total assets may be
invested, and securities issued or guaranteed by the U.S. Government, or its
agencies or instrumentalities may be purchased, without regard to any such
limitation.
(2) Hold more than 10% of the outstanding voting securities of any
single issuer. This Investment Restriction applies only with respect to 75% of
their total assets.
(3) Invest in commodities, except that each Master Portfolio may
purchase and sell (i.e., write) options, forward contracts, futures contracts,
including those relating to indices, and options on futures contracts or
indices.
(4) Purchase, hold or deal in real estate, or oil, gas or other
mineral leases or exploration or development programs, but each Master Portfolio
may purchase and sell securities that are secured by real estate or issued by
companies that invest or deal in real estate.
(5) Borrow money, except to the extent permitted under the 1940 Act.
For purposes of this investment restriction, a Master Portfolio's entry into
options, forward contracts, futures contracts, including those relating to
indices, and options on futures contracts or indices shall not constitute
borrowing to the extent certain segregated accounts are established and
maintained by the Master Portfolios as described in Part A.
(6) Make loans to others, except through the purchase of debt
obligations and the entry into repurchase agreements. However, each Master
Portfolio may lend its portfolio securities in an amount not to exceed one-third
of the value of its total assets. Any loans of portfolio securities will be made
according to guidelines established by the Securities and Exchange Commission
and MIP's Board of Trustees.
2
<PAGE>
(7) Act as an underwriter of securities of other issuers, except to
the extent the Master Portfolios may be deemed an underwriter under the
Securities Act of 1933, as amended, by virtue of disposing of portfolio
securities.
(8) Invest 25% or more of their total assets, respectively, in the
securities of issuers in any particular industry or group of closely-related
industries, except that, in the case of each Master Portfolio, there shall be no
limitation on the purchase of obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
(9) Issue any senior security (as such term is defined in Section
18(f) of the 1940 Act), except to the extent the activities permitted in
Investment Restriction Nos. 3 and 5 may be deemed to give rise to a senior
security.
(10) Purchase securities on margin, but each Master Portfolio may make
margin deposits in connection with transactions in options, forward contracts,
futures contracts, including those related to indexes, and options on futures
contracts or indexes.
Non-Fundamental Investment Restrictions. The Master Portfolios have adopted the
following investment restrictions as non-fundamental policies. These
restrictions may be changed without shareholder approval by vote of a majority
of the Trustees of MIP, at any time. The Master Portfolios are subject to the
following investment restrictions, all of which are non-fundamental policies.
(1) The Master Portfolios may invest in shares of other open-end
management investment companies, subject to the limitations of Section 12(d)(1)
of the 1940 Act. Under the 1940 Act, a Master Portfolio's investment in such
securities currently is limited, subject to certain exceptions, to (i) 3% of the
total voting stock of any one investment company, (ii) 5% of such Master
Portfolio's net assets with respect to any one investment company, and (iii) 10%
of such Master Portfolio's net assets in the aggregate. Other investment
companies in which the Master Portfolios invest can be expected to charge fees
for operating expenses, such as investment advisory and administration fees,
that would be in addition to those charged by the Master Portfolio.
(2) Each Master Portfolio may not invest more than 15% of its net
assets in illiquid securities. For this purpose, illiquid securities include,
among others, (a) securities that are illiquid by virtue of the absence of a
readily available market or legal or contractual restrictions on resale, (b)
fixed time deposits that are subject to withdrawal penalties and that have
maturities of more than seven days, and (c) repurchase agreements not terminable
within seven days.
(3) Each Master Portfolio may lend securities from its portfolio to
brokers, dealers and financial institutions, in amounts not to exceed (in the
aggregate) one-third of a Master Portfolio's total assets. Any such loans of
portfolio securities will be fully collateralized based on values that are
marked to market daily. The Master Portfolios will not enter into any portfolio
security lending arrangement having a duration of longer than one year.
Portfolio Securities
Short-Term Instruments and Temporary Investments.
------------------------------------------------
The Master Portfolios may invest in high-quality money market instruments
on an ongoing basis to provide liquidity, for temporary purposes when there is
an unexpected level of shareholder purchases or redemptions or when "defensive"
strategies are appropriate. The instruments in which the Master Portfolios may
invest include: (i) short-term obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities (including government-sponsored
enterprises); (ii) negotiable certificates of deposit ("CDs"),
3
<PAGE>
bankers' acceptances, fixed time deposits and other obligations of domestic
banks (including foreign branches) that have more than $1 billion in total
assets at the time of investment and that are members of the Federal Reserve
System or are examined by the Comptroller of the Currency or whose deposits are
insured by the FDIC; (iii) commercial paper rated at the date of purchase
"Prime-1" by Moody's or "A-1+" or "A-1" by S&P, or, if unrated, of comparable
quality as determined by BGFA or Wells Fargo Bank; (iv) non-convertible
corporate debt securities (e.g., bonds and debentures) with remaining maturities
at the date of purchase of not more than one year that are rated at least "Aa"
by Moody's or "AA" by S&P; (v) repurchase agreements; and (vi) short-term, U.S.
dollar-denominated obligations of foreign banks (including U.S. branches) that,
at the time of investment have more than $10 billion, or the equivalent in other
currencies, in total assets and in the opinion of BGFA or Wells Fargo Bank are
of comparable quality to obligations of U.S. banks which may be purchased by the
Master Portfolio.
Bank Obligations. Each Master Portfolio may invest in bank obligations,
including certificates of deposit, time deposits, bankers' acceptances and other
short-term obligations of domestic banks, foreign subsidiaries of domestic
banks, foreign branches of domestic banks, and domestic and foreign branches of
foreign banks, domestic savings and loan associations and other banking
institutions.
Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period of
time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate. Time
deposits which may be held by a Master Portfolio will not benefit from insurance
from the Bank Insurance Fund or the Savings Association Insurance Fund
administered by the Federal Deposit Insurance Corporation.
Bankers' acceptances are credit instruments evidencing the obligation of a
bank to pay a draft drawn on it by a customer. These instruments reflect the
obligation both of the bank and of the drawer to pay the face amount of the
instrument upon maturity. The other short-term obligations may include
uninsured, direct obligations, bearing fixed, floating- or variable-interest
rates.
Domestic commercial banks organized under federal law are supervised and
examined by the Comptroller of the Currency and are required to be members of
the Federal Reserve System and to have their deposits insured by the Federal
Deposit Insurance Corporation (the "FDIC"). Domestic banks organized under state
law are supervised and examined by state banking authorities but are members of
the Federal Reserve System only if they elect to join. In addition, state banks
whose certificates of deposit ("CDs") may be purchased by each Master Portfolio
are insured by the FDIC (although such insurance may not be of material benefit
to the Master Portfolio, depending on the principal amount of the CDs of each
bank held by the Master Portfolio) and are subject to federal examination and to
a substantial body of federal law and regulation. As a result of federal or
state laws and regulations, domestic branches of domestic banks whose CDs may be
purchased by each Master Portfolio generally are required, among other things,
to maintain specified levels of reserves, are limited in the amounts which they
can loan to a single borrower and are subject to other regulations designed to
promote financial soundness. However, not all of such laws and regulations apply
to the foreign branches of domestic banks.
Obligations of foreign branches of domestic banks, foreign subsidiaries of
domestic banks and domestic and foreign branches of foreign banks, such as CDs
and time deposits ("TDs"), may be general obligations of the parent banks in
addition to the issuing branch, or may be limited by the terms of a specific
obligation and/or governmental regulation. Such obligations are subject to
different risks than are those of domestic banks. These risks include foreign
economic and political developments, foreign governmental restrictions that may
adversely affect payment of principal and interest on the obligations, foreign
exchange controls and foreign withholding and other taxes on interest income.
These foreign branches and subsidiaries are not necessarily subject to the same
or similar regulatory requirements that apply to domestic banks, such as
mandatory reserve requirements, loan limitations, and accounting, auditing and
financial record keeping requirements. In addition, less information
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may be publicly available about a foreign branch of a domestic bank or about a
foreign bank than about a domestic bank.
Obligations of U.S. branches of foreign banks may be general obligations of
the parent bank in addition to the issuing branch, or may be limited by the
terms of a specific obligation or by federal or state regulation as well as
governmental action in the country in which the foreign bank has its head
office. A domestic branch of a foreign bank with assets in excess of $1 billion
may be subject to reserve requirements imposed by the Federal Reserve System or
by the state in which the branch is located if the branch is licensed in that
state.
In addition, federal branches licensed by the Comptroller of the Currency
and branches licensed by certain states ("State Branches") may be required to:
(1) pledge to the appropriate regulatory authority, by depositing assets with a
designated bank within the relevant state, a certain percentage of their assets
as fixed from time to time by such regulatory authority; and (2) maintain assets
within the relevant state in an amount equal to a specified percentage of the
aggregate amount of liabilities of the foreign bank payable at or through all of
its agencies or branches within the state. The deposits of federal and State
Branches generally must be insured by the FDIC if such branches take deposits of
less than $100,000.
In view of the foregoing factors associated with the purchase of CDs and
TDs issued by foreign branches of domestic banks, by foreign subsidiaries of
domestic banks, by foreign branches of foreign banks or by domestic branches of
foreign banks, BGFA carefully evaluates such investments on a case-by-case
basis.
Each Master Portfolio may purchase CDs issued by banks, savings and loan
associations and similar thrift institutions with less than $1 billion in
assets, provided that such institutions are members of the FDIC, and further
provided such Master Portfolio purchases any such CD in a principal amount of
not more than $100,000, which amount would be fully insured by the Bank
Insurance Fund or the Savings Association Insurance Fund administered by the
FDIC. Interest payments on such a CD are not insured by the FDIC. No Master
Portfolio will own more than one such CD per such issuer.
Commercial Paper and Short-Term Corporate Debt Instruments. Each Master
Portfolio may invest in commercial paper (including variable amount master
demand notes), which consists of short-term, unsecured promissory notes issued
by corporations to finance short-term credit needs. Commercial paper is usually
sold on a discount basis and has a maturity at the time of issuance not
exceeding nine months. Variable amount master demand notes are demand
obligations that permit the investment of fluctuating amounts at varying market
rates of interest pursuant to arrangements between the issuer and a commercial
bank acting as agent for the payee of such notes whereby both parties have the
right to vary the amount of the outstanding indebtedness on the notes. The
investment adviser and/or sub-adviser to each Master Portfolio monitors on an
ongoing basis the ability of an issuer of a demand instrument to pay principal
and interest on demand.
Each Master Portfolio also may invest in non-convertible corporate debt
securities (e.g., bonds and debentures) with not more than one year remaining to
maturity at the date of settlement. A Master Portfolio will invest only in such
corporate bonds and debentures that are rated at the time of purchase at least
"Aa" by Moody's or "AA" by S&P. Subsequent to its purchase by the Master
Portfolio, an issue of securities may cease to be rated or its rating may be
reduced below the minimum rating required for purchase by the Master Portfolio.
The investment adviser and/or sub-adviser to each Master Portfolio will consider
such an event in determining whether the Master Portfolio should continue to
hold the obligation. To the extent the Master Portfolio continues to hold such
obligations, it may be subject to additional risk of default.
Repurchase Agreements. Each Master Portfolio may enter into repurchase
agreements wherein the seller of a security to a Master Portfolio agrees to
repurchase that security from the Master Portfolio at a mutually-agreed upon
time and price. The period of maturity is usually quite short, often overnight
or a few days, although it may extend over a number of months. A Master
Portfolio may enter into repurchase agreements only with respect to securities
that could otherwise be purchased by the Master Portfolio, and all repurchase
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transactions must be collateralized. A Master Portfolio may incur a loss on a
repurchase transaction if the seller defaults and the value of the underlying
collateral declines or is otherwise limited or if receipt of the security or
collateral is delayed. The Master Portfolios may participate in pooled
repurchase agreement transactions with other funds advised by BGFA.
Each Master Portfolio may engage in a repurchase agreement with respect to
any security in which it is authorized to invest, although the underlying
security may mature in more than thirteen months. The Master Portfolio may enter
into repurchase agreements wherein the seller of a security to the Master
Portfolio agrees to repurchase that security from the Master Portfolio at a
mutually agreed-upon time and price that involves the acquisition by the Master
Portfolio of an underlying debt instrument, subject to the seller's obligation
to repurchase, and the Master Portfolio's obligation to resell, the instrument
at a fixed price usually not more than one week after its purchase. The Master
Portfolio's custodian has custody of, and holds in a segregated account,
securities acquired as collateral by the Master Portfolio under a repurchase
agreement. Repurchase agreements are considered by the staff of the SEC to be
loans by the Master Portfolio. The Master Portfolio may enter into repurchase
agreements only with respect to securities of the type in which it may invest,
including government securities and mortgage-related securities, regardless of
their remaining maturities, and requires that additional securities be deposited
with the custodian if the value of the securities purchased should decrease
below resale price. BGFA monitors on an ongoing basis the value of the
collateral to assure that it always equals or exceeds the repurchase price.
Certain costs may be incurred by the Master Portfolio in connection with the
sale of the underlying securities if the seller does not repurchase them in
accordance with the repurchase agreement. In addition, if bankruptcy proceedings
are commenced with respect to the seller of the securities, disposition of the
securities by the Master Portfolio may be delayed or limited. While it does not
presently appear possible to eliminate all risks from these transactions
(particularly the possibility of a decline in the market value of the underlying
securities, as well as delay and costs to the Master Portfolio in connection
with insolvency proceedings), it is the policy of the Master Portfolio to limit
repurchase agreements to selected creditworthy securities dealers or domestic
banks or other recognized financial institutions. The Master Portfolio considers
on an ongoing basis the creditworthiness of the institutions with which it
enters into repurchase agreements. Repurchase agreements are considered to be
loans by a Master Portfolio under the 1940 Act.
Floating- and Variable-Rate Obligations.
---------------------------------------
Each Master Portfolio may purchase floating- and variable-rate obligations
as described in the Prospectus. The Master Portfolio may purchase floating- and
variable-rate demand notes and bonds, which are obligations ordinarily having
stated maturities in excess of thirteen months, but which permit the holder to
demand payment of principal at any time, or at specified intervals not exceeding
thirteen months. Variable rate demand notes include master demand notes that are
obligations that permit the Master Portfolio to invest fluctuating amounts,
which may change daily without penalty, pursuant to direct arrangements between
the Master Portfolio , as lender, and the borrower. The interest rates on these
notes fluctuate from time to time. The issuer of such obligations ordinarily has
a corresponding right, after a given period, to prepay in its discretion the
outstanding principal amount of the obligations plus accrued interest upon a
specified number of days' notice to the holders of such obligations. The
interest rate on a floating-rate demand obligation is based on a known lending
rate, such as a bank's prime rate, and is adjusted automatically each time such
rate is adjusted. The interest rate on a variable-rate demand obligation is
adjusted automatically at specified intervals. Frequently, such obligations are
secured by letters of credit or other credit support arrangements provided by
banks. Because these obligations are direct lending arrangements between the
lender and borrower, it is not contemplated that such instruments generally will
be traded, and there generally is no established secondary market for these
obligations, although they are redeemable at face value. Accordingly, where
these obligations are not secured by letters of credit or other credit support
arrangements, the Master Portfolio's right to redeem is dependent on the ability
of the borrower to pay principal and interest on demand. Such obligations
frequently are not rated by credit rating agencies and the Fund may invest in
obligations which are not so rated only if BGFA determines that at the time of
investment the obligations are of comparable quality to the other obligations in
which the Master Portfolio may invest. BGFA, on behalf of the Master Portfolio,
considers on an ongoing basis the creditworthiness of the issuers of the
floating-
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and variable-rate demand obligations in the Master Portfolio's portfolio. The
Master Portfolio will not invest more than 10% of the value of its total net
assets in floating- or variable-rate demand obligations whose demand feature is
not exercisable within seven days. Such obligations may be treated as liquid,
provided that an active secondary market exists.
U.S. Government Obligations.
---------------------------
The Master Portfolios may invest in various types of U.S. Government
obligations. U.S. Government obligations include securities issued or guaranteed
as to principal and interest by the U.S. Government, its agencies or
instrumentalities. Payment of principal and interest on U.S. Government
obligations (i) may be backed by the full faith and credit of the United States
(as with U.S. Treasury obligations and GNMA certificates) or (ii) may be backed
solely by the issuing or guaranteeing agency or instrumentality itself (as with
FNMA notes). In the latter case, the investor must look principally to the
agency or instrumentality issuing or guaranteeing the obligation for ultimate
repayment, which agency or instrumentality may be privately owned. There can be
no assurance that the U.S. Government would provide financial support to its
agencies or instrumentalities where it is not obligated to do so. As a general
matter, the value of debt instruments, including U.S. Government obligations,
declines when market interest rates increase and rises when market interest
rates decrease. Certain types of U.S. Government obligations are subject to
fluctuations in yield or value due to their structure or contract terms.
Securities of Non-U.S. Issuers.
------------------------------
The Master Portfolios may invest in certain securities of non-U.S. issuers
as discussed below.
Obligations of Foreign Governments, Supranational Entities and Bank. Each
Master Portfolio may invest in U.S. dollar-denominated short-term obligations
issued or guaranteed by one or more foreign governments or any of their
political subdivisions, agencies or instrumentalities that are determined by
BGFA to be of comparable quality to the other obligations in which such Master
Portfolio may invest. The Master Portfolios may also invest in debt obligations
of supranational entities. Supranational entities include international
organizations designated or supported by governmental entities to promote
economic reconstruction or development and international banking institutions
and related government agencies. Examples include the International Bank for
Reconstruction and Development (the World Bank), the European Coal and Steel
Community, the Asian Development Bank and the InterAmerican Development Bank.
The percentage of each Fund's assets invested in obligations of foreign
governments and supranational entities will vary depending on the relative
yields of such securities, the economic and financial markets of the countries
in which the investments are made and the interest rate climate of such
countries.
Each Master Portfolio may invest a portion of its total assets in high-
quality, short-term (one year or less) debt obligations of foreign branches of
U.S. banks or U.S. branches of foreign banks that are denominated in and pay
interest in U.S. dollars.
Foreign Equity Securities and Depositary Receipts. Each Master Portfolio's
assets may be invested in the securities of foreign issuers and American
Depositary Receipts ("ADRs") and European Depositary Receipts ("EDRs") of such
issuers.
ADRs and EDRs may not necessarily be denominated in the same currency as
the securities into which they may be converted. ADRs are receipts typically
issued by a United States bank or trust company which evidence ownership of
underlying securities issued by a foreign corporation. EDRs, which are sometimes
referred to as Continental Depositary Receipts ("CDRs"), are receipts issued in
Europe typically by non-United States banks and trust companies that evidence
ownership of either foreign or domestic securities. Generally, ADRs in
registered form are designed for use in the U. S. securities markets and EDRs
and CDRs in bearer form are designed for use in Europe. Each Master Portfolio
may invest in ADRs, EDRs and CDRs through "sponsored" or
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"unsponsored" facilities. A sponsored facility is established jointly by the
issuer of the underlying security and a depositary, whereas a depositary may
establish an unsponsored facility without participation by the issuer of the
deposited security. Holders of unsponsored depositary receipts generally bear
all the costs of such facilities and the depositary of an unsponsored facility
frequently is under no obligation to distribute interestholder communications
received from the issuer of the deposited security or to pass through voting
rights to the holders of such receipts in respect of the deposited securities.
Convertible Securities.
----------------------
Each Master Portfolio may purchase fixed-income convertible securities,
such as bonds or preferred stock, which may be converted at a stated price
within a specified period of time into a specified number of shares of common
stock of the same or a different issuer. Convertible securities are senior to
common stock in a corporation's capital structure, but usually are subordinated
to non-convertible debt securities. While providing a fixed-income stream
(generally higher in yield than the income from a common stock but lower than
that afforded by a non-convertible debt security), a convertible security also
affords an investor the opportunity, through its conversion feature, to
participate in the capital appreciation of the common stock into which it is
convertible.
In general, the market value of a convertible security is the higher of its
"investment value" (i.e., its value as a fixed-income security) or its
"conversion value" (i.e., the value of the underlying shares of common stock if
the security is converted). As a fixed-income security, the market value of a
convertible security generally increases when interest rates decline and
generally decreases when interest rates rise. However, the price of a
convertible security also is influenced by the market value of the security's
underlying common stock. Thus, the price of a convertible security generally
increases as the market value of the underlying stock increases and generally
decreases as the market value of the underlying stock declines. Investments in
convertible securities generally entail less risk than investments in the common
stock of the same issuer.
Illiquid Securities.
-------------------
Each Master Portfolio may invest up to 15% of the value of its total net
assets in securities as to which a liquid trading market does not exist,
provided such investments are consistent with its investment objective. Such
securities may include securities that are not readily marketable, such as
certain securities that are subject to legal or contractual restrictions on
resale, floating- and variable-rate demand obligations as to which the Master
Portfolio cannot exercise a demand feature on not more than seven days' notice
and as to which there is no secondary market and repurchase agreements providing
for settlement in more than seven days after notice.
Investment Company Securities.
-----------------------------
Each Master Portfolio may invest in securities issued by open-end other
management investment companies which principally invest in securities of the
type in which such Master Portfolio invests. Under the 1940 Act, a Master
Portfolio's investment in such securities currently is limited to, subject to
certain exceptions, (i) 3% of the total voting stock of any one investment
company, (ii) 5% of the Master Portfolio's total net assets with respect to any
one investment company and (iii) 10% of the Master Portfolio's total net assets
in the aggregate. Investments in the securities of other investment companies
involve duplication of advisory fees and certain other expenses. A Master
Portfolio may also purchase shares of exchange listed closed-end funds.
Futures Contracts and Options Transactions.
------------------------------------------
Each LifePath Master Portfolio may use futures as a substitute for a
comparable market position in the underlying securities.
A futures contract is an agreement between two parties, a buyer and a
seller, to exchange a particular commodity or financial statement at a specific
price on a specific date in the future. An option transaction
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generally involves a right, which may or may not be exercised, to buy or sell a
commodity or financial instrument at a particular price on a specified future
date. Futures contracts and options are standardized and traded on exchanges,
where the exchange serves as the ultimate counterparty for all contracts.
Consequently, the primary credit risk on futures contracts is the
creditworthiness of the exchange. Futures contracts are subject to market risk
(i.e., exposure to adverse price changes).
Although each Master Portfolio intends to purchase or sell futures
contracts only if there is an active market for such contracts, no assurance can
be given that a liquid market will exist for any particular contract at any
particular time. Many futures exchanges and boards of trade limit the amount of
fluctuation permitted in futures contract prices during a single trading day.
Once the daily limit has been reached in a particular contract, no trades may be
made that day at a price beyond that limit or trading may be suspended for
specified periods during the trading day. Futures contract prices could move to
the limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and potentially
subjecting a Master Portfolio to substantial losses. If it is not possible, or
if a Master Portfolio determines not to close a futures position in anticipation
of adverse price movements, the Master Portfolio will be required to make daily
cash margin payments.
The LifePath Master Portfolios may enter into futures contracts and may
purchase and write (i.e., sell) options thereon. Upon the exercise of an option
on a futures contract, the writer of the option delivers to the holder of the
option the futures position and the accumulated balance in the writer's futures
margin account, which represents the amount by which the market price of the
futures contract exceeds (in the case of a call) or is less than (in the case of
a put) the exercise price of the option on the futures contract. The potential
loss related to the purchase of options on futures contracts is limited to the
premium paid for the option (plus transaction costs). Because the value of the
option is fixed at the time of sale, there are no daily cash payments to reflect
changes in the value of the underlying contract; however, the value of the
option may change daily and that change would be reflected in the net asset
value of the relevant LifePath Master Portfolio.
Stock Index Futures and Options on Stock Index Futures. Each LifePath
Master Portfolio may invest in stock index futures and options on stock index
futures as a substitute for a comparable market position in the underlying
securities. A stock index future obligates the seller to deliver (and the
purchaser to take), effectively, an amount of cash equal to a specific dollar
amount times the difference between the value of a specific stock index at the
close of the last trading day of the contract and the price at which the
agreement is made. No physical delivery of the underlying stocks in the index is
made. With respect to stock indices that are permitted investments, each Master
Portfolio intends to purchase and sell futures contracts on the stock index for
which it can obtain the best price with consideration also given to liquidity.
There can be no assurance that a liquid market will exist at the time when a
Master Portfolio seeks to close out a futures contract or a futures option
position. Lack of a liquid market may prevent liquidation of an unfavorable
position.
Options on stock indices are similar to options on stock except that (a)
the expiration cycles of stock index options are monthly, while those of stock
options are currently quarterly, and (b) the delivery requirements are
different. Instead of giving the right to take or make delivery of stock at a
specified price, an option on a stock index gives the holder the right to
receive a cash "exercise settlement amount" equal to (i) the amount, if any, by
which the fixed exercise price of the option exceeds (in the case of a put) or
is less than (in the case of a call) the closing value of the underlying index
on the date of exercise, multiplied by (ii) a fixed "index multiplier." Receipt
of this cash amount depends upon the closing level of the stock index upon which
the option is based being greater than (in the case of a call) or less than (in
the case of a put) the exercise price of the option. The amount of cash received
is equal to such difference between the closing price of the index and the
exercise price of the option expressed in dollars multiplied by a specified
multiplier. The writer of the option is obligated, in return for the premium
received, to make delivery of this amount. The writer may offset a position in
stock index options prior to expiration by entering into a closing transaction
on an exchange or the writer may let the option expire unexercised.
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Interest-Rate Futures Contracts and Options on Interest-Rate Futures
Contracts. Each LifePath Master Portfolio may invest in interest-rate futures
contracts and options on interest-rate futures contracts as a substitute for a
comparable market position in the underlying securities. The Master Portfolios
may also sell options on interest-rate futures contracts as part of closing
purchase transactions to terminate their options positions. No assurance can be
given that such closing transactions can be effected or the degree of
correlation between price movements in the options on interest rate futures and
price movements in the Master Portfolios' portfolio securities which are the
subject of the transaction.
Interest-Rate and Index Swaps. Each LifePath Master Portfolio may enter
into interest-rate and index swaps in pursuit of their investment objectives.
Interest-rate swaps involve the exchange by a Master Portfolio with another
party of their respective commitments to pay or receive interest (for example,
an exchange of floating-rate payments on fixed-rate payments). Index swaps
involve the exchange by a Master Portfolio with another party of cash flows
based upon the performance of an index of securities or a portion of an index of
securities that usually include dividends or income. In each case, the exchange
commitments can involve payments to be made in the same currency or in different
currencies. A Master Portfolio will usually enter into swaps on a net basis. In
so doing, the two payment streams are netted out, with a Master Portfolio
receiving or paying, as the case may be, only the net amount of the two
payments. If a Master Portfolio enters into a swap, it will maintain a
segregated account on a gross basis, unless the contract provides for a
segregated account on a net basis. If there is a default by the other party to
such a transaction, a Master Portfolio will have contractual remedies pursuant
to the agreements related to the transaction.
The use of interest-rate and index swaps is a highly specialized activity
which involves investment techniques and risks different from those associated
with ordinary portfolio security transactions. There is no limit, except as
provided below, on the amount of swap transactions that may be entered into by a
Master Portfolio. These transactions generally do not involve the delivery of
securities or other underlying assets or principal. Accordingly, the risk of
loss with respect to swaps generally is limited to the net amount of payments
that a Master Portfolio is contractually obligated to make. There is also a risk
of a default by the other party to a swap, in which case a Master Portfolio may
not receive net amount of payments that a Master Portfolio contractually is
entitled to receive.
Foreign Currency and Futures Transactions. Currency exchange rates may
fluctuate significantly over short periods of time. They generally are
determined by the forces of supply and demand in the foreign exchange markets
and the relative merits of investments in different countries, actual or
perceived changes in interest rates and other complex factors, as seen from an
international perspective. Currency exchange rates also can be affected
unpredictably by the intervention of U.S. or foreign governments or central
banks, or by the failure to intervene, or by currency controls or political
developments in the United States or abroad. The LifePath Master Portfolios
intend to engage in foreign currency transactions to maintain the same foreign
currency exposure as the relevant foreign securities index through which the
Master Portfolios seek foreign equity market exposure, but not as part of a
defensive strategy to protect against fluctuations in exchange rates. If a
LifePath Master Portfolio enters into a foreign currency transaction or forward
contract, such Master Portfolio deposits, if required by applicable regulations,
with MIP's custodian, cash or high-grade debt securities in a segregated account
of the LifePath Master Portfolios in an amount at least equal to the value of
the LifePath Master Portfolio's total assets committed to the consummation of
the forward contract. If the value of the securities placed in the segregated
account declines, additional cash or securities is placed in the account so that
the value of the account equals the amount of the LifePath Master Portfolio's
commitment with respect to the contract.
At or before the maturity of a forward contract, a LifePath Master
Portfolio either may sell a portfolio security and make delivery of the
currency, or may retain the security and offset its contractual obligation to
deliver the currency by purchasing a second contract pursuant to which such
Master Portfolio obtains, on the same maturity date, the same amount of the
currency which it is obligated to deliver. If the LifePath Master Portfolio
retains the portfolio security and engages in an offsetting transaction, such
Master Portfolio, at the time
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of execution of the offsetting transaction, incurs a gain or a loss to the
extent that movement has occurred in forward contract prices. Should forward
prices decline during the period between the LifePath Master Portfolio's
entering into a forward contract for the sale of a currency and the date it
enters into an offsetting contract for the purchase of the currency, the Master
Portfolio realizes a gain to the extent the price of the currency it has agreed
to sell exceeds the price of the currency it has agreed to purchase. Should
forward prices increase, the Master Portfolio suffers a loss to the extent the
price of the currency it has agreed to purchase exceeds the price of the
currency it has agreed to sell.
The cost to the LifePath Master Portfolios of engaging in currency
transactions varies with factors such as the currency involved, the length of
the contract period and the market conditions then prevailing. Because
transactions in currency exchange usually are conducted on a principal basis, no
fees or commissions are involved. BGFA considers on an ongoing basis the
creditworthiness of the institutions with which a LifePath Master Portfolio
enters into foreign currency transactions. The use of forward currency exchange
contracts does not eliminate fluctuations in the underlying prices of the
securities, but it does establish a rate of exchange that can be achieved in the
future. If a devaluation generally is anticipated, the LifePath Master
Portfolios may not be able to contract to sell the currency at a price above the
devaluation level it anticipates.
The purchase of options on currency futures allows a LifePath Master
Portfolio, for the price of the premium it must pay for the option, to decide
whether or not to buy (in the case of a call option) or to sell (in the case of
a put option) a futures contract at a specified price at any time during the
period before the option expires.
Foreign currency transactions may occur on a spot (i.e., cash) basis at
the rate prevailing in the currency exchange market or on a forward basis. A
forward currency exchange contract involves an obligation to purchase or sell a
specific currency at a set price on a future date which must be more than two
days from the date of the contract. The forward foreign currency market offers
less protection against default than is available when trading currencies on an
exchange, since a forward currency contract is not guaranteed by an exchange or
clearinghouse. Therefore, a default on a forward currency contract would
deprive a LifePath Master Portfolio of unrealized profits or force such Master
Portfolio to cover its commitments for purchase or resale, if any, at the
current market price.
Foreign currency transactions may occur on a spot (i.e., cash) basis at
the rate prevailing in the currency exchange market or on a forward basis. A
forward currency exchange contract involves an obligation to purchase or sell a
specific currency at a set price on a future date which must be more than two
days from the date of the contract. The forward foreign currency market offers
less protection against default than is available when trading currencies on an
exchange, since a forward currency contract is not guaranteed by an exchange or
clearinghouse. Therefore, a default on a forward currency contract would deprive
a LifePath Master Portfolio of unrealized profits or force such Master Portfolio
to cover its commitments for purchase or resale, if any, at the current market
price.
Each LifePath Master Portfolio may combine forward currency exchange
contracts with investments in securities denominated in other currencies.
Each LifePath Master Portfolio also may maintain short positions in
forward currency exchange transactions, which would involve the Master Portfolio
agreeing to exchange an amount of a currency it did not currently own for
another currency at a future date in anticipation of a decline in the value of
the currency sold relative to the currency such Master Portfolio contracted to
receive in the exchange.
Unlike trading on domestic futures exchanges, trading on foreign futures
exchanges is not regulated by the Commodity Futures Trading Commission (the
"CFTC") and generally is subject to greater risks than trading on domestic
exchanges. For example, some foreign exchanges are principal markets so that no
common clearing facility exists and an investor may look only to the broker for
performance of the contract. BGFA, however, considers on an ongoing basis the
creditworthiness of such counterparties. In addition, any
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profits that a LifePath Master Portfolio might realize in trading could be
eliminated by adverse changes in the exchange rate; adverse exchange rate
changes also could cause a Master Portfolio to incur losses. Transactions on
foreign exchanges may include both futures contracts which are traded on
domestic exchanges and those which are not. Such transactions may also be
subject to withholding and other taxes imposed by foreign governments.
Foreign Futures Transactions. Unlike trading on domestic futures
exchanges, trading on foreign futures exchanges is not regulated by the
Commodity Futures Trading Commission (the "CFTC") and generally is subject to
greater risks than trading on domestic exchanges. For example, some foreign
exchanges are principal markets so that no common clearing facility exists and
an investor may look only to the broker for performance of the contract. BGFA,
however, considers on an ongoing basis the creditworthiness of such
counterparties. In addition, any profits that a LifePath Master Portfolio might
realize in trading could be eliminated by adverse changes in the exchange rate;
adverse exchange rate changes also could cause a LifePath Master Portfolio to
incur losses. Transactions on foreign exchanges may include both futures
contracts which are traded on domestic exchanges and those which are not.
Future Developments. Each LifePath Master Portfolio may take advantage
of opportunities in the areas of options and futures contracts and options on
futures contracts and any other derivative investments which are not presently
contemplated for use by such Master Portfolio or which are not currently
available but which may be developed, to the extent such opportunities are both
consistent with a LifePath Master Portfolio's investment objective and legally
permissible for the Master Portfolio. Before entering into such transactions or
making any such investment, a LifePath Master Portfolio would provide
appropriate disclosure in its Part A or this Part B.
Lending Portfolio Securities.
----------------------------
To a limited extent, each Master Portfolio may lend its portfolio
securities to brokers, dealers and other financial institutions, provided it
receives cash collateral which is maintained at all times in an amount equal to
at least 100% of the current market value of the securities loaned. By lending
its portfolio securities, a Master Portfolio can increase its income through the
investment of the cash collateral or by receipt of a loan premium from the
borrower. For purposes of this policy, each Master Portfolio considers
collateral consisting of U.S. Government obligations or irrevocable letters of
credit issued by banks whose securities meet the standards for investment by
such Master Portfolio to be the equivalent of cash. From time to time, a Master
Portfolio may return to the borrower, or to a third party unaffiliated with MIP
which is acting as a "placing broker," a part of the interest earned from the
investment of collateral received in exchange for securities loaned.
The SEC currently requires that the following conditions must be met
whenever portfolio securities are loaned: (1) the Master Portfolio must receive
at least 100% cash collateral from the borrower; (2) the borrower must increase
such collateral whenever the market value of the securities loaned rises above
the level of such collateral; (3) the Master Portfolio must be able to terminate
the loan at any time; (4) the Master Portfolio must receive reasonable interest
on the loan, as well as any dividends, interest or other distributions payable
on the loaned securities, and any increase in market value; (5) the Master
Portfolio may pay only reasonable custodian fees in connection with the loan;
and (6) while voting rights on the loaned securities may pass to the borrower,
MIP's Board of Trustees must terminate the loan and regain the right to vote the
securities if a material event adversely affecting the investment occurs. These
conditions may be subject to future modification.
Forward Commitment When-Issued and Delayed Delivery Transactions.
----------------------------------------------------------------
Each Master Portfolio may purchase or sell securities on a when-issued
or delayed-delivery basis and make contracts to purchase or sell securities for
a fixed price at a future date beyond customary settlement time. Securities
purchased or sold on a when-issued, delayed-delivery or forward commitment basis
involve a risk of loss if the value of the security to be purchased declines, or
the value of the security to be sold increases, before the settlement date.
Although a Master Portfolio will generally purchase securities with the
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<PAGE>
intention of acquiring them, a Master Portfolio may dispose of securities
purchased on a when-issued, delayed-delivery or a forward commitment basis
before settlement when deemed appropriate by the adviser.
Borrowing Money.
---------------
As a fundamental policy, each Master Portfolio is permitted to borrow to
the extent permitted under the 1940 Act. However, each Master Portfolio
currently intends to borrow money only for temporary or emergency (not
leveraging) purposes, in an amount up to one-third of the value of its total
assets (including the amount borrowed) valued at the lesser of cost or market,
less liabilities (not including the amount borrowed) at the time the borrowing
is made. While borrowings exceed 5% of a Master Portfolio's total assets, such
Master Portfolio will not make any investments.
Ratings.
-------
The ratings of Moody's, S&P, Fitch and Duff represent their opinions as
to the quality of the obligations which they undertake to rate. It should be
emphasized, however, that ratings are relative and subjective and, although
ratings may be useful in evaluating the safety of interest and principal
payments, they do not evaluate the market value risk of such obligations.
Therefore, although these ratings may be an initial criterion for selection of
portfolio investments, BGFA also evaluates such obligations and the ability of
their issuers to pay interest and principal. Each Master Portfolio relies on
BGFA's judgment, analysis and experience in evaluating the creditworthiness of
an issuer. In this evaluation, BGFA takes into consideration, among other
things, the issuer's financial resources, its sensitivity to economic conditions
and trends, the quality of the issuer's management and regulatory matters. It
also is possible that a rating agency might not timely change the rating on a
particular issue to reflect subsequent events. See Item 4, "General Description
of Registrant -- Risk Considerations -- Fixed-Income Securities."
Warrants.
--------
Each Master Portfolio may invest generally up to 5% of its total net
assets at the time of purchase in warrants, except that this limitation does not
apply to warrants acquired in units or attached to securities. A warrant is an
instrument issued by a corporation which gives the holder the right to subscribe
to a specified amount of the corporation's capital stock at a set price for a
specified period of time. The prices of warrants do not necessarily correlate
with the prices of the underlying securities.
ITEM 13. MANAGEMENT OF THE TRUST.
The Trustees and Principal Officer of MIP, together with information as
to their principal business occupations during at least the last five years, are
shown below. The address of each, unless otherwise indicated, is 111 Center
Street, Little Rock, Arkansas 72201. Each Trustee who is deemed to be an
"interested person" of MIP, as defined in the 1940 Act, is indicated by an
asterisk.
13
<PAGE>
<TABLE>
<CAPTION>
Principal Occupations
Name, Address and Age Position During Past 5 Years
- --------------------- -------- ---------------------
<S> <C> <C>
Jack S. Euphrat, 76 Trustee Private Investor.
415 Walsh Road
Atherton, CA 94027
*R. Greg Feltus, 47 Trustee, Executive Vice President of
Chairman and President Stephens; President of Stephens
Insurance Services Inc.; Senior
Vice President of Stephens Sports
Management Inc.; and President of
Investors Brokerage Insurance Inc.
W. Rodney Hughes, 72 Trustee Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Richard H. Blank, Jr., 42 Chief Operating Officer, Vice President of Stephens;
Secretary and Treasurer Director of Stephens Sports
Management Inc.; and Director of
Capo Inc.
</TABLE>
Compensation Table
For the Fiscal Year Ended February 28, 1999
Total Compensation
Aggregate Compensation from Registrant
Name and Position from Registrant and Fund Complex
- ----------------- --------------- ----------------
Jack S. Euphrat $0 $5,000
Trustee
*R. Greg Feltus $0 $ 0
Trustee
Thomas S. Goho $0 $5,000
Trustee
W. Rodney Hughes $0 $4,500
Trustee
*J. Tucker Morse $0 $4,500
Trustee
Trustees of MIP are compensated annually by all the registrants in the fund
complex for their services as indicated above and also are reimbursed for all
out-of-pocket expenses relating to attendance at board meetings. MIP and
Barclays Global Investors Funds, Inc. ("BGIF"), formerly known as MasterWorks
Funds Inc., are considered to be members of the same fund complex as such term
is defined in Form N-1A under the 1940 Act. The Trustees are compensated by BGIF
and MIP for their services as Directors/Trustees to the
14
<PAGE>
company and Trust. Currently, the Trustees do not receive any retirement
benefits or deferred compensation from MIP or BGIF.
As of the date of this SAI, the Trustees and Principal Officer of MIP as a
group beneficially owned less than 1% of the outstanding beneficial interest of
MIP.
ITEM 14. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.
As of May 31, 1999, the funds of BGIF and Stagecoach Trust each held more
than 5% of the outstanding voting securities of their corresponding LifePath
Master Portfolios. Approximate percentages are indicated in the table below:
<TABLE>
<CAPTION>
% Outstanding
Master Portfolio Fund Securities Held
---------------- ---- ---------------
<S> <C> <C>
LifePath 2000 Master Portfolio BGIF LifePath 2000 40.68%
Stagecoach LifePath Opportunity 56.49%
LifePath 2010 Master Portfolio BGIF LifePath 2010 51.37%
Stagecoach LifePath 2010 46.69%
LifePath 2020 Master Portfolio BGIF LifePath 2020 42.17%
Stagecoach LifePath 2020 55.60%
LifePath 2030 Master Portfolio BGIF LifePath 2030 40.09%
Stagecoach LifePath 2030 58.98%
LifePath 2040 Master Portfolio BGIF LifePath 2040 32.38%
Stagecoach LifePath 2040 67.24%
</TABLE>
For purposes of the 1940 Act, any person who owns directly or through one
or more controlled companies more than 25% of the voting securities of a company
is presumed to "control" such company. Accordingly, to the extent that an
interestholder identified in the foregoing table is identified as the beneficial
holder of more than 25% of a Master Portfolio, or is identified as the holder of
record of more than 25% of a Master Portfolio and has voting and/or investment
powers, such interestholder may be presumed to control such Master Portfolio.
ITEM 15. INVESTMENT ADVISORY AND OTHER SERVICES.
The following information supplements and should be read in conjunction with
Item 6 in Part A.
Investment Adviser. Barclays Global Fund Advisors ("BGFA") provides
investment advisory services to each Master Portfolio pursuant to separate
Investment Advisory Contracts (each, a "BGFA Advisory Contract") with MIP, each
dated January 1, 1996. As to each Master Portfolio, the applicable BGFA
Advisory Contract is subject to annual approval by (i) MIP's Board of Trustees
or (ii) vote of a majority (as defined in the 1940 Act) of the outstanding
voting securities of such Master Portfolio, provided that in either event the
continuance also is approved by a majority of MIP's Board of Trustees who are
not "interested persons" (as defined in the 1940 Act) of MIP or BGFA, by vote
cast in person at a meeting called for the purpose of voting on such approval.
As to each Master Portfolio, the applicable BGFA Advisory Contract is terminable
without penalty, on 60 days' written notice, by MIP's Board of Trustees or by
vote of the holders of a majority of such Master Portfolio's interests, or, on
not less than 60 days' written notice by BGFA. The applicable BGFA Advisory
Contract terminates automatically, as to the relevant Master Portfolio, in the
event of its assignment (as defined in the 1940 Act).
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<PAGE>
Advisory Fees Paid. For the fiscal years ended February 28, 1997, February
28, 1998 and February 28, 1999, the Master Portfolios paid to BGFA the advisory
fees indicated below, without waivers.
<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
February 28, 1997 February 28, 1998 February 28, 1999
Master Portfolio Fees Paid Fees Paid Fees Paid
---------------- --------- --------- ---------
<S> <C> <C> <C>
LifePath 2000 Master Portfolio $ 689,347 $ 656,142 $ 630,133
LifePath 2010 Master Portfolio $ 757,505 $1,018,984 $1,236,989
LifePath 2020 Master Portfolio $1,149,160 $1,572,634 $1,882,147
LifePath 2030 Master Portfolio $ 714,647 $1,048,151 $1,405,948
LifePath 2040 Master Portfolio $1,154,330 $1,767,632 $2,472,170
</TABLE>
Co-Administrators. Stephens and BGI are the Master Portfolio's co-
administrators. Stephens and BGI provide the Master Portfolios with
administrative services, including general supervision of the Master Portfolios'
non-investment operations, coordination of the other services provided to the
Master Portfolios, compilation of information for reports to the SEC and the
state securities commissions, preparation of proxy statements and shareholder
reports, and general supervision of data compilation in connection with
preparing periodic reports to the MIP's trustees and officers. Stephens also
furnishes office space and certain facilities to conduct the Master Portfolios'
business, and compensates the MIP's trustees, officers and employees who are
affiliated with Stephens. In addition, except as outlined below under "
Expenses," Stephens and BGI will be responsible for paying all expenses incurred
by the Master Portfolios other than the fees payable to BGFA. Stephens and BGI
are not entitled to compensation for providing administration services to a
Master Portfolio. BGI has delegated certain of its duties as co-administrator to
Investors Bank & Trust Company ("IBT"). IBT, as sub-administrator, is
compensated by BGI for performing certain administration services.
Prior to October 21, 1996, Stephens alone provided administration services
to MIP. Stephens was not entitled to compensation for providing administration
services to the Master Portfolios so long as Stephens received fees for
providing similar services to a feeder fund of another investment company
investing all of its assets in a Master Portfolio. The Master Portfolios did
not pay any administration fees to Stephens.
Placement Agent. Stephens is the placement agent for the Master
Portfolios. Stephens is a full service broker/dealer and investment advisory
firm located at 111 Center Street, Little Rock, Arkansas 72201. Stephens and its
predecessor have been providing securities and investment services for more than
60 years, including discretionary portfolio management services since 1983.
Stephens currently manages investment portfolios for pension and profit sharing
plans, individual investors, foundations, insurance companies and university
endowments. Stephens does not receive compensation for acting as placement
agent.
Custodian. Investors Bank & Trust Company ("IBT") currently acts as the
Master Portfolios' custodian. The principal business address of IBT is 200
Clarendon Street, Boston, Massachusetts 02111. IBT is not entitled to receive
compensation for its custodial services so long as it is entitled to receive
compensation for providing sub-administration services to the Master Portfolios.
Prior to October 21, 1996, Barclays Global Investors, N.A. ("BGI") acted as the
Master Portfolios' custodian. The principal business address of BGI is 45
Fremont Street, San Francisco, California 94105. BGI did not receive
compensation for its custodial services.
Transfer and Dividend Disbursing Agent. IBT also acts as each Master
Portfolio's Transfer and Dividend Disbursing Agent (the "Transfer Agent"). IBT
is not entitled to receive compensation for providing such services to MIP so
long as it receives fees for providing similar services to the funds which
invest substantially all of their assets in the Master Portfolios. Prior to
March 2, 1998, Wells Fargo Bank acted as Transfer Agent to the Master
Portfolios. To date, the Master Portfolios have not paid any transfer and
dividend disbursing agency fees.
Distribution Plan. MIP's Board of Trustees has adopted, on behalf of each
Master Portfolio, a "defensive" distribution plan under Section 12(b) of the
1940 Act and Rule 12b-1 thereunder (the "Plan"). The Plan was
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<PAGE>
adopted by a majority of MIP's Board of Trustees (including a majority of those
Trustees who are not "interested persons" as defined in the 1940 Act of MIP) on
October 10, 1995. The Plan was intended as a precaution designed to address the
possibility that certain ongoing payments by Barclays to Wells Fargo Bank in
connection with the sale of WFNIA may be characterized as indirect payments by
each Master Portfolio to finance activities primarily intended to result in the
sale of interests in such Master Portfolio. The Plan provides that if any
portion of a Master Portfolio's advisory fees (up to 0.25% of the average daily
net assets of each Master Portfolio on an annual basis) were deemed to
constitute an indirect payment for activities that are primarily intended to
result in the sale of interests in a Master Portfolio such payment would be
authorized pursuant to the Plan. The Master Portfolios do not currently pay any
amounts pursuant to the Plan.
Expenses. Except for extraordinary expenses, brokerage and other expenses
connected with to the execution of portfolio transactions and certain other
expenses which are borne by the Master Portfolios, Stephens and BGI have agreed
to bear all costs of the Master Portfolios' and MIP's operations.
ITEM 16. BROKERAGE ALLOCATION AND OTHER PRACTICES.
General. BGFA assumes general supervision over placing orders on behalf of
each Master Portfolio for the purchase or sale of portfolio securities.
Allocation of brokerage transactions, including their frequency, is made in the
best judgment of BGFA and in a manner deemed fair and reasonable to
interestholders. In executing portfolio transactions and selecting brokers or
dealers, BGFA seeks to obtain the best overall terms available for each Master
Portfolio. In assessing the best overall terms available for any transaction,
BGFA considers factors deemed relevant, including the breadth of the market in
the security, the price of the security, the financial condition and execution
capability of the broker or dealer, and the reasonableness of the commission, if
any, both for the specific transaction and on a continuing basis. A primary
consideration is prompt execution of orders at the most favorable net price.
Certain of the brokers or dealers with whom the Master Portfolios may transact
business offer commission rebates to the Master Portfolios. BGFA considers such
rebates in assessing the best overall terms available for any transaction. The
overall reasonableness of brokerage commissions paid is evaluated by BGFA based
upon its knowledge of available information as to the general level of
commission paid by other institutional investors for comparable services. Prior
to January 1, 1996, WFNIA exercised general supervision over placing orders on
behalf of each Master Portfolio for the purchase or sale of portfolio securities
and the brokerage allocation practices described herein are applicable to WFNIA
and the Master Portfolios prior to January 1, 1996.
Brokers also are selected because of their ability to handle special
executions such as are involved in large block trades or broad distributions,
provided the primary consideration is met. Portfolio turnover may vary from
year to year, as well as within a year. Portfolio turnover rates over 100%
(although unexpected) may result in comparatively greater brokerage expenses.
Purchases and sales of fixed-income securities usually are principal
transactions. Portfolio securities ordinarily are purchased directly from the
issuer or from an underwriter or market maker. Usually no brokerage commissions
are paid by the LifePath Master Portfolios for such purchases and sales. The
prices paid to the underwriters of newly-issued securities usually include a
concession paid by the issuer to the underwriter, and purchases of securities
from market makers may include the spread between the bid and asked price.
Brokerage Commissions. For the fiscal years ended February 28, 1997,
February 28, 1998 and February 28, 1999, the Master Portfolios paid brokerage
commissions in the dollar amounts shown below. None of the brokerage
commissions were paid to affiliated brokers.
