<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 1, 1995
File No. 2-89729
File No. 811-3980
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
POST-EFFECTIVE AMENDMENT NO. 40 [x]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 43 [x]
MAS FUNDS
(Exact Name of Registrant)
c/o Miller Anderson & Sherrerd, LLP
One Tower Bridge
P.O. Box 868
West Conshohocken, PA 19428-068
---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (610) 940-5065
--------------
Ms. Lorraine Truten
One Tower Bridge
West Conshohocken, PA 19428-068
-------------------------------
(Name and Address of Agent for Service)
Copies to:
John H. Grady, Jr. Esquire
Morgan, Lewis & Bockius LLP
1800 M Street, N.W.
Washington, D.C. 20036
________________________________________________________________________________
It is proposed that this filing will become effective (check appropriate box)
Immediately upon filing pursuant to paragraph (b), or
---
On [date] pursuant to paragraph (b), or
---
X 60 days after filing pursuant to paragraph (a), or
---
On [date] pursuant to paragraph (a) of Rule 485, or
---
75 days after filing pursuant to paragraph (a) of Rule 485.
---
________________________________________________________________________________
DECLARATION PURSUANT TO RULE 24f-2: Pursuant to Rule 24f-2 under the
Investment Company Act of 1940 the Registrant has elected to register an
indefinite amount of securities. Registrant filed a Rule 24f-2 Notice on
November 28, 1995 for the Registrant's fiscal year ending September 30, 1995.
<PAGE>
MAS FUNDS
POST-EFFECTIVE AMENDMENT NO. 40
CROSS REFERENCE SHEET
N-1A ITEM NO. LOCATION
================================================================================
<TABLE>
PART A
<S> <C> <C>
Item 1. Cover Page Cover Page
Item 2. Synopsis Prospectus Summary
Item 3. Condensed Financial Information Financial Highlights
Item 4. General Description of Registrant Investment Limitations; Portfolio
Summaries; Equity Investments;
Fixed Income Investments;
Prospectus Glossary: Strategies and
Investments; Risk Factors; Fund
Expenses; General Information;
Other Information
Item 5. Management of the Fund Investment Advisor; Administrative
Services; Shareholder Services;
General Distribution Agent; Portfolio
Management; Trustees and Officers;
Other Information
Item 6. Capital Stock and Other Securities Dividends, Capital Gains,
Distributions and Taxes; Valuation of
Shares; Portfolio Transactions; Other
Information
Item 7. Purchase of Securities Being Offered Purchase of Shares; Redemption of
Shares
Item 8. Redemption or Repurchase Purchase of Shares; Redemption of
Shares
Item 9. Pending Legal Proceedings Litigation
PART B
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History Business History
Item 13. Investment Objectives and Policies Investment Objectives and Policies;
Investment Limitations; Appendix:
Description of Securities and Ratings
</TABLE>
-i-
<PAGE>
N-1A ITEM NO. LOCATION
================================================================================
<TABLE>
<S> <C> <C>
Item 14. Management of the Registrant Management of the Fund
Item 15. Control Persons and Principal
Holders of Securities Management of the Fund
Item 16. Investment Advisory and Other
Services Investment Advisor; Shareholder
Services; Distributor For Fund;
Item 17. Brokerage Allocation Portfolio Transactions
Item 18. Capital Stock and Other Securities General Information - Description of
Shares and Voting Rights
Item 19. Purchase, Redemption, and Pricing
of Securities Being Offered Purchase of Shares; Redemption of
Shares
Item 20. Tax Status Tax Considerations
Item 21. Underwriters Distributor for Funds
Item 22. Calculation of Yield Quotations Computation of Yield and Calculation
of Total Return; Performance
Information
Item 23. Financial Statements Financial Statements
</TABLE>
Part C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
-ii-
<PAGE>
Client Services: 1-800-354-8185 Prices and Investment Results: 1-800-
522-1525
MAS Funds (the Fund) is a no-load mutual fund consisting of twenty-six
portfolios, twenty-four of which are described in this Prospectus. Each
portfolio in this Prospectus operates as a separate diversified investment
company except the Global Fixed Income, International Fixed Income, and Emerging
Markets Portfolios which are non-diversified investment companies. The
investment objective of each portfolio is described with a summary of investment
policies as referenced below. The Fund's Select Equity and Small Cap Value
Portfolios are not currently being offered to new investors. This Prospectus
offers the Institutional Class Shares of the Fund. The Fund also offers
Investment Class Shares and MAS Class Shares.
Shares of the Cash Reserves Portfolio are neither insured nor guaranteed by the
U.S. Government. The Portfolio seeks to maintain, but there can be no assurance
that it will be able to maintain, a constant net asset value of $1.00 per share.
The High-Yield Portfolio will invest primarily, and certain other portfolios of
the Fund may invest to varying degrees, in high yield, high risk securities
which are speculative with regard to payment of interest and return of principal
(commonly referred to as junk bonds); therefore, investments in these portfolios
may not be suitable for all investors. See High Yield Investing in the Glossary
of Strategies for additional information regarding certain risks associated with
investment in such securities.
PORTFOLIO PAGE REFERENCE
------------------------
How to Use This Prospectus: 3
- --------------------------
Portfolio Summaries:
- --------------------
Equity:
- -------
Emerging Markets 17
Equity 17
Growth 18
International Equity 18
Mid Cap Growth 19
Mid Cap Value 19
Small Cap Value 20
Value 20
Fixed Income:
- -------------
Cash Reserves 21
Domestic Fixed Income 22
Fixed Income 23
Fixed Income II 24
Global Fixed Income 25
High Yield 26
Intermediate Duration 27
International Fixed Income 28
Limited Duration 29
Mortgage-Backed Securities 30
Municipal 31
PA Municipal 32
Special Purpose Fixed Income 33
Balanced: 34
- ---------
Multi-Asset-Class: 35
- -----------------
Select Equity Portfolio: 6
- -----------------------
Prospectus Glossary:
- -------------------
Strategies 36
Investments 41
Other Information: 52
- ------------------
Table of Contents: Back Cover
- -----------------
This Prospectus, which should be retained for future reference, sets forth
concisely information that you should know before you invest. A Statement of
Additional Information containing additional information about the Fund has been
filed with the Securities and Exchange Commission. Such Statement is dated
January , 1996 as revised from time to time, and has been
incorporated by reference into this Prospectus. A copy of the Statement may be
obtained, without charge, by writing to the Fund or by calling the Client
Services Group at the telephone number shown above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
1
<PAGE>
EXPENSE SUMMARY
- ---------------
INSTITUTIONAL CLASS SHARES
- ----------------------------
The following tables illustrate the various expenses and fees that a shareholder
for that portfolio will incur either directly or indirectly. The expenses and
fees set forth below are based on each portfolio's operations during the fiscal
year ended September 30, 1995, except portfolios whose Total Operating Expenses
have been capped. An estimate has been provided for portfolios with less than 10
months of operations.
Shareholder Transaction Expenses:
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Redemption Fees None
Exchange Fees None
Annual Fund Operating Expenses:
(as a percentage of average net assets after fee waivers)
12b-1 Fees None
<TABLE>
<CAPTION>
Investment Total
Advisory Other Operating
Portfolio Fees Expenses Expenses
<S> <C> <C> <C>
Emerging Markets 0.750%
Equity 0.500
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Growth 0.500
International Equity 0.500
Mid Cap Growth 0.500
Mid Cap Value 0.750
Small Cap Value 0.750
Value 0.500
Cash Reserves 0.110
Domestic Fixed Income 0.353
Fixed Income 0.375
Fixed Income II 0.375
Global Fixed Income 0.375
High Yield 0.375
Intermediate Duration 0.265
International Fixed Income 0.265
Limited Duration 0.300
Mortgage-Backed Securities 0.370
Municipal 0.312
PA Municipal 0.289
Special Purpose Fixed Income 0.375
Balanced 0.450
Multi-Asset-Class 0.359
Select Equity 0.483
</TABLE>
*After fee waivers and reimbursements.
Until further notice, the Adviser has voluntarily agreed to waive its advisory
fees and reimburse certain expenses to the extent necessary to keep Total
Operating Expenses for the Emerging Markets, Mid Cap Value, Cash Reserves,
Domestic Fixed Income, Global Fixed Income, High Yield, Intermediate Duration,
International Fixed Income, Limited Duration, Mortgage-Backed Securities,
Municipal, PA Municipal, Multi-Asset-Class and Select Equity Portfolios from
exceeding 1.18%, 0.88%, 0.32%, 0.50%, 0.58%, 0.525%, 0.52%, 0.60%, 0.42%, 0.50%,
0.50%, 0.50%, 0.58% and 0.61%, respectively. Absent fee waivers and
reimbursements by the Adviser, Total Operating Expenses would be _____%, _____%,
_____%, _____%, _____%, _____%, _____%, _____%, _____%, _____%, and _____% for
the Emerging Markets, Mid Cap Value, Cash Reserves, Domestic Fixed Income,
Intermediate Duration, International Fixed Income, Mortgage-Backed Securities,
Municipal, PA Municipal, Multi-Asset-Class and Select Equity Portfolios,
respectively.
3
<PAGE>
EXAMPLE
The purpose of this table is to assist in understanding the various expenses
that a shareholder in a portfolio will bear directly or indirectly. The
following example illustrates the expenses that an investor would pay on a
$1,000 investment over various time periods assuming (1) a 5% annual rate of
return, and (2) redemption at the end of each time period. The example should
not be considered a representation of past or future expenses and actual
expenses may be greater or less than those shown. For portfolios with less than
10 months of operations, only the 1 and 3 year examples are shown. For
portfolios with less than 10 months of operations, only the 1 and 3 year
examples are shown.
<TABLE>
<CAPTION>
Portfolio
1 year 3 year 5 year 10 year
<S> <C> <C> <C> <C>
Emerging Markets $ $ $ $
Equity
Growth
International Equity
Mid Cap Growth
Mid Cap Value
Small Cap Value
Value
Cash Reserves
Domestic Fixed Income
Fixed Income
Fixed Income II
Global Fixed Income
High Yield
Intermediate Duration
International Fixed Income
Limited Duration
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Mortgage-Backed Securities
Municipal
PA Municipal
Special Purpose Fixed Income
Balanced
Multi-Asset-Class
Select Equity
</TABLE>
HOW TO USE THIS PROSPECTUS
A PROSPECTUS SUMMARY begins on page __;
FINANCIAL HIGHLIGHTS and a description of YIELD AND TOTAL RETURN begin
on page __;
GENERAL INFORMATION including INVESTMENT LIMITATIONS pertinent to all
portfolios begins on page __;
SUMMARY PAGES for each portfolio's Objective, Policies and Strategies begin on
page __;
The PROSPECTUS GLOSSARY which defines specific investments, policies and
strategies printed in bold type throughout this Prospectus begins on page __;
OTHER INFORMATION including Shareholder Services begins on page __.
5
<PAGE>
PROSPECTUS SUMMARY
EQUITY PORTFOLIOS
Emerging Markets - seeks to achieve long-term capital growth by investing
primarily in Common Stocks of Emerging Market Issuers.
Equity - seeks to achieve above-average total return over a market cycle of
three to five years, consistent with reasonable risk, by investing primarily in
a diversified portfolio of Common Stocks of companies which are deemed by the
Adviser to have earnings growth potential greater than the economy in general
and greater than the expected rate of inflation.
Growth - seeks to achieve long-term capital growth by investing primarily in a
diversified portfolio of Common Stocks of larger size companies that are deemed
by the Adviser to offer long-term growth potential.
International Equity - seeks to achieve above-average total return over a market
cycle of three to five years, consistent with reasonable risk, by investing
primarily in a diversified portfolio of Foreign Equities.
Mid Cap Growth - seeks to achieve long-term capital growth by investing
primarily in a diversified portfolio of Common Stocks of mid-cap companies that
are deemed by the Adviser to offer long-term growth potential.
Mid Cap Value - seeks to achieve above-average total return over a market cycle
of three to five years, consistent with reasonable risk, by investing in Common
Stocks with equity capitalizations in the range of the companies represented in
the S&P MidCap 400 Index which are deemed by the Adviser to be relatively
undervalued based on certain proprietary measures of value. The portfolio will
typically exhibit a lower price/earnings value ratio than the S&P MidCap 400
Index.
Small Cap Value - seeks to achieve above-average total return over a market
cycle of three to five years, consistent with reasonable risk, by investing
primarily in a diversified portfolio of Common Stocks with equity
capitalizations in the range of companies represented in the Russell 2000 Index
which are deemed by the Adviser to be relatively undervalued based on certain
proprietary measures of value. The portfolio will typically exhibit lower
price/earnings and price/book value ratios than the Russell 2000.
Value - seeks to achieve above-average total return over a market cycle of three
to five years, consistent with reasonable risk, by investing primarily in a
diversified portfolio of Common Stocks which are deemed by the Adviser to be
relatively undervalued based on various measures such as price/earnings ratios
and price/book ratios.
FIXED-INCOME PORTFOLIOS
Cash Reserves - seeks to realize maximum current income, consistent with
preservation of capital and liquidity, by investing in a diversified portfolio
of money-market instruments, Cash Equivalents and other short-term securities
having expected maturities of thirteen months or less. The portfolio seeks to
maintain, but does not guarantee, a constant net asset value of $1.00 per share.
Domestic Fixed Income - seeks to achieve above-average total return over a
market cycle of three to five years, consistent with reasonable risk, by
investing in a diversified portfolio of U.S. Governments, Corporates rated "A"
or higher, Mortgage Securities, other Fixed-Income Securities rated "A" or
higher of domestic issuers and Derivatives. The portfolio's average weighted
maturity will ordinarily be greater than five years.
6
<PAGE>
Fixed Income - seeks to achieve above-average total return over a market cycle
of three to five years, consistent with reasonable risk, by investing primarily
in a diversified portfolio of U.S. Governments, Corporates, Mortgage Securities,
Foreign Bonds and other Fixed-Income Securities and Derivatives. The portfolio's
average weighted maturity will ordinarily exceed five years.
Fixed Income II - seeks to achieve above-average total return over a market
cycle of three to five years, consistent with reasonable risk, by investing
primarily in a diversified portfolio of U.S. Governments, investment grade
Corporates, Mortgage Securities, Foreign Bonds and other Fixed-Income Securities
(rated A or higher) and Derivatives. The portfolio's average weighted maturity
will ordinarily exceed five years.
Global Fixed Income - seeks to achieve above-average total return over a market
cycle of three to five years, consistent with reasonable risk, by investing
primarily in high-grade Fixed-Income Securities, Foreign Bonds and Derivatives
representing securities of United States and foreign issuers. The portfolio's
average weighted maturity will ordinarily exceed five years.
High Yield - seeks to achieve above-average total return over a market cycle of
three to five years, consistent with reasonable risk, by investing primarily in
a diversified portfolio of High Yield Securities, Corporates and other
Fixed-Income Securities and Derivatives (including bonds rated below investment
grade). The portfolio's average weighted maturity will ordinarily exceed five
years.
Intermediate Duration - seeks to achieve above-average total return over a
market cycle of three to five years, consistent with reasonable risk, by
investing primarily in a diversified portfolio of U.S. Governments and
investment grade Corporates, Mortgage Securities, Foreign Bonds and other
Fixed-Income Securities and Derivatives. The portfolio will maintain an average
duration of between two and five years.
International Fixed Income - seeks to achieve above-average total return over a
market cycle of three to five years, consistent with reasonable risk, by
investing primarily in high-grade Foreign Bonds and Derivatives. The portfolio's
average weighted maturity will ordinarily exceed five years.
Limited Duration - seeks to achieve above-average total return over a market
cycle of three to five years, consistent with reasonable risk, by investing
primarily in a diversified portfolio of U.S. Governments, Mortgage Securities,
investment grade Corporates and other Fixed-Income Securities. The portfolio
will maintain an average duration of between one and three years.
Mortgage-Backed Securities - seeks to achieve above-average total return over a
market cycle of three to five years, consistent with reasonable risk, by
investing primarily in a diversified portfolio of Mortgage Securities and other
Fixed-Income Securities and Derivatives. The portfolio's average weighted
maturity will ordinarily exceed seven years.
Municipal - seeks to realize above-average total return over a market cycle of
three to five years, consistent with conservation of capital and the realization
of current income which is exempt from federal income tax, by investing
primarily in a diversified portfolio of Municipals and other Fixed-Income
Securities and Derivatives, including a limited percentage of bonds rated below
investment grade. The portfolio's average weighted maturity will ordinarily be
between ten and thirty years.
PA Municipal - seeks to realize above-average total return over a market cycle
of three to five years, consistent with the conservation of capital and the
realization of current income which is exempt from federal income tax and
Pennsylvania personal income tax by investing in a diversified portfolio of PA
Municipals and other Fixed-Income Securities and Derivatives including a limited
percentage of bonds rated below investment grade. The portfolio's average
weighted maturity will ordinarily be between ten and thirty years.
7
<PAGE>
Special Purpose Fixed Income - seeks to achieve above-average total return over
a market cycle of three to five years, consistent with reasonable risk, by
investing primarily in a diversified portfolio of U.S. Governments, Corporates,
Mortgage Securities, Foreign Bonds and other Fixed-Income Securities and
Derivatives. The portfolio is structured to complement an investment in one or
more of the Fund's Equity Portfolios for investors seeking a balanced
investment. The portfolio's average weighted maturity
will ordinarily exceed five years.
BALANCED INVESTING
Balanced Portfolio - seeks to achieve above-average total return over a market
cycle of three to five years, consistent with reasonable risk, by investing in a
diversified portfolio of Equity Securities, Corporates, Fixed-Income Securities
and Derivatives. When the Adviser judges the relative outlook for the equity and
fixed-income markets to be neutral, the portfolio will be invested 60% in equity
securities and 40% in fixed-income securities. The asset mix is actively managed
by the Adviser, with equity securities ordinarily representing between 45% and
75% of the total investment. The average weighted maturity of the fixed income
portion of the portfolio will ordinarily be greater than five years.
Multi-Asset-Class Portfolio - seeks to achieve above-average total return over a
market cycle of three to five years, consistent with reasonable risk, by
investing primarily in a diversified portfolio of Equity Securities, Corporates,
Mortgage Securities and other Fixed-Income Securities of United States and
foreign issuers and Derivatives. The asset mix will be actively managed by the
Adviser.
Balanced Investing and the Balanced Investment Program - MAS offers a
balanced investing option allowing clients to combine investments in two or
more portfolios of the Fund. Clients can authorize MAS to manage the mix of
assets among the portfolios according to their individual objectives and
specifications. If client objectives are consistent with active management of
investments in the Equity and Special Purpose Fixed Income Portfolios around a
60/40 asset mix, the account will be managed in the same manner as the
Adviser's fully-discretionary, Balanced Investment Program. When client
objectives require use of different portfolios, a different neutral asset mix
or specific limitations, a balanced program can be managed according to those
specifications.
SELECT EQUITY PORTFOLIO (Not currently offered to new investors)
The Select Equity Portfolio has the same investment objective as the Equity
Portfolio with the investment restriction that it not invest in companies listed
as of August 31, 1993 by the Investor Responsibility Research Center as having
direct investment or employees in South Africa. The Portfolio is not currently
accepting new investors.
RISK FACTORS: Prospective investors in the Fund should consider the following
factors as they apply to each Portfolio's allowable investments and policies.
See the Prospectus Glossary for more information on terms in bold type:
o Each portfolio may invest in Repurchase Agreements, which entail a risk of
loss should the seller default in its obligation to repurchase the security
which is the subject of the transaction;
o Each portfolio may participate in a Securities Lending program which
entails a risk of loss should a borrower fail financially;
o Fixed-Income Securities will be affected by general changes in interest
rates resulting in increases or decreases in the value of the obligations
held by a portfolio. The value of fixed-income securities can be expected
to vary inversely to changes in prevailing interest rates, i.e., as
interest rates decline, market value tends to increase and vice versa;
8
<PAGE>
o Securities purchased on a When-Issued basis may decline or appreciate in
market value prior to their actual delivery to the portfolio;
o Each portfolio (except the Cash Reserves Portfolio) may invest a portion of
its assets in Derivatives including Futures & Options. Futures contracts,
options and options on futures contracts entail certain costs and risks,
including imperfect correlation between the value of the securities held by
the portfolio and the value of the particular derivative instrument, and
the risk that a portfolio could not close out a futures or options position
when it would be most advantageous to do so;
o Investments in floating rate securities (Floaters) and inverse floating
rate securities (Inverse Floaters) and mortgage-backed securities (Mortgage
Securities), including principal-only and interest-only Stripped
Mortgage-Backed Securities (SMBS), may be highly sensitive to interest rate
changes, and highly sensitive to the rate of principal payments (including
prepayments on underlying mortgage assets);
o From time to time Congress has considered proposals to restrict or
eliminate the tax-exempt status of Municipals. If such proposals were
enacted in the future, the Municipal Portfolio and the PA Municipal
Portfolio would reconsider their investment objectives and policies;
o Investments in securities rated below investment grade, generally referred
to as High Yield, high risk or junk bonds, carry a high degree of credit
risk and are considered speculative by the major rating agencies;
o Investments in foreign securities involve certain special considerations
which are not typically associated with investing in U.S. companies. See
Foreign Investing. The portfolios investing in foreign securities may also
engage in foreign currency exchange transactions. See Forwards, Futures &
Options, and Swaps; and,
o The Emerging Markets, Global Fixed Income, and International Fixed Income
Portfolios are Non-Diversified for purposes of the Investment Company Act
of 1940, as amended, meaning that they may invest a greater percentage of
assets in the securities of one issuer than the other portfolios.
HOW TO INVEST: Institutional Class Shares of each portfolio are available to
clients of the Adviser and accounts managed by the Adviser and Shareholder
Organizations who have a contractual arrangement with the Fund, including
institutions such as trusts, foundations or broker-dealers purchasing for the
accounts of others. Shares are offered directly to investors without a sales
commission at the net asset value of the portfolio next determined after receipt
of the order. Share purchases may be made by sending investments directly to the
Fund, subject to acceptance by the Fund. The minimum initial investment for
Institutional Class Shares is $2,000,000 and the minimum for subsequent
investments is $1,000. The Fund also offers MAS and Investment Class Shares
which differ from the Institutional Class Shares in expenses charged and
purchase requirements. Further information relating to the other classes may be
obtained by calling 800-354-8185.
HOW TO REDEEM: Shares of each portfolio may be redeemed at any time at the net
asset value of the portfolio next determined after receipt of the redemption
request. The redemption price may be more or less than the purchase price,
except ordinarily in the case of the Cash Reserves Portfolio which seeks to
maintain, but does not guarantee, a constant net asset value per share of $1.00.
See Redemption of Shares and Shareholder Services.
THE FUND'S DISTRIBUTOR: MAS Fund Distribution, Inc. (the "Distributor") provides
distribution services to the Fund.
9
<PAGE>
ADMINISTRATIVE SERVICES: The Adviser provides the Fund directly, or through
third parties, with fund administration services. Chase Global Funds Services
Company, a subsidiary of The Chase Manhattan Bank, N.A., serves as Transfer
Agent to the Fund. See Administrative Services.
[INSERT FINANCIAL HIGHLIGHTS]
Selected per share data and ratios for a share outstanding
throughout each period.
The following information should be read in conjunction with the Fund's
financial statements which are included in the Annual Report to Shareholders and
incorporated by reference in the Statement of Additional Information. The Fund's
financial statements for the year ended September 30, 1995 have been examined by
Price Waterhouse LLP whose opinion thereon (which was unqualified) is also
incorporated by reference in the Statement of Additional Information.
YIELD AND TOTAL RETURN:
From time to time each portfolio of the Fund advertises its yield and total
return. Both yield and total return figures are based on historical earnings and
are not intended to indicate future performance. The average annual total return
reflects changes in the price of a portfolio's shares and assumes that any
income dividends and/or capital gain distributions made by the portfolio during
the period were reinvested in additional shares of the portfolio. Figures will
be given for one-, five- and ten-year periods ending with the most recent
calendar quarter-end (if applicable), and may be given for other periods as well
(such as from commencement of the portfolio's operations). When considering
average total return figures for periods longer than one year, it is important
to note that a portfolio's annual total return for any one year in the period
might have been greater or less than the average for the entire period.
In addition to average annual total return, a portfolio may also quote an
aggregate total return for various periods representing the cumulative change in
value of an investment in a portfolio for a specific period. Aggregate total
returns may be shown by means of schedules, charts or graphs and may include
subtotals of the various components of total return (e.g., income dividends or
returns for specific types of securities such as industry or country types).
The yield of a portfolio (other than the Cash Reserves Portfolio) is computed by
dividing the net investment income per share (using the average number of shares
entitled to receive dividends) earned during the 30-day period stated in the
advertisement by the closing price per share on the last day of the period. For
the purpose of determining net investment income, the calculation includes as
expenses of the portfolio all recurring fees and any non recurring charges for
the period stated. The yield formula provides for semiannual compounding, which
assumes that net investment income is earned and reinvested at a constant rate
and annualized at the end of a six-month period. Methods used to calculate
advertised yields are standardized for all stock and bond mutual funds. However,
these methods differ from the accounting methods used by the portfolio to
maintain its books and records, and so the advertised 30-day yield may not
reflect the income paid to your own account or the yield reported in the
portfolio's reports to shareholders.
The Municipal and PA Municipal Portfolios may also advertise or quote
tax-equivalent yields. A tax-equivalent yield shows the level of taxable yield
needed to produce an after-tax equivalent to the portfolio's tax-free yield.
This is done by increasing the portfolio's yield (computed as above) by the
amount necessary to reflect the payment of Federal income tax (and Pennsylvania
income tax, in the case of the PA Municipal Portfolio) at a tax rate stated in
the advertisement or quote.
From time to time the Cash Reserves Portfolio may advertise or quote its yield
and effective yield. The yield of the Cash Reserves Portfolio refers to the
income generated by an investment in the portfolio over a stated seven day
period. This income is then annualized. That is, the amount of income generated
10
<PAGE>
by the investment during that week is assumed to be generated each week over a
52-week period and is shown as a percentage of the investment. The effective
yield is calculated similarly, but the income earned over the seven day period
by an investment in the portfolio is assumed to be reinvested when the return is
annualized. The "effective yield" will be higher than the yield because of the
compounding effect of this assumed reinvestment.
The performance of a portfolio may be compared to data prepared by independent
services which monitor the performance of investment companies, data reported in
financial and industry publications, returns of other investment advisers and
mutual funds, and various indices as further described in the Statement of
Additional Information.
The performance of Institutional Class Shares, MAS Class Shares and Investment
Class Shares differ because of the shareholder servicing fees charged to MAS
Class Shares and distribution and shareholder servicing fees charged to
Investment Class Shares.
The Annual Report to Shareholders of the Fund for the Fund's most recent fiscal
year-end contains additional performance information that includes comparisons
with appropriate indices. The Annual Report is available without charge upon
request by writing to the Fund or calling the Client Services Group at the
telephone number shown on the front cover of this Prospectus.
GENERAL INFORMATION:
The following information relates to each portfolio of the Fund and should be
read in conjunction with the specific information about each portfolio.
Objectives: Each portfolio seeks to achieve its investment objective relative to
the universe of securities in which it is authorized to invest and, accordingly,
the total return or current income achieved by a portfolio may not be as great
as that achieved by another portfolio that can invest in a broader range of
securities. Fixed-Income Portfolios will seek to produce total return by
actively trading portfolio securities. The objective of each portfolio is
fundamental and may only be changed with approval of holders of a majority of
the shares of each portfolio. The achievement of any portfolio's objective
cannot be assured.
Suitability: The Fund's portfolios are designed for long-term investors who can
accept the risks entailed in investing in the stock and bond markets, and are
not meant to provide a vehicle for playing short-term swings in the market. The
Fund's portfolios are designed principally for the investments of tax-exempt
fiduciary investors who are entrusted with the responsibility of investing
assets held for the benefit of others. Since such investors are not subject to
Federal income taxes, securities transactions for all portfolios except the
Municipal and PA Municipal Portfolios will not be influenced by the different
tax treatment of long-term capital gains, short-term capital gains, and dividend
income under the Internal Revenue Code. Investments in the Municipal and PA
Municipal Portfolios are suitable for taxable investors who would benefit from
the portfolios' tax-exempt income.
11
<PAGE>
Securities Lending: Each portfolio may lend its securities to qualified brokers,
dealers, banks and other financial institutions for the purpose of realizing
additional income. Loans of securities will be collateralized by cash, letters
of credit, or securities issued or guaranteed by the U.S. Government or its
agencies. The collateral will equal at least 100% of the current market value of
the loaned securities. In addition, a portfolio will not loan its portfolio
securities to the extent that greater than one-third of its total assets, at
fair market value, would be committed to loans at that time.
Illiquid Securities/Restricted Securities: Each of the portfolios may and invest
up to 15% of its net assets (except the Cash Reserves Portfolio, which may
invest up to 10% of its net assets) in securities that are illiquid by virtue of
the absence of a readily available market, or because of legal or contractual
restrictions on resale. This policy does not limit the acquisition of (i)
restricted securities eligible for resale to qualified institutional buyers
pursuant to Rule 144A under the Securities Act of 1933 or (ii) commercial paper
issued pursuant to Section 4(2) under the Securities Act of 1933, that are
determined to be liquid in accordance with guidelines established by the Fund's
Board of Trustees.
Turnover: The Adviser manages the portfolios generally without regard to
restrictions on portfolio Turnover, except those imposed by provisions of the
federal tax laws regarding short-term trading. In general, the portfolios will
not trade for short-term profits, but when circumstances warrant, investments
may be sold without regard to the length of time held.
High rates of portfolio turnover necessarily result in correspondingly heavier
brokerage and portfolio trading costs which are paid by a portfolio. Trading in
Fixed-Income Securities does not generally involve the payment of brokerage
commissions, but does involve indirect transaction costs. In addition to
portfolio trading costs, higher rates of portfolio turnover may result in the
realization of capital gains. To the extent net short-term capital gains are
realized, any distributions resulting from such gains are considered ordinary
income for federal income tax purposes.
Cash Equivalents/Temporary Defensive Investing: Although each portfolio intends
to remain substantially fully invested, a small percentage of a portfolio's
assets are generally held in the form of Cash Equivalents in order to meet
redemption requests and otherwise manage the daily affairs of each
portfolio. Any portfolio may, when the Adviser deems that market conditions are
such that a temporary defensive approach is desirable, invest in cash
equivalents or the Fixed-Income Securities listed for that portfolio without
limit.
Concentration: Concentration is defined as investment of 25% or more of a
portfolio's total assets in the securities of issuers operating in any one
industry. Except as provided in a portfolio's specific investment policies, a
portfolio will not concentrate investments in any one industry.
Select Equity Portfolio: The Select Equity Portfolio has the same investment
objective as the Equity Portfolio with the investment restriction that it will
not invest in companies listed as of August 31, 1993 by the Investor
Responsibility Research Center as having any direct investment or employees in
South Africa. The Select Equity Portfolio is not currently accepting new
investors. The Investor Responsibility Research Center (IRRC) is an independent,
not-for-profit corporation that conducts research and publishes impartial
reports on contemporary social and public policy issues and the impact of those
issues on major corporations and institutional investors. In May 1986 the IRRC's
South Africa Review Section first published a comprehensive directory of U.S.
and Canadian companies which do business in South Africa.
12
<PAGE>
Investment Limitations: Each portfolio is subject to certain limitations
designed to reduce its exposure to specific situations. Some of these
limitations are:
(a) with respect to 75% of its assets, a portfolio will not purchase securities
of any issuer if, as a result, more than 5% of the portfolio's total assets
taken at market value would be invested in the securities of any single issuer
except that this restriction does not apply to securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities. This limitation is
not applicable to the Global Fixed Income, International Fixed Income and
Emerging Markets Portfolios. However, these portfolios will comply with the
diversification requirements imposed by Sub-Chapter M of the Internal Revenue
Code;
(b) with respect to 75% of its assets, a Portfolio will not purchase a security
if, as a result, the portfolio would hold more than 10% of the outstanding
voting securities of any issuer. This limitation is not applicable to the Global
Fixed Income, International Fixed Income and Emerging Markets Portfolios.
However, these portfolios will comply with the diversification requirements
imposed by Sub-Chapter M of the Internal Revenue Code;
(c) a portfolio will not invest more than 5% of its total assets in the
securities of issuers (other than securities issued or guaranteed by U.S. or
foreign governments or political subdivisions thereof) which have (with
predecessors) a record of less than three years of continuous operation;
(d) a portfolio will not acquire any securities of companies within one
industry, if, as a result of such acquisition, more than 25% of the value of the
portfolio's total assets would be invested in securities of companies within
such industry; provided, however, that (1) there shall be no limitation on the
purchase of obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities ; (2) the Cash Reserves Portfolio may invest
without limitation in certificates of deposit or bankers' acceptances of
domestic banks; (3) utility companies will be divided according to their
services, for example, gas, gas transmission, electric and telephone will each
be considered a separate industry; (4) financial service companies will be
classified according to the end users of their services, for example, automobile
finance, bank finance and diversified finance will each be considered a separate
industry; (5) asset-backed securities will be classified according to the
underlying assets securing such securities, and (6) the Mortgage-Backed
Securities Portfolio will concentrate in mortgage-backed securities.
(e) a portfolio will not make loans except (i) by purchasing debt securities in
accordance with its investment objectives and policies, or entering into
Repurchase Agreements, (ii) by lending its portfolio securities and (iii) by
lending portfolio assets to other portfolios of the Fund, so long as such loans
are not inconsistent with the Investment Company Act of 1940, as amended or the
Rules and Regulations, or interpretations or orders of the Securities and
Exchange Commission thereunder;
(f) a portfolio will not borrow money, except (i) as a temporary measure for
extraordinary or emergency purposes or (ii) in connection with reverse
repurchase agreements provided that (i) and (ii) in combination do not exceed 33
1/3% of the portfolio's total assets (including the amount borrowed) less
liabilities (exclusive of borrowings);
(g) a portfolio will not pledge, mortgage, or hypothecate any of its assets to
an extent greater than 50% of its total assets at fair market value; and
(h) a portfolio will not invest its assets in securities of any investment
company, except by purchase in the open market involving only customary brokers'
commissions or in connection with mergers, acquisitions of assets or
consolidations and except as may otherwise be permitted by the Investment
Company Act of 1940, as amended.
13
<PAGE>
Limitations (a), (b), (d), (e) and (f),and certain other limitations described
in the Statement of Additional Information are fundamental and may be changed
only with the approval of the holders of a majority of the shares of each
portfolio. The other investment limitations described here and in the Statement
of Additional Information are not fundamental policies meaning that the Board of
Trustees may change them without shareholder approval. If a percentage
limitation on investment or utilization of assets as set forth above is adhered
to at the time an investment is made, a later change in percentage resulting
from changes in the value or total cost of the portfolio's assets will not be
considered a violation of the restriction, and the sale of securities will not
be required.
<TABLE>
<CAPTION>
Emerging Markets Portfolio - (a non-diversified portfolio)
<S> <C>
Objective: To achieve long-term capital growth by investing primarily in common stocks of emerging
markets issuers.
Approach: The Adviser evaluates both short-term and long-term international economic trends and
relative attractiveness of emerging markets and individual emerging market securities.
Policies: Generally at least 65% invested in Equity Securities of Emerging Markets Issuers
Derivatives may be used to pursue portfolio strategy
Allowable Investments: Emerging Markets Issuers Foreign Equities ADRs Eastern European Issuers
Investment Funds Foreign Currency Forwards Cash Equivalents
Repurchase Agreements Common Stocks Preferred Stock Convertibles
U.S. Governments Zero Coupons Agencies Corporates
High Yield Foreign Bonds Futures & Options Swaps
Investment Companies When Issued Rights Warrants
Brady Bonds Loan Participations Structured Investments
Structured Notes
Comparative Index: MSCI Emerging Markets Free Index
Strategies: Emerging Markets Investing
Foreign Investing
Non-Diversified Status
Equity Portfolio
Objective: To achieve above-average total return over a market cycle
of three to five years, consistent with reasonable risk,
by investing primarily in dividend-paying common stocks
of companies which are deemed by the Adviser to
demonstrate long-term earnings growth that is greater
than the economy in general and greater than the expected
rate of inflation.
Approach: The Adviser evaluates both short-term and long-term
economic trends and their impact on corporate profits and
the relative value offered by different sectors and
securities within the equity markets. Individual
securities are selected based on fundamental business and
financial factors (such as earnings growth, financial
position, price volatility, and dividend payment records)
and the measurement of those factors relative to the
current market price of the security.
Policies: Generally at least 65% invested in Equity Securities
Up to 5% invested in Foreign Equities (excluding ADRs)
Derivatives may be used to pursue portfolio strategy
</TABLE>
14
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<TABLE>
<CAPTION>
<S> <C>
Capitalization Range: Generally greater than $1 billion
Allowable Investments: Common Stock Preferred Stock Convertibles ADRs
Cash Equivalents Repurchase Agreements Foreign Equities Rights
Warrants Futures & Options Swaps Foreign Currency
Forwards U.S. Governments Zero Coupons Agencies
Corporates Foreign Bonds Investment Companies When Issued
Comparative Index: S&P 500 Index
Strategies: Core Equity Investing
Growth Portfolio
Objective: To achieve long-term capital growth by investing primarily in common stocks of large size
companies which the Adviser believes offer long-term growth potential.
Approach: The Adviser selects common stocks which meet certain criteria which the Adviser believes
are related to the stability and growth of the fundamental characteristics of the company.
Policies: Generally at least 65% invested in Equity Securities of companies offering long-term
growth potential
Up to 5% invested in Foreign Equities (excluding ADRs)
Derivatives may be used to pursue portfolio strategy
Capitalization Range: Generally greater than $1 billion
Allowable Investments: Common Stock Preferred Stock Convertibles ADRs
Cash Equivalents Repurchase Agreements Foreign Equities Rights
Warrants Futures & Options Swaps Foreign Currency
Forwards U.S. Governments Zero Coupons Agencies
Corporates Foreign Bonds Investment Companies When Issued
Comparative Index: S&P 500 Index
Strategy: Growth Stock Investing
International Equity Portfolio
Objective: To achieve above-average total return over a market cycle of three to five years, consistent with reasonable
risk, by investing in common stocks of companies based outside of the United States.
Approach: The Adviser evaluates both short-term and long-term international economic trends and the
relative attractiveness of non-U.S. equity markets and individual securities.
Policies: Generally at least 65% invested in Foreign Equities of issuers in at least 3 countries other than
the U.S.
Derivatives may be used to pursue portfolio strategy
Allowable Foreign Equities ADRs Emerging Markets Issuers Eastern European Issuers
Investments: Investment Funds Foreign Currency Forwards Cash Equivalents
Repurchase Agreements Common Stock Preferred Stock
Convertibles
U.S. Governments Zero Coupons Agencies Corporates
Foreign Bonds Futures & Options Swaps Investment Companies
When Issued Rights Warrants Brady Bonds
Loan Participations Structured Investments
Structured Notes
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Comparative
Index: MSCI World Ex-U.S. Index
Strategies: International Equity Investing
Emerging Markets Investing
Foreign Investing
Mid Cap Growth Portfolio
Objective: To achieve long-term capital growth by investing primarily in common stocks of smaller and medium size
companies which are deemed by the Adviser to offer long-term growth potential. Due to its emphasis on
long-term capital growth, dividend income will be lower than for the Equity and Value Portfolios.
Approach: MAS screens a universe of about 900 companies to find a relatively small number of high quality companies
that it believes have passed the earliest and riskiest stages of growth. MAS selects individual stocks by
fundamental business and financial factors relative to the current market price. The fund will purchase
shares of companies that MAS believes are capable of sustaining short-term and long-term earnings growth
and that are capable of producing positive earnings surprises relative to consensus earnings estimates.
Policies: Generally at least 65% invested in Equity Securities of mid-cap companies offering long-term growth
potential
Up to 5% invested in Foreign Equities (excluding ADRs)
Derivatives may be used to pursue portfolio strategy
Capitalization Range: Generally $300 million to $3 billion
Allowable Investments: Common Stock Preferred Stock Convertibles ADRs
Cash Equivalents Repurchase Agreements Foreign Equities Rights
Warrants Futures & Options Swaps Foreign Currency
Forwards U.S. Governments Zero Coupons Agencies
Corporates Foreign Bonds Investment Companies When Issued
Comparative Index: S&P MidCap 400 Index
Strategies: Growth Stock Investing
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Mid Cap Value Portfolio
Objective: To achieve above-average total return over a market cycle of three to five years, consistent with
reasonable risk, by investing in common stocks with equity capitalizations in the range of the companies
represented in the S&P MidCap 400 Index which are deemed by the Adviser to be relatively undervalued based
on certain proprietary measures of value. The Portfolio will typically exhibit a lower price/earnings
value ratio than the S&P MidCap 400 Index.
Approach: The Adviser selects common stocks which are deemed to be undervalued at the time of purchase, based on
proprietary measures of value. The Portfolio will be structured taking into account the economic sector
weights of the S&P MidCap 400 Index, with sector weights normally being within 5% of the sector weights of
the Index.
Policies: Generally at least 65% invested in Equity Securities of mid-cap companies deemed to be undervalued
Up to 5% invested in Foreign Equities (excluding ADRs)
Derivatives may be used to pursue portfolio strategy
Capitalization
Range: Generally matching the S&P MidCap 400 Index (currently $500 million to $3 billion)
Allowable Common Stock Preferred Stock Convertibles ADRs
Investments: Cash Equivalents Repurchase Agreements Foreign Equities Rights
Warrants Futures & Options Swaps Foreign Currency
Forwards U.S. Governments Zero Coupons Agencies
Corporates Foreign Bonds Investment Companies When Issued
Comparative
Index: S&P MidCap 400 Index
Strategies: Value Stock Investing
Small Cap Value Portfolio (not currently being offered to new investors)
Objective: To achieve above-average total return over a market cycle of three to five years, consistent with
reasonable risk, by investing in common stocks with equity capitalizations in the range of the companies
represented in the Russell 2000 Small Stock Index which are deemed by the Adviser to be relatively
undervalued based on certain proprietary measures of value. The Portfolio will typically exhibit lower
price/earnings and price/book value ratios than the Russell 2000. Dividend income will typically be lower
than for the Equity and Value Portfolios.
Approach: The Adviser selects common stocks which are deemed to be undervalued at the time of purchase, based on
proprietary measures of value. The Portfolio will be structured taking into account the economic sector
weights of the Russell 2000 Index, with the portfolio's sector weights normally being within 5% of the
sector weights for the Index.
Policies: Generally at least 65% invested in Equity Securities of small-cap companies deemed to be undervalued
Up to 5% invested in Foreign Equities (excluding ADRs) Derivatives may be used to pursue portfolio strategy
Capitalization Range: Generally matching the Russell 2000 size distribution (currently $50 million to $800 million)
Allowable Investments: Common Stock Preferred Stock Convertibles ADRs
Cash Equivalents Repurchase Agreements Foreign Equities Rights
Warrants Futures & Options Swaps Foreign Currency
Forwards U.S. Governments Zero Coupons Agencies
Corporates Foreign Bonds Investment Companies When Issued
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Comparative Index: Russell 2000 Index
Strategies: Value Stock Investing
Value Portfolio
Objective: To achieve above-average total return over a market cycle of three to five years, consistent
with reasonable risk, by investing in common stocks with equity capitalizations usually
greater than $300 million which are deemed by the Adviser to be relatively undervalued,
based on various measures such as price/earnings ratios and price/book ratios. While capital
return will be emphasized somewhat more than income return, the Portfolio's total return
will consist of both capital and income returns. It is expected that income return will be
higher than that of the Equity Portfolio because stocks which are deemed to be undervalued
in the marketplace have, under most market conditions, provided higher dividend income
returns than stocks which are deemed to have long-term earnings growth potential which
normally sell at higher price/earnings ratios.
Approach: The Adviser selects common stocks which are deemed to be undervalued relative to the stock market in
general as measured by the Standard & Poor's 500 Index, based on the value measures such as price/earnings
ratios and price/book ratios, as well as fundamental research.
Policies: Generally at least 65% invested in Equity Securities deemed to be undervalued
Up to 5% invested in Foreign Equities (excluding ADRs)
Derivatives may be used to pursue portfolio strategy
Capitalization Range: Generally greater than $300 million
Allowable Investments: Common Stock Preferred Stock Convertibles ADRs
Cash Equivalents Repurchase Agreements Foreign Equities Rights
Warrants Futures & Options Swaps Foreign Currency
Forwards U.S. Governments Zero Coupons Agencies
Corporates Foreign Bonds Investment Companies When Issued
Comparative Index: S&P 500 Index
Strategy: Value Stock Investing
Cash Reserves Portfolio
Objective: To realize maximum current income, consistent with the preservation of capital and liquidity, by investing
in money market instruments and other short-term securities having expected maturities of thirteen months
or less. The Portfolio's average weighted maturity will not exceed 90 days. The securities in which the
Portfolio will invest may not yield as high a level of current income as securities of lower quality or
longer maturities which generally have less liquidity, greater market risk and more price fluctuation. The
Portfolio is designed to provide maximum principal stability for investors seeking to invest funds for the
short term, or, for investors seeking to combine a long-term investment program in other portfolios of the
Fund with an investment in money market instruments. The Portfolio seeks to maintain, but there can be no
assurance that it will be able to maintain, a constant net asset value of $1.00 per share.
Approach: The Adviser selects a diversified portfolio of money market securities of government and corporate
issuers, any of which may be variable or floating rate, and which have remaining maturities of thirteen
months or less from the date of purchase. For the purpose of determining remaining maturity on Floaters,
demand features and interest reset dates will be taken into consideration.
Policies: The Portfolio seeks to maintain, but there can be no assurance that it will be able to
maintain, a constant net asset value of $1.00 per share.
Quality Specifications: 100% of Commercial Paper Rated in Top Tier
Maturity and Duration: Dollar weighted average maturity less than 90 days
Individual maturities 13 months or less
Allowable Investments: Cash Equivalents Repurchase Agreements U.S. Governments Zero Coupons
Corporates Agencies Asset-Backeds Floaters
Comparative Index: Lipper Money Market Index
Strategy: Money Market Investing
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
Domestic Fixed Income Portfolio
Objective: To achieve above-average total return over a market cycle of three to five years, consistent with
reasonable risk, by investing in a diversified portfolio of U.S. Government securities, corporate bonds
rated A or higher, and other fixed-income securities rated A or higher of domestic issuers. The
Portfolio's average weighted maturity will ordinarily be greater than five years.
Approach: The Adviser actively manages the maturity and duration structure of the portfolio in anticipation of
long-term trends in interest rates and inflation. Investments are diversified among a wide variety of
U.S. Fixed-Income Securities (rated as A or higher at the time of purchase) in all market sectors.
Policies: Generally at least 65% invested in Fixed-Income Securities
100% invested in domestic issuers
May invest greater than 50% in Mortgage Securities
Derivatives may be used to pursue portfolio strategy
Quality Specifications: 100% of securities rated A or higher
Maturity and Duration: Average weighted maturity generally greater than 5 years
Allowable Investments: U.S. Governments Zero Coupons Agencies Corporates
Mortgage Securities SMBS CMOs Asset-Backeds
When Issued Convertibles Floaters Inverse Floaters
Structured Notes Futures & Options Swaps Cash Equivalents
Repurchase Agreements Municipals Preferred Stock Investment Companies
Comparative Index: Salomon Broad Investment Grade
Lehman Brothers Aggregate
Strategies: Maturity and Duration Management
Value Investing
Mortgage Investing
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Fixed Income Portfolio
Objective: To achieve above-average total return over a market cycle of three to five years, consistent with
reasonable risk, by investing in a diversified portfolio of U.S. Government securities, corporate bonds
(including bonds rated below investment grade, commonly referred to as junk bonds), foreign fixed-income
securities and mortgage-backed securities of domestic issuers and other fixed-income securities. The
Portfolio's average weighted maturity will ordinarily be greater than five years.
Approach: The Adviser actively manages the maturity and duration structure of the Portfolio in anticipation of
long-term trends in interest rates and inflation. Investments are diversified among a wide variety of
Fixed-Income Securities in all market sectors.
Policies: Generally at least 65% invested in Fixed-Income Securities
May invest greater than 50% in Mortgage Securities
Derivatives may be used to pursue portfolio strategy
Quality Specifications: 80% Investment Grade Securities
Up to 20% High Yield
Maturity and Duration: Average weighted maturity generally greater than 5 years
Allowable Investments: U.S. Governments Zero Coupons Agencies Corporates
High Yield Mortgage Securities SMBS CMOs
Asset-Backeds When Issued Convertibles Foreign Bonds
Brady Bonds Foreign Currency Forwards Floaters
Inverse Floaters Structured Notes Futures & Options Swaps
Cash Equivalents Repurchase Agreements Municipals Preferred Stock
Investment Companies Loan Participations
Comparative Index: Salomon Broad Investment Grade
Lehman Brothers Aggregate
Strategies: Maturity and Duration Management
Value Investing
Mortgage Investing
High Yield Investing
Foreign Fixed Income Investing
Foreign Investing
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
Fixed Income Portfolio II
Objective: To achieve above-average total return over a market cycle of three to five years, consistent with
reasonable risk, by investing in a diversified portfolio of U.S. Government securities, investment grade
corporate bonds and other fixed-income securities (rated A or higher). The Portfolio's average weighted
maturity will ordinarily be greater than five years.
Approach: The Adviser actively manages the maturity and duration structure of the portfolio in anticipation of
long-term trends in interest rates and inflation. Investments are diversified among a wide variety of
Fixed-Income Securities in all market sectors which are rated A or higher at the time of purchase.
Policies: Generally at least 65% invested in Fixed-Income Securities
May invest greater than 50% in Mortgage Securities
Derivatives may be used to pursue portfolio strategy
Quality Specifications: Individual securities rated A or higher
Maturity and Duration: Average weighted maturity generally greater than 5 years
Allowable Investments: U.S. Governments Zero Coupons Agencies Corporates
Mortgage Securities SMBS CMOs Asset-Backeds
When Issued Convertibles Foreign Bonds Brady Bonds
Foreign Currency Forwards Floaters Inverse Floaters
Structured Notes Futures & Options Swaps Cash Equivalents
Repurchase Agreements Municipals Preferred Stock Investment Companies
Comparative Index: Salomon Broad Investment Grade
Lehman Brothers Aggregate
Strategies: Maturity and Duration Management
Value Investing
Mortgage Investing
Foreign Fixed Income Investing
Foreign Investing
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
Global Fixed Income Portfolio - (a non-diversified portfolio)
Objective: To achieve above-average total return over a market cycle of three to five years, consistent with
reasonable risk, by investing in high grade fixed-income securities of United States and foreign issuers.
Total return is the combination of income and changes in value. The Portfolio's average weighted maturity
will ordinarily be greater than five years.
Approach: The Adviser manages the duration, country, and currency exposure of the Portfolio by combining fundamental
research on relative values with analyses of economic, interest-rate, and exchange-rate trends. MAS will
invest in mortgage and corporate bonds when it believes they offer the most value, although most foreign
currency denominated investments are in government and supranational securities.
Policies: Generally at least 65% invested in Fixed-Income Securities of issuers in at least 3 countries, one
of which may be the U.S.
Derivatives may be used to represent country investments, and otherwise pursue portfolio strategy
Quality
Specifications: 95% Investment Grade Securities
Maturity and
Duration: Average weighted maturity generally greater than 5 years
Allowable Foreign Bonds Foreign Currency Forwards U.S. Governments
Investments: Zero Coupons Agencies Corporates Mortgage Securities
CMOs SMBS Asset-Backeds Floaters
Futures & Options Swaps Cash Equivalents Emerging Markets Issuers
Eastern European Issuers Convertibles When Issued Brady Bonds
Inverse Floaters Structured Notes Repurchase Agreements Municipals
Preferred Stock Investment Companies
Comparative
Index: Salomon World Government Bond Index
Strategies: Foreign Fixed Income Investing
Maturity and Duration Management
Value Investing
Foreign Investing
Non-Diversified Status
Emerging Markets Investing
Mortgage Investing
</TABLE>
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<TABLE>
<S> <C>
High Yield Portfolio
Objective: To achieve above-average total return over a market cycle of three to five years, consistent with
reasonable risk, by investing in high yielding corporate fixed-income securities (including bonds rated
below investment grade, commonly referred to as junk bonds). The Portfolio may also invest in U.S.
Government securities, mortgage-backed securities, investment grade corporate bonds and in short-term
fixed-income securities, such as certificates of deposit, treasury bills, and commercial paper. The
Portfolio expects to achieve its objective through maximizing current income, although the Portfolio may
seek capital growth opportunities when consistent with its objective. The Portfolio's average weighted
maturity will ordinarily be greater than five years.
Approach: The Adviser uses equity and fixed-income valuation techniques and analyses of economic and industry trends
to determine portfolio structure. Individual securities are selected, and monitored, by fixed-income
portfolio managers who specialize in corporate bonds and use in-depth financial analysis to uncover
opportunities in undervalued issues.
Policies: Generally at least 65% invested in High Yield (including bonds rated below investment grade, commonly
referred to as junk bonds)
Derivatives may be used to pursue portfolio strategy
Quality
Specifications: None
Maturity and
Duration: Average weighted maturity generally greater than 5 years
Allowable High Yield Corporates U.S. Governments Zero Coupons
Investments: Agencies Mortgage Securities SMBS CMOs
Asset-Backeds When Issued Convertibles Foreign Bonds
Brady Bonds Foreign Currency Forwards Floaters
Inverse Floaters Structured Notes Futures & Options Swaps
Cash Equivalents Repurchase Agreements Municipals Preferred Stock
Investment Companies Loan Participations Eastern European Issuers Emerging Markets Issuers
Foreign Equities
Comparative
Index: Salomon High Yield Index
Strategies: High Yield Investing
Maturity and Duration Management
Value Investing
Mortgage Investing
Foreign Fixed Income Investing
Foreign Investing
Emerging Markets Investing
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
Intermediate Duration Portfolio
Objective: To achieve above-average total return over a market cycle of three to five years, consistent with
reasonable risk, by investing in a diversified portfolio of U.S. Government securities and investment
grade corporate, foreign and other investment grade fixed-income securities. The Portfolio will maintain
an average duration of between two and five years.
Approach: The Adviser constructs a portfolio with a duration between two and five years by actively managing the
maturity and duration structure of the portfolio in anticipation of long-term trends in interest rates and
inflation. Investments are diversified among a wide variety of investment grade Fixed-Income Securities in
all market sectors.
Policies: Generally at least 65% invested in Fixed-Income Securities
Derivatives may be used to pursue portfolio strategy
May invest greater than 50% in Mortgage Securities
Quality Specifications: 100% Investment Grade Securities
Maturity and Duration: Average duration between two and five years
Allowable Investments: U.S. Governments Zero Coupons Agencies Corporates
Mortgage Securities SMBS CMOs Asset-Backeds
When Issued Convertibles Foreign Bonds Brady Bonds
Foreign Currency Forwards Floaters Inverse Floaters
Structured Notes Futures & Options Swaps Cash Equivalents
Repurchase Agreements Municipals Preferred Stock Investment Companies
Comparative Index: Lehman Brothers Intermediate Government/Corporate Index
Strategies: Maturity and Duration Management
Value Investing
Mortgage Investing
Foreign Fixed Income Investing
Foreign Investing
</TABLE>
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<TABLE>
<S> <C>
International Fixed Income Portfolio - (a non-diversified portfolio)
Objective: To achieve above-average total return over a market cycle of three to five years, consistent with
reasonable risk, by investing primarily in high-grade fixed-income securities of foreign issuers.
Approach: The Adviser manages the duration, country, and currency exposure of the portfolio by combining fundamental
research on relative values with analyses of economic, interest-rate, and exchange-rate trends. MAS will
invest in mortgage and corporate bonds when it believes they offer the most value, although most foreign
currency denominated investments are in government and supranational securities.
Policies: Generally at least 80% invested in Fixed-Income Securities of issuers in at least 3 countries other than
the U.S.
Derivatives may be used to represent country investments, and otherwise pursue portfolio strategy
Quality
Specifications: 95% Investment Grade Securities
Maturity and
Duration: Average weighted maturity generally greater than 5 years
Allowable Foreign Bonds Foreign Currency Forwards Floaters
Investments: Futures & Options Swaps Cash Equivalents U.S. Governments
Zero Coupons Agencies Corporates Mortgage Securities
CMOs SMBS Asset-Backeds Emerging Markets Issuers
Eastern European Issuers Convertibles When Issued Brady Bonds
Inverse Floaters Structured Notes Repurchase Agreements Municipals
Preferred Stock Investment Companies
Comparative
Index: Salomon World Government Bond Index Except U.S.
Strategies: Foreign Fixed Income Investing
Maturity and Duration Management
Value Investing
Foreign Investing
Non-Diversified Status
Emerging Markets Investing
Mortgage Investing
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
Limited Duration Portfolio
Objective: To achieve above-average total return over a market cycle of three to five years, consistent with
reasonable risk, by investing in a diversified portfolio of U.S. Government securities, investment-grade
corporate bonds and other fixed-income securities. The portfolio will maintain an average duration of
between one and three years. Duration is a measure of the life of the portfolio's debt securities on a
present-value basis and is indicative of a security's price volatility relative to interest rate changes.
Approach: The Adviser manages the duration of the overall portfolio as a more effective way to control interest-rate
risk than limiting the maturity of individual securities within the portfolio. In this way investors can
benefit from opportunities across the entire yield curve as well as between various market sectors and at
the same time limit the volatility of investment returns. MAS establishes the duration target through the
use of its top-down view of the economy, the current level of interest rates, and the shape of the yield
curve. MAS then strives to purchase the most attractively priced portfolio that meets our duration and
investment objectives. When purchasing securities other than U.S. Governments, MAS evaluates credit,
liquidity, and option risk. When MAS believes the portfolio is compensated for these risks, it includes
agency, mortgage, and investment-grade corporate securities which meet the Portfolio's quality
specifications.
Policies: Generally at least 65% invested in Fixed-Income Securities
Derivatives may be used to pursue portfolio strategy
Quality Specifications: 100% Investment Grade Securities
Maturity and Duration: Average duration between 1 and 3 years
Allowable Investments: U.S. Governments Zero Coupons Agencies Corporates
Mortgage Securities CMOs Asset-Backeds When Issued
Convertibles Floaters Structured Notes Futures & Options
Swaps Cash Equivalents Repurchase Agreements
Comparative Index: Salomon 1-3 Year Index
Strategies: Maturity and Duration Management
Value Investing
Mortgage Investing
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
Mortgage-Backed Securities Portfolio
Objective: To achieve above-average total return over a market cycle of three to five years, consistent with
reasonable risk, by investing primarily (at least 65% of its assets under normal circumstances) in
mortgage-backed securities. In addition, the portfolio may also invest in U.S. government securities and
in short-term fixed-income securities such as certificates of deposit, treasury bills, and commercial
paper. The portfolio's average weighted maturity will ordinarily be greater than seven years.
Approach: The Adviser sets three portfolio targets: (1) interest-rate sensitivity; (2) yield-curve sensitivity; and
(3) prepayment sensitivity. The Adviser increases the sensitivity of the portfolio to changes in interest
rates when bonds offer greater value on the basis of inflation- adjusted interest rates. Similarly, the
Adviser increases yield-curve sensitivity when long- maturity interest rates offer exceptional value
relative to short-maturity interest rates. Finally, the Adviser increases prepayment exposure when
mortgage yields, adjusted for probable prepayments, indicate unusual value in mortgage-backed securities.
Policies: Generally at least 65% invested in Mortgage Securities
Derivatives may be used to pursue portfolio strategy
Quality Specifications: Securities not guaranteed by the U.S. Government or a private organization will be rated
Investment Grade Securities
Maturity and Duration: Average weighted maturity generally greater than 7 years
Duration generally between 2 and 7 years
Allowable Investments: Mortgage Securities CMOs Asset-Backeds SMBS
U.S. Governments Zero Coupons Agencies When Issued
Floaters Inverse Floaters Structured Notes Futures & Options
Cash Equivalents Repurchase Agreements Municipals Investment Companies
Swaps
Comparative Index: Lehman Mortgage Index
Strategies: Mortgage Investing
Maturity and Duration Management
Value Investing
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
Municipal Portfolio
Objective: To realize above-average total return over a market cycle of three to five years, consistent with the
conservation of capital and the realization of current income which is exempt from federal income tax, by
investing in a diversified portfolio of investment grade and short-term municipal debt securities, other
investment grade fixed-income securities and a limited percentage of bonds rated below investment grade
(commonly referred to as junk bonds). The portfolio's average weighted maturity will ordinarily be between
ten and thirty years.
Approach: The Adviser varies portfolio structure--the average duration and maturity and the amount of the portfolio
invested in various types of bonds--according to its outlook for interest rates and its analysis of the
risks and rewards offered by different classes of bonds. The portfolio will invest in taxable bonds only
in cases where MAS believes they improve the risk/reward profile of the portfolio on an after-tax basis.
Policies: Generally at least 80% invested in Municipals
Derivatives may be used to pursue portfolio strategy
Quality
Specifications: 80% Investment Grade Securities
Up to 20% High Yield
Maturity
and Duration: Average weighted maturity generally between 10 and 30 years
Allowable Municipals Taxable Investments U.S. Governments Agencies
Investments: Corporates Mortgage Securities SMBS CMOs
Asset-Backeds When Issued Convertibles Floaters
Inverse Floaters Structured Notes Futures & Options Swaps
Cash Equivalents Repurchase Agreements Preferred Stock Investment
Companies
High Yield Zero Coupons Foreign Bonds Forwards
Foreign Currency Brady Bonds Emerging Markets Issuers Eastern European
Issuers
Comparative
Index: Lehman Long-Term Municipal Bond Index
Strategies: Municipals Management
Maturity and Duration Management
Value Investing
High Yield Investing
Mortgage Investing
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
PA Municipal Portfolio
Objective: To realize above-average total return over a market cycle of three to five years, consistent
with the conservation of capital and the realization of current income which is exempt from
federal income tax and Pennsylvania personal income tax by investing in a diversified
portfolio of investment grade and short-term municipal debt securities, other investment
grade fixed-income securities and a limited percentage of bonds rated below investment
grade (commonly referred to as junk bonds). The Portfolio's average weighted maturity will
ordinarily be between ten and thirty years.
Approach: The Adviser varies portfolio structure--the average duration and maturity and the amount of the portfolio
invested in various types of bonds--according to its outlook for interest rates and its analysis of the
risks and rewards offered by different classes of bonds. The portfolio will invest in federally or
Pennsylvania State taxable bonds only in cases where MAS believes they improve the risk/reward profile of
the portfolio on an after-tax basis for Pennsylvania residents.
Policies: Generally at least 80% invested in Municipal Securities
Generally at least 65% invested in PA Municipal Securities
Derivatives may be used to pursue portfolio strategy
Quality Specifications: 80% Investment Grade Securities
Up to 20% High Yield
Maturity and Duration: Average weighted maturity generally between 10 and 30 years
Allowable Investments: PA Municipals Municipals Taxable Investments U.S. Governments
Agencies Corporates Mortgage Securities SMBS
CMOs Asset-Backeds When Issued Convertibles
Floaters Inverse Floaters Structured Notes Futures & Options
Swaps Cash Equivalents Repurchase Agreements Preferred Stock
Investment Companies High Yield Foreign Bonds Forwards
Foreign Currency Zero Coupons Brady Bonds Emerging Markets Issuers
Eastern European Issuers
Comparative Index: Lehman Long-Term Municipal Bond Index
Strategies: Municipals Management
Maturity and Duration Management
Value Investing
High Yield Investing
Mortgage Investing
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
Special Purpose Fixed Income Portfolio
Objective: To achieve above-average total return over a market cycle of three to five years, consistent with
reasonable risk, by investing in a diversified portfolio of U.S. Government securities, corporate bonds
(including bonds rated below investment grade, commonly referred to as junk bonds), foreign fixed-income
securities and mortgage-backed securities and other fixed-income securities. The portfolio is structured
to complement an investment in one or more of the Fund's equity portfolios for investors seeking a
balanced investment.
Approach: The Adviser actively manages the maturity and duration structure of the portfolio in anticipation of
long-term trends in interest rates and inflation. Investments are diversified among a wide variety of
Fixed-Income Securities in all market sectors. Both duration/maturity strategy and sector allocation is
determined based on the presumption that investors are combining an investment in the portfolio with an
equity investment.
Policies: Generally at least 65% invested in Fixed-Income Securities
May invest greater than 50% in Mortgage Securities
Derivatives may be used to pursue portfolio strategy
Quality Specifications: None
Maturity and Duration: Average weighted maturity generally greater than 5 years
Allowable Investments: U.S. Governments Zero Coupons Agencies Corporates
High Yield Mortgage Securities SMBS CMOs
Asset-Backeds When Issued Convertibles Foreign Bonds
Brady Bonds Foreign Currency Forwards Floaters
Inverse Floaters Structured Notes Futures & Options Swaps
Cash Equivalents Repurchase Agreements Municipals Preferred Stock
Investment Companies Loan Participations
Comparative Index: Salomon Broad Investment Grade
Lehman Brothers Aggregate
Strategies: Maturity and Duration Management
Value Investing
Mortgage Investing
High Yield Investing
Foreign Fixed Income Investing
Foreign Investing
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
Balanced Portfolio
Objective: To achieve above average total return over a market cycle of three to five years, consistent with
reasonable risk, by investing in a diversified portfolio of common stocks and fixed- income securities.
When the Adviser judges the relative outlook for the equity and fixed- income markets to be neutral the
portfolio will be invested 60% in common stocks and 40% in fixed-income securities. The asset mix may be
changed, however, with common stocks ordinarily representing between 45% and 75% of the total investment.
The average weighted maturity of the fixed-income portion of the portfolio will ordinarily be greater than
five years.
Approach: The Adviser's approach to balanced management is to determine investment strategies for the equity and
fixed-income portions of the portfolio separately and then determine the mix of those strategies expected
to maximize the return available from both the stock and bond markets. Strategic judgments on the
equity/fixed-income asset mix are based on valuation disciplines and tools for analysis developed by the
Adviser over its twenty-five year history of managing balanced accounts.
Policies: Generally 45% to 75% invested in Equity Securities
Up to 25% invested in Foreign Bonds and/or Foreign Equities
At least 25% invested in senior Fixed-Income Securities
Derivatives may be used to pursue portfolio strategy
Equity Capitalization: Generally greater than $1 billion
Quality Specifications: None
Maturity and Duration: Average weighted maturity generally greater than 5 years
Allowable Investments: Common Stock Preferred Stock U.S. Governments Zero Coupons
Corporates High Yield Foreign Bonds Mortgage Securities
CMOs Asset-Backeds SMBS When Issued
Brady Bonds Floaters Inverse Floaters Structured Notes
Agencies Convertibles Futures & Options Swaps
Foreign Currency Forwards Cash Equivalents Repurchase Agreements
Eastern European Issuers Investment Funds Municipals Investment Companies
ADRs Foreign Equities Rights Warrants
Loan Participations
Comparative Index: A weighted blend of quarterly returns compiled by the Adviser using:
60% S&P 500 Index
40% Salomon Broad Investment Grade Index
Strategies: Asset Allocation Management
Core Equity Investing
Fixed Income Management and Asset Allocation
Maturity and Duration Management
Value Investing
Mortgage Investing
High Yield Investing
Foreign Fixed Income Investing
Foreign Investing
</TABLE>
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Multi-Asset-Class Portfolio
<TABLE>
<CAPTION>
<S> <C>
Objective: To achieve above average total return over a market cycle of three to five years, consistent with
reasonable risk, by investing in a diversified portfolio of common stocks and fixed-income securities of
United States and Foreign issuers.
Approach: The Adviser determines the mix of investments in domestic and foreign equity and fixed-income and high
yield securities expected to maximize available total return. Strategic judgments on the asset mix are
based on valuation disciplines and tools for analysis which have been developed by the Adviser to compare
the relative potential returns and risks of global stock and bond markets.
Policies: Generally at least 65% invested in issuers located in at least 3 countries, including the U.S.
Derivatives may be used to pursue portfolio strategy
Domestic Equity
Capitalization: Generally greater than $1 billion
Quality Specifications: None
Maturity and Duration: Average weighted maturity generally greater than 5 years
Allowable Investments: Common Stock U.S. Governments Agencies
Corporates High Yield Foreign Bonds
Foreign Equities Foreign Currency
Eastern European Issuers Investment Funds Mortgage Securities CMOs
SMBS Asset-Backeds When Issued Brady Bonds
Floaters Inverse Floaters Structured Notes Zero Coupons
Futures & Options Swaps Forwards Cash Equivalents
Repurchase Agreements Convertibles Preferred Stock
Municipals Investment Companies ADRs
Rights Warrants
Loan Participations Emerging Markets Issuers Structured Investments
Comparative Index: A weighted blend of quarterly returns compiled by the Adviser using:
50% S&P 500 Index
14% EAFE-GDP Weighted Index
24% Salomon Broad Investment Grade Index
6% Salomon World Ex U.S. Government Bond Index
6% Salomon High Yield Market Index
Strategies: Asset Allocation Management
Fixed Income Management and Asset Allocation
Maturity and Duration Management
Value Investing
Foreign Fixed Income Investing
Core Equity Management
International Equity Investing
Emerging Markets Investing
High Yield Investing
Foreign Investing
</TABLE>
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PROSPECTUS GLOSSARY
CHARACTERISTICS AND RISKS OF STRATEGIES AND INVESTMENTS
STRATEGIES
Asset Allocation Management: The Adviser's approach to asset allocation
management is to determine investment strategies for each asset class in a
portfolio separately, and then determine the mix of those strategies expected to
maximize the return available from each market. Strategic judgments on the mix
among asset classes are based on valuation disciplines and tools for analysis
which have been developed over the Adviser's twenty-five year history of
managing balanced accounts.
Tactical asset-allocation shifts are based on comparisons of prospective risks,
returns, and the likely risk-reducing benefits derived from combining different
asset classes into a single portfolio. Experienced teams of equity,
fixed-income, and international investment professionals manage the investments
in each asset class.
Core Equity Investing: The Adviser's "core" or primary equity strategy
emphasizes common stocks of large companies, with targeted investments in small
company stocks that promise special growth opportunities. Depending on MAS's
outlook for the economy and different market sectors, the mix between value
stocks and growth stocks will change.
Emerging Markets Investing: The Adviser's approach to emerging markets investing
is based on the Adviser's evaluation of both short-term and long-term
international economic trends and the relative attractiveness of emerging
markets and individual emerging market securities.
As used in this Prospectus, emerging markets describes any country which is
generally considered to be an emerging or developing country by the
international financial community such as the International Bank for
Reconstruction and Development (more commonly known as the World Bank) and the
International Finance Corporation. There are currently over 130 countries which
are generally considered to be emerging or developing countries by the
international financial community, approximately 40 of which currently have
stock markets. Emerging markets can include every nation in the world except the
United States, Canada, Japan, Australia, New Zealand and most nations located in
Western Europe.
Currently, investing in many emerging markets is either not feasible or very
costly, or may involve unacceptable political risks. Other special risks include
the possible increased likelihood of expropriation or the return to power of a
communist regime which would institute policies to expropriate, nationalize or
otherwise confiscate investments. A portfolio will focus its investments on
those emerging market countries in which the Adviser believes the potential for
market appreciation outweighs these risks and/or the cost of investment.
Investing in emerging markets also involves an extra degree of custodial and/or
market risk, especially where the securities purchased are not traded on an
official exchange or where ownership records regarding the securities are
maintained by an unregulated entity (or even the issuer itself).
Fixed Income Management and Asset Allocation: Within Balanced, Multi-Asset-Class
and Special Purpose Fixed Income Portfolios, the Adviser selects fixed-income
securities not only on the basis of judgments regarding Maturity and Duration
Management and Value Investing, but also on the basis of the value offered by
various segments of the fixed-income securities market relative to Cash
Equivalents and Equity Securities. In this context, the Adviser may find that
certain segments of the fixed-income securities market offer more or less
attractive relative value when compared to Equity Securities than when compared
to other Fixed-Income Securities.
For example, in a given interest rate environment, equity securities may be
judged to be fairly valued when compared to intermediate duration fixed-income
securities, but overvalued compared to long duration fixed-income securities.
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Consequently, while a portfolio investing only in fixed-income securities may
not emphasize long duration assets to the same extent, the fixed-income portion
of a balanced investment may invest a percentage of its assets in long duration
bonds on the basis of their valuation relative to equity securities.
Foreign Fixed Income Investing: A portion of a portfolio other than the Cash
Reserve Portfolio may be invested in Foreign Bonds and other Fixed-Income
Securities denominated in foreign currencies, where, in the opinion of the
Adviser, the combination of current yield and currency value offer attractive
expected returns. When the total return opportunities in a foreign bond market
appear attractive in local currency terms, but where in the Adviser's judgment
unacceptable currency risk exists, currency Futures & Options, Forwards and
Swaps may be used to hedge the currency risk.
Foreign Investing: Investors should recognize that investing in securities
issued by foreign companies or governments involves certain special
considerations which are not typically associated with investing in U.S.
companies. Since the securities of foreign issuers may be denominated in foreign
currencies, and since a portfolio may temporarily hold uninvested reserves in
bank deposits of foreign currencies prior to reinvestment or conversion to U.S.
dollars, a portfolio may be affected favorably or unfavorably by changes in
currency rates and in exchange control regulations, and may incur costs in
connection with conversions between various currencies.
As non-U.S. companies are not generally subject to uniform accounting, auditing
and financial reporting standards and practices comparable to those applicable
to U.S. companies, there may be less publicly available information about
certain foreign companies than about U.S. companies. Securities of some non-U.S.
companies may be less liquid and more volatile than securities of comparable
U.S. companies. There is generally less government supervision and regulation of
stock exchanges, brokers and listed companies than in the U.S. With respect to
certain foreign countries, there is the possibility of expropriation or
confiscatory taxation, political or social instability, or diplomatic
developments which could affect U.S. investments in those countries.
Additionally, there may be difficulty in obtaining and enforcing judgments
against foreign issuers.
Although a portfolio will endeavor to achieve the most favorable execution costs
in its portfolio transactions in foreign securities, fixed commissions on many
foreign stock exchanges are generally higher than negotiated commissions on U.S.
exchanges. In addition, it is expected that the expenses for custodial
arrangements of a portfolio's foreign securities will be greater than the
expenses for the custodial arrangements for handling U.S. securities of equal
value. Certain foreign governments levy withholding taxes against dividend and
interest income. Although in some countries a portion of these taxes is
recoverable, the non-recovered portion of foreign withholding taxes will reduce
the income a portfolio receives from the companies comprising the portfolio's
investments.
Growth Stock Investing: Seeks to invest in Common Stocks generally characterized
by higher growth rates, betas, and price/earnings ratios, and lower yields than
the stock market in general as measured by the S&P 500 Index.
High Yield Investing: Involves investing in high yield securities based on the
Adviser's analysis of economic and industry trends and individual security
characteristics. The Adviser conducts credit analysis for each security
considered for investment to evaluate its attractiveness relative to its risk. A
high level of diversification is also maintained to limit credit exposure to
individual issuers.
To the extent a portfolio invests in high yield securities it will be exposed to
a substantial degree of credit risk. Lower-rated bonds are considered
speculative by traditional investment standards. High yield securities may be
issued as a consequence of corporate restructuring or similar events. Also, high
yield securities are often issued by smaller, less credit worthy companies, or
by highly leveraged (indebted) firms, which are generally less able than more
established or less leveraged firms to make scheduled payments of interest and
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principal. The risks posed by securities issued under such circumstances are
substantial.
The market for high yield securities is still relatively new. Because of this, a
long-term track record for bond default rates does not exist. In addition, the
secondary market for high yield securities is generally less liquid than that
for investment grade corporate securities. In periods of reduced market
liquidity, high yield bond prices may become more volatile, and both the high
yield market and a portfolio may experience sudden and substantial price
declines. This lower liquidity might have an effect on a portfolio's ability to
value or dispose of such securities. Also, there may be significant disparities
in the prices quoted for high yield securities by various dealers. Under such
conditions, a portfolio may find it difficult to value its securities
accurately. A portfolio may also be forced to sell securities at a significant
loss in order to meet shareholder redemptions. These factors add to the risks
associated with investing in high yield securities.
High yield bonds may also present risks based on payment expectations. For
example, high yield bonds may contain redemption or call provisions. If an
issuer exercises these provisions in a declining interest rate market, a
portfolio would have to replace the security with a lower yielding security,
resulting in a decreased return for investors. Conversely, a high yield bond's
value will decrease in a rising interest rate market.
Certain types of high yield bonds are non-income paying securities. For example,
zero coupon bonds pay interest only at maturity and payment-in-kind bonds pay
interest in the form of additional securities. Payment in the form of additional
securities, or interest income recognized through discount accretion, will,
however, be treated as ordinary income which will be distributed to shareholders
even though the portfolio does not receive periodic cash flow from these
investments.
International Equity Investing: The Adviser's approach to international equity
investing is based on its evaluation of both short-term and long-term
international economic trends and the relative attractiveness of non-U.S. equity
markets and individual securities.
MAS considers fundamental investment characteristics, the principles of
valuation and diversification, and a relatively long-term investment time
horizon. Since liquidity will also be a consideration, emphasis will likely be
influenced by the relative market capitalizations of different non-U.S. stock
markets and individual securities. Portfolios seek to diversify investments
broadly among both developed and newly industrializing foreign countries. Where
appropriate, a portfolio may also invest in regulated investment companies or
investment funds which invest in such countries to the extent allowed by
applicable law.
Maturity and Duration Management: One of two primary components of the Adviser's
fixed-income investment strategy is maturity and duration management. The
maturity and duration structure of a portfolio investing in Fixed-Income
Securities is actively managed in anticipation of cyclical interest rate
changes. Adjustments are not made in an effort to capture short-term, day-to-day
movements in the market, but instead are implemented in anticipation of longer
term shifts in the levels of interest rates. Adjustments made to shorten
portfolio maturity and duration are made to limit capital losses during periods
when interest rates are expected to rise. Conversely, adjustments made to
lengthen maturity are intended to produce capital appreciation in periods when
interest rates are expected to fall. The foundation for maturity and duration
strategy lies in analysis of the U.S. and global economies, focusing on levels
of real interest rates, monetary and fiscal policy actions, and cyclical
indicators. See Value Investing for a description of the second primary
component of MAS' fixed-income strategy.
Most debt obligations provide interest (coupon) payments in addition to a final
(par) payment at maturity. Some obligations also have call provisions. Depending
on the relative magnitude of these payments and the nature of the call
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provisions, the market values of debt obligations may respond differently to
changes in the level and structure of interest rates. Traditionally, a debt
security's term-to-maturity has been used as a proxy for the sensitivity of
the security's price to changes in interest rates (which is the interest rate
risk or volatility of the security). However, term-to-maturity measures only the
time until a debt security provides its final payment, taking no account of the
pattern of the security's payments prior to maturity.
Duration is a measure of the expected life of a fixed-income security that was
developed as a more precise alternative to the concept of term-to-maturity.
Duration incorporates a bond's yield, coupon interest payments, final maturity
and call features into one measure. Duration is one of the fundamental tools
used by the Adviser in the selection of fixed-income securities. Duration is a
measure of the expected life of a fixed-income security on a present value
basis. Duration takes the length of the time intervals between the present time
and the time that the interest and principal payments are scheduled or, in the
case of a callable bond, expected to be received, and weights them by the
present values of the cash to be received at each future point in time. For any
fixed-income security with interest payments occurring prior to the payment of
principal, duration is always less than maturity. In general, all other factors
being the same, the lower the stated or coupon rate of interest of a
fixed-income security, the longer the duration of the security; conversely, the
higher the stated or coupon rate of interest of a fixed-income security, the
shorter the duration of the security.
There are some situations where even the standard duration calculation does not
properly reflect the interest rate exposure of a security. For example, floating
and variable rate securities often have final maturities of ten or more years;
however, their interest rate exposure corresponds to the frequency of the coupon
reset. Another example where the interest rate exposure is not properly captured
by duration is the case of mortgage pass-through securities. The stated final
maturity of such securities is generally 30 years, but current prepayment rates
are more critical in determining the securities' interest rate exposure. In
these and other similar situations, the Adviser will use sophisticated
analytical techniques that incorporate the economic life of a security into the
determination of its interest rate exposure.
Money Market Investing: A money market fund like the Cash Reserves Portfolio
invests in securities which present minimal credit risk and may not yield as
high a level of current income as securities of lower quality or longer
maturities which generally have less liquidity, greater market risk and more
price fluctuation. A money market portfolio is designed to provide maximum
principal stability for investors seeking to invest funds for the short-term,
or, for investors seeking to combine a long-term investment program in other
portfolios of the Fund with an investment in money market instruments. However,
because the Cash Reserves Portfolio invests in the money market obligations of
private financial and non-financial corporations in addition to those of the
U.S. Government or its agencies and instrumentalities, it offers higher credit
risk and yield potential relative to money market funds which invest exclusively
in U.S. Government securities. The Cash Reserves Portfolio seeks to maintain,
but does not guarantee, a constant net asset value of $1.00 per share.
Mortgage Investing: At times it is anticipated that greater than 50% of a
fixed-income portfolio's assets may be invested in mortgage-related securities.
These include mortgage-backed securities, which represent interests in pools of
mortgage loans made by lenders such as commercial banks, savings and loan
associations, mortgage bankers and others. The pools are assembled by various
organizations, including the Government National Mortgage Association (GNMA),
Federal Home Loan Mortgage Corporation (FHLMC), Federal National Mortgage
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Association (FNMA), other government agencies, and private issuers. It is
expected that a portfolio's primary emphasis will be on mortgage-backed
securities issued by the various Government-related organizations. However, a
portfolio may invest, without limit, in mortgage-backed securities issued by
private issuers when the Adviser deems that the quality of the investment, the
quality of the issuer, and market conditions warrant such investments.
Securities issued by private issuers will be rated investment grade by Moody's
or Standard & Poor's or be deemed by the Adviser to be of comparable investment
quality.
Municipals Management: MAS manages municipal portfolios in a total return
context. This means that taxable investments will regularly be included in a
portfolio when they have an attractive prospective after-tax total return,
regardless of the taxable nature of income on the security.
MAS Municipals Management emphasizes a diversified portfolio of high grade
municipal debt securities. Under normal circumstances, a portfolio will invest
at least 80% of net assets in municipal securities including AMT Bonds and at
least 80% will be Investment Grade Securities.
Under normal conditions, a portfolio may hold up to 20% of net assets in U.S.
Governments, Agencies, Corporates, Cash Equivalents, Preferred Stocks, Mortgage
Securities, Asset-Backeds, Floaters, and Inverse Floaters and other Fixed Income
Securities instruments (collectively "Taxable Investments").
Non-Diversified Status: A portfolio may be classified as a non-diversified
investment company under the Investment Company Act of 1940, as amended.
Non-diversified portfolios may invest more than 25% of assets in securities of
individual issuers representing greater than 5% each of a portfolio's total
assets, whereas diversified investment companies may only invest up to 25% of
assets in positions of greater than 5%. Both diversified and non-diversified
portfolios are subject to diversification specifications under the Internal
Revenue Code of 1986, as amended, which require that, as of the close of each
fiscal quarter, (i) no more than 25% of a portfolio's total assets may be
invested in the securities of a single issuer (except for U.S. Government
securities) and (ii) with respect to 50% of its total assets, no more than 5% of
such assets may be invested in the securities of a single issuer (except for
U.S. Government securities) or invested in more than 10% of the outstanding
voting securities of a single issuer. Because of its non-diversified status, a
portfolio may be subject to greater credit and other risks than a diversified
investment company.
Value Investing: One of two primary components of the Adviser's fixed-income
strategy is value investing, whereby MAS seeks to identify undervalued sectors
and securities through analysis of credit quality, option characteristics and
liquidity. Quantitative models are used in conjunction with judgment and
experience to evaluate and select securities with embedded put or call options
which are attractive on a risk- and option-adjusted basis. Successful value
investing will permit a portfolio to benefit from the price appreciation of
individual securities during periods when interest rates are unchanged. See
Maturity and Duration Management for a description of the other key component of
MAS's fixed-income investment strategy.
Value Stock Investing: Emphasizes common stocks which are deemed by the Adviser
to be undervalued relative to the stock market in general as measured by the
appropriate market index, based on value measures such as price/earnings ratios
and price/book ratios. Value stocks are generally dividend paying common stocks.
However, non-dividend paying stocks may also be selected for their value
characteristics.
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INVESTMENTS
Each Portfolio may invest in the securities defined below in accordance with
their listing of Allowable Investments and any quality or policy constraints.
ADRs--American Depository Receipts: are dollar-denominated securities which are
listed and traded in the United States, but which represent claims to shares of
foreign stocks. ADRs may be either sponsored or unsponsored. Unsponsored ADR
facilities typically provide less information to ADR holders.
Agencies: are securities which are not guaranteed by the U.S. Government, but
which are issued, sponsored or guaranteed by a federal agency or federally
sponsored agency such as the Student Loan Marketing Association, Resolution
Funding Corporation, or any of several other agencies.
Asset-Backeds: are securities collateralized by shorter term loans such as
automobile loans, home equity loans, computer leases, or credit card
receivables. The payments from the collateral are passed through to the security
holder. The collateral behind asset-backed securities tends to have prepayment
rates that do not vary with interest rates. In addition the short-term nature of
the loans reduces the impact of any change in prepayment level. Due to
amortization, the average life for these securities is also the conventional
proxy for maturity.
Possible Risks: Due to the possibility that prepayments (on automobile loans
and other collateral) will alter the cash flow on asset-backed securities, it is
not possible to determine in advance the actual final maturity date or average
life. Faster prepayment will shorten the average life and slower prepayments
will lengthen it. However, it is possible to determine what the range of that
movement could be and to calculate the effect that it will have on the price of
the security. In selecting these securities, the Adviser will look for those
securities that offer a higher yield to compensate for any variation in average
maturity.
Brady Bonds: are debt obligations which are created through the exchange of
existing commercial bank loans to foreign entities for new obligations in
connection with debt restructuring under a plan introduced by former U.S.
Secretary of the Treasury, Nicholas F. Brady (the Brady Plan). Brady Bonds have
been issued only recently, and, accordingly, do not have a long payment history.
They may be collateralized or uncollateralized and issued in various currencies
(although most are dollar-denominated) and they are actively traded in the
over-the-counter secondary market. For further information on these securities,
see the Statement of Additional Information. Portfolios will only invest in
Brady Bonds consistent with quality specifications.
Cash Equivalents: are short-term fixed-income instruments comprising:
(1) Time deposits, certificates of deposit (including marketable variable rate
certificates of deposit) and bankers' acceptances issued by a commercial bank or
savings and loan association. Time deposits are non-negotiable deposits
maintained in a banking institution for a specified period of time at a stated
interest rate. Certificates of deposit are negotiable short-term obligations
issued by commercial banks or savings and loan associations against funds
deposited in the issuing institution. Variable rate certificates of deposit are
certificates of deposit on which the interest rate is periodically adjusted
prior to their stated maturity based upon a specified market rate. A bankers'
acceptance is a time draft drawn on a commercial bank by a borrower usually in
connection with an international commercial transaction (to finance the import,
export, transfer or storage of goods).
A portfolio may invest in obligations of U.S. banks, foreign branches of U.S.
banks (Eurodollars), and U.S. branches of foreign banks (Yankee dollars). Euro
and Yankee dollar investments will involve some of the same risks of investing
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in international securities that are discussed in the Foreign Investing section
of this Prospectus.
Portfolios will not invest in any security issued by a commercial bank unless
(i) the bank has total assets of at least $1 billion, or the equivalent in other
currencies, or, in the case of domestic banks which do not have total assets of
at least $1 billion, the aggregate investment made in any one such bank is
limited to $100,000 and the principal amount of such investment is insured in
full by the Federal Deposit Insurance Corporation, (ii) in the case of U.S.
banks, it is a member of the Federal Deposit Insurance Corporation, and (iii) in
the case of foreign branches of U.S. banks, the security is deemed by the
Adviser to be of an investment quality comparable with other debt securities
which may be purchased by the portfolio.
(2) Each portfolio (except Cash Reserves) may invest in commercial paper rated
at time of purchase by one or more NRSRO in one of their two highest categories,
(e.g., A-l or A-2 by Standard & Poor's or Prime 1 or Prime 2 by Moody's), or, if
not rated, issued by a corporation having an outstanding unsecured debt issue
rated high-grade by a NRSRO (e.g. A or better by Moody's, Standard & Poor's or
Fitch). The Cash Reserves Portfolio invests only in commercial paper rated in
the highest category;
(3) Short-term corporate obligations rated high-grade at the time of purchase by
a NRSRO (e.g. A or better by Moody's, Standard & Poor's or Fitch);
(4) U.S. Government obligations including bills, notes, bonds and other debt
securities issued by the U.S. Treasury. These are direct obligations of the U.S.
