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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-06719
----------------------------------------------
BB&T Funds
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
3435 Stelzer Road Columbus, OH 43219
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
BISYS Fund Services, 3435 Stelzer Road, Columbus, OH 43219
- --------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: (800) 228-1872
----------------------------
Date of fiscal year end: December 31, 2003
---------------------------
Date of reporting period: June 30, 2003
--------------------------
Form N-CSR is to be used by management investment companies to file reports
with the Commission not later than 10 days after the transmission to
stockholders of any report that is required to be transmitted to stockholders
under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1).
The Commission may use the information provided on Form N-CSR in its regulatory,
disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form
N-CSR, and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. (S) 3507.
Item 1. Reports to Stockholders.
Include a copy of the report transmitted to stockholders pursuant to
Rule 30e-1 under the Act (17 CFR 270.30e-1).
[LOGO] BB&T Funds
Sensible Investing for Generations/R/
SEMI-ANNUAL REPORT
EQUITY INDEX FUND
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
JUNE 30, 2003
LETTER AND SEMI-ANNUAL REPORT FROM THE PRESIDENT AND THE INVESTMENT ADVISOR
Dear Shareholders:
We are pleased to send you this semiannual report for the BB&T Equity Index
Fund, for the six-month period that ended June 30, 2003.
After three straight years of negative performance, the stock market sharply
reversed direction and posted strong returns for the period. To be precise,
after a sluggish opening to 2003, stocks shot up in the second calendar
quarter; all of the market's gains came during the latter three months of our
reporting period.
Because the Fund seeks investment returns that closely track those of the S&P
500(R) Stock Index/1/, a benchmark widely viewed as representative of the
overall stock market, the Fund's performance followed a similar pattern: down
modestly during the first three months of the period, up strongly from April
through June.
Underlying the market's performance during the period was a seesaw pattern of
declines and gains. Responding to impending war with Iraq, markets generally
trended downward through mid-March. A spike in oil prices, increased
geopolitical tension, and a sluggish economic climate contributed to investor
wariness. At the onset of the invasion of Iraq, equities rebounded, gaining
strength when it appeared that the conflict would be brief. As the war reached
a successful conclusion, markets responded positively, leading an upward march
through the remainder of the reporting period.
Although resolution of uncertainties surrounding the war helped stocks to
rally, in many ways the economic picture remained cloudy. Unemployment
continued to rise during the reporting period and some industries were still
plagued with overcapacity. Spending on the consumer level remained healthy,
although these spending levels failed to carry over into the business capital
arena. In an effort to boost economic activity, the Federal Reserve Board (the
"Fed") cut short-term interest rates by 0.25% to 1.00%, the lowest level since
the Eisenhower Administration.
Within the index, sector performance was positive. Information technology,
utility, and consumer discretionary stocks were the best performers, and the
financial sector also did quite well. Again, as an index fund, the BB&T Equity
Index Fund enjoyed sector-specific results that were closely correlated to
those of its benchmark.
Powerful moves in the stock market often are the product of investors' positive
expectations for future economic growth, and the period did feature a number of
significant economic events. Clearly, the most noteworthy was passage of the
Jobs and Growth Tax Relief Reconciliation Act of 2003, President Bush's
sweeping tax-reform package. The bill's key measures--an increased child
credit, tax breaks for married couples, reductions in tax rates for dividends
and capital gains, and accelerated income tax cuts--are supportive of equities
as an asset class.
In addition, as noted earlier, the Fed again lowered interest rates at its June
meeting, taking the benchmark Fed Funds rate down to a level not seen since
1958.
President Bush, Congress, and the Fed have acted. As a result, fresh capital is
flowing through the economy and borrowing costs are lower for both consumers
and businesses. This last point is especially important, because while consumer
spending continues to be critical to an economic recovery, business investment
will have to emerge to carry a recovery forward.
Looking forward, we are optimistic the recovery will continue, though robust
growth is not a certainty. Gross Domestic Product growth is still sluggish and
unemployment figures remain uncomfortably persistent. However, overall, we
think conditions are positive for both the economy and the stock market.
Designed to track the S&P 500(R) Stock Index, the Fund should benefit from any
future upward momentum in stocks.
Sincerely,
/s/ Walter B. Grimm
Walter B. Grimm
President
BB&T Funds
/s/ Keith F. Karlawish
Keith F. Karlawish, CFA
President and Chief Investment Officer
BB&T Asset Management, Inc.
This report is authorized for distribution only when preceded or accompanied
by a prospectus. Please read the prospectus carefully before investing or
sending money. The BB&T Funds are distributed by BISYS Fund Services LP. The
BB&T Funds are NOT FDIC INSURED and are not deposits or obligations of, or
guaranteed or endorsed by, Branch Banking and Trust Company or its
affiliates. Investment products involve investment risk, including the
possible loss of principal.
/1/ "S&P" 500 is a registered service mark of Standard & Poor's Corporation,
which does not sponsor and is in no way affiliated with the Fund or Master
Portfolio. The S&P 500(R) Stock Index is generally representative of the
performance of U.S. common stocks. The index is unmanaged and does not
include the fees and expenses associated with a mutual fund. Investors
cannot invest directly in an index, although they can invest in its
underlying securities.
/2/The Gross Domestic Product growth is the measure of the market value of the
goods and services produced by labor and property in the United States.
1
BB&T EQUITY INDEX FUND
Master Portfolio Manager [GRAPHIC]
Barclays Global Fund Advisors, a subsidiary of
Barclays Global Investors, N.A. (S&P 500(R) Index Portfolio Managers' Perspective
Master Portfolio)
BB&T Asset Management, Inc. (BB&T Equity Index Fund) "Investing in an index fund such as ours is based on the
belief that it's very difficult to 'beat the market' on a
Unlike with many traditional, actively managed consistent basis. Our approach, then, is to take advantage
investment funds, there is no single portfolio manager of the stock market's long-term growth potential, while
who makes investment decisions for the BB&T Equity controlling costs, to help shareholders potentially build
Index Fund. Instead, the Fund invests substantially wealth over time. We believe the Fund is an excellent
all its assets in the S&P 500(R) Index Master diversification tool for novice and experienced investors
Portfolio which is managed by a team of investment alike, and can serve as the foundation of most equity
professionals from Barclays, who use a specially investors' asset allocation strategies."
designed software program to maintain a close match to
the characteristics of the S&P 500 Index.
- --------------------------------------------------------------------------------
- -------------------------------
The BB&T Equity Index Fund seeks to provide investment results that correspond
as closely as practicable, before fees and expenses, to the total return of the
broad range of stocks represented in the S&P 500(R) Stock Index. The Fund
employs a two-tier structure, commonly referred to as "master-feeder". The BB&T
Equity Index Fund (the "Feeder Fund") invests all of its investable assets in
the S&P 500(R) Index Master portfolio ("Master Portfolio"). For simplicity
sake, all discussion of the Fund's investment objective, strategies, risks and
holdings refer also to the Master Portfolio's objectives, strategies, risks,
and holdings unless otherwise indicated.
During the six months ended June 30, 2003, the Fund produced a 11.53% total
return (Class A Shares without sales charge). The Fund's benchmark the S&P
500(R) Index produced a 11.75% return for the same period./1/
The U.S. equity markets posted their best quarterly performance since 1998.
Most indexes erased first quarter losses and stand now in positive territory
for the year. The end of the war with Iraq allowed markets to focus again on
world economics and fundamentals. Although the strong performance was seen
among all market capitalizations, small companies benefited the most from this
rally.
At the sector level, we saw strong returns among Telecommunication names with a
gain of 20.44% during the quarter. Securities in this sector lost 13.47% during
the first quarter and plummeted 35.89% in 2002. The worst performing sector in
the S&P 500, Energy, still managed to post a positive return for the quarter,
rising 6.40%.
The Fed cut rates by 0.25% on June 25, bringing short-term rates to 1%, the
lowest level in 45 years. The expectation was for a larger reduction (50 basis
points); however, the smaller cut indicated the Fed was confident in the
current state of the economy.
Many U.S. companies continued streamlining their workforce as unemployment rose
to 6.4% in June, the highest level since April 1994. However, unemployment is
commonly considered a lagging indicator since companies do not start hiring
until after economic conditions have improved.
Both consumer spending and income rose in May, +0.1% and +0.3% respectively. In
addition, consumer confidence rose to an 11 month high in May indicating lower
interest rates and a rising stock market are helping generate optimism among
U.S. consumers.
Past Performance is not indicative of future results.
/1/ With the maximum sales charge of 5.75% the Fund's six month return as of
June 30, 2003 for Class A Shares was 5.11%.
2
BB&T FUNDS
Equity Index Fund
Statement of Assets and Liabilities
June 30, 2003
(Unaudited)
Assets:
Investment in S&P 500 Index Master Portfolio, at
value (Note 1)................................... $ 94,594,535
Receivable for capital shares issued.............. 362,022
Prepaid expenses and other........................ 3,691
------------
Total Assets.................................... 94,960,248
------------
Liabilities:
Payable for capital shares redeemed............... 297,187
Accrued expenses and other payables:
Distribution fees............................... 29,603
Other........................................... 24,193
------------
Total Liabilities............................... 350,983
------------
Net Assets:
Capital stock..................................... 107,839,300
Undistributed net investment income............... 516,233
Accumulated undistributed net realized losses on
investments...................................... (7,742,799)
Net unrealized depreciation on investments........ (6,003,469)
------------
Net Assets...................................... $ 94,609,265
============
Net Assets
Class A......................................... $ 83,254,680
Class B......................................... 10,524,864
Class C......................................... 829,721
------------
Total........................................... $ 94,609,265
============
Outstanding units of beneficial interests (shares)
Class A......................................... 12,650,569
Class B......................................... 1,625,399
Class C......................................... 127,363
------------
Total........................................... 14,403,331
============
Net asset value
Class A -- redemption price per share........... $ 6.58
Class B -- offering price per share*............ 6.48
Class C -- offering price per share*............ 6.51
============
Maximum Sales Charge -- Class A................... 5.75%
============
Maximum Offering Price (100%/(100% - Maximum
Sales Charge) of net asset value adjusted to the
nearest cent) per share -- Class A............... $ 6.98
============
- --------
* Redemption price per share varies by length of time shares are held.
