________________________________________________________________________________
IMPORTANT NOTICE: Please vote using the
Enclosed Proxy Ballot as soon as possible.
For your convenience, you may vote by calling Shareholder
Communications Corp. ("SCC") toll-free at 1-800-733-8481 Ext. 435
from 6:00 a.m. to 8:00 p.m. (Pacific time). You may
also vote by faxing the front and back of your
Proxy Ballot to SCC at 1-800-733-1885.
A confirmation of your telephonic or facsimile
vote will be sent to you.
________________________________________________________________________________
BARCLAYS GLOBAL INVESTORS FUNDS, INC.
111 Center Street
Little Rock, Arkansas 72201
August 27, 1999
Dear Shareholder of the U.S. Treasury Allocation Fund:
We are pleased to invite you to a Special Meeting of the Shareholders
of the U.S. Treasury Allocation Fund (the "U.S. Treasury Fund") of Barclays
Global Investors Funds, Inc. ("BGI Funds") to be held on Tuesday, September 28,
1999. The Special Meeting is being held to consider a proposal to consolidate
the U.S. Treasury Fund into the Bond Index Fund of BGI Funds. If the proposed
consolidation is approved, you will receive shares of the Bond Index Fund equal
in value to your shares of the U.S. Treasury Fund.
The Board of Directors of BGI Funds unanimously recommends that you
vote in favor of the proposal.
This booklet describes the proposed consolidation and the Board of
Directors' reasons for recommending approval. The booklet includes this cover
letter, a formal notice, a Combined Prospectus/Proxy Statement and several
exhibits. Please take the time to review all of the information before casting
your vote. You may attend the Special Meeting in person or you may use the
enclosed Proxy Ballot to cast your vote.
You should weigh several considerations in particular:
. Reasons for the Proposed Consolidation
The investment adviser to both the U.S. Treasury Fund and the Bond
Index Fund is Barclays Global Fund Advisors ("BGFA"). BGFA has been primarily
responsible for supervisory, overall management and reporting responsibilities,
as well as responsible for the
1
day-to-day portfolio management of the Funds. For various reasons that are
described further in the Combined Prospectus/Proxy Statement, BGFA has advised
the Board of Directors of BGI Funds that it does not believe that the U.S.
Treasury Fund, with only $33 million in assets as of June 30, 1999, is viable on
a long-term basis. As an alternative to liquidation, the proposed consolidation
allows shareholders to continue to benefit from BGFA's day-to-day portfolio
management services, in a similar fund with generally similar investment
objectives and policies.
. Important Facts About The Funds
. Objectives and Policies--The investment objectives and policies
of the Funds are generally similar, although there are some
important differences that you should consider. The principal
similarities and differences are described in the Combined
Prospectus/Proxy Statement that is part of this booklet.
. Access Arrangements--The shareholder servicing, transaction and
other access arrangements are similar for both Funds.
. Share Values--The total dollar value of shares you will receive
in the Bond Index Fund will be equal to the total dollar value of
your shares in the U.S. Treasury Fund.
Whether or not you attend the Special Meeting of Shareholders, you may
vote by proxy in any of three ways:
. By Mail--Mark, sign, date and return the enclosed Proxy Ballot in
the enclosed postage-paid envelope;
. By Phone--Call SCC toll-free at 1-800-733-8481 Ext. 435 from 6:00
a.m. to 8:00 p.m. (Pacific time); or
. By Fax--Mark, sign, date and fax both sides of the enclosed Proxy
Ballot to SCC at 1-800-733-1885.
A confirmation of your telephonic or fax vote will be sent to you.
Every vote is important to us.
If you have any questions, please call BGI Funds at 1-888-204-3956.
Very truly yours,
Barclays Global Investors Funds, Inc.
R. Greg Feltus
President
2
BARCLAYS GLOBAL INVESTORS FUNDS, INC.
111 Center Street
Little Rock, Arkansas 72201
Telephone: 1-888-204-3956
_____________________________________________
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
U.S. TREASURY ALLOCATION FUND
To Be Held on September 28, 1999
_____________________________________________
To the Shareholders of the U.S. Treasury Allocation Fund (the "U.S. Treasury
Fund") of Barclays Global Investors Funds, Inc. ("BGI Funds"):
PLEASE TAKE NOTE that a SPECIAL MEETING OF SHAREHOLDERS (the "Special
Meeting") of the U.S. Treasury Fund will be held on Tuesday, September 28, 1999,
at 11:00 a.m. (Central time) at the principal office of BGI Funds, 111 Center
Street, Little Rock, Arkansas 72201. The Special Meeting is being called for
the following purposes:
(1) To approve an Agreement and Plan of Consolidation (the "Plan")
for the U.S. Treasury Fund and the transactions contemplated
thereby, which include (a) the transfer of all of the assets of
the U.S. Treasury Fund to the Bond Index of BGI Funds, and the
assumption by the Bond Index Fund of all of the liabilities of
the U.S. Treasury Fund, in exchange for shares of the Bond Index
Fund; and (b) the distribution to shareholders of the U.S.
Treasury Fund of the shares of the Bond Index Fund so received.
(2) To transact such other business as may properly come before the
meeting, or any adjournment(s) thereof, including any
adjournment(s) necessary to obtain requisite quorums and/or
approvals.
The Board of Directors of BGI Funds has fixed the close of business on
Friday, August 13, 1999, as the record date (the "Record Date") for the
determination of Fund shareholders entitled to receive notice of and to vote at
the Special Meeting or any adjournment(s) thereof. The Combined
Prospectus/Proxy Statement contains further information regarding the meeting
and the proposal. Even if you do not attend the Special Meeting in person, you
may vote in any one of three ways:
1. Mark, sign, date and return the enclosed Proxy Ballot in the
enclosed postage-paid envelope; or
1
2. Vote by telephone by calling Shareholder Communications Corp.
("SCC") toll-free at 1-800-733-8481 Ext. 435 from 6:00 a.m. to 8:00 p.m.
(Pacific time) (a confirmation of your telephonic vote will be sent to you); or
3. Mark, sign, date and fax the enclosed Proxy Ballot (both front
and back) to SCC at 1-800-733-1885 (a confirmation of your facsimile vote will
be sent to you).
In order for the Plan to be approved, the holders of a majority of the
U.S. Treasury Fund's shares outstanding on the Record Date must be present in
person or by proxy. Therefore, your proxy is very important to us. Whether or
not you plan to attend the meeting in person, please mark, sign, date and return
the enclosed Proxy Ballot today, either in the enclosed postage-paid envelope or
by telefacsimile (front and back) at 1-800-733-1885, or by calling toll-free at
1-800-733-8481 Ext. 435. Signed but unmarked Proxy Ballots will be counted in
determining whether a quorum is present and will be voted in favor of the
proposal.
By Order of the Board of Directors
Richard H. Blank, Jr.
Secretary
August 27, 1999
______________________________________________
YOUR VOTE IS VERY IMPORTANT TO US
REGARDLESS
OF THE NUMBER OF SHARES THAT YOU OWN.
PLEASE VOTE BY MAIL, FACSIMILE OR
OR TELEPHONE IMMEDIATELY.
______________________________________________
2
COMBINED PROSPECTUS/PROXY STATEMENT
August 27, 1999
Barclays Global Investors Funds, Inc.
