As filed with the Securities and Exchange Commission
on June 30, 2000
Registration No. 811-8162
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM N-1A
AMENDMENT NO. 12 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
<PAGE>
EXPLANATORY NOTE
This Amendment relates to the Asset Allocation, Bond Index,
Extended Index, International Index, LifePath Income (formerly LifePath 2000),
LifePath 2010, LifePath 2020, LifePath 2030, LifePath 2040, Money Market, S&P
500 Index and U.S. Equity Index Master Portfolios (the "Master Portfolios") of
Master Investment Portfolio. This amendment includes the annual update of all
audited financial information pertaining to each Master Portfolio. 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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<TABLE>
<CAPTION>
Master Investment Portfolio
Cross Reference Sheet
Form N-1A Item Number
Part A Caption
<S> <C>
4 Investment Objectives, Principal Investment Strategies and Related Risks
6 Management, Organization and Capital Structure
7 Interestholder Information
8 Distribution Arrangements
9 Financial Highlights
Part B Caption
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 Calculation 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.
</TABLE>
<PAGE>
MASTER INVESTMENT PORTFOLIO
ASSET ALLOCATION MASTER PORTFOLIO
PART A
July 1, 2000
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. This is Part A for the Asset Allocation Master
Portfolio (the "Master Portfolio"), a diversified portfolio of MIP. 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 or other
entities that hold beneficial interests in the Master Portfolios are sometimes
referred to herein as "feeder funds."
INVESTMENT OBJECTIVE
o 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 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 interests. The investment objective and policies
of the Master Portfolio determines the types of portfolio securities in which
the Master Portfolio 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 investment objective of the Master
Portfolio will be achieved.
INVESTMENT POLICIES
The Asset Allocation Master Portfolio follows an asset allocation strategy.
For the 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:
o COMMON STOCKS. The Master Portfolio will invest in the common stocks which
compose the Standard & Poor's 500 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 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.
/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.
o U.S. TREASURY BONDS. The 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.
o MONEY MARKET INSTRUMENTS. The Master Portfolio will invest in money market
instruments.
RISK CONSIDERATIONS
General -- The net asset value per interest of the Master Portfolio 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.
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 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 Portfolio may invest in the securities of
foreign issuers. Investing in the securities of issuers in any foreign country,
including American Depositary Receipts ("ADRs") and European Depositary 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 Portfolio may shift
investment allocations significantly from time to time, its 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 the 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 sold, at the
same time, by the 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 the
Master Portfolio or the price paid or received by the Master Portfolio.
The Master Portfolio may enter into futures transactions. A futures
contract is an agreement between two parties, a buyer and a seller, to exchange
a particular commodity at a specific price on a specified date in the future.
The futures contracts and options on futures contracts that the Master Portfolio
may purchase may be considered derivatives. Certain of the floating- and
variable-rate instruments that the 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. The 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. The Master Portfolio may not use derivatives
to create leverage without establishing adequate "cover" in compliance with SEC
leverage rules.
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 over approximately $783
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.
BGFA is entitled to receive monthly fees at the annual rate of 0.35% 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.
ITEM 7. INTERESTHOLDER INFORMATION.
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 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.
Investments in the Master Portfolio are valued based on an interestholder's
proportionate ownership interest in the Master Portfolio's aggregate net assets
as next determined after an order is received in proper form. The aggregate net
asset value of the Master Portfolio ("NAV") (i.e., the value of its assets less
liabilities) is determined as of 4:00 p.m. (Eastern time) ("Valuation Time") on
each day the New York Stock Exchange is open for business (a "Business Day").
The Master Portfolio's investments are valued each Business Day, typically 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.
An investor in the Master Portfolio may add to or reduce its investment in
a Master Portfolio on any Business Day. At the Valuation Time on each Business
Day, the value of each interestholder's beneficial interest in the Master
Portfolio is determined by multiplying the Master Portfolio's NAV by the
percentage, effective for that day, that represents that investor's share of the
aggregate beneficial interests in the Master Portfolio. Any additions to or
withdrawals of those interests, which are to be effected on that day, will then
be effected. Each investor's share of the aggregate beneficial interests in the
Master Portfolio will then be recomputed using the percentage equal to the
fraction (i) the numerator of which is the value of the investor's investment in
the Master Portfolio on that day plus or minus, as the case may be, the amounts
of net additions or withdrawals from such investment effected on that day and
(ii) the denominator of which is the Master Portfolio's aggregate NAV as of the
Valuation Time on that day plus or minus, as the case may be, the amount of the
net additions to or withdrawals from the aggregate investments in the Master
Portfolio by all investors. The percentages so determined will then be applied
to determine the value of each investor's respective interest in the Master
Portfolio as of the Valuation Time on the following Business Day.
REDEMPTION OR REPURCHASE
An investor in the Master Portfolio may withdraw all or any portion of its
interest on any Business Day at the NAV next determined after a withdrawal
request is received in proper form. The Master Portfolio will make payment for
all interests redeemed within three days after receipt of a redemption request
in proper form, except as provided by the rules of the SEC. 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.
The Master Portfolio reserves the right to pay redemption securities
proceeds in portfolio securities rather than cash. These "in kind" redemptions
normally occur if the amount to be redeemed is large enough to affect the Master
Portfolio's operations (e.g., if it represents more than 1% of the Master
Portfolio's assets).
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 4:00 p.m.
(Eastern time) on any Business Day. Net investment income for a Saturday, Sunday
or Holiday will be declared as a dividend to investors of record as of 4:00 p.m.
(Eastern time) on the previous business day with respect to the Master
Portfolio. All 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 has operated, and will continue to
be operated, in a manner so as to qualify it as a partnership for federal income
tax purposes. Provided that the Master Portfolio so qualifies, it will not be
subject to any federal income tax on its income and gain (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 partnership for federal income tax purposes, the Master
Portfolio will be deemed to have "passed through" to interestholders any
interest, dividends, gains or losses for such purposes. 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 an entity electing and qualifying as a
"regulated investment company" under the Code can continue to so qualify by
investing substantially all of its assets through the Master Portfolio, provided
that the regulated investment company meets other requirements for such
qualification not within the control of the Master Portfolio (e.g., distributing
at least 90% of the regulated investment company's "investment company taxable
income" annually).
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 is
unable to meet its obligations.
The Board of Trustees has authorized MIP to issue multiple series. 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 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 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 that
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.
<PAGE>
MASTER INVESTMENT PORTFOLIO
INDEX MASTER PORTFOLIOS
S&P 500 INDEX MASTER PORTFOLIO
BOND INDEX MASTER PORTFOLIO
PART A
July 1, 2000
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. This is Part A for the S&P 500 Index and Bond
Index Master Portfolios (each, a "Master Portfolio" and collectively, the
"Master Portfolios"). Each Master Portfolio is a diversified portfolio of MIP.
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 beneficial interests of a Master Portfolio may be referred to herein
as "feeder funds."
INVESTMENT OBJECTIVES
o 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.
o 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 interests. 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 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.
/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.
INVESTMENT POLICIES
o 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.
o 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 6,500 fixed-income securities, including U.S.
Government securities and investment grade corporate bonds, each with an
issue size of at least $150 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 interestholder purchases and
redemptions. Each Master Portfolio uses cash flows from interestholder 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 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.
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. 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.
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 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.
Futures Transactions -- 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 the Master
Portfolios 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 Master
Portfolios 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
Master Portfolios may not use derivatives to create leverage without
establishing adequate "cover" in compliance with SEC leverage rules.
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, 1999, BGFA and
its affiliates provided investment advisory services for approximately $783
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.
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 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.
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.
ITEM 7. INTERESTHOLDER INFORMATION.
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.
Investments in a Master Portfolio are valued based on an interestholder's
proportionate ownership interest in the Master Portfolio's aggregate net assets
as next determined after an order is received in proper form. The aggregate net
asset value of each Master Portfolio ("NAV") (i.e., the value of its assets less
liabilities) is determined as of 4:00 p.m. (Eastern time) ("Valuation Time") on
each day the New York Stock Exchange is open for business (a "Business Day").
The Master Portfolio's investments are valued each Business Day, typically 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.
An investor in a Master Portfolio may add to or reduce its investment in
the Master Portfolio on any Business Day. At the Valuation Time on each Business
Day, the value of each interestholder's beneficial interest in a Master
Portfolio is determined by multiplying the Master Portfolio's NAV by the
percentage, effective for that day, that represents that investor's share of the
aggregate beneficial interests in the Master Portfolio. Any additions to or
withdrawals of those interests, which are to be effected on that day, will then
be effected. Each investor's share of the aggregate beneficial interests in the
Master Portfolio will then be recomputed using the percentage equal to the
fraction (i) the numerator of which is the value of the investor's investment in
the Master Portfolio on that day plus or minus, as the case may be, the amounts
of net additions or withdrawals from such investment effected on that day and
(ii) the denominator of which is the Master Portfolio's aggregate NAV as of the
Valuation Time on that day plus or minus, as the case may be, the amount of the
net additions to or withdrawals from the aggregate investments in the Master
Portfolio by all investors. The percentages so determined will then be applied
to determine the value of each investor's respective interest in the Master
Portfolio as of the Valuation Time on the following Business Day.
REDEMPTION OR REPURCHASE
An investor in a Master Portfolio may withdraw all or any portion of its
interest on any Business Day at the NAV next determined after a withdrawal
request is received in proper form. The Master Portfolios will make payment for
all interests redeemed within three days after receipt of a redemption request
in proper form, except as provided by the rules of the SEC. Investments in the
Master Portfolios 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.
The Master Portfolios reserve the right to pay redemption securities
proceeds in portfolio securities rather than cash. These "in kind" redemptions
normally occur if the amount to be redeemed is large enough to affect a Master
Portfolio's operations (e.g., if it represents more than 1% of the Master
Portfolio's assets).
DIVIDENDS AND DISTRIBUTIONS
The net investment income of the Master Portfolios generally will be
declared and paid as a dividend daily to all investors of record as of 4:00 p.m.
(Eastern time) on any Business Day. Net investment income for a Saturday, Sunday
or Holiday will be declared as a dividend to investors of record as of 4:00 p.m.
(Eastern time) on the previous business day with respect to the Master
Portfolios. All the net investment income of the Master Portfolios so determined
is allocated pro rata among the investors in the Master Portfolios at the time
of such determination.
Dividends and capital gain distributions, if any, paid by the Master
Portfolios 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 each Master Portfolio has operated, and will continue to
be operated, in a manner so as to qualify it as a partnership for federal income
tax purposes. Provided that each Master Portfolio so qualifies, it will not be
subject to any federal income tax on its income and gain (if any). However, each
investor in a 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 partnership for federal income tax purposes, each Master
Portfolio will be deemed to have "passed through" to interestholders any
interest, dividends, gains or losses for such purposes. 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 an entity electing and
qualifying as a "regulated investment company" under the Code can continue to so
qualify by investing substantially all of its assets through the Master
Portfolio, provided that the regulated investment company meets other
requirements for such qualification not within the control of the Master
Portfolio (e.g., distributing at least 90% of the regulated investment company's
"investment company taxable income" annually).
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.
The Board of Trustees has authorized MIP to issue multiple series. 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 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 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 that
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.
<PAGE>
MASTER INVESTMENT PORTFOLIO
MONEY MARKET MASTER PORTFOLIO
PART A
July 1, 2000
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. This is Part A for the Money Market Master
Portfolio (the "Master Portfolio"), a diversified portfolio of MIP. 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 beneficial interests in the Master Portfolio may be referred to herein
as "feeder funds."
INVESTMENT OBJECTIVE
o 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 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 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.
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 $783
billion of assets under management.
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.
ITEM 7. INTERESTHOLDER INFORMATION.
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 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.
Investments in the Master Portfolio are valued based on an interestholder's
proportionate ownership interest in the Master Portfolio's aggregate net assets
as next determined after an order is received in proper form. The aggregate net
asset value of the Master Portfolio ("NAV") (i.e., the value of its assets less
liabilities) is determined as of 4:00 p.m. (Eastern time) ("Valuation Time") on
each day the New York Stock Exchange is open for business (a "Business Day").
The Master Portfolio's investments are valued each Business Day, typically 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.
An investor in the Master Portfolio may add to or reduce its investment in
a Master Portfolio on any Business Day. At the Valuation Time on each Business
Day, the value of each interestholder's beneficial interest in the Master
Portfolio is determined by multiplying the Master Portfolio's NAV by the
percentage, effective for that day, that represents that investor's share of the
aggregate beneficial interests in the Master Portfolio. Any additions to or
withdrawals of those interests, which are to be effected on that day, will then
be effected. Each investor's share of the aggregate beneficial interests in the
Master Portfolio will then be recomputed using the percentage equal to the
fraction (i) the numerator of which is the value of the investor's investment in
the Master Portfolio on that day plus or minus, as the case may be, the amounts
of net additions or withdrawals from such investment effected on that day and
(ii) the denominator of which is the Master Portfolio's aggregate NAV as of the
Valuation Time on that day plus or minus, as the case may be, the amount of the
net additions to or withdrawals from the aggregate investments in the Master
Portfolio by all investors. The percentages so determined will then be applied
to determine the value of each investor's respective interest in the Master
Portfolio as of the Valuation Time on the following Business Day.
REDEMPTION OR REPURCHASE
An investor in the Master Portfolio may withdraw all or any portion of its
interest on any Business Day at the NAV next determined after a withdrawal
request is received in proper form. The Master Portfolio will make payment for
all interests redeemed within three days after receipt of a redemption request
in proper form, except as provided by the rules of the SEC. 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.
The Master Portfolio reserves the right to pay redemption securities
proceeds in portfolio securities rather than cash. These "in kind" redemptions
normally occur if the amount to be redeemed is large enough to affect the Master
Portfolio's operations (e.g., if it represents more than 1% of the Master
Portfolio's assets).
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 4:00 p.m.
(Eastern time) on any Business Day. Net investment income for a Saturday, Sunday
or Holiday will be declared as a dividend to investors of record as of 4:00 p.m.
(Eastern time) on the previous business day with respect to the Master
Portfolio. All 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 has operated, and will continue to
be operated, in a manner so as to qualify it as a partnership for federal income
tax purposes. Provided that the Master Portfolio so qualifies, it will not be
subject to any federal income tax on its income and gain (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 partnership for federal income tax purposes, the Master
Portfolio will be deemed to have "passed through" to interestholders any
interest, dividends, gains or losses for such purposes. 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 an entity electing and qualifying as a
"regulated investment company" under the Code can continue to so qualify by
investing substantially all of its assets through the Master Portfolio, provided
that the regulated investment company meets other requirements for such
qualification not within the control of the Master Portfolio (e.g., distributing
at least 90% of the regulated investment company's "investment company taxable
income" annually).
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 is unable to meet its obligations.
The Board of Trustees has authorized MIP to issue multiple series. 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 that
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.
<PAGE>
MASTER INVESTMENT PORTFOLIO
LIFEPATH INCOME MASTER PORTFOLIO
LIFEPATH 2010 MASTER PORTFOLIO
LIFEPATH 2020 MASTER PORTFOLIO
LIFEPATH 2030 MASTER PORTFOLIO
LIFEPATH 2040 MASTER PORTFOLIO
PART A
July 1, 2000
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. This is Part A for the LifePath Income
(formerly 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 a diversified portfolio of MIP.
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 beneficial interests 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:
o LifePath Income Master Portfolio is managed for investors in a feeder
fund planning to retire (or begin to withdraw substantial portions of
their investment) in the near future.
o 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.
o 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.
o 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.
o 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 interests. 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 Income, 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 Income 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 Income Master Portfolio has entered its "retirement phase" and
seeks to maximize assets consistent with the risk that an average investor in
retirement may be willing to accept. The LifePath Income 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 February 29, 2000, the asset
allocations in the LifePath Master Portfolios were approximately as follows:
<TABLE>
<CAPTION>
LifePath Income LifePath 2010 LifePath 2020 LifePath 2030 LifePath 2040
Master Portfolio Master Master Portfolio Master Master Portfolio
Portfolio Portfolio
<S> <C> <C> <C> <C> <C> <C>
Equity Securities
Domestic 15% 34% 52% 63% 78%
International 6% 11% 15% 20% 21%
Bonds 65% 49% 29% 15% 1%
Money Market Instruments 14% 6% 4% 2% 0%
</TABLE>
The relative weightings for each LifePath Master Portfolio of the various
investment classes are expected to change over time. For example, in the 2030s,
the LifePath 2040 Master Portfolio will adopt characteristics similar to the
LifePath 2010 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 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:
o The S&P/BARRA Value Stock Index (consisting of primarily
large-capitalization U.S. stocks with lower-than-average price/book
ratios).
o The S&P/BARRA Growth Stock Index (consisting of primarily
large-capitalization U.S. stocks with higher-than-average price/book
ratios).
o The Intermediate Capitalization Value Stock Index (consisting of primarily
medium-capitalization U.S. stocks with lower-than-average price/book
ratios).
o The Intermediate Capitalization Growth Stock Index (consisting of primarily
medium-capitalization U.S. stocks with higher-than-average price/book
ratios).
o The Intermediate Capitalization Utility Stock Index (consisting of
primarily medium-capitalization U.S. utility stocks).
o The Micro Capitalization Market Index (consisting of primarily small-
capitalization U.S. stocks).
o The Small Capitalization Value Stock Index (consisting of primarily
small-capitalization U.S. stocks with lower-than-average price/book
ratios).
o 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:
o The Morgan Stanley Capital International (MSCI) Japan Index (consisting of
primarily large-capitalization Japanese stocks).
o 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:
o The Lehman Brothers Long-Term Government Bond Index (consisting of all U.S.
Government bonds with maturities of at least ten years).
o 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).
o The Lehman Brothers Long-Term Corporate Bond Index (consisting of all U.S.
investment grade corporate bonds with maturities of at least ten years).
o 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).
o 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:
o 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.
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.
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.
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, 1999, BGFA and
its affiliates provided investment advisory services for approximately $783
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, 2000, 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.
ITEM 7. INTERESTHOLDER INFORMATION.
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.
Investments in a Master Portfolio are valued based on an interestholder's
proportionate ownership interest in the Master Portfolio's aggregate net assets
as next determined after an order is received in proper form. The aggregate net
asset value of each Master Portfolio ("NAV") (i.e., the value of its assets less
liabilities) is determined as of 4:00 p.m. (Eastern time) ("Valuation Time") on
each day the New York Stock Exchange is open for business (a "Business Day").
The Master Portfolio's investments are valued each Business Day, typically 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.
An investor in a Master Portfolio may add to or reduce its investment in the
Master Portfolio on any Business Day. At the Valuation Time on each Business
Day, the value of each interestholder's beneficial interest in a Master
Portfolio is determined by multiplying the Master Portfolio's NAV by the
percentage, effective for that day, that represents that investor's share of the
aggregate beneficial interests in the Master Portfolio. Any additions to or
withdrawals of those interests, which are to be effected on that day, will then
be effected. Each investor's share of the aggregate beneficial interests in the
Master Portfolio will then be recomputed using the percentage equal to the
fraction (i) the numerator of which is the value of the investor's investment in
the Master Portfolio on that day plus or minus, as the case may be, the amounts
of net additions or withdrawals from such investment effected on that day and
(ii) the denominator of which is the Master Portfolio's aggregate NAV as of the
Valuation Time on that day plus or minus, as the case may be, the amount of the
net additions to or withdrawals from the aggregate investments in the Master
Portfolio by all investors. The percentages so determined will then be applied
to determine the value of each investor's respective interest in the Master
Portfolio as of the Valuation Time on the following Business Day.
REDEMPTION OR REPURCHASE
An investor in a Master Portfolio may withdraw all or any portion of its
interest on any Business Day at the NAV next determined after a withdrawal
request is received in proper form. The Master Portfolios will make payment for
all interests redeemed within three days after receipt of a redemption request
in proper form, except as provided by the rules of the SEC. Investments in the
Master Portfolios 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.
The Master Portfolios reserve the right to pay redemption securities
proceeds in portfolio securities rather than cash. These "in kind" redemptions
normally occur if the amount to be redeemed is large enough to affect a Master
Portfolio's operations (e.g., if it represents more than 1% of the Master
Portfolio's assets).
DIVIDENDS AND DISTRIBUTIONS
The net investment income of the Master Portfolios generally will be
declared and paid as a dividend daily to all investors of record as of 4:00 p.m.
(Eastern time) on any Business Day. Net investment income for a Saturday, Sunday
or Holiday will be declared as a dividend to investors of record as of 4:00 p.m.
(Eastern time) on the previous business day with respect to the Master
Portfolios. All the net investment income of the Master Portfolios so determined
is allocated pro rata among the investors in the Master Portfolios at the time
of such determination.
Dividends and capital gain distributions, if any, paid by the Master
Portfolios 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 each Master Portfolio has operated, and will continue to
be operated, in a manner so as to qualify it as a partnership for federal income
tax purposes. Provided that each Master Portfolio so qualifies, it will not be
subject to any federal income tax on its income and gain (if any). However, each
investor in a 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 partnership for federal income tax purposes, each Master
Portfolio will be deemed to have "passed through" to interestholders any
interest, dividends, gains or losses for such purposes. 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 an entity electing and
qualifying as a "regulated investment company" under the Code can continue to so
qualify by investing substantially all of its assets through the Master
Portfolio, provided that the regulated investment company meets other
requirements for such qualification not within the control of the Master
Portfolio (e.g., distributing at least 90% of the regulated investment company's
"investment company taxable income" annually).
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.
The Board of Trustees has authorized MIP to issue multiple series. 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.
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 that
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.
The response to Item 9 has been omitted pursuant to paragraph B(2)(b) of the
General Instructions to Form N-1A.
<PAGE>
MASTER INVESTMENT PORTFOLIO
EXTENDED INDEX MASTER PORTFOLIO
PART A
July 1, 2000
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. This is the Part A for the Extended Index
Master Portfolio (the "Master Portfolio"), a diversified portfolio of MIP. 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
beneficial interest in the Master Portfolio are sometimes referred to herein as
"feeder funds."
INVESTMENT OBJECTIVE
o 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/
/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.
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.
PRINCIPAL STRATEGIES
o 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 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 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 Index are small to medium
size companies which, historically, have been more susceptible to market
fluctuations than securities of larger capitalization companies.
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.
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 $783
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.
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.
CO-ADMINISTRATORS - Stephens Inc. ("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.
Stephens and BGI have agreed to bear all costs of the Master
Portfolio's and MIP's operations, 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, such as fees
payable to BGFA and custodial fees of up to 0.01% payable after February 22,
2001. 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. Stephens and BGI are entitled to receive a monthly fee, in 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.
ITEM 7. INTERESTHOLDER INFORMATION.
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 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.
Investments in the Master Portfolio are valued based on an interestholder's
proportionate ownership interest in the Master Portfolio's aggregate net assets
as next determined after an order is received in proper form. The aggregate net
asset value of the Master Portfolio ("NAV") (i.e., the value of its assets less
liabilities) is determined as of 4:00 p.m. (Eastern time) ("Valuation Time") on
each day the New York Stock Exchange is open for business (a "Business Day").
The Master Portfolio's investments are valued each Business Day, typically 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.
An investor in the Master Portfolio may add to or reduce its investment in
a Master Portfolio on any Business Day. At the Valuation Time on each Business
Day, the value of each interestholder's beneficial interest in the Master
Portfolio is determined by multiplying the Master Portfolio's NAV by the
percentage, effective for that day, that represents that investor's share of the
aggregate beneficial interests in the Master Portfolio. Any additions to or
withdrawals of those interests, which are to be effected on that day, will then
be effected. Each investor's share of the aggregate beneficial interests in the
Master Portfolio will then be recomputed using the percentage equal to the
fraction (i) the numerator of which is the value of the investor's investment in
the Master Portfolio on that day plus or minus, as the case may be, the amounts
of net additions or withdrawals from such investment effected on that day and
(ii) the denominator of which is the Master Portfolio's aggregate NAV as of the
Valuation Time on that day plus or minus, as the case may be, the amount of the
net additions to or withdrawals from the aggregate investments in the Master
Portfolio by all investors. The percentages so determined will then be applied
to determine the value of each investor's respective interest in the Master
Portfolio as of the Valuation Time on the following Business Day.
REDEMPTION OR REPURCHASE
An investor in the Master Portfolio may withdraw all or any portion of its
interest on any Business Day at the NAV next determined after a withdrawal
request is received in proper form. The Master Portfolio will make payment for
all interests redeemed within three days after receipt of a redemption request
in proper form, except as provided by the rules of the SEC. 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.
The Master Portfolio reserves the right to pay redemption securities
proceeds in portfolio securities rather than cash. These "in kind" redemptions
normally occur if the amount to be redeemed is large enough to affect the Master
Portfolio's operations (e.g., if it represents more than 1% of the Master
Portfolio's assets).
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 4:00 p.m.
(Eastern time) on any Business Day. Net investment income for a Saturday, Sunday
or Holiday will be declared as a dividend to investors of record as of 4:00 p.m.
(Eastern time) on the previous business day with respect to the Master
Portfolio. All 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 has operated, and will continue to
be operated, in a manner so as to qualify it as a partnership for federal income
tax purposes. Provided that the Master Portfolio so qualifies, it will not be
subject to any federal income tax on its income and gain (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 partnership for federal income tax purposes, the Master
Portfolio will be deemed to have "passed through" to interestholders any
interest, dividends, gains or losses for such purposes. 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 an entity electing and qualifying as a
"regulated investment company" under the Code can continue to so qualify by
investing substantially all of its assets through the Master Portfolio, provided
that the regulated investment company meets other requirements for such
qualification not within the control of the Master Portfolio (e.g., distributing
at least 90% of the regulated investment company's "investment company taxable
income" annually).
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 is unable to meet its obligations.
The Board of Trustees has authorized MIP to issue multiple series. 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 that
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.
<PAGE>
MASTER INVESTMENT PORTFOLIO
U.S. EQUITY INDEX MASTER PORTFOLIO
PART A
July 1, 2000
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. This Part A is for the U.S. Equity Index
Master Portfolio (the "Master Portfolio"), a diversified portfolio of MIP. 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
beneficial interests in the Master Portfolio are sometimes referred to herein as
"feeder funds."
INVESTMENT OBJECTIVE - Master Portfolio.
o 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 master portfolios of MIP -- the Extended Index
Master Portfolio (which invests substantially all of its assets in a
representative sample of stocks comprising the Wilshire 4500 Index) and the
S&P 500 Index Master Portfolio (which invests substantially all of its
assets in stocks comprising the S&P 500 Index) (separately, the "Extended
Index Portfolio" and the "S&P 500 Index Portfolio," respectively, and
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 Master Portfolio may not
track its index perfectly, as differences between the index and the Master
Portfolio's Underlying Portfolios may cause differences in performance.