Government and differ mainly in interest rates, maturities and dates of issue;
(5) Securities issued or guaranteed by U.S. Government sponsored
instrumentalities and Federal agencies. These include securities issued by the
Federal Home Loan Banks, Federal Land Bank, Farmers Home Administration, Farm
Credit Banks, Federal Intermediate Credit Bank, Federal National Mortgage
Association, Federal Financing Bank, the Tennessee Valley Authority, and others;
(6) Repurchase agreements collateralized by securities listed above; and
(7) Investments by the Cash Reserve Portfolio in Cash Equivalents are limited by
the quality, maturity and diversification requirements adopted under Rule 2a-7
of the 1940 Act.
CMOs--Collateralized Mortgage Obligations: are Derivatives which are
collateralized by mortgage pass-through securities. Cash flows from the mortgage
pass-through securities are allocated to various tranches (a "tranche" is
essentially a separate security) in a predetermined, specified order. Each
tranche has a stated maturity - the latest date by which the tranche can be
completely repaid, assuming no prepayments and has an average life - the average
of the time to receipt of a principal payment weighted by the size of the
principal payment. The average life is typically used as a proxy for maturity
because the debt is amortized (repaid a portion at a time), rather than being
paid off entirely at maturity, as would be the case in a straight debt
instrument.
Possible Risks: Due to the possibility that prepayments (on home mortgages and
other collateral) will alter the cash flow on CMOs, it is not possible to
determine in advance the actual final maturity date or average life. Faster
prepayment will shorten the average life and slower prepayments will lengthen
it. However, it is possible to determine what the range of that movement could
be and to calculate the effect that it will have on the price of the security.
In selecting these securities, the Adviser will look for those securities that
offer a higher yield to compensate for any variation in average maturity.
Prepayment risk has two important effects. First, like bonds in general,
mortgage-backed securities will generally decline in price when interest rates
rise. However, when interest rates fall, mortgages may not enjoy as large a gain
in market value due to prepayment risk. Second, when interest rates fall,
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additional mortgage prepayments must be reinvested at lower interest rates. In
part to compensate for these risks, mortgages will generally offer higher yields
than comparable bonds.
Common Stocks: are Equity Securities which represent an ownership interest in a
corporation, entitling the shareholder to voting rights and receipt of dividends
paid based on proportionate ownership.
Convertibles: are convertible bonds or shares of convertible Preferred Stock
which may be exchanged for a fixed number of shares of Common Stock at the
purchaser's option.
Corporates--corporate bonds: are debt instruments issued by private
corporations. Bondholders, as creditors, have a prior legal claim over common
and preferred stockholders of the corporation as to both income and assets for
the principal and interest due to the bondholder. A portfolio will buy
Corporates subject to any quality constraints. If a security held by a portfolio
is down-graded, the portfolio may retain the security.
Derivatives: A financial instrument whose value and performance are based on the
value and performance of another security or financial instrument. The Adviser
will use derivatives only in circumstances where they offer the most economic
means of improving the risk/reward profile of the portfolio. The Adviser will
not use derivatives to increase portfolio risk above the level that could be
achieved in the portfolio using only traditional investment securities. In
addition, the Adviser will not use derivatives to acquire exposure to changes in
the value of assets or indexes that by themselves would not be purchased for the
portfolio. Any applicable limitations are described under each investment
definition. All of the MAS Funds, except the Cash Reserves Portfolio, may enter
into over-the-counter Derivatives transactions with counterparties
approved by MAS in accordance with guidelines established by the Board of
Trustees. These guidelines provide for a minimum credit rating for each
counterparty and various credit enhancement techniques (for example,
collateralization of amounts due from counterparties) to limit exposure to
counterparties with ratings below AA.
Eastern European Issuers: The economies of Eastern European countries are
currently suffering both from the stagnation resulting from centralized economic
planning and control and the higher prices and unemployment associated with the
transition to market economics. Unstable economic and political conditions may
adversely affect security values. Upon the accession to power of Communist
regimes approximately 40 years ago, the governments of a number of Eastern
European countries expropriated a large amount of property. The claims of many
property owners against those governments were never finally settled. In the
event of the return to power of the Communist Party, there can be no assurance
that the portfolio's investments in Eastern Europe would not be expropriated,
nationalized or otherwise confiscated.
Emerging Markets Issuers: An emerging market security is one issued by a company
that has one or more of the following characteristics: (i) its principal
securities trading market is in an emerging market, (ii) alone or on a
consolidated basis it derives 50% or more of its annual revenue from either
goods produced, sales made or services performed in emerging markets, or (iii)
it is organized under the laws of, and has a principal office in, an emerging
market country. The Adviser will base determinations as to eligibility on
publicly available information and inquiries made to the companies. Investing in
emerging markets may entail purchasing securities issued by or on behalf of
entities that are insolvent, bankrupt, in default or otherwise engaged in an
attempt to reorganize or reschedule their obligations, and in entities that have
little or no proven credit rating or credit history. In any such case, the
issuer's poor or deteriorating financial condition may increase the likelihood
that the investing fund will experience losses or diminution in available gains
due to bankruptcy, insolvency or fraud.
Equity Securities: Commonly include but are not limited to Common Stock,
Preferred Stock, ADRs, Rights, Warrants, Convertibles, and Foreign Equities.
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See each individual portfolio listing of Investments to determine which of the
above the portfolio can hold. Preferred Stock is contained in both the
definition of Equity Securities and Fixed-Income Securities since it exhibits
characteristics commonly associated with each type.
Fixed-Income Securities: Commonly include but are not limited to U.S.
Governments, Zero Coupons, Agencies, Corporates, High Yield, Mortgage
Securities, SMBS, CMOs, Asset-Backeds, Convertibles, Brady Bonds, Floaters,
Inverse Floaters, Cash Equivalents, Repurchase Agreements, Preferred Stock, and
Foreign Bonds. See each individual portfolio listing of Investments to determine
which securities a portfolio may hold. Preferred Stock is contained in both the
definition of Equity Securities and Fixed-Income Securities since it exhibits
characteristics commonly associated with each type of security.
Floaters--Floating and Variable Rate Obligations: are debt obligations with a
floating or variable rate of interest, i.e. the rate of interest varies with
changes in specified market rates or indices, such as the prime rate, or at
specified intervals. Certain floating or variable rate obligations may carry a
demand feature that permits the holder to tender them back to the issuer of the
underlying instrument, or to a third party, at par value prior to maturity. When
the demand feature of certain floating or variable rate obligations represents
an obligation of a foreign entity, the demand feature will be subject to certain
risks discussed under Foreign Investing.
Foreign Currency: Portfolios investing in foreign securities will regularly
transact security purchases and sales in foreign currencies. These portfolios
may hold foreign currency or purchase or sell currencies on a forward basis (see
Forwards).
Foreign Equities: are Common Stock, Preferred Stock, Rights and Warrants of
foreign issuers. Investing in foreign companies involves certain special
considerations which are not typically associated with investing in U.S.
companies (see Foreign Investing).
Foreign Bonds: are Fixed-Income Securities denominated in foreign currency
including: (1) obligations issued or guaranteed by foreign national governments,
their agencies, instrumentalities, or political subdivisions; (2) debt
securities issued, guaranteed or sponsored by supranational organizations
established or supported by several national governments, including the World
Bank, the European Community, the Asian Development Bank and others; (3)
non-government foreign corporate debt securities; and (4) foreign Mortgage
Securities and various other mortgage and asset-backed securities denominated in
foreign currency.
Forwards--Forward Foreign Currency Exchange Contracts: are Derivatives which are
used to protect against uncertainty in the level of future foreign exchange
rates. A forward foreign currency exchange contract is an obligation to purchase
or sell a specific currency at a future date, which may be any fixed number of
days from the date of the contract agreed upon by the parties, at a price set at
the time of the contract. Such contracts, which protect the value of a
portfolio's investment securities against a decline in the value of a currency,
do not eliminate fluctuations caused by changes in the local currency prices of
the securities, but rather, they simply establish an exchange rate at a future
date. Also, although such contracts minimize the risk of loss due to a decline
in the value of the hedged currency, at the same time they limit any potential
gain that might be realized.
A portfolio may use currency exchange contracts in the normal course of business
to lock in an exchange rate in connection with purchases and sales of securities
denominated in foreign currencies (transaction hedge) or to lock in the U.S.
dollar value of portfolio positions (position hedge). In addition the portfolios
may cross-hedge currencies by entering into a transaction to purchase or sell
one or more currencies that are expected to decline in value relative to other
currencies to which a portfolio has or expects to have portfolio exposure.
Portfolios may also engage in proxy hedging which is defined as entering into
positions in one currency to hedge investments denominated in another currency,
where the two currencies are economically linked. A portfolio's entry into
forward contracts, as well as any use of Cross or Proxy hedging techniques will
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generally require the portfolio to hold high-grade, liquid securities or cash
equal to the portfolio's obligations in a segregated account throughout the
duration of the contract.
A portfolio may also combine forward contracts with investments in securities
denominated in other currencies in order to achieve desired credit and currency
exposures. Such combinations are generally referred to as synthetic securities.
For example, in lieu of purchasing a foreign bond, a portfolio may purchase a
U.S. dollar-denominated security and at the same time enter into a forward
contract to exchange U.S. dollars for the contract's underlying currency at a
future date. By matching the amount of U.S. dollars to be exchanged with the
anticipated value of the U.S. dollar-denominated security, a portfolio may be
able to lock in the foreign currency value of the security and adopt a synthetic
investment position reflecting the credit quality of the U.S. dollar-denominated
security.
There is a risk in adopting a synthetic investment position to the extent that
the value of a security denominated in the U.S. dollar or other foreign currency
is not exactly matched with a portfolio's obligation under the forward contract.
On the date of maturity, a portfolio may be exposed to some risk of loss from
fluctuations in that currency. Although the Adviser will attempt to hold such
mismatching to a minimum, there can be no assurance that the Adviser will be
able to do so. When a portfolio enters into a forward contract for purposes of
creating a synthetic security, it will generally be required to hold high-grade,
liquid securities or cash in a segregated account with a daily value at least
equal to its obligation under the forward contract.
Futures & Options--Futures Contracts, Options on Futures Contracts and Options:
are Derivatives. Futures contracts provide for the sale by one party and
purchase by another party of a specified amount of a specific security, at a
specified future time and price. An option is a legal contract that gives the
holder the right to buy or sell a specified amount of the underlying security or
futures contract at a fixed or determinable price upon the exercise of the
option. A call option conveys the right to buy and a put option conveys the
right to sell a specified quantity of the underlying security.
A portfolio will not enter into futures contracts to the extent that its
outstanding obligations to purchase securities under these contracts in
combination with its outstanding obligations with respect to options
transactions would exceed 50% of its total assets. It will maintain assets
sufficient to meet its obligations under such contracts in a segregated account
with the custodian bank or will otherwise comply with the SEC's position on
asset coverage.
Possible Risks: The primary risks associated with the use of futures and options
are (i) imperfect correlation between the change in market value of the
securities held by a portfolio and the prices of futures and options relating to
the stocks, bonds or futures contracts purchased or sold by a portfolio; and
(ii) possible lack of a liquid secondary market for a futures contract and the
resulting inability to close a futures position which could have an adverse
impact on a portfolio's ability to execute futures and options strategies.
Additional risks associated with options transactions are (i) the risk that an
option will expire worthless; (ii) the risk that the issuer of an
over-the-counter option will be unable to fulfill its obligation to the
portfolio due to bankruptcy or related circumstances; (iii) the risk that
options may exhibit greater short-term price volatility than the underlying
security; and (iv) the risk that a portfolio may be forced to forego
participation in the appreciation of the value of underlying securities, futures
contracts or currency due to the writing of a call option.
High Yield: High yield securities are generally considered to be corporate
bonds, preferred stocks, and convertible securities rated Ba through C by
Moody's or BB through D by Standard & Poor's, and unrated securities considered
to be of equivalent quality. Securities rated less than Baa by Moody's or BBB by
Standard & Poor's are classified as non-investment grade securities and are
commonly referred to as junk bonds or high yield, high risk securities. Such
securities carry a high degree of risk and are considered speculative by the
major credit rating agencies. The following are excerpts from the Moody's and
Standard & Poor's definitions for speculative-grade debt obligations:
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Moody's: Ba-rated bonds have "speculative elements" so their future "cannot
be considered assured," and protection of principal and interest is
"moderate" and "not well safeguarded during both good and bad times in the
future." B-rated bonds "lack characteristics of a desirable investment" and
the assurance of interest or principal payments "may be small." Caa-rated
bonds are "of poor standing" and "may be in default" or may have "elements
of danger with respect to principal or interest." Ca-rated bonds represent
obligations which are speculative in a high degree. Such issues are often
in default or have other marked shortcomings. C-rated bonds are the "lowest
rated" class of bonds, and issues so rated can be regarded as having
"extremely poor prospects" of ever attaining any real investment standing.
Standard & Poor's: BB-rated bonds have "less near-term vulnerability to
default" than B- or CCC-rated securities but face "major ongoing
uncertainties . . . which may lead to inadequate capacity" to pay interest
or principal. B-rated bonds have a "greater vulnerability to default than
BB-rated bonds and the ability to pay interest or principal will likely be
impaired by adverse business conditions." CCC-rated bonds have a currently
identifiable "vulnerability to default" and, without favorable business
conditions, will be "unable to repay interest and principal." C The rating
C is reserved for income bonds on which "no interest is being paid." D -
Debt rated D is in "default", and "payment of interest and/or repayment of
principal is in arrears."
While these securities offer high yields, they also normally carry with them a
greater degree of risk than securities with higher ratings.
Lower-rated bonds are considered speculative by traditional investment
standards. High yield securities may be issued as a consequence of corporate
restructuring or similar events. Also, high yield securities are often issued by
smaller, less credit worthy companies, or by highly leveraged (indebted) firms,
which are generally less able than more established or less leveraged firms to
make scheduled payments of interest and principal. The price movement of these
securities is influenced less by changes in interest rates and more by the
financial and business position of the issuing corporation when compared to
investment grade bonds.
The risks posed by securities issued under such circumstances are substantial.
If a security held by a portfolio is down-graded, the portfolio may retain the
security.
Inverse Floaters--Inverse Floating Rate Obligations: are Fixed-Income
Securities, which have coupon rates that vary inversely at a multiple of a
designated floating rate, such as LIBOR (London Inter-Bank Offered Rate). Any
rise in the reference rate of an inverse floater (as a consequence of an
increase in interest rates) causes a drop in the coupon rate while any drop in
the reference rate of an inverse floater causes an increase in the coupon rate.
Inverse floaters may exhibit substantially greater price volatility than fixed
rate obligations having similar credit quality, redemption provisions and
maturity, and inverse floater CMOs exhibit greater price volatility than the
majority of mortgage pass-through securities or CMOs. In addition, some inverse
floater CMOs exhibit extreme sensitivity to changes in prepayments. As a result,
the yield to maturity of an inverse floater CMO is sensitive not only to changes
in interest rates but also to changes in prepayment rates on the related
underlying mortgage assets.
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Investment Companies: The portfolios are permitted to invest in shares of other
open-end or closed-end investment companies. The Investment Company Act of 1940,
as amended, generally prohibits the portfolios from acquiring more than 3% of
the outstanding voting shares of an investment company and limits such
investments to no more than 5% of the portfolio's total assets in any one
investment company and no more than 10% in any combination of investment
companies. The 1940 Act also prohibits the portfolios from acquiring in the
aggregate more than 10% of the outstanding voting shares of any registered
close-end investment company.
To the extent a portfolio invests a portion of its assets in Investment
Companies, those assets will be subject to the expenses of the purchased
investment company as well as to the expenses of the portfolio itself. The
portfolios may not purchase shares of any affiliated investment company except
as permitted by SEC Rule or Order.
Investment Funds: Some emerging market countries have laws and regulations that
currently preclude direct foreign investment in the securities of their
companies. However, indirect foreign investment in the securities of companies
listed and traded on the stock exchanges in these countries is permitted by
certain emerging market countries through investment funds. The International
Equity and Emerging Markets portfolios may invest in these investment funds
subject to applicable law as discussed under Investment Restrictions. The
International Equity and Emerging Markets portfolios will invest in such
investment funds only where appropriate given that the portfolio's shareholders
will bear indirectly the layer of expenses of the underlying investment funds in
addition to their proportionate share of the expenses of the portfolio. Under
certain circumstances, an investment in an investment fund will be subject to
the additional limitations that apply to investments in Investment Companies.
Investment Grade Securities: are those rated by one or more nationally
recognized statistical rating organization (NRSRO) in one of the four highest
rating categories at the time of purchase (e.g. AAA, AA, A or BBB by Standard &
Poor's Corporation (Standard & Poor's) or Fitch Investors Service, Inc., (Fitch)
or Aaa, Aa, A or Baa by Moody's Investors Service, Inc. (Moody's)). Securities
rated BBB or Baa represent the lowest of four levels of investment grade
securities and are regarded as borderline between definitely sound obligations
and those in which the speculative element begins to predominate.
Mortgage-backed securities, including mortgage pass-throughs and collateralized
mortgage obligations (CMOs), deemed investment grade by the Adviser, will either
carry a guarantee from an agency of the U.S. Government or a private issuer of
the timely payment of principal and interest (such guarantees do not extend to
the market value of such securities or the net asset value per share of the
portfolio) or, in the case of unrated securities, be sufficiently seasoned that
they are considered by the Adviser to be investment grade quality. The Adviser
may retain securities if their ratings falls below investment grade if it deems
retention of the security to be in the best interests of the portfolio. Any
Portfolio permitted to hold Investment Grade Securities may hold unrated
securities if the Adviser considers the risks involved in owning that security
to be equivalent to the risks involved in holding an Investment Grade Security.
Loan Participations: are loans or other direct debt instruments which are
interests in amounts owed by a corporate, governmental or other borrower to
another party. They may represent amounts owed to lenders or lending syndicates,
to suppliers of goods or services (trade claims or other receivables), or to
other parties. Direct debt instruments involve the risk of loss in case of
default or insolvency of the borrower. Direct debt instruments may offer less
legal protection to the portfolio in the event of fraud or misrepresentation. In
addition, loan participations involve a risk of insolvency of the lending bank
or other financial intermediary. Direct debt instruments may also include
standby financing commitments that obligate the investing portfolio to supply
additional cash to the borrower on demand. Loan participations involving
Emerging Market Issuers may relate to loans as to which there has been or
currently exists an event of default or other failure to make payment when due,
and may represent amounts owed to financial institutions that are themselves
subject to political and economic risks, including the risk of currency
devaluation, expropriation, or failure. Such loan participations present
additional risks of default or loss.
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Mortgage Securities--Mortgage-backed securities represent an ownership interest
in a pool of residential and commercial mortgage loans. Generally, these
securities are designed to provide monthly payments of interest and principal to
the investor. The mortgagee's monthly payments to his/her lending institution
are passed through to investors such as the portfolio. Most issuers or poolers
provide guarantees of payments, regardless of whether the mortgagor actually
makes the payment. The guarantees made by issuers or poolers are supported by
various forms of credit, collateral, guarantees or insurance, including
individual loan, title, pool and hazard insurance purchased by the issuer. The
pools are assembled by various Governmental, Government-related and private
organizations. Portfolios may invest in securities issued or guaranteed by the
Government National Mortgage Association (GNMA), Federal Home Loan Mortgage
Corporation (FHLMC), Federal National Mortgage Association (FNMA), private
issuers and other government agencies. There can be no assurance that the
private insurers can meet their obligations under the policies. Mortgage-backed
securities issued by non-agency issuers, whether or not such securities are
subject to guarantees, may entail greater risk. If there is no guarantee
provided by the issuer, mortgage-backed securities purchased by the portfolio
will be those which at time of purchase are rated investment grade by one or
more NRSRO, or, if unrated, are deemed by the Adviser to be of investment grade
quality.
Due to the possibility that prepayments on home mortgages will alter cash flow
on mortgage securities, it is not possible to determine in advance the actual
final maturity date or average life. Faster prepayment will shorten the average
life and slower prepayments will lengthen it. However, it is possible to
determine what the range of that movement could be and to calculate the effect
that it will have on the price of the security. In selecting these securities,
the Adviser will look for those securities that offer a higher yield to
compensate for any variation in average maturity.
There are two methods of trading mortgage-backed securities. A specified pool
transaction is a trade in which the pool number of the security to be delivered
on the settlement date is known at the time the trade is made. This is in
contrast with the typical mortgage security transaction, called a TBA (to be
announced) transaction, in which the type of mortgage securities to be delivered
is specified at the time of trade but the actual pool numbers of the securities
that will be delivered are not known at the time of the trade. The pool numbers
of the pools to be delivered at settlement will be announced shortly before
settlement takes place. The terms of the TBA trade may be made more specific if
desired. Generally, agency pass-through mortgage-backed securities are traded on
a TBA basis.
A mortgage-backed bond is a collateralized debt security issued by a thrift or
financial institution. The bondholder has a first priority perfected security
interest in collateral, usually consisting of agency mortgage pass-through
securities, although other assets, including U.S. Treasuries (including Zero
Coupon Treasury Bonds), agencies, cash equivalent securities, whole loans and
corporate bonds, may qualify. The amount of collateral must be continuously
maintained at levels from 115% to 150% of the principal amount of the bonds
issued, depending on the specific issue structure and collateral type.
Municipals--Municipal Securities: are debt obligations issued by local, state
and regional governments that provide interest income which is exempt from
federal income taxes. Municipal securities include both municipal bonds (those
securities with maturities of five years or more) and municipal notes (those
with maturities of less than five years). Municipal bonds are issued for a wide
variety of reasons: to construct public facilities, such as airports, highways,
bridges, schools, hospitals, mass transportation, streets, water and sewer
works; to obtain funds for operating expenses; to refund outstanding municipal
obligations; and to loan funds to various public institutions and facilities.
Certain industrial development bonds are also considered municipal bonds if
their interest is exempt from federal income tax. Industrial development bonds
are issued by or on behalf of public authorities to obtain funds for various
privately-operated manufacturing facilities, housing, sports arenas, convention
centers, airports, mass transportation systems and water, gas or sewage works.
Industrial development bonds are ordinarily dependent on the credit quality of a
private user, not the public issuer.
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General obligation municipal bonds are secured by the issuer's pledge of full
faith, credit and taxing power. Revenue or special tax bonds are payable from
the revenues derived from a particular facility or, in some cases, from a
special excise or other tax, but not from general tax revenue.
Municipal notes are issued to meet the short-term funding requirements of local,
regional and state governments. Municipal notes include bond anticipation notes,
revenue anticipation notes and tax and revenue anticipation notes. These are
short-term debt obligations issued by state and local governments to aid cash
flows while waiting for taxes or revenue to be collected, at which time the debt
is retired. Other types of municipal notes in which the portfolio may invest are
construction loan notes, short-term discount notes, tax-exempt commercial paper,
demand notes, and similar instruments. Demand notes permit an investor (such as
the portfolio) to demand from the issuer payment of principal plus accrued
interest upon a specified number of days' notice. The portfolios eligible to
purchase municipal bonds may also purchase AMT bonds. AMT bonds are tax-exempt
private activity bonds issued after August 7, 1986, the proceeds of which are
directed, at least in part, to private, for-profit organizations. While the
income from AMT bonds is exempt from regular federal income tax, it is a tax
preference item in the calculation of the alternative minimum tax. The
alternative minimum tax is a special separate tax that applies to a limited
number of taxpayers who have certain adjustments to income or tax preference
items.
PA Municipals: are obligations of the Pennsylvania state government, state
agencies and various local governments, including counties, cities, townships,
special districts and authorities. In general, the credit quality and credit
risk of any issuer's debt is contingent upon the state and local economy, the
health of the issuer's finances, the amount of the issuer's debt, the quality of
management and the strength of legal provisions in the debt document that
protect debt holders. Credit risk is usually lower wherever the economy is
strong, growing and diversified, where financial operations are sound and the
debt burden is reasonable.
Concentration of investment in the securities of one state exposes a portfolio
to greater credit risks than would be present in a nationally diversified
portfolio of municipal securities. The risks associated with investment in the
securities of a single state include possible tax changes or a deterioration in
economic conditions and differing levels of supply and demand for the municipal
obligations of that state.
Factors contributing positively to credit quality in Pennsylvania include a
favorable debt structure, a diversifying economic base, and conservatively
managed financial operations on the part of state government in the 1980s.
Tax-supported debt is only slightly above average state levels on a per capital
basis and as a percent of state personal income. Over the past two decades, this
debt burden has improved considerably in Pennsylvania, and debt continues to be
rapidly retired, while state borrowing plans are modest. However, recent growth
in the state economy has bypassed much of the state outside of the immediate
Philadelphia and Pittsburgh metropolitan areas. As a result, the credit quality
of these areas is often marginal.
The risk factors in Pennsylvania's credit quality may be summarized as an aging
and slowly growing population, below average income, and a continuing challenge
to maintain balanced budgets. In addition, a number of local governments in the
Commonwealth, most notably, Philadelphia, are in serious fiscal difficulty and
are unable to address serious economic, social and health care problems within
revenue constraints.
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Debt of Government Agencies, Authorities and Commissions: Certain state-created
agencies have statutory authorization to incur debt for which legislation
providing for state appropriations to pay debt service thereon is not required.
The debt of these agencies is supported by assets of, or revenues derived from,
the various projects financed; it is not an obligation of the Commonwealth. Some
of these agencies, however, such as the Delaware River Joint Toll Bridge
Commission, are indirectly dependent on Commonwealth funds through various
state-assisted programs.
Preferred Stock: are non-voting ownership shares in a corporation which pay a
fixed or variable stream of dividends.
Repurchase Agreements: are transactions by which a portfolio purchases a
security and simultaneously commits to resell that security to the seller (a
bank or securities dealer) at an agreed upon price on an agreed upon date
(usually within seven days of purchase). The resale price reflects the purchase
price plus an agreed upon market rate of interest which is unrelated to the
coupon rate or date of maturity of the purchased security. Such agreements
permit the portfolio to keep all its assets at work while retaining overnight
flexibility in pursuit of investments of a longer term nature. The Adviser will
continually monitor the value of the underlying collateral to ensure that their
value, including accrued interest, always equals or exceeds the repurchase
price.
Pursuant to an order issued by the Securities and Exchange Commission, the
Fund's portfolios may pool their daily uninvested cash balances in order to
invest in repurchase agreements on a joint basis. By entering into repurchase
agreements on a joint basis, it is expected that the portfolios will incur lower
transaction costs and potentially obtain higher rates of interest on such
repurchase agreements. Each portfolio's participation in the income from jointly
purchased repurchase agreements will be based on that portfolio's percentage
share in the total purchase agreement.
Rights: represent a preemptive right of stockholders to purchase additional
shares of a stock at the time of a new issuance, before the stock is offered to
the general public, allowing the stockholder to retain the same ownership
percentage after the new stock offering.
SMBS--Stripped Mortgage-Backed Securities: are Derivatives in the form of
multi-class mortgage securities. SMBS may be issued by agencies or
instrumentalities of the U.S. Government and private originators of, or
investors in, mortgage loans, including savings and loan associations, mortgage
banks, commercial banks, investment banks and special purpose entities of the
foregoing.
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SMBS are usually structured with two classes that receive different proportions
of the interest and principal distributions on a pool of mortgage assets. One
type of SMBS will have one class receiving some of the interest and most of the
principal from the mortgage assets, while the other class will receive most of
the interest and the remainder of the principal. In some cases, one class will
receive all of the interest (the IO class), while the other class will receive
all of the principal (the principal-only or PO class). The yield to maturity on
IOs and POs is extremely sensitive to the rate of principal payments (including
prepayments) on the related underlying mortgage assets, and a rapid rate of
principal payments may have a material adverse effect on a portfolio yield to
maturity. If the underlying mortgage assets experience greater than anticipated
prepayments of principal, a portfolio may fail to fully recoup its initial
investment in these securities, even if the security is in one of the highest
rating categories.
Although SMBS are purchased and sold by institutional investors through several
investment banking firms acting as brokers or dealers, these securities were
only recently developed. As a result, established trading markets have not yet
developed and, accordingly, certain of these securities may be deemed illiquid
and subject to a portfolio's limitations on investment in illiquid securities.
Structured Investments: are Derivatives in the form of a unit or units
representing an undivided interest(s) in assets held in a trust that is not an
investment company as defined in the Investment Company Act of 1940. A trust
unit pays a return based on the total return of securities and other investments
held by the trust and the trust may enter into one or more Swaps to achieve its
objective. For example, a trust may purchase a basket of securities and agree to
exchange the return generated by those securities for the return generated by
another basket or index of securities. A portfolio will purchase Structured
Investments in trusts that engage in such Swaps only where the counterparties
are approved by MAS in accordance with credit-risk guidelines established by the
Board of Trustees.
Structured Notes: are Derivatives on which the amount of principal repayment and
or interest payments is based upon the movement of one or more factors. These
factors include, but are not limited to, currency exchange rates, interest rates
(such as the prime lending rate and LIBOR) and stock indices such as the S&P 500
Index. In some cases, the impact of the movements of these factors may increase
or decrease through the use of multipliers or deflators. The use of Structured
Notes allows a portfolio to tailor its investments to the specific risks and
returns the Adviser wishes to accept while avoiding or reducing certain other
risks.
Swaps--Swap Contracts: are Derivatives in the form of a contract or other
similar instrument which is an agreement to exchange the return generated by one
instrument for the return generated by another instrument. The payment streams
are calculated by reference to a specified index and agreed upon notional
amount. The term specified index includes, but is not limited to, currencies,
fixed interest rates, prices and total return on interest rate indices,
fixed-income indices, stock indices and commodity indices (as well as amounts
derived from arithmetic operations on these indices). For example, a portfolio
may agree to swap the return generated by a fixed-income index for the return
generated by a second fixed-income index. The currency swaps in which the
portfolios may enter will generally involve an agreement to pay interest streams
calculated by reference to interest income linked to a specified index in one
currency in exchange for a specified index in another currency. Such swaps may
involve initial and final exchanges that correspond to the agreed upon notional
amount.
A portfolio will usually enter into swaps on a net basis, i.e., the two return
streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with a portfolio receiving or paying, as the case
may be, only the net amount of the two returns. A portfolio's obligations under
a swap agreement will be accrued daily (offset against any amounts owing to the
portfolio) and any accrued but unpaid net amounts owed to a swap counterparty
will be covered by the maintenance of a segregated account consisting of cash,
U.S. Government securities, or high grade debt obligations. A portfolio will not
enter into any swap agreement unless the counterparty meets the rating
requirements set forth in guidelines established by the Fund's Board of
Trustees.
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Possible Risks: Interest rate and total rate of return swaps do not involve the
delivery of securities, other underlying assets, or principal. Accordingly, the
risk of loss with respect to interest rate and total rate of return swaps is
limited to the net amount of interest payments that a portfolio is contractually
obligated to make. If the other party to an interest rate or total rate of
return swap defaults, a portfolio's risk of loss consists of the net amount of
interest payments that a portfolio is contractually entitled to receive. In
contrast, currency swaps usually involve the delivery of the entire principal
value of one designated currency in exchange for the other designated currency.
Therefore, the entire principal value of a currency swap is subject to the risk
that the other party to the swap will default on its contractual delivery
obligations. If there is a default by the counterparty, a portfolio may have
contractual remedies pursuant to the agreements related to the transaction. The
swap market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Swaps that include caps, floors, and collars are more recent
innovations for which standardized documentation has not yet been fully
developed and, accordingly, they are less liquid than swaps.
The use of swaps is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. If the Adviser is incorrect in its forecasts of market
values, interest rates, and currency exchange rates, the investment performance
of the portfolios would be less favorable than it would have been if this
investment technique were not used.
Taxable Investments: comprise Fixed-Income Securities and other instruments
which pay income that is not exempt from taxation. Investors may be liable for
tax on the income distributed as a result of the portfolio holding taxable
investments. In this event, shareholders will receive an IRS form 1099
disclosing the taxable income paid for a calendar year.
U.S. Governments--U.S. Treasury securities: are Fixed-Income Securities which
are backed by the full faith and credit of the U.S. Government as to the payment
of both principal and interest.
Warrants: are options issued by a corporation which give the holder the option
to purchase stock.
When-Issued Securities: are securities purchased at a certain price even though
the securities may not be delivered for up to 90 days. No payment or delivery is
made by a portfolio in a when-issued transaction until the portfolio receives
payment or delivery from the other party to the transaction. Although a
portfolio receives no income from the above described securities prior to
delivery, the market value of such securities is still subject to change. As a
consequence, it is possible that the market price of the securities at the time
of delivery may be higher or lower than the purchase price. A portfolio will
maintain with the custodian a separate account with a segregated portfolio of
liquid, high-grade debt securities or cash in an amount at least equal to these
commitments.
Zero Coupons--Zero Coupon Obligations: are Fixed-Income Securities that do not
make regular interest payments. Instead, zero coupon obligations are sold at
substantial discounts from their face value. The difference between a zero
coupon obligation's issue or purchase price and its face value represents the
imputed interest an investor will earn if the obligation is held until maturity.
Zero coupon obligations may offer investors the opportunity to earn higher
yields than those available on ordinary interest-paying obligations of similar
credit quality and maturity. However, zero coupon obligation prices may also
exhibit greater price volatility than ordinary fixed-income securities because
of the manner in which their principal and interest are returned to the
investor.
GENERAL SHAREHOLDER INFORMATION
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PURCHASE OF SHARES
Institutional Class Shares are available to clients of the Adviser and accounts
managed by the Adviser and Shareholder Organizations who have a contractual
arrangement with the Fund, including institutions such as trusts, foundations or
broker-dealers purchasing for the accounts of others.
Institutional Class Shares of each portfolio except for the Cash Reserves
Portfolio may be purchased at the net asset value per share next determined
after receipt of the purchase order. Such portfolios determine net asset value
at the normal close of trading of the New York Stock Exchange (NYSE)(currently
4:00 P.M. Eastern Time) each day that the portfolios are open for business.
The Cash Reserves Portfolio declares dividends daily and, therefore, at the time
of a purchase must have funds immediately available for investment. As a result,
payment for the purchase of shares must be in the form of Federal Funds (monies
credited to the portfolio's Custodian by a Federal Reserve Bank) before they can
be accepted by the portfolio. The portfolio is credited with Federal Funds on
the same day if the investment is made by Federal Funds. Institutional Class
Shares of the Cash Reserves Portfolio may be purchased at the net asset value
next determined after an order is received by the portfolio and Federal Funds
are received by the Custodian. The Cash Reserves Portfolio determines net asset
value as of 12:00 noon (Eastern Time) each day that the portfolios are open for
business. See Other Information-Closed Holidays and Valuation of Shares.
Initial Purchase by Mail: Subject to acceptance by the Fund, an account may be
opened by completing and signing an Account Registration Form (provided at the
end of the Prospectus), and mailing it to the Client Services Group at the
address noted below, together with a check ($2,000,000 minimum) payable to MAS
Funds: MAS Funds c/o the Distributor, One Tower Bridge, Suite 1150, P.O. Box
868, West Conshohocken, Pennsylvania 19428-0868.
The portfolio(s) to be purchased should be designated on the Account
Registration Form. Subject to acceptance by the Fund, payment for the purchase
of shares received by mail will be credited at the net asset value per share of
the portfolio next determined after receipt. Such payment need not be converted
into Federal Funds (monies credited to the Fund's Custodian Bank by a Federal
Reserve Bank) before acceptance by the Fund, except for the Cash Reserves
Portfolio. Purchases made by check in the Cash Reserves Portfolio are ordinarily
credited at the net asset value per share determined two business days after
receipt of the check by the Fund. Please note that purchases made by check in
any portfolio are not permitted to be redeemed until payment of the purchase has
been collected, which may take up to eight business days after purchase.
Shareholders can avoid this delay by utilizing the wire purchase option.
Initial Purchase by Wire: Subject to acceptance by the Fund, Institutional Class
Shares of each portfolio may also be purchased by wiring Federal Funds
($2,000,000 minimum) to the Fund's Custodian Bank, The Chase Manhattan Bank,
N.A. (see instructions below). A completed Account Registration Form should be
forwarded to the Client Services Group at Miller Anderson & Sherrerd, LLP in
advance of the wire. For all portfolios (except the Cash Reserves Portfolio),
notification must be given to the Client Services Group at Miller Anderson &
Sherrerd, LLP at 1-800-354-8185 prior to 4:00 p.m. (Eastern Time) of the wire
date. (Prior notification must also be received from investors with existing
accounts.) Instruct your bank to send a Federal Funds Wire in a specified amount
to the Fund's Custodian Bank using the following wiring instructions:
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The Chase Manhattan Bank, N.A.
1 Chase Manhattan Plaza
New York, NY 10081
ABA #021000021
DDA #910-2-734143
Attn: MAS Funds
Ref: (Portfolio Name, Account Number, Account Name)
Purchases in the Cash Reserves Portfolio may be made by Federal Funds wire to
the Fund's Custodian. If the portfolio receives notification of an order prior
to 12:00 noon (Eastern Time) and funds are received by the Custodian the same
day, purchases of portfolio shares will become effective and begin to earn
income on that business day. Orders received after 12:00 noon (Eastern Time)
will be effective on the next business day upon receipt of funds. Federal Funds
purchases will be accepted only on a day on which the portfolio is open for
business. See Other Information-Closed Holidays.
Additional Investments: Additional investments of Institutional Class
Shares at net asset value may be made at any time (minimum investment $1,000) by
mailing a check (payable to MAS Funds) to the Client Services Group at the
address noted under Initial Investments by Mail or by wiring monies to the
Custodian Bank as outlined above. For all portfolios except the Cash Reserves
Portfolio, notification must be given to the Client Services Group at Miller
Anderson & Sherrerd, LLP at 1-800- 354-8185 prior to 4:00 p.m. (Eastern Time) of
the wire date. For the Cash Reserves Portfolio, notification of a Federal Funds
wire must be received by 12:00 noon (Eastern Time). Purchases made by check in
the Cash Reserves Portfolio are ordinarily credited at the net asset value per
share determined two business days after receipt of the check by the Fund.
Other Purchase Information: The Fund reserves the right, in its sole discretion,
to suspend the offering of Institutional Class Shares of any of its portfolios
or to reject any purchase orders when, in the judgment of management, such
suspension or rejection is in the best interest of the Fund. The Fund also
reserves the right, in its sole discretion, to waive the minimum initial and
subsequent investment amounts.
Purchases of a portfolio's Institutional Class Shares will be made in full and
fractional shares of the portfolio calculated to three decimal places. In the
interest of economy and convenience, certificates for shares will not be issued
except at the written request of the shareholder. Certificates for fractional
shares, however, will not be issued.
Institutional Class Shares of the Fund's portfolios are also sold to
corporations or other institutions such as trusts, foundations or broker-dealers
purchasing for the accounts of others (Shareholder Organizations). Investors
purchasing and redeeming shares of the portfolios through a Shareholder
Organization may be charged a transaction-based fee or other fee for the
services of such organization. Each Shareholder Organization is responsible for
transmitting to its customers a schedule of any such fees and information
regarding any additional or different conditions regarding purchases and
redemptions. Customers of Shareholder Organizations should read this Prospectus
in light of the terms governing accounts with their organization. The Fund does
not pay compensation to or receive compensation from Shareholder Organizations
for the sale of Fund Institutional Class Shares.
REDEMPTION OF SHARES
Institutional Class Shares of each portfolio may be redeemed by mail, or, if
authorized, by telephone. No charge is made for redemptions. The value of
Institutional Class Shares redeemed may be more or less than the purchase price,
depending on the net asset value at the time of redemption which is based on the
market value of the investment securities held by the portfolio.
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By Mail: Each portfolio will redeem Institutional Class Shares at the net asset
value next determined after the request is received in good order. , Requests
should be addressed to MAS Funds: c/o the Distributor, One Tower Bridge, Suite
1150, P.O. Box 868, West Conshohocken, PA 19428-0868.
To be in good order, redemption requests must include the following
documentation:
(a) The share certificates, if issued;
(b) A letter of instruction, if required, or a stock assignment specifying the
number of shares or dollar amount to be redeemed, signed by all registered
owners of the shares in the exact names in which the shares are registered;
(c) Any required signature guarantees (see Signature Guarantees); and
(d) Other supporting legal documents, if required, in the case of estates,
trusts, guardianships, custodianships, corporations, pension and profit sharing
plans and other organizations.
Signature Guarantees: To protect your account, the Fund and the Administrator
from fraud, signature guarantees are required to enable the Fund to verify the
identity of the person who has authorized a redemption from an account.
Signature guarantees are required for (1) redemptions where the proceeds are to
be sent to someone other than the registered shareholder(s) and the registered
address, and (2) share transfer requests. Please contact the Client Services
Group at Miller Anderson & Sherrerd, LLP for further details.
By Telephone: Provided the Telephone Redemption Option has been authorized by
the shareholder on the Account Registration Form, a redemption of shares may be
requested by calling the Client Services Group at Miller Anderson & Sherrerd,
LLP and requesting that the redemption proceeds be mailed to the primary
registration address or wired per the authorized instructions. Shares cannot be
redeemed by telephone if share certificates are held for those shares.
By Facsimile: Written requests in good order (see above) for redemptions,
exchanges, and transfers may be forwarded to the Fund via facsimile. All
requests sent to the Fund via facsimile must be followed by a telephone call to
the Client Services group at Miller Anderson & Sherrerd, LLP to ensure that the
instructions have been properly received by the Fund. The original request must
be promptly mailed to MAS Funds, c/o Miller Anderson & Sherrerd, LLP, One Tower
Bridge, Suite 1150, P. O. Box 868, West Conshohocken, PA 19428-0868.
Neither the Distributor nor the Fund will be responsible for any loss,
liability, cost, or expense for acting upon facsimile instructions or upon
telephone instructions that they reasonably believe to be genuine. In order to
confirm that telephone instructions in connection with redemptions are genuine,
the Fund and Distributor will provide written confirmation of transactions
initiated by telephone.
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Payment of the redemption proceeds will ordinarily be made within three business
days after receipt of an order for a redemption. The Fund may suspend the right
of redemption or postpone the date of redemption at times when the NYSE, the
Custodian, or the Fund is closed or under any emergency circumstances as
determined by the Securities and Exchange Commission.
If the Board of Trustees determines that it would be detrimental to the best
interests of the remaining shareholders of the Fund to make payment wholly or
partly in cash, the Fund may pay the redemption proceeds in whole or in part by
a distribution in-kind of readily marketable securities held by a portfolio in
lieu of cash in conformity with applicable rules of the Securities and Exchange
Commission. Investors may incur brokerage charges on the sale of portfolio
securities received in such payments of redemptions.
SHAREHOLDER SERVICES
Exchange Privilege: Each portfolio's Institutional Class Shares may be exchanged
for shares of the Fund's other portfolios (except the Select Equity and Small
Cap Value Portfolios which are currently not accepting new investors) based on
the respective net asset values of the shares involved. The exchange privilege
is only available, however, with respect to portfolios that are registered for
sale in a shareholder's state of residence. There are no exchange fees. Exchange
requests should be sent to MAS Funds, c/o Miller Anderson & Sherrerd, LLP,
One Tower Bridge, Suite 1150, P.O. Box 868, West Conshohocken, PA 19428-0868.
Because an exchange of shares amounts to a redemption from one portfolio and
purchase of shares of another portfolio, the above information regarding
purchase and redemption of shares applies to exchanges. Shareholders should note
that an exchange between portfolios is considered a sale and purchase of shares
for tax purposes.
The officers of the Fund reserve the right not to accept any request for an
exchange when, in their opinion, the exchange privilege is being used as a tool
for market timing. The Fund reserves the right to change the terms or conditions
of the exchange privilege discussed herein upon sixty days' notice.
Transfer of Registration: The registration of Fund shares may be transferred by
writing to MAS Funds: c/o Miller Anderson & Sherrerd, LLP, One Tower Bridge,
Suite 1150, P.O. Box 868, West Conshohocken, PA 19428-0868. As in the case of
redemptions, the written request must be received in good order as defined
above.
VALUATION OF SHARES
Equity, Select Equity, Value, Small Cap Value, Mid Cap Value, Growth, Mid Cap
Growth, Balanced, Multi-Asset-Class, International Equity and Emerging Markets
Portfolios:
Net asset value per share of each class is determined by dividing the total
market value of each portfolio's investments and other assets, less any
liabilities, by the total outstanding shares of that portfolio. Net asset value
per share is determined as of the normal close of the NYSE (currently 4:00 p.m.
Eastern Time) on each day the portfolio is open for business (See Other
Information-Closed Holidays). Equity Securities listed on a U.S. securities
exchange or NASDAQ for which market quotations are available are valued at the
last quoted sale price on the day the valuation is made. Price information on
listed Equity Securities is taken from the exchange where the security is
primarily traded. Equity Securities listed on a foreign exchange are valued at
the latest quoted sales price available before the time when assets are valued.
For purposes of net asset value per share, all assets and liabilities initially
expressed in foreign currencies are converted into U.S. dollars at the bid price
of such currencies against U.S. dollars. Unlisted Equity Securities and listed
U.S. Equity Securities not traded on the valuation date for which market
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quotations are readily available are valued at the mean of the most recent
quoted bid and asked price. The value of other assets and securities for which
no quotations are readily available (including restricted securities) are
determined in good faith at fair value using methods approved by the Trustees.
Domestic Fixed Income, Fixed Income, Fixed Income Portfolio II, Special Purpose
Fixed Income, High Yield, Limited Duration, Intermediate Duration,
Mortgage-Backed Securities, Balanced, Multi-Asset-Class, Global Fixed Income,
International Fixed Income, Municipal and PA Municipal Portfolios:
Net asset value per share is computed by dividing the total value of the
investments and other assets of the portfolio, less any liabilities, by the
total outstanding shares of the portfolio. The net asset value per share is
determined as of the normal close of the NYSE (currently 4:00 p.m. Eastern Time)
on each day the portfolio is open for business (See Other Information-Closed
Holidays). Bonds and other Fixed-Income Securities listed on a foreign exchange
are valued at the latest quoted sales price available before the time when
assets are valued. For purposes of net asset value per share, all assets and
liabilities initially expressed in foreign currencies will be converted into
U.S. dollars at the bid price of such currencies against U.S. dollars.
Net asset value includes interest on bonds and other Fixed-Income Securities
which is accrued daily. Bonds and other Fixed-Income Securities which are traded
over the counter and on an exchange will be valued according to the broadest and
most representative market, and it is expected that for bonds and other
Fixed-Income Securities this ordinarily will be the over-the-counter market.
However, bonds and other Fixed-Income Securities may be valued on the basis of
prices provided by a pricing service when such prices are believed to reflect
the fair market value of such securities. The prices provided by a pricing
service are determined without regard to bid or last sale prices but take into
account institutional size trading in similar groups of securities and any
developments related to specific securities. Bonds and other Fixed-Income
Securities not priced in this manner are valued at the most recent quoted bid
price, or when stock exchange valuations are used, at the latest quoted sale
price on the day of valuation. If there is no such reported sale, the latest
quoted bid price will be used. Securities purchased with remaining maturities of
60 days or less are valued at amortized cost when the Board of Trustees
determines that amortized cost reflects fair value. In the event that amortized
cost does not approximate market, market prices as determined above will be
used. Other assets and securities, for which no quotations are readily available
(including restricted securities), will be valued in good faith at fair value
using methods approved by the Board of Trustees.
Cash Reserves Portfolio: The net asset value per share of the Cash Reserves
Portfolio is calculated daily as of 12:00 noon (Eastern Time) on each day that
the portfolio is open for business (See Other Information-Closed Holidays). The
portfolio determines its net asset value per share by subtracting the
portfolio's liabilities (including accrued expenses and dividends payable) from
the total value of the portfolio's investments and other assets and dividing the
result by the total outstanding shares of the portfolio.
For the purpose of calculating the portfolio's net asset value per share,
securities are valued by the amortized cost method of valuation, which does not
take into account unrealized gains or losses. This involves valuing an
instrument at its cost and thereafter assuming a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. While this method provides
certainty in valuation, it may result in periods during which value based on
amortized cost is higher or lower than the price the portfolio would receive if
it sold the instrument.
The use of amortized cost and the maintenance of the portfolio's per share net
asset value at $1.00 is based on its election to operate under the provisions of
Rule 2a-7 under the Investment Company Act of 1940, as amended. As conditions of
operating under Rule 2a-7, the portfolio must maintain a dollar-weighted average
portfolio maturity of 90 days or less, purchase only instruments having
remaining maturities of thirteen months or less and invest only in U.S.
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dollar-denominated securities which are determined by the Trustees to present
minimal credit risks and which are of eligible quality as determined under the
rule.
The Trustees have also agreed to establish procedures reasonably designed,
taking into account current market conditions and the portfolio's investment
objective, to stabilize the net asset value per share as computed for the
purposes of sales and redemptions at $1.00. These procedures include periodic
review, as the Trustees deem appropriate and at such intervals as are reasonable
in light of current market conditions, of the relationship between the amortized
cost value per share and a net asset value per share based upon available
indications of market value. In such a review, investments for which market
quotations are readily available are valued at the most recent bid price or
quoted yield equivalent for such securities or for securities of comparable
maturity, quality and type as obtained from one or more of the major market
makers for the securities to be valued. Other investments and assets are valued
at fair value, as determined in good faith by the Trustees.
In the event of a deviation of over 1/2 of 1% between a portfolio's net asset
value based upon available market quotations or market equivalents and $1.00 per
share based on amortized cost, the Trustees will promptly consider what action,
if any, should be taken. The Trustees will also take such action as they deem
appropriate to eliminate or to reduce to the extent reasonably practicable any
material dilution or other unfair results which might arise from differences
between the two. Such action may include redeeming shares in kind, selling
instruments prior to maturity to realize capital gains or losses or to shorten
average maturity, withholding dividends, paying distributions from capital or
capital gains, or utilizing a net asset value per share not equal to $1.00 based
upon available market quotations.
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES: Dividends and Capital Gains
Distributions: The Fund maintains different dividend and capital gain
distribution policies for each portfolio. These are:
o The Equity, Value, Growth, Fixed Income, Fixed Income Portfolio II,
Special Purpose Fixed Income, High Yield, Limited Duration,
Intermediate Duration, Mortgage-Backed Securities, Balanced,
Multi-Asset-Class, Global Fixed Income, International Fixed Income,
Select Equity and Domestic Fixed Income Portfolios normally distribute
substantially all of their net investment income to shareholders in the
form of quarterly dividends.
o The International Equity, Small Cap Value, Mid Cap Value, Mid Cap
Growth and Emerging Markets Portfolios normally distribute
substantially all of their net investment income in the form of annual
dividends.
o The Municipal and the PA Municipal Portfolios normally distribute
substantially all of their net investment income in the form of monthly
dividends.
o The Cash Reserves Portfolio declares dividends daily and normally
distributes substantially all of its investment income in the form of
monthly dividends.
If any portfolio does not have income available to distribute, as determined in
compliance with the appropriate tax laws, no distribution will be made.
If any net capital gains are realized from the sale of underlying securities,
the portfolios normally distribute such gains with the last dividend for the
calendar year.
All dividends and capital gains distributions are automatically paid in
additional shares of the portfolio unless the shareholder elects otherwise. Such
election must be made in writing to the Fund and may be made on the Account
Registration Form.
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In all portfolios except the Cash Reserves Portfolio, undistributed net
investment income is included in the portfolio's net assets for the purpose of
calculating net asset value per share. Therefore, on the ex-dividend date, the
net asset value per share excludes the dividend (i.e., is reduced by the per
share amount of the dividend). Dividends paid shortly after the purchase of
shares by an investor, although in effect a return of capital, are taxable as
ordinary income.
Certain Mortgage Securities may provide for periodic or unscheduled payments of
principal and interest as the mortgages underlying the securities are paid or
prepaid. However, such principal payments (not otherwise characterized as
ordinary discount income or bond premium expense) will not normally be
considered as income to the portfolio and therefore will not be distributed as
dividends. Rather, these
payments on mortgage-backed securities will be reinvested on behalf of the
shareholders by the portfolio in accordance with its investment objectives and
policies.
Special Considerations for the Cash Reserves Portfolio: Net investment income is
computed and dividends declared as of 12:00 noon (Eastern Time), on each day.
Such dividends are payable to Cash Reserves Portfolio shareholders of record as
of 12:00 noon (Eastern Time) on that day, if the portfolio is open for business.
Shareholders who redeem prior to 12:00 noon (Eastern Time) are not entitled to
dividends for that day. Dividends declared for Saturdays, Sundays and holidays
are payable to shareholders of record as of 12:00 noon (Eastern Time) on the
preceding business day on which the portfolio was open for business.
For the purpose of calculating dividends, net income shall consist of interest
earned, including any discount or premium ratably amortized to the date of
maturity, minus estimated expenses of the portfolio.
Net realized short-term capital gains, if any, of the Cash Reserves Portfolio
will be distributed whenever the Trustees determine that such distributions
would be in the best interest of shareholders, but at least once a year. The
portfolio does not expect to realize any long-term capital gains. Should any
such gains be realized, they will be distributed annually.
Federal Taxes: Each portfolio of the Fund intends to qualify for taxation as a
regulated investment company under the Code so that each portfolio will not be
subject to Federal income tax to the extent it distributes its income to its
shareholders. Dividends, either in cash or reinvested in shares, paid by a
portfolio from net investment income will be taxable to shareholders as ordinary
income, except for the Municipal and PA Municipal Portfolios (see Special Tax
Considerations for the Municipal and PA Municipal Portfolios). In the case of
the Equity, Value, Small Cap Value, Mid Cap Growth, Growth, Balanced,
Multi-Asset-Class, Mid Cap Value, Select Equity, and Select Value Portfolios,
such dividends will generally qualify in part for the dividends received
deduction for corporations, but the portion of the dividends so qualified
depends on the aggregate taxable qualifying dividend income received by each
portfolio from domestic (U.S.) sources. The Fund will send each shareholder a
statement each year indicating the amount of the dividend income which qualifies
for such treatment.
Whether paid in cash or additional shares of a portfolio, and regardless of the
length of time the shares in such portfolio have been owned by the shareholder,
distributions from long-term capital gains are taxable to shareholders as such,
but are not eligible for the dividends received deduction for corporations.
Shareholders are notified annually by the Fund as to Federal tax status of
dividends and distributions paid by a portfolio. Such dividends and
distributions may also be subject to state and local taxes.
Exchanges and redemptions of shares in a portfolio are taxable events for
Federal income tax purposes. Individual shareholders may also be subject to
state and municipal taxes on such exchanges and redemptions.
Each portfolio intends to declare and pay dividends and capital gain
distributions so as to avoid imposition of the Federal excise tax. To do so,
each portfolio expects to distribute an amount at least equal to (i) 98% of its
calendar year ordinary income, (ii) 98% of its capital gains net income (the
excess of short and long-term capital gain over short and long-term capital
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loss) for the one-year period ending October 31st, and (iii) 100% of any
undistributed ordinary and capital gain net income from the prior year.
Dividends declared in December by a portfolio will be deemed to have been paid
by such portfolio and received by shareholders on the record date provided that
the dividends are paid before February 1 of the following year.
The Fund is required by Federal law to withhold 31% of reportable payments
(which may include dividends, capital gains distributions, and redemptions) paid
to shareholders who have not complied with IRS regulations. In order to avoid
this withholding requirement, you must certify on the Account Registration Form
that your Social Security or Taxpayer Identification Number provided is correct
and that you are not currently subject to back-up withholding, or that you are
exempt from back-up withholding.
Special Considerations. Under the Code if more than 50% of a portfolio's
securities is owned by five or fewer persons, the portfolio may be a "personal
holding company" and subject to Federal income tax.
Foreign Income Taxes: Investment income received by the portfolios from sources
within foreign countries may be subject to foreign income taxes withheld at the
source. The U.S. has entered into Tax Treaties with many foreign countries which
entitle these portfolios to a reduced rate of tax or exemption from tax on such
income. It is impossible to determine the effective rate of foreign tax in
advance since the amount of the portfolios' assets to be invested within various
countries is not known. The portfolios intend to operate so as to qualify for
treaty reduced rates of tax where applicable.
The International Equity, Emerging Markets, Global Fixed Income and
International Fixed Income Portfolios may file an election with the Internal
Revenue Service to pass through to the portfolio's shareholders the amount of
foreign income taxes paid by the portfolio, but may do so only if more than 50%
of the value of the total assets of the portfolio at the end of the fiscal year
is represented by foreign securities. These portfolios will make such an
election only if they deem it to be in the best interests of their shareholders.
If this election is made, shareholders of the portfolio will be required to: (i)
include in gross income, even though not actually received, their respective pro
rata share of foreign taxes paid by the portfolio; (ii) treat their pro rata
share of foreign taxes as paid by them; and (iii) either deduct their pro rata
share of foreign taxes in computing their taxable income or use it within the
limitations set forth in the Internal Revenue Code as a foreign tax credit
against U.S. income taxes (but not both). No deduction for foreign taxes may be
claimed by a shareholder who does not itemize deductions.
Each shareholder of the portfolio will be notified within 60 days after the
close of each taxable (fiscal) year of the Fund if the foreign taxes paid by the
portfolio will pass through for that year, and, if so, the amount of each
shareholder's pro rata share (by country) of (i) the foreign taxes paid, and
(ii) the portfolio's gross income from foreign sources. Shareholders who are not
liable for Federal income taxes, such as retirement plans qualified under
Section 401 of the Internal Revenue Code, will not be affected by any such "pass
through" of foreign tax credits.
State and Local Taxes: The Fund is formed as a Pennsylvania Business Trust and
therefore is not liable, under current law, for any corporate income or
franchise tax of the Commonwealth of Pennsylvania. The Fund will provide
Pennsylvania taxable values on a per share basis.
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Special Tax Considerations for the Municipal and PA Municipal Portfolios: These
portfolios intend to invest a sufficient portion of their assets in municipal
bonds and notes so that each will qualify to pay exempt-interest dividends to
shareholders. Such exempt-interest dividends are excluded from a shareholder's
gross income for Federal personal income tax purposes. Tax-exempt dividends
received from the Municipal and PA Municipal Portfolios may be subject to state
and local taxes. However, some states allow shareholders to exclude that portion
of a portfolio's tax-exempt income which is attributable to municipal securities
issued within the shareholder's state of residence. Furthermore, the PA
Municipal Portfolio invests at least 65% of its assets in PA Municipals. As a
result, the income of the portfolio that is derived from PA Municipals and U.S.
Governments will not be subject to the Pennsylvania personal income tax or to
the Philadelphia School District investment net income tax. Distributions by the
PA Municipal Portfolio to a Pennsylvania resident that are attributable to most
other sources may be subject to the Pennsylvania personal income tax and (for
residents of Philadelphia) to the Philadelphia School District investment net
income tax. To the extent, if any, that dividends paid to shareholders of the
Municipal and PA Municipal Portfolios are derived from taxable interest or
long-term or short-term capital gains, such dividends will be subject to Federal
personal income tax (whether such dividends are paid in cash or in additional
shares) and may also be subject to state and local taxes. In addition, the
Municipal and PA Municipal Portfolios may invest in private activity municipal
securities, the interest on which is subject to the Federal alternative minimum
tax for individuals (AMT bonds). To the extent that the portfolios invest in AMT
bonds, individuals who are subject to the AMT will be required to report a
portion of dividends as a tax preference item in determining their federal
taxes. A shareholder may lose the tax exempt status of the accrual income of
these portfolios if they redeem their shares before a dividend has been
declared.
TRUSTEES OF THE TRUST: The management and affairs of the Trust are supervised by
the Trustees under the laws governing business trusts in the Commonwealth of
Pennsylvania. The Trustees have approved contracts under which, as described
above, certain companies provide essential management, administrative and
shareholder services to the Trust.
INVESTMENT ADVISER: The Investment Adviser to the Fund, Miller Anderson &
Sherrerd, LLP (the Adviser), is a Pennsylvania limited liability partnership
founded in 1969 and is located at One Tower Bridge, West Conshohocken, PA 19428.
Miller Anderson & Sherrerd, LLP is an Equal Opportunity/Affirmative Action
Employer. The Adviser provides investment services to employee benefit plans,
endowment funds, foundations and other institutional investors and as of the
date of this prospectus had in excess of $__ billion in assets under management.
On _________________, Morgan Stanley Group Inc. acquired Miller Anderson &
Sherrerd, LLP (the "Adviser") in a transaction in which Morgan Stanley Asset
Management Holdings Inc., an indirect wholly owned subsidiary of Morgan Stanley
Group Inc., became the sole general partner of the Adviser. Morgan Stanley Asset
Management Holdings Inc. and two other wholly owned subsidiaries of Morgan
Stanley Group Inc. became the limited partners of the Adviser. In connection
with this transaction, the Adviser entered into a new investment management
agreement with the MAS Funds dated as of _________________, which agreement was
approved by the shareholders of each Portfolio at a special meeting held on
October 6, 1995. The Adviser will retain its name and remain at its current
location, One Tower Bridge, West Conshohocken, PA 19428. The Adviser will
continue to provide investment counseling services to the employee benefit
plans, endowments, foundations, and other institutional investors.
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Under an Investment Advisory Agreement (Agreement) with the Fund, dated as of
July 1, 1988, the Adviser, subject to the control and supervision of the Fund's
Board of Trustees and in conformance with the stated investment objectives and
policies of each portfolio of the Fund, manages the investment and reinvestment
of the assets of each portfolio of the Fund. In this regard, it is the
responsibility of the Adviser to make investment decisions for the Fund's
portfolios and to place each portfolio's purchase and sales orders. As
compensation for the services rendered by the Adviser under the Agreement, each
portfolio pays the Adviser an advisory fee calculated by applying a quarterly
rate, based on the following annual percentage rates, to the portfolio's average
daily net assets for the quarter:
Rate
Emerging Markets Portfolio* .750%
Equity Portfolio .500
Growth Portfolio .500
International Equity Portfolio .500
Mid Cap Growth Portfolio .500
Mid Cap Value Portfolio* .750
Small Cap Value Portfolio* .750
Value Portfolio .500
Cash Reserves Portfolio .250
Domestic Fixed Income Portfolio .375
Fixed Income Portfolio .375
Fixed Income Portfolio II .375
Global Fixed Income Portfolio .375
High Yield Portfolio .375
Intermediate Duration Portfolio .375
International Fixed Income Portfolio .375
Limited Duration Portfolio .300
Mortgage-Backed Securities Portfolio .375
Municipal Portfolio .375
PA Municipal Portfolio .375
Special Purpose Fixed Income Portfolio .375
Balanced Portfolio .450
Multi-Asset-Class Portfolio .450
Select Equity Portfolio .500
* Advisory fees in excess of 0.750% of average net assets are considered
higher than normal for most investment companies, but are not unusual for
portfolios that invest primarily in small capitalization stocks or in
countries with emerging market economies.
Until further notice, the Adviser has voluntarily agreed to waive its advisory
fees and reimburse certain expenses to the extent necessary to keep Total
Operating Expenses for the Emerging Markets, Mid Cap Value, Cash Reserves,
Domestic Fixed Income, Global Fixed Income, High Yield, Intermediate Duration,
International Fixed Income, Limited Duration, Mortgage-Backed Securities,
Municipal, PA Municipal, Multi-Asset-Class and Select Equity Portfolios from
exceeding 1.18%, 0.88%, 0.32%, 0.50%, 0.58%, 0.525%, 0.52%, 0.60%, 0.42%, 0.50%,
0.50%, 0.50%, 0.58% and 0.61%, respectively.
For the fiscal year ended September 30, 1995, the Adviser received ____________
as compensation for its services.
PORTFOLIO MANAGEMENT
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The investment professionals of MAS who are primarily responsible for the
day-to-day management of the Fund's portfolios are as follows:
Equity and Select Equity Portfolios - Arden C. Armstrong, John D. Connolly,
Timothy G. Connors, Nicholas J. Kovich, Robert J. Marcin, Gary G. Schlarbaum,
and A. Morris Williams, Jr.;
Value Portfolio - Robert J. Marcin and A. Morris Williams, Jr.;
Small Cap Value and Mid Cap Value Portfolios - Gary G. Schlarbaum, Gary D.
Haubold and Bradley S. Daniels;
Mid Cap Growth Portfolio - Arden C. Armstrong and John D. Connolly;
Growth Portfolio - Arden C. Armstrong, John D. Connolly and Timothy G. Connors;
Fixed Income, Domestic Fixed Income, Special Purpose Fixed Income and Fixed
Income II Portfolios - Thomas L. Bennett, Kenneth B. Dunn, James L. Kichline and
Richard B. Worley;
Mortgage-Backed Securities Portfolio - Kenneth B. Dunn and Scott F. Richard;
High Yield Portfolio - Stephen F. Esser and Thomas L. Bennett;
Cash Reserves Portfolio - Ellen D. Harvey and James L. Kichline;
Limited Duration and Intermediate Duration Portfolios - Ellen D. Harvey, James
L. Kichline, Scott F. Richard and Christian G. Roth.
Municipal and PA Municipal Portfolios - Kenneth B Dunn, Steven K. Kreider, and
Scott F. Richard;
Balanced Portfolio - John D. Connolly, Gary G. Schlarbaum, Thomas L. Bennett,
James L. Kichline and Richard B. Worley;
Multi-Asset-Class Portfolio - John D. Connolly, Gary G. Schlarbaum, Thomas L.
Bennett, J. David Germany, James L. Kichline, Horacio A. Valeiras, Dean Williams
and Richard B. Worley;
International Equity and Emerging Markets Portfolios - Dean Williams and Horacio
A. Valeiras;
Global Fixed Income and International Fixed Income Portfolios - J. David
Germany, James L. Kichline and Richard B. Worley.
A description of their business experience during the past five years is as
follows:
Arden C. Armstrong, Partner, joined MAS in 1986. She assumed responsibility for
the Mid Cap Growth Portfolio in 1990, the Growth Portfolio in 1993 and the
Equity and Select Equity Portfolios in 1994.
Thomas L. Bennett, Partner, joined MAS in 1984. He assumed responsibility for
the Fixed Income Portfolio in 1984, the Domestic Fixed Income Portfolio 1987,
the High Yield Portfolio in 1989, the Fixed Income Portfolio II in 1990, the
Special Purpose Fixed Income and Balanced Portfolios in 1992 and the
Multi-Asset-Class Portfolio in 1994.
Timothy G. Connors, Portfolio Manager, joined MAS in 1994. Mr. Connors served as
Vice President and Managing Director of CoreStates Investment Advisers from 1986
to 1994. He assumed responsibility for the Equity, Select Equity and Growth
Portfolios in 1994.
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John D. Connolly, Partner, joined MAS in 1990. Mr. Connolly served as Senior
Vice President and Chief Investment Strategist at Dean Witter Reynolds from 1984
to 1990. He assumed responsibility for the Equity, Select Equity and Mid Cap
Growth Portfolios in 1990, the Balanced Portfolio in 1992, the Growth Portfolio
in 1993 and the Multi-Asset-Class Portfolio in 1994.
Bradley S. Daniels, Portfolio Manager, joined MAS in 1985. He assumed
responsibility for the Small Cap Value Portfolio in 1986 and the Mid Cap Value
Portfolio in 1994.
Kenneth B. Dunn, Partner, joined MAS in 1987. He assumed responsibility for the
Fixed Income and the Domestic Fixed Income Portfolios in 1987, the Fixed Income
II Portfolio in 1990, the Mortgage-Backed Securities and Special Purpose Fixed
Income Portfolios in 1992, and the Municipal and PA Municipal Portfolios in
1994.
Stephen F. Esser, Partner, joined MAS in 1988. He assumed responsibility for the
High Yield Portfolio in 1989.
J. David Germany, Partner, joined MAS in 1991. He served as Vice President &
Senior Economist for Morgan Stanley & Co. from 1989 to 1991. He assumed
responsibility for the Global Fixed Income and International Fixed Income
Portfolios in 1993 and the Multi-Asset-Class Portfolio in 1994.
Ellen D. Harvey, Partner, joined MAS in 1984. She assumed responsibility for the
Cash Reserves Portfolio in 1990, the Limited Duration Portfolio in 1992 and the
Intermediate Duration Portfolio in 1994.
Gary D. Haubold, Portfolio Manager, joined MAS in 1993. Mr. Haubold served as
Senior Vice President at Wood, Struthers & Winthrop in 1993. He assumed
responsibility for the Small Cap Value Portfolio in 1993 and the Mid Cap Value
Portfolio in 1994.
James L. Kichline, Partner, joined MAS in 1987. He assumed responsibility for
the Fixed Income and Domestic Fixed Income Portfolios in 1987, the Cash Reserves
and Fixed Income II Portfolios in 1990, the Balanced, Limited Duration and
Special Purpose Fixed Income Portfolios in 1992, the Global Fixed Income
Portfolio in 1993 and the International Fixed Income, Intermediate Duration and
Multi-Asset-Class Portfolios in 1994.
Nicholas J. Kovich, Partner, joined MAS in 1988. He assumed responsibility for
the Equity and Select Equity Portfolios in 1994.
Steven K. Kreider, Partner, joined MAS in 1988. He assumed responsibility for
the Municipal and the PA Municipal Portfolios in 1992.
Robert J. Marcin, Partner, joined MAS in 1988. He assumed responsibility for the
Value Portfolio in 1990 and the Equity and Select Equity Portfolios in 1994.
Scott F. Richard, Partner, joined MAS in 1992. He served as Vice President, Head
of Fixed Income Research & Model Development for Goldman, Sachs & Co. from 1987
to 1991 and as Head of Mortgage Research in 1992. He assumed responsibility for
the Mortgage-Backed Securities Portfolio in 1992 and the Intermediate Duration,
Municipal and PA Municipal Portfolios in 1994.
Christian G. Roth, Portfolio Manager, joined MAS in 1991. He served as Senior
Associate, Dean Witter Capital Corporation from 1987 to 1991. He assumed
responsibility for the Intermediate Duration Portfolio in 1994.
Gary G. Schlarbaum, Partner, joined MAS in 1987. He assumed responsibility for
the Equity and Small Cap Value Portfolios in 1987, the Select Equity Portfolio
in 1988, the Balanced Portfolio in 1992 and the Multi-Asset-Class and Mid Cap
Value Portfolios in 1994.
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Horacio A. Valeiras, Partner, joined MAS in 1992. He served as an International
Strategist from 1989 through 1992 for Credit Suisse First Boston and as
Director-Equity Research in 1992. He assumed responsibility for the
International Equity Portfolio in 1992, the Emerging Markets Portfolio in 1993
and the Multi-Asset-Class Portfolio in 1994.
A. Morris Williams, Jr., Partner, joined MAS in 1973. He assumed responsibility
for the Equity Portfolio in 1984, the Select Equity Portfolio in 1988 and the
Value Portfolio in 1984.
Dean Williams, Partner, joined MAS in 1988. He assumed responsibility for the
International Equity Portfolio in 1988 and the Emerging Markets and
Multi-Asset-Class Portfolios in 1994.
Richard B. Worley, Partner, joined MAS in 1978. He assumed responsibility for
the Fixed Income Portfolio in 1984, the Domestic Fixed Income Portfolio in 1987,
the Fixed Income Portfolio II in 1990, the Balanced and Special Purpose Fixed
Income Portfolios in 1992, the Global Fixed Income and International Fixed
Income Portfolios in 1993 and the Multi-Asset-Class Portfolio in 1994.
ADMINISTRATIVE SERVICES: MAS serves as Administrator to the Fund pursuant to an
Administration Agreement dated as of November 18, 1993. Administrative services
provided by MAS include shareholder communication services, regulatory
reporting, office space and personnel. Chase Global Funds Services Company, a
subsidiary of The Chase Manhattan Bank, N.A., 73 Tremont Street, Boston MA
02108-3913, serves as Transfer Agent to the Fund pursuant to an agreement also
dated as of November 18, 1993, and provides fund accounting and other services
pursuant to a sub-administration agreement with MAS as Administrator. Under its
Administration Agreement with the Fund, MAS receives an annual fee, accrued
daily and payable monthly, of 0.08% of the Fund's average daily net assets, and
is responsible for all fees payable under any sub-administration agreements.
GENERAL DISTRIBUTION AGENT: Shares of the Fund are distributed exclusively
through MAS Fund Distribution, Inc., a wholly-owned subsidiary of the Adviser.
PORTFOLIO TRANSACTIONS: The investment advisory agreement authorizes the Adviser
to select the brokers or dealers that will execute the purchases and sales of
investment securities for each of the Fund's portfolios and directs the Adviser
to use its best efforts to obtain the best execution with respect to all
transactions for the portfolios. In doing so, a portfolio may pay higher
commission rates than the lowest available when the Adviser believes it is
reasonable to do so in light of the value of the research, statistical, and
pricing services provided by the broker effecting the transaction.
It is not the Fund's practice to allocate brokerage or principal business on the
basis of sales of shares which may be made through intermediary brokers or
dealers. However, the Adviser may place portfolio orders with qualified
broker-dealers who recommend the Fund's Portfolios or who act as agents in the
purchase of shares of the portfolios for their clients.
Some securities considered for investment by each of the Fund's portfolios may
also be appropriate for other clients served by the Adviser. If purchase or sale
of securities consistent with the investment policies of a portfolio and one or
more of these other clients served by the Adviser is considered at or about the
same time, transactions in such securities will be allocated among the portfolio
and clients in a manner deemed fair and reasonable by the Adviser. Although
there is no specified formula for allocating such transactions, the various
allocation methods used by the Adviser, and the results of such allocations, are
subject to periodic review by the Fund's Trustees.
OTHER INFORMATION: Description of Shares and Voting Rights: The Fund was
established under Pennsylvania law by a Declaration of Trust dated February 15,
1984, as amended and restated as of November 18, 1993. The Fund is authorized to
issue an unlimited number of shares of beneficial interest, without par value,
from an unlimited number of series (portfolios) of shares. Currently the Fund
consists of twenty-six portfolios.
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The shares of each portfolio of the Fund are fully paid and non-assessable, and
have no preference as to conversion, exchange, dividends, retirement or other
features. The shares of each portfolio of the Fund have no preemptive rights.
The shares of the Fund have non-cumulative voting rights, which means that the
holders of more than 50% of the shares voting for the election of Trustees can
elect 100% of the Trustees if they choose to do so. Shareholders are entitled to
one vote for each full share held (and a fractional vote for each fractional
share held), then standing in their name on the books of the Fund.
Meetings of shareholders will not be held except as required by the Investment
Company Act of 1940, as amended, and other applicable law. A meeting will be
held to vote on the removal of a Trustee or Trustees of the Fund if requested in
writing by the holders of not less than 10% of the outstanding shares of the
Fund. The Fund will assist in shareholder communication in such matters to the
extent required by law.
Custodians: The Chase Manhattan Bank N.A., New York, NY and Morgan Stanley
Trust Company (NY), Brooklyn, NY serve as custodians for the Fund. The
custodians hold cash, securities and other assets as required by the 1940 Act.
Transfer and Dividend Disbursing Agent: Chase Global Funds Services Company, a
subsidiary of The Chase Manhattan Bank, N.A., 73 Tremont Street, Boston, MA
02108-3913.
Reports: Shareholders receive semiannual and annual financial statements. Annual
financial statements are audited by Price Waterhouse LLP, independent
accountants.
Litigation: The Fund is not involved in any litigation.
Closed Holidays: Currently, the weekdays on which the Fund is closed for
business are: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. In addition,
the Fixed Income, Special Purpose Fixed Income, Fixed Income Portfolio II,
Limited Duration, Cash Reserves, High Yield, Mortgage-Backed Securities,
Intermediate Duration, International Fixed Income, Global Fixed Income, Domestic
Fixed Income, Municipal, and PA Municipal Portfolios will be closed on Martin
Luther King Day, Columbus Day, and Veteran's Day.
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The following is a list of the Trustees and the principal executive officers of
the Fund and a brief statement of their present positions and principal
occupations during the past five years:
Thomas L. Bennett,* Chairman of the Board of Trustees; Partner, Miller Anderson
& Sherrerd, LLP; Director, MAS Fund Distribution, Inc.
David P. Eastburn, Trustee; Retired; formerly: Director (Trustee) of each of the
investment companies in The Vanguard Group, except Vanguard Specialized
Portfolios; Director of Penn Mutual Life Insurance Company and General Accident
Insurance; President, Federal Reserve Bank of Philadelphia.
Joseph P. Healey, Trustee; Headmaster, Haverford School; formerly Dean, Hobart
College; Associate Dean, William & Mary College.
Joseph J. Kearns, Trustee; Vice President and Treasurer, The J. Paul Getty
Trust.
C. Oscar Morong, Jr., Trustee; Managing Director, Morong Capital Management;
Director, Ministers and Missionaries Benefit Board of American Baptist Churches,
The Indonesia Fund, The Landmark Funds; formerly Senior Vice President and
Investment Manager for CREF, TIAA-CREF Investment Management, Inc.
*Trustee Bennett is deemed to be an "interested person" of the Fund as that term
is defined in the Investment Company Act of 1940, as amended.
James D. Schmid, President; Partner, Miller Anderson & Sherrerd, LLP; Director,
MAS Fund Distribution, Inc.; Chairman of the Board of Directors, The Minerva
Fund, Inc.; formerly Vice President, Chase Manhattan Bank.
Lorraine Truten, CFA, Vice President; Head of Mutual Fund Administration, Miller
Anderson & Sherrerd, LLP; President, MAS Fund Distribution, Inc.
Douglas W. Kugler, Treasurer; Manager of Mutual Fund Administration, Miller
Anderson & Sherrerd, LLP; formerly Assistant Vice President, Provident Financial
Processing Corporation.
John H. Grady, Jr., Secretary of the Fund since July 1995; Partner, Morgan,
Lewis & Bockius; LLP, formerly Attorney, Ropes & Gray.
Remuneration of Trustees and Officers: The Fund pays each Trustee, who is not
also an officer or affiliated person, an annual fee plus travel and other
expenses incurred in attending Board meetings. Trustees who are also officers or
affiliated persons receive no remuneration for their service as Trustees. The
Fund's officers are paid by the Adviser or Chase Global Funds Services Company
except for Mr. Grady who receives no compensation for his services.
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December 23, 1994
Supplemented Through September 15, 1995
Investment Adviser and Administrator: Transfer Agent:
Miller Anderson & Sherrerd, LLP Chase Global Funds Services
Company
One Tower Bridge 73 Tremont Street
West Conshohocken, Boston, Massachusetts 02108-0913
Pennsylvania 19428-2899
General Distribution Agent:
MAS Fund Distribution, Inc.
One Tower Bridge
P.O. Box 868
West Conshohocken,
Pennsylvania 19428-0868
Table of Contents
Page
Page
Fund Expenses 2 General Information
Prospectus Summary 4 Other Information 52
Financial Highlights 8 Purchase of Shares 52
Yield and Total Return 14 Redemption of Shares 53
Investment Suitability 15 Shareholder Services 54
Investment Limitations 15 Valuation of Shares 54
Portfolio Summaries 17 Dividends, Capital Gains Distributions
Equity Investments 17 and Taxes 56
Fixed-Income Investments 21 Investment Adviser 58
Prospectus Glossary: Portfolio Management 59
Strategies 36 Administrative Services 61
Investments 41 General Distribution Agent 62
Portfolio Transactions 62
Trustees and Officers 64
65
<PAGE>
ACCOUNT REGISTRATION FORM
MAS Fund Distribution, Inc.
General Distribution Agent
REGISTRATION/PRIMARY MAILING ADDRESS
City State Zip
Telephone No.
Type of Account: o Defined Benefit Plan o Defined Contribution Plan
o Profit Sharing/Thrift Plan o Other Employee Benefit Plan
o Endowment o Foundation o Taxable o Other (Specify)
o United States Citizen o Resident Alien
o Non-Resident Alien, Indicate Country of Residence
INTERESTED PARTY MAILING ADDRESS (Optional)
Street or P.O. Box
Attention:
City State Zip
Telephone No.
INTERESTED PARTY MAILING ADDRESS (Optional)
Street or P.O. Box
Attention:
City State Zip
Telephone No.
INTERESTED PARTY MAILING ADDRESS (Optional)
Street or P.O. Box
Attention:
City State Zip
Telephone No.
INVESTMENT
For Purchase of:
o Equity Portfolio
o Value Portfolio
o Growth Portfolio
o Mid Cap Growth Portfolio
o Balanced Portfolio
o Multi-Asset-Class Portfolio
o Balanced Investing--Indicate Portfolios
o Fixed Income Portfolio
o Fixed Income Portfolio II
o Special Purpose Fixed Income Portfolio
o High Yield Portfolio
o Limited Duration Fixed Income Portfolio
o Intermediate Duration Portfolio
o Mortgage-Backed Securities Portfolio
o Cash Reserves Portfolio
o International Equity Portfolio
o Emerging Markets Portfolio
o International Fixed Income Portfolio
o Global Fixed Income Portfolio
o Municipal Portfolio
o PA Municipal Portfolio
66
<PAGE>
o Mid Cap Value Portfolio
o Domestic Fixed Income Portfolio
67
<PAGE>
68
<PAGE>
TAXPAYER IDENTIFICATION NUMBER
Part 1.
Social Security Number
- -
or
Employer Identification Number
-
Part 2. BACKUP WITHHOLDING
o Check the box if the account is subject to Backup Withholding under the
provisions of Section 3406(a)(1)(C) of the Internal Revenue Code.
IMPORTANT TAX INFORMATION
You (as payee) are required by law to provide us (as payer) with your current
taxpayer identification number. Accounts that have a missing or incorrect
taxpayer identification number will be subject to backup withholding at a 31%
rate on ordinary income and capital gains distributions as well as redemptions.
Backup withholding isnot an additional tax; the tax liability of persons subject
to backup withholding will be reduced by the amount of tax withheld. You may be
notified that you are subject to backup withholding under section 3406(a)(1)(C)
because you have underreported interest or dividends or you were required to,
but failed to, file a return which would have included a reportable interest or
dividend payment. If you have been so notified, check the box in PART 2 at left.
TELEPHONE REDEMPTION OPTION
The Fund is hereby authorized to honor any telephone or telegraphic
requests believed to be authentic for the following:
(check one or both)
o Mailing of Redemption proceeds to the name and address in Section 1
above.
o Wire of Redemption proceeds to:
Name of Commercial Bank (Not Savings Bank)
------------------------------------------------------------------------
Bank Account Number
- --------------------------------------------------------------------------------
Name(s) in which your Bank Account is Established
- --------------------------------------------------------------------------------
Bank's Street Address
...............................................................
- --------------------------------------------------------------------------------
City State Zip Routing/ABA Number
69
<PAGE>
DISTRIBUTION OPTION
o Income dividends and capital gains distributions to be reinvested in
additional shares.
o Income dividends and capital gains distributions to be paid in cash.
o Income dividends in cash and capital gains distributions in additional
shares.
If cash option is chosen, please indicate instructions below:
o Mail distribution check to the name and address in which account is
registered.
o Wire distributions to the same Commercial Bank indicated in Section 5 above.
o Wire distributions to:
Name of Commercial Bank (Not Savings Bank) Bank Account Number
Name(s) in which your Bank Account is Established
Bank's Street Address
City State Zip Routing/ABA Number
SIGNATURE(S) OF ALL HOLDERS AND TAXPAYER CERTIFICATION
The undersigned certify that I/we have full authority and legal capacity to
purchase shares of the Fund and affirm that I/we have received a current
Prospectus of the MAS Funds and agree to be bound by its terms. Under penalties
of perjury I/we certify that the information provided in Section 4 above is
true, correct and complete.
(X)
Signature Date
(X)
Signature Date (X)
(X)
Signature Date
(X)
Signature Date
FOR INTERNAL USE ONLY (X)
Signature Date
O* F OR S
<PAGE>
Client Services: 1-800-354-8185 Prices and Investment Results: 1-800-
522-1525
MAS Funds (the Fund) is a no-load mutual fund consisting of twenty-six
portfolios, twenty-four of which are described in this Prospectus. Each
portfolio in this Prospectus operates as a separate diversified investment
company except the Global Fixed Income, International Fixed Income, and Emerging
Markets Portfolios which are non-diversified investment companies. The
investment objective of each portfolio is described with a summary of investment
policies as referenced below. The Fund's Select Equity and Small Cap
Value Portfolios are not currently being offered to new investors. This
Prospectus offers the MAS Class Shares of the Fund. The Fund also offers
Institutional Class Shares and Investment Class Shares.
Shares of the Cash Reserves Portfolio are neither insured nor guaranteed by the
U.S. Government. The Portfolio seeks to maintain, but there can be no assurance
that it will be able to maintain, a constant net asset value of $1.00 per share.
The High-Yield Portfolio will invest primarily, and certain other portfolios of
the Fund may invest to varying degrees, in high yield, high risk securities
which are speculative with regard to payment of interest and return of principal
(commonly referred to as junk bonds); therefore, investments in these portfolios
may not be suitable for all investors. See High Yield Investing in the Glossary
of Strategies for additional information regarding certain risks associated with
investment in such securities.
PORTFOLIO PAGE REFERENCE
<TABLE>
<S> <C> <C> <C> <C> <C>
How to Use This Prospectus: 3 Fixed Income: Balanced: 34
-------------------------- ------------ --------
Cash Reserves 21 Multi-Asset-Class: 35
-----------------
Portfolio Summaries: Domestic Fixed Income 22
-------------------
Equity: Fixed Income 23 Select Equity Portfolio: 6
------ -----------------------
Emerging Markets 17 Fixed Income II 24
Equity 17 Global Fixed Income 25 Prospectus Glossary:
-------------------
Growth 18 High Yield 26 Strategies 36
International Equity 18 Intermediate Duration 27 Investments 41
Mid Cap Growth 19 International Fixed Income 28
Mid Cap Value 19 Limited Duration 29 Other Information: 52
-----------------
Small Cap Value 20 Mortgage-Backed Securities 30 Table of Contents: Back Cover
-----------------
Value 20 Municipal 31
PA Municipal 32
Special Purpose Fixed Income 33
</TABLE>
This Prospectus, which should be retained for future reference, sets forth
concisely information that you should know before you invest. A Statement of
Additional Information containing additional information about the Fund has been
filed with the Securities and Exchange Commission. Such Statement is dated
January , 1996 as revised from time to time, and has been
incorporated by reference into this Prospectus. A copy of the Statement may be
obtained, without charge, by writing to the Fund or by calling the Client
Services Group at the telephone number shown above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
EXPENSE SUMMARY
MAS CLASS SHARES
The following tables illustrate the various expenses and fees that a shareholder
for that portfolio will incur either directly or indirectly. The expenses and
fees set forth below are based on each portfolio's operations during the fiscal
year ended September 30, 1995, except portfolios whose Total Operating Expenses
have been capped. An estimate has been provided for portfolios with less than 10
months of operations.
Shareholder Transaction Expenses:
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Redemption Fees None
Exchange Fees None
Annual Fund Operating Expenses:
(as a percentage of average net assets after fee waivers)
Shareholder Service Fee ____%
<TABLE>
<CAPTION>
Investment Total
Advisory Other Operating
Portfolio Fees Expenses Expenses
<S> <C> <C> <C>
Emerging Markets 0.750%*
Equity 0.500
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Growth 0.500
International Equity 0.500
Mid Cap Growth 0.500
Mid Cap Value 0.750 *
Small Cap Value 0.750
Value 0.500
Cash Reserves 0.110 *
Domestic Fixed Income 0.353 *
Fixed Income 0.375
Fixed Income II 0.375
Global Fixed Income 0.375 *
High Yield 0.375 *
Intermediate Duration 0.265 *
International Fixed Income 0.265 *
Limited Duration 0.300 *
Mortgage-Backed Securities 0.370 *
Municipal 0.312 *
PA Municipal 0.289 *
Special Purpose Fixed Income 0.375
Balanced 0.450
Multi-Asset-Class 0.359 *
Select Equity 0.483 *
</TABLE>
*After fee waivers and reimbursements.
*Until further notice, the Adviser has voluntarily agreed to waive its advisory
fees and reimburse certain expenses to the extent necessary to keep Total
Operating Expenses for the Emerging Markets, Mid Cap Value, Cash Reserves,
Domestic Fixed Income, Global Fixed Income, High Yield, Intermediate Duration,
International Fixed Income, Limited Duration, Mortgage-Backed Securities,
Municipal, PA Municipal, Multi-Asset-Class and Select Equity Portfolios from
exceeding 1.18%, 0.88%, 0.32%, 0.50%, 0.58%, 0.525%, 0.52%, 0.60%, 0.42%, 0.50%,
0.50%, 0.50%, 0.58% and 0.61%, respectively. Absent fee waivers and
reimbursements by the Adviser, Total Operating Expenses would be _____%, _____%,
_____%, _____%, _____%, _____%, _____%, _____%, _____%, _____%, and _____% for
the Emerging Markets, Mid Cap Value, Cash Reserves, Domestic Fixed Income,
Intermediate Duration, International Fixed Income, Mortgage-Backed Securities,
Municipal, PA Municipal, Multi-Asset-Class and Select Equity Portfolios,
respectively.