Statement of Operations
For the Six Months Ended June 30, 2003
(Unaudited)
Net Investment Income Allocated from Master
Portfolio:
Dividend income...................................... $ 731,532
Interest income...................................... 47,255
Foreign withholding tax.............................. (231)
Expenses............................................. (21,929)
-----------
Net Investment Income Allocated from Master
Portfolio......................................... 756,627
-----------
Expenses:
Administration and transfer agent fees (Note 3)...... 120,185
Distribution fees -- Class A......................... 194,745
Distribution fees -- Class B......................... 46,196
Distribution fees -- Class C......................... 3,808
Fund accounting fees................................. 18,295
Legal fees........................................... 10,927
Printing fees........................................ 11,087
Audit fees........................................... 15,046
Custodian fees....................................... 2,405
Other................................................ 6,083
-----------
Gross expenses..................................... 429,777
Expenses waived and reimbursed by the
Administrator and Distributor..................... (194,061)
-----------
Total Expenses..................................... 234,716
-----------
Net Investment Income................................ 521,911
-----------
Realized/Unrealized Gains (Losses) Allocated from
Master Portfolio
Net realized losses from investments................. (1,171,187)
Change in unrealized appreciation/depreciation from
investments......................................... 12,790,252
-----------
Net realized/unrealized gains (losses) allocated from
Master Portfolio.................................... 11,619,065
-----------
Change in net assets resulting from operations....... $12,140,976
===========
See accompanying notes to the financial statements.
3
BB&T FUNDS
Equity Index Fund
Statements of Changes in Net Assets
For the Six For the
Months Ended Year Ended
June 30, December 31,
2003 2002
------------ ------------
(Unaudited)
From Investment Activities:
Operations:
Net investment income............................................ $ 521,911 $ 640,064
Net realized losses from investments............................. (1,171,187) (5,307,609)
Change in unrealized appreciation/depreciation from investments.. 12,790,252 (12,439,547)
------------ ------------
Change in net assets resulting from operations..................... 12,140,976 (17,107,092)
------------ ------------
Dividends to Class A Shareholders:
From net investment income....................................... -- (602,182)
Dividends to Class B Shareholders:
From net investment income....................................... -- (27,423)
Dividends to Class C Shareholders:
From net investment income....................................... -- (4,114)
------------ ------------
Change in net assets from shareholder dividends.................... -- (633,719)
------------ ------------
Capital Transactions:
Proceeds from shares issued
Class A........................................................ 57,740,641 43,438,674
Class B........................................................ 1,377,287 4,369,524
Class C........................................................ 237,355 1,461,807
Dividends Reinvested
Class A........................................................ 568,436 239,261
Class B........................................................ 27,336 42,778
Class C........................................................ 4,118 790
Cost of shares redeemed
Class A........................................................ (42,760,662) (11,569,671)
Class B........................................................ (579,490) (1,367,321)
Class C........................................................ (261,596) (633,670)
------------ ------------
Change in net assets from capital transactions..................... 16,353,425 35,982,172
------------ ------------
Change in net assets............................................... 28,494,401 18,241,361
Net Assets:
Beginning of period.............................................. 66,114,864 47,873,503
------------ ------------
End of period.................................................... $ 94,609,265 $ 66,114,864
============ ============
Undistributed (distributions in excess of) net investment income. $ 516,233 $ (5,678)
============ ============
Share Transactions:
Issued
Class A........................................................ 9,744,484 6,161,295
Class B........................................................ 232,429 633,502
Class C........................................................ 39,387 209,429
Reinvested
Class A........................................................ 96,345 31,073
Class B........................................................ 4,689 5,619
Class C........................................................ 703 104
Redeemed
Class A........................................................ (6,785,747) (1,755,889)
Class B........................................................ (99,799) (212,275)
Class C........................................................ (45,150) (91,217)
------------ ------------
Change in shares................................................... 3,187,341 4,981,641
============ ============
See accompanying notes to the financial statements.
4
BB&T FUNDS
Equity Index Fund
Financial Highlights, Class A Shares
For the Six For the For the September 11,
Months Ended Year Ended Year Ended 2000 thru
June 30, December 31, December 31, December 31,
2003 2002 2001 2000(a)
------------ ------------ ------------ -------------
(Unaudited)
Net Asset Value, Beginning of Period........................ $ 5.90 $ 7.70 $ 8.83 $ 10.00
------- ------- ------- -------
Investment Activities
Net investment income..................................... 0.04 0.06 0.05 0.02
Net realized/unrealized gains (losses) from investments... 0.64 (1.80) (1.13) (1.17)
------- ------- ------- -------
Total from Investment Activities.......................... 0.68 (1.74) (1.08) (1.15)
------- ------- ------- -------
Dividends:
Net investment income..................................... -- (0.06) (0.05) (0.02)
------- ------- ------- -------
Total Dividends........................................... -- (0.06) (0.05) (0.02)
------- ------- ------- -------
Net Asset Value -- End of Period............................ $ 6.58 $ 5.90 $ 7.70 $ 8.83
======= ======= ======= =======
Total Return (excludes sales charge)........................ 11.53%(b) (22.56)% (12.24)% (11.50)%(b)
Ratios/Supplementary Data:
Net Assets, End of Period (000's)........................... $83,255 $56,661 $39,700 $13,632
Ratio of expenses to average net assets..................... 0.50%(c) 0.55% 0.54% 0.55%(c)
Ratio of net investment income to average net assets........ 1.28%(c) 1.08% 0.74% 1.42%(c)
Ratio of expenses to average net assets without fee waivers* 0.97%(c) 1.05% 1.10% 1.31%(c)
Portfolio turnover(d)....................................... 4.00% 12.00% 9.00% 10.00%
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a)Period from the commencement of operations.
(b)Not annualized
(c)Annualized
(d)This rate represents the portfolio turnover rate of the S&P 500(R) Index
Master Portfolio.
See accompanying notes to the financial statements.
5
BB&T FUNDS
Equity Index Fund
Financial Highlights, Class B Shares
For the Six For the For the September 11,
Months Ended Year Ended Year Ended 2000 thru
June 30, December 31, December 31, December 31,
2003 2002 2001 2000(a)
------------ ------------ ------------ -------------
(Unaudited)
Net Asset Value, Beginning of Period........................ $ 5.83 $ 7.60 $ 8.82 $ 10.00
------- ------- ------- -------
Investment Activities
Net investment income..................................... 0.01 0.02 -- (b) 0.02
Net realized/unrealized gains (losses) from investments... 0.64 (1.77) (1.18) (1.18)
------- ------- ------- -------
Total from Investment Activities.......................... 0.65 (1.75) (1.18) (1.16)
------- ------- ------- -------
Dividends:
Net investment income..................................... -- (0.02) (0.04) (0.02)
------- ------- ------- -------
Total Dividends........................................... -- (0.02) (0.04) (0.02)
------- ------- ------- -------
Net Asset Value -- End of Period............................ $ 6.48 $ 5.83 $ 7.60 $ 8.82
======= ======= ======= =======
Total Return (excludes sales charge)........................ 11.15%(c) (23.05)% (13.37)% (11.61)%(c)
Ratios/Supplementary Data:
Net Assets, End of Period (000's)........................... $10,525 $ 8,678 $ 8,067 $ 929
Ratio of expenses to average net assets..................... 1.25%(d) 1.30% 1.17% 1.30%(d)
Ratio of net investment income to average net assets........ 0.51%(d) 0.34% 0.74% 1.92%(d)
Ratio of expenses to average net assets without fee waivers* 1.47%(d) 1.56% 1.37% 1.81%(d)
Portfolio turnover(e)....................................... 4.00% 12.00% 9.00% 10.00%
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a)Period from commencement of operations.
(b)Amount less than $0.005.
(c)Not annualized
(d)Annualized
(e)This rate represents the portfolio turnover rate of the S&P 500(R) Index
Master Portfolio.
See accompanying notes to the financial statements.
6
BB&T FUNDS
Equity Index Fund
Financial Highlights, Class C Shares
For the Six For the May 1, 2001
Months Ended Year Ended thru
June 30, December 31, December 31,
2003 2002 2001(a)
------------ ------------ ------------
(Unaudited)
Net Asset Value, Beginning of Period........................ $ 5.86 $ 7.56 $ 8.34
------ ------- ------
Investment Activities
Net investment income..................................... 0.01 0.03 (b) -- (c)
Net realized/unrealized gains (losses) from investments... 0.64 (1.70) (0.72)
------ ------- ------
Total from Investment Activities.......................... 0.65 (1.67) (0.72)
------ ------- ------
Dividends:
Net investment income..................................... -- (0.03) (0.06)
------ ------- ------
Total Dividends........................................... -- (0.03) (0.06)
------ ------- ------
Net Asset Value -- End of Period............................ $ 6.51 $ 5.86 $ 7.56
====== ======= ======
Total Return (excludes sales charge)........................ 11.09%(d) (22.08)% (8.68)%(d)
Ratios/Supplementary Data:
Net Assets, End of Period (000's)........................... $ 830 $ 776 $ 107
Ratio of expenses to average net assets..................... 1.25%(e) 1.30% 1.01%(e)
Ratio of net investment income to average net assets........ 0.45%(e) 0.41% 1.09%(e)
Ratio of expenses to average net assets without fee waivers* 1.47%(e) 1.56% 1.52%(e)
Portfolio turnover(f)....................................... 4.00% 12.00% 9.00%
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a)Period from commencement of operations.
(b)Per share net investment income has been calculated using the daily average
shares method.
(c)Amount less than $0.005.
(d)Not annualized.
(e)Annualized.
(f)This rate represents the portfolio turnover rate of the S&P 500(R) Index
Master Portfolio.
See accompanying notes to the financial statements.
7
BB&T FUNDS
Notes to Financial Statements
June 30, 2003
(Unaudited)
1. Organization:
The BB&T Equity Index Fund (the "Fund") commenced operations on September
11, 2000 and is registered under the Investment Company Act of 1940, as amended
(the "1940 Act"), as a diversified open-end investment company. The Fund is a
separate series of the BB&T Funds ("Trust"), a Massachusetts business trust
organized in 1992. The Fund invests all of its assets in the S&P 500(R) Index
Master Portfolio (the "Master Portfolio") of the Master Investment Portfolio
("MIP"), a diversified open-end management investment company registered under
the Investment Company Act of 1940, rather than in a portfolio of securities.
The Master Portfolio has substantially the same investment objective as the
Fund. Barclays Global Fund Advisors serves as Investment Advisor for the Master
Portfolio. The financial statements of the Master Portfolio, including the
schedule of investments in securities, are contained elsewhere in this report
and should be read in conjunction with the Fund's financial statements.
The Fund is authorized to issue an unlimited number of shares without par
value. The Fund offers three classes of shares: Class A Shares, Class B Shares
and Class C Shares.
Each class of shares has identical rights and privileges with respect to the
fees paid under the distribution plan, voting rights on matters affecting a
single class of shares and the exchange privilege of each class of shares.
2. Significant Accounting Policies:
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements. The policies are in
conformity with accounting principles generally accepted in the United States
of America. The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of income and expenses for
the period. Actual results could differ from those estimates.
(A)Security Valuation--The value of the Fund's investment in the Master
Portfolio reflects the Fund's interest of 3.32% in the net assets of the
Master Portfolio at June 30, 2003. Valuation of securities held by the
Master Portfolio is discussed in Note 1 of the Master Portfolio's Notes
to Financial Statements, which are included elsewhere in this report.