111 Center Street
Little Rock, Arkansas 72201
Telephone: 1-888-204-3956
This Combined Prospectus/Proxy Statement is being furnished to
shareholders of the U.S. Treasury Allocation Fund ("U.S. Treasury Fund") of
Barclays Global Investors Funds, Inc. ("BGI Funds") in connection with the
solicitation of proxies by the Board of Directors of BGI Funds, for a special
meeting of Shareholders of the U.S. Treasury Fund (the "Special Meeting") to be
held at the principal office of BGI Funds, 111 Center Street, Little Rock,
Arkansas 72201, on Tuesday, September 28, 1999 beginning at 11:00 a.m. (Central
time). The Special Meeting has been called to consider the following proposal,
and to transact such other business as may properly come before the meeting.
Proposal: To approve an Agreement and Plan of Consolidation dated _______
__, 1999 (the "Plan"), between the U.S. Treasury Fund and the Bond Index
Fund (collectively, the "Funds") of BGI Funds. The Plan provides for the
transfer of the assets and liabilities of the U.S. Treasury Fund to the
Bond Index Fund in exchange for shares of equal value of the Bond Index
Fund (the "Consolidation"). As a result of the Consolidation, shareholders
of the U.S. Treasury Fund will become shareholders of the Bond Index Fund.
This Combined Prospectus/Proxy Statement, which should be retained for
future reference, sets forth concisely the information about the Bond Index Fund
that prospective investors, including shareholders of the U.S. Treasury Fund,
should know before investing. Additional information, incorporated by reference
herein, is contained in a separate Statement of Additional Information, dated
July 1, 1999, which has been filed with the Securities and Exchange Commission
(the "SEC") and is available without charge by calling BGI Funds at 1-888-204-
3956.
The Prospectus for the U.S. Treasury Fund and the Bond Index Fund is
incorporated by reference in this Combined Prospectus/Proxy Statement and
accompanies this Combined Prospectus/Proxy Statement. The Prospectus also is
available without charge by calling BGI Funds at 1-888-204-3956.
1
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
2
TABLE OF CONTENTS
PAGE
----
I. THE PROPOSED TRANSACTION - Item 3.................................................................. __
. Overview - Item 3(b)............................................................................... __
. Comparison of Fees and Expenses - Item 3(a)........................................................ __
. Comparison of Investment Objectives, Policies and Restrictions - Item 3(b)(1)...................... __
. Comparison of Risks - Item 3(b).................................................................... __
. Comparison of Advisory and Other Service Arrangements and Fees - Item 3(b)(2)...................... __
. Comparison of Purchase and Redemption Procedures and Other Considerations -
Items 3(b)(3) and (4)............................................................................ __
. Comparison of Performance - Item 3(b).............................................................. __
. A Discussion of Principal Risk Factors - Item 3(c)................................................. __
II. DESCRIPTION OF THE AGREEMENT AND PLAN
OF CONSOLIDATION - Item 4........................................................................ __
. Board Consideration - Item 4(a).................................................................... __
. Reasons for the Consolidation - Item 4(a)(3)....................................................... __
. Federal Income Tax Consequences - Item 4(a)(4)..................................................... __
. Capitalization - Item (4)(b)...................................................................... __
III. INFORMATION ABOUT THE FUNDS - Items 5 and 6 ....................................................... __
. Organization of BGI Funds ......................................................................... __
. Substantial Shareholders .......................................................................... __
. Additional Information - Items 5(e), 5(f) and 6(b)(1) ............................................. __
. Items 5(a) and 6(a) are incorporated by reference to each Fund's Prospectus.
. Item 5(a) of Form N-1A is incorporated by reference into the U.S. Treasury Fund's
Annual Report. See Exhibit B for Bond Index Fund.
. Items 5(b),5(c),5(d), 6(c) and 6(d) are not applicable.
IV. VOTING INFORMATION - Item 7 ....................................................................... __
. Approval and Consummation of the Proposed Transaction ............................................. __
. Solicitation of Proxies and Payment of Expenses ................................................... __
V. INTEREST OF CERTAIN PERSONS AND EXPERTS - Item 8 .................................................. N/A
VI. ADDITIONAL INFORMATION REQUIRED FOR REOFFERING BY PERSONS
DEEMED TO BE UNDERWRITERS - Item 9 .............................................................. N/A
MISCELLANEOUS .......................................................................................... __
. Other Business .................................................................................... __
. Future Shareholder Proposals ...................................................................... __
EXHIBIT A - FORM OF AGREEMENT AND PLAN OF CONSOLIDATION
EXHIBIT B - MANAGEMENT'S DISCUSSION OF BOND INDEX FUND
PERFORMANCE
APPENDIX - FORM OF PROXY BALLOT
BARCLAYS GLOBAL INVESTORS FUNDS, INC.
111 Center Street
Little Rock, Arkansas 72201
_________________________________________________
SPECIAL MEETING OF SHAREHOLDERS
U.S. TREASURY ALLOCATION FUND
To Be Held on September 28, 1999
I. THE PROPOSED TRANSACTION
Important information about the matter to be considered at the Special
Meeting of Shareholders follows. This information is qualified by reference to
the Exhibits at the end of this document.
Overview
The Directors are seeking your approval of an Agreement and Plan of
Consolidation, which contemplates that the Bond Index Fund of BGI Funds will
acquire all of the assets of the U.S. Treasury Fund of BGI Funds and assume all
of the liabilities of the U.S. Treasury Fund in exchange for shares of the Bond
Index Fund. The shares of the Bond Index Fund received by the U.S. Treasury Fund
will then be distributed to the U.S. Treasury Fund's shareholders and the U.S.
Treasury Fund will be dissolved and liquidated.
The Plan must be approved by a vote of a majority of the shareholders of
the U.S. Treasury Fund. The Shareholder Meeting of the U.S. Treasury Fund
shareholders is scheduled for Tuesday, September 28, 1999. The Consolidation, if
approved, is expected to occur on or about Friday, October 15, 1999. For more
information about the Plan, see "Description of the Agreement and Plan of
Consolidation."
As a result of the Consolidation, you will receive full and fractional
shares of the Bond Index Fund equal in value to the shares of the U.S. Treasury
Fund owned by you immediately prior to the transaction. No commissions or sales
loads will be charged in connection with the Consolidation
Shareholders of the U.S. Treasury Fund whose shares are held in a taxable
account will recognize a taxable gain or loss for federal income tax purposes.
For each such shareholder, this gain or loss will be measured by the difference
between the tax basis in the U.S. Treasury Fund shares and their net asset value
at the closing date of the Consolidation ("Closing"). Shareholders who hold
U.S. Treasury Fund shares in a tax-deferred retirement account will not
recognize a taxable gain or loss as a result of the
1
Consolidation. See "Federal Income Tax Consequences" for additional information.
You should separately consider any state tax consequences in consultation with
your tax advisor.
The U.S. Treasury Fund seeks to provide a high level of long-term total
return, consisting of capital appreciation and current income, consistent with a
reasonable level of risk, before fees and expenses. It attempts to improve on
the markets' long-term risk-and-return tradeoff by shifting its investments
among markets in response to changes in the investment environment. The U.S.
Treasury Fund pursues this objective by investing all of its assets in the U.S.
Treasury Allocation Master Portfolio (the "U.S. Treasury Master Portfolio") of
Master Investment Portfolio ("MIP"), which has the same investment objective and
policies as the Fund. The U.S. Treasury Master Portfolio invests directly in a
portfolio of securities. This is sometimes called a "master-feeder structure."
The Bond Index Fund seeks to approximate as closely as practicable,
before fees and expenses, the total rate of return of the U.S. market for issued
and outstanding U.S. government and high-grade corporate bonds as measured by
the Lehman Brothers Government/Corporate Bond Index ("LB Bond Index"). The Bond
Index Fund pursues this objective by investing all of its assets in the Bond
Index Master Portfolio of MIP, which has the same investment objective and
policies as the Bond Index Fund. The Master Portfolio invests directly in a
portfolio of securities. This is another example of a master-feeder structure.