3
<PAGE>
EXAMPLE
The purpose of this table is to assist in understanding the various expenses
that a shareholder in a portfolio will bear directly or indirectly. The
following example illustrates the expenses that an investor would pay on a
$1,000 investment over various time periods assuming (1) a 5% annual rate of
return, and (2) redemption at the end of each time period. The example should
not be considered a representation of past or future expenses and actual
expenses may be greater or less than those shown. For portfolios with less than
10 months of operations, only the 1 and 3 year examples are shown.For portfolios
with less than 10 months of operations, only the 1 and 3 year examples are
shown.
Portfolio 1 year 3 year 5 year 10 year
Emerging Markets $ $ $ $
Equity
Growth
International Equity
Mid Cap Growth
Mid Cap Value
Small Cap Value
Value
Cash Reserves
Domestic Fixed Income
Fixed Income
Fixed Income II
Global Fixed Income
High Yield
Intermediate Duration
International Fixed Income
4
<PAGE>
Limited Duration
Mortgage-Backed Securities
Municipal
PA Municipal
Special Purpose Fixed Income
Balanced
Multi-Asset-Class
Select Equity
HOW TO USE THIS PROSPECTUS
A PROSPECTUS SUMMARY begins on page __;
FINANCIAL HIGHLIGHTS and a description of YIELD AND TOTAL RETURN begin on page
__;
GENERAL INFORMATION including INVESTMENT LIMITATIONS pertinent to all portfolios
begins on page __;
SUMMARY PAGES for each portfolio's Objective, Policies and Strategies begin on
page __;
The PROSPECTUS GLOSSARY which defines specific investments, policies and
strategies printed in bold type throughout this Prospectus begins on page __;
OTHER INFORMATION including Shareholder Services begins on page __.
5
<PAGE>
PROSPECTUS SUMMARY
EQUITY PORTFOLIOS
Emerging Markets - seeks to achieve long-term capital growth by investing
primarily in Common Stocks of Emerging Market Issuers.
Equity - seeks to achieve above-average total return over a market cycle of
three to five years, consistent with reasonable risk, by investing primarily in
a diversified portfolio of Common Stocks of companies which are deemed by the
Adviser to have earnings growth potential greater than the economy in general
and greater than the expected rate of inflation.
Growth - seeks to achieve long-term capital growth by investing primarily in a
diversified portfolio of Common Stocks of larger size companies that are deemed
by the Adviser to offer long-term growth potential.
International Equity - seeks to achieve above-average total return over a market
cycle of three to five years, consistent with reasonable risk, by investing
primarily in a diversified portfolio of Foreign Equities.
Mid Cap Growth - seeks to achieve long-term capital growth by investing
primarily in a diversified portfolio of Common Stocks of mid-cap companies that
are deemed by the Adviser to offer long-term growth potential.
Mid Cap Value - seeks to achieve above-average total return over a market cycle
of three to five years, consistent with reasonable risk, by investing in Common
Stocks with equity capitalizations in the range of the companies represented in
the S&P MidCap 400 Index which are deemed by the Adviser to be relatively
undervalued based on certain proprietary measures of value. The portfolio will
typically exhibit a lower price/earnings value ratio than the S&P MidCap 400
Index.
Small Cap Value - seeks to achieve above-average total return over a market
cycle of three to five years, consistent with reasonable risk, by investing
primarily in a diversified portfolio of Common Stocks with equity
capitalizations in the range of companies represented in the Russell 2000 Index
which are deemed by the Adviser to be relatively undervalued based on certain
proprietary measures of value. The portfolio will typically exhibit lower
price/earnings and price/book value ratios than the Russell 2000.
Value - seeks to achieve above-average total return over a market cycle of three
to five years, consistent with reasonable risk, by investing primarily in a
diversified portfolio of Common Stocks which are deemed by the Adviser to be
relatively undervalued based on various measures such as price/earnings ratios
and price/book ratios.
FIXED-INCOME PORTFOLIOS
Cash Reserves - seeks to realize maximum current income, consistent with
preservation of capital and liquidity, by investing in a diversified portfolio
of money-market instruments, Cash Equivalents and other short-term securities
having expected maturities of thirteen months or less. The portfolio seeks to
maintain, but does not guarantee, a constant net asset value of $1.00 per share.
Domestic Fixed Income - seeks to achieve above-average total return over a
market cycle of three to five years, consistent with reasonable risk, by
investing in a diversified portfolio of U.S. Governments, Corporates rated "A"
or higher, Mortgage Securities, other Fixed-Income Securities rated "A" or
higher of domestic issuers and Derivatives. The portfolio's average weighted
maturity will ordinarily be greater than five years.
6
<PAGE>
Fixed Income - seeks to achieve above-average total return over a market cycle
of three to five years, consistent with reasonable risk, by investing primarily
in a diversified portfolio of U.S. Governments, Corporates, Mortgage Securities,
Foreign Bonds and other Fixed-Income Securities and Derivatives. The portfolio's
average weighted maturity will ordinarily exceed five years.
Fixed Income II - seeks to achieve above-average total return over a market
cycle of three to five years, consistent with reasonable risk, by investing
primarily in a diversified portfolio of U.S. Governments, investment grade
Corporates, Mortgage Securities, Foreign Bonds and other Fixed-Income Securities
(rated A or higher) and Derivatives. The portfolio's average weighted maturity
will ordinarily exceed five years.
Global Fixed Income - seeks to achieve above-average total return over a market
cycle of three to five years, consistent with reasonable risk, by investing
primarily in high-grade Fixed-Income Securities, Foreign Bonds and Derivatives
representing securities of United States and foreign issuers. The portfolio's
average weighted maturity will ordinarily exceed five years.
High Yield - seeks to achieve above-average total return over a market cycle of
three to five years, consistent with reasonable risk, by investing primarily in
a diversified portfolio of High Yield Securities, Corporates and other
Fixed-Income Securities and Derivatives (including bonds rated below investment
grade). The portfolio's average weighted maturity will ordinarily exceed five
years.
Intermediate Duration - seeks to achieve above-average total return over a
market cycle of three to five years, consistent with reasonable risk, by
investing primarily in a diversified portfolio of U.S. Governments and
investment grade Corporates, Mortgage Securities, Foreign Bonds and other
Fixed-Income Securities and Derivatives. The portfolio will maintain an average
duration of between two and five years.
International Fixed Income - seeks to achieve above-average total return over a
market cycle of three to five years, consistent with reasonable risk, by
investing primarily in high-grade Foreign Bonds and Derivatives. The portfolio's
average weighted maturity will ordinarily exceed five years.
Limited Duration - seeks to achieve above-average total return over a market
cycle of three to five years, consistent with reasonable risk, by investing
primarily in a diversified portfolio of U.S. Governments, Mortgage Securities,
investment grade Corporates and other Fixed-Income Securities. The portfolio
will maintain an average duration of between one and three years.
Mortgage-Backed Securities - seeks to achieve above-average total return over a
market cycle of three to five years, consistent with reasonable risk, by
investing primarily in a diversified portfolio of Mortgage Securities and other
Fixed-Income Securities and Derivatives. The portfolio's average weighted
maturity will ordinarily exceed seven years.
Municipal - seeks to realize above-average total return over a market cycle of
three to five years, consistent with conservation of capital and the realization
of current income which is exempt from federal income tax, by investing
primarily in a diversified portfolio of Municipals and other Fixed-Income
Securities and Derivatives, including a limited percentage of bonds rated below
investment grade. The portfolio's average weighted maturity will ordinarily be
between ten and thirty years.
PA Municipal - seeks to realize above-average total return over a market cycle
of three to five years, consistent with the conservation of capital and the
realization of current income which is exempt from federal income tax and
Pennsylvania personal income tax by investing in a diversified portfolio of PA
Municipals and other Fixed-Income Securities and Derivatives including a limited
percentage of bonds rated below investment grade. The portfolio's average
weighted maturity will ordinarily be between ten and thirty years.
7
<PAGE>
Special Purpose Fixed Income - seeks to achieve above-average total return over
a market cycle of three to five years, consistent with reasonable risk, by
investing primarily in a diversified portfolio of U.S. Governments, Corporates,
Mortgage Securities, Foreign Bonds and other Fixed-Income Securities and
Derivatives. The portfolio is structured to complement an investment in one or
more of the Fund's Equity Portfolios for investors seeking a balanced
investment. The portfolio's average weighted maturity will ordinarily exceed
five years.
BALANCED INVESTING
Balanced Portfolio - seeks to achieve above-average total return over a market
cycle of three to five years, consistent with reasonable risk, by investing in a
diversified portfolio of Equity Securities, Corporates, Fixed-Income Securities
and Derivatives. When the Adviser judges the relative outlook for the equity and
fixed-income markets to be neutral, the portfolio will be invested 60% in equity
securities and 40% in fixed-income securities. The asset mix is actively managed
by the Adviser, with equity securities ordinarily representing between 45% and
75% of the total investment. The average weighted maturity of the fixed income
portion of the portfolio will ordinarily be greater than five years.
Multi-Asset-Class Portfolio - seeks to achieve above-average total return over a
market cycle of three to five years, consistent with reasonable risk, by
investing primarily in a diversified portfolio of Equity Securities, Corporates,
Mortgage Securities and other Fixed-Income Securities of United States and
foreign issuers and Derivatives. The asset mix will be actively managed by the
Adviser.
Balanced Investing and the Balanced Investment Program - MAS offers a balanced
investing option allowing clients to combine investments in two or more
portfolios of the Fund. Clients can authorize MAS to manage the mix of assets
among the portfolios according to their individual objectives and
specifications. If client objectives are consistent with active management of
investments in the Equity and Special Purpose Fixed Income Portfolios around a
60/40 asset mix, the account will be managed in the same manner as the Adviser's
fully-discretionary, Balanced Investment Program. When client objectives require
use of different portfolios, a different neutral asset mix or specific
limitations, a balanced program can be managed according to those
specifications.
SELECT EQUITY PORTFOLIO (Not currently offered to new investors)
The Select Equity Portfolio has the same investment objective as the Equity
Portfolio with the investment restriction that it not invest in companies listed
as of August 31, 1993 by the Investor Responsibility Research Center as having
direct investment or employees in South Africa. The Portfolio is not currently
accepting new investors.
RISK FACTORS: Prospective investors in the Fund should consider the following
factors as they apply to each Portfolio's allowable investments and policies.
See the Prospectus Glossary for more information on terms in bold type:
_ Each portfolio may invest in Repurchase Agreements, which entail a risk of
loss should the seller default in its obligation to repurchase the security
which is the subject of the transaction;
_ Each portfolio may participate in a Securities Lending program which
entails a risk of loss should a borrower fail financially;
_ Fixed-Income Securities will be affected by general changes in interest
rates resulting in increases or decreases in the value of the obligations
held by a portfolio. The value of fixed-income securities can be expected
to vary inversely to changes in prevailing interest rates, i.e., as
interest rates decline, market value tends to increase and vice versa;
8
<PAGE>
_ Securities purchased on a When-Issued basis may decline or appreciate in
market value prior to their actual delivery to the portfolio;
_ Each portfolio (except the Cash Reserves Portfolio) may invest a portion of
its assets in Derivatives including Futures & Options. Futures contracts,
options and options on futures contracts entail certain costs and risks,
including imperfect correlation between the value of the securities held by
the portfolio and the value of the particular derivative instrument, and
the risk that a portfolio could not close out a futures or options position
when it would be most advantageous to do so;
_ Investments in floating rate securities (Floaters) and inverse floating
rate securities (Inverse Floaters) and mortgage-backed securities (Mortgage
Securities), including principal-only and interest-only Stripped
Mortgage-Backed Securities (SMBS), may be highly sensitive to interest rate
changes, and highly sensitive to the rate of principal payments (including
prepayments on underlying mortgage assets);
_ From time to time Congress has considered proposals to restrict or
eliminate the tax-exempt status of Municipals. If such proposals were
enacted in the future, the Municipal Portfolio and the PA Municipal
Portfolio would reconsider their investment objectives and policies;
_ Investments in securities rated below investment grade, generally referred
to as High Yield, high risk or junk bonds, carry a high degree of credit
risk and are considered speculative by the major rating agencies;
_ Investments in foreign securities involve certain special considerations
which are not typically associated with investing in U.S. companies. See
Foreign Investing. The portfolios investing in foreign securities may also
engage in foreign currency exchange transactions. See Forwards, Futures &
Options, and Swaps; and,
_ The Emerging Markets, Global Fixed Income, and International Fixed Income
Portfolios are Non-Diversified for purposes of the Investment Company Act
of 1940, as amended, meaning that they may invest a greater percentage of
assets in the securities of one issuer than other portfolios.
HOW TO INVEST: MAS Class Shares of each portfolio are offered directly to
investors without a sales commission at the net asset value of the portfolio
next determined after receipt of the order. Share purchases may be made by
sending investments directly to the Fund, subject to acceptance by the Fund. The
minimum initial investment for MAS Class Shares is $500,000 and the minimum for
subsequent investments is $1,000. Purchases may also be made through Shareholder
Organizations who have a contractual agreement with the Fund's distributor,
including institutions such as trusts, foundations or broker-dealers purchasing
for the accounts of others. The Fund also offers Institutional and Investment
Class Shares which differ from the MAS Class Shares in expenses charged and
purchase requirements. Further information relating to the other classes may be
obtained by calling 800-354-8185.
HOW TO REDEEM: Shares of each portfolio may be redeemed at any time at the net
asset value of the portfolio next determined after receipt of the redemption
request. The redemption price may be more or less than the purchase price,
except ordinarily in the case of the Cash Reserves Portfolio which seeks to
maintain, but does not guarantee, a constant net asset value per share of $1.00.
See Redemption of Shares and Shareholder Services.
9
<PAGE>
THE FUND'S INVESTMENT ADVISER: Miller Anderson & Sherrerd, LLP (the "Adviser" or
"MAS") is a Pennsylvania limited liability partnership founded in 1969 and is
located at One Tower Bridge, West Conshohocken, PA 19428. The Adviser is an
Equal Opportunity/Affirmative Action Employer. The Adviser provides investment
counseling services to employee benefit plans, endowments, foundations and other
institutional investors, and as of the date of this Prospectus had in excess of
$__ billion in assets under management. Miller Anderson & Sherrerd, LLP, the
Fund's Adviser, has entered into an agreement to be acquired by Morgan Stanley
Group, Inc.
Conshohocken, PA 19428. The Adviser will continue to provide investment
counseling services t employee benefit plans, endowments, voted to approve a new
agreement, effective as of the transaction date. See Investment Adviser.
THE FUND'S DISTRIBUTOR: MAS Fund Distribution, Inc. (the "Distributor") provides
distribution services to the Fund.
ADMINISTRATIVE SERVICES: The Adviser provides the Fund directly, or through
third parties, with fund administration services. Chase Global Funds Services
Company, a subsidiary of The Chase Manhattan Bank, N.A., serves as Transfer
Agent to the Fund. See Administrative Services.
[INSERT FINANCIAL HIGHLIGHTS]
Selected per share data and ratios for a share outstanding
throughout each period.
The following information should be read in conjunction with the Fund's
financial statements which are included in the Annual Report to Shareholders and
incorporated by reference in the Statement of Additional Information. The Fund's
financial statements for the year ended September 30, 1995 have been examined by
Price Waterhouse LLP whose opinion thereon (which was unqualified) is also
incorporated by reference in the Statement of Additional Information
10
<PAGE>
YIELD AND TOTAL RETURN:
From time to time each portfolio of the Fund advertises its yield and total
return. Both yield and total return figures are based on historical earnings and
are not intended to indicate future performance. The average annual total return
reflects changes in the price of a portfolio's shares and assumes that any
income dividends and/or capital gain distributions made by the portfolio during
the period were reinvested in additional shares of the portfolio. Figures will
be given for one-, five- and ten-year periods ending with the most recent
calendar quarter-end (if applicable), and may be given for other periods as well
(such as from commencement of the portfolio's operations). When considering
average total return figures for periods longer than one year, it is important
to note that a portfolio's annual total return for any one year in the period
might have been greater or less than the average for the entire period.
In addition to average annual total return, a portfolio may also quote an
aggregate total return for various periods representing the cumulative change in
value of an investment in a portfolio for a specific period. Aggregate total
returns may be shown by means of schedules, charts or graphs and may include
subtotals of the various components of total return (e.g., income dividends or
returns for specific types of securities such as industry or country types).
The yield of a portfolio (other than the Cash Reserves Portfolio) is computed by
dividing the net investment income per share (using the average number of shares
entitled to receive dividends) earned during the 30-day period stated in the
advertisement by the closing price per share on the last day of the period. For
the purpose of determining net investment income, the calculation includes as
expenses of the portfolio all recurring fees and any non recurring charges for
the period stated. The yield formula provides for semiannual compounding, which
assumes that net investment income is earned and reinvested at a constant rate
and annualized at the end of a six-month period. Methods used to calculate
advertised yields are standardized for all stock and bond mutual funds. However,
these methods differ from the accounting methods used by the portfolio to
maintain its books and records, and so the advertised 30-day yield may not
reflect the income paid to your own account or the yield reported in the
portfolio's reports to shareholders.
The Municipal and PA Municipal Portfolios may also advertise or quote
tax-equivalent yields. A tax-equivalent yield shows the level of taxable yield
needed to produce an after-tax equivalent to the portfolio's tax-free yield.
This is done by increasing the portfolio's yield (computed as above) by the
amount necessary to reflect the payment of Federal income tax (and Pennsylvania
income tax, in the case of the PA Municipal Portfolio) at a tax rate stated in
the advertisement or quote.
From time to time the Cash Reserves Portfolio may advertise or quote its yield
and effective yield. The yield of the Cash Reserves Portfolio refers to the
income generated by an investment in the portfolio over a stated seven day
period. This income is then annualized. That is, the amount of income generated
by the investment during that week is assumed to be generated each week over a
52-week period and is shown as a percentage of the investment. The effective
yield is calculated similarly, but the income earned over the seven day period
by an investment in the portfolio is assumed to be reinvested when the return is
annualized. The "effective yield" will be higher than the yield because of the
compounding effect of this assumed reinvestment.
The performance of a portfolio may be compared to data prepared by independent
services which monitor the performance of investment companies, data reported in
financial and industry publications, returns of other investment advisers and
mutual funds, and various indices as further described in the Statement of
Additional Information.
The performance of Institutional Class Shares, MAS Class Shares and Investment
Class Shares will differ because of the shareholder servicing fees charged to
the MAS Class Shares and distribution and shareholder servicing fees charged to
Investment Class Shares.
11
<PAGE>
The Annual Report to Shareholders of the Fund for the Fund's most recent fiscal
year-end contains additional performance information that includes comparisons
with appropriate indices. The Annual Report is available without charge upon
request by writing to the Fund or calling the Client Services Group at the
telephone number shown on the front cover of this Prospectus.
GENERAL INFORMATION:
The following information relates to each portfolio of the Fund and should be
read in conjunction with the specific information about each portfolio.
Objectives: Each portfolio seeks to achieve its investment objective relative to
the universe of securities in which it is authorized to invest and, accordingly,
the total return or current income achieved by a portfolio may not be as great
as that achieved by another portfolio that can invest in a broader range of
securities. Fixed-Income Portfolios will seek to produce total return by
actively trading portfolio securities. The objective of each portfolio is
fundamental and may only be changed with approval of holders of a majority of
the shares of each portfolio.
The achievement of any portfolio's objective cannot be assured.
Suitability: The Fund's portfolios are designed for long-term investors who can
accept the risks entailed in investing in the stock and bond markets, and are
not meant to provide a vehicle for playing short-term swings in the market. The
Fund's portfolios are designed principally for the investments of tax-exempt
fiduciary investors who are entrusted with the responsibility of investing
assets held for the benefit of others. Since such investors are not subject to
Federal income taxes, securities transactions for all portfolios except the
Municipal and PA Municipal Portfolios will not be influenced by the different
tax treatment of long-term capital gains, short-term capital gains, and dividend
income under the Internal Revenue Code. Investments in the Municipal and PA
Municipal Portfolios are suitable for taxable investors who would benefit from
the portfolios' tax-exempt income.
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<PAGE>
Securities Lending/Restrictions: Each portfolio may lend its securities to
qualified brokers, dealers, banks and other financial institutions for the
purpose of realizing additional income. Loans of securities will be
collateralized by cash, letters of credit, or securities issues or guaranteed by
the U.S. Government or its agencies. The collateral will equal at least 100% of
the current market value of the loaned securities. In addition, a portfolio will
not loan its portfolio securities to the extent that greater than one-third of
its total assets, at fair market value, would be commited to loans at that time.
Illiquid Securities/Restricted Securities: Each of the portfolios may and invest
up to 15% of its net assets (except the Cash Reserves Portfolio, which may
invest up to 10% of its net assets) in securities that are illiquid by virtue of
the absence of a readily available market, or because of legal or contractual
restrictions on resale. This policy does not limit the acquisition of (i)
restricted securities eligible for resale to qualified institutional buyers
pursuant to Rule 144A under the Securities Act of 1933 or (ii) commercial paper
issued pursuant to Section 4(2) under the Securities Act of 1933, that are
determined to be liquid in accordance with guidelines established by the Fund's
Board of Trustees.
Turnover: The Adviser manages the portfolios generally without regard to
restrictions on portfolio Turnover, except those imposed by provisions of the
federal tax laws regarding short-term trading. In general, the portfolios will
not trade for short-term profits, but when circumstances warrant, investments
may be sold without regard to the length of time held.
High rates of portfolio turnover necessarily result in correspondingly heavier
brokerage and portfolio trading costs which are paid by a portfolio. Trading in
Fixed-Income Securities does not generally involve the payment of brokerage
commissions, but does involve indirect transaction costs. In addition to
portfolio trading costs, higher rates of portfolio turnover may result in the
realization of capital gains. To the extent net short-term capital gains are
realized, any distributions resulting from such gains are considered ordinary
income for federal income tax purposes.
Cash Equivalents/Temporary Defensive Investing: Although each portfolio intends
to remain substantially fully invested, a small percentage of a portfolio's
assets are generally held in the form of Cash Equivalents in order to meet
redemption requests and otherwise manage the daily affairs of each portfolio.
Any portfolio may, when the Adviser deems that market conditions are such that a
temporary defensive approach is desirable, invest in cash equivalents or the
Fixed-Income Securities listed for that portfolio without limit.
Concentration: Concentration is defined as investment of 25% or more of a
portfolio's total assets in the securities of issuers operating in any one
industry. Except as provided in a portfolio's specific investment policies, a
portfolio will not concentrate investments in any one industry.
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<PAGE>
Select Equity Portfolio: The Select Equity Portfolio has the same investment
objective as the Equity Portfolio with the investment restriction that it will
not invest in companies listed as of August 31, 1993 by the Investor
Responsibility Research Center as having any direct investment or employees in
South Africa. The Select Equity Portfolio is not currently accepting new
investors. The Investor Responsibility Research Center (IRRC) is an independent,
not-for-profit corporation that conducts research and publishes impartial
reports on contemporary social and public policy issues and the impact of those
issues on major corporations and institutional investors. In May 1986 the IRRC's
South Africa Review Section first published a comprehensive directory of U.S.
and Canadian companies which do business in South Africa.
Investment Limitations: Each portfolio is subject to certain limitations
designed to reduce its exposure to specific situations. Some of these
limitations are:
(a) with respect to 75% of its assets, a portfolio will not purchase securities
of any issuer if, as a result, more than 5% of the portfolio's total assets
taken at market value would be invested in the securities of any single issuer
except that this restriction does not apply to securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities. This limitation is
not applicable to the Global Fixed Income, International Fixed Income and
Emerging Markets Portfolios. However, these portfolios will comply with the
diversification requirements imposed by Sub-Chapter M of the Internal Revenue
Code;
(b) with respect to 75% of its assets, a Portfolio will not purchase a security
if, as a result, the portfolio would hold more than 10% of the outstanding
voting securities of any issuer. This limitation is not applicable to the Global
Fixed Income, International Fixed Income and Emerging Markets Portfolios.
However, these portfolios will comply with the diversification requirements
imposed by Sub-Chapter M of the Internal Revenue Code;
(c) a portfolio will not invest more than 5% of its total assets in the
securities of issuers (other than securities issued or guaranteed by U.S. or
foreign governments or political subdivisions thereof) which have (with
predecessors) a record of less than three years of continuous operation;
(d) a portfolio will not acquire any securities of companies within one
industry, if, as a result of such acquisition, more than 25% of the value of the
portfolio's total assets would be invested in securities of companies within
such industry; provided, however, that (1) there shall be no limitation on the
purchase of obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities ; (2) the Cash Reserves Portfolio may invest
without limitation in certificates of deposit or bankers' acceptances of
domestic banks; (3) utility companies will be divided according to their
services, for example, gas, gas transmission, electric and telephone will each
be considered a separate industry; (4) financial service companies will be
classified according to the end users of their services, for example, automobile
finance, bank finance and diversified finance will each be considered a separate
industry; (5) asset-backed securities will be classified according to the
underlying assets securing such securities, and (6) the Mortgage-Backed
Securities Portfolio will concentrate in mortgage-backed securities.
(e) a portfolio will not make loans except (i) by purchasing debt securities in
accordance with its investment objectives and policies, or entering into
Repurchase Agreements, (ii) by lending its portfolio securities and (iii) by
lending portfolio assets to other portfolios of the Fund, so long as such loans
are not inconsistent with the Investment Company Act of 1940, as amended or the
Rules and Regulations, or interpretations or orders of the Securities and
Exchange Commission thereunder;
(f) a portfolio will not borrow money, except (i) as a temporary measure for
extraordinary or emergency purposes or (ii) in connection with reverse
repurchase agreements provided that (i) and (ii) in combination do not exceed 33
1/3% of the portfolio's total assets (including the amount borrowed) less
liabilities (exclusive of borrowings);
(g) a portfolio will not pledge, mortgage, or hypothecate any of its assets to
an extent greater than 50% of its total assets at fair market value; and
14
<PAGE>
(h) a portfolio will not invest its assets in securities of any investment
company, except by purchase in the open market involving only customary brokers'
commissions or in connection with mergers, acquisitions of assets or
consolidations and except as may otherwise be permitted by the Investment
Company Act of 1940, as amended.
Limitations (a), (b), (d), (e) and (f),and certain other limitations described
in the Statement of Additional Information are fundamental and may be changed
only with the approval of the holders of a majority of the shares of each
portfolio. The other investment limitations described here and in the Statement
of Additional Information are not fundamental policies meaning that the Board of
Trustees may change them without shareholder approval. If a percentage
limitation on investment or utilization of assets as set forth above is adhered
to at the time an investment is made, a later change in percentage resulting
from changes in the value or total cost of the portfolio's assets will not be
considered a violation of the restriction, and the sale of securities will not
be required.
Emerging Markets Portfolio - (a non-diversified portfolio)
<TABLE>
<S> <C>
Objective: To achieve long-term capital growth by investing primarily in common stocks of emerging
markets issuers.
Approach: The Adviser evaluates both short-term and long-term international economic trends and
relative attractiveness of emerging markets and individual emerging market securities.
Policies: Generally at least 65% invested in Equity Securities of Emerging Markets Issuers
Derivatives may be used to pursue portfolio strategy
Allowable Investments: Emerging Markets Issuers Foreign Equities ADRs Eastern European Issuers
Investment Funds Foreign Currency Forwards Cash Equivalents
Repurchase Agreements Common Stocks Preferred Stock Convertibles
U.S. Governments Zero Coupons Agencies Corporates
High Yield Foreign Bonds Futures & Options Swaps
Investment Companies When Issued Rights Warrants
Brady Bonds Loan Participations Structured Investments
Structured Notes
Comparative Index: MSCI Emerging Markets Free Index
Strategies: Emerging Markets Investing
Foreign Investing
Non-Diversified Status
</TABLE>
Equity Portfolio
Objective: To achieve above-average total return over a market cycle
of three to five years, consistent with reasonable risk,
by investing primarily in dividend-paying common stocks
of companies which are deemed by the Adviser to
demonstrate long-term earnings growth that is greater
than the economy in general and greater than the expected
rate of inflation.
Approach: The Adviser evaluates both short-term and long-term
economic trends and their impact on corporate profits and
the relative value offered by different sectors and
securities within the equity markets. Individual
securities are selected based on fundamental business and
financial factors (such as earnings growth, financial
position, price volatility, and dividend payment records)
and the measurement of those factors relative to the
current market price of the security.
Policies: Generally at least 65% invested in Equity Securities
15
<PAGE>
<TABLE>
<S> <C>
Up to 5% invested in Foreign Equities (excluding ADRs)
Derivatives may be used to pursue portfolio strategy
Capitalization Range: Generally greater than $1 billion
Allowable Investments: Common Stock Preferred Stock Convertibles ADRs
Cash Equivalents Repurchase Agreements Foreign Equities Rights
Warrants Futures & Options Swaps Foreign Currency
Forwards U.S. Governments Zero Coupons Agencies
Corporates Foreign Bonds Investment Companies When Issued
Comparative Index: S&P 500 Index
Strategies: Core Equity Investing
Growth Portfolio
Objective: To achieve long-term capital growth by investing primarily in common stocks of large size
companies which the Adviser believes offer long-term growth potential.
Approach: The Adviser selects common stocks which meet certain criteria which the Adviser believes
are related to the stability and growth of the fundamental characteristics of the company.
Policies: Generally at least 65% invested in Equity Securities of companies offering long-term
growth potential
Up to 5% invested in Foreign Equities (excluding ADRs)
Derivatives may be used to pursue portfolio strategy
Capitalization Range: Generally greater than $1 billion
Allowable Investments: Common Stock Preferred Stock Convertibles ADRs
Cash Equivalents Repurchase Agreements Foreign Equities Rights
Warrants Futures & Options Swaps Foreign Currency
Forwards U.S. Governments Zero Coupons Agencies
Corporates Foreign Bonds Investment Companies When Issued
Comparative Index: S&P 500 Index
Strategy: Growth Stock Investing
International Equity Portfolio
Objective: To achieve above-average total return over a market cycle of three to five years, consistent with
reasonable risk, by investing in common stocks of companies based outside of the United States.
Approach: The Adviser evaluates both short-term and long-term international economic trends and the
relative attractiveness of non-U.S. equity markets and individual securities.
Policies: Generally at least 65% invested in Foreign Equities of issuers in at least 3 countries other than the U.S.
Derivatives may be used to pursue portfolio strategy
Allowable Foreign Equities ADRs Emerging Markets Issuers Eastern European Issuers
Investments: Investment Funds Foreign Currency Forwards Cash Equivalents
Repurchase Agreements Common Stock Preferred Stock Convertibles
U.S. Governments Zero Coupons Agencies Corporates
Foreign Bonds Futures & Options Swaps Investment Companies
When Issued Rights Warrants Brady Bonds
Loan Participations Structured Investments
Structured Notes
</TABLE>
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<PAGE>
Comparative
Index: MSCI World Ex-U.S. Index
Strategies: International Equity Investing
Emerging Markets Investing
Foreign Investing
Mid Cap Growth Portfolio
Objective: To achieve long-term capital growth by investing
primarily in common stocks of smaller and medium size
companies which are deemed by the Adviser to offer
long-term growth potential. Due to its emphasis on
long-term capital growth, dividend income will be lower
than for the Equity and Value Portfolios.
Approach: MAS screens a universe of about 900 companies to find a
relatively small number of high quality companies that it
believes have passed the earliest and riskiest stages of
growth. MAS selects individual stocks by fundamental
business and financial factors relative to the current
market price. The fund will purchase shares of companies
that MAS believes are capable of sustaining short-term
and long-term earnings growth and that are capable of
producing positive earnings surprises relative to
consensus earnings estimates.
Policies: Generally at least 65% invested in Equity Securities of
mid-cap companies offering long-term growth
potential
Up to 5% invested in Foreign Equities (excluding ADRs)
Derivatives may be used to pursue portfolio strategy
Capitalization Range: Generally $300 million to $3 billion
<TABLE>
<S> <C> <C> <C> <C>
Allowable Investments: Common Stock Preferred Stock Convertibles ADRs
Cash Equivalents Repurchase Agreements Foreign Equities Rights
Warrants Futures & Options Swaps Foreign Currency
Forwards U.S. Governments Zero Coupons Agencies
Corporates Foreign Bonds Investment Companies When Issued
</TABLE>
Comparative Index: S&P MidCap 400 Index
Strategies: Growth Stock Investing
Mid Cap Value Portfolio
Objective: To achieve above-average total return over a market cycle of
three to five years, consistent with reasonable risk, by
investing in common stocks with equity capitalizations in the
range of the companies represented in the S&P MidCap 400 Index
which are deemed by the Adviser to be relatively undervalued
based on certain proprietary measures of value. The Portfolio
will typically exhibit a lower price/earnings value ratio than
the S&P MidCap 400 Index.
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<PAGE>
Approach: The Adviser selects common stocks which are deemed to be
undervalued at the time of purchase, based on proprietary
measures of value. The Portfolio will be structured taking
into account the economic sector weights of the S&P MidCap 400
Index, with sector weights normally being within 5% of the
sector weights of the Index.
Policies: Generally at least 65% invested in Equity Securities of
mid-cap companies deemed to be undervalued
Up to 5% invested in Foreign Equities (excluding ADRs)
Derivatives may be used to pursue portfolio strategy
Capitalization
Range: Generally matching the S&P MidCap 400 Index (currently $500
million to $3 billion)
<TABLE>
<S> <C> <C> <C> <C>
Allowable Common Stock Preferred Stock Convertibles ADRs
Investments: Cash Equivalents Repurchase Agreements Foreign Equities Rights
Warrants Futures & Options Swaps Foreign Currency
Forwards U.S. Governments Zero Coupons Agencies
Corporates Foreign Bonds Investment Companies When Issued
</TABLE>
Comparative
Index: S&P MidCap 400 Index
Strategies: Value Stock Investing
Small Cap Value Portfolio (not currently being offered to new investors)
<TABLE>
<S> <C>
Objective: To achieve above-average total return over a market cycle of three to five years, consistent
with reasonable risk, by investing in common stocks with equity capitalizations in the range
of the companies represented in the Russell 2000 Small Stock Index which are deemed by
the Adviser to be relatively undervalued based on certain proprietary measures of value.
The Portfolio will typically exhibit lower price/earnings and price/book value ratios than the
Russell 2000. Dividend income will typically be lower than for the Equity and Value
Portfolios.
Approach: The Adviser selects common stocks which are deemed to be undervalued at the time of purchase, based on
proprietary measures of value. The Portfolio will be structured taking into account the economic sector
weights of the Russell 2000 Index, with the portfolio's sector weights normally being within 5% of the
sector weights for the Index.
Policies: Generally at least 65% invested in Equity Securities of small-cap companies deemed to be undervalued
Up to 5% invested in Foreign Equities (excluding ADRs)
Derivatives may be used to pursue portfolio strategy
Capitalization Range: Generally matching the Russell 2000 size distribution (currently $50 million to $800 million)
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Allowable Investments: Common Stock Preferred Stock Convertibles ADRs
Cash Equivalents Repurchase Agreements Foreign Equities Rights
Warrants Futures & Options Swaps Foreign Currency
Forwards U.S. Governments Zero Coupons Agencies
Corporates Foreign Bonds Investment Companies When Issued
</TABLE>
Comparative Index: Russell 2000 Index
Strategies: Value Stock Investing
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<PAGE>
Value Portfolio
<TABLE>
<S> <C>
Objective: To achieve above-average total return over a market cycle of three to five years, consistent
with reasonable risk, by investing in common stocks with equity capitalizations usually
greater than $300 million which are deemed by the Adviser to be relatively undervalued,
based on various measures such as price/earnings ratios and price/book ratios. While capital
return will be emphasized somewhat more than income return, the Portfolio's total return
will consist of both capital and income returns. It is expected that income return will be
higher than that of the Equity Portfolio because stocks which are deemed to be undervalued
in the marketplace have, under most market conditions, provided higher dividend income
returns than stocks which are deemed to have long-term earnings growth potential which
normally sell at higher price/earnings ratios.
Approach: The Adviser selects common stocks which are deemed to be undervalued relative to the stock market in
general as measured by the Standard & Poor's 500 Index, based on the value measures such as price/earnings
ratios and price/book ratios, as well as fundamental research.
Policies: Generally at least 65% invested in Equity Securities deemed to be undervalued
Up to 5% invested in Foreign Equities (excluding ADRs)
Derivatives may be used to pursue portfolio strategy
Capitalization Range: Generally greater than $300 million
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Allowable Investments: Common Stock Preferred Stock Convertibles ADRs
Cash Equivalents Repurchase Agreements Foreign Equities Rights
Warrants Futures & Options Swaps Foreign Currency
Forwards U.S. Governments Zero Coupons Agencies
Corporates Foreign Bonds Investment Companies When Issued
</TABLE>
Comparative Index: S&P 500 Index
Strategy: Value Stock Investing
Cash Reserves Portfolio
<TABLE>
<S> <C>
Objective: To realize maximum current income, consistent with the preservation of capital and liquidity, by investing
in money market instruments and other short-term securities having expected maturities of thirteen months
or less. The Portfolio's average weighted maturity will not exceed 90 days. The securities in which the
Portfolio will invest may not yield as high a level of current income as securities of lower quality or
longer maturities which generally have less liquidity, greater market risk and more price fluctuation. The
Portfolio is designed to provide maximum principal stability for investors seeking to invest funds for the
short term, or, for investors seeking to combine a long-term investment program in other portfolios of the
Fund with an investment in money market instruments. The Portfolio seeks to maintain, but there can be no
assurance that it will be able to maintain, a constant net asset value of $1.00 per share.
Approach: The Adviser selects a diversified portfolio of money market securities of government and corporate
issuers, any of which may be variable or floating rate, and which have remaining maturities of thirteen
months or less from the date of purchase. For the purpose of determining remaining maturity on Floaters,
demand features and interest reset dates will be taken into consideration.
Policies: The Portfolio seeks to maintain, but there can be no assurance that it will be able to maintain, a
constant net asset value of $1.00 per share.
Quality Specifications: 100% of Commercial Paper Rated in Top Tier
Maturity and Duration: Dollar weighted average maturity less than 90 days Individual maturities 13 months or less
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Allowable Investments: Cash Equivalents Repurchase Agreements U.S. Governments Zero Coupons
Corporates Agencies Asset-Backeds Floaters
</TABLE>
Comparative Index: Lipper Money Market Index
Strategy: Money Market Investing
19
<PAGE>
Domestic Fixed Income Portfolio
<TABLE>
<S> <C>
Objective: To achieve above-average total return over a market cycle of three to five years, consistent with
reasonable risk, by investing in a diversified portfolio of U.S. Government securities, corporate bonds
rated A or higher, and other fixed-income securities rated A or higher of domestic issuers. The
Portfolio's average weighted maturity will ordinarily be greater than five years.
Approach: The Adviser actively manages the maturity and duration structure of the portfolio in anticipation of
long-term trends in interest rates and inflation. Investments are diversified among a wide variety of
U.S. Fixed-Income Securities (rated as A or higher at the time of purchase) in all market sectors.
Policies: Generally at least 65% invested in Fixed-Income Securities 100% invested in domestic issuers
May invest greater than 50% in Mortgage Securities
Derivatives may be used to pursue portfolio strategy
Quality Specifications: 100% of securities rated A or higher
Maturity and Duration: Average weighted maturity generally greater than 5 years
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Allowable Investments: U.S. Governments Zero Coupons Agencies Corporates
Mortgage Securities SMBS CMOs Asset-Backeds
When Issued Convertibles Floaters Inverse Floaters
Structured Notes Futures & Options Swaps Cash Equivalents
Repurchase Agreements Municipals Preferred Stock Investment Companies
</TABLE>
Comparative Index: Salomon Broad Investment Grade
Lehman Brothers Aggregate
Strategies: Maturity and Duration Management
Value Investing
Mortgage Investing
Fixed Income Portfolio
<TABLE>
<S> <C>
Objective: To achieve above-average total return over a market cycle of three to five years, consistent with
reasonable risk, by investing in a diversified portfolio of U.S. Government securities, corporate bonds
(including bonds rated below investment grade, commonly referred to as junk bonds), foreign fixed-income
securities and mortgage-backed securities of domestic issuers and other fixed-income securities. The
Portfolio's average weighted maturity will ordinarily be greater than five years.
</TABLE>
20
<PAGE>
<TABLE>
<S> <C>
Approach: The Adviser actively manages the maturity and duration structure of the Portfolio in anticipation of
long-term trends in interest rates and inflation. Investments are diversified among a wide variety of
Fixed-Income Securities in all market sectors.
Policies: Generally at least 65% invested in Fixed-Income Securities
May invest greater than 50% in Mortgage Securities
Derivatives may be used to pursue portfolio strategy
Quality Specifications: 80% Investment Grade Securities
Up to 20% High Yield
Maturity and Duration: Average weighted maturity generally greater than 5 years
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Allowable Investments: U.S. Governments Zero Coupons Agencies Corporates
High Yield Mortgage Securities SMBS CMOs
Asset-Backeds When Issued Convertibles Foreign Bonds
Brady Bonds Foreign Currency Forwards Floaters
Inverse Floaters Structured Notes Futures & Options Swaps
Cash Equivalents Repurchase Agreements Municipals Preferred Stock
Investment Companies Loan Participations
</TABLE>
Comparative Index: Salomon Broad Investment Grade
Lehman Brothers Aggregate
Strategies: Maturity and Duration Management
Value Investing
Mortgage Investing
High Yield Investing
Foreign Fixed Income Investing
Foreign Investing
21
<PAGE>
Fixed Income Portfolio II
<TABLE>
<S> <C>
Objective: To achieve above-average total return over a market cycle of three to five years, consistent with
reasonable risk, by investing in a diversified portfolio of U.S. Government securities, investment grade
corporate bonds and other fixed-income securities (rated A or higher). The Portfolio's average weighted
maturity will ordinarily be greater than five years.
Approach: The Adviser actively manages the maturity and duration structure of the portfolio in anticipation of
long-term trends in interest rates and inflation. Investments are diversified among a wide variety of
Fixed-Income Securities in all market sectors which are rated A or higher at the time of purchase.
Policies: Generally at least 65% invested in Fixed-Income Securities
May invest greater than 50% in Mortgage Securities
Derivatives may be used to pursue portfolio strategy
Quality Specifications: Individual securities rated A or higher
Maturity and Duration: Average weighted maturity generally greater than 5 years
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Allowable Investments: U.S. Governments Zero Coupons Agencies Corporates
Mortgage Securities SMBS CMOs Asset-Backeds
When Issued Convertibles Foreign Bonds Brady Bonds
Foreign Currency Forwards Floaters Inverse Floaters
Structured Notes Futures & Options Swaps Cash Equivalents
Repurchase Agreements Municipals Preferred Stock Investment Companies
</TABLE>
Comparative Index: Salomon Broad Investment Grade
Lehman Brothers Aggregate
Strategies: Maturity and Duration Management
Value Investing
Mortgage Investing
Foreign Fixed Income Investing
Foreign Investing
Global Fixed Income Portfolio - (a non-diversified portfolio)
<TABLE>
<S> <C>
Objective: To achieve above-average total return over a market cycle of three to five years, consistent with
reasonable risk, by investing in high grade fixed-income securities of United States and foreign issuers.
Total return is the combination of income and changes in value. The Portfolio's average weighted maturity
will ordinarily be greater than five years.
Approach: The Adviser manages the duration, country, and currency exposure of the Portfolio by combining fundamental
research on relative values with analyses of economic, interest-rate, and exchange-rate trends. MAS will
invest in mortgage and corporate bonds when it believes they offer the most value, although most foreign
currency denominated investments are in government and supranational securities.
Policies: Generally at least 65% invested in Fixed-Income Securities of issuers in at least 3 countries, one of
which may be the U.S.
Derivatives may be used to represent country investments, and otherwise pursue portfolio strategy
</TABLE>
Quality
Specifications: 95% Investment Grade Securities
Maturity and
Duration: Average weighted maturity generally greater than 5 years
<TABLE>
<S> <C> <C> <C> <C>
Allowable Foreign Bonds Foreign Currency Forwards U.S. Governments
Investments: Zero Coupons Agencies Corporates Mortgage Securities
CMOs SMBS Asset-Backeds Floaters
Futures & Options Swaps Cash Equivalents Emerging Markets Issuers
Eastern European Issuers Convertibles When Issued Brady Bonds
Inverse Floaters Structured Notes Repurchase Agreements Municipals
Preferred Stock Investment Companies
</TABLE>
22
<PAGE>
Comparative
Index: Salomon World Government Bond Index
Strategies: Foreign Fixed Income Investing
Maturity and Duration Management
Value Investing
Foreign Investing
Non-Diversified Status
Emerging Markets Investing
Mortgage Investing
High Yield Portfolio
<TABLE>
<S> <C>
Objective: To achieve above-average total return over a market cycle of three to five years, consistent with
reasonable risk, by investing in high yielding corporate fixed-income securities (including bonds rated
below investment grade, commonly referred to as junk bonds). The Portfolio may also invest in U.S.
Government securities, mortgage-backed securities, investment grade corporate bonds and in short-term
fixed-income securities, such as certificates of deposit, treasury bills, and commercial paper. The
Portfolio expects to achieve its objective through maximizing current income, although the Portfolio may
seek capital growth opportunities when consistent with its objective. The Portfolio's average weighted
maturity will ordinarily be greater than five years.
Approach: The Adviser uses equity and fixed-income valuation techniques and analyses of economic and industry trends
to determine portfolio structure. Individual securities are selected, and monitored, by fixed-income
portfolio managers who specialize in corporate bonds and use in-depth financial analysis to uncover
opportunities in undervalued issues.
Policies: Generally at least 65% invested in High Yield (including bonds rated below investment grade, commonly
referred to as junk bonds)
Derivatives may be used to pursue portfolio strategy
</TABLE>
Quality
Specifications: None
Maturity and
Duration: Average weighted maturity generally greater than 5 years
<TABLE>
<S> <C> <C> <C> <C>
Allowable High Yield Corporates U.S. Governments Zero Coupons
Investments: Agencies Mortgage Securities SMBS CMOs
Asset-Backeds When Issued Convertibles Foreign Bonds
Brady Bonds Foreign Currency Forwards Floaters
Inverse Floaters Structured Notes Futures & Options Swaps
Cash Equivalents Repurchase Agreements Municipals Preferred Stock
Investment Companies Loan Participations Eastern European Issuers Emerging Markets Issuers
Foreign Equities
</TABLE>
Comparative
Index: Salomon High Yield Index
Strategies: High Yield Investing
Maturity and Duration Management
Value Investing
Mortgage Investing
Foreign Fixed Income Investing
Foreign Investing
Emerging Markets Investing
23
<PAGE>
Intermediate Duration Portfolio
<TABLE>
<S> <C>
Objective: To achieve above-average total return over a market cycle of three to five years, consistent with
reasonable risk, by investing in a diversified portfolio of U.S. Government securities and investment grade
corporate, foreign and other investment grade fixed-income securities. The Portfolio will maintain an
average duration of between two and five years.
Approach: The Adviser constructs a portfolio with a duration between two and five years by actively managing the
maturity and duration structure of the portfolio in anticipation of long-term trends in interest rates and
inflation. Investments are diversified among a wide variety of investment grade Fixed-Income Securities in
all market sectors.
Policies: Generally at least 65% invested in Fixed-Income Securities
Derivatives may be used to pursue portfolio strategy
</TABLE>
Quality
Specifications: 100% Investment Grade Securities
Maturity and
Duration: Average duration between two and five years
<TABLE>
<S> <C> <C> <C> <C>
Allowable Investments: U.S. Governments Zero Coupons Agencies Corporates
Mortgage Securities SMBS CMOs Asset-Backeds
When Issued Convertibles Foreign Bonds Brady Bonds
Foreign Currency Forwards Floaters Inverse Floaters
Structured Notes Futures & Options Swaps Cash Equivalents
Repurchase Agreements Municipals Preferred Stock Investment Companies
</TABLE>
Comparative Index: Lehman Brothers Intermediate Government/Corporate Index
Strategies: Maturity and Duration Management
Value Investing
Mortgage Investing
Foreign Fixed Income Investing
Foreign Investing
International Fixed Income Portfolio - (a non-diversified portfolio)
<TABLE>
<S> <C>
Objective: To achieve above-average total return over a market cycle of three to five years, consistent with
reasonable risk, by investing primarily in high-grade fixed-income securities of foreign issuers.
Approach: The Adviser manages the duration, country, and currency exposure of the portfolio by combining fundamental
research on relative values with analyses of economic, interest-rate, and exchange-rate trends. MAS will
invest in mortgage and corporate bonds when it believes they offer the most value, although most foreign
currency denominated investments are in government and supranational securities.
Policies: Generally at least 80% invested in Fixed-Income Securities of issuers in at least 3 countries other than
the U.S.
Derivatives may be used to represent country investments, and otherwise pursue portfolio strategy
</TABLE>
Quality
Specifications: 95% Investment Grade Securities
Maturity and
Duration: Average weighted maturity generally greater than 5 years
<TABLE>
<S> <C> <C> <C> <C>
Allowable Foreign Bonds Foreign Currency Forwards Floaters
Investments: Futures & Options Swaps Cash Equivalents U.S. Governments
Zero Coupons Agencies Corporates Mortgage Securities
CMOs SMBS Asset-Backeds Emerging Markets Issuers
Eastern European Issuers Convertibles When Issued Brady Bonds
Inverse Floaters Structured Notes Repurchase Agreements Municipals
Preferred Stock Investment Companies
</TABLE>
24
<PAGE>
Comparative
Index: Salomon World Government Bond Index Except U.S.
Strategies: Foreign Fixed Income Investing
Maturity and Duration Management
Value Investing
Foreign Investing
Non-Diversified Status
Emerging Markets Investing
Mortgage Investing
Limited Duration Portfolio
<TABLE>
<S> <C>
Objective: To achieve above-average total return over a market cycle of three to five years, consistent with
reasonable risk, by investing in a diversified portfolio of U.S. Government securities, investment-grade
corporate bonds and other fixed-income securities. The portfolio will maintain an average duration of
between one and three years. Duration is a measure of the life of the portfolio's debt securities on a
present-value basis and is indicative of a security's price volatility relative to interest rate changes.
Approach: The Adviser manages the duration of the overall portfolio as a more effective way to control interest-rate
risk than limiting the maturity of individual securities within the portfolio. In this way investors can
benefit from opportunities across the entire yield curve as well as between various market sectors and at
the same time limit the volatility of investment returns. MAS establishes the duration target through the
use of its top-down view of the economy, the current level of interest rates, and the shape of the yield
curve. MAS then strives to purchase the most attractively priced portfolio that meets our duration and
investment objectives. When purchasing securities other than U.S. Governments, MAS evaluates credit,
liquidity, and option risk. When MAS believes the portfolio is compensated for these risks, it includes
agency, mortgage, and investment-grade corporate securities which meet the Portfolio's quality
specifications.
Policies: Generally at least 65% invested in Fixed-Income Securities
Derivatives may be used to pursue portfolio strategy
Quality Specifications: 100% Investment Grade Securities
Maturity and Duration: Average duration between 1 and 3 years
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Allowable Investments: U.S. Governments Zero Coupons Agencies Corporates
Mortgage Securities CMOs Asset-Backeds When Issued
Convertibles Floaters Structured Notes Futures & Options
Swaps Cash Equivalents Repurchase Agreements
</TABLE>
Comparative Index: Salomon 1-3 Year Index
Strategies: Maturity and Duration Management
Value Investing
Mortgage Investing
Mortgage-Backed Securities Portfolio
<TABLE>
<CAPTION>
<S> <C>
Objective: To achieve above-average total return over a market cycle of three to five years, consistent with
reasonable risk, by investing primarily (at least 65% of its assets under normal circumstances) in
mortgage-backed securities. In addition, the portfolio may also invest in U.S. government securities and in
short-term fixed-income securities such as certificates of deposit, treasury bills, and commercial paper.
The portfolio's average weighted maturity will ordinarily be greater than seven years.
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Approach: The Adviser sets three portfolio targets: (1) interest-rate sensitivity; (2) yield-curve sensitivity; and
(3) prepayment sensitivity. The Adviser increases the sensitivity of the portfolio to changes in interest
rates when bonds offer greater value on the basis of inflation- adjusted interest rates. Similarly, the
Adviser increases yield-curve sensitivity when long- maturity interest rates offer exceptional value
relative to short-maturity interest rates. Finally, the Adviser increases prepayment exposure when mortgage
yields, adjusted for probable prepayments, indicate unusual value in mortgage-backed securities.
Policies: Generally at least 65% invested in Mortgage Securities
Derivatives may be used to pursue portfolio strategy
Quality Specifications: Securities not guaranteed by the U.S. Government or a private organization will be rated
Investment Grade Securities
</TABLE>
Maturity and
Duration: Average weighted maturity generally greater than 7 years
Duration generally between 2 and 7 years
<TABLE>
<S> <C> <C> <C> <C>
Allowable Investments: Mortgage Securities CMOs Asset-Backeds SMBS
U.S. Governments Zero Coupons Agencies When Issued
Floaters Inverse Floaters Structured Notes Futures & Options
Cash Equivalents Repurchase Agreements Municipals Investment Companies
Swaps
Comparative Index: Lehman Mortgage Index
Strategies: Mortgage Investing
Maturity and Duration Management
Value Investing
</TABLE>
Municipal Portfolio
<TABLE>
<S> <C>
Objective: To realize above-average total return over a market cycle of three to five years, consistent with the
conservation of capital and the realization of current income which is exempt from federal income tax, by
investing in a diversified portfolio of investment grade and short-term municipal debt securities, other
investment grade fixed-income securities and a limited percentage of bonds rated below investment grade
(commonly referred to as junk bonds). The portfolio's average weighted maturity will ordinarily be between
ten and thirty years.
Approach: The Adviser varies portfolio structure--the average duration and maturity and the amount of the portfolio
invested in various types of bonds--according to its outlook for interest rates and its analysis of the
risks and rewards offered by different classes of bonds. The portfolio will invest in taxable bonds only in
cases where MAS believes they improve the risk/reward profile of the portfolio on an after-tax basis.
Policies: Generally at least 80% invested in Municipals
Derivatives may be used to pursue portfolio strategy
Quality
Specifications: 80% Investment Grade Securities
Up to 20% High Yield
Maturity
and Duration: Average weighted maturity generally between 10 and 30 years
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Allowable Municipals Taxable Investments U.S. Governments Agencies
Investments: Corporates Mortgage Securities SMBS CMOs
Asset-Backeds When Issued Convertibles Floaters
Inverse Floaters Structured Notes Futures & Options Swaps
Cash Equivalents Repurchase Agreements Preferred Stock Investment Companies
High Yield Zero Coupons Foreign Bonds Forwards
Foreign Currency Brady Bonds Emerging Markets Issuers Eastern European Issuers
</TABLE>
26
<PAGE>
Comparative
Index: Lehman Long-Term Municipal Bond Index
Strategies: Municipals Management
Maturity and Duration Management
Value Investing
High Yield Investing
Mortgage Investing
PA Municipal Portfolio
<TABLE>
<S> <C>
Objective: To realize above-average total return over a market cycle of three to five years, consistent with the
conservation of capital and the realization of current income which is exempt from federal income tax and
Pennsylvania personal income tax by investing in a diversified portfolio of investment grade and short-term
municipal debt securities, other investment grade fixed-income securities and a limited percentage of bonds
rated below investment grade (commonly referred to as junk bonds). The Portfolio's average weighted
maturity will ordinarily be between ten and thirty years.
Approach: The Adviser varies portfolio structure--the average duration and maturity and the amount of the portfolio
invested in various types of bonds--according to its outlook for interest rates and its analysis of the
risks and rewards offered by different classes of bonds. The portfolio will invest in federally or
Pennsylvania State taxable bonds only in cases where MAS believes they improve the risk/reward profile of
the portfolio on an after-tax basis for Pennsylvania residents.
Policies: Generally at least 80% invested in Municipal Securities
Generally at least 65% invested in PA Municipal Securities
Derivatives may be used to pursue portfolio strategy
</TABLE>
Quality Specifications: 80% Investment Grade Securities
Up to 20% High Yield
<TABLE>
Maturity and Duration: Average weighted maturity generally between 10 and 30 years
<S> <C> <C> <C> <C>
Allowable Investments: PA Municipals Municipals Taxable Investments U.S. Governments
Agencies Corporates Mortgage Securities SMBS
CMOs Asset-Backeds When Issued Convertibles
Floaters Inverse Floaters Structured Notes Futures & Options
Swaps Cash Equivalents Repurchase Agreements Preferred Stock
Investment Companies High Yield Foreign Bonds Forwards
Foreign Currency Zero Coupons Brady Bonds Emerging Markets Issuers
Eastern European Issuers
</TABLE>
Comparative Index: Lehman Long-Term Municipal Bond Index
Strategies: Municipals Management
Maturity and Duration Management
Value Investing
High Yield Investing
Mortgage Investing
27
<PAGE>
Special Purpose Fixed Income Portfolio
<TABLE>
<S> <C>
Objective: To achieve above-average total return over a market cycle of three to five years, consistent with
reasonable risk, by investing in a diversified portfolio of U.S. Government securities, corporate bonds
(including bonds rated below investment grade, commonly referred to as junk bonds), foreign fixed-income
securities and mortgage-backed securities and other fixed-income securities. The portfolio is structured to
complement an investment in one or more of the Fund's equity portfolios for investors seeking a balanced
investment.
Approach: The Adviser actively manages the maturity and duration structure of the portfolio in anticipation of
long-term trends in interest rates and inflation. Investments are diversified among a wide variety of
Fixed-Income Securities in all market sectors. Both duration/maturity strategy and sector allocation is
determined based on the presumption that investors are combining an investment in the portfolio with an
equity investment.
Policies: Generally at least 65% invested in Fixed-Income Securities
May invest greater than 50% in Mortgage Securities
Derivatives may be used to pursue portfolio strategy
</TABLE>
Quality Specifications: None
Maturity and Duration: Average weighted maturity generally greater than 5 years
<TABLE>
<S> <C> <C> <C> <C>
Allowable Investments: U.S. Governments Zero Coupons Agencies Corporates
High Yield Mortgage Securities SMBS CMOs
Asset-Backeds When Issued Convertibles Foreign Bonds
Brady Bonds Foreign Currency Forwards Floaters
Inverse Floaters Structured Notes Futures & Options Swaps
Cash Equivalents Repurchase Agreements Municipals Preferred Stock
Investment Companies Loan Participations
</TABLE>
Comparative Index: Salomon Broad Investment Grade
Lehman Brothers Aggregate
Strategies: Fixed Income Management and Asset Allocation
Maturity and Duration Management
Value Investing
Mortgage Investing
High Yield Investing
Foreign Fixed Income Investing
Foreign Investing
Balanced Portfolio
<TABLE>
<S> <C>
Objective: To achieve above average total return over a market cycle of three to five years, consistent with
reasonable risk, by investing in a diversified portfolio of common stocks and fixed- income securities.
When the Adviser judges the relative outlook for the equity and fixed- income markets to be neutral the
portfolio will be invested 60% in common stocks and 40% in fixed-income securities. The asset mix may be
changed, however, with common stocks ordinarily representing between 45% and 75% of the total investment.
The average weighted maturity of the fixed-income portion of the portfolio will ordinarily be greater than
five years.
Approach: The Adviser's approach to balanced management is to determine investment strategies for the equity and
fixed-income portions of the portfolio separately and then determine the mix of those strategies expected
to maximize the return available from both the stock and bond markets. Strategic judgments on the
equity/fixed-income asset mix are based on valuation disciplines and tools for analysis developed by the
Adviser over its twenty-five year history of managing balanced accounts.
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Policies: Generally 45% to 75% invested in Equity Securities
Up to 25% invested in Foreign Bonds and/or Foreign
Equities At least 25% invested in senior Fixed-Income Securities
Derivatives may be used to pursue portfolio strategy
</TABLE>
Equity Capitalization: Generally greater than $1 billion
Quality Specifications: None
Maturity and Duration: Average weighted maturity generally greater than 5 years
<TABLE>
<S> <C> <C> <C> <C>
Allowable Investments: Common Stock Preferred Stock U.S. Governments Zero Coupons
Corporates High Yield Foreign Bonds Mortgage Securities
CMOs Asset-Backeds SMBS When Issued
Brady Bonds Floaters Inverse Floaters Structured Notes
Agencies Convertibles Futures & Options Swaps
Foreign Currency Forwards Cash Equivalents Repurchase Agreements
Eastern European Issuers Investment Funds Municipals Investment Companies
ADRs Foreign Equities Rights Warrants
Loan Participations
</TABLE>
Comparative Index: A weighted blend of quarterly returns compiled by the
Adviser using:
60% S&P 500 Index
40% Salomon Broad Investment Grade Index
Strategies: Asset Allocation Management
Core Equity Investing
Fixed Income Management and Asset Allocation
Maturity and Duration Management
Value Investing
Mortgage Investing
High Yield Investing
Foreign Fixed Income Investing
Foreign Investing
Multi-Asset-Class Portfolio
<TABLE>
<S> <C>
Objective: To achieve above average total return over a market cycle of three to five years, consistent with
reasonable risk, by investing in a diversified portfolio of common stocks and fixed-income securities of
United States and Foreign issuers.
Approach: The Adviser determines the mix of investments in domestic and foreign equity and fixed-income and high
yield securities expected to maximize available total return. Strategic judgments on the asset mix are
based on valuation disciplines and tools for analysis which have been developed by the Adviser to compare
the relative potential returns and risks of global stock and bond markets.
Policies: Generally at least 65% invested in issuers located in at least 3 countries, including the U.S.
Derivatives may be used to pursue portfolio strategy
Domestic Equity
Capitalization: Generally greater than $1 billion
Quality Specifications: None
Maturity and Duration: Average weighted maturity generally greater than 5 years
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Allowable Investments: Common Stock U.S. Governments Agencies
Corporates High Yield Foreign Bonds
Foreign Equities Foreign Currency
Eastern European Issuers Investment Funds Mortgage Securities CMOs
SMBS Asset-Backeds When Issued Brady Bonds
Floaters Inverse Floaters Structured Notes Zero Coupons
Futures & Options Swaps Forwards Cash Equivalents
Repurchase Agreements Convertibles Preferred Stock
Municipals Investment Companies ADRs
Rights Warrants
Loan Participations Emerging Markets Issuers Structured Investments
</TABLE>
29
<PAGE>
Comparative Index: A weighted blend of quarterly returns compiled by the
Adviser using:
50% S&P 500 Index
14% EAFE-GDP Weighted Index
24% Salomon Broad Investment Grade Index
6% Salomon World Ex U.S. Government Bond Index
6% Salomon High Yield Market Index
Strategies: Asset Allocation Management
Fixed Income Management and Asset Allocation
Maturity and Duration Management
Value Investing
Foreign Fixed Income Investing
Core Equity Management
International Equity Investing
Emerging Markets Investing
High Yield Investing
Foreign Investing
30
<PAGE>
PROSPECTUS GLOSSARY
CHARACTERISTICS AND RISKS OF STRATEGIES AND INVESTMENTS
STRATEGIES
Asset Allocation Management: The Adviser's approach to asset allocation
management is to determine investment strategies for each asset class in a
portfolio separately, and then determine the mix of those strategies expected to
maximize the return available from each market. Strategic judgments on the mix
among asset classes are based on valuation disciplines and tools for analysis
which have been developed over the Adviser's twenty-five year history of
managing balanced accounts.
Tactical asset-allocation shifts are based on comparisons of prospective risks,
returns, and the likely risk-reducing benefits derived from combining different
asset classes into a single portfolio. Experienced teams of equity,
fixed-income, and international investment professionals manage the investments
in each asset class.
Core Equity Investing: The Adviser's "core" or primary equity strategy
emphasizes common stocks of large companies, with targeted investments in small
company stocks that promise special growth opportunities. Depending on MAS's
outlook for the economy and different market sectors, the mix between value
stocks and growth stocks will change.
Emerging Markets Investing: The Adviser's approach to emerging markets investing
is based on the Adviser's evaluation of both short-term and long-term
international economic trends and the relative attractiveness of emerging
markets and individual emerging market securities.
As used in this Prospectus, emerging markets describes any country which is
generally considered to be an emerging or developing country by the
international financial community such as the International Bank for
Reconstruction and Development (more commonly known as the World Bank) and the
International Finance Corporation. There are currently over 130 countries which
are generally considered to be emerging or developing countries by the
international financial community, approximately 40 of which currently have
stock markets. Emerging markets can include every nation in the world except the
United States, Canada, Japan, Australia, New Zealand and most nations located in
Western Europe.
Currently, investing in many emerging markets is either not feasible or very
costly, or may involve unacceptable political risks. Other special risks include
the possible increased likelihood of expropriation or the return to power of a
communist regime which would institute policies to expropriate, nationalize or
otherwise confiscate investments. A portfolio will focus its investments on
those emerging market countries in which the Adviser believes the potential for
market appreciation outweighs these risks and/or the cost of investment.
Investing in emerging markets also involves an extra degree of custodial and/or
market risk, especially where the securities purchased are not traded on an
official exchange or where ownership records regarding the securities are
maintained by an unregulated entity (or even the issuer itself).
Fixed Income Management and Asset Allocation: Within Balanced, Multi-Asset-Class
and Special Purpose Fixed Income Portfolios, the Adviser selects fixed-income
securities not only on the basis of judgments regarding Maturity and Duration
Management and Value Investing, but also on the basis of the value offered by
various segments of the fixed-income securities market relative to Cash
Equivalents and Equity Securities. In this context, the Adviser may find that
certain segments of the fixed-income securities market offer more or less
attractive relative value when compared to Equity Securities than when compared
to other Fixed-Income Securities.
31
<PAGE>
For example, in a given interest rate environment, equity securities may be
judged to be fairly valued when compared to intermediate duration fixed-income
securities, but overvalued compared to long duration fixed-income securities.
Consequently, while a portfolio investing only in fixed-income securities may
not emphasize long duration assets to the same extent, the fixed-income portion
of a balanced investment may invest a percentage of its assets in long duration
bonds on the basis of their valuation relative to equity securities.
Foreign Fixed Income Investing: A portion of a portfolio other than the Cash
Reserve Portfolio may be invested in Foreign Bonds and other Fixed-Income
Securities denominated in foreign currencies, where, in the opinion of the
Adviser, the combination of current yield and currency value offer attractive
expected returns. When the total return opportunities in a foreign bond market
appear attractive in local currency terms, but where in the Adviser's judgment
unacceptable currency risk exists, currency Futures & Options, Forwards and
Swaps may be used to hedge the currency risk.
Foreign Investing: Investors should recognize that investing in securities
issued by foreign companies or governments involves certain special
considerations which are not typically associated with investing in U.S.
companies. Since the securities of foreign issuers may be denominated in foreign
currencies, and since a portfolio may temporarily hold uninvested reserves in
bank deposits of foreign currencies prior to reinvestment or conversion to U.S.
dollars, a portfolio may be affected favorably or unfavorably by changes in
currency rates and in exchange control regulations, and may incur costs in
connection with conversions between various currencies.
As non-U.S. companies are not generally subject to uniform accounting, auditing
and financial reporting standards and practices comparable to those applicable
to U.S. companies, there may be less publicly available information about
certain foreign companies than about U.S. companies. Securities of some non-U.S.
companies may be less liquid and more volatile than securities of comparable
U.S. companies. There is generally less government supervision and regulation of
stock exchanges, brokers and listed companies than in the U.S. With respect to
certain foreign countries, there is the possibility of expropriation or
confiscatory taxation, political or social instability, or diplomatic
developments which could affect U.S. investments in those countries.
Additionally, there may be difficulty in obtaining and enforcing judgments
against foreign issuers.
Although a portfolio will endeavor to achieve the most favorable execution costs
in its portfolio transactions in foreign securities, fixed commissions on many
foreign stock exchanges are generally higher than negotiated commissions on U.S.
exchanges. In addition, it is expected that the expenses for custodial
arrangements of a portfolio's foreign securities will be greater than the
expenses for the custodial arrangements for handling U.S. securities of equal
value. Certain foreign governments levy withholding taxes against dividend and
interest income. Although in some countries a portion of these taxes is
recoverable, the non-recovered portion of foreign withholding taxes will reduce
the income a portfolio receives from the companies comprising the portfolio's
investments.
Growth Stock Investing: Seeks to invest in Common Stocks generally characterized
by higher growth rates, betas, and price/earnings ratios, and lower yields than
the stock market in general as measured by the S&P 500 Index.
High Yield Investing: Involves investing in high yield securities based on the
Adviser's analysis of economic and industry trends and individual security
characteristics. The Adviser conducts credit analysis for each security
considered for investment to evaluate its attractiveness relative to its risk. A
high level of diversification is also maintained to limit credit exposure to
individual issuers.
To the extent a portfolio invests in high yield securities it will be exposed to
a substantial degree of credit risk. Lower-rated bonds are considered
speculative by traditional investment standards. High yield securities may be
issued as a consequence of corporate restructuring or similar events. Also, high
yield securities are often issued by smaller, less credit worthy companies, or
by highly leveraged (indebted) firms, which are generally less able than more
established or less leveraged firms to make scheduled payments of interest and
principal. The risks posed by securities issued under such circumstances are
substantial.
32
<PAGE>
The market for high yield securities is still relatively new. Because of this, a
long-term track record for bond default rates does not exist. In addition, the
secondary market for high yield securities is generally less liquid than that
for investment grade corporate securities. In periods of reduced market
liquidity, high yield bond prices may become more volatile, and both the high
yield market and a portfolio may experience sudden and substantial price
declines. This lower liquidity might have an effect on a portfolio's ability to
value or dispose of such securities. Also, there may be significant disparities
in the prices quoted for high yield securities by various dealers. Under such
conditions, a portfolio may find it difficult to value its securities
accurately. A portfolio may also be forced to sell securities at a significant
loss in order to meet shareholder redemptions. These factors add to the risks
associated with investing in high yield securities.
High yield bonds may also present risks based on payment expectations. For
example, high yield bonds may contain redemption or call provisions. If an
issuer exercises these provisions in a declining interest rate market, a
portfolio would have to replace the security with a lower yielding security,
resulting in a decreased return for investors. Conversely, a high yield bond's
value will decrease in a rising interest rate market.
Certain types of high yield bonds are non-income paying securities. For example,
zero coupon bonds pay interest only at maturity and payment-in-kind bonds pay
interest in the form of additional securities. Payment in the form of additional
securities, or interest income recognized through discount accretion, will,
however, be treated as ordinary income which will be distributed to shareholders
even though the portfolio does not receive periodic cash flow from these
investments.
International Equity Investing: The Adviser's approach to international equity
investing is based on its evaluation of both short-term and long-term
international economic trends and the relative attractiveness of non-U.S. equity
markets and individual securities.
MAS considers fundamental investment characteristics, the principles of
valuation and diversification, and a relatively long-term investment time
horizon. Since liquidity will also be a consideration, emphasis will likely be
influenced by the relative market capitalizations of different non-U.S. stock
markets and individual securities. Portfolios seek to diversify investments
broadly among both developed and newly industrializing foreign countries. Where
appropriate, a portfolio may also invest in regulated investment companies or
investment funds which invest in such countries to the extent allowed by
applicable law.
Maturity and Duration Management: One of two primary components of the Adviser's
fixed-income investment strategy is maturity and duration management. The
maturity and duration structure of a portfolio investing in Fixed-Income
Securities is actively managed in anticipation of cyclical interest rate
changes. Adjustments are not made in an effort to capture short-term, day-to-day
movements in the market, but instead are implemented in anticipation of longer
term shifts in the levels of interest rates. Adjustments made to shorten
portfolio maturity and duration are made to limit capital losses during periods
when interest rates are expected to rise. Conversely, adjustments made to
lengthen maturity are intended to produce capital appreciation in periods when
interest rates are expected to fall. The foundation for maturity and duration
strategy lies in analysis of the U.S. and global economies, focusing on levels
of real interest rates, monetary and fiscal policy actions, and cyclical
indicators. See Value Investing for a description of the second primary
component of MAS' fixed-income strategy.
33
<PAGE>
Most debt obligations provide interest (coupon) payments in addition to a final
(par) payment at maturity. Some obligations also have call provisions. Depending
on the relative magnitude of these payments and the nature of the call
provisions, the market values of debt obligations may respond differently to
changes in the level and structure of interest rates. Traditionally, a debt
security's term-to-maturity has been used as a proxy for the sensitivity of the
security's price to changes in interest rates (which is the interest rate risk
or volatility of the security). However, term-to-maturity measures only the time
until a debt security provides its final payment, taking no account of the
pattern of the security's payments prior to maturity.
Duration is a measure of the expected life of a fixed-income security that was
developed as a more precise alternative to the concept of term-to-maturity.
Duration incorporates a bond's yield, coupon interest payments, final maturity
and call features into one measure. Duration is one of the fundamental tools
used by the Adviser in the selection of fixed-income securities. Duration is a
measure of the expected life of a fixed-income security on a present value
basis. Duration takes the length of the time intervals between the present time
and the time that the interest and principal payments are scheduled or, in the
case of a callable bond, expected to be received, and weights them by the
present values of the cash to be received at each future point in time. For any
fixed-income security with interest payments occurring prior to the payment of
principal, duration is always less than maturity. In general, all other factors
being the same, the lower the stated or coupon rate of interest of a
fixed-income security, the longer the duration of the security; conversely, the
higher the stated or coupon rate of interest of a fixed-income security, the
shorter the duration of the security.
There are some situations where even the standard duration calculation does not
properly reflect the interest rate exposure of a security. For example, floating
and variable rate securities often have final maturities of ten or more years;
however, their interest rate exposure corresponds to the frequency of the coupon
reset. Another example where the interest rate exposure is not properly captured
by duration is the case of mortgage pass-through securities. The stated final
maturity of such securities is generally 30 years, but current prepayment rates
are more critical in determining the securities' interest rate exposure. In
these and other similar situations, the Adviser will use sophisticated
analytical techniques that incorporate the economic life of a security into the
determination of its interest rate exposure.
Money Market Investing: A money market fund like the Cash Reserves Portfolio
invests in securities which present minimal credit risk and may not yield as
high a level of current income as securities of lower quality or longer
maturities which generally have less liquidity, greater market risk and more
price fluctuation. A money market portfolio is designed to provide maximum
principal stability for investors seeking to invest funds for the short-term,
or, for investors seeking to combine a long-term investment program in other
portfolios of the Fund with an investment in money market instruments. However,
because the Cash Reserves Portfolio invests in the money market obligations of
private financial and non-financial corporations in addition to those of the
U.S. Government or its agencies and instrumentalities, it offers higher credit
risk and yield potential relative to money market funds which invest exclusively
in U.S. Government securities. The Cash Reserves Portfolio seeks to maintain,
but does not guarantee, a constant net asset value of $1.00 per share.
Mortgage Investing: At times it is anticipated that greater than 50% of a
fixed-income portfolio's assets may be invested in mortgage-related securities.
These include mortgage-backed securities which represent interests in pools of
mortgage loans made by lenders such as commercial banks, savings and loan
associations, mortgage bankers and others. The pools are assembled by various
organizations, including the Government National Mortgage Association
(GNMA), Federal Home Loan Mortgage Corporation (FHLMC), Federal National
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Mortgage Association (FNMA), other government agencies, and private issuers. It
is expected that a portfolio's primary emphasis will be on mortgage-backed
securities issued by the various Government-related organizations. However, a
portfolio may invest, without limit, in mortgage-backed securities issued by
private issuers when the Adviser deems that the quality of the investment, the
quality of the issuer, and market conditions warrant such investments.
Securities issued by private issuers will be rated investment grade by Moody's
or Standard & Poor's or be deemed by the Adviser to be of comparable investment
quality.
Municipals Management: MAS manages municipal portfolios in a total return
context. This means that taxable investments will regularly be included in a
portfolio when they have an attractive prospective after-tax total return,
regardless of the taxable nature of income on the security.
MAS Municipals Management emphasizes a diversified portfolio of high grade
municipal debt securities. Under normal circumstances, a portfolio will invest
at least 80% of net assets in municipal securities including AMT Bonds and at
least 80% will be Investment Grade Securities.
Under normal conditions, a portfolio may hold up to 20% of net assets in U.S.
Governments, Agencies, Corporates, Cash Equivalents, Preferred Stocks, Mortgage
Securities, Asset-Backeds, Floaters, and Inverse Floaters and other Fixed Income
Securities instruments (collectively "Taxable Investments").
Non-Diversified Status: A portfolio may be classified as a non-diversified
investment company under the Investment Company Act of 1940, as amended.
Non-diversified portfolios may invest more than 25% of assets in securities of
individual issuers representing greater than 5% each of a portfolio's total
assets, whereas diversified investment companies may only invest up to 25% of
assets in positions of greater than 5%. Both diversified and non-diversified
portfolios are subject to diversification specifications under the Internal
Revenue Code of 1986, as amended, which require that, as of the close of each
fiscal quarter, (i) no more than 25% of a portfolio's total assets may be
invested in the securities of a single issuer (except for U.S. Government
securities) and (ii) with respect to 50% of its total assets, no more than 5% of
such assets may be invested in the securities of a single issuer (except for
U.S. Government securities) or invested in more than 10% of the outstanding
voting securities of a single issuer. Because of its non-diversified status, a
portfolio may be subject to greater credit and other risks than a diversified
investment company.
Value Investing: One of two primary components of the Adviser's fixed-income
strategy is value investing, whereby MAS seeks to identify undervalued sectors
and securities through analysis of credit quality, option characteristics and
liquidity. Quantitative models are used in conjunction with judgment and
experience to evaluate and select securities with embedded put or call options
which are attractive on a risk- and option-adjusted basis. Successful value
investing will permit a portfolio to benefit from the price appreciation of
individual securities during periods when interest rates are unchanged. See
Maturity and Duration Management for a description of the other key component of
MAS's fixed-income investment strategy.
Value Stock Investing: Emphasizes common stocks which are deemed by the Adviser
to be undervalued relative to the stock market in general as measured by the
appropriate market index, based on value measures such as price/earnings ratios
and price/book ratios. Value stocks are generally dividend paying common stocks.
However, non-dividend paying stocks may also be selected for their value
characteristics.
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INVESTMENTS
Each Portfolio may invest in the securities defined below in accordance with
their listing of Allowable Investments and any quality or policy constraints.
ADRs--American Depository Receipts: are dollar-denominated securities which are
listed and traded in the United States, but which represent claims to shares of
foreign stocks. ADRs may be either sponsored or unsponsored. Unsponsored ADR
facilities typically provide less information to ADR holders.
Agencies: are securities which are not guaranteed by the U.S. Government, but
which are issued, sponsored or guaranteed by a federal agency or federally
sponsored agency such as the Student Loan Marketing Association, Resolution
Funding Corporation, or any of several other agencies.
Asset-Backeds: are securities collateralized by shorter term loans such as
automobile loans, home equity loans, computer leases, or credit card
receivables. The payments from the collateral are passed through to the security
holder. The collateral behind asset-backed securities tends to have prepayment
rates that do not vary with interest rates. In addition the short-term nature of
the loans reduces the impact of any change in prepayment level. Due to
amortization, the average life for these securities is also the conventional
proxy for maturity.
Possible Risks: Due to the possibility that prepayments (on automobile loans and
other collateral) will alter the cash flow on asset-backed securities, it is not
possible to determine in advance the actual final maturity date or average life.
Faster prepayment will shorten the average life and slower prepayments will
lengthen it. However, it is possible to determine what the range of that
movement could be and to calculate the effect that it will have on the price of
the security. In selecting these securities, the Adviser will look for those
securities that offer a higher yield to compensate for any variation in average
maturity.
Brady Bonds: are debt obligations which are created through the exchange of
existing commercial bank loans to foreign entities for new obligations in
connection with debt restructuring under a plan introduced by former U.S.
Secretary of the Treasury, Nicholas F. Brady (the Brady Plan). Brady Bonds have
been issued only recently, and, accordingly, do not have a long payment history.
They may be collateralized or uncollateralized and issued in various currencies
(although most are dollar-denominated) and they are actively traded in the
over-the-counter secondary market. For further information on these securities,
see the Statement of Additional Information. Portfolios will only invest in
Brady Bonds consistent with quality specifications.
Cash Equivalents: are short-term fixed-income instruments comprising:
(1) Time deposits, certificates of deposit (including marketable variable rate
certificates of deposit) and bankers' acceptances issued by a commercial bank or
savings and loan association. Time deposits are non-negotiable deposits
maintained in a banking institution for a specified period of time at a stated
interest rate. Certificates of deposit are negotiable short-term obligations
issued by commercial banks or savings and loan associations against funds
deposited in the issuing institution. Variable rate certificates of deposit are
certificates of deposit on which the interest rate is periodically adjusted
prior to their stated maturity based upon a specified market rate. A bankers'
acceptance is a time draft drawn on a commercial bank by a borrower usually in
connection with an international commercial transaction (to finance the import,
export, transfer or storage of goods).
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A portfolio may invest in obligations of U.S. banks, foreign branches of U.S.
banks (Eurodollars), and U.S. branches of foreign banks (Yankee dollars). Euro
and Yankee dollar investments will involve some of the same risks of investing
in international securities that are discussed in the Foreign Investing section
of this Prospectus.
Portfolios will not invest in any security issued by a commercial bank unless
(i) the bank has total assets of at least $1 billion, or the equivalent in other
currencies, or, in the case of domestic banks which do not have total assets of
at least $1 billion, the aggregate investment made in any one such bank is
limited to $100,000 and the principal amount of such investment is insured in
full by the Federal Deposit Insurance Corporation, (ii) in the case of U.S.
banks, it is a member of the Federal Deposit Insurance Corporation, and (iii) in
the case of foreign branches of U.S. banks, the security is deemed by the
Adviser to be of an investment quality comparable with other debt securities
which may be purchased by the portfolio.
(2) Each portfolio (except Cash Reserves) may invest in commercial paper rated
at time of purchase by one or more NRSRO in one of their two highest categories,
(e.g., A-l or A-2 by Standard & Poor's or Prime 1 or Prime 2 by Moody's), or, if
not rated, issued by a corporation having an outstanding unsecured debt issue
rated high-grade by a NRSRO (e.g. A or better by Moody's, Standard & Poor's or
Fitch). The Cash Reserves Portfolio invests only in commercial paper rated in
the highest category;
(3) Short-term corporate obligations rated high-grade at the time of purchase by
a NRSRO (e.g. A or better by Moody's, Standard & Poor' s or Fitch);
(4) U.S. Government obligations including bills, notes, bonds and other debt
securities issued by the U.S. Treasury. These are direct obligations of the U.S.
Government and differ mainly in interest rates, maturities and dates of issue;
(5) Securities issued or guaranteed by U.S. Government sponsored
instrumentalities and Federal agencies. These include securities issued by the
Federal Home Loan Banks, Federal Land Bank, Farmers Home Administration, Farm
Credit Banks, Federal Intermediate Credit Bank, Federal National Mortgage
Association, Federal Financing Bank, the Tennessee Valley Authority, and others;
(6) Repurchase agreements collateralized by securities listed above; and
(7) Investments by the Cash Reserve Portfolio in Cash Equivalents are limited by
the quality, maturity and diversification requirements adopted under Rule 2a-7
of the 1940 Act.
CMOs--Collateralized Mortgage Obligations: are Derivatives which are
collateralized by mortgage pass-through securities. Cash flows from the mortgage
pass-through securities are allocated to various tranches (a "tranche" is
essentially a separate security) in a predetermined, specified order. Each
tranche has a stated maturity - the latest date by which the tranche can be
completely repaid, assuming no prepayments and has an average life - the average
of the time to receipt of a principal payment weighted by the size of the
principal payment. The average life is typically used as a proxy for maturity
because the debt is amortized (repaid a portion at a time), rather than being
paid off entirely at maturity, as would be the case in a straight debt
instrument.
Possible Risks: Due to the possibility that prepayments (on home mortgages and
other collateral) will alter the cash flow on CMOs, it is not possible to
determine in advance the actual final maturity date or average life. Faster
prepayment will shorten the average life and slower prepayments will lengthen
it. However, it is possible to determine what the range of that movement could
be and to calculate the effect that it will have on the price of the security.
In selecting these securities, the Adviser will look for those securities that
offer a higher yield to compensate for any variation in average maturity.
Prepayment risk has two important effects. First, like bonds in general,
mortgage-backed securities will generally decline in price when interest rates
rise. However, when interest rates fall, mortgages may not enjoy as large a gain
in market value due to prepayment risk. Second, when interest rates fall,
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additional mortgage prepayments must be reinvested at lower interest rates. In
part to compensate for these risks, mortgages will generally offer higher yields
than comparable bonds.
Common Stocks: are Equity Securities which represent an ownership interest in a
corporation, entitling the shareholder to voting rights and receipt of dividends
paid based on proportionate ownership.
Convertibles: are convertible bonds or shares of convertible Preferred Stock
which may be exchanged for a fixed number of shares of Common Stock at the
purchaser's option.
Corporates--corporate bonds: are debt instruments issued by private
corporations. Bondholders, as creditors, have a prior legal claim over common
and preferred stockholders of the corporation as to both income and assets for
the principal and interest due to the bondholder. A portfolio will buy
Corporates subject to any quality constraints. If a security held by a portfolio
is down-graded, the portfolio may retain the security.
Derivatives: A financial instrument whose value and performance are based on the
value and performance of another security or financial instrument. The Adviser
will use derivatives only in circumstances where they offer the most economic
means of improving the risk/reward profile of the portfolio. The Adviser will
not use derivatives to increase portfolio risk above the level that could be
achieved in the portfolio using only traditional investment securities. In
addition, the Adviser will not use derivatives to acquire exposure to changes in
the value of assets or indexes that by themselves would not be purchased for the
portfolio. Any applicable limitations are described under each investment
definition. All of the MAS Funds, except the Cash Reserves Portfolio, may enter
into over-the-counter Derivatives transactions with counterparties
approved by MAS in accordance with guidelines established by the Board of
Trustees. These guidelines provide for a minimum credit rating for each
counterparty and various credit enhancement techniques (for example,
collateralization of amounts due from counterparties) to limit exposure to
counterparties with ratings below AA.
Eastern European Issuers: The economies of Eastern European countries are
currently suffering both from the stagnation resulting from centralized economic
planning and control and the higher prices and unemployment associated with the
transition to market economics. Unstable economic and political conditions may
adversely affect security values. Upon the accession to power of Communist
regimes approximately 40 years ago, the governments of a number of Eastern
European countries expropriated a large amount of property. The claims of many
property owners against those governments were never finally settled. In the
event of the return to power of the Communist Party, there can be no assurance
that the portfolio's investments in Eastern Europe would not be expropriated,
nationalized or otherwise confiscated.
Emerging Markets Issuers: An emerging market security is one issued by a company
that has one or more of the following characteristics: (i) its principal
securities trading market is in an emerging market, (ii) alone or on a
consolidated basis it derives 50% or more of its annual revenue from either
goods produced, sales made or services performed in emerging markets, or (iii)
it is organized under the laws of, and has a principal office in, an emerging
market country. The Adviser will base determinations as to eligibility on
publicly available information and inquiries made to the companies. Investing in
emerging markets may entail purchasing securities issued by or on behalf of
entities that are insolvent, bankrupt, in default or otherwise engaged in an
attempt to reorganize or reschedule their obligations, and in entities that have
little or no proven credit rating or credit history. In any such case, the
issuer's poor or deteriorating financial condition may increase the likelihood
that the investing fund will experience losses or diminution in available gains
due to bankruptcy, insolvency or fraud.
Equity Securities: Commonly include but are not limited to Common Stock,
Preferred Stock, ADRs, Rights, Warrants, Convertibles, and Foreign Equities.
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See each individual portfolio listing of Investments to determine which of the
above the portfolio can hold. Preferred Stock is contained in both the
definition of Equity Securities and Fixed-Income Securities since it exhibits
characteristics commonly associated with each type.
Fixed-Income Securities: Commonly include but are not limited to U.S.
Governments, Zero Coupons, Agencies, Corporates, High Yield, Mortgage
Securities, SMBS, CMOs, Asset-Backeds, Convertibles, Brady Bonds, Floaters,
Inverse Floaters, Cash Equivalents, Repurchase Agreements, Preferred Stock, and
Foreign Bonds. See each individual portfolio listing of Investments to determine
which securities a portfolio may hold. Preferred Stock is contained in both the
definition of Equity Securities and Fixed-Income Securities since it exhibits
characteristics commonly associated with each type of security.
Floaters--Floating and Variable Rate Obligations: are debt obligations with a
floating or variable rate of interest, i.e. the rate of interest varies with
changes in specified market rates or indices, such as the prime rate, or at
specified intervals. Certain floating or variable rate obligations may carry a
demand feature that permits the holder to tender them back to the issuer of the
underlying instrument, or to a third party, at par value prior to maturity. When
the demand feature of certain floating or variable rate obligations represents
an obligation of a foreign entity, the demand feature will be subject to certain
risks discussed under Foreign Investing.