(B)Federal Income and Excise Taxes and Distributions to
Shareholders--Dividends from net investment income are declared and paid
quarterly for the Fund. Distributable net realized capital gains, if
any, are declared and distributed at least annually. The amount of
dividends from net investment income and of distributions from net
realized gains are determined in accordance with federal income tax
regulations, which may differ from accounting principles generally
accepted in the United States of America. These "book/tax" differences
are either considered temporary or permanent in nature. To the extent
these differences are permanent in nature, such amounts are reclassified
within the composition of net assets based on their federal tax-basis
treatment; temporary differences do not require reclassification.
The Fund intends to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute
substantially all of its taxable income to its shareholders in a manner
which results in no tax cost to the Fund. Therefore, no federal income
or excise tax provision is required.
Expenses that are directly related to the Fund are allocated to the
classes based on relative net assets or another reasonable method.
Expenses directly attributable to a class of shares are charged directly
to that class.
(C)Securities Transactions and Income Recognition--The Fund records daily,
its proportionate interest in the net investment income (losses) and
realized/unrealized capital gains and losses of the Master Portfolio.
The performance of the Fund is directly affected by the performance of
the Master Portfolio.
Continued
8
BB&T FUNDS
Notes to Financial Statements, Continued
June 30, 2003
(Unaudited)
3. Related Party Transactions:
Under its Investment Advisory Agreement with respect to the Fund, BB&T Asset
Management, Inc. ("BB&T") exercises general oversight over the investment
performance of the Fund. BB&T will advise the Board of Trustees if investment
of all of the Fund's assets in shares of the Master Portfolio is no longer an
appropriate means of achieving the Fund's investment objective. For periods in
which all the Fund's assets are not invested in the Master Portfolio, BB&T will
receive an investment advisory fee from the Fund. For the period ended June 30,
2003, all of the Fund's assets were invested in the Master Portfolio and BB&T
received no fees.
BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services ("BISYS"),
an Ohio Limited Partnership, and BISYS Fund Services Ohio, Inc. ("BISYS Ohio")
are subsidiaries of the BISYS Group, Inc. BISYS, with whom certain trustees and
officers of the Fund are affiliated, serves the Fund as administrator,
distributor and transfer agent. Such officers and trustees are paid no fees
directly by the Fund for serving as officers of the Fund. BISYS, administrator
for the Fund, and BISYS Ohio, transfer agent for the Fund, receives
compensation at an all inclusive rate of 0.22% of the average net assets of the
Fund. The fee is accrued daily and payable on a monthly basis. For the period
ended June 30, 2003, BISYS has agreed to waive all of its fee for the Fund, the
amount of such waiver was $96,689.
The Fund has adopted a Distribution and Shareholder Services Plan (the
"Plan") in accordance with Rule 12b-1 under the 1940 Act. The Plan provides for
payments to the distributor of up to 0.50%, 1.00% and 1.00% for Class A Shares,
Class B Shares and Class C Shares, respectively. The fees may be used by BISYS
to pay banks, including the advisor, broker dealers and other institutions. As
distributor, BISYS is entitled to receive commissions on sales of shares of the
Fund. BISYS waived fees totaling $97,372 for distribution for the period ended
June 30, 2003.
9
S&P 500 Index Master Portfolio Schedule of Investments
June 30, 2003
(Unaudited)
Common Stocks (96.41%):
Security Shares Value
-------- ------- --------------
Advertising (0.20%):
Interpublic Group of Companies Inc. 119,121 $ 1,593,839
Omnicom Group Inc.................. 57,658 4,134,079
--------------
5,727,918
--------------
Aerospace/Defense (1.44%):
Boeing Co. (The)................... 257,180 8,826,418
General Dynamics Corp.............. 60,415 4,380,087
Goodrich (B.F.) Co................. 35,903 753,963
Lockheed Martin Corp............... 137,751 6,552,815
Northrop Grumman Corp.............. 55,943 4,827,321
Raytheon Co........................ 125,564 4,123,522
Rockwell Collins Inc............... 54,585 1,344,429
United Technologies Corp........... 143,177 10,141,227
--------------
40,949,782
--------------
Airlines (0.16%):
Delta Air Lines Inc................ 37,668 552,966
Southwest Airlines Co.............. 238,215 4,097,298
--------------
4,650,264
--------------
Apparel (0.29%):
Jones Apparel Group Inc./(1)/...... 39,228 1,147,811
Liz Claiborne Inc.................. 32,812 1,156,623
Nike Inc. Class B.................. 80,805 4,322,259
Reebok International Ltd./(1)/..... 18,116 609,241
VF Corp............................ 33,123 1,125,188
--------------
8,361,122
--------------
Auto Manufacturers (0.54%):
Ford Motor Company................. 560,186 6,156,444
General Motors Corp................ 171,480 6,173,280
Navistar International Corp./(1)/.. 20,842 680,074
PACCAR Inc......................... 35,546 2,401,488
--------------
15,411,286
--------------
Auto Parts & Equipment (0.10%):
Cooper Tire & Rubber Co............ 22,440 394,720
Dana Corp.......................... 45,369 524,466
Delphi Corp........................ 171,277 1,478,121
Goodyear Tire & Rubber Co. (The)... 53,469 280,712
Visteon Corp....................... 39,824 273,591
--------------
2,951,610
--------------
Banks (7.23%):
AmSouth Bancorp.................... 107,533 2,348,521
Bank of America Corp............... 458,317 36,220,793
Bank of New York Co. Inc. (The).... 235,841 6,780,429
Bank One Corp...................... 349,545 12,996,083
BB&T Corp.......................... 144,145 4,944,173
Charter One Financial Inc.......... 68,798 2,145,122
Comerica Inc....................... 53,563 2,490,679
Fifth Third Bancorp................ 175,722 10,075,899
First Tennessee National Corp...... 38,613 1,695,497
FleetBoston Financial Corp......... 321,648 9,556,162
Golden West Financial Corp......... 46,728 3,738,707
Huntington Bancshares Inc.......... 70,082 1,368,001
KeyCorp............................ 129,451 3,271,227
Marshall & Ilsley Corp............. 69,309 2,119,469
Common Stocks, continued
Security Shares Value
-------- ------- --------------
Banks, continued
Mellon Financial Corp................. 131,958 $ 3,661,834
National City Corp.................... 187,092 6,119,779
North Fork Bancorp Inc................ 48,011 1,635,255
Northern Trust Corp................... 67,500 2,820,825
PNC Financial Services Group.......... 86,580 4,225,970
Regions Financial Corp................ 67,915 2,294,169
SouthTrust Corp....................... 104,179 2,833,669
State Street Corp..................... 101,659 4,005,365
SunTrust Banks Inc.................... 85,733 5,087,396
Synovus Financial Corp................ 92,832 1,995,888
U.S. Bancorp.......................... 587,241 14,387,404
Union Planters Corp................... 60,698 1,883,459
Wachovia Corp......................... 411,585 16,446,937
Washington Mutual Inc................. 284,721 11,758,977
Wells Fargo & Company................. 512,506 25,830,302
Zions Bancorporation.................. 27,629 1,398,304
--------------
206,136,295
--------------
Beverages (2.72%):
Anheuser-Busch Companies Inc.......... 255,299 13,033,014
Brown-Forman Corp. Class B............ 18,421 1,448,259
Coca-Cola Co. (The)................... 753,625 34,975,736
Coca-Cola Enterprises Inc............. 138,255 2,509,328
Coors (Adolf) Company Class B......... 11,097 543,531
Pepsi Bottling Group Inc.............. 84,011 1,681,900
PepsiCo Inc........................... 525,669 23,392,270
--------------
77,584,038
--------------
Biotechnology (1.14%):
Amgen Inc./(1)/....................... 385,356 25,603,053
Biogen Inc./(1)/...................... 45,379 1,724,402
Chiron Corp./(1)/..................... 57,091 2,496,019
Genzyme Corp. -- General Division/(1)/ 65,990 2,758,382
--------------
32,581,856
--------------
Building Materials (0.22%):
American Standard Companies Inc./(1)/. 22,008 1,627,051
Masco Corp............................ 145,917 3,480,120
Vulcan Materials Co................... 31,075 1,151,950
--------------
6,259,121
--------------
Chemicals (1.37%):
Air Products & Chemicals Inc.......... 69,498 2,891,117
Ashland Inc........................... 20,843 639,463
Dow Chemical Co. (The)................ 280,049 8,670,317
Du Pont (E.I.) de Nemours and Co...... 304,667 12,686,334
Eastman Chemical Co................... 23,638 748,615
Engelhard Corp........................ 38,636 957,014
Great Lakes Chemical Corp............. 15,312 312,365
Hercules Inc./(1)/.................... 33,515 331,798
Monsanto Co........................... 79,924 1,729,555
PPG Industries Inc.................... 51,899 2,633,355
Praxair Inc........................... 49,683 2,985,948
Rohm & Haas Co........................ 67,889 2,106,596
Sherwin-Williams Co. (The)............ 45,019 1,210,111
Sigma-Aldrich Corp.................... 21,732 1,177,440
--------------
39,080,028
--------------
Continued
10
S&P 500 Index Master Portfolio Schedule of Investments
June 30, 2003
(Unaudited)
Common Stocks, continued
Security Shares Value
-------- --------- --------------
Commercial Services (1.06%):
Apollo Group Inc. Class A/(1)/..... 53,585 $ 3,309,410
Block (H & R) Inc.................. 54,768 2,368,716
Cendant Corp./(1)/................. 311,741 5,711,095
Concord EFS Inc./(1)/.............. 149,041 2,193,884
Convergys Corp./(1)/............... 45,418 726,688
Deluxe Corp........................ 16,972 760,346
Donnelley (R.R.) & Sons Co......... 34,616 904,862
Ecolab Inc......................... 80,351 2,056,986
Equifax Inc........................ 43,238 1,124,188
McKesson Corp...................... 88,651 3,168,387
Monster Worldwide Inc./(1)/........ 34,149 673,760
Moody's Corp....................... 45,420 2,394,088
Paychex Inc........................ 115,121 3,374,197
Quintiles Transnational Corp./(1)/. 36,106 512,344
Robert Half International Inc./(1)/ 52,196 988,592
--------------
30,267,543
--------------
Computers (5.48%):
Apple Computer Inc./(1)/........... 111,789 2,137,406
Cisco Systems Inc./(1)/............ 2,147,336 35,839,038
Computer Sciences Corp./(1)/....... 57,249 2,182,332
Dell Computer Corp./(1)/........... 785,781 25,113,561
Electronic Data Systems Corp....... 146,300 3,138,135
EMC Corp./(1)/..................... 669,325 7,007,833
Gateway Inc./(1)/.................. 98,834 360,744
Hewlett-Packard Co................. 933,764 19,889,173
International Business Machines
Corp.............................. 528,619 43,611,067
Lexmark International Inc./(1)/.... 38,989 2,759,252
NCR Corp./(1)/..................... 29,289 750,384
Network Appliance Inc./(1)/........ 103,803 1,682,647
Sun Microsystems Inc./(1)/......... 987,804 4,543,898
SunGard Data Systems Inc./(1)/..... 86,960 2,253,134
Unisys Corp./(1)/.................. 100,177 1,230,174