Master Portfolio 1997 1998 1999
- ---------------- ---- ---- ----
LifePath 2000 Master Portfolio $ 3,639 $ 9,361 $ 8,427
LifePath 2010 Master Portfolio $ 8,837 $15,306 $25,441
LifePath 2020 Master Portfolio $12,383 $29,153 $47,302
17
<PAGE>
LifePath 2030 Master Portfolio $ 6,927 $28,908 $35,369
LifePath 2040 Master Portfolio $28,047 $94,717 $90,551
Securities of Regular Broker/Dealers. As of February 28, 1999, the
LifePath Master Portfolios owned securities of their "regular brokers or
dealers" or their parents, as defined in the 1940 Act, as follows:
Master Portfolio Broker/Dealer Amount
---------------- ------------- ------
LifePath 2000 Master Portfolio J.P. Morgan $ 24,071
Lehman Bros. Holdings $ 9,540
Merrill Lynch $ 26,095
Morgan Stanley $ 59,187
LifePath 2010 Master Portfolio J.P. Morgan $ 151,444
Lehman Bros. Holdings $ 50,350
Merrill Lynch $ 205,997
Morgan Stanley $ 404,172
LifePath 2020 Master Portfolio J.P. Morgan $ 350,365
Lehman Bros. Holdings $ 114,215
Merrill Lynch $ 481,836
Morgan Stanley $ 958,486
LifePath 2030 Master Portfolio J.P. Morgan $ 334,869
Lehman Bros. Holdings $ 105,205
Merrill Lynch $ 445,840
Morgan Stanley $ 887,623
LifePath 2040 Master Portfolio J.P. Morgan $ 677,762
Lehman Bros. Holdings $ 213,324
Merrill Lynch $ 916,548
Morgan Stanley $1,807,465
ITEM 17. CAPITAL STOCK AND OTHER SECURITIES.
Pursuant to MIP's Declaration of Trust, the Trustees are authorized to
issue beneficial interests in each Master Portfolio. Investors in a Master
Portfolio are entitled to participate pro rata in distributions of taxable
income, loss, gain and credit of such Master Portfolio. Upon liquidation or
dissolution of a Master Portfolio, investors are entitled to share pro rata in
such Master Portfolio's net assets available for distribution to its investors.
Investments in a Master Portfolio have no preference, pre-exemptive, conversion
or similar rights and are fully paid and non-assessable, except as set forth
below. Investments in a Master Portfolio may not be transferred. No
certificates are issued.
Each investor is entitled to vote, with respect to matters effecting each
of MIP's portfolios, in proportion to the amount of its investment in MIP.
Investors in MIP do not have cumulative voting rights, and investors holding
more than 50% of the aggregate beneficial interest in MIP may elect all of the
Trustees of MIP if they choose to do so and in such event the other investors in
MIP would not be able to elect any Trustee. MIP is not required to hold annual
meetings of investors but MIP may hold special meetings of investors when in the
judgment of MIP's Trustees it is necessary or desirable to submit matters for an
investor vote.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted under the provisions of the 1940 Act or applicable state law or
otherwise to the holders of the outstanding voting securities of an investment
18
<PAGE>
company, such as MIP, will not be deemed to have been effectively acted upon
unless approved by the holders of a majority of the outstanding interests of
each Master Portfolio affected by such matter. Rule 18f-2 further provides that
a Master Portfolio shall be deemed to be affected by a matter unless it is clear
that the interests of such Master Portfolio in the matter are identical or that
the matter does not affect any interest of such Master Portfolio. However, the
Rule exempts the selection of independent auditors and the election of Trustees
from the separate voting requirements of the Rule.
ITEM 18. PURCHASE, REDEMPTION AND PRICING OF INTERESTS.
Purchase of Securities. Beneficial interests in each Master Portfolio are
issued solely in private placement transactions which do not involve any "public
offering" within the meaning of Section 4(2) of the Securities Act of 1933, as
amended (the "1933 Act"). Investments in the Master Portfolios may only be made
by investment companies or certain other entities which are "accredited
investors" within the meaning of Regulation D under the 1933 Act. This
registration statement does not constitute an offer to sell, or the solicitation
of an offer to buy, any "security" within the meaning of the 1933 Act.
Payment for shares of a Master Portfolio may, at the discretion of the
adviser, be made in the form of securities that are permissible investments for
the Master Portfolio and must meet the investment objective, policies and
limitations of the Master Portfolio as described in the Part A. In connection
with an in-kind securities payment, a Master Portfolio may require, among other
things, that the securities (i) be valued on the day of purchase in accordance
with the pricing methods used by the Master Portfolio; (ii) are accompanied by
satisfactory assurance that the Master Portfolio will have good and marketable
title to such securities received by it; (iii) are not subject to any
restrictions upon resale by the Master Portfolio; (iv) be in proper form for
transfer to the Master Portfolio; and (v) are accompanied by adequate
information concerning the basis and other tax matters relating to the
securities. All dividends, interest, subscription or other rights pertaining to
such securities shall become the property of the Master Portfolio engaged in the
in-kind purchase transaction and must be delivered to such Master Portfolio by
the investor upon receipt from the issuer. Securities acquired through an in-
kind purchase will be acquired for investment and not for immediate resale.
Shares purchased in exchange for securities generally cannot be redeemed until
the transfer has settled.
Suspension of Redemptions. The right of redemption of interests in the
Master Portfolios may be suspended or the date of payment postponed (a) during
any period when the New York Stock Exchange is closed (other than customary
weekend and holiday closings), (b) when trading in the markets the Master
Portfolios ordinarily utilize is restricted, or when an emergency exists as
determined by the SEC so that disposal of the Master Portfolios' investments or
determination of its net asset value is not reasonably practicable, or (c) for
such other periods as the SEC by order may permit to protect the Master
Portfolios' interestholders.
Pricing of Securities. The securities of each of the LifePath Master
Portfolios, including covered call options written by a LifePath Master
Portfolio, are valued at the last sale price on the securities exchange or
national securities market on which such securities primarily are traded.
Securities not listed on an exchange or national securities market, or
securities in which there were no transactions, are valued at the most recent
bid prices. Portfolio securities which are traded primarily on foreign
securities exchanges generally are valued at the preceding closing values of
such securities on their respective exchanges, except that when an occurrence
subsequent to the time a value was so established is likely to have changed such
value, then the fair value of those securities are determined by BGFA in
accordance with guidelines approved by MIP's Board of Trustees. Short-Term
investments are carried at amortized cost, which approximates market value. Any
securities or other assets for which recent market quotations are not readily
available are valued at fair value as determined in good faith by BGFA in
accordance with guidelines approved by MIP's Board of Trustees.
Restricted securities, as well as securities or other assets for which
market quotations are not readily available or which are not valued by a pricing
service approved by MIP's Board of Trustees, are valued at fair value as
determined in good faith by or under the direction of MIP's Board of
19
<PAGE>
Trustees reviews the method of valuation on a current basis. In making a good
faith valuation of restricted securities, the following are generally
considered: restricted securities that are, or are convertible into, securities
of the same class of securities for which a public market exists usually are
valued at market value less the same percentage discount at which such
securities were purchased. This discount may be revised periodically if BGFA
believes that the discount no longer reflects the value of the restricted
securities. Restricted securities not of the same class as securities for which
a public market exists usually are valued initially at cost. Any subsequent
adjustment from cost is based upon considerations deemed relevant by or under
the direction of MIP's Board of Trustees or its delegates.
Any assets or liabilities initially expressed in terms of foreign currency
are translated into dollars using information provided by pricing entities, such
as Morgan Stanley Capital International or Gelderman Data Service, or at a
quoted market exchange rate as may be determined to be appropriate by BGFA.
Forward currency contracts are valued at the current cost of offsetting the
contract. Because of the need to obtain prices as of the close of trading on
various exchanges throughout the world, the calculation of net asset value does
not take place contemporaneously with the determination of prices of the foreign
securities held by the LifePath Master Portfolios. In addition, foreign
securities held by a LifePath Master Portfolio may be traded actively in
securities markets which are open for trading on days when the LifePath Master
Portfolio does not determine its net asset value. Accordingly, there may be
occasions when a LifePath Master Portfolio does not calculate its net asset
value but when the value of such Master Portfolio's portfolio securities is
affected by such trading activity.
Fixed-income securities are valued each business day using available market
quotations or at fair value as determined by one or more independent pricing
services (collectively, the "Services") approved by MIP's Board of Trustees.
Each Service may use available market quotations, employ electronic data
processing techniques and/or a matrix system to determine valuations. The
Services' procedures are reviewed by MIP's officers under the general
supervision of MIP's Board of Trustees.
Expenses and fees, including advisory fees, are accrued daily and are taken
into account for the purpose of determining the net asset value of a LifePath
Master Portfolio's shares.
New York Stock Exchange Closings. The holidays on which the New York Stock
Exchange is closed currently are: New Year's Day, Martin Luther King, Jr.'s
Birthday, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.
ITEM 19. TAXATION OF THE TRUST.
MIP is organized as a business trust under Delaware law. In accordance
with MIP's classification for federal income tax purposes, each Master Portfolio
will be considered a partnership for such purposes, and as such, the Master
Portfolios will not be subject to federal income tax. However, each investor in
a Master Portfolio will be taxable on its share (as determined in accordance
with the governing instruments of MIP) of such Master Portfolio's taxable income
in determining its federal income tax liability. The determination of such
share is made in accordance with the Internal Revenue Code of 1986, as amended
(the "Code"), and regulations promulgated thereunder.
MIP's taxable year-end is the last day of December. Although MIP is not
subject to federal income tax, it files appropriate federal income tax returns.
Each Master Portfolio's assets, income and distributions are managed in
such a way that an investor in the Master Portfolio may satisfy the requirements
of Subchapter M of the Code, assuming that the investor invested substantially
all of its investable assets in the Master Portfolio. Investors are advised to
consult their own tax advisors as to the tax consequences of an investment in
the Master Portfolios.
ITEM 20. UNDERWRITERS.
20
<PAGE>
The exclusive placement agent for MIP is Stephens, which receives no
compensation for serving in this capacity. Registered broker/dealers and
investment companies, insurance company separate accounts, common and commingled
trust funds, group trusts and similar organizations and entities which
constitute accredited investors, as defined in the regulations adopted under the
1933 Act, may continuously invest in a Master Portfolio of MIP.
ITEM 21. CALCULATIONS OF PERFORMANCE DATA.
Not applicable.
ITEM 22. FINANCIAL STATEMENTS.
KPMG LLP provides audit services, tax return preparation and assistance and
consultation in connection with review of certain SEC filings. KPMG LLP's
address is Three Embarcadero Center, San Francisco, California 94111.
The audited financial statements including the portfolio of investments,
and the independent auditors' report for the LifePath Master Portfolios for the
fiscal year ended February 28, 1999, are hereby incorporated by reference to the
MasterWorks Funds Inc. (SEC File Nos. 33-54126; 811-7322) Annual Report, as
filed with the SEC on May 1, 1999. The audited financial statements for the
LifePath Master Portfolios are attached to all Part Bs delivered to
interestholders or prospective interestholders.
21
<PAGE>
APPENDIX
Description of certain ratings assigned by Standard & Poor's Corporation
("S&P"), Moody's Investors Service, Inc. ("Moody's"), Fitch Investors Service,
Inc. ("Fitch"), Duff & Phelps, Inc. ("Duff") and IBCA Inc. and IBCA Limited
("IBCA"):
S&P
Bond Ratings
"AAA"
Bonds rated AAA have the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
"AA"
Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
"A"
Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than obligations in higher rated
categories.
"BBB"
Bonds rated BBB are regarded as having an adequate capacity to pay interest
and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.
S&P's letter ratings may be modified by the addition of a plus (+) or minus
(-) sign designation, which is used to show relative standing within the major
rating categories, except in the AAA (Prime Grade) category.
Commercial Paper Rating
The designation A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess overwhelming
safety characteristics are denoted with a plus sign (+) designation. Capacity
for timely payment on issues with an A-2 designation is satisfactory. However,
the relative degree of safety is not as high as for issues designated A-1.
Moody's
Bond Ratings
"Aaa"
Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally
A-1
<PAGE>
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
"Aa"
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what generally are known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
"A"
Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa"
Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Moody's applies the numerical modifiers "1", "2" and "3" to show relative
standing within the major rating categories, except in the Aaa category. The
modifier "1" indicates a ranking for the security in the higher end of a rating
category; the modifier "2" indicates a mid-range ranking; and the modifier "3"
indicates a ranking in the lower end of a rating category.
Commercial Paper Rating
The rating Prime-1 ("P-1") is the highest commercial paper rating assigned
by Moody's. Issuers of P-1 paper must have a superior capacity for repayment
of short-term promissory obligations, and this ordinarily is evidenced by
leading market positions in well established industries, high rates of return on
funds employed, conservative capitalization structures with moderate reliance on
debt and ample asset protection, broad margins in earnings coverage of fixed
financial charges and high internal cash generation, and well established access
to a range of financial markets and assured sources of alternate liquidity.
Issuers (or relating supporting institutions) rated Prime-2 ("P-2") have a
strong capacity for repayment of short-term promissory obligations. This
ordinarily is evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, are more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.
A-2
<PAGE>
Fitch
Bond Ratings
The ratings represent Fitch's assessment of the issuer's ability to meet
the obligations of a specific debt issue or class of debt in a timely manner.
The ratings take into consideration special features of the issue, its
relationship to other obligations of the issuer, the current financial condition
and operative performance of the issuer and of any guarantor, as well as the
political and economic environment that might affect the issuer's future
financial strength and credit quality.
"AAA"
Bonds rated AAA are considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events.
"AA"
Bonds rated AA are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short- term debt of these issuers is generally
rated F-1+.
"A"
Bonds rated A are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
"BBB"
Bonds rated BBB are considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these bonds
and, therefore, impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
Plus (+) and minus (-) signs are used with a rating symbol to indicate the
relative position of a credit within the rating category.
Short-Term Ratings
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
Although the credit analysis is similar to Fitch's bond rating analysis,
the short-term rating places greater emphasis than bond ratings on the existence
of liquidity necessary to meet the issuer's obligations in a timely manner.
A-3
<PAGE>
"F-1+"
Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
"F-1"
Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
"F-2"
Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payments, but the margin of safety is not as
great as the F-1+ and F-1 categories.
Duff
Bond Ratings
"AAA"
Bonds rated AAA are considered highest credit quality. The risk factors
are negligible, being only slightly more than for risk-free U.S. Treasury debt.
"AA"
Bonds rated AA are considered high credit quality. Protection factors are
strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
"A"
Bonds rated A have protection factors which are average but adequate.
However, risk factors are more variable and greater in periods of economic
stress.
"BBB"
Bonds rated BBB are considered to have below average protection factors but
still considered sufficient for prudent investment. Considerable variability in
risk during economic cycles.
Plus (+) and minus (-) signs are used with a rating symbol (except AAA) to
indicate the relative position of a credit within the rating category.
Commercial Paper Rating
The rating "Duff-1" is the highest commercial paper rating assigned by
Duff. Paper rated Duff-1 is regarded as having very high certainty of timely
payment with excellent liquidity factors which are supported by ample asset
protection. Risk factors are minor. Paper rated "Duff-2" is regarded as having
good certainty of timely payment, good access to capital markets and sound
liquidity factors and company fundamentals. Risk factors are small.
A-4
<PAGE>
IBCA
Bond and Long-Term Ratings
Obligations rated AAA by IBCA have the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is substantial,
such that adverse changes in business, economic or financial conditions are
unlikely to increase investment risk significantly. Obligations for which there
is a very low expectation of investment risk are rated AA by IBCA. Capacity for
timely repayment of principal and interest is substantial. Adverse changes in
business, economic or financial conditions may increase investment risk albeit
not very significantly.
Commercial Paper and Short-Term Ratings
The designation A1 by IBCA indicates that the obligation is supported by a
very strong capacity for timely repayment. Those obligations rated A1+ are
supported by the highest capacity for timely repayment. Obligations rated A2 are
supported by a strong capacity for timely repayment, although such capacity may
be susceptible to adverse changes in business, economic or financial conditions.
International and U.S. Bank Ratings
An IBCA bank rating represents IBCA's current assessment of the strength of
the bank and whether such bank would receive support should it experience
difficulties. In its assessment of a bank, IBCA uses a dual rating system
comprised of Legal Ratings and Individual Ratings. In addition, IBCA assigns
banks Long- and Short-Term Ratings as used in the corporate ratings discussed
above. Legal Ratings, which range in gradation from 1 through 5, address the
question of whether the bank would receive support provided by central banks or
interestholders if it experienced difficulties, and such ratings are considered
by IBCA to be a prime factor in its assessment of credit risk. Individual
Ratings, which range in gradations from A through E, represent IBCA's assessment
of a bank's economic merits and address the question of how the bank would be
viewed if it were entirely independent and could not rely on support from state
authorities or its owners.
A-5
<PAGE>
MASTER INVESTMENT PORTFOLIO
MONEY MARKET MASTER PORTFOLIO
PART B -- STATEMENT OF ADDITIONAL INFORMATION
July 1, 1999
ITEM 10. COVER PAGE.
Master Investment Portfolio ("MIP," or the "Trust") is an open-end,
management investment company. MIP is a "series fund," which is a mutual fund
divided into separate portfolios. This Part B is not a prospectus and should be
read in conjunction with MIP's Part A, also dated July 1, 1999. All terms used
in this Part B that are defined in Part A have the meanings assigned in Part A.
A copy of Part A may be obtained without charge by writing Master Investment
Portfolio, c/o Investors Bank & Trust Co., -- Transfer Agent, P.O. Box 9130,
Mail Code MFD23, Boston, MA 02117-9130, or by calling 1-800-204-3956. MIP's
Registration Statement may be examined at the office of the Securities and
Exchange Commission ("SEC") in Washington, D.C.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Trust History...................................................................................... 1
Description of the Master Portfolio and Its Investments and Risks.................................. 2
Management of the Trust............................................................................ 9
Control Persons and Principal Holders of Securities................................................ 11
Investment Advisory and Other Services............................................................. 11
Brokerage Allocation and Other Practices........................................................... 12
Capital Stock and Other Securities................................................................. 12
Purchase, Redemption and Pricing of Interests...................................................... 13
Taxation of the Trust.............................................................................. 14
Underwriters....................................................................................... 14
Calculations of Performance Data................................................................... 14
Financial Statements............................................................................... 15
Appendix........................................................................................... A-1
</TABLE>
ITEM 11. TRUST HISTORY.
MIP is an open-end, management investment company, organized on October 21,
1993 as a business trust under the laws of the State of Delaware. MIP is a
"series fund," which is a mutual fund divided into separate portfolios. By this
offering document, MIP is offering one of its diversified portfolios - the Money
Market Master Portfolio (the "Master Portfolio"). The Master Portfolio is
treated as a separate entity for certain matters under the Investment Company
Act of 1940, as amended (the "1940 Act"), and for other purposes and an
interestholder of the Master Portfolio is not deemed to be an interestholder of
any other portfolio of MIP. As described below, for certain matters MIP
interestholders vote together as a group; as to others they vote separately by
portfolio. MIP currently offers eleven other portfolios pursuant to other
offering documents. From time to time, other portfolios may be established and
sold pursuant to other offering documents.
Beneficial interests in the Master Portfolio are issued solely in private
placement transactions which do not involve any "public offering" within the
meaning of Regulation D under the Securities Act of 1933, as amended (the "1933
Act"). Investments in the Master Portfolio may be made only by investment
companies or certain other entities which are "accredited investors" within the
meaning of Regulation D under the 1933 Act.
1
<PAGE>
Investment companies that hold shares of beneficial interest ("interests") in
the Master Portfolio are sometimes referred to herein as "feeder funds."
ITEM 12. DESCRIPTION OF THE MASTER PORTFOLIO AND ITS INVESTMENTS AND RISKS.
The following information supplements and should be read in conjunction
with Item 4 in Part A.
Investment Objective. The Master Portfolio's investment objective is set forth
in Item 4, "Investment Objectives, Principal Strategies and Related Risks," of
Part A. There can be no assurance that the investment objective of the Master
Portfolio will be achieved. The Master Portfolio's investment objective is
fundamental and, therefore, cannot be changed without approval by the holders of
a majority (as defined in the Investment Company Act of 1940, as amended (the
"1940 Act")) of the Master Portfolio's outstanding voting interests.
Investment Restrictions
Fundamental Investment Restrictions. The Master Portfolio has adopted
investment restrictions as fundamental policies. These restrictions cannot be
changed, as to the Master Portfolio, without approval by the holders of a
majority (as defined in the 1940 Act) of the Master Portfolio's outstanding
voting securities. The Master Portfolio may not:
(1) purchase the securities of issuers conducting their principal business
activity in the same industry if, immediately after the purchase and as a result
thereof, the value of the Master Portfolio's investments in that industry would
be 25% or more of the current value of the Master Portfolio's total assets,
provided that there is no limitation with respect to investments in (i)
obligations of the U.S. Government, its agencies or instrumentalities; and (ii)
obligations of banks, to the extent that the U.S. Securities and Exchange
Commission ("SEC"), by rule or interpretation, permits funds to reserve freedom
to concentrate in such obligations;
(2) purchase or sell real estate or real estate limited partnerships (other
than securities secured by real estate or interests therein or securities issued
by companies that invest in real estate or interests therein);
(3) purchase commodities or commodity contracts (including futures
contracts), except that the Master Portfolio may purchase securities of an
issuer which invests or deals in commodities or commodity contracts;
(4) purchase interests, leases, or limited partnership interests in oil,
gas, or other mineral exploration or development programs;
(5) purchase securities on margin (except for short-term credits necessary
for the clearance of transactions and except for margin payments in connection
with options, futures and options on futures) or make short sales of securities;
(6) underwrite securities of other issuers, except to the extent that the
purchase of permitted investments directly from the issuer thereof or from an
underwriter for an issuer and the later disposition of such securities in
accordance with the Master Portfolio's investment program may be deemed to be an
underwriting;
(7) make investments for the purpose of exercising control or management;
(8) borrow money or issue senior securities as defined in the Investment
Company Act of 1940 (the "1940 Act"), except that the Master Portfolio may
borrow from banks up to 10% of the current value of its net assets for temporary
purposes only in order to meet redemptions, and these borrowings may be secured
by the pledge of up to 10% of the current value of its net assets (but
investments may not be purchased while any such outstanding borrowing in excess
of 5% of its net assets exists);
2
<PAGE>
(9) write, purchase or sell puts, calls, straddles, spreads, warrants,
options or any combination thereof, except that the Master Portfolio may
purchase securities with put rights in order to maintain liquidity;
(10) purchase securities of any issuer (except securities issued or
guaranteed by the U.S. Government, its agencies and instrumentalities) if, as a
result, with respect to 75% of its total assets, more than 5% of the value of
the Master Portfolio's total assets would be invested in the securities of any
one issuer or, with respect to 100% of its total assets the Master Portfolio's
ownership would be more than 10% of the outstanding voting securities of such
issuer; or
(11) make loans, except that the Master Portfolio may purchase or hold debt
instruments or lend its portfolio securities in accordance with its investment
policies, and may enter into repurchase agreements.
Non-Fundamental Investment Restrictions. The Master Portfolio has adopted the
following investment restrictions as non-fundamental policies. These
restrictions may be changed without shareholder approval by vote of a majority
of the Trustees of MIP, at any time. The Master Portfolio is subject to the
following investment restrictions, all of which are non-fundamental policies.
(1) The Master Portfolio may invest in shares of other open-end management
investment companies, subject to the limitations of Section 12(d)(1) of the 1940
Act. Under the 1940 Act, the Master Portfolio's investment in such securities
currently is limited, subject to certain exceptions, to (i) 3% of the total
voting stock of any one investment company, (ii) 5% of the Master Portfolio's
net assets with respect to any one investment company, and (iii) 10% of the
Master Portfolio's net assets in the aggregate. Other investment companies in
which the Master Portfolio invests can be expected to charge fees for operating
expenses, such as investment advisory and administration fees, that would be in
addition to those charged by the Master Portfolio.
(2) The Master Portfolio may not invest more than 10% of its net assets in
illiquid securities. For this purpose, illiquid securities include, among
others, (i) securities that are illiquid by virtue of the absence of a readily
available market or legal or contractual restrictions on resale, (ii) fixed time
deposits that are subject to withdrawal penalties and that have maturities of
more than seven days, and (iii) repurchase agreements not terminable within
seven days.
(3) The Master Portfolio may lend securities from its portfolio to
brokers, dealers and financial institutions, in amounts not to exceed (in the
aggregate) one-third of the Master Portfolio's total assets. Any such loans of
portfolio securities will be fully collateralized based on values that are
marked to market daily. The Master Portfolio will not enter into any portfolio
security lending arrangement having a duration of longer than one year.
Portfolio Securities
General. The assets of the Master Portfolio consist only of obligations
--------
maturing within thirteen months from the date of acquisition (as determined in
accordance with the regulations of the SEC), and the dollar-weighted average
maturity of the Master Portfolio may not exceed 90 days. The securities in which
the Master Portfolio may invest will not yield as high a level of current income
as may be achieved from securities with less liquidity and less safety. There
can be no assurance that the Master Portfolio's investment objective will be
realized as described in the Master Portfolio's Prospectus.
Asset Backed Securities.
-----------------------
The Master Portfolio may purchase asset-backed securities, which are
securities backed by installment contracts, credit-card receivables or other
assets. Asset-backed securities represent interests in "pools" of
3
<PAGE>
assets in which payments of both interest and principal on the securities are
made monthly, thus in effect "passing through" monthly payments made by the
individual borrowers on the assets that underlie the securities, net of any fees
paid to the issuer or guarantor of the securities. The average life of asset-
backed securities varies with the maturities of the underlying instruments and
is likely to be substantially less than the original maturity of the assets
underlying the securities as a result of prepayments. For this and other
reasons, an asset-backed security's stated maturity may be shortened, and the
security's total return may be difficult to predict precisely. The Master
Portfolio may invest in such securities up to the limits prescribed by Rule 2a-7
and other provisions of the 1940 Act.
Bank Obligations.
----------------
The Master Portfolio may invest in bank obligations which include, but are
not limited to, negotiable certificates of deposit ("CDs"), bankers' acceptances
and fixed time deposits. The Master Portfolio also may invest in high-quality
short-term obligations of foreign branches of U.S. banks or U.S. branches of
foreign banks that are denominated in and pay interest in U.S. dollars.
Fixed time deposits are obligations of U.S. banks, foreign branches of U.S.
banks or foreign banks which are payable at a stated maturity date and bear a
fixed rate of interest. Generally fixed time deposits may be withdrawn on demand
by the investor, but they may be subject to early withdrawal penalties which
vary depending upon market conditions and the remaining maturity of the
obligation. Although fixed time deposits do not have an established market,
there are no contractual restrictions on the Master Portfolio's right to
transfer a beneficial interest in the deposit to a third party. It is the policy
of the Master Portfolio not to invest in fixed time deposits subject to
withdrawal penalties, other than overnight deposits, or in repurchase agreements
with more than seven days to maturity or other illiquid securities, if more than
10% of the value of its net assets would be so invested.
Obligations of foreign banks and foreign branches of U.S. banks involve
somewhat different investment risks from those affecting domestic obligations,
including the possibilities that liquidity could be impaired because of future
political and economic developments, that the obligations may be less marketable
than comparable obligations of U.S. banks, that a foreign jurisdiction might
impose withholding taxes on interest income payable on those obligations, that
foreign deposits may be seized or nationalized, that foreign governmental
restrictions (such as foreign exchange controls) may be adopted which might
adversely affect the payment of principal and interest on those obligations and
that the selection of those obligations may be more difficult because there may
be less publicly available information concerning foreign banks or the
accounting, auditing and financial reporting standards, practices and
requirements applicable to foreign banks may differ from those applicable to
U.S. banks. In that connection, foreign banks are not subject to examination by
any U.S. Government agency or instrumentality.
Commercial Paper and Short-Term Corporate Debt Instruments
----------------------------------------------------------
The Master Portfolio may invest in commercial paper (including variable
amount master demand notes), which consists of short-term, unsecured promissory
notes issued by corporations to finance short-term credit needs. Commercial
paper is usually sold on a discount basis and has a maturity at the time of
issuance not exceeding nine months. Variable amount master demand notes are
demand obligations that permit the investment of fluctuating amounts at varying
market rates of interest pursuant to arrangements between the issuer and a
commercial bank acting as agent for the payee of such notes whereby both parties
have the right to vary the amount of the outstanding indebtedness on the notes.
The investment adviser and/or sub-adviser to each Master Portfolio monitors on
an ongoing basis the ability of an issuer of a demand instrument to pay
principal and interest on demand.
The Master Portfolio also may invest in non-convertible corporate debt
securities (e.g., bonds and debentures) with not more than thirteen months
remaining to maturity at the date of settlement. The Master
4
<PAGE>
Portfolio will invest only in such corporate bonds and debentures that are rated
at the time of purchase at least "Aa" by Moody's or "AA" by S&P. Subsequent to
its purchase by the Master Portfolio, an issue of securities may cease to be
rated or its rating may be reduced below the minimum rating required for
purchase by the Master Portfolio. The investment adviser to the Master Portfolio
will consider such an event in determining whether the Master Portfolio should
continue to hold the obligation. To the extent the Master Portfolio continues to
hold such obligations, it may be subject to additional risk of default.
Floating- and Variable-Rate Obligations.
---------------------------------------
The Master Portfolio may purchase floating- and variable-rate obligations
as described in the Prospectus. The Master Portfolio may purchase floating- and
variable-rate demand notes and bonds, which are obligations ordinarily having
stated maturities in excess of thirteen months, but which permit the holder to
demand payment of principal at any time, or at specified intervals not exceeding
thirteen months. Variable rate demand notes include master demand notes that are
obligations that permit the Master Portfolio to invest fluctuating amounts,
which may change daily without penalty, pursuant to direct arrangements between
the Master Portfolio, as lender, and the borrower. The interest rates on these
notes fluctuate from time to time. The issuer of such obligations ordinarily has
a corresponding right, after a given period, to prepay in its discretion the
outstanding principal amount of the obligations plus accrued interest upon a
specified number of days' notice to the holders of such obligations. The
interest rate on a floating-rate demand obligation is based on a known lending
rate, such as a bank's prime rate, and is adjusted automatically each time such
rate is adjusted. The interest rate on a variable-rate demand obligation is
adjusted automatically at specified intervals. Frequently, such obligations are
secured by letters of credit or other credit support arrangements provided by
banks. Because these obligations are direct lending arrangements between the
lender and borrower, it is not contemplated that such instruments generally will
be traded, and there generally is no established secondary market for these
obligations, although they are redeemable at face value. Accordingly, where
these obligations are not secured by letters of credit or other credit support
arrangements, the Master Portfolio's right to redeem is dependent on the ability
of the borrower to pay principal and interest on demand. Such obligations
frequently are not rated by credit rating agencies and the Master Portfolio may
invest in obligations which are not so rated only if BGFA determines that at the
time of investment the obligations are of comparable quality to the other
obligations in which the Master Portfolio may invest. BGFA, on behalf of the
Master Portfolio, considers on an ongoing basis the creditworthiness of the
issuers of the floating- and variable-rate demand obligations in the Master
Portfolio's portfolio. The Master Portfolio will not invest more than 10% of the
value of its total net assets in floating- or variable-rate demand obligations
whose demand feature is not exercisable within seven days. Such obligations may
be treated as liquid, provided that an active secondary market exists.
Foreign Obligations.
-------------------
Investments in foreign obligations involve certain considerations that are
not typically associated with investing in domestic obligations. There may be
less publicly available information about a foreign issuer than about a domestic
issuer. Foreign issuers also are not generally subject to uniform accounting,
auditing and financial reporting standards or governmental supervision
comparable to those applicable to domestic issuers. In addition, with respect to
certain foreign countries, taxes may be withheld at the source under foreign
income tax laws, and there is a possibility of expropriation or confiscatory
taxation, political or social instability or diplomatic developments that could
adversely affect investments in, the liquidity of, and the ability to enforce
contractual obligations with respect to, securities of issuers located in those
countries.
Forward Commitments, When-Issued Purchases and Delayed-Delivery
---------------------------------------------------------------
Transactions.
- ------------
The Master Portfolio may purchase securities on a when-issued or forward
commitment (sometimes called a delayed-delivery) basis, which means that the
price is fixed at the time of commitment, but delivery and payment ordinarily
take place a number of days after the date of the commitment to purchase. The
Master
5
<PAGE>
Portfolio will make commitments to purchase such securities only with the
intention of actually acquiring the securities, but the Master Portfolio may
sell these securities before the settlement date if it is deemed advisable. The
Master Portfolio will not accrue income in respect of a security purchased on a
forward commitment basis prior to its stated delivery date.
Securities purchased on a when-issued or forward commitment basis and
certain other securities held in the Master Portfolio's investment portfolio are
subject to changes in value (both generally changing in the same way, i.e.,
appreciating when interest rates decline and depreciating when interest rates
rise) based upon the public's perception of the creditworthiness of the issuer
and changes, real or anticipated, in the level of interest rates. Securities
purchased on a when-issued or forward commitment basis may expose the Master
Portfolio to risk because they may experience such fluctuations prior to their
actual delivery. Purchasing securities on a when-issued or forward commitment
basis can involve the additional risk that the yield available in the market
when the delivery takes place actually may be higher than that obtained in the
transaction itself. A segregated account of the Master Portfolio consisting of
cash or U.S. Government obligations or other high quality liquid debt securities
at least equal at all times to the amount of the when-issued or forward
commitments will be established and maintained at the Master Portfolio's
custodian bank. Purchasing securities on a forward commitment basis when the
Master Portfolio is fully or almost fully invested may result in greater
potential fluctuation in the value of the Master Portfolio's total net assets
and its net asset value per share. In addition, because the Master Portfolio
will set aside cash and other high quality liquid debt securities as described
above, the liquidity of the Master Portfolio's investment portfolio may decrease
as the proportion of securities in the Master Portfolio's portfolio purchased on
a when-issued or forward commitment basis increases.
The value of the securities underlying a when-issued purchase or a forward
commitment to purchase securities, and any subsequent fluctuations in their
value, is taken into account when determining the Master Portfolio's net asset
value starting on the day the Master Portfolio agrees to purchase the
securities. The Master Portfolio does not earn interest on the securities it has
committed to purchase until they are paid for and delivered on the settlement
date. When the Master Portfolio makes a forward commitment to sell securities it
owns, the proceeds to be received upon settlement are included in the Master
Portfolio's assets, and fluctuations in the value of the underlying securities
are not reflected in the Master Portfolio's net asset value as long as the
commitment remains in effect.
Funding Agreements.
-------------------
The Fund may invest in short-term funding agreements. A funding agreement
is a contract between an issuer and a purchaser that obligates the issuer to pay
a guaranteed rate of interest on a principal sum deposited by the purchaser.
Funding agreements will also guarantee the return of principal and may guarantee
a stream of payments over time. A funding agreement has a fixed maturity and may
have either a fixed, variable or floating interest rate that is based on an
index and guaranteed for a fixed time period. The Fund will purchase short-term
funding agreements only from banks and insurance companies that, at the time of
purchase, are rated in one of the three highest rating categories and have
assets of $1 billion or more.
The secondary market, if any, for these funding agreements is limited;
thus, such investments purchased by the Fund may be treated as illiquid. If a
funding agreement is determined to be illiquid it will be valued at its fair
market value as determined by procedures approved by the Board of Directors.
Valuation of illiquid indebtedness involves a greater degree of judgment in
determining the Fund's net asset value than if the value were based on available
market quotations.
Illiquid Securities.
-------------------
The Master Portfolio may invest in securities not registered under the 1933
Act and other securities subject to legal or other restrictions on resale.
Because such securities may be less liquid than other investments, they may be
difficult to sell promptly at an acceptable price. Delay or difficulty in
selling securities may result in a loss or be costly to the Master Portfolio.
Letters of Credit.
------------------
Certain of the debt obligations, certificates of participation, commercial
paper and other short-term obligations which the Master Portfolio is permitted
to purchase may be backed by an unconditional and irrevocable letter of credit
of a bank, savings and loan association or insurance company which assumes the
obligation for payment of principal and interest in the event of default by the
issuer. Letter of credit-backed investments must, in the opinion of BGFA, be of
investment quality comparable to other permitted investments of the Master
Portfolio.
Loan Participation Agreements.
-----------------------------
The Fund may purchase interests in loan participations that typically
represent direct participation in a loan to a corporate borrower, and generally
are offered by an intermediary bank or other financial institution or lending
syndicate. Under these loan participation arrangements, the Fund will have the
right to receive payments of principal, interest and any fees to which it is
entitled from the bank selling the loan participation upon receipt by the bank
of the payments from the borrower. The borrower in the underlying loan will be
deemed to be the issuer of the participation interest except to the extent the
Fund derives its rights from the intermediary bank that sold the loan
participation. Such loans must be to issuers in whose obligations the Fund may
invest. Any participations purchased by a Fund must be sold by an intermediary
bank in the United States with assets exceeding $1 billion.
Because the bank issuing the loan participation does not guarantee the
participation in any way, the participation is subject to the credit risks
associated with the underlying corporate borrower. In addition, it may be
necessary, under the terms of the loan participation, for the Fund to assert its
rights against the underlying corporate borrower, in the event that the
underlying corporate borrower should fail to pay principal and interest when
due. Thus, the Fund could be subject to delays, expenses, and risks which are
greater than those that would have been involved if the Fund had purchased a
direct obligation of the borrower. Moreover, under the terms of the loan
participation, the Fund may be regarded as a creditor of the issuing bank
(rather than of the underlying corporate borrower), so that the Fund also may be
subject to the risk that the issuing bank may become insolvent. Further, in the
event of the bankruptcy or insolvency of the corporate borrower, the loan
participation might be subject to certain defenses that can be asserted by the
borrower as a result of improper conduct by the issuing bank.
The secondary market, if any, for these loan participation interests is
limited; thus, such participations purchased by the Fund may be treated as
illiquid. If a loan participation is determined to be illiquid it will be valued
at its fair market value as determined by procedures approved by the Board of
Directors. Valuation of illiquid indebtedness involves a greater degree of
judgment in determining the Fund's net asset value than if the value were based
on available market quotations.
Loans of Portfolio Securities.
-----------------------------
The Master Portfolio may lend its securities to brokers, dealers and
financial institutions, provided (1) the loan is secured continuously by
collateral consisting of cash, U.S. Government securities or an irrevocable
letter
6
<PAGE>
of credit which is marked to market daily to ensure that each loan is fully
collateralized; (2) the Master Portfolio may at any time recall the loan and
obtain the return of the securities loaned within five business days; (3) the
Master Portfolio will receive any interest or dividends paid on the securities
loaned; and (4) the aggregate market value of securities loaned will not at any
time exceed one-third of the total assets of the Master Portfolio. The Master
Portfolio may earn income in connection with securities loans either through the
reinvestment of the cash collateral or the payment of fees by the borrower. The
Master Portfolio does not currently intend to lend its portfolio securities.
Municipal Obligations.
---------------------
The Master Portfolio may invest in municipal obligations. Municipal bonds
generally have a maturity at the time of issuance of up to 40 years. Medium-
term municipal notes are generally issued in anticipation of the receipt of tax
Master Portfolios, of the proceeds of bond placements, or of other revenues.
The ability of an issuer to make payments on notes is therefore especially
dependent on such tax receipts, proceeds from bond sales or other revenues, as
the case may be. Municipal commercial paper is a debt obligation with a stated
maturity of 270 days or less that is issued to finance seasonal working capital
needs or as short-term financing in anticipation of longer-term debt.
The Master Portfolio will invest in 'high-quality'(as that term is defined
in Rule 2a-7 of the 1940 Act) long-term municipal bonds, municipal notes and
short-term commercial paper, with remaining maturities not exceeding 13 months.
Other Investment Companies.
--------------------------
The Master Portfolio may invest in shares of other open-end investment
companies that invest exclusively in high-quality short-term securities subject.
The Master Portfolio may also purchase shares of exchange listed closed-end
Master Portfolios.
Participation Interests.
-----------------------
The Fund may invest in participation interests in any type of security in
which the Fund may invest. A participation interest gives the Fund an undivided
interest in the underlying securities in the proportion that the Fund's
participation interest bears to the total principal amount of the underlying
securities.
Pass-Through Obligations.
------------------------
Certain of the debt obligations in which the Master Portfolio may invest
may be pass-through obligations that represent an ownership interest in a pool
of mortgages and the resultant cash flow from those mortgages. Payments by
homeowners on the loans in the pool flow through to certificate holders in
amounts sufficient to repay principal and to pay interest at the pass-through
rate. The stated maturities of pass-through obligations may be shortened by
unscheduled prepayments of principal on the underlying mortgages. Therefore, it
is not possible to predict accurately the average maturity of a particular pass-
through obligation. Variations in the maturities of pass-through obligations
will affect the yield of any Master Portfolio investing in such obligations.
Furthermore, as with any debt obligation, fluctuations in interest rates will
inversely affect the market value of pass-through obligations.
Repurchase Agreements.
----------------------
The Master Portfolio may engage in a repurchase agreement with respect to
any security in which it is authorized to invest, although the underlying
security may mature in more than thirteen months. The Master Portfolio may enter
into repurchase agreements wherein the seller of a security to the Master
Portfolio agrees to repurchase that security from the Master Portfolio at a
mutually agreed-upon time and price that involves
7
<PAGE>
the acquisition by the Master Portfolio of an underlying debt instrument,
subject to the seller's obligation to repurchase, and the Master Portfolio's
obligation to resell, the instrument at a fixed price usually not more than one
week after its purchase. Securities acquired as collateral by the Master
Portfolio under a repurchase agreement will be held in a segregated account at a
bank. The Master Portfolio may enter into repurchase agreements only with
respect to securities of the type in which it may invest, including government
securities and mortgage-related securities, regardless of their remaining
maturities, and requires that additional securities be deposited with the
custodian if the value of the securities purchased should decrease below resale
price. BGFA monitors on an ongoing basis the value of the collateral to assure
that it always equals or exceeds the repurchase price. Certain costs may be
incurred by the Master Portfolio in connection with the sale of the underlying
securities if the seller does not repurchase them in accordance with the
repurchase agreement. In addition, if bankruptcy proceedings are commenced with
respect to the seller of the securities, disposition of the securities by the
Master Portfolio may be delayed or limited. While it does not presently appear
possible to eliminate all risks from these transactions (particularly the
possibility of a decline in the market value of the underlying securities, as
well as delay and costs to the Master Portfolio in connection with insolvency
proceedings), it is the policy of the Master Portfolio to limit repurchase
agreements to selected creditworthy securities dealers or domestic banks or
other recognized financial institutions. The Master Portfolio considers on an
ongoing basis the creditworthiness of the institutions with which it enters into
repurchase agreements. Repurchase agreements are considered to be loans by the
Master Portfolio under the 1940 Act.
Rule 144A.
---------
It is possible that unregistered securities, purchased by the Master
Portfolio in reliance upon Rule 144A under the Securities Act of 1933, could
have the effect of increasing the level of the Master Portfolio's illiquidity to
the extent that qualified institutional buyers become, for a period,
uninterested in purchasing these securities.
Unrated Investments.
-------------------
The Master Portfolio may purchase instruments that are not rated if, in the
opinion of BGFA, such obligations are of investment quality comparable to other
rated investments that are permitted for purchase by the Master Portfolio, if
they are purchased in accordance with the Master Portfolio's procedures adopted
by the Trust's Board of Trustees in accordance with Rule 2a-7 under the 1940
Act. Such procedures require approval or ratification by the Trustees of the
purchase of unrated securities. After purchase by the Master Portfolio, a
security may cease to be rated or its rating may be reduced below the minimum
required for purchase by the Master Portfolio. Neither event will require an
immediate sale of such security by the Master Portfolio provided that, when a
security ceases to be rated, the Trust's Board of Trustees determines that such
security presents minimal credit risks and, provided further that, when a
security rating is downgraded below the eligible quality for investment or no
longer presents minimal credit risks, the Board finds that the sale of such
security would not be in the Master Portfolio's interestholder's best interests.
To the extent the ratings given by a nationally recognized statistical
ratings organization ("NRSRO") may change as a result of changes in such
organizations or their rating systems, the Master Portfolio will attempt to use
comparable ratings as standards for investments in accordance with the
investment policies contained in the Prospectus and in this SAI. The ratings of
NRSROs are more fully described in the SAI Appendix.
U.S. Government Obligations. The Master Portfolio may invest in various
types of U.S. Government obligations. U.S. Government obligations include
securities issued or guaranteed as to principal and interest by the U.S.
Government, its agencies or instrumentalities. Payment of principal and interest
on U.S. Government obligations (i) may be backed by the full faith and credit of
the United States (as with U.S. Treasury obligations and GNMA certificates) or
(ii) may be backed solely by the issuing or guaranteeing agency or
instrumentality itself (as with FNMA notes). In the latter case, the investor
must look principally to the agency or instrumentality issuing or guaranteeing
the obligation for ultimate repayment, which agency or instrumentality may be
privately owned. There can be no assurance that the U.S. Government would
provide
8
<PAGE>
financial support to its agencies or instrumentalities where it is not obligated
to do so. As a general matter, the value of debt instruments, including U.S.
Government obligations, declines when market interest rates increase and rises
when market interest rates decrease. Certain types of U.S. Government
obligations are subject to fluctuations in yield or value due to their structure
or contract terms.
ITEM 13. MANAGEMENT OF THE TRUST.
The following information supplements and should be read in conjunction
with the Part A section entitled "Management of the Master Portfolio." The
Trustees and Principal Officer of MIP, together with information as to their
principal business occupations during at least the last five years, are shown
below. The address of each, unless otherwise indicated, is 111 Center Street,
Little Rock, Arkansas 72201. Each Trustee who is deemed to be an "interested
person" of the MIP, as defined in the 1940 Act, is indicated by an asterisk.
<TABLE>
<CAPTION>
Principal Occupations
Name, Address and Age Position During Past 5 Years
- --------------------- -------- ---------------------
<S> <C> <C>
Jack S. Euphrat, 76 Trustee Private Investor.
415 Walsh Road
Atherton, CA 94027
*R. Greg Feltus, 47 Trustee, Executive Vice President of
President Stephens; President of Stephens
and Chairman Insurance Services Inc.; Senior
Vice President of Stephens
Sports Management Inc.; and
President of Investors
Brokerage Insurance Inc.
W. Rodney Hughes, 72 Trustee Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Richard H. Blank, Jr., 42 Chief Operating Officer, Vice President of Stephens;
Secretary and Treasurer Director of Stephens Sports
Management Inc.; and Director of
Capo Inc.
</TABLE>
9
<PAGE>
Compensation Table
For the Fiscal Year Ended February 28, 1999
<TABLE>
<CAPTION>
Total Compensation
Aggregate Compensation from Registrant
Name and Position from Registrant and Fund Complex
----------------- --------------- ----------------
<S> <C> <C>
Jack S. Euphrat $ 0 $5,000
Trustee
*R. Greg Feltus $ 0 $ 0
Trustee
Thomas S. Goho $ 0 $5,000
Trustee
W. Rodney Hughes $ 0 $4,500
Trustee
*J. Tucker Morse $ 0 $4,500
Trustee
</TABLE>
Trustees of MIP are compensated annually by all the registrants in the fund
complex for their services as indicated above and also are reimbursed for all
out-of-pocket expenses relating to attendance at board meetings. MIP and
Barclays Global Investors Funds, Inc. ("BGIF"), formerly known as MasterWorks
Funds Inc., are considered to be members of the same fund complex as such term
is defined in Form N-1A under the 1940 Act. The Trustees are compensated by BGIF
and MIP for their services as Directors/Trustees to the company and Trust.
Currently, the Trustees do not receive any retirement benefits or deferred
compensation from MIP or BGIF.
As of the date of this SAI, the Trustees and Principal Officer of MIP as a
group beneficially owned less than 1% of the outstanding beneficial interest of
MIP.
ITEM 14. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.
As of May 31, 1999, the interestholders identified below were know by the
Trust to own 5% or more of the outstanding voting securities of the Money Market
Master Portfolio. Approximate percentages are indicated in the table below:
Name and Address Percentage of
of Interestholder Master Portfolio
---------------------------- ----------------
BGIF Money Market Fund 73.00%
111 Center Street
Little Rock, Arkansas 72201
Hewitt Money Market Fund 26.98%
100 Half Day Road
Lincolnshire, Illinois 60069
For purposes of the 1940 Act, any person who owns directly or through one
or more controlled companies more than 25% of the voting securities of a company
is presumed to "control" such company. Accordingly, to the extent that a
shareholder identified in the forgoing table is identified as the beneficial
holder of more than 25% of the Master Portfolio, or is identified as the holder
of record of more than 25% of the Master Portfolio and has voting and/or
investment powers, it may be presumed to control the Master Portfolio.
ITEM 15. INVESTMENT ADVISORY AND OTHER SERVICES.
The following information supplements and should be read in conjunction
with Item 6 in Part A.
Investment Adviser. Barclays Global Fund Advisors ("BGFA") provides
investment advisory services to the Master Portfolio pursuant to an Investment
Advisory Contract (the "Advisory Contract") with MIP. As to the Master
Portfolio, the Advisory Contract is subject to annual approval by (i) MIP's
Board of Trustees or (ii) vote of a majority (as defined in the 1940 Act) of the
outstanding voting securities of the Master Portfolio, provided that in either
event the continuance also is approved by a majority of MIP's Board of Trustees
who are not "interested persons" (as defined in the 1940 Act) of MIP or BGFA, by
vote cast in person at a meeting called for the purpose of voting on such
approval. The Advisory Contract is terminable without penalty, on 60 days'
written notice, by either party and will terminate automatically in the event of
its assignment (as defined in the 1940
10
<PAGE>
Act). For the period beginning September 1, 1998 and ended February 28, 1999,
the Master Portfolio paid BGFA $104,611 in advisory fees, without waivers.
Co-Administrators. Stephens and BGI are the Master Portfolio's co-
administrators. Stephens and BGI provide the Master Portfolio with
administrative services, including general supervision of the Master Portfolio'
non-investment operations, coordination of the other services provided to the
Master Portfolio, compilation of information for reports to the SEC and the
state securities commissions, preparation of proxy statements and shareholder
reports, and general supervision of data compilation in connection with
preparing periodic reports to the MIP's trustees and officers. Stephens also
furnishes office space and certain facilities to conduct the Master Portfolio'
business, and compensates the MIP's trustees, officers and employees who are
affiliated with Stephens. In addition, except as outlined below under
"Expenses," Stephens and BGI will be responsible for paying all expenses
incurred by the Master Portfolio other than the fees payable to BGFA. Stephens
and BGI are not entitled to compensation for providing administration services
to the Master Portfolio. BGI has delegated certain of its duties as co-
administrator to Investors Bank & Trust Company ("IBT"). IBT, as sub-
administrator, is compensated by BGI for performing certain administration
services.
Placement Agent. Stephens is the placement agent for the Master Portfolio.
Stephens is a full service broker/dealer and investment advisory firm located at
111 Center Street, Little Rock, Arkansas 72201. Stephens and its predecessor
have been providing securities and investment services for more than 60 years,
including discretionary portfolio management services since 1983. Stephens
currently manages investment portfolios for pension and profit sharing plans,
individual investors, foundations, insurance companies and university
endowments. Stephens does not receive compensation for acting as placement
agent.
Custodian. IBT currently acts as the Master Portfolio's custodian. The
principal business address of IBT is 200 Clarendon Street, Boston, Massachusetts
02116. IBT is not entitled to receive compensation for its custodial services so
long as it is entitled to receive compensation for providing sub-administration
services to the Master Portfolio.
Transfer and Dividend Disbursing Agent. IBT also acts as the Master
Portfolio's Transfer and Dividend Disbursing Agent (the "Transfer Agent"). IBT
is not entitled to receive compensation for providing such services to MIP so
long as it receives fees for providing similar services to the funds which
invest substantially all of their assets in the Master Portfolio.