Foreign Currency: Portfolios investing in foreign securities will regularly
transact security purchases and sales in foreign currencies. These portfolios
may hold foreign currency or purchase or sell currencies on a forward basis (see
Forwards).
Foreign Equities: are Common Stock, Preferred Stock, Rights and Warrants of
foreign issuers. Investing in foreign companies involves certain special
considerations which are not typically associated with investing in U.S.
companies (see Foreign Investing).
Foreign Bonds: are Fixed-Income Securities denominated in foreign currency
including: (1) obligations issued or guaranteed by foreign national governments,
their agencies, instrumentalities, or political subdivisions; (2) debt
securities issued, guaranteed or sponsored by supranational organizations
established or supported by several national governments, including the World
Bank, the European Community, the Asian Development Bank and others; (3)
non-government foreign corporate debt securities; and (4) foreign Mortgage
Securities and various other mortgage and asset-backed securities denominated in
foreign currency.
Forwards--Forward Foreign Currency Exchange Contracts: are Derivatives which are
used to protect against uncertainty in the level of future foreign exchange
rates. A forward foreign currency exchange contract is an obligation to purchase
or sell a specific currency at a future date, which may be any fixed number of
days from the date of the contract agreed upon by the parties, at a price set at
the time of the contract. Such contracts, which protect the value of a
portfolio's investment securities against a decline in the value of a currency,
do not eliminate fluctuations caused by changes in the local currency prices of
the securities, but rather, they simply establish an exchange rate at a future
date. Also, although such contracts minimize the risk of loss due to a decline
in the value of the hedged currency, at the same time they limit any potential
gain that might be realized.
A portfolio may use currency exchange contracts in the normal course of business
to lock in an exchange rate in connection with purchases and sales of securities
denominated in foreign currencies (transaction hedge) or to lock in the U.S.
dollar value of portfolio positions (position hedge). In addition the portfolios
may cross-hedge currencies by entering into a transaction to purchase or sell
one or more currencies that are expected to decline in value relative to other
currencies to which a portfolio has or expects to have portfolio exposure.
Portfolios may also engage in proxy hedging which is defined as entering into
positions in one currency to hedge investments denominated in another currency,
where the two currencies are economically linked. A portfolio's entry into
forward contracts, as well as any use of Cross or Proxy hedging techniques will
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generally require the portfolio to hold high-grade, liquid securities or cash
equal to the portfolio's obligations in a segregated account throughout the
duration of the contract.
A portfolio may also combine forward contracts with investments in securities
denominated in other currencies in order to achieve desired credit and currency
exposures. Such combinations are generally referred to as synthetic securities.
For example, in lieu of purchasing a foreign bond, a portfolio may purchase a
U.S. dollar-denominated security and at the same time enter into a forward
contract to exchange U.S. dollars for the contract's underlying currency at a
future date. By matching the amount of U.S. dollars to be exchanged with the
anticipated value of the U.S. dollar-denominated security, a portfolio may be
able to lock in the foreign currency value of the security and adopt a synthetic
investment position reflecting the credit quality of the U.S. dollar-denominated
security.
There is a risk in adopting a synthetic investment position to the extent that
the value of a security denominated in the U.S. dollar or other foreign currency
is not exactly matched with a portfolio's obligation under the forward contract.
On the date of maturity, a portfolio may be exposed to some risk of loss from
fluctuations in that currency. Although the Adviser will attempt to hold such
mismatching to a minimum, there can be no assurance that the Adviser will be
able to do so. When a portfolio enters into a forward contract for purposes of
creating a synthetic security, it will generally be required to hold high-grade,
liquid securities or cash in a segregated account with a daily value at least
equal to its obligation under the forward contract.
Futures & Options--Futures Contracts, Options on Futures Contracts and Options:
are Derivatives. Futures contracts provide for the sale by one party and
purchase by another party of a specified amount of a specific security, at a
specified future time and price. An option is a legal contract that gives the
holder the right to buy or sell a specified amount of the underlying security or
futures contract at a fixed or determinable price upon the exercise of the
option. A call option conveys the right to buy and a put option conveys the
right to sell a specified quantity of the underlying security.
A portfolio will not enter into futures contracts to the extent that its
outstanding obligations to purchase securities under these contracts in
combination with its outstanding obligations with respect to options
transactions would exceed 50% of its total assets. It will maintain assets
sufficient to meet its obligations under such contracts in a segregated account
with the custodian bank or will otherwise comply with the SEC's position on
asset coverage.
Possible Risks: The primary risks associated with the use of futures and options
are (i) imperfect correlation between the change in market value of the
securities held by a portfolio and the prices of futures and options relating to
the stocks, bonds or futures contracts purchased or sold by a portfolio; and
(ii) possible lack of a liquid secondary market for a futures contract and the
resulting inability to close a futures position which could have an adverse
impact on a portfolio's ability to execute futures and options strategies.
Additional risks associated with options transactions are (i) the risk that an
option will expire worthless; (ii) the risk that the issuer of an
over-the-counter option will be unable to fulfill its obligation to the
portfolio due to bankruptcy or related circumstances; (iii) the risk that
options may exhibit greater short-term price volatility than the underlying
security; and (iv) the risk that a portfolio may be forced to forego
participation in the appreciation of the value of underlying securities, futures
contracts or currency due to the writing of a call option.
High Yield: High yield securities are generally considered to be corporate
bonds, preferred stocks, and convertible securities rated Ba through C by
Moody's or BB through D by Standard & Poor's, and unrated securities considered
to be of equivalent quality. Securities rated less than Baa by Moody's or BBB by
Standard & Poor's are classified as non-investment grade securities and are
commonly referred to as junk bonds or high yield, high risk securities. Such
securities carry a high degree of risk and are considered speculative by the
major credit rating agencies. The following are excerpts from the Moody's and
Standard & Poor's definitions for speculative-grade debt obligations:
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Moody's: Ba-rated bonds have "speculative elements" so their future "cannot
be considered assured," and protection of principal and interest is
"moderate" and "not well safeguarded during both good and bad times in the
future." B-rated bonds "lack characteristics of a desirable investment" and
the assurance of interest or principal payments "may be small." Caa-rated
bonds are "of poor standing" and "may be in default" or may have "elements
of danger with respect to principal or interest." Ca-rated bonds represent
obligations which are speculative in a high degree. Such issues are often
in default or have other marked shortcomings. C-rated bonds are the "lowest
rated" class of bonds, and issues so rated can be regarded as having
"extremely poor prospects" of ever attaining any real investment standing.
Standard & Poor's: BB-rated bonds have "less near-term vulnerability to
default" than B- or CCC-rated securities but face "major ongoing
uncertainties . . . which may lead to inadequate capacity" to pay interest
or principal. B-rated bonds have a "greater vulnerability to default than
BB-rated bonds and the ability to pay interest or principal will likely be
impaired by adverse business conditions." CCC-rated bonds have a currently
identifiable "vulnerability to default" and, without favorable business
conditions, will be "unable to repay interest and principal." C The rating
C is reserved for income bonds on which "no interest is being paid." D -
Debt rated D is in "default", and "payment of interest and/or repayment of
principal is in arrears."
While these securities offer high yields, they also normally carry with them a
greater degree of risk than securities with higher ratings. Lower-rated bonds
are considered speculative by traditional investment standards. High yield
securities may be issued as a consequence of corporate restructuring or similar
events. Also, high yield securities are often issued by smaller, less credit
worthy companies, or by highly leveraged (indebted) firms, which are generally
less able than more established or less leveraged firms to make scheduled
payments of interest and principal. The price movement of these securities is
influenced less by changes in interest rates and more by the financial and
business position of the issuing corporation when compared to investment grade
bonds.
The risks posed by securities issued under such circumstances are substantial.
If a security held by a portfolio is down-graded, the portfolio may retain the
security.
Inverse Floaters--Inverse Floating Rate Obligations: are Fixed-Income
Securities, which have coupon rates that vary inversely at a multiple of a
designated floating rate, such as LIBOR (London Inter-Bank Offered Rate). Any
rise in the reference rate of an inverse floater (as a consequence of an
increase in interest rates) causes a drop in the coupon rate while any drop in
the reference rate of an inverse floater causes an increase in the coupon rate.
Inverse floaters may exhibit substantially greater price volatility than fixed
rate obligations having similar credit quality, redemption provisions and
maturity, and inverse floater CMOs exhibit greater price volatility than the
majority of mortgage pass-through securities or CMOs. In addition, some inverse
floater CMOs exhibit extreme sensitivity to changes in prepayments. As a result,
the yield to maturity of an inverse floater CMO is sensitive not only to changes
in interest rates but also to changes in prepayment rates on the related
underlying mortgage assets.
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Investment Companies: The portfolios are permitted to invest in shares of other
open-end or closed-end investment companies. The Investment Company Act of 1940,
as amended, generally prohibits the portfolios from acquiring more than 3% of
the outstanding voting shares of an investment company and limits such
investments to no more than 5% of the portfolio's total assets in any one
investment company and no more than 10% in any combination of investment
companies. The 1940 Act also prohibits the portfolios from acquiring in the
aggregate more than 10% of the outstanding voting shares of any registered
close-end investment company.
To the extent a portfolio invests a portion of its assets in Investment
Companies, those assets will be subject to the expenses of the purchased
investment company as well as to the expenses of the portfolio itself. The
portfolios may not purchase shares of any affiliated investment company except
as permitted by SEC Rule or Order.
Investment Funds: Some emerging market countries have laws and regulations that
currently preclude direct foreign investment in the securities of their
companies. However, indirect foreign investment in the securities of companies
listed and traded on the stock exchanges in these countries is permitted by
certain emerging market countries through investment funds. The International
Equity and Emerging Markets portfolios may invest in these investment funds
subject to applicable law as discussed under Investment Restrictions. The
International Equity and Emerging Markets portfolios will invest in such
investment funds only where appropriate given that the portfolio's shareholders
will bear indirectly the layer of expenses of the underlying investment funds in
addition to their proportionate share of the expenses of the portfolio. Under
certain circumstances, an investment in an investment fund will be subject to
the additional limitations that apply to investments in Investment Companies.
Investment Grade Securities: are those rated by one or more nationally
recognized statistical rating organization (NRSRO) in one of the four highest
rating categories at the time of purchase (e.g. AAA, AA, A or BBB by Standard &
Poor's Corporation (Standard & Poor's) or Fitch Investors Service, Inc., (Fitch)
or Aaa, Aa, A or Baa by Moody's Investors Service, Inc. (Moody's)). Securities
rated BBB or Baa represent the lowest of four levels of investment grade
securities and are regarded as borderline between definitely sound obligations
and those in which the speculative element begins to predominate.
Mortgage-backed securities, including mortgage pass-throughs and collateralized
mortgage obligations (CMOs), deemed investment grade by the Adviser, will either
carry a guarantee from an agency of the U.S. Government or a private issuer of
the timely payment of principal and interest (such guarantees do not extend to
the market value of such securities or the net asset value per share of the
portfolio) or, in the case of unrated securities, be sufficiently seasoned that
they are considered by the Adviser to be investment grade quality. The Adviser
may retain securities if their ratings falls below investment grade if it deems
retention of the security to be in the best interests of the portfolio. Any
Portfolio permitted to hold Investment Grade Securities may hold unrated
securities if the Adviser considers the risks involved in owning that security
to be equivalent to the risks involved in holding an Investment Grade Security.
Loan Participations: are loans or other direct debt instruments which are
interests in amounts owed by a corporate, governmental or other borrower to
another party. They may represent amounts owed to lenders or lending syndicates,
to suppliers of goods or services (trade claims or other receivables), or to
other parties. Direct debt instruments involve the risk of loss in case of
default or insolvency of the borrower. Direct debt instruments may offer less
legal protection to the portfolio in the event of fraud or misrepresentation. In
addition, loan participations involve a risk of insolvency of the lending bank
or other financial intermediary. Direct debt instruments may also include
standby financing commitments that obligate the investing portfolio to supply
additional cash to the borrower on demand. Loan participations involving
Emerging Market Issuers may relate to loans as to which there has been or
currently exists an event of default or other failure to make payment when due,
and may represent amounts owed to financial institutions that are themselves
subject to political and economic risks, including the risk of currency
devaluation, expropriation, or failure. Such loan participations present
additional risks of default or loss.
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Mortgage Securities--Mortgage-backed securities represent an ownership interest
in a pool of residential and commercial mortgage loans. Generally, these
securities are designed to provide monthly payments of interest and principal to
the investor. The mortgagee's monthly payments to his/her lending institution
are passed through to investors such as the portfolio. Most issuers or poolers
provide guarantees of payments, regardless of whether the mortgagor actually
makes the payment. The guarantees made by issuers or poolers are supported by
various forms of credit, collateral, guarantees or insurance, including
individual loan, title, pool and hazard insurance purchased by the issuer. The
pools are assembled by various Governmental, Government-related and private
organizations. Portfolios may invest in securities issued or guaranteed by the
Government National Mortgage Association (GNMA), Federal Home Loan Mortgage
Corporation (FHLMC), Federal National Mortgage Association (FNMA), private
issuers and other government agencies. There can be no assurance that the
private insurers can meet their obligations under the policies. Mortgage-backed
securities issued by non-agency issuers, whether or not such securities are
subject to guarantees, may entail greater risk. If there is no guarantee
provided by the issuer, mortgage-backed securities purchased by the portfolio
will be those which at time of purchase are rated investment grade by one or
more NRSRO, or, if unrated, are deemed by the Adviser to be of investment grade
quality.
Due to the possibility that prepayments on home mortgages will alter cash flow
on mortgage securities, it is not possible to determine in advance the actual
final maturity date or average life. Faster prepayment will shorten the average
life and slower prepayments will lengthen it. However, it is possible to
determine what the range of that movement could be and to calculate the effect
that it will have on the price of the security. In selecting these securities,
the Adviser will look for those securities that offer a higher yield to
compensate for any variation in average maturity.
There are two methods of trading mortgage-backed securities. A specified pool
transaction is a trade in which the pool number of the security to be delivered
on the settlement date is known at the time the trade is made. This is in
contrast with the typical mortgage security transaction, called a TBA (to be
announced) transaction, in which the type of mortgage securities to be delivered
is specified at the time of trade but the actual pool numbers of the securities
that will be delivered are not known at the time of the trade. The pool numbers
of the pools to be delivered at settlement will be announced shortly before
settlement takes place. The terms of the TBA trade may be made more specific if
desired. Generally, agency pass-through mortgage-backed securities are traded on
a TBA basis.
A mortgage-backed bond is a collateralized debt security issued by a thrift or
financial institution. The bondholder has a first priority perfected security
interest in collateral usually consisting of agency mortgage pass-through
securities, although other assets, including U.S. Treasuries (including Zero
Coupon Treasury Bonds), agencies, cash equivalent securities, whole loans and
corporate bonds, may qualify. The amount of collateral must be continuously
maintained at levels from 115% to 150% of the principal amount of the bonds
issued, depending on the specific issue structure and collateral type.
Municipals--Municipal Securities: are debt obligations issued by local, state
and regional governments that provide interest income which is exempt from
federal income taxes. Municipal securities include both municipal bonds (those
securities with maturities of five years or more) and municipal notes (those
with maturities of less than five years). Municipal bonds are issued for a wide
variety of reasons: to construct public facilities, such as airports, highways,
bridges, schools, hospitals, mass transportation, streets, water and sewer
works; to obtain funds for operating expenses; to refund outstanding municipal
obligations; and to loan funds to various public institutions and facilities.
Certain industrial development bonds are also considered municipal bonds if
their interest is exempt from federal income tax. Industrial development bonds
are issued by or on behalf of public authorities to obtain funds for various
privately-operated manufacturing facilities, housing, sports arenas, convention
centers, airports, mass transportation systems and water, gas or sewage works.
Industrial development bonds are ordinarily dependent on the credit quality of a
private user, not the public issuer.
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General obligation municipal bonds are secured by the issuer's pledge of full
faith, credit and taxing power. Revenue or special tax bonds are payable from
the revenues derived from a particular facility or, in some cases, from a
special excise or other tax, but not from general tax revenue.
Municipal notes are issued to meet the short-term funding requirements of local,
regional and state governments. Municipal notes include bond anticipation notes,
revenue anticipation notes and tax and revenue anticipation notes. These are
short-term debt obligations issued by state and local governments to aid cash
flows while waiting for taxes or revenue to be collected, at which time the debt
is retired. Other types of municipal notes in which the portfolio may invest are
construction loan notes, short-term discount notes, tax-exempt commercial paper,
demand notes, and similar instruments. Demand notes permit an investor (such as
the portfolio) to demand from the issuer payment of principal plus accrued
interest upon a specified number of days' notice. The portfolios eligible to
purchase municipal bonds may also purchase AMT bonds. AMT bonds are tax-exempt
private activity bonds issued after August 7, 1986, the proceeds of which are
directed, at least in part, to private, for-profit organizations. While the
income from AMT bonds is exempt from regular federal income tax, it is a tax
preference item in the calculation of the alternative minimum tax. The
alternative minimum tax is a special separate tax that applies to a limited
number of taxpayers who have certain adjustments to income or tax preference
items.
PA Municipals: are obligations of the Pennsylvania state government, state
agencies and various local governments, including counties, cities, townships,
special districts and authorities. In general, the credit quality and credit
risk of any issuer's debt is contingent upon the state and local economy, the
health of the issuer's finances, the amount of the issuer's debt, the quality of
management and the strength of legal provisions in the debt document that
protect debt holders. Credit risk is usually lower wherever the economy is
strong, growing and diversified, where financial operations are sound and the
debt burden is reasonable.
Concentration of investment in the securities of one state exposes a portfolio
to greater credit risks than would be present in a nationally diversified
portfolio of municipal securities. The risks associated with investment in the
securities of a single state include possible tax changes or a deterioration in
economic conditions and differing levels of supply and demand for the municipal
obligations of that state.
Factors contributing positively to credit quality in Pennsylvania include a
favorable debt structure, a diversifying economic base, and conservatively
managed financial operations on the part of state government in the 1980s.
Tax-supported debt is only slightly above average state levels on a per capital
basis and as a percent of state personal income. Over the past two decades, this
debt burden has improved considerably in Pennsylvania, and debt continues to be
rapidly retired, while state borrowing plans are modest. However, recent growth
in the state economy has bypassed much of the state outside of the immediate
Philadelphia and Pittsburgh metropolitan areas. As a result, the credit quality
of these areas is often marginal.
The risk factors in Pennsylvania's credit quality may be summarized as an aging
and slowly growing population, below average income, and a continuing challenge
to maintain balanced budgets. In addition, a number of local governments in the
Commonwealth, most notably, Philadelphia, are in serious fiscal difficulty and
are unable to address serious economic, social and health care problems within
revenue constraints.
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Debt of Government Agencies, Authorities and Commissions: Certain state-created
agencies have statutory authorization to incur debt for which legislation
providing for state appropriations to pay debt service thereon is not required.
The debt of these agencies is supported by assets of, or revenues derived from,
the various projects financed; it is not an obligation of the Commonwealth. Some
of these agencies, however, such as the Delaware River Joint Toll Bridge
Commission, are indirectly dependent on Commonwealth funds through various
state-assisted programs.
Preferred Stock: are non-voting ownership shares in a corporation which pay a
fixed or variable stream of dividends.
Repurchase Agreements: are transactions by which a portfolio purchases a
security and simultaneously commits to resell that security to the seller (a
bank or securities dealer) at an agreed upon price on an agreed upon date
(usually within seven days of purchase). The resale price reflects the purchase
price plus an agreed upon market rate of interest which is unrelated to the
coupon rate or date of maturity of the purchased security. Such agreements
permit the portfolio to keep all its assets at work while retaining overnight
flexibility in pursuit of investments of a longer term nature. The Adviser will
continually monitor the value of the underlying collateral to ensure that their
value, including accrued interest, always equals or exceeds the repurchase
price.
Pursuant to an order issued by the Securities and Exchange Commission, the
Fund's portfolios may pool their daily uninvested cash balances in order to
invest in repurchase agreements on a joint basis. By entering into repurchase
agreements on a joint basis, it is expected that the portfolios will incur lower
transaction costs and potentially obtain higher rates of interest on such
repurchase agreements. Each portfolio's participation in the income from jointly
purchased repurchase agreements will be based on that portfolio's percentage
share in the total purchase agreement.
Rights: represent a preemptive right of stockholders to purchase additional
shares of a stock at the time of a new issuance, before the stock is offered to
the general public, allowing the stockholder to retain the same ownership
percentage after the new stock offering.
SMBS--Stripped Mortgage-Backed Securities: are Derivatives in the form of
multi-class mortgage securities. SMBS may be issued by agencies or
instrumentalities of the U.S. Government and private originators of, or
investors in, mortgage loans, including savings and loan associations, mortgage
banks, commercial banks, investment banks and special purpose entities of the
foregoing.
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SMBS are usually structured with two classes that receive different proportions
of the interest and principal distributions on a pool of mortgage assets. One
type of SMBS will have one class receiving some of the interest and most of the
principal from the mortgage assets, while the other class will receive most of
the interest and the remainder of the principal. In some cases, one class will
receive all of the interest (the IO class), while the other class will receive
all of the principal (the principal-only or PO class). The yield to maturity on
IOs and POs is extremely sensitive to the rate of principal payments (including
prepayments) on the related underlying mortgage assets, and a rapid rate of
principal payments may have a material adverse effect on a portfolio yield to
maturity. If the underlying mortgage assets experience greater than anticipated
prepayments of principal, a portfolio may fail to fully recoup its initial
investment in these securities, even if the security is in one of the highest
rating categories.
Although SMBS are purchased and sold by institutional investors through several
investment banking firms acting as brokers or dealers, these securities were
only recently developed. As a result, established trading markets have not yet
developed and, accordingly, certain of these securities may be deemed illiquid
and subject to a portfolio's limitations on investment in illiquid securities.
Structured Investments: are Derivatives in the form of a unit or units
representing an undivided interest(s) in assets held in a trust that is not an
investment company as defined in the Investment Company Act of 1940. A trust
unit pays a return based on the total return of securities and other investments
held by the trust and the trust may enter into one or more Swaps to achieve its
objective. For example, a trust may purchase a basket of securities and agree to
exchange the return generated by those securities for the return generated by
another basket or index of securities. A portfolio will purchase Structured
Investments in trusts that engage in such Swaps only where the counterparties
are approved by MAS in accordance with credit-risk guidelines established by the
Board of Trustees.
Structured Notes: are Derivatives on which the amount of principal repayment and
or interest payments is based upon the movement of one or more factors. These
factors include, but are not limited to, currency exchange rates, interest rates
(such as the prime lending rate and LIBOR) and stock indices such as the S&P 500
Index. In some cases, the impact of the movements of these factors may increase
or decrease through the use of multipliers or deflators. The use of Structured
Notes allows a portfolio to tailor its investments to the specific risks and
returns the Adviser wishes to accept while avoiding or reducing certain other
risks.
Swaps--Swap Contracts: are Derivatives in the form of a contract or other
similar instrument which is an agreement to exchange the return generated by one
instrument for the return generated by another instrument. The payment streams
are calculated by reference to a specified index and agreed upon notional
amount. The term specified index includes, but is not limited to, currencies,
fixed interest rates, prices and total return on interest rate indices,
fixed-income indices, stock indices and commodity indices (as well as amounts
derived from arithmetic operations on these indices). For example, a portfolio
may agree to swap the return generated by a fixed-income index for the return
generated by a second fixed-income index. The currency swaps in which the
portfolios may enter will generally involve an agreement to pay interest streams
calculated by reference to interest income linked to a specified index in one
currency in exchange for a specified index in another currency. Such swaps may
involve initial and final exchanges that correspond to the agreed upon notional
amount.
A portfolio will usually enter into swaps on a net basis, i.e., the two return
streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with a portfolio receiving or paying, as the case
may be, only the net amount of the two returns. A portfolio's obligations under
a swap agreement will be accrued daily (offset against any amounts owing to the
portfolio) and any accrued but unpaid net amounts owed to a swap counterparty
will be covered by the maintenance of a segregated account consisting of cash,
U.S. Government securities, or high grade debt obligations. A portfolio will not
enter into any swap agreement unless the counterparty meets the rating
requirements set forth in guidelines established by the Fund's Board of
Trustees.
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Possible Risks: Interest rate and total rate of return swaps do not involve the
delivery of securities, other underlying assets, or principal. Accordingly, the
risk of loss with respect to interest rate and total rate of return swaps is
limited to the net amount of interest payments that a portfolio is contractually
obligated to make. If the other party to an interest rate or total rate of
return swap defaults, a portfolio's risk of loss consists of the net amount of
interest payments that a portfolio is contractually entitled to receive. In
contrast, currency swaps usually involve the delivery of the entire principal
value of one designated currency in exchange for the other designated currency.
Therefore, the entire principal value of a currency swap is subject to the risk
that the other party to the swap will default on its contractual delivery
obligations. If there is a default by the counterparty, a portfolio may have
contractual remedies pursuant to the agreements related to the transaction. The
swap market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Swaps that include caps, floors, and collars are more recent
innovations for which standardized documentation has not yet been fully
developed and, accordingly, they are less liquid than swaps.
The use of swaps is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. If the Adviser is incorrect in its forecasts of market
values, interest rates, and currency exchange rates, the investment performance
of the portfolios would be less favorable than it would have been if this
investment technique were not used.
Taxable Investments: comprise Fixed-Income Securities and other instruments
which pay income that is not exempt from taxation. Investors may be liable for
tax on the income distributed as a result of the portfolio holding taxable
investments. In this event, shareholders will receive an IRS form 1099
disclosing the taxable income paid for a calendar year.
U.S. Governments--U.S. Treasury securities: are Fixed-Income Securities which
are backed by the full faith and credit of the U.S. Government as to the payment
of both principal and interest.
Warrants: are options issued by a corporation which give the holder the option
to purchase stock.
When-Issued Securities: are securities purchased at a certain price even though
the securities may not be delivered for up to 90 days . No payment or delivery
is made by a portfolio in a when-issued transaction until the portfolio receives
payment or delivery from the other party to the transaction. Although a
portfolio receives no income from the above described securities prior to
delivery, the market value of such securities is still subject to change. As a
consequence, it is possible that the market price of the securities at the time
of delivery may be higher or lower than the purchase price. A portfolio will
maintain with the custodian a separate account with a segregated portfolio of
liquid, high-grade debt securities or cash in an amount at least equal to these
commitments.
Zero Coupons--Zero Coupon Obligations: are Fixed-Income Securities that do not
make regular interest payments. Instead, zero coupon obligations are sold at
substantial discounts from their face value. The difference between a zero
coupon obligation's issue or purchase price and its face value represents the
imputed interest an investor will earn if the obligation is held until maturity.
Zero coupon obligations may offer investors the opportunity to earn higher
yields than those available on ordinary interest-paying obligations of similar
credit quality and maturity. However, zero coupon obligation prices may also
exhibit greater price volatility than ordinary fixed-income securities because
of the manner in which their principal and interest are returned to the
investor.
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GENERAL SHAREHOLDER INFORMATION
PURCHASE SHARES
MAS Class Shares of each portfolio are offered directly to investors without a
sales commission or may be made through Shareholder Organizations who have a
contractural agreement with the Fund's distributor, including institutions such
as trusts, foundations or broker-dealers purchasing for the accounts of others.
MAS Class Shares of each portfolio except for the Cash Reserves Portfolio may be
purchased at the net asset value per share next determined after receipt of the
purchase order. Such portfolios determine net asset value at the normal close of
trading of the New York Stock Exchange (NYSE)(currently 4:00 P.M. Eastern Time)
each day that the portfolios are open for business.
The Cash Reserves Portfolio declares dividends daily and, therefore, at the time
of a purchase must have funds immediately available for investment. As a result,
payment for the purchase of shares must be in the form of Federal Funds (monies
credited to the portfolio's Custodian by a Federal Reserve Bank) before they can
be accepted by the portfolio. The portfolio is credited with Federal Funds on
the same day if the investment is made by Federal Funds wire. MAS Class Shares
of the Cash Reserves Portfolio may be purchased at the net asset value next
determined after an order is received by the portfolio and Federal Funds are
received by the Custodian. The Cash Reserves Portfolio determines net asset
value as of 12:00 noon (Eastern Time) each day that the portfolios are open for
business. See Other Information-Closed Holidays and Valuation of Shares.
Investors who purchase MAS Class Shares through Shareholder Orgnaizations should
contact that organization for information about how to purchase, redeem and
exchange shares.
Initial Purchase by Mail: Subject to acceptance by the Fund, an account may be
opened by completing and signing an Account Registration Form (provided at the
end of the Prospectus), and mailing it to the Client Services Group at the
address noted below, together with a check ($500,000 minimum) payable to MAS
Funds: MAS Funds c/o the Distributor, One Tower Bridge, Suite 1150, P.O. Box
868, West Conshohocken, Pennsylvania 19428-0868.
The portfolio(s) to be purchased should be designated on the Account
Registration Form. Subject to acceptance by the Fund, payment for the purchase
of shares received by mail will be credited at the net asset value per share of
the portfolio next determined after receipt. Such payment need not be converted
into Federal Funds (monies credited to the Fund's Custodian Bank by a Federal
Reserve Bank) before acceptance by the Fund, except for the Cash Reserves
Portfolio. Purchases made by check in the Cash Reserves Portfolio are ordinarily
credited at the net asset value per share determined two business days after
receipt of the check by the Fund. Please note that purchases made by check in
any portfolio are not permitted to be redeemed until payment of the purchase has
been collected, which may take up to eight business days after purchase.
Shareholders can avoid this delay by utilizing the wire purchase option.
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Initial Purchase by Wire: Subject to acceptance by the Fund, MAS Class Shares of
each portfolio may also be purchased by wiring Federal Funds ($500,000 minimum)
to the Fund's Custodian Bank, The Chase Manhattan Bank, N.A. (see instructions
below). A completed Account Registration Form should be forwarded to the Client
Services Group at Miller Anderson & Sherrerd, LLP in advance of the wire. For
all portfolios (except the Cash Reserves Portfolio), notification must be given
to the Client Services Group at Miller Anderson & Sherrerd, LLP at
1-800-354-8185 prior to 4:00 p.m. (Eastern Time) of the wire date. (Prior
notification must also be received from investors with existing accounts.)
Instruct your bank to send a Federal Funds wire in a specified amount to the
Fund's Custodian Bank using the following wiring instructions:
The Chase Manhattan Bank, N.A.
1 Chase Manhattan Plaza
New York, NY 10081
ABA #021000021
DDA #910-2-734143
Attn: MAS Funds
Ref: (Portfolio Name, Account Number, Account Name)
Purchases in the Cash Reserves Portfolio may be made by Federal Funds wire to
the Fund's Custodian. If the portfolio receives notification of an order prior
to 12:00 noon (Eastern Time) and funds are received by the Custodian the same
day, purchases of portfolio shares will become effective and begin to earn
income on that business day. Orders received after 12:00 noon (Eastern Time)
will be effective on the next business day upon receipt of funds. Federal Funds
purchases will be accepted only on a day on which the portfolio is open for
business. See Other Information-Closed Holidays.
Additional Investments: Additional investments of MAS Class Shares at
net asset value may be made at any time (minimum investment $1,000) by mailing a
check (payable to MAS Funds) to the Client Services Group at the address noted
under Initial Purchase by Mail or by wiring monies to the Custodian Bank as
outlined above. For all portfolios except the Cash Reserves Portfolio,
notification must be given to the Client Services Group at Miller Anderson &
Sherrerd, LLP at 1-800- 354-8185 prior to 4:00 p.m. (Eastern Time) of the wire
date. For the Cash Reserves Portfolio, notification of a Federal Funds wire must
be received by 12:00 noon (Eastern Time). Purchases made by check in the Cash
Reserves Portfolio are ordinarily credited at the net asset value per share
determined two business days after receipt of the check by the Fund.
Other Purchase Information: The Fund reserves the right, in its sole discretion,
to suspend the offering of MAS Class Shares of any of its portfolios or to
reject any purchase orders when, in the judgment of management, such suspension
or rejection is in the best interest of the Fund. The Fund also reserves the
right, in its sole discretion, to waive the minimum initial and subsequent
investment amounts.
Purchases of a portfolio's MAS Class Shares will be made in full and fractional
shares of the portfolio calculated to three decimal places. In the interest of
economy and convenience, certificates for shares will not be issued except at
the written request of the shareholder. Certificates for fractional shares,
however, will not be issued.
MAS Class Shares of the Fund's portfolios may be sold to corporations or other
institutions such as trusts, foundations or broker-dealers purchasing for the
accounts of others (Shareholder Organizations). Investors purchasing and
redeeming shares of the portfolios through a Shareholder Organization may be
charged a transaction-based fee or other fee for the services of such
organization. Each Shareholder Organization is responsible for transmitting to
its customers a schedule of any such fees and information regarding any
additional or different conditions regarding purchases and redemptions.
Customers of Shareholder Organizations should read this Prospectus in light of
the terms governing accounts with their organization. The Fund does not pay
compensation to or receive compensation from Shareholder Organizations for the
sale of MAS Class Shares though they may receive a fee for providing
shareholder services to their clients who hold MAS Class Shares.
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REDEMPTION OF SHARES
MAS Class Shares of each portfolio may be redeemed by mail, or, if authorized,
by telephone. No charge is made for redemptions. The value of MAS Class Shares
redeemed may be more or less than the purchase price, depending on the net asset
value at the time of redemption which is based on the market value of the
investment securities held by the portfolio.
By Mail: Each portfolio will redeem MAS Class Shares at the net asset value next
determined after the request is received in good order. , Requests should be
addressed to MAS Funds: c/o the Distributor, One Tower Bridge, Suite 1150, P.O.
Box 868, West Conshohocken, PA 19428-0868.
To be in good order, redemption requests must include the following:
(a) The share certificates, if issued;
(b) A letter of instruction, if required, or a stock assignment specifying the
number of shares or dollar amount to be redeemed, signed by all registered
owners of the shares in the exact names in which the shares are registered;
(c) Any required signature guarantees (see Signature Guarantees); and
(d) Other supporting legal documents, if required, in the case of estates,
trusts, guardianships, custodianships, corporations, pension and profit sharing
plans and other organizations.
Signature Guarantees: To protect your account, the Fund and the Administrator
from fraud, signature guarantees are required to enable the Fund to verify the
identity of the person who has authorized a redemption from an account.
Signature guarantees are required for (1) redemptions where the proceeds are to
be sent to someone other than the registered shareholder(s) and the registered
address, and (2) share transfer requests. Please contact the Client Services
Group at Miller Anderson & Sherrerd, LLP for further details.
By Telephone: Provided the Telephone Redemption Option has been authorized by
the shareholder on the Account Registration Form, a redemption of shares may be
requested by calling the Client Services Group at Miller Anderson & Sherrerd,
LLP and requesting that the redemption proceeds be mailed to the primary
registration address or wired per the authorized instructions. Shares cannot be
redeemed by telephone if share certificates are held for those shares.
By Facsimile: Written requests in good order (see above) for redemptions,
exchanges, and transfers may be forwarded to the Fund via facsimile. All
requests sent to the Fund via facsimile must be followed by a telephone call to
the Client Services group at Miller Anderson & Sherrerd, LLP to ensure that the
instructions have been properly received by the Fund. The original request must
be promptly mailed to MAS Funds, c/o Miller Anderson & Sherrerd, LLP, One Tower
Bridge, Suite 1150, P. O. Box 868, West Conshohocken, PA 19428-0868.
Neither the Distributor nor the Fund will be responsible for any loss,
liability, cost, or expense for acting upon facsimile instructions or upon
telephone instructions that they reasonably believe to be genuine. In order to
confirm that telephone instructions in connection with redemptions are genuine,
the Fund and Distributor will provide written confirmation of transactions
initiated by telephone.
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Payment of the redemption proceeds will ordinarily be made within three business
days after receipt of an order for a redemption. The Fund may suspend the right
of redemption or postpone the date of redemption at times when the NYSE, the
Custodian, or the Fund is closed or under any emergency circumstances as
determined by the Securities and Exchange Commission.
If the Board of Trustees determines that it would be detrimental to the best
interests of the remaining shareholders of the Fund to make payment wholly or
partly in cash, the Fund may pay the redemption proceeds in whole or in part by
a distribution in-kind of readily marketable securities held by a portfolio in
lieu of cash in conformity with applicable rules of the Securities and Exchange
Commission. Investors may incur brokerage charges on the sale of portfolio
securities received in such payments of redemptions.
SHAREHOLDER SERVICES
Exchange Privilege: Each portfolio's MAS Class Shares may be exchanged for MAS
Class Shares of the Fund's other portfolios (except the Select Equity and Small
Cap Value Portfolios which are currently not accepting new investors) based on
the respective net asset values of the shares involved. The exchange privilege
is only available, however, with respect to portfolios that are registered for
sale in a shareholder's state of residence. There are no exchange fees. Exchange
requests should be sent to MAS Funds, c/o Miller Anderson & Sherrerd, LLP,
One Tower Bridge, Suite 1150, P.O. Box 868, West Conshohocken, PA 19428-0868.
Because an exchange of shares amounts to a redemption from one portfolio and
purchase of shares of another portfolio, the above information regarding
purchase and redemption of shares applies to exchanges. Shareholders should note
that an exchange between portfolios is considered a sale and purchase of shares
for tax purposes.
The officers of the Fund reserve the right not to accept any request for an
exchange when, in their opinion, the exchange privilege is being used as a tool
for market timing. The Fund reserves the right to change the terms or conditions
of the exchange privilege discussed herein upon sixty days' notice.
Transfer of Registration: The registration of Fund shares may be transferred by
writing to MAS Funds: c/o Miller Anderson & Sherrerd, LLP, One Tower Bridge,
Suite 1150, P.O. Box 868, West Conshohocken, PA 19428-0868. As in the case of
redemptions, the written request must be received in good order as defined
above.
VALUATION OF SHARES
Equity, Select Equity, Value, Small Cap Value, Mid Cap Value, Growth, Mid Cap
Growth, Balanced, Multi-Asset-Class, International Equity and Emerging Markets
Portfolios:
Net asset value per share of each class is determined by dividing the total
market value of each portfolio's investments and other assets, less any
liabilities, by the total outstanding shares of that portfolio. Net asset value
per share is determined as of the normal close of the NYSE (currently 4:00 p.m.
Eastern Time) on each day the portfolio is open for business (See Other
Information-Closed Holidays). Equity Securities listed on a U.S. securities
exchange or NASDAQ for which market quotations are available are valued at the
last quoted sale price on the day the valuation is made. Price information on
listed Equity Securities is taken from the exchange where the security is
primarily traded. Equity Securities listed on a foreign exchange are valued at
the latest quoted sales price available before the time when assets are valued.
For purposes of net asset value per share, all assets and liabilities initially
expressed in foreign currencies are converted into U.S. dollars at the bid price
of such currencies against U.S. dollars. Unlisted Equity Securities and listed
U.S. Equity Securities not traded on the valuation date for which market
quotations are readily available are valued at the mean of the most recent
quoted bid and asked price. The value of other assets and securities for which
no quotations are readily available (including restricted securities) are
determined in good faith at fair value using methods approved by the Trustees.
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Domestic Fixed Income, Fixed Income, Fixed Income Portfolio II, Special Purpose
Fixed Income, High Yield, Limited Duration, Intermediate Duration,
Mortgage-Backed Securities, Balanced, Multi-Asset-Class, Global Fixed Income,
International Fixed Income, Municipal and PA Municipal Portfolios:
Net asset value per share is computed by dividing the total value of the
investments and other assets of the portfolio, less any liabilities, by the
total outstanding shares of the portfolio. The net asset value per share is
determined as of the normal close of the NYSE (currently 4:00 p.m. Eastern Time)
on each day the portfolio is open for business (See Other Information-Closed
Holidays). Bonds and other Fixed-Income Securities listed on a foreign exchange
are valued at the latest quoted sales price available before the time when
assets are valued. For purposes of net asset value per share, all assets and
liabilities initially expressed in foreign currencies will be converted into
U.S. dollars at the bid price of such currencies against U.S. dollars.
Net asset value includes interest on bonds and other Fixed-Income Securities
which is accrued daily. Bonds and other Fixed-Income Securities which are traded
over the counter and on an exchange will be valued according to the
broadest and most representative market, and it is expected that for bonds and
other Fixed-Income Securities this ordinarily will be the over-the-counter
market.
However, bonds and other Fixed-Income Securities may be valued on the basis of
prices provided by a pricing service when such prices are believed to reflect
the fair market value of such securities. The prices provided by a pricing
service are determined without regard to bid or last sale prices but take into
account institutional size trading in similar groups of securities and any
developments related to specific securities. Bonds and other Fixed-Income
Securities not priced in this manner are valued at the most recent quoted bid
price, or when stock exchange valuations are used, at the latest quoted sale
price on the day of valuation. If there is no such reported sale, the latest
quoted bid price will be used. Securities purchased with remaining maturities of
60 days or less are valued at amortized cost when the Board of Trustees
determines that amortized cost reflects fair value. In the event that amortized
cost does not approximate market, market prices as determined above will be
used. Other assets and securities, for which no quotations are readily available
(including restricted securities), will be valued in good faith at fair value
using methods approved by the Board of Trustees.
Cash Reserves Portfolio: The net asset value per share of the Cash Reserves
Portfolio is calculated daily as of 12:00 noon (Eastern Time) on each day that
the portfolio is open for business (See Other Information-Closed Holidays). The
portfolio determines its net asset value per share by subtracting the
portfolio's liabilities (including accrued expenses and dividends payable) from
the total value of the portfolio's investments and other assets and dividing the
result by the total outstanding shares of the portfolio.
For the purpose of calculating the portfolio's net asset value per share,
securities are valued by the amortized cost method of valuation, which does not
take into account unrealized gains or losses. This involves valuing an
instrument at its cost and thereafter assuming a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. While this method provides
certainty in valuation, it may result in periods during which value based on
amortized cost is higher or lower than the price the portfolio would receive if
it sold the instrument.
The use of amortized cost and the maintenance of the portfolio's per share net
asset value at $1.00 is based on its election to operate under the provisions of
Rule 2a-7 under the Investment Company Act of 1940, as amended. As conditions of
operating under Rule 2a-7, the portfolio must maintain a dollar-weighted average
portfolio maturity of 90 days or less, purchase only instruments having
remaining maturities of thirteen months or less and invest only in U.S.
dollar-denominated securities which are determined by the Trustees to present
minimal credit risks and which are of eligible quality as determined under the
rule.
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The Trustees have also agreed to establish procedures reasonably designed,
taking into account current market conditions and the portfolio's investment
objective, to stabilize the net asset value per share as computed for the
purposes of sales and redemptions at $1.00. These procedures include periodic
review, as the Trustees deem appropriate and at such intervals as are reasonable
in light of current market conditions, of the relationship between the amortized
cost value per share and a net asset value per share based upon available
indications of market value. In such a review, investments for which market
quotations are readily available are valued at the most recent bid price or
quoted yield equivalent for such securities or for securities of comparable
maturity, quality and type as obtained from one or more of the major market
makers for the securities to be valued. Other investments and assets are valued
at fair value, as determined in good faith by the Trustees.
In the event of a deviation of over 1/2 of 1% between a portfolio's net asset
value based upon available market quotations or market equivalents and $1.00 per
share based on amortized cost, the Trustees will promptly consider what action,
if any, should be taken. The Trustees will also take such action as they deem
appropriate to eliminate or to reduce to the extent reasonably practicable any
material dilution or other unfair results which might arise from differences
between the two. Such action may include redeeming shares in kind, selling
instruments prior to maturity to realize capital gains or losses or to shorten
average maturity, withholding dividends, paying distributions from capital or
capital gains, or utilizing a net asset value per share not equal to $1.00 based
upon available market quotations.
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES: Dividends and Capital Gains
Distributions: The Fund maintains different dividend and capital gain
distribution policies for each portfolio. These are:
_ The Equity, Value, Growth, Fixed Income, Fixed Income Portfolio II,
Special Purpose Fixed Income, High Yield, Limited Duration,
Intermediate Duration, Mortgage-Backed Securities, Balanced,
Multi-Asset-Class, Global Fixed Income, International Fixed Income,
Select Equity and Domestic Fixed Income Portfolios normally distribute
substantially all of their net investment income to shareholders in the
form of quarterly dividends.
_ The International Equity, Small Cap Value, Mid Cap Value, Mid Cap
Growth and Emerging Markets Portfolios normally distribute
substantially all of their net investment income in the form of annual
dividends.
_ The Municipal and the PA Municipal Portfolios normally distribute
substantially all of their net investment income in the form of monthly
dividends.
_ The Cash Reserves Portfolio declares dividends daily and normally
distributes substantially all of its investment income in the form of
monthly dividends.
If any portfolio does not have income available to distribute, as determined in
compliance with the appropriate tax laws, no distribution will be made.
If any net capital gains are realized from the sale of underlying securities,
the portfolios normally distribute such gains with the last dividend for the
calendar year.
All dividends and capital gains distributions are automatically paid in
additional shares of the portfolio unless the shareholder elects otherwise. Such
election must be made in writing to the Fund and may be made on the Account
Registration Form.
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In all portfolios except the Cash Reserves Portfolio, undistributed net
investment income is included in the portfolio's net assets for the purpose of
calculating net asset value per share. Therefore, on the ex-dividend date, the
net asset value per share excludes the dividend (i.e., is reduced by the per
share amount of the dividend). Dividends paid shortly after the purchase of
shares by an investor, although in effect a return of capital, are taxable as
ordinary income.
Certain Mortgage Securities may provide for periodic or unscheduled payments of
principal and interest as the mortgages underlying the securities are paid or
prepaid. However, such principal payments (not otherwise characterized as
ordinary discount income or bond premium expense) will not normally be
considered as income to the portfolio and therefore will not be distributed as
dividends. Rather, these
payments on mortgage-backed securities will be reinvested on behalf of the
shareholders by the portfolio in accordance with its investment objectives and
policies.
Special Considerations for the Cash Reserves Portfolio: Net investment income is
computed and dividends declared as of 12:00 noon (Eastern Time), on each day.
Such dividends are payable to Cash Reserves Portfolio shareholders of record as
of 12:00 noon (Eastern Time) on that day, if the portfolio is open for business.
Shareholders who redeem prior to 12:00 noon (Eastern Time) are not entitled to
dividends for that day. Dividends declared for Saturdays, Sundays and holidays
are payable to shareholders of record as of 12:00 noon (Eastern Time) on the
preceding business day on which the portfolio was open for business.
For the purpose of calculating dividends, net income shall consist of interest
earned, including any discount or premium ratably amortized to the date of
maturity, minus estimated expenses of the portfolio.
Net realized short-term capital gains, if any, of the Cash Reserves Portfolio
will be distributed whenever the Trustees determine that such distributions
would be in the best interest of shareholders, but at least once a year. The
portfolio does not expect to realize any long-term capital gains. Should any
such gains be realized, they will be distributed annually.
Federal Taxes: Each portfolio of the Fund intends to qualify for taxation as a
regulated investment company under the Code so that each portfolio will not be
subject to Federal income tax to the extent it distributes its income to its
shareholders. Dividends, either in cash or reinvested in shares, paid by a
portfolio from net investment income will be taxable to shareholders as ordinary
income, except for the Municipal and PA Municipal Portfolios (see Special Tax
Considerations for the Municipal and PA Municipal Portfolios). In the case of
the Equity, Value, Small Cap Value, Mid Cap Growth, Growth, Balanced,
Multi-Asset-Class, Mid Cap Value, Select Equity, and Select Value Portfolios,
such dividends will generally qualify in part for the dividends received
deduction for corporations, but the portion of the dividends so qualified
depends on the aggregate taxable qualifying dividend income received by each
portfolio from domestic (U.S.) sources. The Fund will send each shareholder a
statement each year indicating the amount of the dividend income which qualifies
for such treatment.
Whether paid in cash or additional shares of a portfolio, and regardless of the
length of time the shares in such portfolio have been owned by the shareholder,
distributions from long-term capital gains are taxable to shareholders as such,
but are not eligible for the dividends received deduction for corporations.
Shareholders are notified annually by the Fund as to Federal tax status of
dividends and distributions paid by a portfolio. Such dividends and
distributions may also be subject to state and local taxes.
Exchanges and redemptions of shares in a portfolio are taxable events for
Federal income tax purposes. Individual shareholders may also be subject to
state and municipal taxes on such exchanges and redemptions.
Each portfolio intends to declare and pay dividends and capital gain
distributions so as to avoid imposition of the Federal excise tax. To do so,
each portfolio expects to distribute an amount at least equal to (i) 98% of its
calendar year ordinary income, (ii) 98% of its capital gains net income (the
excess of short and long-term capital gain over short and long-term capital
loss) for the one-year period ending October 31st, and (iii) 100% of any
undistributed ordinary and capital gain net income from the prior year.
Dividends declared in December by a portfolio will be deemed to have been paid
by such portfolio and received by shareholders on the record date provided that
the dividends are paid before February 1 of the following year.
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The Fund is required by Federal law to withhold 31% of reportable payments
(which may include dividends, capital gains distributions, and redemptions) paid
to shareholders who have not complied with IRS regulations. In order to avoid
this withholding requirement, you must certify on the Account Registration Form
that your Social Security or Taxpayer Identification Number provided is correct
and that you are not currently subject to back-up withholding, or that you are
exempt from back-up withholding.
Special Considerations. Under the Code if more than 50% of a portfolio's
securities is owned by five or fewer persons, the portfolio may be a "personal
holding company" and subject to Federal income tax.
Foreign Income Taxes: Investment income received by the portfolios from sources
within foreign countries may be subject to foreign income taxes withheld at the
source. The U.S. has entered into Tax Treaties with many foreign countries which
entitle these portfolios to a reduced rate of tax or exemption from tax on such
income. It is impossible to determine the effective rate of foreign tax in
advance since the amount of the portfolios' assets to be invested within various
countries is not known. The portfolios intend to operate so as to qualify for
treaty reduced rates of tax where applicable.
The International Equity, Emerging Markets, Global Fixed Income and
International Fixed Income Portfolios may file an election with the Internal
Revenue Service to pass through to the portfolio's shareholders the amount of
foreign income taxes paid by the portfolio, but may do so only if more than 50%
of the value of the total assets of the portfolio at the end of the fiscal year
is represented by foreign securities. These portfolios will make such an
election only if they deem it to be in the best interests of their shareholders.
If this election is made, shareholders of the portfolio will be required to: (i)
include in gross income, even though not actually received, their respective pro
rata share of foreign taxes paid by the portfolio; (ii) treat their pro rata
share of foreign taxes as paid by them; and (iii) either deduct their pro rata
share of foreign taxes in computing their taxable income or use it within the
limitations set forth in the Internal Revenue Code as a foreign tax credit
against U.S. income taxes (but not both). No deduction for foreign taxes may be
claimed by a shareholder who does not itemize deductions.
Each shareholder of the portfolio will be notified within 60 days after the
close of each taxable (fiscal) year of the Fund if the foreign taxes paid by the
portfolio will pass through for that year, and, if so, the amount of each
shareholder's pro rata share (by country) of (i) the foreign taxes paid, and
(ii) the portfolio's gross income from foreign sources. Shareholders who are not
liable for Federal income taxes, such as retirement plans qualified under
Section 401 of the Internal Revenue Code, will not be affected by any such "pass
through" of foreign tax credits.
State and Local Taxes: The Fund is formed as a Pennsylvania Business Trust and
therefore is not liable, under current law, for any corporate income or
franchise tax of the Commonwealth of Pennsylvania. The Fund will provide
Pennsylvania taxable values on a per share basis.
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Special Tax Considerations for the Municipal and PA Municipal Portfolios: These
portfolios intend to invest a sufficient portion of their assets in municipal
bonds and notes so that each will qualify to pay exempt-interest dividends to
shareholders. Such exempt-interest dividends are excluded from a shareholder's
gross income for Federal personal income tax purposes. Tax-exempt dividends
received from the Municipal and PA Municipal Portfolios may be subject to state
and local taxes. However, some states allow shareholders to exclude that portion
of a portfolio's tax-exempt income which is attributable to municipal securities
issued within the shareholder's state of residence. Furthermore, the PA
Municipal Portfolio invests at least 65% of its assets in PA Municipals. As a
result, the income of the portfolio that is derived from PA Municipals and U.S.
Governments will not be subject to the Pennsylvania personal income tax or to
the Philadelphia School District investment net income tax. Distributions by the
PA Municipal Portfolio to a Pennsylvania resident that are attributable to most
other sources may be subject to the Pennsylvania personal income tax and (for
residents of Philadelphia) to the Philadelphia School District investment net
income tax. To the extent, if any, that dividends paid to shareholders of the
Municipal and PA Municipal Portfolios are derived from taxable interest or
long-term or short-term capital gains, such dividends will be subject to Federal
personal income tax (whether such dividends are paid in cash or in additional
shares) and may also be subject to state and local taxes. In addition, the
Municipal and PA Municipal Portfolios may invest in private activity municipal
securities, the interest on which is subject to the Federal alternative minimum
tax for individuals (AMT bonds). To the extent that the portfolios invest in AMT
bonds, individuals who are subject to the AMT will be required to report a
portion of dividends as a tax preference item in determining their federal
taxes. A shareholder may lose the tax exempt status of the accrual income of
these portfolios if they redeem their shares before a dividend has been
declared.
TRUSTEES OF THE TRUST: The management and affairs of the Trust are supervised by
the Trustees under the laws governing business trusts in the Commonwealth of
Pennsylvania. The Trustees have approved contracts under which, as described
above, certain companies provide essential management, administrative and
shareholder services to the Trust.
INVESTMENT ADVISER: The Investment Adviser to the Fund, Miller Anderson &
Sherrerd, LLP (the Adviser), is a Pennsylvania limited liability partnership
founded in 1969 and is located at One Tower Bridge, West Conshohocken, PA 19428.
Miller Anderson & Sherrerd, LLP is an Equal Opportunity/Affirmative Action
Employer. The Adviser provides investment services to employee benefit plans,
endowment funds, foundations and other institutional investors and as of the
date of this prospectus had in excess of $ __ billion in assets under
management. On _________________, Morgan Stanley Group Inc. acquired Miller
Anderson & Sherrers, LLP (the "Adviser") in a transaction in which Morgan
Stanley Asset Management Holdings Inc., an indirect wholly owned subsidiary of
Morgan Stanley Group Inc., became the sole general partner of the Adviser.
Morgan Stanley Asset Management Holdings Inc. and two other wholly owned
subsidiaries of Morgan Stanley Group Inc. became the limited partners of the
Adviser. In connection with this transaction, the Adviser entered into a new
investment management agreement with the MAS Funds dated as of ____________
____, which agreement was approved by the shareholders of each Portfolio at a
special meeting held on October 6, 1995. The Adviser will retain its name and
remain at its current location, One Tower Bridge, West Conshohocken, PA 19428.
The Adviser will continue to provide investment counseling services to employee
benefit plans, endowments, and other institutional investors.
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Under an Investment Advisory Agreement (Agreement) with the Fund, dated as of
July 1, 1988, the Adviser, subject to the control and supervision of the Fund's
Board of Trustees and in conformance with the stated investment objectives and
policies of each portfolio of the Fund, manages the investment and reinvestment
of the assets of each portfolio of the Fund. In this regard, it is the
responsibility of the Adviser to make investment decisions for the Fund's
portfolios and to place each portfolio's purchase and sales orders. As
compensation for the services rendered by the Adviser under the Agreement, each
portfolio pays the Adviser an advisory fee calculated by applying a quarterly
rate, based on the following annual percentage rates, to the portfolio's average
daily net assets for the quarter:
Rate
Emerging Markets Portfolio* .750%
Equity Portfolio .500
Growth Portfolio .500
International Equity Portfolio .500
Mid Cap Growth Portfolio .500
Mid Cap Value Portfolio* .750
Small Cap Value Portfolio* .750
Value Portfolio .500
Cash Reserves Portfolio .250
Domestic Fixed Income Portfolio .375
Fixed Income Portfolio .375
Fixed Income Portfolio II .375
Global Fixed Income Portfolio .375
High Yield Portfolio .375
Intermediate Duration Portfolio .375
International Fixed Income Portfolio .375
Limited Duration Portfolio .300
Mortgage-Backed Securities Portfolio .375
Municipal Portfolio .375
PA Municipal Portfolio .375
Special Purpose Fixed Income Portfolio .375
Balanced Portfolio .450
Multi-Asset-Class Portfolio .450
Select Equity Portfolio .500
* Advisory fees in excess of 0.750% of average net assets are considered
higher than normal for most investment companies, but are not unusual for
portfolios that invest primarily in small capitalization stocks or in
countries with emerging market economies.
Until further notice, the Adviser has voluntarily agreed to waive its advisory
fees and reimburse certain expenses to the extent necessary to keep Total
Operating Expenses for the Emerging Markets, Mid Cap Value, Cash Reserves,
Domestic Fixed Income, Global Fixed Income, High Yield, Intermediate Duration,
International Fixed Income, Limited Duration, Mortgage-Backed Securities,
Municipal, PA Municipal, Multi-Asset-Class and Select Equity Portfolios from
exceeding 1.18%, 0.88%, 0.32%, 0.50%, 0.58%, 0.525%, 0.52%, 0.60%, 0.42%, 0.50%,
0.50%, 0.50%, 0.58% and 0.61%, respectively.
For the fiscal year ended September 30, 1995, the Adviser received ____________
as compensation for its services.
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Service Plan.
The Board of Trustees of the Fund has approved a Service Plan (the " Service
Plan"). Under the Plan, Service Providers are paid for certain shareholder
support servicon behalf of MAS Class Shares of each Portfolio wherein the Fund
has retained the Distributor to compensate organizations for providing
shareholder support services to clients who purchase MAS Class Shares. For this
service, such Service Providers are compensated at an annual rate of .__% of
the average net assets of the MAS Class Shares of each Portfolio. Fees paid
pursuant to the Service Plan are separate fees of the MAS Class Shares of each
Portfolio and will reduce the net investment income and total return of the MAS
Class Shares of these Portfolios.
PORTFOLIO MANAGEMENT
The investment professionals of MAS who are primarily responsible for the
day-to-day management of the Fund's portfolios are as follows:
Equity and Select Equity Portfolios - Arden C. Armstrong, John D. Connolly,
Timothy G. Connors, Nicholas J. Kovich, Robert J. Marcin, Gary G. Schlarbaum,
and A. Morris Williams, Jr.;
Value Portfolio - Robert J. Marcin and A. Morris Williams, Jr.;
Small Cap Value and Mid Cap Value Portfolios - Gary G. Schlarbaum, Gary D.
Haubold and Bradley S. Daniels;
Mid Cap Growth Portfolio - Arden C. Armstrong and John D. Connolly;
Growth Portfolio - Arden C. Armstrong, John D. Connolly and Timothy G. Connors;
Fixed Income, Domestic Fixed Income, Special Purpose Fixed Income and Fixed
Income II Portfolios - Thomas L. Bennett, Kenneth B. Dunn, James L. Kichline and
Richard B. Worley;
Mortgage-Backed Securities Portfolio - Kenneth B. Dunn and Scott F. Richard;
High Yield Portfolio - Stephen F. Esser and Thomas L. Bennett;
Cash Reserves Portfolio - Ellen D. Harvey and James L. Kichline;
Limited Duration and Intermediate Duration Portfolios - Ellen D. Harvey,
James L. Kichline, Scott F. Richard and Christian G. Roth.
Municipal and PA Municipal Portfolios - Kenneth B Dunn, Steven K. Kreider, and
Scott F. Richard;
Balanced Portfolio - John D. Connolly, Gary G. Schlarbaum, Thomas L. Bennett,
James L. Kichline and Richard B. Worley;
Multi-Asset-Class Portfolio - John D. Connolly, Gary G. Schlarbaum, Thomas L.
Bennett, J. David Germany, James L. Kichline, Horacio A. Valeiras, Dean Williams
and Richard B. Worley;
International Equity and Emerging Markets Portfolios - Dean Williams and Horacio
A. Valeiras;
Global Fixed Income and International Fixed Income Portfolios - J. David
Germany, James L. Kichline and Richard B. Worley.
A description of their business experience during the past five years is as
follows:
Arden C. Armstrong, Partner, joined MAS in 1986. She assumed responsibility for
the Mid Cap Growth Portfolio in 1990, the Growth Portfolio in 1993 and the
Equity and Select Equity Portfolios in 1994.
Thomas L. Bennett, Partner, joined MAS in 1984. He assumed responsibility for
the Fixed Income Portfolio in 1984, the Domestic Fixed Income Portfolio 1987,
the High Yield Portfolio in 1989, the Fixed Income Portfolio II in 1990, the
Special Purpose Fixed Income and Balanced Portfolios in 1992 and the
Multi-Asset-Class Portfolio in 1994.
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Timothy G. Connors, Portfolio Manager, joined MAS in 1994. Mr. Connors served as
Vice President and Managing Director of CoreStates Investment Advisers from 1986
to 1994. He assumed responsibility for the Equity, Select Equity and Growth
Portfolios in 1994.
John D. Connolly, Partner, joined MAS in 1990. Mr. Connolly served as Senior
Vice President and Chief Investment Strategist at Dean Witter Reynolds from 1984
to 1990. He assumed responsibility for the Equity, Select Equity and Mid Cap
Growth Portfolios in 1990, the Balanced Portfolio in 1992, the Growth Portfolio
in 1993 and the Multi-Asset-Class Portfolio in 1994.
Bradley S. Daniels, Portfolio Manager, joined MAS in 1985. He assumed
responsibility for the Small Cap Value Portfolio in 1986 and the Mid Cap Value
Portfolio in 1994.
Kenneth B. Dunn, Partner, joined MAS in 1987. He assumed responsibility for the
Fixed Income and the Domestic Fixed Income Portfolios in 1987, the Fixed Income
II Portfolio in 1990, the Mortgage-Backed Securities and Special Purpose Fixed
Income Portfolios in 1992, and the Municipal and PA Municipal Portfolios in
1994.
Stephen F. Esser, Partner, joined MAS in 1988. He assumed responsibility for the
High Yield Portfolio in 1989.
J. David Germany, Partner, joined MAS in 1991. He served as Vice President &
Senior Economist for Morgan Stanley & Co. from 1989 to 1991. He assumed
responsibility for the Global Fixed Income and International Fixed Income
Portfolios in 1993 and the Multi-Asset-Class Portfolio in 1994.
Ellen D. Harvey, Partner, joined MAS in 1984. She assumed responsibility for the
Cash Reserves Portfolio in 1990, the Limited Duration Portfolio in 1992 and the
Intermediate Duration Portfolio in 1994.
Gary D. Haubold, Portfolio Manager, joined MAS in 1993. Mr. Haubold served as
Senior Vice President at Wood, Struthers & Winthrop in 1993. He assumed
responsibility for the Small Cap Value Portfolio in 1993 and the Mid Cap Value
Portfolio in 1994.
James L. Kichline, Partner, joined MAS in 1987. He assumed responsibility for
the Fixed Income and Domestic Fixed Income Portfolios in 1987, the Cash Reserves
and Fixed Income II Portfolios in 1990, the Balanced, Limited Duration and
Special Purpose Fixed Income Portfolios in 1992, the Global Fixed Income
Portfolio in 1993 and the International Fixed Income, Intermediate Duration and
Multi-Asset-Class Portfolios in 1994.
Nicholas J. Kovich, Partner, joined MAS in 1988. He assumed responsibility for
the Equity and Select Equity Portfolios in 1994.
Steven K. Kreider, Partner, joined MAS in 1988. He assumed responsibility for
the Municipal and the PA Municipal Portfolios in 1992.
Robert J. Marcin, Partner, joined MAS in 1988. He assumed responsibility for the
Value Portfolio in 1990 and the Equity and Select Equity Portfolios in 1994.
Scott F. Richard, Partner, joined MAS in 1992. He served as Vice President, Head
of Fixed Income Research & Model Development for Goldman, Sachs & Co. from 1987
to 1991 and as Head of Mortgage Research in 1992. He assumed responsibility for
the Mortgage-Backed Securities Portfolio in 1992 and the Intermediate Duration,
Municipal and PA Municipal Portfolios in 1994.
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Christian G. Roth, Portfolio Manager, joined MAS in 1991. He served as Senior
Associate, Dean Witter Capital Corporation from 1987 to 1991. He assumed
responsibility for the Intermediate Duration Portfolio in 1994.
Gary G. Schlarbaum, Partner, joined MAS in 1987. He assumed responsibility for
the Equity and Small Cap Value Portfolios in 1987, the Select Equity Portfolio
in 1988, the Balanced Portfolio in 1992 and the Multi-Asset-Class and Mid Cap
Value Portfolios in 1994.
Horacio A. Valeiras, Partner, joined MAS in 1992. He served as an International
Strategist from 1989 through 1992 for Credit Suisse First Boston and as
Director-Equity Research in 1992. He assumed responsibility for the
International Equity Portfolio in 1992, the Emerging Markets Portfolio in 1993
and the Multi-Asset-Class Portfolio in 1994.
A. Morris Williams, Jr., Partner, joined MAS in 1973. He assumed responsibility
for the Equity Portfolio in 1984, the Select Equity Portfolio in 1988 and the
Value Portfolio in 1984.
Dean Williams, Partner, joined MAS in 1988. He assumed responsibility for the
International Equity Portfolio in 1988 and the Emerging Markets and
Multi-Asset-Class Portfolios in 1994.
Richard B. Worley, Partner, joined MAS in 1978. He assumed responsibility for
the Fixed Income Portfolio in 1984, the Domestic Fixed Income Portfolio in 1987,
the Fixed Income Portfolio II in 1990, the Balanced and Special Purpose Fixed
Income Portfolios in 1992, the Global Fixed Income and International Fixed
Income Portfolios in 1993 and the Multi-Asset-Class Portfolio in 1994.
ADMINISTRATIVE SERVICES: MAS serves as Administrator to the Fund pursuant to an
Administration Agreement dated as of November 18, 1993. Administrative services
provided by MAS include shareholder communication services, regulatory
reporting, office space and personnel. Chase Global Funds Services Company, a
subsidiary of The Chase Manhattan Bank, N.A., 73 Tremont Street, Boston MA
02108-3913, serves as Transfer Agent to the Fund pursuant to an agreement also
dated as of November 18, 1993, and provides fund accounting and other services
pursuant to a sub-administration agreement with MAS as Administrator. Under its
Administration Agreement with the Fund, MAS receives an annual fee, accrued
daily and payable monthly, of 0.08% of the Fund's average daily net assets, and
is responsible for all fees payable under any sub-administration agreements.
GENERAL DISTRIBUTION AGENT: Shares of the Fund are distributed exclusively
through MAS Fund Distribution, Inc., a wholly-owned subsidiary of the Adviser.
PORTFOLIO TRANSACTIONS: The investment advisory agreement authorizes the Adviser
to select the brokers or dealers that will execute the purchases and sales of
investment securities for each of the Fund's portfolios and directs the Adviser
to use its best efforts to obtain the best execution with respect to all
transactions for the portfolios. In doing so, a portfolio may pay higher
commission rates than the lowest available when the Adviser believes it is
reasonable to do so in light of the value of the research, statistical, and
pricing services provided by the broker effecting the transaction.
It is not the Fund's practice to allocate brokerage or principal business on the
basis of sales of shares which may be made through intermediary brokers or
dealers. However, the Adviser may place portfolio orders with qualified
broker-dealers who recommend the Fund's Portfolios or who act as agents in the
purchase of shares of the portfolios for their clients.
Some securities considered for investment by each of the Fund's portfolios may
also be appropriate for other clients served by the Adviser. If purchase or sale
of securities consistent with the investment policies of a portfolio and one or
more of these other clients served by the Adviser is considered at or about the
same time, transactions in such securities will be allocated among the portfolio
and clients in a manner deemed fair and reasonable by the Adviser. Although
there is no specified formula for allocating such transactions, the various
allocation methods used by the Adviser, and the results of such allocations, are
subject to periodic review by the Fund's Trustees.
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OTHER INFORMATION: Description of Shares and Voting Rights: The Fund was
established under Pennsylvania law by a Declaration of Trust dated February 15,
1984, as amended and restated as of November 18, 1993. The Fund is authorized to
issue an unlimited number of shares of beneficial interest, without par value,
from an unlimited number of series (portfolios) of shares. Currently the Fund
consists of twenty-six portfolios.
The shares of each portfolio of the Fund are fully paid and non-assessable, and
have no preference as to conversion, exchange, dividends, retirement or other
features. The shares of each portfolio of the Fund have no preemptive rights.
The shares of the Fund have non-cumulative voting rights, which means that the
holders of more than 50% of the shares voting for the election of Trustees can
elect 100% of the Trustees if they choose to do so. Shareholders are entitled to
one vote for each full share held (and a fractional vote for each fractional
share held), then standing in their name on the books of the Fund.
Meetings of shareholders will not be held except as required by the Investment
Company Act of 1940, as amended, and other applicable law. A meeting will be
held to vote on the removal of a Trustee or Trustees of the Fund if requested in
writing by the holders of not less than 10% of the outstanding shares of the
Fund. The Fund will assist in shareholder communication in such matters to the
extent required by law.
Custodians: The Chase Manhattan Bank N.A., New York, NY and Morgan Stanley Trust
Company (NY), Brooklyn, NY serve as custodians for the Fund. The custodians
hold cash, securities and other assets of the Fund as required by the 1940 Act.
Transfer and Dividend Disbursing Agent: Chase Global Funds Services Company, a
subsidiary of The Chase Manhattan Bank, N.A., 73 Tremont Street, Boston, MA
02108-3913.
Reports: Shareholders receive semiannual and annual financial statements. Annual
financial statements are audited by Price Waterhouse LLP, independent
accountants.
Litigation: The Fund is not involved in any litigation.
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Closed Holidays: Currently, the weekdays on which the Fund is closed for
business are: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. In addition,
the Fixed Income, Special Purpose Fixed Income, Fixed Income Portfolio II,
Limited Duration, Cash Reserves, High Yield, Mortgage-Backed Securities,
Intermediate Duration, International Fixed Income, Global Fixed Income, Domestic
Fixed Income, Municipal, and PA Municipal Portfolios will be closed on Martin
Luther King Day, Columbus Day, and Veteran's Day.
<PAGE>
The following is a list of the Trustees and the principal executive officers of
the Fund and a brief statement of their present positions and principal
occupations during the past five years:
Thomas L. Bennett,* Chairman of the Board of Trustees; Partner, Miller Anderson
& Sherrerd, LLP; Director, MAS Fund Distribution, Inc.
David P. Eastburn, Trustee; Retired; formerly: Director (Trustee) of each of the
investment companies in The Vanguard Group, except Vanguard Specialized
Portfolios; Director of Penn Mutual Life Insurance Company and General Accident
Insurance; President, Federal Reserve Bank of Philadelphia.
Joseph P. Healey, Trustee; Headmaster, Haverford School; formerly Dean, Hobart
College; Associate Dean, William & Mary College.
Joseph J. Kearns, Trustee; Vice President and Treasurer, The J. Paul Getty
Trust.
C. Oscar Morong, Jr., Trustee; Managing Director, Morong Capital Management;
Director, Ministers and Missionaries Benefit Board of American Baptist Churches,
The Indonesia Fund, The Landmark Funds; formerly Senior Vice President and
Investment Manager for CREF, TIAA-CREF Investment Management, Inc.
*Trustee Bennett is deemed to be an "interested person" of the Fund as that term
is defined in the Investment Company Act of 1940, as amended.
James D. Schmid, President; Partner, Miller Anderson & Sherrerd, LLP; Director,
MAS Fund Distribution, Inc.; Chairman of the Board of Directors, The Minerva
Fund, Inc.; formerly Vice President, Chase Manhattan Bank.
Lorraine Truten, CFA, Vice President; Head of Mutual Fund Administration, Miller
Anderson & Sherrerd, LLP; President, MAS Fund Distribution, Inc.
Douglas W. Kugler, Treasurer; Manager of Mutual Fund Administration, Miller
Anderson & Sherrerd, LLP; formerly Assistant Vice President, Provident Financial
Processing Corporation.
John H. Grady, Jr., Secretary of the Fund since July 1995; Partner, Morgan,
Lewis & Bockius, LLP; formerly Attorney, Ropes & Gray.
Remuneration of Trustees and Officers: The Fund pays each Trustee, who is not
also an officer or affiliated person, an annual fee plus travel and other
expenses incurred in attending Board meetings. Trustees who are also officers or
affiliated persons receive no remuneration for their service as Trustees. The
Fund's officers are paid by the Adviser or Chase Global Funds Services Company
except for Mr. Grady who receives no compensation for his services.
63
<PAGE>
December 23, 1994
Supplemented Through September 15, 1995
Investment Adviser and Administrator: Transfer Agent:
Miller Anderson & Sherrerd, LLP Chase Global Funds Services Company
One Tower Bridge 73 Tremont Street
West Conshohocken, Boston, Massachusetts 02108-0913
Pennsylvania 19428-2899
General Distribution Agent:
MAS Fund Distribution, Inc.
One Tower Bridge
P.O. Box 868
West Conshohocken,
Pennsylvania 19428-0868
Table of Contents
Page Page
Fund Expenses 2 General Information
Prospectus Summary 4 Other Information 52
Financial Highlights 8 Purchase of Shares 52
Yield and Total Return 14 Redemption of Shares 53
Investment Suitability 15 Shareholder Services 54
Investment Limitations 15 Valuation of Shares 54
Portfolio Summaries 17 Dividends, Capital Gains Distributions
Equity Investments 17 and Taxes 56
Fixed-Income Investments 21 Investment Adviser 58
Prospectus Glossary: Portfolio Management 59
Strategies 36 Administrative Services 61
Investments 41 General Distribution Agent 62
Portfolio Transactions 62
Trustees and Officers 64
64
<PAGE>
ACCOUNT REGISTRATION FORM
MAS Fund Distribution, Inc.
General Distribution Agent
REGISTRATION/PRIMARY MAILING ADDRESS
City State Zip
Telephone No.
Type of Account: o Defined Benefit Plan o Defined Contribution Plan
o Profit Sharing/Thrift Plan o Other Employee Benefit Plan
o Endowment o Foundation o Taxable o Other (Specify)
o United States Citizen o Resident Alien
o Non-Resident Alien, Indicate Country of Residence
INTERESTED PARTY MAILING ADDRESS (Optional)
Street or P.O. Box
Attention:
City State Zip
Telephone No.
INTERESTED PARTY MAILING ADDRESS (Optional)
Street or P.O. Box
Attention:
City State Zip
Telephone No.
INTERESTED PARTY MAILING ADDRESS (Optional)
Street or P.O. Box
Attention:
City State Zip
Telephone No.
INVESTMENT
For Purchase of:
o Equity Portfolio
o Value Portfolio
o Growth Portfolio
o Mid Cap Growth Portfolio
o Balanced Portfolio
o Multi-Asset-Class Portfolio
o Balanced Investing--Indicate Portfolios
o Fixed Income Portfolio
o Fixed Income Portfolio II
o Special Purpose Fixed Income Portfolio
o High Yield Portfolio
o Limited Duration Fixed Income Portfolio
o Intermediate Duration Portfolio
o Mortgage-Backed Securities Portfolio
o Cash Reserves Portfolio
o International Equity Portfolio
o Emerging Markets Portfolio
o International Fixed Income Portfolio
o Global Fixed Income Portfolio
o Municipal Portfolio
o PA Municipal Portfolio
o Mid Cap Value Portfolio
o Domestic Fixed Income Portfolio
65
<PAGE>
66
<PAGE>
67
<PAGE>
TAXPAYER IDENTIFICATION NUMBER
Part 1.
Social Security Number
- -
or
Employer Identification Number
-
Part 2. BACKUP WITHHOLDING
o Check the box if the account is subject to Backup Withholding under the
provisions of Section 3406(a)(1)(C) of the Internal Revenue Code.
IMPORTANT TAX INFORMATION
You (as payee) are required by law to provide us (as payer) with your current
taxpayer identification number. Accounts that have a missing or incorrect
taxpayer identification number will be subject to backup withholding at a 31%
rate on ordinary income and capital gains distributions as well as redemptions.
Backup withholding isnot an additional tax; the tax liability of persons subject
to backup withholding will be reduced by the amount of tax withheld.
You may be notified that you are subject to backup withholding under section
3406(a)(1)(C) because you have underreported interest or dividends or you were
required to, but failed to, file a return which would have included a reportable
interest or dividend payment. If you have been so notified, check the box in
PART 2 at left.
TELEPHONE REDEMPTION OPTION
The Fund is hereby authorized to honor any telephone or telegraphic requests
believed to be authentic for the following:
(check one or both)
o Mailing of Redemption proceeds to the name and address in Section 1 above.
o Wire of Redemption proceeds to:
Name of Commercial Bank (Not Savings Bank)
Bank Account Number
..............................................................................
Name(s) in which your Bank Account is Established
..............................................................................
Bank's Street Address
.....................................................................
City State Zip Routing/ABA Number
68
<PAGE>
DISTRIBUTION OPTION
o Income dividends and capital gains distributions to be reinvested in
additional shares.
o Income dividends and capital gains distributions to be paid in cash.
o Income dividends in cash and capital gains distributions in additional
shares.
If cash option is chosen, please indicate instructions below:
o Mail distribution check to the name and address in which account is
registered.
o Wire distributions to the same Commercial Bank indicated in Section 5 above.
o Wire distributions to:
Name of Commercial Bank (Not Savings Bank) Bank Account Number
Name(s) in which your Bank Account is Established
Bank's Street Address
City State Zip Routing/ABA Number
SIGNATURE(S) OF ALL HOLDERS AND TAXPAYER CERTIFICATION
The undersigned certify that I/we have full authority and legal capacity to
purchase shares of the Fund and affirm that I/we have received a current
Prospectus of the MAS Funds and agree to be bound by its terms. Under penalties
of perjury I/we certify that the information provided in Section 4 above is
true, correct and complete.
(X)
Signature Date
(X)
Signature Date (X)
(X)
Signature Date
(X)
Signature Date
FOR INTERNAL USE ONLY (X)
Signature Date
O* F OR S
69
<PAGE>
Client Services: 1-800-354-8185 Prices and Investment Results: 1-800-
522-1525
MAS Funds (the Fund) is a no-load mutual fund consisting of twenty-six
portfolios, twenty-four of which are described in this Prospectus. Each
portfolio in this Prospectus operates as a separate diversified investment
company except the Global Fixed Income, International Fixed Income, and Emerging
Markets Portfolios which are non-diversified investment companies. The
investment objective of each portfolio is described with a summary of investment
policies as referenced below. The Fund's Select-Equity and Small Cap Value
Portfolios are not currently being offered to new investors. This Prospectus
offers the Investment Class Shares of the Fund. The Fund also offers
Institutional Class Shares and MAS Class Shares.
Shares of the Cash Reserves Portfolio are neither insured nor guaranteed by the
U.S. Government. The Portfolio seeks to maintain, but there can be no assurance
that it will be able to maintain, a constant net asset value of $1.00 per share.
The High-Yield Portfolio will invest primarily, and certain other portfolios of
the Fund may invest to varying degrees, in high yield, high risk securities
which are speculative with regard to payment of interest and return of principal
(commonly referred to as junk bonds); therefore, investments in these portfolios
may not be suitable for all investors. See High Yield Investing in the Glossary
of Strategies for additional information regarding certain risks associated with
investment in such securities.
PORTFOLIO PAGE REFERENCE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
How to Use This Prospectus: 3 Fixed Income: Balanced: 34
- -------------------------- ------------- ---------
Cash Reserves 21 Multi-Asset-Class: 35
Portfolio Summaries: Domestic Fixed Income 22
Equity: Fixed Income 23 Select Equity Portfolio: 6
Emerging Markets 17 Fixed Income II 24
Equity 17 Global Fixed Income 25 Prospectus Glossary:
Growth 18 High Yield 26 Strategies 36
International Equity 18 Intermediate Duration 27 Investments 41
Mid Cap Growth 19 International Fixed Income 28
Mid Cap Value 19 Limited Duration 29 Other Information: 52
Small Cap Value 20 Mortgage-Backed Securities 30 Table of Contents: Back Cover
Value 20 Municipal 31
PA Municipal 32
Special Purpose Fixed Income 33
</TABLE>
This Prospectus, which should be retained for future reference, sets forth
concisely information that you should know before you invest. A Statement of
Additional Information containing additional information about the Fund has been
filed with the Securities and Exchange Commission. Such Statement is dated
January, 1996 as revised from time to time, and has been incorporated by
reference into this Prospectus. A copy of the Statement may be obtained, without
charge, by writing to the Fund or by calling the Client Services Group at the
telephone number shown above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
EXPENSE SUMMARY
INVESTMENT CLASS SHARES
The following tables illustrate the various expenses and fees that a shareholder
for that portfolio will incur either directly or indirectly. The expenses and
fees set forth below are based on each portfolio's operations during the fiscal
year ended September 30, 1995, except portfolios whose Total Operating Expenses
have been capped. An estimate has been provided for portfolios with less than
10 months of operations.
Shareholder Transaction Expenses:
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Redemption Fees None
Exchange Fees None
Annual Fund Operating Expenses:
(as a percentage of average net assets after fee waivers)
12b-1 Fees . %
Investment Total
Advisory Other Operating
Portfolio Fees 12b-1 Fees Expenses Expenses
Emerging Markets 0.750% % % %*
Equity 0.500
Growth 0.500
International Equity 0.500
Mid Cap Growth 0.500
Mid Cap Value 0.750 *
Small Cap Value 0.750
Value 0.500
Cash Reserves 0.110 *
Domestic Fixed Income 0.353 *
Fixed Income 0.375
Fixed Income II 0.375
Global Fixed Income 0.375 *
High Yield 0.375 *
Intermediate Duration 0.265 *
International Fixed Income 0.265 *
Limited Duration 0.300 *
Mortgage-Backed Securities 0.370 *
Municipal 0.312 *
PA Municipal 0.289 *
Special Purpose Fixed 0.375
Income 0.450
Balanced 0.359 *
Multi-Asset-Class 0.483 *
Select Equity
<PAGE>
*After fee waivers and reimbursements.
*Until further notice, the Adviser has voluntarily agreed to waive its advisory
fees and reimburse certain expenses to the extent necessary to keep Total
Operating Expenses for the Emerging Markets, Mid Cap Value, Cash Reserves,
Domestic Fixed Income, Global Fixed Income, High Yield, Intermediate Duration,
International Fixed Income, Limited Duration, Mortgage-Backed Securities,
Municipal, PA Municipal, Multi-Asset-Class and Select Equity Portfolios from
exceeding 1.18%, 0.88%, 0.32%, 0.50%, 0.58%, 0.525%, 0.52%, 0.60%, 0.42%, 0.50%,
0.50%, 0.50%, 0.58% and 0.61%, respectively. Absent fee waivers and
reimbursements by the Adviser, Total Operating Expenses would be ___%, ___%,
___%, ___%, ___%, ___%, ___%, ___%, ___%, ___%, and ___% for the Emerging
Markets, Mid Cap Value, Cash Reserves, Domestic Fixed Income, Intermediate
Duration, International Fixed Income, Mortgage-Backed Securities, Municipal, PA
Municipal, Multi-Asset Class and Select Equity Portfolios, respectively.
3
<PAGE>
EXAMPLE
The purpose of this table is to assist in understanding the various expenses
that a shareholder in a portfolio will bear directly or indirectly. The
following example illustrates the expenses that an investor would pay on a
$1,000 investment over various time periods assuming (1) a 5% annual rate of
return, and (2) redemption at the end of each time period. The example should
not be considered a representation of past or future expenses and actual
expenses may be greater or less than those shown. For portfolios with less than
10 months of operations, only the 1 and 3 year examples are shown. For
portfolios with less than 10 months of operations, only the 1 and 3 year
examples are shown.
Portfolio 1 year 3 year 5 year 10 year
Emerging Markets $ $ $ $
Equity
Growth
International Equity
Mid Cap Growth
Mid Cap Value
Small Cap Value
Value
Cash Reserves
Domestic Fixed Income
Fixed Income
Fixed Income II
Global Fixed Income
High Yield
Intermediate Duration
International Fixed Income
Limited Duration
Mortgage-Backed Securities
Municipal
PA Municipal
Special Purpose Fixed Income
Balanced
Multi-Asset-Class
Select Equity
4
<PAGE>
HOW TO USE THIS PROSPECTUS
A PROSPECTUS SUMMARY begins on page __;
FINANCIAL HIGHLIGHTS and a description of YIELD AND TOTAL RETURN begin on page
__;
GENERAL INFORMATION including INVESTMENT LIMITATIONS pertinent to all portfolios
begins on page __;
SUMMARY PAGES for each portfolio's Objective, Policies and Strategies begin on
page __;
The PROSPECTUS GLOSSARY which defines specific investments, policies and
strategies printed in bold type throughout this Prospectus begins on page __;
OTHER INFORMATION including Shareholder Services begins on page __.
5
<PAGE>
PROSPECTUS SUMMARY
EQUITY PORTFOLIOS
Emerging Markets - seeks to achieve long-term capital growth by investing
primarily in Common Stocks of Emerging Market Issuers.
Equity - seeks to achieve above-average total return over a market cycle of
three to five years, consistent with reasonable risk, by investing primarily in
a diversified portfolio of Common Stocks of companies which are deemed by the
Adviser to have earnings growth potential greater than the economy in general
and greater than the expected rate of inflation.
Growth - seeks to achieve long-term capital growth by investing primarily in a
diversified portfolio of Common Stocks of larger size companies that are deemed
by the Adviser to offer long-term growth potential.
International Equity - seeks to achieve above-average total return over a market
cycle of three to five years, consistent with reasonable risk, by investing
primarily in a diversified portfolio of Foreign Equities.
Mid Cap Growth - seeks to achieve long-term capital growth by investing
primarily in a diversified portfolio of Common Stocks of mid-cap companies that
are deemed by the Adviser to offer long-term growth potential.
Mid Cap Value - seeks to achieve above-average total return over a market cycle
of three to five years, consistent with reasonable risk, by investing in Common
Stocks with equity capitalizations in the range of the companies represented in
the S&P MidCap 400 Index which are deemed by the Adviser to be relatively
undervalued based on certain proprietary measures of value. The portfolio will
typically exhibit a lower price/earnings value ratio than the S&P MidCap 400
Index.
Small Cap Value - seeks to achieve above-average total return over a market
cycle of three to five years, consistent with reasonable risk, by investing
primarily in a diversified portfolio of Common Stocks with equity
capitalizations in the range of companies represented in the Russell 2000 Index
which are deemed by the Adviser to be relatively undervalued based on certain
proprietary measures of value. The portfolio will typically exhibit lower
price/earnings and price/book value ratios than the Russell 2000.
Value - seeks to achieve above-average total return over a market cycle of three
to five years, consistent with reasonable risk, by investing primarily in a
diversified portfolio of Common Stocks which are deemed by the Adviser to be
relatively undervalued based on various measures such as price/earnings ratios
and price/book ratios.
FIXED-INCOME PORTFOLIOS
Cash Reserves - seeks to realize maximum current income, consistent with
preservation of capital and liquidity, by investing in a diversified portfolio
of money-market instruments, Cash Equivalents and other short-term securities
having expected maturities of thirteen months or less. The portfolio seeks to
maintain, but does not guarantee, a constant net asset value of $1.00 per share.
Domestic Fixed Income - seeks to achieve above-average total return over a
market cycle of three to five years, consistent with reasonable risk, by
investing in a diversified portfolio of U.S. Governments, Corporates rated "A"
or higher, Mortgages Securities, other Fixed-Income Securities rated "A" or
higher of domestic issuers and Derivatives. The portfolio's average weighted
maturity will ordinarily be greater than five years.
6
<PAGE>
Fixed Income - seeks to achieve above-average total return over a market cycle
of three to five years, consistent with reasonable risk, by investing primarily
in a diversified portfolio of U.S. Governments, Corporates, Mortgage Securities,
Foreign Bonds and other Fixed-Income Securities and Derivatives. The portfolio's
average weighted maturity will ordinarily exceed five years.
Fixed Income II - seeks to achieve above-average total return over a market
cycle of three to five years, consistent with reasonable risk, by investing
primarily in a diversified portfolio of U.S. Governments, investment grade
Corporates, Mortgage Securities, Foreign Bonds and other Fixed-Income Securities
(rated A or higher) and Derivatives. The portfolio's average weighted maturity
will ordinarily exceed five years.
Global Fixed Income - seeks to achieve above-average total return over a market
cycle of three to five years, consistent with reasonable risk, by investing
primarily in high-grade Fixed-Income Securities, Foreign Bonds and Derivatives
representing securities of United States and foreign issuers. The portfolio's
average weighted maturity will ordinarily exceed five years.