INVESTMENT OBJECTIVES - Underlying Portfolios.
o 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 S&P
500 Index.
o The Extended Index Portfolio seeks to approximate, before fees and
expenses, the capitalization range and performance of the Wilshire 4500
Index.
/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.
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
o 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.
o 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.
o 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-capitalization 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 has
varied, and as a result, the Master Portfolio's portfolio is also likely to
vary.
INVESTMENT POLICIES - Master Portfolio.
o 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
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.
o 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 Master Portfolio 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 Wilshire 4500 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.
o 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 are invested, through the Underlying Portfolios,
in securities comprising the Wilshire 5000 Index. The 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 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 interestholder 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.
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 Portfolio 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 are also 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.
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 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.
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, 1999, BGFA and its affiliates provided investment advisory services
for approximately $783 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. BGFA may deal, trade and invest for its own
account in the types of securities in which the Master Portfolio may invest.
CO-ADMINISTRATORS - Stephens Inc. ("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.
Stephens and BGI have agreed to bear all costs of the Master
Portfolio's and MIP's operations, 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, such as fees
payable to BGFA and custodial fees of up to 0.01% payable after February 22,
2001. 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. 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.
ITEM 7. INTERESTHOLDER INFORMATION.
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 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.
Investments in the Master Portfolio are valued based on an interestholder's
proportionate ownership interest in the Master Portfolio's aggregate net assets
as next determined after an order is received in proper form. The aggregate net
asset value of the Master Portfolio ("NAV") (i.e., the value of its assets less
liabilities) is determined as of 4:00 p.m. (Eastern time) ("Valuation Time") on
each day the New York Stock Exchange is open for business (a "Business Day").
The Master Portfolio's investments are valued each Business Day, typically 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.
An investor in the Master Portfolio may add to or reduce its investment in
a Master Portfolio on any Business Day. At the Valuation Time on each Business
Day, the value of each interestholder's beneficial interest in the Master
Portfolio is determined by multiplying the Master Portfolio's NAV by the
percentage, effective for that day, that represents that investor's share of the
aggregate beneficial interests in the Master Portfolio. Any additions to or
withdrawals of those interests, which are to be effected on that day, will then
be effected. Each investor's share of the aggregate beneficial interests in the
Master Portfolio will then be recomputed using the percentage equal to the
fraction (i) the numerator of which is the value of the investor's investment in
the Master Portfolio on that day plus or minus, as the case may be, the amounts
of net additions or withdrawals from such investment effected on that day and
(ii) the denominator of which is the Master Portfolio's aggregate NAV as of the
Valuation Time on that day plus or minus, as the case may be, the amount of the
net additions to or withdrawals from the aggregate investments in the Master
Portfolio by all investors. The percentages so determined will then be applied
to determine the value of each investor's respective interest in the Master
Portfolio as of the Valuation Time on the following Business Day.
REDEMPTION OR REPURCHASE
An investor in the Master Portfolio may withdraw all or any portion of its
interest on any Business Day at the NAV next determined after a withdrawal
request is received in proper form. The Master Portfolio will make payment for
all interests redeemed within three days after receipt of a redemption request
in proper form, except as provided by the rules of the SEC. 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.
The Master Portfolio reserves the right to pay redemption securities
proceeds in portfolio securities rather than cash. These "in kind" redemptions
normally occur if the amount to be redeemed is large enough to affect the Master
Portfolio's operations (e.g., if it represents more than 1% of the Master
Portfolio's assets).
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 4:00 p.m.
(Eastern time) on any Business Day. Net investment income for a Saturday, Sunday
or Holiday will be declared as a dividend to investors of record as of 4:00 p.m.
(Eastern time) on the previous business day with respect to the Master
Portfolio. All 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 has operated, and will continue to
be operated, in a manner so as to qualify it as a partnership for federal income
tax purposes. Provided that the Master Portfolio so qualifies, it will not be
subject to any federal income tax on its income and gain (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 partnership for federal income tax purposes, the Master
Portfolio will be deemed to have "passed through" to interestholders any
interest, dividends, gains or losses for such purposes. 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 an entity electing and qualifying as a
"regulated investment company" under the Code can continue to so qualify by
investing substantially all of its assets through the Master Portfolio, provided
that the regulated investment company meets other requirements for such
qualification not within the control of the Master Portfolio (e.g., distributing
at least 90% of the regulated investment company's "investment company taxable
income" annually).
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.
The Board of Trustees has authorized MIP to issue multiple 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 that
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
The response to Item 9 has been omitted pursuant to paragraph B(2)(b)
of the General Instructions to Form N-1A.
<PAGE>
MASTER INVESTMENT PORTFOLIO
INTERNATIONAL INDEX MASTER PORTFOLIO
PART A
July 1, 2000
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. This is Part A for the International Index
Master Portfolio (the "Master Portfolio"), a diversified portfolio of MIP. 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 or other
entities that hold beneficial interests in the Master Portfolio are sometimes
referred to herein as "feeder funds."
INVESTMENT OBJECTIVE
o The International Index Master Portfolio seeks to match as closely as
practicable, before fees and expenses, the performance of an international
portfolio of common stocks represented by the Morgan Stanley Capital
International Europe, Australia, Far East Free Index (the "EAFE Free
Index," or the "Index")./1/
/1/ Morgan Stanley Capital International Inc. ("MSCI") does not sponsor the
Master Portfolio, nor is it affiliated in any way with Barclays Global Fund
Advisors or the Master Portfolio. "Morgan Stanley Capital International Europe,
Australia, Far East Free Index(R)," "EAFE Free Index(R)," and "EAFE(R)," are
trademarks of MSCI. The Master Portfolio is not sponsored, endorsed, sold or
promoted by the EAFE Free Index, and neither MSCI nor the EAFE Free Index make
any representation or warranty, express or implied, regarding the advisability
of investing in the Master Portfolio.
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.
PRINCIPAL STRATEGIES
o The International Index Master Portfolio seeks to match the total return
performance of foreign stock markets by investing in common stocks included
in the EAFE Free Index. The EAFE Free Index is a capitalization-weighted
index that currently includes stocks of companies located in 15 European
countries (Austria, Belgium, Denmark, Finland, France, Germany, Ireland,
Italy, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and
the United Kingdom), Australia, New Zealand, Hong Kong, Japan, Malaysia and
Singapore. The EAFE Free Index broadly represents the performance of
foreign stock markets. The weightings of stocks in the EAFE Free 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 EAFE Free Index.
Under normal market conditions, at least 90% of the value of the Master
Portfolio's total assets is invested in securities comprising the EAFE Free
Index. The 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 the EAFE Free Index. The Master
Portfolio's ability to match its investment performance to the investment
performance of the EAFE Free 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 EAFE Free 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 EAFE
Free Index. Barclays Global Fund Advisors ("BGFA") regularly monitors the Master
Portfolio's correlation to the EAFE Free Index and adjusts the Master
Portfolio's portfolio to the extent necessary. Inclusion of a security in the
EAFE Free Index in no way implies an opinion by MSCI as to its attractiveness as
an investment.
BGFA may use statistical sampling techniques to attempt to replicate
the returns of the EAFE Free Index using a smaller number of securities.
Statistical sampling techniques attempt to match the investment characteristics
of the index and the Master Portfolio by taking into account such factors as
capitalization, industry exposures, dividend yield, price/earnings ratio,
price/book ratio, earnings growth, country weightings and the effect of foreign
taxes. The sampling techniques utilized by the Master Portfolio are designed to
allow the Master Portfolio to substantially duplicate the investment performance
of the EAFE Free Index. However, the Master Portfolio is not expected to track
the EAFE Free 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 EAFE Free Index.
In seeking to match the performance of the EAFE Free 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 EAFE Free 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 -- Investment Restrictions," 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.
International 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 EAFE Free Index are small to medium
size companies which, historically, have been more susceptible to market
fluctuations than securities of larger capitalization companies.
Foreign Investment Risk -- The Master Portfolio invests substantially
all of its assets in foreign securities. This means the Master Portfolio can be
affected by the risks of foreign investing, including changes in currency
exchange rates and the costs of converting currencies; foreign government
controls on foreign investment; repatriation of capital, and currency and
exchange; foreign taxes; inadequate supervision and regulation of some foreign
markets; volatility from lack of liquidity; different settlement practices or
delayed settlements in some markets; difficulty in obtaining complete and
accurate information about foreign companies; less strict accounting, auditing
and financial reporting standards than those in the U.S.; political, economic
and social instability; and difficulty enforcing legal rights outside the U.S.
All of these factors can make foreign investments, especially those in emerging
markets, more volatile and potentially less liquid than U.S. investments.
Issuer-Specific Changes -- Changes in the financial condition of an
issuer, changes in specific economic or political conditions that affect a
particular type of security or issuer, and changes in general economic or
political conditions can affect the value of an issuer's securities.
Small Company Investing -- The value of securities of smaller, less
well-known issuers can be more volatile than that of larger issuers and can
react differently to issuer, political, market and economic developments than
the market as a whole and other types of stocks. Smaller issuers can have more
limited product lines, markets and financial resources.
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.
In response to market, economic, political or other conditions, BGFA
may temporarily use a different investment strategy for defensive purposes. If
BGFA does so, different factors could affect the Master Portfolio's performance
and the Master Portfolio may not achieve its investment objective.
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 $783
billion of assets.
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.
As compensation for its advisory services, BGFA is entitled to receive
fees at an annual rate of 0.15% of the first $1 billion, and 0.10% thereafter,
of the Master Portfolio's average daily net assets. 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.
BGFA makes no attempt to apply economic, financial or market analysis
when managing the Master Portfolio. BGFA selects securities because they will
help the Master Portfolio achieve returns corresponding to the EAFE Free Index
returns. This process reflects BGFA's commitment to an objective and consistent
investment management structure.
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.
CO-ADMINISTRATORS - Stephens Inc. ("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.
Stephens and BGI have agreed to bear all costs of the Master
Portfolio's and MIP's operations, 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, such as fees
payable to BGFA and custodial fees of up to 0.01% payable after February 22,
2001. 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. Stephens and BGI are entitled to receive monthly compensation
for providing administration services to the Master Portfolio at the annual rate
of 0.10% of the first $1 billion, and 0.07% thereafter, of the average daily net
assets of the Master Portfolio.
ITEM 7. INTERESTHOLDER INFORMATION.
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 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.
Investments in the Master Portfolio are valued based on an interestholder's
proportionate ownership interest in the Master Portfolio's aggregate net assets
as next determined after an order is received in proper form. The aggregate net
asset value of the Master Portfolio ("NAV") (i.e., the value of its assets less
liabilities) is determined as of 4:00 p.m. (Eastern time) ("Valuation Time") on
each day the New York Stock Exchange is open for business (a "Business Day").
The Master Portfolio's investments are valued each Business Day, typically by
using available market quotations or at fair value determined in good faith by
MIP's Board of Trustees. International markets may be open on days when U.S.
markets are closed, and the value of foreign securities owned by the portfolio
could change on days when beneficial interests may not be purchased or redeemed.
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.
An investor in the Master Portfolio may add to or reduce its investment in
a Master Portfolio on any Business Day. At the Valuation Time on each Business
Day, the value of each interestholder's beneficial interest in the Master
Portfolio is determined by multiplying the Master Portfolio's NAV by the
percentage, effective for that day, that represents that investor's share of the
aggregate beneficial interests in the Master Portfolio. Any additions to or
withdrawals of those interests, which are to be effected on that day, will then
be effected. Each investor's share of the aggregate beneficial interests in the
Master Portfolio will then be recomputed using the percentage equal to the
fraction (i) the numerator of which is the value of the investor's investment in
the Master Portfolio on that day plus or minus, as the case may be, the amounts
of net additions or withdrawals from such investment effected on that day and
(ii) the denominator of which is the Master Portfolio's aggregate NAV as of the
Valuation Time on that day plus or minus, as the case may be, the amount of the
net additions to or withdrawals from the aggregate investments in the Master
Portfolio by all investors. The percentages so determined will then be applied
to determine the value of each investor's respective interest in the Master
Portfolio as of the Valuation Time on the following Business Day.
REDEMPTION OR REPURCHASE
An investor in the Master Portfolio may withdraw all or any portion of its
interest on any Business Day at the NAV next determined after a withdrawal
request is received in proper form. The Master Portfolio will make payment for
all interests redeemed within three days after receipt of a redemption request
in proper form, except as provided by the rules of the SEC. 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.
The Master Portfolio reserves the right to pay redemption securities
proceeds in portfolio securities rather than cash. These "in kind" redemptions
normally occur if the amount to be redeemed is large enough to affect the Master
Portfolio's operations (e.g., if it represents more than 1% of the Master
Portfolio's assets).
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 4:00 p.m.
(Eastern time) on any Business Day. Net investment income for a Saturday, Sunday
or Holiday will be declared as a dividend to investors of record as of 4:00 p.m.
(Eastern time) on the previous business day with respect to the Master
Portfolio. All 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 has operated, and will continue to
be operated, in a manner so as to qualify it as a partnership for federal income
tax purposes. Provided that the Master Portfolio so qualifies, it will not be
subject to any federal income tax on its income and gain (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 partnership for federal income tax purposes, the Master
Portfolio will be deemed to have "passed through" to interestholders any
interest, dividends, gains or losses for such purposes. 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 an entity electing and qualifying as a
"regulated investment company" under the Code can continue to so qualify by
investing substantially all of its assets through the Master Portfolio, provided
that the regulated investment company meets other requirements for such
qualification not within the control of the Master Portfolio (e.g., distributing
at least 90% of the regulated investment company's "investment company taxable
income" annually).
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.
The Board of Trustees has authorized MIP to issue multiple series. 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 that
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.
<PAGE>
22
MASTER INVESTMENT PORTFOLIO
ASSET ALLOCATION MASTER PORTFOLIO
PART B -- STATEMENT OF ADDITIONAL INFORMATION
July 1, 2000
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, 2000. 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 1-888-204-3956. MIP's
Registration Statement may be examined at the office of the Securities and
Exchange Commission ("SEC") in Washington, D.C.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Page
Trust History ..................................................................................... 1
Description of the Master Portfolio and Its Investments and Risks ................................. 2
Management of the Trust ........................................................................... 10
Control Persons and Principal Holders of Securities ............................................... 11
Investment Advisory and Other Services............................................................. 12
Brokerage Allocation and Other Practices........................................................... 13
Capital Stock and Other Securities................................................................. 14
Purchase, Redemption and Pricing of Interests ..................................................... 14
Taxation of the Trust ............................................................................. 15
Underwriters....................................................................................... 16
Calculations of Performance Data................................................................... 16
Financial Statements .............................................................................. 16
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. This is the Part
B for the Asset Allocation Master Portfolio (the "Master Portfolio"), a
diversified portfolio of MIP. 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. Investment companies that hold
beneficial 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 Objectives. 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 objectives 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 1940 Act) of the Master Portfolio's outstanding
voting interests.
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 interests. 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 (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, 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 SEC 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 1933 Act 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 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 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 the 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 Portfolio has adopted the
following investment restrictions as non-fundamental policies. These
restrictions may be changed without interestholder 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
Bonds.
-----
Certain of the debt instruments purchased by the Master Portfolio may be
bonds. A bond is an interest-bearing security issued by a company or
governmental unit. The issuer of a bond has a contractual obligation to pay
interest at a stated rate on specific dates and to repay principal (the bond's
face value) periodically or on a specified maturity date. An issuer may have the
right to redeem or "call" a bond before maturity, in which case the investor may
have to reinvest the proceeds at lower market rates. Most bonds bear interest
income at a "coupon" rate that is fixed for the life of the bond. The value of a
fixed rate bond usually rises when market interest rates fall, and falls when
market interest rates rise. Accordingly, a fixed rate bond's yield (income as a
percent of the bond's current value) may differ from its coupon rate as its
value rises or falls. Other types of bonds bear income at an interest rate that
is adjusted periodically. Because of their adjustable interest rates, the value
of "floating-rate" or "variable-rate" bonds fluctuates much less in response to
market interest rate movements than the value of fixed rate bonds. Also, the
Master Portfolio may treat some of these bonds as having a shorter maturity for
purposes of calculating the weighted average maturity of their investment
portfolios. Bonds may be senior or subordinated obligations. Senior obligations
generally have the first claim on a corporation's earnings and assets and, in
the event of liquidation, are paid before subordinated debt. Bonds may be
unsecured (backed only by the issuer's general creditworthiness) or secured
(also backed by specified collateral).
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.
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.
In order to comply with undertakings made by the Master Portfolio pursuant
to Commodity Futures Trading Commission ("CFTC") Regulation 4.5, the Master
Portfolio will use futures and option contracts solely for bona fide hedging
purposes within the meaning and intent of CFTC Reg. 1.3(z); provided, however,
that in addition, with respect to positions in commodity futures or commodity
option contracts which do not come within the meaning and intent of CFTC Reg.
1.3(z), the aggregate initial margin and premiums required to establish such
positions will not exceed five percent of the liquidation value of the Master
Portfolio's portfolio, after taking into account unrealized profits and
unrealized losses on any such contract it has entered into; and provided
further, that in the case of an option that is in-the-money at the time of
purchase, the in-the-money amount as defined in CFTC Reg. 190.01(x) may be
excluded in computing such five percent.
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.
Interest-Rate Futures Contracts and Options on Interest-Rate Futures
Contracts. The 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 Portfolio 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 Master Portfolio may enter into
interest-rate and index swaps in pursuit of their 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 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 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 which principally invest in securities of the
type in which the Master Portfolio invests. Under the 1940 Act, the Master
Portfolio's investment in such securities currently is limited to, subject to
certain exceptions, (i) 3% of the outstanding voting stock of any one investment
company, (ii) 5% of the Master Portfolio's total assets with respect to any one
investment company and (iii) 10% of the Master Portfolio's total 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
Portfolio may also purchase shares of exchange-listed closed-end funds to the
extent permitted under the 1040 Act.
Letters of Credit. Certain of the debt obligations (including municipal
securities, certificates of participation, commercial paper and other short-term
obligations) which the Master Portfolio may purchase may be backed by an
unconditional and irrevocable letter of credit of a bank, savings and loan
association or insurance company which assumes the obligation for payment of
principal and interest in the event of default by the issuer. Only banks,
savings and loan associations and insurance companies which, in the opinion of
BGFA, as investment adviser, are of comparable quality to issuers of other
permitted investments of the Master Portfolio may be used for letter of
credit-backed investments.
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 the 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 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 lend
securities having an aggregate market value that exceeds one-third of the
current value of its 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.
Securities of Non-U.S. Issuers.
------------------------------
The Master Portfolio may invest in certain securities of non-U.S. issuers
as discussed below.
Obligations of Foreign Governments, Banks and Corporations The 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 the Master Portfolio may
invest. The Master Portfolio 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 the 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.
The 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 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 shareholder 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
Federal Deposit Insurance Corporation ("FDIC"); (iii) commercial paper rated at
the date of purchase "Prime-1" by Moody's or "A-1+" or "A-1" by S&P, or, if
unrated, of comparable quality as determined by BGFA; (iv) non-convertible
corporate debt securities (e.g., bonds and debentures) with remaining maturities
at the date of purchase of not more than one year that are rated at least "Aa"
by Moody's or "AA" by S&P ; (v) repurchase agreements; and (vi) short-term, U.S.
dollar-denominated obligations of foreign banks (including U.S. branches) that,
at the time of investment have more than $10 billion, or the equivalent in other
currencies, in total assets and in the opinion of BGFA are of comparable quality
to obligations of U.S. banks which may be purchased by the 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 FDIC.
Bankers' acceptances are credit instruments evidencing the obligation of a
bank to pay a draft drawn on it by a customer. These instruments reflect the
obligation both of the bank and of the drawer to pay the face amount of the
instrument upon maturity. The other short-term obligations may include
uninsured, direct obligations, bearing fixed, floating- or variable-interest
rates.
Commercial Paper and Short-Term Corporate Debt Instruments. 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 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 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 engage in a repurchase
agreement with respect to any security in which it is authorized to invest,
including government securities and mortgage-related securities, regardless of
their remaining maturities. 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. 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.
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.
Unrated, Downgraded and Below Investment Grade Investments.
----------------------------------------------------------
The Master Portfolio may purchase instruments that are not rated if, in the
opinion of the adviser, BGFA, such obligation is of investment quality
comparable to other rated investments that are permitted to be purchased by the
Master Portfolio. 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 a sale of such security by
the Master Portfolio provided that the amount of such securities held by the
Master Portfolio does not exceed 5% of the Master Portfolio's net assets. To the
extent the ratings given by Moody's or S&P may change as a result of changes in
such organizations or their rating systems, the Master Portfolio will attempt to
use comparable ratings as standards for investments in accordance with the
investment policies contained in its Part A and in this Part B. The ratings of
Moody's and S&P are more fully described in the Appendix to this Part B.
The Master Portfolio is not required to sell downgraded securities, and the
Master Portfolio could hold up to 5% of its net assets in debt securities rated
below "Baa" by Moody's or below "BBB" by S&P or if unrated, low quality (below
investment grade) securities.
Although they may offer higher yields than do higher rated securities, low
rated and unrated low quality debt securities generally involve greater
volatility of price and risk of principal and income, including the possibility
of default by, or bankruptcy of, the issuers of the securities. In addition, the
markets in which low rated and unrated low quality debt are traded are more
limited than those in which higher rated securities are traded. The existence of
limited markets for particular securities may diminish the Master Portfolio's
ability to sell the securities at fair value either to meet redemption requests
or to respond to changes in the economy or in the financial markets and could
adversely affect and cause fluctuations in the daily net asset value of the
Master Portfolio's interests.
Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of low rated or
unrated low quality debt securities, especially in a thinly traded market.
Analysis of the creditworthiness of issuers of low rated or unrated low quality
debt securities may be more complex than for issuers of higher rated securities,
and the ability of the Master Portfolio to achieve its investment objective may,
to the extent it holds low rated or unrated low quality debt securities, be more
dependent upon such creditworthiness analysis than would be the case if the
Master Portfolio held exclusively higher rated or higher quality securities.
Low rated or unrated low quality debt securities may be more susceptible to
real or perceived adverse economic and competitive industry conditions than
investment grade securities. The prices of such debt securities have been found
to be less sensitive to interest rate changes than higher rated or higher
quality investments, but more sensitive to adverse economic downturns or
individual corporate developments. A projection of an economic downturn or of a
period of rising interest rates, for example, could cause a decline in low rated
or unrated low quality debt securities prices because the advent of a recession
could dramatically lessen the ability of a highly leveraged company to make
principal and interest payments on its debt securities. If the issuer of the
debt securities defaults, the Master Portfolio may incur additional expenses to
seek recovery.
ITEM 13. MANAGEMENT OF THE TRUST.
The following information supplements and should be read in conjunction
with the Part A section entitled "Management, Organization and Capital
Structure." 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>
<S> <C> <C>
Jack S. Euphrat, 78 Trustee Private Investor.
415 Walsh Road
Atherton, CA 94027
*R. Greg Feltus, 49 Trustee, Chairman Executive Vice President of Stephens Inc.; President
and President of Stephens Insurance Services Inc.; Senior Vice
President of Stephens Sports Management Inc.; and
President of Investors Brokerage Insurance Inc.
W. Rodney Hughes, 74 Trustee Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Leo Soong,1 54 Trustee Managing Director of Crystal Geyser Roxane Water
Crystal Geyser Water Co. Co.; Co-Founder and President of Crystal Geyser
55 Francisco Street, Suite 410 Water Co.
San Francisco, CA 94133
Richard H. Blank, Jr., 44 Chief Operating Vice President of Stephens Inc.; Director of
Officer, Secretary Stephens Sports Management Inc.; and Director of
and Treasurer Capo Inc.
--------------------
1 Elected to the Board of Trustees of MIP on February 9, 2000.
Compensation Table
For the Calendar Year Ended December 31, 1999
Aggregate Total Compensation
Compensation from Registrant
Name and Position from Registrant and Fund Complex
----------------- - --------------- ----------------
Jack S. Euphrat $5,875 $11,750
Trustee
*R. Greg Feltus $0 $0
Trustee
Thomas S. Goho1 $1,500 $3,000
Trustee
W. Rodney Hughes $5,875 $11,750
Trustee
*J. Tucker Morse1 $1,500 $3,000
Trustee
--------------------
1 Retired from the Board of Trustees of MIP on April 28, 1999.
</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 MIP
and BGIF for their services as Directors/Trustees to the MIP and BGIF.
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, 2000, the interestholders identified below were known by
the Trust to own 5% or more of the outstanding voting interests of the Master
Portfolio. Approximate percentages are indicated in the table below:
Name and Address Percentage of
of Interestholder Master Portfolio
Asset Allocation Fund 100%
Barclays Global Investors Funds, Inc.
111 Center Street
Little Rock, Arkansas 72201
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 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, such interestholder 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 Contracts (each, a "BGFA Advisory Contract") dated January 1, 1996 with
MIP. 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 interests 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 BGFA Advisory Contract is terminable without penalty on 60 days'
written notice by either party. The BGFA Advisory Contract terminates
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, and for the ten-month period ended
December 31, 1999, the Master Portfolio paid to BGFA the following advisory
fees, without waivers.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Ten-Month
Fiscal Year Fiscal Year Fiscal Year Period Ended
Ended 2/28/97 Ended 2/28/98 Ended 2/28/99 12/31/99
Fees Paid Fees Paid Fees Paid Fees Paid
Asset Allocation Master Portfolio $1,531,951 $1,616,380 $1,941,048 $1,667,200
</TABLE>
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'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 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 advisory 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 the
Master Portfolio so long as it receives fees for providing similar services to
the funds which invest substantially all of their assets in the Master
Portfolio. Prior to March 2, 1998, Wells Fargo Bank acted as the Master
Portfolio's Transfer Agent. To date, the Master Portfolio has not paid any
transfer and dividend disbursing agency fees.
Distribution Plan. MIP's Board of Trustees has adopted, on behalf of
the Master Portfolio, a "defensive" distribution plan under Section 12(b) of the
1940 Act and Rule 12b-1 thereunder (the "Plan"). The Plan was adopted by a
majority of MIP's Board of Trustees (including a majority of those Trustees who
are not "interested persons" of MIP as defined in the 1940 Act) on October 10,
1995. The Plan provides that if any portion of the Master Portfolio's advisory
fees (up to 0.25% of the average daily net assets of the 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 the Master
Portfolio such payment would be authorized pursuant to the Plan. The Master
Portfolio does 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 Portfolio, Stephens and BGI have
agreed to bear all costs of the Master Portfolio's 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
shareholders. 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
commission 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.
Brokerage Commissions. For the fiscal years ended February 28, 1997,
February 28, 1998 and February 1999, and for the ten-month period ended December
31, 1999, the Master Portfolio paid brokerage commissions in the dollar amounts
shown below. None of the brokerage commissions were paid to affiliated brokers.