Expenses. Except for extraordinary expenses, brokerage and other expenses
connected with to the execution of portfolio transactions and certain other
expenses which are borne by the Master Portfolio, Stephens and BGI have agreed
to bear all costs of the Master Portfolio' and MIP's operations.
ITEM 16. BROKERAGE ALLOCATION AND OTHER PRACTICES.
General. BGFA assumes general supervision over placing orders on behalf of
the Master Portfolio for the purchase or sale of portfolio securities.
Allocation of brokerage transactions, including their frequency, is made in the
best judgment of BGFA and in a manner deemed fair and reasonable to
interestholders. In executing portfolio transactions and selecting brokers or
dealers, BGFA seeks to obtain the best overall terms available for the Master
Portfolio. In assessing the best overall terms available for any transaction,
BGFA considers factors deemed relevant, including the breadth of the market in
the security, the price of the security, the financial condition and execution
capability of the broker or dealer, and the reasonableness of the commission, if
any, both for the specific transaction and on a continuing basis. The primary
consideration is prompt execution of orders at the most favorable net price.
Certain of the brokers or dealers with whom the Master Portfolio may transact
business offer commission rebates to the Master Portfolio. BGFA considers such
rebates in assessing the best overall terms available for any transaction. The
overall reasonableness of brokerage commissions paid is evaluated by BGFA based
upon its knowledge of available information as to the general level of
commissions paid by other institutional investors for comparable services.
11
<PAGE>
Portfolio Turnover. Because the portfolio of the Master Portfolio consists
of securities with relatively short-term maturities, the Master Portfolio
expects to experience high portfolio turnover. A high portfolio turnover rate
should not adversely affect the Master Portfolio since portfolio transactions
ordinarily will be made directly with principals on a net basis and,
consequently, the Master Portfolio usually will not incur brokerage expenses or
excessive transaction costs.
ITEM 17. CAPITAL STOCK AND OTHER SECURITIES.
Pursuant to MIP's Declaration of Trust, the Trustees are authorized to
issue shares of beneficial interests in the Master Portfolio. Investors in the
Master Portfolio are entitled to participate pro rata in distributions of
taxable income, loss, gain and credit of the Master Portfolio. Upon liquidation
or dissolution of the Master Portfolio, investors are entitled to share pro rata
in the Master Portfolio's net assets available for distribution to its
investors. Investments in the Master Portfolio have no preference, pre-
exemptive, conversion or similar rights and are fully paid and non-assessable,
except as set forth below. Investments in the Master Portfolio may not be
transferred. No certificates are issued.
Each investor is entitled to vote, with respect to matters affecting each
of MIP's portfolios, in proportion to the amount of its investment in the MIP.
Investors in the MIP do not have cumulative voting rights, and investors holding
more than 50% of the aggregate beneficial interest in MIP may elect all of the
Trustees of MIP if they choose to do so and in such event the other investors in
MIP would not be able to elect any Trustee. MIP is not required to hold annual
meetings of investors but MIP may hold special meetings of investors when in the
judgment of MIP's Trustees it is necessary or desirable to submit matters for an
investor vote.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted under the provisions of the 1940 Act or applicable state law or
otherwise to the holders of the outstanding voting securities of an investment
company, such as MIP, will not be deemed to have been effectively acted upon
unless approved by the holders of a majority of the outstanding shares of the
Master Portfolio affected by such matter. Rule 18f-2 further provides that the
Master Portfolio shall be deemed to be affected by a matter unless it is clear
that the interests of the Master Portfolio in the matter are identical or that
the matter does not affect any interest of the Master Portfolio. However, the
Rule exempts the selection of independent accountants and the election of
Trustees from the separate voting requirements of the Rule.
ITEM 18. PURCHASE, REDEMPTION AND PRICING OF INTERESTS.
The following information supplements and should be read in conjunction
with Item 7 in Part A.
Purchase of Securities. Beneficial interests in the Master Portfolio are
issued solely in private placement transactions which do not involve any "public
offering" within the meaning of Section 4(2) of the Securities Act of 1933, as
amended (the "1933 Act"). Investments in the Master Portfolio may only be made
by investment companies or certain other entities which are "accredited
investors" within the meaning of Regulation D under the 1933 Act. This
registration statement does not constitute an offer to sell, or the solicitation
of an offer to buy, any "security" within the meaning of the 1933 Act.
Payment for shares of the Master Portfolio may, at the discretion of the
adviser, be made in the form of securities that are permissible investments for
the Master Portfolio and must meet the investment objective, policies and
limitations of the Master Portfolio as described in the Part A. In connection
with an in-kind securities payment, the Master Portfolio may require, among
other things, that the securities (i) be valued on the day of purchase in
accordance with the pricing methods used by the Master Portfolio; (ii) are
accompanied by satisfactory assurance that the Master Portfolio will have good
and marketable title to such securities received by it; (iii) are not subject to
any restrictions upon resale by the Master Portfolio; (iv) be in proper form for
transfer to the Master Portfolio; and (v) are accompanied by adequate
information concerning the
12
<PAGE>
basis and other tax matters relating to the securities. All dividends, interest,
subscription or other rights pertaining to such securities shall become the
property of the Master Portfolio engaged in the in-kind purchase transaction and
must be delivered to the Master Portfolio by the investor upon receipt from the
issuer. Securities acquired through an in-kind purchase will be acquired for
investment and not for immediate resale. Shares purchased in exchange for
securities generally cannot be redeemed until the transfer has settled.
Suspension of Redemptions. The right of redemption of Master Portfolio
shares may be suspended or the date of payment postponed (a) during any period
when the New York Stock Exchange is closed (other than customary weekend and
holiday closings), (b) when trading in the markets the Master Portfolio
ordinarily utilizes is restricted, or when an emergency exists as determined by
the Securities and Exchange Commission so that disposal of the Master Portfolio'
investments or determination of its net asset value is not reasonably
practicable, or (c) for such other periods as the Securities and Exchange
Commission by order may permit to protect the Master Portfolio's
interestholders.
Pricing of Securities. The Master Portfolio uses the amortized cost method
to determine the value of its portfolio securities pursuant to Rule 2a-7 under
the 1940 Act. The amortized cost method involves valuing a security at its cost
and amortizing any discount or premium over the period until maturity,
regardless of the impact of fluctuating interest rates on the market value of
the security. While this method provides certainty in valuation, it may result
in periods during which the value, as determined by amortized cost, is higher or
lower than the price that the Master Portfolio would receive if the security
were sold. During these periods the yield to a shareholder may differ somewhat
from that which could be obtained from a similar Master Portfolio that uses a
method of valuation based upon market prices. Thus, during periods of declining
interest rates, if the use of the amortized cost method resulted in a lower
value of the Master Portfolio's portfolio on a particular day, a prospective
investor in the Master Portfolio would be able to obtain a somewhat higher yield
than would result from investment in the Master Portfolio using solely market
values, and existing Master Portfolio interestholders would receive
correspondingly less income. The converse would apply during periods of rising
interest rates.
Rule 2a-7 provides that in order to value its portfolio using the amortized
cost method, the Money Market Master Portfolio must maintain a dollar-weighted
average portfolio maturity of 90 days or less, purchase securities having
remaining maturities (as defined in Rule 2a-7) of thirteen months or less and
invest only in those high-quality securities that are determined by the Board of
Directors to present minimal credit risks. The maturity of an instrument is
generally deemed to be the period remaining until the date when the principal
amount thereof is due or the date on which the instrument is to be redeemed.
However, Rule 2a-7 provides that the maturity of an instrument may be deemed
shorter in the case of certain instruments, including certain variable- and
floating-rate instruments subject to demand features.
New York Stock Exchange Closings. The holidays on which the New York Stock
Exchange is closed currently are: New Year's Day, Martin Luther King, Jr.'s
Birthday, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.
ITEM 19. TAXATION OF THE TRUST.
MIP is organized as a business trust under Delaware law. Under MIP's
current classification for federal income tax purposes, it is intended that the
Master Portfolio will be treated as a partnership for such purposes and,
therefore, the Master Portfolio will not be subject to any federal income tax.
However, each investor in the Master Portfolio will be taxable on its share (as
determined in accordance with the governing instruments of MIP) of the Master
Portfolio's ordinary income and capital gains in determining its federal income
tax liability. The determination of such share will be made in accordance with
the Internal Revenue Code of 1986, as amended (the "Code"), and regulations
promulgated thereunder.
13
<PAGE>
MIP's taxable year-end is the last day of December. Although MIP will not
be subject to Federal income tax, it will file appropriate federal income tax
returns.
The Master Portfolio's assets, income and distributions will be managed in
such a way that an investor in the Master Portfolio may satisfy the requirements
of Subchapter M of the Code, by investing substantially all of its investable
assets in the Master Portfolio. Investors are advised to consult their own tax
advisors as to the tax consequences of an investment in the Master Portfolio.
ITEM 20. UNDERWRITERS.
The exclusive placement agent for MIP is Stephens, which receives no
compensation for serving in this capacity. Registered broker/dealers and
investment companies, insurance company separate accounts, common and commingled
trust funds, group trust and similar organizations and entities which constitute
accredited investors, as defined in the regulations adopted under the 1933 Act,
may continuously invest in the Master Portfolio of MIP.
ITEM 21. CALCULATIONS OF PERFORMANCE DATA.
Not applicable.
ITEM 22. FINANCIAL STATEMENTS.
KPMG LLP provides audit services, tax return preparation and assistance and
consultation in connection with the review of certain SEC filings. KPMG LLP's
address is Three Embarcadero Center, San Francisco, California 94111.
14
<PAGE>
APPENDIX
Description of certain ratings assigned by Standard & Poor's Corporation
("S&P"), Moody's Investors Service, Inc. ("Moody's"), Fitch Investors Service,
Inc. ("Fitch"), Duff & Phelps, Inc. ("Duff") and IBCA Inc. and IBCA Limited
("IBCA"):
S&P
Bond Ratings
"AAA"
Bonds rated AAA have the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
"AA"
Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
"A"
Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than obligations in higher rated
categories.
"BBB"
Bonds rated "BBB" are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.
S&P's letter ratings may be modified by the addition of a plus (+) or minus
(-) sign designation, which is used to show relative standing within the major
rating categories, except in the AAA (Prime Grade) category.
Commercial Paper Rating
The designation A-1 by S&P indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus sign (+)
designation. Capacity for timely payment on issues with an A-2 designation is
strong. However, the relative degree of safety is not as high as for issues
designated A-1.
Moody's
Bond Ratings
"Aaa"
Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally
A-1
<PAGE>
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
"Aa"
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what generally are known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
"A"
Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa"
Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Moody's applies the numerical modifiers "1", "2" and "3" to show relative
standing within the major rating categories, except in the "Aaa" category. The
modifier "1" indicates a ranking for the security in the higher end of a rating
category; the modifier "2" indicates a mid-range ranking; and the modifier "3"
indicates a ranking in the lower end of a rating category.
Commercial Paper Rating
The rating ("P-1") Prime-1 is the highest commercial paper rating assigned
by Moody's. Issuers of "P-1" paper must have a superior capacity for repayment
of short-term promissory obligations, and ordinarily will be evidenced by
leading market positions in well established industries, high rates of return on
funds employed, conservative capitalization structures with moderate reliance on
debt and ample asset protection, broad margins in earnings coverage of fixed
financial charges and high internal cash generation, and well established access
to a range of financial markets and assured sources of alternate liquidity.
Issuers (or relating supporting institutions) rated ("P-2") Prime-2 have a
strong capacity for repayment of short-term promissory obligations. This
ordinarily will be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.
Fitch
Bond Ratings
The ratings represent Fitch's assessment of the issuer's ability to meet
the obligations of a specific debt issue or class of debt. The ratings take into
consideration special features of the issue, its relationship to other
obligations of the issuer, the current financial condition and operative
performance of the issuer and of any
A-2
<PAGE>
guarantor, as well as the political and economic environment that might affect
the issuer's future financial strength and credit quality.
"AAA"
Bonds rated "AAA" are considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events.
"AA"
Bonds rated "AA" are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated "AAA". Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short- term debt of these issuers is generally
rated "F-1+".
"A"
Bonds rated "A" are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is considered
to be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
"BBB"
Bonds rated "BBB" are considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these bonds
and, therefore, impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
Plus (+) and minus (-) signs are used with a rating symbol to indicate the
relative position of a credit within the rating category.
Short-Term Ratings
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
Although the credit analysis is similar to Fitch's bond rating analysis,
the short-term rating places greater emphasis than bond ratings on the existence
of liquidity necessary to meet the issuer's obligations in a timely manner.
"F-1+"
Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
"F-1"
Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
A-3
<PAGE>
"F-2"
Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payments, but the margin of safety is not as great as
the F-1+ and F-1 categories.
Duff
Bond Ratings
"AAA"
Bonds rated AAA are considered highest credit quality. The risk factors are
negligible, being only slightly more than for risk-free U.S. Treasury debt.
"AA"
Bonds rated AA are considered high credit quality. Protection factors are
strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
"A"
Bonds rated A have protection factors which are average but adequate.
However, risk factors are more variable and greater in periods of economic
stress.
"BBB"
Bonds rated BBB are considered to have below average protection factors but
still considered sufficient for prudent investment. Considerable variability in
risk during economic cycles.
Plus (+) and minus (-) signs are used with a rating symbol (except AAA) to
indicate the relative position of a credit within the rating category.
Commercial Paper Rating
The rating "Duff-1" is the highest commercial paper rating assigned by
Duff. Paper rated Duff-1 is regarded as having very high certainty of timely
payment with excellent liquidity factors which are supported by ample asset
protection. Risk factors are minor. Paper rated "Duff-2" is regarded as having
good certainty of timely payment, good access to capital markets and sound
liquidity factors and company fundamentals. Risk factors are small.
IBCA
Bond and Long-Term Ratings
Obligations rated AAA by IBCA have the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is substantial,
such that adverse changes in business, economic or financial conditions are
unlikely to increase investment risk significantly. Obligations for which there
is a very low expectation of investment risk are rated AA by IBCA. Capacity for
timely repayment of principal and interest is substantial. Adverse changes in
business, economic or financial conditions may increase investment risk albeit
not very significantly.
A-4
<PAGE>
Commercial Paper and Short-Term Ratings
The designation A1 by IBCA indicates that the obligation is supported by a
very strong capacity for timely repayment. Those obligations rated A1+ are
supported by the highest capacity for timely repayment. Obligations rated A2 are
supported by a strong capacity for timely repayment, although such capacity may
be susceptible to adverse changes in business, economic or financial conditions.
International and U.S. Bank Ratings
An IBCA bank rating represents IBCA's current assessment of the strength of
the bank and whether such bank would receive support should it experience
difficulties. In its assessment of a bank, IBCA uses a dual rating system
comprised of Legal Ratings and Individual Ratings. In addition, IBCA assigns
banks Long- and Short-Term Ratings as used in the corporate ratings discussed
above. Legal Ratings, which range in gradation from 1 through 5, address the
question of whether the bank would receive support provided by central banks or
interestholders if it experienced difficulties, and such ratings are considered
by IBCA to be a prime factor in its assessment of credit risk. Individual
Ratings, which range in gradations from A through E, represent IBCA's assessment
of a bank's economic merits and address the question of how the bank would be
viewed if it were entirely independent and could not rely on support from state
authorities or its owners.
Bank Watch
BankWatch ratings are based upon a qualitative and quantitative analysis of
all segments of the organization including, where applicable, holding company
and operating subsidiaries. BankWatch ratings do not constitute a recommendation
to buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the three highest investment grade ratings used by
BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to
repay principal and interest on a timely basis with limited
incremental risk versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay
principal and interest is strong. Issues rated "A" could be more
vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety
regarding timely repayment of principal and interest is strong, the
relative degree of safety is not as high as for issues rated "TBW-1".
A-5
<PAGE>
APPENDIX
PORTFOLIO SECURITIES.
To the extent set forth in this offering document, the Master Portfolio may
invest in the securities described below.
Ratings -- The ratings of Moody's, S&P, Fitch and Duff represent their
opinions as to the quality of the obligations which they undertake to rate. It
should be emphasized, however, that ratings are relative and subjective and,
although ratings may be useful in evaluating the safety of interest and
principal payments, they do not evaluate the market value risk of such
obligations. Therefore, although these ratings may be an initial criterion for
selection of portfolio investments, BGFA also will evaluate such obligations and
the ability of their issuers to pay interest and principal. The Master Portfolio
will rely on BGFA's judgment, analysis and experience in evaluating the
creditworthiness of an issuer. In this evaluation, BGFA will take into
consideration, among other things, the issuer's financial resources, its
sensitivity to economic conditions and trends, the quality of the issuer's
management and regulatory matters. It also is possible that a rating agency
might not timely change the rating on a particular issue to reflect subsequent
events. See Item 4, "Description of Registrant -- Risk Factors -- Fixed-Income
Securities."
A-6
<PAGE>
MASTER INVESTMENT PORTFOLIO
U.S. EQUITY INDEX MASTER PORTFOLIO
PART B -- STATEMENT OF ADDITIONAL INFORMATION
July 1, 1999
ITEM 10. COVER PAGE AND TABLE OF CONTENTS.
Master Investment Portfolio ("MIP," or the "Trust") is an open-end,
management investment company. MIP is a "series fund," which is a mutual fund
divided into separate portfolios. This Part B is not a prospectus and should be
read in conjunction with MIP's Part A, also dated July 1, 1999. All terms used
in this Part B that are defined in Part A have the meanings assigned in Part A.
A copy of Part A may be obtained without charge by writing Master Investment
Portfolio, c/o Investors Bank & Trust Co., -- Transfer Agent, P.O. Box 9130,
Mail Code MFD23, Boston, MA 02117-9130, or by calling 1-800-204-3956. MIP's
Registration Statement may be examined at the office of the Securities and
Exchange Commission ("SEC") in Washington, D.C.
Table Of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
Trust History...................................................................................... 1
Description of the Master Portfolio and Its Investments and Risks.................................. 2
Management of the Trust............................................................................ 9
Control Persons and Principal Holders of Securities................................................ 10
Investment Advisory and Other Services............................................................. 10
Brokerage Allocation and Other Practices........................................................... 11
Capital Stock and Other Securities................................................................. 12
Purchase, Redemption and Pricing of Interests...................................................... 12
Taxation of the Trust.............................................................................. 13
Underwriters....................................................................................... 14
Calculations of Performance Data................................................................... 14
Financial Statements............................................................................... 14
Appendix........................................................................................... A-1
</TABLE>
ITEM 11. TRUST HISTORY.
MIP is an open-end, management investment company, organized on October 21,
1993 as a business trust under the laws of the State of Delaware. MIP is a
"series fund," which is a mutual fund divided into separate portfolios. By this
offering document, MIP is offering one of its diversified portfolios -the U.S.
Equity Index Master Portfolio (the "Master Portfolio"). The Master Portfolio is
treated as a separate entities for certain matters under the Investment Company
Act of 1940, as amended (the "1940 Act"), and for other purposes and an
interestholder of the Master Portfolio is not deemed to be an interestholder of
any other portfolio of MIP. As described below, for certain matters MIP
interestholders vote together as a group; as to others they vote separately by
portfolio. MIP currently offers eleven other portfolios pursuant to other
offering documents. From time to time, other portfolios may be established and
sold pursuant to other offering documents.
Beneficial interests in the Master Portfolio are issued solely in private
placement transactions which do not involve any "public offering" within the
meaning of Regulation D under the Securities Act of 1933, as amended (the "1933
Act"). Investments in the Master Portfolio may be made only by investment
companies or certain other entities which are "accredited investors" within the
meaning of Regulation D under the 1933 Act. Investment companies that hold
shares of beneficial interest ("interests") in the Master Portfolio are
sometimes referred to herein as "feeder funds."
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ITEM 12. DESCRIPTION OF THE MASTER PORTFOLIO AND ITS INVESTMENTS AND RISKS.
The following information supplements and should be read in conjunction
with Item 4 in Part A.
Investment Objectives. The Master Portfolio's investment objective is set
forth in Item 4, "Investment Objectives, Principal Strategies and Related Risks
- -- Investment Objectives," of Part A. The Master Portfolio's investment
objective can be changed by MIP's Board of Trustees without interestholder
approval. The objectives and policies of the Master Portfolio determines the
types of portfolio securities in which it invests, the degree of risk to which
it is subject and, ultimately, its performance. There can be no assurance that
the investment objectives of the Master Portfolio will be achieved.
Investment Restrictions
Fundamental Investment Restrictions. The Master Portfolio has adopted the
following investment restrictions as fundamental policies. These restrictions
cannot be changed, as to the Master Portfolio, without approval by the holders
of a majority (as defined in the 1940 Act) of the Master Portfolio's outstanding
voting securities. The Master Portfolio may not:
(1) Invest more than 5% of its assets in the obligations of any single
issuer, except that up to 25% of the value of its total assets may be invested,
and securities issued or guaranteed by the U.S. Government, or its agencies or
instrumentalities may be purchased, without regard to any such limitation.
(2) Hold more than 10% of the outstanding voting securities of any single
issuer. This Investment Restriction applies only with respect to 75% of its
total assets.
(3) Invest in commodities, except that the Master Portfolio may purchase
and sell (i.e., write) options, forward contracts, futures contracts, including
those relating to indexes, and options on futures contracts or indexes.
(4) Purchase, hold or deal in real estate, or oil, gas or other mineral
leases or exploration or development programs, but the Master Portfolio may
purchase and sell securities that are secured by real estate or issued by
companies that invest or deal in real estate.
(5) Borrow money, except to the extent permitted under the 1940 Act,
provided that the Master Portfolio may borrow up to 20% of the current value of
its net assets for temporary purposes only in order to meet redemptions, and
these borrowings may be secured by the pledge of up to 20% of the current value
of its net assets. For purposes of this investment restriction, the Master
Portfolio's entry into options, forward contracts, futures contracts, including
those relating to indexes, and options on futures contracts or indexes shall not
constitute borrowing to the extent certain segregated accounts are established
and maintained by the Master Portfolio.
(6) Make loans to others, except through the purchase of debt obligations
and the entry into repurchase agreements. However, the Master Portfolio may
lend its portfolio securities in an amount not to exceed one-third of the value
value of its total assets. Any loans of portfolio securities will be made
according to guidelines established by the Securities and Exchange Commission
and the MIP's Board of Trustees.
(7) Act as an underwriter of securities of other issuers, except to the
extent the Master Portfolio may be deemed an underwriter under the Securities
Act of 1933, as amended, by virtue of disposing of portfolio securities.
(8) Invest 25% or more of its total assets in the securities of issuers in
any particular industry or group of closely related industries and except that
there shall be no limitation with respect to investments in (i) obligations of
the U.S. Government, its agencies or instrumentalities; (ii) any industry in
which the Wilshire 4500 Index becomes concentrated to the same degree during the
same period, the Master Portfolio will be concentrated as specified above only
to the extent the percentage of its assets invested in those categories of
investments is sufficiently large that 25% or more of its total assets would be
invested in a single industry).
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(9) Issue any senior security (as such term is defined in Section 18(f) of
the 1940 Act), except to the extent the activities permitted in Investment
Restriction Nos. 3 and 5 may be deemed to give rise to a senior security.
Non-Fundamental Investment Restrictions. The Master Portfolio has adopted the
following investment restrictions as non-fundamental policies. These
restrictions may be changed without shareholder approval by vote of a majority
of the Trustees of MIP, at any time. The Master Portfolio is subject to the
following investment restrictions, all of which are non-fundamental policies.
(1) The Master Portfolio may invest in shares of other open-end management
investment companies, subject to the limitations of Section 12(d)(1) of the 1940
Act. Under the 1940 Act, the Master Portfolio's investment in such securities
currently is limited, subject to certain exceptions, to (i) 3% of the total
voting stock of any one investment company, (ii) 5% of the Master Portfolio's
net assets with respect to any one investment company, and (iii) 10% of the
Master Portfolio's net assets in the aggregate. Other investment companies in
which the Master Portfolio invests can be expected to charge fees for operating
expenses, such as investment advisory and administration fees, that would be in
addition to those charged by the Master Portfolio.
(2) The Master Portfolio may not invest more than 15% of its net assets in
illiquid securities. For this purpose, illiquid securities include, among
others, (a) securities that are illiquid by virtue of the absence of a readily
available market or legal or contractual restrictions on resale, (b) fixed time
deposits that are subject to withdrawal penalties and that have maturities of
more than seven days, and (c) repurchase agreements not terminable within seven
days.
(3) The Master Portfolio may lend securities from its portfolio to
brokers, dealers and financial institutions, in amounts not to exceed (in the
aggregate) one-third of the Master Portfolio's total assets. Any such loans of
portfolio securities will be fully collateralized based on values that are
marked to market daily. The Master Portfolio will not enter into any portfolio
security lending arrangement having a duration of longer than one year.
Portfolio Securities
To the extent set forth in this offering document, the Master Portfolio may
invest in the securities described below. The investment policies,
strategies, techniques and restrictions employed by the Master Portfolio in
pursuing its investment objective vis-a-vis the Wilshire 5000 Index are
substantially similar to those employed by the Underlying Portfolios in pursuing
their respective investment objectives vis-a-vis their respective benchmarks.
Unless otherwise indicated, references to the investment policies, strategies,
techniques and restrictions of the Master Portfolio also are references to the
investment policies, strategies, techniques and restrictions of the Underlying
Portfolios in which the Master Portfolio invests substantially all of its
assets.
Short-Term Instruments and Temporary Investments.
------------------------------------------------
The Master Portfolio may invest in high-quality money market instruments on
an ongoing basis to provide liquidity, for temporary purposes when there is an
unexpected level of interestholder purchases or redemptions or when "defensive"
strategies are appropriate. The instruments in which the Master Portfolio may
invest include: (i) short-term obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities (including government-sponsored
enterprises); (ii) negotiable certificates of deposit ("CDs"), bankers'
acceptances, fixed time deposits and other obligations of domestic banks
(including foreign branches) that have more than $1 billion in total assets at
the time of investment and that are members of the Federal Reserve System or are
examined by the Comptroller of the Currency or whose deposits are insured by the
FDIC; (iii) commercial paper rated at the date of purchase "Prime-1" by Moody's
or "A-1+" or "A-1" by S&P, or, if unrated, of comparable quality as determined
by BGFA or Wells Fargo Bank; (iv) non-convertible corporate debt securities
(e.g., bonds and debentures) with remaining maturities at the date of purchase
of not more than one year that are rated at least "Aa" by Moody's or "AA" by
S&P; (v) repurchase agreements; and (vi) short-term, U.S. dollar-denominated
obligations of foreign banks (including U.S. branches) that, at the
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<PAGE>
time of investment have more than $10 billion, or the equivalent in other
currencies, in total assets and in the opinion of BGFA or Wells Fargo Bank are
of comparable quality to obligations of U.S. banks which may be purchased by the
Master Portfolio.
Bank Obligations. The Master Portfolio may invest in bank obligations,
including certificates of deposit, time deposits, bankers' acceptances and other
short-term obligations of domestic banks, foreign subsidiaries of domestic
banks, foreign branches of domestic banks, and domestic and foreign branches of
foreign banks, domestic savings and loan associations and other banking
institutions.
Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period of
time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate. Time
deposits which may be held by the Master Portfolio will not benefit from
insurance from the Bank Insurance Fund or the Savings Association Insurance Fund
administered by the Federal Deposit Insurance Corporation.
Bankers' acceptances are credit instruments evidencing the obligation of a
bank to pay a draft drawn on it by a customer. These instruments reflect the
obligation both of the bank and of the drawer to pay the face amount of the
instrument upon maturity. The other short-term obligations may include
uninsured, direct obligations, bearing fixed, floating- or variable-interest
rates.
Domestic commercial banks organized under federal law are supervised and
examined by the Comptroller of the Currency and are required to be members of
the Federal Reserve System and to have their deposits insured by the Federal
Deposit Insurance Corporation (the "FDIC"). Domestic banks organized under state
law are supervised and examined by state banking authorities but are members of
the Federal Reserve System only if they elect to join. In addition, state banks
whose certificates of deposit ("CDs") may be purchased by the Master Portfolio
are insured by the FDIC (although such insurance may not be of material benefit
to the Master Portfolio, depending on the principal amount of the CDs of each
bank held by the Master Portfolio) and are subject to federal examination and to
a substantial body of federal law and regulation. As a result of federal or
state laws and regulations, domestic branches of domestic banks whose CDs may be
purchased by the Master Portfolio generally are required, among other things, to
maintain specified levels of reserves, are limited in the amounts which they can
loan to a single borrower and are subject to other regulations designed to
promote financial soundness. However, not all of such laws and regulations
apply to the foreign branches of domestic banks.
Obligations of foreign branches of domestic banks, foreign subsidiaries of
domestic banks and domestic and foreign branches of foreign banks, such as CDs
and time deposits ("TDs"), may be general obligations of the parent banks in
addition to the issuing branch, or may be limited by the terms of a specific
obligation and/or governmental regulation. Such obligations are subject to
different risks than are those of domestic banks. These risks include foreign
economic and political developments, foreign governmental restrictions that may
adversely affect payment of principal and interest on the obligations, foreign
exchange controls and foreign withholding and other taxes on interest income.
These foreign branches and subsidiaries are not necessarily subject to the same
or similar regulatory requirements that apply to domestic banks, such as
mandatory reserve requirements, loan limitations, and accounting, auditing and
financial record keeping requirements. In addition, less information may be
publicly available about a foreign branch of a domestic bank or about a foreign
bank than about a domestic bank.
Obligations of U.S. branches of foreign banks may be general obligations of
the parent bank in addition to the issuing branch, or may be limited by the
terms of a specific obligation or by federal or state regulation as well as
governmental action in the country in which the foreign bank has its head
office. A domestic branch of a foreign bank with assets in excess of $1 billion
may be subject to reserve requirements imposed by the Federal Reserve System or
by the state in which the branch is located if the branch is licensed in that
state.
In addition, federal branches licensed by the Comptroller of the Currency
and branches licensed by certain states ("State Branches") may be required to:
(1) pledge to the appropriate regulatory authority, by
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<PAGE>
depositing assets with a designated bank within the relevant state, a certain
percentage of their assets as fixed from time to time by such regulatory
authority; and (2) maintain assets within the relevant state in an amount equal
to a specified percentage of the aggregate amount of liabilities of the foreign
bank payable at or through all of its agencies or branches within the state.
The deposits of federal and State Branches generally must be insured by the FDIC
if such branches take deposits of less than $100,000.
In view of the foregoing factors associated with the purchase of CDs and
TDs issued by foreign branches of domestic banks, by foreign subsidiaries of
domestic banks, by foreign branches of foreign banks or by domestic branches of
foreign banks, BGFA carefully evaluates such investments on a case-by-case
basis.
The Master Portfolio may purchase CDs issued by banks, savings and loan
associations and similar thrift institutions with less than $1 billion in
assets, provided that such institutions are members of the FDIC, and further
provided such Master Portfolio purchases any such CD in a principal amount of
not more than $100,000, which amount would be fully insured by the Bank
Insurance Fund or the Savings Association Insurance Fund administered by the
FDIC. Interest payments on such a CD are not insured by the FDIC. The Master
Portfolio will not own more than one such CD per such issuer.
Commercial Paper and Short-Term Corporate Debt Instruments. The Master
Portfolio may invest in commercial paper (including variable amount master
demand notes), which consists of short-term, unsecured promissory notes issued
by corporations to finance short-term credit needs. Commercial paper is usually
sold on a discount basis and has a maturity at the time of issuance not
exceeding nine months. Variable amount master demand notes are demand
obligations that permit the investment of fluctuating amounts at varying market
rates of interest pursuant to arrangements between the issuer and a commercial
bank acting as agent for the payee of such notes whereby both parties have the
right to vary the amount of the outstanding indebtedness on the notes. The
investment adviser and/or sub-adviser to the Master Portfolio monitors on an
ongoing basis the ability of an issuer of a demand instrument to pay principal
and interest on demand.
The Master Portfolio also may invest in non-convertible corporate debt
securities (e.g., bonds and debentures) with not more than one year remaining to
maturity at the date of settlement. The Master Portfolio will invest only in
such corporate bonds and debentures that are rated at the time of purchase at
least "Aa" by Moody's or "AA" by S&P. Subsequent to its purchase by the Master
Portfolio, an issue of securities may cease to be rated or its rating may be
reduced below the minimum rating required for purchase by the Master Portfolio.
The investment adviser and/or sub-adviser to the Master Portfolio will consider
such an event in determining whether the Master Portfolio should continue to
hold the obligation. To the extent the Master Portfolio continues to hold such
obligations, it may be subject to additional risk of default.
Repurchase Agreements. The Master Portfolio may enter into repurchase
agreements wherein the seller of a security to the Master Portfolio agrees to
repurchase that security from the Master Portfolio at a mutually-agreed upon
time and price. The period of maturity is usually quite short, often overnight
or a few days, although it may extend over a number of months. The Master
Portfolio may enter into repurchase agreements only with respect to securities
that could otherwise be purchased by the Master Portfolio, and all repurchase
transactions must be collateralized. The Master Portfolio may incur a loss on a
repurchase transaction if the seller defaults and the value of the underlying
collateral declines or is otherwise limited or if receipt of the security or
collateral is delayed. The Master Portfolio may participate in pooled repurchase
agreement transactions with other funds advised by BGFA.
The Master Portfolio may engage in a repurchase agreement with respect to
any security in which it is authorized to invest, although the underlying
security may mature in more than thirteen months. The Master Portfolio may enter
into repurchase agreements wherein the seller of a security to the Master
Portfolio agrees to repurchase that security from the Master Portfolio at a
mutually agreed-upon time and price that involves the acquisition by the Master
Portfolio of an underlying debt instrument, subject to the seller's obligation
to repurchase, and the Master Portfolio's obligation to resell, the instrument
at a fixed price usually not more than one week after its purchase. The Master
Portfolio's custodian has custody of, and holds in a segregated account,
securities acquired as collateral by the Master Portfolio under a repurchase
agreement. Repurchase agreements are considered by the staff of the SEC to be
loans by the Master Portfolio. The Master Portfolio may enter into
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repurchase agreements only with respect to securities of the type in which it
may invest, including government securities and mortgage-related securities,
regardless of their remaining maturities, and requires that additional
securities be deposited with the custodian if the value of the securities
purchased should decrease below resale price. The investment adviser monitors
on an ongoing basis the value of the collateral to assure that it always equals
or exceeds the repurchase price. Certain costs may be incurred by the Master
Portfolio in connection with the sale of the underlying securities if the seller
does not repurchase them in accordance with the repurchase agreement. In
addition, if bankruptcy proceedings are commenced with respect to the seller of
the securities, disposition of the securities by the Master Portfolio may be
delayed or limited. While it does not presently appear possible to eliminate
all risks from these transactions (particularly the possibility of a decline in
the market value of the underlying securities, as well as delay and costs to the
Master Portfolio in connection with insolvency proceedings), it is the policy of
the Master Portfolio to limit repurchase agreements to selected creditworthy
securities dealers or domestic banks or other recognized financial institutions.
The Master Portfolio considers on an ongoing basis the creditworthiness of the
institutions with which it enters into repurchase agreements. Repurchase
agreements are considered to be loans by a Master Portfolio under the 1940 Act.
Floating- and Variable-Rate Obligations.
---------------------------------------
The Master Portfolio may purchase floating- and variable-rate obligations
as described in the Prospectus. The Master Portfolio may purchase floating- and
variable-rate demand notes and bonds, which are obligations ordinarily having
stated maturities in excess of thirteen months, but which permit the holder to
demand payment of principal at any time, or at specified intervals not exceeding
thirteen months. Variable rate demand notes include master demand notes that
are obligations that permit the Master Portfolio to invest fluctuating amounts,
which may change daily without penalty, pursuant to direct arrangements between
the Master Portfolio , as lender, and the borrower. The interest rates on these
notes fluctuate from time to time. The issuer of such obligations ordinarily
has a corresponding right, after a given period, to prepay in its discretion the
outstanding principal amount of the obligations plus accrued interest upon a
specified number of days' notice to the holders of such obligations. The
interest rate on a floating-rate demand obligation is based on a known lending
rate, such as a bank's prime rate, and is adjusted automatically each time such
rate is adjusted. The interest rate on a variable-rate demand obligation is
adjusted automatically at specified intervals. Frequently, such obligations are
secured by letters of credit or other credit support arrangements provided by
banks. Because these obligations are direct lending arrangements between the
lender and borrower, it is not contemplated that such instruments generally will
be traded, and there generally is no established secondary market for these
obligations, although they are redeemable at face value. Accordingly, where
these obligations are not secured by letters of credit or other credit support
arrangements, the Master Portfolio's right to redeem is dependent on the ability
of the borrower to pay principal and interest on demand. Such obligations
frequently are not rated by credit rating agencies and the Fund may invest in
obligations which are not so rated only if BGFA determines that at the time of
investment the obligations are of comparable quality to the other obligations in
which the Master Portfolio may invest. BGFA, on behalf of the Master Portfolio,
considers on an ongoing basis the creditworthiness of the issuers of the
floating- and variable-rate demand obligations in the Master Portfolio's
portfolio. The Master Portfolio will not invest more than 10% of the value of
its total net assets in floating- or variable-rate demand obligations whose
demand feature is not exercisable within seven days. Such obligations may be
treated as liquid, provided that an active secondary market exists.
U.S. Government Obligations.
---------------------------
The Master Portfolio may invest in various types of U.S. Government
obligations. U.S. Government obligations include securities issued or
guaranteed as to principal and interest by the U.S. Government, its agencies or
instrumentalities. Payment of principal and interest on U.S. Government
obligations (i) may be backed by the full faith and credit of the United States
(as with U.S. Treasury obligations and GNMA certificates) or (ii) may be backed
solely by the issuing or guaranteeing agency or instrumentality itself (as with
FNMA notes). In the latter case, the investor must look principally to the
agency or instrumentality issuing or guaranteeing the obligation for ultimate
repayment, which agency or instrumentality may be privately owned. There can be
no assurance that the U.S. Government would provide financial support to its
agencies or instrumentalities where it is not obligated to do so. As a general
matter, the value of debt instruments, including U.S. Government obligations,
declines when market interest rates increase and rises
6
<PAGE>
when market interest rates decrease. Certain types of U.S. Government
obligations are subject to fluctuations in yield or value due to their structure
or contract terms.
Illiquid Securities.
-------------------
The Master Portfolio may invest up to 15% of the value of its net assets in
securities as to which a liquid trading market does not exist, provided such
investments are consistent with its investment objective. Such securities may
include securities that are not readily marketable, such as privately issued
securities and other securities that are subject to legal or contractual
restrictions on resale, floating- and variable-rate demand obligations as to
which the Master Portfolio cannot exercise a demand feature on not more than
seven days' notice and as to which there is no secondary market and repurchase
agreements providing for settlement more than seven days after notice.
Investment Company Securities.
-----------------------------
The Master Portfolio may invest in securities issued by other open-end,
management investment companies to the extent permitted under the 1940 Act. As
a general matter, under the 1940 Act, investment in such securities is limited
to: (i) 3% of the total voting stock of any one investment company, (ii) 5% of
the Master Portfolio's net assets with respect to any one investment company and
(iii) 10% of the Master Portfolio's net assets with respect to all such
companies in the aggregate. Investments in the securities of other investment
companies generally will involve duplication of advisory fees and certain other
expenses. The Master Portfolio also may purchase interests in exchange-listed
closed-end funds to the extent permitted under the 1940 Act.
Futures Contracts and Options Transactions.
------------------------------------------
The Master Portfolio may use futures as a substitute for a comparable
market position in the underlying securities.
A futures contract is an agreement between two parties, a buyer and a
seller, to exchange a particular commodity or financial statement at a specific
price on a specific date in the future. An option transaction generally
involves a right, which may or may not be exercised, to buy or sell a commodity
or financial instrument at a particular price on a specified future date.
Futures contracts and options are standardized and traded on exchanges, where
the exchange serves as the ultimate counterparty for all contracts.
Consequently, the primary credit risk on futures contracts is the
creditworthiness of the exchange. Futures contracts are subject to market risk
(i.e., exposure to adverse price changes).
Although the Master Portfolio intends to purchase or sell futures contracts
only if there is an active market for such contracts, no assurance can be given
that a liquid market will exist for any particular contract at any particular
time. Many futures exchanges and boards of trade limit the amount of
fluctuation permitted in futures contract prices during a single trading day.
Once the daily limit has been reached in a particular contract, no trades may be
made that day at a price beyond that limit or trading may be suspended for
specified periods during the trading day. Futures contract prices could move to
the limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and potentially
subjecting the Master Portfolio to substantial losses. If it is not possible,
or if the Master Portfolio determines not to close a futures position in
anticipation of adverse price movements, the Master Portfolio will be required
to make daily cash payments on variation margin.
Stock Index Futures and Options on Stock Index Future. The Master
Portfolio may invest in stock index futures and options on stock index futures
as a substitute for a comparable market position in the underlying securities. A
stock index future obligates the seller to deliver (and the purchaser to take),
effectively, an amount of cash equal to a specific dollar amount times the
difference between the value of a specific stock index at the close of the last
trading day of the contract and the price at which the agreement is made. No
physical delivery of the underlying stocks in the index is made. With respect
to stock indices that are permitted investments, the Master Portfolio intends to
purchase and sell futures contracts on the stock index
7
<PAGE>
for which it can obtain the best price with consideration also given to
liquidity. There can be no assurance that a liquid market will exist at the
time when the Master Portfolio seeks to close out a futures contract or a
futures option position. Lack of a liquid market may prevent liquidation of an
unfavorable position.
Index Swaps. The Master Portfolio may enter into index swaps in pursuit of
its investment objective. Index swaps involve the exchange by the Master
Portfolio with another party of cash flows based upon the performance of an
index of securities or a portion of an index of securities that usually include
dividends or income. In each case, the exchange commitments can involve
payments to be made in the same currency or in different currencies. The Master
Portfolio will usually enter into swaps on a net basis. In so doing, the two
payment streams are netted out, with the Master Portfolio receiving or paying,
as the case may be, only the net amount of the two payments. If the Master
Portfolio enters into a swap, it will maintain a segregated account on a gross
basis, unless the contract provides for a segregated account on a net basis. If
there is a default by the other party to such a transaction, the Master
Portfolio will have contractual remedies pursuant to the agreements related to
the transaction.
The use of index swaps is a highly specialized activity which involves
investment techniques and risks different from those associated with ordinary
portfolio security transactions. There is no limit, except as provided below,
on the amount of swap transactions that may be entered into by the Master
Portfolio. These transactions generally do not involve the delivery of
securities or other underlying assets or principal. Accordingly, the risk of
loss with respect to swaps generally is limited to the net amount of payments
that the Master Portfolio is contractually obligated to make. There is also a
risk of a default by the other party to a swap, in which case the Master
Portfolio may not receive net amount of payments that the Master Portfolio
contractually is entitled to receive.
Future Developments. The Master Portfolio may take advantage of
opportunities in the area of options and futures contracts and options on
futures contracts and any other derivative investments which are not presently
contemplated for use by the Master Portfolio or which are not currently
available but which may be developed, to the extent such opportunities are both
consistent with the Master Portfolio's investment objective and legally
permissible for the Master Portfolio. Before entering into such transactions or
making any such investment, the Master Portfolio will provide appropriate
disclosure in its prospectus.
Loans of Portfolio Securities.
-----------------------------
The Master Portfolio may lend securities from its portfolio to brokers,
dealers and financial institutions (but not individuals) in order to increase
its portfolio's return. The value of the loaned securities may not exceed one-
third of the Master Portfolio's total assets and loans of portfolio securities
are fully collateralized based on values that are market-to-market daily. The
Master Portfolio will not enter into any portfolio security lending arrangement
having a duration of longer than one year. The principal risk of portfolio
lending is potential default or insolvency of the borrower. In either of these
cases, the Master Portfolio could experience delays in recovering securities or
collateral or could lose all or part of the value of the loaned securities. The
Master Portfolio may pay reasonable administrative and custodial fees in
connection with loans of portfolio securities and may pay a portion of the
interest or fee earned thereon to the borrower or a placing broker.
The Master Portfolio may only lend securities from its portfolio if cash,
U.S. Government securities or other high quality debt obligations equal to at
least 100% of the current market value of the securities loaned (including
accrued interest thereon) plus the interest payable to such Master Portfolio
with respect to the loan is maintained with the Master Portfolio. In
determining whether or not to lend a security to a particular broker, dealer or
financial institution, the Master Portfolio's investment adviser or such-adviser
considers all relevant facts and circumstances, including the size,
creditworthiness and reputation of the broker, dealer, or financial institution.
Any loans of portfolio securities are fully collateralized based on values that
are marked to market daily. The Master Portfolio does not enter into any
portfolio security lending arrangements having a duration longer than one year.
Any securities that the Master Portfolio receives as collateral do not become
part of its portfolio at the time of the loan and, in the event of a default by
the borrower, the Master Portfolio will, if permitted by law, dispose of such
collateral except for such part thereof that is a security in which the Master
8
<PAGE>
Portfolio is permitted to invest. During the time securities are on loan, the
borrower will pay the Master Portfolio any accrued income on those securities,
and the Master Portfolio may invest the cash collateral and earn income or
receive an agreed-upon fee from a borrower that has delivered cash- equivalent
collateral. The Master Portfolio will not lend securities having a value that
exceeds one-third of the current value of their respective total assets. Loans
of securities by the Master Portfolio are subject to termination at the Master
Portfolio's or the borrower's option. The Master Portfolio may pay reasonable
administrative and custodial fees in connection with a securities loan and may
pay a negotiated portion of the interest or fee earned with respect to the
collateral to the borrower or the placing broker. Borrowers and placing brokers
are not permitted to be affiliated, directly or indirectly, with the Master
Portfolio, BGFA or Stephens.
Forward Commitments, When-Issued Purchases and Delayed-Delivery
---------------------------------------------------------------
Transactions.
- ------------
The Master Portfolio may purchase or sell securities on a when-issued or
delayed-delivery basis and make contracts to purchase or sell securities for a
fixed price at a future date beyond customary settlement time. Securities
purchased or sold on a when-issued, delayed-delivery or forward commitment basis
involve a risk of loss if the value of the security to be purchased declines, or
the value of the security to be sold increases, before the settlement date.
Although the Master Portfolio will generally purchase securities with the
intention of acquiring them, the Master Portfolio may dispose of securities
purchased on a when-issued, delayed-delivery or a forward commitment basis
before settlement when deemed appropriate by the adviser.
Borrowing Money.
---------------
As a fundamental policy, the Master Portfolio is permitted to borrow to the
extent permitted under the 1940 Act. However, the Master Portfolio currently
intends to borrow money only for temporary or emergency (not leveraging)
purposes, and may borrow up to one-third of the value of its total assets
(including the amount borrowed) valued at the lesser of cost or market, less
liabilities (not including the amount borrowed) at the time the borrowing is
made.
ITEM 13. MANAGEMENT OF THE TRUST.
The Trustees and Principal Officer of MIP, together with information as to
their principal business occupations during at least the last five years, are
shown below. The address of each, unless otherwise indicated, is 111 Center
Street, Little Rock, Arkansas 72201. Each Trustee who is deemed to be an
"interested person" of MIP, as defined in the 1940 Act, is indicated by an
asterisk.
9
<PAGE>
<TABLE>
<CAPTION>
Principal Occupations
Name, Address and Age Position During Past 5 Years
- --------------------- -------- ---------------------------
<S> <C> <C>
Jack S. Euphrat, 76 Trustee Private Investor.
415 Walsh Road
Atherton, CA 94027
*R. Greg Feltus, 47 Trustee, Executive Vice President of
Chairman and President Stephens; President of Stephens
Insurance Services Inc.; Senior
Vice President of Stephens Sports
Management Inc.; and President of
Investors Brokerage Insurance Inc.
W. Rodney Hughes, 72 Trustee Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Richard H. Blank, Jr., 42 Chief Operating Officer, Vice President of Stephens;
Secretary and Treasurer of Stephens Sports
Management Inc.; and
Director of Capo Inc.
</TABLE>
Compensation Table
For the Fiscal Year Ended February 28, 1999
<TABLE>
<CAPTION>
Total Compensation
Aggregate Compensation from Registrant
Name and Position from Registrant and Fund Complex
- ----------------- --------------- ----------------
<S> <C> <C>
Jack S. Euphrat $0 $5,000
Trustee
*R. Greg Feltus $0 $ 0
Trustee
Thomas S. Goho $0 $5,000
Trustee
W. Rodney Hughes $0 $4,500
Trustee
*J. Tucker Morse $0 $4,500
Trustee
</TABLE>
Trustees of MIP are compensated annually by all the registrants in the fund
complex for their services as indicated above and also are reimbursed for all
out-of-pocket expenses relating to attendance at board meetings. MIP and
Barclays Global Investors Funds, Inc. ("BGIF"), formerly known as MasterWorks
Funds Inc., are considered to be members of the same fund complex as such term
is defined in Form N-1A under the 1940 Act. The Trustees are compensated by
BGIF and MIP for their services as Directors/Trustees to the company and Trust.
Currently, the Trustees do not receive any retirement benefits or deferred
compensation from MIP or BGIF.
As of the date of this SAI, the Trustees and Principal Officer of MIP as a
group beneficially owned less than 1% of the outstanding beneficial interest of
MIP.
ITEM 14. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.
As of May 31, 1999, the Broad Market Index Fund of Vantagepoint Funds owned
approximately 99.99% of the outstanding voting securities of the Master
Portfolio. As such, Vantagepoint Funds could each be considered a "controlling
person" of the Master Portfolio for purposes of the 1940 Act. The principal
address of Vantagepoint Funds is 777 North Capital Street, NE, Suite 600,
Washington, D.C. 20002.
ITEM 15. INVESTMENT ADVISORY AND OTHER SERVICES.
The following information supplements and should be read in conjunction
with Item 6 in Part A.
Investment Adviser. Barclays Global Fund Advisors ("BGFA") provides
investment advisory services to the Master Portfolio pursuant to an Investment
Advisory Contract ("BGFA Advisory Contract") with MIP, dated October 28, 1998.
As to the Master Portfolio, the BGFA Advisory Contract is subject to annual
approval by (i) MIP's Board of Trustees or (ii) vote of a majority (as defined
in the 1940 Act) of the outstanding voting securities of the Master Portfolio,
provided that in either event the continuance also is approved by a majority of
MIP's Board of Trustees who are not "interested persons" (as defined in the 1940
Act) of MIP or BGFA, by vote cast in person at a meeting called for the purpose
of voting on such approval. As to the Master Portfolio, the BGFA Advisory
Contract is terminable without penalty, on 60 days' written notice, by either
party. The BGFA Advisory
10
<PAGE>
Contract will terminate automatically, as to the Master Portfolio, in the event
of its assignment (as defined in the 1940 Act).
Advisory Fees. BGFA is entitled to receive monthly fees at the annual
rate of 0.01% of the average daily net assets of the Master Portfolio, 0.08% of
the average daily net assets of the Extended Index Portfolio and 0.05% of the
average daily net assets of the S&P 500 Index Portfolio (the "Underlying
Portfolios") as compensation for its advisory services. The Master Portfolio
bears its pro rata share of the advisory fees of the Underlying Portfolios.