High Yield - seeks to achieve above-average total return over a market cycle of
three to five years, consistent with reasonable risk, by investing primarily in
a diversified portfolio of High Yield Securities, Corporates and other
Fixed-Income Securities and Derivatives (including bonds rated below investment
grade). The portfolio's average weighted maturity will ordinarily exceed five
years.
Intermediate Duration - seeks to achieve above-average total return over a
market cycle of three to five years, consistent with reasonable risk, by
investing primarily in a diversified portfolio of U.S. Governments and
investment grade Corporates, Mortgage Securities, Foreign Bonds and other
Fixed-Income Securities and Derivatives. The portfolio will maintain an average
duration of between two and five years.
International Fixed Income - seeks to achieve above-average total return over a
market cycle of three to five years, consistent with reasonable risk, by
investing primarily in high-grade Foreign Bonds and Derivatives. The portfolio's
average weighted maturity will ordinarily exceed five years.
Limited Duration - seeks to achieve above-average total return over a market
cycle of three to five years, consistent with reasonable risk, by investing
primarily in a diversified portfolio of U.S. Governments, Mortgage Securities,
investment grade Corporates and other Fixed-Income Securities. The portfolio
will maintain an average duration of between one and three years.
Mortgage-Backed Securities - seeks to achieve above-average total return over a
market cycle of three to five years, consistent with reasonable risk, by
investing primarily in a diversified portfolio of Mortgage Securities and other
Fixed-Income Securities and Derivatives. The portfolio's average weighted
maturity will ordinarily exceed seven years.
Municipal - seeks to realize above-average total return over a market cycle of
three to five years, consistent with conservation of capital and the realization
of current income which is exempt from federal income tax, by investing
primarily in a diversified portfolio of Municipals and other Fixed-Income
Securities and Derivatives, including a limited percentage of bonds rated below
investment grade. The portfolio's average weighted maturity will ordinarily be
between ten and thirty years.
PA Municipal - seeks to realize above-average total return over a market cycle
of three to five years, consistent with the conservation of capital and the
realization of current income which is exempt from federal income tax and
Pennsylvania personal income tax by investing in a diversified portfolio of PA
Municipals and other Fixed-Income Securities and Derivatives including a limited
percentage of bonds rated below investment grade. The portfolio's average
weighted maturity will ordinarily be between ten and thirty years.
7
<PAGE>
Special Purpose Fixed Income - seeks to achieve above-average total return over
a market cycle of three to five years, consistent with reasonable risk, by
investing primarily in a diversified portfolio of U.S. Governments, Corporates,
Mortgage Securities, Foreign Bonds and other Fixed-Income Securities and
Derivatives. The portfolio is structured to complement an investment in one or
more of the Fund's Equity Portfolios for investors seeking a balanced
investment. The portfolio's average weighted maturity will ordinarily exceed
five years.
BALANCED INVESTING
Balanced Portfolio - seeks to achieve above-average total return over a market
cycle of three to five years, consistent with reasonable risk, by investing in a
diversified portfolio of Equity Securities, Corporates, Fixed-Income Securities
and Derivatives. When the Adviser judges the relative outlook for the equity and
fixed-income markets to be neutral, the portfolio will be invested 60% in equity
securities and 40% in fixed-income securities. The asset mix is actively managed
by the Adviser, with equity securities ordinarily representing between 45% and
75% of the total investment. The average weighted maturity of the fixed income
portion of the portfolio will ordinarily be greater than five years.
Multi-Asset-Class Portfolio - seeks to achieve above-average total return over a
market cycle of three to five years, consistent with reasonable risk, by
investing primarily in a diversified portfolio of Equity Securities, Corporates,
Mortgage Securities and other Fixed-Income Securities of United States and
foreign issuers and Derivatives. The asset mix will be actively managed by the
Adviser.
Balanced Investing and the Balanced Investment Program - MAS offers a
balanced investing option allowing clients to combine investments in two or
more portfolios of the Fund. Clients can authorize MAS to manage the mix of
assets among the portfolios according to their individual objectives and
specifications. If client objectives are consistent with active management of
investments in the Equity and Special Purpose Fixed Income Portfolios around a
60/40 asset mix, the account will be managed in the same manner as the
Adviser's fully-discretionary, Balanced Investment Program. When client
objectives require use of different portfolios, a different neutral asset mix
or specific limitations, a balanced program can be managed according to those
specifications.
SELECT EQUITY PORTFOLIO (Not currently offered to new investors)
The Select Equity Portfolio has the same investment objective as the Equity
Portfolio with the investment restriction that it not invest in companies listed
as of August 31, 1993 by the Investor Responsibility Research Center as having
direct investment or employees in South Africa. The Portfolio is not currently
accepting new investors.
RISK FACTORS: Prospective investors in the Fund should consider the following
factors as they apply to each Portfolio's allowable investments and policies.
See the Prospectus Glossary for more information on terms in bold type:
o Each portfolio may invest in Repurchase Agreements, which entail a risk of
loss should the seller default in its obligation to repurchase the security
which is the subject of the transaction;
o Each portfolio may participate in a Securities Lending program which entails a
risk of loss should a borrower fail financially;
o Fixed-Income Securities will be affected by general changes in interest rates
resulting in increases or decreases in the value of the obligations held by a
portfolio. The value of fixed-income securities can be expected to vary
inversely to changes in prevailing interest rates, i.e., as interest rates
decline, market value tends to increase and vice versa;
8
<PAGE>
o Securities purchased on a When-Issued basis may decline or appreciate in
market value prior to their actual delivery to the portfolio;
o Each portfolio (except the Cash Reserves Portfolio) may invest a portion of
its assets in Derivatives including Futures & Options. Futures contracts,
options and options on futures contracts entail certain costs and risks,
including imperfect correlation between the value of the securities held by
the portfolio and the value of the particular derivative instrument, and the
risk that a portfolio could not close out a futures or options position when
it would be most advantageous to do so;
o Investments in floating rate securities (Floaters) and inverse floating rate
securities (Inverse Floaters) and mortgage-related securities (Mortgage
Securities), including principal-only and interest-only Stripped
Mortgage-Backed Securities (SMBS), may be highly sensitive to interest rate
changes, and highly sensitive to the rate of principal payments (including
prepayments on underlying mortgage assets);
o From time to time Congress has considered proposals to restrict or eliminate
the tax-exempt status of Municipals. If such proposals were enacted in the
future, the Municipal Portfolio and the PA Municipal Portfolio would
reconsider their investment objectives and policies;
o Investments in securities rated below investment grade, generally referred to
as High Yield, high risk or junk bonds, carry a high degree of credit risk and
are considered speculative by the major rating agencies;
o Investments in foreign securities involve certain special considerations which
are not typically associated with investing in U.S. companies. See Foreign
Investing. The portfolios investing in foreign securities may also engage in
foreign currency exchange transactions. See Forwards, Futures & Options, and
Swaps; and,
o The Emerging Markets, Global Fixed Income, and International Fixed Income
Portfolios are Non-Diversified for purposes of the Investment Company Act of
1940, as amended, meaning that they may invest a greater percentage of assets
in the securities of one issuer than the other portfolios.
HOW TO INVEST: Investment Class Shares of each portfolio are offered to
investors through Shareholder Organizations who have a contractual agreement
with the Fund's distributor, including institutions such as trusts, foundations
or broker-dealers purchasing for the accounts of others. Shares are offered
without a sales commission at the net asset value of the portfolio next
determined after receipt of an order by the Fund. Share purchases may be made
through the Shareholder Organization, subject to the procedures and policies of
each such Organization. The Fund also offers Institutional and MAS Class Shares
which differ from the Investment Class Shares in expenses charged and purchase
requirements. Further information relating to the other classes may be obtained
by calling 800-354-8185.
HOW TO REDEEM: Shares of each portfolio may be redeemed at any time at the net
asset value of the portfolio next determined after receipt of the redemption
request. The redemption price may be more or less than the purchase price,
except ordinarily in the case of the Cash Reserves Portfolio which seeks to
maintain, but does not guarantee, a constant net asset value per share of $1.00.
See Redemption of Shares and Shareholder Services.
9
<PAGE>
THE FUND'S INVESTMENT ADVISER: Miller Anderson & Sherrerd, LLP (the "Adviser" or
"MAS") is a Pennsylvania limited liability partnership founded in 1969 and is
located at One Tower Bridge, West Conshohocken, PA 19428. The Adviser is an
Equal Opportunity/Affirmative Action Employer. The Adviser provides investment
counseling services to employee benefit plans, endowments, foundations and other
institutional investors, and as of the date of this Prospectus had in excess of
$33 billion in assets under management.
THE FUND'S DISTRIBUTOR: MAS Fund Distribution, Inc. (the "Distributor") provides
distribution services to the Fund.
10
<PAGE>
ADMINISTRATIVE SERVICES: The Adviser provides the Fund directly, or through
third parties, with fund administration services. Chase Global Funds Services
Company, a subsidiary of The Chase Manhattan Bank, N.A., serves as Transfer
Agent to the Fund. See Administrative Services.
[INSERT FINANCIAL HIGHLIGHTS]
Selected per share data and ratios for a share outstanding throughout each
period.
The following information should be read in conjunction with the Fund's
financial statements which are included in the Annual Report to Shareholders and
incorporated by reference in the Statement of Additional Information. The Fund's
financial statements for the year ended September 30, 1995 have been examined by
Price Waterhouse LLP whose opinion thereon (which was unqualified) is also
incorporated by reference in the Statement of Additional Information
YIELD AND TOTAL RETURN:
From time to time each portfolio of the Fund advertises
its yield and total return. Both yield and total return figures are based on
historical earnings and are not intended to indicate future performance. The
average annual total return reflects changes in the price of a portfolio's
shares and assumes that any income dividends and/or capital gain distributions
made by the portfolio during the period were reinvested in additional shares of
the portfolio. Figures will be given for one-, five- and ten-year periods ending
with the most recent calendar quarter-end (if applicable), and may be given for
other periods as well (such as from commencement of the portfolio's operations).
When considering average total return figures for periods longer than one year,
it is important to note that a portfolio's annual total return for any one year
in the period might have been greater or less than the average for the entire
period.
In addition to average annual total return, a portfolio may also quote an
aggregate total return for various periods representing the cumulative change in
value of an investment in a portfolio for a specific period. Aggregate total
returns may be shown by means of schedules, charts or graphs and may include
subtotals of the various components of total return (e.g., income dividends or
returns for specific types of securities such as industry or country types).
The yield of a portfolio (other than the Cash Reserves Portfolio) is computed by
dividing the net investment income per share (using the average number of shares
entitled to receive dividends) earned during the 30-day period stated in the
advertisement by the closing price per share on the last day of the
11
<PAGE>
period. For the purpose of determining net investment income, the calculation
includes as expenses of the portfolio all recurring fees and any non recurring
charges for the period stated. The yield formula provides for semiannual
compounding, which assumes that net investment income is earned and reinvested
at a constant rate and annualized at the end of a six-month period. Methods used
to calculate advertised yields are standardized for all stock and bond mutual
funds. However, these methods differ from the accounting methods used by the
portfolio to maintain its books and records, and so the advertised 30-day yield
may not reflect the income paid to your own account or the yield reported in the
portfolio's reports to shareholders.
The Municipal and PA Municipal Portfolios may also advertise or quote
tax-equivalent yields. A tax-equivalent yield shows the level of taxable yield
needed to produce an after-tax equivalent to the portfolio's tax-free yield.
This is done by increasing the portfolio's yield (computed as above) by the
amount necessary to reflect the payment of Federal income tax (and Pennsylvania
income tax, in the case of the PA Municipal Portfolio) at a tax rate stated in
the advertisement or quote.
From time to time the Cash Reserves Portfolio may advertise or quote its yield
and effective yield. The yield of the Cash Reserves Portfolio refers to the
income generated by an investment in the portfolio over a stated seven day
period. This income is then annualized. That is, the amount of income generated
by the investment during that week is assumed to be generated each week over a
52-week period and is shown as a percentage of the investment. The effective
yield is calculated similarly, but the income earned over the seven day period
by an investment in the portfolio is assumed to be reinvested when the return is
annualized. The "effective yield" will be higher than the yield because of the
compounding effect of this assumed reinvestment.
The performance of a portfolio may be compared to data prepared by independent
services which monitor the performance of investment companies, data reported in
financial and industry publications, returns of other investment advisers and
mutual funds, and various indices as further described in the Statement of
Additional Information.
The performance of Institutional Class Shares, MAS Class Shares and Investment
Class Shares will differ because of the shareholder servicing fees charged to
MAS Class Shares and distribution and shareholder servicing fees charged to
Investment Class Shares.
The Annual Report to Shareholders of the Fund for the Fund's most recent fiscal
year-end contains additional performance information that includes comparisons
with appropriate indices. The Annual Report is available without charge upon
request by writing to the Fund or calling the Client Services Group at the
telephone number shown on the front cover of this Prospectus.
GENERAL INFORMATION:
The following information relates to each portfolio of the Fund and should be
read in conjunction with the specific information about each portfolio.
Objectives: Each portfolio seeks to achieve its investment objective relative to
the universe of securities in which it is authorized to invest and, accordingly,
the total return or current income achieved by a portfolio may not be as great
as that achieved by another portfolio that can invest in a broader range of
securities. Fixed-Income Portfolios will seek to produce total return by
actively trading portfolio securities. The objective of each portfolio is
fundamental and may only be changed with approval of holders of a majority of
the shares of each portfolio.
The achievement of any portfolio's objective cannot be assured.
12
<PAGE>
Suitability: The Fund's portfolios are designed for long-term investors who can
accept the risks entailed in investing in the stock and bond markets, and are
not meant to provide a vehicle for playing short-term swings in the market. The
Fund's portfolios are designed principally for the investments of tax-exempt
fiduciary investors who are entrusted with the responsibility of investing
assets held for the benefit of others. Since such investors are not subject to
Federal income taxes, securities transactions for all portfolios except the
Municipal and PA Municipal Portfolios will not be influenced by the different
tax treatment of long-term capital gains, short-term capital gains, and dividend
income under the Internal Revenue Code. Investments in the Municipal and PA
Municipal Portfolios are suitable for taxable investors who would benefit from
the portfolios' tax-exempt income.
Securities Lending: Each portfolio may lend its securities to qualified
brokers, dealer, banks and other financial institutions for the purpose of
realizing additional income. Loans of securities will be collateralized by cash,
letters of credit, or securities issued or guaranteed by the U.S. Government or
its agencies. The collateral will equal at least 100% of the current market
value of the loaned securities. In addition, a portfolio will not loan its
portfolio securities to the extent that greater than one-third of its total
assets, at fair market value, would be committed to loans at that time.
Illiquid Securities/Restricted Securities: Each of the portfolios may and invest
up to 15% of its net assets (except the Cash Reserves Portfolio which may invest
up to 10% of its net assets) in securities that are illiquid by virtue of the
absence of a readily available market, or because of legal or contractual
restrictions on resale. This policy does not limit the acquisition of (i)
restricted securities eligible for resale to qualified institutional buyers
pursuant to Rule 144A under the Securities Act of 1933 or (ii) commercial paper
issued pursuant to Section 4(2) under the Securities Act of 1933, that are
determined to be liquid in accordance with guidelines established by the Fund's
Board of Trustees.
Turnover: The Adviser manages the portfolios generally without regard to
restrictions on portfolio Turnover, except those imposed by provisions of the
federal tax laws regarding short-term trading. In general, the portfolios will
not trade for short-term profits, but when circumstances warrant, investments
may be sold without regard to the length of time held.
High rates of portfolio turnover necessarily result in correspondingly heavier
brokerage and portfolio trading costs which are paid by a portfolio. Trading in
Fixed-Income Securities does not generally involve the payment of brokerage
commissions, but does involve indirect transaction costs. In addition to
portfolio trading costs, higher rates of portfolio turnover may result in the
realization of capital gains. To the extent net short-term capital gains are
realized, any distributions resulting from such gains are considered ordinary
income for federal income tax purposes.
13
<PAGE>
Cash Equivalents/Temporary Defensive Investing: Although each portfolio intends
to remain substantially fully invested, a small percentage of a portfolio's
assets are generally held in the form of Cash Equivalents in order to meet
redemption requests and otherwise manage the daily affairs of each portfolio.
Any portfolio may, when the Adviser deems that market conditions are such that a
temporary defensive approach is desirable, invest in cash equivalents or the
Fixed-Income Securities listed for that portfolio without limit.
Concentration: Concentration is defined as investment of 25% or more of a
portfolio's total assets in the securities of issuers operating in any one
industry. Except as provided in a portfolio's specific investment policies, a
portfolio will not concentrate investments in any one industry.
Select Equity Portfolio: The Select Equity Portfolio has the same investment
objective as the Equity Portfolio with the investment restriction that it will
not invest in companies listed as of August 31, 1993 by the Investor
Responsibility Research Center as having any direct investment or employees in
South Africa. The Select Equity Portfolio is not currently accepting new
investors. The Investor Responsibility Research Center (IRRC) is an independent,
not-for-profit corporation that conducts research and publishes impartial
reports on contemporary social and public policy issues and the impact of those
issues on major corporations and institutional investors. In May 1986 the IRRC's
South Africa Review Section first published a comprehensive directory of U.S.
and Canadian companies which do business in South Africa.
Investment Limitations: Each portfolio is subject to certain limitations
designed to reduce its exposure to specific situations. Some of these
limitations are:
(a) with respect to 75% of its assets, a portfolio will not purchase securities
of any issuer if, as a result, more than 5% of the portfolio's total assets
taken at market value would be invested in the securities of any single issuer
except that this restriction does not apply to securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities. This limitation is
not applicable to the Global Fixed Income, International Fixed Income and
Emerging Markets Portfolios. However, these portfolios will comply with the
diversification requirements imposed by Sub-Chapter M of the Internal Revenue
Code;
(b) with respect to 75% of its assets, a Portfolio will not purchase a security
if, as a result, the portfolio would hold more than 10% of the outstanding
voting securities of any issuer. This limitation is not applicable to the Global
Fixed Income, International Fixed Income and Emerging Markets Portfolios.
However, these portfolios will comply with the diversification requirements
imposed by Sub-Chapter M of the Internal Revenue Code;
(c) a portfolio will not invest more than 5% of its total assets in the
securities of issuers (other than securities issued or guaranteed by U.S. or
foreign governments or political subdivisions thereof) which have (with
predecessors) a record of less than three years of continuous operation;
(d) a portfolio will not acquire any securities of companies within one
industry, if, as a result of such acquisition, more than 25% of the value of the
portfolio's total assets would be invested in securities of companies within
such industry; provided, however, that (1) there shall be no limitation on the
purchase of obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities; (2) the Cash Reserves Portfolio may invest
without limitation in certificates of deposit or bankers' acceptances of
domestic banks; (3) utility companies will be divided according to their
services, for example, gas, gas transmission, electric and telephone will each
be considered a separate industry; (4) financial service companies will be
classified according to the end users of their services, for example, automobile
finance, bank finance and diversified finance will each be considered a separate
industry; (5) asset-backed securities will be classified according to the
underlying assets securing such securities, and (6) the Mortgage-Backed
Securities Portfolio will concentrate in mortgage-backed securities.
14
<PAGE>
(e) a portfolio will not make loans except (i) by purchasing debt securities in
accordance with its investment objectives and policies, or entering into
Repurchase Agreements, (ii) by lending its portfolio securities and (iii) by
lending portfolio assets to other portfolios of the Fund, so long as such loans
are not inconsistent with the Investment Company Act of 1940, as amended or the
Rules and Regulations, or interpretations or orders of the Securities and
Exchange Commission thereunder;
(f) a portfolio will not borrow money, except (i) as a temporary measure for
extraordinary or emergency purposes or (ii) in connection with reverse
repurchase agreements provided that (i) and (ii) in combination do not exceed 33
1/3% of the portfolio's total assets (including the amount borrowed) less
liabilities (exclusive of borrowings);
(g) a portfolio will not pledge, mortgage, or hypothecate any of its assets to
an extent greater than 50% of its total assets at fair market value; and
(h) a portfolio will not invest its assets in securities of any investment
company, except by purchase in the open market involving only customary brokers'
commissions or in connection with mergers, acquisitions of assets or
consolidations and except as may otherwise be permitted by the Investment
Company Act of 1940, as amended.
Limitations (a), (b), (d), (e) and (f), and certain other limitations described
in the Statement of Additional Information are fundamental and may be changed
only with the approval of the holders of a majority of the shares of each
portfolio. The other investment limitations described here and in the Statement
of Additional Information are not fundamental policies meaning that the Board of
Trustees may change them without shareholder approval. If a percentage
limitation on investment or utilization of assets as set forth above is adhered
to at the time an investment is made, a later change in percentage resulting
from changes in the value or total cost of the portfolio's assets will not be
considered a violation of the restriction, and the sale of securities will not
be required.
Emerging Markets Portfolio - (a non-diversified portfolio)
Objective: To achieve long-term capital growth by investing primarily in
common stocks of emerging markets issuers.
Approach: The Adviser evaluates both short-term and long-term
international economic trends and relative attractiveness of
emerging markets and individual emerging market securities.
Policies: Generally at least 65% invested in Equity Securities
of Emerging Markets Issuers
Derivatives may be used to pursue portfolio strategy
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Allowable Investments: Emerging Markets Issuers Foreign Equities ADRs Eastern European Issuers
Investment Funds Foreign Currency Forwards Cash Equivalents
Repurchase Agreements Common Stocks Preferred Stock Convertibles
U.S. Governments Zero Coupons Agencies Corporates
High Yield Foreign Bonds Futures & Options Swaps
Investment Companies When Issued Rights Warrants
Brady Bonds Loan Participations Structured Investments
Structured Notes
15
<PAGE>
Comparative Index: MSCI Emerging Markets Free Index
Strategies: Emerging Markets Investing
Foreign Investing
Non-Diversified Status
</TABLE>
Equity Portfolio
Objective: To achieve above-average total return over a market cycle
of three to five years, consistent with reasonable risk,
by investing primarily in dividend-paying common stocks
of companies which are deemed by the Adviser to
demonstrate long-term earnings growth that is greater
than the economy in general and greater than the expected
rate of inflation.
Approach: The Adviser evaluates both short-term and long-term
economic trends and their impact on corporate profits and
the relative value offered by different sectors and
securities within the equity markets. Individual
securities are selected based on fundamental business and
financial factors (such as earnings growth, financial
position, price volatility, and dividend payment records)
and the measurement of those factors relative to the
current market price of the security.
Policies: Generally at least 65% invested in Equity Securities
Up to 5% invested in Foreign Equities (excluding ADRs)
Derivatives may be used to pursue portfolio strategy
Capitalization Range: Generally greater than $1 billion
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Allowable Investments: Common Stock Preferred Stock Convertibles ADRs
Cash Equivalents Repurchase Agreements Foreign Equities Rights
Warrants Futures & Options Swaps Foreign Currency
Forwards U.S. Governments Zero Coupons Agencies
Corporates Foreign Bonds Investment Companies When Issued
Comparative Index: S&P 500 Index
Strategies: Core Equity Investing
</TABLE>
Growth Portfolio
Objective: To achieve long-term capital growth by investing
primarily in common stocks of large size companies which
the Adviser believes offer long-term growth potential.
Approach: The Adviser selects common stocks which meet certain
criteria which the Adviser believes are related to the
stability and growth of the fundamental characteristics
of the company.
Policies: Generally at least 65% invested in Equity Securities of
companies offering long-term growth potential
Up to 5% invested in Foreign Equities (excluding ADRs)
Derivatives may be used to pursue portfolio strategy
Capitalization Range: Generally greater than $1 billion
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Allowable Investments: Common Stock Preferred Stock Convertibles ADRs
Cash Equivalents Repurchase Agreements Foreign Equities Rights
Warrants Futures & Options Swaps Foreign Currency
Forwards U.S. Governments Zero Coupons Agencies
Corporates Foreign Bonds Investment Companies When Issued
Comparative Index: S&P 500 Index
Strategy: Growth Stock Investing
</TABLE>
16
<PAGE>
International Equity Portfolio
Objective: To achieve above-average total return over a market cycle
of three to five years, consistent with reasonable risk,
by investing in common stocks of companies based outside
of the United States.
Approach: The Adviser evaluates both short-term and long-term
international economic trends and the relative
attractiveness of non-U.S. equity markets and individual
securities.
Policies: Generally at least 65% invested in Foreign Equities of
issuers in at least 3 countries other than the U.S.
Derivatives may be used to pursue portfolio strategy
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Allowable Foreign Equities ADRs Emerging Markets Issuers Eastern European Issuers
Investments: Investment Funds Foreign Currency Forwards Cash Equivalents
Repurchase Agreements Common Stock Preferred Stock Convertibles
U.S. Governments Zero Coupons Agencies Corporates
Foreign Bonds Futures & Options Swaps Investment Companies
When Issued Rights Warrants Brady Bonds
Loan Participations Structured Investments
Structured Notes
Comparative
Index: MSCI World Ex-U.S. Index
Strategies: International Equity Investing
Emerging Markets Investing
Foreign Investing
</TABLE>
17
<PAGE>
Mid Cap Growth Portfolio
Objective: To achieve long-term capital growth by investing
primarily in common stocks of smaller and medium size
companies which are deemed by the Adviser to offer
long-term growth potential. Due to its emphasis on
long-term capital growth, dividend income will be lower
than for the Equity and Value Portfolios.
Approach: MAS screens a universe of about 900 companies to find a
relatively small number of high quality companies that it
believes have passed the earliest and riskiest stages of
growth. MAS selects individual stocks by fundamental
business and financial factors relative to the current
market price. The fund will purchase shares of companies
that MAS believes are capable of sustaining short-term
and long-term earnings growth and that are capable of
producing positive earnings surprises relative to
consensus earnings estimates.
Policies: Generally at least 65% invested in Equity Securities of
mid-cap companies offering long-term growth potential
Up to 5% invested in Foreign Equities (excluding ADRs)
Derivatives may be used to pursue portfolio strategy
Capitalization Range: Generally $300 million to $3 billion
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Allowable Investments: Common Stock Preferred Stock Convertibles ADRs
Cash Equivalents Repurchase Agreements Foreign Equities Rights
Warrants Futures & Options Swaps Foreign Currency
Forwards U.S. Governments Zero Coupons Agencies
Corporates Foreign Bonds Investment Companies When Issued
Comparative Index: S&P MidCap 400 Index
Strategies: Growth Stock Investing
</TABLE>
18
<PAGE>
Mid Cap Value Portfolio
Objective: To achieve above-average total return over a market cycle of
three to five years, consistent with reasonable risk, by
investing in common stocks with equity capitalizations in the
range of the companies represented in the S&P MidCap 400 Index
which are deemed by the Adviser to be relatively undervalued
based on certain proprietary measures of value. The Portfolio
will typically exhibit a lower price/earnings value ratio than
the S&P MidCap 400 Index.
Approach: The Adviser selects common stocks which are deemed to be
undervalued at the time of purchase, based on proprietary
measures of value. The Portfolio will be structured taking
into account the economic sector weights of the S&P MidCap 400
Index, with sector weights normally being within 5% of the
sector weights of the Index.
Policies: Generally at least 65% invested in Equity Securities of
mid-cap companies deemed to be undervalued
Up to 5% invested in Foreign Equities (excluding ADRs)
Derivatives may be used to pursue portfolio strategy
Capitalization
Range: Generally matching the S&P MidCap 400 Index (currently $500
million to $3 billion)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Allowable Common Stock Preferred Stock Convertibles ADRs
Investments: Cash Equivalents Repurchase Agreements Foreign Equities Rights
Warrants Futures & Options Swaps Foreign Currency
Forwards U.S. Governments Zero Coupons Agencies
Corporates Foreign Bonds Investment Companies When Issued
Comparative
Index: S&P MidCap 400 Index
Strategies: Value Stock Investing
</TABLE>
Small Cap Value Portfolio (not currently being offered to new investors)
Objective: To achieve above-average total return over a market cycle
of three to five years, consistent with reasonable risk,
by investing in common stocks with equity capitalizations
in the range of the companies represented in the Russell
2000 Small Stock Index which are deemed by the Adviser to
be relatively undervalued based on certain proprietary
measures of value. The Portfolio will typically exhibit
lower price/earnings and price/book value ratios than the
Russell 2000. Dividend income will typically be lower
than for the Equity and Value Portfolios.
Approach: The Adviser selects common stocks which are deemed to be
undervalued at the time of purchase, based on proprietary
measures of value. The Portfolio will be structured
taking into account the economic sector weights of the
Russell 2000 Index, with the portfolio's sector weights
normally being within 5% of the sector weights for the
Index.
19
<PAGE>
Policies: Generally at least 65% invested in Equity Securities of
small-cap companies deemed to be undervalued
Up to 5% invested in Foreign Equities (excluding ADRs)
Derivatives may be used to pursue portfolio strategy
Capitalization Range: Generally matching the Russell 2000 size distribution
(currently $50 million to $800 million)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Allowable Investments: Common Stock Preferred Stock Convertibles ADRs
Cash Equivalents Repurchase Agreements Foreign Equities Rights
Warrants Futures & Options Swaps Foreign Currency
Forwards U.S. Governments Zero Coupons Agencies
Corporates Foreign Bonds Investment Companies When Issued
Comparative Index: Russell 2000 Index
Strategies: Value Stock Investing
</TABLE>
Value Portfolio
Objective: To achieve above-average total return over a market cycle
of three to five years, consistent with reasonable risk,
by investing in common stocks with equity capitalizations
usually greater than $300 million which are deemed by the
Adviser to be relatively undervalued, based on various
measures such as price/earnings ratios and price/book
ratios. While capital return will be emphasized somewhat
more than income return, the Portfolio's total return
will consist of both capital and income returns. It is
expected that income return will be higher than that of
the Equity Portfolio because stocks which are deemed to
be undervalued in the marketplace have, under most market
conditions, provided higher dividend income returns than
stocks which are deemed to have long-term earnings growth
potential which normally sell at higher price/earnings
ratios.
Approach: The Adviser selects common stocks which are deemed to be
undervalued relative to the stock market in general as
measured by the Standard & Poor's 500 Index, based on the
value measures such as price/earnings ratios and
price/book ratios, as well as fundamental research.
Policies: Generally at least 65% invested in Equity Securities
deemed to be undervalued
Up to 5% invested in Foreign Equities (excluding ADRs)
Derivatives may be used to pursue portfolio strategy
Capitalization Range: Generally greater than $300 million
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Allowable Investments: Common Stock Preferred Stock Convertibles ADRs
Cash Equivalents Repurchase Agreements Foreign Equities Rights
Warrants Futures & Options Swaps Foreign Currency
Forwards U.S. Governments Zero Coupons Agencies
Corporates Foreign Bonds Investment Companies When Issued
Comparative Index: S&P 500 Index
Strategy: Value Stock Investing
</TABLE>
20
<PAGE>
Cash Reserves Portfolio
Objective: To realize maximum current income, consistent with the
preservation of capital and liquidity, by investing in
money market instruments and other short-term securities
having expected maturities of thirteen months or less.
The Portfolio's average weighted maturity will not
exceed 90 days. The securities in which the Portfolio
will invest may not yield as high a level of current
income as securities of lower quality or longer
maturities which generally have less liquidity, greater
market risk and more price fluctuation. The Portfolio is
designed to provide maximum principal stability for
investors seeking to invest funds for the short term,
or, for investors seeking to combine a long-term
investment program in other portfolios of the Fund with
an investment in money market instruments. The Portfolio
seeks to maintain, but there can be no assurance that it
will be able to maintain, a constant net asset value of
$1.00 per share.
Approach: The Adviser selects a diversified portfolio of money
market securities of government and corporate issuers,
any of which may be variable or floating rate, and which
have remaining maturities of thirteen months or less
from the date of purchase. For the purpose of
determining remaining maturity on Floaters, demand
features and interest reset dates will be taken into
consideration.
Policies: The Portfolio seeks to maintain, but there can be no
assurance that it will be able to maintain, a constant
net asset value of $1.00 per share.
Quality Specifications: 100% of Commercial Paper Rated in Top Tier
Maturity and Duration: Dollar weighted average maturity less than 90 days
Individual maturities 13 months or less
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Allowable Investments: Cash Equivalents Repurchase Agreements U.S. Governments Zero Coupons
Corporates Agencies Asset-Backeds Floaters
Comparative Index: Lipper Money Market Index
Strategy: Money Market Investing
</TABLE>
21
<PAGE>
Domestic Fixed Income Portfolio
Objective: To achieve above-average total return over a market
cycle of three to five years, consistent with reasonable
risk, by investing in a diversified portfolio of U.S.
Government securities, corporate bonds rated A or
higher, and other fixed-income securities rated A or
higher of domestic issuers. The Portfolio's average
weighted maturity will ordinarily be greater than five
years.
Approach: The Adviser actively manages the maturity and duration
structure of the portfolio in anticipation of long-term
trends in interest rates and inflation. Investments are
diversified among a wide variety of U.S. Fixed-Income
Securities (rated as A or higher at the time of
purchase) in all market sectors.
Policies: Generally at least 65% invested in Fixed-Income
Securities
100% invested in domestic issuers
May invest greater than 50% in Mortgage Securities
Derivatives may be used to pursue portfolio strategy
Quality Specifications: 100% of securities rated A or higher
Maturity and Duration: Average weighted maturity generally greater than 5 years
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Allowable Investments: U.S. Governments Zero Coupons Agencies Corporates
Mortgage Securities SMBS CMOs Asset-Backeds
When Issued Convertibles Floaters Inverse Floaters
Structured Notes Futures & Options Swaps Cash Equivalents
Repurchase Agreements Municipals Preferred Stock Investment Companies
Comparative Index: Salomon Broad Investment Grade
Lehman Brothers Aggregate
Strategies: Maturity and Duration Management
Value Investing
Mortgage Investing
</TABLE>
22
<PAGE>
Fixed Income Portfolio
Objective: To achieve above-average total return over a market
cycle of three to five years, consistent with reasonable
risk, by investing in a diversified portfolio of U.S.
Government securities, corporate bonds (including bonds
rated below investment grade, commonly referred to as
junk bonds), foreign fixed-income securities and
mortgage-backed securities of domestic issuers and other
fixed-income securities. The Portfolio's average
weighted maturity will ordinarily be greater than five
years.
Approach: The Adviser actively manages the maturity and duration
structure of the Portfolio in anticipation of long-term
trends in interest rates and inflation. Investments are
diversified among a wide variety of Fixed-Income
Securities in all market sectors.
Policies: Generally at least 65% invested in Fixed-Income
Securities
May invest greater than 50% in Mortgage Securities
Derivatives may be used to pursue portfolio strategy
Quality Specifications: 80% Investment Grade Securities
Up to 20% High Yield
Maturity and Duration: Average weighted maturity generally greater than 5 years
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Allowable Investments: U.S. Governments Zero Coupons Agencies Corporates
High Yield Mortgage Securities SMBS CMOs
Asset-Backeds When Issued Convertibles Foreign Bonds
Brady Bonds Foreign Currency Forwards Floaters
Inverse Floaters Structured Notes Futures & Options Swaps
Cash Equivalents Repurchase Agreements Municipals Preferred Stock
Investment Companies Loan Participations
Comparative Index: Salomon Broad Investment Grade
Lehman Brothers Aggregate
Strategies: Maturity and Duration Management
Value Investing
Mortgage Investing
High Yield Investing
Foreign Fixed Income Investing
Foreign Investing
</TABLE>
23
<PAGE>
Fixed Income Portfolio II
Objective: To achieve above-average total return over a market
cycle of three to five years, consistent with reasonable
risk, by investing in a diversified portfolio of U.S.
Government securities, investment grade corporate bonds
and other fixed-income securities (rated A or higher).
The Portfolio's average weighted maturity will
ordinarily be greater than five years.
Approach: The Adviser actively manages the maturity and duration
structure of the portfolio in anticipation of long-term
trends in interest rates and inflation. Investments are
diversified among a wide variety of Fixed-Income
Securities in all market sectors which are rated A or
higher at the time of purchase.
Policies: Generally at least 65% invested in Fixed-Income
Securities
May invest greater than 50% in Mortgage Securities
Derivatives may be used to pursue portfolio strategy
Quality Specifications: Individual securities rated A or higher
Maturity and Duration: Average weighted maturity generally greater than 5 years
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Allowable Investments: U.S. Governments Zero Coupons Agencies Corporates
Mortgage Securities SMBS CMOs Asset-Backeds
When Issued Convertibles Foreign Bonds Brady Bonds
Foreign Currency Forwards Floaters Inverse Floaters
Structured Notes Futures & Options Swaps Cash Equivalents
Repurchase Agreements Municipals Preferred Stock Investment Companies
Comparative Index: Salomon Broad Investment Grade
Lehman Brothers Aggregate
Strategies: Maturity and Duration Management
Value Investing
Mortgage Investing
Foreign Fixed Income Investing
Foreign Investing
</TABLE>
24
<PAGE>
Global Fixed Income Portfolio - (a non-diversified portfolio)
Objective: To achieve above-average total return over a market cycle
of three to five years, consistent with reasonable risk,
by investing in high grade fixed-income securities of
United States and foreign issuers. Total return is the
combination of income and changes in value. The
Portfolio's average weighted maturity will ordinarily be
greater than five years.
Approach: The Adviser manages the duration, country, and currency
exposure of the Portfolio by combining fundamental
research on relative values with analyses of economic,
interest-rate, and exchange-rate trends. MAS will invest
in mortgage and corporate bonds when it believes they
offer the most value, although most foreign currency
denominated investments are in government and
supranational securities.
Policies: Generally at least 65% invested in Fixed-Income
Securities of issuers in at least 3 countries, one of
which may be the U.S.
Derivatives may be used to represent country investments,
and otherwise pursue portfolio strategy
Quality
Specifications: 95% Investment Grade Securities
Maturity and
Duration: Average weighted maturity generally greater than 5 years
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Allowable Foreign Bonds Foreign Currency Forwards U.S. Governments
Investments: Zero Coupons Agencies Corporates Mortgage Securities
CMOs SMBS Asset-Backeds Floaters
Futures & Options Swaps Cash Equivalents Emerging Markets Issuers
Eastern European Issuers Convertibles When Issued Brady Bonds
Inverse Floaters Structured Notes Repurchase Agreements Municipals
Preferred Stock Investment Companies
Comparative
Index: Salomon World Government Bond Index
Strategies: Foreign Fixed Income Investing
Maturity and Duration Management
Value Investing
Foreign Investing
Non-Diversified Status
Emerging Markets Investing
Mortgage Investing
</TABLE>
25
<PAGE>
High Yield Portfolio
Objective: To achieve above-average total return over a market cycle of
three to five years, consistent with reasonable risk, by
investing in high yielding corporate fixed-income securities
(including bonds rated below investment grade, commonly referred
to as junk bonds). The Portfolio may also invest in U.S.
Government securities, mortgage-backed securities, investment
grade corporate bonds and in short-term fixed-income securities,
such as certificates of deposit, treasury bills, and commercial
paper. The Portfolio expects to achieve its objective through
maximizing current income, although the Portfolio may seek
capital growth opportunities when consistent with its objective.
The Portfolio's average weighted maturity will ordinarily be
greater than five years.
Approach: The Adviser uses equity and fixed-income valuation techniques
and analyses of economic and industry trends to determine
portfolio structure. Individual securities are selected, and
monitored, by fixed-income portfolio managers who specialize in
corporate bonds and use in-depth financial analysis to uncover
opportunities in undervalued issues.
Policies: Generally at least 65% invested in High Yield (including bonds
rated below investment grade, commonly referred to as junk
bonds)
Derivatives may be used to pursue portfolio strategy
Quality
Specifications: None
Maturity and
Duration: Average weighted maturity generally greater than 5 years
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Allowable High Yield Corporates U.S. Governments Zero Coupons
Investments: Agencies Mortgage Securities SMBS CMOs
Asset-Backeds When Issued Convertibles Foreign Bonds
Brady Bonds Foreign Currency Forwards Floaters
Inverse Floaters Structured Notes Futures & Options Swaps
Cash Equivalents Repurchase Agreements Municipals Preferred Stock
Investment Companies Loan Participations Eastern European Issuers Emerging Markets Issuers
Foreign Equities
Comparative
Index: Salomon High Yield Index
Strategies: High Yield Investing
Maturity and Duration Management
Value Investing
Mortgage Investing
Foreign Fixed Income Investing
Foreign Investing
Emerging Markets Investing
</TABLE>
26
<PAGE>
Intermediate Duration Portfolio
Objective: To achieve above-average total return over a market
cycle of three to five years, consistent with reasonable
risk, by investing in a diversified portfolio of U.S.
Government securities and investment grade corporate,
foreign and other investment grade fixed-income
securities. The Portfolio will maintain an average
duration of between two and five years.
Approach: The Adviser constructs a portfolio with a duration
between two and five years by actively managing the
maturity and duration structure of the portfolio in
anticipation of long-term trends in interest rates and
inflation. Investments are diversified among a wide
variety of investment grade Fixed-Income Securities in
all market sectors.
Policies: Generally at least 65% invested in Fixed-Income
Securities
Derivatives may be used to pursue portfolio strategy
Quality Specifications: 100% Investment Grade Securities
Maturity and Duration: Average duration between two and five years
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Allowable Investments: U.S. Governments Zero Coupons Agencies Corporates
Mortgage Securities SMBS CMOs Asset-Backeds
When Issued Convertibles Foreign Bonds Brady Bonds
Foreign Currency Forwards Floaters Inverse Floaters
Structured Notes Futures & Options Swaps Cash Equivalents
Repurchase Agreements Municipals Preferred Stock Investment Companies
Comparative Index: Lehman Brothers Intermediate Government/Corporate Index
Strategies: Maturity and Duration Management
Value Investing
Mortgage Investing
Foreign Fixed Income Investing
Foreign Investing
</TABLE>
27
<PAGE>
International Fixed Income Portfolio - (a non-diversified portfolio)
Objective: To achieve above-average total return over a market cycle of
three to five years, consistent with reasonable risk, by
investing primarily in high-grade fixed-income securities of
foreign issuers.
Approach: The Adviser manages the duration, country, and currency
exposure of the portfolio by combining fundamental research on
relative values with analyses of economic, interest-rate, and
exchange-rate trends. MAS will invest in mortgage and
corporate bonds when it believes they offer the most value,
although most foreign currency denominated investments are in
government and supranational securities.
Policies: Generally at least 80% invested in Fixed-Income Securities of
issuers in at least 3 countries other than the U.S.
Derivatives may be used to represent country investments, and
otherwise pursue portfolio strategy
Quality
Specifications: 95% Investment Grade Securities
Maturity and
Duration: Average weighted maturity generally greater than 5 years
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Allowable Foreign Bonds Foreign Currency Forwards Floaters
Investments: Futures & Options Swaps Cash Equivalents U.S. Governments
Zero Coupons Agencies Corporates Mortgage Securities
CMOs SMBS Asset-Backeds Emerging Markets Issuers
Eastern European Issuers Convertibles When Issued Brady Bonds
Inverse Floaters Structured Notes Repurchase Agreements Municipals
Preferred Stock Investment Companies
Comparative
Index: Salomon World Government Bond Index Except U.S.
Strategies: Foreign Fixed Income Investing
Maturity and Duration Management
Value Investing
Foreign Investing
Non-Diversified Status
Emerging Markets Investing
Mortgage Investing
</TABLE>
28
<PAGE>
Limited Duration Portfolio
Objective: To achieve above-average total return over a market
cycle of three to five years, consistent with reasonable
risk, by investing in a diversified portfolio of U.S.
Government securities, investment-grade corporate bonds
and other fixed-income securities. The portfolio will
maintain an average duration of between one and three
years. Duration is a measure of the life of the
portfolio's debt securities on a present-value basis and
is indicative of a security's price volatility relative
to interest rate changes.
Approach: The Adviser manages the duration of the overall
portfolio as a more effective way to control
interest-rate risk than limiting the maturity of
individual securities within the portfolio. In this way
investors can benefit from opportunities across the
entire yield curve as well as between various market
sectors and at the same time limit the volatility of
investment returns. MAS establishes the duration target
through the use of its top-down view of the economy, the
current level of interest rates, and the shape of the
yield curve. MAS then strives to purchase the most
attractively priced portfolio that meets our duration
and investment objectives. When purchasing securities
other than U.S. Governments, MAS evaluates credit,
liquidity, and option risk. When MAS believes the
portfolio is compensated for these risks, it includes
agency, mortgage, and investment-grade corporate
securities which meet the Portfolio's quality
specifications.
Policies: Generally at least 65% invested in Fixed-Income
Securities
Derivatives may be used to pursue portfolio strategy
Quality Specifications: 100% Investment Grade Securities
Maturity and Duration: Average duration between 1 and 3 years
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Allowable Investments: U.S. Governments Zero Coupons Agencies Corporates
Mortgage Securities CMOs Asset-Backeds When Issued
Convertibles Floaters Structured Notes Futures & Options
Swaps Cash Equivalents Repurchase Agreements
Comparative Index: Salomon 1-3 Year Index
Strategies: Maturity and Duration Management
Value Investing
Mortgage Investing
</TABLE>
29
<PAGE>
Mortgage-Backed Securities Portfolio
Objective: To achieve above-average total return over a market
cycle of three to five years, consistent with reasonable
risk, by investing primarily (at least 65% of its assets
under normal circumstances) in mortgage-backed
securities. In addition, the portfolio may also invest
in U.S. government securities and in short-term
fixed-income securities such as certificates of deposit,
treasury bills, and commercial paper. The portfolio's
average weighted maturity will ordinarily be greater
than seven years.
Approach: The Adviser sets three portfolio targets: (1)
interest-rate sensitivity; (2) yield-curve sensitivity;
and (3) prepayment sensitivity. The Adviser increases
the sensitivity of the portfolio to changes in interest
rates when bonds offer greater value on the basis of
inflation- adjusted interest rates. Similarly, the
Adviser increases yield-curve sensitivity when long-
maturity interest rates offer exceptional value relative
to short-maturity interest rates. Finally, the Adviser
increases prepayment exposure when mortgage yields,
adjusted for probable prepayments, indicate unusual
value in mortgage-backed securities.
Policies: Generally at least 65% invested in Mortgage Securities
Derivatives may be used to pursue portfolio strategy
Quality Specifications: Securities not guaranteed by the U.S. Government or a
private organization will be rated Investment Grade
Securities
Maturity and Duration: Average weighted maturity generally greater than 7 years
Duration generally between 2 and 7 years
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Allowable Investments: Mortgage Securities CMOs Asset-Backeds SMBS
U.S. Governments Zero Coupons Agencies When Issued
Floaters Inverse Floaters Structured Notes Futures & Options
Cash Equivalents Repurchase Agreements Municipals Investment Companies
Swaps
Comparative Index: Lehman Mortgage Index
Strategies: Mortgage Investing
Maturity and Duration Management
Value Investing
</TABLE>
30
<PAGE>
Municipal Portfolio
Objective: To realize above-average total return over a market
cycle of three to five years, consistent with the
conservation of capital and the realization of current
income which is exempt from federal income tax, by
investing in a diversified portfolio of investment grade
and short-term municipal debt securities, other
investment grade fixed-income securities and a limited
percentage of bonds rated below investment grade
(commonly referred to as junk bonds). The portfolio's
average weighted maturity will ordinarily be between ten
and thirty years.
Approach: The Adviser varies portfolio structure--the average
duration and maturity and the amount of the portfolio
invested in various types of bonds--according to its
outlook for interest rates and its analysis of the risks
and rewards offered by different classes of bonds. The
portfolio will invest in taxable bonds only in cases
where MAS believes they improve the risk/reward profile
of the portfolio on an after-tax basis.
Policies: Generally at least 80% invested in Municipals
Derivatives may be used to pursue portfolio strategy
Quality Specifications: 80% Investment Grade Securities
Up to 20% High Yield
Maturity
and Duration: Average weighted maturity generally between 10 and
30 years
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Allowable Municipals Taxable Investments U.S. Governments Agencies
Investments: Corporates Mortgage Securities SMBS CMOs
Asset-Backeds When Issued Convertibles Floaters
Inverse Floaters Structured Notes Futures & Options Swaps
Cash Equivalents Repurchase Agreements Preferred Stock Investment Companies
High Yield Zero Coupons Foreign Bonds Forwards
Foreign Currency Brady Bonds Emerging Markets Issuers Eastern European Issuers
Comparative
Index: Lehman Long-Term Municipal Bond Index
Strategies: Municipals Management
Maturity and Duration Management
Value Investing
High Yield Investing
Mortgage Investing
</TABLE>
31
<PAGE>
PA Municipal Portfolio
Objective: To realize above-average total return over a market
cycle of three to five years, consistent with the
conservation of capital and the realization of current
income which is exempt from federal income tax and
Pennsylvania personal income tax by investing in a
diversified portfolio of investment grade and short-term
municipal debt securities, other investment grade
fixed-income securities and a limited percentage of
bonds rated below investment grade (commonly referred to
as junk bonds). The Portfolio's average weighted
maturity will ordinarily be between ten and thirty
years.
Approach: The Adviser varies portfolio structure--the average
duration and maturity and the amount of the portfolio
invested in various types of bonds--according to its
outlook for interest rates and its analysis of the risks
and rewards offered by different classes of bonds. The
portfolio will invest in federally or Pennsylvania State
taxable bonds only in cases where MAS believes they
improve the risk/reward profile of the portfolio on an
after-tax basis for Pennsylvania residents.
Policies: Generally at least 80% invested in Municipal Securities
Generally at least 65% invested in PA Municipal
Securities
Derivatives may be used to pursue portfolio strategy
Quality Specifications: 80% Investment Grade Securities
Up to 20% High Yield
Maturity and Duration: Average weighted maturity generally between 10 and
30 years
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Allowable Investments: PA Municipals Municipals Taxable Investments U.S. Governments
Agencies Corporates Mortgage Securities SMBS
CMOs Asset-Backeds When Issued Convertibles
Floaters Inverse Floaters Structured Notes Futures & Options
Swaps Cash Equivalents Repurchase Agreements Preferred Stock
Investment Companies High Yield Foreign Bonds Forwards
Foreign Currency Zero Coupons Brady Bonds Emerging Markets Issuers
Eastern European Issuers
Comparative Index: Lehman Long-Term Municipal Bond Index
Strategies: Municipals Management
Maturity and Duration Management
Value Investing
High Yield Investing
Mortgage Investing
</TABLE>
32
<PAGE>
Special Purpose Fixed Income Portfolio
Objective: To achieve above-average total return over a market
cycle of three to five years, consistent with reasonable
risk, by investing in a diversified portfolio of U.S.
Government securities, corporate bonds (including bonds
rated below investment grade, commonly referred to as
junk bonds), foreign fixed-income securities and
mortgage-backed securities and other fixed-income
securities. The portfolio is structured to complement an
investment in one or more of the Fund's equity
portfolios for investors seeking a balanced investment.
Approach: The Adviser actively manages the maturity and duration
structure of the portfolio in anticipation of long-term
trends in interest rates and inflation. Investments are
diversified among a wide variety of Fixed-Income
Securities in all market sectors. Both duration/maturity
strategy and sector allocation is determined based on
the presumption that investors are combining an
investment in the portfolio with an equity investment.
Policies: Generally at least 65% invested in Fixed-Income
Securities
May invest greater than 50% in Mortgage Securities
Derivatives may be used to pursue portfolio strategy
Quality Specifications: None
Maturity and Duration: Average weighted maturity generally greater than 5 years
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Allowable Investments: U.S. Governments Zero Coupons Agencies Corporates
High Yield Mortgage Securities SMBS CMOs
Asset-Backeds When Issued Convertibles Foreign Bonds
Brady Bonds Foreign Currency Forwards Floaters
Inverse Floaters Structured Notes Futures & Options Swaps
Cash Equivalents Repurchase Agreements Municipals Preferred Stock
Investment Companies Loan Participations
Comparative Index: Salomon Broad Investment Grade
Lehman Brothers Aggregate
Strategies: Fixed Income Management and Asset Allocation
Maturity and Duration Management
Value Investing
Mortgage Investing
High Yield Investing
Foreign Fixed Income Investing
Foreign Investing
</TABLE>
33
<PAGE>
Balanced Portfolio
Objective: To achieve above average total return over a market
cycle of three to five years, consistent with reasonable
risk, by investing in a diversified portfolio of common
stocks and fixed- income securities. When the Adviser
judges the relative outlook for the equity and fixed-
income markets to be neutral the portfolio will be
invested 60% in common stocks and 40% in fixed-income
securities. The asset mix may be changed, however, with
common stocks ordinarily representing between 45% and
75% of the total investment. The average weighted
maturity of the fixed-income portion of the portfolio
will ordinarily be greater than five years.
Approach: The Adviser's approach to balanced management is to
determine investment strategies for the equity and
fixed-income portions of the portfolio separately and
then determine the mix of those strategies expected to
maximize the return available from both the stock and
bond markets. Strategic judgments on the
equity/fixed-income asset mix are based on valuation
disciplines and tools for analysis developed by the
Adviser over its twenty-five year history of managing
balanced accounts.
Policies: Generally 45% to 75% invested in Equity Securities
Up to 25% invested in Foreign Bonds and/or Foreign
Equities
At least 25% invested in senior Fixed-Income Securities
Derivatives may be used to pursue portfolio strategy
Equity Capitalization: Generally greater than $1 billion
Quality Specifications: None
Maturity and Duration: Average weighted maturity generally greater than 5 years
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Allowable Investments: Common Stock Preferred Stock U.S. Governments Zero Coupons
Corporates High Yield Foreign Bonds Mortgage Securities
CMOs Asset-Backeds SMBS When Issued
Brady Bonds Floaters Inverse Floaters Structured Notes
Agencies Convertibles Futures & Options Swaps
Foreign Currency Forwards Cash Equivalents Repurchase Agreements
Eastern European Issuers Investment Funds Municipals Investment Companies
ADRs Foreign Equities Rights Warrants
Loan Participations
Comparative Index: A weighted blend of quarterly returns compiled by the Adviser using:
60% S&P 500 Index
40% Salomon Broad Investment Grade Index
Strategies: Asset Allocation Management
Core Equity Investing
Fixed Income Management and Asset Allocation
Maturity and Duration Management
Value Investing
Mortgage Investing
High Yield Investing
Foreign Fixed Income Investing
Foreign Investing
</TABLE>
34
<PAGE>
Multi-Asset-Class Portfolio
Objective: To achieve above average total return over a market
cycle of three to five years, consistent with reasonable
risk, by investing in a diversified portfolio of common
stocks and fixed-income securities of United States and
Foreign issuers.
Approach: The Adviser determines the mix of investments in
domestic and foreign equity and fixed-income and high
yield securities expected to maximize available total
return. Strategic judgments on the asset mix are based
on valuation disciplines and tools for analysis which
have been developed by the Adviser to compare the
relative potential returns and risks of global stock and
bond markets. Policies: Generally at least 65% invested
in issuers located in at least 3 countries, including
the U.S. Derivatives may be used to pursue portfolio
strategy Domestic Equity Capitalization: Generally
greater than $1 billion Quality Specifications: None
Maturity and Duration: Average weighted maturity
generally greater than 5 years
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Allowable Investments: Common Stock U.S. Governments Agencies
Corporates High Yield Foreign Bonds
Foreign Equities Foreign Currency
Eastern European Issuers Investment Funds Mortgage Securities CMOs
SMBS Asset-Backeds When Issued Brady Bonds
Floaters Inverse Floaters Structured Notes Zero Coupons
Futures & Options Swaps Forwards Cash Equivalents
Repurchase Agreements Convertibles Preferred Stock
Municipals Investment Companies ADRs
Rights Warrants
Loan Participations Emerging Markets Issuers Structured Investments
Comparative Index: A weighted blend of quarterly returns compiled by the Adviser using:
50% S&P 500 Index
14% EAFE-GDP Weighted Index
24% Salomon Broad Investment Grade Index
6% Salomon World Ex U.S. Government Bond Index
6% Salomon High Yield Market Index
Strategies: Asset Allocation Management
Fixed Income Management and Asset Allocation
Maturity and Duration Management
Value Investing
Foreign Fixed Income Investing
Core Equity Management
International Equity Investing
Emerging Markets Investing
High Yield Investing
Foreign Investing
</TABLE>
35
<PAGE>
PROSPECTUS GLOSSARY
CHARACTERISTICS AND RISKS OF STRATEGIES AND INVESTMENTS
STRATEGIES
Asset Allocation Management: The Adviser's approach to asset allocation
management is to determine investment strategies for each asset class in a
portfolio separately, and then determine the mix of those strategies expected to
maximize the return available from each market. Strategic judgments on the mix
among asset classes are based on valuation disciplines and tools for analysis
which have been developed over the Adviser's twenty-five year history of
managing balanced accounts.
Tactical asset-allocation shifts are based on comparisons of prospective risks,
returns, and the likely risk-reducing benefits derived from combining different
asset classes into a single portfolio. Experienced teams of equity,
fixed-income, and international investment professionals manage the investments
in each asset class.
Core Equity Investing: The Adviser's "core" or primary equity strategy
emphasizes common stocks of large companies, with targeted investments in small
company stocks that promise special growth opportunities. Depending on MAS's
outlook for the economy and different market sectors, the mix between value
stocks and growth stocks will change.
Emerging Markets Investing: The Adviser's approach to emerging markets
investing is based on the Adviser's evaluation of both short-term and long-term
international economic trends and the relative attractiveness of emerging
markets and individual emerging market securities.
As used in this Prospectus, emerging markets describes any country which is
generally considered to be an emerging or developing country by the
international financial community such as the International Bank for
Reconstruction and Development (more commonly known as the World Bank) and the
International Finance Corporation. There are currently over 130 countries which
are generally considered to be emerging or developing countries by the
international financial community, approximately 40 of which currently have
stock markets. Emerging markets can include every nation in the world except the
United States, Canada, Japan, Australia, New Zealand and most nations located in
Western Europe.
Currently, investing in many emerging markets is either not feasible or very
costly, or may involve unacceptable political risks. Other special risks include
the possible increased likelihood of expropriation or the return to power of a
communist regime which would institute policies to expropriate, nationalize or
otherwise confiscate investments. A portfolio will focus its investments on
those emerging market countries in which the Adviser believes the potential for
market appreciation outweighs these risks and/or the cost of investment.
Investing in emerging markets also involves an extra degree of custodial and/or
market risk, especially where the securities purchased are not traded on an
official exchange or where ownership records regarding the securities are
maintained by an unregulated entity (or even the issuer itself).
Fixed Income Management and Asset Allocation: Within Balanced, Multi-Asset-Class
and Special Purpose Fixed Income Portfolios, the Adviser selects fixed-income
securities not only on the basis of judgments regarding Maturity and Duration
Management and Value Investing, but also on the basis of the value offered by
various segments of the fixed-income securities market relative to Cash
Equivalents and Equity Securities. In this context, the Adviser may find that
certain segments of the fixed-income securities market offer more or less
attractive relative value when compared to Equity Securities than when compared
to other Fixed-Income Securities.
36
<PAGE>
For example, in a given interest rate environment, equity securities may be
judged to be fairly valued when compared to intermediate duration fixed-income
securities, but overvalued compared to long duration fixed-income securities.
Consequently, while a portfolio investing only in fixed-income securities may
not emphasize long duration assets to the same extent, the fixed-income portion
of a balanced investment may invest a percentage of its assets in long duration
bonds on the basis of their valuation relative to equity securities.
Foreign Fixed Income Investing: A portion of a portfolio other than the Cash
Reserve Portfolio may be invested in Foreign Bonds and other Fixed-Income
Securities denominated in foreign currencies, where, in the opinion of the
Adviser, the combination of current yield and currency value offer attractive
expected returns. When the total return opportunities in a foreign bond market
appear attractive in local currency terms, but where in the Adviser's judgment
unacceptable currency risk exists, currency Futures & Options, Forwards and
Swaps may be used to hedge the currency risk.
Foreign Investing: Investors should recognize that investing in securities
issued by foreign companies or governments involves certain special
considerations which are not typically associated with investing in U.S.
companies. Since the securities of foreign issuers may be denominated in foreign
currencies, and since a portfolio may temporarily hold uninvested reserves in
bank deposits of foreign currencies prior to reinvestment or conversion to U.S.
dollars, a portfolio may be affected favorably or unfavorably by changes in
currency rates and in exchange control regulations, and may incur costs in
connection with conversions between various currencies.
As non-U.S. companies are not generally subject to uniform accounting, auditing
and financial reporting standards and practices comparable to those applicable
to U.S. companies, there may be less publicly available information about
certain foreign companies than about U.S. companies. Securities of some non-U.S.
companies may be less liquid and more volatile than securities of comparable
U.S. companies. There is generally less government supervision and regulation of
stock exchanges, brokers and listed companies than in the U.S. With respect to
certain foreign countries, there is the possibility of expropriation or
confiscatory taxation, political or social instability, or diplomatic
developments which could affect U.S. investments in those countries.
Additionally, there may be difficulty in obtaining and enforcing judgments
against foreign issuers.
Although a portfolio will endeavor to achieve the most favorable execution costs
in its portfolio transactions in foreign securities, fixed commissions on many
foreign stock exchanges are generally higher than negotiated commissions on U.S.
exchanges. In addition, it is expected that the expenses for custodial
arrangements of a portfolio's foreign securities will be greater than the
expenses for the custodial arrangements for handling U.S. securities of equal
value. Certain foreign governments levy withholding taxes against dividend and
interest income. Although in some countries a portion of these taxes is
recoverable, the non-recovered portion of foreign withholding taxes will reduce
the income a portfolio receives from the companies comprising the portfolio's
investments.
Growth Stock Investing: Seeks to invest in Common Stocks generally characterized
by higher growth rates, betas, and price/earnings ratios, and lower yields than
the stock market in general as measured by the S&P 500 Index.
High Yield Investing: Involves investing in high yield securities based on the
Adviser's analysis of economic and industry trends and individual security
characteristics. The Adviser conducts credit analysis for each security
considered for investment to evaluate its attractiveness relative to its risk. A
high level of diversification is also maintained to limit credit exposure to
individual issuers.
To the extent a portfolio invests in high yield securities it will be exposed to
a substantial degree of credit risk. Lower-rated bonds are considered
speculative by traditional investment standards. High yield securities may be
issued as a consequence of corporate restructuring or similar events. Also, high
yield securities are often issued by smaller, less credit worthy companies, or
by highly leveraged (indebted) firms, which are generally less able than more
established or less leveraged firms to make scheduled payments of interest and
principal. The risks posed by securities issued under such circumstances are
substantial.
37
<PAGE>
The market for high yield securities is still relatively new. Because of this, a
long-term track record for bond default rates does not exist. In addition, the
secondary market for high yield securities is generally less liquid than that
for investment grade corporate securities. In periods of reduced market
liquidity, high yield bond prices may become more volatile, and both the high
yield market and a portfolio may experience sudden and substantial price
declines. This lower liquidity might have an effect on a portfolio's ability to
value or dispose of such securities. Also, there may be significant disparities
in the prices quoted for high yield securities by various dealers. Under such
conditions, a portfolio may find it difficult to value its securities
accurately. A portfolio may also be forced to sell securities at a significant
loss in order to meet shareholder redemptions. These factors add to the risks
associated with investing in high yield securities.
High yield bonds may also present risks based on payment expectations. For
example, high yield bonds may contain redemption or call provisions. If an
issuer exercises these provisions in a declining interest rate market, a
portfolio would have to replace the security with a lower yielding security,
resulting in a decreased return for investors. Conversely, a high yield bond's
value will decrease in a rising interest rate market.
Certain types of high yield bonds are non-income paying securities. For example,
zero coupon bonds pay interest only at maturity and payment-in-kind bonds pay
interest in the form of additional securities. Payment in the form of additional
securities, or interest income recognized through discount accretion, will,
however, be treated as ordinary income which will be distributed to shareholders
even though the portfolio does not receive periodic cash flow from these
investments.
International Equity Investing: The Adviser's approach to international equity
investing is based on its evaluation of both short-term and long-term
international economic trends and the relative attractiveness of non-U.S. equity
markets and individual securities.
MAS considers fundamental investment characteristics, the principles of
valuation and diversification, and a relatively long-term investment time
horizon. Since liquidity will also be a consideration, emphasis will likely be
influenced by the relative market capitalizations of different non-U.S. stock
markets and individual securities. Portfolios seek to diversify investments
broadly among both developed and newly industrializing foreign countries. Where
appropriate, a portfolio may also invest in regulated investment companies or
investment funds which invest in such countries to the extent allowed by
applicable law.
Maturity and Duration Management: One of two primary components of the Adviser's
fixed-income investment strategy is maturity and duration management. The
maturity and duration structure of a portfolio investing in Fixed-Income
Securities is actively managed in anticipation of cyclical interest rate
changes. Adjustments are not made in an effort to capture short-term, day-to-day
movements in the market, but instead are implemented in anticipation of longer
term shifts in the levels of interest rates. Adjustments made to shorten
portfolio maturity and duration are made to limit capital losses during periods
when interest rates are expected to rise. Conversely, adjustments made to
lengthen maturity are intended to produce capital appreciation in periods when
interest rates are expected to fall. The foundation for maturity and duration
strategy lies in analysis of the U.S. and global economies, focusing on levels
of real interest rates, monetary and fiscal policy actions, and cyclical
indicators. See Value Investing for a description of the second primary
component of MAS' fixed-income strategy.
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Most debt obligations provide interest (coupon) payments in addition to a final
(par) payment at maturity. Some obligations also have call provisions. Depending
on the relative magnitude of these payments and the nature of the call
provisions, the market values of debt obligations may respond differently to
changes in the level and structure of interest rates.
Traditionally, a debt security's term-to-maturity has been used as a proxy for
the sensitivity of the security's price to changes in interest rates (which is
the interest rate risk or volatility of the security). However, term-to-maturity
measures only the time until a debt security provides its final payment, taking
no account of the pattern of the security's payments prior to maturity.
Duration is a measure of the expected life of a fixed-income security that was
developed as a more precise alternative to the concept of term-to-maturity.
Duration incorporates a bond's yield, coupon interest payments, final maturity
and call features into one measure. Duration is one of the fundamental tools
used by the Adviser in the selection of fixed-income securities. Duration is a
measure of the expected life of a fixed-income security on a present value
basis. Duration takes the length of the time intervals between the present time
and the time that the interest and principal payments are scheduled or, in the
case of a callable bond, expected to be received, and weights them by the
present values of the cash to be received at each future point in time. For any
fixed-income security with interest payments occurring prior to the payment of
principal, duration is always less than maturity. In general, all other factors
being the same, the lower the stated or coupon rate of interest of a
fixed-income security, the longer the duration of the security; conversely, the
higher the stated or coupon rate of interest of a fixed-income security, the
shorter the duration of the security.
There are some situations where even the standard duration calculation does not
properly reflect the interest rate exposure of a security. For example, floating
and variable rate securities often have final maturities of ten or more years;
however, their interest rate exposure corresponds to the frequency of the coupon
reset. Another example where the interest rate exposure is not properly captured
by duration is the case of mortgage pass-through securities. The stated final
maturity of such securities is generally 30 years, but current prepayment rates
are more critical in determining the securities' interest rate exposure. In
these and other similar situations, the Adviser will use sophisticated
analytical techniques that incorporate the economic life of a security into the
determination of its interest rate exposure.
Money Market Investing: A money market fund like the Cash Reserves Portfolio
invests in securities which present minimal credit risk and may not yield as
high a level of current income as securities of lower quality or longer
maturities which generally have less liquidity, greater market risk and more
price fluctuation. A money market portfolio is designed to provide maximum
principal stability for investors seeking to invest funds for the short-term,
or, for investors seeking to combine a long-term investment program in other
portfolios of the Fund with an investment in money market instruments. However,
because the Cash Reserves Portfolio invests in the money market obligations of
private financial and non-financial corporations in addition to those of the
U.S. Government or its agencies and instrumentalities, it offers higher credit
risk and yield potential relative to money market funds which invest exclusively
in U.S. Government securities. The Cash Reserves Portfolio seeks to maintain,
but does not guarantee, a constant net asset value of $1.00 per share.
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Mortgage Investing: At times it is anticipated that greater than 50% of a
fixed-income portfolio's assets may be invested in mortgage-related securities.
These include mortgage-backed securities which represent interests in pools of
mortgage loans made by lenders such as commercial banks, savings and loan
associations, mortgage bankers and others. The pools are assembled by various
Government-organizations, including the Government National Mortgage Association
(GNMA), Federal Home Loan Mortgage Corporation (FHLMC), Federal National
Mortgage Association (FNMA), other government agencies, and private issuers. It
is expected that a portfolio's primary emphasis will be on mortgage-backed
securities issued by the various Government-related organizations. However, a
portfolio may invest, without limit, in mortgage-backed securities issued by
private issuers when the Adviser deems that the quality of the investment, the
quality of the issuer, and market conditions warrant such investments.
Securities issued by private issuers will be rated investment grade by Moody's
or Standard & Poor's or be deemed by the Adviser to be of comparable investment
quality.
Municipals Management: MAS manages municipal portfolios in a total return
context. This means that taxable investments will regularly be included in a
portfolio when they have an attractive prospective after-tax total return,
regardless of the taxable nature of income on the security.
MAS Municipals Management emphasizes a diversified portfolio of high grade
municipal debt securities. Under normal circumstances, a portfolio will invest
at least 80% of net assets in municipal securities including AMT Bonds and at
least 80% will be Investment Grade Securities.
Under normal conditions, a portfolio may hold up to 20% of net assets in U.S.
Governments, Agencies, Corporates, Cash Equivalents, Preferred Stocks, Mortgage
Securities, Asset-Backeds, Floaters, and Inverse Floaters and other Fixed Income
Securities instruments (collectively "Taxable Investments").
Non-Diversified Status: A portfolio may be classified as a non-diversified
investment company under the Investment Company Act of 1940, as amended.
Non-diversified portfolios may invest more than 25% of assets in securities of
individual issuers representing greater than 5% each of a portfolio's total
assets, whereas diversified investment companies may only invest up to 25% of
assets in positions of greater than 5%. Both diversified and non-diversified
portfolios are subject to diversification specifications under the Internal
Revenue Code of 1986, as amended, which require that, as of the close of each
fiscal quarter, (i) no more than 25% of a portfolio's total assets may be
invested in the securities of a single issuer (except for U.S. Government
securities) and (ii) with respect to 50% of its total assets, no more than 5% of
such assets may be invested in the securities of a single issuer (except for
U.S. Government securities) or invested in more than 10% of the outstanding
voting securities of a single issuer. Because of its non-diversified status, a
portfolio may be subject to greater credit and other risks than a diversified
investment company.
Value Investing: One of two primary components of the Adviser's fixed-income
strategy is value investing, whereby MAS seeks to identify undervalued sectors
and securities through analysis of credit quality, option characteristics and
liquidity. Quantitative models are used in conjunction with judgment and
experience to evaluate and select securities with embedded put or call options
which are attractive on a risk- and option-adjusted basis. Successful value
investing will permit a portfolio to benefit from the price appreciation of
individual securities during periods when interest rates are unchanged. See
Maturity and Duration Management for a description of the other key component of
MAS's fixed-income investment strategy.
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Value Stock Investing: Emphasizes common stocks which are deemed by the Adviser
to be undervalued relative to the stock market in general as measured by the
appropriate market index, based on value measures such as price/earnings ratios
and price/book ratios. Value stocks are generally dividend paying common stocks.
However, non-dividend paying stocks may also be selected for their value
characteristics.
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INVESTMENTS
Each Portfolio may invest in the securities defined below in accordance with
their listing of Allowable Investments and any quality or policy constraints.
ADRs: American Depository Receipts: are dollar-denominated securities which are
listed and traded in the United States, but which represent claims to shares of
foreign stocks. ADRs may be either sponsored or unsponsored. Unsponsored ADR
facilities typically provide less information to ADR holders.
Agencies: are securities which are not guaranteed by the U.S. Government, but
which are issued, sponsored or guaranteed by a federal agency or federally
sponsored agency such as the Student Loan Marketing Association, Resolution
Funding Corporation, or any of several other agencies.
Asset-Backeds: are securities collateralized by shorter term loans such as
automobile loans, home equity loans, computer leases, or credit card
receivables. The payments from the collateral are passed through to the security
holder. The collateral behind asset-backed securities tends to have prepayment
rates that do not vary with interest rates. In addition the short-term nature of
the loans reduces the impact of any change in prepayment level. Due to
amortization, the average life for these securities is also the conventional
proxy for maturity.
Possible Risks: Due to the possibility that prepayments (on automobile loans and
other collateral) will alter the cash flow on asset-backed securities, it is not
possible to determine in advance the actual final maturity date or average life.
Faster prepayment will shorten the average life and slower prepayments will
lengthen it. However, it is possible to determine what the range of that
movement could be and to calculate the effect that it will have on the price of
the security. In selecting these securities, the Adviser will look for those
securities that offer a higher yield to compensate for any variation in average
maturity.
Brady Bonds: are debt obligations which are created through the exchange of
existing commercial bank loans to foreign entities for new obligations in
connection with debt restructuring under a plan introduced by former U.S.
Secretary of the Treasury, Nicholas F. Brady (the Brady Plan). Brady Bonds have
been issued only recently, and, accordingly, do not have a long payment history.
They may be collateralized or uncollateralized and issued in various currencies
(although most are dollar-denominated) and they are actively traded in the
over-the-counter secondary market. For further information on these securities,
see the Statement of Additional Information. Portfolios will only invest in
Brady Bonds consistent with quality specifications.
Cash Equivalents: are short-term fixed-income instruments comprising:
(1) Time deposits, certificates of deposit (including marketable variable rate
certificates of deposit) and bankers' acceptances issued by a commercial bank or
savings and loan association. Time deposits are non-negotiable deposits
maintained in a banking institution for a specified period of time at a stated
interest rate. Certificates of deposit are negotiable short-term obligations
issued by commercial banks or savings and loan associations against funds
deposited in the issuing institution. Variable rate certificates of deposit are
certificates of deposit on which the interest rate is periodically adjusted
prior to their stated maturity based upon a specified market rate. A bankers'
acceptance is a time draft drawn on a commercial bank by a borrower usually in
connection with an international commercial transaction (to finance the import,
export, transfer or storage of goods)
A portfolio may invest in obligations of U.S. banks, foreign branches of U.S.
banks (Eurodollars), and U.S. branches of foreign banks (Yankee dollars). Euro
and Yankee dollar investments will involve some of the same risks of investing
in international securities that are discussed in the Foreign Investing section
of this Prospectus.
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Portfolios will not invest in any security issued by a commercial bank unless
(i) the bank has total assets of at least $1 billion, or the equivalent in other
currencies, or, in the case of domestic banks which do not have total assets of
at least $1 billion, the aggregate investment made in any one such bank is
limited to $100,000 and the principal amount of such investment is insured in
full by the Federal Deposit Insurance Corporation, (ii) in the case of U.S.
banks, it is a member of the Federal Deposit Insurance Corporation, and (iii) in
the case of foreign branches of U.S. banks, the security is deemed by the
Adviser to be of an investment quality comparable with other debt securities
which may be purchased by the portfolio.
(2) Each portfolio (except Cash Reserves) may invest in commercial paper rated
at time of purchase by one or more NRSRO in one of their two highest categories,
(e.g., A-l or A-2 by Standard & Poor's or Prime 1 or Prime 2 by Moody's), or, if
not rated, issued by a corporation having an outstanding unsecured debt issue
rated high-grade by a NRSRO (e.g. A or better by Moody's, Standard & Poor's or
Fitch). The Cash Reserves Portfolio invests only in commercial paper rated in
the highest category;
(3) Short-term corporate obligations rated high-grade at the time of purchase by
a NRSRO (e.g. A or better by Moody's, Standard & Poor' s or Fitch);
(4) U.S. Government obligations including bills, notes, bonds and other debt
securities issued by the U.S. Treasury. These are direct obligations of the U.S.
Government and differ mainly in interest rates, maturities and dates of issue;
(5) Securities issued or guaranteed by U.S. Government sponsored
instrumentalities and Federal agencies. These include securities issued by the
Federal Home Loan Banks, Federal Land Bank, Farmers Home Administration, Farm
Credit Banks, Federal Intermediate Credit Bank, Federal National Mortgage
Association, Federal Financing Bank, the Tennessee Valley Authority, and others;
(6) Repurchase agreements collateralized by securities listed above; and
(7) Investments by the Cash Reserve Portfolio in Cash Equivalents are limited by
the quality, maturity and diversification requirements adopted under Rule 2a-7
of the 1940 Act.
CMOs--Collateralized Mortgage Obligations: are Derivatives which are
collateralized by mortgage pass-through securities. Cash flows from the mortgage
pass-through securities are allocated to various tranches (a "tranche" is
essentially a separate security) in a predetermined, specified order. Each
tranche has a stated maturity - the latest date by which the tranche can be
completely repaid, assuming no prepayments and has an average life - the average
of the time to receipt of a principal payment weighted by the size of the
principal payment. The average life is typically used as a proxy for maturity
because the debt is amortized (repaid a portion at a time), rather than being
paid off entirely at maturity, as would be the case in a straight debt
instrument.
Possible Risks: Due to the possibility that prepayments (on home mortgages and
other collateral) will alter the cash flow on CMOs, it is not possible to
determine in advance the actual final maturity date or average life. Faster
prepayment will shorten the average life and slower prepayments will lengthen
it. However, it is possible to determine what the range of that movement could
be and to calculate the effect that it will have on the price of the security.
In selecting these securities, the Adviser will look for those securities that
offer a higher yield to compensate for any variation in average maturity.
Prepayment risk has two important effects. First, like bonds in general,
mortgage-backed securities will generally decline in price when interest rates
rise. However, when interest rates fall, mortgages may not enjoy as large a gain
in market value due to prepayment risk. Second, when interest rates fall,
additional mortgage prepayments must be reinvested at lower interest rates. In
part to compensate for these risks, mortgages will generally offer higher yields
than comparable bonds.
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Common Stocks: are Equity Securities which represent an ownership interest in a
corporation, entitling the shareholder to voting rights and receipt of dividends
paid based on proportionate ownership.
Convertibles: are convertible bonds or shares of convertible Preferred Stock
which may be exchanged for a fixed number of shares of Common Stock at the
purchaser's option.
Corporates--corporate bonds: are debt instruments issued by private
corporations. Bondholders, as creditors, have a prior legal claim over common
and preferred stockholders of the corporation as to both income and assets for
the principal and interest due to the bondholder. A portfolio will buy
Corporates subject to any quality constraints. If a security held by a portfolio
is down-graded, the portfolio may retain the security.
Derivatives: A financial instrument whose value and performance are based on the
value and performance of another security or financial instrument. The Adviser
will use derivatives only in circumstances where they offer the most economic
means of improving the risk/reward profile of the portfolio. The Adviser will
not use derivatives to increase portfolio risk above the level that could be
achieved in the portfolio using only traditional investment securities. In
addition, the Adviser will not use derivatives to acquire exposure to changes in
the value of assets or indexes that by themselves would not be purchased for the
portfolio. Any applicable limitations are described under each investment
definition. All of the MAS Funds, except the Cash Reserves Portfolio, may enter
into over-the-counter Derivatives transactions with counterparties
approved by MAS in accordance with guidelines established by the Board of
Trustees. These guidelines provide for a minimum credit rating for each
counterparty and various credit enhancement techniques (for example,
collateralization of amounts due from counterparties) to limit exposure to
counterparties with ratings below AA.
Eastern European Issuers: The economies of Eastern European countries are
currently suffering both from the stagnation resulting from centralized economic
planning and control and the higher prices and unemployment associated with the
transition to market economics. Unstable economic and political conditions may
adversely affect security values. Upon the accession to power of Communist
regimes approximately 40 years ago, the governments of a number of Eastern
European countries expropriated a large amount of property. The claims of many
property owners against those governments were never finally settled. In the
event of the return to power of the Communist Party, there can be no assurance
that the portfolio's investments in Eastern Europe would not be expropriated,
nationalized or otherwise confiscated.
Emerging Markets Issuers: An emerging market security is one issued by a company
that has one or more of the following characteristics: (i) its principal
securities trading market is in an emerging market, (ii) alone or on a
consolidated basis it derives 50% or more of its annual revenue from either
goods produced, sales made or services performed in emerging markets, or (iii)
it is organized under the laws of, and has a principal office in, an emerging
market country. The Adviser will base determinations as to eligibility on
publicly available information and inquiries made to the companies. Investing in
emerging markets may entail purchasing securities issued by or on behalf of
entities that are insolvent, bankrupt, in default or otherwise engaged in an
attempt to reorganize or reschedule their obligations, and in entities that have
little or no proven credit rating or credit history. In any such case, the
issuer's poor or deteriorating financial condition may increase the likelihood
that the investing fund will experience losses or diminution in available gains
due to bankruptcy, insolvency or fraud.
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Equity Securities: Commonly include but are not limited to Common Stock,
Preferred Stock, ADRs, Rights, Warrants, Convertibles, and Foreign Equities. See
each individual portfolio listing of Investments to determine which of the above
the portfolio can hold. Preferred Stock is contained in both the definition of
Equity Securities and Fixed-Income Securities since it exhibits characteristics
commonly associated with each type.
Fixed-Income Securities: Commonly include but are not limited to U.S.
Governments, Zero Coupons, Agencies, Corporates, High Yield, Mortgage
Securities, SMBS, CMOs, Asset-Backeds, Convertibles, Brady Bonds, Floaters,
Inverse Floaters, Cash Equivalents, Repurchase Agreements, Preferred Stock, and
Foreign Bonds. See each individual portfolio listing of Investments to determine
which securities a portfolio may hold. Preferred Stock is contained in both the
definition of Equity Securities and Fixed-Income Securities since it exhibits
characteristics commonly associated with each type of security.
Floaters--Floating and Variable Rate Obligations: are debt obligations with a
floating or variable rate of interest, i.e. the rate of interest varies with
changes in specified market rates or indices, such as the prime rate, or at
specified intervals. Certain floating or variable rate obligations may carry a
demand feature that permits the holder to tender them back to the issuer of the
underlying instrument, or to a third party, at par value prior to maturity. When
the demand feature of certain floating or variable rate obligations represents
an obligation of a foreign entity, the demand feature will be subject to certain
risks discussed under Foreign Investing.
Foreign Currency: Portfolios investing in foreign securities will regularly
transact security purchases and sales in foreign currencies. These portfolios
may hold foreign currency or purchase or sell currencies on a forward basis (see
Forwards).
Foreign Equities: are Common Stock, Preferred Stock, Rights and Warrants of
foreign issuers. Investing in foreign companies involves certain special
considerations which are not typically associated with investing in U.S.
companies (see Foreign Investing).
Foreign Bonds: are Fixed-Income Securities denominated in foreign currency
including: (1) obligations issued or guaranteed by foreign national governments,
their agencies, instrumentalities, or political subdivisions; (2) debt
securities issued, guaranteed or sponsored by supranational organizations
established or supported by several national governments, including the World
Bank, the European Community, the Asian Development Bank and others; (3)
non-government foreign corporate debt securities; and (4) foreign Mortgage
Securities and various other mortgage and asset-backed securities denominated in
foreign currency.
Forwards--Forward Foreign Currency Exchange Contracts: are Derivatives which are
used to protect against uncertainty in the level of future foreign exchange
rates. A forward foreign currency exchange contract is an obligation to purchase
or sell a specific currency at a future date, which may be any fixed number of
days from the date of the contract agreed upon by the parties, at a price set at
the time of the contract. Such contracts, which protect the value of a
portfolio's investment securities against a decline in the value of a currency,
do not eliminate fluctuations caused by changes in the local currency prices of
the securities, but rather, they simply establish an exchange rate at a future
date. Also, although such contracts minimize the risk of loss due to a decline
in the value of the hedged currency, at the same time they limit any potential
gain that might be realized.
A portfolio may use currency exchange contracts in the normal course of business
to lock in an exchange rate in connection with purchases and sales of securities
denominated in foreign currencies (transaction hedge) or to lock in the U.S.
dollar value of portfolio positions (position hedge). In addition the portfolios
may cross-hedge currencies by entering into a transaction to purchase or sell
one or more currencies that are expected to decline in value relative to other
currencies to which a portfolio has or expects to have portfolio exposure.
Portfolios may also engage in proxy hedging which is defined as entering into
positions in one currency to hedge investments denominated in another currency,
where the two currencies are economically linked. A portfolio's entry into
forward contracts, as well as any use of Cross or Proxy hedging techniques will
generally require the portfolio to hold high-grade, liquid securities or cash
equal to the portfolio's obligations in a segregated account throughout the
duration of the contract.
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A portfolio may also combine forward contracts with investments in securities
denominated in other currencies in order to achieve desired credit and currency
exposures. Such combinations are generally referred to as synthetic securities.
For example, in lieu of purchasing a foreign bond, a portfolio may purchase a
U.S. dollar-denominated security and at the same time enter into a forward
contract to exchange U.S. dollars for the contract's underlying currency at a
future date. By matching the amount of U.S. dollars to be exchanged with the
anticipated value of the U.S. dollar-denominated security, a portfolio may be
able to lock in the foreign currency value of the security and adopt a synthetic
investment position reflecting the credit quality of the U.S. dollar-denominated
security.
There is a risk in adopting a synthetic investment position to the extent that
the value of a security denominated in the U.S. dollar or other foreign currency
is not exactly matched with a portfolio's obligation under the forward contract.
On the date of maturity, a portfolio may be exposed to some risk of loss from
fluctuations in that currency. Although the Adviser will attempt to hold such
mismatching to a minimum, there can be no assurance that the Adviser will be
able to do so. When a portfolio enters into a forward contract for purposes of
creating a synthetic security, it will generally be required to hold high-grade,
liquid securities or cash in a segregated account with a daily value at least
equal to its obligation under the forward contract.
Futures & Options--Futures Contracts, Options on Futures Contracts and Options:
are Derivatives. Futures contracts provide for the sale by one party and
purchase by another party of a specified amount of a specific security, at a
specified future time and price. An option is a legal contract that gives the
holder the right to buy or sell a specified amount of the underlying security or
futures contract at a fixed or determinable price upon the exercise of the
option. A call option conveys the right to buy and a put option conveys the
right to sell a specified quantity of the underlying security.
A portfolio will not enter into futures contracts to the extent that its
outstanding obligations to purchase securities under these contracts in
combination with its outstanding obligations with respect to options
transactions would exceed 50% of its total assets. It will maintain assets
sufficient to meet its obligations under such contracts in a segregated account
with the custodian bank or will otherwise comply with the SEC's position on
asset coverage.
Possible Risks: The primary risks associated with the use of futures and options
are (i) imperfect correlation between the change in market value of the
securities held by a portfolio and the prices of futures and options relating to
the stocks, bonds or futures contracts purchased or sold by a portfolio; and
(ii) possible lack of a liquid secondary market for a futures contract and the
resulting inability to close a futures position which could have an adverse
impact on a portfolio's ability to execute futures and options strategies.
Additional risks associated with options transactions are (i) the risk that an
option will expire worthless; (ii) the risk that the issuer of an
over-the-counter option will be unable to fulfill its obligation to the
portfolio due to bankruptcy or related circumstances; (iii) the risk that
options may exhibit greater short-term price volatility than the underlying
security; and (iv) the risk that a portfolio may be forced to forego
participation in the appreciation of the value of underlying securities, futures
contracts or currency due to the writing of a call option.
High Yield: High yield securities are generally considered to be corporate
bonds, preferred stocks, and convertible securities rated Ba through C by
Moody's or BB through D by Standard & Poor's, and unrated securities considered
to be of equivalent quality. Securities rated less than Baa by Moody's or BBB by
Standard & Poor's are classified as non-investment grade securities and are
commonly referred to as junk bonds or high yield, high risk securities. Such
securities carry a high degree of risk and are considered speculative by the
major credit rating agencies. The following are excerpts from the Moody's and
Standard & Poor's definitions for speculative-grade debt obligations:
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Moody's: Ba-rated bonds have "speculative elements" so their future
"cannot be considered assured," and protection of principal and
interest is "moderate" and "not well safeguarded during both good and
bad times in the future." B-rated bonds "lack characteristics of a
desirable investment" and the assurance of interest or principal
payments "may be small." Caa-rated bonds are "of poor standing" and
"may be in default" or may have "elements of danger with respect to
principal or interest." Ca-rated bonds represent obligations which are
speculative in a high degree. Such issues are often in default or have
other marked shortcomings. C-rated bonds are the "lowest rated" class
of bonds, and issues so rated can be regarded as having "extremely poor
prospects" of ever attaining any real investment standing.
Standard & Poor's: BB-rated bonds have "less near-term vulnerability to
default" than B- or CCC-rated securities but face "major ongoing
uncertainties . . . which may lead to inadequate capacity" to pay
interest or principal. B-rated bonds have a "greater vulnerability to
default than BB-rated bonds and the ability to pay interest or
principal will likely be impaired by adverse business conditions."
CCC-rated bonds have a currently identifiable "vulnerability to
default" and, without favorable business conditions, will be "unable to
repay interest and principal." C - The rating C is reserved for income
bonds on which "no interest is being paid." D - Debt rated D is in
"default", and "payment of interest and/or repayment of principal is in
arrears."