<TABLE>
<S> <C> <C> <C> <C>
Ten-Month
Fiscal Year Fiscal Year Fiscal Year Period Ended
Master Portfolio Ended 2/28/97 Ended 2/28/98 Ended 2/28/99 12/31/99
---------------- ------------- ------------- ------------- --------
Asset Allocation Master Portfolio $28,606 $11,933 $35,317 $62,541
</TABLE>
Securities of Regular Broker/Dealers. On December 31, 1999, the Master
Portfolio owned securities of its "regular brokers or dealers" or their parents,
as defined in the 1940 Act, as follows:
<TABLE>
<CAPTION>
Regular Broker/Dealer Amount
<S> <C> <C>
Asset Allocation Master Portfolio Lehman Bros. Holdings $ 287,599
Merrill Lynch $ 865,144
Morgan Stanley $ 2,228,899
J.P. Morgan $ 615,651
</TABLE>
ITEM 17. CAPITAL STOCK AND OTHER SECURITIES.
Pursuant to MIP's Declaration of Trust, the Trustees are authorized to
issue 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 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 interests 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 interests 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 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 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 interests 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 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.
Interests purchased in exchange for securities generally cannot be redeemed
until the transfer has settled.
Suspension of Redemptions. The right of redemption of the Master
Portfolio's interests 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 SEC so that disposal of the Master Portfolio's 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
Portfolio's interestholders.
Pricing of Securities. The securities of 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 interests.
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.
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.
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 income and 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.
The Master Portfolio's taxable year-end is the last day of December.
Although the Master Portfolio will not be subject to federal income tax, it will
file appropriate federal income tax returns.
It is intended that the Master Portfolio's assets, income and distributions
will be managed in such a way that an entity electing and qualifying as a
"regulated investment company" under the Code can continue to so qualify by
investing substantially all of its assets through the Master Portfolio, provided
that the regulated investment company meets other requirements for such
qualification not within the control of the Master Portfolio (e.g., distributing
at least 90% of the regulated investment company's "investment company taxable
income" annually).
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 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.
The audited financial statements, including the portfolio of
investments, and independent auditors report for the Master Portfolio for the
ten-month period ended December 31, 1999 are hereby incorporated by reference to
the BGIF Annual Report (SEC File Nos. 33-54126; 811-7322), as filed with the SEC
on February 28, 2000. The audited financial statements are attached to all Part
Bs delivered to interestholders or prospective interestholders.
<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.
S&P Commercial Paper Ratings
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.
"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.
Moody's Commercial Paper Ratings
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.
"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.
Fitch 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.
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.
Duff Commercial Paper Ratings
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.
IBCA 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.
IBCA 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.
<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, 2000
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, 2000. 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 1-888-204-3956. MIP's
Registration Statement may be examined at the office of the Securities and
Exchange Commission ("SEC") in Washington, D.C.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Page
Trust History ..................................................................................... 1
Description of the Master Portfolios and Their Investments and Risks .............................. 2
Management of the Trust ........................................................................... 11
Control Persons and Principal Holders of Securities ............................................... 12
Investment Advisory and Other Services............................................................. 13
Brokerage Allocation and Other Practices........................................................... 14
Capital Stock and Other Securities................................................................. 15
Purchase, Redemption and Pricing of Interests ..................................................... 16
Taxation of the Trust ............................................................................. 17
Underwriters....................................................................................... 18
Calculations of Performance Data................................................................... 18
Financial Statements .............................................................................. 18
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. This is the Part
B for the S&P 500 Index and Bond Index Master Portfolios (each, a "Master
Portfolio" and collectively, the "Master Portfolios"). Each Master Portfolio is
a diversified portfolio of MIP. 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 (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
beneficial 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 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 interests. 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.
(6) Make loans to others, except through the purchase of debt obligations
and the entry into repurchase agreements. However, each Master Portfolio may
lend its portfolio securities in an amount not to exceed one-third of the value
of its total assets. Any loans of portfolio securities will be made according to
guidelines established by the SEC and the 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 1933 Act 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 interestholder 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
Bonds.
-----
Certain of the debt instruments purchased by the Bond Index Master Portfolio
may be bonds. A bond is an interest-bearing security issued by a company or
governmental unit. The issuer of a bond has a contractual obligation to pay
interest at a stated rate on specific dates and to repay principal (the bond's
face value) periodically or on a specified maturity date. An issuer may have the
right to redeem or "call" a bond before maturity, in which case the investor may
have to reinvest the proceeds at lower market rates. Most bonds bear interest
income at a "coupon" rate that is fixed for the life of the bond. The value of a
fixed rate bond usually rises when market interest rates fall, and falls when
market interest rates rise. Accordingly, a fixed rate bond's yield (income as a
percent of the bond's current value) may differ from its coupon rate as its
value rises or falls. Other types of bonds bear income at an interest rate that
is adjusted periodically. Because of their adjustable interest rates, the value
of "floating-rate" or "variable-rate" bonds fluctuates much less in response to
market interest rate movements than the value of fixed rate bonds. Also, the
Master Portfolio may treat some of these bonds as having a shorter maturity for
purposes of calculating the weighted average maturity of their investment
portfolios. Bonds may be senior or subordinated obligations. Senior obligations
generally have the first claim on a corporation's earnings and assets and, in
the event of liquidation, are paid before subordinated debt. Bonds may be
unsecured (backed only by the issuer's general creditworthiness) or secured
(also backed by specified collateral).
Floating- and Variable-Rate Obligations.
Each Master Portfolio may purchase floating- and variable-rate obligations
as described in the Part A. The Master Portfolios 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 a 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, a 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 Portfolios 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 Portfolios may invest. BGFA, on behalf of the
Master Portfolios, considers on an ongoing basis the creditworthiness of the
issuers of the floating- and variable-rate demand obligations in each Master
Portfolio's portfolio. The Master Portfolios will not invest more than 10% of
the value of their 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.
------------------------------------------
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.
In order to comply with undertakings made by the Master Portfolios pursuant
to Commodity Futures Trading Commission ("CFTC") Regulation 4.5, the Master
Portfolios will use futures and option contracts solely for bona fide hedging
purposes within the meaning and intent of CFTC Reg. 1.3(z); provided, however,
that in addition, with respect to positions in commodity futures or commodity
option contracts which do not come within the meaning and intent of CFTC Reg.
1.3(z), the aggregate initial margin and premiums required to establish such
positions will not exceed five percent of the liquidation value of a Master
Portfolio's portfolio, after taking into account unrealized profits and
unrealized losses on any such contract it has entered into; and provided
further, that in the case of an option that is in-the-money at the time of
purchase, the in-the-money amount as defined in CFTC Reg. 190.01(x) may be
excluded in computing such five percent.
Stock Index Futures and Options on Stock Index Futures. The S&P 500 Stock
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. An index futures contract is a standardized agreement between two
parties that commits one party to buy and the other party to sell a stipulated
quantity of a market index at a set price on or before a given date in the
future. The seller never actually delivers "shares" of the index or shares of
all the stocks in the index. Instead, the buyer and the seller settle the
difference between the contract price and the market price in cash on the
agreed-upon date - the buyer paying the difference if the actual price is lower
than the contract price and the seller paying the difference if the actual price
is higher. Options on futures contracts are similar to options on securities or
currencies except that options on futures contracts give the purchaser the
right, in return for the premium paid, to assume a position in a futures
contract (a long position if the option is a call and a short position if the
option is a put) at a specified exercise price at any time during the period of
the option. Futures contracts and options are standardized and traded on
exchanges, where the exchange serves as the ultimate counterparty for all
contracts. 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 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 outstanding voting stock of any one investment
company, (ii) 5% of the Master Portfolio's total assets with respect to any one
investment company and (iii) 10% of the Master Portfolio's total 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 to the
extent permitted under the 1940 Act.
Investment in Warrants.
----------------------
The S&P 500 Index Master Portfolio may invest up to 5% of net assets at the
time of purchase in warrants (other than those that have been acquired in units
or attached to other securities), including not more than 2% of each of their
net assets in warrants which are not listed on the New York or American Stock
Exchange. A warrant is an instrument issued by a corporation which gives the
holder the right to subscribe to a specified amount of the corporation's capital
stock at a set price for a specified period of time. The prices of warrants do
not necessarily correlate with the prices of the underlying securities. The S&P
500 Index Master Portfolio may only purchase warrants on securities in which the
Master Portfolio may invest directly.
Letters of Credit.
-----------------
Certain of the debt obligations (including municipal securities,
certificates of participation, commercial paper and other short-term
obligations) which the Master Portfolios may purchase may be backed by an
unconditional and irrevocable letter of credit of a bank, savings and loan
association or insurance company which assumes the obligation for payment of
principal and interest in the event of default by the issuer. Only banks,
savings and loan associations and insurance companies which, in the opinion of
BGFA, as investment adviser, are of comparable quality to issuers of other
permitted investments of such Master Portfolio may be used for letter of
credit-backed investments.
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 an aggregate
market 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.
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
Federal Deposit Insurance Corporation ("FDIC"); (iii) commercial paper rated at
the date of purchase "Prime-1" by Moody's or "A-1+" or "A-1" by S&P, or, if
unrated, of comparable quality as determined by BGFA, (iv) non-convertible
corporate debt securities (e.g., bonds and debentures) with remaining maturities
at the date of purchase of not more than one year that are rated at least "Aa"
by Moody's or "AA" by S&P ; (v) repurchase agreements; and (vi) short-term, U.S.
dollar-denominated obligations of foreign banks (including U.S. branches) that,
at the time of investment have more than $10 billion, or the equivalent in other
currencies, in total assets and in the opinion of BGFA are of comparable quality
to obligations of U.S. banks which may be purchased by the 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 FDIC.
Bankers' acceptances are credit instruments evidencing the obligation of a
bank to pay a draft drawn on it by a customer. These instruments reflect the
obligation both of the bank and of the drawer to pay the face amount of the
instrument upon maturity. The other short-term obligations may include
uninsured, direct obligations, bearing fixed, floating- or variable-interest
rates.
Commercial Paper and Short-Term Corporate Debt Instruments. Each 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 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 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,
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 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. 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.
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.
Unrated, Downgraded and Below Investment Grade Investments.
----------------------------------------------------------
The Master Portfolios may purchase instruments that are not rated if, in the
opinion of the adviser, BGFA, such obligation is of investment quality
comparable to other rated investments that are permitted to be purchased by such
Master Portfolio. After purchase by a Master Portfolio, a security may cease to
be rated or its rating may be reduced below the minimum required for purchase by
such Master Portfolio. Neither event will require a sale of such security by a
Master Portfolio provided that the amount of such securities held by a Master
Portfolio does not exceed 5% of the Master Portfolio's net assets. To the extent
the ratings given by Moody's or S&P may change as a result of changes in such
organizations or their rating systems, each Master Portfolio will attempt to use
comparable ratings as standards for investments in accordance with the
investment policies contained in its Part A and in this Part B. The ratings of
Moody's and S&P are more fully described in the Appendix to this Part B.
The Master Portfolios are not required to sell downgraded securities, and
each Master Portfolio could hold up to 5% of its net assets in debt securities
rated below "Baa" by Moody's or below "BBB" by S&P or if unrated, low quality
(below investment grade) securities.
Although they may offer higher yields than do higher rated securities, low
rated and unrated low quality debt securities generally involve greater
volatility of price and risk of principal and income, including the possibility
of default by, or bankruptcy of, the issuers of the securities. In addition, the
markets in which low rated and unrated low quality debt are traded are more
limited than those in which higher rated securities are traded. The existence of
limited markets for particular securities may diminish a Master Portfolio's
ability to sell the securities at fair value either to meet redemption requests
or to respond to changes in the economy or in the financial markets and could
adversely affect and cause fluctuations in the daily net asset value of a Master
Portfolio's interests.
Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of low rated or
unrated low quality debt securities, especially in a thinly traded market.
Analysis of the creditworthiness of issuers of low rated or unrated low quality
debt securities may be more complex than for issuers of higher rated securities,
and the ability of a Master Portfolio to achieve its investment objective may,
to the extent it holds low rated or unrated low quality debt securities, be more
dependent upon such creditworthiness analysis than would be the case if the
Master Portfolio held exclusively higher rated or higher quality securities.
Low rated or unrated low quality debt securities may be more susceptible to
real or perceived adverse economic and competitive industry conditions than
investment grade securities. The prices of such debt securities have been found
to be less sensitive to interest rate changes than higher rated or higher
quality investments, but more sensitive to adverse economic downturns or
individual corporate developments. A projection of an economic downturn or of a
period of rising interest rates, for example, could cause a decline in low rated
or unrated low quality debt securities prices because the advent of a recession
could dramatically lessen the ability of a highly leveraged company to make
principal and interest payments on its debt securities. If the issuer of the
debt securities defaults, the Master Portfolios may incur additional expenses to
seek recovery.
ITEM 13. MANAGEMENT OF THE TRUST.
The following information supplements and should be read in conjunction
with the Part A section entitled "Management, Organization and Capital
Structure." 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>
<S> <C> <C>
Jack S. Euphrat, 78 Trustee Private Investor.
415 Walsh Road
Atherton, CA 94027
*R. Greg Feltus, 49 Trustee, Chairman Executive Vice President of Stephens Inc.; President
and President of Stephens Insurance Services Inc.; Senior Vice
President of Stephens Sports Management Inc.; and
President of Investors Brokerage Insurance Inc.
W. Rodney Hughes, 74 Trustee Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Leo Soong,1 54 Trustee Managing Director of Crystal Geyser Roxane Water
Crystal Geyser Water Co. Co.; Co-Founder and President of Crystal Geyser
55 Francisco Street, Suite 410 Water Co.
San Francisco, CA 94133
Richard H. Blank, Jr., 44 Chief Operating Vice President of Stephens Inc.; Director of
Officer, Secretary Stephens Sports Management Inc.; and Director of
and Treasurer Capo Inc.
--------------------
1 Elected to the Board of Trustees of MIP on February 9, 2000.
Compensation Table
For the Calendar Year Ended December 31, 1999
Aggregate Total Compensation
Compensation from Registrant
Name and Position from Registrant and Fund Complex
----------------- - --------------- ----------------
Jack S. Euphrat $5,875 $11,750
Trustee
*R. Greg Feltus $0 $0
Trustee
Thomas S. Goho1 $1,500 $3,000
Trustee
W. Rodney Hughes $5,875 $11,750
Trustee
*J. Tucker Morse1 $1,500 $3,000
Trustee
--------------------
1 Retired from the Board of Trustees of MIP on April 28, 1999.
</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 MIP
and BGIF for their services as Directors/Trustees to the MIP and BGIF.
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, 2000, the interestholders identified below were known by
the Trust to own 5% or more of the outstanding voting interests 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 Portfolio S&P 500 Stock Fund 69%
Barclays Global Investors Funds, Inc.
111 Center Street
Little Rock, Arkansas 72201
U.S. Equity Index Master Portfolio 13%
Master Investment Portfolio
111 Center Street
Little Rock, Arkansas 72201
Vatagepoint 500 Stock Fund 6%
777 North Capital St., N.E.
Suite 600
Washington, D.C. 20002
Bond Index Master Portfolio Vantagepoint Core Bond Index Fund 79%
777 North Capital Street, NE, Suite 600
Washington, DC 20002
Bond Index Fund 20%
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
interests 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 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, and for the ten-month period ended
December 31, 1999, the Master Portfolios paid the following advisory fees to
BGFA, without waivers:
<TABLE>
<CAPTION>
Ten-Month
Year Ended Year Ended Year Ended Period Ended
February 28, 1997 February 28, 1998 February 28, 1999 December 31, 1999
Fees Fees Fees Fees
Paid Paid Paid Paid
<S> <C> <C> <C> <C>
S&P 500 Index Master Portfolio $577,637 $939,051 $1,353,414 $1,821,793
Bond Index Master Portfolio $147,204 $147,755 $ 89,576 $ 277,850
</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 advisory 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.
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 the
Master Portfolios 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 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 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, and for the ten-month period ended
December 31, 1999, the Master Portfolios paid brokerage commissions in the
dollar amounts shown below. None of the brokerage commissions were paid to
affiliated brokers.
<TABLE>
<S> <C> <C> <C> <C>
Ten-Month
Year Ended Year Ended Year Ended Period Ended
Master Portfolio 2/28/97 2/28/98 2/28/99 12/31/99
------- ------- ------- --------
S&P 500 Index Master Portfolio $69,826 $112,100 $366,484 $271,972
Bond Index Master Portfolio $ 0 $ 0 $ 0 $ 0
</TABLE>
Securities of Regular Broker/Dealers. On December 31, 1999, the Master
Portfolios owned securities of their "regular brokers or dealers" or their
parents, as defined in the 1940 Act, as follows:
S&P 500 Index Master Portfolio
Merrill Lynch & Co., Inc. $11,709,790
J.P. Morgan Co., Inc. $ 8,419,170
Lehman Bros. Holdings, Inc. $ 3,838,461
Morgan Stanley Dean Witter Discover $30,172,639
Paine Webber $ 2,140,665
Bond Index Master Portfolio
Merrill Lynch & Co., Inc. $ 4,507,362
Lehman Bros. Holdings, Inc. $ 1,498,313
Morgan Stanley Dean Witter Discover $ 1,498,313
ITEM 17. CAPITAL STOCK AND OTHER SECURITIES.
Pursuant to MIP's Declaration of Trust, the Trustees are authorized to
issue units 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 interests 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 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 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 Interests. 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 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 interests 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.
Interests purchased in exchange for securities generally cannot be redeemed
until the transfer has settled.
Suspension of Redemptions. The right of redemption of Master Portfolio
interests 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 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 closing values
of such securities on their respective primary 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 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 value of the Master Portfolio's interests.
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.
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 value of the Master
Portfolio's interests.
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, each 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 the Master
Portfolio's income and 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.
Each Master Portfolio's taxable year-end is the last day of December.
Although each Master Portfolio will not be subject to federal income tax, it
will file appropriate federal income tax returns.
It is intended that each Master Portfolio's assets, income and
distributions will be managed in such a way that an entity electing and
qualifying as a "regulated investment company" under the Code can continue to so
qualify by investing substantially all of its assets through the Master
Portfolio, provided that the regulated investment company meets other
requirements for such qualification not within the control of the Master
Portfolio (e.g., distributing at least 90% of the regulated investment company's
"investment company taxable income" annually).
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.
The audited financial statements, including the portfolio of
investments, and independent auditors' report for the Master Portfolios for the
ten-month period ended December 31, 1999 are hereby incorporated by reference to
the BGIF Annual Report (SEC File Nos. 33-54126; 811-7322), as filed with the SEC
on February 28, 2000. The audited financial statements for the Master Portfolios
are attached to all Part Bs delivered to interestholders or prospective
interestholders.
<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.
S&P Commercial Paper Ratings
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.
"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.
Moody's Commercial Paper Ratings
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.
"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.
Fitch 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.
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.
Duff Commercial Paper Ratings
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.
IBCA 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.
IBCA 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.
<PAGE>
MASTER INVESTMENT PORTFOLIO
MONEY MARKET MASTER PORTFOLIO
PART B -- STATEMENT OF ADDITIONAL INFORMATION
July 1, 2000
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, 2000. 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 1-888-204-3956. MIP's
Registration Statement may be examined at the office of the Securities and
Exchange Commission ("SEC") in Washington, D.C.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Page
Trust History ..................................................................................... 1
Description of the Master Portfolio and Its Investments and Risks ................................. 2
Management of the Trust ........................................................................... 10
Control Persons and Principal Holders of Securities ............................................... 11
Investment Advisory and Other Services............................................................. 12
Brokerage Allocation and Other Practices........................................................... 13
Capital Stock and Other Securities................................................................. 13
Purchase, Redemption and Pricing of Interests ..................................................... 14
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. This is Part B
for the Money Market Master Portfolio (the "Master Portfolio"), a diversified
portfolio of MIP. 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. Investment companies that hold
beneficial 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 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 interests.
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 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);
(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 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 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 thirteen months
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 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 Part A. 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 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 Master Portfolio 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 Master Portfolio
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 Master Portfolio 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
Trustees. Valuation of illiquid indebtedness involves a greater degree of
judgment in determining the value of the Master Portfolio's assets 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 Master Portfolio 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 Master
Portfolio 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 Master Portfolio derives its rights from the
intermediary bank that sold the loan participation. Such loans must be to
issuers in whose obligations the Master Portfolio may invest. Any participation
purchased by a Master Portfolio 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 Master Portfolio
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 Master Portfolio could be subject to delays, expenses, and
risks which are greater than those that would have been involved if the Master
Portfolio had purchased a direct obligation of the borrower. Moreover, under the
terms of the loan participation, the Master Portfolio may be regarded as a
creditor of the issuing bank (rather than of the underlying corporate borrower),
so that the Master Portfolio 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 Master Portfolio 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 Trustees. Valuation of illiquid indebtedness involves a greater
degree of judgment in determining the value of the Master Portfolio's assets
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 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 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 to the
extent permitted under the 1940 Act. The Master Portfolio may also purchase
shares of exchange listed closed-end funds, to the extent permitted under the
1940 Act.
Participation Interests.
-----------------------
The Master Portfolio may invest in participation interests in any type of
security in which the Master Portfolio may invest. A participation interest
gives the Master Portfolio an undivided interest in the underlying securities in
the proportion that the Master Portfolio'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, including government
securities and mortgage-related securities, regardless of their remaining
maturities. 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. Securities acquired as collateral by the
Master Portfolio under a repurchase agreement will be held in a segregated
account at a bank. 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 1933 Act, 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 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, Organization and Capital
Structure." 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>
<S> <C> <C>
Jack S. Euphrat, 78 Trustee Private Investor.
415 Walsh Road
Atherton, CA 94027
*R. Greg Feltus, 49 Trustee, Chairman Executive Vice President of Stephens Inc.; President
and President of Stephens Insurance Services Inc.; Senior Vice
President of Stephens Sports Management Inc.; and
President of Investors Brokerage Insurance Inc.
W. Rodney Hughes, 74 Trustee Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Leo Soong,1 54 Trustee Managing Director of Crystal Geyser Roxane Water
Crystal Geyser Water Co. Co.; Co-Founder and President of Crystal Geyser
55 Francisco Street, Suite 410 Water Co.
San Francisco, CA 94133
Richard H. Blank, Jr., 44 Chief Operating Vice President of Stephens Inc.; Director of
Officer, Secretary Stephens Sports Management Inc.; and Director of
and Treasurer Capo Inc.
--------------------
1 Elected to the Board of Trustees of MIP on February 9, 2000.
Compensation Table
For the Calendar Year Ended December 31, 1999
Aggregate Total Compensation
Compensation from Registrant
Name and Position from Registrant and Fund Complex
----------------- - --------------- ----------------
Jack S. Euphrat $5,875 $11,750
Trustee
*R. Greg Feltus $0 $0
Trustee
Thomas S. Goho1 $1,500 $3,000
Trustee
W. Rodney Hughes $5,875 $11,750
Trustee
*J. Tucker Morse1 $1,500 $3,000
Trustee
--------------------
1 Retired from the Board of Trustees of MIP on April 28, 1999.
</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 MIP
and BGIF for their services as Directors/Trustees to the MIP and BGIF.
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, 2000, the interestholders identified below were known by
the Trust to own 5% or more of the outstanding voting interests of the Master
Portfolio. Approximate percentages are indicated in the table below:
Name and Address Percentage of
of Interestholder Master Portfolio
BGIF Money Market Fund 36%
111 Center Street
Little Rock, Arkansas 72201
Hewitt Money Market Fund 43%
100 Half Day Road
Lincolnshire, Illinois 60069
E*Trade Premier Money Market Fund 14%
4500 Bohannon Drive
Menlo Park, California 94025
X.Com Money Market Fund 6%
P.O. Box 50185
Palo Alto, California 94303
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 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 interests 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 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. For the ten-month period ended December 31,
1999, the Master Portfolio paid BGFA $189,564 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 advisory 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 the
Master Portfolio 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.
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.
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 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 interests 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 interests 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 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 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 interests of the Master Portfolio may, at the discretion of
the investment 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 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.
Interests purchased in exchange for securities generally cannot be redeemed
until the transfer has settled.
Suspension of Redemptions. The right of redemption of Master Portfolio
interests 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's investments or determination of its net asset value is not
reasonably practicable, or (c) for such other periods as the SEC on 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
Trustees 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 income and 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.
The Master Portfolio's taxable year-end is the last day of December.
Although the Master Portfolio will not be subject to federal income tax, it will
file appropriate federal income tax returns.
It is intended that the Master Portfolio's assets, income and distributions
will be managed in such a way that an entity electing and qualifying as a
"regulated investment company" under the Code can continue to so qualify by
investing substantially all of its assets through the Master Portfolio, provided
that the regulated investment company meets other requirements for such
qualification not within the control of the Master Portfolio (e.g., distributing
at least 90% of the regulated investment company's "investment company taxable
income" annually).
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 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.
The audited financial statements, including the portfolio of
investments, and independent auditors' report for the Master Portfolio for the
ten-month period ended December 31, 1999 are hereby incorporated by reference to
the BGIF Annual Report (SEC File Nos. 33-54126; 811-7322), as filed with the SEC
on February 28, 2000. The audited financial statements for the Master Portfolios
are attached to all Part Bs delivered to interestholders or prospective
interestholders.
<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.
S&P Commercial Paper Ratings
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.
"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.
Moody's Commercial Paper Ratings
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.
"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.
Fitch 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.
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.
Duff Commercial Paper Ratings
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.
IBCA 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.
IBCA 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.
<PAGE>
MASTER INVESTMENT PORTFOLIO
LIFEPATH(TM) MASTER PORTFOLIOS
LIFEPATH INCOME 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, 2000
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, 2000. 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 1-888-204-3956. MIP's
Registration Statement may be examined at the office of the Securities and
Exchange Commission ("SEC") in Washington, D.C.
<TABLE>
<CAPTION>
Table of Contents
<S> <C>
Page
Trust History................................................................................... 1
Description of the Master Portfolios and Their Investments and Risks............................ 2
Management of the Trust......................................................................... 14
Control Persons and Principal Holders of Securities............................................. 15
Investment Advisory and Other Services.......................................................... 17
Brokerage Allocation and Other Practices........................................................ 18
Capital Stock and Other Securities.............................................................. 20
Purchase, Redemption and Pricing of Interests................................................... 20
Taxation of the Trust........................................................................... 22
Underwriters.................................................................................... 22
Calculations of Performance Data................................................................ 22
Financial Statements............................................................................ 22
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. This is Part B
for the LifePath Income (formerly 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 a diversified
portfolio of MIP. 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.
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
beneficial 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 interests. 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 SEC and MIP's Board of Trustees.