Veritas Software Corp./(1)/........ 126,855 3,636,933
--------------
156,135,711
--------------
Cosmetics/Personal Care (2.43%):
Alberto-Culver Co. Class B......... 17,924 915,916
Avon Products Inc.................. 71,882 4,471,060
Colgate-Palmolive Co............... 164,578 9,537,295
Gillette Co. (The)................. 312,483 9,955,708
International Flavors & Fragrances
Inc............................... 28,796 919,456
Kimberly-Clark Corp................ 155,683 8,117,312
Procter & Gamble Co................ 396,066 35,321,166
--------------
69,237,913
--------------
Distribution/Wholesale (0.28%):
Costco Wholesale Corp./(1)/........ 139,512 5,106,139
Genuine Parts Co................... 53,156 1,701,524
Grainger (W.W.) Inc................ 28,008 1,309,654
--------------
8,117,317
--------------
Diversified Financial Services (9.05%):
American Express Co................ 396,832 16,591,546
American International Group Inc... 797,946 44,030,660
Bear Stearns Companies Inc. (The).. 30,292 2,193,747
Capital One Financial Corp......... 69,252 3,405,813
Common Stocks, continued
Security Shares Value
-------- --------- --------------
Diversified Financial Services, continued
Citigroup Inc....................... 1,574,871 $ 67,404,479
Countrywide Financial Corp.......... 39,943 2,778,835
Fannie Mae.......................... 299,788 20,217,703
Federated Investors Inc. Class B.... 33,460 917,473
Franklin Resources Inc.............. 77,612 3,032,301
Freddie Mac......................... 210,337 10,678,809
Goldman Sachs Group Inc. (The)...... 143,688 12,033,870
Janus Capital Group Inc............. 73,136 1,199,430
JP Morgan Chase & Co................ 621,367 21,238,324
Lehman Brothers Holdings Inc........ 74,189 4,932,085
MBNA Corp........................... 390,814 8,144,564
Merrill Lynch & Co. Inc............. 284,582 13,284,288
Morgan Stanley...................... 332,601 14,218,693
Providian Financial Corp./(1)/...... 88,549 819,964
Schwab (Charles) Corp. (The)........ 413,017 4,167,342
SLM Corp............................ 138,411 5,421,559
T. Rowe Price Group Inc............. 37,403 1,411,963
--------------
258,123,448
--------------
Electric (2.58%):
AES Corp. (The)/(1)/................ 187,264 1,189,126
Allegheny Energy Inc................ 38,333 323,914
Ameren Corp......................... 49,296 2,173,954
American Electric Power Co. Inc..... 120,800 3,603,464
Calpine Corp./(1)/.................. 116,439 768,497
CenterPoint Energy Inc.............. 93,327 760,615
Cinergy Corp........................ 53,840 1,980,774
CMS Energy Corp..................... 43,904 355,622
Consolidated Edison Inc............. 68,279 2,955,115
Constellation Energy Group Inc...... 50,546 1,733,728
Dominion Resources Inc.............. 95,064 6,109,763
DTE Energy Co....................... 51,359 1,984,512
Duke Energy Corp.................... 275,625 5,498,719
Edison International/(1)/........... 99,603 1,636,477
Entergy Corp........................ 69,052 3,644,565
Exelon Corp......................... 99,172 5,931,477
FirstEnergy Corp.................... 91,023 3,499,834
FPL Group Inc....................... 56,055 3,747,277
Mirant Corp./(1)/................... 123,218 357,332
NiSource Inc........................ 80,268 1,525,092
PG&E Corp./(1)/..................... 125,120 2,646,288
Pinnacle West Capital Corp.......... 27,887 1,044,368
PPL Corp............................ 51,541 2,216,263
Progress Energy Inc................. 73,642 3,232,884
Public Service Enterprise Group Inc. 69,077 2,918,503
Southern Company.................... 220,759 6,878,850
TECO Energy Inc..................... 53,912 646,405
TXU Corp............................ 98,535 2,212,111
Xcel Energy Inc..................... 121,901 1,833,391
--------------
73,408,920
--------------
Electrical Components & Equipment (0.09%):
American Power Conversion
Corp./(1)/......................... 60,049 936,164
Molex Inc........................... 58,568 1,580,750
Power-One Inc./(1)/................. 25,176 180,008
--------------
2,696,922
--------------
Continued
11
S&P 500 Index Master Portfolio Schedule of Investments
June 30, 2003
(Unaudited)
Common Stocks, continued
Security Shares Value
-------- ------- --------------
Electronics (0.57%):
Agilent Technologies Inc./(1)/..... 144,124 $ 2,817,624
Applera Corp. -- Applied Biosystems
Group............................. 64,061 1,219,081
Jabil Circuit Inc./(1)/............ 60,719 1,341,890
Johnson Controls Inc............... 27,264 2,333,798
Millipore Corp./(1)/............... 14,806 656,942
Parker Hannifin Corp............... 36,113 1,516,385
PerkinElmer Inc.................... 38,499 531,671
Sanmina-SCI Corp./(1)/............. 155,853 983,432
Solectron Corp./(1)/............... 253,584 948,404
Symbol Technologies Inc............ 70,457 916,646
Tektronix Inc./(1)/................ 26,077 563,263
Thermo Electron Corp./(1)/......... 49,610 1,042,802
Thomas & Betts Corp./(1)/.......... 17,814 257,412
Waters Corp./(1)/.................. 38,107 1,110,057
--------------
16,239,407
--------------
Engineering & Construction (0.03%):
Fluor Corp......................... 24,906 837,838
--------------
837,838
--------------
Entertainment (0.09%):
International Game Technology
Inc./(1)/......................... 26,117 2,672,553
--------------
2,672,553
--------------
Environmental Control (0.18%):
Allied Waste Industries Inc./(1)/.. 64,160 644,808
Waste Management Inc............... 181,029 4,360,989
--------------
5,005,797
--------------
Food (1.79%):
Albertson's Inc.................... 112,357 2,157,254
Archer-Daniels-Midland Co.......... 197,291 2,539,135
Campbell Soup Co................... 125,543 3,075,803
ConAgra Foods Inc.................. 164,242 3,876,111
General Mills Inc.................. 113,034 5,358,942
Heinz (H.J.) Co.................... 107,469 3,544,328
Hershey Foods Corp................. 40,168 2,798,103
Kellogg Co......................... 124,449 4,277,312
Kroger Co./(1)/.................... 230,989 3,852,897
McCormick & Co. Inc................ 42,682 1,160,950
Safeway Inc./(1)/.................. 134,977 2,761,629
Sara Lee Corp...................... 237,891 4,474,730
SUPERVALU Inc...................... 40,877 871,498
Sysco Corp......................... 198,828 5,972,793
Winn-Dixie Stores Inc.............. 42,992 529,232
Wrigley (William Jr.) Co........... 68,831 3,870,367
--------------
51,121,084
--------------
Forest Products & Paper (0.52%):
Boise Cascade Corp................. 17,787 425,109
Georgia-Pacific Corp............... 76,521 1,450,073
International Paper Co............. 146,487 5,233,980
Louisiana-Pacific Corp./(1)/....... 31,891 345,698
MeadWestvaco Corp.................. 61,258 1,513,073
Plum Creek Timber Co. Inc.......... 56,078 1,455,224
Temple-Inland Inc.................. 16,508 708,358
Weyerhaeuser Co.................... 66,984 3,617,136
--------------
14,748,651
--------------
Common Stocks, continued
Security Shares Value
-------- ------- --------------
Gas (0.16%):
KeySpan Corp......................... 48,096 $ 1,705,003
Nicor Inc............................ 13,438 498,684
Peoples Energy Corp.................. 11,003 471,919
Sempra Energy........................ 63,423 1,809,458
--------------
4,485,064
--------------
Hand/Machine Tools (0.31%):
Black & Decker Corp.................. 23,805 1,034,327
Emerson Electric Co.................. 128,757 6,579,483
Snap-On Inc.......................... 17,766 515,747
Stanley Works (The).................. 26,225 723,810
--------------
8,853,367
--------------
Health Care (4.53%):
Aetna Inc............................ 46,440 2,795,688
Anthem Inc./(1)/..................... 42,332 3,265,914
Bard (C.R.) Inc...................... 15,906 1,134,257
Bausch & Lomb Inc.................... 16,251 609,412
Baxter International Inc............. 182,747 4,751,422
Becton, Dickinson & Co............... 77,894 3,026,182
Biomet Inc........................... 79,022 2,264,771
Boston Scientific Corp./(1)/......... 125,461 7,665,667
Guidant Corp......................... 94,594 4,199,028
HCA Inc.............................. 156,593 5,017,240
Health Management Associates Inc.
Class A............................. 72,958 1,346,075
Humana Inc./(1)/..................... 49,345 745,109
Johnson & Johnson.................... 908,205 46,954,199
Manor Care Inc./(1)/................. 27,645 691,401
Medtronic Inc........................ 373,056 17,895,496
Quest Diagnostics Inc./(1)/.......... 32,206 2,054,743
St. Jude Medical Inc./(1)/........... 55,027 3,164,053
Stryker Corp......................... 60,719 4,212,077
Tenet Healthcare Corp./(1)/.......... 142,922 1,665,041
UnitedHealth Group Inc............... 181,342 9,112,436
WellPoint Health Networks Inc./(1)/.. 44,539 3,754,638
Zimmer Holdings Inc./(1)/............ 60,076 2,706,424
--------------
129,031,273
--------------
Home Builders (0.12%):
Centex Corp.......................... 19,030 1,480,344
KB Home.............................. 14,533 900,755
Pulte Homes Inc...................... 18,720 1,154,275
--------------
3,535,374
--------------
Home Furnishings (0.11%):
Leggett & Platt Inc.................. 59,145 1,212,473
Maytag Corp.......................... 23,920 584,126
Whirlpool Corp....................... 20,968 1,335,662
--------------
3,132,261
--------------
Household Products/Wares (0.35%):
American Greetings Corp. Class A/(1)/ 20,099 394,744
Avery Dennison Corp.................. 33,775 1,695,505
Clorox Co............................ 66,370 2,830,681
Fortune Brands Inc................... 44,509 2,323,370
Newell Rubbermaid Inc................ 83,845 2,347,660
Tupperware Corp...................... 17,778 255,292
--------------
9,847,252
--------------
Continued
12
S&P 500 Index Master Portfolio Schedule of Investments
June 30, 2003
(Unaudited)
Common Stocks, continued
Security Shares Value
-------- ------- --------------
Insurance (3.07%):
ACE Ltd............................ 80,946 $ 2,775,638
AFLAC Inc.......................... 157,141 4,832,086
Allstate Corp. (The)............... 215,318 7,676,087
Ambac Financial Group Inc.......... 32,492 2,152,595
AON Corp........................... 95,459 2,298,653
Chubb Corp......................... 56,611 3,396,660
CIGNA Corp......................... 42,866 2,012,130
Cincinnati Financial Corp.......... 49,146 1,822,825
Hancock (John) Financial Services
Inc............................... 88,371 2,715,641
Hartford Financial Services Group
Inc............................... 85,583 4,309,960
Jefferson-Pilot Corp............... 43,539 1,805,127
Lincoln National Corp.............. 54,268 1,933,569
Loews Corp......................... 56,690 2,680,870
Marsh & McLennan Companies Inc..... 163,846 8,367,615
MBIA Inc........................... 44,067 2,148,266
MetLife Inc........................ 232,514 6,584,796
MGIC Investment Corp............... 30,249 1,410,813
Principal Financial Group Inc...... 100,096 3,228,096
Progressive Corp. (The)............ 66,572 4,866,413
Prudential Financial Inc........... 168,246 5,661,478
SAFECO Corp........................ 42,303 1,492,450
St. Paul Companies Inc............. 69,592 2,540,804
Torchmark Corp..................... 35,586 1,325,579
Travelers Property Casualty Corp.