While these securities offer high yields, they also normally carry with them a
greater degree of risk than securities with higher ratings. Lower-rated bonds
are considered speculative by traditional investment standards. High yield
securities may be issued as a consequence of corporate restructuring or similar
events. Also, high yield securities are often issued by smaller, less credit
worthy companies, or by highly leveraged (indebted) firms, which are generally
less able than more established or less leveraged firms to make scheduled
payments of interest and principal. The price movement of these securities is
influenced less by changes in interest rates and more by the financial and
business position of the issuing corporation when compared to investment grade
bonds.
The risks posed by securities issued under such circumstances are substantial.
If a security held by a portfolio is down-graded, the portfolio may retain the
security.
Inverse Floaters--Inverse Floating Rate Obligations: are Fixed-Income
Securities, which have coupon rates that vary inversely at a multiple of a
designated floating rate, such as LIBOR (London Inter-Bank Offered Rate). Any
rise in the reference rate of an inverse floater (as a consequence of an
increase in interest rates) causes a drop in the coupon rate while any drop in
the reference rate of an inverse floater causes an increase in the coupon rate.
Inverse floaters may exhibit substantially greater price volatility than fixed
rate obligations having similar credit quality, redemption provisions and
maturity, and inverse floater CMOs exhibit greater price volatility than the
majority of mortgage pass-through securities or CMOs. In addition, some inverse
floater CMOs exhibit extreme sensitivity to changes in prepayments. As a result,
the yield to maturity of an inverse floater CMO is sensitive not only to changes
in interest rates but also to changes in prepayment rates on the related
underlying mortgage assets.
Investment Companies: The portfolios are permitted to invest in shares of other
open-end or closed-end investment companies. The Investment Company Act of 1940,
as amended, generally prohibits the portfolios from acquiring more than 3% of
the outstanding voting shares of an investment company and limits such
investments to no more than 5% of the portfolio's total assets in any one
investment company and no more than 10% in any combination of investment
companies. The 1940 Act also prohibits the portfolios from acquiring in the
aggregate more than 10% of the outstanding voting shares of any registered
close-end investment company.
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To the extent a portfolio invests a portion of its assets in Investment
Companies, those assets will be subject to the expenses of the purchased
investment company as well as to the expenses of the portfolio itself. The
portfolios may not purchase shares of any affiliated investment company except
as permitted by SEC Rule or Order.
Investment Funds: Some emerging market countries have laws and regulations that
currently preclude direct foreign investment in the securities of their
companies. However, indirect foreign investment in the securities of companies
listed and traded on the stock exchanges in these countries is permitted by
certain emerging market countries through investment funds. The International
Equity and Emerging Markets portfolios may invest in these investment funds
subject to applicable law as discussed under Investment Restrictions. The
International Equity and Emerging Markets portfolios will invest in such
investment funds only where appropriate given that the portfolio's shareholders
will bear indirectly the layer of expenses of the underlying investment funds in
addition to their proportionate share of the expenses of the portfolio. Under
certain circumstances, an investment in an investment fund will be subject to
the additional limitations that apply to investments in Investment Companies.
Investment Grade Securities: are those rated by one or more nationally
recognized statistical rating organization (NRSRO) in one of the four highest
rating categories at the time of purchase (e.g. AAA, AA, A or BBB by Standard &
Poor's Corporation (Standard & Poor's) or Fitch Investors Service, Inc., (Fitch)
or Aaa, Aa, A or Baa by Moody's Investors Service, Inc. (Moody's)). Securities
rated BBB or Baa represent the lowest of four levels of investment grade
securities and are regarded as borderline between definitely sound obligations
and those in which the speculative element begins to predominate.
Mortgage-backed securities, including mortgage pass-throughs and collateralized
mortgage obligations (CMOs), deemed investment grade by the Adviser, will either
carry a guarantee from an agency of the U.S. Government or a private issuer of
the timely payment of principal and interest (such guarantees do not extend to
the market value of such securities or the net asset value per share of the
portfolio) or, in the case of unrated securities, be sufficiently seasoned that
they are considered by the Adviser to be investment grade quality. The Adviser
may retain securities if their ratings falls below investment grade if it deems
retention of the security to be in the best interests of the portfolio. Any
Portfolio permitted to hold Investment Grade Securities may hold unrated
securities if the Adviser considers the risks involved in owning that security
to be equivalent to the risks involved in holding an Investment Grade Security.
Loan Participations: are loans or other direct debt instruments which are
interests in amounts owed by a corporate, governmental or other borrower to
another party. They may represent amounts owed to lenders or lending syndicates,
to suppliers of goods or services (trade claims or other receivables), or to
other parties. Direct debt instruments involve the risk of loss in case of
default or insolvency of the borrower. Direct debt instruments may offer less
legal protection to the portfolio in the event of fraud or misrepresentation. In
addition, loan participations involve a risk of insolvency of the lending bank
or other financial intermediary. Direct debt instruments may also include
standby financing commitments that obligate the investing portfolio to supply
additional cash to the borrower on demand. Loan participations involving
Emerging Market Issuers may relate to loans as to which there has been or
currently exists an event of default or other failure to make payment when due,
and may represent amounts owed to financial institutions that are themselves
subject to political and economic risks, including the risk of currency
devaluation, expropriation, or failure. Such loan participations present
additional risks of default or loss.
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Mortgage Securities--Mortgage-backed securities represent an ownership interest
in a pool of residential and commercial mortgage loans. Generally, these
securities are designed to provide monthly payments of interest and principal to
the investor. The mortgagee's monthly payments to his/her lending institution
are passed through to investors such as the portfolio. Most issuers or poolers
provide guarantees of payments, regardless of whether the mortgagor actually
makes the payment. The guarantees made by issuers or poolers are supported by
various forms of credit, collateral, guarantees or insurance, including
individual loan, title, pool and hazard insurance purchased by the issuer. The
pools are assembled by various Governmental, Government-related and private
organizations. Portfolios may invest in securities issued or guaranteed by the
Government National Mortgage Association (GNMA), Federal Home Loan Mortgage
Corporation (FHLMC), Federal National Mortgage Association (FNMA), private
issuers and other government agencies. There can be no assurance that the
private insurers can meet their obligations under the policies. Mortgage-backed
securities issued by non-agency issuers, whether or not such securities are
subject to guarantees, may entail greater risk. If there is no guarantee
provided by the issuer, mortgage-backed securities purchased by the portfolio
will be those which at time of purchase are rated investment grade by one or
more NRSRO, or, if unrated, are deemed by the Adviser to be of investment grade
quality.
Due to the possibility that prepayments on home mortgages will alter cash flow
on mortgage securities, it is not possible to determine in advance the actual
final maturity date or average life. Faster prepayment will shorten the average
life and slower prepayments will lengthen it. However, it is possible to
determine what the range of that movement could be and to calculate the effect
that it will have on the price of the security. In selecting these securities,
the Adviser will look for those securities that offer a higher yield to
compensate for any variation in average maturity.
There are two methods of trading mortgage-backed securities. A specified pool
transaction is a trade in which the pool number of the security to be delivered
on the settlement date is known at the time the trade is made. This is in
contrast with the typical mortgage security transaction, called a TBA (to be
announced) transaction, in which the type of mortgage securities to be delivered
is specified at the time of trade but the actual pool numbers of the securities
that will be delivered are not known at the time of the trade. The pool numbers
of the pools to be delivered at settlement will be announced shortly before
settlement takes place. The terms of the TBA trade may be made more specific if
desired. Generally, agency pass-through mortgage-backed securities are traded on
a TBA basis.
A mortgage-backed bond is a collateralized debt security issued by a thrift or
financial institution. The bondholder has a first priority perfected security
interest in collateral usually consisting of agency mortgage pass-through
securities, although other assets, including U.S. Treasuries (including Zero
Coupon Treasury Bonds), agencies, cash equivalent securities, whole loans and
corporate bonds, may qualify. The amount of collateral must be continuously
maintained at levels from 115% to 150% of the principal amount of the bonds
issued, depending on the specific issue structure and collateral type.
Municipals--Municipal Securities: are debt obligations issued by local, state
and regional governments that provide interest income which is exempt from
federal income taxes. Municipal securities include both municipal bonds (those
securities with maturities of five years or more) and municipal notes (those
with maturities of less than five years). Municipal bonds are issued for a wide
variety of reasons: to construct public facilities, such as airports, highways,
bridges, schools, hospitals, mass transportation, streets, water and sewer
works; to obtain funds for operating expenses; to refund outstanding municipal
obligations; and to loan funds to various public institutions and facilities.
Certain industrial development bonds are also considered municipal bonds if
their interest is exempt from federal income tax. Industrial development bonds
are issued by or on behalf of public authorities to obtain funds for various
privately-operated manufacturing facilities, housing, sports arenas, convention
centers, airports, mass transportation systems and water, gas or sewage works.
Industrial development bonds are ordinarily dependent on the credit quality of a
private user, not the public issuer.
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General obligation municipal bonds are secured by the issuer's pledge of full
faith, credit and taxing power. Revenue or special tax bonds are payable from
the revenues derived from a particular facility or, in some cases, from a
special excise or other tax, but not from general tax revenue.
Municipal notes are issued to meet the short-term funding requirements of local,
regional and state governments. Municipal notes include bond [?]anticipation
notes, revenue anticipation notes and tax and revenue anticipation notes. These
are short-term debt obligations issued by state and local governments to aid
cash flows while waiting for taxes or revenue to be collected, at which time the
debt is retired. Other types of municipal notes in which the portfolio [?]may
invest are construction loan notes, short-term discount notes, tax-exempt
commercial paper, demand notes, and similar instruments. Demand notes permit an
investor (such as the portfolio) to demand from the issuer payment of principal
plus accrued interest upon a specified number of days' notice. The portfolios
eligible to purchase municipal bonds may also purchase AMT bonds. AMT bonds are
tax-exempt private activity bonds issued after August 7, 1986, the proceeds of
which are directed, at least in part, to private, for-profit organizations.
While the income from AMT bonds is exempt from regular federal income tax, it is
a tax preference item in the calculation of the alternative minimum tax. The
alternative minimum tax is a special separate tax that applies to a limited
number of taxpayers who have certain adjustments to income or tax preference
items.
PA Municipals: Are obligations of the Pennsylvania state government, state
agencies and various local governments, including counties, cities, townships,
special districts and authorities. In general, the credit quality and credit
risk of any issuer's debt is contingent upon the state and local economy, the
health of the issuer's finances, the amount of the issuer's debt, the quality of
management and the strength of legal provisions in the debt document that
protect debt holders. Credit risk is usually lower wherever the economy is
strong, growing and diversified, where financial operations are sound and the
debt burden is reasonable.
Concentration of investment in the securities of one state exposes a portfolio
to greater credit risks than a portfolio, which has the flexibility to invest in
a nationally diversified portfolio of municipal securities. The risks associated
with investment in the securities of a single state include possible tax changes
or a deterioration in economic conditions and differing levels of supply and
demand for the municipal obligations of that state.
Factors contributing positively to credit quality in Pennsylvania include a
favorable debt structure, a diversifying economic base, and conservatively
managed financial operations on the part of state government in the 1980s.
Tax-supported debt is only slightly above average state levels on a per capital
basis and as a percent of state personal income. Over the past two decades, this
debt burden has improved considerably in Pennsylvania, and debt continues to be
rapidly retired, while state borrowing plans are modest. However, recent growth
in the state economy has bypassed much of the state outside of the immediate
Philadelphia and Pittsburgh metropolitan areas. As a result, the credit quality
of these areas is often marginal.
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The risk factors in Pennsylvania's credit quality may be summarized as an aging
and slowly growing population, below average income, and a continuing challenge
to maintain balanced budgets. In addition, a number of local governments in the
Commonwealth, most notably, Philadelphia, are in serious fiscal difficulty and
are unable to address serious economic, social and health care problems within
revenue constraints.
Debt of Government Agencies, Authorities and Commissions: Certain state-created
agencies have statutory authorization to incur debt for which legislation
providing for state appropriations to pay debt service thereon is not required.
The debt of these agencies is supported by assets of, or revenues derived from,
the various projects financed; it is not an obligation of the Commonwealth. Some
of these agencies, however, such as the Delaware River Joint Toll Bridge
Commission, are indirectly dependent on Commonwealth funds through various
state-assisted programs.
Preferred Stock: are non-voting ownership shares in a corporation which pay a
fixed or variable stream of dividends.
Repurchase Agreements: are transactions by which a portfolio purchases a
security and simultaneously commits to resell that security to the seller (a
bank or securities dealer) at an agreed upon price on an agreed upon date
(usually within seven days of purchase). The resale price reflects the purchase
price plus an agreed upon market rate of interest which is unrelated to the
coupon rate or date of maturity of the purchased security. Such agreements
permit the portfolio to keep all its assets at work while retaining overnight
flexibility in pursuit of investments of a longer term nature. The Adviser will
continually monitor the value of the underlying collateral to ensure that their
value, including accrued interest, always equals or exceeds the repurchase
price.
Pursuant to an order issued by the Securities and Exchange Commission, the
Fund's portfolios may pool their daily uninvested cash balances in order to
invest in repurchase agreements on a joint basis. By entering into repurchase
agreements on a joint basis, it is expected that the portfolios will incur lower
transaction costs and potentially obtain higher rates of interest on such
repurchase agreements. Each portfolio's participation in the income from jointly
purchased repurchase agreements will be based on that portfolio's percentage
share in the total purchase agreement.
Rights: represent a preemptive right of stockholders to purchase additional
shares of a stock at the time of a new issuance, before the stock is offered to
the general public, allowing the stockholder to retain the same ownership
percentage after the new stock offering.
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SMBS--Stripped Mortgage-Backed Securities: are Derivatives in the form of
multi-class mortgage securities. SMBS may be issued by agencies or
instrumentalities of the U.S. Government and private originators of, or
investors in, mortgage loans, including savings and loan associations, mortgage
banks, commercial banks, investment banks and special purpose entities of the
foregoing.
SMBS are usually structured with two classes that receive different proportions
of the interest and principal distributions on a pool of mortgage assets. One
type of SMBS will have one class receiving some of the interest and most of the
principal from the mortgage assets, while the other class will receive most of
the interest and the remainder of the principal. In some cases, one class will
receive all of the interest (the IO class), while the other class will receive
all of the principal (the principal-only or PO class). The yield to maturity on
IOs and POs is extremely sensitive to the rate of principal payments (including
prepayments) on the related underlying mortgage assets, and a rapid rate of
principal payments may have a material adverse effect on a portfolio yield to
maturity. If the underlying mortgage assets experience greater than anticipated
prepayments of principal, a portfolio may fail to fully recoup its initial
investment in these securities, even if the security is in one of the highest
rating categories.
Although SMBS are purchased and sold by institutional investors through several
investment banking firms acting as brokers or dealers, these securities were
only recently developed. As a result, established trading markets have not yet
developed and, accordingly, certain of these securities may be deemed illiquid
and subject to a portfolio's limitations on investment in illiquid securities.
Structured Investments: are Derivatives in the form of a unit or units
representing an undivided interest(s) in assets held in a trust that is not an
investment company as defined in the Investment Company Act of 1940. A trust
unit pays a return based on the total return of securities and other investments
held by the trust and the trust may enter into one or more Swaps to achieve its
objective. For example, a trust may purchase a basket of securities and agree to
exchange the return generated by those securities for the return generated by
another basket or index of securities. A portfolio will purchase Structured
Investments in trusts that engage in such Swaps only where the counterparties
are approved by MAS in accordance with credit-risk guidelines established by the
Board of Trustees.
Structured Notes: are Derivatives on which the amount of principal repayment and
or interest payments is based upon the movement of one or more factors. These
factors include, but are not limited to, currency exchange rates, interest rates
(such as the prime lending rate and LIBOR) and stock indices such as the S&P 500
Index. In some cases, the impact of the movements of these factors may increase
or decrease through the use of multipliers or deflators. The use of Structured
Notes allows a portfolio to tailor its investments to the specific risks and
returns the Adviser wishes to accept while avoiding or reducing certain other
risks.
Swaps--Swap Contracts: are Derivatives in the form of a contract or other
similar instrument which is an agreement to exchange the return generated by one
instrument for the return generated by another instrument. The payment streams
are calculated by reference to a specified index and agreed upon notional
amount. The term specified index includes, but is not limited to, currencies,
fixed interest rates, prices and total return on interest rate indices,
fixed-income indices, stock indices and commodity indices (as well as amounts
derived from arithmetic operations on these indices). For example, a portfolio
may agree to swap the return generated by a fixed-income index for the return
generated by a second fixed-income index. The currency swaps in which the
portfolios may enter will generally involve an agreement to pay interest streams
calculated by reference to interest income linked to a specified index in one
currency in exchange for a specified index in another currency. Such swaps may
involve initial and final exchanges that correspond to the agreed upon notional
amount.
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A portfolio will usually enter into swaps on a net basis, i.e., the two return
streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with a portfolio receiving or paying, as the case
may be, only the net amount of the two returns. A portfolio's obligations under
a swap agreement will be accrued daily (offset against any amounts owing to the
portfolio) and any accrued but unpaid net amounts owed to a swap counterparty
will be covered by the maintenance of a segregated account consisting of cash,
U.S. Government securities, or high grade debt obligations. A portfolio will not
enter into any swap agreement unless the counterparty meets the rating
requirements set forth in guidelines established by the Fund's Board of
Trustees.
Possible Risks: Interest rate and total rate of return swaps do not involve the
delivery of securities, other underlying assets, or principal. Accordingly, the
risk of loss with respect to interest rate and total rate of return swaps is
limited to the net amount of interest payments that a portfolio is contractually
obligated to make. If the other party to an interest rate or total rate of
return swap defaults, a portfolio's risk of loss consists of the net amount of
interest payments that a portfolio is contractually entitled to receive. In
contrast, currency swaps usually involve the delivery of the entire principal
value of one designated currency in exchange for the other designated currency.
Therefore, the entire principal value of a currency swap is subject to the risk
that the other party to the swap will default on its contractual delivery
obligations. If there is a default by the counterparty, a portfolio may have
contractual remedies pursuant to the agreements related to the transaction. The
swap market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Swaps that include caps, floors, and collars are more recent
innovations for which standardized documentation has not yet been fully
developed and, accordingly, they are less liquid than swaps.
The use of swaps is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. If the Adviser is incorrect in its forecasts of market
values, interest rates, and currency exchange rates, the investment performance
of the portfolios would be less favorable than it would have been if this
investment technique were not used.
Taxable Investments: comprise Fixed-Income Securities and other instruments
which pay income that is not exempt from taxation. Investors may be liable for
tax on the income distributed as a result of the portfolio holding taxable
investments. In this event, shareholders will receive an IRS form 1099
disclosing the taxable income paid for a calendar year.
U.S. Governments--U.S. Treasury securities: are Fixed-Income Securities which
are backed by the full faith and credit of the U.S. Government as to the payment
of both principal and interest.
Warrants: are options issued by a corporation which give the holder the option
to purchase stock.
When-Issued Securities: are securities purchased at a certain price even though
the securities may not be delivered for up to 90 days. No payment or delivery
is made by a portfolio in a when-issued transaction until the portfolio receives
payment or delivery from the other party to the transaction. Although a
portfolio receives no income from the above described securities prior to
delivery, the market value of such securities is still subject to change. As a
consequence, it is possible that the market price of the securities at the time
of delivery may be higher or lower than the purchase price. A portfolio will
maintain with the custodian a separate account with a segregated portfolio of
liquid, high-grade debt securities or cash in an amount at least equal to these
commitments.
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Zero Coupons--Zero Coupon Obligations: are Fixed-Income Securities that do not
make regular interest payments. Instead, zero coupon obligations are sold at
substantial discounts from their face value. The difference between a zero
coupon obligation's issue or purchase price and its face value represents the
imputed interest an investor will earn if the obligation is held until maturity.
Zero coupon obligations may offer investors the opportunity to earn higher
yields than those available on ordinary interest-paying obligations of similar
credit quality and maturity. However, zero coupon obligation prices may also
exhibit greater price volatility than ordinary fixed-income securities because
of the manner in which their principal and interest are returned to the
investor.
GENERAL SHAREHOLDER INFORMATION
PURCHASE, REDEMPTION AND EXCHANGE OF SHARES
Investment Class Shares of each portfolio are offered to investors through
Shareholder Organizations who have a contractual agreement with the Fund's
distributor, including institutions such as trusts, foundations or
broker-dealers purchasing for the accounts of others.
Investment Class Shares of each portfolio except for the Cash Reserves
Portfolio may be purchased at the net asset value per share next determined
after receipt of the purchase order. Such portfolios determine net asset value
at the normal close of trading of the New York Stock Exchange (NYSE)(currently
4:00 P.M. Eastern Time) each day that the portfolios are open for business.
The Cash Reserves Portfolio declares dividends daily and, therefore, at the time
of a purchase must have funds immediately available for investment. As a result,
payment for the purchase of shares must be in the form of Federal Funds (monies
credited to the portfolio's Custodian by a Federal Reserve Bank) before they can
be accepted by the portfolio. The portfolio is credited with Federal Funds on
the same day if the investment is made by Federal Funds wire. Investment Class
Shares of the Cash Reserves Portfolio may be purchased at the net asset value
next determined after an order is received by the portfolio and Federal Funds
are received by the Custodian. The Cash Reserves Portfolio determines net asset
value as of 12:00 noon (Eastern Time) each day that the portfolios are open
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for business. See Other Information-Closed Holidays and Valuation of Shares.
Investors should contact their Shareholder Organizations for information about
how to purchase, redeem and exchange shares. Investment Class Shares of a
portfolio may be exchanged only for Investment Class Shares of another
portfolio.
The Fund reserves the right, in its sole discretion, to suspend the offering of
Investment Class Shares of any of its portfolios or to reject any purchase
orders when, in the judgment of management, such suspension or rejection is in
the best interest of the Fund. The Fund also reserves the right, in its sole
discretion, to waive the minimum initial and subsequent investment amounts.
Purchases of a portfolio's Investment Class Shares will be made in full and
fractional shares of the portfolio calculated to three decimal places. In the
interest of economy and convenience, certificates for shares will not be issued
except at the written request of the shareholder. Certificates for fractional
shares, however, will not be issued.
Investment Class Shares of the Fund's portfolios are sold only through
organizations who provide distributor and Shareholder services to corporations
or other institutions such as trusts, foundations or broker-dealers purchasing
for the accounts of others (Shareholder Organizations). Investors purchasing and
redeeming shares of the portfolios through a Shareholder Organization may be
charged a transaction-based fee or other fee for the services of such
organization. Each Shareholder Organization is responsible for transmitting to
its customers a schedule of any such fees and information regarding any
additional or different conditions regarding purchases and redemptions.
Customers of Shareholder Organizations should read this Prospectus in light of
the terms governing accounts with their organization.
Payment of the redemption proceeds will ordinarily be made within three business
days after receipt of an order for a redemption. The Fund may suspend the right
of redemption or postpone the date of redemption at times when the NYSE, the
Custodian, or the Fund is closed or under any emergency circumstances as
determined by the Securities and Exchange Commission.
If the Board of Trustees determines that it would be detrimental to the best
interests of the remaining shareholders of the Fund to make payment wholly or
partly in cash, the Fund may pay the redemption proceeds in whole or in party by
a distribution in-kind of readily marketable securities held by a portfolio in
lieu of cash in conformity with applicable rules of the Securities and Exchange
Commission. Investors may incur brokerage charges on the sale of portfolio
securities received in such payments of redemptions.
VALUATION OF SHARES
Equity, Select Equity, Value, Small Cap Value, Mid Cap Value, Growth, Mid Cap
Growth, Balanced, Multi-Asset-Class, International Equity and Emerging Markets
Portfolios:
Net asset value per share of each class is determined by dividing the total
market value of each portfolio's investments and other assets, less any
liabilities, by the total outstanding shares of that portfolio. Net asset value
per share is determined as of the normal close of the NYSE (currently 4:00 p.m.
Eastern Time) on each day the portfolio is open for business (See Other
Information-Closed Holidays). Equity Securities listed on a U.S. securities
exchange or NASDAQ for which market quotations are available are valued at the
last quoted sale price on the day the valuation is made. Price information on
listed Equity Securities is taken from the exchange where the security is
primarily traded. Equity Securities listed on a foreign exchange are valued at
the latest quoted sales price available before the time when assets are valued.
For purposes of net asset value per share, all assets and liabilities initially
expressed in foreign currencies are converted into U.S. dollars at the bid price
of such currencies against U.S. dollars. Unlisted Equity Securities and listed
U.S. Equity Securities not traded on the valuation date for which market
quotations are readily available are valued at the mean of the most recent
quoted bid and asked price. The value of other assets and securities for which
no quotations are readily available (including restricted securities) are
determined in good faith at fair value using methods approved by the Trustees.
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Domestic Fixed Income, Fixed Income, Fixed Income Portfolio II, Special Purpose
Fixed Income, High Yield, Limited Duration, Intermediate Duration,
Mortgage-Backed Securities, Balanced, Multi-Asset-Class, Global Fixed Income,
International Fixed Income, Municipal and PA Municipal Portfolios:
Net asset value per share is computed by dividing the total value of the
investments and other assets of the portfolio, less any liabilities, by the
total outstanding shares of the portfolio. The net asset value per share is
determined as of the normal close of the NYSE (currently 4:00 p.m. Eastern Time)
on each day the portfolio is open for business (See Other Information-Closed
Holidays). Bonds and other Fixed-Income Securities listed on a foreign exchange
are valued at the latest quoted sales price available before the time when
assets are valued. For purposes of net asset value per share, all assets and
liabilities initially expressed in foreign currencies will be converted into
U.S. dollars at the bid price of such currencies against U.S. dollars.
Net asset value includes interest on bonds and other Fixed-Income Securities
which is accrued daily. Bonds and other Fixed-Income Securities which are traded
over the counter and on an exchange will be valued according to the
broadest and most representative market, and it is expected that for bonds and
other Fixed-Income Securities this ordinarily will be the over-the-counter
market.
However, bonds and other Fixed-Income Securities may be valued on the basis of
prices provided by a pricing service when such prices are believed to reflect
the fair market value of such securities. The prices provided by a pricing
service are determined without regard to bid or last sale prices but take into
account institutional size trading in similar groups of securities and any
developments related to specific securities. Bonds and other Fixed-Income
Securities not priced in this manner are valued at the most recent quoted bid
price, or when stock exchange valuations are used, at the latest quoted sale
price on the day of valuation. If there is no such reported sale, the latest
quoted bid price will be used. Securities purchased with remaining maturities of
60 days or less are valued at amortized cost when the Board of Trustees
determines that amortized cost reflects fair value. In the event that amortized
cost does not approximate market, market prices as determined above will be
used. Other assets and securities, for which no quotations are readily available
(including restricted securities), will be valued in good faith at fair value
using methods approved by the Board of Trustees.
Cash Reserves Portfolio: The net asset value per share of the Cash Reserves
Portfolio is calculated daily as of 12:00 noon (Eastern Time) on each day that
the portfolio is open for business (See Other Information-Closed Holidays). The
portfolio determines its net asset value per share by subtracting the
portfolio's liabilities (including accrued expenses and dividends payable) from
the total value of the portfolio's investments and other assets and dividing the
result by the total outstanding shares of the portfolio.
For the purpose of calculating the portfolio's net asset value per share,
securities are valued by the amortized cost method of valuation, which does not
take into account unrealized gains or losses. This involves valuing an
instrument at its cost and thereafter assuming a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. While this method provides
certainty in valuation, it may result in periods during which value based on
amortized cost is higher or lower than the price the portfolio would receive if
it sold the instrument.
The use of amortized cost and the maintenance of the portfolio's per share net
asset value at $1.00 is based on its election to operate under the provisions of
Rule 2a-7 under the Investment Company Act of 1940, as amended. As conditions of
operating under Rule 2a-7, the portfolio must maintain a dollar-weighted average
portfolio maturity of 90 days or less, purchase only instruments having
remaining maturities of thirteen months or less and invest only in U.S.
dollar-denominated securities which are determined by the Trustees to present
minimal credit risks and which are of eligible quality as determined under the
rule.
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The Trustees have also agreed to establish procedures reasonably designed,
taking into account current market conditions and the portfolio's investment
objective, to stabilize the net asset value per share as computed for the
purposes of sales and redemptions at $1.00. These procedures include periodic
review, as the Trustees deem appropriate and at such intervals as are reasonable
in light of current market conditions, of the relationship between the amortized
cost value per share and a net asset value per share based upon available
indications of market value. In such a review, investments for which market
quotations are readily available are valued at the most recent bid price or
quoted yield equivalent for such securities or for securities of comparable
maturity, quality and type as obtained from one or more of the major market
makers for the securities to be valued. Other investments and assets are valued
at fair value, as determined in good faith by the Trustees.
In the event of a deviation of over 1/2 of 1% between a portfolio's net asset
value based upon available market quotations or market equivalents and $1.00 per
share based on amortized cost, the Trustees will promptly consider what action,
if any, should be taken. The Trustees will also take such action as they deem
appropriate to eliminate or to reduce to the extent reasonably practicable any
material dilution or other unfair results which might arise from differences
between the two. Such action may include redeeming shares in kind, selling
instruments prior to maturity to realize capital gains or losses or to shorten
average maturity, withholding dividends, paying distributions from capital or
capital gains, or utilizing a net asset value per share not equal to $1.00 based
upon available market quotations.
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES: Dividends and Capital Gains
Distributions: The Fund maintains different dividend and capital gain
distribution policies for each portfolio. These are:
o The Equity, Value, Growth, Fixed Income, Fixed Income Portfolio II, Special
Purpose Fixed Income, High Yield, Limited Duration, Intermediate Duration,
Mortgage-Backed Securities, Balanced, Multi-Asset-Class, Global Fixed Income,
International Fixed Income, Select Equity and Domestic Fixed Income Portfolios
normally distribute substantially all of their net investment income to
shareholders in the form of quarterly dividends.
o The International Equity, Small Cap Value, Mid Cap Value, Mid Cap Growth and
Emerging Markets Portfolios normally distribute substantially all of their net
investment income in the form of annual dividends.
o The Municipal and the PA Municipal Portfolios normally distribute
substantially all of their net investment income in the form of monthly
dividends.
o The Cash Reserves Portfolio declares dividends daily and normally distributes
substantially all of its investment income in the form of monthly dividends.
If any portfolio does not have income available to distribute, as determined in
compliance with the appropriate tax laws, no distribution will be made.
If any net capital gains are realized from the sale of underlying securities,
the portfolios normally distribute such gains with the last dividend for the
calendar year.
All dividends and capital gains distributions are automatically paid in
additional shares of the portfolio unless the shareholder elects otherwise. Such
election must be made in writing to the Fund and may be made on the Account
Registration Form.
In all portfolios except the Cash Reserves Portfolio, undistributed net
investment income is included in the portfolio's net assets for the purpose of
calculating net asset value per share. Therefore, on the ex-dividend date, the
net asset value per share excludes the dividend (i.e., is reduced by the per
share amount of the dividend). Dividends paid shortly after the purchase of
shares by an investor, although in effect a return of capital, are taxable as
ordinary income.
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Certain Mortgage Securities may provide for periodic or unscheduled payments of
principal and interest as the mortgages underlying the securities are paid or
prepaid. However, such principal payments (not otherwise characterized as
ordinary discount income or bond premium expense) will not normally be
considered as income to the portfolio and therefore will not be distributed as
dividends. Rather, these payments on mortgage-backed securities will be
reinvested on behalf of the shareholders by the portfolio in accordance with its
investment objectives and policies.
Special Considerations for the Cash Reserves Portfolio: Net investment income is
computed and dividends declared as of 12:00 noon (Eastern Time), on each day.
Such dividends are payable to Cash Reserves Portfolio shareholders of record as
of 12:00 noon (Eastern Time) on that day, if the portfolio is open for business.
Shareholders who redeem prior to 12:00 noon (Eastern Time) are not entitled to
dividends for that day. Dividends declared for Saturdays, Sundays and holidays
are payable to shareholders of record as of 12:00 noon (Eastern Time) on the
preceding business day on which the portfolio was open for business.
For the purpose of calculating dividends, net income shall consist of interest
earned, including any discount or premium ratably amortized to the date of
maturity, minus estimated expenses of the portfolio.
Net realized short-term capital gains, if any, of the Cash Reserves Portfolio
will be distributed whenever the Trustees determine that such distributions
would be in the best interest of shareholders, but at least once a year. The
portfolio does not expect to realize any long-term capital gains. Should any
such gains be realized, they will be distributed annually.
Federal Taxes: Each portfolio of the Fund intends to qualify for taxation as a
regulated investment company under the Code so that each portfolio will not be
subject to Federal income tax to the extent it distributes its income to its
shareholders. Dividends, either in cash or reinvested in shares, paid by a
portfolio from net investment income will be taxable to shareholders as ordinary
income, except for the Municipal and PA Municipal Portfolios (see Special Tax
Considerations for the Municipal and PA Municipal Portfolios). In the case of
the Equity, Value, Small Cap Value, Mid Cap Growth, Growth, Balanced,
Multi-Asset-Class, Mid Cap Value, Select Equity, and Select Value Portfolios,
such dividends will generally qualify in part for the dividends received
deduction for corporations, but the portion of the dividends so qualified
depends on the aggregate taxable qualifying dividend income received by each
portfolio from domestic (U.S.) sources. The Fund will send each shareholder a
statement each year indicating the amount of the dividend income which qualifies
for such treatment.
Whether paid in cash or additional shares of a portfolio, and regardless of the
length of time the shares in such portfolio have been owned by the shareholder,
distributions from long-term capital gains are taxable to shareholders as such,
but are not eligible for the dividends received deduction for corporations.
Shareholders are notified annually by the Fund as to Federal tax status of
dividends and distributions paid by a portfolio. Such dividends and
distributions may also be subject to state and local taxes.
Exchanges and redemptions of shares in a portfolio are taxable events for
Federal income tax purposes. Individual shareholders may also be subject to
state and municipal taxes on such exchanges and redemptions.
Each portfolio intends to declare and pay dividends and capital gain
distributions so as to avoid imposition of the Federal excise tax. To do so,
each portfolio expects to distribute an amount at least equal to (i) 98% of its
calendar year ordinary income, (ii) 98% of its capital gains net income (the
excess of short and long-term capital gain over short and long-term capital
loss) for the one-year period ending October 31st, and (iii) 100% of any
undistributed ordinary and capital gain net income from the prior year.
Dividends declared in December by a portfolio will be deemed to have been paid
by such portfolio and received by shareholders on the record date provided that
the dividends are paid before February 1 of the following year.
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<PAGE>
The Fund is required by Federal law to withhold 31% of reportable payments
(which may include dividends, capital gains distributions, and redemptions) paid
to shareholders who have not complied with IRS regulations. In order to avoid
this withholding requirement, you must certify on the Account Registration Form
that your Social Security or Taxpayer Identification Number provided is correct
and that you are not currently subject to back-up withholding, or that you are
exempt from back-up withholding.
Special Considerations. Under the Code if more than 50% of a portfolio's
securities is owned by five or fewer persons, the portfolio may be a "personal
holding company" and subject to Federal income tax.
Foreign Income Taxes: Investment income received by the portfolios from sources
within foreign countries may be subject to foreign income taxes withheld at the
source. The U.S. has entered into Tax Treaties with many foreign countries which
entitle these portfolios to a reduced rate of tax or exemption from tax on such
income. It is impossible to determine the effective rate of foreign tax in
advance since the amount of the portfolios' assets to be invested within various
countries is not known. The portfolios intend to operate so as to qualify for
treaty reduced rates of tax where applicable.
The International Equity, Emerging Markets, Global Fixed Income and
International Fixed Income Portfolios may file an election with the Internal
Revenue Service to pass through to the portfolio's shareholders the amount of
foreign income taxes paid by the portfolio, but may do so only if more than 50%
of the value of the total assets of the portfolio at the end of the fiscal year
is represented by foreign securities. These portfolios will make such an
election only if they deem it to be in the best interests of their shareholders.
If this election is made, shareholders of the portfolio will be required to: (i)
include in gross income, even though not actually received, their respective pro
rata share of foreign taxes paid by the portfolio; (ii) treat their pro rata
share of foreign taxes as paid by them; and (iii) either deduct their pro rata
share of foreign taxes in computing their taxable income or use it within the
limitations set forth in the Internal Revenue Code as a foreign tax credit
against U.S. income taxes (but not both). No deduction for foreign taxes may be
claimed by a shareholder who does not itemize deductions.
Each shareholder of the portfolio will be notified within 60 days after the
close of each taxable (fiscal) year of the Fund if the foreign taxes paid by the
portfolio will pass through for that year, and, if so, the amount of each
shareholder's pro rata share (by country) of (i) the foreign taxes paid, and
(ii) the portfolio's gross income from foreign sources. Shareholders who are not
liable for Federal income taxes, such as retirement plans qualified under
Section 401 of the Internal Revenue Code, will not be affected by any such "pass
through" of foreign tax credits.
State and Local Taxes: The Fund is formed as a Pennsylvania Business Trust and
therefore is not liable, under current law, for any corporate income or
franchise tax of the Commonwealth of Pennsylvania. The Fund will provide
Pennsylvania taxable values on a per share basis.
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<PAGE>
Special Tax Considerations for the Municipal and PA Municipal Portfolios: These
portfolios intend to invest a sufficient portion of their assets in municipal
bonds and notes so that each will qualify to pay exempt-interest dividends to
shareholders. Such exempt-interest dividends are excluded from a shareholder's
gross income for Federal personal income tax purposes. Tax-exempt dividends
received from the Municipal and PA Municipal Portfolios may be subject to state
and local taxes. However, some states allow shareholders to exclude that portion
of a portfolio's tax-exempt income which is attributable to municipal securities
issued within the shareholder's state of residence. Furthermore, the PA
Municipal Portfolio invests at least 65% of its assets in PA Municipals. As a
result, the income of the portfolio that is derived from PA Municipals and U.S.
Governments will not be subject to the Pennsylvania personal income tax or to
the Philadelphia School District investment net income tax. Distributions by the
PA Municipal Portfolio to a Pennsylvania resident that are attributable to most
other sources may be subject to the Pennsylvania personal income tax and (for
residents of Philadelphia) to the Philadelphia School District investment net
income tax. To the extent, if any, that dividends paid to shareholders of the
Municipal and PA Municipal Portfolios are derived from taxable interest or
long-term or short-term capital gains, such dividends will be subject to Federal
personal income tax (whether such dividends are paid in cash or in additional
shares) and may also be subject to state and local taxes. In addition, the
Municipal and PA Municipal Portfolios may invest in private activity municipal
securities, the interest on which is subject to the Federal alternative minimum
tax for individuals (AMT bonds). To the extent that the portfolios invest in AMT
bonds, individuals who are subject to the AMT will be required to report a
portion of dividends as a tax preference item in determining their federal
taxes. A shareholder may lose the tax exempt status of the accrual income of
these portfolios if they redeem their shares before a dividend has been
declared.
TRUSTEES OF THE TRUST: The management and affairs of the Trust are supervised by
the Trustees under the laws governing business trusts in the Commonwealth of
Pennsylvania. The Trustees have approved contracts under which, as described
above, certain companies provide essential management, administrative and
shareholder services to the Trust.
INVESTMENT ADVISER: The Investment Adviser to the Fund, Miller Anderson &
Sherrerd, LLP (the Adviser), is a Pennsylvania limited liability partnership
founded in 1969 and is located at One Tower Bridge, West Conshohocken, PA 19428.
Miller Anderson & Sherrerd, LLP is an Equal Opportunity/Affirmative Action
Employer. The Adviser provides investment services to employee benefit plans,
endowment funds, foundations and other institutional investors and as of the
date of this prospectus had in excess of $__ billion in assets under management.
On _________________, Morgan Stanley Group Inc. acquired Miller Anderson &
Sherrerd, LLP (the "Adviser") in a transaction in which Morgan Stanley Asset
Management Holdings Inc., an indirect wholly owned subsidiary of Morgan Stanley
Group Inc., became the sole general partner of the Adviser. Morgan Stanley Asset
Management Holdings Inc. and two other wholly owned subsidiaries of Morgan
Stanley Group Inc. became the limited partners of the Adviser. In connection
with this transaction, the Adviser entered into a new investment management
agreement with the MAS Funds dated as of _________________, which agreement was
approved by the shareholders of each Portfolio at a special meeting held on
October 6, 1995. The Adviser will retain its name and remain at its current
location, One Tower Bridge, West Conshohocken, PA 19428. The Adviser will
continue to provide investment counseling services to the employee benefit
plans, endowments, and other institutional investors.
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Under an Investment Advisory Agreement (Agreement) with the Fund, dated as of
July 1, 1988, the Adviser, subject to the control and supervision of the Fund's
Board of Trustees and in conformance with the stated investment objectives and
policies of each portfolio of the Fund, manages the investment and reinvestment
of the assets of each portfolio of the Fund. In this regard, it is the
responsibility of the Adviser to make investment decisions for the Fund's
portfolios and to place each portfolio's purchase and sales orders. As
compensation for the services rendered by the Adviser under the Agreement, each
portfolio pays the Adviser an advisory fee calculated by applying a quarterly
rate, based on the following annual percentage rates, to the portfolio's average
daily net assets for the quarter:
Rate
Emerging Markets Portfolio* .750%
Equity Portfolio .500
Growth Portfolio .500
International Equity Portfolio .500
Mid Cap Growth Portfolio .500
Mid Cap Value Portfolio* .750
Small Cap Value Portfolio* .750
Value Portfolio .500
Cash Reserves Portfolio .250
Domestic Fixed Income Portfolio .375
Fixed Income Portfolio .375
Fixed Income Portfolio II .375
Global Fixed Income Portfolio .375
High Yield Portfolio .375
Intermediate Duration Portfolio .375
International Fixed Income Portfolio .375
Limited Duration Portfolio .300
Mortgage-Backed Securities Portfolio .375
Municipal Portfolio .375
PA Municipal Portfolio .375
Special Purpose Fixed Income Portfolio .375
Balanced Portfolio .450
Multi-Asset-Class Portfolio .450
Select Equity Portfolio .500
* Advisory fees in excess of 0.750% of average net assets are considered higher
than normal for most investment companies, but are not unusual for portfolios
that invest primarily in small capitalization stocks or in countries with
emerging market economies.
Until further notice, the Adviser has voluntarily agreed to waive its advisory
fees and reimburse certain expenses to the extent necessary to keep Total
Operating Expenses for the Emerging Markets, Mid Cap Value, Cash Reserves,
Domestic Fixed Income, Global Fixed Income, High Yield, Intermediate Duration,
International Fixed Income, Limited Duration, Mortgage-Backed Securities,
Municipal, PA Municipal, Multi-Asset-Class and Select Equity Portfolios from
exceeding 1.18%, 0.88%, 0.32%, 0.50%, 0.58%, 0.525%, 0.52%, 0.60%, 0.42%, 0.50%,
0.50%, 0.50%, 0.58% and 0.61%, respectively.
For the fiscal year ended September 30, 1995, the Adviser received ____________
as compensation for its services.
DISTRIBUTION PLAN. The Board of Trustees has approved a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 of the 1940 Act (the "Rule". Under this Plan, the
Distributor is compensated at an annual rate of ___% of the average aggregate
daily net assets of the Investment Class shares of each Portfolio. The Plan
permits the Distributor, at its sole discretion, to use all or a portion of the
fee received, to pay financial institutions or other industry professionals such
as investment advisers, accountants, banks, and estate planning firms for
distribution and shareholder support services.
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PORTFOLIO MANAGEMENT
The investment professionals of MAS who are primarily responsible for the
day-to-day management of the Fund's portfolios are as follows:
Equity and Select Equity Portfolios - Arden C. Armstrong, John D. Connolly,
Timothy G. Connors, Nicholas J. Kovich, Robert J. Marcin, Gary G.
Schlarbaum, and A. Morris Williams, Jr.;
Value Portfolio - Robert J. Marcin and A. Morris Williams, Jr.;
Small Cap Value and Mid Cap Value Portfolios - Gary G. Schlarbaum, Gary D.
Haubold and Bradley S. Daniels;
Mid Cap Growth Portfolio - Arden C. Armstrong and John D. Connolly;
Growth Portfolio - Arden C. Armstrong, John D. Connolly and Timothy G.
Connors;
Fixed Income, Domestic Fixed Income, Special Purpose Fixed Income and Fixed
Income II Portfolios - Thomas L. Bennett, Kenneth B. Dunn, James L.
Kichline and Richard B. Worley;
Mortgage-Backed Securities Portfolio - Kenneth B. Dunn and Scott F.
Richard;
High Yield Portfolio - Stephen F. Esser and Thomas L. Bennett;
Cash Reserves Portfolio - Ellen D. Harvey and James L. Kichline;
Limited Duration and Intermediate Duration Portfolios - Ellen D. Harvey,
James L. Kichline, Scott F. Richard and Christian G. Roth.
Municipal and PA Municipal Portfolios - Kenneth B Dunn, Steven K. Kreider,
and Scott F. Richard;
Balanced Portfolio - John D. Connolly, Gary G. Schlarbaum, Thomas L.
Bennett, James L. Kichline and Richard B. Worley;
Multi-Asset-Class Portfolio - John D. Connolly, Gary G. Schlarbaum, Thomas
L. Bennett, J. David Germany, James L. Kichline, Horacio A. Valeiras, Dean
Williams and Richard B. Worley;
International Equity and Emerging Markets Portfolios - Dean Williams and
Horacio A. Valeiras;
Global Fixed Income and International Fixed Income Portfolios - J. David
Germany, James L. Kichline and Richard B. Worley.
A description of their business experience during the past five years is as
follows:
Arden C. Armstrong, Partner, joined MAS in 1986. She assumed responsibility
for the Mid Cap Growth Portfolio in 1990, the Growth Portfolio in 1993 and
the Equity and Select Equity Portfolios in 1994.
Thomas L. Bennett, Partner, joined MAS in 1984. He assumed responsibility
for the Fixed Income Portfolio in 1984, the Domestic Fixed Income Portfolio
1987, the High Yield Portfolio in 1989, the Fixed Income Portfolio II in
1990, the Special Purpose Fixed Income and Balanced Portfolios in 1992 and
the Multi-Asset-Class Portfolio in 1994.
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Timothy G. Connors, Portfolio Manager, joined MAS in 1994. Mr. Connors
served as Vice President and Managing Director of CoreStates Investment
Advisers from 1986 to 1994. He assumed responsibility for the Equity,
Select Equity and Growth Portfolios in 1994.
John D. Connolly, Partner, joined MAS in 1990. Mr. Connolly served as
Senior Vice President and Chief Investment Strategist at Dean Witter
Reynolds from 1984 to 1990. He assumed responsibility for the Equity,
Select Equity and Mid Cap Growth Portfolios in 1990, the Balanced Portfolio
in 1992, the Growth Portfolio in 1993 and the Multi-Asset-Class Portfolio
in 1994.
Bradley S. Daniels, Portfolio Manager, joined MAS in 1985. He assumed
responsibility for the Small Cap Value Portfolio in 1986 and the Mid Cap
Value Portfolio in 1994.
Kenneth B. Dunn, Partner, joined MAS in 1987. He assumed responsibility for
the Fixed Income and the Domestic Fixed Income Portfolios in 1987, the
Fixed Income II Portfolio in 1990, the Mortgage-Backed Securities and
Special Purpose Fixed Income Portfolios in 1992, and the Municipal and PA
Municipal Portfolios in 1994.
Stephen F. Esser, Partner, joined MAS in 1988. He assumed responsibility
for the High Yield Portfolio in 1989.
J. David Germany, Partner, joined MAS in 1991. He served as Vice President
& Senior Economist for Morgan Stanley & Co. from 1989 to 1991. He assumed
responsibility for the Global Fixed Income and International Fixed Income
Portfolios in 1993 and the Multi-Asset-Class Portfolio in 1994.
Ellen D. Harvey, Partner, joined MAS in 1984. She assumed responsibility
for the Cash Reserves Portfolio in 1990, the Limited Duration Portfolio in
1992 and the Intermediate Duration Portfolio in 1994.
Gary D. Haubold, Portfolio Manager, joined MAS in 1993. Mr. Haubold served
as Senior Vice President at Wood, Struthers & Winthrop in 1993. He assumed
responsibility for the Small Cap Value Portfolio in 1993 and the Mid Cap
Value Portfolio in 1994.
James L. Kichline, Partner, joined MAS in 1987. He assumed responsibility
for the Fixed Income and Domestic Fixed Income Portfolios in 1987, the Cash
Reserves and Fixed Income II Portfolios in 1990, the Balanced, Limited
Duration and Special Purpose Fixed Income Portfolios in 1992, the Global
Fixed Income Portfolio in 1993 and the International Fixed Income,
Intermediate Duration and Multi-Asset- Class Portfolios in 1994.
Nicholas J. Kovich, Partner, joined MAS in 1988. He assumed responsibility
for the Equity and Select Equity Portfolios in 1994.
Steven K. Kreider, Partner, joined MAS in 1988. He assumed responsibility
for the Municipal and the PA Municipal Portfolios in 1992.
Robert J. Marcin, Partner, joined MAS in 1988. He assumed responsibility
for the Value Portfolio in 1990 and the Equity and Select Equity Portfolios
in 1994.
Scott F. Richard, Partner, joined MAS in 1992. He served as Vice President,
Head of Fixed Income Research & Model Development for Goldman, Sachs & Co.
from 1987 to 1991 and as Head of Mortgage Research in 1992. He assumed
responsibility for the Mortgage-Backed Securities Portfolio in 1992 and the
Intermediate Duration, Municipal and PA Municipal Portfolios in 1994.
Christian G. Roth, Portfolio Manager, joined MAS in 1991. He served as
Senior Associate, Dean Witter Capital Corporation from 1987 to 1991. He
assumed responsibility for the Intermediate Duration Portfolio in 1994.
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<PAGE>
Gary G. Schlarbaum, Partner, joined MAS in 1987. He assumed responsibility
for the Equity and Small Cap Value Portfolios in 1987, the Select Equity
Portfolio in 1988, the Balanced Portfolio in 1992 and the Multi-Asset-Class
and Mid Cap Value Portfolios in 1994.
Horacio A. Valeiras, Partner, joined MAS in 1992. He served as an
International Strategist from 1989 through 1992 for Credit Suisse First
Boston and as Director-Equity Research in 1992. He assumed responsibility
for the International Equity Portfolio in 1992, the Emerging Markets
Portfolio in 1993 and the Multi-Asset-Class Portfolio in 1994.
A. Morris Williams, Jr., Partner, joined MAS in 1973. He assumed
responsibility for the Equity Portfolio in 1984, the Select Equity
Portfolio in 1988 and the Value Portfolio in 1984.
Dean Williams, Partner, joined MAS in 1988. He assumed responsibility for
the International Equity Portfolio in 1988 and the Emerging Markets and
Multi-Asset-Class Portfolios in 1994.
Richard B. Worley, Partner, joined MAS in 1978. He assumed responsibility
for the Fixed Income Portfolio in 1984, the Domestic Fixed Income Portfolio
in 1987, the Fixed Income Portfolio II in 1990, the Balanced and Special
Purpose Fixed Income Portfolios in 1992, the Global Fixed Income and
International Fixed Income Portfolios in 1993 and the Multi-Asset-Class
Portfolio in 1994.
ADMINISTRATIVE SERVICES: MAS serves as Administrator to the Fund pursuant
to an Administration Agreement dated as of November 18, 1993.
Administrative services provided by MAS include shareholder communication
services, regulatory reporting, office space and personnel. Chase Global
Funds Services Company, a subsidiary of The Chase Manhattan Bank, N.A., 73
Tremont Street, Boston MA 02108-3913, serves as Transfer Agent to the Fund
pursuant to an agreement also dated as of November 18, 1993, and provides
fund accounting and other services pursuant to a sub-administration
agreement with MAS as Administrator. Under its Administration Agreement
with the Fund, MAS receives an annual fee, accrued daily and payable
monthly, of 0.08% of the Fund's average daily net assets, and is
responsible for all fees payable under any sub-administration agreements.
GENERAL DISTRIBUTION AGENT: Shares of the Fund are distributed exclusively
through MAS Fund Distribution, Inc., a wholly-owned subsidiary of the
Adviser.
PORTFOLIO TRANSACTIONS: The investment advisory agreement authorizes the
Adviser to select the brokers or dealers that will execute the purchases
and sales of investment securities for each of the Fund's portfolios and
directs the Adviser to use its best efforts to obtain the best execution
with respect to all transactions for the portfolios. In doing so, a
portfolio may pay higher commission rates than the lowest available when
the Adviser believes it is reasonable to do so in light of the value of the
research, statistical, and pricing services provided by the broker
effecting the transaction.
It is not the Fund's practice to allocate brokerage or principal business
on the basis of sales of shares which may be made through intermediary
brokers or dealers. However, the Adviser may place portfolio orders with
qualified broker-dealers who recommend the Fund's Portfolios or who act as
agents in the purchase of shares of the portfolios for their clients.
Some securities considered for investment by each of the Fund's portfolios
may also be appropriate for other clients served by the Adviser. If
purchase or sale of securities consistent with the investment policies of a
portfolio and one or more of these other clients served by the Adviser is
considered at or about the same time, transactions in such securities will
be allocated among the portfolio and clients in a manner deemed fair and
reasonable by the Adviser. Although there is no specified formula for
allocating such transactions, the various allocation methods used by the
Adviser, and the results of such allocations, are subject to periodic
review by the Fund's Trustees.
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<PAGE>
OTHER INFORMATION: Description of Shares and Voting Rights: The Fund was
established under Pennsylvania law by a Declaration of Trust dated February
15, 1984, as amended and restated as of November 18, 1993. The Fund is
authorized to issue an unlimited number of shares of beneficial interest,
without par value, from an unlimited number of series (portfolios) of
shares. Currently the Fund consists of twenty-six portfolios.
The shares of each portfolio of the Fund are fully paid and non-assessable,
and have no preference as to conversion, exchange, dividends, retirement or
other features. The shares of each portfolio of the Fund have no
pre-emptive rights. The shares of the Fund have non-cumulative voting
rights, which means that the holders of more than 50% of the shares voting
for the election of Trustees can elect 100% of the Trustees if they choose
to do so. Shareholders are entitled to one vote for each full share held
(and a fractional vote for each fractional share held), then standing in
their name on the books of the Fund.
Meetings of shareholders will not be held except as required by the
Investment Company Act of 1940, as amended, and other applicable law. A
meeting will be held to vote on the removal of a Trustee or Trustees of the
Fund if requested in writing by the holders of not less than 10% of the
outstanding shares of the Fund. The Fund will assist in shareholder
communication in such matters to the extent required by law.
Custodians: The Chase Manhattan Bank N.A., New York, NY and Morgan Stanley
Trust Company (NY), Brooklyn, NY serve as custodians for the Fund. The
custodians hold cash, securities and other assets of the Fund as required
by the 1940 Act.
Transfer and Dividend Disbursing Agent: Chase Global Funds Services
Company, a subsidiary of The Chase Manhattan Bank, N.A., 73 Tremont Street,
Boston, MA 02108-3913.
Reports: Shareholders receive semiannual and annual financial statements.
Annual financial statements are audited by Price Waterhouse LLP,
independent accountants.
Litigation: The Fund is not involved in any litigation.
Closed Holidays: Currently, the weekdays on which the Fund is closed for
business are: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. In
addition, the Fixed Income, Special Purpose Fixed Income, Fixed Income
Portfolio II, Limited Duration, Cash Reserves, High Yield, Mortgage-Backed
Securities, Intermediate Duration, International Fixed Income, Global Fixed
Income, Domestic Fixed Income, Municipal, and PA Municipal Portfolios will
be closed on Martin Luther King Day, Columbus Day, and Veteran's Day.
65
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The following is a list of the Trustees and the principal executive
officers of the Fund and a brief statement of their present positions and
principal occupations during the past five years:
Thomas L. Bennett,* Chairman of the Board of Trustees; Partner, Miller
Anderson & Sherrerd, LLP; Director, MAS Fund Distribution, Inc.
David P. Eastburn, Trustee; Retired; formerly: Director (Trustee) of each
of the investment companies in The Vanguard Group, except Vanguard
Specialized Portfolios; Director of Penn Mutual Life Insurance Company and
General Accident Insurance; President, Federal Reserve Bank of
Philadelphia.
Joseph P. Healey, Trustee; Headmaster, Haverford School; formerly Dean,
Hobart College; Associate Dean, William & Mary College.
Joseph J. Kearns, Trustee; Vice President and Treasurer, The J. Paul Getty
Trust.
C. Oscar Morong, Jr., Trustee; Managing Director, Morong Capital
Management; Director, Ministers and Missionaries Benefit Board of American
Baptist Churches, The Indonesia Fund, The Landmark Funds; formerly Senior
Vice President and Investment Manager for CREF, TIAA-CREF Investment
Management, Inc.
*Trustee Bennett is deemed to be an "interested person" of the Fund as that
term is defined in the Investment Company Act of 1940, as amended.
James D. Schmid, President; Partner, Miller Anderson & Sherrerd, LLP;
Director, MAS Fund Distribution, Inc.; Chairman of the Board of Directors,
The Minerva Fund, Inc.; formerly Vice President, Chase Manhattan Bank.
Lorraine Truten, CFA, Vice President; Head of Mutual Fund Administration,
Miller Anderson & Sherrerd, LLP; President, MAS Fund Distribution, Inc.
Douglas W. Kugler, Treasurer; Manager of Mutual Fund Administration, Miller
Anderson & Sherrerd, LLP; formerly Assistant Vice President, Provident
Financial Processing Corporation.
John H. Grady, Jr., Secretary of the Fund since July 1995; Partner, Morgan,
Lewis & Bockius; LLP, formerly Attorney, Ropes & Gray.
Remuneration of Trustees and Officers: The Fund pays each Trustee, who is
not also an officer or affiliated person, an annual fee plus travel and
other expenses incurred in attending Board meetings. Trustees who are also
officers or affiliated persons receive no remuneration for their service as
Trustees. The Fund's officers are paid by the Adviser or Chase Global Funds
Services Company except for Mr. Grady who receives no compensation for his
services.
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December 23, 1994
Supplemented Through September 15, 1995
Investment Adviser and Administrator: Transfer Agent:
Miller Anderson & Sherrerd, LLP Chase Global Funds Services
Company
One Tower Bridge 73 Tremont Street
West Conshohocken, Boston, Massachusetts 02108-0913
Pennsylvania 19428-2899
General Distribution Agent:
MAS Fund Distribution, Inc.
One Tower Bridge
P.O. Box 868
West Conshohocken,
Pennsylvania 19428-0868
Table of Contents
<TABLE>
<CAPTION>
Page Page
<S> <C> <C> <C>
Fund Expenses 2 General Information
Prospectus Summary 4 Other Information 52
Financial Highlights 8 Purchase of Shares 52
Yield and Total Return 14 Redemption of Shares 53
Investment Suitability 15 Shareholder Services 54
Investment Limitations 15 Valuation of Shares 54
Portfolio Summaries 17 Dividends, Capital Gains Distributions
Equity Investments 17 and Taxes 56
Fixed-Income Investments 21 Investment Adviser 58
Prospectus Glossary: Portfolio Management 59
Strategies 36 Administrative Services 61
Investments 41 General Distribution Agent 62
Portfolio Transactions 62
Trustees and Officers 64
</TABLE>
67
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ACCOUNT REGISTRATION FORM
MAS Fund Distribution, Inc.
General Distribution Agent
REGISTRATION/PRIMARY MAILING ADDRESS
City ______________________________________ State________________ Zip________
Telephone No.__________
Type of Account:
o Defined Benefit Plan
o Defined Contribution Plan
o Profit Sharing/Thrift Plan
o Other Employee Benefit Plan
o Endowment
o Foundation
o Taxable
o Other (Specify)
o United States Citizen
o Resident Alien
o Non-Resident Alien, Indicate Country of Residence
INTERESTED PARTY MAILING ADDRESS (Optional)
Street or P.O. Box
Attention:
City ______________________________________ State________________ Zip________
Telephone No.____________
INTERESTED PARTY MAILING ADDRESS (Optional)
Street or P.O. Box
Attention:
City ______________________________________ State________________ Zip________
Telephone No.
INTERESTED PARTY MAILING ADDRESS (Optional)
Street or P.O. Box
Attention:
City ______________________________________ State________________ Zip________
Telephone No.
INVESTMENT
For Purchase of:
o Equity Portfolio
o Value Portfolio
o Growth Portfolio
o Mid Cap Growth Portfolio
o Balanced Portfolio
o Multi-Asset-Class Portfolio
o Balanced Investing--Indicate Portfolios
o Fixed Income Portfolio
o Fixed Income Portfolio II
o Special Purpose Fixed Income Portfolio
o High Yield Portfolio
o Limited Duration Fixed Income Portfolio
o Intermediate Duration Portfolio
o Mortgage-Backed Securities Portfolio
o Cash Reserves Portfolio
o International Equity Portfolio
o Emerging Markets Portfolio
o International Fixed Income Portfolio
o Global Fixed Income Portfolio
o Municipal Portfolio
o PA Municipal Portfolio
o Mid Cap Value Portfolio
o Domestic Fixed Income Portfolio
68
<PAGE>
TAXPAYER IDENTIFICATION NUMBER
Part 1.
Social Security Number
- -
- --------------------------
or
Employer Identification Number
-
- ------------
Part 2. BACKUP WITHHOLDING
o Check the box if the account is subject to
Backup Withholding under the provisions of Section 3406(a)(1)(C) of the
Internal Revenue Code.
IMPORTANT TAX INFORMATION
You (as payee) are required by law to provide us (as payer) with your current
taxpayer identification number. Accounts that have a missing or incorrect
taxpayer identification number will be subject to backup withholding at a 31%
rate on ordinary income and capital gains distributions as well as redemptions.
Backup withholding is not an additional tax; the tax liability of persons
subject to backup withholding will be reduced by the amount of tax withheld.
You may be notified that you are subject to backup withholding under section
3406(a)(1)(C) because you have underreported interest or dividends or you were
required to, but failed to, file a return which would have included a reportable
interest or dividend payment. If you have been so notified, check the box in
PART 2 at left.
TELEPHONE REDEMPTION OPTION
The Fund is hereby authorized to honor any telephone
or telegraphic requests believed to be authentic for the following:
(check one or both)
o Mailing of Redemption proceeds to the name and address in Section 1 above.
o Wire of Redemption proceeds to:
__________________________ Name of Commercial Bank (Not Savings Bank)
Bank Account Number
_____________________________________________________________________________
Name(s) in which your Bank Account is Established
_____________________________________________________________________________
Bank's Street Address
_____________________________________________________________________________
City State Zip Routing/ABA Number
69
<PAGE>
DISTRIBUTION OPTION
o Income dividends and capital gains distributions to be reinvested in
additional shares.
o Income dividends and capital gains distributions to be paid in cash.
o Income dividends in cash and capital gains distributions in additional shares.
If cash option is chosen, please indicate instructions below:
o Mail distribution check to the name and address in which account is
registered.
o Wire distributions to the same Commercial Bank indicated in Section 5 above.
o Wire distributions to:
_________Name of Commercial Bank (Not Savings Bank)________ Bank Account Number
Name(s) in which your Bank Account is Established
Bank's Street Address
City____________________ State________________ Zip__________ Routing/ABA Number
SIGNATURE(S) OF ALL HOLDERS AND TAXPAYER CERTIFICATION
The undersigned certify that I/we have full authority and legal capacity to
purchase shares of the Fund and affirm that I/we have received a current
Prospectus of the MAS Funds and agree to be bound by its terms. Under penalties
of perjury I/we certify that the information provided in Section 4 above is
true, correct and complete.
(X)____________________________________________________
Signature_____________________________ Date_______________
(X)___________________________________
Signature_____________________________ Date_______________ (X)_________
(X)___________________________________
Signature_____________________________ Date_______________
(X)___________________________________
Signature_____________________________ Date_______________
FOR INTERNAL USE ONLY (X)
_____________________________________________
Signature____________________________________ Date________
O*/ F OR S
---------------------------------------------
<PAGE>
Client Services: 1-800-354-8185 Prices and Investment Results: 1-800-522-1525
MAS Funds (the Fund) is a no-load mutual fund consisting of twenty-six
portfolios, two of which are described in this prospectus. The Advisory Foreign
Fixed Income and the Advisory Mortgage Portfolios are available only to private
advisory clients of Miller Anderson & Sherrerd, LLP ("MAS" or "the Adviser")
Adviser to MAS Funds. The Advisory Mortgage Portfolio is a diversified
investment company and the Advisory Foreign Fixed Income Portfolio is a
non-diversified investment company. The investment objective of each portfolio
is described with its investment policies as referenced below.
PORTFOLIO OBJECTIVES PAGE REFERENCE
-------------------- --------------
Advisory Foreign Fixed Income 9
Advisory Mortgage 10
This Prospectus, which should be retained for future reference, sets forth
concisely information that you should know before you invest. A Statement of
Additional Information containing additional information about the Fund has been
filed with the Securities and Exchange Commission. Such Statement is dated
January, 1996, as revised from time to time, and has been incorporated by
reference into this Prospectus. A copy of the Statement may be obtained, without
charge, by writing to the Fund or by calling the Client Services Group at the
telephone number shown above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
The following tables illustrate the various expenses and fees that a shareholder
for that portfolio will incur either directly or indirectly. The expenses and
fees set forth below are based on an estimate for the first 10 months of
operations.
Shareholder Transaction Expenses:
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Redemption Fees None
Exchange Fees None
Annual Fund Operating Expenses:
(as a percentage of average net assets after fee waivers)
12b-1 Fees None
<TABLE>
<CAPTION>
Investment Total
Advisory Other Operating
Portfolio Fees Expenses Expenses
--------- ---------- -------- ----------
<S> <C> <C> <C>
Advisory Foreign Fixed Income 0.000%* % %
Advisory Mortgage 0.000** ** **
</TABLE>
* Until further notice, the Adviser has voluntarily agreed to
waive its advisory fees. Absent these fee waivers by the
Adviser, Total Operating Expenses would be 0.525% for the
Advisory Foreign Fixed Income.
** Until further notice, the Adviser has voluntarily agreed to
waive its advisory fees. In addition, the Adviser has
voluntarily agreed to reimburse certain expenses to the extent
necessary to keep Total Operating Expenses from exceeding
0.08%. Absent these fee waivers and reimbursements by the
Adviser, Total Operating Expenses would be 0.495% for the
Advisory Mortgage Portfolio.
EXAMPLE
- -------
The purpose of this table is to assist in understanding the various expenses
that a shareholder in a portfolio will bear directly or indirectly. The
following example illustrates the expenses that an investor would pay on a
$1,000 investment over various time periods assuming (1) a 5% annual rate of
return and (2) redemption at the end of each time period. The example should not
be considered a representation of past or future expenses and actual expenses
may be greater or less than those shown. For portfolios with less than 10 months
of operations, only 1 and 3 year examples are shown.
Portfolio 1 year 3 year
---------------------------------------------------------------------
Advisory Foreign Fixed Income $ $
Advisory Mortgage
HOW TO USE THIS PROSPECTUS
--------------------------
A PROSPECTUS SUMMARY is presented on page __;
FINANCIAL HIGHLIGHTS and a description of YIELD AND TOTAL RETURN begin on
page __;
GENERAL INFORMATION and the INVESTMENT LIMITATIONS pertinent to the portfolios
begin on page __;
A SUMMARY PAGE of each portfolio's Objective, Policies and Strategies begins
on page __;
The PROSPECTUS GLOSSARY which defines specific investments, policies and
strategies printed in bold type throughout this Prospectus begins on page __;
<PAGE>
OTHER INFORMATION including Shareholder Services begins on page __.
A TABLE OF CONTENTS is presented on the last page of this Prospectus.
PROSPECTUS SUMMARY
The Advisory Foreign Fixed Income Portfolio seeks to achieve above-average total
return over a market cycle of three to five years, consistent with reasonable
risk, by investing primarily in high-grade Foreign Bonds and Derivatives. The
portfolio is available only to private advisory clients of Miller Anderson &
Sherrerd, LLP.
The Advisory Mortgage Portfolio seeks to achieve returns consistent with returns
generated by the market for Mortgage Securities by investing primarily (at least
65% of its assets under normal circumstances) in mortgage securities. The
portfolio's average weighted maturity will ordinarily be greater than seven
years. The portfolio is available only to private advisory clients of Miller
Anderson & Sherrerd, LLP.
RISK FACTORS
Prospective investors in the Portfolios should consider the following factors as
they apply to each Portfolio's allowable investment policies and approaches:
o Each portfolio may invest in Repurchase Agreements, which entail a risk
of loss should the seller default in its obligation to repurchase the
security which is the subject of the transaction;
o Each portfolio may participate in a Securities Lending program which
entails a risk of loss should the borrower fail financially;
o Fixed-Income Securities will be affected by general changes in interest
rates resulting in increases or decreases in the value of the
obligations held by a portfolio. The value of fixed-income securities
can be expected to vary inversely to changes in prevailing interest
rates, i.e., as interest rates decline, market value tends to increase
and vice versa;
o Each portfolio may purchase securities on a When-Issued basis.
Securities purchased on a when-issued basis may decline or appreciate
in market value prior to their actual delivery to the portfolio;
o Each portfolio may invest a portion of its assets in Derivatives
securities including Futures & Options. Futures contracts, options and
options on futures contracts entail certain costs and risks, including
imperfect correlation between the value of the securities held by the
portfolio and the value of the particular derivative instrument, and
the risk that a portfolio could not close out a futures or options
position when it would be most advantageous to do so;
o Investments in floating rate (Floaters) and inverse floating rate
securities (Inverse Floaters) and Mortgage Securities (Mortgages),
including principal-only and interest-only Stripped Mortgage-Backed
Securities (SMBS), may be highly sensitive to interest rate changes,
and highly sensitive to the rate of principal payments (including
prepayments on underlying mortgage assets);
o Investments in foreign securities involves certain special
considerations which are not typically associated with investing in
U.S. companies. See Foreign Investing. A portfolio investing in foreign
securities may also engage in foreign currency exchange transactions;
and,
o The Advisory Foreign Fixed Income Portfolio is Non-Diversified for
purposes of the Investment Company Act of 1940, as amended, meaning
that it may invest a greater percentage of assets in the securities of
one issuer than the other portfolios.
<PAGE>
HOW TO INVEST
Shares of each portfolio are offered directly to investors without a sales
commission at the net asset value of the portfolio next determined after receipt
of the order. Investment is available only to advisory clients of MAS.
HOW TO REDEEM
Shares of each portfolio may be redeemed at any time at the net asset value of
the portfolio next determined after receipt of the redemption request. The
redemption price may be more or less than the purchase price.
THE FUND'S INVESTMENT ADVISER
Miller Anderson & Sherrerd, LLP ("MAS" or the "Adviser") is a Pennsylvania
limited liability partnership founded in 1969 and is located at One Tower
Bridge, West Conshohocken, PA 19428. The Adviser is an Equal
Opportunity/Affirmative Action Employer. The Adviser provides investment
counseling services to employee benefit plans, endowment funds, foundations and
other institutional investors, and as of the date of this Prospectus had in
excess of $33 billion in assets under management.
THE FUND'S DISTRIBUTOR--
MAS Fund Distribution, Inc. (the "Distributor") provides distribution services
to the Fund.
ADMINISTRATIVE SERVICES
The Adviser provides the Fund directly, or through third parties, with fund
administration services. Global Funds Services Company, a subsidiary of The
Chase Manhattan Bank, N.A. serves as Transfer Agent to the Fund. See
Administrative Services.
[INSERT FINANCIAL HIGHLIGHTS]
Selected per share data and ratios for a share outstanding
throughout each period.
The following information should be read in conjunction with the Fund's
financial statements which are included in the Annual Report to Shareholders and
incorporated by reference in the Statement of Additional Information. The Fund's
financial statements for the year ended September 30, 1995 have been examined by
Price Waterhouse LLP whose opinion thereon (which was unqualified) is also
incorporated by reference in the Statement of Additional Information.
YIELD AND TOTAL RETURN
From time to time each portfolio of the Fund advertises its yield and total
return. Both yield and total return figures are based on historical earnings and
are not intended to indicate future performance. The average annual total return
shows the average percentage change in value of an investment in a portfolio
<PAGE>
from the beginning date of the measuring period to the end of the measuring
period. Such figures reflect changes in the price of a portfolio's shares and
assume that any income dividends and/or capital gain distributions made by the
portfolio during the period were reinvested in additional shares of the
portfolio. Figures will be given for one-, five- and ten-year periods as well
(such as from commencement of the portfolio's operations). When considering
average total return figures for periods longer than one year, it is important
to note that a portfolio's annual total return for any one year in the period
might have been greater or less than the average for the entire period.
In addition to average annual total return, a portfolio may also quote an
aggregate total return for various periods representing the cumulative change in
value of an investment in a portfolio for a specific period (again reflecting
changes in the portfolio's share price and assuming reinvestment of dividends
and distributions). Aggregate total returns may be shown by means of schedules,
charts or graphs and may include subtotals of the various components of total
return (i.e., change in value of initial investment, income dividends and
capital gain distributions or returns for specific types of securities such as
industry or country types).
The yield of a portfolio is computed by dividing the net investment income per
share (using the average number of shares entitled to receive dividends) earned
during the 30-day period stated in the advertisement by the closing price per
share on the last day of the period. For the purpose of determining net
investment income, the calculation includes as expenses of the portfolio all
recurring fees that are charged to all shareholder accounts and any non
recurring charges for the period stated. The yield formula provides for
semiannual compounding, which assumes that net investment income is earned and
reinvested at a constant rate and annualized at the end of a six-month period.
Methods used to calculate advertised yields are standardized for all stock and
bond mutual funds. However, these methods differ from the accounting methods
used by the portfolio to maintain its books and records, and so the advertised
30-day yield may not reflect the income paid to your own account or the yield
reported in the portfolio's reports to shareholders.
The performance of a portfolio may be compared to data prepared by independent
services which monitor the performance of investment companies, data reported in
financial and industry publications, and various indices, all as further
described in the Statement of Additional Information.
The Annual Report to Shareholders, when available, will be provided without
charge upon request by writing to the Fund or calling the Client Services Group
at the telephone number shown on the front cover of this Prospectus.
GENERAL INFORMATION
The following information relates to each portfolio of the Fund and should be
read in conjunction with the specific information about each portfolio.
Objectives: Each portfolio seeks to achieve its investment objective relative to
the universe of securities in which it is authorized to invest and, accordingly,
the total return or current income achieved by a portfolio may not be as great
as that achieved by another portfolio that can invest in a broader range of
securities. Both portfolios will seek to produce total return by actively
trading portfolio securities. The achievement of any portfolio's objective
cannot be assured.
Suitability: The portfolios are designed for advisory clients of MAS who are
long-term investors and can accept the risks entailed in investing in the bond
market and are not meant to provide a vehicle for playing short-term swings in
the market.
Securities Lending: Each portfolio may lend its securities to qualified brokers,
dealers, banks and other financial institutions for the purpose of realizing
additional income. Loans of securities will be collateralized by cash, letters
of credit, or securities issued or guaranteed by the U.S. Government or its
agencies. The collateral will equal at least 100% of the current market value of
the loaned securities. In addition, a portfolio will not loan its portfolio
securities to the extent that greater than one-third of its total assets, at
fair market value, would be committed to loans at that time.
<PAGE>
Illiquid Securities/Restricted Securities: Each of the portfolios may invest up
to 15% of its net assets in securities that are illiquid by virtue of the
absence of a readily available market, or because of legal or contractual
restrictions on resale. This policy does not limit the acquisition of (i)
restricted securities eligible for resale to qualified institutional buyers
pursuant to Rule 144A under the Securities Act of 1933 or (ii) commercial paper
issued pursuant to Section 4(2) under the Securities Act of 1933, that are
determined to be liquid in accordance with guidelines established by the Fund's
Board of Trustees.
Turnover: With respect to the portfolios, the annual turnover rate may exceed
100% due to changes in portfolio duration, yield curve strategy or commitments
to forward delivery mortgage-backed securities. A 100% rate of turnover would
occur, for example, if all of a portfolio's securities are replaced within a one
year period. However, it is expected that the annual turnover rate for these
portfolios will not exceed 250%.
The Adviser manages the portfolios generally without regard to
restrictions on portfolio Turnover, except those imposed by provisions of the
federal tax laws regarding short-term trading. In general, the portfolios will
not trade for short-term profits, but when circumstances warrant, investments
may be sold without regard to the length of time held. High rates of portfolio
turnover necessarily result in correspondingly heavier brokerage and portfolio
trading costs which are paid by a portfolio. Trading in Fixed-Income Securities
does not generally involve the payment of brokerage commissions, but does
involve indirect transaction costs. In addition to portfolio trading costs,
higher rates of portfolio turnover may result in the realization of capital
gains. To the extent net short-term capital gains are realized, any
distributions resulting from such gains are considered ordinary income for
federal income tax purposes.
Cash Equivalents/Temporary Defense Investing: Although each portfolio intends to
remain substantially fully invested, a small percentage of a portfolio's assets
are generally held in the form of Cash Equivalents in order to meet redemption
requests and otherwise manage the daily affairs of each portfolio. Any portfolio
may, when the Adviser deems that market conditions are such that a temporary
defensive approach is desirable, invest in cash equivalents or the Fixed-Income
Securities listed for that portfolio without limit.
Concentration: Concentration is defined as investment of 25% or more of a
portfolio's total assets in the securities of issuers operating in any one
industry. Except as provided in a portfolio's specific investment policies, a
portfolio will not concentrate investments in any one industry.
Investment Limitations: Each portfolio is subject to certain limitations
designed to reduce its exposure to specific situations. Some of these
limitations are:
(a) with respect to 75% of its assets, a portfolio will not purchase securities
of any issuer if, as a result, more than 5% of the portfolio's total assets
taken at market value would be invested in the securities of any single issuer
except that this restriction does not apply to securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities. This limitation is
not applicable to the Advisory Foreign Fixed Income Portfolio. However, both
Advisory Portfolios will comply with the diversification requirements imposed by
Sub-Chapter M of the Internal Revenue Code;
(b) with respect to 75% of its assets, a Portfolio will not purchase a security
if, as a result, the portfolio would hold more than 10% of the outstanding
voting securities of any issuer. This limitation is not applicable to the
Advisory Foreign Fixed Income Portfolio. However, both Advisory Portfolios will
comply with the diversification requirements imposed by Sub-Chapter M of the
Internal Revenue Code;
(c) a portfolio will not invest more than 5% of its total assets in the
securities of issuers (other than securities issued or guaranteed by U.S. or
foreign governments or political subdivisions thereof) which have (with
predecessors) a record of less than three years of continuous operation;
(d) a portfolio will not acquire any securities of companies within one
industry, if, as a result of such acquisition, more than 25% of the value of the
portfolio's total assets would be invested in securities of companies within
such industry; provided, however, that (1) there shall be no limitation on the
purchase of obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, or instruments issued by U.S. banks when any such
portfolio adopts a temporary defensive position; (2) asset-backed securities
will be classified according to the underlying assets securing such securities;
and (3) mortgage-backed securities.
<PAGE>
(e) a portfolio will not make loans except (i) by purchasing debt securities in
accordance with its investment objectives and policies, or entering into
repurchase agreements, (ii) by lending its portfolio securities and (iii) by
lending portfolio assets to other portfolios of the Fund, so long as such loans
are not inconsistent with the Investment Company Act of 1940, as amended or the
Rules and Regulations, or interpretations or orders of the Securities and
Exchange Commission thereunder;
(f) a portfolio will not borrow money, except (i) as a temporary measure for
extraordinary or emergency purposes or (ii) in connection with reverse
repurchase agreements provided that (i) and (ii) in combination do not exceed 33
1/3% of the portfolio's total assets (including the amount borrowed) less
liabilities (exclusive of borrowings);
(g) a portfolio will not pledge, mortgage, or hypothecate any of its assets to
an extent greater than 50% of its total assets at fair market value;
(h) a portfolio will not invest its assets in securities of any investment
company, except by purchase in the open market involving only customary brokers'
commissions or in connection with mergers, acquisitions of assets or
consolidations and except as may otherwise be permitted by the Investment
Company Act of 1940, as amended; and
(i) a portfolio (except the Cash Reserve Portfolio) may enter into OTC
derivative transactions (Swaps, Caps, Floors, Puts, etc., excluding Foreign
exchange contracts) with Counterparties that are approved by MAS in accordance
with Guidelines established by the Board of Trustees. These Guidelines provide
for a minimum credit rating for each Counterparty and various credit enhancement
techniques (collateralization of amounts due from Counterparties) to limit
exposure to Counterparties with ratings below AA and A1.
Limitations (a), (b), (d), (e), and (f), and certain other limitations described
in the Statement of Additional Information are fundamental and may be changed
only with the approval of the holders of a majority of the shares of each
portfolio. The other investment limitations described here and in the Statement
of Additional Information are not fundamental policies meaning that the Board of
Trustees may change them without shareholder approval. Investment limitations
(a) and (b) are not fundamental policies for the Advisory Foreign Fixed Income
Portfolio. If a percentage limitation on investment or utilization of assets as
set forth above is adhered to at the time an investment is made, a later change
in percentage resulting from changes in the value or total cost of the
portfolio's assets will not be considered a violation of the restriction, and
the sale of securities will not be required.
<PAGE>
Advisory Foreign Fixed Income Portfolio - (a non-diversified portfolio available
only to advisory clients of MAS)
Objective: To achieve above-average total return over a market cycle of
three to five years, consistent with reasonable risk, by
investing primarily in investment grade fixed-income securities
of foreign issuers.
Approach: The Portfolio is available only to the Adviser's private
advisory clients.
Policies: Generally at least 65% invested in Fixed-Income Securities of
issuers in at least 3 countries located outside of the U.S.
Derivatives may be used to represent country investments, or
otherwise pursue portfolio strategy.
May invest all or a portion of assets in U.S. securities as a
defensive strategy.
Quality 100% Investment Grade Securities
Specifications: Individual Securities Rated A or Higher
Maturity and
Duration: Average weighted maturity generally greater than 5 years
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Allowable: Foreign Bonds Foreign Currency Forwards Eastern European Issuers
Investments: Convertibles U.S. Governments Zero Coupons Agencies
Corporates Mortgage Securities CMOs SMBS
Asset-Backeds When Issued Securities Brady Bonds Floaters
Inverse Floaters Structured Notes Futures & Options Swaps
Cash Equivalents Repurchase Agreements Municipals Preferred Stock
Investment Companies
</TABLE>
Benchmark
Index: Salomon Broad Investment Grade
Strategies: Foreign Fixed Income Investing
Maturity and Duration Management
Value Investing
Foreign Investing
Non-Diversified Status
Mortgage Investing
<PAGE>
Advisory Mortgage Portfolio - (available only to advisory clients of MAS)
Objective: To achieve returns consistent with returns generated by the
market for mortgage securities by investing primarily (at least
65% of its assets under normal circumstances) in mortgage
securities.
Approach: The Portfolio is available only to the Adviser's private
advisory clients
Policies: Generally at least 65% invested in Mortgage Securities
Derivatives may be used to pursue portfolio strategy
Quality Securities not guaranteed by the U.S. Government or a private
organization will be Investment Grade
Specifications: Securities
Maturity and Average weighted maturity generally greater than 7 years
Duration: Duration generally between 2 and 7 years
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Allowable Mortgage Securities CMOs Asset-Backeds SMBS
Investments: U.S. Governments Zero Coupons Agencies When Issued Securities
Floaters Inverse Floaters Structured Notes Futures & Options
Cash Equivalents Repurchase Agreements Investment Companies Swaps
</TABLE>
Benchmark
Index: Lehman Mortgage Index
Strategies: Mortgage Investing
Maturity and Duration Management
Value Investing
<PAGE>
PROSPECTUS GLOSSARY
CHARACTERISTICS AND RISKS OF STRATEGIES AND INVESTMENTS
-------------------------------------------------------
STRATEGIES
Foreign Fixed Income Investing: A portion of a portfolio may be invested in
Foreign Bonds and other Fixed-Income Securities denominated in foreign
currencies, where, in the opinion of the Adviser, the combination of current
yield and currency value offer attractive expected returns. When the total
return opportunities in a foreign bond market appear attractive in local
currency terms, but where in the Adviser's judgment unacceptable currency risk
exists, currency Futures & Options, Forwards and Swaps may be used to hedge the
currency risk.
Foreign Investing: Investors should recognize that investing in securities
issued by foreign companies or governments involves certain special
considerations which are not typically associated with investing in U.S.
companies. Since the securities of foreign issuers may be denominated in foreign
currencies, and since a portfolio may temporarily hold uninvested reserves in
bank deposits of foreign currencies prior to reinvestment or conversion to U.S.
dollars, a portfolio may be affected favorably or unfavorably by changes in
currency rates and in exchange control regulations, and may incur costs in
connection with conversions between various currencies.
As non-U.S. companies are not generally subject to uniform accounting, auditing
and financial reporting standards and practices comparable to those applicable
to U.S. companies, there may be less publicly available information about
certain foreign companies than about U.S. companies. Securities of some non-U.S.
companies may be less liquid and more volatile than securities of comparable
U.S. companies. There is generally less government supervision and regulation of
stock exchanges, brokers and listed companies than in the U.S. With respect to
certain foreign countries, there is the possibility of expropriation or
confiscatory taxation, political or social instability, or diplomatic
developments which could affect U.S. investments in those countries.
Additionally, there may be difficulty in obtaining and enforcing judgments
against foreign issuers.
Although a portfolio will endeavor to achieve the most favorable execution costs
in its portfolio transactions in foreign securities, fixed commissions on many
foreign stock exchanges are generally higher than negotiated commissions on U.S.
exchanges. In addition, it is expected that the expenses for custodial
arrangements of a portfolio's foreign securities will be greater than the
expenses for the custodial arrangements for handling U.S. securities of equal
value. Certain foreign governments levy withholding taxes against dividend and
interest income. Although in some countries a portion of these taxes is
recoverable, the non-recovered portion of foreign withholding taxes will reduce
the income a portfolio receives from the companies comprising the portfolio's
investments.
Maturity and Duration Management: One of two primary components of the Adviser's
fixed-income investment strategy is maturity and duration management. The
maturity and duration structure of a portfolio investing in Fixed-Income
Securities is actively managed in anticipation of cyclical interest rate
changes. Adjustments are not made in an effort to capture short-term, day-to-day
movements in the market, but instead are implemented in anticipation of longer
term shifts in the levels of interest rates. Adjustments made to shorten
portfolio maturity and duration are made to limit capital losses during periods
when interest rates are expected to rise. Conversely, adjustments made to
lengthen maturity are intended to produce capital appreciation in periods when
interest rates are expected to fall. The foundation for maturity and duration
strategy lies in analysis of the U.S. and global economies, focusing on levels
of real interest rates, monetary and fiscal policy actions, and cyclical
indicators. See Value Investing for a description of the second primary
component of MAS's fixed-income strategy.
<PAGE>
Most debt obligations provide interest (coupon) payments in addition to a final
(par) payment at maturity. Some obligations also have call provisions. Depending
on the relative magnitude of these payments and the nature of the call
provisions, the market values of debt obligations may respond differently to
changes in the level and structure of interest rates. Traditionally, a debt
security's term-to-maturity has been used as a proxy for the sensitivity of the
security's price to changes in interest rates (which is the interest rate risk
or volatility of the security). However, term-to-maturity measures only the time
until a debt security provides its final payment, taking no account of the
pattern of the security's payments prior to maturity.
Duration is a measure of the expected life of a fixed-income security that was
developed as a more precise alternative to the concept of term-to-maturity.
Duration incorporates a bond's yield, coupon interest payments, final maturity
and call features into one measure. Duration is one of the fundamental tools
used by the Adviser in the selection of fixed-income securities. Duration is a
measure of the expected life of a fixed-income security on a present value
basis. Duration takes the length of the time intervals between the present time
and the time that the interest and principal payments are scheduled or, in the
case of a callable bond, expected to be received, and weights them by the
present values of the cash to be received at each future point in time. For any
fixed-income security with interest payments occurring prior to the payment of
principal, duration is always less than maturity. In general, all other factors
being the same, the lower the stated or coupon rate of interest of a
fixed-income security, the longer the duration of the security; conversely, the
higher the stated or coupon rate of interest of a fixed-income security, the
shorter the duration of the security.
There are some situations where even the standard duration calculation does not
properly reflect the interest rate exposure of a security. For example, floating
and variable rate securities often have final maturities of ten or more years;
however, their interest rate exposure corresponds to the frequency of the coupon
reset. Another example where the interest rate exposure is not properly captured
by duration is the case of mortgage pass-through securities. The stated final
maturity of such securities is generally 30 years, but current prepayment rates
are more critical in determining the securities' interest rate exposure. In
these and other similar situations, the Adviser will use sophisticated
analytical techniques that incorporate the economic life of a security into the
determination of its interest rate exposure.