(7) Act as an underwriter of securities of other issuers, except to the
extent the Master Portfolios may be deemed an underwriter under the 1933 Act 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 interestholder 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"), 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
Federal Deposit Insurance Corporation ("FDIC"); (iii) commercial paper rated at
the date of purchase "Prime-1" by Moody's or "A-1+" or "A-1" by S&P, or, if
unrated, of comparable quality as determined by BGFA; (iv) non-convertible
corporate debt securities (e.g., bonds and debentures) with remaining maturities
at the date of purchase of not more than one year that are rated at least "Aa"
by Moody's or "AA" by S&P ; (v) repurchase agreements; and (vi) short-term, U.S.
dollar-denominated obligations of foreign banks (including U.S. branches) that,
at the time of investment have more than $10 billion, or the equivalent in other
currencies, in total assets and in the opinion of BGFA are of comparable quality
to obligations of U.S. banks which may be purchased by the 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 FDIC.
Bankers' acceptances are credit instruments evidencing the obligation
of a bank to pay a draft drawn on it by a customer. These instruments reflect
the obligation both of the bank and of the drawer to pay the face amount of the
instrument upon maturity. The other short-term obligations may include
uninsured, direct obligations, bearing fixed, floating- or variable-interest
rates.
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 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 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 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 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,
including government securities and mortgage-related securities, regardless of
their remaining maturities. The Master Portfolios 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 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. 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 Portfolios 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 Portfolios 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 Portfolios in connection with insolvency proceedings), it is the policy
of the Master Portfolios to limit repurchase agreements to selected creditworthy
securities dealers or domestic banks or other recognized financial institutions.
The Master Portfolios consider on an ongoing basis the creditworthiness of the
institutions with which they enter 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. The Master Portfolios 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 Portfolios to invest fluctuating amounts,
which may change daily without penalty, pursuant to direct arrangements between
a 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, a 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 Portfolios 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 Portfolios may invest. BGFA, on behalf of the
Master Portfolios, considers on an ongoing basis the creditworthiness of the
issuers of the floating- and variable-rate demand obligations in each Master
Portfolio's portfolio. The Master Portfolios will not invest more than 10% of
the value of their 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 "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 outstanding voting stock of any one investment
company, (ii) 5% of the Master Portfolio's total assets with respect to any one
investment company and (iii) 10% of the Master Portfolio's total 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 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.
In order to comply with undertakings made by the Master Portfolios pursuant
to Commodity Futures Trading Commission ("CFTC") Regulation 4.5, the Master
Portfolios will use futures and option contracts solely for bona fide hedging
purposes within the meaning and intent of CFTC Reg. 1.3(z); provided, however,
that in addition, with respect to positions in commodity futures or commodity
option contracts which do not come within the meaning and intent of CFTC Reg.
1.3(z), the aggregate initial margin and premiums required to establish such
positions will not exceed five percent of the liquidation value of a Master
Portfolio's portfolio, after taking into account unrealized profits and
unrealized losses on any such contract it has entered into; and provided
further, that in the case of an option that is in-the-money at the time of
purchase, the in-the-money amount as defined in CFTC Reg. 190.01(x) may be
excluded in computing such five percent.
Stock Index Futures and Options on Stock Index Futures. Each LifePath
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. An index futures contract is a standardized agreement between two
parties that commits one party to buy and the other party to sell a stipulated
quantity of a market index at a set price on or before a given date in the
future. The seller never actually delivers "shares" of the index or shares of
all the stocks in the index. Instead, the buyer and the seller settle the
difference between the contract price and the market price in cash on the
agreed-upon date - the buyer paying the difference if the actual price is lower
than the contract price and the seller paying the difference if the actual price
is higher. Options on futures contracts are similar to options on securities or
currencies except that options on futures contracts give the purchaser the
right, in return for the premium paid, to assume a position in a futures
contract (a long position if the option is a call and a short position if the
option is a put) at a specified exercise price at any time during the period of
the option. Futures contracts and options are standardized and traded on
exchanges, where the exchange serves as the ultimate counterparty for all
contracts. 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.
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 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.
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 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.
Mortgage-Backed Securities.
--------------------------
Each LifePath Master Portfolio may invest in mortgage-backed securities
("MBSs"), which are securities representing interests in a pool of loans secured
by mortgages. The resulting cash flow from these mortgages is used to pay
principal and interest on the securities. MBSs are assembled for sale to
investors by various government sponsored enterprises such as the Federal
National Mortgage Association ("FNMA") and the Federal Home Loan Mortgage
Corporation ("FHLMC") or are guaranteed by such governmental agencies as the
Government National Mortgage Association ("GNMA"). Regardless of the type of
guarantee, all MBSs are subject to interest rate risk (i.e., exposure to loss
due to changes in interest rates). GNMA MBSs include GNMA Mortgage Pass-Through
Certificates (also known as "Ginnie Maes") that are guaranteed as to the full
and timely payment of principal and interest by GNMA and such guarantee is
backed by the authority of GNMA to borrow funds from the U.S. Treasury to make
payments under its guarantee. GNMA is a wholly-owned U.S. Government corporation
within the Department of Housing and Urban Development and, as such, Ginnie Maes
are backed by the full faith and credit of the federal government. In contrast,
MBSs issued by FNMA include FNMA Guaranteed Mortgage Pass-Through Certificates
("Fannie Maes") that are solely the obligations of FNMA and are neither backed
by nor entitled to the full faith and credit of the federal government. FNMA is
a government-sponsored enterprise that is also a private corporation whose stock
trades on the NYSE. Fannie Maes are guaranteed as to timely payment of principal
and interest by FNMA. MBSs issued by FHLMC include FHLMC Mortgage Participation
Certificates ("Freddie Macs" or "PCs"). FHLMC is a government-sponsored
enterprise whose MBSs are solely obligations of FHLMC. Therefore, Freddie Macs
are not guaranteed by the United States or by any Federal Home Loan Bank and do
not constitute a debt or obligation of the United States or of any Federal Home
Loan Bank. FHLMC guarantees timely payment of interest, but only ultimate
payment of principal due under the obligations it issues. FHLMC may, under
certain circumstances, remit the guaranteed payment of principal at any time
after default on an underlying mortgage, but in no event later than one year
after the guarantee becomes payable.
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
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 following information supplements and should be read in conjunction
with the Part A section entitled "Management, Organization and Capital
Structure." 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>
<S> <C> <C>
Jack S. Euphrat, 78 Trustee Private Investor.
415 Walsh Road
Atherton, CA 94027
*R. Greg Feltus, 49 Trustee, Chairman Executive Vice President of Stephens Inc.; President
and President of Stephens Insurance Services Inc.; Senior Vice
President of Stephens Sports Management Inc.; and
President of Investors Brokerage Insurance Inc.
W. Rodney Hughes, 74 Trustee Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Leo Soong,1 54 Trustee Managing Director of Crystal Geyser Roxane Water
Crystal Geyser Water Co. Co.; Co-Founder and President of Crystal Geyser
55 Francisco Street, Suite 410 Water Co.
San Francisco, CA 94133
Richard H. Blank, Jr., 44 Chief Operating Vice President of Stephens Inc.; Director of
Officer, Secretary Stephens Sports Management Inc.; and Director of
and Treasurer Capo Inc.
--------------------
1 Elected to the Board of Trustees of MIP on February 9, 2000.
Compensation Table
For the Fiscal Year Ended February 29, 2000
Aggregate Total Compensation
Compensation from Registrant
Name and Position from Registrant and Fund Complex
----------------- - --------------- ----------------
Jack S. Euphrat $9,125 $18,250
Trustee
*R. Greg Feltus $0 $0
Trustee
Thomas S. Goho1 $1,500 $ 3,000
Trustee
W. Rodney Hughes $9,125 $18,250
Trustee
*J. Tucker Morse1 $1,500 $ 3,000
Trustee
--------------------
1 Retired from the Board of Trustees of MIP on April 28, 1999.
</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 MIP
and BGIF for their services as Directors/Trustees to the MIP and BGIF.
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, 2000, the interestholders identified below were known by
the Trust to own 5% or more of the outstanding voting interests of their
corresponding LifePath Master Portfolios. Approximate percentages are indicated
in the table below:
<TABLE>
<CAPTION>
Percentage of
Master Portfolio Name and Address of Interestholder Master Portfolio
<S> <C>
LifePath Income Master Portfolio LifePath Income Fund 31%
Barclays Global Investors Funds, Inc.
111 Center Street
Little Rock, Arkansas 72201
Wells Fargo LifePath Opportunity Fund 65%
Wells Fargo Funds Trust
111 Center Street
Little Rock, Arkansas 72201
LifePath 2010 Master Portfolio LifePath 2010 Fund 39%
Barclays Global Investors Funds, Inc.
111 Center Street
Little Rock, Arkansas 72201
Wells Fargo LifePath 2010 Fund 55%
Wells Fargo Funds Trust
111 Center Street
Little Rock, Arkansas 72201
NestEgg 2010 Fund 5%
American Independence Funds Trust
P.O. Box 182498
Columbus, Ohio 43219
LifePath 2020 Master Portfolio LifePath 2020 Fund 42%
Barclays Global Investors Funds, Inc.
111 Center Street
Little Rock, Arkansas 72201
Wells Fargo LifePath 2020 Fund 54%
Wells Fargo Funds Trust
111 Center Street
Little Rock, Arkansas 72201
LifePath 2030 Master Portfolio LifePath 2030 Fund 31%
Barclays Global Investors Funds, Inc.
111 Center Street
Little Rock, Arkansas 72201
Wells Fargo LifePath 2030 Fund 66%
Wells Fargo Funds Trust
111 Center Street
Little Rock, Arkansas 72201
LifePath 2040 Master Portfolio LifePath 2040 Fund 23%
Barclays Global Investors Funds, Inc.
111 Center Street
Little Rock, Arkansas 72201
LifePath 2040 Master Portfolio Wells Fargo LifePath 2040 Fund 75%
Wells Fargo Funds Trust
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
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).
Advisory Fees Paid. For the fiscal years ended February 28, 1998,
February 28, 1999 and February 29, 2000, 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, 1998 February 28, 1999 February 29,2000
Master Portfolio Fees Paid Fees Paid Fees Paid
---------------- --------- --------- ---------
<S> <C> <C> <C>
LifePath Income Master Portfolio $ 656,142 $ 630,133 $ 592,139
LifePath 2010 Master Portfolio $1,018,984 $1,236,989 $1,282,599
LifePath 2020 Master Portfolio $1,572,634 $1,882,147 $2,101,737
LifePath 2030 Master Portfolio $1,048,151 $1,405,948 $1,501,573
LifePath 2040 Master Portfolio $1,767,632 $2,472,170 $2,790,585
</TABLE>
Co-Administrators. Stephens and BGI are the Master Portfolios'
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.
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.
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 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.
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, 1998,
February 28, 1999 and February 29, 2000, the Master Portfolios paid brokerage
commissions in the dollar amounts shown below. None of the brokerage commissions
were paid to affiliated brokers.
<TABLE>
<CAPTION>
FYE FYE FYE
Master Portfolio 2/28/98 2/28/99 2/29/00
---------------- ------- ------- -------
<S> <C> <C> <C>
LifePath Income Master Portfolio $ 9,361 $ 8,427 $ 6,565
LifePath 2010 Master Portfolio $15,306 $25,441 $ 29,150
LifePath 2020 Master Portfolio $29,153 $47,302 $ 71,716
LifePath 2030 Master Portfolio $28,908 $35,369 $ 51,148
LifePath 2040 Master Portfolio $94,717 $90,551 $115,074
</TABLE>
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:
<TABLE>
<CAPTION>
Master Portfolio Broker/Dealer Amount
<S> <C> <C>
LifePath Income Master Portfolio J.P. Morgan Co., Inc. $ 12,876
Lehman Bros. Holdings, Inc. $ 13,050
Merrill Lynch & Co., Inc. $ 23,575
Morgan Stanley Dean Witter Discover $ 62,548
Donaldson Lufkin & Jenrette, Inc. $ 8,687
The Goldman Sachs Group $ 18,500
LifePath 2010 Master Portfolio J.P. Morgan Co., Inc. $ 145,299
Lehman Bros. Holdings, Inc. $ 54,375
Merrill Lynch & Co., Inc. $ 239,235
Morgan Stanley Dean Witter Discover $ 543,918
Donaldson Lufkin & Jenrette, Inc. $ 6,602
The Goldman Sachs Group $ 222,000
LifePath 2020 Master Portfolio J.P. Morgan Co., Inc. $ 323,232
Lehman Bros. Holdings, Inc. $ 146,088
Merrill Lynch & Co., Inc. $ 642,470
Morgan Stanley Dean Witter Discover $1,339,862
Donaldson Lufkin & Jenrette, Inc. $ 19,077
The Goldman Sachs Group $ 518,000
LifePath 2030 Master Portfolio J.P. Morgan Co., Inc. $ 18,461
Lehman Bros. Holdings, Inc. $ 119,987
Merrill Lynch & Co., Inc. $ 539,048
Morgan Stanley Dean Witter Discover $1,140,806
LifePath 2040 Master Portfolio J.P. Morgan Co., Inc. $ 607,392
Lehman Bros. Holdings, Inc. $ 264,987
Merrill Lynch & Co., Inc. $1,203,555
Morgan Stanley Dean Witter Discover $2,510,674
Donaldson Lufkin & Jenrette, Inc. $ 58,648
The Goldman Sachs Group $1,156,250
</TABLE>
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
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 Interests. 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 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 interests 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.
Interests 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 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 Trustees or
its delegates. MIP's Board of Trustees reviews the method of valuation on a
current basis. In making a good faith valuation of restricted securities, the
following are generally considered: restricted securities that are, or are
convertible into, securities of the same class of securities for which a public
market exists usually are valued at market value less the same percentage
discount at which such securities were purchased. This discount may be revised
periodically if 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 value of a LifePath Master
Portfolio's interests.
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, each 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 the Master
Portfolio's income and 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.
Each Master Portfolio's taxable year-end is the last day of December.
Although each Master Portfolio will not be subject to federal income tax, it
will file appropriate federal income tax returns.
It is intended that each Master Portfolio's assets, income and
distributions will be managed in such a way that an entity electing and
qualifying as a "regulated investment company" under the Code can continue to so
qualify by investing substantially all of its assets through the Master
Portfolio, provided that the regulated investment company meets other
requirements for such qualification not within the control of the Master
Portfolio (e.g., distributing at least 90% of the regulated investment company's
"investment company taxable income" annually).
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 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 services 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 29, 2000, are hereby incorporated
by reference to the BGIF Annual Report (SEC File Nos. 33-54126; 811-7322), as
filed with the SEC on May 1, 2000. The audited financial statements for the
LifePath Master Portfolios are attached to all Part Bs delivered to
interestholders or prospective interestholders.
<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.
S&P Commercial Paper Ratings
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.
"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.
Moody's Commercial Paper Ratings
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.
"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.
Fitch 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.
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.
Duff Commercial Paper Ratings
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.
IBCA 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.
IBCA 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.
<PAGE>
MASTER INVESTMENT PORTFOLIO
EXTENDED INDEX MASTER PORTFOLIO
PART B -- STATEMENT OF ADDITIONAL INFORMATION
July 1, 2000
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, 2000. 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 1-888-204-3956. MIP's
Registration Statement may be examined at the office of the Securities and
Exchange Commission ("SEC") in Washington, D.C.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
Trust History ..................................................................................... 1
Description of the Master Portfolio and Its Investments and Risks ................................. 2
Management of the Trust ........................................................................... 8
Control Persons and Principal Holders of Securities ............................................... 9
Investment Advisory and Other Services ............................................................ 10
Brokerage Allocation and Other Practices .......................................................... 11
Capital Stock and Other Securities ................................................................ 11
Purchase, Redemption and Pricing of Interests ..................................................... 12
Taxation of the Trust ............................................................................. 13
Underwriters ...................................................................................... 13
Calculations of Performance Data .................................................................. 13
Financial Statements .............................................................................. 13
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. This is
Part B for the Extended Index Master Portfolio (the "Master Portfolio"), a
diversified portfolio of MIP. 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. Investment companies that hold
beneficial 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 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 interests. 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 SEC 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 1933 Act 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).
(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 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 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
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.
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.
In order to comply with undertakings made by the Master Portfolio pursuant
to Commodity Futures Trading Commission ("CFTC") Regulation 4.5, the Master
Portfolio will use futures and option contracts solely for bona fide hedging
purposes within the meaning and intent of CFTC Reg. 1.3(z); provided, however,
that in addition, with respect to positions in commodity futures or commodity
option contracts which do not come within the meaning and intent of CFTC Reg.
1.3(z), the aggregate initial margin and premiums required to establish such
positions will not exceed five percent of the liquidation value of the Master
Portfolio's portfolio, after taking into account unrealized profits and
unrealized losses on any such contract it has entered into; and provided
further, that in the case of an option that is in-the-money at the time of
purchase, the in-the-money amount as defined in CFTC Reg. 190.01(x) may be
excluded in computing such five percent.
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 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.
Initial Public Offerings.
------------------------
Although it is not a principal investment strategy of the Master Portfolio,
the Master Portfolio may purchase shares issued in initial public offerings
("IPOs") in anticipation of such shares becoming part of the Wilshire 4500
Index. Although companies can be any age or size at the time of their IPOs, they
are often smaller and have a limited operating history, which creates a greater
potential for the value of their securities to be impaired following the IPO. In
addition, market psychology prevailing at the time of an IPO can have a
substantial and unpredictable effect on the price of an IPO security, causing
the price of a company's securities to be particular volatile at the time of its
IPO and for a period thereafter. Because of the nature of IPOs and the fact that
such securities may not be part of the Wilshire 4500 Index at the time of the
Master Portfolio's purchase, the Master Portfolio's investments in IPOs may
cause its performance to track the Wilshire 4500 Index less closely.
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 outstanding voting stock of any one investment company, (ii) 5% of
the Master Portfolio's total assets with respect to any one investment company
and (iii) 10% of the Master Portfolio's total 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 shares 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 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 lend
securities having an aggregate market value that exceeds one-third of the
current value of its 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, 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 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. 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
Federal Deposit Insurance Corporation ("FDIC"); (iii) commercial paper rated at
the date of purchase "Prime-1" by Moody's or "A-1+" or "A-1" by S&P, or, if
unrated, of comparable quality as determined by BGFA; (iv) non-convertible
corporate debt securities (e.g., bonds and debentures) with remaining maturities
at the date of purchase of not more than one year that are rated at least "Aa"
by Moody's or "AA" by S&P ; (v) repurchase agreements; and (vi) short-term, U.S.
dollar-denominated obligations of foreign banks (including U.S. branches) that,
at the time of investment have more than $10 billion, or the equivalent in other
currencies, in total assets and in the opinion of BGFA are of comparable quality
to obligations of U.S. banks which may be purchased by the 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 FDIC.
Bankers' acceptances are credit instruments evidencing the obligation of a
bank to pay a draft drawn on it by a customer. These instruments reflect the
obligation both of the bank and of the drawer to pay the face amount of the
instrument upon maturity. The other short-term obligations may include
uninsured, direct obligations, bearing fixed, floating- or variable-interest
rates.
Commercial Paper and Short-Term Corporate Debt Instruments. 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 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 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, Organization and Capital
Structure." 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>
<S> <C> <C>
Jack S. Euphrat, 78 Trustee Private Investor.
415 Walsh Road
Atherton, CA 94027
*R. Greg Feltus, 49 Trustee, Chairman Executive Vice President of Stephens Inc.; President
and President of Stephens Insurance Services Inc.; Senior Vice
President of Stephens Sports Management Inc.; and
President of Investors Brokerage Insurance Inc.
W. Rodney Hughes, 74 Trustee Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Leo Soong,1 54 Trustee Managing Director of Crystal Geyser Roxane Water
Crystal Geyser Water Co. Co.; Co-Founder and President of Crystal Geyser
55 Francisco Street, Suite 410 Water Co.
San Francisco, CA 94133
Richard H. Blank, Jr., 44 Chief Operating Vice President of Stephens Inc.; Director of
Officer, Secretary Stephens Sports Management Inc.; and Director of
and Treasurer Capo Inc.
--------------------
1 Elected to the Board of Trustees of MIP on February 9, 2000.
Compensation Table
For the Calendar Year Ended December 31, 1999
Aggregate Total Compensation
Compensation from Registrant
Name and Position from Registrant and Fund Complex
----------------- - --------------- ----------------
Jack S. Euphrat $5,875 $11,750
Trustee
*R. Greg Feltus $0 $0
Trustee
Thomas S. Goho1 $1,500 $3,000
Trustee
W. Rodney Hughes $5,875 $11,750
Trustee
*J. Tucker Morse1 $1,500 $3,000
Trustee
--------------------
1 Retired from the Board of Trustees of MIP on April 28, 1999.
</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 MIP
and BGIF for their services as Directors/Trustees to the MIP and BGIF.
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, 2000, the interestholders identified below were known by the
Trust to own 5% or more of the outstanding voting securities of the Master
Portfolio. Approximate percentages are indicated in the table below:
Name and Address Percentage of
of Interestholder Master Portfolio
MIP U.S. Equity Index Master Portfolio 66%
111 Center Street
Little Rock, Arkansas 72201
Vantagepoint Mid/Small Company Index Fund 31%
777 North Capital Street, NE, Suite 600
Washington, DC 20002
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 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 interests 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. For the
ten-month period ended December 31, 1999, the Master Portfolio paid BGFA
$102,803 in advisory fees, without waivers.
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 advisory fees payable to BGFA
and other than custodial fees of up to 0.01% payable after February 22, 2001.
Stephens and BGI are entitled to receive a monthly fee, in 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. For the ten-month
period ended December 31, 1999, the Master Portfolio paid Stephens and BGI
$25,701 in administrative fees, without waivers.
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
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 02116.
During the first two years of the Master Portfolio's operations, IBT will only
receive compensation for its custodial services from Stephens and BGI. However,
beginning on February 22, 2001, 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 the Master
Portfolio's Transfer and Dividend Disbursing Agent (the "Transfer Agent"). IBT
is not entitled to receive compensation for providing such services to the
Master Portfolio 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 December 31, 1999, the Master
Portfolio owned securities of its "regular brokers or dealers" or their parents,
as defined in the 1940 Act, as follows:
The Goldman Sachs Group $333,235
Donaldson Lufkin & Jenrette, Inc. $309,213
Brokerage Commissions. For the period beginning February 22, 1999 (the
Master Portfolio's inception date) and ended February 28, 1999, the Master
Portfolio paid brokerage commissions in the amount of $25,052. For the ten-month
period ended December 31, 1999, the Master Portfolio paid brokerage commissions
in the amount of $82,215. 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 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 interests 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 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 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 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 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 interests 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.
Interests purchased in exchange for securities generally cannot be redeemed
until the transfer has settled.
Suspension of Redemptions. The right of redemption of Master Portfolio
interests 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's 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 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.
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 income and 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.
The Master Portfolio's taxable year-end is the last day of December.
Although the Master Portfolio will not be subject to federal income tax, it will
file appropriate federal income tax returns.
It is intended that the Master Portfolio's assets, income and distributions
will be managed in such a way that an entity electing and qualifying as a
"regulated investment company" under the Code can continue to so qualify by
investing substantially all of its assets through the Master Portfolio, provided
that the regulated investment company meets other requirements for such
qualification not within the control of the Master Portfolio (e.g., distributing
at least 90% of the regulated investment company's "investment company taxable
income" annually).
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 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.
The audited financial statements, including the portfolio of investments,
and independent auditors' report for the Master Portfolio for the ten-month
period ended December 31, 1999 are hereby incorporated by reference to MIP's
Form N-SAR (SEC File No. 811-8162) as filed with the SEC on February 25, 2000.
The audited financial statements for the Master Portfolio are attached to all
Part Bs delivered to interestholders or prospective interestholders.
<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.
S&P Commercial Paper Ratings
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.
"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.
Moody's Commercial Paper Ratings
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.
"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.
Fitch 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.
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.
Duff Commercial Paper Ratings
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.
IBCA 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.
IBCA 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.
<PAGE>
MASTER INVESTMENT PORTFOLIO
U.S. EQUITY INDEX MASTER PORTFOLIO
PART B -- STATEMENT OF ADDITIONAL INFORMATION
July 1, 2000
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, 2000. 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 1-888-204-3956. MIP's
Registration Statement may be examined at the office of the Securities and
Exchange Commission ("SEC") in Washington, D.C.
<TABLE>
<CAPTION>
Table Of Contents
Page
<S> <C>
Trust History................................................................................... 1
Description of the Master Portfolio and Its Investments and Risks............................... 2
Management of the Trust......................................................................... 10
Control Persons and Principal Holders of Securities............................................. 11
Investment Advisory and Other Services.......................................................... 11
Brokerage Allocation and Other Practices........................................................ 13
Capital Stock and Other Securities.............................................................. 13
Purchase, Redemption and Pricing of Interests................................................... 14
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. This is Part B
for the U.S. Equity Index Master Portfolio (the "Master Portfolio"), a
diversified portfolio of MIP. 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
beneficial 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 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 of its total assets. Any loans of portfolio securities will be made
according to guidelines established by the SEC 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 1933 Act 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).
(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 are also 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
Federal Deposit Insurance Corporation ("FDIC"); (iii) commercial paper rated at
the date of purchase "Prime-1" by Moody's or "A-1+" or "A-1" by S&P, or, if
unrated, of comparable quality as determined by BGFA; (iv) non-convertible
corporate debt securities (e.g., bonds and debentures) with remaining maturities
at the date of purchase of not more than one year that are rated at least "Aa"
by Moody's or "AA" by S&P ; (v) repurchase agreements; and (vi) short-term, U.S.
dollar-denominated obligations of foreign banks (including U.S. branches) that,
at the time of investment have more than $10 billion, or the equivalent in other
currencies, in total assets and in the opinion of BGFA are of comparable quality
to obligations of U.S. banks which may be purchased by the 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 FDIC.
Bankers' acceptances are credit instruments evidencing the obligation
of a bank to pay a draft drawn on it by a customer. These instruments reflect
the obligation both of the bank and of the drawer to pay the face amount of the
instrument upon maturity. The other short-term obligations may include
uninsured, direct obligations, bearing fixed, floating- or variable-interest
rates.
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 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 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 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 engage in a repurchase
agreement with respect to any security in which it is authorized to invest,
including government securities and mortgage-related securities, regardless of
their remaining maturities. 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. 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.
---------------------------------------
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.
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.
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.
Initial Public Offerings.
------------------------
Although it is not a principal investment strategy of the Master
Portfolio, the Master Portfolio may purchase shares issued in initial public
offerings ("IPOs") in anticipation of such shares becoming part of the Wilshire
5000 Equity Index. Although companies can be any age or size at the time of
their IPOs, they are often smaller and have a limited operating history, which
creates a greater potential for the value of their securities to be impaired
following the IPO. In addition, market psychology prevailing at the time of an
IPO can have a substantial and unpredictable effect on the price of an IPO
security, causing the price of a company's securities to be particular volatile
at the time of its IPO and for a period thereafter. Because of the nature of
IPOs and the fact that such securities may not be part of the Wilshire 5000
Index at the time of the Master Portfolio's purchase, the Master Portfolio's
investments in IPOs may cause its performance to track the Wilshire 5000 Equity
Index less closely.