Class B........................... 307,822 4,854,353
UNUMProvident Corp................. 87,937 1,179,235
XL Capital Ltd. Class A............ 41,775 3,467,325
--------------
87,539,064
--------------
Iron / Steel (0.06%):
Allegheny Technologies Inc......... 24,504 161,726
Nucor Corp......................... 23,929 1,168,932
United States Steel Corp........... 31,489 515,475
--------------
1,846,133
--------------
Leisure Time (0.41%):
Brunswick Corp..................... 27,575 689,927
Carnival Corp...................... 192,264 6,250,503
Harley-Davidson Inc................ 92,485 3,686,452
Sabre Holdings Corp................ 43,788 1,079,374
--------------
11,706,256
--------------
Lodgingm (0.26%):
Harrah's Entertainment Inc./(1)/... 33,620 1,352,869
Hilton Hotels Corp................. 115,183 1,473,191
Marriott International Inc. Class A 71,007 2,728,089
Starwood Hotels & Resorts
Worldwide Inc..................... 61,339 1,753,682
--------------
7,307,831
--------------
Machinery (0.54%):
Caterpillar Inc.................... 105,356 5,864,115
Cummins Inc........................ 12,668 454,655
Deere & Co......................... 73,208 3,345,606
Dover Corp......................... 61,922 1,855,183
Ingersoll-Rand Co. Class A......... 51,795 2,450,939
McDermott International Inc./(1)/.. 19,820 125,461
Rockwell Automation Inc............ 56,807 1,354,279
--------------
15,450,238
--------------
Common Stocks, continued
Security Shares Value
-------- --------- --------------
Manufacturers (4.95%):
Cooper Industries Ltd......... 28,539 $ 1,178,661
Crane Co...................... 18,084 409,241
Danaher Corp.................. 46,736 3,180,385
Eastman Kodak Co.............. 87,741 2,399,716
Eaton Corp.................... 22,808 1,792,937
General Electric Co........... 3,057,452 87,687,723
Honeywell International Inc... 262,411 7,045,735
Illinois Tool Works Inc....... 94,073 6,194,707
ITT Industries Inc............ 28,090 1,838,771
Pall Corp..................... 37,664 847,440
Textron Inc................... 41,402 1,615,506
3M Co......................... 119,556 15,420,334
Tyco International Ltd........ 610,833 11,593,610
--------------
141,204,766
--------------
Media (3.82%):
AOL Time Warner Inc./(1)/..... 1,375,695 22,134,933
Clear Channel Communications
Inc./(1)/.................... 187,851 7,963,004
Comcast Corp. Class A/(1)/.... 688,068 20,765,892
Dow Jones & Co. Inc........... 24,955 1,073,814
Gannett Co. Inc............... 82,157 6,310,479
Knight Ridder Inc............. 24,978 1,721,734
McGraw-Hill Companies Inc.
(The)........................ 58,383 3,619,746
Meredith Corp................. 15,189 668,316
New York Times Co. Class A.... 46,187 2,101,509
Tribune Co.................... 94,503 4,564,495
Univision Communications Inc.
Class A/(1)/................. 70,087 2,130,645
Viacom Inc. Class B/(1)/...... 537,241 23,455,942
Walt Disney Co. (The)......... 625,007 12,343,888
--------------
108,854,397
--------------
Metal Fabricate/Hardware (0.01%):
Worthington Industries Inc.... 26,211 351,227
--------------
351,227
--------------
Mining (0.45%):
Alcoa Inc..................... 258,536 6,592,668
Freeport-McMoRan Copper & Gold
Inc.......................... 44,434 1,088,633
Newmont Mining Corp........... 123,008 3,992,840
Phelps Dodge Corp./(1)/....... 27,218 1,043,538
--------------
12,717,679
--------------
Office/Business Equipment (0.19%):
Pitney Bowes Inc.............. 71,726 2,754,996
Xerox Corp./(1)/.............. 239,090 2,531,963
--------------
5,286,959
--------------
Oil & Gas Producers (5.04%):
Amerada Hess Corp............. 27,488 1,351,860
Anadarko Petroleum Corp....... 76,292 3,392,705
Apache Corp................... 49,420 3,215,265
Burlington Resources Inc...... 61,478 3,324,115
ChevronTexaco Corp............ 326,811 23,595,754
ConocoPhillips................ 207,620 11,377,576
Devon Energy Corp............. 70,581 3,769,025
EOG Resources Inc............. 35,121 1,469,463
Continued
13
S&P 500 Index Master Portfolio Schedule of Investments
June 30, 2003
(Unaudited)
Common Stocks, continued
Security Shares Value
-------- --------- --------------
Oil & Gas Producers, continued
Exxon Mobil Corp................. 2,043,444 $ 73,380,074
Kerr-McGee Corp.................. 30,828 1,381,094
Kinder Morgan Inc................ 37,325 2,039,811
Marathon Oil Corp................ 94,903 2,500,694
Nabors Industries Ltd./(1)/...... 44,528 1,761,082
Noble Corp./(1)/................. 40,946 1,404,448
Occidental Petroleum Corp........ 115,990 3,891,465
Rowan Companies Inc./(1)/........ 28,598 640,595
Sunoco Inc....................... 23,419 883,833
Transocean Inc./(1)/............. 97,775 2,148,117
Unocal Corp...................... 78,897 2,263,555
--------------
143,790,531
--------------
Oil & Gas Services (0.59%):
Baker Hughes Inc................. 102,960 3,456,367
BJ Services Co./(1)/............. 48,324 1,805,385
Halliburton Co................... 133,688 3,074,824
Schlumberger Ltd................. 178,107 8,472,550
--------------
16,809,126
--------------
Packaging & Containers (0.13%):
Ball Corp........................ 17,419 792,739
Bemis Co......................... 16,219 759,049
Pactiv Corp./(1)/................ 48,725 960,370
Sealed Air Corp./(1)/............ 25,795 1,229,390
--------------
3,741,548
--------------
Pharmaceuticals (8.32%):
Abbott Laboratories.............. 477,500 20,895,400
Allergan Inc..................... 39,827 3,070,662
AmerisourceBergen Corp........... 33,753 2,340,771
Bristol-Myers Squibb Co.......... 592,937 16,098,240
Cardinal Health Inc.............. 136,621 8,784,730
Forest Laboratories Inc./(1)/.... 111,032 6,079,002
King Pharmaceuticals Inc./(1)/... 73,725 1,088,181
Lilly (Eli) & Co................. 343,692 23,704,437
MedImmune Inc./(1)/.............. 77,084 2,803,545
Merck & Co. Inc.................. 685,958 41,534,757
Pfizer Inc....................... 2,415,319 82,483,144
Schering-Plough Corp............. 449,311 8,357,185
Watson Pharmaceuticals Inc./(1)/. 32,737 1,321,593
Wyeth............................ 406,230 18,503,777
--------------
237,065,424
--------------
Pipelines (0.11%):
Dynegy Inc. Class A.............. 113,732 477,674
El Paso Corp..................... 183,276 1,480,870
Williams Companies Inc........... 158,234 1,250,049
--------------
3,208,593
--------------
Real Estate Investment Trusts (0.31%):
Apartment Investment & Management
Co. Class A..................... 28,708 993,297
Equity Office Properties Trust... 123,302 3,330,387
Equity Residential............... 83,332 2,162,465
Simon Property Group Inc......... 57,790 2,255,544
--------------
8,741,693
--------------
Common Stocks, continued
Security Shares Value
-------- --------- --------------
Retail (7.18%):
AutoNation Inc./(1)/................ 86,248 $ 1,355,819
AutoZone Inc./(1)/.................. 27,412 2,082,490
Bed Bath & Beyond Inc./(1)/......... 90,305 3,504,737
Best Buy Co. Inc./(1)/.............. 98,555 4,328,536
Big Lots Inc./(1)/.................. 35,635 535,950
Circuit City Stores Inc............. 63,614 559,803
CVS Corp............................ 120,494 3,377,447
Darden Restaurants Inc.............. 51,640 980,127
Dillards Inc. Class A............... 25,845 348,132
Dollar General Corp................. 101,955 1,861,698
eBay Inc./(1)/...................... 97,118 10,117,753
Family Dollar Stores Inc............ 52,597 2,006,576
Federated Department Stores Inc..... 57,385 2,114,637
Gap Inc. (The)...................... 272,389 5,110,018
Home Depot Inc...................... 702,973 23,282,466
Kohls Corp./(1)/.................... 103,632 5,324,612
Limited Brands Inc.................. 159,860 2,477,830
Lowe's Companies Inc................ 238,541 10,245,336
May Department Stores Co. (The)..... 88,197 1,963,265
McDonald's Corp..................... 389,177 8,585,245
Nordstrom Inc....................... 41,495 809,982
Office Depot Inc./(1)/.............. 94,427 1,370,136
Penney (J.C.) Co. Inc. (Holding Co.) 82,228 1,385,542
RadioShack Corp..................... 51,537 1,355,938
Sears, Roebuck and Co............... 94,046 3,163,707
Staples Inc./(1)/................... 148,902 2,732,352
Starbucks Corp./(1)/................ 119,425 2,928,301
Target Corp......................... 278,589 10,541,808
Tiffany & Co........................ 44,412 1,451,384
TJX Companies Inc................... 156,322 2,945,106
Toys R Us Inc./(1)/................. 65,090 788,891
Walgreen Co......................... 313,507 9,436,561
Wal-Mart Stores Inc................. 1,339,656 71,899,338
Wendy's International Inc........... 34,804 1,008,272
Yum! Brands Inc./(1)/............... 89,575 2,647,837
--------------
204,627,632
--------------
Semiconductors (3.15%):
Advanced Micro Devices Inc./(1)/.... 105,623 677,043