Based on these fee levels and the expected allocation of assets between the two
Underlying Portfolios, the advisory fees payable to BGFA by the Master Portfolio
on a combined basis will be approximately 0.07% of the average daily net assets
of the Master Portfolio. From time to time, BGFA may waive such fees in whole
or in part. Any such waiver will reduce the expenses of the Master Portfolio
and, accordingly, have a favorable impact on its performance.
Co-Administrators. Stephens and Barclays Global Investors, N.A.
("BGI") are the Master Portfolio's co-administrators. Stephens and BGI provide
the Master Portfolio with administrative services, including general supervision
of the Master Portfolio's non-investment operations, coordination of the other
services provided to the Master Portfolio, compilation of information for
reports to the SEC and the state securities commissions, preparation of proxy
statements and shareholder reports, and general supervision of data compilation
in connection with preparing periodic reports to the MIP's trustees and
officers. Stephens also furnishes office space and certain facilities to conduct
the Master Portfolio's business, and compensates the MIP's trustees, officers
and employees who are affiliated with Stephens. In addition, except as outlined
below under "Expenses," Stephens and BGI will be responsible for paying all
expenses incurred by the Master Portfolio other than the fees payable to BGFA
and other than custodial fees of up to 0.01% payable after the first two years
of the Master Portfolio's operations. Stephens and BGI are entitled to receive
a monthly fee, in the aggregate, at an annual rate of 0.01% of the average daily
net assets of the Master Portfolio for providing administrative services and
assuming expenses.
Placement Agent. Stephens is the placement agent for the Master
Portfolios. Stephens is a full service broker/dealer and investment advisory
firm located at 111 Center Street, Little Rock, Arkansas 72201. Stephens and its
predecessor have been providing securities and investment services for more than
60 years, including discretionary portfolio management services since 1983.
Stephens currently manages investment portfolios for pension and profit sharing
plans, individual investors, foundations, insurance companies and university
endowments. Stephens does not receive compensation for acting as placement agent
to the Master Portfolio.
Custodian. IBT acts as the Master Portfolio's custodian. The principal
business address of IBT is 200 Clarendon Street, Boston, Massachusetts 02111.
During the first two years of the Master Portfolio's operations, IBT will be
entitled to receive compensation for its custodial services from Stephens and
BGI. Thereafter, IBT will be entitled to receive custodial fees of up to 0.01%
from the Master Portfolio.
Transfer and Dividend Disbursing Agent. IBT also acts as each Master
Portfolio's Transfer and Dividend Disbursing Agent (the "Transfer Agent"). IBT
is not entitled to receive compensation for providing such services to MIP so
long as it receives fees for providing similar services to the funds which
invest substantially all of their assets in the Master Portfolio.
Expenses. Except for extraordinary expenses, brokerage and other
expenses connected with to the execution of portfolio transactions and certain
other expenses which are borne by the Master Portfolio, Stephens and BGI have
agreed to bear all costs of the Master Portfolio's and MIP's operations.
Expenses attributable only to the Master Portfolio shall be charged only against
the assets of the Master Portfolio. General expenses of MIP shall be allocated
among its portfolios in a manner proportionate to the net assets of each, on a
transactional basis or on such other basis as the Board of Trustees deems
equitable.
ITEM 16. BROKERAGE ALLOCATION AND OTHER PRACTICES.
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<PAGE>
General. BGFA assumes general supervision over placing orders on
behalf of the Master Portfolio for the purchase or sale of portfolio securities.
Allocation of brokerage transactions, including their frequency, is made in the
best judgment of BGFA and in a manner deemed fair and reasonable to
interestholders. In executing portfolio transactions and selecting brokers or
dealers, BGFA seeks to obtain the best overall terms available for the Master
Portfolio. In assessing the best overall terms available for any transaction,
BGFA considers factors deemed relevant, including the breadth of the market in
the security, the price of the security, the financial condition and execution
capability of the broker or dealer, and the reasonableness of the commission, if
any, both for the specific transaction and on a continuing basis. The primary
consideration is prompt execution of orders at the most favorable net price.
Certain of the brokers or dealers with whom the Master Portfolio may transact
business offer commission rebates to the Master Portfolio. BGFA considers such
rebates in assessing the best overall terms available for any transaction. The
overall reasonableness of brokerage commissions paid is evaluated by BGFA based
upon its knowledge of available information as to the general level of
commissions paid by other institutional investors for comparable services.
Brokers also are selected because of their ability to handle special executions
such as are involved in large block trades or broad distributions, provided the
primary consideration is met. Portfolio turnover may vary from year to year, as
well as within a year. High turnover rates over 100% are likely to result in
comparatively greater brokerage expenses.
Securities of Regular Broker/Dealers. On February 28, 1999, the Master
Portfolio was not yet in operation and therefore did not own securities of its
"regular brokers or dealers" or their parents, as defined in the 1940 Act.
ITEM 17. CAPITAL STOCK AND OTHER SECURITIES.
Pursuant to MIP's Declaration of Trust, the Trustees are authorized to
issue shares of beneficial interests in each Master Portfolio. Investors in a
Master Portfolio are entitled to participate pro rata in distributions of
taxable income, loss, gain and credit of such Master Portfolio. Upon
liquidation or dissolution of a Master Portfolio, investors are entitled to
share pro rata in the Master Portfolio's net assets available for distribution
to its investors. Investments in a Master Portfolio have no preference, pre-
exemptive, conversion or similar rights and are fully paid and non-assessable,
except as set forth below. Investments in the Master Portfolio may not be
transferred. No certificates are issued.
Each investor is entitled to vote, with respect to matters affecting
each of MIP's portfolios, in proportion to the amount of its investment in the
MIP. Investors in the MIP do not have cumulative voting rights, and investors
holding more than 50% of the aggregate beneficial interest in MIP may elect all
of the Trustees of MIP if they choose to do so and in such event the other
investors in MIP would not be able to elect any Trustee. MIP is not required to
hold annual meetings of investors but MIP may hold special meetings of investors
when in the judgment of MIP's Trustees it is necessary or desirable to submit
matters for an investor vote.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted under the provisions of the 1940 Act or applicable state law or
otherwise to the holders of the outstanding voting securities of an investment
company, such as MIP, will not be deemed to have been effectively acted upon
unless approved by the holders of a majority of the outstanding shares of each
Master Portfolio affected by such matter. Rule 18f-2 further provides that a
Master Portfolio shall be deemed to be affected by a matter unless it is clear
that the interests of such Master Portfolio in the matter are identical or that
the matter does not affect any interest of such Master Portfolio. However, the
Rule exempts the selection of independent accountants and the election of
Trustees from the separate voting requirements of the Rule.
ITEM 18. PURCHASE, REDEMPTION AND PRICING OF INTERESTS.
The following information supplements and should be read in
conjunction with Items 7 and 8 in Part A.
Purchase of Securities. Beneficial interests in the Master Portfolio
are issued solely in private placement transactions which do not involve any
"public offering" within the meaning of Section 4(2) of the Securities Act of
1933, as amended (the "1933 Act"). Investments in the Master Portfolio may only
be made by investment companies or certain other entities which are "accredited
investors" within the meaning of Regulation D under the
12
<PAGE>
1933 Act. This registration statement does not constitute an offer to sell, or
the solicitation of an offer to buy, any "security" within the meaning of the
1933 Act.
Payment for shares of the Master Portfolio may, at the discretion of
the adviser, be made in the form of securities that are permissible investments
for the Master Portfolio and must meet the investment objective, policies and
limitations of the Master Portfolio as described in the Part A. In connection
with an in-kind securities payment, the Master Portfolio may require, among
other things, that the securities (i) be valued on the day of purchase in
accordance with the pricing methods used by the Master Portfolio; (ii) are
accompanied by satisfactory assurance that the Master Portfolio will have good
and marketable title to such securities received by it; (iii) are not subject to
any restrictions upon resale by the Master Portfolio; (iv) be in proper form for
transfer to the Master Portfolio; and (v) are accompanied by adequate
information concerning the basis and other tax matters relating to the
securities. All dividends, interest, subscription or other rights pertaining to
such securities shall become the property of the Master Portfolio engaged in the
in-kind purchase transaction and must be delivered to such Master Portfolio by
the investor upon receipt from the issuer. Securities acquired through an in-
kind purchase will be acquired for investment and not for immediate resale.
Shares purchased in exchange for securities generally cannot be redeemed until
the transfer has settled.
Suspension of Redemptions. The right of redemption of Master
Portfolio shares may be suspended or the date of payment postponed (a) during
any period when the New York Stock Exchange is closed (other than customary
weekend and holiday closings), (b) when trading in the markets the Master
Portfolios ordinarily utilizes is restricted, or when an emergency exists as
determined by the Securities and Exchange Commission so that disposal of the
Master Portfolios' investments or determination of its net asset value is not
reasonably practicable, or (c) for such other periods as the Securities and
Exchange Commission by order may permit to protect the Master Portfolio's
interestholders.
Pricing of Securities. The securities of the Master Portfolio,
including covered call options written by the Master Portfolio, are valued as
discussed below. Domestic securities are valued at the last sale price on the
domestic securities or commodities exchange or national securities market on
which such securities primarily are traded. Securities not listed on a domestic
exchange or national securities market, or securities in which there were no
transactions, are valued at the most recent bid prices. Portfolio securities
which are traded primarily on foreign securities or commodities exchanges
generally are valued at the preceding closing values of such securities on their
respective exchanges, except that when an occurrence subsequent to the time a
value was so established is likely to have changed such value, then the fair
value of those securities is determined by BGFA in accordance with guidelines
approved by MIP's Board of Trustees. Short-term investments are carried at
amortized cost, which approximates value. Any securities or other assets for
which recent market quotations are not readily available are valued at fair
value as determined in good faith by BGFA in accordance with such guidelines.
Restricted securities, as well as securities or other assets for which
market quotations are not readily available, or are not valued by a pricing
service approved by MIP's Board of Trustees, are valued at fair value as
determined in good faith by BGFA in accordance with guidelines approved by MIP's
Board of Trustees. BGFA and MIP's Board of Trustees periodically review the
method of valuation. In making its good faith valuation of restricted
securities, BGFA generally takes the following factors into consideration:
restricted securities which are, or are convertible into, securities of the same
class of securities for which a public market exists usually will be valued at
market value less the same percentage discount at which purchased. This
discount is revised periodically if it is believed that the discount no longer
reflects the value of the restricted securities. Restricted securities not of
the same class as securities for which a public market exists usually are valued
initially at cost. Any subsequent adjustment from cost is based upon
considerations deemed relevant by MIP's Board of Trustees.
New York Stock Exchange Closings. The holidays on which the New York
Stock Exchange is closed currently are: New Year's Day, Martin Luther King,
Jr.'s Birthday, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
13
<PAGE>
ITEM 19. TAXATION OF THE TRUST.
MIP is organized as a business trust under Delaware law. Under MIP's
current classification for federal income tax purposes, it is intended that each
Master Portfolio will be treated as a partnership for such purposes and,
therefore, such Master Portfolio will not be subject to any federal income tax.
However, each investor in a Master Portfolio will be taxable on its share (as
determined in accordance with the governing instruments of MIP) of such Master
Portfolio's ordinary income and capital gain in determining its federal income
tax liability. The determination of such share will be made in accordance with
the Internal Revenue Code of 1986, as amended (the "Code"), and regulations
promulgated thereunder.
MIP's taxable year-end is the last day of December. Although MIP will
not be subject to federal income tax, it will file appropriate federal income
tax returns.
The Master Portfolio's assets, income and distributions will be
managed in such a way that an investor in the Master Portfolio may satisfy the
requirements of Subchapter M of the Code, by investing substantially all of its
investable assets in the Master Portfolio. Investors are advised to consult
their own tax advisors as to the tax consequences of an investment in the Master
Portfolio.
ITEM 20. UNDERWRITERS.
The exclusive placement agent for MIP is Stephens, which receives no
compensation for serving in this capacity. Registered broker/dealers and
investment companies, insurance company separate accounts, common and commingled
trust funds, group trust and similar organizations and entities which constitute
accredited investors, as defined in the regulations adopted under the 1933 Act,
may continuously invest in a Master Portfolio of MIP.
ITEM 21. CALCULATIONS OF PERFORMANCE DATA.
Not applicable.
ITEM 22. FINANCIAL STATEMENTS.
KPMG LLP provides audit services, tax services and assistance and
consultation in connection with the review of certain SEC filings. KPMG LLP's
address is Three Embarcadero Center, San Francisco, California 94111.
14
<PAGE>
APPENDIX
Description of certain ratings assigned by Standard & Poor's
Corporation ("S&P"), Moody's Investors Service, Inc. ("Moody's"), Fitch
Investors Service, Inc. ("Fitch"), Duff & Phelps, Inc. ("Duff") and IBCA Inc.
and IBCA Limited ("IBCA"):
S&P
Bond Ratings
"AAA"
Bonds rated AAA have the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
"AA"
Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
"A"
Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in higher
rated categories.
"BBB"
Bonds rated "BBB" are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.
S&P's letter ratings may be modified by the addition of a plus (+) or
minus (-) sign designation, which is used to show relative standing within the
major rating categories, except in the AAA (Prime Grade) category.
Commercial Paper Rating
The designation A-1 by S&P indicates that the degree of safety
regarding timely payment is either overwhelming or very strong. Those issues
determined to possess overwhelming safety characteristics are denoted with a
plus sign (+) designation. Capacity for timely payment on issues with an A-2
designation is strong. However, the relative degree of safety is not as high as
for issues designated A-1.
Moody's
Bond Ratings
"Aaa"
Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
A-1
<PAGE>
"Aa"
Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what generally are known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
"A"
Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
"Baa"
Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Moody's applies the numerical modifiers "1", "2" and "3" to show
relative standing within the major rating categories, except in the "Aaa"
category. The modifier "1" indicates a ranking for the security in the higher
end of a rating category; the modifier "2" indicates a mid-range ranking; and
the modifier "3" indicates a ranking in the lower end of a rating category.
Commercial Paper Rating
The rating ("P-1") Prime-1 is the highest commercial paper rating
assigned by Moody's. Issuers of "P-1" paper must have a superior capacity for
repayment of short-term promissory obligations, and ordinarily will be evidenced
by leading market positions in well established industries, high rates of return
on funds employed, conservative capitalization structures with moderate reliance
on debt and ample asset protection, broad margins in earnings coverage of fixed
financial charges and high internal cash generation, and well established access
to a range of financial markets and assured sources of alternate liquidity.
Issuers (or relating supporting institutions) rated ("P-2") Prime-2
have a strong capacity for repayment of short-term promissory obligations. This
ordinarily will be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.
Fitch
Bond Ratings
The ratings represent Fitch's assessment of the issuer's ability to
meet the obligations of a specific debt issue or class of debt. The ratings
take into consideration special features of the issue, its relationship to other
obligations of the issuer, the current financial condition and operative
performance of the issuer and of any guarantor, as well as the political and
economic environment that might affect the issuer's future financial strength
and credit quality.
A-2
<PAGE>
"AAA"
Bonds rated "AAA" are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
"AA"
Bonds rated "AA" are considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated "AAA". Because
bonds rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short- term debt of these issuers is generally
rated "F-1+".
"A"
Bonds rated "A" are considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
"BBB"
Bonds rated "BBB" are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have an adverse impact on these
bonds and, therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
Plus (+) and minus (-) signs are used with a rating symbol to indicate
the relative position of a credit within the rating category.
Short-Term Ratings
Fitch's short-term ratings apply to debt obligations that are payable
on demand or have original maturities of up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
Although the credit analysis is similar to Fitch's bond rating
analysis, the short-term rating places greater emphasis than bond ratings on the
existence of liquidity necessary to meet the issuer's obligations in a timely
manner.
"F-1+"
Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
"F-1"
Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
"F-2"
Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payments, but the margin of safety is not as
great as the F-1+ and F-1 categories.
A-3
<PAGE>
Duff
Bond Ratings
"AAA"
Bonds rated AAA are considered highest credit quality. The risk
factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
"AA"
Bonds rated AA are considered high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
"A"
Bonds rated A have protection factors which are average but adequate.
However, risk factors are more variable and greater in periods of economic
stress.
"BBB"
Bonds rated BBB are considered to have below average protection
factors but still considered sufficient for prudent investment. Considerable
variability in risk during economic cycles.
Plus (+) and minus (-) signs are used with a rating symbol (except
AAA) to indicate the relative position of a credit within the rating category.
Commercial Paper Rating
The rating "Duff-1" is the highest commercial paper rating assigned by
Duff. Paper rated Duff-1 is regarded as having very high certainty of timely
payment with excellent liquidity factors which are supported by ample asset
protection. Risk factors are minor. Paper rated "Duff-2" is regarded as having
good certainty of timely payment, good access to capital markets and sound
liquidity factors and company fundamentals. Risk factors are small.
IBCA
Bond and Long-Term Ratings
Obligations rated AAA by IBCA have the lowest expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly. Obligations
for which there is a very low expectation of investment risk are rated AA by
IBCA. Capacity for timely repayment of principal and interest is substantial.
Adverse changes in business, economic or financial conditions may increase
investment risk albeit not very significantly.
Commercial Paper and Short-Term Ratings
The designation A1 by IBCA indicates that the obligation is supported
by a very strong capacity for timely repayment. Those obligations rated A1+ are
supported by the highest capacity for timely repayment. Obligations rated A2 are
supported by a strong capacity for timely repayment, although such capacity may
be susceptible to adverse changes in business, economic or financial conditions.
A-4
<PAGE>
International and U.S. Bank Ratings
An IBCA bank rating represents IBCA's current assessment of the
strength of the bank and whether such bank would receive support should it
experience difficulties. In its assessment of a bank, IBCA uses a dual rating
system comprised of Legal Ratings and Individual Ratings. In addition, IBCA
assigns banks Long- and Short-Term Ratings as used in the corporate ratings
discussed above. Legal Ratings, which range in gradation from 1 through 5,
address the question of whether the bank would receive support provided by
central banks or shareholders if it experienced difficulties, and such ratings
are considered by IBCA to be a prime factor in its assessment of credit risk.
Individual Ratings, which range in gradations from A through E, represent IBCA's
assessment of a bank's economic merits and address the question of how the bank
would be viewed if it were entirely independent and could not rely on support
from state authorities or its owners.
A-5
<PAGE>
MASTER INVESTMENT PORTFOLIO
EXTENDED INDEX MASTER PORTFOLIO
PART B -- STATEMENT OF ADDITIONAL INFORMATION
July 1, 1999
ITEM 10. COVER PAGE AND TABLE OF CONTENTS.
Master Investment Portfolio ("MIP," or the "Trust") is an open-end,
management investment company. MIP is a "series fund," which is a mutual fund
divided into separate portfolios. This Part B is not a prospectus and should be
read in conjunction with MIP's Part A, also dated July 1, 1999. All terms used
in this Part B that are defined in Part A have the meanings assigned in Part A.
A copy of Part A may be obtained without charge by writing Master Investment
Portfolio, c/o Investors Bank & Trust Co., -- Transfer Agent, P.O. Box 9130,
Mail Code MFD23, Boston, MA 02117-9130, or by calling 1-800-204-3956. MIP's
Registration Statement may be examined at the office of the Securities and
Exchange Commission ("SEC") in Washington, D.C.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Trust History........................................................... 1
Description of the Master Portfolio and Its Investments and Risks ...... 2
Management of the Trust ............................................... 9
Control Persons and Principal Holders of Securities..................... 10
Investment Advisory and Other Services.................................. 10
Brokerage Allocation and Other Practices................................ 11
Capital Stock and Other Securities...................................... 12
Purchase, Redemption and Pricing of Interests........................... 12
Taxation of the Trust................................................... 13
Underwriters............................................................ 14
Calculations of Performance Data........................................ 14
Financial Statements.................................................... 14
Appendix................................................................ A-1
</TABLE>
ITEM 11. TRUST HISTORY.
MIP is an open-end, management investment company, organized on October 21,
1993 as a business trust under the laws of the State of Delaware. MIP is a
"series fund," which is a mutual fund divided into separate portfolios. By this
offering document, MIP is offering one of its diversified portfolios - the
Extended Index Master Portfolio (the "Master Portfolio"). The Master Portfolio
is treated as a separate entities for certain matters under the Investment
Company Act of 1940, as amended (the "1940 Act"), and for other purposes and an
interestholder of the Master Portfolio is not deemed to be an interestholder of
any other portfolio of MIP. As described below, for certain matters MIP
interestholders vote together as a group; as to others they vote separately by
portfolio. MIP currently offers eleven other portfolios pursuant to other
offering documents. From time to time, other portfolios may be established and
sold pursuant to other offering documents.
Beneficial interests in the Master Portfolio are issued solely in private
placement transactions which do not involve any "public offering" within the
meaning of Regulation D under the Securities Act of 1933, as amended (the "1933
Act"). Investments in the Master Portfolio may be made only by investment
companies or certain other entities which are "accredited investors" within the
meaning of Regulation D under the 1933 Act. Investment companies that hold
shares of beneficial interest ("interests") in the Master Portfolio are
sometimes referred to herein as "feeder funds."
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<PAGE>
ITEM 12. DESCRIPTION OF THE MASTER PORTFOLIO AND ITS INVESTMENTS AND RISKS.
The following information supplements and should be read in conjunction
with Item 4 in Part A.
Investment Objectives. The Master Portfolio's investment objective is set
forth in Item 4, "Investment Objectives, Principal Strategies and Related
Risks," of Part A. The Master Portfolio's investment objective can be changed by
MIP's Board of Trustees without interestholder approval. The objective and
policies of the Master Portfolio determines the types of portfolio securities in
which it invests, the degree of risk to which it is subject and, ultimately, its
performance. There can be no assurance that the investment objectives of the
Master Portfolio will be achieved.
Investment Restrictions.
Fundamental Investment Restrictions. The Master Portfolio has adopted the
following investment restrictions as fundamental policies. These restrictions
cannot be changed, as to the Master Portfolio, without approval by the holders
of a majority (as defined in the 1940 Act) of the Master Portfolio's outstanding
voting securities. The Master Portfolio may not:
(1) Invest more than 5% of its assets in the obligations of any single
issuer, except that up to 25% of the value of its total assets may be invested,
and securities issued or guaranteed by the U.S. Government, or its agencies or
instrumentalities may be purchased, without regard to any such limitation.
(2) Hold more than 10% of the outstanding voting securities of any single
issuer. This Investment Restriction applies only with respect to 75% of its
total assets.
(3) Invest in commodities, except that the Master Portfolio may purchase
and sell (i.e., write) options, forward contracts, futures contracts, including
those relating to indexes, and options on futures contracts or indexes.
(4) Purchase, hold or deal in real estate, or oil, gas or other mineral
leases or exploration or development programs, but the Master Portfolio may
purchase and sell securities that are secured by real estate or issued by
companies that invest or deal in real estate.
(5) Borrow money, except to the extent permitted under the 1940 Act,
provided that the Master Portfolio may borrow up to 20% of the current value of
its net assets for temporary purposes only in order to meet redemptions, and
these borrowings may be secured by the pledge of up to 20% of the current value
of its net assets. For purposes of this investment restriction, the Master
Portfolio's entry into options, forward contracts, futures contracts, including
those relating to indexes, and options on futures contracts or indexes shall not
constitute borrowing to the extent certain segregated accounts are established
and maintained by the Master Portfolio.
(6) Make loans to others, except through the purchase of debt obligations
and the entry into repurchase agreements. However, the Master Portfolio may lend
its portfolio securities in an amount not to exceed one-third of the value of
its total assets. Any loans of portfolio securities will be made according to
guidelines established by the Securities and Exchange Commission and the MIP's
Board of Trustees.
(7) Act as an underwriter of securities of other issuers, except to the
extent the Master Portfolio may be deemed an underwriter under the Securities
Act of 1933, as amended, by virtue of disposing of portfolio securities.
(8) Invest 25% or more of its total assets in the securities of issuers in
any particular industry or group of closely related industries and except that
there shall be no limitation with respect to investments in (i) obligations of
the U.S. Government, its agencies or instrumentalities; (ii) any industry in
which the Wilshire 4500 Index becomes concentrated to the same degree during the
same period, the Master Portfolio will be concentrated as specified above only
to the extent the percentage of its assets invested in those categories of
investments is sufficiently large that 25% or more of its total assets would be
invested in a single industry).
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<PAGE>
(9) Issue any senior security (as such term is defined in Section 18(f) of
the 1940 Act), except to the extent the activities permitted in Investment
Restriction Nos. 3 and 5 may be deemed to give rise to a senior security.
Non-Fundamental Investment Restrictions. The Master Portfolio has adopted the
following investment restrictions as non-fundamental policies. These
restrictions may be changed without shareholder approval by vote of a majority
of the Trustees of MIP, at any time. The Master Portfolio is subject to the
following investment restrictions, all of which are noon-fundamental policies.
(1) The Master Portfolio may invest in shares of other open-end management
investment companies, subject to the limitations of Section 12(d)(1) of the 1940
Act. Under the 1940 Act, the Master Portfolio's investment in such securities
currently is limited, subject to certain exceptions, to (i) 3% of the total
voting stock of any one investment company, (ii) 5% of the Master Portfolio's
net assets with respect to any one investment company, and (iii) 10% of the
Master Portfolio's net assets in the aggregate. Other investment companies in
which the Master Portfolio invests can be expected to charge fees for operating
expenses, such as investment advisory and administration fees, that would be in
addition to those charged by the Master Portfolio.
(2) The Master Portfolio may not invest more than 15% of the Master
Portfolio's net assets in illiquid securities. For this purpose, illiquid
securities include, among others, (a) securities that are illiquid by virtue of
the absence of a readily available market or legal or contractual restrictions
on resale, (b) fixed time deposits that are subject to withdrawal penalties and
that have maturities of more than seven days, and (c) repurchase agreements not
terminable within seven days.
(3) The Master Portfolio may lend securities from its portfolio to
brokers, dealers and financial institutions, in amounts not to exceed (in the
aggregate) one-third of the Fund's total assets. Any such loans of portfolio
securities will be fully collateralized based on values that are marked to
market daily. The Master Portfolio will not enter into any portfolio security
lending arrangement having a duration of longer than one year.
Portfolio Securities
Borrowing Money.
---------------
As a fundamental policy, the Master Portfolio is permitted to borrow to the
extent permitted under the 1940 Act. However, the Master Portfolio currently
intends to borrow money only for temporary or emergency (not leveraging)
purposes, and may borrow up to one-third of the value of its total assets
(including the amount borrowed) valued at the lesser of cost or market, less
liabilities (not including the amount borrowed) at the time the borrowing is
made.
Floating- and Variable-Rate Obligations.
---------------------------------------
The Master Portfolio may purchase floating- and variable-rate obligations as
described in the Prospectus. The Master Portfolio may purchase floating- and
variable-rate demand notes and bonds, which are obligations ordinarily having
stated maturities in excess of thirteen months, but which permit the holder to
demand payment of principal at any time, or at specified intervals not exceeding
thirteen months. Variable rate demand notes include master demand notes that are
obligations that permit the Master Portfolio to invest fluctuating amounts,
which may change daily without penalty, pursuant to direct arrangements between
the Master Portfolio, as lender, and the borrower. The interest rates on these
notes fluctuate from time to time. The issuer of such obligations ordinarily has
a corresponding right, after a given period, to prepay in its discretion the
outstanding principal amount of the obligations plus accrued interest upon a
specified number of days' notice to the holders of such obligations. The
interest rate on a floating-rate demand obligation is based on a known lending
rate, such as a bank's prime rate, and is adjusted automatically each time such
rate is adjusted. The interest rate on a variable-rate demand obligation is
adjusted automatically at specified intervals. Frequently, such obligations are
secured by letters of credit or other credit support arrangements provided by
banks. Because these obligations are direct lending arrangements between the
lender and borrower, it is not
3
<PAGE>
contemplated that such instruments generally will be traded, and there generally
is no established secondary market for these obligations, although they are
redeemable at face value. Accordingly, where these obligations are not secured
by letters of credit or other credit support arrangements, the Master
Portfolio's right to redeem is dependent on the ability of the borrower to pay
principal and interest on demand. Such obligations frequently are not rated by
credit rating agencies and the Master Portfolio may invest in obligations which
are not so rated only if BGFA determines that at the time of investment the
obligations are of comparable quality to the other obligations in which the
Master Portfolio may invest. BGFA, on behalf of the Master Portfolio, considers
on an ongoing basis the creditworthiness of the issuers of the floating- and
variable-rate demand obligations in the Master Portfolio's portfolio. The Master
Portfolio will not invest more than 10% of the value of its total net assets in
floating- or variable-rate demand obligations whose demand feature is not
exercisable within seven days. Such obligations may be treated as liquid,
provided that an active secondary market exists.
Forward Commitments, When-Issued Purchases and Delayed-Delivery Transactions.
----------------------------------------------------------------------------
The Master Portfolio may purchase or sell securities on a when-issued or
delayed-delivery basis and make contracts to purchase or sell securities for a
fixed price at a future date beyond customary settlement time. Securities
purchased or sold on a when-issued, delayed-delivery or forward commitment basis
involve a risk of loss if the value of the security to be purchased declines, or
the value of the security to be sold increases, before the settlement date.
Although the Master Portfolio will generally purchase securities with the
intention of acquiring them, the Master Portfolio may dispose of securities
purchased on a when-issued, delayed-delivery or a forward commitment basis
before settlement when deemed appropriate by the adviser.
Futures Contracts and Options on Futures Contracts.
--------------------------------------------------
The Master Portfolio may enter into futures contracts and may purchase and
write options thereon. Upon exercise of an option on a futures contract, the
writer of the option delivers to the holder of the option the futures position
and the accumulated balance in the writer's futures margin account, which
represents the amount by which the market price of the futures contract exceeds,
in the case of a call, or is less than, in the case of a put, the exercise price
of the option on the futures contract. The potential loss related to the
purchase of options on futures contracts is limited to the premium paid for the
option (plus transaction costs). Because the value of the option is fixed at the
time of sale, there are no daily cash payments to reflect changes in the value
of the underlying contract; however, the value of the option does change daily
and that change would be reflected in the net asset value of the Master
Portfolio.
Future Developments. The Master Portfolio may take advantage of opportunities
in the area of options and futures contracts and options on futures contracts
and any other derivative investments which are not presently contemplated for
use by the Master Portfolio or which are not currently available but which may
be developed, to the extent such opportunities are both consistent with the
Master Portfolio's investment objective and legally permissible for the Master
Portfolio. Before entering into such transactions or making any such investment,
the Master Portfolio will provide appropriate disclosure in its prospectus.
Stock Index Futures and Options on Stock Index Futures -- The Master
Portfolio may invest in stock index futures and options on stock index futures
as a substitute for a comparable market position in the underlying securities. A
stock index future obligates the seller to deliver (and the purchaser to take),
effectively, an amount of cash equal to a specific dollar amount times the
difference between the value of a specific stock index at the close of the last
trading day of the contract and the price at which the agreement is made. No
physical delivery of the underlying stocks in the index is made. With respect to
stock indices that are permitted investments, the Master Portfolio intends to
purchase and sell futures contracts on the stock index for which it can obtain
the best price with consideration also given to liquidity. There can be no
assurance that a liquid market will exist at the time when the Master Portfolio
seeks to close out a futures contract or a futures option position. Lack of a
liquid market may prevent liquidation of an unfavorable position.
Index Swaps -- The Master Portfolio may enter into index swaps in pursuit of
its investment objective. Index swaps involve the exchange by the Master
Portfolio with another party of cash flows based upon the
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<PAGE>
performance of an index of securities or a portion of an index of securities
that usually include dividends or income. In each case, the exchange commitments
can involve payments to be made in the same currency or in different currencies.
The Master Portfolio will usually enter into swaps on a net basis. In so doing,
the two payment streams are netted out, with the Master Portfolio receiving or
paying, as the case may be, only the net amount of the two payments. If the
Master Portfolio enters into a swap, it will maintain a segregated account on a
gross basis, unless the contract provides for a segregated account on a net
basis. If there is a default by the other party to such a transaction, the
Master Portfolio will have contractual remedies pursuant to the agreements
related to the transaction.
The use of index swaps is a highly specialized activity which involves
investment techniques and risks different from those associated with ordinary
portfolio security transactions. There is no limit, except as provided below, on
the amount of swap transactions that may be entered into by the Master
Portfolio. These transactions generally do not involve the delivery of
securities or other underlying assets or principal. Accordingly, the risk of
loss with respect to swaps generally is limited to the net amount of payments
that the Master Portfolio is contractually obligated to make. There is also a
risk of a default by the other party to a swap, in which case the Master
Portfolio may not receive net amount of payments that the Master Portfolio
contractually is entitled to receive.
Illiquid Securities.
-------------------
The Master Portfolio may invest up to 15% of the value of its net assets in
securities as to which a liquid trading market does not exist, provided such
investments are consistent with its investment objective. Such securities may
include securities that are not readily marketable, such as privately issued
securities and other securities that are subject to legal or contractual
restrictions on resale, floating- and variable-rate demand obligations as to
which the Master Portfolio cannot exercise a demand feature on not more than
seven days' notice and as to which there is no secondary market and repurchase
agreements providing for settlement more than seven days after notice.
Investment Company Securities.
-----------------------------
The Master Portfolio may invest in securities issued by other open-end,
management investment companies to the extent permitted under the 1940 Act. As a
general matter, under the 1940 Act, investment in such securities is limited to:
(i) 3% of the total voting stock of any one investment company, (ii) 5% of the
Master Portfolio's net assets with respect to any one investment company and
(iii) 10% of the Master Portfolio's net assets with respect to all such
companies in the aggregate. Investments in the securities of other investment
companies generally will involve duplication of advisory fees and certain other
expenses. The Master Portfolio may also purchase interests of exchange-listed
closed-end funds to the extent permitted under the 1940 Act.
Loans of Portfolio Securities.
-----------------------------
The Master Portfolio may lend securities from its portfolio to brokers,
dealers and financial institutions (but not individuals) if cash, U.S.
Government securities or other high quality debt obligations equal to at least
100% of the current market value of the securities loaned (including accrued
interest thereon) plus the interest payable to such Master Portfolio with
respect to the loan is maintained with the Master Portfolio. In determining
whether or not to lend a security to a particular broker, dealer or financial
institution, the Master Portfolio's investment adviser or such-adviser considers
all relevant facts and circumstances, including the size, creditworthiness and
reputation of the broker, dealer, or financial institution. Any loans of
portfolio securities are fully collateralized based on values that are marked to
market daily. The Master Portfolio does not enter into any portfolio security
lending arrangements having a duration longer than one year. Any securities that
the Master Portfolio receives as collateral do not become part of its portfolio
at the time of the loan and, in the event of a default by the borrower, the
Master Portfolio will, if permitted by law, dispose of such collateral except
for such part thereof that is a security in which the Master Portfolio is
permitted to invest. During the time securities are on loan, the borrower will
pay the Master Portfolio any accrued income on those securities, and the Master
Portfolio may invest the cash collateral and earn income or receive an agreed-
upon fee from a borrower that has delivered cash- equivalent collateral. The
Master Portfolio will not
5
<PAGE>
lend securities having a value that exceeds one-third of the current value of
their respective total assets. Loans of securities by the Master Portfolio are
subject to termination at the Master Portfolio's or the borrower's option. The
Master Portfolio may pay reasonable administrative and custodial fees in
connection with a securities loan and may pay a negotiated portion of the
interest or fee earned with respect to the collateral to the borrower or the
placing broker. Borrowers and placing brokers are not permitted to be
affiliated, directly or indirectly, with the Master Portfolio, BGFA or Stephens.
Repurchase Agreements.
---------------------
The Master Portfolio may engage in a repurchase agreement with respect to any
security in which it is authorized to invest, although the underlying security
may mature in more than thirteen months. The Master Portfolio may enter into
repurchase agreements wherein the seller of a security to the Master Portfolio
agrees to repurchase that security from the Master Portfolio at a mutually
agreed-upon time and price that involves the acquisition by the Master Portfolio
of an underlying debt instrument, subject to the seller's obligation to
repurchase, and the Master Portfolio's obligation to resell, the instrument at a
fixed price usually not more than one week after its purchase. The Master
Portfolio's custodian has custody of, and holds in a segregated account,
securities acquired as collateral by the Master Portfolio under a repurchase
agreement. Repurchase agreements are considered by the staff of the SEC to be
loans by the Master Portfolio. The Master Portfolio may enter into repurchase
agreements only with respect to securities of the type in which it may invest,
including government securities and mortgage-related securities, regardless of
their remaining maturities, and requires that additional securities be deposited
with the custodian if the value of the securities purchased should decrease
below resale price. BGFA monitors on an ongoing basis the value of the
collateral to assure that it always equals or exceeds the repurchase price.
Certain costs may be incurred by the Master Portfolio in connection with the
sale of the underlying securities if the seller does not repurchase them in
accordance with the repurchase agreement. In addition, if bankruptcy proceedings
are commenced with respect to the seller of the securities, disposition of the
securities by the Master Portfolio may be delayed or limited. While it does not
presently appear possible to eliminate all risks from these transactions
(particularly the possibility of a decline in the market value of the underlying
securities, as well as delay and costs to the Master Portfolio in connection
with insolvency proceedings), it is the policy of the Master Portfolio to limit
repurchase agreements to selected creditworthy securities dealers or domestic
banks or other recognized financial institutions. The Master Portfolio considers
on an ongoing basis the creditworthiness of the institutions with which it
enters into repurchase agreements. Repurchase agreements are considered to be
loans by a Master Portfolio under the 1940 Act.
Short-Term Instruments and Temporary Investments.
------------------------------------------------
The Master Portfolio may invest in high-quality money market instruments on
an ongoing basis to provide liquidity, for temporary purposes when there is an
unexpected level of interestholder purchases or redemptions or when "defensive"
strategies are appropriate. The instruments in which the Master Portfolio may
invest include: (i) short-term obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities (including government-sponsored
enterprises); (ii) negotiable certificates of deposit ("CDs"), bankers'
acceptances, fixed time deposits and other obligations of domestic banks
(including foreign branches) that have more than $1 billion in total assets at
the time of investment and that are members of the Federal Reserve System or are
examined by the Comptroller of the Currency or whose deposits are insured by the
FDIC; (iii) commercial paper rated at the date of purchase "Prime-1" by Moody's
or "A-1+" or "A-1" by S&P, or, if unrated, of comparable quality as determined
by BGFA or Wells Fargo Bank; (iv) non-convertible corporate debt securities
(e.g., bonds and debentures) with remaining maturities at the date of purchase
of not more than one year that are rated at least "Aa" by Moody's or "AA" by
S&P; (v) repurchase agreements; and (vi) short-term, U.S. dollar-denominated
obligations of foreign banks (including U.S. branches) that, at the time of
investment have more than $10 billion, or the equivalent in other currencies, in
total assets and in the opinion of BGFA or Wells Fargo Bank are of comparable
quality to obligations of U.S. banks which may be purchased by the Master
Portfolio.
Bank Obligations -- The Master Portfolio may invest in bank obligations,
including certificates of deposit, time deposits, bankers' acceptances and other
short-term obligations of domestic banks, foreign subsidiaries of domestic
banks, foreign branches of domestic banks, and domestic and foreign branches of
foreign banks, domestic savings and loan associations and other banking
institutions.
6
<PAGE>
Certificates of deposit are negotiable certificates evidencing the obligation
of a bank to repay funds deposited with it for a specified period of time.
Time deposits are non-negotiable deposits maintained in a banking institution
for a specified period of time at a stated interest rate. Time deposits which
may be held by the Master Portfolio will not benefit from insurance from the
Bank Insurance Fund or the Savings Association Insurance Fund administered by
the Federal Deposit Insurance Corporation.
Bankers' acceptances are credit instruments evidencing the obligation of a
bank to pay a draft drawn on it by a customer. These instruments reflect the
obligation both of the bank and of the drawer to pay the face amount of the
instrument upon maturity. The other short-term obligations may include
uninsured, direct obligations, bearing fixed, floating- or variable-interest
rates.
Commercial Paper and Short-Term Corporate Debt Instruments -- The Master
Portfolio may invest in commercial paper (including variable amount master
demand notes), which consists of short-term, unsecured promissory notes issued
by corporations to finance short-term credit needs. Commercial paper is usually
sold on a discount basis and has a maturity at the time of issuance not
exceeding nine months. Variable amount master demand notes are demand
obligations that permit the investment of fluctuating amounts at varying market
rates of interest pursuant to arrangements between the issuer and a commercial
bank acting as agent for the payee of such notes whereby both parties have the
right to vary the amount of the outstanding indebtedness on the notes. The
investment adviser and/or sub-adviser to the Master Portfolio monitors on an
ongoing basis the ability of an issuer of a demand instrument to pay principal
and interest on demand.
The Master Portfolio also may invest in non-convertible corporate debt
securities (e.g., bonds and debentures) with not more than one year remaining to
maturity at the date of settlement. The Master Portfolio will invest only in
such corporate bonds and debentures that are rated at the time of purchase at
least "Aa" by Moody's or "AA" by S&P. Subsequent to its purchase by the Master
Portfolio, an issue of securities may cease to be rated or its rating may be
reduced below the minimum rating required for purchase by the Master Portfolio.
The investment adviser and/or sub-adviser to the Master Portfolio will consider
such an event in determining whether the Master Portfolio should continue to
hold the obligation. To the extent the Master Portfolio continues to hold such
obligations, it may be subject to additional risk of default.
U.S. Government Obligations -- The Master Portfolio may invest in various
types of U.S. Government obligations. U.S. Government obligations include
securities issued or guaranteed as to principal and interest by the U.S.
Government, its agencies or instrumentalities. Payment of principal and interest
on U.S. Government obligations (i) may be backed by the full faith and credit of
the United States (as with U.S. Treasury obligations and GNMA certificates) or
(ii) may be backed solely by the issuing or guaranteeing agency or
instrumentality itself (as with FNMA notes). In the latter case, the investor
must look principally to the agency or instrumentality issuing or guaranteeing
the obligation for ultimate repayment, which agency or instrumentality may be
privately owned. There can be no assurance that the U.S. Government would
provide financial support to its agencies or instrumentalities where it is not
obligated to do so. As a general matter, the value of debt instruments,
including U.S. Government obligations, declines when market interest rates
increase and rises when market interest rates decrease. Certain types of U.S.
Government obligations are subject to fluctuations in yield or value due to
their structure or contract terms.
ITEM 13. MANAGEMENT OF THE TRUST.
The following information supplements and should be read in conjunction
with the Part A section entitled "Management of the Master Portfolio." The
Trustees and Principal Officer of MIP, together with information as to their
principal business occupations during at least the last five years, are shown
below. The address of each, unless otherwise indicated, is 111 Center Street,
Little Rock, Arkansas 72201. Each Trustee who is deemed to be an "interested
person" of the MIP, as defined in the 1940 Act, is indicated by an asterisk.
7
<PAGE>
<TABLE>
<CAPTION>
Principal Occupations
Name, Address and Age Position During Past 5 Years
--------------------- -------- -------------------
<S> <C> <C>
Jack S. Euphrat, 76 Trustee Private Investor.
415 Walsh Road
Atherton, CA 94027
*R. Greg Feltus, 47 Trustee, Chairman Executive Vice President of
and President Stephens; President of Stephens
Insurance Services Inc.; Senior
Vice President of Stephens
Sports Management Inc.; and
President of Investors
Brokerage Insurance Inc.
W. Rodney Hughes, 72 Trustee Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Richard H. Blank, Jr., 42 Chief Operating Officer, Vice President of Stephens;
Secretary and Treasurer Director of Stephens Sports
Management Inc.; and Director of
Capo Inc.
</TABLE>
Compensation Table
For the Fiscal Year Ended February 28, 1999
<TABLE>
<CAPTION>
Total Compensation
Aggregate Compensation from Registrant
Name and Position from Registrant and Fund Complex
----------------- --------------- ----------------
<S> <C> <C>
Jack S. Euphrat $ 0 $ 5,000
Trustee
*R. Greg Feltus $ 0 $ 0
Trustee
Thomas S. Goho $ 0 $ 5,000
Trustee
W. Rodney Hughes $ 0 $ 4,500
Trustee
*J. Tucker Morse $ 0 $ 4,500
Trustee
</TABLE>
Trustees of MIP are compensated annually by all the registrants in the fund
complex for their services as indicated above and also are reimbursed for all
out-of-pocket expenses relating to attendance at board meetings. MIP and
Barclays Global Investors Funds, Inc. ("BGIF"), formerly known as MasterWorks
Funds Inc., are considered to be members of the same fund complex as such term
is defined in Form N-1A under the 1940 Act. The Trustees are compensated by BGIF
and MIP for their services as Directors/Trustees to the company and Trust.
Currently, the Trustees do not receive any retirement benefits or deferred
compensation from MIP or BGIF.
8
<PAGE>
As of the date of this SAI, the Trustees and Principal Officer of MIP as a
group beneficially owned less than 1% of the outstanding beneficial interest of
MIP.
ITEM 14. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.
As of May 31, 1999, the interestholders identified below were known by the
Trust to own 5% or more of the outstanding voting securities of the Extended
Index Master Portfolio. Approximate percentages are indicated in the table
below:
<TABLE>
<CAPTION>
Name and Address Percentage of
of Interestholder Master Portfolio
----------------------------- ----------------
<S> <C>
MIP U.S. Equity Index Master Portfolio 87.58%
111 Center Street
Little Rock, Arkansas 72201
Vantagepoint Mid/Small Company Index Fund 12.11%
777 North Capital Street, NE, Suite 600
Washington, DC 20002
</TABLE>
For purposes of the 1940 Act, any person who owns directly or through one
or more controlled companies more than 25% of the voting securities of a company
is presumed to "control" such company. Accordingly, to the extent that a
shareholder identified in the foregoing table is identified as the beneficial
holder of more than 25% of the Master Portfolio, or is identified as the holder
of record of more than 25% of the Master Portfolio and has voting and/or
investment powers, it may be presumed to control the Master Portfolio.
ITEM 15. INVESTMENT ADVISORY AND OTHER SERVICES.
The following information supplements and should be read in conjunction
with Item 6 in Part A.
Investment Adviser. Barclays Global Fund Advisors ("BGFA") provides
investment advisory services to the Master Portfolio pursuant to an Investment
Advisory Contract ("BGFA Advisory Contract") with MIP, dated October 28, 1998.
As to the Master Portfolio, the BGFA Advisory Contract is subject to annual
approval by (i) MIP's Board of Trustees or (ii) vote of a majority (as defined
in the 1940 Act) of the outstanding voting securities of the Master Portfolio,
provided that in either event the continuance also is approved by a majority of
MIP's Board of Trustees who are not "interested persons" (as defined in the 1940
Act) of MIP or BGFA, by vote cast in person at a meeting called for the purpose
of voting on such approval. As to the Master Portfolio, the BGFA Advisory
Contract is terminable without penalty, on 60 days' written notice, by either
party. The BGFA Advisory Contract will terminate automatically, as to the
Master Portfolio, in the event of its assignment (as defined in the 1940 Act).
Advisory Fees. BGFA is entitled to receive monthly fees at the annual rate
of 0.08% of the average daily net assets of the Master Portfolio as compensation
for its advisory services. From time to time, BGFA may waive such fees in whole
or in part. Any such waiver will reduce the expenses of the Master Portfolio
and, accordingly, have a favorable impact on its performance.
Co-Administrators. Stephens and Barclays Global Investors, N.A. ("BGI")
are the Master Portfolio's co-administrators. Stephens and BGI provide the
Master Portfolio with administrative services, including general supervision of
the Master Portfolio's non-investment operations, coordination of the other
services provided to the Master Portfolio, compilation of information for
reports to the SEC and the state securities commissions, preparation of proxy
statements and shareholder reports, and general supervision of data compilation
in connection with preparing periodic reports to the MIP's trustees and
officers. Stephens also furnishes office space and certain facilities to conduct
the Master Portfolio's business, and compensates the MIP's trustees, officers
and employees who are affiliated with Stephens. In addition, except as outlined
below under "Expenses," Stephens and BGI will be responsible for paying all
expenses incurred by the Master Portfolio other than the fees payable to BGFA
and other than custodial fees of up to 0.01% payable after the first two years
of the Master Portfolio's operations. Stephens and BGI are entitled to receive
a monthly fee, in
9
<PAGE>
the aggregate, at an annual rate of 0.02% of the average daily net assets of the
Master Portfolio for providing administrative services and assuming expenses.
Placement Agent. Stephens is the placement agent for the Master
Portfolios. Stephens is a full service broker/dealer and investment advisory
firm located at 111 Center Street, Little Rock, Arkansas 72201. Stephens and its
predecessor have been providing securities and investment services for more than
60 years, including discretionary portfolio management services since 1983.
Stephens currently manages investment portfolios for pension and profit sharing
plans, individual investors, foundations, insurance companies and university
endowments. Stephens does not receive compensation for acting as placement agent
to the Master Portfolio.
Custodian. IBT acts as the Master Portfolio's custodian. The principal
business address of IBT is 200 Clarendon Street, Boston, Massachusetts 02111.
During the first two years of the Master Portfolio's operations, IBT will be
entitled to receive compensation for its custodial services from Stephens and
BGI. Thereafter, IBT will be entitled to receive custodial fees of up to 0.01%
from the Master Portfolio.
Transfer and Dividend Disbursing Agent. IBT also acts as each Master
Portfolio's Transfer and Dividend Disbursing Agent (the "Transfer Agent"). IBT
is not entitled to receive compensation for providing such services to MIP so
long as it receives fees for providing similar services to the funds which
invest substantially all of their assets in the Master Portfolio.
Expenses. Except for extraordinary expenses, brokerage and other expenses
connected with to the execution of portfolio transactions and certain other
expenses which are borne by the Master Portfolio, Stephens and BGI have agreed
to bear all costs of the Master Portfolio's and MIP's operations. Expenses
attributable only to the Master Portfolio shall be charged only against the
assets of the Master Portfolio. General expenses of MIP shall be allocated among
its portfolios in a manner proportionate to the net assets of each, on a
transactional basis or on such other basis as the Board of Trustees deems
equitable.
ITEM 16. BROKERAGE ALLOCATION AND OTHER PRACTICES.
General. BGFA assumes general supervision over placing orders on behalf of
the Master Portfolio for the purchase or sale of portfolio securities.
Allocation of brokerage transactions, including their frequency, is made in the
best judgment of BGFA and in a manner deemed fair and reasonable to
interestholders. In executing portfolio transactions and selecting brokers or
dealers, BGFA seeks to obtain the best overall terms available for the Master
Portfolio. In assessing the best overall terms available for any transaction,
BGFA considers factors deemed relevant, including the breadth of the market in
the security, the price of the security, the financial condition and execution
capability of the broker or dealer, and the reasonableness of the commission, if
any, both for the specific transaction and on a continuing basis. The primary
consideration is prompt execution of orders at the most favorable net price.
Certain of the brokers or dealers with whom the Master Portfolio may transact
business offer commission rebates to the Master Portfolio. BGFA considers such
rebates in assessing the best overall terms available for any transaction. The
overall reasonableness of brokerage commissions paid is evaluated by BGFA based
upon its knowledge of available information as to the general level of
commissions paid by other institutional investors for comparable services.
Brokers also are selected because of their ability to handle special executions
such as are involved in large block trades or broad distributions, provided the
primary consideration is met. Portfolio turnover may vary from year to year, as
well as within a year. High turnover rates over 100% are likely to result in
comparatively greater brokerage expenses.