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 outstanding voting stock of any one investment company, (ii) 5% of
the Master Portfolio's total assets with respect to any one investment company
and (iii) 10% of the Master Portfolio's total 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.
In order to comply with undertakings made by the Master Portfolio
pursuant to Commodity Futures Trading Commission ("CFTC") Regulation 4.5, the
Master Portfolio will use futures and option contracts solely for bona fide
hedging purposes within the meaning and intent of CFTC Reg. 1.3(z); provided,
however, that in addition, with respect to positions in commodity futures or
commodity option contracts which do not come within the meaning and intent of
CFTC Reg. 1.3(z), the aggregate initial margin and premiums required to
establish such positions will not exceed five percent of the liquidation value
of the Master Portfolio's portfolio, after taking into account unrealized
profits and unrealized losses on any such contract it has entered into; and
provided further, that in the case of an option that is in-the-money at the time
of purchase, the in-the-money amount as defined in CFTC Reg. 190.01(x) may be
excluded in computing such five percent.
Stock Index Futures and Options on Stock Index 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 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 aggregate 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 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 lend
securities having an aggregate market value that exceeds one-third of the
current value of its 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.
<PAGE>
ITEM 13. MANAGEMENT OF THE TRUST.
The following information supplements and should be read in conjunction
with the Part A section entitled "Management, Organization and Capital
Structure." 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>
<S> <C> <C>
Jack S. Euphrat, 78 Trustee Private Investor.
415 Walsh Road
Atherton, CA 94027
*R. Greg Feltus, 49 Trustee, Chairman Executive Vice President of Stephens Inc.; President
and President of Stephens Insurance Services Inc.; Senior Vice
President of Stephens Sports Management Inc.; and
President of Investors Brokerage Insurance Inc.
W. Rodney Hughes, 74 Trustee Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Leo Soong,1 54 Trustee Managing Director of Crystal Geyser Roxane Water
Crystal Geyser Water Co. Co.; Co-Founder and President of Crystal Geyser
55 Francisco Street, Suite 410 Water Co.
San Francisco, CA 94133
Richard H. Blank, Jr., 44 Chief Operating Vice President of Stephens Inc.; Director of
Officer, Secretary Stephens Sports Management Inc.; and Director of
and Treasurer Capo Inc.
--------------------
1 Elected to the Board of Trustees of MIP on February 9, 2000.
Compensation Table
For the Calendar Year Ended December 31, 1999
Aggregate Total Compensation
Compensation from Registrant
Name and Position from Registrant and Fund Complex
----------------- - --------------- ----------------
Jack S. Euphrat $5,875 $11,750
Trustee
*R. Greg Feltus $0 $0
Trustee
Thomas S. Goho1 $1,500 $3,000
Trustee
W. Rodney Hughes $5,875 $11,750
Trustee
*J. Tucker Morse1 $1,500 $3,000
Trustee
--------------------
1 Retired from the Board of Trustees of MIP on April 28, 1999.
</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 MIP
and BGIF for their services as Directors/Trustees to the MIP and BGIF.
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, 2000, the interestholders identified below were known by
the Trust to own 5% or more of the outstanding voting securities of the Master
Portfolio. Approximate percentages are indicated in the table below:
Name and Address Percentage of
of Interestholder Master Portfolio
Vantagepoint Broad Market Index Fund 100%
Vantagepoint Funds
777 North Capital Street, NE, Suite 600
Washington, D.C. 20002
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 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 interests 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 0.01% 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. For the ten-month
period ended December 31, 1999, the Master Portfolio paid BGFA $334,564 in
advisory fees, without waivers, $284,259 of which was allocated from the
Underlying Portfolios.
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. For the ten-month period ended December 31, 1999, the Master
Portfolio paid Stephens and BGI $72,405 in administrative fees, without waivers,
$22,100 of which was allocated from the Extended Index Portfolio.
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 02116.
During the first two years of the Master Portfolio's operations, IBT will only
receive compensation for its custodial services from Stephens and BGI. However,
beginning on February 22, 2001, 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 December 31, 1999, the Master
Portfolio owned no securities of its "regular brokers or dealers" or their
parents, as defined in the 1940 Act.
Brokerage Commissions. For the ten-month period ended December 31, 1999,
the Master Portfolio paid no brokerage commissions.
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
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 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 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 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 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 interests of the Master Portfolio may, at the discretion of
the investment 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.
Interests purchased in exchange for securities generally cannot be redeemed
until the transfer has settled.
Suspension of Redemptions. The right of redemption of Master Portfolio
interests 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 SEC so that disposal of the Master Portfolio's 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 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.
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 income and 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.
The Master Portfolio's taxable year-end is the last day of December.
Although the Master Portfolio will not be subject to federal income tax, it will
file appropriate federal income tax returns.
It is intended that the Master Portfolio's assets, income and
distributions will be managed in such a way that an entity electing and
qualifying as a "regulated investment company" under the Code can continue to so
qualify by investing substantially all of its assets through the Master
Portfolio, provided that the regulated investment company meets other
requirements for such qualification not within the control of the Master
Portfolio (e.g., distributing at least 90% of the regulated investment company's
"investment company taxable income" annually).
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 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.
The audited financial statements, including the portfolio of
investments, and independent auditors' report for the Master Portfolio for the
ten-month period ended December 31, 1999 are hereby incorporated by reference to
MIP's Form N-SAR (SEC File No. 811-8162) as filed with the SEC on February 25,
2000. The audited financial statements for the Master Portfolio are attached to
all Part Bs delivered to interestholders or prospective interestholders.
<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.
S&P Commercial Paper Ratings
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.
"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.
Moody's Commercial Paper Ratings
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.
"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.
Fitch 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.
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.
Duff Commercial Paper Ratings
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.
IBCA 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.
IBCA 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.
<PAGE>
MASTER INVESTMENT PORTFOLIO
INTERNATIONAL INDEX MASTER PORTFOLIO
PART B -- STATEMENT OF ADDITIONAL INFORMATION
July 1, 2000
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 September 29, 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 1-888-204-3956.
MIP's Registration Statement may be examined at the office of the Securities and
Exchange Commission ("SEC") in Washington, D.C.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
Trust History ..................................................................................... 1
Description of the Master Portfolio and Its Investments and Risks ................................. 2
Management of the Trust............................................................................ 13
Control Persons and Principal Holders of Securities................................................ 14
Investment Advisory and Other Services ............................................................ 15
Brokerage Allocation and Other Practices........................................................... 16
Capital Stock and Other Securities................................................................. 16
Purchase, Redemption and Pricing of Interests...................................................... 17
Taxation of the Trust ............................................................................. 18
Underwriters....................................................................................... 18
Calculation of Performance Data ................................................................... 18
Financial Statements............................................................................... 18
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. This is
Part B for the International Index Master Portfolio (the "Master Portfolio"), a
diversified portfolio of MIP. 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
twelve 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
beneficial 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 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 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 interests. 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. This
limitation does not apply to foreign currency transactions including without
limitation forward currency contracts.
(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 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 1933 Act, 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) any industry in
which the EAFE Free 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.
(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 interestholder 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
Foreign Currency Futures Contracts.
In General. A foreign currency futures contract is an agreement between
two parties for the future delivery of a specified currency at a specified time
and at a specified price. A "sale" of a futures contract means the contractual
obligation to deliver the currency at a specified price on a specified date, or
to make the cash settlement called for by the contract. Futures contracts have
been designed by exchanges which have been designated "contract markets" by the
Commodity Futures Trading Commission ("CFTC") and must be executed through a
brokerage firm, known as a futures commission merchant, which is a member of the
relevant contract market. Futures contracts trade on these markets, and the
exchanges, through their clearing organizations, guarantee that the contracts
will be performed as between the clearing members of the exchange.
While futures contracts based on currencies do provide for the delivery
and acceptance of a particular currency, such deliveries and acceptances are
very seldom made. Generally, a futures contract is terminated by entering into
an offsetting transaction. The Master Portfolio will incur brokerage fees when
it purchases and sells futures contracts. At the time such a purchase or sale is
made, the Master Portfolio must provide cash or money market securities as a
deposit known as "margin." The initial deposit required will vary, but may be as
low as 2% or less of a contract's face value. Daily thereafter, the futures
contract is valued through a process known as "marking to market," and the
Master Portfolio may receive or be required to pay "variation margin" as the
futures contract becomes more or less valuable.
Purchase and Sale of Currency Futures Contracts. In order to hedge its
portfolio and to protect it against possible variations in foreign exchange
rates pending the settlement of securities transactions, the Master Portfolio
may buy or sell currency futures contracts. If a fall in exchange rates for a
particular currency is anticipated, the Master Portfolio may sell a currency
futures contract as a hedge. If it is anticipated that exchange rates will rise,
the Master Portfolio may purchase a currency futures contract to protect against
an increase in the price of securities denominated in a particular currency the
Master Portfolio intends to purchase. These futures contracts will be used only
as a hedge against anticipated currency rate changes.
A currency futures contract sale creates an obligation by the Master
Portfolio, as seller, to deliver the amount of currency called for in the
contract at a specified futures time for a special price. A currency futures
contract purchase creates an obligation by the Master Portfolio, as purchaser,
to take delivery of an amount of currency at a specified future time at a
specified price. Although the terms of currency futures contracts specify actual
delivery or receipt, in most instances the contracts are closed out before the
settlement date without the making or taking of delivery of the currency.
Closing out of a currency futures contract is effected by entering into an
offsetting purchase or sale transaction.
In connection with transactions in foreign currency futures, the Master
Portfolio will be required to deposit as "initial margin" an amount of cash or
short-term government securities equal to from 5% to 10% of the contract amount.
Thereafter, subsequent payments (referred to as "variation margin") are made to
and from the broker to reflect changes in the value of the futures contract.
Risk Factors Associated with Futures Transactions. The effective use of
futures strategies depends on, among other things, the Master Portfolio's
ability to terminate futures positions at times when BGFA deems it desirable to
do so. Although the Master Portfolio will not enter into a futures position
unless BGFA believes that a liquid secondary market exists for such future,
there is no assurance that the Master Portfolio will be able to effect closing
transactions at any particular time or at an acceptable price. The Master
Portfolio generally expects that its futures transactions will be conducted on
recognized U.S. and foreign securities and commodity exchanges.
Futures markets can be highly volatile and transactions of this type
carry a high risk of loss. Moreover, a relatively small adverse market movement
with respect to these transactions may result not only in loss of the original
investment but also in unquantifiable further loss exceeding any margin
deposited.
The use of futures involves the risk of imperfect correlation between
movements in futures prices and movements in the price of currencies which are
the subject of the hedge. The successful use of futures strategies also depends
on the ability of BGFA to correctly forecast interest rate movements, currency
rate movements and general stock market price movements.
In addition to the foregoing risk factors, the following sets forth
certain information regarding the potential risks associated with the Master
Portfolio's futures transactions.
Risk of Imperfect Correlation. The Master Portfolio's ability
effectively to hedge currency risk through transactions in foreign currency
futures depends on the degree to which movements in the value of the currency
underlying such hedging instrument correlate with movements in the value of the
relevant securities held by the Master Portfolio. If the values of the
securities being hedged do not move in the same amount or direction as the
underlying currency, the hedging strategy for the Master Portfolio might not be
successful and the Master Portfolio could sustain losses on its hedging
transactions which would not be offset by gains on its portfolio. It is also
possible that there may be a negative correlation between the currency
underlying a futures contract and the portfolio securities being hedged, which
could result in losses both on the hedging transaction and the portfolio
securities. In such instances, the Master Portfolio's overall return could be
less than if the hedging transactions had not been undertaken.
Under certain extreme market conditions, it is possible that the Master
Portfolio will not be able to establish hedging positions, or that any hedging
strategy adopted will be insufficient to completely protect the Master
Portfolio.
The Master Portfolio will purchase or sell futures contracts only if,
in BGFA's judgment, there is expected to be a sufficient degree of correlation
between movements in the value of such instruments and changes in the value of
the relevant portion of the Master Portfolio's portfolio for the hedge to be
effective. There can be no assurance that BGFA's judgment will be accurate.
Potential Lack of a Liquid Secondary Market. The ordinary spreads
between prices in the cash and futures markets, due to differences in the
natures of those markets, are subject to distortions. First, all participants in
the futures market are subject to initial deposit and variation margin
requirements. This could require the Master Portfolio to post additional cash or
cash equivalents as the value of the position fluctuates. Further, rather than
meeting additional variation margin requirements, investors may close futures
contracts through offsetting transactions which could distort the normal
relationship between the cash and futures markets. Second, the liquidity of the
futures market may be lacking. Prior to exercise or expiration, a futures
position may be terminated only by entering into a closing purchase or sale
transaction, which requires a secondary market on the exchange on which the
position was originally established. While the Master Portfolio will establish a
futures position only if there appears to be a liquid secondary market therefor,
there can be no assurance that such a market will exist for any particular
futures contract at any specific time. In such event, it may not be possible to
close out a position held by the Master Portfolio, which could require the
Master Portfolio to purchase or sell the instrument underlying the position,
make or receive a cash settlement, or meet ongoing variation margin
requirements. The inability to close out futures positions also could have an
adverse impact on the Master Portfolio's ability effectively to hedge its
securities, or the relevant portion thereof.
The liquidity of a secondary market in a futures contract may be
adversely affected by "daily price fluctuation limits" established by the
exchanges, which limit the amount of fluctuation in the price of a contract
during a single trading day and prohibit trading beyond such limits once they
have been reached. The trading of futures contracts also is subject to the risk
of trading halts, suspensions, exchange or clearing house equipment failures,
government intervention, insolvency of the brokerage firm or clearing house or
other disruptions of normal trading activity, which could at times make it
difficult or impossible to liquidate existing positions or to recover excess
variation margin payments.
Trading and Position Limits. Each contract market on which futures
contracts are traded has established a number of limitations governing the
maximum number of positions which may be held by a trader, whether acting alone
or in concert with others. "Shares" means the equal proportionate transferable
units of interest into which the beneficial interest of each Series or Class is
divided from time to time (including whole Shares and fractions of Shares). BGFA
does not believe that these trading and position limits will have an adverse
impact on the hedging strategies regarding the Master Portfolio's investments.
Regulations on the Use of Futures Contracts. Regulations of the CFTC
require that the Master Portfolio enter into transactions in futures contracts
for hedging purposes only, in order to assure that it is not deemed to be a
"commodity pool" under such regulations. In particular, CFTC regulations require
that all short futures positions be entered into for the purpose of hedging the
value of investment securities held by the Master Portfolio, and that all long
futures positions either constitute bona fide hedging transactions, as defined
in such regulations, or have a total value not in excess of an amount determined
by reference to certain cash and securities positions maintained for the Master
Portfolio, and accrued profits on such positions. In addition, the Master
Portfolio may not purchase or sell such instruments if, immediately thereafter,
the sum of the amount of initial margin deposits on its existing futures
positions and premiums paid for options on futures contracts would exceed 5% of
the market value of the Master Portfolio's total assets.
When the Master Portfolio purchases a futures contract, an amount of
cash, cash equivalents or other liquid assets will be segregated with the Master
Portfolio's custodian so that the amount so segregated, plus the initial deposit
and variation margin held in the account of its broker, will at all times equal
the value of the futures contract, thereby insuring that the use of such futures
is unleveraged.
The Master Portfolio's ability to engage in the hedging transactions
described herein may be limited by the policies and concerns of various Federal
and state regulatory agencies. Such policies may be changed by vote of the Board
of Trustees.
BGFA uses a variety of internal risk management procedures to ensure
that derivatives use is consistent with the Master Portfolio's investment
objective, does not expose the Master Portfolio to undue risk and is closely
monitored. These procedures include providing periodic reports to the Board of
Trustees concerning the use of derivatives.
Foreign Obligations and Securities.
The foreign securities in which the Master Portfolio may invest include
common stocks, preferred stocks, warrants, convertible securities and other
securities of issuers organized under the laws of countries other than the
United States. Such securities also include equity interests in foreign
investment funds or trusts, real estate investment trust securities and any
other equity or equity-related investment whether denominated in foreign
currencies or U.S. dollars.
The Master Portfolio may invest in foreign securities through American
Depositary Receipts ("ADRs"), Canadian Depositary Receipts ("CDRs"), European
Depositary Receipts ("EDRs"), International Depositary Receipts ("IDRs") and
Global Depositary Receipts ("GDRs") or other similar securities convertible into
securities of foreign issuers. These securities may not necessarily be
denominated in the same currency as the securities into which they may be
converted. ADRs (sponsored or unsponsored) are receipts typically issued by a
U.S. bank or trust company and traded on a U.S. stock exchange, and CDRs are
receipts typically issued by a Canadian bank or trust company that evidence
ownership of underlying foreign securities. Issuers of unsponsored ADRs are not
contractually obligated to disclose material information in the U.S. and,
therefore, such information may not correlate to the market value of the
unsponsored ADR. EDRs and IDRs are receipts typically issued by European banks
and trust companies, and GDRs are receipts issued by either a U.S. or non-U.S.
banking institution, that evidence ownership of the underlying foreign
securities. Generally, ADRs in registered form are designed for use in U.S.
securities markets and EDRs and IDRs in bearer form are designed primarily for
use in Europe.
For temporary defensive purposes, the Master Portfolio may invest in
fixed income securities of non-U.S. governmental and private issuers. Such
investments may include bonds, notes, debentures and other similar debt
securities, including convertible securities.
Investments in foreign obligations involve certain considerations that
are not typically associated with investing in domestic securities. There may be
less publicly available information about a foreign issuer than about a domestic
issuer. Foreign issuers also are not generally subject to the same accounting,
auditing and financial reporting standards or governmental supervision as
domestic issuers. In addition, with respect to certain foreign countries, taxes
may be withheld at the source under foreign tax laws, and there is a possibility
of expropriation or confiscatory taxation, political, social and monetary
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.
From time to time, investments in other investment companies may be the
most effective available means by which the Master Portfolio may invest in
securities of issuers in certain countries. Investment in such investment
companies may involve the payment of management expenses and, in connection with
some purchases, sales loads, and payment of substantial premiums above the value
of such companies' portfolio securities. At the same time, the Master Portfolio
would continue to pay its own management fees and other expenses.
Investment income on certain foreign securities in which the Master
Portfolio may invest may be subject to foreign withholding or other taxes that
could reduce the return on these securities. Tax treaties between the United
States and foreign countries, however, may reduce or eliminate the amount of
foreign taxes to which the Master Portfolio would be subject.
The Master Portfolio's investments in foreign securities involve
currency risks. The U.S. dollar value of a foreign security tends to decrease
when the value of the U.S. dollar rises against the foreign currency in which
the security is denominated, and tends to increase when the value of the U.S.
dollar falls against such currency. To attempt to minimize risks to the Master
Portfolio from adverse changes in the relationship between the U.S. dollar and
foreign currencies, the Master Portfolio may engage in foreign currency
transactions on a spot (i.e., cash) basis and may purchase or sell forward
foreign currency exchange contracts ("forward contracts"). The Master Portfolio
may also purchase and sell foreign currency futures contracts (see "Purchase and
Sale of Currency Futures Contracts"). A forward contract is an obligation to
purchase or sell a specific currency for an agreed price at a future date that
is individually negotiated and privately traded by currency traders and their
customers.
Forward contracts establish an exchange rate at a future date. These
contracts are transferable in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. A forward
contract generally has no deposit requirement, and is traded at a net price
without commission. The Master Portfolio will direct its custodian, to the
extent required by applicable regulations, to segregate high grade liquid assets
in an amount at least equal to its obligations under each forward contract.
Neither spot transactions nor forward contracts eliminate fluctuations in the
prices of the Master Portfolio's portfolio securities or in foreign exchange
rates, or prevent loss if the prices of these securities should decline.
The Master Portfolio may enter into a forward contract, for example,
when it enters into a contract for the purchase or sale of a security
denominated in a foreign currency in order to "lock in" the U.S. dollar price of
the security (a "transaction hedge"). In addition, when BGFA believes that a
foreign currency may suffer a substantial decline against the U.S. dollar, it
may enter into a forward sale contract to sell an amount of that foreign
currency approximating the value of some or all of the Master Portfolio's
securities denominated in such foreign currency, or when BGFA believes that the
U.S. dollar may suffer a substantial decline against the foreign currency, it
may enter into a forward purchase contract to buy that foreign currency for a
fixed dollar amount (a "position hedge").
The Master Portfolio may, in the alternative, enter into a forward
contract to sell a different foreign currency for a fixed U.S. dollar amount
where BGFA believes that the U.S. dollar value of the currency to be sold
pursuant to the forward contract will fall whenever there is a decline in the
U.S. dollar value of the currency in which the portfolio securities are
denominated (a "cross-hedge").
Foreign currency hedging transactions are an attempt to protect the
Master Portfolio against changes in foreign currency exchange rates between the
trade and settlement dates of specific securities transactions or changes in
foreign currency exchange rates that would adversely affect a portfolio position
or an anticipated portfolio position. Although these transactions tend to
minimize the risk of loss due to a decline in the value of the hedged currency,
at the same time they tend to limit any potential gain that might be realized
should the value of the hedged currency increase. The precise matching of the
forward contract amount and the value of the securities involved will not
generally be possible because the future value of these securities in foreign
currencies will change as a consequence of market movements in the value of
those securities between the date the forward contract is entered into and date
it matures.
The Master Portfolio's custodian will, to the extent required by
applicable regulations, segregate cash, U.S. Government securities or other
high-quality debt securities having a value equal to the aggregate amount of the
Master Portfolio's commitments under forward contracts entered into with respect
to position hedges and cross-hedges. If the value of the segregated securities
declines, additional cash or securities will be segregated on a daily basis so
that the value of the segregated securities will equal the amount of the Master
Portfolio's commitments with respect to such contracts.
The cost to the Master Portfolio 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 the 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 Master Portfolio may not be able to
contract to sell the currency at a price above the devaluation level it
anticipates.
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. 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.
The Master Portfolio will segregate cash, U.S. Government obligations
or other high-quality debt instruments in an amount at least equal in value to
the Master Portfolio's commitments to purchase when-issued securities. If the
value of these assets declines, the Master Portfolio will segregate additional
liquid assets on a daily basis so that the value of the segregated assets is
equal to the amount of such commitments.
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.
Hedging and Related Strategies.
The Master Portfolio may attempt to protect the U.S. dollar equivalent
value of one or more of its investments (hedge) by purchasing and selling
foreign currency futures contracts and by purchasing and selling currencies on a
spot (i.e., cash) or forward basis. Foreign currency futures contracts are
bilateral agreements pursuant to which one party agrees to make, and the other
party agrees to accept, delivery of a specified type of currency at a specified
future time and at a specified price. Although such futures contracts by their
terms call for actual delivery or acceptance of currency, in most cases the
contracts are closed out before the settlement date without the making or taking
of delivery. A forward currency contract involves an obligation to purchase or
sell a specific currency at a specified future date, which may be any fixed
number of days from the contract date agreed upon by the parties, at a price set
at the time the contract is entered into.
The Master Portfolio may enter into forward currency contracts for the
purchase or sale of a specified currency at a specified future date either with
respect to specific transactions or with respect to portfolio positions. For
example, the Master Portfolio may enter into a forward currency contract to sell
an amount of a foreign currency approximating the value of some or all of the
Master Portfolio's securities denominated in such currency. The Master Portfolio
may use forward contracts in one currency or a basket of currencies to hedge
against fluctuations in the value of another currency when BGFA anticipates
there will be a correlation between the two and may use forward currency
contracts to shift the Master Portfolio's exposure to foreign currency
fluctuations from one country to another. The purpose of entering into these
contracts is to minimize the risk to the Master Portfolio from adverse changes
in the relationship between the U.S. dollar and foreign currencies.
BGFA might not employ any of the strategies described above, and there
can be no assurance that any strategy used will succeed. If BGFA incorrectly
forecasts exchange rates, market values or other economic factors in utilizing a
strategy for the Master Portfolio, the Master Portfolio might have been in a
better position had it not hedged at all. The use of these strategies involves
certain special risks, including (1) the fact that skills needed to use hedging
instruments are different from those needed to select the Master Portfolio's
securities, (2) possible imperfect correlation, or even no correlation, between
price movements of hedging instruments and price movements of the investments
being hedged, (3) the fact that, while hedging strategies can reduce the risk of
loss, they can also reduce the opportunity for gain, or even result in losses,
by offsetting favorable price movements in hedged investments and (4) the
possible inability of the Master Portfolio to purchase or sell a portfolio
security at a time that otherwise would be favorable for it to do so, or the
possible need for the Master Portfolio to sell a portfolio security at a
disadvantageous time, due to the need for the Master Portfolio to maintain
"cover" or to segregate securities in connection with hedging transactions and
the possible inability of the Master Portfolio to close out or to liquidate its
hedged position.
New financial products and risk management techniques continue to be
developed. The Master Portfolio may use these instruments and techniques to the
extent consistent with its investment objectives and regulatory and tax
considerations.
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 outstanding voting stock of any one investment company, (ii) 5% of
the Master Portfolio's total assets with respect to any one investment company
and (iii) 10% of the Master Portfolio's total 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, BGFA 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 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.
Privately Issued Securities.
The Master Portfolio may invest in privately issued securities,
including those which may be resold only in accordance with Rule 144A under the
Securities Act of 1933 ("Rule 144A Securities"). Rule 144A Securities are
restricted securities that are not publicly traded. Accordingly, the liquidity
of the market for specific Rule 144A Securities may vary. Delay or difficulty in
selling such securities may result in a loss to the Master Portfolio. Privately
issued or Rule 144A securities that are determined by BGFA to be "illiquid" are
subject to the Master Portfolio's policy of not investing more than 15% of its
net assets in illiquid securities. BGFA, under guidelines approved by Board of
Trustees of MIP, will evaluate the liquidity characteristics of each Rule 144A
Security proposed for purchase by the Master Portfolio on a case-by-case basis
and will consider the following factors, among others, in their evaluation: (1)
the frequency of trades and quotes for the Rule 144A Security; (2) the number of
dealers willing to purchase or sell the Rule 144A Security and the number of
other potential purchasers; (3) dealer undertakings to make a market in the Rule
144A Security; and (4) the nature of the Rule 144A Security and the nature of
the marketplace trades (e.g., the time needed to dispose of the Rule 144A
Security, the method of soliciting offers and the mechanics of transfer).