Altera Corp./(1)/................... 117,071 1,919,964
Analog Devices Inc./(1)/............ 111,726 3,890,299
Applied Materials Inc./(1)/......... 506,961 8,040,401
Applied Micro Circuits Corp./(1)/... 92,844 561,706
Broadcom Corp. Class A/(1)/......... 85,644 2,133,392
Intel Corp.......................... 1,999,021 41,547,652
KLA-Tencor Corp./(1)/............... 58,197 2,705,579
Linear Technology Corp.............. 95,716 3,083,012
LSI Logic Corp./(1)/................ 114,644 811,680
Maxim Integrated Products Inc....... 99,292 3,394,793
Micron Technology Inc./(1)/......... 186,110 2,164,459
National Semiconductor Corp./(1)/... 55,765 1,099,686
Novellus Systems Inc./(1)/.......... 45,831 1,678,377
NVIDIA Corp./(1)/................... 48,617 1,118,677
PMC-Sierra Inc./(1)/................ 51,603 605,303
QLogic Corp./(1)/................... 28,713 1,387,699
Teradyne Inc./(1)/.................. 56,517 978,309
Texas Instruments Inc............... 528,964 9,309,766
Xilinx Inc./(1)/.................... 103,178 2,611,435
--------------
89,719,232
--------------
Continued
14
S&P 500 Index Master Portfolio Schedule of Investments
June 30, 2003
(Unaudited)
Common Stocks, continued
Security Shares Value
-------- --------- --------------
Software (5.30%):
Adobe Systems Inc................. 70,893 $ 2,273,539
Autodesk Inc...................... 34,262 553,674
Automatic Data Processing Inc..... 183,030 6,197,396
BMC Software Inc./(1)/............ 71,398 1,165,929
Citrix Systems Inc./(1)/.......... 50,701 1,032,272
Computer Associates International
Inc.............................. 176,798 3,939,059
Compuware Corp./(1)/.............. 115,478 666,308
Electronic Arts Inc./(1)/......... 44,530 3,294,775
First Data Corp................... 228,881 9,484,829
Fiserv Inc./(1)/.................. 59,072 2,103,554
IMS Health Inc.................... 74,512 1,340,471
Intuit Inc./(1)/.................. 62,843 2,798,399
Mercury Interactive Corp./(1)/.... 26,090 1,007,335
Microsoft Corp.................... 3,284,408 84,113,689
Novell Inc./(1)/.................. 112,371 346,103
Oracle Corp./(1)/................. 1,604,156 19,281,955
Parametric Technology Corp./(1)/.. 80,582 245,775
PeopleSoft Inc./(1)/.............. 96,786 1,702,466
Siebel Systems Inc./(1)/.......... 149,663 1,427,785
Symantec Corp./(1)/............... 45,164 1,980,893
Yahoo! Inc./(1)/.................. 184,503 6,044,318
--------------
151,000,524
--------------
Telecommunication Equipment (0.86%):
ADC Telecommunications Inc./(1)/.. 244,884 570,090
Andrew Corp./(1)/................. 29,996 275,963
Avaya Inc./(1)/................... 116,495 752,558
CIENA Corp./(1)/.................. 143,902 746,851
Comverse Technology Inc./(1)/..... 57,503 864,270
JDS Uniphase Corp./(1)/........... 437,232 1,534,684
Lucent Technologies Inc./(1)/..... 1,265,077 2,568,106
Motorola Inc...................... 708,304 6,679,307
QUALCOMM Inc...................... 241,465 8,632,374
Scientific-Atlanta Inc............ 45,695 1,089,369
Tellabs Inc./(1)/................. 126,198 829,121
--------------
24,542,693
--------------
Telecommunications (1.89%):
AT&T Wireless Services Inc./(1)/.. 829,479 6,810,023
Citizens Communications Co./(1)/.. 86,627 1,116,622
Corning Inc./(1)/................. 387,106 2,860,713
Nextel Communications Inc.
Class A/(1)/..................... 314,443 5,685,129
Qwest Communications International
Inc./(1)/........................ 518,419 2,478,043
Sprint Corp. (PCS Group)/(1)/..... 312,903 1,799,192
Verizon Communications Inc........ 841,332 33,190,547
--------------
53,940,269
--------------
Telephone (1.95%):
Alltel Corp....................... 95,202 4,590,640
AT&T Corp......................... 240,476 4,629,163
BellSouth Corp.................... 565,095 15,048,480
CenturyTel Inc.................... 43,751 1,524,722
SBC Communications Inc............ 1,016,351 25,967,768
Sprint Corp. (FON Group).......... 274,967 3,959,525
--------------
55,720,298
--------------
Common Stocks, continued
Security Shares Value
-------- ------------ --------------
Textiles (0.07%):
Cintas Corp..................... 52,119 $ 1,847,097
--------------
1,847,097
--------------
Tobacco (1.08%):
Altria Group Inc................ 619,507 28,150,398
R.J. Reynolds Tobacco Holdings
Inc............................ 25,871 962,660
UST Inc......................... 51,124 1,790,874
--------------
30,903,932
--------------
Toys / Games /Hobbies (0.12%):
Hasbro Inc...................... 53,038 927,635
Mattel Inc...................... 134,459 2,543,964
--------------
3,471,599
--------------
Transportation (1.39%):
Burlington Northern Santa Fe
Corp........................... 114,098 3,244,947
CSX Corp........................ 65,329 1,965,750
FedEx Corp...................... 91,251 5,660,300
Norfolk Southern Corp........... 119,193 2,288,506
Union Pacific Corp.............. 77,708 4,508,618
United Parcel Service Inc.
Class B........................ 344,231 21,927,515
--------------
39,595,636
--------------
Trucking & Leasing (0.02%):
Ryder System Inc................ 19,154 490,725
--------------
490,725
--------------
Total Common Stocks
(Cost: $2,840,355,304)......... 2,748,672,117
--------------
Short Term Instruments (8.41%):
Shares or
Security Principal Value
-------- ------------ --------------
Barclays Global Investors Funds
Institutional Money Market
Fund, Institutional Shares/(2)/ 166,375,722 166,375,722
Barclays Global Investors Funds
Prime Money Market Fund,
Institutional Shares/(2)/...... 24,246,059 24,246,059
BlackRock Temp Cash Money
Market Fund/(2)/............... 1,222,710 1,222,710
Short Term Investment Co. --
Liquid Assets Money Market
Portfolio/(2)/................. 6,357,794 6,357,794
Short Term Investment Co. --
Prime Money Market Portfolio,
Institutional Shares/(2)/...... 2,694,007 2,694,007
Abbey National Treasury Services
PLC, Time Deposit
1.38%, 07/01/03/(2)/.......... $ 1,616,404 1,616,404
Beta Finance Inc., Floating Rate
Note
1.06%, 05/20/04/(2)/.......... 1,346,801 1,346,801
1.17%, 08/15/03/(2)/.......... 2,020,618 2,020,618
Canadian Imperial Bank of
Commerce, Floating Rate Note
1.07%, 10/30/03/(2)/.......... 1,077,602 1,077,602
Continued
15
S&P 500 Index Master Portfolio Schedule of Investments
June 30, 2003
(Unaudited)
Short Term Instruments, continued
Security Principal Value
-------- ---------- --------------
CC USA Inc., Floating Rate Note
1.10%, 04/19/04/(2)/............ $1,185,304 $ 1,185,304
1.31%, 05/24/04/(2)/............ 2,693,737 2,693,737
Dorada Finance Inc., Floating Rate
Note
1.06%, 05/20/04/(2)/............ 2,693,602 2,693,602
Five Finance Inc., Floating Rate
Note
1.15%, 04/15/04/(2)/............ 1,347,003 1,347,003
HBOS Treasury Services PLC,
Floating Rate Note
1.27%, 06/24/04/(2)/............ 2,694,007 2,694,007
Holmes Financing PLC, Floating
Rate Bond
1.14%, 04/15/04/(2)/............ 538,801 538,801
K2 USA LLC, Floating Rate Note
1.15%, 05/17/04/(2)/............ 1,346,936 1,346,936
1.22%, 04/13/04/(2)/............ 1,346,936 1,346,936
Links Finance LLC, Floating Rate
Note
0.98%, 06/28/04/(2)/............ 1,346,734 1,346,734
1.08%, 03/29/04/(2)/............ 1,347,003 1,347,003
1.29%, 05/04/04/(2)/............ 1,346,936 1,346,936
Sigma Finance Inc., Floating Rate
Note
1.13%, 10/15/03/(2)/............ 2,693,872 2,693,872
U.S. Treasury Bill
0.85%, 09/25/03/(3)(4)/......... 9,450,000 9,430,627
White Pine Finance LLC, Floating
Rate Note
1.07%, 04/20/04/(2)/............ 1,347,003 1,347,003
1.14%, 05/17/04/(2)/............ 1,616,404 1,616,404
--------------
Total Short Term Instruments
(Cost: $239,934,156)............. 239,932,622
--------------
Repurchase Agreements (0.07%)
Security Principal Value
-------- ---------- --------------
Bank of America NA Repurchase
Agreement, dated 06/30/03, due
07/01/03, with an effective yield
of 1.30%./(2)/................... $1,347,003 $ 1,347,003
Merrill Lynch Government
Securities Inc. Repurchase
Agreement, dated 06/30/03, due
07/01/03, with an effective yield
of 1.38%./(2)/................... 538,801 538,801
--------------
Total Repurchase Agreements
(Cost: $1,885,804)............... 1,885,804
--------------
Total Investments in
Securities (104.89%)
(Cost $3,082,175,264)........... 2,990,490,543
--------------
Other Assets, Less
Liabilities (4.89%).............. (139,522,597)
--------------
Net Assets (100.00%).............. $2,850,967,946
==============
- --------
/(1)/Non-income earning securities.
/(2)/All or a portion of this security represents investments of securities
lending collateral.
/(3)/Yield to Maturity.
/(4)/This U.S. Treasury Bill is held in a segregated account in connection with
the Master Portfolio's holdings of index futures contracts. See Note 1.
The accompanying notes are an integral part of these financial statements.