Securities of Regular Broker/Dealers. On February 28, 1999, the Master
Portfolio was not yet in operation and therefore did not own securities of its
"regular brokers or dealers" or their parents, as defined in the 1940 Act.
Brokerage Commissions. For the period beginning February 22, 1999, (the
Master Portfolio's inception date) and ended February 28, 1999 (the Master
Portfolio's fiscal year end), the Master Portfolio paid brokerage commissions in
the amount of $125,052. None of the brokerage commissions were paid to
affiliated brokers.
ITEM 17. CAPITAL STOCK AND OTHER SECURITIES.
Pursuant to MIP's Declaration of Trust, the Trustees are authorized to
issue shares of beneficial interests in each Master Portfolio. Investors in a
Master Portfolio are entitled to participate pro rata in distributions of
taxable income, loss, gain and credit of such Master Portfolio. Upon
liquidation or dissolution of a Master
10
<PAGE>
Portfolio, investors are entitled to share pro rata in the Master Portfolio's
net assets available for distribution to its investors. Investments in a Master
Portfolio have no preference, pre-exemptive, conversion or similar rights and
are fully paid and non-assessable, except as set forth below. Investments in
the Master Portfolio may not be transferred. No certificates are issued.
Each investor is entitled to vote, with respect to matters affecting each
of MIP's portfolios, in proportion to the amount of its investment in the MIP.
Investors in the MIP do not have cumulative voting rights, and investors holding
more than 50% of the aggregate beneficial interest in MIP may elect all of the
Trustees of MIP if they choose to do so and in such event the other investors in
MIP would not be able to elect any Trustee. MIP is not required to hold annual
meetings of investors but MIP may hold special meetings of investors when in the
judgment of MIP's Trustees it is necessary or desirable to submit matters for an
investor vote.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted under the provisions of the 1940 Act or applicable state law or
otherwise to the holders of the outstanding voting securities of an investment
company, such as MIP, will not be deemed to have been effectively acted upon
unless approved by the holders of a majority of the outstanding shares of each
Master Portfolio affected by such matter. Rule 18f-2 further provides that a
Master Portfolio shall be deemed to be affected by a matter unless it is clear
that the interests of such Master Portfolio in the matter are identical or that
the matter does not affect any interest of such Master Portfolio. However, the
Rule exempts the selection of independent accountants and the election of
Trustees from the separate voting requirements of the Rule.
ITEM 18. PURCHASE, REDEMPTION AND PRICING OF INTERESTS.
The following information supplements and should be read in
conjunction with Item 7 in Part A.
Purchase of Securities. Beneficial interests in the Master Portfolio are
issued solely in private placement transactions which do not involve any "public
offering" within the meaning of Section 4(2) of the Securities Act of 1933, as
amended (the "1933 Act"). Investments in the Master Portfolio may only be made
by investment companies or certain other entities which are "accredited
investors" within the meaning of Regulation D under the 1933 Act. This
registration statement does not constitute an offer to sell, or the solicitation
of an offer to buy, any "security" within the meaning of the 1933 Act.
Payment for shares of the Master Portfolio may, at the discretion of the
adviser, be made in the form of securities that are permissible investments for
the Master Portfolio and must meet the investment objective, policies and
limitations of the Master Portfolio as described in the Part A. In connection
with an in-kind securities payment, the Master Portfolio may require, among
other things, that the securities (i) be valued on the day of purchase in
accordance with the pricing methods used by the Master Portfolio; (ii) are
accompanied by satisfactory assurance that the Master Portfolio will have good
and marketable title to such securities received by it; (iii) are not subject to
any restrictions upon resale by the Master Portfolio; (iv) be in proper form for
transfer to the Master Portfolio; and (v) are accompanied by adequate
information concerning the basis and other tax matters relating to the
securities. All dividends, interest, subscription or other rights pertaining to
such securities shall become the property of the Master Portfolio engaged in the
in-kind purchase transaction and must be delivered to such Master Portfolio by
the investor upon receipt from the issuer. Securities acquired through an in-
kind purchase will be acquired for investment and not for immediate resale.
Shares purchased in exchange for securities generally cannot be redeemed until
the transfer has settled.
Suspension of Redemptions. The right of redemption of Master Portfolio
shares may be suspended or the date of payment postponed (a) during any period
when the New York Stock Exchange is closed (other than customary weekend and
holiday closings), (b) when trading in the markets the Master Portfolios
ordinarily utilizes is restricted, or when an emergency exists as determined by
the Securities and Exchange Commission so that disposal of the Master
Portfolios' investments or determination of its net asset value is not
reasonably practicable, or (c) for such other periods as the Securities and
Exchange Commission by order may permit to protect the Master Portfolio's
interestholders.
Pricing of Securities. The securities of the Master Portfolio, including
covered call options written by the Master Portfolio, are valued as discussed
below. Domestic securities are valued at the last sale price on the
11
<PAGE>
domestic securities or commodities exchange or national securities market on
which such securities primarily are traded. Securities not listed on a domestic
exchange or national securities market, or securities in which there were no
transactions, are valued at the most recent bid prices. Portfolio securities
which are traded primarily on foreign securities or commodities exchanges
generally are valued at the preceding closing values of such securities on their
respective exchanges, except that when an occurrence subsequent to the time a
value was so established is likely to have changed such value, then the fair
value of those securities is determined by BGFA in accordance with guidelines
approved by MIP's Board of Trustees. Short-term investments are carried at
amortized cost, which approximates value. Any securities or other assets for
which recent market quotations are not readily available are valued at fair
value as determined in good faith by BGFA in accordance with such guidelines.
Restricted securities, as well as securities or other assets for which
market quotations are not readily available, or are not valued by a pricing
service approved by MIP's Board of Trustees, are valued at fair value as
determined in good faith by BGFA in accordance with guidelines approved by MIP's
Board of Trustees. BGFA and MIP's Board of Trustees periodically review the
method of valuation. In making its good faith valuation of restricted
securities, BGFA generally takes the following factors into consideration:
restricted securities which are, or are convertible into, securities of the same
class of securities for which a public market exists usually will be valued at
market value less the same percentage discount at which purchased. This
discount is revised periodically if it is believed that the discount no longer
reflects the value of the restricted securities. Restricted securities not of
the same class as securities for which a public market exists usually are valued
initially at cost. Any subsequent adjustment from cost is based upon
considerations deemed relevant by MIP's Board of Trustees.
New York Stock Exchange Closings. The holidays on which the New York Stock
Exchange is closed currently are: New Year's Day, Martin Luther King, Jr's
Birthday, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.
ITEM 19. TAXATION OF THE TRUST.
MIP is organized as a business trust under Delaware law. Under MIP's
current classification for federal income tax purposes, it is intended that each
Master Portfolio will be treated as a partnership for such purposes and,
therefore, such Master Portfolio will not be subject to any federal income tax.
However, each investor in a Master Portfolio will be taxable on its share (as
determined in accordance with the governing instruments of MIP) of such Master
Portfolio's ordinary income and capital gain in determining its federal income
tax liability. The determination of such share will be made in accordance with
the Internal Revenue Code of 1986, as amended (the "Code"), and regulations
promulgated thereunder.
MIP's taxable year-end is the last day of December. Although MIP will not
be subject to federal income tax, it will file appropriate federal income tax
returns.
The Master Portfolio's assets, income and distributions will be managed in
such a way that an investor in the Master Portfolio may satisfy the requirements
of Subchapter M of the Code, by investing substantially all of its investable
assets in the Master Portfolio. Investors are advised to consult their own tax
advisors as to the tax consequences of an investment in the Master Portfolio.
ITEM 20. UNDERWRITERS.
The exclusive placement agent for MIP is Stephens, which receives no
compensation for serving in this capacity. Registered broker/dealers and
investment companies, insurance company separate accounts, common and commingled
trust funds, group trust and similar organizations and entities which constitute
accredited investors, as defined in the regulations adopted under the 1933 Act,
may continuously invest in a Master Portfolio of MIP.
ITEM 21. CALCULATIONS OF PERFORMANCE DATA.
Not applicable.
ITEM 22. FINANCIAL STATEMENTS.
KPMG LLP provides audit services, tax services and assistance and
consultation in connection with the review of certain SEC filings. KPMG LLP's
address is Three Embarcadero Center, San Francisco, California 94111. Such
auditors expressed an unqualified opinion on the financial statements of the
MIP.
12
<PAGE>
APPENDIX
Description of certain ratings assigned by Standard & Poor's Corporation
("S&P"), Moody's Investors Service, Inc. ("Moody's"), Fitch Investors Service,
Inc. ("Fitch"), Duff & Phelps, Inc. ("Duff") and IBCA Inc. and IBCA Limited
("IBCA"):
S&P
Bond Ratings
"AAA"
Bonds rated AAA have the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
"AA"
Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
"A"
Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than obligations in higher rated
categories.
"BBB"
Bonds rated "BBB" are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.
S&P's letter ratings may be modified by the addition of a plus (+) or minus
(-) sign designation, which is used to show relative standing within the major
rating categories, except in the AAA (Prime Grade) category.
Commercial Paper Rating
The designation A-1 by S&P indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues determined
to possess overwhelming safety characteristics are denoted with a plus sign (+)
designation. Capacity for timely payment on issues with an A-2 designation is
strong. However, the relative degree of safety is not as high as for issues
designated A-1.
Moody's
Bond Ratings
"Aaa"
Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
A-1
<PAGE>
"Aa"
Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what generally are known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
"A"
Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
"Baa"
Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Moody's applies the numerical modifiers "1", "2" and "3" to show
relative standing within the major rating categories, except in the "Aaa"
category. The modifier "1" indicates a ranking for the security in the higher
end of a rating category; the modifier "2" indicates a mid-range ranking; and
the modifier "3" indicates a ranking in the lower end of a rating category.
Commercial Paper Rating
The rating ("P-1") Prime-1 is the highest commercial paper rating
assigned by Moody's. Issuers of "P-1" paper must have a superior capacity for
repayment of short-term promissory obligations, and ordinarily will be evidenced
by leading market positions in well established industries, high rates of return
on funds employed, conservative capitalization structures with moderate reliance
on debt and ample asset protection, broad margins in earnings coverage of fixed
financial charges and high internal cash generation, and well established access
to a range of financial markets and assured sources of alternate liquidity.
Issuers (or relating supporting institutions) rated ("P-2") Prime-2
have a strong capacity for repayment of short-term promissory obligations. This
ordinarily will be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.
Fitch
Bond Ratings
The ratings represent Fitch's assessment of the issuer's ability to
meet the obligations of a specific debt issue or class of debt. The ratings
take into consideration special features of the issue, its relationship to other
obligations of the issuer, the current financial condition and operative
performance of the issuer and of any guarantor, as well as the political and
economic environment that might affect the issuer's future financial strength
and credit quality.
"AAA"
Bonds rated "AAA" are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
A-2
<PAGE>
"AA"
Bonds rated "AA" are considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated "AAA". Because
bonds rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short- term debt of these issuers is generally
rated "F-1+".
"A"
Bonds rated "A" are considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
"BBB"
Bonds rated "BBB" are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have an adverse impact on these
bonds and, therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
Plus (+) and minus (-) signs are used with a rating symbol to indicate
the relative position of a credit within the rating category.
Short-Term Ratings
Fitch's short-term ratings apply to debt obligations that are payable
on demand or have original maturities of up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
Although the credit analysis is similar to Fitch's bond rating
analysis, the short-term rating places greater emphasis than bond ratings on the
existence of liquidity necessary to meet the issuer's obligations in a timely
manner.
"F-1+"
Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
"F-1"
Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
"F-2"
Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payments, but the margin of safety is not as
great as the F-1+ and F-1 categories.
A-3
<PAGE>
Duff
Bond Ratings
"AAA"
Bonds rated AAA are considered highest credit quality. The risk
factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
"AA"
Bonds rated AA are considered high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
"A"
Bonds rated A have protection factors which are average but adequate.
However, risk factors are more variable and greater in periods of economic
stress.
"BBB"
Bonds rated BBB are considered to have below average protection
factors but still considered sufficient for prudent investment. Considerable
variability in risk during economic cycles.
Plus (+) and minus (-) signs are used with a rating symbol (except
AAA) to indicate the relative position of a credit within the rating category.
Commercial Paper Rating
The rating "Duff-1" is the highest commercial paper rating assigned by
Duff. Paper rated Duff-1 is regarded as having very high certainty of timely
payment with excellent liquidity factors which are supported by ample asset
protection. Risk factors are minor. Paper rated "Duff-2" is regarded as having
good certainty of timely payment, good access to capital markets and sound
liquidity factors and company fundamentals. Risk factors are small.
IBCA
Bond and Long-Term Ratings
Obligations rated AAA by IBCA have the lowest expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly. Obligations
for which there is a very low expectation of investment risk are rated AA by
IBCA. Capacity for timely repayment of principal and interest is substantial.
Adverse changes in business, economic or financial conditions may increase
investment risk albeit not very significantly.
Commercial Paper and Short-Term Ratings
The designation A1 by IBCA indicates that the obligation is supported
by a very strong capacity for timely repayment. Those obligations rated A1+ are
supported by the highest capacity for timely repayment. Obligations rated A2 are
supported by a strong capacity for timely repayment, although such capacity may
be susceptible to adverse changes in business, economic or financial conditions.
<PAGE>
MASTER INVESTMENT PORTFOLIO
File No. 811-8162
PART C
OTHER INFORMATION
Item 23. Exhibits
- -------- --------
Exhibit
Number Description
------- -----------
1(a) - Amended and Restated Declaration of Trust,
incorporated by reference to the Registration
Statement on Form N-1A, filed November 15, 1993, and
August 31, 1998.
1(b) - Certificate of Trust, incorporated by reference to
the Registration Statement on Form N-1A, filed
November 15, 1993, and August 31, 1998.
1(c ) - Amendment to the Amended and Restated Agreement and
Declaration of Trust, incorporated by reference to
the Registration Statement on Form N-1A, filed
August 31, 1998.
1(d) - Certificate of Amendment to the Certificate of
Trust, incorporated by reference to the Registration
Statement on Form N-1A, filed September 9, 1998.
2 - By-Laws, incorporated by reference to the
Registration Statement on Form N-1A filed November
15, 1993.
3 - Not Applicable.
4(a) - Investment Advisory Contract by and among BZW
Barclays Global Fund Advisors and Master Investment
Portfolio dated January 1, 1996, on behalf of the
LifePath 2000 Master Portfolio, incorporated by
reference to Amendment No. 3 to the Registration
Statement, filed January 5, 1996.
4(b) - Investment Advisory Contract by and among BZW
Barclays Global Fund Advisors and Master Investment
Portfolio dated January 1, 1996, on behalf of the
LifePath 2010 Master Portfolio, incorporated by
reference to Amendment No. 3 to the Registration
Statement, filed January 5, 1996.
4(c) - Investment Advisory Contract by and among BZW
Barclays Global Fund Advisors and Master Investment
Portfolio dated January 1, 1996, on behalf of the
LifePath 2020 Master Portfolio, incorporated by
reference to Amendment No. 3 to the Registration
Statement, filed January 5, 1996.
4(d) - Investment Advisory Contract by and among BZW
Barclays Global Fund Advisors and Master Investment
Portfolio dated January 1, 1996, on behalf of the
LifePath 2030 Master Portfolio, incorporated by
reference to Amendment No. 3 to the Registration
Statement, filed January 5, 1996.
C-1
<PAGE>
Exhibit
Number Description
------ -----------
4(e) - Investment Advisory Contract by and among BZW
Barclays Global Fund Advisors and Master Investment
Portfolio dated January 1, 1996, on behalf of the
LifePath 2040 Master Portfolio, incorporated by
reference to Amendment No. 3 to the Registration
Statement, filed January 5, 1996.
4(f) - Investment Advisory Contract by and among BZW
Barclays Global Fund Advisors and Master Investment
Portfolio dated January 1, 1996, on behalf of the
Bond Index Master Portfolio, incorporated by
reference to Amendment No. 3 to the Registration
Statement, filed January 5, 1996.
4(g) - Investment Advisory Contract by and among BZW
Barclays Global Fund Advisors and Master Investment
Portfolio dated January 1, 1996, on behalf of the
Asset Allocation Master Portfolio, incorporated by
reference to Amendment No. 3 to the Registration
Statement, filed January 5, 1996.
4(h) - Investment Advisory Contract by and among BZW
Barclays Global Fund Advisors and Master Investment
Portfolio dated January 1, 1996, on behalf of the
S&P 500 Index Master Portfolio, incorporated by
reference to Amendment No. 3 to the Registration
Statement, filed January 5, 1996.
4(i) - Investment Advisory Contract by and among BZW
Barclays Global Fund Advisors and Master Investment
Portfolio dated January 1, 1996, on behalf of the
U.S. Treasury Allocation Master Portfolio,
incorporated by reference to Amendment No. 3 to the
Registration Statement, filed January 5, 1996.
4(j) - Investment Advisory Contract by and among Barclays
Global Fund Advisors and Master Investment Portfolio
dated June 11, 1998, on behalf of the Money Market
Master Portfolio, incorporated by reference to
Amendment No. 9 to the Registration Statement, filed
February 22, 1999.
4(k) - Investment Advisory Contract by and among Barclays
Global Fund Advisors and Master Investment Portfolio
dated October 28, 1998, on behalf of the Extended
Index Master Portfolio, incorporated by reference to
Amendment No. 9 to the Registration Statement, filed
February 22, 1999.
4(l) - Investment Advisory Contract by and among Barclays
Global Fund Advisors and master Investment Portfolio
dated October 28, 1998, on behalf of the U.S. Equity
Index Master Portfolio, incorporated by reference to
Amendment No. 9 to the Registration Statement, filed
February 22, 1999.
5 - Placement Agency Agreement with Stephens Inc. on
behalf of each Master Portfolio, incorporated by
reference to Amendment No. 4 to the Registration
Statement, filed on June 28, 1996, incorporated by
reference to Amendment No. 9 to the Registration
Statement, filed February 22, 1999.
7 - Custody Agreement with Investors Bank & Trust, N.A.
dated October 21, 1996 on behalf of each Master
Portfolio, incorporated by reference to Amendment
No. 9 to the Registration Statement, filed February
22, 1999.
C-2
<PAGE>
Exhibit
Number Description
------ -----------
8(a) - Co-Administration Agreement with Stephens Inc. and
Barclays Global Investors, N.A. dated October 21,
1996 on behalf of each Master Portfolio,
incorporated by reference to Amendment No. 9 to the
Registration Statement, filed February 22, 1999.
8(b) - Sub-Administration Agreement with Investors Bank &
Trust and Barclays Global Investors, N.A. dated
October 21, 1996 on behalf of each Master Portfolio,
incorporated by reference to Amendment No. 9 to the
Registration Statement, filed February 22, 1999.
8(c) - Third Party Feeder Fund Agreement with Massmutual
Institutional Funds and Massachusetts Mutual Life
Insurance Company dated February 27, 1998,
incorporated by reference to Amendment No. 6 to the
Registration Statement, filed June 30, 1998.
8(d) - Third Party Feeder Fund Agreement by and among
Strong Equity Funds, Inc., Strong Funds
Distributors, Inc. and Master Investment Portfolio
dated April 25, 1997, incorporated by reference to
Amendment No. 7 to the Registration Statement, filed
August 31, 1998.
8(e) - Third Party Feeder Fund Agreement by and among
Hewitt Series Funds, Hewitt Services LLC and Master
Investment Portfolio dated September 1, 1998, filed
herewith.
8(f) - Third Party Feeder Fund Agreement by and among
Diversified Investors Stock Index Fund, Diversified
Investors Securities Corporation and Master
Investment Portfolio dated March 1, 1999, filed
herewith.
8(g) - Third Party Feeder Fund Agreement by and among
E*Trade Funds, E*Trade Securities and Master
Investment Portfolio dated February 3, 1999, filed
herewith.
8(h) - Third Party Feeder Fund Agreement by and among
Vantagepoint Funds, ICMA - RC Services, LLC and
Master Investment Portfolio dated March 1, 1999,
filed herewith.
8(i) - Third Party Feeder Fund Agreement by and among
INTRUST SERIES TRUST, BISYS Fund Services, BISYS
Fund Services, Inc., INTRUST Bank, N.A., Investors
Bank & Trust Company and Master Investment Portfolio
dated December 21, 1998, filed herewith.
9 - Not Applicable.
10 - Consent of Independent Auditors, filed herewith.
11 - Not Applicable.
12 - Not Applicable.
13 - Distribution Plan on behalf of the LifePath Master
Portfolios, incorporated by reference to Amendment
No. 3 to the Registration Statement, filed January
5, 1996.
C-3
<PAGE>
Exhibit
Number Description
------- -----------
14 - Financial Data Schedules for the fiscal period ended
February 28, 1999, incorporated by reference to the
Form N-SAR, filed on April 28, 1999.
15 - Not Applicable
19 - Powers of Attorney for Jack S. Euphrat, R. Greg
Feltus, Thomas S. Goho, W. Rodney Hughes and J.
Tucker Morse, incorporated by reference to Amendment
No. 5 to the Registration Statement, filed June 30,
1997.
Item 24. Persons Controlled by or Under Common Control with Registrant
- ------- -------------------------------------------------------------
No person is controlled by or under common control with the
Registrant.
Item 25. Indemnification
- ------- ---------------
Reference is made to Article IX of the Registrant's Declaration of
Trust. The application of these provisions is limited by Article 10 of the
Registrant's By-Laws and by the following undertaking set forth in the rules
promulgated by the Securities and Exchange Commission:
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in such Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a trustee, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in such Act and will
be governed by the final adjudication of such issue.
Item 26. (a) Business and Other Connections of Investment Adviser
- ------- ----------------------------------------------------
The LifePath 2000, LifePath 2010, LifePath 2020, LifePath 2030,
LifePath 2040, Asset Allocation, Bond Index, S&P 500 Index, U.S. Treasury
Allocation, Money Market, Extended Index and U.S. Equity Index Master Portfolios
are advised by Barclays Global Fund Advisors ("BGFA"), a wholly-owned subsidiary
of Barclays Global Investors, N.A. ("BGI"). BGFA's business is that of a
registered investment adviser to certain open-end, management investment
companies and various other institutional investors.
The directors and officers of BGFA consist primarily of persons who
during the past two years have been active in the investment management business
of the former sub-adviser to the Registrant, Wells Fargo Nikko Investment
Advisors ("WFNIA") and, in some cases, the service business of BGI. Each of the
directors and executive officers of BGFA will also have substantial
responsibilities as directors and/or officers of BGI. To the knowledge of the
Registrant, except as set forth below, none
C-4
<PAGE>
of the directors or executive officers of BGFA is or has been at any time during
the past two fiscal years engaged in any other business, profession, vocation or
employment of a substantial nature.
Name and Position Principal Business(es) During at
at BGFA Least the Last Two Fiscal Years
- ------- -------------------------------
Patricia Dunn Director of BGFA and Co-Chairman and Director of
Director BGI 45 Fremont Street, San Francisco, CA 94105
Lawrence G. Tint Chairman of the Board of Directors of BGFA and
Chairman and Director Chief Executive Officer of BGI
45 Fremont Street, San Francisco, CA 94105
Geoffrey Fletcher Chief Financial Officer of BGFA and BGI since May
1997 45 Fremont Street, San Francisco, CA 94105
Managing Director and Principal Accounting Officer
at Bankers Trust Company from 1988 - 1997
505 Market Street, San Francisco, CA 94111
Item 27. Principal Underwriters
------- ----------------------
(a) Stephens Inc., placement agent for the Registrant, does not
presently act as investment adviser for any other registered investment
companies, but does act as principal underwriter for Life & Annuity Trust,
Barclays Global Investors Funds, Inc., Stagecoach Funds, Inc., Stagecoach Trust,
Nations Fund, Inc., Nations Fund Trust, Nations Fund Portfolios, Inc., Nations
LifeGoal Funds, Inc. and Nations Institutional Reserves, and is the exclusive
placement agent for Master Investment Portfolio, all of which are registered
open-end management investment companies.
(b) Information with respect to each director and officer of the
principal underwriter is incorporated by reference to Form ADV and Schedules A
and D filed by Stephens Inc. with the Securities and Exchange Commission
pursuant to the Investment Advisors Act of 1940 (File No. 501-15510).
(c) Not Applicable
Item 28. Location of Accounts and Records
- ------- --------------------------------
(a) The Registrant maintains accounts, books and other documents
required by Section 31(a) of the Investment Company Act of 1940 and the rules
thereunder (collectively, "Records") at the offices of Stephens Inc., 111 Center
Street, Little Rock, Arkansas 72201.
(b) BGFA and BGI maintain all Records relating to their services as
adviser and co-administrator, respectively, at 45 Fremont Street, San Francisco,
California 94105.
(c) Stephens maintains all Records relating to its services as
sponsor, co- administrator and distributor at 111 Center Street, Little Rock,
Arkansas 72201.
C-5
<PAGE>
(e) IBT maintains all Records relating to its services as sub-
administrator and custodian at 89 South Street, Boston, Massachusetts 02111.
Item 29. Management Services
- ------- -------------------
Other than as set forth under the captions "Item 6, Management,
Organization and Capital Structure" in Part A of this Registration Statement,
and "Item 13, Management of the Trust" and "Item 15, Investment Advisory and
Other Services" in Part B of this Registration Statement, Registrant is not a
party to any management-related service contract.
Item 30. Undertakings
- ------- ------------
Not applicable.
C-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940,
the Registrant has duly caused this Amendment to its Registration Statement on
Form N-1A to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Little Rock, State of Arkansas on the 29th day
of June, 1999.
MASTER INVESTMENT PORTFOLIO
By /s/ Richard H. Blank, Jr.
-----------------------------
(Richard H. Blank, Jr.)
Secretary and Treasurer
(Principal Financial Officer)
Signature Title
--------- -----
* Trustee, Chairman and President
- -----------------------------
(R. Greg Feltus) (Principal Executive Officer)
/s/ Richard H. Blank, Jr Secretary and Treasurer
- -----------------------------
(Richard H. Blank, Jr.) (Principal Financial Officer)
* Trustee
- -----------------------------
(Jack S. Euphrat)
* Trustee
- -----------------------------
(W. Rodney Hughes)
*By: /s/ Richard H. Blank, Jr
------------------------
Richard H. Blank, Jr.
As Attorney-in-Fact
June 29, 1999
<PAGE>
MASTER INVESTMENT PORTFOLIO
File No. 811-8162
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- --------- -----------
<S> <C>
EX-99.B8(e) . Third Party Feeder Fund Agreement by and among Hewitt
Series Funds, Hewitt Services LLC and Master Investment
Portfolio
EX-99.B8(f) . Third Party Feeder Fund Agreement by and among Diversified
Investors Stock Index Fund, Diversified Investors
Securities Corporation and Master Investment Portfolio
EX-99.B8(g) . Third Party Feeder Fund Agreement by and among E*Trade
Funds, E*Trade Securities and Master Investment Portfolio
EX-99.B8(h) . Third Party Feeder Fund Agreement by and among Vantagepoint
Funds, ICMA - RC Services, LLC and Master Investment
Portfolio
EX-99.B8(i) . Third Party Feeder Fund Agreement by and among INTRUST
SERIES TRUST, BISYS Fund Services, BISYS Fund Services,
Inc., INTRUST Bank, N.A., Investors Bank & Trust Company
and Master Investment Portfolio
EX-99.B10 . Consent of Independent Auditors
</TABLE>
<PAGE>
THIRD PARTY FEEDER FUND
AGREEMENT
AMONG
HEWITT SERIES TRUST
HEWITT SERVICES LLC
AND
MASTER INVESTMENT PORTFOLIO
dated as of
September 1, 1998
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
ARTICLE I. REPRESENTATIONS AND WARRANTIES...................................
1.1 Trust............................................................
1.2 MIP..............................................................
1.3 Distributor......................................................
ARTICLE II. COVENANTS........................................................
2.1 Trust............................................................
2.2 MIP..............................................................
2.3 Reasonable Actions...............................................
ARTICLE III. INDEMNIFICATION..................................................
3.1 Trust and Distributor............................................
3.2 MIP..............................................................
ARTICLE IV. ADDITIONAL AGREEMENTS............................................
4.1 Access to Information............................................
4.2 Confidentiality..................................................
4.3 Obligations of Trust and MIP.....................................
ARTICLE V. TERMINATION, AMENDMENT...........................................
5.1 Termination......................................................
5.2 Amendment........................................................
ARTICLE VI. GENERAL PROVISIONS...............................................
6.1 Expenses.........................................................
6.2 Headings.........................................................
6.3 Entire Agreement.................................................
6.4 Successors.......................................................
6.5 Governing Law....................................................
6.6 Counterparts.....................................................
6.7 Third Parties....................................................
6.8 Notices..........................................................
6.9 Interpretation...................................................
6.10 Operation of Fund................................................
6.11 Relationship of Parties; No Joint Venture, Etc...................
6.12 Use of Name......................................................
</TABLE>
Signatures
i
<PAGE>
AGREEMENT
---------
THIS AGREEMENT (the "Agreement") is made and entered into as of the 1st day
of September, 1998, by and among Hewitt Series Trust, a Delaware business
("Trust"), for itself and on behalf of its series, Hewitt Money Market Fund
("Fund"), Hewitt Services LLC ("Distributor"), an Illinois limited liability
company, and Master Investment Portfolio ("MIP"), a Delaware business trust, for
itself and on behalf of its series, the Money Market Master Portfolio
("Portfolio").
WITNESSETH
----------
WHEREAS, Trust and MIP are each registered under the Investment Company Act
of 1940 (the "1940 Act") as open-end management investment companies;
WHEREAS, Fund and Portfolio have the same investment objective and
substantially the same investment policies;
WHEREAS, Fund desires to pursue its investment objective by investing on an
ongoing basis all of its investable assets (the "Assets") in Portfolio (the
"Investments") on the terms and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the foregoing, the mutual promises made
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
ARTICLE I
REPRESENTATIONS AND WARRANTIES
------------------------------
1.1 Trust. Trust represents and warrants to MIP that:
-----
(a) Organization. Trust is a trust duly organized, validly existing
------------
and in good standing under the laws of the State of Delaware and Fund is a
duly and validly designated series of Trust. Each of Trust and Fund has
the requisite power and authority to own its property and conduct its
business as proposed to be conducted pursuant to this Agreement.
(b) Authorization of Agreement. The execution and delivery of this
--------------------------
Agreement by Trust on behalf of Fund and the conduct of business
contemplated hereby have been duly authorized by all necessary action on
the part of Trust's Board of Trustees and no other action or proceeding is
necessary for the execution and delivery of this Agreement by Fund, or the
performance by Fund of its obligations hereunder. This Agreement when
executed and delivered by Trust on behalf of Fund shall constitute a legal,
valid and binding obligation of Trust, enforceable against Fund in
accordance with its terms. No meeting of, or consent by, shareholders of
Fund is necessary to approve or implement the Investments.
<PAGE>
(c) 1940 Act Registration. Trust is duly registered under the 1940
----------------------
Act as an open-end management investment company, and such registration is
in full force and effect.
(d) SEC Filings. Trust has duly filed all forms, reports, proxy
-----------
statements and other documents (collectively, the "SEC Filings") required
to be filed with the Securities and Exchange Commission (the "SEC") under
the Securities Act of 1933 (the "1933 Act"), the Securities Exchange Act of
1934 (the "1934 Act") and the 1940 Act, and the rules and regulations
thereunder (collectively, the "Securities Laws"), in connection with the
registration of Fund's shares, any meetings of its shareholders and its
registration as an investment company. All SEC Filings relating to Fund
comply in all material respects with the requirements of the applicable
Securities Laws and do not, as of the date of this Agreement, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(e) Fund Assets. Fund currently intends on an ongoing basis to invest
-----------
its Assets solely in Portfolio.
(f) Registration Statement. Trust has reviewed MIP's and Portfolio's
----------------------
registration statement on Form N-lA, as filed with the SEC on August 31,
1998, and agrees that Fund's Investments will be subject to the terms
thereof. Fund understands and acknowledges that Portfolio has the right,
in its sole discretion, at any time, to limit or reject additional
Investments from Fund, provided that MIP shall provide Trust at least
thirty (30) days' advance written notice, or such lesser time as may be
agreed to by the parties, of any such limit or rejection.
(g) Insurance. As of the date of commencement of its operations, Fund
---------
has in force reasonable insurance coverage against any and all liabilities
that may arise as a result of Fund's business as a registered investment
company.
1.2 MIP. MIP represents and warrants to Trust that:
---
(a) Organization. MIP is a trust duly organized, validly existing and
------------
in good standing under the laws of the State of Delaware and Portfolio is a
duly and validly designated series of MIP. Each of MIP and Portfolio has
the requisite power and authority to own its property and conduct its
business as now being conducted.
(b) Authorization of Agreement. The execution and delivery of this
--------------------------
Agreement by MIP on behalf of Portfolio and the conduct of business
contemplated hereby have been duly authorized by all necessary action on
the part of MIP's Board of Trustees and no other action or proceeding is
necessary for the execution and delivery of this Agreement by Portfolio, or
the performance by Portfolio of its obligations hereunder. This Agreement
when executed and delivered by MIP on behalf of Portfolio shall constitute
a legal, valid and binding obligation of MIP and Portfolio, enforceable
against MIP and Portfolio in accordance with its terms. No meeting of, or
consent by,
2
<PAGE>
interestholders of Portfolio is necessary to approve the issuance of the
Interests (as defined below) to Fund.
(c) Authorization of Issuance of Beneficial Interest. The issuance by
------------------------------------------------
MIP of beneficial interests in the Portfolio ("Interests") in exchange for
the Investments by Fund of its assets has been duly authorized by all
necessary action on the part of the Board of Trustees of MIP.
(d) 1940 Act Registration. MIP is duly registered as an open-end
----------------------
management investment company under the 1940 Act and such registration is
in full force and effect.
(e) SEC Filings; Securities Exemptions. MIP has duly filed all SEC
----------------------------------
Filings, as defined herein, relating to Portfolio required to be filed with
the SEC pursuant to the Securities Laws. Interests in Portfolio are not
required to be registered under the 1933 Act, because such Interests are
offered solely in private placement transactions which do not involve any
"public offering" within the meaning of Section 4(2) of the 1933 Act. In
addition, Interests in Portfolio are either noticed for sale or exempt from
notice requirements under applicable securities laws in those states or
jurisdictions in which Interests are offered and sold. All SEC Filings
relating to Portfolio comply in all material respects with the requirements
of the applicable Securities Laws, and do not, as of the date of this
Agreement, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading.
(f) Tax Status. Based upon applicable IRS interpretations and
-----------
rulings, Portfolio is treated as a partnership for federal income tax
purposes under the Internal Revenue Code of 1986, as amended (the "Code")
for its current taxable year.
1.3 Distributor. Distributor represents and warrants to MIP that the
-----------
execution and delivery of this Agreement by Distributor have been duly
authorized by all necessary action on the part of Distributor and no other
action or proceeding is necessary for the execution and delivery of this
Agreement by Distributor, or the performance by Distributor of its obligations
hereunder. This Agreement when executed and delivered by Distributor shall
constitute a legal, valid and binding obligation of Distributor, enforceable
against Distributor in accordance with its terms.
ARTICLE II
COVENANTS
---------
2.1 Trust. Trust covenants that:
-----
(a) Advance Review of Certain Documents. Trust will furnish MIP at
-----------------------------------
least ten (10) business days prior to the earlier of filing or first use,
with drafts of Fund's registration statement on Form N-lA and any
amendments thereto, and also will furnish
3
<PAGE>
MIP at least five (5) business days' prior to the earlier of filing or
first use, with drafts of any prospectus or statement of additional
information supplements. In addition, Trust will furnish or will cause to
be furnished to MIP at least five (5) business days prior to the earlier of
filing or first use, as the case may be, any proposed advertising or sales
literature that contains language that describes or refers to MIP or
Portfolio and that was not previously approved by MIP. Trust agrees that it
will include in all such Fund documents any disclosures that may be
required by law, and that it will incorporate in all such Fund documents
any material and reasonable comments made by MIP. MIP will not, however, in
any way be liable to the Trust for any errors or omissions in such
documents, whether or not MIP makes any objection thereto, except to the
extent such errors or omissions result from errors in or omissions in
information provided in MIP's 1940 Act registration statement or otherwise
provided by MIP for inclusion therein, or result from the failure of MIP to
provide information requested by the Trust or information otherwise
required to be provided to them under this Agreement. In addition, neither
Fund nor Distributor will make any other written or oral representations
about MIP or Portfolio other than those contained in such documents without
MIP's prior written consent.
(b) SEC and Blue Sky Filings. Trust will file all SEC Filings
------------------------
required to be filed with the SEC under the Securities Laws in connection
with the registration of Fund's shares, any meetings of its shareholders,
and its registration as an investment company. Trust will file such
similar or other documents as may be required to be filed with any
securities commission or similar authority by the laws or regulations of
any state, territory or possession of the United States, including the
District of Columbia, in which shares of Fund are or will be noticed for
sale ("State Filings"). Fund's SEC Filings will comply in all material
respects with the requirements of the applicable Securities Laws, and,
insofar as they relate to information other than that supplied or required
to be supplied by MIP, will not, at the time they are filed or used to
offer Fund shares, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under
which they were made, not misleading. Fund's State Filings will be
prepared in accordance with the requirements of applicable state and
federal law and the rules and regulations thereunder.
(c) 1940 Act Registration. Trust will be duly registered as an open-
---------------------
end management investment company under the 1940 Act.
(d) Tax Status. Fund will qualify for treatment as a regulated
----------
investment company under Subchapter M of the Code for any taxable year
during which this Agreement continues in effect, unless such lack of
qualification is solely as a result of Portfolio's failure to meet (i) the
income test imposed on regulated investment companies under Section
851(b)(2) of the Code and (ii) the asset test imposed on regulated
investment companies under Section 851(b)(3) of the Code, as if such
Sections applied to it.
(e) Fiscal Year. Fund shall take appropriate action to adopt and
-----------
maintain the same fiscal year end as Portfolio (currently the last day of
February).
4
<PAGE>
(f) Proxy Voting. If requested to vote on matters pertaining to MIP
------------
or Portfolio, Fund will vote such shares in accordance with applicable law.
(g) Compliance with Laws. Trust shall comply, in all material
--------------------
respects, with all applicable laws, rules and regulations in connection
with conducting its operations as a registered investment company.
(h) Insurance. Trust will maintain in full force and effect for so
---------
long as this Agreement is in effect insurance coverage against liabilities
that may arise as a result of Fund's business as a registered investment
company, in such amount and covering such liabilities as the Board of
Trustees of Trust deems reasonable.
2.2 MIP. MIP covenants that:
---
(a) Signature Pages. MIP shall promptly provide all required
---------------
signature pages to Trust for inclusion in any SEC Filings of Trust,
provided Trust is in material compliance with its covenants and other
obligations under this Agreement at the time such signature pages are
provided and included in the SEC Filing. Trust and Distributor acknowledge
and agree that the provision of such signature pages does not constitute a
representation by MIP, its Trustees or Officers, that such SEC Filing
complies with the requirements of the applicable Securities Laws, or that
such SEC Filing does not contain any untrue statement of a material fact or
does not omit to the state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, except with
respect to information provided by MIP for inclusion in such SEC Filing or
for use by Trust in preparing such filing, which shall in any event include
any written information obtained from MIP's current registration statement
on Form N-1A.
(b) Redemption. Except as otherwise provided in this Section 2.2(b),
----------
redemptions of Interests owned by Fund will be effected pursuant to Section
2.2(c). In the event Fund desires to withdraw its entire Investment from
Portfolio, either by submitting a redemption request or by terminating this
Agreement in accordance with Section 5.1 hereof, Portfolio, unless
otherwise agreed to by the parties, and in all cases subject to Sections 17
and 18 of the 1940 Act and the rules and regulations thereunder, will
effect such redemption "in kind" and in such a manner that the securities
delivered to Fund or its custodian for the account of Fund mirror, as
closely as practicable, the composition of Portfolio immediately prior to
such redemption. Portfolio further agrees that, to the extent legally
possible, it will not take or cause to be taken any action without Trust's
prior approval that would cause the withdrawal of Fund's Investments to be
treated as a taxable event to Fund. Portfolio further agrees to conduct
its activities in accordance with all applicable requirements of Regulation
1.731-2(e) under the Code or any successor regulation.
(c) Ordinary Course Redemptions. Portfolio will effect redemptions of
---------------------------
Interests in accordance with the provisions of the 1940 Act and the rules
and regulations thereunder, including, without limitation, Section 17
thereof. All redemption requests other than a withdrawal of Fund's entire
Investment in Portfolio under Section 2.2(b) or,
5
<PAGE>
at the sole discretion of MIP, a withdrawal (or series of withdrawals over
any three (3) consecutive business days) of an amount that exceeds 10% of
Portfolio's net asset value, will be effected in cash at the next
determined net asset value after the redemption request is received.
Portfolio will use its best efforts to settle redemptions on the business
day following the receipt of a redemption request by Fund and if such next
business day settlement is not practicable, will immediately notify Fund
regarding the anticipated settlement date, which shall in all events be a
date permitted under the 1940 Act.
(d) SEC Filings. MIP will file all SEC Filings required to be filed
-----------
with the SEC under the Securities Laws in connection with any meetings of
Portfolio's investors and its registration as an investment company and
will provide copies of all such definitive filings to Trust. Portfolio's
SEC Filings will comply in all material respects with the requirements of
the applicable Securities Laws, and will not, at the time they are filed or
used, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
(e) 1940 Act Registration. MIP will remain duly registered as an
---------------------
open-end management investment company under the 1940 Act.
(f) Tax Status. Based upon applicable IRS interpretations and
----------
rulings, Portfolio will conduct its business and activities so as to be
treated as a partnership for federal income tax purposes under the Code.
Portfolio will continue to satisfy (i) the income test imposed on regulated
investment companies under Section 851(b)(2) of the Code and (ii) the asset
test imposed on regulated investment companies under Section 851(b)(3) of
the Code as if such Sections applied to it for so long as this Agreement
continues in effect. MIP agrees to forward to Fund prior to Fund's initial
Investment a copy of its opinion of counsel or private letter ruling
relating to the tax status of Portfolio and agrees that Fund may rely upon
such opinion or ruling during the term of this Agreement.
(g) Securities Exemptions. Interests in Portfolio have been and will
---------------------
continue to be offered and sold solely in private placement transactions
which do not involve any "public offering" within the meaning of Section
4(2) of the 1933 Act or require registration under any state law. MIP will
file such documents and take such other actions as may be necessary to
qualify the offer and sale of Interests for exemption from qualification
under any state law.
(h) Advance Notice of Certain Changes. MIP shall provide Trust with
---------------------------------
at least one hundred twenty (120) days' advance notice, or such lesser time
as may be agreed to by the parties, of any change in Portfolio's investment
objective, and at least sixty (60) days' advance notice, or if MIP has
knowledge that one of the following changes is likely to occur more than
sixty (60) days in advance of such event, notice shall be provided as soon
as reasonably possible after MIP obtains such knowledge, of any material
change in Portfolio's investment policies or activities, any material
increase in Portfolio's fees or expenses, or any change in Portfolio's
fiscal year or time for calculating net asset value for purposes of Rule
22c-1.
6
<PAGE>
(i) Compliance with Laws. MIP shall comply, in all material respects,
--------------------
with all applicable laws, rules and regulations in connection with
conducting its operations as a registered investment company.
(j) Delivery of Information. MIP shall provide Trust with such
-----------------------
information regarding MIP and Portfolio as may be necessary for Trust and
Fund to comply with the Securities Laws and for Fund to comply with the
requirements for qualification as a regulated investment company under the
Code and to make distributions in the amounts necessary to avoid income and
excise taxes. MIP shall also provide Trust with such information as may be
necessary for Fund to file federal and state tax returns. MIP shall
provide the information described in this paragraph a reasonable period of
time prior to the date by which Trust or Fund is required to make any
filing or send any report or other document the contents of which includes
or is based upon such information, provided Trust gives MIP adequate
advance notice of the dates by which such information is required, giving
due consideration to the actions that Trust and Fund will be required to
take after the information is received to enable such filing to be made or
such report or other document to be sent.
(k) Insurance. MIP will maintain in full force and effect for so long
---------
as this Agreement is in effect insurance coverage against liabilities that
may arise as a result of Portfolio's business, in such amounts, and
covering such liabilities as the Board of Trustees of MIP deems reasonable.
2.3 Reasonable Actions. Each party covenants that it will, subject to the
------------------
provisions of this Agreement, from time to time, as and when requested by
another party or in its own discretion, as the case may be, execute and deliver
or cause to be executed and delivered all such documents, assignments and other
instruments, take or cause to be taken such actions, and do or cause to be done
all things reasonably necessary, proper or advisable in order to conduct the
business contemplated by this Agreement and to carry out its intent and purpose.
ARTICLE III
INDEMNIFICATION
---------------
3.1 Trust and Distributor
(a) Trust and Distributor agree, jointly and severally, to indemnify
and hold harmless MIP, Portfolio and Portfolio's investment adviser, and
any director/trustee, officer, employee or agent of MIP, Portfolio or
Portfolio's investment adviser (in this Section, each, a "Covered Person"
and collectively, "Covered Persons"), against any and all losses, claims,
demands, damages, liabilities or expenses (including, with respect to each
Covered Person, the reasonable cost of investigating and defending against
any claims therefor and any counsel fees incurred in connection therewith,
except as provided in subparagraph (b)), that:
(i) arise out of or are based upon any violation or alleged
violation of any of the Securities Laws, or any other applicable
statute, rule, regulation or
7
<PAGE>
common law, or are incurred in connection with or as a result of any
formal or informal administrative proceeding or investigation by a
regulatory agency, insofar as such violation or alleged violation,
proceeding or investigation arises out of or is based upon any direct
or indirect omission or commission (or alleged omission or commission)
by Trust or by Distributor or by any of its or their
trustees/directors, officers, employees or agents, but only insofar as
such omissions or commissions relate to Fund and were not, directly or
indirectly, the result of or caused by, in whole or in part, the act
or omission of any Covered Person; or
(ii) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in any
advertising or sales literature, prospectus, registration statement,
or any other SEC Filing relating to Fund, or any amendments or
supplements to the foregoing (in this Section, collectively "Offering
Documents"), or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein in light of the
circumstances under which they were made, not misleading, in each case
to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was not made
in the Offering Documents in reliance upon and in conformity with
MIP's registration statement on Form N-1A and other written
information furnished by MIP to Fund or by any service provider of MIP
for use therein or for use by Fund in preparing such documents,
including but not limited to any written information contained in
MIP's current registration statement on Form N-1A;
provided, however, that in no case shall Trust or Distributor be
-------- -------
liable for indemnification hereunder with respect to any claims made
against any Covered Person unless a Covered Person shall have notified
Trust or Distributor in writing within a reasonable time after the summons,
other first legal process, notice of a federal, state or local tax
deficiency, or formal initiation of a regulatory investigation or
proceeding giving information of the nature of the claim shall have
properly been served upon or provided to a Covered Person seeking
indemnification. Failure to notify Trust or Distributor of such claim
shall not relieve Trust or Distributor from any liability that it may have
to any Covered Person otherwise than on account of the indemnification
contained in this Section.
(b) Trust and Distributor each will be entitled to participate at its
own expense in the defense or, if it so elects, to assume the defense of
any suit brought to enforce any such liability, but if Trust and/or
Distributor elect(s) to assume the defense, such defense shall be conducted
by counsel chosen by Trust and/or Distributor, as applicable. In the event
Trust and/or Distributor elect(s) to assume the defense of any such suit
and retain such counsel, each Covered Person in the suit may retain
additional counsel but shall bear the fees and expenses of such counsel
unless (A) Trust and Distributor shall have specifically authorized the
retaining of and payment of fees and expenses of such counsel or (B) the
parties to such suit include any Covered Person and Trust and/or
Distributor, and any such Covered Person has been advised in a written
opinion by counsel reasonably acceptable to Trust and Distributor that one
or more legal defenses may be
8
<PAGE>
available to it that may not be available to Trust and/or Distributor, in
which case Trust and/or Distributor shall not be entitled to assume the
defense of such suit notwithstanding their obligation to bear the fees and
expenses of one counsel to such persons. Trust shall not be required to
indemnify any Covered Person for any settlement of any such claim effected
without its written consent and Distributor shall not be required to
indemnify any Covered Person for any settlement of any such claim effected
without its written consent, which consent, in each case, shall not be
unreasonably withheld or delayed. The indemnities set forth in paragraph
(a) will be in addition to any liability that Trust and/or Distributor
might otherwise have to Covered Persons.
3.2 MIP.
---
(a) MIP agrees to indemnify and hold harmless Trust, Fund,
Distributor, and any affiliate providing services to Trust and/or Fund, and
any trustee/director, officer, employee or agent of any of them (in this
Section, each, a "Covered Person" and collectively, "Covered Persons"),
against any and all losses, claims, demands, damages, liabilities or
expenses (including, with respect to each Covered Person, the reasonable
cost of investigating and defending against any claims therefor and any
counsel fees incurred in connection therewith, except as provided in
subparagraph (b)), that:
(i) arise out of or are based upon any violation or alleged
violation of any of the Securities Laws, or any other applicable
statute, rule, regulation or common law or are incurred in connection
with or as a result of any formal or informal administrative
proceeding or investigation by a regulatory agency, insofar as such
violation or alleged violation, proceeding or investigation arises out
of or is based upon any direct or indirect omission or commission (or
alleged omission or commission) by MIP, or any of its trustees,
officers, employees or agents, but only insofar as such omissions or
commissions relate to Portfolio and were not, directly or indirectly,
the result of or caused by, in whole or in part, the act or omission
of any Covered Person; or
(ii) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in any
advertising or sales literature, or any SEC Filing relating to
Portfolio, or any amendments to the foregoing (in this Section,
collectively, the "Offering Documents") relating to Portfolio, or
arise out of or are based upon the omission or alleged omission to
state therein, a material fact required to be stated therein, or
necessary to make the statements therein in light of the circumstances
under which they were made, not misleading; or
(iii) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in any Offering
Documents relating to Trust or Fund, or arise out of or are based upon
the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein in light of the circumstances under which they were made, not
misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or
alleged omission
9
<PAGE>
was made in reliance upon and in conformity with written information
furnished to Fund by MIP for use therein or for use by Fund in
preparing such documents, including but not limited to any written
information contained in MIP's current registration statement on Form
N-1A, or was made as a result of the failure of MIP to provide
information requested by Trust, Fund or Distributor or otherwise
required to be provided to them under this Agreement.
provided, however, that in no case shall MIP be liable for
-------- -------
indemnification hereunder with respect to any claims made against any
Covered Person unless a Covered Person shall have notified MIP in writing
within a reasonable time after the summons, other first legal process,
notice of a federal, state or local tax deficiency, or formal initiation of
a regulatory investigation or proceeding giving information of the nature
of the claim shall have properly been served upon or provided to a Covered
Person seeking indemnification. Without limiting the generality of the
foregoing, Portfolio's indemnity to Covered Persons shall include all
relevant liabilities of Covered Persons under the Securities Laws, as if
the Offering Documents constitute a "prospectus" within the meaning of the
1933 Act, and MIP had registered its interests under the 1933 Act pursuant
to a registration statement meeting the requirements of the 1933 Act.