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; (iv) non-convertible corporate debt securities (e.g., bonds and
debentures) with remaining maturities at the date of purchase of not more than
one year that are rated at least "Aa" by Moody's or "AA" by S&P ; (v) repurchase
agreements; and (vi) short-term, U.S. dollar-denominated obligations of foreign
banks (including U.S. branches) that, at the time of investment have more than
$10 billion, or the equivalent in other currencies, in total assets and in the
opinion of BGFA are of comparable quality to obligations of U.S. banks which may
be purchased by the 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 regulation 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 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 United States 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 regulator, by depositing assets with a designated
bank within the state, a certain percentage of their assets as fixed from time
to time by the appropriate regulatory authority; and (2) maintain assets within
the 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, which are members of the FDIC, 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. 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. BGFA
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.
BGFA 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.
Floating- and Variable-Rate Obligations. 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.
Repurchase Agreements. The Master Portfolio may engage in a repurchase
agreement with respect to any security in which it is authorized to invest,
including government securities and mortgage-related securities, regardless of
their remaining maturities. 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. 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.
ITEM 13. MANAGEMENT OF THE TRUST.
The following information supplements and should be read in conjunction
with the Part A section entitled "Management, Organization and Capital
Structure." 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>
<S> <C> <C>
Jack S. Euphrat, 78 Trustee Private Investor.
415 Walsh Road
Atherton, CA 94027
*R. Greg Feltus, 49 Trustee, Chairman Executive Vice President of Stephens Inc.; President
and President of Stephens Insurance Services Inc.; Senior Vice
President of Stephens Sports Management Inc.; and
President of Investors Brokerage Insurance Inc.
W. Rodney Hughes, 74 Trustee Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Leo Soong,1 54 Trustee Managing Director of Crystal Geyser Roxane Water
Crystal Geyser Water Co. Co.; Co-Founder and President of Crystal Geyser
55 Francisco Street, Suite 410 Water Co.
San Francisco, CA 94133
Richard H. Blank, Jr., 44 Chief Operating Vice President of Stephens Inc.; Director of
Officer, Secretary Stephens Sports Management Inc.; and Director of
and Treasurer Capo Inc.
--------------------
1 Elected to the Board of Trustees of MIP on February 9, 2000.
Compensation Table
For the Calendar Year Ended December 31, 1999
Aggregate Total Compensation
Compensation from Registrant
Name and Position from Registrant and Fund Complex
----------------- - --------------- ----------------
Jack S. Euphrat $5,875 $11,750
Trustee
*R. Greg Feltus $0 $0
Trustee
Thomas S. Goho1 $1,500 $3,000
Trustee
W. Rodney Hughes $5,875 $11,750
Trustee
*J. Tucker Morse1 $1,500 $3,000
Trustee
--------------------
1 Retired from the Board of Trustees of MIP on April 28, 1999.
</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 MIP
and BGIF for their services as Directors/Trustees to the MIP and BGIF.
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, 2000, the interestholders identified below were known by
the Trust to own 5% or more of the outstanding voting securities of the Master
Portfolio. Approximate percentages are indicated in the table below:
Name and Address Percentage of
of Interestholder Master Portfolio
Vantagepoint Overseas Equity Fund 86%
777 North Capital St., N.E.
Washington, D.C. 20002
E*Trade International Index Fund 12%
4500 Bohannon Drive
Menlo Park, CA 94025
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 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. BGFA provides investment advisory services to the
Master Portfolio pursuant to an Investment Advisory Contract ("BGFA Advisory
Contract") with MIP. 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 0.15% of the first $1 billion, and 0.10% thereafter, 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. For the period beginning October 1,
1999 (the Master Portfolio's commencement of operations) and ended December 31,
1999, the Master Portfolio paid BGFA $19,417 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'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 MIP's trustees and officers. Stephens also
furnishes office space and certain facilities to conduct the Master Portfolio's
business, and compensates 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 entitled to receive monthly compensation for providing
administration services to the Master Portfolio at the annual rate of 0.10% of
the first $1 billion, and 0.07% thereafter, of the average daily net assets of
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. For the period beginning October 1, 1999 (the Master Portfolio's
commencement of operations) and ended December 31, 1999, the Master Portfolio
paid Stephens and BGI $12,945 in administrative fees, without waivers.
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
to the Master Portfolio.
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 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 December 31, 1999, the Master
Portfolio owned no securities of its "regular brokers or dealers" or their
parents, as defined in the 1940 Act.
Brokerage Commissions. For the period beginning October 1, 1999 (the
Master Portfolio's commencement of operations) and ended December 31, 1999, the
Master Portfolio paid brokerage commissions in the amount of $21,652. 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 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 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
MIP's portfolio, 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 interests 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 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 accountants and the election of
Trustees from the separate voting requirements of the Rule.
ITEM 18. PURCHASE, REDEMPTION AND PRICING OF SECURITIES.
The following information supplements and should be read in conjunction
with Item 7 in Part A.
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 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 interests 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.
Interests purchased in exchange for securities generally cannot be redeemed
until the transfer has settled.
Suspension of Redemptions. The right of redemption of Master Portfolio
interests 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's 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 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 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 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 or its delegates.
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 income and 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.
The Master Portfolio's taxable year-end is the last day of December.
Although the Master Portfolio will not be subject to federal income tax, it will
file appropriate federal income tax returns.
It is intended that the Master Portfolio's assets, income and
distributions will be managed in such a way that an entity electing and
qualifying as a "regulated investment company" under the Code can continue to so
qualify by investing substantially all of its assets through the Master
Portfolio, provided that the regulated investment company meets other
requirements for such qualification not within the control of the Master
Portfolio (e.g., distributing at least 90% of the regulated investment company's
"investment company taxable income" annually).
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. CALCULATION 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.
The audited financial statements, including the portfolio of
investments, and independent auditors' report for the Master Portfolio for the
three-month period ended December 31, 1999 are hereby incorporated by reference
to MIP's Form N-SAR (SEC File No. 811-8162) as filed with the SEC on February
25, 2000. The audited financial statements for the Master Portfolio are attached
to all Part Bs delivered to interestholders or prospective interestholders.
<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.
S&P Commercial Paper Ratings
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.
"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.
Moody's Commercial Paper Ratings
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.
"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.
Fitch 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.
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.
Duff Commercial Paper Ratings
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.
IBCA 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.
IBCA 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.
<PAGE>
MASTER INVESTMENT PORTFOLIO
File No. 811-8162
PART C
OTHER INFORMATION
<TABLE>
<CAPTION>
Item 23. Exhibits.
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Exhibit Description
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<S> <C> <C>
(a)(1) 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.
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(a)(2) Certificate of Trust, incorporated by reference to
the Registration Statement on Form N-1A, filed
November 15, 1993, and August 31, 1998.
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(a)(3) 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.
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(a)(4) Certificate of Amendment to the Certificate of
Trust, incorporated by reference to the
Registration Statement on Form N-1A, filed
September 9, 1998.
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(b) By-Laws, incorporated by reference to the Registration Statement on Form N-1A
filed November 15, 1993.
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(c) Not applicable
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(d)(1) 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.
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(d)(2) 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.
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(d)(3) 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.
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(d)(4) 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.
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(d)(5) 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.
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(d)(6) 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.
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(d)(7) 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.
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(d)(8) 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.
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(d)(9) 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.
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(d)(10) 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.
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(d)(11) 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.
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(d)(12) Investment Advisory Contract by and among Barclays
Global Fund Advisors and Master Investment
Portfolio dated September 27, 1999, on behalf of
the International Index Master Portfolio,
incorporated by reference to Amendment No. 11 to
the Registration Statement, filed September 29,
1999.
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(e) Placement Agency Agreement with Stephens Inc. dated February 25, 1994, on
behalf of each Master Portfolio, incorporated by reference to Amendment
No. 11 to the Registration Statement, filed September 29, 1999.
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(f) Not applicable.
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(g) Custody Agreement with Investors Bank & Trust Co. dated October 21, 1996 on
behalf of each Master Portfolio, incorporated by reference to Amendment
No. 11 to the Registration Statement, filed September 29, 1999.
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(h)(1) 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. 11 to the Registration Statement, filed
September 29, 1999.
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(h)(2) 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.
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(h)(3) 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.
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(h)(4) Third Party Feeder Fund Agreement by and among
Hewitt Series Funds, Hewitt Services LLC and
Master Investment Portfolio dated September 1,
1998, incorporated by reference to Amendment No.
10 of the Registration Statement, filed June 30,
1999.
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(h)(5) 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,
incorporated by reference to Amendment No. 10 of
the Registration Statement, filed June 30, 1999.
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(h)(6) Third Party Feeder Fund Agreement by and among
Vantagepoint Funds, ICMA - RC Services, LLC and
Master Investment Portfolio dated March 1, 1999,
incorporated by reference to Amendment No. 10 of
the Registration Statement, filed June 30, 1999.
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(h)(7) 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,
incorporated by reference to Amendment No. 10 of the Registration Statement,
filed June 30, 1999.
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(h)(8) Amended and Restated Third Party Feeder Fund
Agreement by and among E*Trade Funds, E*Trade
Securities and Master Investment Portfolio dated
October 22, 1999, filed herewith.
----------------------- ----------------------------------------------------------------------------------------------
----------------------- ----------------------------------------------------------------------------------------------
(h)(9) Third Party Feeder Fund Agreement by and among X.Com Funds, X.Com Asset
Management, Inc. and Master Investment Portfolio dated September 1, 1999,
filed herewith.
----------------------- ----------------------------------------------------------------------------------------------
----------------------- ----------------------------------------------------------------------------------------------
(h)(10) Third Party Feeder Fund Agreement by and among Smith Barney Investment Trust,
CFBDS, Inc. and Master Investment Portfolio dated October 13, 1999, filed
herewith.
----------------------- ----------------------------------------------------------------------------------------------
----------------------- ----------------------------------------------------------------------------------------------
(h)(11) Third Party Feeder Fund Agreement by and among Whatifi Funds, BISYS Fund
Services, BISYS Fund Services, Inc., Investors Bank & Trust Co. and Master
Investment Portfolio dated June 1, 2000, filed herewith.
----------------------- ----------------------------------------------------------------------------------------------
----------------------- ----------------------------------------------------------------------------------------------
(i) Not applicable.
----------------------- ----------------------------------------------------------------------------------------------
----------------------- ----------------------------------------------------------------------------------------------
(j)(1) Consent of Independent Auditors, filed herewith.
----------------------- ----------------------------------------------------------------------------------------------
----------------------- ----------------------------------------------------------------------------------------------
(j)(2) Powers of Attorney for Jack S. Euphrat, R. Greg Feltus and W. Rodney Hughes,
incorporated by reference to Amendment No. 5 to the Registration Statement,
filed June 30, 1997.
----------------------- ----------------------------------------------------------------------------------------------
----------------------- ----------------------------------------------------------------------------------------------
(j)(3) Power of Attorney for Leo Soong, filed herewith.
----------------------- ----------------------------------------------------------------------------------------------
----------------------- ----------------------------------------------------------------------------------------------
(k) Not applicable
----------------------- ----------------------------------------------------------------------------------------------
----------------------- ----------------------------------------------------------------------------------------------
(l) Not applicable
----------------------- ----------------------------------------------------------------------------------------------
----------------------- ----------------------------------------------------------------------------------------------
(m) Distribution Plan dated October 28, 1998, on
behalf of the Asset Allocation, Institutional
Money Market, LifePath Income, LifePath 2010,
LifePath 2020, LifePath 2030 and LifePath 2040
Funds, incorporated by reference to Post-Effective
Amendment No. 22, filed July 30, 1999.
----------------------- ----------------------------------------------------------------------------------------------
----------------------- ----------------------------------------------------------------------------------------------
(n) Not applicable.
----------------------- ----------------------------------------------------------------------------------------------
----------------------- ----------------------------------------------------------------------------------------------
(p) Code of Ethics of Master Investment Portfolio, filed herewith.
----------------------- ----------------------------------------------------------------------------------------------
</TABLE>
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. Business and Other Connections of Investment Adviser.
----------------------------------------------------
The Funds currently do not retain an investment adviser. The
corresponding MIP Master Portfolio to the Fund is 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.
Each of the directors and executive officers of BGFA will also
have substantial responsibilities as directors and/or officers of BGI. To the
knowledge of the Registrant, except as set forth below, none of the directors or
executive officers of BGFA is or has been at any time during the past two fiscal
years engaged in any other business, profession, vocation or employment of a
substantial nature.
<PAGE>
<TABLE>
<CAPTION>
----------------------------------- ------------------------------------------------------------------------------
Name and Position Principal Business(es) During at
at BGFA Least the Last Two Fiscal Years
----------------------------------- ------------------------------------------------------------------------------
----------------------------------- ------------------------------------------------------------------------------
<S> <C>
Patricia Dunn Director of BGFA and C-Chairman and Director of BGI
Director 45 Fremont Street, San Francisco, CA 94105
----------------------------------- ------------------------------------------------------------------------------
----------------------------------- ------------------------------------------------------------------------------
Lawrence G. Tint Chairman of the Board of Directors of BGFA
Chairman and Director and Chief Executive Officer of BGI
45 Fremont Street, San Francisco, CA 94105
----------------------------------- ------------------------------------------------------------------------------
----------------------------------- ------------------------------------------------------------------------------
Geoffrey Fletcher Chief Financial Officer of BGFA and BGI since May 1997
Chief Financial Officer 45 Fremont Street, San Francisco, CA 94105
Managing Director and Principal Accounting Officer at
Bankers Trust Company from 1988 - 1997
505 Market Street, San Francisco, CA 94105
----------------------------------- ------------------------------------------------------------------------------
</TABLE>
Item 27. Principal Underwriters.
----------------------
(a) Stephens Inc., distributor for the Registrant, does not presently act
as investment adviser for any other registered investment companies, but does
act as distributor for Nations Fund Trust, Nations Fund, Inc., Nations Reserves,
Nations LifeGoal Funds, Inc., Nations Funds Trust, Wells Fargo Funds Trust and
Wells Fargo Variable Trust and is the exclusive placement agent for Wells Fargo
Core Trust, Nations Master Investment Trust, and Master Investment Portfolio,
all of which are registered open-end management investment companies, and has
acted as principal underwriter for the Liberty Term Trust, Inc., Nations
Government Income Term Trust 2003, Inc., Nations Government Income Term Trust
2004, Inc., Nations Balanced Target Maturity Fund, Inc., and Hatteras Income
Securities, Inc., closed-end management investment companies.
(b) Information with respect to each director and officer of the principal
underwriter is incorporated by reference to Form ADV filed by Stephens Inc. with
the SEC pursuant to the 1940 Act (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.
(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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940,
as amended (the "1940 Act"), 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 30th day of June, 2000.
MASTER INVESTMENT PORTFOLIO
By /s/ Richard H. Blank, Jr.
Richard H. Blank, Jr.
Secretary and Treasurer
(Principal Financial Officer)
Pursuant to the requirements of the 1940 Act, this Amendment No. 12
to the Registration Statement on Form N-1A has been signed below by the
following persons in the capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title
<S> <C> <C>
* Trustee, Chairman and President 6/30/00
------------------------------
(R. Greg Feltus) (Principal Executive Officer)
/s/ Richard H. Blank, Jr. Secretary and Treasurer 6/30/00
------------------------------
(Richard H. Blank, Jr.) (Principal Financial Officer)
* Trustee 6/30/00
------------------------------
(Jack S. Euphrat)
* Trustee 6/30/00
------------------------------
(W. Rodney Hughes)
* Trustee 6/30/00
------------------------------
(Leo Soong)
*By: /s/ Richard H. Blank, Jr.
-------------------------
Richard H. Blank, Jr.
As Attorney-in-Fact
June 30, 2000
</TABLE>
<PAGE>
MASTER INVESTMENT PORTFOLIO
SEC FILE No. 811-8162
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description
<S> <C>
Amended and Restated Third Party Feeder Fund Agreement by and among
Exhibit (h)(8) E*Trade Funds, E*Trade Securities and Master Investment Portfolio dated
October 22, 1999.
Third Party Feeder Fund Agreement by and among X.Com Funds, X.Com
Exhibit (h)(9) Asset Management, Inc. and Master Investment Portfolio dated September 1,
1999.
Third Party Feeder Fund Agreement by and among Smith Barney
Exhibit (h)(10) Investment Trust, CFBDS, Inc. and Master Investment Portfolio dated
October 13, 1999.
Third Party Feeder Fund Agreement by and among Whatifi Funds, BISYS
Exhibit (h)(11) Fund Services, BISYS Fund Services, Inc., Investors Bank & Trust Co. and
Master Investment Portfolio dated June 1, 2000.
Consent of Independent Auditors - KPMG LLP
Exhibit (j)(1)
Power of Attorney for Leo Soong.
Exhibit (j)(3)
Code of Ethics of Master Investment Portfolio
Exhibit (p)
</TABLE>
<PAGE>
EXHIBIT (h)(8)
AMENDED AND RESTATED
THIRD PARTY FEEDER FUND
AGREEMENT
AMONG
E*TRADE FUNDS
E*TRADE SECURITIES, INC.
AND
MASTER INVESTMENT PORTFOLIO
dated as of
October 22, 1999
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
ARTICLE I. REPRESENTATIONS AND WARRANTIES.................................................................1
1.1 Company........................................................................................1
1.2 MIP............................................................................................2
1.3 Distributor....................................................................................3
ARTICLE II. COVENANTS......................................................................................4
2.1 Company........................................................................................4
2.2 MIP............................................................................................5
2.3 Reasonable Actions.............................................................................7
ARTICLE III. INDEMNIFICATION................................................................................8
3.1 Funds..........................................................................................8
3.2 Distributor....................................................................................9
3.3 MIP...........................................................................................11
ARTICLE IV. ADDITIONAL AGREEMENTS.........................................................................12
4.1 Access to Information.........................................................................12
4.2 Confidentiality...............................................................................12
4.3 Obligations of Company and MIP ...............................................................13
ARTICLE V. TERMINATION, AMENDMENT........................................................................13
5.1 Termination...................................................................................13
5.2 Amendment.....................................................................................13
ARTICLE VI. GENERAL PROVISIONS............................................................................13
6.1 Expenses......................................................................................14
6.2 Headings......................................................................................14
6.3 Entire Agreement..............................................................................14
6.4 Successors....................................................................................14
6.5 Governing Law.................................................................................14
6.6 Counterparts..................................................................................14
6.7 Third Parties.................................................................................14
6.8 Notices.......................................................................................14
6.9 Interpretation................................................................................15
6.10 Operation of Funds............................................................................15
6.11 Relationship of Parties; No Joint Venture, Etc. ..............................................15
6.12 Use of Name...................................................................................15
Signatures ..............................................................................................16
Schedule A ..............................................................................................17
Schedule B ..............................................................................................18
</TABLE>
<PAGE>
AGREEMENT
THIS AMENDED AND RESTATED THIRD PARTY FEEDER FUND AGREEMENT (the "Agreement") is
made and entered into as of the 22nd day of October, 1999, by and among E* TRADE
Funds, a Delaware business trust (the "Company"), for itself and on behalf of
those series set forth on Schedule A (the "Funds"), E*TRADE Securities, Inc.
(the "Distributor"), a California corporation, and Master Investment Portfolio
("MIP"), a Delaware business trust, for itself and on behalf of those series set
forth on Schedule B ("the Portfolios"). This Agreement supersedes the Third
Party Feeder Fund Agreement entered into by and among the parties on February 3,
1999, and the Third Party Feeder Fund Agreement entered into by and among the
parties on August 12, 1999.
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
objective and substantially the same investment policies;
WHEREAS, each 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 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 Trustees 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 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, 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. 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, 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 the Funds' shares, any meetings of its
shareholders and its registration as an investment company. All SEC Filings
relating to the Funds 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. The Funds currently intend on an ongoing basis to invest their
Assets solely in the corresponding Portfolio, although it reserves the
right to invest Assets in other securities and other assets and/or to
redeem any or all units of a corresponding Portfolio at any time without
notice.
(f) Registration Statement. Company has reviewed MIP's and each Portfolio's
registration statement on Form N-lA, as filed with the SEC.
(g) Insurance. The Funds have in force an errors and omissions liability
insurance policy insuring each Fund against loss up to $2.5 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 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 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 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 this Agreement by the Portfolios, or the
performance by the Portfolios of their obligations hereunder and the
consummation by the Portfolios of the transactions contemplated hereby.
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) 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. 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 the Portfolios required to be filed with the
SEC under 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 or qualified for sale or
exempt from notice or qualification 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. Each 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 each Portfolio
is currently December 31st.
(h) Insurance. MIP has in force an errors and omissions liability insurance
policy insuring each Portfolio against loss up to $5.0 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.
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-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 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 each Portfolio's 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 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 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 laws 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 except to the extent a failure to so
qualify may result from any action or omission of the Portfolio or MIP.
(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 December).
(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 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 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 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 corresponding 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. Each 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 and
Treasury Regulations, each Portfolio will continue to be treated as a
partnership for federal income tax purposes. 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 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 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 Company and 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.
(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 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 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.
(j) Proxy Costs. If and to the extent that: (i) MIP submits a matter to a vote
of a Portfolio's Interestholders; (ii) each 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
invest substantially all of its investable assets in a corresponding
Portfolio, then MIP shall assume the costs associated with soliciting
proxies from the shareholders of a 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 Funds
(a) The Funds each agree to indemnify and hold harmless MIP, each Portfolio
and each Portfolio's investment adviser, and any director/trustee, officer,
employee or agent of MIP, a Portfolio or a Portfolio's investment adviser (in
this Section 3.1 and 3.2, 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 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
(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 Company, or any amendments or
supplements to the foregoing (in this Section 3.1 and 3.2,
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 a Fund 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 the Company, as applicable. In
the event Company 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) 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 acceptable to Company in its reasonable judgment 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 their obligation to bear the reasonable fees and expenses of one
counsel to such persons. For purposes of the foregoing, the parties agree that
the fact that interests in a Portfolio that are not registered under the 1933
Act shall be deemed not to give rise to one or more legal or equitable defenses
available to a Portfolio that are not available to Company and/or the Funds.
Company shall not be required to indemnify any Covered Person for any settlement
of any such claim effected without the Company's prior 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 might otherwise have to Covered Persons.
3.2 Distributor
(a) Distributor agrees to indemnify and hold harmless MIP, each Portfolio
and each Covered Person, 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 out of or is
based upon any direct or indirect omission or commission (or
alleged omission or commission) by Distributor or by any of
its 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 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 the 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 the Distributor, as
applicable. 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 acceptable to Distributor in its reasonable
judgment 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 their obligation to bear the
reasonable fees and expenses of one counsel to such persons. For purposes of the
foregoing, the parties agree that the fact that interests in a Portfolio that
are not registered under the 1933 Act shall be deemed not to give rise to one or
more legal or equitable defenses available to a Portfolio that are not available
to Distributor and/or the Funds. 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 Distributor might otherwise have to Covered Persons.
3.3 MIP.
(a) MIP agrees to indemnify and hold harmless Company, the Funds,
Distributor, and any affiliate of the Company, the Distributor and/or the Funds,
and any trustee/director, officer, employee or agent of any of them (in this
Section 3.3, 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, registration
statement or any other SEC Filing relating to a Portfolio, or
any amendments or supplements to the foregoing (in this
Section 3.3, collectively, the "Offering Documents") relating
to a 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 relating to the Distributor or any of their
affiliates or arise out of 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 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.
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.
MIP shall not seek satisfaction of any such obligation from the officers,
agents, employees, trustees or shareholders of Company or the Funds and in no
case shall MIP or any covered person have recourse to the assets of any series
of the Company other than the Funds. With respect to any obligation of the
Company on behalf of any Funds arising out of this Agreement, MIP and its
Portfolios shall look for payment or satisfaction of such obligation solely to
the assets of the Fund to which such obligation relates as though MIP and its
Portfolios had separately contracted with the Company by separate written
instrument with respect to each Fund. 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. With respect to any obligation of MIP on
behalf of the Portfolios arising out of this Agreement, Company and the Funds
shall look for payment or satisfaction of such obligation solely to the assets
of the Portfolio to which such obligation relates as though Company and the
Funds had separately contracted with MIP by separate written instrument with
respect to each Portfolio.
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 one hundred and eighty
(180) 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 a 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 Termination with respect to each Fund. Pursuant to Section 5.1 above, this
Agreement may be terminated by the Company on 180 days advance written notice
with respect to one or more specific Funds without terminating with respect to
the other Funds.
5.3 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. 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 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 law 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 the Funds:
Joe Van Remortel, Vice President
E*TRADE Funds, c/o E*TRADE Asset Management
4500 Bohannon Drive
Menlo Park, CA 94025
If to Distributor:
E*TRADE Securities, Inc.
4500 Bohannon Drive
Menlo Park, CA 94025
Attn: Brian Murray
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 Funds. Except as otherwise provided herein, this Agreement
shall not limit the authority of the Funds, Company or Distributor to take such
action as it may deem appropriate or advisable in connection with all matters
relating to the operation of the Funds and the sale of their 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.
[Remainder of Page left intentionally blank]
<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 each
Fund set forth on Schedule A
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: Vice President
MASTER INVESTMENT PORTFOLIO,
on behalf of itself and each
Master Portfolio set forth on Schedule B
By: /s/ Richard H. Blank, Jr.
---------------------------
Name: Richard H. Blank, Jr.
Title: Chief Operating Officer
<PAGE>
AMENDED SCHEDULE A
TO THE AMENDED AND RESTATED
THIRD PARTY FEEDER FUND AGREEMENT
This Schedule A, amended as of April ___, 2000, is Schedule A to the
Amended and Restated Third Party Feeder Fund Agreement, dated as of October 22,
1999, by and among E*TRADE Funds, E*TRADE Securities, Inc. and Master Investment
Portfolio.
FUNDS
E*TRADE S&P 500 Index Fund
E*TRADE Extended Market Index Fund
E*TRADE Bond Index Fund
E*TRADE International Index Fund
E*TRADE Premier Money Market Fund
E*TRADE Funds
on behalf of itself and each Fund
set forth on Schedule A
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: Vice President
MASTER INVESTMENT PORTFOLIO
on behalf of itself and each Master
Portfolio set forth on Schedule B
/s/ Richard H. Blank, Jr.
---------------------------
Name: Richard H. Blank, Jr.
Title: Chief Operating Officer
<PAGE>
AMENDED SCHEDULE B
TO THE AMENDED AND RESTATED
THIRD PARTY FEEDER FUND AGREEMENT
This Schedule B, amended as of April ___, 2000, is Schedule B to the
Amended and Restated Third Party Feeder Fund Agreement, dated as of October 22,
1999, by and among E*TRADE Funds, E*TRADE Securities, Inc. and Master Investment
Portfolio.
MASTER PORTFOLIOS
S&P 500 Index Master Portfolio
Extended Index Master Portfolio
Bond Index Master Portfolio
International Index Master Portfolio
Money Market Master Portfolio
E*TRADE Funds
on behalf of itself and each Fund
set forth on Schedule A
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: Vice President
MASTER INVESTMENT PORTFOLIO
on behalf of itself and each Master
Portfolio set forth on Schedule B
/s/ Richard H. Blank, Jr.