16
S&P 500 Index Master Portfolio
Statement of Assets and Liabilities
June 30, 2003
(Unaudited)
Assets:
Investments in securities, at value (including
securities on loan /(1)/) (Cost: $3,082,175,264)
(Note 1)........................................ $2,990,490,543
Receivables:
Dividends and interest........................... 3,505,157
--------------
Total Assets................................... 2,993,995,700
--------------
Liabilities:
Payables:
Due to broker -- variation margin................ 22,260
Collateral for securities loaned (Note 4)........ 142,749,585
Advisory fees (Note 2)........................... 255,909
--------------
Total Liabilities.............................. 143,027,754
--------------
Net Assets....................................... $2,850,967,946
==============
- --------
/(1)/Securities on loan with market value of $137,590,771. See Note 4.
Statement of Operations
For the Six Months Ended June 30, 2003
(Unaudited)
Net Investment Income:
Dividends (Net of foreign withholding tax of
$6,109)............................................ $ 21,247,302
Interest............................................ 748,126
Securities lending income........................... 44,064
------------
Total investment income........................... 22,039,492
------------
Expenses (Note 2):
Advisory fees....................................... 620,619
------------
Total expenses.................................... 620,619
------------
Net investment income............................... 21,418,873
------------
Realized and Unrealized Gain (loss) on
Investments:
Net realized loss on sale of investments............ (51,725,104)
Net realized gain on futures contracts.............. 7,697,446
Net change in unrealized appreciation (depreciation)
of investments..................................... 310,520,446
Net change in unrealized appreciation (depreciation)
of futures contracts............................... 1,004,340
------------
Net gain on investments............................. 267,497,128
------------
Net increase in Net Assets Resulting From
Operations......................................... $288,916,001
============
The accompanying notes are an integral part of these financial statements.
17
S&P 500 Index Master Portfolio
Statements of Changes in Net Assets
For the Six For the
Months Ended Year Ended
June 30, December 31,
2003 2002
-------------- --------------
(Unaudited)
Increase (decrease) In Net Assets
Operations:
Net investment income.............................................. $ 21,418,873 $ 40,577,166
Net realized loss.................................................. (44,027,658) (255,819,289)
Net change in unrealized appreciation (depreciation)............... 311,524,786 (457,092,164)
-------------- --------------
Net increase (decrease) in net assets resulting from operations...... 288,916,001 (672,334,287)
-------------- --------------
Interestholder transactions:
Contributions...................................................... 680,765,775 1,124,925,648
Withdrawals........................................................ (458,632,915) (904,586,226)
-------------- --------------
Net increase in net assets resulting from interestholder transactions 222,132,860 220,339,422
-------------- --------------
Increase (decrease) in net assets.................................... 511,048,861 (451,994,865)
Net Assets:
Beginning of period................................................ 2,339,919,085 2,791,913,950
-------------- --------------
End of period...................................................... $2,850,967,946 $2,339,919,085
============== ==============
The accompanying notes are an integral part of these financial statements.
18
S&P 500 Index Master Portfolio
Notes to Financial Statements
June 30, 2003
(Unaudited)
1. Significant Accounting Policies
Master Investment Portfolio ("MIP") is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as an open-end management
investment company organized as a Delaware business trust. MIP currently
consists of the following separate portfolios: Asset Allocation, Bond Index,
Extended Index, International Index, LifePath Retirement (formerly LifePath
Income), LifePath 2010, LifePath 2020, LifePath 2030, LifePath 2040, Money
Market, Prime Money Market, Russell 2000 Index, S&P 500 Index and U.S. Equity
Index Master Portfolios.
These financial statements relate only to the S&P 500(R) Index Master
Portfolio (the "Master Portfolio").
The following is a summary of significant accounting policies which are
consistently followed by MIP in the preparation of its financial statements.
Such policies are in conformity with accounting principles generally accepted
in the United States of America ("U.S. GAAP") for investment companies. The
preparation of financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
Security Valuation
The equity securities of the Master Portfolio are valued at the last
reported sales price on the primary securities exchange or national securities
market on which such securities are traded. Beginning April 14, 2003,
securities for which the primary market is the National Association of
Securities Dealers Automated Quotations National Market System ("NASDAQ") are
valued at the NASDAQ Official Closing Price. Securities not listed on an
exchange or national securities market, or securities for which there was no
last reported sales price, are valued at the most recent bid prices. Debt
securities are generally traded in the over-the-counter market and are valued
at a price deemed best to reflect fair value as quoted by dealers who make
markets in those securities or by an independent pricing source. U.S.
Government obligations are valued at the last reported bid price. Debt
securities maturing in 60 days or less are valued at amortized cost, which
approximates market value. Mutual fund shares are valued at net asset value.
Any securities, restricted securities or other assets for which market
quotations are not readily available, or for which a significant event has
occurred since the time of the most recent market quotation, are valued in
accordance with fair value pricing policies approved by MIP's Board of Trustees.
Security Transactions and Income Recognition
Security transactions are accounted for on trade date. Dividend income is
recognized on the ex-dividend date, and interest income is accrued daily.
Realized gains and losses on investment transactions are determined using the
specific identification method. The Master Portfolio amortizes premium and
accretes discount on debt securities purchased using a constant yield to
maturity method.
Federal Income Taxes
MIP believes that the Master Portfolio has 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 taxed 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 qualify by
investing substantially all of its assets through the Master Portfolio,
provided that the regulated investment company meets other requirements for
such qualifications 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).
Continued
19
S&P 500 Index Master Portfolio
Notes to Financial Statements, Continued
June 30, 2003
(Unaudited)
Futures Contracts
The Master Portfolios may purchase futures contracts to gain exposure to
market changes as this may be more efficient or cost effective than actually
buying the securities. A futures contract is an agreement between two parties
to buy and sell a security at a set price on a future date and is exchange
traded. Upon entering into a futures contract, the Master Portfolio is required
to pledge to the broker an amount of cash, U.S. Government securities or other
high-quality debt securities equal to the minimum "initial margin" requirements
of the exchange. Pursuant to the contract, the Master Portfolio agrees to
receive from or pay to the broker an amount of cash equal to the daily
fluctuation in the value of the contract. Such receipts or payments are known
as "variation margin" and are recorded by the Master Portfolio as unrealized
gains or losses. When the contract is closed, the Master Portfolio records a
gain or loss equal to the difference between the value of the contract at the
time it was opened and the value at the time it was closed. Pursuant to
regulations and/or published positions of the Securities and Exchange
Commission, the Master Portfolio is required to segregate cash, U.S. Government
securities or high quality, liquid debt instruments in connection with futures
transactions. Risks of entering into futures contracts include the possibility
that there may be an illiquid market and that a change in the value of the
contracts may not correlate with changes in the value of the underlying
securities.
As of June 30, 2003, the open futures contracts outstanding were as follows:
Net
Number of Futures Expiration Notional Unrealized
Contracts Index Date Contract Value Depreciation
--------- ------- ---------- -------------- ------------
421... S&P 500 09/19/03 $103,833,680 $(1,393,955)
The Master Portfolio has pledged to brokers a U.S. Treasury Bill for initial
margin requirements with a face amount of $9,450,000.
Repurchase Agreements
The Master Portfolio may enter into repurchase agreements with banks and
securities dealers. These transactions involve the purchase of securities with
a simultaneous commitment to resell the securities to the bank or the dealer at
an agreed-upon date and price. A repurchase agreement is accounted for as a
loan by the Master Portfolio to the seller, collateralized by securities, which
are delivered to the Master Portfolio's custodian, or to an agent bank under a
tri-party agreement. The securities are marked-to-market daily and additional
securities are acquired as needed, to ensure that their value equals or exceeds
the repurchase price plus accrued interest. The Master Portfolio did not enter
into any repurchase agreements at June 30, 2003. Repurchase agreements held by
the Master Portfolio at June 30, 2003 represent collateral from securities on
loan.
2. Agreements and other Transactions with Affiliates
Pursuant to an Investment Advisory Contract with the Master Portfolio,
Barclays Global Fund Advisors ("BGFA") provides investment guidance and policy
direction in connection with the management of the Master Portfolio's assets.
BGFA is a California corporation indirectly owned by Barclays Bank PLC. BGFA is
entitled to receive 0.05% of the average daily net assets of the Master
Portfolio as compensation for advisory services.
Investors Bank & Trust Company ("IBT") serves as the custodian to the Master
Portfolio. IBT will not be entitled to receive fees for its custodial services
so long as it is entitled to receive a separate fee from Barclays Global
Investors, N.A. ("BGI") for its services as sub-administrator of the Master
Portfolio.
Prior to February 24, 2003, IBT served as securities lending agent for MIP.
Effective February 24, 2003, BGI began serving as securities lending agent for
MIP. BGI is an affiliate of BGFA, the Master Portfolio's investment advisor.
The Board of Trustees has approved the selection of BGI as securities lending
agent subject to the conditions of the exemptive order that was issued by the
Securities and Exchange Commission ("SEC"). As securities lending agent, BGI
receives a fee based on a share of the income earned on investment of the cash
collateral received for the loan of securities. For the period from February
24, 2003 through June 30, 2003, BGI earned $20,982 in securities lending agent
fees.
Continued
20
S&P 500 Index Master Portfolio
Notes to Financial Statements, Continued
June 30, 2003
(Unaudited)
SEI Investment Distribution Company is the sponsor and placement agent for
the Master Portfolio. Prior to April 1, 2003, Stephens Inc. served as sponsor
and placement agent for the Master Portfolio.
MIP has entered into administration services arrangements with BGI who has
agreed to provide general administration services to the Master Portfolio, such
as managing and coordinating third-party service relationships. BGI is not
entitled to compensation for providing administration services to the Master
Portfolio for so long as BGI is entitled to compensation for providing
administration services to corresponding feeder funds that invest substantially
all of their assets in the Master Portfolio, or BGI (or an affiliate) receives
advisory from the Master Portfolio. BGI may delegate certain of its
administration duties to sub-administrators. Prior to April 1, 2003, BGI and
Stephens Inc. jointly served as co-administrators for the Master Portfolio.
Barclays Global Investors Services ("BGIS"), a subsidiary of BGI, may serve
as a broker-dealer for the Master Portfolio. For the six months ended June 30,
2003, BGIS did not receive any brokerage commissions from the Master Portfolio.
Pursuant to an exemptive order issued by the SEC, the Master Portfolio may
invest in the Institutional Shares of the Institutional Money Market Fund
("IMMF") and Prime Money Market Fund ("PMMF") of Barclays Global Investors
Funds. The IMMF and PMMF are feeder funds in a master/feeder fund structure
that invests substantially all of its assets in the Money Market Master
Portfolio and Prime Money Market Master Portfolio, respectively, which are
managed by BGFA, the Master Portfolio's investment advisor. The IMMF and PMMF
are open-end money market funds available only to institutional investors,
including other investment companies managed by BGFA. The IMMF and PMMF seek a
high level of income consistent with liquidity and the preservation of capital.