Although both Funds, through their respective Master Portfolios, invest
primarily in fixed-income securities, there are differences in the types of
fixed-income securities that the Funds generally purchase for investment. The
U.S. Treasury Fund has a policy of investing, under normal market condition, at
least 65% of its assets in U.S. Treasury securities such as long-term U.S.
Treasury Bonds, intermediate-term U.S. Treasury Notes and short-term U.S.
Treasury Bills. In addition, the U.S. Treasury Fund may hold money market
instruments for liquidity purposes. The Bond Index Fund invests, under normal
market conditions, at least 90% of its assets in securities representing the LB
Bond Index. The LB Bond Index is composed of approximately 6,500 debt issues of
fixed-income securities, including U.S. Government Securities and investment
grade corporate bonds, each with an issue size of at least $150 million and a
remaining time to maturity of one year or more. As a practical matter, the Bond
Index Fund cannot hold each of the 6,500 securities included in the LB Bond
Index. It can, however, substantially replicate the index's profile by holding
U.S. Government obligations and corporate bonds in a similar proportion to the
index.
If the Consolidation is approved, the master-feeder structure of the U.S.
Treasury Fund will be dissolved. The dissolution of the master-feeder structure
does not require shareholder approval and is expected to occur shortly after the
proposed Consolidation.
The risk factors of investing in the Bond Index Fund are generally
comparable to those of investing in the U.S. Treasury Fund. If the U.S. Treasury
Fund invested directly
2
in a portfolio of securities, the portfolio composition of the U.S. Treasury
Fund would be virtually identical to that of its Master Portfolio, since it is
the only feeder fund of the Master Portfolio (99.99% of all the Master
Portfolio's interests are owned by the U.S. Treasury Fund). The cost to
shareholders also would be the same, as the U.S. Treasury Fund's pro-rata share
of the Master Portfolio's fees would be equal to such costs if occurred directly
by the U.S. Treasury Fund. Consequently, the risks and expenses of investing in
the U.S. Treasury Fund would be virtually unchanged if the Fund were not part of
a master-feeder structure. For a more detailed comparison of the Funds' risks
see "Comparison of Risks."
Comparison of Fees and Expenses
The following comparison is based on current information for the U.S.
Treasury and Bond Index Funds, restated to reflect voluntary fee waivers and
expense reimbursements that are expected to continue during the current fiscal
year. There can be no assurances that the waivers or reimbursements will
continue after the end of the current fiscal year.
Shareholder Transaction Expenses
Pro Forma
U.S. Treasury Bond Index (After
Fund Fund Consolidation)
---- ---- --------------
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)
None None None
Annual Fund Operating Expenses*
(as a percentage of average daily net assets)
Pro Forma
U.S. Treasury Bond Index (After
Fund Fund Consolidation)
---- ---- --------------
Management Fees 0.30% 0.08% 0.08%
Distribution Fees 0.00% 0.00% 0.00%
Other Expenses 0.40% 0.15% 0.15%
---- ---- ----
TOTAL FUND OPERATING EXPENSES 0.70% 0.23% 0.23%
_____________________________
* Information on annual Fund operating expenses reflects the combined expenses
of the Funds and the Master Portfolios in which they invest.
Annual Fund operating expenses for the Funds are based on amounts
incurred during the most recent fiscal year. Stephens Inc. ("Stephens") and
Barclays Global Investors, N. A. ("BGI") have agreed to assume all of the
ordinary operating expenses of
3
the Funds (other than investment advisory fees, portfolio transaction expenses
and administrative fees).
Example of Expenses: The example below is intended to help you compare
-------------------
each Fund's expenses with those of other mutual funds. Actual costs may vary.
The example illustrates the expenses you would have incurred on an initial
$10,000 investment in each of the Funds over the time periods shown. It assumes
your investment earns an annual return of 5% over the periods and that the
Funds' expenses remain constant. The 5% annual return is hypothetical. It does
not represent actual or expected performance.
The Funds do not charge sales or redemption fees. This means that your expenses
for each period would be the same whether or not you sell your shares at the end
of a period. Your actual costs may be higher or lower than this hypothetical
example.
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
U.S. Treasury Fund $72 $224 $390 $871
Bond Index Fund $24 $ 74 $130 $293
Pro Forma $24 $ 74 $130 $293
Comparison of Investment Objectives, Policies and Restrictions
The investment objective, policies and strategies of the U.S. Treasury
Fund are generally similar to those of the Bond Index Fund. The investment
objective of each Fund is fundamental and may not be changed without shareholder
approval. Below is a table comparing the investment objectives and key policies
of the Funds.
- -----------------------------------------------------------------------------------------
U.S. Treasury Fund Bond Index Fund
- -----------------------------------------------------------------------------------------
Objective: Seeks to achieve a high level Objective: Seeks to approximate as closely
of long-term total return, consisting of as practicable, before fees and expenses,
capital appreciation and current income, the total rate of return of the U.S.
consistent with reasonable risk. markets for issued and outstanding U.S. and
high-grade corporate bonds as measured by
the LB Bond Index.
- -----------------------------------------------------------------------------------------
In Pursuing its Objective: The Fund In Pursuing its Objective: The Fund
allocates and reallocates its investments invests substantially all of its assets in
among the three classes of U.S. Treasury the LB Bond Index, which is composed of
debt securities, long-term bonds, approximately 6,500 issues of fixed-income
intermediate-term notes and bonds and securities, including U.S. Government
short-term bills. securities and investment grade corporate
bonds, each with an issue size of at least
$150 million and a remaining maturity of
greater than one year.
- -----------------------------------------------------------------------------------------
4
- ----------------------------------------------------------------------------------------------
U.S. Treasury Fund Bond Index Fund
Key Investment Policies: Key Investment Policies:
- ----------------------------------------------------------------------------------------------
. The U.S. Treasury Fund invests at least . The Bond Index Fund invests at least 65%
65% of its total assets in U.S. Treasury of its total assets in bonds and debentures.
securities, such as long-term bonds,
intermediate-term notes and bonds and . Securities are selected for investment
short-term bills. by the Fund based on a mix of factors, such
as the relative proportion of such
. The U.S. Treasury Allocation Fund uses securities in the LB Bond Index, credit
an investment model to determine the quality, issue sector, maturity structure,
investment strategy for the Fund (the coupon rates and callability.
"Model").
. The Bond Index Fund seeks to come within
. The Model concentrates its analysis on 95% of the total rate of return of the LB
maturity classes of U.S. Treasury Bond Index, before fees and expenses, in
securities, combining: (i) comprehensive falling as well as rising markets.
return data; (ii) statistically
predictable variations from expected . BGFA, makes no attempt to apply
returns; and (iii) information on how economic, financial or market analysis when
varying returns correlate. managing the Fund's portfolio. BGFA
selects securities because they will help
. When the Model identifies potential the Fund achieve returns corresponding to
gains for the Fund, transaction costs the LB Bond Index.
help determine modifications in the
Fund's investment allocation. Barclays
Global Fund Advisors ("BGFA"), the Fund's
investment adviser, decides whether or
not the cost of buying and selling
securities outweighs the potential gains
identified by the Model.
- ----------------------------------------------------------------------------------------------
Investments in either the U.S. Treasury Fund or the Bond Index Fund
discussed in this Combined Prospectus/Proxy Statement are not bank deposits or
obligations of BGI or BGFA. They are not guaranteed or endorsed by the Federal
Deposit Insurance Corporation or any other government agency.