---------------------------
Name: Richard H. Blank, Jr.
Title: Chief Operating Officer
<PAGE>
EXHIBIT (h)(9)
THIRD PARTY FEEDER FUND AGREEMENT
between
X.COM FUNDS,
X.COM ASSET MANAGEMENT, INC.
and
MASTER INVESTMENT PORTFOLIO
dated as of
September 1, 1999
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
ARTICLE I REPRESENTATIONS AND WARRANTIES.............................................................20
1.1 Company....................................................................................20
1.2 MIP........................................................................................21
1.3 Manager....................................................................................22
ARTICLE II COVENANTS..................................................................................22
2.1 Company....................................................................................22
2.2 MIP........................................................................................23
2.3 Reasonable Actions.........................................................................24
ARTICLE III INDEMNIFICATION............................................................................24
3.1 Company....................................................................................24
3.2 Manager....................................................................................26
3.3 MIP........................................................................................27
ARTICLE IV ADDITIONAL AGREEMENTS......................................................................29
4.1 Access to Information......................................................................29
4.2 Confidentiality............................................................................29
4.3 Obligations of Company and MIP.............................................................29
ARTICLE V TERMINATION, AMENDMENT.....................................................................29
5.1 Termination................................................................................29
5.2 Amendment..................................................................................29
ARTICLE VI GENERAL PROVISIONS.........................................................................29
6.1 Expenses...................................................................................30
6.2 Headings...................................................................................30
6.3 Entire Agreement...........................................................................30
6.4 Successors.................................................................................30
6.5 Governing Law..............................................................................30
6.6 Counterparts...............................................................................30
6.7 Third Parties..............................................................................30
6.8 Notices....................................................................................30
6.9 Interpretation.............................................................................32
6.10 Operation of Fund..........................................................................32
6.11 Relationship of Parties; No Joint Venture, Etc.............................................32
6.12 Use of Name................................................................................32
</TABLE>
<PAGE>
AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into as of the 1st
day of September, 1999, by and among X.com Funds, a Delaware business trust (the
"Company"), for itself and on behalf of its series set forth on Schedule A
hereto (each a "Fund" and collectively, the "Funds"), the Funds' asset manager
-- X.com Asset Management, Inc. ("Manager"), a Delaware corporation, and Master
Investment Portfolio ("MIP"), a Delaware business trust, for itself and on
behalf of its series set forth on Schedule B (each a "Portfolio" and
collectively, the "Portfolios").
WITNESSETH
WHEREAS, Company and MIP are each registered under the Investment Company Act of
1940, as amended (the "1940 Act") as open-end management investment companies;
WHEREAS, each Fund has the same investment objective and substantially the same
investment policies as the corresponding Portfolio;
WHEREAS, each 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 corresponding 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 each
of the Funds is a duly and validly designated series of Company. Company and
each 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 for itself and on behalf of each Fund and the conduct of business
contemplated hereby have been duly authorized by all necessary action on the
part of the Company's Board of Trustees 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 its obligations hereunder. This Agreement when
executed and delivered by Company on behalf of each Fund shall constitute a
legal, valid and binding obligation of Company, enforceable against each Fund 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"), from time to time, 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
each Fund's shares, any meetings of its shareholders and its registration as a
series of an investment company. All SEC Filings relating to each 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. Each Fund currently intends to invest its Assets on an
ongoing basis solely in the corresponding Portfolio, although it reserves the
right to invest its Assets in other securities and other assets and/or to redeem
any or all units of the corresponding Portfolio at any time and 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 each Fund against loss of up to $150,000 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 each Portfolio is a
duly and validly designated series of MIP. MIP and each 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 for itself and on behalf of each 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 any Portfolio, or the
performance by any Portfolio of its obligations hereunder and the consummation
by the Portfolios of the transactions contemplated hereby. This Agreement when
executed and delivered by MIP on behalf of each Portfolio shall constitute a
legal, valid and binding obligation of MIP and each Portfolio, enforceable
against MIP and each Portfolio in accordance with its terms. No meeting of, or
consent by, interestholders of any Portfolio is necessary to approve the
issuance of the Interests (as defined below) to the corresponding Fund.
(c) Issuance of Beneficial Interest. The issuance by MIP of beneficial
interests in each Portfolio ("Interests") in exchange for the Investment by the
corresponding 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 each Portfolio required to be filed with the SEC
under the Securities Laws. Interests in each 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 each
Portfolio are either noticed or qualified for sale or exempt from notice or
qualification requirements under applicable securities laws in those states or
jurisdictions in which Interests are offered and sold. All SEC Filings relating
to each 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. Each 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 each
Portfolio is December 31.
(h) Insurance. MIP has in force an errors and omissions policy insuring each
Portfolio against loss of up to $5.0 million for negligence and wrongful acts.
1.3 Manager. Manager represents and warrants to MIP that the execution and
delivery of this Agreement by Manager have been duly authorized by all necessary
action on the part of Manager and no other action or proceeding is necessary for
the execution and delivery of this Agreement by Manager, or the performance by
Manager of its obligations hereunder. This Agreement when executed and delivered
by Manager shall constitute a legal, valid and binding obligation of Manager,
enforceable against Manager in accordance with its terms.
ARTICLE II
COVENANTS
2.1 Company. Company covenants that:
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(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-lA 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 any 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 a Portfolio's 1940 Act registration statement or otherwise provided
by MIP for inclusion therein. In addition, neither the Funds, nor Manager 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 each 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 each 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 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. 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. 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, except to the extent that a
failure to so qualify may result from any action or omission of the
corresponding Portfolio or MIP.
(e) Fiscal Year. Each Fund shall take appropriate action to adopt and
maintain the same fiscal year end as Portfolio (currently the last day of
December).
(f) Proxy Voting. If requested to vote on matters pertaining to MIP or the
Portfolios, 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. 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 each Fund's business, in such amount, and covering such
liabilities as the Board of Trustees of Company deems reasonable.
2.2 MIP. MIP covenants that:
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(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 Manager acknowledge and agree that the provision of such
signature pages do 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 any Fund will be effected pursuant to Section
2.2(c). In the event any 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, the
corresponding 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 Fund or its custodian for the
account of the Fund mirror, as closely as practicable, the composition of the
Portfolio immediately prior to such redemption. Each 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 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 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 a Portfolio's net asset value, will be effected in
cash at the next determined net asset value after the 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 its 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. Each 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,
each Portfolio will conduct its business and activities sO as to be taxable 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 the corresponding Portfolio and agrees that the 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 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 any 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 any
Portfolio's investment policies or activities, any material increase in any
Portfolio's fees or expenses, or any change in any 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 any Portfolio's Interestholders; (ii) the corresponding Fund determines
that it is necessary or appropriate to solicit proxies from its shareholders in
order to vote its Interest; 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 the same Portfolio, then
MIP shall assume the costs associated with soliciting proxies from the
shareholders of the corresponding 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 Company
(a) Company agrees to indemnify and hold harmless MIP, each Portfolio and
each Portfolio's investment adviser, and any director/trustee, officer, employee
or agent of MIP, each Portfolio or each 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 out of or is
based upon any direct or indirect omission or commission (or alleged
omission or commission) by Company with respect to the Funds or by any
of its trustees, officers, employees or agents, but only insofar as
such omissions or commissions relate to any 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 any 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 any Fund or by any service provider of MIP for use
therein or for use by any 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, as applicable. In the
event Company 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) 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 their
obligation to bear the reasonable fees and expenses of one counsel to 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.
3.2 Manager
(a) Manager agrees to indemnify and hold harmless MIP, each Portfolio and
each Portfolio's investment adviser, and any director/trustee, officer, employee
or agent of MIP, each Portfolio or each 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 Manager or by any of its or their
trustees/directors, officers, employees or agents, but only insofar as
such omissions or commissions relate to any 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 any 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 any 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 Manager be liable for Losses to the
extent Company pays the amount of such Losses to the Covered Person under
Section 3.1(a) hereof, nor shall Manager be liable for indemnification hereunder
with respect to any claims made against any Covered Person unless a Covered
Person shall have notified Manager 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
Manager of such claim shall not relieve Manager from any liability that it may
have to any Covered Person otherwise than on account of the indemnification
contained in this Section.
(b) Manager 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 Manager elects to assume the defense, such defense shall
be conducted by counsel chosen by Manager. In the event Manager 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) Manager 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 Manager, and any such Covered Person has been
advised in a written opinion by counsel reasonably acceptable to Manager that
one or more legal defenses may be available to it that may not be available to
Manager, in which case Manager 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. Manager 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
Manager 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, each Fund, Manager
and any affiliate providing services to Company and/or any Fund, and any
trustee, 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 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 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
any Portfolio, or any amendments to the foregoing (in this Section,
collectively, the "Offering Documents") relating to any 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, any Fund 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 any Fund by MIP for
use therein or for use by any 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 reasonable 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.
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, any Fund's or any 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 any Fund or any 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 Fund
to which they relate, 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, any of the other Funds 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 Portfolio to which they relate 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, any of the other Portfolios
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 any Fund's Interest in the corresponding 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.
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 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 without regard to the
conflict 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. 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 Company or any Fund:
Attention: John T. Story
X.com Funds
394 University Avenue
Palo Alto, CA 94303
Facsimile (650) 833-5470
If to Manager:
Attention: John T. Story
X.com Asset Management, Inc.
394 University Avenue
Palo Alto, CA 94303
Facsimile (650) 833-5470
If to MIP or any Portfolio:
Attention: Chief Operating Officer
Master Investment Portfolio
c/o Stephens Inc.
111 Center Street
Little Rock, AR 72201
Facsimile (501) 377-2331
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 a Fund, Company or Manager to take such action
as it may deem appropriate or advisable in connection with all matters relating
to the operation of the 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 Manager shall not 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 Manager 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 Manager shall describe or refer to the name of MIP, any 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, the Funds or Manager 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 Manager, 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.
X.COM FUNDS
By: /s/ John T. Story
Name: John T. Story
Title: President
X.COM ASSET MANAGEMENT, INC.
By: /s/ John T. Story
Name: John T. Story
Title: President
MASTER INVESTMENT PORTFOLIO
By: /s/ R. Greg Feltus
Name: R. Greg Feltus
Title: President and Chairman
<PAGE>
SCHEDULE A
to Agreement between X.com Funds (the "Company")
and
Master Investment Portfolios ("MIP")
dated as of September 1, 1999 (the "Agreement")
The Company has entered into the Agreement on behalf of the following
series of the Company (each a "Fund" and, collectively, the "Funds"), each of
which will invest all or substantially all its investable assets in interests of
the corresponding series of MIP (each a "Portfolio" and, collectively, the
"Portfolios") set forth on Schedule B to the Agreement:
X.com S&P 500 IndX Fund;
X.com Bond IndX Fund; and
X.com Money Market Fund.
Effective as of September 1, 1999.
<PAGE>
SCHEDULE B
to Agreement between X.com Funds (the "Company")
and
Master Investment Portfolios ("MIP")
dated as of September 1, 1999 (the "Agreement")
MIP has entered into the Agreement on behalf of the following series of
MIP (each a "Portfolio" and, collectively, the "Portfolios"), into interests of
which the corresponding series of the Company (each a "Fund" and, collectively,
the "Funds") set forth on Schedule A to the Agreement, will invest all or
substantially all its investable assets.
S&P 500 Index Master Portfolio;
Bond Index Master Portfolio; and
Money Market Master Portfolio.
Effective as of September 1, 1999.
<PAGE>
EXHIBIT (h)(10)
THIRD PARTY FEEDER FUND
AGREEMENT
AMONG
SMITH BARNEY INVESTMENT TRUST
CFBDS, INC.
AND
MASTER INVESTMENT PORTFOLIO
dated as of
October 13, 1999
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
ARTICLE I. REPRESENTATIONS AND WARRANTIES.................................................................1
1.1 Trust..........................................................................................1
1.2 MIP............................................................................................2
1.3 Distributor....................................................................................4
ARTICLE II. COVENANTS......................................................................................4
2.1 Trust..........................................................................................4
2.2 MIP............................................................................................5
2.3 Reasonable Actions.............................................................................7
ARTICLE III. INDEMNIFICATION................................................................................8
3.1 Trust..........................................................................................8
3.2 Distributor....................................................................................9
3.3 MIP...........................................................................................11
ARTICLE IV. ADDITIONAL AGREEMENTS.........................................................................12
4.1 Access to Information.........................................................................12
4.2 Confidentiality...............................................................................13
4.3 Obligations of Trust and MIP .................................................................13
ARTICLE V. TERMINATION, AMENDMENT........................................................................13
5.1 Termination...................................................................................13
5.2 Amendment.....................................................................................13
ARTICLE VI. GENERAL PROVISIONS............................................................................14
6.1 Expenses......................................................................................14
6.2 Headings......................................................................................14
6.3 Entire Agreement..............................................................................14
6.4 Successors....................................................................................14
6.5 Governing Law.................................................................................14
6.6 Counterparts..................................................................................14
6.7 Third Parties.................................................................................14
6.8 Notices.......................................................................................14
6.9 Interpretation................................................................................15
6.10 Operation of the Fund.........................................................................15
6.11 Relationship of Parties; No Joint Venture, Etc. ..............................................15
6.12 Use of Name...................................................................................15
</TABLE>
Signatures
Schedule A
Schedule B
<PAGE>
AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into as of the
13th day of October, 1999, by and among Smith Barney Investment Trust, a
Massachusetts business trust (the "Trust"), for itself and on behalf of its
series now existing or hereafter created as set forth on Schedule A (each, a
Fund and collectively, the "Funds"), CFBDS, Inc. (the "Distributor"), a
Massachusetts corporation, and Master Investment Portfolio ("MIP"), a Delaware
business trust, for itself and on behalf of its series set forth on Schedule B
(each, a "Portfolio" and collectively, the "Portfolios").
WITNESSETH
WHEREAS, Trust and MIP are each registered under the Investment Company
Act of 1940, as amended (the "1940 Act") as open-end management investment
companies;
WHEREAS, each Fund and its corresponding Portfolio have the same
investment objective and substantially the same investment policies;
WHEREAS, each Fund desires to invest on an ongoing basis all or
substantially all of its investable assets (the "Assets") in exchange for shares
of beneficial interest in the corresponding 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 Trust. Trust represents and warrants to MIP that:
-----
(a) Organization. Trust is a business trust duly organized,
validly existing and in good standing under the laws of the
Commonwealth of Massachusetts, and the Funds are duly and validly
designated series of Trust. Trust and each 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 the Funds 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 the Funds, or the performance by the Funds of their
obligations hereunder. This Agreement when executed and delivered by
Trust on behalf of the Funds shall constitute a legal, valid and
binding obligation of Trust, enforceable against the Funds 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. No meeting of, or consent by,
shareholders of the Funds is necessary to approve or implement the
Investments.
(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, 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 the Funds' shares, any
meetings of its shareholders and its registration as an investment
company. All SEC Filings relating to the Funds 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. Each Fund currently intends on an ongoing
basis to invest its Assets solely through the corresponding Portfolio,
although it reserves the right to invest Assets in other securities and
other assets and/or to redeem any or all Interests, as defined below,
of the corresponding Portfolio at any time without notice.
(f) Registration Statement. Trust has reviewed MIP's and
----------------------
the Portfolios' most recent registration statement on Form N-lA, as
provided by MIP and as filed with the SEC.
(g) Insurance. Trust has in force an errors and omissions
liability insurance policy insuring the Funds against loss up to $25
million for negligence or wrongful acts.
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 the Portfolios are duly and validly designated series of MIP. MIP
and each 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 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 this
Agreement by the Portfolios, or the performance by the Portfolios of
their obligations hereunder and the consummation by the Portfolios of
the transactions contemplated hereby. 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) Issuance of Beneficial Interest. The issuance by MIP of
beneficial interests in the Portfolios ("Interests") in exchange for
the Investments by the corresponding Funds of their 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 and MIP's then effective registration statement, 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 the Portfolios required to
be filed with the SEC under the Securities Laws. 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 the Portfolios
are either (i) noticed or qualified for sale or (ii) 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 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. Each 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 each Portfolio is currently December 31st.
(h) Insurance. MIP has in force an errors and commissions
liability insurance policy insuring the Portfolios against loss up to
$5.0 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.
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 the Funds' 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, 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 the Portfolios and that was not previously approved in material
respects 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; provided such comments are provided
by MIP to Trust within a reasonable time prior to filing or first use
of such Fund documents. 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 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. Trust 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. 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 the Funds are or will be noticed for sale ("State
Filings"). The Funds' 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 the Funds 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. The Funds' 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. Each Fund will continue to qualify 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 that a failure to so qualify results from any action or
omission of the corresponding Portfolio or MIP.
(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 of December).
(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 or exemption therefrom.
(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) Year 2000 Readiness. Trust 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. Trust 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 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 the Funds 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, such 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 Fund or its custodian for the account of
the Fund mirror, as closely as practicable, the composition of the
Portfolio immediately prior to such redemption. Each Portfolio further
agrees that, subject to the preceding sentence and 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 Investment to be treated as a taxable event to the Fund. The
Portfolios further agree to make reasonable efforts to qualify each of
them as an "investment partnership" within the meaning of Section
731(c)(3)(C) of the Code.
(c) Ordinary Course Redemptions. The Portfolios 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 a Fund's entire Investment in the corresponding 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 a Portfolio's net asset value, will be
effected in cash at the next determined net asset value after the
redemption request is received. The Portfolios will use their best
efforts to settle redemptions on the business day following the receipt
of a redemption request by a 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 the Portfolios' investors and its registration as an
investment company and will provide copies of all such definitive
filings to Trust. 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 and Treasury Regulations, each Portfolio will continue to be
treated as a partnership for federal income tax purposes. Each
Portfolio will continue to satisfy (i) the "income test" imposed on a
"regulated investment company" under Section 851(b)(2) of the Code and
(ii) the "asset test" imposed on a "regulated investment company"
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 Trust prior to the Funds' initial Investment a copy of its
opinion of counsel or private letter ruling relating to the tax status
of the Portfolios.
(g) Securities Exemptions. Interests in the Portfolios 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 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 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.
(j) Proxy Costs. If and to the extent that: (i) MIP submits a
matter to a vote of a Portfolio's Interestholders; (ii) the
corresponding 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 a corresponding
Portfolio, then MIP shall assume the costs associated with soliciting
proxies from the shareholders of the 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 Trust 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 Trust
(a) Trust agrees to indemnify and hold harmless MIP, the
Portfolios and the Portfolios' investment adviser, and any
director/trustee, officer, employee or agent of MIP, the Portfolio or
Portfolios' 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 the Funds;
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
the Funds, 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
to the Funds or by any service provider of MIP for use therein
or for use by the Funds 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 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) 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. For purposes of the foregoing, the parties agree that the fact
that the interests in a 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 a Portfolio that are not available to the Trust
and/or Distributor. 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.
3.2 Distributor
(a) Distributor agrees to indemnify and hold harmless MIP, the
Portfolios and the Portfolios' investment adviser, and any
director/trustee, officer, employee or agent of MIP, the Portfolios or
Portfolios' 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 Distributor or by any of
its or their trustees/directors, officers, employees or
agents, but only insofar as such omissions or commissions
relate to the Funds; 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
the Funds, 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 the Funds or by any service provider of MIP for use
therein or for use by the Funds 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 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.
3.3 MIP.
---
(a) MIP agrees to indemnify and hold harmless Trust, the
Funds, Distributor, and any affiliate of the Trust, the Funds and/or
the Distributor providing services to Trust 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)) ("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 the Portfolios, or any amendments to
the foregoing (in this Section, collectively, the "Offering
Documents") relating to the Portfolios, 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 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 the Funds
by MIP for use therein or for use by the Funds 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.
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, the Funds' or Portfolios'
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 the Funds or Portfolios, 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 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 Trust or the
Funds, and in no case shall MIP or any covered person have recourse to the
assets of any series of the Trust other than the Funds. Trust 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, 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 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 Trust's right to redeem all or a portion
of its units of the Portfolios 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.
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 Trust:
Smith Barney Investment Trust
388 Greenwich Street, 22nd Floor
New York, New York 10013
If to Distributor:
CFBDS, Inc.
21 Milk Street
Boston, MA 02109-5408
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 the Funds, Trust or Distributor to
take such action as they may deem appropriate or advisable in connection with
all matters relating to the operation of the Funds and the sale of their 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, 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 Trust, 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 Trust,
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.
<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.
SMITH BARNEY INVESTMENT TRUST
on behalf of itself and each
Fund set forth on Schedule A
By: /s/ Irving P. David
Name: Irving P. David
Title: Controller
CFBDS, Inc.
By: /s/ Phillip W. Coolidge
Name: Phillip W. Coolidge
Title: President
MASTER INVESTMENT PORTFOLIO,
on behalf of itself and each Master Portfolio
set forth on Schedule B
By: /s/ Richard H. Blank, Jr.
-------------------------
Name: Richard H. Blank, Jr.
Title: Chief Operating Officer, Secretary
and Treasurer
<PAGE>
SCHEDULE A
Smith Barney U.S. 5000 Index Fund
Smith Barney EAFE Index Fund
Approved: October 13, 1999
<PAGE>
SCHEDULE B
MASTER INVESTMENT PORTFOLIOS
International Index Master Portfolio
US Equity Index Master Portfolio
Approved: October 13, 1999
<PAGE>
EXHIBIT (h)(11)
THIRD PARTY FEEDER FUND AGREEMENT
AMONG
WHATIFI FUNDS
BISYS FUND SERVICES
BISYS FUND SERVICES, INC.
WHATIFI ASSET MANAGEMENT, INC.
INVESTORS BANK & TRUST COMPANY
AND
MASTER INVESTMENT PORTFOLIO
dated as of
June 1, 2000
THIRD PARTY FEEDER FUND AGREEMENT
THIS THIRD PARTY FEEDER FUND AGREEMENT (the "Agreement") is made and
entered into as of the 1st day of June, 2000, by and among Whatifi Funds, a
Delaware business trust ("Trust"), for itself and on behalf of those series set
forth on Schedule A (the "Funds"), BISYS Fund Services ("BISYS"), an Ohio
limited partnership, BISYS Fund Services, Inc. ("Transfer Agent"), Whatifi Asset
Management, Inc. ("Advisor"), Investors Bank & Trust Company ("IBT"), and Master
Investment Portfolio ("MIP"), a Delaware business trust, for itself and on
behalf of those series set forth on Schedule B (the "Portfolios").
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, each Fund and its 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 exchange for a beneficial interest 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 the Funds are
duly and validly designated series of Trust. Trust and each 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 Funds 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 the Funds, or the performance
by the Funds of their obligations hereunder. This Agreement when executed
and delivered by Trust on behalf of the Funds shall constitute a legal,
valid and binding obligation of Trust, enforceable against the 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 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 the Funds' shares, any meetings of shareholders and its registration as
an investment company. All SEC Filings relating to Funds 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, 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 the Portfolios.
(e) Fund Assets. Each Fund currently intends on an ongoing basis to invest
substantially all of its Assets solely in the corresponding 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. Trust has reviewed MIP's and each Portfolio's
registration statement on Form N-1A, as filed with the SEC.
(g) Insurance. Trust has in force an errors and omissions
liability insurance policy insuring the Funds against
loss up to $3.0 million for negligence or wrongful
acts.
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. MIP and each 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 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 this Agreement by the Portfolios, or the
performance by the Portfolios of their obligations hereunder and the
consummation by the Portfolios of the transactions contemplated hereby.
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 Interests (as
defined below) to the Funds.
(c) Issuance of Beneficial Interest. The issuance by MIP of beneficial
interests in exchange for the Investments by the corresponding Funds of
their 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 the Portfolios required to be filed with the
SEC under 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 qualified for
sale or exempt from notice or qualification 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. Each 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 each Portfolio
is currently December 31st.
(h) Insurance. MIP has in force an errors and omissions liability insurance
policy insuring the Portfolios against loss up to $5.0 million for
negligence or wrongful acts.
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 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, with drafts
of the Funds' registration statement on Form N-1A and any amendments
thereto, and also will furnish 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 the Portfolios 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 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 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
the Portfolios 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 the 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 the Funds are or will be noticed for sale
("State Filings"). The Funds' SEC Filings will comply 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. The Funds' 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. The Funds 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 that a failure to
so qualify may result from any action or omission of the corresponding
Portfolio or MIP.
(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 December).
(f) Proxy Voting. If requested to vote on matters pertaining to MIP or a
Portfolio, each Fund will either seek instructions from its shareholders
with regard to the voting of all proxies with respect to a Portfolio's
securities and vote such proxies only in accordance with such instructions,
or vote the shares held by it in the same proportion as the vote of all
other holders of the Portfolio's securities; provided that the Fund will
not be obligated to take such action if and to the extent the Fund obtains
an exemption from Section 12(d)(1)(E) (iii)(aa) of the 1940 Act.
(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
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 a Fund will be effected in cash pursuant
to Section 2.2(c). In the event a Fund desires to withdraw its entire
Investment from a corresponding Portfolio, either by submitting a
redemption request or by terminating this agreement in accordance with
Section 5.1 hereof, Portfolio, at its sole discretion, and in accordance
with the 1940 Act and the rules and regulations thereunder, may effect such
redemption "in kind" and in such manner that the securities delivered to
the Fund or its custodian approximate the Fund's proportionate share of
Portfolio's net assets immediately prior to such redemption. In addition,
in the event a Fund makes a redemption (or series of redemptions over any
three consecutive business days) of an amount that exceeds 10% of
Portfolio's net asset value, Portfolio, at its sole discretion, and in
accordance with the 1940 Act and the rules and regulations thereunder, may
effect such redemption "in kind" and in such manner that the securities
delivered to Fund or its custodian approximate the Fund's proportionate
share of Portfolio's net assets immediately prior to such redemption. Each
Portfolio will use its best efforts to settle redemptions on the business
day following the receipt of a redemption request by a 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.
(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. Except as described in Section 2.2(b), all
redemptions will be effected in cash at the next determined net asset value
after the redemption request is received in proper form. Each Portfolio
will use its best efforts to settle redemptions on the business day
following the receipt of a redemption request by a 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 a
Portfolio's investors and its registration as an investment company and
will provide copies of all such definitive filings to Trust. 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 and
Treasury Regulations, each Portfolio will continue to be treated as a
partnership for federal income tax purposes. 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.
(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 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 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.
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 Trust.
-----
(a) Indemnification. Trust agrees 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"),
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 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 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 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;
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 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 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 with
respect to information 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
BISYS 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 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 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 with
respect to information 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 Transfer Agent 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
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 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 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 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 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.
(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, the Funds' 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
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 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 Trust or the
Funds, and in no case shall MIP or any covered person have
recourse to the assets of any series of the Trust other than
the Funds. Trust agrees that the 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, 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. 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, that nothing
in this Agreement shall limit Trust's right to redeem all or a portion of
its units of a 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.
