NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
dividend date, and interest income is recognized on a daily accrual basis. Realized gains or losses are reported on
the basis of identified cost of securities delivered. Bond discounts and premiums are amortized as required by the
Internal Revenue Code of 1986 (the "Code").
FEDERAL INCOME TAXES
Each Master Series of Master Portfolio intends to qualify as a partnership for federal income tax purposes. Each
Master Series therefore believes that it will not be subject to any federal income tax on its income and any net
capital gains. However, each investor in a Master Series will be taxable on its allocable share of the partnership's
income and capital gains. The determination of such share will be made in accordance with the applicable
sections of the Code.
It is intended that each Master Series' assets, income and allocations will be managed in such a way that a
regulated investment company investing in a Master Series will be able to satisfy the requirements of Subchapter
M of the Code, assuming that the investment company invests all of its assets in the respective Master Series.
The S&P 500 Index Master Series 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 such a contract, a Master Series 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 Series 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 Series as unrealized gains or losses. When