Comparison of Risks
Risks of investing in the Bond Index Fund
. value of the bonds in which the Fund invests may fall because of a rise in
interest rates, which generally reduces the value of bonds, even those issued
by the U.S. government
. value of individual bonds may fall with the decline in a borrower's real or
apparent ability to meet its financial obligations
. prices of bonds may fall in response to economic events or trends
5
. bonds that the Bond Index Fund's investment adviser selects may not match the
performance of the market index
. requirements for cash balances may exert a drag on overall Bond Index Fund
performance
. issuer may be unable to make interest payments or repay principal on time and
the bond could lose all of its value, or be renegotiated at a lower interest
rate or principal amount
. no attempt is made to individually select bonds because the Bond Index Master
Portfolio is managed by determining which securities are to be purchased or
sold to maintain, to the extent feasible, a representative sample of
securities in the LB Bond Index
Risks of investing in the U.S. Treasury Fund
. prices of Treasury bonds may fall in response to economic events or trends
. the U.S. Treasury Fund's investment allocation may not perform to
expectations
. requirements for large cash balances may exert a drag on overall Fund
performance
Comparison of Advisory and Other Service Arrangements and Fees
The Funds have the same service providers. Upon completion of the
Consolidation, these service providers will continue to serve the Funds in the
capacities indicated below.
U.S. Treasury and Bond Index Funds
----------------------------------
Investment Adviser BGFA (to the Master Portfolio)
Distributor Stephens
Co-Administrators Stephens, BGI
Custodian Investors Bank & Trust Company ("IBT")
Transfer Agent IBT
Independent Auditors KPMG LLP
Investment Advisory Services. BGFA provides investment advisory services
----------------------------
to both Master Portfolios in which each Fund invests. The maximum advisory fee
payable by each Master Portfolio is a monthly fee at an annual rate of 0.30% and
0.08% of the U.S. Treasury and Bond Index Master Portfolios' average daily net
assets, respectively. BGFA provides investment guidance and policy direction in
connection with the management of the Master Portfolios' assets. BGFA is an
indirect subsidiary of Barclays Bank PLC and is located at 45 Fremont Street,
San Francisco, California 94105. As of December 31, 1998, BGFA and its
affiliates provided investment advisory services for approximately $615 billion
of assets.
Administrative Services. Stephens and BGI are the co-administrators for
-----------------------
the Funds. Stephens and BGI provide the Funds with administrative services,
including, among other things, general supervision of the Funds' non-investment
operations, preparation of proxy statements and shareholder reports and general
supervision of data completion in connection with preparing periodic reports to
the Board of Directors and
6
officers of BGI Funds. Stephens and BGI have agreed to assume all of the
ordinary operating expenses of the Funds (other than investment advisory fees,
portfolio transaction expenses and administrative fees). For these services and
the assumption of expenses, Stephens and BGI are entitled to a monthly fee, in
the aggregate, at the annual rate of 0.40% and 0.15% of the U.S. Treasury and
Bond Index Funds' average daily net assets, respectively.
Distribution and Shareholder Servicing Arrangements. Shares of the Funds
---------------------------------------------------
are distributed by Stephens, a full service broker-dealer, pursuant to a
Distribution Agreement. For performing the services contemplated by the
Distribution Agreement, Stephens does not receive compensation so long as it is
entitled to receive compensation for providing co-administration services to the
Funds.
The Directors of BGI Funds also have approved Shareholder Servicing Plans
for the Funds (the "Servicing Plans") pursuant to which they have entered into
Shareholder Servicing Agreements. For these services, the U.S. Treasury Fund and
Bond Index Fund may pay monthly fees equal to 0.20% and 0.07%, respectively, of
the average daily net assets of the Funds represented by shares owned during the
period for which payment is being made by investors with whom the Shareholder
Servicing Agent maintains a servicing relationship, or an amount which equals
the maximum amount payable to the Shareholder Servicing Agent under applicable
laws, regulations or rules, including the Conduct Rules of the National
Association of Securities Dealers, Inc. (the "NASD") whichever is less. Stephens
and BGI, as co-administrators, have agreed to pay these shareholder servicing
fees out of the fees each receives for co-administration services.
Comparison of Purchase and Redemption Procedures and Other Considerations
Sales Loads: The shares of the U. S Treasury and Bond Index Funds do not
------------
have a sales load. There are no sales charges on reinvested distributions for
either Fund.
Minimum Investments: Both Funds require a minimum initial investment
-------------------
amount of $1 million from direct buyers, although the requirement may be waived
under certain circumstances. Both Funds typically waive the minimum in
connection with retirement, benefit and pension plans.
Purchases: Both Funds' shares may be purchased by mail, by wire or by
----------
phone, directly from the Fund, through a brokerage account with an approved
selling or shareholder servicing agent, through certain retirement, benefit and
pension plans, or through certain packaged investment products. Both Funds
process requests at net asset value on the same day if the request is proper and
received before 1 p.m. (Pacific Time) on a business day. Shareholder servicing
agents with Approved Bank Accounts may transmit orders for Fund shares on behalf
of qualified buyers through the transfer agent.
Redemptions: Investors may redeem their shares free of charge on any
-----------
business day by mail or telephone. Redemption proceeds are calculated at the
next determined net
7
asset value after a proper request is received, and are remitted generally
within seven days. Benefit, pension, retirement and similar plan investors
usually have separate established withdrawal procedures. Proceeds may sent by
check or credited to a designated account for certain investors.
Exchanges: The Funds allow investors to exchange shares free of charge
---------
between BGI Funds. You can obtain a prospectus of the Fund for which you wish to
exchange your shares by calling BGI Funds at 1-888-204-3956. The Funds may limit
the number of times you may exchange shares if they believe doing so is in the
best interest of other Fund shareholders. They may also modify or terminate this
exchange privilege by giving 60 days' written notice.
Dividends: Both Funds pay monthly dividends from net investment income
---------
and distribute capital gains, if any, at least annually. Each Fund allows
shareholders to reinvest the dividends in the Fund or receive cash payments.
Portfolio Management: Unlike traditional actively managed investment
--------------------
funds, there is no single portfolio manager who makes investment decisions for
the Funds. Instead, the Bond Index Fund tracks the LB Bond Index, and a team of
investment professionals evaluate recommendations made by BGFA's mathematical
models for the U.S. Treasury Fund.
Comparison of Performance
Total returns (after fees and expenses)
The bar charts and tables in this section can help you evaluate the
potential risk and return of investing in the Bond Index Fund as compared with
investing in the U.S. Treasury Fund by showing the changes in their performance
from year to year. The bar charts show the returns for each Fund for each full
calendar year since inception. The average annual return tables compares each
Fund's average annual return with the return of a corresponding index for one
and five years, as well as since inception.
US Treasury Allocation Fund*/Bond Index Fund** Bar Chart
[bar chart]
- ------------------------------------------------------------------------------------------------
BARS BARS BARS BARS BARS
- ------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------
* The U.S. Treasury Fund's year-to-date return for the quarter ending June 30,
1999 was -0.23%.
** The Bond Index Fund's year-to-date return for the quarter ending June 30,
1999 was -1.48%.
The highest quarterly return for the U.S. Treasury Fund since inception is 5.11%
(2nd Q, 1995) and the lowest is -4.63% (1st Q, 1994).
The highest quarterly return for the Bond Index Fund since inception is 6.50%
(2nd Q, 1995) and the lowest is -2.87% (1st Q, 1994).