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; 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 Trust:
c/o BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
Attention: President
If to Advisor:
790 Eddy Street
Suite B
San Francisco, CA 94109
Attention: Harris A. Fricker
If to BISYS:
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
Attention: President
If to Transfer Agent:
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
Attention: President
If to IBT:
Investors Bank and Trust Company
200 Clarendon Street
PO Box 9130
Boston, MA 02117-9130
Attention: Steven Gallant,
Director Client Management
With a copy to Andrew Josef,
Assistant 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 the Funds, Trust or
BISYS to take such action as it may deem appropriate or
advisable in connection with all matters relating to the
operation of the Funds and the sale of their 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, 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 Trust, a Fund or BISYS 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 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.
<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.
Whatifi Funds,
On behalf of itself and each Fund set Forth on Schedule A
By: /s/ Harris A. Fricker
Name: Harris A. Fricker
Title: President and Chief Executive Officer
BISYS Fund Services Limited Partnership
By: BISYS Fund Services, Inc., its General Partner
By: /s/ Mark A. Dillon
Name: Mark A. Dillon
Title: Executive Vice President
BISYS Fund Services, Inc. ("Transfer Agent"),
By: /s/ Mark A. Dillon
Name: Mark A. Dillon
Title: Executive Vice President
Whatifi Asset Management, Inc.
By: /s/ Harris A. Fricker
Name: Harris A. Fricker
Title: President and Chief Executive Officer
Investors Bank & Trust Company ("IBT"),
By: /s/ Andrew Nesvet
Name: Andrew Nesvet
Title: Senior Director
MASTER INVESTMENT PORTFOLIO,
On behalf of itself and each Master Portfolio set forth on Schedule B
By: /s/ Richard H. Blank, Jr.
-------------------------
Name: Richard H. Blank, Jr.
Title: Chief Operating Officer
<PAGE>
SCHEDULE A
WHATIFI FUNDS
Total Bond Index Fund
Extended Market Index Fund
International Index Fund
Money Market Fund
S&P 500 Index Fund
Approved: June 1, 2000
<PAGE>
SCHEDULE B
MASTER INVESTMENT PORTFOLIOS
Bond Index Master Portfolio
Extended Index Master Portfolio
International Index Master Portfolio
Money Market Master Portfolio
S&P 500 Index Master Portfolio
Approved: June 1, 2000
<PAGE>
EXHIBIT (j)(1)
CONSENT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors of
Barclays Global Investors Funds, Inc.:
To the Interestholders and Board of Trustees of
Master Investment Portfolio:
We consent to the use of our report dated February 11, 2000 for Asset Allocation
Fund, Bond Index Fund, Money Market Fund, Institutional Money Market Fund and
S&P 500 Stock Fund and our report dated April 7, 2000 for LifePath Income Fund,
LifePath 2010 Fund, LifePath 2020 Fund, LifePath 2030 Fund and LifePath 2040
Fund (each a series of Barclays Global Investors Funds, Inc.) incorporated by
reference herein.
We also consent to the use of our report dated February 11, 2000 for Asset
Allocation Master Portfolio, Bond Index Master Portfolio, Money Market Master
Portfolio and S&P 500 Index Master Portfolio and our report dated April 7, 2000
for LifePath Income Master Portfolio, LifePath 2010 Master Portfolio, LifePath
2020 Master Portfolio, Life Path 2030 Master Portfolio and Life Path 2040 Master
Portfolio (each a series of Master Investment Portfolio) incorporated by
reference herein.
We also consent to the reference to our Firm under the headings "Financial
Highlights" in the prospectuses and "Independent Auditors" and "Financial
Statements" in the Statements of Additional Information.
/s/ KPMG LLP
San Francisco, California
June 30, 2000
<PAGE>
EXHIBIT (j)(3)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Marco E. Adelfio, Richard H. Blank, Jr., R. Greg Feltus and Robert M.
Kurucza, and each of them, his true and lawful attorney-in-fact and agent (each,
an "Attorney-in Fact") with full power of substitution and resubstitution, for
him and in his name, place and stead, in any and all capacities, (i) to execute
the Registration Statement of each of Barclays Global Investors Funds, Inc. and
Master Investment Portfolio and any investment company whose fund(s) invest in a
Master Portfolio of Master Investment Portfolio (each, a "Company"), and any or
all amendments (including post-effective amendments) thereto and to file the
same, with any and all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission and any state securities
commissions or authorities, and (ii) to execute any and all federal or state
regulatory filings, including all applications with regulatory authorities,
state charter or organizational documents and any amendments or supplements
thereto, to be executed by, on behalf of, or for the benefit of, a Company. The
undersigned hereby grants to each Attorney-in-Fact full power and authority to
do and perform each and every act and thing contemplated above, as fully and to
all intents and purposes as he might or could do in person, and hereby ratifies
and confirms all that said Attorney-in-Fact may lawfully do or cause to be done
by virtue hereof.
Dated: February 17, 2000 /s/ Leo Soong
-------------
Leo Soong
<PAGE>
EXHIBIT (p)
MASTERWORKS FUNDS INC.
MASTER INVESTMENT PORTFOLIO
MANAGED SERIES INVESTMENT TRUST
Code of Ethics
This Code of Ethics shall apply to each investment company or an
affiliate that adopts the Code by action of its Board of Directors or
Trustees /1/ (each, a "Company").
1. Purposes
Rule 17j-1 under the Investment Company Act of 1940, as amended (the "1940
Act") generally proscribes fraudulent or manipulative practices by Officers and
Directors of the Company (as well as other persons) with respect to purchases or
sales of securities "held or to be acquired"/2/ by the Company. The purpose of
this Code of Ethics is to provide regulations and procedures consistent with the
1940 Act and Rule 17j-1 designed to prevent violations of the prohibitions of
Rule 17j-1(a):
(a) It shall be unlawful for any affiliated person of or
principal underwriter for a registered investment company,
or any affiliated person of a manager of or principal
underwriter for a registered investment company, in
connection with the purchase or sale, directly or
indirectly, by such person of a security held or to be
acquired, as defined in this section, by such registered
investment company --
(1) To employ any device, scheme or artifice to defraud
such registered investment company;
(2) To make to such registered investment company any
untrue statement of a material fact or omit to state
to such registered investment company a material
fact necessary in order to make the statements made,
in light of the circumstances under which they are
made, not misleading;
(3) To engage in any act, practice, or course of
business which operates or would operate as a fraud
or deceit upon any such registered investment
company; or
(4) To engage in any manipulative practice with respect
to such registered investment company.
/1/ As used herein, "Director" shall mean a director or trustee, and "Company"
shall mean a corporation or a trust.
/2/ A security is "held or to be acquired" if within the most recent 15 days it
(i) is or has been held by the Company, or (ii) is being held or has been
considered by the Company or its manager(s) for purchase by such Company. A
purchase or sale includes the writing of an option to purchase or sell.
In addition, the Investment Company Institute (the "ICI") has
suggested that investment companies adopt additional measures to obviate
conflicts, prevent and detect abusive practices, and preserve the confidence of
investors. The policies, prohibitions, and procedures included in this Code of
Ethics substantially conform to the additional measures suggested by the ICI.
2. Company Policies
It is the Company's policy that no access person (defined below)
of the Company shall engage in any act, practice, or course of conduct that
would violate the provisions of Rule 17j-(a) set forth above. In this regard,
each access person has a duty at all times to place the interests of Company
shareholders first and is required to conduct all personal securities
transactions consistent with the letter and spirit of this Code of Ethics and in
such a manner as to avoid any actual or potential conflicts of interest or any
abuse of the access person's position of trust and responsibility. It is a
fundamental standard that access persons should not take inappropriate advantage
of their positions.
3. Definitions
(a) "Fund" means each investment portfolio of each Company covered by this
Code.
(b) "Access person" means: (a) any director, officer or advisory person of
a Fund; (b) each employee (if any) of the Company (or of any company in a
control relationship to the Company) who in connection with his/her regular
duties obtains information about the purchase or sale of a security by the
Company or whose functions relate to the making of such recommendations; and (c)
any natural person in a control relationship to the Company who obtains
information concerning recommendations made to the Company with regard to the
purchase or sale of a security. An employee of the Company's manager, or an
entity that controls or is under common control with the Company's manager,
shall not be deemed to be an "access person" hereunder unless he or she also
serves as a Director or Officer of the Company, provided the individual is
subject to a Code of Ethics adopted by his or her employer that complies with
the requirements of Rule 17j-1 and substantially conforms to the policies and
procedures suggested by the ICI.
(c) "Advisory person" means (i) any employee of the Company or of any
company in a control relationship to the Company, who, in connection with his or
her regular functions or duties, makes, participates in, or obtains information
regarding, the purchase or sale of a security by a Fund, or whose functions
relate to the making of any recommendations with respect to such purchases or
sales; and (ii) any natural person in a control relationship to the Company who
obtains information concerning recommendations with regard to the purchase or
sale of a security.
(d) A security is "being considered for purchase or sale" when a
recommendation to purchase or sell a security has been made and communicated
and, with respect to the person making the recommendation, when such person
seriously considers making such a recommendation.
(e) "Beneficial ownership" shall be interpreted with reference to the
definition contained in the provisions of Section 16 of the Securities Exchange
Act of 1934 and the rules and regulations thereunder, as such provision may be
interpreted by the Securities and Exchange Commission./8/
/8/
You will be treated as the "beneficial owner" of a security under this policy
only if two tests are met with respect to a transaction in the security:
(1) You have or you share voting power and/or investment power with
respect to the security. (This is the same test for reporting beneficial
ownership of securities for the proxy statements of public companies, and
includes, among other things, securities which you have the right to acquire
within 60 days.)
(2) You have a direct or indirect pecuniary interest in the
security.
(a) A direct pecuniary interest is the opportunity,
directly or indirectly, to profit, or to share the profit, from the transaction.
(b) An indirect pecuniary interest is any nondirect
financial interest, but is specifically defined in the rules to include
securities held by members of your immediate family sharing the same household;
securities held by a partnership of which you are a general partner; securities
held by a trust of which you are the settler if you can revoke the trust, or
a beneficiary if you have or share investment control with the
Trustee/Director; and equity securities which may be acquired upon exercise of
an option or other right, or through conversion.
Unless both tests are satisfied, you are not the beneficial owner.
For interpretive guidance on either of the two tests, you should
consult the Company's designated compliance person. A report shall not be
construed as an admission by the person making the report that he or she has any
direct or indirect beneficial ownership in the security.
(f) "Control" shall have the same meaning as that set forth in Section
2(a)(9) of 1940 Act.
(g) "Disinterested Director" means a Director of the Company who is not an
"interested person" of the Company within the meaning of Section 2(a)(19) of the
1940 Act.
(h) "Investment personnel" means any access person of the Company who is
either a portfolio manager (who makes decisions about fund investments) or a
person who assists in the investment process (includes analysts and traders).
Other access persons who may from time to time obtain information about the
purchase or sale of a security by the Company are not investment personnel for
purposes of this Code of Ethics.
(i) "Manager" means an adviser, subadviser or any affiliate that serves as
manager to any Fund of the Company.
(j) "Purchase or sale of a security" includes, inter alia, the writing of
an option to purchase or sell a security.
(k) A "non-exempt security" is any security other than shares of registered
open-end investment companies, money-market instruments, securities issued by
the U.S. Government, or short-term securities guaranteed by the U.S. Government
or issued or guaranteed by its agencies or instrumentalities.
(l) "Short-term trading" is defined as a purchase and sale, or sale and
purchase, of the same (or equivalent) securities, which both occur within any
60-day period.
4. Prohibited Purchases and Sales
(a) No access person shall purchase or sell, directly or
indirectly, any "non-exempt security" where he or she has,
or by reason of such transactions acquires or disposes of,
any direct or indirect beneficial ownership, and where he
or she knows or should have known, at the time of such
purchase or sale, that the non-exempt security:
(i) is being considered for purchase or sale by a Fund; or
(ii) is being purchased or sold by a Fund.
(b) Investment personnel are prohibited from purchasing any
non-exempt security in an initial public offering.
Investment personnel are prohibited from purchasing any
non-exempt security in a private placement unless they
obtain the prior written approval of the Company's
designated compliance person, who shall consult with
investment personnel who have no personal interest in the
issuer prior to granting such approval.
(c) Any profits realized by investment personnel from
short-term trading of a non-exempt security shall be
disgorged to the Company.
(d) Investment personnel are prohibited from receiving any gift
or item valued at more than $100 per donor per year from
any person or entity that does business with or on behalf
of the Company.
(e) Investment personnel are prohibited from serving on the
board of directors of a company whose stock is publicly
traded, absent prior authorization from the Company's
designated compliance person based upon a determination
that the board service would be consistent with the
interests of the Company and its shareholders.
(f) Investment personnel must review the manager's Restricted
Trading List prior to making any personal trade. The
Restricted Trading List is updated daily and should be
reviewed on the day the order for the personal trade is
placed.
(g) No access person shall recommend any securities transaction
by a Fund without having disclosed his or her interest, if
any, in such securities or the issuer thereof, including
without limitation (i) his or her direct or indirect
beneficial ownership of any securities of such issuer; (ii)
any contemplated transaction by such person in such
securities; (iii) any position with such issuer or its
affiliates; and (iv) any present or proposed business
relationship between such issuer or its affiliates, on the
one hand, and such person or any party in which such person
has a significant interest, on the other.
5. Exempted Transactions
The prohibitions of Section 3 of this Code shall not apply to:
(a) Purchases or sales of non-exempt securities which are not eligible for
purchase or sale by any Fund of the Company.
(b) Purchases or sales which are non-volitional on the part of the access
person.
(c) Purchases which are part of an automatic dividend reinvestment plan.
(d) Purchases effected upon the exercise of rights issued by an issuer pro
rata to all holders of a class of its securities, to the extent such rights were
acquired from such issuer, and sales of such rights so acquired.
(e) Sales which are effected pursuant to a tender offer or similar
transaction involving an offer to acquire all or a significant portion of a
class of securities.
(f) Purchases or sales which are only remotely potentially harmful to the
Company or its Funds because the purchase or sale would be very unlikely to
affect a highly institutional market.
(g) Purchases or sales of non-exempt securities by an access person who
knows or should have known, at the time of such purchase or sale, that the
non-exempt security: (i) is being considered for purchase or sale only as part
of a security index by an index or index allocation Fund; or (ii) is being
purchased or sold only as part of a security index by an index or index
allocation Fund.
6. Reporting Procedures
In order to provide the Company with information to enable it to
determine with reasonable assurance whether the provisions of Rule 17j-1(a) are
being observed by its access persons:
(a) Every access person other than a disinterested Director shall submit
reports in the form attached hereto as Exhibit A to a Fund's designated
compliance person showing all transactions in any "reportable" security in
which such access person has, or by reason of such transaction acquires or
disposes of, any direct or indirect beneficial ownership.
Such reports shall be filed not later than 10 days after the end of each
calendar quarter, but need not show transactions over which such person had
no direct or indirect influence or control. In lieu of providing such
reports, an applicant may arrange for duplicate confirmations and account
statements to be provided directly to the Company's designated compliance
person.
(b) A disinterested Director of the Company shall submit a quarterly report as
required under paragraph (a) above but only for a transaction in a
"reportable" security if such Director knew, at the time of that
transaction, or, in the ordinary course of fulfilling his or her official
duties as a Director, should have known that during the 15-day period
immediately preceding the date of the transaction, such security is or was
purchased or sold or was considered for purchase or sale by a Fund or the
Fund's Manager. No report is required if the Director had no direct or
indirect influence or control over his or her transaction. Actual or
constructive knowledge that a reportable security is or was purchased or
sold, or was considered for purchase or sale, only as part of a security
index by an index Fund or index allocation Fund does not trigger a
reporting duty under this paragraph (b).
(c) The Company does not believe that personal transactions by its access
persons in any securities other than securities which the Company is
permitted to purchase would be prohibited by Rule 17j-1(a). For purposes of
subparagraphs (a) and (b) above, "reportable" securities include only
non-exempt securities which the Company's Funds are permitted to acquire
under their investment objectives and policies set forth in the Company's
then current prospectus(es) under the Securities Act of 1933, as amended.
In the event that any of the investment objectives and policies for the
Funds of the Company changes in the future, the Board of Directors may
reconsider the scope of this reporting requirement in light of such change
and Rule 17j-1.
(d) Investment personnel are required to provide copies of all brokerage
statements and confirmations to the Company's designated compliance person.
All investment personnel shall disclose all personal securities holdings
upon commencement of employment with a Fund and annually thereafter.
(e) Every access person of the Company shall provide an annual certification in
the form of Exhibit B to the Company's designated compliance person. This
requirement applies to all Directors, including disinterested Directors, of
the Company.
(f) Each Company's designated compliance person shall notify each "access
person" of the Company who may be required to make reports pursuant to this
Code that such person is subject to reporting requirements and shall
deliver a copy of this Code to each such person. Any amendments to this
Code shall be similarly furnished to each person to whom this Code is
applicable.
(g) The Company's designated compliance person shall report to the Board of
Directors:
(i) at the next meeting following the receipt of any
report on Exhibit A with respect to each reported
transaction in a security which was, within 15 days
before or after the date of the reported
transaction: (A) purchased or sold by the Company,
or (B) considered by the Company for purchase or
sale, unless (in either case) the amount involved in
the reported transaction was less than $50,000 or
the security was purchased or sold by the Company
only as part of a security index by an index Fund or
an index allocation Fund;
(ii) with respect to any transaction not required to be
reported to the Board by the operation of
subparagraph (a), that the Company's designated
compliance person believes nonetheless may evidence
a violation of this Code; and
(iii) apparent violations of the reporting requirements
stated herein.
(h) The Board of Directors shall consider reports made to it hereunder and
shall determine whether the policies established in Section 2 above have
been violated, and what sanctions, if any, should be imposed. The Board of
Directors shall review the operation of this policy at least once a year.
(i) This Code, a copy of each report by an access person, any written report
hereunder by each Company's designated compliance person and lists of all
persons required to make reports shall be preserved with the Company's
records for the period required by Rule 17j-1.
7. Insider Trading and Conflicts of Interest
The Board of Directors of the Company has adopted a policy
statement on insider trading and conflicts of interests (the "Policy
Statement"), a copy of which is attached hereto as Exhibit C. All access persons
are required by this Code of Ethics to read and familiarize themselves with
their responsibilities under the Policy Statement.
8. Sanctions
Upon discovering a violation of this Code, the Board of Directors
of the Company may impose such sanctions as it deems appropriate, including,
inter alia, a letter of censure or suspension or termination of the employment
of the violator.
Adopted as Revised: February 1, 1996
<PAGE>
EXHIBIT A
MASTERWORKS FUNDS INC.
MASTER INVESTMENT PORTFOLIO
MANAGED SERIES INVESTMENT TRUST
Securities Transaction Report
For the Calendar Quarter Ended _________________
(mo./day/yr.)
To the Designated Compliance Person:
During the quarter referred to above, the following transactions
were effected in reportable securities of which I had, or by reason of such
transaction acquired or disposed of, direct or indirect beneficial ownership,
and which are required to be reported pursuant to the Company's Code of Ethics:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
No. of Dollar Broker
Shares or Amount Nature Dealer
Date of Principal of of or
Security Transaction Amount Transaction Transaction Price Bank
</TABLE>
This report (i) excludes transactions with respect to which I had
no direct or indirect influence of control, (ii) excludes other transactions not
required to be reported, and (iii) is not an admission that I have or had any
direct or indirect beneficial ownership in the securities listed above.
Dated: ___________________________________Signature: ________________________
<PAGE>
EXHIBIT B
MASTERWORKS FUNDS.
MASTER INVESTMENT PORTFOLIO
MANAGED SERIES INVESTMENT TRUST
Annual Certification of Compliance
for the Calendar Year Ended December 31, 199__.
To the Designated Compliance Person:
I hereby certify that, during the calendar year specified above, I
have complied with the requirements of the Code of Ethics and have disclosed or
reported all personal securities transactions required to be disclosed or
reported pursuant to the requirements of the Code of Ethics. I have read and
understand the Code of Ethics and recognize that I am subject thereto.
Dated: ___________________________________Signature: _________________________
<PAGE>
EXHIBIT C
POLICY STATEMENT ON INSIDER TRADING
A. Introduction
The Company seeks to foster a reputation for integrity and
professionalism. That reputation is a vital business asset. The confidence and
trust placed in us by investors in the Company is something we should value and
endeavor to protect. To further that goal, this Policy Statement implements
procedures to deter the misuse of material, nonpublic information in securities
transactions.
Trading securities while in possession of material, nonpublic
information or improperly communicating that information to others may expose
you to stringent penalties. Criminal sanctions may include a fine of up to
$1,000,000 and/or ten years imprisonment. The Securities and Exchange Commission
can recover the profits gained or losses avoided through the violative trading,
a penalty of up to three times the illicit windfall and an order permanently
barring you from the securities industry. Finally, you may be sued by investors
seeking to recover damages for insider trading violations.
Regardless of whether a government inquiry occurs, the Company
views seriously any violation of this Policy Statement. Such violations
constitute grounds for disciplinary sanctions, including dismissal.
B. Scope of the Policy Statement
This Policy Statement is drafted broadly; it will be applied and
interpreted in a similar manner. This Policy Statement applies to securities
trading and information handling by Access Persons, as defined in the Company's
Code of Ethics, (including spouses, minor children and adult members of their
households).
The law of insider trading is unsettled; an individual
legitimately may be uncertain about the application of the Policy Statement in a
particular circumstance. Often, a single question can forestall disciplinary
action or complex legal problems. You should direct any questions relating to
the Policy Statement to the Company's designated compliance person (the
"Compliance Person"). You also must notify the Compliance Person immediately if
you have any reason to believe that a violation of the Policy Statement has
occurred or is about to occur.
C. Policy Statement
No person to whom this Policy Statement applies, including you,
may trade, either personally or on behalf of others, while in possession of
material, nonpublic information; nor may the Company's Access Persons
communicate material, nonpublic information to others in violation of the law.
This section reviews principles important to the Policy Statement.
1. What is Material Information?
-----------------------------
Information is "material" when there is a substantial likelihood
that a reasonable investor would consider it important in making his or her
investment decisions. Generally, this is information whose disclosure will have
a substantial effect on the price of a company's securities. No simple "bright
line" test exists to determine when information is material; assessments of
materiality involve a highly fact-specific inquiry. For this reason, you should
direct any questions about whether information is material to the Compliance
Person.
Material information often relates to a company's results and
operations including, for example, dividend changes, earning results, changes in
previously released earnings estimates, significant merger or acquisition
proposals or agreements, major litigation, liquidation problems, and
extraordinary management developments.
Material information also may relate to the market for a company's
securities. Information about a significant order to purchase or sell securities
may, in some contexts, be deemed material. Similarly, prepublication information
regarding reports in the financial press also may be deemed material. For
example, the Supreme Court upheld the criminal convictions of insider trading
defendants who capitalized on prepublication information about the Wall Street
Journal's "Heard on the Street" column.
2. What is Nonpublic Information?
------------------------------
Information is "public" when it has been disseminated broadly to
investors in the marketplace. Tangible evidence of such dissemination is the
best indication that the information is public. For example, information is
public after it has become available to the general public through a public
filing with the Securities and Exchange Commission ("SEC") or some other
government agency, the Dow Jones "tape" or the Wall Street Journal or some other
publication of general circulation, and after sufficient time has passed so that
the information has been disseminated widely.
3. Identifying Inside Information
Before executing any trade for yourself or others, including the
Company, you must determine whether you have access to material, nonpublic
information. If you think that you might have access to material, nonpublic
information, you should take the following steps:
(i) Report the information and proposed trade immediately to the
Compliance Person.
(ii) Do not purchase or sell the securities on behalf of yourself
or others, including the Company.
(iii) Do not communicate the information inside or outside the
Company, other than to the Compliance Person.
(iv) After the Compliance Person has reviewed the issue, the firm
will determine whether the information is material and nonpublic and, if
so, what action the Company should take.
You should consult with the Compliance Person before taking any
action. This degree of caution will protect you and the Company.
4. Contact with Public Companies
The Company's contacts with public companies represent an
important part of our research efforts. The Company may make investment
decisions on the basis of the Company's conclusions formed through such contacts
and analysis of publicly-available information. Difficult legal issues arise,
however, when, in the course of these contacts, a Company employee or other
person subject to this Policy Statement becomes aware of material, nonpublic
information. This could happen, for example, if a company's Chief Financial
Officer prematurely disclosed quarterly results to an analyst or an investor
relations representative makes a selective disclosure of adverse news to a
handful of investors. In such situations, the Company must make a judgment as to
its further conduct. To protect yourself and the Company, you should contact the
Compliance Person immediately if you believe that you may have received
material, nonpublic information.
5. Tender Offers
Tender offers represent a particular concern in the law of insider
trading for two reasons. First, tender offer activity often produces
extraordinary gyrations in the price of the target company's securities. Trading
during this time period is more likely to attract regulatory attention (and
produces a disproportionate percentage of insider trading cases). Second, the
SEC has adopted a rule which expressly forbids trading and "tipping" while in
possession of material, nonpublic information regarding a tender offer received
from the tender offeror, the target company or anyone acting on behalf of
either. Company employees and others subject to this Policy Statement should
exercise particular caution any time they become aware of nonpublic information
relating to a tender offer.
<PAGE>
[MORRISON & FOERSTER LLP LETTERHEAD]
June 30, 2000
Writer's Direct Dial Number
(202) 887-6957
VIA EDGAR
Laura J. Riegel
Securities and Exchange Commission
450 5th Street, N.W.
Washington, D.C. 20549
Re: Master Investment Portfolio; SEC File No. 811-8162
--------------------------------------------------
Dear Ms. Riegel:
In connection with the registration of Master Investment Portfolio
(the "Trust") as an investment company under the Investment Company Act of 1940
(the "1940 Act"), transmitted herewith for filing pursuant to Rule 8b-11 of the
1940 Act, is Amendment No. 12 to the Trust's Registration Statement on Form
N-1A.
This Amendment relates to the Asset Allocation, Bond Index,
Extended Index, International Index, LifePath Income (formerly LifePath 2000),
LifePath 2010, LifePath 2020, LifePath 2030, LifePath 2040, Money Market, S&P
500 Index and U.S. Equity Index Master Portfolios (the "Master Portfolios") of
Master Investment Portfolio. This amendment includes the annual update of all
audited financial information pertaining to each Master Portfolio. This
Amendment does not effect the registration statement.
Beneficial interests in the Trust 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.
If you have any questions or comments, please contact the undersigned at the
number set forth above or Marco E. Adelfio of this firm at (202) 887-1530.
Sincerely,
/s/ Jonathan F. Cayne
Jonathan F. Cayne
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