Failure to notify MIP of such claim shall not relieve MIP from any
liability that it may have to any Covered Person otherwise than on account
of the indemnification contained in this Section.
(b) MIP will be entitled to participate at its own expense in the
defense or, if it so elects, to assume the defense of any suit brought to
enforce any such liability, but, if MIP elects to assume the defense, such
defense shall be conducted by counsel chosen by MIP. In the event MIP
elects to assume the defense of any such suit and retain such counsel, each
Covered Person in the suit may retain additional counsel but shall bear the
fees and expenses of such counsel unless (A) MIP shall have specifically
authorized the retaining of and payment of fees and expenses of such
counsel or (B) the parties to such suit include any Covered Person and MIP,
and any such Covered Person has been advised in a written opinion by
counsel reasonably acceptable to MIP that one or more legal defenses may be
available to it that may not be available to MIP, in which case MIP shall
not be entitled to assume the defense of such suit notwithstanding its
obligation to bear the fees and expenses of one counsel to such persons.
MIP shall not be required to indemnify any Covered Person for any
settlement of any such claim effected without its written consent, which
consent shall not be unreasonably withheld or delayed. The indemnities set
forth in paragraph (a) will be in addition to any liability that MIP might
otherwise have to Covered Persons.
ARTICLE IV
ADDITIONAL AGREEMENTS
---------------------
4.1 Access to Information. Throughout the life of this Agreement, Trust
---------------------
and MIP shall afford each other reasonable access at all reasonable times to
such party's officers, employees, agents and offices and to all relevant books
and records and shall furnish each other
10
<PAGE>
party with all relevant financial and other data and information as such other
party may reasonably request.
4.2 Confidentiality. Each party agrees that it shall hold in strict
---------------
confidence all data and information obtained from another party (unless such
information is or becomes readily ascertainable from public or published
information or trade sources or public disclosure of such information is
required by law) and shall ensure that its officers, employees and authorized
representatives do not disclose such information to others without the prior
written consent of the party from whom it was obtained, except if disclosure is
required by the SEC, any other regulatory body, Fund's or Portfolio's respective
auditors, or in the opinion of counsel to the disclosing party such disclosure
is required by law, and then only with as much prior written notice to the other
parties as is practical under the circumstances. Each party hereto acknowledges
that the provisions of this Section 4.2 shall not prevent Trust or MIP from
filing a copy of this Agreement as an exhibit to a registration statement on
Form N-1A as it relates to Fund or Portfolio, respectively, and that such
disclosure by Trust or MIP shall not require any additional consent from the
other parties.
4.3 Obligations of Trust and MIP. MIP agrees that the financial
----------------------------
obligations of Trust under this Agreement shall be binding only upon the assets
of Fund, and that except to the extent liability may be imposed under relevant
Securities Laws, MIP shall not seek satisfaction of any such obligation from the
officers, agents, employees, trustees or shareholders of Trust or other classes
or series of Trust. Trust agrees that the financial obligations of MIP under
this Agreement shall be binding only upon the assets of Portfolio and that,
except to the extent liability may be imposed under relevant Securities Laws,
Trust shall not seek satisfaction of any such obligation from the officers,
agents, employees, trustees or shareholders of MIP or other classes or series of
MIP.
ARTICLE V
TERMINATION, AMENDMENT
----------------------
5.1 Termination. The provisions of Article III and Sections 2.2(j), 4.2
-----------
and 4.3 shall survive any termination of this Agreement.
5.2 Amendment. This Agreement may be amended, modified or supplemented at
---------
any time in such manner as may be mutually agreed upon in writing by the
parties.
ARTICLE VI
GENERAL PROVISIONS
------------------
6.1 Expenses. All costs and expenses incurred in connection with this
--------
Agreement and the conduct of business contemplated hereby shall be paid by the
party incurring such costs and expenses.
11
<PAGE>
6.2 Headings. The headings and captions contained in this Agreement are
--------
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
6.3 Entire Agreement. Except as set forth below, this Agreement sets
----------------
forth the entire understanding between the parties concerning the subject matter
of this Agreement and incorporates or supersedes all prior negotiations and
understandings. There are no covenants, promises, agreements, conditions or
understandings, either oral or written, between the parties relating to the
subject matter of this Agreement other than those set forth herein and the
terms, conditions and descriptions set forth in MIP's Registration Statement, as
in effect from time to time.
6.4 Successors. Each and all of the provisions of this Agreement shall be
----------
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns; provided, however, that neither this Agreement, nor any
-------- -------
rights herein granted may be assigned to, transferred to or encumbered by any
party, without the prior written consent of the other parties hereto.
6.5 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of California; provided, however, that in
-------- -------
the event of any conflict between the 1940 Act and the laws of California, the
1940 Act shall govern.
6.6 Counterparts. This Agreement may be executed in any number of
------------
counterparts, all of which shall constitute one and the same instrument, and any
party hereto may execute this Agreement by signing one or more counterparts.
6.7 Third Parties. Nothing herein expressed or implied is intended or
-------------
shall be construed to confer upon or give any person, other than the parties
hereto and their successors or assigns, any rights or remedies under or by
reason of this Agreement.
6.8 Notices. All notices and other communications given or made pursuant
-------
hereto shall be in writing and shall be deemed to have been duly given or made
when delivered in person or three days after being sent by certified or
registered United States mail, return receipt requested, postage prepaid,
addressed:
If to Fund:
Hewitt Money Market Fund
100 Half Day Road
Lincolnshire, IL 60069
Attn: James B. Lee
copy to:
Peter Ross, Esq.
Hewitt Associates LLC
100 Half Day Road
12
<PAGE>
Lincolnshire, IL 60069
If to Distributor:
Hewitt Services LLC
100 Half Day Road
Lincolnshire, IL 60069
Attn: Stacy L. Schaus
copy to:
Peter Ross, Esq.
Hewitt Associates LLC
100 Half Day Road
Lincolnshire, IL 60069
If to MIP:
Chief Operating Officer
Master Investment Portfolio
c/o Stephens Inc.
111 Center Street
Little Rock, AR 72201
6.9 Interpretation. Any uncertainty or ambiguity existing herein shall
--------------
not be interpreted against any party, but shall be interpreted according to the
application of the rules of interpretation for arms' length agreements.
6.10 Operation of Fund. Except as otherwise provided herein, this
-----------------
Agreement shall not limit the authority of Fund, Trust or Distributor to take
such action as it may deem appropriate or advisable in connection with all
matters relating to the operation of Fund and the sale of its shares.
6.11 Relationship of Parties; No Joint Venture, Etc. It is understood and
-----------------------------------------------
agreed that neither Trust nor Distributor shall hold itself out as an agent of
MIP with the authority to bind such party, nor shall MIP hold itself out as an
agent of Trust or Distributor with the authority to bind such party.
6.12 Use of Name. Except as otherwise provided herein or required by law
-----------
(e.g., in Trust's Registration Statement on Form N-1A), neither Trust, Fund nor
Distributor shall describe or refer to the name of MIP, Portfolio or any
derivation thereof, or any affiliate thereof, or to the relationship
contemplated by this Agreement in any advertising or promotional materials
without the prior written consent of MIP, nor shall MIP describe or refer to the
name of Trust, Fund or Distributor or any derivation thereof, or any affiliate
thereof, or to the relationship contemplated by this Agreement in any
advertising or promotional materials without the prior written consent of Trust,
Fund or Distributor, as the case may be. In addition, the party required to
give its
13
<PAGE>
consent shall have at least three (3) business days prior to the earlier of
filing or first use, as the case may be, to review the proposed advertising or
promotional materials.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their respective officers, thereunto duly authorized, as of the date first
written above.
HEWITT SERIES TRUST
on behalf of itself and HEWITT MONEY MARKET FUND
By: /s/ Stacy L. Schaus
----------------------------
Name: Stacy Schaus
Title: President
HEWITT SERVICES LLC
By: /s/ C. L. Connelly, III
----------------------------
Name: C. L. Connelly, III
Title: Secretary
MASTER INVESTMENT PORTFOLIO,
on behalf of its series, the MONEY
MARKET MASTER PORTFOLIO
By: /s/ Richard H. Blank, Jr.
----------------------------
Name: Richard H. Blank, Jr.
Title: Chief Operating Officer
14
<PAGE>
THIRD PARTY FEEDER FUND
AGREEMENT
AMONG
DIVERSIFIED INVESTORS STOCK INDEX FUND
DIVERSIFIED INVESTORS SECURITIES CORP.
AND
MASTER INVESTMENT PORTFOLIO
dated as of
March 1, 1999
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
ARTICLE I. REPRESENTATIONS AND WARRANTIES.................................
1.1 Trust..........................................................
1.2 MIP............................................................
1.3 Distributor....................................................
ARTICLE II. COVENANTS......................................................
2.1 Trust..........................................................
2.2 MIP............................................................
2.3 Reasonable Actions.............................................
ARTICLE III. INDEMNIFICATION................................................
3.1 Trust and Distributor..........................................
3.2 MIP............................................................
ARTICLE IV. ADDITIONAL AGREEMENTS..........................................
4.1 Access to Information..........................................
4.2 Confidentiality................................................
4.3 Obligations of Trust and MIP...................................
ARTICLE V. TERMINATION, AMENDMENT.........................................
5.1 Termination....................................................
5.2 Amendment......................................................
ARTICLE VI. GENERAL PROVISIONS.............................................
6.1 Expenses.......................................................
6.2 Headings.......................................................
6.3 Entire Agreement...............................................
6.4 Successors.....................................................
6.5 Governing Law..................................................
6.6 Counterparts...................................................
6.7 Third Parties..................................................
6.8 Notices........................................................
6.9 Interpretation.................................................
6.10 Operation of Fund..............................................
6.11 Relationship of Parties; No Joint Venture, Etc.................
6.12 Use of Name....................................................
</TABLE>
Signatures
i
<PAGE>
AGREEMENT
---------
THIS AGREEMENT (the "Agreement") is made and entered into as of the ____
day of ________ __, 1999, by and among The Diversified Investors Fund Group, a
Massachusetts business trust ("Trust"), for itself and on behalf of its series,
the Diversified Investors Stock Index Fund ("Fund"), Fund's distributor -
Diversified Investors Securities Corp. ("Distributor"), a Delaware corporation,
and Master Investment Portfolio ("MIP"), a Delaware business trust, for itself
and on behalf of its series, the S&P 500 Index Master Portfolio ("Portfolio").
WITNESSETH
----------
WHEREAS, Trust and MIP are both registered under the Investment company Act
of 1940 (the "1940 Act") as open-end management investment companies;
WHEREAS, Fund and Portfolio have the same investment objective and
substantially the same investment policies;
WHEREAS, Fund desires to invest on an ongoing basis all of its investable
assets (the "Assets") in Portfolio (the "Investments") on the terms and
conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the foregoing, the mutual promises made
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
ARTICLE I
REPRESENTATIONS AND WARRANTIES
------------------------------
1.1 Trust. Trust represents and warrants to MIP that:
-----
(a) Organization. Trust is a Massachusetts business trust duly
------------
organized, validly existing and in good standing under the laws of the
Commonwealth of Massachusetts, and Fund is a duly and validly designated
series of Trust. Each of Trust and Fund has the requisite power and
authority to own its property and conduct its business as proposed to be
conducted pursuant to this Agreement.
(b) Authorization of Agreement. The execution and delivery of this
--------------------------
Agreement by Trust on behalf of Fund and the conduct of business
contemplated hereby have been duly authorized by all necessary action on
the part of Trust's Board of Trustees and no other action or proceeding is
necessary for the execution and delivery of this Agreement by Fund, or the
performance by Fund of its obligations hereunder. This Agreement when
executed and delivered by Trust on behalf of Fund shall constitute a legal,
valid and binding obligation of Trust, enforceable against Fund in
accordance with its terms. No meeting of, or consent by, shareholders of
Fund is necessary to approve or implement the Investments.
<PAGE>
(c) 1940 Act Registration. Trust is duly registered under the 1940
----------------------
Act as an open-end management investment company, and such registration is
in full force and effect.
(d) SEC Filings. Trust has duly filed all forms, reports, proxy
-----------
statements and other documents (collectively, the "SEC Filings") required
to be filed with the Securities and Exchange Commission (the "SEC") under
the Securities Act of 1933 (the "1933 Act"), the Securities Exchange Act of
1934 (the "1934 Act") and the 1940 Act, and the rules and regulations
thereunder, (collectively, the "Securities Laws") in connection with the
registration of Fund's shares, any meetings of Fund's shareholders and
Fund's registration as a series of an investment company. All SEC Filings
relating to Fund comply in all material respects with the requirements of
the applicable Securities Laws and do not, as of the date of this
Agreement, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading, provided that Trust makes no representation or
warranty hereunder with respect to information supplied by MIP or any
service provider of MIP for use in Trust's SEC filings, including but not
limited to any written information contained in MIP's current registration
statement relating to Portfolio.
(e) Fund Assets. Fund currently intends on an ongoing basis to
-----------
invest its Assets solely in Portfolio.
(f) Registration Statement. Trust has reviewed MIP's and Portfolio's
----------------------
most recent registration statement on Form N-1A, File No. 811-8162, as
filed with the SEC on June 30, 1998, and agrees that Fund's Investments
will be subject to the terms thereof. Fund understands and acknowledges
that Portfolio has the right, in its sole discretion, at any time, to limit
or reject additional Investments from Fund, provided that MIP shall provide
Trust at least thirty (30) days' advance written notice, or such lesser
time as may be agreed to by the parties, of any such limit or rejection.
1.2 MIP. MIP represents and warrants to Trust that:
---
(a) Organization. MIP is a trust duly organized, validly existing
------------
and in good standing under the laws of the State of Delaware and Portfolio
is a duly and validly designated series of MIP. Each of MIP and Portfolio
has the requisite power and authority to own its property and conduct its
business as now being conducted.
(b) Authorization of Agreement. The execution and delivery of this
--------------------------
Agreement by MIP on behalf of Portfolio and the conduct of business
contemplated hereby have been duly authorized by all necessary action on
the part of MIP's Board of Trustees and no other action or proceeding is
necessary for the execution and delivery of this Agreement by Portfolio, or
the performance by Portfolio of its obligations hereunder. This Agreement,
when executed and delivered by MIP on behalf of Portfolio, shall constitute
a legal, valid and binding obligation of MIP and Portfolio, enforceable
against MIP and Portfolio in accordance with its terms. No meeting of, or
consent by,
2
<PAGE>
interestholders of Portfolio is necessary to approve the issuance of the
Interests (as defined below) to Fund.
(c) Authorization of Issuance of Beneficial Interest. The issuance
------------------------------------------------
by MIP of beneficial interests in the Portfolio ("Interests") in exchange
for the Investments by Fund of its Assets has been duly authorized by all
necessary action on the part of the Board of Trustees of MIP.
(d) 1940 Act Registration. MIP is duly registered as an open-end,
----------------------
management investment company under the 1940 Act and such registration is
in full force and effect.
(e) SEC Filings; Securities Exemptions. MIP has duly filed all SEC
----------------------------------
Filings, as defined herein, relating to Portfolio required to be filed with
the SEC pursuant to the Securities Laws. Interests in Portfolio are not
required to be registered under the 1933 Act, because such Interests are
offered solely in private placement transactions which do not involve any
"public offering" within the meaning of Section 4(2) of the 1933 Act. In
addition, Interests in Portfolio are either noticed for sale or exempt from
notice requirements under applicable securities laws in those states or
jurisdictions in which Interests are offered and sold. All SEC Filings
relating to Portfolio comply in all material respects with the requirements
of the applicable Securities Laws and do not, as of the date of this
Agreement, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading, provided that MIP makes no representations or
warranty hereunder with respect to information supplied by Trust or any
service provider of Trust for use in MIP's SEC filings, including but not
limited to any written information contained in Trust's registration
statement relating to Fund.
(f) Tax Status. Based upon applicable IRS regulations,
-----------
interpretations and rulings, Portfolio is eligible to be treated as a
separate partnership and has not at any time prior to the date hereof
elected to be treated other than as a partnership for federal income tax
purposes under the Internal Revenue Code of 1986, as amended (the "Code").
Portfolio has at all times prior to the date of this Agreement qualified as
an "investment partnership" within the meaning of Section 731(c) of the
Code.
1.3 Distributor. Distributor represents and warrants to MIP that the
-----------
execution and delivery of this Agreement by Distributor have been duly
authorized by all necessary action on the part of Distributor and no other
action or proceeding is necessary for the execution and delivery of this
Agreement by Distributor, or the performance by Distributor of its obligations
hereunder. This Agreement when executed and delivered by Distributor shall
constitute a legal, valid and binding obligation of Distributor, enforceable
against Distributor in accordance with its terms.
3
<PAGE>
ARTICLE II
COVENANTS
---------
2.1 Trust. Trust covenants that:
-----
(a) Advance Review of Certain Documents. Trust will furnish MIP at
-----------------------------------
least ten (10) business days prior to the earlier of filing or first use,
with drafts of Fund's registration statement on Form N-1A and any
amendments thereto, and also will furnish MIP at least five (5) business
days' prior to the earlier of filing or first use, with drafts of any
prospectus or statement of additional information supplements. In
addition, Trust will furnish or will cause to be furnished to MIP at least
three (3) business days prior to the earlier of filing or first use, as the
case may be, any proposed advertising or sales literature that contains
language that describes or refers to MIP or Portfolio and that was not
previously approved by MIP. Trust agrees that it will include in all such
Fund documents any disclosures that may be required by law, and that it
will incorporate in all such Fund documents any material and reasonable
comments made by MIP. MIP will not, however, in any way be liable to Trust
for any errors or omissions in such documents, whether or not MIP makes any
objection thereto, except to the extent such errors or omissions result
from information provided in Portfolio's 1940 Act registration statement or
otherwise provided by MIP for inclusion therein. In addition, neither Fund
nor Distributor will make any other written or oral representations about
MIP or Portfolio other than those contained in such documents without MIP's
prior written consent.
(b) SEC and Blue Sky Filings. Trust will file all SEC Filings
------------------------
required to be filed with the SEC under the Securities Laws in connection
with the registration of Fund's shares, any meetings of Fund's
shareholders, and Fund's registration as a series of an investment company.
Trust will file such similar or other documents as may be required to be
filed with any securities commission or similar authority by the laws or
regulations of any state, territory or possession of the United States,
including the District of Columbia, in which shares of Fund are or will be
noticed for sale ("State Filings"). Fund's SEC Filings will comply in all
material respects with the requirements of the applicable Securities Laws,
and, insofar as they relate to information other than that supplied or
required to be supplied by MIP or taken from MIP's SEC filings, will not,
at the time they are filed or used to offer Fund shares, contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
Fund's State Filings will be prepared in accordance with the requirements
of applicable state and federal law and the rules and regulations
thereunder.
(c) 1940 Act Registration. Trust will be duly registered as an open-
---------------------
end management investment company under the 1940 Act.
(d) Tax Status. Fund will qualify for treatment as a regulated
----------
investment company under Subchapter M of the Code for any taxable year
during which this Agreement continues in effect, unless such lack of
qualification is solely as a result of Portfolio's failure to meet (i) the
income test imposed on regulated investment companies
4
<PAGE>
under Section 851(b)(2) of the Code or (ii) the asset test imposed on
regulated investment companies under Section 851(b)(3) of the Code, as if
such Sections applied to it.
(e) Fiscal Year. Fund shall take appropriate action to adopt and
-----------
maintain the same fiscal year end as Portfolio (currently the last day of
February).
(f) Proxy Voting. If requested to vote on matters pertaining to MIP
------------
or Portfolio, Fund will vote its interests therein in accordance with
applicable law.
(g) Compliance with Laws. Trust shall comply, in all material
--------------------
respects, with all applicable laws, rules and regulations in connection
with conducting its operations as a registered investment company.
2.2 MIP. MIP covenants that:
---
(a) Signature Pages. MIP shall promptly provide all required
---------------
signature pages to Trust for inclusion in any SEC Filings of Trust,
provided Trust is in material compliance with its covenants and other
obligations under this Agreement at the time such signature pages are
provided and included in the SEC Filing. Trust and Distributor acknowledge
and agree that the provision of such signature pages does not constitute a
representation by MIP, its Trustees or Officers, that such SEC Filing
complies with the requirements of the applicable Securities Laws, or that
such SEC Filing does not contain any untrue statement of a material fact or
does not omit to the state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, except with
respect to information provided by MIP for inclusion in such SEC Filing or
for use by Trust in preparing such filing, which shall in any event include
any written information obtained from MIP's current registration statement
on Form N-1A.
(b) Redemption. Except as otherwise provided in this Section 2.2(b),
----------
redemptions of Interests owned by Fund will be effected pursuant to Section
2.2(c). In the event Fund desires to withdraw its entire Investment from
Portfolio, either by submitting a redemption request or by terminating this
Agreement in accordance with Section 5.1 hereof, Portfolio, unless
otherwise agreed to by the parties, and in all cases subject to Sections 17
and 18 of the 1940 Act and the rules and regulations thereunder, will
effect such redemption "in kind" and in such a manner that the securities
delivered to Fund or its custodian for the account of Fund mirror, as
closely as practicable, the composition of Portfolio immediately prior to
such redemption. Portfolio further agrees that, to the extent legally
possible, it will not take or cause to be taken any action without Trust's
prior approval that would cause the withdrawal of Fund's Investments to be
treated as a taxable event to the Fund. Portfolio further agrees to
conduct its activities in accordance with all applicable requirements of
Regulation 1.731-2(e) under the Code or any successor regulation.
(c) Ordinary Course Redemptions. Portfolio will effect redemptions
---------------------------
of Interests in accordance with the provisions of the 1940 Act and the
rules and regulations thereunder, including, without limitation, Section 17
thereof. All redemption requests
5
<PAGE>
other than a withdrawal of Fund's entire Investment in Portfolio under
Section 2.2(b) or, at the sole discretion of MIP, a withdrawal (or series
of withdrawals over any three (3) consecutive business days) of an amount
that exceeds 10% of Portfolio's net asset value, will be effected in cash
at the next determined net asset value after the redemption request is
received. Portfolio will use its best efforts to settle redemptions on the
business day following the receipt of a redemption request by Fund and if
such next business day settlement is not practicable, will immediately
notify Fund regarding the anticipated settlement date, which shall in all
events be a date permitted under the 1940 Act.
(d) SEC Filings. MIP will file all SEC Filings required to be filed
-----------
with the SEC under the Securities Laws in connection with any meetings of
Portfolio's investors and its registration as an investment company and
will provide copies of all such definitive filings to Trust. Portfolio's
SEC Filings will comply in all material respects with the requirements of
the applicable Securities Laws, and will not, at the time they are filed or
used, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
(e) 1940 Act Registration. MIP will remain duly registered as an
---------------------
open-end management investment company under the 1940 Act.
(f) Tax Status. Based upon applicable IRS interpretations and
----------
rulings, Portfolio will conduct its business and activities so as to be
treated as a partnership for federal income tax purposes under the Code.
Portfolio will continue to satisfy (i) the income test imposed on regulated
investment companies under Section 851(b)(2) of the Code and (ii) the asset
test imposed on regulated investment companies under Section 851(b)(3) of
the Code as if such Sections applied to it for so long as this Agreement
continues in effect. MIP agrees to forward to Fund prior to Fund's initial
Investment a copy of its opinion of counsel or private letter ruling
relating to the tax status of Portfolio and agrees that Fund may rely upon
such opinion or ruling during the term of this Agreement. Portfolio will
further authorize and make in a timely manner all distributions reasonably
requested by Fund for the purpose of enabling Fund to avoid federal taxes,
including but not limited to any excise tax otherwise payable by Fund on
undistributed net income or capital gains.
(g) Securities Exemptions. Interests in Portfolio have been and will
---------------------
continue to be offered and sold solely in private placement transactions
which do not involve any "public offering" within the meaning of Section
4(2) of the 1933 Act or require registration or notification under any
state law.
(h) Advance Notice of Certain Changes. MIP shall provide Trust with
---------------------------------
at least one hundred twenty (120) days' advance notice, or such lesser time
as may be agreed to by the parties, of any change in Portfolio's investment
objective, and at least sixty (60) days' advance notice, or if MIP has
knowledge that one of the following changes is likely to occur more than
sixty (60) days in advance of such event, notice shall be provided as soon
as reasonably possible after MIP obtains such knowledge, of any material
change in Portfolio's investment policies or activities, any material
increase in Portfolio's fees or
6
<PAGE>
expenses, or any change in Portfolio's fiscal year or time for calculating
net asset value for purposes of Rule 22c-1.
(i) Compliance with Laws. MIP shall comply, in all material
--------------------
respects, with all applicable laws, rules and regulations in connection
with conducting its operations as a registered investment company.
2.3 Reasonable Actions. Each party covenants that it will, subject to the
------------------
provisions of this Agreement, from time to time, as and when requested by
another party or in its own discretion, as the case may be, execute and deliver
or cause to be executed and delivered all such documents, assignments and other
instruments, take or cause to be taken such actions, and do or cause to be done
all things reasonably necessary, proper or advisable in order to conduct the
business contemplated by this Agreement and to carry out its intent and purpose.
ARTICLE III
INDEMNIFICATION
---------------
3.1 Trust
(a) Trust agrees to indemnify and hold harmless MIP, Portfolio and
Portfolio's investment adviser, and any director/trustee, officer, employee
or agent of MIP, Portfolio or Portfolio's investment adviser (in this
Section, each, a "Covered Person" and collectively, "Covered Persons"),
against any and all losses, claims, demands, damages, liabilities or
expenses (including, with respect to each Covered Person, the reasonable
cost of investigating and defending against any claims therefor and any
counsel fees incurred in connection therewith, except as provided in
subparagraph (b)) ("Losses"), that:
(i) arise out of or are based upon any violation or alleged
violation of any of the Securities Laws, or any other applicable
statute, rule, regulation or common law, or are incurred in connection
with or as a result of any formal or informal administrative
proceeding or investigation by a regulatory agency, insofar as such
violation or alleged violation, proceeding or investigation arises out
of or is based upon any direct or indirect omission or commission (or
alleged omission or commission) by Trust or by any of its
trustees/directors, officers, employees or agents, but only insofar as
such omissions or commissions relate to Fund; or
(ii) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in any
advertising or sales literature, prospectus, registration statement,
or any other SEC Filing relating to Fund, or any amendments or
supplements to the foregoing (in this Section, collectively "Offering
Documents"), or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein in light of the
circumstances under which they were made, not misleading, in each case
to the extent, but only to the extent, that
7
<PAGE>
such untrue statement or alleged untrue statement or omission or
alleged omission was not made in the Offering Documents in reliance
upon and in conformity with MIP's registration statement on Form N-1A
and other written information furnished by MIP to Fund or by any
service provider of MIP for use therein or for use by Fund in
preparing such documents, including but not limited to any written
information contained in MIP's current registration statement on Form
N-1A;
provided, however, that in no case shall Trust be liable for
-------- -------
indemnification hereunder with respect to any claims made against any
Covered Person unless a Covered Person shall have notified Trust in writing
within a reasonable time after the summons, other first legal process,
notice of a federal, state or local tax deficiency, or formal initiation of
a regulatory investigation or proceeding giving information of the nature
of the claim shall have properly been served upon or provided to a Covered
Person seeking indemnification. Failure to notify Trust of such claim
shall not relieve Trust from any liability that it may have to any Covered
Person otherwise than on account of the indemnification contained in this
Section.
(b) Trust will be entitled to participate at its own expense in the
defense or, if it so elects, to assume the defense of any suit brought to
enforce any such liability, but if Trust elects to assume the defense, such
defense shall be conducted by counsel chosen by Trust. In the event Trust
elect(s) to assume the defense of any such suit and retain such counsel,
each Covered Person in the suit may retain additional counsel but shall
bear the fees and expenses of such counsel unless (A) Trust shall have
specifically authorized the retaining of and payment of fees and expenses
of such counsel or (B) the parties to such suit include any Covered Person
and Trust, and any such Covered Person has been advised in a written
opinion by counsel reasonably acceptable to Trust that one or more legal
defenses may be available to it that may not be available to Trust, in
which case Trust shall not be entitled to assume the defense of such suit
notwithstanding its obligation to bear the fees and expenses of one counsel
to all such persons. Trust shall not be required to indemnify any Covered
Person for any settlement of any such claim effected without its written
consent, which consent shall not be unreasonably withheld or delayed. The
indemnities set forth in paragraph (a) will be in addition to any liability
that Trust might otherwise have to Covered Persons, provided that, in no
event shall MIP's Covered Persons be entitled to recover, hereunder or
elsewhere, more than the amount of their Losses.
3.2 Distributor
(a) Distributor agrees to indemnify and hold harmless MIP, Portfolio
and Portfolio's investment adviser, and any director/trustee, officer,
employee or agent of MIP, Portfolio or Portfolio's investment adviser (in
this Section, each, a "Covered Person" and collectively, "Covered
Persons"), against any and all losses, claims, demands, damages,
liabilities or expenses (including, with respect to each Covered Person,
the reasonable cost of investigating and defending against any claims
therefor and any counsel fees incurred in connection therewith, except as
provided in subparagraph (b)) ("Losses"), that:
8
<PAGE>
(i) arise out of or are based upon any violation or alleged
violation of any of the Securities Laws, or any other applicable
statute, rule, regulation or common law, or are incurred in connection
with or as a result of any formal or informal administrative
proceeding or investigation by a regulatory agency, insofar as such
violation or alleged violation, proceeding or investigation arises out
of or is based upon any direct or indirect omission or commission (or
alleged omission or commission) by Trust or Distributor or by any of
its or their trustees/directors, officers, employees or agents, but
only insofar as such omissions or commissions relate to Fund; or
(ii) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in any
advertising or sales literature, prospectus, registration statement,
or any other SEC Filing relating to Fund, or any amendments or
supplements to the foregoing (in this Section, collectively "Offering
Documents"), or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein in light of the
circumstances under which they were made, not misleading, in each case
to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was not made
in the Offering Documents in reliance upon and in conformity with
MIP's registration statement on Form N-1A and other written
information furnished by MIP to Fund or by any service provider of MIP
for use therein or for use by Fund in preparing such documents,
including but not limited to any written information contained in
MIP's current registration statement on Form N-1A;
provided, however, that in no case shall Distributor be liable for
-------- -------
Losses to the extent Trust pays the amount of such Losses to the Covered
Person under Section 3.1(a) hereof, nor shall Distributor be liable for
indemnification hereunder with respect to any claims made against any
Covered Person unless a Covered Person shall have notified Distributor in
writing within a reasonable time after the summons, other first legal
process, notice of a federal, state or local tax deficiency, or formal
initiation of a regulatory investigation or proceeding giving information
of the nature of the claim shall have properly been served upon or provided
to a Covered Person seeking indemnification. Failure to notify Distributor
of such claim shall not relieve Distributor from any liability that it may
have to any Covered Person otherwise than on account of the indemnification
contained in this Section.
(b) Distributor will be entitled to participate at its own expense in
the defense or, if it so elects, to assume the defense of any suit brought
to enforce any such liability, but if Distributor elects to assume the
defense, such defense shall be conducted by counsel chosen by Distributor.
In the event Distributor elects to assume the defense of any such suit and
retain such counsel, each Covered Person in the suit may retain additional
counsel but shall bear the fees and expenses of such counsel unless (A)
Distributor shall have specifically authorized the retaining of and payment
of fees and expenses of such counsel or (B) the parties to such suit
include any Covered Person and Distributor, and any such Covered Person has
been advised in a written opinion by counsel reasonably acceptable to
Distributor that one or more legal defenses may be
9
<PAGE>
available to it that may not be available to Distributor, in which case
Distributor shall not be entitled to assume the defense of such suit
notwithstanding its obligation to bear the fees and expenses of one counsel
to all such persons. Distributor shall not be required to indemnify any
Covered Person for any settlement of any such claim effected without its
written consent, which consent shall not be unreasonably withheld or
delayed. The indemnities set forth in paragraph (a) will be in addition to
any liability that Distributor might otherwise have to Covered Persons,
provided that, in no event shall MIP's Covered Persons be entitled to
recover, hereunder or elsewhere, more than the amount of their Losses.
3.3 MIP.
---
(a) MIP agrees to indemnify and hold harmless Trust, Fund,
Distributor, and any affiliate providing services to Trust and/or Fund, and
any trustee/director, officer, employee or agent of any of them (in this
Section, each, a "Covered Person" and collectively, "Covered Persons"),
against any and all losses, claims, demands, damages, liabilities or
expenses (including, with respect to each Covered Person, the reasonable
cost of investigating and defending against any claims therefor and any
counsel fees incurred in connection therewith, except as provided in
subparagraph (b)) ("Losses"), that:
(i) arise out of or are based upon any violation or alleged
violation of any of the Securities Laws, or any other applicable
statute, rule, regulation or common law or are incurred in connection
with or as a result of any formal or informal administrative
proceeding or investigation by a regulatory agency, insofar as such
violation or alleged violation, proceeding or investigation arises out
of or is based upon any direct or indirect omission or commission (or
alleged omission or commission) by MIP, or any of its trustees,
officers, employees or agents; or
(ii) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in any
advertising or sales literature, or any other SEC Filing relating to
Portfolio, or any amendments to the foregoing (in this Section,
collectively, the "Offering Documents") relating to Portfolio, or
arise out of or are based upon the omission or alleged omission to
state therein, a material fact required to be stated therein, or
necessary to make the statements therein in light of the circumstances
under which they were made, not misleading; or
(iii) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in any Offering
Documents relating to Trust or Fund, or arise out of or are based upon
the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein in light of the circumstances under which they were made, not
misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with
written information furnished
10
<PAGE>
to Fund by MIP for use therein or for use by Fund in preparing such
documents, including but not limited to any written information
contained in MIP's current registration statement on Form N-1A.
provided, however, that in no case shall MIP be liable for
-------- -------
indemnification hereunder with respect to any claims made against any
Covered Person unless a Covered Person shall have notified MIP in writing
within a reasonable time after the summons, other first legal process,
notice of a federal, state or local tax deficiency, or formal initiation of
a regulatory investigation or proceeding giving information of the nature
of the claim shall have properly been served upon or provided to a Covered
Person seeking indemnification. Without limiting the generality of the
foregoing, Portfolio's indemnity to Covered Persons shall include all
relevant liabilities of Covered Persons under the Securities Laws, as if
the Offering Documents constitute a "prospectus" within the meaning of the
1933 Act, and MIP had registered its interests under the 1933 Act pursuant
to a registration statement meeting the requirements of the 1933 Act.
Failure to notify MIP of such claim shall not relieve MIP from any
liability that it may have to any Covered Person otherwise than on account
of the indemnification contained in this Section.
(b) MIP will be entitled to participate at its own expense in the
defense or, if it so elects, to assume the defense of any suit brought to
enforce any such liability, but, if MIP elects to assume the defense, such
defense shall be conducted by counsel chosen by MIP. In the event MIP
elects to assume the defense of any such suit and retain such counsel, each
Covered Person in the suit may retain additional counsel but shall bear the
fees and expenses of such counsel unless (A) MIP shall have specifically
authorized the retaining of and payment of fees and expenses of such
counsel or (B) the parties to such suit include any Covered Person and MIP,
and any such Covered Person has been advised in a written opinion by
counsel reasonably acceptable to MIP that one or more legal defenses may be
available to it that may not be available to MIP, in which case MIP shall
not be entitled to assume the defense of such suit notwithstanding its
obligation to bear the fees and expenses of one counsel to such persons.
MIP shall not be required to indemnify any Covered Person for any
settlement of any such claim effected without its written consent, which
consent shall not be unreasonably withheld or delayed. The indemnities set
forth in paragraph (a) will be in addition to any liability that MIP might
otherwise have to Covered Persons, provided that, in no event shall MIP's
Covered Persons be entitled to recover, hereunder or elsewhere, more than
the amount of their Losses.
ARTICLE IV
ADDITIONAL AGREEMENTS
---------------------
4.1 Access to Information. Throughout the life of this Agreement, Trust
---------------------
and MIP shall, in connection with Fund and Portfolio, afford each other
reasonable access at all reasonable times to such party's officers, employees,
agents and offices and to all relevant books
11
<PAGE>
and records and shall furnish each other party with all relevant financial,
performance and other data and information as such other party may reasonably
request.
4.2 Confidentiality. Each party agrees that it shall hold in strict
---------------
confidence all data and information obtained from another party (unless such
information is or becomes readily ascertainable from public or published
information or trade sources or public disclosure of such information is
required by law) and shall ensure that its officers, employees and authorized
representatives do not disclose such information to others without the prior
written consent of the party from whom it was obtained, except if disclosure is
required by the SEC, any other regulatory body, Fund's or Portfolio's respective
auditors, or in the opinion of counsel to the disclosing party such disclosure
is required by law, and then only with as much prior written notice to the other
parties as is practical under the circumstances. Each party hereto acknowledges
that the provisions of this Section 4.2 shall not prevent Trust or MIP from
filing a copy of this Agreement as an exhibit to a registration statement on
Form N-1A as it relates to Fund or Portfolio, respectively, and that such
disclosure by Trust or MIP shall not require any additional consent from the
other parties.
4.3 Obligations of Trust and MIP. MIP agrees that the financial
----------------------------
obligations of Trust under this Agreement shall be binding only upon the assets
of Fund, and that except to the extent liability may be imposed under relevant
Securities Laws, MIP shall not seek satisfaction of any such obligation from the
officers, agents, employees, trustees or shareholders of Trust or other classes
or series of Trust. Trust agrees that the financial obligations of MIP under
this Agreement shall be binding only upon the assets of Portfolio and that,
except to the extent liability may be imposed under relevant Securities Laws,
Trust shall not seek satisfaction of any such obligation from the officers,
agents, employees, trustees or shareholders of MIP or other classes or series of
MIP.
ARTICLE V
TERMINATION, AMENDMENT
----------------------
5.1 Termination. This agreement shall terminate automatically upon Fund's
-----------
withdrawal of its entire Investment from Portfolio and Portfolio's payment
therefor, or at such other time as Trust and MIP both agree. The provisions of
Article III and Sections 4.2 and 4.3 shall survive any termination of this
Agreement.
5.2 Amendment. This Agreement may be amended, modified or supplemented at
---------
any time in such manner as may be mutually agreed upon in writing by the
parties.
ARTICLE VI
GENERAL PROVISIONS
------------------
6.1 Expenses. All costs and expenses incurred in connection with this
--------
Agreement and the conduct of business contemplated hereby shall be paid by the
party incurring such costs and expenses.
12
<PAGE>
6.2 Headings. The headings and captions contained in this Agreement are
--------
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
6.3 Entire Agreement. Except as set forth below, this Agreement sets
----------------
forth the entire understanding between the parties concerning the subject matter
of this Agreement and incorporates or supersedes all prior negotiations and
understandings. There are no covenants, promises, agreements, conditions or
understandings, either oral or written, between the parties relating to the
subject matter of this Agreement other than those set forth herein and the
terms, conditions and descriptions set forth in MIP's Registration Statement, as
in effect from time to time.
6.4 Successors. Each and all of the provisions of this Agreement shall be
----------
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns; provided, however, that neither this Agreement, nor any
-------- -------
rights herein granted may be assigned to, transferred to or encumbered by any
party, without the prior written consent of the other parties hereto.
6.5 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of California; provided, however, that in
-------- -------
the event of any conflict between the 1940 Act and the laws of California, the
1940 Act shall govern.
6.6 Counterparts. This Agreement may be executed in any number of
------------
counterparts, all of which shall constitute one and the same instrument, and any
party hereto may execute this Agreement by signing one or more counterparts.
6.7 Third Parties. Nothing herein expressed or implied is intended or
-------------
shall be construed to confer upon or give any person, other than the parties
hereto and their successors or assigns, any rights or remedies under or by
reason of this Agreement.
6.8 Notices. All notices and other communications given or made pursuant
-------
hereto shall be in writing and shall be deemed to have been duly given or made
when delivered in person or three days after being sent by certified or
registered United States mail, return receipt requested, postage prepaid,
addressed:
If to Fund:
The Diversified Investors Funds Group
Four Manhattanville Road
Purchase, New York 10577
Attention: Robert F. Colby
If to Distributor:
The Diversified Investors Securities Corp.
Four Manhattanville Road
Purchase, New York 10577
13
<PAGE>
Attention: Robert F. Colby
If to MIP:
Chief Operating Officer
Master Investment Portfolio
c/o Stephens Inc.
111 Center Street
Little Rock, AR 72201
6.9 Interpretation. Any uncertainty or ambiguity existing herein shall
--------------
not be interpreted against any party, but shall be interpreted according to the
application of the rules of interpretation for arms' length agreements.
6.10 Operation of Fund. Except as otherwise provided herein, this
-----------------
Agreement shall not limit the authority of Fund, Trust or Distributor to take
such action as it may deem appropriate or advisable in connection with all
matters relating to the operation of Fund and the sale of its shares.
6.11 Relationship of Parties; No Joint Venture, Etc. It is understood and
-----------------------------------------------
agreed that neither Trust nor Distributor shall hold itself out as an agent of
MIP with the authority to bind such party, nor shall MIP hold itself out as an
agent of Trust or Distributor with the authority to bind such party.
6.12 Use of Name. Except as otherwise provided herein or required by law
-----------
(e.g., in Trust's Registration Statement on Form N-1A), neither Trust, Fund nor
Distributor shall describe or refer to the name of MIP, Portfolio or any
derivation thereof, or any affiliate thereof, or to the relationship
contemplated by this Agreement in any advertising or promotional materials
without the prior written consent of MIP, nor shall MIP describe or refer to the
name of Trust, Fund or Distributor or any derivation thereof, or any affiliate
thereof, or to the relationship contemplated by this Agreement in any
advertising or promotional materials without the prior written consent of Trust,
Fund or Distributor, as the case may be. In no case shall any such consents be
unreasonably withheld or delayed. In addition, the party required to give its
consent shall have at least three (3) business days prior to the earlier of
filing or first use, as the case may be, to review the proposed advertising or
promotional materials.
14
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their respective officers, thereunto duly authorized, as of the date first
written above.
TRUST,
on behalf of itself and DIVERSIFIED INVESTORS STOCK INDEX FUND
By: /s/ Tom Schlossberg
-----------------------------------
Name: Dan Schlossberg
Title: President
DISTRIBUTOR,
DIVERSIFIED INVESTORS SECURITIES CORP.
By: /s/ Edward J. Wearing, Jr.
-----------------------------------
Name: Edward J. Wearing, Jr.
Title: President
MASTER INVESTMENT PORTFOLIO,
on behalf of itself and
the S&P 500 INDEX MASTER PORTFOLIO
By: /s/ Richard H. Blank, Jr.
-----------------------------------
Name: Richard H. Blank, Jr.
Title: Chief Operating Officer
15
<PAGE>
FORM OF
THIRD PARTY FEEDER FUND
AGREEMENT
AMONG
E*TRADE FUNDS
E*TRADE SECURITIES, INC.
AND
MASTER INVESTMENT PORTFOLIO
dated as of
February 3, 1999
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
ARTICLE I. REPRESENTATIONS AND WARRANTIES............................
1.1 Company...................................................
1.2 MIP.......................................................
1.3 Distributor
ARTICLE II. COVENANTS.................................................
2.1 Company...................................................
2.2 MIP.......................................................
2.3 Reasonable Actions........................................
ARTICLE III. INDEMNIFICATION...........................................
3.1 Company and Distributor...................................
3.2 MIP.......................................................
ARTICLE IV. ADDITIONAL AGREEMENTS.....................................
4.1 Access to Information.....................................
4.2 Confidentiality...........................................
4.3 Obligations of Company and MIP............................
ARTICLE V. TERMINATION, AMENDMENT....................................
5.1 Termination...............................................
5.2 Amendment.................................................
ARTICLE VI. GENERAL PROVISIONS........................................
6.1 Expenses..................................................
6.2 Headings..................................................
6.3 Entire Agreement..........................................
6.4 Successors................................................
6.5 Governing Law.............................................
6.6 Counterparts..............................................
6.7 Third Parties.............................................
6.8 Notices...................................................
6.9 Interpretation............................................
6.10 Operation of Fund.........................................
6.11 Relationship of Parties; No Joint Venture, Etc. ..........
6.12 Use of Name...............................................
Signatures
</TABLE>
<PAGE>
AGREEMENT
---------
THIS AGREEMENT (the "Agreement") is made and entered into as of the ____
day of _______________, 1998, by and among E* TRADE Funds, a Delaware business
trust (the "Company"), for itself and on behalf of its series, the E* TRADE S&P
500 Index Fund (the "Fund"), E*TRADE Securities, Inc. (the "Distributor"), a
_____________ corporation, and Master Investment Portfolio ("MIP"), a Delaware
business trust, for itself and on behalf of its series, the S&P 500 Index Master
Portfolio ("Portfolio").
WITNESSETH
----------
WHEREAS, Company and MIP are each registered under the Investment Company
Act of 1940 (the "1940 Act") as open-end management investment companies;
WHEREAS, Fund and Portfolio have the same investment objective and
substantially the same investment policies;
WHEREAS, Fund desires to invest on an ongoing basis all or substantially
all of its investable assets (the "Assets") in exchange for a beneficial
interest in the Portfolio (the "Investment") on the terms and conditions set
forth in this Agreement;
NOW, THEREFORE, in consideration of the foregoing, the mutual promises made
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
ARTICLE I
REPRESENTATIONS AND WARRANTIES
------------------------------
1.1 Company. Company represents and warrants to MIP that:
-------
(a) Organization. Company is a business trust duly organized, validly
------------
existing and in good standing under the laws of the State of Delaware, and
Fund is a duly and validly designated series of Company. Each of Company
and Fund has the requisite power and authority to own its property and
conduct its business as proposed to be conducted pursuant to this
Agreement.
(b) Authorization of Agreement. The execution and delivery of this
--------------------------
Agreement by Company on behalf of Fund and the conduct of business
contemplated hereby have been duly authorized by all necessary action on
the part of Company's Board of Trustees and no other action or proceeding
is necessary for the execution and delivery of this Agreement by Fund, or
the performance by Fund of its obligations hereunder. This Agreement when
executed and delivered by Company on behalf of Fund shall constitute a
legal, valid and binding obligation of Company, enforceable against Fund in
accordance with its terms, except as may be limited by or subject to any
bankruptcy, insolvency, reorganization, moratorium or other similar law
affecting the enforcement of
<PAGE>
creditors' rights generally, and subject to general principles of equity.
No meeting of, or consent by, shareholders of Fund is necessary to approve
or implement the Investments.
(c) 1940 Act Registration. Company is duly registered under the
---------------------
Investment Company Act of 1940, as amended (the "1940 Act") as an open-end
management investment company, and such registration is in full force and
effect.
(d) SEC Filings. Company has duly filed all forms, reports, proxy
-----------
statements and other documents (collectively, the "SEC Filings") required
to be filed with the Securities and Exchange Commission (the "SEC") under
the Securities Act of 1933, as amended (the "1933 Act"), the Securities
Exchange Act of 1934 (the "1934 Act") and the 1940 Act, and the rules and
regulations thereunder, (collectively, the "Securities Laws") in connection
with the registration of Fund's shares, any meetings of its shareholders
and its registration as an investment company. All SEC Filings relating to
Fund were prepared to comply in all material respects in accordance with
the requirements of the applicable Securities Laws and do not, as of the
date of this Agreement, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.
(e) Fund Assets. Fund currently intends on an ongoing basis to invest
-----------
its Assets solely in Portfolio, although it reserves the right to invest
Assets in other securities and other assets and/or to redeem any or all
units of the Portfolio at any time without notice.
(f) Registration Statement. Company has reviewed MIP's and
----------------------
Portfolio's registration statement on Form N-lA, as filed with the SEC.
(g) Insurance. Company has in force an errors and omissions liability
---------
insurance policy insuring the Fund against loss up to $___ million for
negligence or wrongful acts.
1.2 MIP. MIP represents and warrants to Company that:
---
(a) Organization. MIP is a trust duly organized, validly existing and
------------
in good standing under the laws of the State of Delaware and Portfolio is a
duly and validly designated series of MIP. Each of MIP and Portfolio has
the requisite power and authority to own its property and conduct its
business as now being conducted and as proposed to be conducted pursuant to
this Agreement.
(b) Authorization of Agreement. The execution and delivery of this
--------------------------
Agreement by MIP on behalf of Portfolio and the conduct of business
contemplated hereby have been duly authorized by all necessary action on
the part of MIP's Board of Trustees and no other action or proceeding is
necessary for the execution and delivery of this Agreement by Portfolio, or
the performance by Portfolio of its obligations hereunder and the
consummation by the Portfolio of the transactions contemplated hereby.
This Agreement when executed and delivered by MIP on behalf of Portfolio
shall constitute a legal, valid and binding obligation of MIP and
Portfolio, enforceable against MIP and
2
<PAGE>
Portfolio in accordance with its terms. No meeting of, or consent by,
interestholders of Portfolio is necessary to approve the issuance of the
Interests (as defined below) to Fund.
(c) Issuance of Beneficial Interest. The issuance by MIP of
-------------------------------
beneficial interests in the Portfolio ("Interests") in exchange for the
Investments by Fund of its Assets has been duly authorized by all necessary
action on the part of the Board of Trustees of MIP. When issued in
accordance with the terms of this Agreement, the Interests will be validly
issued, fully paid and non-assessable.
(d) 1940 Act Registration. MIP is duly registered as an open-end
----------------------
management investment company under the 1940 Act and such registration is
in full force and effect.
(e) SEC Filings; Securities Exemptions. MIP has duly filed all SEC
----------------------------------
Filings, as defined herein, relating to Portfolio required to be filed with
the SEC under the Securities Laws. Interests in Portfolio are not required
to be registered under the 1933 Act, because such Interests are offered
solely in private placement transactions which do not involve any "public
offering" within the meaning of Section 4(2) of the 1933 Act. In addition,
Interests in Portfolio are either noticed or qualified for sale or exempt
from notice or qualification requirements under applicable securities laws
in those states and other jurisdictions in which Interests are offered and
sold. All SEC Filings relating to Portfolio comply in all material
respects with the requirements of the applicable Securities Laws and do
not, as of the date of this Agreement, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
(f) Tax Status. The Portfolio is taxable as a partnership for federal
-----------
income tax purposes under the Internal Revenue Code of 1986, as amended
(the "Code").
(g) Taxable and Fiscal Year. The taxable and fiscal year end of the
-----------------------
portfolio is ___________.
(h) Insurance. MIP has in force an errors and commissions liability
---------
insurance policy insuring the Portfolio against loss up to $_____________
million for negligence and wrongful acts.
1.3 Distributor. Distributor represents and warrants to MIP that the
-----------
execution and delivery of this Agreement by Distributor have been duly
authorized by all necessary action on the part of Distributor and no other
action or proceeding is necessary for the execution and delivery of this
Agreement by Distributor, or the performance by Distributor of its obligations
hereunder. This Agreement when executed and delivered by Distributor shall
constitute a legal, valid and binding obligation of Distributor, enforceable
against Distributor in accordance with its terms, except as may be limited by or
subject to any bankruptcy, insolvency, reorganization, moratorium or other
similar law affecting the enforcement of creditors' rights generally, and
subject to general principles of equity.