8
Average Annual Returns
(as of December 31, 1998)
------------------------------------------
One Five Since inception
year years (July 2, 1993*)
- ------------------------------------------------------------------------------------------------
U.S. Treasury Allocation Fund 6.05% 5.04% 5.51%
- ------------------------------------------------------------------------------------------------
Lehman Brothers U.S. Government/Corporate Bond 8.49% 6.45% 6.28%
Intermediate Index*
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
Bond Index Fund 9.34% 6.98% 6.77%
- ------------------------------------------------------------------------------------------------
Lehman Brothers Government/Corporate 9.47% 7.30% 7.19%
Bond Index*
- ------------------------------------------------------------------------------------------------
* Calculated from June 30, 1993.
Past performance is no indication of how the Funds will perform in the future.
Additional information regarding the performance of the Bond Index Fund
is contained in Exhibit B to this Combined Prospectus/Proxy Statement.
- ------------------------------------------------------------------------------------------------
Portfolio Diversification as of June 30, 1999:
- ------------------------------------------------------------------------------------------------
U.S. Treasury Fund Bond Index Fund
- ------------------------------------------------------------------------------------------------
U.S. Treasury Bonds 19% U.S. Treasury Bonds 16%
U.S. Treasury Notes 78% U.S. Treasury Notes 34%
U.S. Government Agencies 0% U.S. Government Agencies 14%
Corporate Bonds 0% Corporate Bonds 31%
Foreign Issuer Bonds 0% Foreign Issuer Bonds 2%
Cash 3% Cash 3%
- ------------------------------------------------------------------------------------------------
A Discussion of Principal Risk Factors
In addition to the general risks of investing, the Funds share several
specific risks.
Derivatives
A derivative is a financial contract whose value depends on, or is
derived from, the value of an underlying asset such as a security or an index.
Index futures contracts are considered derivatives because they derive their
value from the prices of the indexes. The floating rate or variable rate bonds
that the Funds may purchase are also considered derivatives. Compared to
conventional securities, derivatives can be more sensitive to changes in
interest rates or to sudden fluctuations in market prices.
9
Year 2000 risk
Most of the services provided to the Funds depend on the smooth
functioning of computer systems. Any failure of these systems to adapt to the
changes necessary from dates in the year 1999 to the year 2000 could hamper Fund
operations and services. The Funds' principal service providers have informed
BGFA that they are working on the changes necessary and they expect their
systems to be ready in time. But there can be no assurance of success. Moreover,
since the changes will affect virtually every organization, the companies or
entities in which the Funds invest could also be negatively affected.
Other risks
The debt instruments in which the Funds invest are subject to credit risk
and interest rate risk. Credit risk is the risk that issuers of the debt
instruments in which the Funds invest may default on the payment of principal
and/or interest. Interest-rate risk is the risk that increases if market
interest rates may adversely affect the value of the debt instruments in which
the Funds 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. By investing in
corporate bonds, the Bond Index Fund has greater exposure to credit risk and
interest rate risk.
Although some of the Funds' 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
Funds' daily NAV is based, will fluctuate. No assurance can be given that the
U.S. Government would provide financial support to its agencies or
instrumetalities where it is not obligated to do so.
Market risk is the risk that the value of a bond or other security will
be reduced by market activity. By investing in corporate bonds, the Bond Index
Fund has greater market risk exposure than the U.S. Treasury Fund. Counter party
risk is the risk that the other party in a repurchase agreement or other
transaction will not fulfill its contract obligation. Both Funds invest in
repurchase agreements.
* * * *
Because the investment objective, policies, strategies and risks of the
Funds are generally similar, the overall level of investment risk should not
materially change as a result of the Consolidation. For a more complete
description of the Bond Index Fund's and the U.S. Treasury Fund's investment
policies and restrictions, see the Funds' Prospectus and Statement of Additional
Information.
II. DESCRIPTION OF THE AGREEMENT AND PLAN OF CONSOLIDATION
The Plan provides that all of the assets of the U.S. Treasury Fund as of
the Closing Date will be transferred to the Bond Index Fund, and that the Bond
Index Fund
10
will assume all of the liabilities of the U.S. Treasury Fund, in exchange for
shares of the Bond Index Fund. The "Closing Date" is expected to be on or about
August 10, 1999. A copy of the Plan is attached as Exhibit A to this Combined
Prospectus/Proxy Statement.
Promptly after the Closing Date, the U.S. Treasury Fund will distribute
the shares of the Bond Index Fund received to the U.S. Treasury Fund's
shareholders of record as of the close of business on the Closing Date. The
shares of the Bond Index Fund that will be issued for distribution to the U.S.
Treasury Fund's shareholders will be equal in value to the shares of the U.S.
Treasury Fund held as of the Closing Date. BGI Funds will then take all
necessary steps to terminate the qualification, registration and classification
of the U.S. Treasury Fund. All issued and outstanding shares of the U.S.
Treasury Fund will be cancelled on the U.S. Treasury Fund's books. Shares of the
Bond Index Fund will be represented only by book entries; no share certificates
will be issued unless expressly requested in writing. Certificates are not
issued for fractional shares. All remaining organizational expenses of the U.S.
Treasury Fund will be offset against the original shares of such Fund prior to
consolidation.
The consummation of the proposed Consolidation is subject to the
satisfaction of a number of conditions set forth in the Plan, including approval
by the shareholders of the U.S. Treasury Fund. The U.S. Treasury Fund may waive
certain conditions at any time before or after approval of the Plan by the
shareholders. The Plan also may be terminated and the Consolidation abandoned at
any time by BGI Funds if any of the conditions precedent to the Closing are not
satisfied.
Shareholders of the U.S. Treasury Fund will have no dissenters' rights or
appraisal rights. All shareholders of the U.S. Treasury Fund as of the Closing
Date, including those that vote against the approval of the Plan and those that
do not vote, will receive shares of the Bond Index Fund if the Consolidation is
approved. All shareholders of the U.S. Treasury Fund have the right at any time
up to the business day preceding the Closing Date to redeem their shares at net
asset value according to the procedures set forth in the U.S. Treasury Fund's
Prospectus. In addition, up until the business day preceding the Closing Date,
shareholders of the U.S. Treasury Fund may exchange their shares for shares of
other funds in the BGI Funds Family of Funds, in accordance with the exchange
privilege described in the U.S. Treasury Fund's Prospectus.
A separate Agreement and Plan of Consolidation for the corresponding
Master Portfolios of the Funds also is being proposed to consolidate the U.S.
Treasury Fund's Master Portfolio into the Master Portfolio of the Bond Index
Fund at the same time as the Fund Consolidation. The Agreement and Plan of
Consolidation for the Master Portfolios provides that all the assets and
liabilities of the U.S. Treasury Allocation Master Portfolio will be transferred
to the Bond Index Master Portfolio in exchange for shares of beneficial interest
of the Bond Index Master Portfolio.
11
Board Consideration
The business and affairs of BGI Funds are managed under the direction of
its Board of Directors and the business and affairs of MIP are managed under the
direction of its Board of Trustees (collectively, the "Boards"). The Boards
unanimously voted to approve the Agreements and Plans of Consolidation at a
meeting held on April 28, 1999. In reviewing the proposed Consolidation, the
Boards considered the potential impact of the Consolidation on each Fund's
shareholders. The Boards considered, among other things: (i) the terms and
conditions of the Plan, including those intended to avoid the dilution of
shareholder interests; (ii) the potential marketing and shareholder benefits
obtained by having a combined fund; (iii) the similarity of the investment
objectives and significant policies and restrictions of the Funds; (iv) the
historical investment performance of the Funds; (v) the historical and projected
investment advisory fee rates and operating expenses of the Funds; (vi) the
identity of the organizations that provide investment advisory and certain other
services to the Funds, and the terms on which these services are provided; and
(vii) the prospects for long-term viability of the Funds.