Mortgage Investing: The Advisory Mortgage Portfolio will be primarily (at least
65% of the time under normal circumstances) invested in mortgage-related
securities. These include mortgage-backed securities which represent interests
in pools of mortgage loans made by lenders such as commercial banks, savings and
loan associations, mortgage bankers and others. The pools are assembled by
various organizations, including the Government National Mortgage Association
(GNMA), Federal Home Loan Mortgage Corporation (FHLMC), Federal National
Mortgage Association (FNMA), other government agencies, and private issuers. It
is expected that a portfolio's primary emphasis will be in mortgage-backed
securities issued by the various Government-related organizations. However, a
portfolio may invest, without limit, in mortgage-backed securities issued by
private issuers when the Adviser deems that the quality of the investment, the
quality of the issuer, and market conditions warrant such investments.
Securities issued by private issuers will be rated investment grade by Moody's
or Standard & Poor's or be deemed by the Adviser to be of comparable investment
quality.
Non-Diversified Status: A portfolio may be classified as a non-diversified
investment company under the Investment Company Act of 1940, as amended.
Non-diversified portfolios may invest more than 25% of assets in securities of
individual issuers representing greater than 5% each of a portfolio's total
assets, whereas diversified investment companies may only invest up to 25% of
assets in positions of greater than 5%. Both diversified and non-diversified
portfolios are subject to diversification specifications under the Internal
Revenue Code of 1986, as amended, which require that, as of the close of each
fiscal quarter, (i) no more than 25% of a portfolio's total assets may be
invested in the securities of a single issuer (except for U.S. Government
securities) and (ii) with respect to 50% of its total assets, no more than 5% of
such assets may be invested in the securities of a single issuer (except for
U.S. Government securities) or invested in more than 10% of the outstanding
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voting securities of a single issuer. Because of its non-diversified status, a
portfolio may be subject to greater credit and other risks than a diversified
investment company.
Value Investing: One of two primary components of the Adviser's fixed-income
strategy is value investing, whereby MAS seeks to identify undervalued sectors
and securities through analysis of credit quality, option characteristics and
liquidity. Quantitative models are used in conjunction with judgment and
experience to evaluate and select securities with embedded put or call options
which are attractive on a risk- and option-adjusted basis. Successful value
investing will permit a portfolio to benefit from the price appreciation of
individual securities during periods when interest rates are unchanged. See
Maturity and Duration Management for a description of the other key component of
MAS's fixed-income investment strategy.
INVESTMENTS
Each portfolio may invest in the securities defined below in accordance with
their listing of Allowable Investments and any quality or policy constraints.
Agencies: are securities which are not guaranteed by the U.S. Government, but
which are issued, sponsored or guaranteed by a federal agency or federally
sponsored agency such as the Student Loan Marketing Association, Resolution
Funding Corporation, or any of several other agencies.
Asset-Backeds: are securities collateralized by shorter term loans such as
automobile loans, home equity loans, computer leases, or credit card
receivables. The payments from the collateral are passed through to the security
holder. The collateral behind asset-backed securities tends to have prepayment
rates that do not vary with interest rates. In addition the short-term nature of
the loans reduces the impact of any change in prepayment level. Due to
amortization, the average life for these securities is also the conventional
proxy for maturity.
Possible Risks: Due to the possibility that prepayments (on automobile loans and
other collateral) will alter the cash flow on asset-backed securities, it is not
possible to determine in advance the actual final maturity date or average life.
Faster prepayment will shorten the average life and slower prepayments will
lengthen it. However, it is possible to determine what the range of that
movement could be and to calculate the effect that it will have on the price of
the security. In selecting these securities, the Adviser will look for those
securities that offer a higher yield to compensate for any variation in average
maturity.
Brady Bonds: are debt obligations which are created through the exchange of
existing commercial bank loans to foreign entities for new obligations in
connection with debt restructuring under a plan introduced by former U.S.
Secretary of the Treasury, Nicholas F. Brady (the Brady Plan). Brady Bonds have
been issued only recently, and, accordingly, do not have a long payment history.
They may be collateralized or uncollateralized and issued in various currencies
(although most are dollar-denominated) and they are actively traded in the
over-the-counter secondary market. For further information on these securities,
see the Statement of Additional Information. Portfolios will only invest in
Brady Bonds consistent with quality specifications.
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Cash Equivalents: are short-term fixed-income instruments comprising:
(1) Time deposits, certificates of deposit (including marketable variable rate
certificates of deposit) and bankers' acceptances issued by a commercial bank or
savings and loan association. Time deposits are non-negotiable deposits
maintained in a banking institution for a specified period of time at a stated
interest rate. Certificates of deposit are negotiable short-term obligations
issued by commercial banks or savings and loan associations against funds
deposited in the issuing institution. Variable rate certificates of deposit are
certificates of deposit on which the interest rate is periodically adjusted
prior to their stated maturity based upon a specified market rate. A bankers'
acceptance is a time draft drawn on a commercial bank by a borrower usually in
connection with an international commercial transaction (to finance the import,
export, transfer or storage of goods).
A portfolio may invest in obligations of U.S. banks, foreign branches of U.S.
banks (Eurodollars), and U.S. branches of foreign banks (Yankee dollars). Euro
and Yankee dollar investments will involve some of the same risks of investing
in international securities that are discussed in the Foreign Investing section
of this Prospectus.
Portfolios will not invest in any security issued by a commercial bank unless
(i) the bank has total assets of at least $1 billion, or the equivalent in other
currencies, or, in the case of domestic banks which do not have total assets of
at least $1 billion, the aggregate investment made in any one such bank is
limited to $100,000 and the principal amount of such investment is insured in
full by the Federal Deposit Insurance Corporation, (ii) in the case of U.S.
banks, it is a member of the Federal Deposit Insurance Corporation, and (iii) in
the case of foreign branches of U.S. banks, the security is deemed by the
Adviser to be of an investment quality comparable with other debt securities
which may be purchased by the portfolio.
(2) Each portfolio may invest in commercial paper rated at time of purchase by
one or more NRSRO in one of their two highest categories, (e.g., A-l or A-2 by
Standard & Poor's or Prime 1 or Prime 2 by Moody's), or, if not rated, issued by
a corporation having an outstanding unsecured debt issue rated high-grade by a
NRSRO (e.g. A or better by Moody's, Standard & Poor's or Fitch);
(3) Short-term corporate obligations rated high-grade at the time of purchase by
a NRSRO (e.g. A or better by Moody's, Standard & Poor's or Fitch);
(4) U.S. Government obligations including bills, notes, bonds and other debt
securities issued by the U.S. Treasury. These are direct obligations of the U.S.
Government and differ mainly in interest rates, maturities and dates of issue;
(5) Government Agency securities issued or guaranteed by U.S. Government
sponsored instrumentalities and Federal agencies. These include securities
issued by the Federal Home Loan Banks, Federal Land Bank, Farmers Home
Administration, Farm Credit Banks, Federal Intermediate Credit Bank, Federal
National Mortgage Association, Federal Financing Bank, the Tennessee Valley
Authority, and others; and
(6) Repurchase agreements collateralized by securities listed above.
CMOs--Collateralized Mortgage Obligations: are Derivatives which are
collateralized by mortgage pass-through securities. Cash flows from the mortgage
pass-through securities are allocated to various tranches (a "tranche" is
essentially a separate security) in a predetermined, specified order. Each
tranche has a stated maturity - the latest date by which the tranche can be
completely repaid, assuming no prepayments - and has an average life - the
average of the time to receipt of a principal payment weighted by the size of
the principal payment. The average life is typically used as a proxy for
maturity because the debt is amortized (repaid a portion at a time), rather than
being paid off entirely at maturity, as would be the case in a straight debt
instrument.
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Possible Risks: Due to the possibility that prepayments (on home mortgages and
other collateral) will alter the cash flow on CMOs, it is not possible to
determine in advance the actual final maturity date or average life. Faster
prepayment will shorten the average life and slower prepayments will lengthen
it. However, it is possible to determine what the range of that movement could
be and to calculate the effect that it will have on the price of the security.
In selecting these securities, the Adviser will look for those securities that
offer a higher yield to compensate for any variation in average maturity.
Prepayment risk has two important effects. First, like bonds in general,
mortgage-backed securities will generally decline in price when interest rates
rise. However, when interest rates fall, mortgages may not enjoy as large a gain
in market value due to prepayment risk. Second, when interest rates fall,
additional mortgage prepayments must be reinvested at lower interest rates. In
part to compensate for these risks, mortgages will generally offer higher yields
than comparable bonds.
Convertibles: are convertible bond or shares of convertible Preferred Stock
which may be exchanged for a fixed number of shares of common stock at the
purchaser's option.
Corporates--corporate bonds: are debt instruments issued by private
corporations. Bondholders, as creditors, have a prior legal claim over common
and preferred stockholders of the corporation as to both income and assets for
the principal and interest due to the bondholder. A portfolio will buy
Corporates subject to any quality constraints. If a security held by a portfolio
is down-graded, the portfolio may retain the security.
Derivatives: A financial instrument whose value and performance are based on the
value and performance of another security or financial instrument. The Adviser
will use derivatives only in circumstances where they offer the most economic
means of improving the risk/reward profile of the portfolio. The Adviser will
not use derivatives to increase portfolio risk above the level that could be
achieved in the portfolio using only traditional investment securities. In
addition, the Adviser will not use derivatives to acquire exposure to changes in
the value of assets or indexes that by themselves would not be purchased for the
portfolio. Any applicable limitations are described under each investment
definition. Each of the Portfolios covered by this Prospectus may enter into
over-the-counter Derivatives transactions with counterparties approved by MAS in
accordance with guidelines established by the Board of Trustees. These
guidelines provide for a minimum credit rating for each counterparty and various
credit enhancement techniques (for example, collateralization of amounts due
from counterparties) to limit exposure to counterparties with ratings below AA.
Eastern European Issuers: The economies of Eastern European countries are
currently suffering both from the stagnation resulting from centralized economic
planning and control and the higher prices and unemployment associated with the
transition to market economics. Unstable economic and political conditions may
adversely affect security values. Upon the accession to power of Communist
regimes approximately 40 years ago, the governments of a number of Eastern
European countries expropriated a large amount of property. The claims of many
property owners against those governments were never finally settled. In the
event of the return to power of the Communist Party, there can be no assurance
that the portfolio's investments in Eastern Europe would not be expropriated,
nationalized or otherwise confiscated.
Fixed-Income Securities: Commonly include but are not limited to U.S.
Governments, Zero Coupons, Agencies, Corporates, Mortgage Securities, SMBS,
CMOs, Asset-Backeds, Convertibles, Brady Bonds, Floaters, Inverse Floaters, Cash
Equivalents, Repurchase Agreements, Preferred Stock, and Foreign Bonds. See each
individual portfolio listing of Allowable Investments to determine which
securities a portfolio may hold. Preferred Stock is contained in the definition
of Fixed-Income Securities since it exhibits some characteristics commonly
associated with that type of security.
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Floaters--Floating and Variable Rate Obligations: are debt obligations with a
floating or variable rate of interest, i.e. the rate of interest varies with
changes in specified market rates or indices, such as the prime rate, or at
specified intervals. Certain floating or variable rate obligations may carry a
demand feature that permits the holder to tender them back to the issuer of the
underlying instrument, or to a third party, at par value prior to maturity. When
the demand feature of certain floating or variable rate obligations represents
an obligation of a foreign entity, the demand feature will be subject to certain
risks discussed under Foreign Investing.
Foreign Currency: Portfolios investing in foreign securities will regularly
transact security purchases and sales in foreign currencies. These portfolios
may hold foreign currency or purchase or sell currencies on a forward basis (see
Forwards).
Foreign Bonds: are Fixed-Income Securities denominated in foreign currency
including: (1) obligations issued or guaranteed by foreign national governments,
their agencies, instrumentalities, or political subdivisions; (2) debt
securities issued, guaranteed or sponsored by supranational organizations
established or supported by several national governments, including the World
Bank, the European Community, the Asian Development Bank and others; (3)
non-government foreign corporate debt securities; and (4) foreign Mortgage
Securities and various other mortgage and asset-backed securities denominated in
foreign currency.
Forwards--Forward Foreign Currency Exchange Contracts: are Derivatives which are
used to protect against uncertainty in the level of future foreign exchange
rates. A forward foreign currency exchange contract is an obligation to purchase
or sell a specific currency at a future date, which may be any fixed number of
days from the date of the contract agreed upon by the parties, at a price set at
the time of the contract. Such contracts, which protect the value of a
portfolio's investment securities against a decline in the value of a currency,
do not eliminate fluctuations caused by changes in the local currency prices of
the securities, but rather, they simply establish an exchange rate at a future
date. Also, although such contracts minimize the risk of loss due to a decline
in the value of the hedged currency, at the same time they limit any potential
gain that might be realized.
A portfolio may use currency exchange contracts in the normal course of business
to lock in an exchange rate in connection with purchases and sales of securities
denominated in foreign currencies (transaction hedge) or to lock in the U.S.
dollar value of portfolio positions (position hedge). In addition the portfolios
may cross-hedge currencies by entering into a transaction to purchase or sell
one or more currencies that are expected to decline in value relative to other
currencies to which a portfolio has or expects to have portfolio exposure.
Portfolios may also engage in proxy hedging which is defined as entering into
positions in one currency to hedge investments denominated in another currency,
where the two currencies are economically linked. A portfolio's entry into
forward contracts, as well as any use of Cross or Proxy hedging techniques will
generally require the portfolio to hold high-grade, liquid securities or cash
equal to the portfolio's obligations in a segregated account throughout the
duration of the contract.
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A portfolio may also combine forward contracts with investments in securities
denominated in other currencies in order to achieve desired credit and currency
exposures. Such combinations are generally referred to as synthetic securities.
For example, in lieu of purchasing a foreign bond, a portfolio may purchase a
U.S. dollar-denominated security and at the same time enter into a forward
contract to exchange U.S. dollars for the contract's underlying currency at a
future date. By matching the amount of U.S. dollars to be exchanged with the
anticipated value of the U.S. dollar-denominated security, a portfolio may be
able to lock in the foreign currency value of the security and adopt a synthetic
investment position reflecting the credit quality of the U.S. dollar-denominated
security. There is a risk in adopting a synthetic investment position to the
extent that the value of a security denominated in the U.S. dollar or other
foreign currency is not exactly matched with a portfolio's obligation under the
forward contract. On the date of maturity, a portfolio may be exposed to some
risk of loss from fluctuations in that currency. Although the Adviser will
attempt to hold such mismatching to a minimum, there can be no assurance that
the Adviser will be able to do so. When a portfolio enters into a forward
contract for purposes of creating a synthetic security, it will generally be
required to hold high-grade, liquid securities or cash in a segregated account
with a daily value at least equal to its obligation under the forward contract.
Futures & Options--Futures Contracts, Options on Futures Contracts and Options:
are Derivatives. Futures contracts provide for the sale by one party and
purchase by another party of a specified amount of a specific security, at a
specified future time and price. An option is a legal contract that gives the
holder the right to buy or sell a specified amount of the underlying security or
futures contract at a fixed or determinable price upon the exercise of the
option. A call option conveys the right to buy and a put option conveys the
right to sell a specified quantity of the underlying security.
A portfolio will not enter into futures contracts to the extent that its
outstanding obligations to purchase securities under these contracts in
combination with its outstanding obligations with respect to options
transactions would exceed 50% of its total assets. It will maintain assets
sufficient to meet its obligations under such contracts in a segregated account
with the custodian bank or will otherwise comply with the SEC's position on
asset coverage.
Possible Risks: The primary risks associated with the use of futures and options
are (i) imperfect correlation between the change in market value of the
securities held by a portfolio and the prices of futures and options relating to
the stocks, bonds or futures contracts purchased or sold by a portfolio; and
(ii) possible lack of a liquid secondary market for a futures contract and the
resulting inability to close a futures position which could have an adverse
impact on a portfolio's ability to execute futures and options strategies.
Additional risks associated with options transactions are (i) the risk that an
option will expire worthless; (ii) the risk that the issuer of an
over-the-counter option will be unable to fulfill its obligation to the
portfolio due to bankruptcy or related circumstances; (iii) the risk that
options may exhibit greater short-term price volatility than the underlying
security; and (iv) the risk that a portfolio may be forced to forego
participation in the appreciation of the value of underlying securities, futures
contracts or currency due to the writing of a call option.
Inverse Floaters--Inverse Floating Rate Obligations: are Fixed-Income
Securities, which have coupon rates that vary inversely at a multiple of a
designated floating rate, such as LIBOR (London Inter-Bank Offered Rate). Any
rise in the reference rate of an inverse floater (as a consequence of an
increase in interest rates) causes a drop in the coupon rate while any drop in
the reference rate of an inverse floater causes an increase in the coupon rate.
Inverse floaters may exhibit substantially greater price volatility than fixed
rate obligations having similar credit quality, redemption provisions and
maturity, and inverse floater CMOs exhibit greater price volatility than the
majority of mortgage pass-through securities or CMOs. In addition, some inverse
floater CMOs exhibit extreme sensitivity to changes in prepayments. As a result,
the yield to maturity of an inverse floater CMO is sensitive not only to changes
in interest rates but also to changes in prepayment rates on the related
underlying mortgage assets.
Investment Companies: The portfolios are permitted to invest in shares of other
open-end or closed-end investment companies. The Investment Company Act of 1940,
as amended, generally prohibits the portfolios from acquiring more than 3% of
the outstanding voting shares of an investment company and limits such
investments to no more than 5% of the portfolio's total assets in any one
investment company and no more than 10% in any combination of investment
companies. The 1940 Act also prohibits the portfolios from acquiring in the
aggregate more than 10% of the outstanding voting shares of any registered
close-end investment company.
<PAGE>
Investment Grade Securities: are those rated by one or more nationally
recognized statistical rating organization (NRSRO) in one of the four highest
rating categories at the time of purchase (e.g. AAA, AA, A or BBB by Standard &
Poor's Corporation (Standard & Poor's) or Fitch Investors Service, Inc., (Fitch)
or Aaa, Aa, A or Baa by Moody's Investors Service, Inc. (Moody's)). Securities
rated BBB or Baa represent the lowest of four levels of investment grade
securities and are regarded as borderline between definitely sound obligations
and those in which the speculative element begins to predominate.
Mortgage-backed securities, including mortgage pass-throughs and collateralized
mortgage obligations (CMOs), deemed investment grade by the Adviser, will either
carry a guarantee from an agency of the U.S. Government or a private issuer of
the timely payment of principal and interest (such guarantees do not extend to
the market value of such securities or the net asset value per share of the
portfolio) or, in the case of unrated securities, be sufficiently seasoned that
they are considered by the Adviser to be investment grade quality. The Adviser
may retain securities if their ratings falls below investment grade if it deems
retention of the security to be in the best interests of the portfolio. Any
portfolio permitted to hold Investment Grade Securities may hold unrated
securities if the Adviser considers the risks involved in owning that security
to be equivalent to the risks involved in holding an Investment Grade Security.
Mortgage Securities--Mortgage-backed securities represent an ownership interest
in a pool of residential and commercial mortgage loans. Generally, these
securities are designed to provide monthly payments of interest and principal to
the investor. The mortgagee's monthly payments to his/her lending institution
are passed through to investors such as the portfolio. Most issuers or poolers
provide guarantees of payments, regardless of whether the mortgagor actually
makes the payment. The guarantees made by issuers or poolers are supported by
various forms of credit, collateral, guarantees or insurance, including
individual loan, title, pool and hazard insurance purchased by the issuer. The
pools are assembled by various Governmental, Government-related and private
organizations. Portfolios may invest in securities issued or guaranteed by the
Government National Mortgage Association (GNMA), Federal Home Loan Mortgage
Corporation (FHLMC), Federal National Mortgage Association (FNMA), non-agency
issuers and other government agencies. There can be no assurance that the
private insurers can meet their obligations under the policies. Mortgage-backed
securities issued by private issuers, whether or not such securities are subject
to guarantees, may entail greater risk. If there is no guarantee provided by the
issuer, mortgage-backed securities purchased by the portfolio will be those
which at time of purchase are rated investment grade by one or more NRSRO, or,
if unrated, are deemed by the Adviser to be of investment grade quality.
Due to the possibility that prepayments on home mortgages will alter cash flow
on mortgage securities, it is not possible to determine in advance the actual
final maturity date or average life. Faster prepayment will shorten the average
life and slower prepayments will lengthen it. However, it is possible to
determine what the range of that movement could be and to calculate the effect
that it will have on the price of the security. In selecting these securities,
the Adviser will look for those securities that offer a higher yield to
compensate for any variation in average maturity.
There are two methods of trading mortgage-backed securities. A specified pool
transaction is a trade in which the pool number of the security to be delivered
on the settlement date is known at the time the trade is made. This is in
contrast with the typical mortgage security transaction, called a TBA (to be
announced) transaction, in which the type of mortgage securities to be delivered
is specified at the time of trade but the actual pool numbers of the securities
that will be delivered are not known at the time of the trade. The pool numbers
of the pools to be delivered at settlement will be announced shortly before
settlement takes place. The terms of the TBA trade may be made more specific if
desired. Generally, agency pass-through mortgage-backed securities are traded on
a TBA basis.
A mortgage-backed bond is a collateralized debt security issued by a thrift or
financial institution. The bondholder has a first priority perfected security
interest in collateral consisting usually of agency mortgage pass-through
securities, although other assets including U.S. Treasuries (including Zero
Coupon Treasury Bonds), agencies, cash equivalent securities, whole loans and
corporate bonds may qualify. The amount of collateral must be continuously
maintained at levels from 115% to 150% of the principal amount of the bonds
issued, depending on the specific issue structure and collateral type.
Municipals--Municipal Securities: are debt obligations issued by local, state
and regional governments that provide interest income which is exempt from
federal income taxes. Municipal securities include both municipal bonds (those
securities with maturities of five years or more) and municipal notes (those
with maturities of less than five years). Municipal bonds are issued for a wide
variety of reasons: to construct public facilities, such as airports, highways,
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bridges, schools, hospitals, mass transportation, streets, water and sewer
works; to obtain funds for operating expenses; to refund outstanding municipal
obligations; and to loan funds to various public institutions and facilities.
Certain industrial development bonds are also considered municipal bonds if
their interest is exempt from federal income tax. Industrial development bonds
are issued by or on behalf of public authorities to obtain funds for various
privately-operated manufacturing facilities, housing, sports arenas, convention
centers, airports, mass transportation systems and water, gas or sewage works.
Industrial development bonds are ordinarily dependent on the credit quality of a
private user, not the public issuer.
General obligation municipal bonds are secured by the issuer's pledge of full
faith, credit and taxing power. Revenue or special tax bonds are payable from
the revenues derived from a particular facility or, in some cases, from a
special excise or other tax, but not from general tax revenue.
Municipal notes are issued to meet the short-term funding requirements of local,
regional and state governments. Municipal notes include bond anticipation notes,
revenue anticipation notes and tax and revenue anticipation notes. These are
short-term debt obligations issued by state and local governments to aid cash
flows while waiting for taxes or revenue to be collected, at which time the debt
is retired. Other types of municipal notes in which the portfolio may invest are
construction loan notes, short-term discount notes, tax-exempt commercial paper,
demand notes, and similar instruments. Demand notes permit an investor (such as
the portfolio) to demand from the issuer payment of principal plus accrued
interest upon a specified number of days' notice. The portfolios eligible to
purchase municipal bonds may also purchase AMT bonds. AMT bonds are tax-exempt
private activity bonds issued after August 7, 1986, the proceeds of which are
directed, at least in part, to private, for-profit organizations. While the
income from AMT bonds is exempt from regular federal income tax, it is a tax
preference item in the calculation of the alternative minimum tax. The
alternative minimum tax is a special separate tax that applies to a limited
number of taxpayers who have certain adjustments to income or tax preference
items.
Preferred Stock: are non-voting ownership shares in a corporation which pay a
fixed or variable stream of dividends.
Repurchase Agreements: are transactions by which a portfolio purchases a
security and simultaneously commits to resell that security to the seller (a
bank or securities dealer) at an agreed upon price on an agreed upon date
(usually within seven days of purchase). The resale price reflects the purchase
price plus an agreed upon market rate of interest which is unrelated to the
coupon rate or date of maturity of the purchased security. Such agreements
permit the portfolio to keep all its assets at work while retaining overnight
flexibility in pursuit of investments of a longer term nature. The Adviser will
continually monitor the value of the underlying collateral to ensure that their
value, including accrued interest, always equals or exceeds the repurchase
price.
Pursuant to an order issued by the Securities and Exchange Commission, the
Fund's portfolios may pool their daily uninvested cash balances in order to
invest in repurchase agreements on a joint basis. By entering into repurchase
agreements on a joint basis, it is expected that the portfolios will incur lower
transaction costs and potentially obtain higher rates of interest on such
repurchase agreements. Each portfolio's participation in the income from jointly
purchased repurchase agreements will be based on that portfolio's percentage
share in the total purchase agreement.
SMBS--Stripped Mortgage-Backed Securities: are Derivatives in the form of
multi-class mortgage securities. SMBS may be issued by agencies or
instrumentalities of the U.S. Government and private originators of, or
investors in, mortgage loans, including savings and loan associations, mortgage
banks, commercial banks, investment banks and special purpose entities of the
foregoing.
SMBS are usually structured with two classes that receive different proportions
of the interest and principal distributions on a pool of mortgage assets. One
type of SMBS will have one class receiving some of the interest and most of the
principal from the mortgage assets, while the other class will receive most of
the interest and the remainder of the principal. In some cases, one class will
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receive all of the interest (the IO class), while the other class will receive
all of the principal (the principal-only or PO class). The yield to maturity on
IOs and POs is extremely sensitive to the rate of principal payments (including
prepayments) on the related underlying mortgage assets, and a rapid rate of
principal payments may have a material adverse effect on a portfolio yield to
maturity. If the underlying mortgage assets experience greater than anticipated
prepayments of principal, a portfolio may fail to fully recoup its initial
investment in these securities, even if the security is in one of the highest
rating categories.
Although SMBS are purchased and sold by institutional investors through several
investment banking firms acting as brokers or dealers, these securities were
only recently developed. As a result, established trading markets have not yet
developed and, accordingly, certain of these securities may be deemed illiquid
and subject to a portfolio's limitations on investment in illiquid securities.
Structured Notes: are Derivatives on which the amount of principal repayment and
or interest payments is based upon the movement of one or more factors. These
factors include, but are not limited to, currency exchange rates, interest rates
(such as the prime lending rate and LIBOR) and stock indices such as the S&P 500
Index. In some cases, the impact of the movements of these factors may increase
or decrease through the use of multipliers or deflators. The use of Structured
Notes allows a portfolio to tailor its investments to the specific risks and
returns the Adviser wishes to accept while avoiding or reducing certain other
risks.
Swaps--Swap Contracts: are Derivatives in the form of a contract or other
similar instrument which is an agreement to exchange the return generated by one
instrument for the return generated by another instrument. The payment streams
are calculated by reference to a specified index and agreed upon notional
amount. The term specified index includes, but is not limited to, currencies,
fixed interest rates, prices and total return on interest rate indices,
fixed-income indices, stock indices and commodity indices (as well as amounts
derived from arithmetic operations on these indices). For example, a portfolio
may agree to swap the return generated by a fixed-income index for the return
generated by a second fixed-income index. The currency swaps in which the
portfolios may enter will generally involve an agreement to pay interest streams
calculated by reference to interest income linked to a specified index in one
currency in exchange for a specified index in another currency. Such swaps may
involve initial and final exchanges that correspond to the agreed upon notional
amount.
A portfolio will usually enter into swaps on a net basis, i.e., the two return
streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with a portfolio receiving or paying, as the case
may be, only the net amount of the two returns. A portfolio's obligations under
a swap agreement will be accrued daily (offset against any amounts owing to the
portfolio) and any accrued but unpaid net amounts owed to a swap counterparty
will be covered by the maintenance of a segregated account consisting of cash,
U.S. Government securities, or high grade debt obligations. A portfolio will not
enter into any swap agreement unless the counterparty meets the rating
requirements set forth in guidelines established by the Fund's Board of
Trustees.
Possible Risks: Interest rate and total rate of return swaps do not involve the
delivery of securities, other underlying assets, or principal. Accordingly, the
risk of loss with respect to interest rate and total rate of return swaps is
limited to the net amount of interest payments that a portfolio is contractually
obligated to make. If the other party to an interest rate or total rate of
return swap defaults, a portfolio's risk of loss consists of the net amount of
interest payments that a portfolio is contractually entitled to receive. In
contrast, currency swaps usually involve the delivery of the entire principal
value of one designated currency in exchange for the other designated currency.
Therefore, the entire principal value of a currency swap is subject to the risk
that the other party to the swap will default on its contractual delivery
obligations. If there is a default by the counterparty, a portfolio may have
contractual remedies pursuant to the agreements related to the transaction. The
swap market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Swaps that include caps, floors, and collars are more recent
<PAGE>
innovations for which standardized documentation has not yet been fully
developed and, accordingly, they are less liquid than swaps.
The use of swaps is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. If the Adviser is incorrect in its forecasts of market
values, interest rates, and currency exchange rates, the investment performance
of the portfolios would be less favorable than it would have been if this
investment technique were not used.
U.S. Governments--U.S. Treasury securities: are Fixed-Income Securities which
are backed by the full faith and credit of the U.S. Government as to the payment
of both principal and interest.
When-Issued Securities: are securities purchased at a certain price even though
the securities may not be delivered for up to 90 days. No payment or delivery is
made by a portfolio in a when-issued transaction until the portfolio receives
payment or delivery from the other party to the transaction. Although a
portfolio receives no income from the above described securities prior to
delivery, the market value of such securities is still subject to change. As a
consequence, it is possible that the market price of the securities at the time
of delivery may be higher or lower than the purchase price. A portfolio will
maintain with the custodian a separate account with a segregated portfolio of
liquid, high-grade debt securities or cash in an amount at least equal to these
commitments.
Zero Coupons--Zero Coupon Obligations: are Fixed-Income Securities that do not
make regular interest payments. Instead, zero coupon obligations are sold at
substantial discounts from their face value. The difference between a zero
coupon obligation's issue or purchase price and its face value represents the
imputed interest an investor will earn if the obligation is held until maturity.
Zero coupon obligations may offer investors the opportunity to earn higher
yields than those available on ordinary interest-paying obligations of similar
credit quality and maturity. However, zero coupon obligation prices may also
exhibit greater price volatility than ordinary fixed-income securities because
of the manner in which their principal and interest are returned to the
investor.
GENERAL INFORMATION
PURCHASE OF SHARES
The Advisory Foreign Fixed Income and the Advisory Mortgage Portfolios are
available only to private advisory clients of Miller Anderson & Sherrerd, LLP
Adviser to MAS Funds.
Shares of each portfolio may be purchased at the net asset value per share next
determined after receipt of the purchase order. Such portfolios determine net
asset value at the normal close of trading of the New York Stock Exchange (NYSE)
(currently 4:00 P.M. Eastern Time) each day that the portfolios are open. See
Other Information-Closed Holidays and Valuation of Shares.
Other Purchase Information: The Fund reserves the right, in its sole discretion,
to suspend the offering of shares of any of its portfolios or to reject any
purchase orders when, in the judgment of management, such suspension or
rejection is in the best interest of the Fund.
Purchases of a portfolio's shares will be made in full and fractional shares of
the portfolio calculated to three decimal places. In the interest of economy and
convenience, certificates for shares will not be issued except at the written
request of the shareholder. Certificates for fractional shares, however, will
not be issued.
REDEMPTION OF SHARES
Shares of each portfolio may be redeemed by mail, or, if authorized, by
telephone. No charge is made for redemptions. The value of shares redeemed may
be more or less than the purchase price, depending on the net asset value at the
<PAGE>
time of redemption which is based on the market value of the investment
securities held by the portfolio.
Neither the Distributor nor the Fund will be responsible for any loss,
liability, cost, or expense for acting upon facsimile instructions or upon
telephone instructions that they reasonably believe to be genuine. In order
to confirm that telephone instructions in connection with redemptions are
genuine, the Fund and Distributor will provide written confirmation of
transactions initiated by telephone.
If the Board of Trustees determines that it would be detrimental to the best
interests of the remaining shareholders of the Fund to make payment wholly or
partly in cash, the Fund may pay the redemption proceeds in whole or in part by
a distribution in-kind of readily marketable securities held by a portfolio in
lieu of cash in conformity with applicable rules of the Securities and Exchange
Commission. Investors may incur brokerage charges on the sale of portfolio
securities received in such payments of redemptions.
VALUATION OF SHARES
Net asset value per share is computed by dividing the total value of the
investments and other assets of the portfolio, less any liabilities, by the
total outstanding shares of the portfolio. The net asset value per share is
determined as of the normal close of the NYSE (currently 4:00 p.m. Eastern Time)
on each day the portfolio is open for business (See Other Information-Closed
Holidays). Bonds and other fixed-income securities listed on a foreign exchange
are valued at the latest quoted sales price available before the time when
assets are valued. For purposes of net asset value per share, all assets and
liabilities initially expressed in foreign currencies will be converted into
U.S. dollars at the bid price of such currencies against U.S. dollars.
Net asset value includes interest on bonds and other Fixed-Income Securities
which is accrued daily. Bonds and other fixed-income securities which are traded
over the counter and on a stock exchange will be valued according to the
broadest and most representative market, and it is expected that for bonds and
other fixed-income securities this ordinarily will be the over-the-counter
market.
However, bonds and other fixed-income securities may be valued on the basis of
prices provided by a pricing service when such prices are believed to reflect
the fair market value of such securities. The prices provided by a pricing
service are determined without regard to bid or last sale prices but take into
account institutional size trading in similar groups of securities and any
developments related to specific securities. Bonds and other fixed-income
securities not priced in this manner are valued at the most recent quoted bid
price, or when stock exchange valuations are used, at the latest quoted sale
price on the day of valuation. If there is no such reported sale, the latest
quoted bid price will be used. Securities purchased with remaining maturities of
60 days or less are valued at amortized cost when the Board of Trustees
determines that amortized cost reflects fair value. In the event that amortized
cost does not approximate market, market prices as determined above will be
used. Other assets and securities, for which no quotations are readily available
(including restricted securities), will be valued in good faith at fair value
using methods approved by the Board of Trustees.
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES
Dividends and Capital Gains Distributions: The Advisory Foreign Fixed Income
Portfolio and the Advisory Mortgage Portfolio will normally distribute
substantially all of their net investment income to shareholders in the form of
quarterly and monthly dividends, respectively.
Certain mortgage-backed securities may provide for periodic or unscheduled
payments of principal and interest as the mortgages underlying the securities
are paid or prepaid. However, such principal payments (not otherwise
characterized as ordinary discount income or bond premium expense) will not
normally be considered as income to the portfolio and therefore will not be
distributed as dividends. Rather, these payments on mortgage-backed securities
will be reinvested on behalf of the shareholders by the portfolio in accordance
with its investment objectives and policies.
For the purpose of calculating dividends, net income shall consist of interest
earned, including any discount or premium ratably amortized to the date of
maturity, minus estimated expenses of the portfolio.
<PAGE>
Federal Taxes: The Advisory Portfolios intend to qualify for taxation as a
regulated investment company under the Code so that each portfolio will not be
subject to Federal income tax to the extent it distributes its income to its
shareholders. Dividends, either in cash or reinvested in shares, paid by a
portfolio from net investment income will be taxable to shareholders as ordinary
income. The Fund will send each shareholder a statement each year indicating the
amount of the dividend income which qualifies for such treatment.
Whether paid in cash or additional shares of a portfolio, and regardless of the
length of time the shares in such portfolio have been owned by the shareholder,
distributions from long-term capital gains are taxable to shareholders as such,
but are not eligible for the dividends received deduction for corporations.
Shareholders are notified annually by the Fund as to Federal tax status of
dividends and distributions paid by a portfolio. Such dividends and
distributions may also be subject to state and local taxes.
Exchanges and redemptions of shares in a portfolio are taxable events for
Federal income tax purposes. Individual shareholders may also be subject to
state and municipal taxes on such exchanges and redemptions.
Each portfolio intends to declare and pay dividends and capital gain
distributions so as to avoid imposition of the Federal excise tax. To do so,
each portfolio expects to distribute an amount at least equal to (i) 98% of its
calendar year ordinary income, (ii) 98% of its capital gains net income (the
excess of short and long-term capital gain over short and long-term capital
loss) for the one-year period ending October 31st, and (iii) 100% of any
undistributed ordinary and capital gain net income from the prior year.
Dividends declared in December by a portfolio will be deemed to have been paid
by such portfolio and received by shareholders on the record date provided that
the dividends are paid before February 1 of the following year.
The Fund is required by Federal law to withhold 31% of reportable payments
(which may include dividends, capital gains distributions, and redemptions) paid
to shareholders who have not complied with IRS regulations.
Special Considerations. Under the Code if more than 50% of a portfolio's
securities is owned by 5 or fewer persons the portfolio may be a "personal
holding company" and subject to Federal income tax.
Foreign Income Taxes: Investment income received by the portfolios from sources
within foreign countries may be subject to foreign income taxes withheld at the
source. The U.S. has entered into Tax Treaties with many foreign countries which
entitle these portfolios to a reduced rate of tax or exemption from tax on such
income. It is impossible to determine the effective rate of foreign tax in
advance since the amount of the portfolios' assets to be invested within various
countries is not known. The portfolios intend to operate so as to qualify for
treaty reduced rates of tax where applicable.
Since the Advisory Foreign Fixed Income Portfolio is treated as a single entity
for Federal income tax purposes, it may file an election with the Internal
Revenue Service to pass through to the portfolio's shareholders the amount of
foreign income taxes paid by the portfolio, but may do so only if more than 50%
of the value of the total assets of the portfolio at the end of the fiscal year
is represented by foreign securities. This portfolio will make such an election
only if they deem it to be in the best interests of their shareholders. The
Federal income tax status of the portfolio will not be affected by the election.
If this election is made, shareholders of the portfolio will be required to: (i)
include in gross income, even though not actually received, their respective pro
rata share of foreign taxes paid by the portfolio; (ii) treat their pro rata
share of foreign taxes as paid by them; and (iii) either deduct their pro rata
share of foreign taxes in computing their taxable income or use it within the
limitations set forth in the Internal Revenue Code as a foreign tax credit
against U.S. income taxes (but not both). No deduction for foreign taxes may be
claimed by a shareholder who does not itemize deductions.
<PAGE>
Each shareholder of the portfolio will be notified within 60 days after the
close of each taxable (fiscal) year of the Fund if the foreign taxes paid by the
portfolio will pass through for that year, and, if so, the amount of each
shareholder's pro rata share (by country) of (i) the foreign taxes paid, and
(ii) the portfolio's gross income from foreign sources. Shareholders who are not
liable for Federal income taxes, such as retirement plans qualified under
Section 401 of the Internal Revenue Code, will not be affected by any such "pass
through" of foreign tax credits.
State and Local Taxes: The Fund is formed as a Pennsylvania Business Trust and
therefore is not liable, under current law, for any corporate income or
franchise tax of the Commonwealth of Pennsylvania. The Fund will provide
Pennsylvania taxable values on a per share basis.
INVESTMENT ADVISER
The Investment Adviser to the Fund, Miller Anderson & Sherrerd, LLP is a
Pennsylvania limited partnership founded in 1969 and is located at One Tower
Bridge, West Conshohocken, PA 19428. Miller Anderson & Sherrerd, LLP is an Equal
Opportunity/Affirmative Action Employer. The Adviser provides investment
services to employee benefit plans, endowment funds, foundations and other
institutional investors and as of the date of this prospectus had in excess of
$__ billion in assets under management. On _________________, Morgan Stanley
Group Inc. acquired Miller Anderson & Sherrerd, LLP (the "Adviser") in a
transaction in which Morgan Stanley Asset Management Holdings Inc., an indirect
wholly owned subsidiary of Morgan Stanley Group Inc., became the sole general
partner of the Adviser. Morgan Stanley Asset Management Holdings Inc. and two
other wholly owned subsidiaries of Morgan Stanley Group Inc. became the limited
partners of the Adviser. In connection with this transaction, the Adviser
entered into a new investment management agreement with the MAS Funds dated as
of _________________, which agreement was approved by the shareholders of each
Portfolio at a special meeting held on October 6, 1995. The Adviser will retain
its name and remain at its current location, One Tower Bridge, West
Conshohocken, PA 19428. The Adviser will continue to provide investment
counseling services to employee benefit plans, endowments, foundations, and
other institutional investors.
Under an Investment Advisory Agreement (Agreement) with the Fund, dated as of
July 1, 1988, the Adviser, subject to the control and supervision of the Fund's
Board of Trustees and in conformance with the stated investment objectives and
policies of each portfolio of the Fund, manages the investment and reinvestment
of the assets of each portfolio of the Fund. In this regard, it is the
responsibility of the Adviser to make investment decisions for the Fund's
portfolios and to place each portfolio's purchase and sales orders. As
compensation for the services rendered by the Adviser under the Agreement, each
portfolio pays the Adviser an advisory fee calculated by applying a quarterly
rate, based on the following annual percentage rates, to the portfolio's average
daily net assets for the quarter:
Rate
-----
Advisory Foreign Fixed Income 0.375%*
Advisory Mortgage 0.375**
* Until further notice, the Adviser has voluntarily agreed to
waive its advisory fees. Absent these fee waivers and
reimbursements by the Adviser, Total Operating Expenses
would be 0.525% for the Advisory Foreign Fixed Income.
<PAGE>
** Until further notice, the Adviser has voluntarily agreed to
waive its advisory fees. In addition, the Adviser has
voluntarily agreed to reimburse certain expenses to the
extent necessary to keep Total Operating Expenses from
exceeding 0.08%. Absent these fee waivers by the Adviser,
Total Operating Expenses would be 0.495% for the Advisory
Mortgage Portfolio.
For the fiscal year ended September 30, 1995, the Adviser received $___________
as compensation for its services.
PORTFOLIO MANAGEMENT
The investment professionals of MAS who are primarily responsible for the
day-to-day management of the Fund's portfolios are as follows:
Advisory Mortgage Portfolio - Kenneth B. Dunn and Scott F. Richard;
Advisory Foreign Fixed Income Portfolio - J. David Germany, James L. Kichline
and Richard B. Worley.
A description of their business experience during the past five years is as
follows:
Kenneth B. Dunn, Partner, joined MAS in 1987.
J. David Germany, Partner, joined MAS in 1991. He served as Vice President
& Senior Economist for Morgan Stanley & Co. from 1989 to 1991.
James L. Kichline, Partner, joined MAS in 1987.
Scott F. Richard, Partner, joined MAS in 1992. He served as Vice President, Head
of Fixed Income Research & Model Development for Goldman, Sachs & Co. from 1987
to 1991 and as Head of Mortgage Research in 1992.
Richard B. Worley, Partner, joined MAS in 1978.
ADMINISTRATIVE SERVICES
MAS serves as Administrator to the Fund pursuant to an Administration Agreement
dated as of November 18, 1993. Administrative services provided by MAS include
shareholder communication services, regulatory reporting, office space and
personnel. Chase Global Funds Services Company, a subsidiary of The Chase
Manhattan Bank, N.A., 73 Tremont Street, Boston MA 02108-3913, serves as
Transfer Agent to the Fund pursuant to an agreement also dated as of November 8,
1993, and provides fund accounting and other services pursuant to a
sub-administration agreement with MAS as Administrator. Under its Administration
Agreement with the Fund, MAS receives an annual fee, accrued daily and payable
monthly, of 0.08% of the Fund's average daily net assets, and is responsible for
all fees payable under any sub-administration agreements.
GENERAL DISTRIBUTION AGENT
Shares of the Fund are distributed exclusively through MAS Fund Distribution,
Inc., a wholly-owned subsidiary of the Adviser.
PORTFOLIO TRANSACTIONS
The investment advisory agreement authorizes the Adviser to select the brokers
or dealers that will execute the purchases and sales of investment securities
for each of the Fund's portfolios and directs the Adviser to use its best
efforts to obtain the best execution with respect to all transactions for the
portfolios. In doing so, a portfolio may pay higher commission rates than the
<PAGE>
lowest available when the Adviser believes it is reasonable to do so in light of
the value of the research, statistical, and pricing services provided by the
broker effecting the transaction.
It is not the Fund's practice to allocate brokerage or principal business on the
basis of sales of shares which may be made through intermediary brokers or
dealers. However, the Adviser may place portfolio orders with qualified
broker-dealers who recommend the Fund's Portfolios or who act as agents in the
purchase of shares of the portfolios for their clients.
Some securities considered for investment by each of the Fund's portfolios may
also be appropriate for other clients served by the Adviser. If purchase or sale
of securities consistent with the investment policies of a portfolio and one or
more of these other clients served by the Adviser is considered at or about the
same time, transactions in such securities will be allocated among the portfolio
and clients in a manner deemed fair and reasonable by the Adviser. Although
there is no specified formula for allocating such transactions, the various
allocation methods used by the Adviser, and the results of such allocations, are
subject to periodic review by the Fund's Trustees.
OTHER INFORMATION
Description of Shares and Voting Rights: The Fund was established under
Pennsylvania law by a Declaration of Trust dated February 15, 1984, as amended
and restated as of November 18, 1993. The Fund is authorized to issue an
unlimited number of shares of beneficial interest, without par value, from an
unlimited number of series (portfolios) of shares. Currently the Fund consists
of twenty six portfolios.
The shares of each portfolio of the Fund are fully paid and non-assessable, and
have no preference as to conversion, exchange, dividends, retirement or other
features. The shares of each portfolio of the Fund have no preemptive rights.
The shares of the Fund have non-cumulative voting rights, which means that the
holders of more than 50% of the shares voting for the election of Trustees can
elect 100% of the Trustees if they choose to do so. Shareholders are entitled to
one vote for each full share held (and a fractional vote for each fractional
share held), then standing in their name on the books of the Fund.
Meetings of shareholders will not be held except as required by the Investment
Company Act of 1940, as amended, and other applicable law. A meeting will be
held to vote on the removal of a Trustee or Trustees of the Fund if requested in
writing by the holders of not less than 10% of the outstanding shares of the
Fund. The Fund will assist in shareholder communication in such matters to the
extent required by law.
Custodians: The Chase Manhattan Bank, N.A. (NY) for the Advisory Mortgage
Portfolio and Morgan Stanley Trust Company (NY), and its sub-custodians for the
Advisory Foreign Fixed Income Portfolio. The custodians hold cash, securities
and other assets as required by the 1940 Act.
Transfer and Dividend Disbursing Agent: Chase Global Funds Services Company, a
subsidiary of The Chase Manhattan Bank, N.A., 73 Tremont Street, Boston, MA
02108-3913.
Reports: Shareholders receive semiannual and annual financial statements. Annual
financial statements are audited by Price Waterhouse LLP, independent
accountants.
Litigation: The Fund is not involved in any litigation.
Closed Holidays: Currently, the weekdays on which the Advisory Portfolios are
closed for business are: New Year's Day, Martin Luther King Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Columbus Day,
Veterans Day, Thanksgiving Day, and Christmas Day.
<PAGE>
TRUSTEES AND OFFICERS
The following is a list of the Trustees and the principal executive officers of
the Fund and a brief statement of their present positions and principal
occupations during the past five years:
Thomas L. Bennett,* Chairman of the Board of Trustees; Partner, Miller Anderson
& Sherrerd, LLP; Director, MAS Fund Distribution, Inc.
David P. Eastburn, Trustee; Retired; formerly: Director (Trustee) of each of the
investment companies in The Vanguard Group, except Vanguard Specialized
Portfolios; Director of Penn Mutual Life Insurance Company and General Accident
Insurance; President, Federal Reserve Bank of Philadelphia.
Joseph P. Healey, Trustee; Headmaster, Haverford School; formerly Dean, Hobart
College; Associate Dean, William & Mary College.
Joseph J. Kearns, Trustee; Vice President and Treasurer, J. Paul Getty Trust.
C. Oscar Morong, Jr., Trustee; Managing Director, Morong Capital Management;
Director, Ministers and Missionaries Benefit Board of American Baptist Churches,
The Indonesia Fund, The Landmark Funds; formerly Senior Vice President and
Investment Manager for CREF, TIAA-CREF Investment Management, Inc.
* Trustee Bennett is deemed to be an "interested person" of the Fund as that
term is defined in the Investment Company Act of 1940, as amended.
James D. Schmid, President; Partner, Miller Anderson & Sherrerd, LLP; Director,
MAS Fund Distribution, Inc.; Chairman of the Board of Directors, The Minerva
Fund, Inc.; formerly Vice President, Chase Manhattan Bank.
Lorraine Truten, CFA, Vice President; Head of Mutual Fund Administration, Miller
Anderson & Sherrerd, LLP; President, MAS Fund Distribution, Inc.
Douglas W. Kugler, Treasurer; Manager of Mutual Fund Administration, Miller
Anderson & Sherrerd, LLP; formerly Assistant Vice President, Provident Financial
Processing Corporation from May 1989 to March 1993.
John H. Grady, Jr., Secretary of the Fund since July 1995; Partner, Morgan,
Lewis & Bockius; LLP, formerly Attorney, Ropes & Gray.
Remuneration of Trustees and Officers: The Fund pays each Trustee, who is not
also an officer or affiliated person, an annual fee plus travel and other
expenses incurred in attending Board meetings. Trustees who are also officers or
affiliated persons receive no remuneration for their service as Trustees. The
Fund's officers and employees are paid by the Adviser or Chase Global Funds
Services Company, except for Mr. Grady, who receives no compensation for his
services.
<PAGE>
Investment Adviser and Administrator: Transfer Agent:
Miller Anderson & Sherrerd, LLP Chase Global Funds Services Company
One Tower Bridge 73 Tremont Street
West Conshohocken, Boston, Massachusetts 02108-0913
Pennsylvania 19428-2899
General Distribution Agent:
MAS Fund Distribution, Inc.
One Tower Bridge
P.O. Box 868
West Conshohocken,
Pennsylvania 19428-0868
Table of Contents
<TABLE>
<CAPTION>
Page Page
---- ----
<S> <C> <C> <C>
Fund Expenses 2 General Information:
Prospectus Summary 3 Purchase of Shares 20
Financial Highlights 5 Redemption of Shares 21
Yield and Total Return 6 Valuation of Shares 21
Investment Suitability 6 Dividends, Capital Gains Distributions
Investment Limitations 7 and Taxes 21
Portfolio Summaries 9 Investment Adviser 23
Prospectus Glossary: Portfolio Management 23
Strategies 11 Administrative Services 24
Investments 13 General Distribution Agent 24
Portfolio Transactions 24
Trustees and Officers 26
</TABLE>
<PAGE>
ACCOUNT REGISTRATION FORM
MAS Fund Distribution, Inc.
General Distribution Agent
REGISTRATION/PRIMARY MAILING ADDRESS
City_____________________________State__________________________Zip_______
Telephone No.__________
Type of Account:
o Defined Benefit Plan o Defined Contribution Plan
o Profit Sharing/Thrift Plan
o Other Employee Benefit Plan
o Endowment o Foundation o Taxable o Other (Specify)
o United States Citizen o Resident Alien
o Non-Resident Alien, Indicate Country of Residence
INTERESTED PARTY MAILING ADDRESS (Optional)
Street or P.O. Box
Attention:
City_____________________________State__________________________Zip_______
Telephone No.__________
INTERESTED PARTY MAILING ADDRESS (Optional)
Street or P.O. Box
Attention:
City_____________________________State__________________________Zip_______
Telephone No.__________
INTERESTED PARTY MAILING ADDRESS (Optional)
Street or P.O. Box
Attention:
City_____________________________State__________________________Zip_______
Telephone No.__________
INVESTMENT
For Purchase of:
o Equity Portfolio
o Value Portfolio
o Growth Portfolio
o Mid Cap Growth Portfolio
o Balanced Portfolio
o Multi-Asset-Class Portfolio
o Balanced Investing--Indicate Portfolios
o Fixed Income Portfolio
o Fixed Income Portfolio II
o Special Purpose Fixed Income Portfolio
o High Yield Portfolio
o Limited Duration Fixed Income Portfolio
o Intermediate Duration Portfolio
o Mortgage-Backed Securities Portfolio
o Cash Reserves Portfolio
o International Equity Portfolio
o Emerging Markets Portfolio
o International Fixed Income Portfolio
o Global Fixed Income Portfolio
o Municipal Portfolio
o PA Municipal Portfolio
o Mid Cap Value Portfolio
o Domestic Fixed Income Portfolio
<PAGE>
TAXPAYER IDENTIFICATION NUMBER
Part 1.
Social Security Number
- -
----------------------- or
Employer Identification Number
-
-------------
Part 2. BACKUP WITHHOLDING
o Check the box if the account is subject to Backup Withholding under the
provisions of Section 3406(a)(1)(C) of the Internal Revenue Code.
IMPORTANT TAX INFORMATION
You (as payee) are required by law to provide us (as payer) with your current
taxpayer identification number. Accounts that have a missing or incorrect
taxpayer identification number will be subject to backup withholding at a 31%
rate on ordinary income and capital gains distributions as well as redemptions.
Backup withholding isnot an additional tax; the tax liability of persons subject
to backup withholding will be reduced by the amount of tax withheld. You may be
notified that you are subject to backup withholding under section 3406(a)(1)(C)
because you have underreported interest or dividends or you were required to,
but failed to, file a return which would have included a reportable interest or
dividend payment. If you have been so notified, check the box in PART 2 at left.
TELEPHONE REDEMPTION OPTION
The Fund is hereby authorized to honor any telephone or telegraphic
requests believed to be authentic for the following:
(check one or both)
o Mailing of Redemption proceeds to the name and address in Section 1 above.
o Wire of Redemption proceeds to:
_______________________________Name of Commercial Bank (Not Savings Bank)
Bank Account Number
_______________________________________________________________________________
Name(s) in which your Bank Account is Established
_______________________________________________________________________________
Bank's Street Address
_______________________________________________________________________________
City State Zip Routing/ABA Number
<PAGE>
DISTRIBUTION OPTION
o Income dividends and capital gains distributions to be reinvested in
additional shares.
o Income dividends and capital gains distributions to be paid in cash.
o Income dividends in cash and capital gains distributions in additional
shares.
If cash option is chosen, please indicate instructions below:
o Mail distribution check to the name and address in which account is
registered.
o Wire distributions to the same Commercial Bank indicated in Section 5
above.
o Wire distributions to:
Name of Commercial Bank (Not Savings Bank) ___________________________
Bank Account Number
Name(s) in which your Bank Account is Established
______________________________________________________________________________
Bank's Street Address
______________________________________________________________________________
City State Zip Routing/ABA Number
SIGNATURE(S) OF ALL HOLDERS AND TAXPAYER CERTIFICATION
The undersigned certify that I/we have full authority and legal capacity to
purchase shares of the Fund and affirm that I/we have received a current
Prospectus of the MAS Funds and agree to be bound by its terms. Under penalties
of perjury I/we certify that the information provided in Section 4 above is
true, correct and complete.
(X)________________________________________________________
Signature_____________________________________ Date________
(X____________________________________________
Signature_____________________________________ Date________(X)______
(X)___________________________________________
Signature_____________________________________ Date________
(X)___________________________________________
Signature_____________________________________ Date________
FOR INTERNAL USE ONLY (X)
_____________________________________________________________
Signature Date
O*/ F OR S
<PAGE>
MAS FUNDS
STATEMENT OF ADDITIONAL INFORMATION
January __, 1996
MAS Funds (the "Fund") is a no load mutual fund consisting of
twenty-six portfolios offering a variety of investment alternatives. This
Statement of Additional Information sets forth information about the Fund
applicable to each of the twenty-six portfolios.
This Statement is not a Prospectus but should be read in conjunction
with the Fund's Prospectus dated _____________, 1996, and the Advisory
Prospectus, dated January __, 1996, each as revised from time to time. To obtain
either of these Prospectuses, please call the Client Services Group.
Client Services Group: 1-800-354-8185
Prices and Investment Results: 1-800-522-1525
TABLE OF CONTENTS
Page
Business History .......................................................... 3
Strategies and Investments ................................................ 3
Repurchase Agreements ..................................................... 3
Securities Lending ........................................................ 3
Foreign Investments ....................................................... 4
Futures Contracts ......................................................... 4
Restrictions on the Use of Futures Contracts .............................. 5
Risk Factors in Futures Transactions ...................................... 5
Options ................................................................... 6
Options on Foreign Currencies ............................................. 6
Combined Transactions ..................................................... 7
Risks of Options on Futures Contracts, Forward Contracts and Options
on Foreign Currencies ................................................... 7
Swap Contracts ............................................................ 8
Foreign Currency Exchange-Related Securities .............................. 8
Municipal Bonds ........................................................... 10
Duration .................................................................. 11
Mortgage-Backed Securities ................................................ 11
Stripped Mortgage-Backed Securities ....................................... 13
U.S. Government Securities ................................................ 13
Zero Coupon Bonds ......................................................... 14
Repurchase Agreements ..................................................... 14
Eurodollar and Yankee Obligations ......................................... 14
Brady Bonds ............................................................... 15
Cash Reserves Portfolio ................................................... 15
Tax Considerations ........................................................ 16
Purchase of Shares ........................................................ 16
Redemption of Shares ...................................................... 16
Shareholder Services ...................................................... 16
Investment Limitations .................................................... 17
Management of the Fund .................................................... 19
Distribution Plans ........................................................ 21
Investment Adviser ........................................................ 21
Administration ............................................................ 24
Distributor for Fund ...................................................... 26
Portfolio Transactions .................................................... 26
Portfolio Turnover ........................................................ 27
General Information ....................................................... 27
Performance Information ................................................... 29
Comparative Indices ....................................................... 35
Financial Statements ...................................................... 38
Appendix-Description of Securities and Ratings ............................ 39
Description of Bond Ratings ............................................... 41
<PAGE>
BUSINESS HISTORY
MAS Funds (formerly MAS Pooled Trust Fund) is an open end management investment
company established under Pennsylvania law as a Pennsylvania business trust
under an Amended and Restated Agreement and Declaration of Trust dated November
18, 1993. The Fund was originally established as The MAS Pooled Trust Fund, a
Pennsylvania business trust, in February, 1984.
STRATEGIES AND INVESTMENTS
The following information supplement the characteristics and risks of strategies
and investments set forth in the Fund's Prospectuses:
REPURCHASE AGREEMENTS
Each of the Fund's Portfolios may invest in repurchase agreements collateralized
by U.S. Government securities, certificates of deposit and certain bankers'
acceptances. Repurchase agreements are transactions by which a Portfolio
purchases a security and simultaneously commits to resell that security to the
seller (a bank or securities dealer) at an agreed upon price on an agreed upon
date (usually within seven days of purchase). The resale price reflects the
purchase price plus an agreed upon market rate of interest which is unrelated to
the coupon rate or date of maturity of the purchased security. In these
transactions, the securities purchased by a Portfolio have a total value in
excess of the value of the repurchase agreement and are held by the Portfolio's
custodian bank until repurchased. Such agreements permit a Portfolio to keep all
its assets at work while retaining "overnight" flexibility in pursuit of
investments of a longer-term nature. The Adviser and the Fund's Administrator
will continually monitor the value of the underlying securities to ensure that
their value always equals or exceeds the repurchase price.
The use of repurchase agreements involves certain risks. For example, if the
seller of the agreements defaults on its obligation to repurchase the underlying
securities at a time when the value of these securities has declined, a
Portfolio may incur a loss upon disposition of them. If the seller of the
agreement becomes insolvent and subject to liquidation or reorganization under
the Bankruptcy Code or other laws, a bankruptcy court may determine that the
underlying securities are collateral not within the control of a Portfolio and
therefore subject to sale by the trustee in bankruptcy. Finally, it is possible
that a Portfolio may not be able to substantiate its interest in the underlying
securities. While the Fund's management acknowledges these risks, it is expected
that they can be controlled through stringent security selection criteria and
careful monitoring procedures.
SECURITIES LENDING
Each Portfolio may lend its investment securities to qualified institutional
investors who need to borrow securities in order to complete certain
transactions, such as covering short sales, avoiding failures to deliver
securities or completing arbitrage operations. By lending its investment
securities, a Portfolio attempts to increase its income through the receipt of
interest on the loan. Any gain or loss in the market price of the securities
loaned that might occur during the term of the loan would be for the account of
the Portfolio. Each Portfolio may lend its investment securities to qualified
brokers, dealers, domestic and foreign banks or other financial institutions, so
long as the terms, the structure and the aggregate amount of such loans are not
inconsistent with the Investment Company Act of 1940, as amended, or the Rules
and Regulations or interpretations of the Securities and Exchange Commission
(the "Commission") thereunder, which currently require that (a) the borrower
pledge and maintain with the Portfolio collateral consisting of cash, an
irrevocable letter of credit issued by a domestic U.S. bank, or securities
issued or guaranteed by the United States Government having a value at all times
not less than 100% of the value of the securities loaned, (b) the borrower add
to such collateral whenever the price of the securities loaned rises (i.e., the
borrower "marks to the market" on a daily basis), (c) the loan be made subject
to termination by the Portfolio at any time, and (d) the Portfolio receive
reasonable interest on the loan (which may include the Portfolio investing any
cash collateral in interest bearing short-term investments), any distribution on
the loaned securities and any increase in their market value. All relevant facts
and circumstances, including the creditworthiness of the broker, dealer or
institution, will be considered in making decisions with respect to the lending
of securities, subject to review by the Trustees.
At the present time, the Staff of the Commission does not object if an
investment company pays reasonable negotiated fees in connection with loaned
securities, so long as such fees are set forth in a written contract and
approved by the investment company's Trustees. In addition, voting rights may
pass with the loaned securities, but if a material event will occur affecting an
investment on loan, the loan must be called and the securities voted.
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<PAGE>
FOREIGN INVESTMENTS
Investors should recognize that investing in foreign securities involves certain
special considerations which are not typically associated with investing in U.S.
issuers. Since the securities of foreign issuers are frequently denominated in
foreign currencies, and since the Portfolios may temporarily hold uninvested
reserves in bank deposits in foreign currencies, the Portfolios will be affected
favorably or unfavorably by changes in currency rates and in exchange control
regulations, and may incur costs in connection with conversions between various
currencies. The investment policies of the Portfolios (except for the Limited
Duration, Mortgage-Backed Securities, Advisory Mortgage, Cash Reserves, PA
Municipal and Municipal Portfolios) permit them to enter into forward foreign
currency exchange contracts in order to hedge their respective holdings and
commitments against changes in the level of future currency rates. Such
contracts involve an obligation to purchase or sell a specific currency at a
future date at a price set at the time of the contract.
As foreign issuers are not generally subject to uniform accounting, auditing and
financial reporting standards and practices comparable to those applicable to
domestic issuers, there may be less publicly available information about certain
foreign issuers than about domestic issuers. Securities of some foreign issuers
are generally less liquid and more volatile than securities of comparable
domestic issuers. There is generally less government supervision and regulation
of stock exchanges, brokers and listed issuers than in the U.S. In addition,
with respect to certain foreign countries, there is the possibility of
expropriation or confiscatory taxation, political or social instability, or
diplomatic developments which could affect U.S. investments in those countries.
Although the Portfolios will endeavor to achieve most favorable execution costs
in its portfolio transactions, fixed commissions on many foreign stock exchanges
are generally higher than negotiated commissions on U.S. exchanges. In addition,
it is expected that the expenses for custodian arrangements of the Portfolio's
foreign securities will be somewhat greater than the expenses for the custodian
arrangements for handling the U.S. securities of equal value.
Certain foreign governments levy withholding taxes against dividend and interest
income. Although in some countries a portion of these taxes are recoverable, the
non-recovered portion of foreign withholding taxes will reduce the income
received from investments in such countries. However, these foreign withholding
taxes are not expected to have a significant impact on those Portfolios for
which the investment objective is to seek long-term capital appreciation and any
income should be considered incidental.
The International Equity, Emerging Markets, International Fixed Income, Advisory
Foreign Fixed Income, Global Fixed Income, Multi-Asset-Class, High Yield,
Municipal, PA Muncipal and Balanced Portfolios may invest in the securities of
issuers in Eastern European and other developing markets. The economies of these
countries are currently suffering both from the stagnation resulting from
centralized economic planning and control and the higher prices and unemployment
associated with the transition to market economies. Unstable economic and
political conditions may adversely affect security values. Upon the accession to
power of Communist regimes approximately 40 years ago, the governments of a
number of Eastern European countries expropriated a large amount of property.
The claims of many property owners against those governments were never finally
settled. In the event of the return to power of the Communist Party, there can
be no assurance that the portfolio's investments in Eastern Europe would not
also be expropriated, nationalized or otherwise confiscated.
FUTURES CONTRACTS
Each Portfolio, except the Cash Reserves Portfolio, may enter into futures
contracts, options, and options on futures contracts. Futures contracts provide
for the future sale by one party and purchase by another party of a specified
amount of a specific security at a specified future time and at a specified
price. Futures contracts which are standardized as to maturity date and
underlying financial instrument are traded on national futures exchanges.
Futures exchanges and trading are regulated under the Commodity Exchange Act by
the Commodity Futures Trading Commission ("CFTC"), a U.S. Government Agency.
Although futures contracts by their terms call for actual delivery or acceptance
of the underlying securities, in most cases the contracts are closed out before
the settlement date without the making or taking of delivery. Closing out an
open futures position is done by taking an opposite position ("buying" a
contract which has previously been "sold" or "selling" a contract previously
"purchased") in an identical contract to terminate the position. Brokerage
commissions are incurred when a futures contract is bought or sold.
Futures traders are required to make a good faith margin deposit in cash or
acceptable securities with a broker or custodian to initiate and maintain open
positions in futures contracts. A margin deposit is intended to assure
completion of the contract (delivery or acceptance of the underlying securities)
if it is not terminated prior to the specified delivery date. Minimal initial
margin requirements are established by the futures exchange and may be changed.
Brokers may establish deposit requirements which are higher than the exchange
minimums. Futures contracts are customarily purchased and sold on the basis of
margin deposits that may range upward from less than 5% of the value of the
contract being traded. A Portfolio's margin deposits will be placed in a
segregated account maintained by the Fund's Custodian.
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<PAGE>
After a futures contract position is opened, the value of the contract is marked
to market daily. If the futures contract price changes to the extent that the
margin on deposit does not satisfy margin requirements, payment of additional
"variation" margin will be required. Conversely, a change in the contract value
may reduce the required margin, resulting in a repayment of excess margin to the
contract holder. Variation margin payments are made to and from the futures
broker for as long as the contract remains open. The Fund expects to earn
interest income on its margin deposits.
Traders in futures contracts may be broadly classified as either "hedgers" or
"speculators." Hedgers use the futures markets primarily to offset unfavorable
changes in the value of securities otherwise held for investment purposes or
expected to be acquired by them. Speculators are less inclined to own the
securities underlying the futures contracts which they trade, and use futures
contracts with the expectation of realizing profits from fluctuations in the
value of the underlying securities.
Regulations of the CFTC applicable to the Fund require that the aggregate
initial margins and premiums required to establish non-hedging positions not
exceed 5% of the liquidation value of a Portfolio.
Although techniques other than the sale and purchase of futures contracts could
be used to control a Portfolio's exposure to market fluctuations, the use of
futures contracts may be a more effective means of hedging this exposure. While
the Portfolios will incur commission expenses in both opening and closing out
futures positions, these costs are lower than transaction costs incurred in the
purchase and sale of the underlying securities.
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS
A portfolio will not enter into futures contracts to the extent that its
outstanding obligations to purchase securities under these contracts in
combination with its outstanding obligations with respect to options
transactions would exceed 50% of its total assets, and will maintain assets
sufficient to meet its obligations under such contracts in a segregated account
with the custodian bank or will otherwise comply with the SEC's position on
asset coverage.
RISK FACTORS IN FUTURES TRANSACTIONS
Positions in futures contracts may be closed out only on an Exchange which
provides a secondary market for such futures. However, there can be no assurance
that a liquid secondary market will exist for any particular futures contract at
any specific time. Thus, it may not be possible to close a futures position. In
the event of adverse price movements, a Portfolio would continue to be required
to make daily cash payments to maintain its required margin. In such situations,
if the Portfolio has insufficient cash, it may have to sell portfolio securities
to meet daily margin requirements at a time when it may be disadvantageous to do
so. In addition, the Portfolio may be required to make delivery of the
instruments underlying interest rate futures contracts it holds. The inability
to close options and futures positions also could have an adverse impact on a
Portfolio's ability to effectively hedge. A Portfolio will minimize the risk
that it will be unable to close out a futures contract by only entering into
futures which are traded on national futures exchanges and for which there
appears to be a liquid secondary market.
The risk of loss in trading futures contracts in some strategies can be
substantial, due both to the low margin deposits required and the extremely high
degree of leverage involved in futures pricing. As a result, a relatively small
price movement in a futures contract may result in immediate and substantial
loss (as well as gain) to the investor. For example, if at the time of purchase,
10% of the value of the futures contract is deposited as margin, a subsequent
10% decrease in the value of the futures contract would result in a total loss
of the margin deposit, before any deduction for the transaction costs, if the
account were then closed out. A 15% decrease would result in a loss equal to
150% of the original margin deposit if the contract were closed out. Thus, a
purchase or sale of a futures contract may result in losses in excess of the
amount invested in the contract. A Portfolio would presumably have sustained
comparable losses if, instead of the futures contract, it had invested in the
underlying financial instrument and sold it after the decline.
Utilization of futures transactions by a Portfolio does involve the risk of
imperfect or no correlation where the securities underlying futures contracts
have different maturities than the portfolio securities being hedged. It is also
possible that a Portfolio could both lose money on futures contracts and also
experience a decline in value of its portfolio securities. There is also the
risk of loss by a Portfolio of margin deposits in the event of bankruptcy of a
broker with whom the Portfolio has an open position in a futures contract or
related option.
- 4 -
<PAGE>
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of contract, no trades may
be made on that day at a price beyond that limit. The daily limit governs only
price movement during a particular trading day and therefore does not limit
potential losses, because the limit may prevent the liquidation of unfavorable
positions. Futures contract prices have occasionally moved to the daily limit
for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of futures positions and subjecting some futures
traders to substantial losses.
OPTIONS
Investments in options involve some of the same considerations that are involved
in connection with investments in futures contracts (e.g., the existence of a
liquid secondary market). In addition, the purchase of an option also entails
the risk that changes in the value of the underlying security or contract will
not be fully reflected in the value of the option purchased. Depending on the
pricing of the option compared to either the futures contract or securities, an
option may or may not be less risky than ownership of the futures contract or
actual securities. In general, the market prices of options can be expected to
be more volatile than the market prices on the underlying futures contract or
securities.
OTC Options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC Option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. The
Portfolios expect generally to enter into OTC Options that have cash settlement
provisions, although it is not required to do so.
Unless the parties provide for it, there is no central clearing or guaranty
function in an OTC Option. As a result, if the Counterparty fails to make or
take delivery of the security, currency or other instrument underlying an OTC
Option it has entered into with a Portfolio or fails to make a cash settlement
payment due in accordance with the terms of that option, the Portfolio will lose
any premium it paid for the option as well as any anticipated benefit of the
transaction. Accordingly, the Adviser must assess the creditworthiness of each
such Counterparty or any guarantor of credit enhancement of the Counterparty's
credit to determine the likelihood that the terms of the OTC Option will be
satisfied. The staff of the SEC currently takes the position that OTC Options
purchased by the Portfolios sold by it (the cost of the sell-back plus the
in-the-money amount, if any) are illiquid, and are subject to the Portfolio's
limitation on investing in illiquid securities.
OPTIONS ON FOREIGN CURRENCIES
All Portfolios except the Cash Reserves, Limited Duration, Mortgage-Backed
Securities, Advisory Mortgage, Municipal and PA Municipal Portfolios, may
purchase and write options on foreign currencies in a manner similar to that in
which futures contracts on foreign currencies, or forward contracts, will be
utilized. For example, a decline in the dollar value of a foreign currency in
which portfolio securities are denominated will reduce the dollar value of such
securities, even if their value in the foreign currency remains constant. In
order to protect against such diminution in the value of portfolio securities, a
Portfolio may purchase put options on the foreign currency. If the value of the
currency does decline, a Portfolio will have the right to sell such currency for
a fixed amount in dollars and will thereby offset, in whole or in part, the
adverse effect on its portfolio which otherwise would have resulted.
Conversely, where a rise in the dollar value of a currency in which securities
to be acquired are denominated is projected, thereby increasing the cost of such
securities, a Portfolio may purchase call options thereon. The purchase of such
options could offset, at least partially, the effects of the adverse movements
in exchange rates. As in the case of other types of options, however, the
benefit to a Portfolio derived from purchases of foreign currency options will
be reduced by the amount of the premium and related transaction costs. In
addition, where currency exchange rates do not move in the direction or to the
extent anticipated, the Portfolios could sustain losses on transactions in
foreign currency options which would require them to forego a portion or all of
the benefits of advantageous changes in such rates.
The Portfolios may write options on foreign currencies for the same purposes.
For example, where a Portfolio anticipates a decline in the dollar value of
foreign currency denominated securities due to adverse fluctuations in exchange
rates it could, instead of purchasing a put option, write a call option on the
relevant currency. If the anticipated decline occurs, the option will most
likely not be exercised, and the diminution in value of portfolio securities
will be offset by the amount of the premium received.
- 5 -
<PAGE>
Similarly, instead of purchasing a call option to hedge against an anticipated
increase in the dollar cost of securities to be acquired, a Portfolio could
write a put option on the relevant currency which, if rates move in the manner
projected, will expire unexercised and allow the Portfolios to hedge such
increased cost up to the amount of the premium. As in the case of other types of
options, however, the writing of a foreign currency option will constitute only
a partial hedge up to the amount of the premium, and only if rates move in the
expected direction. If this does not occur, the option may be exercised and the
Portfolios would be required to purchase or sell the underlying currency at a
loss which may not be offset by the amount of the premium. Through the writing
of options on foreign currencies, a Portfolio also may be required to forego all
or a portion of the benefits which might otherwise have been obtained from
favorable movements in exchange rates.
The Portfolios may only write covered call options on foreign currencies. A call
option written on a foreign currency by a Portfolio is "covered" if the
Portfolio owns the underlying foreign currency covered by the call, an absolute
and immediate right to acquire that foreign currency without additional cash
consideration (or for additional cash consideration held in a segregated account
by the Custodian) or upon conversion or exchange of other foreign currency held
in its portfolio. A written call option is also covered if a Portfolio has a
call on the same foreign currency and in the same principal amount as the call
written where the exercise price of the call held (a) is equal to or less than
the exercise price of the call written or (b) is greater than the exercise price
of the call written if the difference is maintained by the Portfolio in cash,
U.S. Government securities or other high grade liquid debt securities in a
segregated account with the Custodian, or (c) maintains in a segregated account
cash, U.S. Government securities or other high-grade liquid debt securities in
an amount not less than the value of the underlying foreign currency in U.S.
dollars, marked-to-market daily.
The Portfolios may also write call options on foreign currencies for
cross-hedging purposes. A call option on a foreign currency is for cross-hedging
purposes if it is designed to provide a hedge against a decline in the U.S.
dollar value of a security which a Portfolio owns or has the right to acquire
and which is denominated in the currency underlying the option due to an adverse
change in the exchange rate. In such circumstances, the Portfolio will
collateralize the option by maintaining in a segregated account with the
Custodian, cash or U.S. Government securities or other high grade liquid debt
securities in an amount not less than the value of the underlying foreign
currency in U.S. dollars marked to market daily.
COMBINED TRANSACTIONS
The Portfolios may enter into multiple transactions, including multiple options
transactions, multiple futures transactions, multiple foreign currency
transactions (including forward foreign currency exchange contracts) and any
combination of futures, options and foreign currency transactions, instead of a
single transaction, as part of a single hedging strategy when, in the opinion of
the Adviser, it is in the best interest of the Portfolio to do so. A combined
transaction, while part of a single strategy, may contain elements of risk that
are present in each of its component transactions and will be structured in
accordance with applicable SEC regulations and SEC staff guidelines.
RISKS OF OPTIONS ON FUTURES CONTRACTS, FORWARD CONTRACTS AND OPTIONS
ON FOREIGN CURRENCIES
Options on foreign currencies and forward contracts are not traded on contract
markets regulated by the CFTC or (with the exception of certain foreign currency
options) by the SEC. To the contrary, such instruments are traded through
financial institutions acting as market-makers, although foreign currency
options are also traded on certain national securities exchanges, such as the
Philadelphia Stock Exchange and the Chicago Board Options Exchange, subject to
SEC regulation. Similarly, options on currencies may be traded over-the-counter.
In an over-the-counter trading environment, many of the protections afforded to
exchange participants will not be available. For example, there are no daily
price fluctuation limits, and adverse market movements could therefore continue
to an unlimited extent over a period of time. Although the purchase of an option
cannot lose more than the amount of the premium plus related transaction costs,
this entire amount could be lost. Moreover, the option writer and a trader of
forward contracts could lose amounts substantially in excess of their initial
investments, due to the margin and collateral requirements associated with such
positions.
Options on foreign currencies traded on national securities exchanges are within
the jurisdiction of the SEC, as are other securities traded on such exchanges.
As a result, many of the protections provided to traders on organized exchanges
will be available with respect to such transactions. In particular, all foreign
currency option positions entered into on a national securities exchange are
cleared and guaranteed by the Options Clearing Corporation ("OCC"), thereby
reducing the risk of counterparty default. Furthermore, a liquid secondary
market in options traded on a national securities exchange may be more readily
available than in the over-the-counter market, potentially permitting a
Portfolio to liquidate open positions at a profit prior to exercise or
expiration, or to limit losses in the event of adverse market movements.
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<PAGE>
The purchase and sale of exchange-traded foreign currency options, however, is
subject to the risks of the availability of a liquid secondary market described
above, as well as the risks regarding adverse market movements, margining of
options written, the nature of the foreign currency market, possible
intervention by governmental authorities and the effect of other political and
economic events. In addition, exchange-traded options of foreign currencies
involve certain risks not presented by the over-the-counter market. For example,
exercise and settlement of such options must be made exclusively through the
OCC, which has established banking relationships in applicable foreign countries
for this purpose. As a result, the OCC may, if it determines that foreign
governmental restrictions or taxes would prevent the orderly settlement of
foreign currency option exercises, or would result in undue burdens on the OCC
or its clearing member, impose special procedures on exercise and settlement,
such as technical changes in the mechanics of delivery of currency, the fixing
of dollar settlement prices or prohibitions, on exercise.
In addition, futures contracts, options on futures contracts, forward contracts
and options on foreign currencies may be traded on foreign exchanges. Such
transactions are subject to the risk of governmental actions affecting trading
in or the prices of foreign currencies or securities. The value of such
positions also could be adversely affected by (i) other complex foreign
political and economic factors, (ii) lesser availability than in the United
States of data on which to make trading decision, (iii) delays in the
Portfolio's ability to act upon economic events occurring in foreign markets
during non business hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) lesser trading volume.
SWAP CONTRACTS
All Portfolios, except the Cash Reserves Portfolio, may enter into Swap
Contracts. A swap is an agreement to exchange the return generated by one
instrument for the return generated by another instrument. The payment streams
are calculated by reference to a specified index and agreed upon notional
amount. The term "specified index" includes currencies, fixed interest rates,
prices, total return on interest rate indices, fixed income indices, stock
indices and commodity indices (as well as amounts derived from arithmetic
operations on these indices). For example, a Portfolio may agree to swap the
return generated by a fixed-income index for the return generated by a second
fixed-income index. The currency swaps in which the Portfolios may enter will
generally involve an agreement to pay interest streams calculated by reference
to interest income linked to a specified index in one currency in exchange for a
specified index in another currency. Such swaps may involve initial and/or final
exchanges that correspond to the agreed upon notional amount.
The swaps in which the Portfolios may engage also include rate caps, floors and
collars under which one party pays a single or periodic fixed amount(s) (or
premium), and the other party pays periodic amounts based on the movement of a
specified index. Swaps do not involve the delivery of securities, other
underlying assets, or principal. Accordingly, the risk of loss with respect to
swaps is limited to the net amount of payments that a Portfolio is contractually
obligated to make. If the other party to a swap defaults, a Portfolio's risk of
loss consists of the net amount of payments that a Portfolio is contractually
entitled to receive. Currency swaps usually involve the delivery of the entire
principal value of one designated currency in exchange for the other designated
currency. Therefore, the entire principal value of a currency swap is subject to
the risk that the other party to the swap will default on its contractual
delivery obligations. If there is a default by the counterparty, the Portfolios
may have contractual remedies pursuant to the agreements related to the
transaction. The swap market has grown substantially in recent years with a
large number of banks and investment banking firms acting both as principals and
as agents utilizing standardized swap documentation. As a result, the swap
market has become relatively liquid. Caps, floors, and collars are more recent
innovations for which standardized documentation has not yet been fully
developed and, accordingly, they are less liquid than swaps.
<PAGE>
The Portfolios will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with a Portfolio receiving or paying, as the case
may be, only the net amount of the two payments. A Portfolio's obligations under
a swap agreement will be accrued daily (offset against any amounts owing to the
Portfolio) and any accrued but unpaid net amounts owed to a swap counterparty
will be covered by the maintenance of a segregated account consisting of cash,
U.S. Government securities, or high grade debt obligations, to avoid any
potential leveraging of the Portfolio. To the extent that these swaps, caps,
floors, and collars are entered into for hedging purposes, the Adviser believes
such obligations do not constitute "senior securities" under the Investment
Company Act of 1940 and, accordingly, will not treat them as being subject to a
Portfolio's borrowing restrictions. All of the MAS Funds except the Cash
Reserves Portfolio may enter into OTC Derivatives transactions (Swaps, Caps,
Floors, Puts, etc., but excluding foreign exchange contracts) with
counterparties that are approved by the Adviser in accordance with guidelines
established by the Board of Trustees. These guidelines provide for a minimum
credit rating for each counterparty and various credit enhancement techniques
(for example, collateralization of amounts due from counterparties) to limit
exposure to counterparties with rating below AA.
The use of swaps is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. If the Adviser is incorrect in its forecasts of market
values, interest rates, and currency exchange rates, the investment performance
of the Portfolios would be less favorable than it would have been if this
investment technique were not used.
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FOREIGN CURRENCY EXCHANGE-RELATED SECURITIES
Foreign currency warrants. Foreign currency warrants are warrants which entitle
the holder to receive from their issuer an amount of cash (generally, for
warrants issued in the United States, in U.S. dollars) which is calculated
pursuant to a predetermined formula and based on the exchange rate between a
specified foreign currency and the U.S. dollar as of the exercise date of the
warrant. Foreign currency warrants generally are exercisable upon their issuance
and expire as of a specified date and time. Foreign currency warrants have been
issued in connection with U.S. dollar-denominated debt offerings by major
corporate issuers in an attempt to reduce the foreign currency exchange risk
which, from the point of view of prospective purchasers of the securities, is
inherent in the international fixed-income marketplace. Foreign currency
warrants may attempt to reduce the foreign exchange risk assumed by purchasers
of a security by, for example, providing for a supplemental payment in the event
that the U.S. dollar depreciates against the value of a major foreign currency
such as the Japanese Yen or German Deutschmark. The formula used to determine
the amount payable upon exercise of a foreign currency warrant may make the
warrant worthless unless the applicable foreign currency exchange rate moves in
a particular direction (e.g., unless the U.S. dollar appreciates or depreciates
against the particular foreign currency to which the warrant is linked or
indexed). Foreign currency warrants are severable from the debt obligations with
which they may be offered, and may be listed on exchanges. Foreign currency
warrants may be exercisable only in certain minimum amounts, and an investor
wishing to exercise warrants who possesses less than the minimum number required
for exercise may be required either to sell the warrants or to purchase
additional warrants, thereby incurring additional transaction costs. In the case
of any exercise of warrants, there may be a time delay between the time a holder
of warrants gives instructions to exercise and the time the exchange rate
relating to exercise is determined, during which time the exchange rate could
change significantly, thereby affecting both the market and cash settlement
values of the warrants being exercised. The expiration date of the warrants may
be accelerated if the warrants should be delisted from an exchange or if their
trading should be suspended permanently, which would result in the loss of any
remaining "time value" of the warrants (i.e., the difference between the current
market value and the exercise value of the warrants), and, in the case where the
warrants were "out-of-the-money," in a total loss of the purchase price of the
warrants. Warrants are generally unsecured obligations of their issuers and are
not standardized foreign currency options issued by the OCC. Unlike foreign
currency options issued by the OCC, the terms of foreign exchange warrants
generally will not be amended in the event of governmental or regulatory actions
affecting exchange rates or in the event of the imposition of other regulatory
controls affecting the international currency markets. The initial public
offering price of foreign currency warrants is generally considerably in excess
of the price that a commercial user of foreign currencies might pay in the
interbank market for a comparable option involving significantly larger amounts
of foreign currencies. Foreign currency warrants are subject to complex
political or economic factors.
Principal exchange rate linked securities. Principal exchange rate linked
securities are debt obligations the principal on which is payable at maturity in
an amount that may vary based on the exchange rate between the U.S. dollar and a
particular foreign currency at or about that time. The return on "standard"
principal exchange rate linked securities is enhanced if the foreign currency to
which the security is linked appreciates against the U.S. dollar, and is
adversely affected by increases in the foreign exchange value of the U.S.
dollar; "reverse" principal exchange rate linked securities are like the
"standard" securities, except that their return is enhanced by increases in the
value of the U.S. dollar and adversely impacted by increases in the value of
foreign currency. Interest payments on the securities are generally made in U.S.
dollars at rates that reflect the degree of foreign currency risk assumed or
given up by the purchases of the notes (i.e., at relatively higher interest
rates if the purchaser has assumed some of the foreign exchange risk, or
relatively lower interest rates if the issuer has assumed some of the foreign
exchange risk, based of the expectations of the current market). Principal
exchange rate linked securities may in limited cases be subject to acceleration
of maturity (generally, not without the consent of the holders of the
securities), which may have an adverse impact on the value of the principal
payment to be made at maturity.
Performance indexed paper. Performance indexed paper is U.S. dollar-denominated
commercial paper the yield of which is linked to certain foreign exchange rate
movements. The yield to the investor on performance indexed paper is between the
U.S. dollar and a designated currency as of or about that time (generally, the
index maturity two days prior to maturity). The yield to the investor will be
within a range stipulated at the time of purchase of the obligation, generally
with a guaranteed minimum rate of return that is below, and a potential maximum
rate of return that is above, market yields on U.S. dollar-denominated
commercial paper, with both the minimum and maximum rates of return on the
investment corresponding to the minimum and maximum values of the spot exchange
rate two business days prior to maturity.
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Options, Futures, Forward Contracts and Swap Contracts
Some of the options, futures contracts, forward contracts, and swap contracts
entered into by the Portfolios may be "Section 1256 contracts." Section 1256
contracts held by a Portfolio at the end of its taxable year (and, for purposes
of the 4% excise tax, on certain other dates as prescribed under the Code) are
"marked to market" with unrealized gains or losses treated as though they were
realized. Any gains or losses, including "marked to market" gains or losses, on
Section 1256 contracts other than forward contracts are generally 60% long-term
and 40% short-term capital gains or losses ("60/40") although all foreign
currency gains and losses from such contracts may be treated as ordinary in
character absent a special election.
Generally, hedging transactions and certain other transactions in options,
futures, forward contracts and swap contracts undertaken by a Portfolio, may
result in "straddles" for U.S. federal income tax purposes. The straddle rules
may affect the character of gain or loss realized by a Portfolio. In addition,
losses realized by a Portfolio on positions that are part of a straddle may be
deferred under the straddle rules, rather than being taken into account in
calculating the taxable income for the taxable year in which such losses are
realized. Because only a few regulations implementing the straddle rules have
been promulgated, the tax consequences of transactions in options, futures,
forward contracts, and swap agreements to a Portfolio are not entirely clear.
The transactions may increase the amount of short-term capital gain realized by
a Portfolio. Short-term capital gain is taxed as ordinary income when
distributed to shareholders.
A Portfolio may make one or more of the elections available under the Code which
are applicable to straddles. If a Portfolio makes any of the elections, the
amount, character, and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the elections made. The rules applicable under certain of the elections
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of gains or
losses, defer losses and/or accelerate the recognition of gains or losses from
the affected straddle positions, the amount which must be distributed to
shareholders, and which will be taxed to shareholders as ordinary income or
long-term capital gain, may be increased or decreased substantially as compared
to a Portfolio that did not engage in such hedging transactions.
MUNICIPAL BONDS
General. Municipal Bonds generally include debt obligations issued by
states and their political subdivisions, and duly constituted authorities and
corporations, to obtain Funds to construct, repair or improve various public
facilities such as airports, bridges, highways, hospitals, housing, schools,
streets and water and sewer works. Municipal Bonds may also be issued to
refinance outstanding obligations as well as to obtain Funds for general
operating expenses and for loans to other public institutions and facilities.