While the IMMF and PMMF do not directly charge an advisory fee, the master
portfolios in which they invest do charge an advisory fee. Income distributions
from the IMMF and PMMF are declared daily and paid monthly from net investment
income. Income distributions earned by the Master Portfolio from temporary cash
investments or from investment of securities lending collateral are recorded as
either interest income or securities lending income, respectively, in the
accompanying Statement of Operations.
Pursuant to Rule 17a-7 of the 1940 Act, the Master Portfolio executed cross
trades for the six months ended June 30, 2003. Cross trading is the buying or
selling of portfolio securities between funds to which BGFA (or an affiliate)
serves as investment advisor. The Board has concluded that all transactions
executed during the first quarter of 2003 were in compliance with the
requirements and restrictions set forth by Rule 17a-7, and has not yet reviewed
those transactions executed during the second quarter of 2003.
Certain officers and trustees of MIP are also officers or employees of BGI.
As of June 30, 2003, these officers or employees of BGI collectively owned less
than 1% of MIP's outstanding beneficial interests.
3. Investment Portfolio Transactions
Investment transactions (excluding short-term investments) for the six
months ended June 30, 2003, were as follows:
Purchases at cost $330,630,186
Sales proceeds... 85,664,742
At June 30, 2003, the cost of investments for federal income tax purposes
was $3,225,296,197. Net unrealized depreciation aggregated $234,805,654, of
which $189,022,448 represented gross unrealized appreciation on securities and
$423,828,102 represented gross unrealized depreciation on securities.
4. Portfolio Securities Loaned
The Master Portfolio may lend its investment securities to approved
borrowers such as brokers, dealers, and other financial institutions. The
borrower pledges and maintains with the Master Portfolio collateral consisting
of cash, an irrevocable letter of credit issued by a bank, or securities
issued, or guaranteed by the U.S. Government. The initial collateral received
is required to have a value of at least 102% of the market value of the loaned
securities for securities denominated in U.S. dollars and a value of
Continued
21
S&P 500(R) Index Master Portfolio
Notes to Financial Statements, Continued
June 30, 2003
(Unaudited)
at least 105% for all other securities. The collateral is maintained
thereafter, at a value equal to at least 100% of the current market value of
the securities on loan. The risks to the Master Portfolio of securities lending
are that the borrower may not provide additional collateral when required, or
return the securities when due.
As of June 30, 2003, the Master Portfolio had loaned securities which were
collateralized by cash. The cash collateral received was invested in securities
with remaining maturity of 397 days or less, repurchase agreements and money
market mutual funds. The market value of the securities on loan at June 30,
2003 and the value of the related collateral are disclosed in the Statement of
Assets and Liabilities.
5. Financial Highlights
Financial highlights for the Master Portfolio were as follows:
Six Months
Ended Year Ended Year Ended Year Ended Period Ended Year Ended Year Ended
June 30, December 31, December 31, December 31, December 31, February 28, February 28,
2003 2002 2001 2000 1999/(1)/ 1999 1998
----------- ------------ ------------ ------------ ------------ ------------ ------------
(Unaudited)
Ratio of expenses to average net
assets/(2)/..................... 0.05% 0.05% 0.05% 0.05% 0.05% 0.05% 0.05%
Ratio of net investment income to
average net assets/(2)/......... 1.73% 1.57% 1.31% 1.22% 1.44% 1.61% 1.89%
Portfolio turnover rate.......... 4 % 12 % 9 % 10 % 7 % 11 % 6 %
Total return..................... 11.68%/(3)/ (22.05)% (11.96)% (9.19)% 19.82%/(3)/ 19.65% 34.77%
- --------
/(1)/For the ten months ended December 31, 1999. The Master Portfolio changed
its fiscal year-end from February 28 to December 31.
/(2)/Annualized for periods of less than one year.
/(3)/Not annualized.
22
08/03
Item 2. Code of Ethics.
Disclose whether, as of the end of the period covered by the report, the
registrant has adopted a code of ethics that applies to the registrant's
principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the registrant or a
third party. If the registrant has not adopted such a code of ethics,
explain why it has not done so. Not applicable - Only effective for annual
reports with periods ending on or after July 15, 2003.
Item 3. Audit Committee Financial Expert.
(a) (1) Disclose that the registrant's board of directors has
determined that the registrant either:
(i) Has at least one audit committee financial expert serving
on its audit committee; or
(ii) Does not have an audit committee financial expert serving
on its audit committee.
(2) If the registrant provides the disclosure required paragraph
(a)(1)(i) of this Item, it must disclose the name of the audit
committee financial expert and whether that person is
"independent." In order to be considered "independent" for purposes
of this Item, a member of an audit committee may not, other than in
his or her capacity as a member of the audit committee, the board
of directors, or any other board committee:
(i) Accept directly or indirectly any consulting, advisory, or
other compensatory fee from the issuer; or
(ii) Be an "interested person" of the investment company as
defined in Section 2(a)(19) of the Act (15 U.S.C. 80a-
2(a)(19)).
(3) If the registrant provides the disclosure required by paragraph
(a)(1)(ii) of this Item, it must explain why it does not have an
audit committee financial expert.
Not applicable - Only effective for annual reports with periods ending on or
after July 15, 2003.
Item 4. Principal Accountant Fees and Services.
(a) Disclose, under the caption Audit Fees, the aggregate fees billed
for each of the last two fiscal years for professional services rendered by the
principal accountant for the audit of the registrant's annual financial
statements or services that are normally provided by the accountant in
connection with statutory and regulatory filings or engagements for those fiscal
years.
(b) Disclose, under the caption Audit-Related Fees, the aggregate fees
billed in each of the last two fiscal years for assurance and related services
by the principal accountant that are reasonably related to the performance of
the audit of the registrant's financial statements and are not reported under
paragraph (a) of this Item. Registrants shall describe the nature of the
services comprising the fees disclosed under this category.
(c) Disclose, under the caption Tax Fees, the aggregate fees billed in
each of the last two fiscal years for professional services rendered by the
principal accountant for tax compliance, tax advice, and tax planning.
Registrants shall describe the nature of the services comprising the fees
disclosed under this category.
(d) Disclose, under the caption All Other Fees, the aggregate fees
billed in each of the last two fiscal years for products and services provided
by the principal accountant, other than the services reported in paragraphs (a)
through (c) of this Item. Registrants shall describe the nature of the services
comprising the fees disclosed under this category.
(e) (1) Disclose the audit committee's pre-approval policies and
procedures described in paragraph (c)(7) of Rule 2-01 of Regulation S-X.
(2) Disclose the percentage of services described in each of
paragraphs (b) through (d) of this Item that were approved by the audit
committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) If greater than 50 percent, disclose the percentage of hours
expended on the principal accountant's engagement to audit the registrant's
financial statements for the most recent fiscal year that were attributed to
work performed by persons other than the principal accountant's full-time,
permanent employees.
(g) Disclose the aggregate non-audit fees billed by the registrant's
accountant for services rendered to the registrant, and rendered to the
registrant's investment adviser (not including any sub-adviser whose role is
primarily portfolio management and is subcontracted with or overseen by another
investment adviser), and any entity controlling, controlled by, or under common
control with the adviser that provides ongoing services to the registrant for
each of the last two fiscal years of the registrant.
(h) Disclose whether the registrant's audit committee of the board of
directors has considered whether the provision of nonaudit services that were
rendered to the registrant's investment adviser (not including any subadviser
whose role is primarily portfolio management and is subcontracted with or
overseen by another investment adviser), and any entity controlling, controlled
by, or under common control with the investment adviser that provides ongoing
services to the registrant that were not pre-approved
pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible
with maintaining the principal accountant's independence.
Not applicable - Only effective for annual reports with periods ending on or
after December 15, 2003.
Items 5-6. [Reserved]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
A closed-end management investment company that is filing an annual
report on this Form N-CSR must, unless it invests exclusively in non-voting
securities, describe the policies and procedures that it uses to determine how
to vote proxies relating to portfolio securities, including the procedures that
the company uses when a vote presents a conflict between the interests of its
shareholders, on the one hand, and those of the company's investment adviser;
principal underwriter; or any affiliated person (as defined in Section 2(a)(3)
of the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(3)) and the rules
thereunder) of the company, its investment adviser, or its principal
underwriter, on the other. Include any policies and procedures of the company's
investment adviser, or any other third party, that the company uses, or that are
used on the company's behalf, to determine how to vote proxies relating to
portfolio securities. Not applicable.
Item 8. [Reserved]
Item 9. Controls and Procedures.
(a) Disclose the conclusions of the registrant's principal executive
and principal financial officers, or persons performing similar functions,
regarding the effectiveness of the registrant's disclosure controls and
procedures (as defined in Rule 30a-3(c) under the Act (17 CFR 270.30a-3(c))) as
of a date within 90 days of the filing date of the report that includes the
disclosure required by this paragraph, based on the evaluation of these controls
and procedures required by Rule 30a-3(b) under the Act (17 CFR 270.30a-3(b)) and
Rules 13a-15(b) or 15d-15(b) under the Exchange Act (17 CFR 240.13a-15(b) or
240.15d-15(b)).
In the opinion of the principal executive officer and principal financial
officer, based on their evaluation, the registrant's disclosure controls and
procedures are adequately designed and are operating effectively to ensure (i)
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to them by others within those entities,
particularly during the period in which this report is being prepared; and (ii)
that information required to be disclosed by the registrant on Form N-CSR is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission's rules and forms.
(b) Disclose any change in the registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the Act (17 CFR 270.30a-3(d)) that
occurred during the registrant's last fiscal half-year (the registrant's second
fiscal half-year in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant's internal control
over financial reporting.
There were no changes in the registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal half-year
(the registrant's second fiscal half-year in the case of an annual report) that
have materially affected or are reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 10. Exhibits.
(a) File the exhibits listed below as part of this Form. Letter or
number the exhibits in the sequence indicated.
(a)(1) Any code of ethics, or amendment thereto, that is the subject of
the disclosure required by Item 2, to the extent that the registrant intends to
satisfy the Item 2 requirements through filing of an exhibit. Not applicable -
Only effective for annual reports with periods ending on or after July 15, 2003.
(a)(2) A separate certification for each principal executive officer
and principal financial officer of the registrant as required by Rule 30a-2
under the Act (17 CFR 270.30a-2). Certifications pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 are attached hereto.
(b) A separate or combined certification for each principal executive
officer and principal officer of the registrant as required by Rule 30a-2(b)
under the Act of 1940. Certifications pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 are attached hereto.
SIGNATURES
(Registrant) BB&T Funds
By (Signature and Title)* /s/ Troy A. Sheets Troy A. Sheets, Treasurer
-------------------------------------------------------
Date September 5, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ Walter B. Grimm Walter B. Grimm, President
-------------------------------------------------------
Date September 5, 2003
By (Signature and Title)* /s/ Troy A. Sheets Troy A. Sheets, Treasurer
-------------------------------------------------------
Date September 5, 2003
* Print the name and title of each signing officer under his or her signature.