Based upon their evaluation of these factors, and in light of their
fiduciary duties under federal and state law, the Boards have determined that
the proposed Consolidation is in the best interests of the shareholders of the
respective Funds and that the interests of the shareholders of the respective
Funds will not be diluted as a result of the Consolidation.
BGI Funds' Board of Directors unanimously recommends that shareholders
vote FOR the Plan of Consolidation.
---
Reasons for the Consolidation
The primary reason for the proposed Consolidation is to allow U.S.
Treasury Fund investors to transfer their investment into a fund that has
greater prospects for long-term viability. As of June 30, 1999, the U.S.
Treasury Fund had only $33 million in net assets; the Bond Index Fund had
approximately $117 million in net assets. Management of BGI Funds believes that
consolidating the U.S. Treasury Fund into a fund that has generally compatible
investment objectives and policies and greater prospects for continued growth,
is a better alternative than liquidation of the U.S. Treasury Fund.
Combining the U.S. Treasury Fund into a larger, more viable fund is
intended to provide various benefits to shareholders of the U.S. Treasury Fund.
For example, higher asset levels should benefit portfolio management by
permitting larger individual portfolio investments (in quantities that may
result in reduced transaction costs and/or more favorable pricing) and by
providing the opportunity for greater portfolio diversity.
Currently, the fees and expenses of the Bond Index Fund are lower than
those of the U.S. Treasury Fund. Your Board of Directors believes that the
proposed Consolidation will likely benefit U.S. Treasury Fund shareholders not
only because of the lower fees and expenses, but for all of the reasons
described here. One difference is that BGI and Stephens
12
have agreed to assume all of the ordinary operating expenses of the U.S.
Treasury Fund (other than investment advisory fees, portfolio transaction
expenses and administrative fees), which, given the relatively small size of the
U.S. Treasury Fund, requires BGI and Stephens, in effect, to subsidize the U.S.
Treasury Fund's ongoing operations. Since the Bond Index Fund is much larger,
there is not so much of a need for BGI and Stephens to subsidize the Bond Index
Fund's ongoing operations. See "Comparison of Fees and Expenses" at page __,
above.
In short, management of BGI Funds believes that the proposed
Consolidation should provide U.S. Treasury Fund shareholders with an investment
vehicle that has compatible investment objectives and policies and greater
prospects for long-term viability and continued growth.
Material Federal Income Tax Consequences
The applicants intend that the Consolidation will not qualify as a
"reorganization," within the meaning of Section 368(a) of the Code, and that the
U.S. Treasury Fund and the Bond Index Fund will each not be a "party to a
reorganization," within the meaning of Section 368(b) of the Code, with respect
to the Consolidation. Accordingly, the Consolidation is expected to be a taxable
event to the U.S. Treasury Fund and its shareholders with the exception of
shareholders who hold shares in a tax deferred account. Effectively, for federal
income tax purposes, the Consolidation will resemble a transaction in which a
shareholder in the U.S. Treasury Fund sold his or her shares and purchased new
shares in the Bond Index Fund.
In anticipation of the Consolidation, the U.S. Treasury Fund expects to
sell a substantial portion of its portfolio securities prior to the Closing. The
proceeds of such sales will be held in temporary investments or reinvested in
assets that qualify to be held by the Bond Index Fund. The gain from such sales,
if any, will be distributed to the U.S. Treasury Fund's shareholders, and will
be taxable to shareholders whose shares are held in taxable (i.e., non-
retirement) accounts. In addition, shareholders of the U.S. Treasury Fund whose
shares are held in taxable accounts generally will recognize a gain or loss, for
federal income tax purposes, on the difference between the fair market value of
the Bond Index Fund shares, as of the closing, received in the Consolidation and
their federal income tax basis in their shares of the U.S. Treasury Fund. The
federal income tax basis in shares of the Bond Index Fund received in the
exchange by all U.S. Treasury Fund shareholders will be the fair market value of
those shares as of the Closing and the holding period for such shares will begin
the day following the Closing. Consummation of the Consolidation is subject to
the condition that BGI Funds receive an opinion from Morrison & Foerster LLP
substantially to the effect that the Consolidation will have the foregoing
federal income tax consequences.
BGI Funds has not sought a and will not seek ruling from the Internal
Revenue Service ("IRS") regarding the federal income tax consequences of the
Consolidation. The opinion of counsel described above is not binding on the IRS
and does not preclude the IRS
13
from adopting a contrary position. Shareholders of the U.S. Treasury Fund are
urged to consult with their own tax advisors concerning the potential tax
consequences to them of the Consolidation, including foreign, state and local
income tax consequences.
Capitalization
The following table shows the capitalization of each Fund as of June 30,
1999, and the pro forma capitalization adjusted to give effect to the
Consolidation:
U.S. Treasury Pro Forma
Fund Bond Index Fund Combined
---- --------------- --------
Net assets $32,930,912 $117,336,319 $150,267,231
Net asset value per share $ 9.22 $ 9.44 $ 9.39
Shares outstanding 3,572,494 12,428,198 16,000,692
Shares authorized ___ million ___ million ___ million
___________________
The Bond Index Fund's financial highlights can be found in its
Prospectus, which accompanies and is incorporated by reference into this
Combined Prospectus/Proxy Statement. The Bond Index Fund's financial statements
are incorporated by reference in the Statement of Additional Information to this
Combined Prospectus/Proxy Statement.
III. INFORMATION ABOUT THE FUNDS
Organization of BGI Funds
BGI Funds is registered as open-end management investment companies under
the 1940 Act. BGI Funds currently consists of 11 series of shares.
BGI Funds is organized as a Maryland Corporation and is subject to the
provisions of its respective Articles of Incorporation and By-Laws. BGI Funds
was incorporated on October 15, 1992. Shares of each Fund have a par value of
$.001 per share. The Bond Index Fund consists of [__ million/billion shares].
Shares of each Fund are entitled to one vote for each full share held and
fractional votes for fractional shares held, and will vote in the aggregate and
not by portfolio or class except as otherwise required by law. Shares of the
Funds have no preemptive rights and have only such conversion and exchange
rights as the Board of Directors of BGI Funds may grant in its discretion. When
issued for payment as described in their respective prospectuses, each Fund's
shares are fully paid and non-assessable.
14
Each share of the U.S. Treasury Fund and each share of the Bond Index
Fund represents an equal proportionate interest in the Fund with other shares of
the same class. Each share is entitled to cash dividends and distributions
earned on such shares as may be declared in the discretion of the Board of
Directors. Shares of the Bond Index Fund bear a pro rata portion of all
operating expenses paid by the Fund.
Substantial Shareholders
As of June 30, 1999,* the shareholders identified below were known by BGI
Funds to own 5% or more of the U.S. Treasury Fund's outstanding shares in the
following capacity:
Percentage
Name and Address of Shareholder Type of Ownership of Fund
------------------------------- ----------------- -------
Merrill Lynch Pierce Fenner & Smith Record 97.49%
Qualified Retirement Plan
265 Davidson Ave., 4th Floor
Somerset, NJ 08873
_____________
*As of the close of business on June 30, 1999, the officers and Directors of BGI
Funds as a group beneficially owned less than 1% of the outstanding shares of
BGI Funds.
As of June 30, 1999,* the shareholders identified below were known by BGI
Funds to own 5% or more of the Bond Index Fund's outstanding shares in the
following capacity:
Percentage
Name and Address of Shareholder Type of Ownership of Fund
------------------------------- ----------------- -------
Merrill Lynch Pierce Fenner & Smith TTEE Record 45.99%
Qualified Retirement Plan
265 Davidson Ave., 4th Floor
Somerset, NJ 08873
State Street Bank & Trust Co. TTEE Record 36.49%
FBO American Bar Association Members
State Street Collective Trust
1 Heritage Drive
North Quincy, MA 02171
Wells Fargo Bank FBO Record 11.73%
Business Retirement Programs Omnibus Act
HF HAC 9139-027
P.O. Box 9800
Calabasas, CA 91372
15
____________
*As of the close of business on June 30, 1999, the officers and Directors of BGI
Funds as a group beneficially owned less than 1% of the outstanding shares of
BGI Funds.