3
<PAGE>
ARTICLE II
COVENANTS
---------
2.1 Company. Company covenants that:
-------
(a) Advance Review of Certain Documents. Company will furnish MIP at
-----------------------------------
least ten (10) business days prior to the earlier of filing or first use,
with drafts of Fund's registration statement on Form N-lA and any
amendments thereto, and also will furnish MIP at least three (3) business
days' prior to the earlier of filing or first use, with drafts of any
prospectus or statement of additional information supplements. In
addition, Company will furnish or will cause to be furnished to MIP at
least two (2) business days prior to the earlier of filing or first use, as
the case may be, any proposed advertising or sales literature that contains
language that describes or refers to MIP or Portfolio and that was not
previously approved by MIP. Company agrees that it will include in all
such Fund documents any disclosures that may be required by law, and that
it will incorporate in all such Fund documents any material and reasonable
comments made by MIP. MIP will not, however, in any way be liable to
Company for any errors or omissions in such documents, whether or not MIP
makes any objection thereto, except to the extent such errors or omissions
result from information provided in Portfolio's 1940 Act registration
statement or otherwise provided by MIP for inclusion therein. In addition,
neither Fund nor Distributor will make any other written or oral
representations about MIP or Portfolio other than those contained in such
documents without MIP's prior written consent.
(b) SEC and Blue Sky Filings. Company will file all SEC Filings
------------------------
required to be filed with the SEC under the Securities Laws in connection
with the registration of Fund's shares, any meetings of its shareholders,
and its registration as a series of an investment company. Company will
file such similar or other documents as may be required to be filed with
any securities commission or similar authority by the laws or regulations
of any state, territory or possession of the United States, including the
District of Columbia, in which shares of Fund are or will be noticed for
sale ("State Filings"). Fund's SEC Filings will be prepared in all
material respects in accordance with the requirements of the applicable
Securities Laws, and, insofar as they relate to information other than that
supplied or required to be supplied by MIP, will not, at the time they are
filed or used to offer Fund shares, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. Fund's State
Filings will be prepared in accordance with the requirements of applicable
state and federal law and the rules and regulations thereunder.
(c) 1940 Act Registration. Company will be duly registered as an
---------------------
open-end management investment company under the 1940 Act.
(d) Tax Status. Fund will qualify for treatment as a regulated
----------
investment company under Subchapter M of the Code for any taxable year
during which this Agreement continues in effect except to the extent a
failure to so qualify may result from any action or omission of the
Portfolio or MIP.
4
<PAGE>
(e) Fiscal Year. Fund shall take appropriate action to adopt and
-----------
maintain the same fiscal year end as Portfolio (currently the last day of
February).
(f) Proxy Voting. If requested to vote on matters pertaining to MIP
------------
or Portfolio, Fund will vote such shares in accordance with applicable law
or exemption therefrom.
(g) Compliance with Laws. Company shall comply, in all material
--------------------
respects, with all applicable laws, rules and regulations in connection
with conducting its operations as a registered investment company.
(h) Year 2000 Readiness. Company shall use its best efforts to ensure
-------------------
the readiness of its computer systems, or those used by it in the
performance of its duties, to properly process information and data from
and after January 1, 2000. Company shall promptly notify MIP of any
significant problems that arise in connection with such readiness.
2.2 MIP. MIP covenants that:
---
(a) Signature Pages. MIP shall promptly provide all required
---------------
signature pages to Company for inclusion in any SEC Filings of Company,
provided Company is in material compliance with its covenants and other
obligations under this Agreement at the time such signature pages are
provided and included in the SEC Filing. Company and Distributor
acknowledge and agree that the provision of such signature pages does not
constitute a representation by MIP, its Trustees or Officers, that such SEC
Filing complies with the requirements of the applicable Securities Laws, or
that such SEC Filing does not contain any untrue statement of a material
fact or does not omit to the state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading, except with
respect to information provided by MIP for inclusion in such SEC Filing or
for use by Company in preparing such filing, which shall in any event
include any written information obtained from MIP's current registration
statement on Form N-1A.
(b) Redemption. Except as otherwise provided in this Section 2.2(b),
----------
redemptions of Interests owned by Fund will be effected pursuant to Section
2.2(c). In the event Fund desires to withdraw its entire Investment from
Portfolio, either by submitting a redemption request or by terminating this
Agreement in accordance with Section 5.1 hereof, Portfolio, unless
otherwise agreed to by the parties, and in all cases subject to Sections 17
and 18 of the 1940 Act and the rules and regulations thereunder, will
effect such redemption "in kind" and in such a manner that the securities
delivered to Fund or its custodian for the account of Fund mirror, as
closely as practicable, the composition of Portfolio immediately prior to
such redemption. Portfolio further agrees that, to the extent legally
possible, it will not take or cause to be taken any action without
Company's prior approval that would cause the withdrawal of Fund's
Investments to be treated as a taxable event to the Fund. Portfolio
further agrees to conduct its activities in accordance with all applicable
requirements of Regulation 1.731-2(e) under the Code or any successor
regulation.
5
<PAGE>
(c) Ordinary Course Redemptions. Portfolio will effect redemptions of
---------------------------
Interests in accordance with the provisions of the 1940 Act and the rules
and regulations thereunder, including, without limitation, Section 17
thereof. All redemption requests other than a withdrawal of Fund's entire
Investment in Portfolio under Section 2.2(b) or, at the sole discretion of
MIP, a withdrawal (or series of withdrawals over any three (3) consecutive
business days) of an amount that exceeds 10% of Portfolio's net asset
value, will be effected in cash at the next determined net asset value
after the redemption request is received. Portfolio will use its best
efforts to settle redemptions on the business day following the receipt of
a redemption request by Fund and if such next business day settlement is
not practicable, will immediately notify Fund regarding the anticipated
settlement date, which shall in all events be a date permitted under the
1940 Act.
(d) SEC Filings. MIP will file all SEC Filings required to be filed
-----------
with the SEC under the Securities Laws in connection with any meetings of
Portfolio's investors and its registration as an investment company and
will provide copies of all such definitive filings to Company. Portfolio's
SEC Filings will comply in all material respects with the requirements of
the applicable Securities Laws, and will not, at the time they are filed or
used, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
(e) 1940 Act Registration. MIP will remain duly registered as an
---------------------
open-end management investment company under the 1940 Act.
(f) Tax Status. Based upon applicable IRS interpretations and rulings
----------
and Treasury Regulations, Portfolio will continue to be treated as a
partnership for federal income tax purposes. Portfolio will continue to
satisfy (i) the income test imposed on regulated investment companies under
Section 851(b)(2) of the Code and (ii) the diversification test imposed on
regulated investment companies under Section 851(b)(3) of the Code as if
such Sections applied to it for so long as this Agreement continues in
effect. MIP agrees to forward to Company prior to Fund's initial
Investment a copy of its opinion of counsel or private letter ruling
relating to the tax status of Portfolio and agrees that Company and Fund
may rely upon such opinion or ruling during the term of this Agreement.
(g) Securities Exemptions. Interests in Portfolio have been and will
---------------------
continue to be offered and sold solely in private placement transactions
which do not involve any "public offering" within the meaning of Section
4(2) of the 1933 Act or require registration or notification under any
state law.
(h) Advance Notice of Certain Changes. MIP shall provide Company with
---------------------------------
at least one hundred twenty (120) days' advance notice, or such lesser time
as may be agreed to by the parties, of any change in Portfolio's investment
objective, and at least sixty (60) days' advance notice, or if MIP has
knowledge or should have knowledge that one of the following changes is
likely to occur more than sixty (60) days in advance of such event, notice
shall be provided as soon as reasonably possible after MIP obtains or
should have obtained such knowledge, of any material change in Portfolio's
investment
6
<PAGE>
policies or activities, any material increase in Portfolio's fees or
expenses, or any change in Portfolio's fiscal year or time for calculating
net asset value for purposes of Rule 22c-1.
(i) Compliance with Laws. MIP shall comply, in all material respects,
--------------------
with all applicable laws, rules and regulations in connection with
conducting its operations as a registered investment company.
(j) Proxy Costs. If and to the extent that: (i) MIP submits a matter
-----------
to a vote of Portfolio's Interestholders; (ii) Fund determines that it is
necessary or appropriate to solicit proxies from its shareholders in order
to vote its Interests; and (iii) MIP agrees to assume the costs associated
with soliciting proxies from the shareholders of any other feeder fund that
invests substantially all of its investable assets in Portfolio, then MIP
shall assume the costs associated with soliciting proxies from the
shareholders of Fund.
(k) Year 2000 Readiness. MIP shall use its best efforts to ensure the
-------------------
readiness of its computer systems, or those used by it in the performance
of its duties, to properly process information and data from and after
January 1, 2000. MIP shall promptly notify Company of any significant
problems that arise in connection with such readiness.
2.3 Reasonable Actions. Each party covenants that it will, subject to the
------------------
provisions of this Agreement, from time to time, as and when requested by
another party or in its own discretion, as the case may be, execute and deliver
or cause to be executed and delivered all such documents, assignments and other
instruments, take or cause to be taken such actions, and do or cause to be done
all things reasonably necessary, proper or advisable in order to conduct the
business contemplated by this Agreement and to carry out its intent and purpose.
ARTICLE III
INDEMNIFICATION
---------------
3.1 Fund and Distributor
--------------------
(a) Fund and Distributor agree, jointly and severally, to indemnify
and hold harmless MIP, Portfolio and Portfolio's investment adviser, and
any director/trustee, officer, employee or agent of MIP, Portfolio or
Portfolio's investment adviser (in this Section, each, a "Covered Person"
and collectively, "Covered Persons"), against any and all losses, claims,
demands, damages, liabilities or expenses (including, with respect to each
Covered Person, the reasonable cost of investigating and defending against
any claims therefor and reasonable counsel fees incurred in connection
therewith, except as provided in subparagraph (b)), that:
(i) arise out of or are based upon any violation or alleged
violation of any of the Securities Laws, or any other applicable
statute, rule, regulation or common law, or are incurred in connection
with or as a result of any formal or informal administrative
proceeding or investigation by a regulatory agency, insofar as such
violation or alleged violation, proceeding or investigation arises
7
<PAGE>
out of or is based upon any direct or indirect omission or commission
(or alleged omission or commission) by Company with respect to the
Fund or by Distributor or by any of its or their trustees/directors,
officers, employees or agents, but only insofar as such omissions or
commissions relate to Fund; or
(ii) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in any
advertising or sales literature used by the Distributor, prospectus,
registration statement, or any other SEC Filing relating to Fund, or
any amendments or supplements to the foregoing (in this Section,
collectively "Offering Documents"), or arise out of or are based upon
the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein in light of the circumstances under which they were made, not
misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or
alleged omission was not made in the Offering Documents in reliance
upon and in conformity with MIP's registration statement on Form N-1A
and other written information furnished by MIP to Fund or by any
service provider of MIP for use therein or for use by Fund in
preparing such documents, including but not limited to any written
information contained in MIP's current registration statement on Form
N-1A;
provided, however, that in no case shall Fund or Distributor be liable
-------- -------
for indemnification hereunder with respect to any claims made against any
Covered Person unless a Covered Person shall have notified Company or
Distributor in writing within a reasonable time after the summons, other
first legal process, notice of a federal, state or local tax deficiency, or
formal initiation of a regulatory investigation or proceeding giving
information of the nature of the claim shall have properly been served upon
or provided to a Covered Person seeking indemnification. Failure to notify
Company or Distributor of such claim shall not relieve Company or
Distributor from any liability that it may have to any Covered Person
otherwise than on account of the indemnification contained in this Section.
(b) Company and Distributor each will be entitled to participate at
its own expense in the defense or, if it so elects, to assume the defense
of any suit brought to enforce any such liability, but if Company and/or
Distributor elect(s) to assume the defense, such defense shall be conducted
by counsel chosen by Company and/or Distributor, as applicable. In the
event Company and/or Distributor elect(s) to assume the defense of any such
suit and retain such counsel, each Covered Person in the suit may retain
additional counsel but shall bear the fees and expenses of such counsel
unless (A) Company and Distributor shall have specifically authorized the
retaining of and payment of fees and expenses of such counsel or (B) the
parties to such suit include any Covered Person and Company and/or
Distributor, and any such Covered Person has been advised in a written
opinion by counsel acceptable to Company and Distributor in its reasonable
judgment that one or more legal defenses may be available to it that may
not be available to Company and/or Distributor, in which case Company
and/or Distributor shall not be entitled to assume the defense of such suit
notwithstanding their obligation to bear the reasonable fees and expenses
of one counsel to such persons. For purposes of the
8
<PAGE>
foregoing, the parties agree that the fact that interests in the Portfolio
are not registered under the 1933 Act shall be deemed not to give rise to
one or more legal or equitable defenses available to Portfolio that are not
available to the Company and/or the Fund. Company shall not be required to
indemnify any Covered Person for any settlement of any such claim effected
without its written consent and Distributor shall not be required to
indemnify any Covered Person for any settlement of any such claim effected
without its written consent, which consent, in each case, shall not be
unreasonably withheld or delayed. The indemnities set forth in paragraph
(a) will be in addition to any liability that Company and/or Distributor
might otherwise have to Covered Persons.
3.2 MIP.
---
(a) MIP agrees to indemnify and hold harmless Company, Fund,
Distributor, and any affiliate of the Company, the Distributor and/or Fund,
and any trustee/director, officer, employee or agent of any of them (in
this Section, each, a "Covered Person" and collectively, "Covered
Persons"), against any and all losses, claims, demands, damages,
liabilities or expenses (including, with respect to each Covered Person,
the reasonable cost of investigating and defending against any claims
therefor and any counsel fees incurred in connection therewith, except as
provided in subparagraph (b)), that:
(i) arise out of or are based upon any violation or alleged
violation of any of the Securities Laws, or any other applicable
statute, rule, regulation or common law or are incurred in connection
with or as a result of any formal or informal administrative
proceeding or investigation by a regulatory agency, insofar as such
violation or alleged violation, proceeding or investigation arises out
of or is based upon any direct or indirect omission or commission (or
alleged omission or commission) by MIP, or any of its trustees,
officers, employees or agents; or
(ii) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in any
advertising or sales literature, or any other SEC Filing relating to
Portfolio, or any amendments to the foregoing (in this Section,
collectively, the "Offering Documents") relating to Portfolio, or
arise out of or are based upon the omission or alleged omission to
state therein, a material fact required to be stated therein, or
necessary to make the statements therein in light of the circumstances
under which they were made, not misleading; or
(iii) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in any Offering
Documents relating to Company, Fund or relating to the Distributor or
any of their affiliates or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein in light of
the circumstances under which they were made, not misleading, in each
case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with written information furnished
to Fund by MIP for
9
<PAGE>
use therein or for use by Fund in preparing such documents, including
but not limited to any written information contained in MIP's current
registration statement on Form N-1A.
provided, however, that in no case shall MIP be liable for
-------- -------
indemnification hereunder with respect to any claims made against any
Covered Person unless a Covered Person shall have notified MIP in writing
within a reasonable time after the summons, other first legal process,
notice of a federal, state or local tax deficiency, or formal initiation of
a regulatory investigation or proceeding giving information of the nature
of the claim shall have properly been served upon or provided to a Covered
Person seeking indemnification. Without limiting the generality of the
foregoing, Portfolio's indemnity to Covered Persons shall include all
relevant liabilities of Covered Persons under the Securities Laws, as if
the Offering Documents constitute a "prospectus" within the meaning of the
1933 Act, and MIP had registered its interests under the 1933 Act pursuant
to a registration statement meeting the requirements of the 1933 Act.
Failure to notify MIP of such claim shall not relieve MIP from any
liability that it may have to any Covered Person otherwise than on account
of the indemnification contained in this Section.
(b) MIP will be entitled to participate at its own expense in the
defense or, if it so elects, to assume the defense of any suit brought to
enforce any such liability, but, if MIP elects to assume the defense, such
defense shall be conducted by counsel chosen by MIP. In the event MIP
elects to assume the defense of any such suit and retain such counsel, each
Covered Person in the suit may retain additional counsel but shall bear the
fees and expenses of such counsel unless (A) MIP shall have specifically
authorized the retaining of and payment of fees and expenses of such
counsel or (B) the parties to such suit include any Covered Person and MIP,
and any such Covered Person has been advised in a written opinion by
counsel acceptable to MIP in its reasonable judgment that one or more legal
defenses may be available to it that may not be available to MIP, in which
case MIP shall not be entitled to assume the defense of such suit
notwithstanding its obligation to bear the fees and expenses of one counsel
to such persons. MIP shall not be required to indemnify any Covered Person
for any settlement of any such claim effected without its written consent,
which consent shall not be unreasonably withheld or delayed. The
indemnities set forth in paragraph (a) will be in addition to any liability
that MIP might otherwise have to Covered Persons.
ARTICLE IV
ADDITIONAL AGREEMENTS
---------------------
4.1 Access to Information. Throughout the life of this Agreement, Company
---------------------
and MIP shall afford each other reasonable access at all reasonable times to
such party's officers, employees, agents and offices and to all relevant books
and records and shall furnish each other party with all relevant financial and
other data and information as such other party may reasonably request.
10
<PAGE>
4.2 Confidentiality. Each party agrees that it shall hold in strict
---------------
confidence all data and information obtained from another party (unless such
information is or becomes readily ascertainable from public or published
information or trade sources or public disclosure of such information is
required by law) and shall ensure that its officers, employees and authorized
representatives do not disclose such information to others without the prior
written consent of the party from whom it was obtained, except if disclosure is
required by the SEC, any other regulatory body, Fund's or Portfolio's respective
auditors, or in the opinion of counsel to the disclosing party such disclosure
is required by law, and then only with as much prior written notice to the other
parties as is practical under the circumstances. Each party hereto acknowledges
that the provisions of this Section 4.2 shall not prevent Company or MIP from
filing a copy of this Agreement as an exhibit to a registration statement on
Form N-1A as it relates to Fund or Portfolio, respectively, and that such
disclosure by Company or MIP shall not require any additional consent from the
other parties.
4.3 Obligations of Company and MIP. MIP agrees that the financial
------------------------------
obligations of Company under this Agreement shall be binding only upon the
assets of Fund, and that except to the extent liability may be imposed under
relevant Securities Laws, MIP shall not seek satisfaction of any such obligation
from the officers, agents, employees, trustees or shareholders of Company or the
Fund, and in no case shall MIP or any covered person have recourse to the assets
of any series of the Company other than the Fund. Company agrees that the
financial obligations of MIP under this Agreement shall be binding only upon the
assets of Portfolio and that, except to the extent liability may be imposed
under relevant Securities Laws, Company shall not seek satisfaction of any such
obligation from the officers, agents, employees, trustees or shareholders of MIP
or other classes or series of MIP.
ARTICLE V
TERMINATION, AMENDMENT
----------------------
5.1 Termination. This Agreement may be terminated at any time by the
-----------
mutual agreement in writing of all parties, or by any party on ninety (90) days'
advance written notice to the other parties hereto; provided, however, that
nothing in this Agreement shall limit Company's right to redeem all or a portion
of its units of the Portfolio in accordance with the 1940 Act and the rules
thereunder. The provisions of Article III and Sections 4.2 and 4.3 shall
survive any termination of this Agreement.
5.2 Amendment. This Agreement may be amended, modified or supplemented at
---------
any time in such manner as may be mutually agreed upon in writing by the
parties.
ARTICLE VI
GENERAL PROVISIONS
------------------
6.1 Expenses. All costs and expenses incurred in connection with this
--------
Agreement and the conduct of business contemplated hereby shall be paid by the
party incurring such costs and expenses.
11
<PAGE>
6.2 Headings. The headings and captions contained in this Agreement are
--------
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
6.3 Entire Agreement. This Agreement sets forth the entire understanding
----------------
between the parties concerning the subject matter of this Agreement and
incorporates or supersedes all prior negotiations and understandings. There are
no covenants, promises, agreements, conditions or understandings, either oral or
written, between the parties relating to the subject matter of this Agreement
other than those set forth herein. This Agreement may be amended only in a
writing signed by all parties.
6.4 Successors. Each and all of the provisions of this Agreement shall be
----------
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns; provided, however, that neither this Agreement, nor any
-------- -------
rights herein granted may be assigned to, transferred to or encumbered by any
party, without the prior written consent of the other parties hereto.
6.5 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of California without regard to the
conflicts of laws provisions thereof; provided, however, that in the event of
-------- -------
any conflict between the 1940 Act and the laws of California, the 1940 Act shall
govern.
6.6 Counterparts. This Agreement may be executed in any number of
------------
counterparts, all of which shall constitute one and the same instrument, and any
party hereto may execute this Agreement by signing one or more counterparts.
6.7 Third Parties. Except as expressly provided in Article III, nothing
-------------
herein expressed or implied is intended or shall be construed to confer upon or
give any person, other than the parties hereto and their successors or assigns,
any rights or remedies under or by reason of this Agreement.
6.8 Notices. All notices and other communications given or made pursuant
-------
hereto shall be in writing and shall be deemed to have been duly given or made
when delivered in person or three days after being sent by certified or
registered United States mail, return receipt requested, postage prepaid,
addressed:
If to Fund:
Joe Van Remortel, Vice President
E*Trade Funds, c/o E*Trade Asset Management
2400 Geng Road
Palo Alto, California 94303
If to Distributor:
________________________________
________________________________
12
<PAGE>
_______________________________
_______________________________
If to MIP:
Chief Operating Officer
Master Investment Portfolio
c/o Stephens Inc.
111 Center Street
Little Rock, AR 72201
6.9 Interpretation. Any uncertainty or ambiguity existing herein shall
--------------
not be interpreted against any party, but shall be interpreted according to the
application of the rules of interpretation for arms' length agreements.
6.10 Operation of Fund. Except as otherwise provided herein, this
-----------------
Agreement shall not limit the authority of Fund, Company or Distributor to take
such action as it may deem appropriate or advisable in connection with all
matters relating to the operation of Fund and the sale of its shares.
6.11 Relationship of Parties; No Joint Venture, Etc. It is understood and
-----------------------------------------------
agreed that neither Company nor Distributor shall hold itself out as an agent of
MIP with the authority to bind such party, nor shall MIP hold itself out as an
agent of Company or Distributor with the authority to bind such party.
6.12 Use of Name. Except as otherwise provided herein or required by law
-----------
(e.g., in Company's Registration Statement on Form N-1A), neither Company, Fund
nor Distributor shall describe or refer to the name of MIP, Portfolio or any
derivation thereof, or any affiliate thereof, or to the relationship
contemplated by this Agreement in any advertising or promotional materials
without the prior written consent of MIP, nor shall MIP describe or refer to the
name of Company, Fund or Distributor or any derivation thereof, or any affiliate
thereof, or to the relationship contemplated by this Agreement in any
advertising or promotional materials without the prior written consent of
Company, Fund or Distributor, as the case may be. In no case shall any such
consents be unreasonably withheld or delayed. In addition, the party required
to give its consent shall have at least three (3) business days prior to the
earlier of filing or first use, as the case may be, to review the proposed
advertising or promotional materials.
13
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their respective officers, thereunto duly authorized, as of the date first
written above.
E* TRADE Funds
on behalf of itself and the E*
TRADE S&P 500 Index Fund
By: /s/ Joseph N. Van Remortel
-------------------------------
Name: Joseph N. Van Remortel
Title: Vice President
E*TRADE Securities, Inc.
By: /s/ Brian Murray
--------------------------------
Name: Brian Murray
Title: President
MASTER INVESTMENT PORTFOLIO,
on behalf of itself and the S&P 500 Index
MASTER PORTFOLIO
By: /s/ Richard H. Blank, Jr.
--------------------------------
Name: Richard H. Blank, Jr.
Title: Chief Operating Officer
14
<PAGE>
THIRD PARTY FEEDER FUND
AGREEMENT
AMONG
VANTAGEPOINT FUNDS
VANTAGEPOINT CORE BOND INDEX,
VANTAGEPOINT MID/SMALL COMPANY INDEX,
VANTAGEPOINT 500 STOCK INDEX AND
THE VANTAGEPOINT BROAD MARKET INDEX FUNDS
ICMA - RC SERVICES, LLC
AND
MASTER INVESTMENT PORTFOLIO
dated as of
March 1, 1999
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
ARTICLE I. REPRESENTATIONS AND WARRANTIES.................................
1.1 Company........................................................
1.2 MIP............................................................
1.3 Distributor....................................................
ARTICLE II. COVENANTS......................................................
2.1 Company........................................................
2.2 MIP............................................................
2.3 Reasonable Actions.............................................
ARTICLE III. INDEMNIFICATION................................................
3.1 Company and Distributor........................................
3.2 MIP............................................................
ARTICLE IV. ADDITIONAL AGREEMENTS..........................................
4.1 Access to Information..........................................
4.2 Confidentiality................................................
4.3 Obligations of Company and MIP.................................
ARTICLE V. TERMINATION, AMENDMENT.........................................
5.1 Termination....................................................
5.2 Amendment......................................................
ARTICLE VI. GENERAL PROVISIONS.............................................
6.1 Expenses.......................................................
6.2 Headings.......................................................
6.3 Entire Agreement...............................................
6.4 Successors.....................................................
6.5 Governing Law..................................................
6.6 Counterparts...................................................
6.7 Third Parties..................................................
6.8 Notices........................................................
6.9 Interpretation.................................................
6.10 Operation of Fund..............................................
6.11 Relationship of Parties; No Joint Venture, Etc.................
6.12 Use of Name....................................................
</TABLE>
Signatures
i
<PAGE>
AGREEMENT
---------
THIS AGREEMENT (the "Agreement") is made and entered into as of the ____
day of _______________, 1999, by and among Vantagepoint Funds, a Delaware
business trust (the "Company"), for itself and on behalf of its series, the
Vantagepoint Core Bond Index, Vantagepoint Mid/Small Company Index, Vantagepoint
500 Stock Index and the Vantagepoint Broad Market Index Funds (each, a "Fund"
and collectively, the "Funds"), ICMA - RC Services, LLC ("Distributor"), a
Delaware limited liability company, and Master Investment Portfolio ("MIP"), a
Delaware business trust, for itself and on behalf of its series, the Bond Index,
Extended Index, S&P 500 Index and the U.S. Equity Index Master Portfolios (each,
a "Portfolio" and collectively, the "Portfolios").
WITNESSETH
----------
WHEREAS, Company and MIP are each registered under the Investment Company
Act of 1940 (the "1940 Act") as open-end management investment companies;
WHEREAS, each Fund and its corresponding Portfolio have the same investment
objectives and substantially the same investment policies;
WHEREAS, each Fund desires to invest on an ongoing basis all of its
investable assets (the "Assets") in the corresponding Portfolio (the
"Investments") on the terms and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the foregoing, the mutual promises made
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
ARTICLE I
REPRESENTATIONS AND WARRANTIES
------------------------------
1.1 Company. Company represents and warrants to MIP that:
-------
(a) Organization. Company is a business trust duly organized,
------------
validly existing and in good standing under the laws of the State of
Delaware, and the Funds are duly and validly designated series of Company.
Company and each of the Funds has the requisite power and authority to own
its property and conduct its business as proposed to be conducted pursuant
to this Agreement.
(b) Authorization of Agreement. The execution and delivery of this
--------------------------
Agreement by Company on behalf of the Funds and the conduct of business
contemplated hereby have been duly authorized by all necessary action on
the part of Company's Board of Directors and no other action or proceeding
is necessary for the execution and delivery of this Agreement by the Funds,
or the performance by the Funds of their obligations hereunder. This
Agreement when executed and delivered by
<PAGE>
Company on behalf of the Funds shall constitute a legal, valid and binding
obligation of Company, enforceable against the Funds in accordance with its
terms. No meeting of, or consent by, shareholders of the Funds is necessary
to approve or implement the Investments.
(c) 1940 Act Registration. Company is duly registered under the 1940
----------------------
Act as an open-end management investment company, and such registration is
in full force and effect.
(d) SEC Filings. Company has duly filed all forms, reports, proxy
-----------
statements and other documents (collectively, the "SEC Filings") required
to be filed with the Securities and Exchange Commission (the "SEC") under
the Securities Act of 1933 (the "1933 Act"), the Securities Exchange Act of
1934 (the "1934 Act") and the 1940 Act, and the rules and regulations
thereunder, (collectively, the "Securities Laws") in connection with the
registration of the Funds' shares, any meetings of its shareholders and its
registration as a series of an investment company. All SEC Filings
relating to the Funds comply in all material respects with the requirements
of the applicable Securities Laws and do not, as of the date of this
Agreement, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading.
(e) Fund Assets. The Funds currently intend on an ongoing basis to
-----------
invest their Assets solely in the corresponding Portfolio.
(f) Registration Statement. Company has reviewed MIP's and
----------------------
Portfolio's registration statement on Form N-1A, as filed with the SEC, and
agrees that the Funds' Investments will be subject to the terms thereof.
The Funds understand and acknowledge that Portfolio has the right, in its
sole discretion, at any time, to limit or reject additional Investments
from the Funds, provided that MIP shall provide Company at least thirty
(30) days' advance written notice, or such lesser time as may be agreed to
by the parties, of any such limit or rejection.
(g) Insurance. The Funds have in force reasonable insurance coverage
---------
against any and all liabilities that may arise as a result of the Funds'
business as registered investment companies.
1.2 MIP. MIP represents and warrants to Company that:
---
(a) Organization. MIP is a trust duly organized, validly existing
------------
and in good standing under the laws of the State of Delaware and the
Portfolios are duly and validly designated series of MIP. MIP and each of
the Portfolios has the requisite power and authority to own its property
and conduct its business as now being conducted.
(b) Authorization of Agreement. The execution and delivery of this
--------------------------
Agreement by MIP on behalf of the Portfolios and the conduct of business
contemplated hereby have been duly authorized by all necessary action on
the part of MIP's Board of Trustees and no other action or proceeding is
necessary for the execution and delivery of
2
<PAGE>
this Agreement by the Portfolios, or the performance by the Portfolios of
their obligations hereunder. This Agreement when executed and delivered by
MIP on behalf of the Portfolios shall constitute a legal, valid and binding
obligation of MIP and the Portfolios, enforceable against MIP and the
Portfolios in accordance with its terms. No meeting of, or consent by,
interestholders of the Portfolios is necessary to approve the issuance of
the Interests (as defined below) to the Funds.
(c) Authorization of Issuance of Beneficial Interest. The issuance
------------------------------------------------
by MIP of beneficial interests in the Portfolios ("Interests") in exchange
for the Investments by the Funds of their Assets has been duly authorized
by all necessary action on the part of the Board of Trustees of MIP.
(d) 1940 Act Registration. MIP is duly registered as an open-end
----------------------
management investment company under the 1940 Act and such registration is
in full force and effect.
(e) SEC Filings; Securities Exemptions. MIP has duly filed all SEC
----------------------------------
Filings, as defined herein, relating to the Portfolios required to be filed
with the SEC pursuant to the Securities Laws. Interests in the Portfolios
are not required to be registered under the 1933 Act, because such
Interests are offered solely in private placement transactions which do not
involve any "public offering" within the meaning of Section 4(2) of the
1933 Act. In addition, Interests in the Portfolios are either noticed for
sale or exempt from notice requirements under applicable securities laws in
those states or jurisdictions in which Interests are offered and sold. All
SEC Filings relating to the Portfolios comply in all material respects with
the requirements of the applicable Securities Laws and do not, as of the
date of this Agreement, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.
(f) Tax Status. Based upon applicable IRS interpretations and
-----------
rulings, each Portfolio is treated as a partnership for federal income tax
purposes under the Internal Revenue Code of 1986, as amended (the "Code")
for its current taxable year.
1.3 Distributor. Distributor represents and warrants to MIP that the
-----------
execution and delivery of this Agreement by Distributor has been duly authorized
by all necessary action on the part of Distributor and no other action or
proceeding is necessary for the execution and delivery of this Agreement by
Distributor, or the performance by Distributor of its obligations hereunder.
This Agreement when executed and delivered by Distributor shall constitute a
legal, valid and binding obligation of Distributor, enforceable against
Distributor in accordance with its terms.
3
<PAGE>
ARTICLE II
COVENANTS
---------
2.1 Company. Company covenants that:
-------
(a) Advance Review of Certain Documents. Company will furnish MIP,
-----------------------------------
at least ten (10) business days prior to the earlier of filing or first
use, with drafts of each Fund's registration statement on Form N-1A and any
amendments thereto, and also will furnish MIP, at least five (5) business
days' prior to the earlier of filing or first use, with drafts of any
prospectus or statement of additional information supplements. In addition,
Company will furnish or will cause to be furnished to MIP, at least five
(5) business days prior to the earlier of filing or first use, as the case
may be, any proposed advertising or sales literature that contains language
that describes or refers to MIP or the Portfolios and that was not
previously approved by MIP. Company agrees that it will include in all such
Fund documents any disclosures that may be required by law, and that it
will incorporate in all such Fund documents any material and reasonable
comments made by MIP. MIP will not, however, in any way be liable to
Company for any errors or omissions in such documents, whether or not MIP
makes any objection thereto, except to the extent such errors or omissions
result from information provided in the Portfolios' 1940 Act registration
statement or otherwise provided by MIP for inclusion therein. In addition,
neither the Funds nor Distributor will make any other written or oral
representations about MIP or the Portfolios other than those contained in
such documents without MIP's prior written consent.
(b) SEC and Blue Sky Filings. Company will file all SEC Filings
------------------------
required to be filed with the SEC under the Securities Laws in connection
with the registration of the Funds' shares, any meetings of its
shareholders, and its registration as a series of an investment company.
Company will file such similar or other documents as may be required to be
filed with any securities commission or similar authority by the laws or
regulations of any state, territory or possession of the United States,
including the District of Columbia, in which shares of a Fund are or will
be noticed for sale ("State Filings"). Each Fund's SEC Filings will comply
in all material respects with the requirements of the applicable Securities
Laws, and, insofar as they relate to information other than that supplied
or required to be supplied by MIP, will not, at the time they are filed or
used to offer a Fund's shares, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. Each Fund's
State Filings will be prepared in accordance with the requirements of
applicable state and federal law and the rules and regulations thereunder.
(c) 1940 Act Registration. Company will be duly registered as an
---------------------
open-end management investment company under the 1940 Act.
(d) Tax Status. The Funds will qualify for treatment as regulated
----------
investment companies under Subchapter M of the Code for any taxable year
during which this Agreement continues in effect, unless such lack of
qualification is solely as a result of
4
<PAGE>
their corresponding Portfolio's failure to meet (i) the income test imposed
on regulated investment companies under Section 851(b)(2) of the Code and
(ii) the asset test imposed on regulated investment companies under Section
851(b)(3) of the Code, as if such Sections applied to it.
(e) Fiscal Year. The Funds shall take appropriate action to adopt
-----------
and maintain the same fiscal year end as their corresponding Portfolio
(currently the last day of February).
(f) Proxy Voting. If requested to vote on matters pertaining to MIP
------------
or the Portfolios, the Funds will vote such shares in accordance with
applicable law.
(g) Compliance with Laws. Company shall comply, in all material
--------------------
respects, with all applicable laws, rules and regulations in connection
with conducting its operations as a registered investment company.
(h) Insurance. Company will maintain in full force and effect, for
---------
so long as this Agreement is in effect, insurance coverage against
liabilities that may arise as a result of a Fund's business, in such
amount, and covering such liabilities as the Board of Directors of Company
deems reasonable.
2.2 MIP. MIP covenants that:
---
(a) Signature Pages. MIP shall promptly provide all required
---------------
signature pages to Company for inclusion in any SEC Filings of Company,
provided Company is in material compliance with its covenants and other
obligations under this Agreement at the time such signature pages are
provided and included in the SEC Filing. Company and Distributor
acknowledge and agree that the provision of such signature pages does not
constitute a representation by MIP, its Trustees or Officers, that such SEC
Filing complies with the requirements of the applicable Securities Laws, or
that such SEC Filing does not contain any untrue statement of a material
fact or does not omit to the state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading, except with
respect to information provided by MIP for inclusion in such SEC Filing or
for use by Company in preparing such filing, which shall in any event
include any written information obtained from MIP's current registration
statement on Form N-1A.
(b) Redemption. Except as otherwise provided in this Section 2.2(b),
----------
redemptions of Interests owned by the Funds will be effected pursuant to
Section 2.2(c). In the event a Fund desires to withdraw its entire
Investment from its corresponding Portfolio, either by submitting a
redemption request or by terminating this Agreement in accordance with
Section 5.1 hereof, the Portfolio, unless otherwise agreed to by the
parties, and in all cases subject to Sections 17 and 18 of the 1940 Act and
the rules and regulations thereunder, will effect such redemption "in kind"
and in such a manner that the securities delivered to the corresponding
Fund or its custodian for the account of the Fund mirror, as closely as
practicable, the composition of the corresponding Portfolio immediately
prior to such redemption. Each Portfolio further agrees that, to the
extent
5
<PAGE>
legally possible, it will not take or cause to be taken any action without
Company's prior approval that would cause the withdrawal of the
corresponding Fund's Investments to be treated as a taxable event to the
Fund. Each Portfolio further agrees to conduct its activities in
accordance with all applicable requirements of Regulation 1.731-2(e) under
the Code or any successor regulation.
(c) Ordinary Course Redemptions. Each Portfolio will effect
---------------------------
redemptions of Interests in accordance with the provisions of the 1940 Act
and the rules and regulations thereunder, including, without limitation,
Section 17 thereof. All redemption requests other than a withdrawal of the
corresponding Fund's entire Investment in the Portfolio under Section
2.2(b) or, at the sole discretion of MIP, a withdrawal (or series of
withdrawals over any three (3) consecutive business days) of an amount that
exceeds 10% of the Portfolio's net asset value, will be effected in cash at
the next determined net asset value after the redemption request is
received. The Portfolio will use its best efforts to settle redemptions on
the business day following the receipt of a redemption request by the
corresponding Fund and if such next business day settlement is not
practicable, will immediately notify the Fund regarding the anticipated
settlement date, which shall in all events be a date permitted under the
1940 Act.
(d) SEC Filings. MIP will file all SEC Filings required to be filed
-----------
with the SEC under the Securities Laws in connection with any meetings of
each Portfolio's investors and its registration as an investment company
and will provide copies of all such definitive filings to Company. The
Portfolios' SEC Filings will comply in all material respects with the
requirements of the applicable Securities Laws, and will not, at the time
they are filed or used, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.
(e) 1940 Act Registration. MIP will remain duly registered as an
---------------------
open-end management investment company under the 1940 Act.
(f) Tax Status. Based upon applicable IRS interpretations and
----------
rulings, each Portfolio will conduct its business and activities so as to
be treated as a partnership for federal income tax purposes under the Code.
Each Portfolio will continue to satisfy (i) the income test imposed on
regulated investment companies under Section 851(b)(2) of the Code and (ii)
the asset test imposed on regulated investment companies under Section
851(b)(3) of the Code as if such Sections applied to it for so long as this
Agreement continues in effect. MIP agrees to forward to each Fund prior to
the Fund's initial Investment a copy of its opinion of counsel or private
letter ruling relating to the tax status of its corresponding Portfolio and
agrees that the Funds may rely upon such opinion or ruling during the term
of this Agreement.
(g) Securities Exemptions. Interests in each Portfolio have been and
---------------------
will continue to be offered and sold solely in private placement
transactions which do not involve any "public offering" within the meaning
of Section 4(2) of the 1933 Act or require registration or notification
under any state law.
6
<PAGE>
(h) Advance Notice of Certain Changes. MIP shall provide Company
---------------------------------
with at least one hundred twenty (120) days' advance notice, or such lesser
time as may be agreed to by the parties, of any change in a Portfolio's
investment objective, and at least sixty (60) days' advance notice, or if
MIP has knowledge that one of the following changes is likely to occur more
than sixty (60) days in advance of such event, notice shall be provided as
soon as reasonably possible after MIP obtains such knowledge, of any
material change in a Portfolio's investment policies or activities, any
material increase in a Portfolio's fees or expenses, or any change in a
Portfolio's fiscal year or time for calculating net asset value for
purposes of Rule 22c-1.
(i) Compliance with Laws. MIP shall comply, in all material
--------------------
respects, with all applicable laws, rules and regulations in connection
with conducting its operations as a registered investment company.
2.3 Reasonable Actions. Each party covenants that it will, subject to the
------------------
provisions of this Agreement, from time to time, as and when requested by
another party or in its own discretion, as the case may be, execute and deliver
or cause to be executed and delivered all such documents, assignments and other
instruments, take or cause to be taken such actions, and do or cause to be done
all things reasonably necessary, proper or advisable in order to conduct the
business contemplated by this Agreement and to carry out its intent and purpose.
ARTICLE III
INDEMNIFICATION
---------------
3.1 Company
-------
(a) Company agrees to indemnify and hold harmless MIP, Portfolio and
Portfolio's investment adviser, and any director/trustee, officer, employee
or agent of MIP, Portfolio or Portfolio's investment adviser (in this
Section, each, a "Covered Person" and collectively, "Covered Persons"),
against any and all losses, claims, demands, damages, liabilities or
expenses (including, with respect to each Covered Person, the reasonable
cost of investigating and defending against any claims therefor and any
counsel fees incurred in connection therewith, except as provided in
subparagraph (b)) ("Losses"), that:
(i) arise out of or are based upon any violation or alleged
violation of any of the Securities Laws, or any other applicable
statute, rule, regulation or common law, or are incurred in connection
with or as a result of any formal or informal administrative
proceeding or investigation by a regulatory agency, insofar as such
violation or alleged violation, proceeding or investigation arises out
of or is based upon any direct or indirect omission or commission (or
alleged omission or commission) by Company or by any of its
trustees/directors, officers, employees or agents, but only insofar as
such omissions or commissions relate to a Fund; or
7
<PAGE>
(ii) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in any
advertising or sales literature, prospectus, registration statement,
or any other SEC Filing relating to a Fund, or any amendments or
supplements to the foregoing (in this Section, collectively "Offering
Documents"), or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein in light of the
circumstances under which they were made, not misleading, in each case
to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was not made
in the Offering Documents in reliance upon and in conformity with
MIP's registration statement on Form N-1A and other written
information furnished by MIP to Fund or by any service provider of MIP
for use therein or for use by Fund in preparing such documents,
including but not limited to any written information contained in
MIP's current registration statement on Form N-1A;
provided, however, that in no case shall Company be liable for
-------- -------
indemnification hereunder with respect to any claims made against any
Covered Person unless a Covered Person shall have notified Company in
writing within a reasonable time after the summons, other first legal
process, notice of a federal, state or local tax deficiency, or formal
initiation of a regulatory investigation or proceeding giving information
of the nature of the claim shall have properly been served upon or provided
to a Covered Person seeking indemnification. Failure to notify Company of
such claim shall not relieve Company from any liability that it may have to
any Covered Person otherwise than on account of the indemnification
contained in this Section.
(b) Company will be entitled to participate at its own expense in the
defense or, if it so elects, to assume the defense of any suit brought to
enforce any such liability, but if Company elects to assume the defense,
such defense shall be conducted by counsel chosen by Company. In the event
Company and/or Distributor elect(s) to assume the defense of any such suit
and retain such counsel, each Covered Person in the suit may retain
additional counsel but shall bear the fees and expenses of such counsel
unless (A) Company shall have specifically authorized the retaining of and
payment of fees and expenses of such counsel or (B) the parties to such
suit include any Covered Person and Company, and any such Covered Person
has been advised in a written opinion by counsel reasonably acceptable to
Company that one or more legal defenses may be available to it that may not
be available to Company, in which case Company shall not be entitled to
assume the defense of such suit notwithstanding its obligation to bear the
fees and expenses of one counsel to all such persons. Company shall not be
required to indemnify any Covered Person for any settlement of any such
claim effected without its written consent, which consent shall not be
unreasonably withheld or delayed. The indemnities set forth in paragraph
(a) will be in addition to any liability that Company might otherwise have
to Covered Persons, provided that, in no event shall MIP's Covered Persons
be entitled to recover, hereunder or elsewhere, more than the amount of
their Losses.
8
<PAGE>
3.2 Distributor
-----------
(a) Distributor agrees to indemnify and hold harmless MIP, Portfolio
and Portfolio's investment adviser, and any director/trustee, officer,
employee or agent of MIP, Portfolio or Portfolio's investment adviser (in
this Section, each, a "Covered Person" and collectively, "Covered
Persons"), against any and all losses, claims, demands, damages,
liabilities or expenses (including, with respect to each Covered Person,
the reasonable cost of investigating and defending against any claims
therefor and any counsel fees incurred in connection therewith, except as
provided in subparagraph (b)) ("Losses"), that:
(i) arise out of or are based upon any violation or alleged
violation of any of the Securities Laws, or any other applicable
statute, rule, regulation or common law, or are incurred in connection
with or as a result of any formal or informal administrative
proceeding or investigation by a regulatory agency, insofar as such
violation or alleged violation, proceeding or investigation arises out
of or is based upon any direct or indirect omission or commission (or
alleged omission or commission) by Company or Distributor or by any of
its or their trustees/directors, officers, employees or agents, but
only insofar as such omissions or commissions relate to a Fund; or
(ii) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in any
advertising or sales literature, prospectus, registration statement,
or any other SEC Filing relating to a Fund, or any amendments or
supplements to the foregoing (in this Section, collectively "Offering
Documents"), or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein in light of the
circumstances under which they were made, not misleading, in each case
to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was not made
in the Offering Documents in reliance upon and in conformity with
MIP's registration statement on Form N-1A and other written
information furnished by MIP to a Fund or by any service provider of
MIP for use therein or for use by a Fund in preparing such documents,
including but not limited to any written information contained in
MIP's current registration statement on Form N-1A;
provided, however, that in no case shall Distributor be liable for
-------- -------
Losses to the extent Distributor pays the amount of such Losses to the
Covered Person under Section 3.1(a) hereof, nor shall Company be liable for
indemnification hereunder with respect to any claims made against any
Covered Person unless a Covered Person shall have notified Distributor in
writing within a reasonable time after the summons, other first legal
process, notice of a federal, state or local tax deficiency, or formal
initiation of a regulatory investigation or proceeding giving information
of the nature of the claim shall have properly been served upon or provided
to a Covered Person seeking indemnification. Failure to notify Distributor
of such claim shall not relieve Distributor
9
<PAGE>
from any liability that it may have to any Covered Person otherwise than on
account of the indemnification contained in this Section.
(b) Distributor will be entitled to participate at its own expense in
the defense or, if it so elects, to assume the defense of any suit brought
to enforce any such liability, but if Distributor elects to assume the
defense, such defense shall be conducted by counsel chosen by Distributor.
In the event Distributor elects to assume the defense of any such suit and
retain such counsel, each Covered Person in the suit may retain additional
counsel but shall bear the fees and expenses of such counsel unless (A)
Distributor shall have specifically authorized the retaining of and payment
of fees and expenses of such counsel or (B) the parties to such suit
include any Covered Person and Distributor, and any such Covered Person has
been advised in a written opinion by counsel reasonably acceptable to
Distributor that one or more legal defenses may be available to it that may
not be available to Distributor, in which case Distributor shall not be
entitled to assume the defense of such suit notwithstanding its obligation
to bear the fees and expenses of one counsel to all such persons.
Distributor shall not be required to indemnify any Covered Person for any
settlement of any such claim effected without its written consent, which
consent shall not be unreasonably withheld or delayed. The indemnities set
forth in paragraph (a) will be in addition to any liability that
Distributor might otherwise have to Covered Persons, provided that, in no
event shall MIP's Covered Persons be entitled to recover, hereunder or
elsewhere, more than the amount of their Losses.
3.3 MIP.
---
(a) MIP agrees to indemnify and hold harmless Company, the Funds,
Distributor, and any affiliate providing services to Company and/or the
Funds, and any trustee/director, officer, employee or agent of any of them
(in this Section, each, a "Covered Person" and collectively, "Covered
Persons"), against any and all losses, claims, demands, damages,
liabilities or expenses (including, with respect to each Covered Person,
the reasonable cost of investigating and defending against any claims
therefor and any counsel fees incurred in connection therewith, except as
provided in subparagraph (b)), that:
(i) arise out of or are based upon any violation or alleged
violation of any of the Securities Laws, or any other applicable
statute, rule, regulation or common law or are incurred in connection
with or as a result of any formal or informal administrative
proceeding or investigation by a regulatory agency, insofar as such
violation or alleged violation, proceeding or investigation arises out
of or is based upon any direct or indirect omission or commission (or
alleged omission or commission) by MIP, or any of its trustees,
officers, employees or agents; or
(ii) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in any
advertising or sales literature, or any other SEC Filing relating to a
Portfolio, or any amendments to the foregoing (in this Section,
collectively, the "Offering Documents") relating to a
10
<PAGE>
Portfolio, or arise out of or are based upon the omission or alleged
omission to state therein, a material fact required to be stated
therein, or necessary to make the statements therein in light of the
circumstances under which they were made, not misleading; or
(iii) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in any Offering
Documents relating to Company or the Funds, or arise out of or are
based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein in light of the circumstances under which they were
made, not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in
conformity with written information furnished to a Fund by MIP for use
therein or for use by a Fund in preparing such documents, including
but not limited to any written information contained in MIP's current
registration statement on Form N-1A.
provided, however, that in no case shall MIP be liable for
-------- -------
indemnification hereunder with respect to any claims made against any
Covered Person unless a Covered Person shall have notified MIP in writing
within a reasonable time after the summons, other first legal process,
notice of a federal, state or local tax deficiency, or formal initiation of
a regulatory investigation or proceeding giving information of the nature
of the claim shall have properly been served upon or provided to a Covered
Person seeking indemnification. Without limiting the generality of the
foregoing, a Portfolio's indemnity to Covered Persons shall include all
relevant liabilities of Covered Persons under the Securities Laws, as if
the Offering Documents constitute a "prospectus" within the meaning of the
1933 Act, and MIP had registered its interests under the 1933 Act pursuant
to a registration statement meeting the requirements of the 1933 Act.
Failure to notify MIP of such claim shall not relieve MIP from any
liability that it may have to any Covered Person otherwise than on account
of the indemnification contained in this Section.
(b) MIP will be entitled to participate at its own expense in the
defense or, if it so elects, to assume the defense of any suit brought to
enforce any such liability, but, if MIP elects to assume the defense, such
defense shall be conducted by counsel chosen by MIP. In the event MIP
elects to assume the defense of any such suit and retain such counsel, each
Covered Person in the suit may retain additional counsel but shall bear the
fees and expenses of such counsel unless (A) MIP shall have specifically
authorized the retaining of and payment of fees and expenses of such
counsel or (B) the parties to such suit include any Covered Person and MIP,
and any such Covered Person has been advised in a written opinion by
counsel reasonably acceptable to MIP that one or more legal defenses may be
available to it that may not be available to MIP, in which case MIP shall
not be entitled to assume the defense of such suit notwithstanding its
obligation to bear the fees and expenses of one counsel to such persons.
MIP shall not be required to indemnify any Covered Person for any
settlement of any such claim effected without its written consent, which
consent shall not be unreasonably withheld or delayed. The
11
<PAGE>
indemnities set forth in paragraph (a) will be in addition to any liability
that MIP might otherwise have to Covered Persons.