Additional Information
BGI Funds is subject to certain informational requirements of the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and the 1940 Act,
and in accordance therewith files reports, proxy materials and other information
with the SEC. Such reports, proxy materials and other information may be
inspected and copied at the public reference facilities of the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549. Copies of such materials can be obtained
from the Public Reference Branch, Office of Consumer Affairs and Information
Services, Securities and Exchange Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates, or on the SEC's website at
www.sec.gov.
IV. VOTING INFORMATION
Approval and Consummation of the Proposed Transaction
Only shareholders of record at the close of business on August 13, 1999,
will be entitled to vote at the Special Meeting. On that date, [______] U.S.
Treasury Fund shares were outstanding and entitled to be voted. The date of the
first mailing of this Combined Prospectus/Proxy Statement to shareholders is
approximately August 27, 1999.
Shareholders holding more than one-third of the outstanding shares of the
U.S. Treasury Fund at the close of business on the Record Date will be deemed
sufficient to constitute a quorum for the transaction of business at the Special
Meeting. Pursuant to Maryland law, the affirmative vote of the holders of a
majority of the outstanding voting securities of the U.S. Treasury Fund, is
required for approval of the Plan. If the U.S. Treasury Fund's shareholders do
not approve the proposed Consolidation, BGI Funds' Board of Directors will
consider what other alternatives would be in the shareholders' best interests,
including possibly, approving a Plan of Liquidation.
Any proxy which is properly executed and received in time to be voted at
the Special Meeting will be counted in determining whether a quorum is present
and will be voted in accordance with the instructions marked thereon. In the
absence of any instructions, such proxy will be voted in favor of the Plan. Any
shareholder giving a proxy may revoke it at any time before it is exercised (i)
by submitting to BGI Funds a written notice of revocation, (ii) by submitting to
BGI Funds a subsequently executed proxy or (iii) by attending the Special
Meeting and voting in person. Abstentions and "broker non-votes" (i.e., proxies
from brokers or nominees indicating that such persons have not received
instructions from the beneficial owners or other persons entitled to vote shares
as to a particular matter with respect to which the brokers or nominees do not
have discretionary power to vote) will not be counted for or against any proxy
to which they relate, but will be counted for purposes of determining whether a
quorum is present and
16
will be counted as votes present at the Special Meeting. For this reason,
abstentions and broker non-votes will have the effect of a vote against the
proposal.
The duly appointed Proxies may, in their discretion, vote upon such other
matters as properly may come before the Special Meeting or any adjournment(s)
thereof, including any proposal to adjourn a meeting at which a quorum is
present to permit the continued solicitation of proxies in favor of the
Consolidation. Any such adjournment(s) will require the affirmative vote of a
majority of the shares present in person or by proxy at the session of the
Special Meeting to be adjourned. In case any such adjournment is proposed, the
duly appointed Proxies will vote those proxies which they are entitled to vote
for the Plan in favor of adjournment, and will vote those proxies required to be
voted against the Plan against adjournment.
Solicitation of Proxies and Payment of Expenses
It is expected that the solicitation of proxies will be primarily by
mail. Officers and agents of BGI Funds also may solicit proxies by telephone,
telegraph or personal interview. Shareholders may vote by (1) mail, by marking,
signing, dating and returning the enclosed Proxy Ballot in the enclosed postage-
paid envelope; (2) telephone, by calling Shareholder Communications Corp.
("SCC") toll-free at 1-800-733-8481, Ext. 435 from 6:00 a.m. to 8:00 p.m.
Pacific time; or (3) telefacsimile, by marking, signing, dating and faxing the
enclosed Proxy Ballot to SCC at 1-800-733-1885. SCC has been retained by BGI
Funds to assist in both the tabulation and solicitation of proxy votes for the
Consolidation.
The cost of soliciting proxies for the Special Meeting, consisting
principally of printing and mailing expenses, together with the costs of any
supplementary solicitation and proxy soliciting services provided by third
parties, will be borne jointly by the Funds and is estimated to be approximately
[$_________]. Proxies will be solicited in the initial, and any supplemental,
solicitation by mail and may be solicited in person, by telephone, telegraph,
telefacsimile or other electronic means by officers of BGI Funds, personnel of
BGFA or Stephens, or an agent of BGI Funds, such as SCC.
MISCELLANEOUS
Other Business
The Board of Directors of BGI Funds knows of no other business to be
brought before the Special Meeting. However, if any other matters come before
the Special Meeting, including any proposal to adjourn the meeting to permit the
continued solicitation of proxies in favor of the Consolidation, it is their
intention that proxies which do not contain specific restrictions to the
contrary will be voted on such matters in accordance with the judgment of the
persons named in the enclosed Proxy Ballot.
Future Shareholder Proposals
17
Pursuant to rules adopted by the SEC under the 1934 Act, investors may
request inclusion in the Board's proxy statement for shareholder meetings
certain proposals for action which they intend to introduce at such meeting. Any
shareholder proposals must be presented a reasonable time before the proxy
materials for the next meeting are sent to shareholders. The submission of a
proposal does not guarantee its inclusion in BGI Fund's proxy statement and is
subject to limitations under the 1934 Act. Because BGI Funds does not hold
regular meetings of shareholders, no anticipated date of the next meeting can be
provided.
18
EXHIBIT B
This Exhibit reproduces in its entirety the discussion of Fund performance
for shares from the Bond Index Fund's February 28, 1999, Annual Report. The
discussion reviews some of the factors that affected the Fund's performance
during this fiscal year and shows the performance of the Fund for various
periods. The discussion has not been updated to reflect events occurring after
February 28, 1999.
Bond Index Fund
The BGI Funds Bond Index Fund (the "Fund") seeks to approximate as closely
as practicable before fees and expenses the total rate of return of the U.S.
markets for issued and outstanding U.S. and high-grade corporate bonds as
measured by the Lehman Brothers Government/Corporate Bond Index ("LB Bond
Index").
Performance Summary
Average Annual
PERFORMANCE AS OF 2/28/99 Total Return
- ---------------------------------------------------------------------
One Year 6.24%
Five Year 6.76%
Since Inception Date (7/2/93-2/28/99) 6.21%
Average and total return represents the Bond Index Fund's average annual
increase in value during the time periods noted above. These figures assume that
dividends and capital gain distributions have been reinvested in the Fund at net
asset value. The Fund's past performance is no guarantee of future results. The
investment return and principal value of shares of the Fund will vary with
changes in market conditions. Shares of the Fund may be worth more or less than
their original cost when they are redeemed.
A fund's "net asset value," or NAV, is the market value of one share of a fund.
The Bond Index Fund's NAV remained the same at $9.73 on February 28, 1998, and
February 28, 1999. "Net investment income" includes income from dividends and
interest on the Fund's investments after management and administrative fees have
been deducted. Cumulative dividends on net investment income were approximately
$0.60 per share during this period. Of course, past performance is no guarantee
of future results.
The Bond Index Fund tracks the Lehman Brothers Government/Corporate Bond Index.
For the fiscal year that ended February 28, 1999, the Fund returned 6.24%, while
the index returned 6.35% for the same period. The Fund's performance lagged
slightly behind the performance of the index because administrative and
management fees are deducted from the total return, and because a small
percentage of the Fund's assets are invested in low-risk, low-return money
market securities used to process transactions.
The Fund invests in the same proportions of the same securities that comprise
the index it tracks. At the close of the fiscal year, the Fund had invested 54%
of its assets in U.S. Treasury bonds, 33% in long-term corporate bonds, and 13%
in U.S. agency securities.
The bond market fluctuated dramatically during the last fiscal year due to
investors' uncertainty about the strength of the U.S. economy and the
devaluation of the Russian ruble. Economic and political turmoil in foreign
markets such as Brazil and Southeast Asia also contributed to the bond market's
volatility.
During the second quarter of the fiscal year, the Bond Index Fund returned
2.73%. When Japan's economy started to weaken and riots erupted in Indonesia,
bond investors looks to the U.S. market for safety and stability. The Bond Index
Fund benefited from having more than half of its assets in U.S. Treasury
securities, which performed better than other fixed-income securities. Although
a strong economy can lead
1
to increased inflation, which in turn can cause bond prices to drop, the bond
market rallied as reports showed inflation remained at historically low levels
in the U.S.
Interest rates dropped dramatically in the third quarter of the fiscal year,
partially in response to Russia's devaluation of its currency and concerns that
Brazil would default on its debt. These events created a renewed demand for
high-quality U.S. investments. Even though the U.S. economy did not appear to be
slowing down, the Federal Reserve Board reduced short-term interest rates from
5.5% to 5.25% to reassure investors that uncertainty in international markets
would not affect the U.S. economy. The bond market rallied and the Bond Index
Fund returned 5.05% for the third quarter of the fiscal year. The U.S.-
government securities and high-quality corporate bonds in which the Fund was
invested contributed to its strong performance during this period.
In the fourth quarter of the fiscal year, investors became more confident that
foreign markets were beginning to stabilize. This increased confidence lessened
the demand for safer, more secure investments, which resulted in lower returns
on bond investments. Despite the Federal Reserve Board's lowering interest rates
to 4.75%, U.S. Treasury security rates rose and the Bond Index Fund returned
only .07% for the quarter.
The first two months of 1999 resulted in negative returns for bondholders.
Inflation remained at record lows, the U.S. economy showed no signs of slowing
down after last year's foreign-market shocks, and some investors were concerned
that the Federal Reserve Board would raise interest rates in the immediate
future. The potential for interest rate hikes and the decreased demand for U.S.
Treasury market securities from international investors caused interest rates on
these securities to rise in January and February 1999. In fact, February was the
worst month for the performance of U.S. Treasury bonds since 1981. The Bond
Index Fund returned -- 1.89% for the first two months of 1999.
The accompanying chart compares the performance of the BGI Funds Bond Index Fund
shares since inception with the Lehman Brothers Government/Corporate Bond Index.
The chart assumes a hypothetical $10,000 initial investment, reflects all
operating expenses. The Lehman Brothers Government/Corporate Bond Index is
composed of approximately 6,500 issues of fixed-income securities, including
U.S. Government securities and investment grade corporate bonds, each with an
outstanding market value of at least $150 million and a remaining maturity of
greater than one year. The Fund is a professionally managed mutual fund. The
index presented here does not incur expenses and is not available directly for
investment. Had this Index incurred operating expenses, its performance would
have been lower.
[INSERT PERFORMANCE CHART]
The Bond Index Fund is organized as a "feeder" fund in a "master-feeder"
structure. Instead of investing directly in the individual securities in the
portfolio, the feeder fund, which is offered to the public, holds interests in
the net assets of the Master Portfolio. It is the Master Portfolio that actually
invests in the individual securities. References to "the fund" are to the feeder
fund or the Master Portfolio. Barclays Global Fund Advisors (BGFA) advises the
Master Portfolio.
2
APPENDIX
BARCLAYS GLOBAL INVESTORS FUNDS, INC.
111 CENTER STREET
LITTLE ROCK, AR 77201
BY MY SIGNATURE BELOW, I APPOINT R. GREG FELTUS, RICHARD H. BLANK, JR. AND
MICHAEL W. NOLTE (OFFICERS OF BARCLAYS GLOBAL INVESTORS FUNDS, INC.), AS MY
PROXIES AND ATTORNEYS TO VOTE ALL FUND SHARES OF THE PORTFOLIO IDENTIFIED BELOW
THAT I AM ENTITLED TO VOTE AT THE SPECIAL MEETING OF SHAREHOLDERS OF BARCLAYS
GLOBAL INVESTORS FUNDS, INC. (THE "BGI FUNDS") TO BE HELD AT THE PRINCIPAL
OFFICE OF BGI FUNDS, 111 CENTER STREET, LITTLE ROCK, ARKANSAS 72201 ON TUESDAY,
SEPTEMBER 28, 1999 AT 11:00 A.M. (CENTRAL TIME), AND AT ANY ADJOURNMENTS OF THE
MEETING. THE PROXIES SHALL HAVE ALL THE POWERS THAT I WOULD POSSESS IF PRESENT.
I HEREBY REVOKE ANY PRIOR PROXY, AND RATIFY AND CONFIRM ALL THAT THE PROXIES, OR
ANY OF THEM, MAY LAWFULLY DO. I ACKNOWLEDGE RECEIPT OF THE NOTICE OF SPECIAL
SHAREHOLDERS MEETING AND THE COMBINED PROXY STATEMENT DATED AUGUST 27, 1999.
THIS PROXIES SHALL VOTE MY SHARES ACCORDING TO MY INSTRUCTIONS GIVEN BELOW
WITH RESPECT TO THE PROPOSAL. IF I DO NOT PROVIDE AN INSTRUCTION, I UNDERSTAND
THAT THE PROXIES WILL VOTE MY SHARES IN FAVOR OF THE PROPOSAL. THE PROXIES WILL
VOTE ON ANY OTHER MATTER THAT MAY ARISE IN THE MEETING ACCORDING TO THEIR BEST
JUDGMENT.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF BGI FUNDS, WHICH
UNANIMOUSLY RECOMMEND THAT YOU VOTE IN FAVOR OF THE PROPOSAL.
PLEASE VOTE BY CHECKING THE APPROPRIATE BOX:
1. To consolidate the U.S. Treasury Allocation Fund of
BGI Funds into the Bank Index Fund of BGI Funds.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Name of Fund_________________ ______________________________
Signature of Shareholder
No. of Shares _______________
______________________________
Signature of Shareholder
NOTE: PLEASE MAKE SURE THAT YOU COMPLETE, SIGN AND DATE YOUR PROXY CARD.
PLEASE SIGN EXACTLY AS YOUR NAME(S) APPEAR ON YOUR ACCOUNT. WHEN SIGNING AS A
FIDUCIARY, PLEASE GIVE YOUR FULL TITLE AS SUCH. EACH JOINT OWNER SHOULD SIGN
PERSONALLY. CORPORATE PROXIES SHOULD BE SIGNED IN FULL CORPORATE NAME BY AN
AUTHORIZED OFFICER.
1
FOR YOUR CONVENIENCE, YOU MAY VOTE BY ENCLOSING THE PROXY BALLOT IN THE ENCLOSED
POSTAGE PAID ENVELOPE, OR BY FAXING IT TO SHAREHOLDER COMMUNICATIONS CORP.
("SCC") AT 1-800-733-1885. YOU ALSO MAY VOTE BY CALLING SCC AT 1-800-733-8481
EXT. 435 TOLL-FREE FROM 6:00 A.M. TO 8:00 P.M. (PACIFIC TIME). A CONFIRMATION
OF YOUR TELEPHONE OR FAXED VOTE WILL BE MAILED TO YOU.