ARTICLE IV
ADDITIONAL AGREEMENTS
---------------------
4.1 Access to Information. Throughout the life of this Agreement, Company
---------------------
and MIP shall afford each other reasonable access at all reasonable times to
such party's officers, employees, agents and offices and to all relevant books
and records and shall furnish each other party with all relevant financial and
other data and information as such other party may reasonably request.
4.2 Confidentiality. Each party agrees that it shall hold in strict
---------------
confidence all data and information obtained from another party (unless such
information is or becomes readily ascertainable from public or published
information or trade sources or public disclosure of such information is
required by law) and shall ensure that its officers, employees and authorized
representatives do not disclose such information to others without the prior
written consent of the party from whom it was obtained, except if disclosure is
required by the SEC, any other regulatory body, a Fund's or a Portfolio's
respective auditors, or in the opinion of counsel to the disclosing party such
disclosure is required by law, and then only with as much prior written notice
to the other parties as is practical under the circumstances. Each party hereto
acknowledges that the provisions of this Section 4.2 shall not prevent Company
or MIP from filing a copy of this Agreement as an exhibit to a registration
statement on Form N-1A as it relates to a Fund or a Portfolio, respectively, and
that such disclosure by Company or MIP shall not require any additional consent
from the other parties.
4.3 Obligations of Company and MIP. MIP agrees that the financial
------------------------------
obligations of Company under this Agreement shall be binding only upon the
assets of the Funds, and that except to the extent liability may be imposed
under relevant Securities Laws, MIP shall not seek satisfaction of any such
obligation from the officers, agents, employees, trustees or shareholders of
Company or other classes or series of Company. Company agrees that the
financial obligations of MIP under this Agreement shall be binding only upon the
assets of the Portfolios and that, except to the extent liability may be imposed
under relevant Securities Laws, Company shall not seek satisfaction of any such
obligation from the officers, agents, employees, trustees or shareholders of MIP
or other classes or series of MIP.
ARTICLE V
TERMINATION, AMENDMENT
----------------------
5.1 Termination. The provisions of Article III and Sections 4.2 and 4.3
-----------
shall survive any termination of this Agreement.
5.2 Amendment. This Agreement may be amended, modified or supplemented at
---------
any time in such manner as may be mutually agreed upon in writing by the
parties.
12
<PAGE>
ARTICLE VI
GENERAL PROVISIONS
------------------
6.1 Expenses. All costs and expenses incurred in connection with this
--------
Agreement and the conduct of business contemplated hereby shall be paid by the
party incurring such costs and expenses.
6.2 Headings. The headings and captions contained in this Agreement are
--------
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
6.3 Entire Agreement. Except as set forth below, this Agreement sets
----------------
forth the entire understanding between the parties concerning the subject matter
of this Agreement and incorporates or supersedes all prior negotiations and
understandings. There are no covenants, promises, agreements, conditions or
understandings, either oral or written, between the parties relating to the
subject matter of this Agreement other than those set forth herein and the
terms, conditions and descriptions set forth in MIP's Registration Statement, as
in effect from time to time.
6.4 Successors. Each and all of the provisions of this Agreement shall be
----------
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns; provided, however, that neither this Agreement, nor any
-------- -------
rights herein granted may be assigned to, transferred to or encumbered by any
party, without the prior written consent of the other parties hereto.
6.5 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of California; provided, however, that in
-------- -------
the event of any conflict between the 1940 Act and the laws of California, the
1940 Act shall govern.
6.6 Counterparts. This Agreement may be executed in any number of
------------
counterparts, all of which shall constitute one and the same instrument, and any
party hereto may execute this Agreement by signing one or more counterparts.
6.7 Third Parties. Nothing herein expressed or implied is intended or
-------------
shall be construed to confer upon or give any person, other than the parties
hereto and their successors or assigns, any rights or remedies under or by
reason of this Agreement.
6.8 Notices. All notices and other communications given or made pursuant
-------
hereto shall be in writing and shall be deemed to have been duly given or made
when delivered in person or three days after being sent by certified or
registered United States mail, return receipt requested, postage prepaid,
addressed:
If to the Funds:
____________________________________
____________________________________
____________________________________
13
<PAGE>
____________________________________
If to Distributor:
____________________________________
____________________________________
____________________________________
____________________________________
If to MIP:
Chief Operating Officer
Master Investment Portfolio
c/o Stephens Inc.
111 Center Street
Little Rock, AR 72201
6.9 Interpretation. Any uncertainty or ambiguity existing herein shall
--------------
not be interpreted against any party, but shall be interpreted according to the
application of the rules of interpretation for arms' length agreements.
6.10 Operation of the Funds. Except as otherwise provided herein, this
----------------------
Agreement shall not limit the authority of a Fund, Company or Distributor to
take such action as it may deem appropriate or advisable in connection with all
matters relating to the operation of a Fund and the sale of its shares.
6.11 Relationship of Parties; No Joint Venture, Etc. It is understood and
-----------------------------------------------
agreed that neither Company nor Distributor shall hold itself out as an agent of
MIP with the authority to bind such party, nor shall MIP hold itself out as an
agent of Company or Distributor with the authority to bind such party.
6.12 Use of Name. Except as otherwise provided herein or required by law
-----------
(e.g., in Company's Registration Statement on Form N-1A), neither Company, the
Funds nor Distributor shall describe or refer to the name of MIP, the Portfolios
or any derivation thereof, or any affiliate thereof, or to the relationship
contemplated by this Agreement in any advertising or promotional materials
without the prior written consent of MIP, nor shall MIP describe or refer to the
name of Company, the Funds or Distributor or any derivation thereof, or any
affiliate thereof, or to the relationship contemplated by this Agreement in any
advertising or promotional materials without the prior written consent of
Company, the Funds or Distributor, as the case may be. In no case shall any
such consents be unreasonably withheld or delayed. In addition, the party
required to give its consent shall have at least three (3) business days prior
to the earlier of filing or first use, as the case may be, to review the
proposed advertising or promotional materials.
14
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their respective officers, thereunto duly authorized, as of the date first
written above.
Vantagepoint Funds on behalf of
itself and the Vantagepoint Core Bond
Index, Vantagepoint Mid/Small
Company Index, Vantagepoint 500
Stock Index and the Vantagepoint Broad
Market Index Funds
By: /s/ Girard Miller
-----------------------------------
Name: Girard Miller
Title: President
ICMA - RC Services, LLC
By: /s/ Girard Miller
-----------------------------------
Name: Girard Miller
Title: President
MASTER INVESTMENT PORTFOLIO,
on behalf of itself and the on behalf of its series,
the Bond Index, Extended Index, S&P 500 Index and
the U.S. Equity Index MASTER PORTFOLIOS
By: /s/ Richard H. Blank, Jr.
-----------------------------------
Name: Richard H. Blank, Jr.
Title: Secretary/Treasurer
15
<PAGE>
THIRD PARTY FEEDER FUND AGREEMENT
---------------------------------
THIS THIRD PARTY FEEDER FUND AGREEMENT (the "Agreement") is made and
entered into as of the 21st day of December, 1998, by and among INTRUST SERIES
TRUST, a Delaware business trust ("Trust"), for itself and on behalf of its
series, the Nestegg 2000, 2010, 2020, 2030 and 2040 Funds (the "Funds"), BISYS
Fund Services ("BISYS"), an Ohio limited partnership, BISYS Fund Services, Inc.
("Transfer Agent"), INTRUST Bank N.A. ("Advisor"), Investors Bank & Trust
Company ("IBT"), and Master Investment Portfolio ("MIP"), a Delaware business
trust, for itself and on behalf of its series, the LifePath 2000, 2010, 2020,
2030 and 2040 Master Portfolios ("Portfolios").
WITNESSETH
----------
WHEREAS, Trust and MIP are each open-end management investment
companies;
WHEREAS, each Fund and corresponding Portfolio have the same
investment objective and substantially the same investment policies;
WHEREAS, each Fund desires to invest on an ongoing basis all of its
investable assets (the "Assets") in the corresponding Portfolio (the
"Investments") on the terms and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the foregoing, the mutual promises
made herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
REPRESENTATIONS AND WARRANTIES
------------------------------
1.1 Trust. Trust represents and warrants to MIP that:
------
(a) Organization. Trust is a trust, duly organized, validly
------------
existing and in good standing under the laws of the State
of Delaware and funds are duly and validly designated
series of Trust. Each of Trust and Funds has the
requisite power and authority to own its property and
conduct its business as proposed to be conducted pursuant
to this Agreement.
(b) Authorization of Agreement. The execution and delivery of
--------------------------
this Agreement by Trust on behalf of Funds and the
conduct of business contemplated hereby, including the
implementation of the Investments, have been duly
authorized by all necessary action on the part of Trust's
Board of Trustees and no other action or proceeding is
necessary for the execution and delivery of this
Agreement by Trust, or the performance by Trust of its
obligations hereunder. This Agreement constitutes a
legal,
1
<PAGE>
valid and binding obligation of Trust, enforceable
against Trust and Funds in accordance with its terms. No
meeting of, or consent by, shareholders of Funds is
necessary to approve or implement the Investments.
(c) 1940 Act Registration. Trust is duly registered as an
----------------------
open-end management investment company under the
Investment Company Act of 1940 (the "1940 Act") and such
registration is in full force and effect.
(d) SEC Filings. Trust has duly filed all forms, reports,
-----------
proxy statements and other documents (collectively, the
"SEC Filings") required to be filed with the Securities
and Exchange Commission (the "SEC") under the Securities
Act of 1933 (the "1933 Act"), the Securities Exchange Act
of 1934 (the "1934 Act") and the 1940 Act and the rules
and regulations thereunder, (collectively, the
"Securities Laws") in connection with the registration of
Funds' shares, any meetings of shareholders and its
registration as an investment company. All SEC Filings
relating to Funds comply in all material respects with
the requirements of the applicable Securities Laws and do
not, as of the date of this Agreement, contain any untrue
statement of a material fact or omit to state any
material fact required to be stated therein or necessary
in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(e) Fund Assets. Each Fund currently intends on an ongoing
-----------
basis to invest substantially all of its Assets solely in
Portfolio.
(f) Registration Statement. Trust has reviewed MIP's
----------------------
registration statement on Form N-1A, as filed with the
SEC, and agrees that each Fund's Investments will be
subject to the terms thereof. Trust understands and
acknowledges that MIP has the right, in its sole
discretion, at any time, to limit or reject additional
Investments from a Fund, provided that MIP shall provide
Trust at least sixty (60) days' advance written notice,
or such lesser time as may be agreed to by the parties,
of any such limit or rejection.
(g) Insurance. Trust has in force reasonable insurance
---------
coverage against any and all liabilities that may arise
as a result of Trust's business as a registered
investment company.
1.2 MIP. MIP represents and warrants to Trust that:
---
(a) Organization. MIP is a trust, duly organized, validly
------------
existing and in good standing under the laws of the State
of Delaware and Portfolios are duly and validly
designated series of MIP. Each of MIP and Portfolios has
the requisite power and authority to own its property and
conduct its business as now being conducted.
2
<PAGE>
(b) Authorization of Agreement. The execution and delivery of
--------------------------
this Agreement by MIP on behalf of Portfolios and the
conduct of business contemplated hereby have been duly
authorized by all necessary action on the part of MIP's
Board of Trustees and no other action or proceeding is
necessary for the execution and delivery of this Agreement
by MIP, or the performance by MIP of its obligations
hereunder. This Agreement constitutes a legal, valid and
binding obligation of MIP and Portfolios, enforceable
against MIP and Portfolios in accordance with its terms. No
meeting of, or consent by, interestholders of Portfolio is
necessary to approve the issuance of the shares of
beneficial interest of Portfolios ("Interests") to Funds.
(c) Authorization of Issuance of Beneficial Interest. The
------------------------------------------------
issuance by Portfolios of Interests in exchange for the
Investments by Funds of Assets has been duly authorized by
all necessary action on the part of the Board of Trustees of
MIP.
(d) 1940 Act Registration. MIP is duly registered as an open-
---------------------
end management investment company under the 1940 Act and
such registration is in full force and effect.
(e) SEC Filings; Securities Exemptions. MIP has duly filed all
-----------
SEC Filings, as defined herein, relating to Portfolios
required to be filed with the SEC pursuant to the 1940 Act.
Interests in Portfolios are not required to be registered
under the 1933 Act, because such Interests are offered
solely in private placement transactions which do not
involve any "public offering" within the meaning of Section
4(2) of the 1933 Act. In addition, Interests in Portfolios
are either noticed for sale or exempt from notice
requirements under applicable securities laws in those
states or jurisdictions in which Interests are offered and
sold. All SEC Filings relating to Portfolios comply in all
material respects with the requirements of the applicable
Securities Laws, as defined herein, and do not, as of the
date of this Agreement, contain any untrue statement of a
material fact or omit to state any material fact required to
be stated therein or necessary in order to make the
statements therein, in light of the circumstances under
which they were made, not misleading.
(f) Tax Status. Based upon applicable IRS interpretations and
----------
rulings, each Portfolio is treated as a partnership for
federal income tax purposes under the Internal Revenue Code
of 1986, as amended (the "Code") for its current taxable
year.
1.3 BISYS. BISYS represents and warrants to MIP that the execution,
-----
delivery and performance of this Agreement by BISYS have been
duly authorized by all
3
<PAGE>
necessary action. This Agreement constitutes a legal, valid and
binding obligation of BISYS, enforceable against BISYS in
accordance with its terms.
1.4 Advisor. Advisor represents and warrants to MIP that the
-------
execution, delivery and performance of this Agreement by Advisor
have been duly authorized by all necessary action. This Agreement
constitutes a legal, valid and binding obligation of Advisor,
enforceable against Advisor in accordance with its terms.
ARTICLE II
COVENANTS
---------
2.1 Trust. Trust covenants that:
-----
(a) Advance Review of Certain Documents. Trust will furnish
-----------------------------------
MIP at least ten (10) business days prior to the earlier
of filing or first use, as the case may be, with drafts of
Trust's registration statement on Form N-1A and any
amendments thereto, and also will give at least five (5)
business days' advance notice of, and will furnish MIP at
least three (3) business days in advance, with copies of
any prospectus or statement of additional information
supplements relating to Funds. In addition, Trust will
furnish, or will cause to be furnished to, MIP at least
five (5) business days prior to the earlier of filing or
first use, as the case may be, with proposed advertising
or sales literature that contains language that describes
or refers to MIP or Portfolio and that was not previously
approved by MIP. Trust agrees that it will include in all
such Fund documents any disclosures that may be required
by law, and that it will incorporate in all such Fund
documents any material reasonable comments made by MIP.
MIP will not, however, in any way be liable for any errors
or omissions in such documents, whether or not it makes
any objection thereto, except to the extent such errors or
omissions result from information provided in MIP's 1940
Act registration statement or otherwise provided by MIP
for inclusion therein. In addition, neither Fund nor BISYS
will make any other written or oral representations about
MIP or Portfolio other than those contained in such
documents without MIP's prior written consent.
(b) SEC and Blue Sky Filings. Trust will file all SEC Filings
------------------------
required to be filed with the SEC under the Securities
Laws in connection with the registration of Funds' shares,
any meetings of shareholders, and the registration of
Funds as series of an investment company. Trust will file
such documents as may be required to be filed with any
securities commission or similar authority by the laws or
regulations of any state, territory or possession of the
United States, including the District of Columbia, in
which shares of Funds are or will be noticed for sale
("State Filings"). Trust's SEC Filings will comply in all
material respects with
4
<PAGE>
the requirements of the applicable Securities Laws, and,
insofar as they relate to information other than that
supplied or required to be supplied by Portfolio, will
not, at the time they are filed or used to offer Fund
shares, contain any untrue statement of a material fact or
omit to state any material fact required to be stated
therein or necessary in order to make the statements
therein, in light of the circumstances under which they
were made, not misleading. Trust's State Filings will be
prepared in accordance with the requirements of applicable
state law and the rules and regulations thereunder.
(c) 1940 Act Registration. Trust will be duly registered as an
---------------------
open-end management investment company under the 1940 Act.
(d) Tax Status. Each Fund will qualify for treatment as a
----------
regulated investment company under Subchapter M of the
Code for any taxable year during which this Agreement
continues in effect, unless such lack of qualification is
solely as a result of the corresponding Portfolio's
failure to meet (i) the income test imposed on regulated
investment companies under Section 851(b)(2) of the Code
and (ii) the asset test imposed on regulated investment
companies under Section 851(b)(3) of the Code as if such
Sections applied to it.
(e) Fiscal Year. Each Fund shall take appropriate action to
-----------
adopt and maintain the same fiscal year end as the
corresponding Portfolio (currently the last day February).
(f) Proxy Voting. If requested to vote on matters pertaining
------------
to MIP or Portfolio, each Fund will either seek
instructions from its shareholders and vote its Interests
in accordance with such instructions or vote its Interests
in the same proportion as the vote of all other holders of
Interests, in accordance with applicable law.
(g) Compliance with Laws. Trust shall comply, in all material
--------------------
respects, with all applicable laws, rules and regulations
in connection with conducting its operations as a
registered investment company.
(h) Insurance. Trust will maintain in full force and effect
---------
for so long as this Agreement is in effect reasonable
insurance coverage against any and all liabilities that
may arise as a result of Trust's business as a registered
investment company.
2.2 MIP. MIP covenants that:
---
(a) Signature Pages. MIP shall promptly provide all required
---------------
signature pages to Trust for inclusion in any SEC Filings
of Trust, provided Trust is in
5
<PAGE>
material compliance with its covenants and other
obligations under this Agreement at the time such
signature pages are provided and included in the SEC
Filing. Trust and BISYS acknowledge and agree that the
provision of such signature pages does not constitute a
representation by MIP, its Trustees or Officers, that such
SEC Filing complies with requirements of the applicable
Securities Laws, or that such SEC Filing does not contain
any untrue statement of a material fact or does not omit
to the state any material fact required to be stated
therein or necessary in order to make the statements
therein, in light of the circumstances under which they
were made, not misleading, except with respect to
information provided by MIP for inclusion in such SEC
Filing or for use by Trust in preparing such filing, which
shall in any event include any written information
obtained from MIP's current registration statement on Form
N-1A.
(b) Redemptions. Except as otherwise provided in this Section
-----------
2.2(b), redemptions of Interests owned by Fund will be
effected pursuant to Section 2.2(c). In the event a Fund
desires to withdraw its entire Investment from the
corresponding Portfolio, either by submitting a redemption
request or by terminating this Agreement in accordance
with Section 5.1 hereof, Portfolio, unless otherwise
agreed to by the parties, and in all cases subject to
Sections 17 and 18 of the 1940 Act and the rules and
regulations thereunder, will effect such redemption "in
kind" and in such a manner that the securities delivered
to Fund or its custodian for the account of Fund mirror,
as closely as practicable, the composition of Portfolio
immediately prior to such redemption. MIP further agrees
that, to the extent legally possible, it will not take or
cause to be taken any action without Trust's prior
approval that would cause the withdrawal of a Fund's
Investments to be treated as a taxable event to the Fund.
MIP further agrees to conduct each Portfolio's activities
in accordance with all applicable requirements of Rule
1.731-2(e) under the Code or any successor regulation.
(c) Ordinary Course Redemptions. Each Portfolio will effect
---------------------------
its redemptions in accordance with the provisions of the
1940 Act and the rules and regulations thereunder,
including, without limitation, Section 17 thereof. All
redemption requests other than a withdrawal of a Fund's
entire Investment in Portfolio under Section 2.2(b) or, at
the sole discretion of MIP, a withdrawal (or series of
withdrawals over any three (3) consecutive business days)
of an amount that exceeds 10% of Portfolio's net asset
value will be effected in cash at the next determined net
asset value after redemption request is received. Each
Portfolio will use its best efforts to settle redemptions
on the business day following the receipt of a redemption
request by Fund and if such next business day settlement
is not practicable, will immediately notify Fund regarding
the anticipated
6
<PAGE>
settlement date, which shall in all events be a date
permitted under the 1940 Act.
(d) SEC Filings. MIP will file all SEC Filings required to be
-----------
filed with the SEC under the Securities Laws in connection
with any meetings of a Portfolio's investors and each
Portfolio's registration as a series of an investment
company and will provide copies of all such definitive
filings to Trust. MIP's SEC Filings will comply in all
material respects with the requirements of the applicable
Securities Laws, and will not, at the time they are filed
or used, contain any untrue statement of a material fact
or omit to state any material fact required to be stated
therein or necessary in order to make the statements
therein, in light of the circumstances under which they
were made, not misleading.
(e) 1940 Act Registration. MIP will remain duly registered as
---------------------
an open-end management investment company under the 1940
Act.
(f) Tax Status. Based upon applicable IRS interpretations and
----------
rulings, each Portfolio will continue to be treated as a
partnership for federal income tax purposes under the
Code. Each Portfolio will continue to satisfy (i) the
income test imposed on regulated investment companies
under Section 851(b)(2) of the Code and (ii) the asset
test imposed on regulated investment companies under
Section 851(b)(3) of the Code as if such Sections applied
to it for so long as this Agreement continues in effect.
MIP agrees to forward to Fund prior to Fund's initial
Investment a copy of its opinion of counsel or private
letter ruling relating to the tax status of each Portfolio
and agrees that Fund may rely upon such opinion or ruling
during the term of this Agreement.
(g) Securities Exemptions. Interests in each Portfolio have
---------------------
been and will continue to be offered and sold solely in
private placement transactions which do not involve any
"public offering" within the meaning of Section 4(2) of
the 1933 Act or require registration or notification under
any state law .
(h) Advance Notice of Certain Changes. MIP shall provide Trust
---------------------------------
with at least one hundred twenty (120) days' advance
notice, or such lesser time as may be agreed to by the
parties, of any change in a Portfolio's investment
objective, and at least sixty (60) days' advance notice,
or if MIP has knowledge that one of the following changes
is likely to occur more than sixty (60) days in advance of
such event, notice shall be provided as soon as reasonably
possible after MIP obtains such knowledge, of any material
change in a Portfolio's investment policies or activities,
any material increase in a Portfolio's fees or expenses,
or any change in a Portfolio's
7
<PAGE>
fiscal year or time for calculating net asset value for
purposes of Rule 22c1.
(i) Compliance with Laws. MIP shall comply, in all material
--------------------
respects, with all applicable laws, rules and regulations
in connection with conducting its operations as a
registered investment company.
2.3 Reasonable Actions. Each party covenants that it will, subject to
------------------
the provisions of this Agreement, from time to time, as and when
requested by another party or in its own discretion, as the case
may be, execute and deliver or cause to be executed and delivered
all such documents, assignments and other instruments, take or
cause to be taken such actions, and do or cause to be done all
things reasonably necessary, proper or advisable in order to
conduct the business contemplated by this Agreement and to carry
out its intent and purpose.
2.4 Advisor. Advisor covenants that:
-------
(a) To the extent that any service provider which has agreed
to indemnify and hold harmless MIP, each Portfolio, and
MIP's trustees, officers and employees, and each other
person who controls MIP or a Portfolio within the meaning
of Section 15 of the 1933 Act (each a "Covered Person" and
collectively "Covered Persons") under Article III
hereunder is replaced by the Trust, the Advisor shall
cause any successor service provider to give a
substantially similar indemnification or the Advisor shall
undertake to provide indemnification on behalf of such
successor service provider.
ARTICLE III
INDEMNIFICATION
---------------
3.1 Indemnification by Trust.
------------------------
(a) Indemnification. Trust will indemnify and hold harmless
---------------
MIP, each Portfolio and MIP's trustees, officers and
employees, and each other person who controls MIP or a
Portfolio within the meaning of Section 15 of the 1933 Act
(each a "Covered Person" and collectively "Covered
Persons"), against any and all losses, claims, demands,
damages, liabilities and expenses (each a "Liability" and
collectively the "Liabilities") (including, unless Trust
elects to assume the defense pursuant to paragraph (b),
the reasonable cost of investigating and defending against
any claims therefor, including counsel fees incurred in
connection therewith), which:
(1) arise out of or are based upon any Securities Laws,
any other statute or common law or are incurred in
connection with or as a result of any formal or
informal administrative proceeding or
8
<PAGE>
investigation by a regulatory agency, insofar as such
Liabilities arise out of or are based upon the ground
or alleged ground that any direct or indirect
omission or commission by Trust (either during the
course of its daily activities or in connection with
the accuracy of its representations or its warranties
in this Agreement) caused or continues to cause a
violation of any federal or state securities laws or
regulations or any other applicable domestic or
foreign law or regulations or common law duties or
obligations, but only to the extent that such
Liabilities do not arise out of and are not based
upon an omission or commission of a Portfolio or MIP;
(2) arise out of Trust having caused a Portfolio to be an
association taxable as a corporation rather than as a
partnership;
(3) arise out of any misstatement of a material fact or
an omission of a material fact in Trust's
registration statement (including amendments and
supplements thereto) or in advertisements or sales
literature prepared by or on behalf of Trust, other
than a misstatement or omission arising from
information provided by a Portfolio or MIP;
(4) result from the failure of any representation or
warranty made by Trust to be accurate when made or
the failure of such party to perform any covenant
contained herein or otherwise to comply with the
terms of this Agreement; or
(5) arise out of any unlawful or negligent act or
omission by Trust or any trustee, director, officer,
employee or agent of Trust;
provided, however, that in no case shall Trust be liable
with respect to any claim made against any Covered Person
unless the Covered Person shall have notified Trust in
writing of the nature of the claim within a reasonable
time after the summons, other first legal process or
formal or informal initiation of a regulatory
investigation or proceeding shall have been served upon or
provided to a Covered Person, or any federal, state or
local tax deficiency has come to the attention of Trust,
Portfolio or a Covered Person. Failure to notify Trust of
such claim shall not relieve it from any liability that it
may have to any Covered Person otherwise than on account
of the indemnification contained in this Section.
(b) Assumption of Defense. Trust is entitled to participate at
---------------------
its own expense in the defense or, if it so elects, to
assume the defense of any suit brought to enforce any such
liability, but if Trust elects to assume the defense, such
defense shall be conducted by legal counsel acceptable to
the applicable
9
<PAGE>
Covered Persons, which acceptance shall not be
unreasonably withheld or delayed. In the event Trust
elects to assume the defense of any such suit and retain
such counsel, each Covered Person and any other defendant
or defendants may retain additional counsel, but shall
bear the fees and expenses of such counsel unless (1)
Trust shall have specifically authorized the retaining of
such counsel or (2) the parties to such suit include any
Covered Person and Trust, and any such Covered Person has
been advised by counsel that one or more legal defenses
may be available to it that may not be available to Trust,
in which case Trust shall not be entitled to assume the
defense of such suit notwithstanding its obligation to
bear the fees and expenses of such counsel. Trust shall
not be liable to indemnify any Covered Person for any
settlement of any claim effected without Trust's written
consent, which consent shall not be unreasonably withheld
or delayed. The indemnities set forth in paragraph (a)
will be in addition to any liability that Trust in respect
of a Fund might otherwise have to a Covered Person.
3.2 Indemnification by Advisor.
--------------------------
(a) Indemnification. Advisor will indemnify and hold harmless
---------------
MIP, each Portfolio, and MIP's trustees, officers and
employees, and each other person who controls MIP or a
Portfolio within the meaning of Section 15 of the 1933 Act
(each a "Covered Person" and collectively "Covered
Persons"), against any and all losses, claims, demands,
damages, liabilities and expenses (each a "Liability" and
collectively the "Liabilities") (including, unless Advisor
elects to assume the defense pursuant to paragraph (b),
the reasonable cost of investigating and defending against
any claims therefor, including counsel fees incurred in
connection therewith), which:
(1) arise out of any misstatement of a material fact or
an omission of a material fact provided by Advisor in
Trust's registration statement (including amendments
and supplements thereto) or in advertisements or
sales literature prepared by Advisor on behalf of
Trust, other than a misstatement or omission arising
from information provided by MIP or a Portfolio;
(2) result from the failure of any representation or
warranty made by Advisor to be accurate when made or
the failure of such parties to perform any covenant
contained herein or otherwise to comply with the
terms of this Agreement; or
(3) arise out of any unlawful or negligent act or
omission by Advisor or any director, officer,
employee or agent of Advisor;
10
<PAGE>
provided, however, that in no case shall Advisor be liable with
respect to any claim made against any Covered Person unless the
Covered Person shall have notified Advisor in writing of the
nature of the claim within a reasonable time after the summons,
other first legal process or formal or informal initiation of a
regulatory investigation or proceeding shall have been served
upon or provided to a Covered Person, or any federal, state or
local tax deficiency has come to the attention of MIP, a
Portfolio or a Covered Person. Failure to notify Advisor of such
claim shall not relieve it from any liability that it may have to
any Covered Person otherwise than on account of the
indemnification contained in this Section.
(b) Assumption of Defense. Advisor is entitled to participate at its
---------------------
own expense in the defense or, if it so elects, to assume the
defense of any suit brought to enforce any such liability, but if
Advisor elects to assume the defense, such defense shall be
conducted by legal counsel acceptable to the applicable Covered
Persons, which acceptance shall not be unreasonably withheld or
delayed. In the event Advisor elects to assume the defense of any
such suit and retain such counsel, each Covered Person and any
other defendant or defendants may retain additional counsel, but
shall bear the fees and expenses of such counsel unless
(1)Advisor shall have specifically authorized the retaining of
such counsel or (2) the parties to such suit include any Covered
Person and Advisor, and any such Covered Person has been advised
by counsel that one or more legal defenses may be available to it
that may not be available to Advisor, in which case Advisor shall
not be entitled to assume the defense of such suit
notwithstanding its obligation to bear the fees and expenses of
such counsel. Advisor shall not be liable to indemnify any
Covered Person for any settlement of any claim affected without
Advisor's written consent, which consent shall not be
unreasonably withheld or delayed. The indemnities set forth in
paragraph (a) will be in addition to any liability that Trust in
respect of a Fund might otherwise have to a Covered Person.
3.3 Indemnification by BISYS.
------------------------
(a) Indemnification. BISYS will indemnify and hold harmless MIP,
---------------
each Portfolio, and MIP's trustees, officers and employees, and
each other person who controls MIP or a Portfolio within the
meaning of Section 15 of the 1933 Act (each a "Covered Person"
and collectively "Covered Persons"), against any and all losses,
claims, demands, damages, liabilities and expenses (each a
"Liability" and collectively the "Liabilities") (including,
unless BISYS elects to assume the defense pursuant to paragraph
(b), the reasonable cost of investigating and defending against
11
<PAGE>
any claims therefor, including counsel fees incurred in
connection therewith), which:
(1) arise out of any misstatement of a material fact or an
omission of a material fact provided by BISYS in Trust's
registration statement (including amendments and supplements
thereto) or in advertisements or sales literature prepared
by BISYS on behalf of Trust, other than a misstatement or
omission arising from information provided by MIP or a
Portfolio;
(2) result from the failure of any representation or warranty
made by BISYS to be accurate when made or the failure of
such parties to perform any covenant contained herein or
otherwise to comply with the terms of this Agreement; or
(3) arise out of any unlawful or negligent act or omission by
BISYS or any director, officer, employee or agent of BISYS;
provided, however, that in no case shall BISYS be liable with
respect to any claim made against any Covered Person unless the
Covered Person shall have notified BISYS in writing of the nature
of the claim within a reasonable time after the summons, other
first legal process or formal or informal initiation of a
regulatory investigation or proceeding shall have been served
upon or provided to a Covered Person, or any federal, state or
local tax deficiency has come to the attention of MIP, a
Portfolio or a Covered Person. Failure to notify BISYS of such
claim shall not relieve it from any liability that it may have to
any Covered Person otherwise than on account of the
indemnification contained in this Section.
(b) Assumption of Defense. BISYS is entitled to participate at its
---------------------
own expense in the defense or, if it so elects, to assume the
defense of any suit brought to enforce any such liability, but if
BISYS elects to assume the defense, such defense shall be
conducted by legal counsel acceptable to the applicable Covered
Persons, which acceptance shall not be unreasonably withheld or
delayed. In the event BISYS elects to assume the defense of any
such suit and retain such counsel, each Covered Person and any
other defendant or defendants may retain additional counsel, but
shall bear the fees and expenses of such counsel unless (1) BISYS
shall have specifically authorized the retaining of such counsel
or (2) the parties to such suit include any Covered Person and
BISYS, and any such Covered Person has been advised by counsel
that one or more legal defenses may be available to it that may
not be available to BISYS, in which case BISYS shall not be
entitled to assume the defense of such suit notwithstanding its
obligation to bear the fees and expenses of such counsel. BISYS
shall not be liable to indemnify any Covered Person for
12
<PAGE>
any settlement of any claim affected without BISYS's written
consent, which consent shall not be unreasonably withheld or
delayed. The indemnities set forth in paragraph (a) will be in
addition to any liability that Trust in respect of a Fund might
otherwise have to a Covered Person.
3.4 Indemnification by Transfer Agent.
---------------------------------
(a) Indemnification. Transfer Agent will indemnify and hold harmless
---------------
MIP, each Portfolio, and MIP's trustees, officers and employees,
and each other person who controls MIP or a Portfolio within the
meaning of Section 15 of the 1933 Act (each a "Covered Person"
and collectively "Covered Persons"), against any and all losses,
claims, demands, damages, liabilities and expenses (each a
"Liability" and collectively the "Liabilities") (including,
unless Transfer Agent elects to assume the defense pursuant to
paragraph (b), the reasonable cost of investigating and defending
against any claims therefor, including counsel fees incurred in
connection therewith), which:
(1) arise out of any misstatement of a material fact or an
omission of a material fact provided by Transfer Agent in
Trust's registration statement (including amendments and
supplements thereto) or in advertisements or sales
literature prepared by Transfer Agent on behalf of Trust,
other than a misstatement or omission arising from
information provided by MIP or a Portfolio;
(2) result from the failure of any representation or warranty
made by Transfer Agent to be accurate when made or the
failure of such parties to perform any covenant contained
herein or otherwise to comply with the terms of this
Agreement; or
(3) arise out of any unlawful or negligent act or omission by
Transfer Agent or any director, officer, employee or agent
of Transfer Agent;
provided, however, that in no case shall Transfer Agent be liable
with respect to any claim made against any Covered Person unless
the Covered Person shall have notified Transfer Agent in writing
of the nature of the claim within a reasonable time after the
summons, other first legal process or formal or informal
initiation of a regulatory investigation or proceeding shall have
been served upon or provided to a Covered Person, or any federal,
state or local tax deficiency has come to the attention of MIP, a
Portfolio or a Covered Person. Failure to notify Transfer Agent
of such claim shall not relieve it from any liability that it may
have to any Covered
13
<PAGE>
Person otherwise than on account of the indemnification contained
in this Section.
(b) Assumption of Defense. Transfer Agent is entitled to participate
---------------------
at its own expense in the defense or, if it so elects, to assume
the defense of any suit brought to enforce any such liability,
but if Transfer Agent elects to assume the defense, such defense
shall be conducted by legal counsel acceptable to the applicable
Covered Persons, which acceptance shall not be unreasonably
withheld or delayed. In the event Transfer Agent elects to assume
the defense of any such suit and retain such counsel, each
Covered Person and any other defendant or defendants may retain
additional counsel, but shall bear the fees and expenses of such
counsel unless (1) Transfer Agent shall have specifically
authorized the retaining of such counsel or (2) the parties to
such suit include any Covered Person and Transfer Agent, and any
such Covered Person has been advised by counsel that one or more
legal defenses may be available to it that may not be available
to Transfer Agent, in which case Transfer Agent shall not be
entitled to assume the defense of such suit notwithstanding its
obligation to bear the fees and expenses of such counsel.
Transfer Agent shall not be liable to indemnify any Covered
Person for any settlement of any claim affected without Transfer
Agent's written consent, which consent shall not be unreasonably
withheld or delayed. The indemnities set forth in paragraph (a)
will be in addition to any liability that Trust in respect of a
Fund might otherwise have to a Covered Person.
3.5 Indemnification by IBT.
----------------------
(a) Indemnification. IBT will indemnify and hold harmless MIP, each
---------------
Portfolio, and MIP's trustees, officers and employees, and each
other person who controls MIP or a Portfolio within the meaning
of Section 15 of the 1933 Act (each a "Covered Person" and
collectively "Covered Persons"), against any and all losses,
claims, demands, damages, liabilities and expenses (each a
"Liability" and collectively the "Liabilities") (including,
unless IBT elects to assume the defense pursuant to paragraph
(b), the reasonable cost of investigating and defending against
any claims therefor, including counsel fees incurred in
connection therewith), which arise out of the willful
misfeasance, bad faith or negligence of IBT in the performance of
its duties under the fund accounting agreement between IBT and
Trust; provided, however, that in no case shall IBT be liable
with respect to any claim made against any Covered Person unless
the Covered Person shall have notified IBT in writing of the
nature of the claim within a reasonable time after the summons,
other first legal process or formal or informal initiation of a
regulatory investigation or proceeding shall have been served
upon or provided to a Covered Person, or any federal, state or
14
<PAGE>
local tax deficiency has come to the attention of MIP, a
Portfolio or a Covered Person. Failure to notify IBT of such
claim shall not relieve it from any liability that it may have to
any Covered Person otherwise than on account of the
indemnification contained in this Section.
(b) Assumption of Defense. IBT is entitled to participate at its own
---------------------
expense in the defense or, if it so elects, to assume the defense
of any suit brought to enforce any such liability, but if IBT
elects to assume the defense, such defense shall be conducted by
legal counsel acceptable to the applicable Covered Persons, which
acceptance shall not be unreasonably withheld or delayed. In the
event IBT elects to assume the defense of any such suit and
retain such counsel, each Covered Person and any other defendant
or defendants may retain additional counsel, but shall bear the
fees and expenses of such counsel unless (1)IBT shall have
specifically authorized the retaining of such counsel or (2) the
parties to such suit include any Covered Person and IBT, and any
such Covered Person has been advised by counsel that one or more
legal defenses may be available to it that may not be available
to IBT, in which case IBT shall not be entitled to assume the
defense of such suit notwithstanding its obligation to bear the
fees and expenses of such counsel. IBT shall not be liable to
indemnify any Covered Person for any settlement of any claim
affected without IBT's written consent, which consent shall not
be unreasonably withheld or delayed. The indemnities set forth in
paragraph (a) will be in addition to any liability that Trust in
respect of a Fund might otherwise have to a Covered Person.
3.6 Indemnification by MIP.
----------------------
(a) Indemnification. MIP will indemnify and hold harmless Trust, each
---------------
Fund, Advisor, BISYS, Transfer Agent, and IBT and their
respective trustees, directors, officers and employees, and each
other person who controls Trust, a Fund, Advisor, BISYS, Transfer
Agent or IBT as the case may be, within the meaning of Section 15
of the 1933 Act (each a "Covered Person" and collectively,
"Covered Persons"), against any and all losses, claims, demands,
damages, liabilities and expenses (each a "Liability" and
collectively the "Liabilities") (including, unless MIP elects to
assume the defense pursuant to paragraph (b), the reasonable
costs of investigating and defending against any claims therefor,
including counsel fees incurred in connection therewith, whether
incurred directly by MIP, a Fund, Advisor, BISYS, Transfer Agent
or IBT or indirectly by MIP, a Fund, Advisor, BISYS, Transfer
Agent, or IBT through Fund's Investment in the Portfolio), which:
(1) arise out of or are based upon any Securities Laws, any
other statute or common law or are incurred in connection
with or as a
15
<PAGE>
result of any formal or informal administrative proceeding
or investigation by a regulatory agency, insofar as such
Liabilities arise out of or are based upon the ground or
alleged ground that any direct or indirect omission or
commission by MIP (either during the course of its daily
activities or in connection with the accuracy of its
representations or its warranties in this Agreement) caused
or continues to cause a violation of any federal or state
securities laws or regulations or any other applicable
domestic or foreign law or regulations or common law duties
or obligations, but only to the extent that such Liabilities
do not arise out of and are not based upon an omission or
commission of Trust, a Fund, Advisor, BISYS, Transfer Agent
or IBT;
(2) arise out of having caused a Fund to fail to qualify as a
regulated investment company under the Code;
(3) arise out of any misstatement of a material fact or an
omission of a material fact in MIP's registration statement
(including amendments and supplements thereto) or included
at the request of MIP in advertising or sales literature
used by the Fund, other than a misstatement of a material
fact or an omission arising from information provided by
Trust, a Fund, Advisor, BISYS, Transfer Agent or IBT;
(4) result from the failure of any representation or warranty
made by MIP to be accurate when made or the failure of such
party to perform any covenant contained herein or otherwise
to comply with the terms of this Agreement; or
(5) arise out of any unlawful or negligent act or omission by
MIP, or any trustee, officer, employee or agent of MIP;
provided, however, that in no case shall MIP be liable with
respect to any claim made against any such Covered Person unless
such Covered Person shall have notified MIP in writing of the
nature of the claim within a reasonable time after the summons,
other first legal process or formal or informal initiation of a
regulatory investigation or proceeding shall have been served
upon or provided to a Covered Person or any federal, state, or
local tax deficiency has come to the attention of Trust, Advisor,
BISYS, Transfer Agent, IBT or a Covered Person. Failure to notify
MIP of such claim shall not relieve it from any liability that it
may have to any Covered Person otherwise than on account of the
indemnification contained in this Section.
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(b) Assumption of Defense. MIP is entitled to participate at its own
----------------------
expense in the defense or, if it so elects, to assume the defense
of any suit brought to enforce any such liability, but, if MIP
elects to assume the defense, such defense shall be conducted by
legal counsel acceptable to the applicable Covered Persons, which
acceptance shall not be unreasonably withheld or delayed. In the
event MIP elects to assume the defense of any such suit and
retain such counsel, each Covered Person and any other defendant
or defendants in the suit may retain additional counsel but shall
bear the fees and expenses of such counsel unless (1) MIP shall
have specifically authorized the retaining of such counsel or (2)
the parties to such suit include any Covered Person or Trust,
Advisor BISYS, Transfer Agent or IBT and any such Covered Person
has been advised by counsel that one or more legal defenses may
be available to it that may not be available to Trust, Advisor,
BISYS, Transfer Agent or IBT, in which case MIP shall not be
entitled to assume the defense of such suit notwithstanding the
obligation to bear the fees and expenses of such counsel. MIP
shall not be liable to indemnify any Covered Person for any
settlement of any such claim effected without Trust's, BISYS's,
Transfer Agent's, Advisor's or IBT's written consent, which
consent shall not be unreasonably withheld or delayed. The
indemnities set forth in paragraph (a) will be in addition to any
liability that MIP might otherwise have to a Covered Person.
ARTICLE IV
ADDITIONAL AGREEMENTS
---------------------
4.1 Access to Information. Throughout the life of this Agreement, Trust and
---------------------
MIP shall afford each other reasonable access at all reasonable times to
such party's officers, employees, agents and offices and to all relevant
books and records and shall furnish each other party with all relevant
financial and other data and information as such other party may
reasonably request.
4.2 Confidentiality. Each party agrees that it shall hold in strict
---------------
confidence all data and information obtained from another party (unless
such information is or becomes readily ascertainable from public or
published information or trade sources or public disclosure of such
information is required by law) and shall ensure that its officers,
employees and authorized representatives do not disclose such information
to others without the prior written consent of the party from whom it was
obtained, except if disclosure is required by the SEC, any other
regulatory body, Trust's or MIP's respective auditors, or in the opinion
of counsel to the disclosing party such disclosure is required by law, and
then only with as much prior written notice to the other parties as is
practical under the circumstances. Each party hereto acknowledges that the
provisions of this Section 4.2 shall not prevent Trust or MIP from filing
a copy of this Agreement as an exhibit to a registration statement on Form
N-1A as it relates to a Fund or
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Portfolio, respectively, and that such disclosure by Trust or MIP shall
not require any additional consent from the other parties.
4.3 Obligations of Trust and MIP. MIP agrees that the obligations of Trust
----------------------------
under this Agreement shall be limited in all cases to the assets of each
affected Fund, and that, except to the extent liability may be imposed
under relevant Securities Laws, MIP shall not seek satisfaction of any
such obligation from the officers, agents, employees, trustees or
shareholders of Trust or other classes of series of Trust. Trust agrees
that the obligations of MIP under this Agreement shall be limited in all
cases to the assets of each affected Portfolio, and that, except to the
extent liability may be imposed under relevant Securities Laws, Trust
shall not seek satisfaction of any such obligation from officers, agents,
employees, trustees or interestholders of MIP or other classes or series
of MIP.
ARTICLE V
TERMINATION, AMENDMENT
----------------------
5.1 Termination. The provisions of Article III and Sections 4.2 and 4.3 shall
-----------
survive any termination of this Agreement.
5.2 Amendment. This Agreement may be amended, modified or supplemented at any
---------
time in such manner as may be mutually agreed upon in writing by the
parties.
ARTICLE VI
GENERAL PROVISIONS
------------------
6.1 Expenses. All costs and expenses incurred in connection with this
--------
Agreement and the conduct of business contemplated hereby shall be paid by
the party incurring such costs and expenses.
6.2 Headings. The headings and captions contained in this Agreement are for
--------
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
6.3 Entire Agreement. Except as set forth below, this Agreement sets forth the
----------------
entire understanding between the parties concerning the subject matter of
this Agreement and incorporates or supersedes all prior negotiations and
understandings. There are no covenants, promises, agreements, conditions
or understandings, either oral or written, between the parties relating to
the subject matter of this Agreement other than those set forth herein and
the terms, conditions and descriptions set forth in MIP's Registration
Statement, as in effect from time to time.
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6.4 Successors. Each and all of the provisions of this Agreement shall be
----------
binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided, however, that neither this
-------- -------
Agreement, nor any rights herein granted may be assigned to, transferred
to or encumbered by any party, without the prior written consent of the
other parties hereto.
6.5 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of California; provided, however,
-------- -------
that in the event of any conflict between the 1940 Act and the laws of
California, the 1940 Act shall govern.
6.6 Counterparts. This Agreement may be executed in any number of
------------
counterparts, all of which shall constitute one and the same instrument,
and any party hereto may execute this Agreement by signing one or more
counterparts.
6.7 Third Parties. Nothing herein expressed or implied is intended or shall be
-------------
construed to confer upon or give any person, other than the parties hereto
and their successors or assigns, any rights or remedies under or by reason
of this Agreement.
6.8 Notices. All notices and other communications given or made pursuant
-------
hereto shall be in writing and shall be deemed to have been duly given or
made when delivered in person or three days after being sent by certified
or registered United States mail, return receipt requested, postage
prepaid, addressed:
If to Trust:
c/o BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
Attention: Robert Tuch
If to Advisor:
INTRUST Bank N.A.
105 North Main Street
Suite 500
Wichita Kansas 67201
Attention: Paul Worth
If to BISYS:
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
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<PAGE>
Attention: Robert Tuch
If to Transfer Agent:
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
Attention: Robert Tuch
If to IBT:
Investors Bank and Trust Company
200 Clarendon Street
PO Box 9130
Boston, MA 02117-9130
Attention Director Client Management
With a copy to John E. Henry, general Counsel
If to MIP:
Chief Operating Officer
Master Investment Portfolio
c/o Stephens Inc.
111 Center Street
Little Rock, AR 72201
6.9 Interpretation. Any uncertainty or ambiguity existing herein shall not be
--------------
interpreted against any party, but shall be interpreted according to the
rules of interpretation applicable to arms' length agreements.
6.10 Operation of Fund. Except as otherwise provided herein, this Agreement
-----------------
shall not limit the authority of each Fund, Trust or BISYS to take such
action as it may deem appropriate or advisable in connection with all
matters relating to the operation of each Fund and the sale of its shares.
6.11 Relationship of Parties; No Joint Venture, Etc. It is understood and
----------------------------------------------
agreed that neither Trust, Advisor nor BISYS shall hold itself out as an
agent of MIP with the authority to bind such party, nor shall MIP hold
itself out as an agent of Trust, Advisor or BISYS with the authority to
bind such party.
6.12 Use of Name. Except as otherwise provided herein or required by law (e.g.,
-----------
in Trust's Registration Statement on Form N-1A), neither Trust, a Fund nor
BISYS shall describe or refer to the name of MIP, Portfolio or any
derivation thereof, or any affiliate thereof, or to the relationship
contemplated by this Agreement in any advertising or promotional materials
without the prior written consent of MIP, nor shall MIP describe or refer
to the name of Trust, a Fund or BISYS or any
20
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derivation thereof, or any affiliate thereof, or to the relationship
contemplated by this Agreement in any advertising or promotional materials
without the prior written consent of Trust or BISYS, as the case may be.
In no case shall any such consents be unreasonably withheld or delayed. In
addition, the party required to give its consent shall have at least three
(3) business days prior to the earlier of filing or first use, as the case
may be, to review the proposed advertising or promotional materials.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their respective officers, thereunto duly authorized, as of the date first
written above.
INTRUST SERIES TRUST,
On behalf of itself and the Nestegg 2000, 2010,
2020, 2030 and 2040 Funds
By: /s/ David Bunstine
------------------------------------------
Name: David Bunstine
Title: President
BISYS Fund Services Limited Partnershio
By: /s/ J. David Huber
------------------------------------------
Name: J. David Huber
Title: President
BISYS Fund Services, Inc. ("Transfer Agent"),
By: /s/ J. David Huber
------------------------------------------
Name: J. David Huber
Title: President
INTRUST Bank N.A.
By: /s/ Phillip J. Owings
------------------------------------------
Name: Phillip J. Owings
Title: Executive Vice President
21
<PAGE>
Investors Bank & Trust Company ("IBT"),
By: /s/ Robert D. Mancuso
------------------------------------------
Name: Robert D. Mancuso
Title: Senior Vice President
MASTER INVESTMENT PORTFOLIO,
On behalf of itself and the LifePath 2000, 2010, 2020,
2030 and 2040 Master Portfolios
By: /s/ Richard H. Blank, Jr.
------------------------------------------
Name: Richard H. Blank, Jr.
Title: Chief Operating Officer
22
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EXHIBIT 99.B10
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Barclays Global Investors Funds, Inc.
(formerly MasterWorks Funds Inc.)
The Board of Trustees
Master Investment Portfolio
We consent to the use of our report dated April 2, 1999 for MasterWorks Funds
Inc. (comprising respectively, Asset Allocation Fund, Bond Index Fund, LifePath
2000 Fund, LifePath 2010 Fund, LifePath 2020 Fund, LifePath 2030 Fund, LifePath
2040 Fund, Money Market Fund, S&P 500 Stock Fund, and U.S. Treasury Allocation
Fund) incorporated by reference herein.
We also consent to the use of our report dated April 2, 1999 for Master
Investment Portfolio (comprising respectively, Asset Allocation Master
Portfolio, Bond Index Master Portfolio, LifePath 2000 Master Portfolio, LifePath
2010 Master Portfolio, LifePath 2020 Master Portfolio, LifePath 2030 Master
Portfolio, LifePath 2040 Master Portfolio, Money Market Master Portfolio, S&P
500 Index Master Portfolio, and U.S. Treasury Allocation Master Portfolio)
incorporated by reference herein.
We also consent to the reference to our firm under the heading "Financial
Highlights" in the prospectuses and "Independent Auditors" in the Statements of
Additional Information.
San Francisco, California
June 29, 1999