The two principal classifications of Municipal Bonds are "general
obligation" and "revenue" or "special tax" bonds. General obligation bonds are
secured by the issuer's pledge of its full faith, credit and taxing power for
the payment of principal and interest. Revenue or special tax bonds are payable
only from the revenues derived from a particular facility or class of facilities
or, in some cases, from the proceeds of a special excise or other tax, but not
from general tax revenues. The Municipal and PA Municipal Portfolios ("the
Portfolios") may also invest in tax-exempt industrial development bonds,
short-term municipal obligations, project notes, demand notes and tax-exempt
commercial paper.
Industrial revenue bonds in most cases are revenue bonds and generally
do not have the pledge of the credit of the issuer. The payment of the principal
and interest on such industrial revenue bonds is dependent solely on the ability
of the user of the facilities financed by the bonds to meet its financial
obligations and the pledge, if any, of real and personal property so financed as
security for such payment. Short-term municipal obligations issued by states,
cities, municipalities or municipal agencies, include Tax Anticipation Notes,
Revenue Anticipation Notes, Bond Anticipation Notes, Construction Loan Notes and
Short-Term Discount Notes. Project Notes are instruments issued by the
Department of Housing and Urban Development but issued by a state or local
housing agency. While the issuing agency has the primary obligation on such
Project notes, they are also secured by the full faith and credit of the United
States.
Note obligations with demand or put options may have a stated maturity
in excess of one year, but permit any holder to demand payment of principal plus
accrued interest upon a specified number of days' notice. Frequently, such
obligations are secured by letters of credit or other credit support
arrangements provided by banks. The issuer of such notes normally has a
corresponding right, after a given period, to repay at its discretion the
outstanding principal of the note plus accrued interest upon a specific number
of days' notice to the bondholders. The interest rate on a demand note may be
based upon a known lending rate, such as the prime lending rate, and be adjusted
when such rate changes, or the interest rate on a demand note may be a market
rate that is adjusted at specified intervals. Each note purchased by the
Portfolios will meet the quality criteria set out in the Prospectus for the
Portfolios.
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<PAGE>
The yields of Municipal Bonds depend on, among other things, general
money market conditions, conditions in the Municipal Bond market, the size of a
particular offering, the maturity of the obligation, and the rating of the
issue. The ratings of Moody's and Standard & Poor's represent their opinions of
the quality of the Municipal Bonds rated by them. It should be emphasized that
such ratings are general and are not absolute standards of quality.
Consequently, Municipal Bonds with the same maturity, coupon and rating may have
different yields, while Municipal Bonds of the same maturity and coupon, but
with different ratings may have the same yield. It will be the responsibility of
the investment management staff to appraise independently the fundamental
quality of the bonds held by the Portfolios.
Municipal Bonds are sometimes purchased on a "when-issued" basis
meaning the Portfolio has committed to purchase certain specified securities at
an agreed upon price when they are issued. The period between commitment date
and issuance date can be a month or more. It is possible that the securities
will never be issued and the commitment canceled.
From time to time proposals have been introduced before Congress to
restrict or eliminate the Federal income tax exemption for interest on Municipal
Bonds. Similar proposals may be introduced in the future. If any such proposal
were enacted, it might restrict or eliminate the ability of the Portfolios to
achieve their investment objectives. In that event, the Fund's Trustees and
officers would reevaluate its investment objective and policies and consider
recommending to its shareholders changes in such objective and policies.
Similarly, from time to time proposals have been introduced before
State and local legislatures to restrict or eliminate the State and local income
tax exemption for interest on Municipal Bonds. Similar proposals may be
introduced in the future. If any such proposal were enacted, it might restrict
or eliminate the ability of the Portfolio to achieve its investment objective.
In that event, the Fund's Trustees and officers would reevaluate its investment
objective and policies and consider recommending to its shareholders changes in
such objective and policies.
DURATION
The Limited Duration and Intermediate Duration Fixed Income Portfolios
seek to achieve their objective by investing in the types of fixed income
securities described in the Prospectus and by maintaining an average duration of
between one and three years and two and five years, respectively.
Duration is a measure of the expected life of a fixed income security
that was developed as a more precise alternative to the concept of the "term of
maturity." Duration incorporates a bond's yield, coupon interest payments, final
maturity and call features into one measure. Duration is one of the fundamental
tools used by the Adviser in security selection for the Portfolios.
Most debt obligations provide interest ("coupon") payments in addition
to a final ("par") payment at maturity. Some obligations also have call
provisions. Depending on the relative magnitude of these payments, the market
values of debt obligations may respond differently to changes in the level and
structure of interest rates.
Traditionally, a debt security's "term to maturity" has been used as a
proxy for the sensitivity of the security's price to changes in interest rates
(which is the "interest rate risk" or "volatility" of the security). However,
"term to maturity" measures only the time until a debt security provides its
final payment, taking no account of the pattern of the security's payments prior
to maturity. Duration is a measure of the expected life of a fixed income
security on a present value basis. Duration takes the length of the time
intervals between the present time and the time that the interest and principal
payments are scheduled or, in the case of a callable bond, expected to be
received, and weights them by the present values of the cash to be received at
each future point in time. For any fixed income security with interest payments
occurring prior to the payment of principal, duration is always less than
maturity. In general, all other things being the same, the lower the stated or
coupon rate of interest of a fixed income security, the longer the duration of
the security; conversely, the higher the stated or coupon rate of interest of a
fixed income security, the shorter the duration of the security.
There are some situations where even the standard duration calculation
does not properly reflect the interest rate exposure of a security. For example,
floating and variable rate securities often have final maturities of ten or more
years; however, their interest rate exposure is not properly captured by
duration in the case of mortgage pass-through securities. The stated final
maturity of such securities is generally 30 years, but current prepayment rates
are more critical in determining the securities' interest rate exposure. In
these and other similar situations, the Adviser will use more sophisticated
analytical techniques that incorporate the economic life of a security into the
determination of its interest rate exposure.
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MORTGAGE-BACKED SECURITIES
The Mortgage-backed securities represent an ownership interest in a
pool of residential mortgage loans. These securities are designed to provide
monthly payments of interest and principal to the investor. The mortgagor's
monthly payments to his/her lending institution are "passed-through" to
investors. Fixed Income, Domestic Fixed Income, Fixed Income Portfolio II,
Special Purpose Fixed Income, Limited Duration, High Yield, Intermediate
Duration Fixed Income, Mortgage-Backed Securities, Advisory Mortgage,
International Fixed Income, Advisory Foreign Fixed Income, Global Fixed Income,
Multi-Asset-Class, Municipal, PA Municipal, and Balanced Portfolios may invest
in Mortgage-Backed Securities. Most issuers or poolers provide guarantees of
payments, regardless of whether or not the mortgagor actually makes the payment.
The guarantees made by issuers or poolers are individual loan, title, pool and
hazard insurance purchased by the issuer. There can be no assurance that the
private issuers can meet their obligations under the policies. Mortgage-backed
securities issued by private issuers, whether or not such securities are subject
to guarantees, may entail greater risk. If there is no guarantee provided by the
issuer, mortgage-backed securities purchased by the Portfolios will be rated
investment grade by Moody's or Standard & Poor's, or, if unrated, deemed by the
Adviser to be of investment grade quality.
Underlying Mortgages
Pools consist of whole mortgage loans or participation in loans. The
majority of these loans are made to purchasers of 1-4 family homes. The terms
and characteristics of the mortgage instruments are generally uniform within a
pool but may vary among pools. For example, in addition to fixed-rate fixed-term
mortgages, the Portfolios may purchase pools of adjustable rate mortgages (ARM),
growing equity mortgages (GEM), graduated payment mortgage (GPM) and other types
where the principal and interest payment procedures vary. ARM's are mortgages
which reset the mortgage's interest rate with changes in open market interest
rates. The Portfolios' interest income will vary with changes in the applicable
interest rate on pools of ARM's. GPM and GEM pools maintain constant interest
rates, with varying levels of principal repayment over the life of the mortgage.
These different interest and principal payment procedures should not impact the
Portfolios' net asset values since the prices at which these securities are
valued each day will reflect the payment procedures.
All poolers apply standards for qualifications to local lending
institutions which originate mortgages for the pools. Poolers also establish
credit standards and underwriting criteria for individual mortgages included in
the pools. In addition, many mortgages included in pools are insured through
private mortgage insurance companies.
Average Life
The average life of pass-through pools varies with the maturities,
coupon rates, and type of the underlying mortgage instruments. In addition, a
pool's term may be shortened by unscheduled or early payments of principal and
interest on the underlying mortgages. The occurrence of mortgage prepayments is
affected by factors including the level of interest rates, general economic
conditions, the location and age of the mortgage and other social and
demographic conditions.
Returns of Mortgage-Backed Securities
Yields on mortgage-backed pass-through securities are typically quoted
based on a prepayment assumption derived from the coupon and maturity of the
underlying instruments. Actual pre-payment experience may cause the realized
return to differ from the assumed yield. Reinvestment of pre-payments may occur
at higher or lower interest rates than the original investment, thus affecting
the realized returns of the Portfolios. The compounding effect from reinvestment
of monthly payments received by each Portfolio will increase its return to
shareholders, compared to bonds that pay interest semi-annually.
About Mortgage-Backed Securities
Interests in pools of mortgage-backed securities differ from other
forms of debt securities, which normally provide for periodic payment of
interest in fixed amounts with principal payments at maturity or specified call
dates. Instead, these securities provide a monthly payment which consists of
both interest and principal payments. In effect, these payments are a
"pass-through" of the monthly payments made by the individual borrowers on their
residential mortgage loans, net of any fees paid to the issuer or guarantor of
such securities. Additional payments are caused by repayments resulting from the
sale of the underlying residential property, refinancing or foreclosure net of
fees or costs which may be incurred. Some mortgage-backed securities are
described as "modified pass-through." These securities entitle the holders to
receive all interest and principal payments owed on the mortgages in the pool,
net of certain fees, regardless of whether or not the mortgagors actually make
payment.
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Residential mortgage loans are pooled by the Federal Home Loan Mortgage
Corporation (FHLMC). FHLMC is a corporate instrumentality of the U.S. Government
and was created by Congress in 1970 for the purpose of increasing the
availability of mortgage credit for residential housing. FHLMC issues
Participation Certificates ("PC's") which represent interests in mortgages from
FHLMC's national portfolio. FHLMC guarantees the timely payment of interest and
ultimate collection of principal.
The Federal National Mortgage Association (FNMA) is a
Government-sponsored corporation owned entirely by private stockholders. It is
subject to general regulation by the Secretary of Housing and Urban Development.
FNMA purchases residential mortgages from a list of approved seller/servicers
which include state and federally-chartered savings and loan associations,
mutual savings, banks, commercial banks and credit unions and mortgage bankers.
Pass-through securities issued by FNMA are guaranteed as to timely payment of
principal and interest by FNMA.
The principal Government guarantor of mortgage-backed securities is the
Government National Mortgage Association (GNMA). GNMA is a wholly-owned U.S.
Government corporation within the Department of Housing and Urban Development.
GNMA is authorized to guarantee, with the full faith and credit of the U.S.
Government, the timely payment of principal and interest on securities issued by
approved institutions and backed by pools of FHA-insured or VA-guaranteed
mortgages.
Commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market issuers also
create pass-through pools of conventional residential mortgage loans. Pools
created by such non-governmental issuers generally offer a higher rate of
interest than Government and Government-related pools because there are no
direct or indirect Government guarantees of payments in the former pools.
However, timely payment of interest and principal of these pools is supported by
various forms of insurance or guarantees, including individual loan, title, pool
and hazard insurance purchased by the issuer. The insurance and guarantees are
issued by Governmental entities, private insurers and the mortgage poolers.
There can be no assurance that the private insurers can meet their obligations
under the policies. Mortgage-Backed securities purchased for the Portfolios
will, however, be rated of investment grade quality by Moody's and/or Standard &
Poor's or, if unrated, deemed by the Adviser to be of investment grade quality.
It is expected that Governmental or private entities may create
mortgage loan pools offering pass-through investments in addition to those
described above. The mortgages underlying these securities may be alternative
mortgage instruments, that is, mortgage instruments whose principal or interest
payment may vary or whose terms to maturity may be shorter than previously
customary. As new types of mortgage-backed securities are developed and offered
to investors, the Portfolios will, consistent with their investment objective
and policies, consider making investments in such new types of securities.
STRIPPED MORTGAGE-BACKED SECURITIES
Stripped mortgage-backed securities ("SMBS") are derivative multiclass
mortgage securities. SMBS may be issued by agencies or instrumentalities of the
U.S. Government or by private originators of, or investors in, mortgage loans,
including savings and loan associations, mortgage banks, commercial banks,
investment banks and special purpose entities of the foregoing.
SMBS are usually structured with two classes that receive different
proportions of the interest and principal distributions on a pool of mortgage
assets. A common type of SMBS will have one class receiving some of the interest
and most of the principal from the mortgage assets, while the other class will
receive most of the interest and the remainder of the principal. In the most
extreme case, one class will receive all of the interest (the "IO" class), while
the other class will receive all of the principal (the principal-only or "PO"
class). The yield to maturity on an IO class is extremely sensitive to the rate
of principal payments (including prepayments) on the related underlying mortgage
assets, and a rapid rate of principal payments may have a material adverse
effect on a Portfolio yield to maturity from these securities. If the underlying
mortgage assets experience greater than anticipated prepayments of principal, a
Portfolio may fail to fully recoup its initial investment in these securities
even if the security is in one of the highest rating categories.
Although SMBS are purchased and sold by institutional investors through
several investment banking firms acting as brokers or dealers, these securities
were only recently developed. As a result, established trading markets have not
yet developed and, accordingly, certain of these securities may be deemed
"illiquid" and subject to a Portfolio's limitations on investment in illiquid
securities.
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U.S. GOVERNMENT SECURITIES
The term "U.S. Government securities" refers to a variety of securities
which are issued or guaranteed by the United States Government, and by various
instrumentalities which have been established or sponsored by the United States
Government. U.S. Treasury securities are backed by the "full faith and credit"
of the United States.
Agency Securities: Securities issued or guaranteed by Federal agencies
and U.S. Government sponsored instrumentalities may or may not be backed by the
full faith and credit of the United States. In the case of securities not backed
by the full faith and credit of the United States, the investor must look
principally to the agency or instrumentality issuing or guaranteeing the
obligation for ultimate repayment, and may not be able to assert a claim against
the United States itself in the event the agency or instrumentality does not
meet its commitment. Agencies which are backed by the full faith and credit of
the United States include the Export Import Bank, Farmers Home Administration,
Federal Financing Bank, and others. Certain debt issued by Resolution Funding
Corporation has both its principal and interest backed by the full faith and
credit of the U.S. Treasury in that its principal is defeased by U.S. Treasury
zero coupon issues, while the U.S. Treasury is explicitly required to advance
funds sufficient to pay interest on it, if needed. Certain agencies and
instrumentalities. such as the Government National Mortgage Association, are, in
effect, backed by the full faith and credit of the United States through
provisions in their charters that they may make "indefinite and unlimited"
drawings on the Treasury, if needed to service its debt. Debt from certain other
agencies and instrumentalities, including the Federal Home Loan Bank and Federal
National Mortgage Association, are not guaranteed by the United States, but
those institutions are protected by the discretionary authority of the U.S.
Treasury to purchase certain amounts of their securities to assist the
institution in meeting its debt obligations. Finally, other agencies and
instrumentalities, such as the Farm Credit System and the Federal Home Loan
Mortgage Corporation, are federally chartered institutions under Government
supervision, but their debt securities are backed only by the credit worthiness
of those institutions, not the U.S. Government.
Some of the U.S. Government agencies that issue or guarantee securities
include the Export-Import Bank of the United States, Farmers Home
Administration, Federal Housing Administration, Maritime Administration, Small
Business Administration and The Tennessee Valley Authority.
An instrumentality of the U.S. Government is a Government agency
organized under Federal charter with Government supervision. Instrumentalities
issuing or guaranteeing securities include, among others, Federal Home Loan
Banks, the Federal Land Banks, Central Bank for Cooperatives, Federal
Intermediate Credit Banks and the Federal National Mortgage Association.
ZERO COUPON BONDS
Zero Coupon bonds, are a term used to describe notes and bonds which
have been stripped of their unmatured interest coupons, or the coupons
themselves, and also receipts or certificates representing interest in such
stripped debt obligations and coupons. The timely payment of coupon interest and
principal on these instruments remains guaranteed by the "full faith and credit"
of the United States Government.
A zero coupon bond does not pay interest. Instead, it is issued at a
substantial discount to its "face value"--what it will be worth at maturity. The
difference between a security's issue or purchase price and its face value
represents the imputed interest an investor will earn if the security is held
until maturity. For tax purposes, a portion of this imputed interest is deemed
as income received by zero coupon bondholders each year. The Fund, which expects
to qualify as a regulated investment company, intends to pass along such
interest as a component of the Portfolio's distributions of net investment
income.
Zero coupon bonds may offer investors the opportunity to earn higher
yields than those available on U.S. Treasury bonds of similar maturity. However,
zero coupon bond prices may also exhibit greater price volatility than ordinary
debt securities because of the manner in which their principal and interest is
returned to the investor.
Zero Coupon Treasury Bonds are sold under a variety of different names,
such as: Certificate of Accrual on Treasury Securities (CATS), Treasury Receipts
(Trs), Separate Trading of Registered Interest and Principal of Securities
(STRIPS) and Treasury Investment Growth Receipts (TIGERS).
REPURCHASE AGREEMENTS
Repurchase agreements are transactions by which a person purchases a
security and simultaneously commits to resell that security to the seller (a
member bank of the Federal Reserve System or recognized securities dealer) at an
agreed upon price on an agreed upon date within a number of days (usually not
more than seven) from the date of purchase. The resale price reflects the
purchase price plus an agreed upon market rate of interest which is unrelated to
the coupon rate or maturity of the purchased security. A repurchase agreement
involves the obligation of the seller to pay the agreed upon price, which
obligation is in effect secured by the value of the underlying security.
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The use of repurchase agreements involves certain risks. For example,
if the seller of the agreement defaults on its obligation to repurchase the
underlying securities at a time when the value of these securities has declined,
the Portfolio may incur a loss upon disposition of them. If the seller of the
agreement becomes insolvent and subject to liquidation or reorganization under
the Bankruptcy Code or other laws, a bankruptcy court may determine that the
underlying securities are collateral not within the control of the Portfolio and
therefore subject to sale by the trustee in bankruptcy. Finally, it is possible
that the Portfolio may not be able to substantiate its interest in the
underlying securities. While the Fund's management acknowledges these risks, it
is expected that they can be controlled through stringent security selection
criteria and careful monitoring procedures.
EURODOLLAR AND YANKEE OBLIGATIONS
Eurodollar bank obligations are dollar-denominated certificates of
deposit and time deposits issued outside the U.S. capital markets by foreign
branches of banks and by foreign banks. Yankee bank obligations are
dollar-denominated obligations issued in the U.S. capital markets by foreign
banks.
Eurodollar and Yankee obligations are subject to the same risks that
pertain to domestic issues, notably credit risk, market risk and liquidity risk.
Additionally, Eurodollar (and to a limited extent, Yankee) obligations are
subject to certain sovereign risks. One such risk is the possibility that a
sovereign country might prevent capital, in the form of dollars, from flowing
across their borders. Other risks include: adverse political and economic
developments; the extent and quality of government regulation of financial
markets and institutions; the imposition of foreign withholding taxes, and the
expropriation or nationalization of foreign issuers. However, Eurodollar and
Yankee obligations held in the Cash Reserves Portfolio will undergo the same
credit analysis as domestic issues in which the Cash Reserves Portfolio invests,
and will have at least the same financial strength as the domestic issuers
approved for the Cash Reserves Portfolio.
BRADY BONDS
A portion of each of the Fund's fixed-income investments (the Cash
Reserves Portfolio must invest in dollar-denominated Brady Bonds only) may be
invested in certain debt obligations customarily referred to as "Brady Bonds",
which are created through the exchange of existing commercial bank loans to
foreign entities for new obligations in connection with debt restructuring under
a plan introduced by former U.S. Secretary of the Treasury, Nicholas F. Brady
(the "Brady Plan").
Brady Bonds have been issued only recently, and, accordingly, do not
have a long payment history. They may be collateralized or uncollateralized and
issued in various currencies (although most are dollar-denominated) and they are
actively traded in the over-the-counter secondary market.
Dollar-denominated, collateralized Brady Bonds, which may be fixed rate
par bonds or floating rate discount bonds, are generally collateralized in full
as to principal due at maturity by U.S. Treasury zero coupon obligations which
have the same maturity as the Brady Bonds. Interest payments on these Brady
Bonds generally are collateralized by cash or securities in an amount that, in
the case of fixed rate bonds, is equal to at least one year of rolling interest
payments or, in the case of floating rate bonds, initially is equal to at least
one year's rolling interest payments based on the applicable interest rate at
that time and is adjusted at regular intervals thereafter. Certain Brady Bonds
are entitled to "value recovery payments" in certain circumstances, which in
effect constitute supplemental interest payments but generally are not
collateralized. Brady Bonds are often viewed as having three or four valuation
components: (i) the collateralized repayment of principal at final maturity;
(ii) the collateralized interest payments; (iii) the uncollateralized interest
payments; and (iv) any uncollateralized repayment of principal at maturity
(these uncollateralized amounts constitute the "residual risk"). In the event of
a default with respect to Collateralized Brady Bonds as a result of which the
payment obligations of the issuer are accelerated, the U.S. Treasury zero coupon
obligations held as collateral for the payment of principal will not be
distributed to investors, nor will such obligations be sold and the proceeds
distributed. The collateral will be held by the collateral agent to the
scheduled maturity of the defaulted Brady Bonds, which will continue to be
outstanding, at which time the face amount of the collateral will equal the
principal payments which would have then been due on the Brady Bonds in the
normal course. In addition, in light of the residual risk of the Brady Bonds
and, among other factors, the history of default with respect to commercial bank
loans by public and private entities of countries issuing Brady Bonds,
investments in Brady bonds are to be viewed as speculative.
- 14 -
<PAGE>
Brady Plan debt restructurings totaling approximately $73 billion have
been implemented to date in Argentina, Costa Rica, Mexico, Nigeria, the
Philippines, Uruguay and Venezuela, with the largest proportion of Brady Bonds
having been issued to date by Mexico and Venezuela. Brazil has announced plans
to issue Brady Bonds aggregating approximately $35 billion, based on current
estimates. There can be no assurance that the circumstances regarding the
issuance of Brady Bonds by these countries will not change.
CASH RESERVES PORTFOLIO
A-1 and Prime-1 Commercial Paper Ratings
Commercial paper rated A-1 by Standard & Poor's has the following
characteristics: (1) liquidity ratios are adequate to meet cash requirements;
(2) long-term senior debt is rated "A" or better; (3) the issuer has access to
at least two additional channels of borrowing; (4) basic earnings and cash flow
have an upward trend with allowance made for unusual circumstances; (5)
typically, the issuer's industry is well established and the issuer has a strong
position within the industry; and (6) the reliability and quality of management
are unquestioned. Relative strength or weakness of the above factors determine
whether the issuer's commercial paper is A-1, A-2, or A-3. The rating Prime-1 is
the highest commercial paper rating assigned by Moody's. Among the factors
considered by Moody's in assigning ratings are the following: (1) evaluation of
the management of the issuer; (2) economic evaluation of the issuer's industry
or industries and the appraisal of speculative-type risks which may be inherent
in certain areas; (3) evaluation of the issuer's products in relation to
competition and customer acceptance; (4) liquidity; (5) amount and quality of
long-term debt; (6) trend of earnings over a period of ten years; (7) financial
strength of a parent company and the relationships which exist with the issuer;
and (8) recognition by the management of obligations which may be present or may
arise as a result of public interest questions and preparations to meet such
obligations.
TAX CONSIDERATIONS
In order for a Portfolio to continue to qualify for Federal income tax
treatment as a regulated investment company, at least 90% of its gross income
for a taxable year must be derived from qualifying income; i.e., dividends,
interest, income derived from loans of securities, and gains from the sale of
securities or foreign currencies, or other income derived with respect to its
business of investing in such securities or currencies. In addition, gains
realized on the sale or other disposition of securities or foreign currencies
not directly related to the company's principal business of investing in
securities held for less than three months must be limited to less than 30% of
the Portfolio's annual gross income. It is anticipated that any net gain
realized from the closing out of futures contracts will be considered gain from
the sale of securities and therefore be qualifying income for purposes of the
90% requirement. In order to avoid realizing excessive gains on securities held
less than three months, the Portfolio may be required to defer the closing out
of futures contracts beyond the time when it would otherwise be advantageous to
do so. It is anticipated that unrealized gains on futures contracts, which have
been open for less than three months as of the end of the Portfolio's fiscal
year and which are recognized for tax purposes, will not be considered gains on
securities held less than three months for the purpose of the 30% test.
Each Portfolio of the Fund will distribute to shareholders annually any
net capital gains which have been recognized for Federal income tax purposes
including unrealized gains at the end of the Portfolio's fiscal year on futures
transactions. Such distributions will be combined with distributions of capital
gains realized on the Portfolio's other investments and shareholders will be
advised of the nature of the payments.
The 30% limit on gains from the disposition of certain options,
futures, forward contracts, and swap contracts held less than three months, and
the qualifying income and diversification requirements applicable to a
Portfolio's assets, may limit the extent to which a Portfolio will be able to
engage in these transactions.
PURCHASE OF SHARES
Each Portfolio reserves the right in its sole discretion (i) to suspend
the offering of its shares, (ii) to reject purchase orders , (iii) to reduce or
waive the minimum for initial and subsequent investments . The Officers of the
Fund may from time to time waive the minimum initial and subsequent investment
requirements in connection with investments in the Fund by employees of the
Adviser.
- 15 -
<PAGE>
REDEMPTION OF SHARES
Each Portfolio may suspend redemption privileges or postpone the date
of payment (i) during any period that the New York Stock Exchange is closed, or
trading on the Exchange is restricted as determined by the Commission, (ii)
during any period when an emergency exists as defined by the rules of the
Commission as a result of which it is not reasonably practicable for a Portfolio
to dispose of securities owned by it, or fairly to determine the value of its
assets, and (iii) for such other periods as the Commission may permit.
The Fund has made an election with the Commission to pay in cash all
redemptions requested by any shareholder of record limited in amount during any
90-day period to the lesser of $250,000 or 1% of the net assets of the Portfolio
at the beginning of such period. Such commitment is irrevocable without the
prior approval of the Commission. Redemptions in excess of the above limits may
be paid in whole or in part in investment securities or in cash, as the Trustees
may deem advisable; however, payment will be made wholly in cash unless the
Trustees believe that economic or market conditions exist which would make such
a practice detrimental to the best interests of the Fund. If redemptions are
paid in investment securities, such securities will be valued as set forth in
the Fund's Prospectus under "Valuation of Shares" and a redeeming shareholder
would normally incur brokerage expenses if he converted these securities to
cash.
No charge is made by a Portfolio for redemptions. Redemption proceeds
may be more or less than the shareholder's cost depending on the market value of
the securities held by the Portfolio.
SHAREHOLDER SERVICES
The following supplements the shareholder services set forth in the Fund's
Prospectus:
Exchange Privilege
The exchange privilege is only available with respect to Portfolios that are
registered for sale in a shareholder's state. Exchange requests should be sent
to MAS Funds, c/o Miller Anderson & Sherrerd, LLP, Client Services Group, One
Tower Bridge, Suite 1150, P.O. Box 868, West Conshohocken, PA 19428-0868. Any
such exchange will be based on the respective net asset values of the shares
involved. Before making an exchange, a shareholder should consider the
investment objectives of the Portfolio to be purchased. Exchange requests may be
made either by mail or telephone. Telephone exchanges (referred to as "expedited
exchanges") will be accepted only if the certificates for the shares to be
exchanged are held by the Fund for the account of the shareholder and the
registration of the two accounts are identical. Requests for expedited exchanges
received prior to 12:00 p.m. for the Cash Reserves Portfolio and prior to 4:00
p.m. (Eastern time) for all other Portfolios will be processed as of the close
of business on the same day. Requests received after these times will be
processed on the next business day. Expedited exchanges may also be subject to
limitations as to amounts or frequency, and to other restrictions established by
the Board of Trustees to assure that such exchanges do not disadvantage the Fund
and its shareholders.
For Federal income tax purposes, an exchange between Portfolios of the
Fund is a taxable event, and, accordingly, a capital gain or loss may be
realized. In a revenue ruling relating to circumstances similar to the Fund's,
an exchange between a series of a Fund was also deemed to be a taxable event. It
is likely, therefore, that a capital gain or loss would be realized on an
exchange between Portfolios; you may want to consult your tax adviser for
further information in this regard. The exchange privilege may be modified or
terminated at any time.
Transfer of Shares
Shareholders may transfer shares of the Fund's Portfolios to another
person by written request to the Client Services Group at the address noted
above. The request should clearly identify the account and number of shares to
be transferred and include the signature of all registered owners and all share
certificates, if any, which are subject to the transfer. The signature on the
letter of request, the share certificate or any stock power must be guaranteed
in the same manner as described under "Redemption of Shares." As in the case of
redemptions, the written request must be received in good order before any
transfer can be made.
INVESTMENT LIMITATIONS
Each Portfolio of the Fund is subject to the following restrictions
which are fundamental policies and may not be changed without the approval of
the lesser of: (1) at least 67% of the voting securities of the Portfolio
present at a meeting if the holders of more than 50% of the outstanding voting
securities of the Portfolio are present or represented by proxy, or (2) more
than 50% of the outstanding voting securities of the Portfolio.
- 16 -
<PAGE>
- 17 -
<PAGE>
As a matter of fundamental policy, each Portfolio will not:
(1) invest in physical commodities or contracts on physical commodities;
(2) purchase or sell real estate, although it may purchase and sell securities
of companies which deal in real estate, other than real estate limited
partnerships, and may purchase and sell marketable securities which are secured
by interests in real estate;
(3) make loans except: (i) by purchasing debt securities in accordance with its
investment objectives and policies, or entering into repurchase agreements,
subjects to the limitations described in (h), below, (ii) by lending its
portfolio securities, and (iii) by lending portfolio assets to other Portfolios
of the Fund, so long as such loans are not inconsistent with the Investment
Company Act of 1940, as amended (the "1940 Act"), or the Rules and Regulations,
or interpretations or orders of the Securities and Exchange Commission
thereunder;
(4) with respect to 75% of its assets, purchase a security if, as a result, it
would hold more than 10% (taken at the time of such investment) of the
outstanding voting securities of any issuer (this restriction is not applicable
to the Global Fixed Income, International Fixed Income, Advisory Foreign Fixed
Income or the Emerging Markets Portfolios);
(5) with respect to 75% of its assets, purchase securities of any issuer if, as
a result, more than 5% of the Portfolio's total assets, taken at market value at
the time of such investment, would be invested in the securities of such issuer
except that this restriction does not apply to securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities (this restriction
does not apply to the Global Fixed Income, International Fixed Income, Advisory
Foreign Fixed Income or the Emerging Markets Portfolios);
(6) borrow money, except (i) as a temporary measure for extraordinary or
emergency purposes, and (ii) in connection with reverse repurchase agreements,
provided that (i) and (ii) in combination do not exceed 33 1/3% of the
Portfolio's total assets (including the amount borrowed) less liabilities
(exclusive of borrowings);
(7) underwrite the securities of other issuers (except to the extent that the
fund may be deemed to be an underwriter within the meaning of the Securities Act
of 1933 in connection with the disposition of restricted securities);
(8) acquire any securities of companies within one industry, other than
mortgage-backed securities in the case of the Mortgage-Backed Securities and
Advisory Mortgage Portfolios, if as a result of such acquisition, more than 25%
of the value of the Portfolio's total assets would be invested in securities of
companies within such industry; provided, however, that there shall be no
limitation on the purchase of obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, when any such Portfolio adopts a
temporary defensive position. Additionally, the Cash Reserves Portfolio may
invest without limitation in obligations of the U.S. Government or its agencies
and instrumentalities or certificates of deposit or bankers' acceptance of
domestic banks;
(9) the Select Equity Portfolio may not invest in the securities of companies
listed by the Investor Responsibility Research Center as having direct
investment or employees in South Africa prior to August 31, 1993.
Each Portfolio is also subject to the following restrictions which may
be changed by the Board of Trustees without shareholder approval.
As a matter of non-fundamental policy, each Portfolio will not:
(a) enter into futures contracts to the extent that its outstanding obligations
to purchase securities under these contracts in combination with its outstanding
obligations with respect to options transactions would exceed 50% of its total
assets, and will maintain assets sufficient to meet its obligations under such
contracts in a segregated account with the custodian bank or will otherwise
comply with the SEC's position on asset coverage.
(b) invest in puts, calls, straddles or spreads except as described above in
(a);
(c) invest in warrants, valued at the lower of cost or market, in excess of 5%
of the value of its total assets. Included within that amount, but not to exceed
2% of the value of the Portfolio's net assets, may be warrants that are not
listed on the New York or American Stock Exchanges or an exchange with
comparable listing requirements. Warrants attached to securities are not subject
to this limitation.
(d) purchase on margin, except for use of short-term credit as may be necessary
for the clearance of purchases and sales of securities, but it may make margin
deposits in connection with transactions in options, futures, and options on
futures; or sell short unless, by virtue of its ownership of other securities,
- 18 -
<PAGE>
it has the right to obtain securities equivalent in kind and amount to the
securities sold and, if the right is conditional, the sale is made upon the same
conditions. Transactions in futures contracts and options are not deemed to
constitute selling securities short;
(e) purchase or retain securities of an issuer if those Officers and Trustees of
the Fund or its investment adviser owning more than 1/2 of 1% of such securities
together own more than 5% of such securities;
(f) borrow money other than from banks or other Portfolios of the Fund, provided
such borrowing is not inconsistent with the 1940 Act, as amended, or the Rules
and Regulations or interpretations or orders of the Securities and Exchange
Commission thereunder; or purchase additional securities when borrowings exceed
5% of total (gross) assets;
(g) pledge, mortgage, or hypothecate any of its assets to an extent greater than
50% of its total assets at fair market value;
(h) invest more than an aggregate of 15% of the net assets of the Portfolio
(except that the Cash Reserves Portfolio may not invest more than an aggregate
of 10% of its total assets), determined at the time of investment, in securities
subject to legal or contractual restrictions on resale or securities for which
there are no readily available markets, including repurchase agreements having
maturities of more than seven days and OTC options provided that (except for the
Cash Reserves Portfolio) there is no limitation with respect to or arising out
of investment in (i) securities that have legal or contractual restrictions on
resale but have a readily available market, or (ii) securities that are not
registered under the Securities act of 1933, as amended (the "1933 Act") but
which can be sold to qualified institutional investors in accordance with Rule
144A under the 1933 Act;
(i) invest for the purpose of exercising control over management of any company;
(j) invest its assets in securities of any investment company, except by
purchase in the open market involving only customary brokers' commissions or in
connection with mergers, acquisitions of assets or consolidations and except as
may otherwise be permitted by the 1940 Act, as amended;
(k) invest more than 5% of its total assets in securities of issuers (other than
securities issued or guaranteed by U.S. or foreign governments or political
subdivisions thereof) which have (with predecessors) a record of less than three
years' continuous operation;
(l) write or acquire options or interests in oil, gas or other mineral
exploration or development programs or leases;
(m) (with respect to the Global Fixed Income, International Fixed Income,
Advisory Foreign Fixed Income and Emerging Markets Portfolios) purchase the
securities of any issuer (other than obligations issued or guaranteed by the
U.S. Government or its agencies or instrumentalities) if, as a result, with
respect to 50% of its total assets, more than 5% of the value of its total
assets would be invested in the securities of any single issuer, or it would
hold more than 10% of the outstanding voting securities of such issuer, or more
than 25% of the value of its total assets would be invested in the securities of
any single issuer.
Unless otherwise indicated, if a percentage limitation on investment or
utilization of assets as set forth above is adhered to at the time an investment
is made, a later change in percentage resulting from changes in the value or
total cost of the Portfolio's assets will not be considered a violation of the
restriction, and the sale of securities will not be required.
MANAGEMENT OF THE FUND
Trustees and Officers
The Fund's officers, under the supervision of the Board of Trustees,
manage the day-to-day operations of the Fund. The Trustees set broad policies
for the Fund and choose its officers. The following is a list of the Trustees
and officers of the Fund and a brief statement of their present positions and
principal occupations during the past 5 years:
Thomas L. Bennett,* Chairman of the Board of Trustees; Partner, Miller Anderson
& Sherrerd, LLP; Director, MAS Fund Distribution, Inc.
David P. Eastburn, Trustee; Retired; formerly Director (Trustee) of each of the
investment companies in The Vanguard Group, except Vanguard Specialized
Portfolios; Director of Penn Mutual Life Insurance Company and General Accident
Insurance; President, Federal Reserve Bank of Philadelphia.
- 19 -
<PAGE>
Joseph P. Healey, Trustee; Headmaster, Haverford School; formerly Dean, Hobart
College; Associate Dean, William & Mary College.
Joseph J. Kearns, Trustee; Vice President and Treasurer, The J. Paul Getty
Trust.
C. Oscar Morong, Jr., Trustee; Managing Director, Morong Capital Management;
Director, Ministers and Missionaries Benefit Board of American Baptist Churches,
The Indonesia Fund, The Landmark Funds; formerly Senior Vice President and
Investment Manager for CREF, TIAA-CREF Investment Management, Inc.
James D. Schmid, President; Partner, Miller Anderson & Sherrerd, LLP; Director,
MAS Fund Distribution, Inc., Chairman of the Board of Directors, The Minerva
Fund, Inc.; formerly Vice President, Chase Manhattan Bank.
Lorraine Truten, Vice President; Head of Mutual Fund Administration, Miller
Anderson & Sherrerd, LLP; President, MAS Fund Distribution, Inc.
Douglas W. Kugler, Treasurer; Manager of Mutual Fund Administration, Miller
Anderson & Sherrerd, LLP; formerly Assistant Vice President, Provident Financial
Processing Corporation from 1989 to 1993.
John H. Grady, Jr., Secretary; Partner, Morgan, Lewis & Bockius, LLP; formerly,
Attorney, Ropes & Gray.
Harvey M. Rosen, Assistant Treasurer; Senior Vice President, Chase Global Funds
Services, formerly Fund Accounting Department Manager, Fidelity Investments from
1987 to 1988.
Ellen P. Watson, Assistant Secretary; Supervisor of State Securities
Registration, Chase Global Funds Services; formerly Assistant Manager, Blue Sky
Department, The Putnam Companies.
*Trustee Bennett is deemed to be an "interested person" of the Fund as that term
is defined in the Investment Company Act of 1940, as amended.
Effective July 31, 1995, Dr. Marna C. Whittington and Mr. John D. Connolly
resigned as Trustees of the Fund. Also effective July 31, 1995, Mr. Karl O.
Hartmann resigned as Secretary of the Fund.
As of ___________, 1996, the Trustees and officers of the Fund, as a
group, owned 2% of the outstanding shares of the High Yield Portfolio and less
than 1% of the outstanding shares of any other Portfolio of the Fund.
Remuneration of Trustees and Officers
The Fund pays each Trustee, who is not also an officer or affiliated
person, a fee for each Board of Trustees Meeting attended plus travel and other
expenses incurred in attending such meetings. Trustees who are also officers or
affiliated persons receive no remuneration for their service as Trustees. The
Fund's officers and employees are paid by the Adviser or Sub-Administrator.
During the fiscal year ended September 30, 1995, the Fund paid $______ in fees
and expenses to its "non-interested" Trustees.
The aggregate compensation paid by the Fund to each of the Trustees
during its fiscal year ended September 30, 1995 is set forth below.
<TABLE>
<CAPTION>
Pension or
Retirement
Benefits Estimated
Aggregate (2) Accrued Annual Total
Compensation As Part of Fund Benefits upon Compensation
Name of Trustee (1) from the Fund Expenses Retirement from the
- ------------------- ------------- -------- ---------- --------
<S> <C> <C> <C> <C>
Fund
Thomas L. Bennett* $______ $-0- $-0- $______
David P. Eastburn $______ $-0- $-0- $______
Joseph P. Healy $______ $-0- $-0- $______
Joseph J. Kearns $______ $-0- $-0- $______
C. Oscar Morong, Jr. $______ $-0- $-0- $______
</TABLE>
*Trustee Bennett is deemed to be an "interested person" of the Fund as that term
is defined in the Investment Company Act of 1940, as amended.
- 20 -
<PAGE>
(1) Charles Root resigned as a Trustee to the Fund in April of 1994. Mr. Root
received compensation of $4,000 from the Fund for the part of the year that he
served as a Trustee.
(2) Does not include out of pocket expenses of $419, $2,009 and $176 paid to
Messrs. Eastburn, Kearns and Morong, respectively.
Principal Holders of Securities
As of___________ , 199__, the following persons owned of record or
beneficially 5% or more of the shares of a Portfolio:
The persons listed above as owning 25% or more of the outstanding
shares of each Portfolio may be presumed to "control" (as that term is defined
in the Investment Company Act of 1940, as amended) such Portfolios. As a result,
those persons would have the ability to vote a majority of the shares of the
Portfolios on any matter requiring the approval of shareholders of such
Portfolios.
DISTRIBUTION PLANS
Investment Class Shares Distribution Plan provides that the Investment
Class Shares will pay the Distributor a fee of .__% of the average daily net
assets of each Portfolio attributable, which the Distributor can use to
compensate broker/dealers and service providers which provide distribution
services to Investment Class Shareholders or their customers who beneficially
own Investment Class Shares.
The Fund has adopted the Distribution Plan in accordance with the
provisions of Rule 12b-1 under the 1940 Act which regulates circumstances under
which an investment company may directly or indirectly bear expenses relating to
the distribution of its shares. Continuance of the Plan must be approved
annually by a majority of the Trustees of the Fund and the Trustees who are not
"interested persons" of the Fund within the meaning of the Investment Company
Act of 1940. The Plan requires that quarterly written reports of amounts spent
under the Plan and the purposes of such expenditures be furnished to and
reviewed by the Trustees. The Plan may not be amended to increase materially the
amount which may be spent thereunder without approval by a majority of the
outstanding Investment Class Shares of the Fund. All material amendments of the
Plan will require approval by a majority of the Trustees of the Fund and of the
Trustees who are not "interested persons" of the Fund.
INVESTMENT ADVISER
Under an Investment Advisory Agreement ("Agreement") with the Fund,
dated as of ___________,1995, the Adviser, subject to the control and
supervision of the Fund's Board of Trustees and in conformance with the stated
investment objectives and policies of each Portfolio of the Fund, manages the
investment and reinvestment of the assets of each Portfolio of the Fund. In this
regard, it is the responsibility of the Adviser to make investment decisions for
the Fund's Portfolios and to place each Portfolio's purchase and sales orders
for investment securities.
As compensation for the services rendered by the Adviser under the
Agreement and the assumption by the Adviser of the expenses related thereto
(other than the cost of securities purchased for the Portfolios and the taxes
and brokerage commissions, if any, payable in connection with the purchase
and/or sale of such securities), each Portfolio pays the Adviser an advisory fee
calculated by applying a quarterly rate, based on the following annual
percentage rates, to the Portfolio's average daily net assets for the quarter:
- 21 -
<PAGE>
Rate
Equity Portfolio.......................................... .500%
Select Equity Portfolio................................... .500
Value Portfolio........................................... .500
Small Cap Value Portfolio................................. .750
Growth Portfolio.......................................... .500
Mid Cap Growth Portfolio.................................. .500
Mid Cap Value Portfolio................................... .750
Fixed Income Portfolio.................................... .375
Domestic Fixed Income Portfolio........................... .375
Fixed Income Portfolio II................................. .375
Special Purpose Fixed Income Portfolio.................... .375
High Yield Portfolio...................................... .375
Limited Duration Portfolio................................ .300
Intermediate Duration Portfolio........................... .375
Mortgage-Backed Securities Portfolio...................... .375
Balanced Portfolio........................................ .450
Multi-Asset-Class Portfolio............................... .450
International Equity Portfolio............................ .500
Emerging Markets Portfolio................................ .750
International Fixed Income Portfolio...................... .375
Advisory Foreign Fixed Income Portfolio................... .375
Advisory Mortgage Portfolio............................... .375
Global Fixed Income Portfolio............................. .375
Cash Reserves Portfolio................................... .250
Municipal Portfolio....................................... .375
PA Municipal Portfolio.................................... .375
In cases where a shareholder of any of the Portfolios has an investment
counseling relationship with the Adviser, the Adviser may, at its discretion,
reduce the shareholder's investment counseling fees by an amount equal to the
pro-rata advisory fees paid by the Fund. This procedure will be utilized with
clients having contractual relationships based on total assets managed by Miller
Anderson & Sherrerd to avoid situations where excess advisory fees might be paid
to the Adviser. In no event will a client pay higher total advisory fees as a
result of the client's investment in the Fund. In addition, the Adviser has
voluntarily agreed to waive its advisory fees to the extent necessary, if any,
to keep the Select Equity, Mid Cap Value, Domestic Fixed Income, High Yield,
Limited Duration, Intermediate Duration, Mortgage-Backed Securities,
Multi-Asset-Class, Emerging Markets, International Fixed Income, Advisory
Foreign Fixed Income, Advisory Mortgage, Global Fixed Income, Cash Reserves,
Municipal, and PA Municipal Portfolios' total annual operating expenses from
exceeding .610%, .880%, .500%, .525%, .420%, .520%, .500%, .580%, 1.180%, .600%,
.150%, .08%, .580%, .320%, .500%, and .500% of its average daily net assets,
respectively.
- 22 -
<PAGE>
For the fiscal years ended September 30, 1993 1994 and 1995, the Fund paid the
following advisory fees:
<TABLE>
<CAPTION>
====================================================================================================================================
Advisory Fees Paid (000) Advisory Fees Waived (000)
Fund
-------------------------------------------------------------------------------------
1993 1994 1995 1993 1994 1995
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Advisory Foreign Fixed Income Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Advisory Mortgage Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Emerging Markets Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Equity Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
International Equity Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Mid Cap Growth Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Mid Cap Value Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Small Cap Value Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Value Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Reserves Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Domestic Fixed Income Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Fixed Income Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Fixed Income II Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Global Fixed Income Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
High Yield Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Intermediate Duration Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
International Fixed Income Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Limited Duration Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Mortgage-Backed Securities Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Municipal Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
PA Municipal Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Special Purpose Fixed Income Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Balanced Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Multi-Asset-Class Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Select Equity Portfolio
====================================================================================================================================
</TABLE>
* Not in operation during the period.
- 23 -
<PAGE>
The Agreement continues for successive one year periods, only if each
renewal is specifically approved by a vote of the Fund's Board of Trustees,
including the affirmative votes of a majority of the Trustees who are not
parties to the agreement or "interested persons" (as defined in the 1940 Act, as
amended) of any such party in person at a meeting called for the purpose of
considering such approval. In addition, the question of continuance of the
Agreement may be presented to the shareholders of the Fund; in such event,
continuance shall be effected only if approved by the affirmative vote of a
majority of the outstanding voting securities of each Portfolio of the Fund. If
the holders of any Portfolio fail to approve the Agreement, the Adviser may
continue to serve as investment adviser to each Portfolio which approved the
Agreement, and to any Portfolio which did not approve the Agreement until new
arrangements have been made. The Agreement is automatically terminated if
assigned, and may be terminated by any Portfolio without penalty, at any time,
(1) by vote of the Board of Trustees or by vote of the outstanding voting
securities of the Portfolio (2) or sixty (60) days' written notice to the
Adviser, or (3) by the Adviser upon ninety (90) days' written notice to the
Fund.
The Fund bears all of its own costs and expenses, including but not
limited to: services of its independent accountants, its administrator and
dividend disbursing and transfer agent, legal counsel, taxes, insurance
premiums, costs incidental to meetings of its shareholders and Trustees, the
cost of filing its registration statements under Federal and State securities
laws, reports to shareholders, and custodian fees. These Fund expenses are, in
turn, allocated to each Portfolio, based on their relative net assets. Each
Portfolio bears its own advisory fees and brokerage commissions and transfer
taxes in connection with the acquisition and disposition of its investment
securities.
ADMINISTRATION
MAS also serves as Administrator to the Fund pursuant to an
Administration Agreement dated as of November 18, 1993. Chase Global Funds
Services (formerly Mutual Fund Services Company, or MFSC), an affiliate of Chase
Manhattan Bank, N.A., serves as transfer agent and provides fund accounting and
other services pursuant to a sub-administration agreement.
- 24 -
<PAGE>
For the fiscal years ended September 30, 1993, 1994 and 1995, the Fund paid the
following administrative fees:
<TABLE>
<CAPTION>
====================================================================================================================================
Administrative Fees Paid (000) Administrative Fees Waived (000)
Fund
------------------------------------------------------------------------------------
1993 1994 1995 1993 1994 1995
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Advisory Foreign Fixed Income Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Advisory Mortgage Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Emerging Markets Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Equity Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
International Equity Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Mid Cap Growth Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Mid Cap Value Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Small Cap Value Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Value Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Reserves Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Domestic Fixed Income Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Fixed Income Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Fixed Income II Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Global Fixed Income Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
High Yield Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Intermediate Duration Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
International Fixed Income Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Limited Duration Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Mortgage-Backed Securities Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Municipal Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
PA Municipal Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Special Purpose Fixed Income Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Balanced Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Multi-Asset-Class Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Select Equity Portfolio
====================================================================================================================================
</TABLE>
* Not in operation during the period.
- 25 -
<PAGE>
DISTRIBUTOR FOR FUND
MAS Fund Distribution, Inc. (the "Distributor"), a wholly-owned
subsidiary of the Adviser, with its principal office at One Tower Bridge, West
Conshohocken, Pennsylvania 19428, distributes the shares of the Fund. Under the
Distribution Agreement, the Distributor, as agent of the Fund, agrees to use its
best efforts as sole distributor of the Fund's shares. The Distributor does not
receive any fee or other compensation under the Distribution Agreement which
continues in effect so long as such continuance is approved at least annually by
the Fund's Board of Trustees, including a majority of those Trustees who are not
parties to such Distribution Agreement nor interested persons of any such party.
The Distribution Agreement provides that the Fund will bear the costs of the
registration of its shares with the SEC and various states and the printing of
its prospectuses, statements of additional information and reports to
shareholders.
PORTFOLIO TRANSACTIONS
The Investment Advisory Agreement authorizes the Adviser to select the
brokers or dealers that will execute the purchases and sales of investment
securities for each of the Fund's Portfolios and directs the Adviser to use its
best efforts to obtain the best execution with respect to all transactions for
the Portfolios.
In doing so, a Portfolio may pay higher commission rates than the
lowest available when the Adviser believes it is reasonable to do so in light of
the value of the research, statistical, and pricing services provided by the
broker effecting the transaction. It is not the Fund's practice to allocate
brokerage or principal business on the basis of sales of shares which may be
made through intermediary brokers or dealers. However, the Adviser may place
portfolio orders with qualified broker-dealers who recommend the Fund's
Portfolios or who act as agents in the purchase of shares of the Portfolios for
their clients. During the fiscal years ended September 30, 1993, 1994 and 1995,
the Fund paid brokerage commissions of $___________, $___________ and
$___________, respectively.
Some securities considered for investment by each of the Fund's
Portfolios may also be appropriate for other clients served by the Adviser. If
purchases or sales of securities consistent with the investment policies of a
Portfolio and one or more of these other clients serviced by the Adviser is
considered at or about the same time, transactions in such securities will be
allocated among the Portfolio and clients in a manner deemed fair and reasonable
by the Adviser. Although there is no specified formula for allocating such
transactions, the various allocation methods used by the Adviser, and the
results of such allocations, are subject to periodic review by the Fund's
Trustees.
- 26 -
<PAGE>
PORTFOLIO TURNOVER
The Portfolio turnover rate for each Portfolio for the past two fiscal
years ended September 30 was as follows:
================================================================================
Portfolio 1994 1995
- --------------------------------------------------------------------------------
Emerging Markets
- --------------------------------------------------------------------------------
Equity
- --------------------------------------------------------------------------------
Growth
- --------------------------------------------------------------------------------
International Equity
- --------------------------------------------------------------------------------
Mid Cap Growth
- --------------------------------------------------------------------------------
Mid Cap Value
- --------------------------------------------------------------------------------
Small Cap Value
- --------------------------------------------------------------------------------
Value
- --------------------------------------------------------------------------------
Domestic Fixed Income
- --------------------------------------------------------------------------------
Fixed Income
- --------------------------------------------------------------------------------
Fixed Income II
- --------------------------------------------------------------------------------
Global Fixed Income
- --------------------------------------------------------------------------------
High Yield
- --------------------------------------------------------------------------------
Intermediate Duration
- --------------------------------------------------------------------------------
International Fixed Income
- --------------------------------------------------------------------------------
Limited Duration
- --------------------------------------------------------------------------------
Mortgage-Backed Securities
- --------------------------------------------------------------------------------
Municipal
- --------------------------------------------------------------------------------
PA Municipal
- --------------------------------------------------------------------------------
Special Purpose Fixed Income
- --------------------------------------------------------------------------------
Balanced
- --------------------------------------------------------------------------------
Multi-Asset-Class
- --------------------------------------------------------------------------------
Select Equity
- --------------------------------------------------------------------------------
Advisory Mortgage
- --------------------------------------------------------------------------------
Advisory Foreign Fixed Income
================================================================================
N/A -- Portfolio has less than one year of operations.
GENERAL INFORMATION
Description of Shares and Voting Rights
The Declaration of Trust permits the Trustees to issue an unlimited
number of shares of beneficial interest, without par value, from an unlimited
number of series ("Portfolios") of shares. Currently the Fund is offering shares
of twenty-six Portfolios.
The shares of each Portfolio of the Fund are fully paid and
non-assessable, except as set forth below, and have no preference as to
conversion, exchange, dividends, retirement or other features. The shares of
each Portfolio of the Fund have no preemptive rights. The shares of the Fund
have non-cumulative voting rights, which means that the holders of more than 50%
of the shares voting for the election of Trustees can elect 100% of the Trustees
if they choose to do so. A Shareholder of a Class is entitled to one vote for
each full Class Share held (and a fractional vote for each fractional Class
Share held), therestanding in the Shareholder's name on the books of the Fund.
Shareholders of a Class have exclusive voting rights regarding any matter
submitted to shareholders that relates solely to that Class of Shares (such as a
distribution plan or service agreement relating to that Class), and separate
voting rights on any other matter submitted to shareholders in which the
interests of the shareholders of that Class differ from the interests of holders
of any other Class.
- 27 -
<PAGE>
The Fund will continue without limitation of time, provided however
that:
1) Subject to the majority vote of the holders of shares of any Portfolio
of the Fund outstanding, the Trustees may sell or convert the assets of
such Portfolio to another investment company in exchange for shares of such
investment company, and distribute such shares, ratably among the
shareholders of such Portfolio;
2) Subject to the majority vote of shares of any Portfolio of the Fund
outstanding, the Trustees may sell and convert into money the assets of
such Portfolio and distribute such assets ratably among the shareholders of
such Portfolio; and
3) Without the approval of the shareholders of any Portfolio, unless
otherwise required by law, the Trustees may combine the assets of any two
or more Portfolios into a single Portfolio so long as such combination will
not have a material adverse effect upon the shareholders of such Portfolio.
Upon completion of the distribution of the remaining proceeds or the
remaining assets of any Portfolio as provided in paragraphs 1), 2), and 3)
above, that Portfolio shall terminate and the Trustees shall be discharged of
any and all further liabilities and duties hereunder and the right, title and
interest of all parties shall be canceled and discharged with regard to that
Portfolio.
Dividend and Capital Gains Distributions
The Fund's policy is to distribute substantially all of each
Portfolio's net investment income, if any, together with any net realized
capital gains in the amount and at the times that will avoid both income
(including capital gains) taxes on it and the imposition of the federal excise
tax on undistributed income and capital gains (see discussion under "Dividends,
Capital Gains Distributions and Taxes" in the Prospectus). The amounts of any
income dividends or capital gains distributions cannot be predicted.
Any dividend or distribution paid shortly after the purchase of shares
of a Portfolio by an investor may have the effect of reducing the per share net
asset value of that Portfolio by the per share amount of the dividend or
distribution, except for the Cash Reserves Portfolio. Furthermore, such
dividends or distributions, although in effect a return of capital, are subject
to income taxes as set forth in the Prospectus.
As set forth in the Prospectus, unless the shareholder elects otherwise
in writing, all dividends and capital gain distributions are automatically
received in additional shares of that Portfolio of the Fund at net asset value
(as of the business day following the record date). This will remain in effect
until the Fund is notified by the shareholder in writing at least three days
prior to the record date that either the Income Option (income dividends in cash
and capital gains distributions in additional shares at net asset value) or the
Cash Option (both income dividends and capital gain distributions in cash) has
been elected. An account statement is sent to shareholders whenever an income
dividend or capital gain distribution is paid.
Each Portfolio of the Fund is treated as a separate entity (and hence,
as a separate "regulated investment company") for federal tax purposes. Any net
capital gains recognized by a Portfolio are distributed to its investors without
need to offset (for federal income tax purposes) such gains against any net
capital losses of another Portfolio.
Shareholder and Trustee Liability
Under Pennsylvania law, shareholders of a trust such as the Fund may,
under certain circumstances, be held personally liable as partners for the
obligations of the trust. The Fund's Declaration of Trust contains an express
disclaimer of shareholder liability for acts or obligations of the Fund and
requires that notice of such disclaimer be given in each agreement, obligation,
or instrument entered into or executed by the Fund or the Trustees, but this
disclaimer may not be effective in some jurisdictions or as to certain types of
claims. The Declaration of Trust further provides for indemnification out of the
Funds property of any shareholder held personally liable for the obligations of
the Fund. The Declaration of Trust also provides that the Fund shall, upon
request, assume the defense of any claim made against any shareholder for any
act or obligation of the Fund and satisfy any judgment thereon. Thus, the risk
of a shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund itself would be unable to meet its
obligations.
Pursuant to the Declaration of Trust, the Trustees may also authorize
the creation of additional series of shares (the proceeds of which would be
invested in separate, independently managed Portfolios with distinct investment
objectives and policies and share purchase, redemption and net asset valuation
procedures) with such preferences, privileges, limitations and voting and
dividend rights as the Trustees may determine. All consideration received by the
Fund for shares of any additional series or class, and all assets in which such
consideration is invested, would belong to that series or class (subject only to
the rights of creditors of the Fund) and would be subject to the liabilities
related thereto. Pursuant to the 1940 Act, as amended, shareholders of any
additional series or class of shares would normally have to approve the adoption
of any advisory contract relating to such series or class and of any changes in
the investment policies relating thereto.
- 28 -
<PAGE>
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law, but nothing in the
Declaration of Trust protects a Trustee against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of the
office.
PERFORMANCE INFORMATION
The Fund may from time to time quote various performance figures to
illustrate the past performance of its Portfolios. Performance quotations by
investment companies are subject to rules adopted by the Securities and Exchange
Commission ("SEC"), which require the use of standardized performance quotations
or, alternatively, that every non-standardized performance quotation furnished
by the Fund be accompanied by certain standardized performance information
computed as required by the SEC. An explanation of the methods for computing
performance follows.
Total Return
A Portfolio's average annual total return is determined by finding the
average annual compounded rates of return over 1, 5, and 10 year periods (or, if
shorter, the period since inception of the Portfolio) that would equate an
initial hypothetical $1,000 investment to its ending redeemable value. The
calculation assumes that all dividends and distributions are reinvested when
paid. The quotation assumes the amount was completely redeemed at the end of
each 1, 5, and 10 year period (or, if shorter, the period since inception of the
Portfolio) and the deduction of all applicable Fund expenses on an annual basis.
Average annual total return is calculated according to the following formula:
P (1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the stated period
- 29 -
<PAGE>
The average annual total return of each Portfolio of the Fund for the
periods noted is set forth below:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
1 Year 5 Years Inception
ended ended to Inception
9/30/95 9/30/95 9/30/95 Date
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
Equity Portfolio 11/14/84
- ----------------------------------------------------------------------------------------------------------------
Select Equity Portfolio 02/26/88
- ----------------------------------------------------------------------------------------------------------------
Value Portfolio 11/05/84
- ----------------------------------------------------------------------------------------------------------------
Small Cap Value Portfolio 07/01/86
- ----------------------------------------------------------------------------------------------------------------
Mid Cap Growth Portfolio 03/30/90
- ----------------------------------------------------------------------------------------------------------------
Fixed Income Portfolio 11/14/84
- ----------------------------------------------------------------------------------------------------------------
Domestic Fixed Income Portfolio 09/30/87
- ----------------------------------------------------------------------------------------------------------------
Fixed Income Portfolio II 08/31/90
- ----------------------------------------------------------------------------------------------------------------
Special Purpose Fixed Income Portfolio 03/31/92
- ----------------------------------------------------------------------------------------------------------------
High Yield Portfolio 02/28/89
- ----------------------------------------------------------------------------------------------------------------
Limited Duration Portfolio 03/31/92
- ----------------------------------------------------------------------------------------------------------------
Mortgage-Backed Securities Portfolio 01/31/92
- ----------------------------------------------------------------------------------------------------------------
Balanced Portfolio 12/31/92
- ----------------------------------------------------------------------------------------------------------------
International Equity Portfolio 11/25/88
- ----------------------------------------------------------------------------------------------------------------
Cash Reserves Portfolio 08/29/90
- ----------------------------------------------------------------------------------------------------------------
Municipal Portfolio 10/01/92
- ----------------------------------------------------------------------------------------------------------------
PA Municipal Portfolio 10/01/92
- ----------------------------------------------------------------------------------------------------------------
Global Fixed Income Portfolio 4/30/93
- ----------------------------------------------------------------------------------------------------------------
Multi-Asset-Class Portfolio 7/29/94
- ----------------------------------------------------------------------------------------------------------------
International Fixed Income Portfolio 4/29/94
- ----------------------------------------------------------------------------------------------------------------
Advisory Foreign Fixed Income Portfolio 10/07/94
- ----------------------------------------------------------------------------------------------------------------
Intermediate Duration Portfolio 10/3/94
- ----------------------------------------------------------------------------------------------------------------
Mid Cap Value Portfolio 12/30/94
- ----------------------------------------------------------------------------------------------------------------
Emerging Markets Portfolio 12/28/95
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
Advisory Mortgages Portfolio 04/12/95
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
* For portfolios which have been in operation for less than 1 year,
total return is not annualized.
- 30 -
<PAGE>
The Portfolios may also calculate total return on an aggregate basis
which reflects the cumulative percentage change in value over the measuring
period. The formula for calculating aggregate total return can be expressed as
follows:
Aggregate Total Return = [ ( ERV ) - 1 ]
---
P
The aggregate total return of each Portfolio for the periods noted is
set forth below. One year aggregate total return figures and Portfolio inception
dates are reflected under the annual total return figures provided above.
- --------------------------------------------------------------------------------
5 Years Inception
ended to
9/30/95 9/30/95
- --------------------------------------------------------------------------------
Equity Portfolio
- --------------------------------------------------------------------------------
Select Equity Portfolio
- --------------------------------------------------------------------------------
Value Portfolio
- --------------------------------------------------------------------------------
Small Cap Value Portfolio
- --------------------------------------------------------------------------------
Mid Cap Growth Portfolio
- --------------------------------------------------------------------------------
Fixed Income Portfolio
- --------------------------------------------------------------------------------
Domestic Fixed Income Portfolio
- --------------------------------------------------------------------------------
Fixed Income Portfolio II
- --------------------------------------------------------------------------------
Special Purpose Fixed Income Portfolio
- --------------------------------------------------------------------------------
High Yield Portfolio
- --------------------------------------------------------------------------------
Limited Duration Portfolio
- --------------------------------------------------------------------------------
Mortgage-Backed Securities Portfolio
- --------------------------------------------------------------------------------
Balanced Portfolio
- --------------------------------------------------------------------------------
International Equity Portfolio
- --------------------------------------------------------------------------------
Cash Reserves Portfolio
- --------------------------------------------------------------------------------
Municipal Portfolio
- --------------------------------------------------------------------------------
PA Municipal Portfolio
- --------------------------------------------------------------------------------
Global Fixed Income Portfolio
- --------------------------------------------------------------------------------
Multi-Asset-Class Portfolio
- --------------------------------------------------------------------------------
International Fixed Income Portfolio
- --------------------------------------------------------------------------------
Advisory Foreign Fixed Income Portfolio
- --------------------------------------------------------------------------------
Intermediate Duration Portfolio
- --------------------------------------------------------------------------------
Mid Cap Value Portfolio
- --------------------------------------------------------------------------------
Emerging Markets Portfolio
- --------------------------------------------------------------------------------
The Portfolios may also calculate a total return gross of all expenses
which reflects the cumulative percentage change in value over the measuring
period prior to the deduction of all fund expenses. The formula for calculating
the total return gross of all expenses can be expressed as follows:
Total Return Gross of all Expenses = ((ERV + E)/P) -1)
E = Fund expenses deducted from the ending redeemable value during the
measuring period.
- 31 -
<PAGE>
The annualized since inception gross of fees returns of the Fund's
portfolios are set forth below:
- --------------------------------------------------------------------------------
Annualized Since
Inception
Period Ended:
9/30/94
Inception Date MAS EQUITY FUNDS (Gross of Fees)
- --------------------------------------------------------------------------------
11/14/84 Equity Portfolio
- --------------------------------------------------------------------------------
02/26/88 Select Equity Portfolio
- --------------------------------------------------------------------------------
11/05/84 Value Portfolio
- --------------------------------------------------------------------------------
07/01/86 Small Cap Value Portfolio
- --------------------------------------------------------------------------------
03/30/90 Mid Cap Growth Portfolio
- --------------------------------------------------------------------------------
11/25/88 International Equity Portfolio
- --------------------------------------------------------------------------------
12/30/94 Mid Cap Value
- --------------------------------------------------------------------------------
02/28/95 Emerging Markets Portfolio
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MAS FIXED INCOME FUNDS
- --------------------------------------------------------------------------------
11/14/84 Fixed Income Portfolio
- --------------------------------------------------------------------------------
09/30/87 Domestic Fixed Income Portfolio
- --------------------------------------------------------------------------------
03/31/92 Special Purpose Income Portfolio
- --------------------------------------------------------------------------------
03/31/92 Limited Duration Portfolio
- --------------------------------------------------------------------------------
01/31/92 Mortgage-Backed Portfolio
- --------------------------------------------------------------------------------
02/28/89 High Yield Portfolio
- --------------------------------------------------------------------------------
10/01/92 Municipal Portfolio
- --------------------------------------------------------------------------------
10/01/92 PA Municipal Portfolio
- --------------------------------------------------------------------------------
04/30/93 Global Fixed Income Portfolio
- --------------------------------------------------------------------------------
04/29/94 International Fixed Income Portfolio
- --------------------------------------------------------------------------------
10/07/94 Advisory Foreign Fixed Income Portfolio
- --------------------------------------------------------------------------------
10/03/94 Intermediate Duration Portfolio
- --------------------------------------------------------------------------------
04/12/95 Advisory Mortgage Portfolio
- --------------------------------------------------------------------------------
MAS BALANCED FUNDS
- --------------------------------------------------------------------------------
12/31/92 Balanced Portfolio
- --------------------------------------------------------------------------------
07/29/94 Multi-Asset-Class Portfolio
- --------------------------------------------------------------------------------
The Municipal Portfolio and the PA Municipal Portfolio may also
calculate a total return which reflects the cumulative percentage change in
value over the measuring period after the deduction of income taxes. The formula
for calculating the total after tax return can be expressed as follows:
Total After Tax Return = (((((ERV-M)/P) x T) + (M/P)) -1)
M = Portion of ending redeemable value which was derived from tax
exempt income. T = Applicable tax rate.
The after tax returns are as follows for the Municipal Portfolio and
the PA Municipal Portfolio for the period 10/1/92 (inception of the Funds)
through 9/30/94:
================================================================================
Pre-tax return Post-tax return
- --------------------------------------------------------------------------------
PA Municipal Portfolio 5.4% 4.6%
- --------------------------------------------------------------------------------
Municipal Portfolio 4.4 4.2
================================================================================
- 32 -
<PAGE>
The tax rates used were 31% federal and 2.8% Pennsylvania. All
Municipal Interest was considered exempt from federal taxes and interest from
treasuries was considered exempt from Pennsylvania.
Yield
In addition to total return, each portfolio of the Fund (except the
Cash Reserves Portfolio) may quote performance in terms of a 30-day yield. The
yield figures provided will be calculated according to a formula prescribed by
the Securities and Exchange Commission and can be expressed as follows:
Yield = 2 [ (a-b) + 1)6 - 1]
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of
the period.
- 33 -
<PAGE>
For the purpose of determining the interest earned (variable "a" in the
formula) on debt obligations that were purchased by a Portfolio at a discount or
premium, the formula generally calls for amortization of the discount or
premium; the amortization schedule will be adjusted monthly to reflect changes
in the market value of the debt obligations. The 30-day yield figures for each
of the Fund's fixed-income and equity portfolios is set forth below:
================================================================================
Period ending
09/30/95
- --------------------------------------------------------------------------------
Fixed Income Portfolio
- --------------------------------------------------------------------------------
Domestic Fixed Income Portfolio
- --------------------------------------------------------------------------------
Fixed Income Portfolio II
- --------------------------------------------------------------------------------
High Yield Portfolio
- --------------------------------------------------------------------------------
Limited Duration Portfolio
- --------------------------------------------------------------------------------
Mortgage-Backed Securities Portfolio
- --------------------------------------------------------------------------------
Special Purpose Fixed Income Portfolio
- --------------------------------------------------------------------------------
Balanced Portfolio
- --------------------------------------------------------------------------------
Municipal Portfolio
- --------------------------------------------------------------------------------
PA Municipal Portfolio
- --------------------------------------------------------------------------------
Global Fixed Income Portfolio
- --------------------------------------------------------------------------------
Multi-Asset-Class Portfolio
- --------------------------------------------------------------------------------
International Fixed Income Portfolio
- --------------------------------------------------------------------------------
Advisory Foreign Fixed Income Portfolio
- --------------------------------------------------------------------------------
Intermediate Duration Portfolio
- --------------------------------------------------------------------------------
Equity Portfolio
- --------------------------------------------------------------------------------
Select Equity Portfolio
- --------------------------------------------------------------------------------
Value Portfolio
- --------------------------------------------------------------------------------
Select Value Portfolio
- --------------------------------------------------------------------------------
Small Cap Portfolio
- --------------------------------------------------------------------------------
Mid Cap Growth Portfolio
- --------------------------------------------------------------------------------
Mid Cap Value Portfolio
- --------------------------------------------------------------------------------
Emerging Markets Portfolio
- --------------------------------------------------------------------------------
International Equity Portfolio
- --------------------------------------------------------------------------------
Advisory Mortgage Portfolio
================================================================================
As of the date of this Statement of Additional Information, the Growth
Portfolio, had not commenced operations.
- 34 -
<PAGE>
Yield of the Cash Reserves Portfolio
The current yield of the Cash Reserves Portfolio is calculated daily on
a base period return of a hypothetical account having a beginning balance of one
share for a particular period of time (generally 7 days). The return is
determined by dividing the net change (exclusive of any capital changes) in such
account by the value of the account at the beginning of the period and then
multiplying it by 365/7 to get the annualized current yield. The calculation of
net change reflects the value of additional shares purchased with the dividends
by the Portfolio, including dividends on both the original share and on such
additional shares. An effective yield, which reflects the effects of compounding
and represents an annualizing of the current yield with all dividends
reinvested, may also be calculated for the Portfolio by dividing the base period
return by 7, adding 1 to the quotient, raising the sum to the 365th power, and
subtracting 1 from the results.
Set forth below is an example, for purposes of illustration only, of
the current and effective yield calculations for the Cash Reserves Portfolio for
the 7 day base period ending September 30, 1994.
================================================================================
Period ending
9/30/95
- --------------------------------------------------------------------------------
Value at beginning of period
- --------------------------------------------------------------------------------
Value at end of period
- --------------------------------------------------------------------------------
Net change in account value
- --------------------------------------------------------------------------------
Annualized current yield
- --------------------------------------------------------------------------------
Effective yield
================================================================================
The net asset value of the Cash Reserves Portfolio is $1.00 and has
remained at that amount since the initial offering of the Portfolio. The yield
of the Portfolio will fluctuate. The annualizing of a week's dividend is not a
representation by the Portfolio as to what an investment in the Portfolio will
actually yield in the future. Actual yields will depend on such variables as
investment quality, average maturity, the type of instruments the Portfolio
invests in, changes in interest rates on instruments, changes in the expenses of
the Fund and other factors. Yields are one basis investors may use to analyze
the Portfolios of the Fund and other investment vehicles; however, yields of
other investment vehicles may not be comparable because of the factors set forth
in the preceding sentence, differences in the time periods compared and
differences in the methods used in valuing portfolio instruments, computing net
asset value and calculating yield.
The performance of a Portfolio, as well as the composite performance of
all Fixed-Income Portfolios and all Equity Portfolios, may be compared to data
prepared by Lipper Analytical Services, Inc., CDA Investment Technologies, Inc.,
Morningstar, Inc., the Donoghue Organization, Inc. or other independent services
which monitor the performance of investment companies, and may be quoted in
advertising in terms of their rankings in each applicable universe. In addition,
the Fund may use performance data reported in financial and industry
publications, including Barron's, Business Week, Forbes, Fortune, Investor's
Daily, IBC/Donoghue's Money Fund Report, Money Magazine, The Wall Street Journal
and USA Today.
- 35 -
<PAGE>
COMPARATIVE INDICES
Each portfolio of the Fund may from time to time use one or more of the
following unmanaged indices for performance comparison purposes:
Consumer Price Index
The Consumer Price Index is published by the US Department of Labor and is a
measure of inflation.
Financial Times Actuaries World Ex US Index
The FT-A World Ex US Index is a capitalization-weighted price index, expressed
in dollars, after dividend withholding taxes, of foreign stock prices. This
index is calculated daily and reflects price changes in 24 major foreign equity
markets. It is jointly compiled by the Financial Times, Ltd., Goldman, Sachs &
Co., and County NatWest/Wood Mackenzie in conjunction with the Institute of
Actuaries and the Faculty of Actuaries.
First Boston High Yield Index
The First Boston High Yield Index was constructed to mirror the public high
yield debt market. The index is a market weighted, trader priced index, tracked
by the First Boston Corporation. There are approximately 475 securities in the
index with a total market value of approximately $93 billion.
JP Morgan Traded Government Bond Index
The JP Morgan Traded Government Bond Index is designed to provide a
comprehensive measure of total return performance of the domestic Government
bond market of 13 countries. The index is maintained by JP Morgan Securities,
Inc. and includes only liquid issues.
Lehman Brothers Aggregate Index
The Lehman Brothers Aggregate Index is a fixed income market value-weighted
index that combines the Lehman Brothers Government/Corporate Index and the
Lehman Brothers Mortgage-Backed Securities Index. It includes fixed rate issues
of investment grade (BBB) or higher, with maturities of at least one year and
outstanding par values of at least $100 million for U. S. Government issues and
$25 million for others.
Lehman Brothers Government/Corporate Index
The Lehman Brothers Government/Corporate Index is a combination of the
Government and Corporate Bond Indices. The Government Index includes public
obligations of the U. S. Treasury, issues of Government agencies, and corporate
debt backed by the U. S. Government. The Corporate Bond Index includes
fixed-rate nonconvertible corporate debt. Also included are Yankee Bonds and
nonconvertible debt issued by or guaranteed by foreign or international
governments and agencies. All issues are investment grade (BBB) or higher, with
maturities of at least one year and an outstanding par value of at least $100
million for U. S. Government issues and $25 million for others. Any security
downgraded during the month is held in the index until month-end and then
removed. All returns are market value weighted inclusive of accrued income.
Lehman Brothers Intermediate Government/Corporate Index
The Lehman Brothers Intermediate Government/Corporate Index is a combination of
the Government and Corporate Bond Indices. All issues are investment grade (BBB)
or higher, with maturities of one to ten years and an outstanding par value of
at least $100 million for U. S. Government issues and $25 million for others.
The Government Index includes public obligations of the U. S. Treasury, issues
of Government agencies, and corporate debt backed by the U. S. Government. The
Corporate Bond Index includes fixed-rate nonconvertible corporate debt. Also
included are Yankee Bonds and nonconvertible debt issued by or guaranteed by
foreign or international governments and agencies. Any security downgraded
during the month is held in the index until month-end and then removed. All
returns are market value weighted inclusive of accrued income.
- 36 -
<PAGE>
Lehman Brothers Long Municipal Bond Index
The Lehman Brothers Long Municipal Bond Index is a total return for the
long-term, investment-grade tax-exempt bond market for bonds. The index includes
municipal bonds with maturities of 22 years or more.
Lehman Brothers Mortgage-Backed Securities Index
The Lehman Brothers Mortgage-Backed Securities Index includes fixed rate
mortgage securities backed by GNMA, FHLMC, and FNMA. Graduated Payment Mortgages
(GPM's) are included. All issues are AAA, with maturities of at least one year
and outstanding par values of at least $100 million. Returns are market value
weighted inclusive of accrued income.
Lipper Growth & Income Fund Index
The Lipper Growth & Income Fund Index is a net asset value weighted index of the
30 largest Funds within the Growth & Income investment objective. It is
calculated daily with adjustments for income dividends and capital gains
distributions as of the ex-dividend dates.
Lipper High Current Yield Fund Average
The Lipper High Current Yield Fund Average reports the average return of all the
Funds tracked by Lipper Analytical Services, Inc. classified as high yield
funds. The number of Funds tracked varies. As a result, reported returns for
longer time periods do not always match the linked product of shorter period
returns.
Salomon World Government Bond Index ex US
The Salomon World Government Bond Index ex US is designed to provide a
comprehensive measure of total return performance of the domestic government
bond markets of 12 countries outside the United States. The index has been
constructed with the aim of choosing "an inclusive" universe of institutionally
traded fixed rate bonds. The selection of security types to be included in the
index is made with the aim of being as comprehensive as possible, while
satisfying the criterion of reasonable availability to domestic and
international institutions and the existence of complete pricing and market
profile data.
International Finance Corporation Emerging Markets Index
The IFC Emerging Markets Index is an index designed to measure the total return
in either US or local currency terms of developing markets as defined by the
World Bank. The selection of stocks is made based on size, liquidity and
industry. The weight given to any stock is determined by its market
capitalization.
Lipper Money Market Average
The Lipper Money Market Average reports the average return of all the Funds
tracked by Lipper Analytical Services, Inc., classified as money market Funds
for any given period. The number of Funds tracked varies. As a result, reported
returns for longer time periods do not always match the linked product of
shorter period returns.
Merrill Lynch Corporate & Government Bond Index
The Merrill Lynch Corporate & Government Bond Index includes over 4,500 U.S.
Treasury, Agency and investment grade corporate bonds. The Index is calculated
daily and will be used from time to time in performance comparison for partial
month periods.
Morgan Stanley Capital International World ex USA Index
The Morgan Stanley Capital International World ex USA Index is a
capitalization-weighted price index expressed in dollars. The index reflects the
performance of over 1,100 companies in 19 foreign equity markets. The index
includes dividends, net of foreign withholding taxes.
Morgan Stanley Capital International EAFE Index
The Morgan Stanley Capital International EAFE Index is an arithmetic, market
value-weighted average of the performance of over 900 securities listed on the
stock exchanges of countries in Europe, Australia and the Far East.
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<PAGE>
Morgan Stanley Capital International EAFE-GDP Weighted Index
The EAFE-GDP index is an arithmetic average of the performance of over 900
securities listed on the stock exchanges of countries in Europe, Australia and
the Far East. The index is weighted by the Grow Domestic Product of the various
countries in the index.
Morgan Stanley Capital International Emerging Markets Free Index
The MSCI Emerging Markets Free Index is a capitalization weighted index of over
800 stocks from 17 different emerging market countries.
NASDAQ Industrials Index
The NASDAQ Industrials Index is a measure of all NASDAQ National Market System
issues classified as industrial based on Standard Industrial Classification
codes relative to a company's major source of revenue. The index is exclusive of
warrants, and all domestic common stocks traded in the regular NASDAQ market
which are not part of the NASDAQ National Market System. The NASDAQ Industrials
Index is market value weighted.
Russell 1000
The Russell 1000 Index consists of the 1,000 largest of the 3,000 largest
stocks. Market capitalization is typically between $610 million and $85 billion.
The list is rebalanced each year on June 30. If a stock is taken over or goes
bankrupt, it is not replaced until rebalancing. Therefore, there can be fewer
than 1,000 stocks in the Russell 1000 Index. The index is an equity market
capitalization weighted index available from Frank Russell & Co. on a monthly
basis.
Russell 2000
The Russell 2000 Index consists of the 2,000 smallest of the 3,000 largest
stocks. Market capitalization is typically between $610 million and $57 million.
The list is rebalanced each year on June 30. If a stock is taken over or goes
bankrupt, it is not replaced until rebalancing. Therefore, there can be fewer
than 2,000 stocks in the Russell 2000 Index. The index is an equity market
capitalization weighted index available from Frank Russell & Co. on a monthly
basis.
Russell 2500
The Russell 2500 Index consists of the 2,500 smallest of the 3,000 largest
stocks. Market capitalization is typically between $1.7 billion and $57 million.
The list is rebalanced each year on June 30. If a stock is taken over or goes
bankrupt, it is not replaced until rebalancing. Therefore, there can be fewer
than 2,500 stocks in the Russell 2500 Index. The index is an equity market
capitalization weighted index available from Frank Russell & Co. on a monthly
basis.
Russell 3000
The Russell 3000 Index is a combination of the Russell 1000 Index and the
Russell 2000 Index.
Salomon 1-3 Year Treasury/Government Sponsored Index
The Salomon 1-3 Year Treasury/Government Sponsored Index includes U.S. Treasury
and agency securities with maturities one year or greater and less than three
years. Securities with amounts outstanding of at least $25 million are included
in the index.
Salomon 1-3 Year Treasury/Government Sponsored/Corporate Index
The Salomon 1-3 Year Treasury/Government Sponsored/Corporate Index includes U.S.
Treasury, agency and investment grade (BBB or better) securities with maturities
one year or greater and less than three years. Securities with amounts
outstanding of at least $25 million are included in the index.
Salomon Broad Index
The Salomon Broad Index, also known as the Broad Investment Grade (BIG) Index,
is a fixed income market capitalization-weighted index, including U. S.
Treasury, agency, mortgage and investment grade (BBB or better) corporate
securities with maturities of one year or longer and with amounts outstanding of
- 38 -
<PAGE>
at least $25 million. The government index includes traditional agencies; the
mortgage index includes agency pass-throughs and FHA and GNMA project loans; the
corporate index includes returns for 17 industry sub-sectors. Securities
excluded from the Broad Index are floating/variable rate bonds, private
placements, and derivatives (e. g., U. S. Treasury zeros, CMOs, mortgage
strips). Every issue is trader-priced at month-end and the index is published
monthly.
Salomon High-Yield Market Index
The Salomon High-Yield Market Index includes public, non-convertible corporate
bond issues with at least one year remaining to maturity and $50 million in par
amount outstanding which carry a below investment-grade quality rating from
either Standard & Poor's or Moody's rating services.
Salomon Mortgage Index
The Salomon Mortgage Index includes agency pass-throughs (GNMA, FHLMC, FNMA) and
FHA and GNMA project loans. Pools with remaining terms shorter than 25 years are
seasoned; pools with longer terms are classified as new. The index is published
monthly.
Salomon One To Three Year Treasury Index
The Salomon One To Three Year Treasury Index includes only U.S. Treasury Notes
and Bonds with maturities one year or greater and less than three years.
Salomon World Government Bond Index
The Salomon World Government Bond Index is designed to provide a comprehensive
measure of total return performance of the domestic Government bond market of
thirteen countries. The index has been constructed with the aim of choosing an
"all inclusive" universe of institutionally traded fixed-rate bonds. The
selection of security types to be included in the index is made with the aim of
being as comprehensive as possible, while satisfying the criterion of reasonable
availability to domestic and international institutions and the existence of
complete pricing and market profile data.
S&P 500
The S&P 500 is a portfolio of 500 stocks designed to mimic the overall equity
market's industry weightings. Most, but not all, large capitalization stocks are
in the index. There are also some small capitalization names in the index. The
list is maintained by Standard & Poor's Corporation. It is market capitalization
weighted. Unlike the Russell indices, there are always 500 names in the S&P 500.
Changes are made by Standard & Poor's as needed.
S&P/BARRA Mid Cap 400 Growth Index
The S&P/BARRA Mid Cap 400 Growth Index is constructed by dividing the stocks in
the S&P MidCap 400 Index according to a single attribute: price-to-book ratios.
The MidCap 400 Growth Index is composed of firms with higher price-to-book
ratios. Like the MidCap 400, the MidCap 400 Growth Index is
capitalization-weighted, meaning that each stock is weighted in the appropriate
index in proportion to its market value.
S&P 500 Ex South Africa
The S&P 500 Ex South Africa Index is the same as the S&P 500 Index excluding
companies that are on the Investor Responsibility Research Center (IRRC) list of
companies doing business in South Africa. This index is maintained by Wilshire
Associates.
Wilshire 5000 Equity Index
The Wilshire 5000 Equity Index measures performance of all US headquartered
equity securities with readily available price data. Approximately 6,000
capitalization weighted security returns are used to calculate the index.
FINANCIAL STATEMENTS
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<PAGE>
APPENDIX-DESCRIPTION OF SECURITIES AND RATINGS
I. Description of Bond Ratings
Excerpts from Moody's Investors Service, Inc.'s Corporate Bond Ratings:
- -----------------------------------------------------------------------
Aaa: judged to be the best quality; carry the smallest degree of
investment risk; Aa--judged to be of high quality by all standards; A: possess
many favorable investment attributes and are to be considered as higher medium
grade obligations; Baa: considered as lower medium grade obligations, i.e., they
are neither highly protected nor poorly secured; Ba: B: protection of interest
and principal payments is questionable.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest. Ca: Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings. C: Bonds which are rated C are lowest rated class of bonds
and issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Note: Moody's may apply numerical modifiers, 1,2 and 3 in each generic
rating classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
Excerpts from Standard & Poor's Corporation's Corporate Bond Ratings:
- ---------------------------------------------------------------------
AAA: highest grade obligations; possess the ultimate degree of
protection as to principal and interest; AA: also qualify as high grade
obligations, and in the majority of instances differs from AAA issues only in
small degree; A: regarded as upper medium grade; have considerable investment
strength but are not entirely free from adverse effects of changes in economic
and trade conditions. Interest and principal are regarded as safe; BBB: regarded
as borderline between definitely sound obligations and those where the
speculative element begins to predominate; this group is the lowest which
qualifies for commercial bank investments.
BB, B, CCC, CC, C: Debt rated BB, B, CCC, CC and C is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and C the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions. CI: The rating CI is reserved for income bonds on which no interest
is being paid. D: Debt rated D is in payment default. The D rating category is
used when interest payments or principal payments are not made on the date due
even if the applicable grace period has not expired, unless S&P's believes that
such payments will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
Plus(+) or Minus(-): The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
Excerpts from Fitch Investors Services, Inc. Corporate Bond Ratings:
- --------------------------------------------------------------------
AAA: Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA: Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA". Because bonds rated
in the "AAA" and "AA" categories are not significantly vulnerable to foreseeable
future developments, short term debt of these issuers is generally rated "-,+".
A: Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds, and therefore
impair timely payment. The likelihood that the ratings of these bonds will fall
below investment grade is higher than for bonds with higher ratings.
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<PAGE>
BB: Bonds are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified which
could assist the obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class
are currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited margin
of safety and the need for reasonable business and economic activity throughout
the life of the issue.
CCC: Bonds have certain identifiable characteristics which, if not
remedied, may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest
and/or principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, and D: Bonds are in default on interest and/or principal
payments. Such bonds are extremely speculative and should be valued on the basis
of their ultimate recovery value in liquidation or reorganization of the
obligor. "DDD" represents the highest potential for recovery on the these bonds,
and "D" represents the lowest potential for recovery.
Plus (+) Minus(-) Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the "DDD", "DD", or "D" categories.
Excerpts from Duff & Phelps Corporate Bond Ratings:
- ---------------------------------------------------
AAA: Highest credit quality. The risk factors are negligible, being
only slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AA-: High credit quality. Protection factors are strong. Risk
is modest but may vary slightly from time to time of economic conditions.
A+, A, A-: Protection factors are average but adequate. However, risk
factors are more variable and greater in periods of economic stress.
BBB+,BBB, BBB-: Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
BB+, BB, BB-: Below investment grade but deemed likely to meet
obligations when due. Present or prospective financial protection factors
fluctuate according to industry conditions or company fortunes. Overall quality
may move up or down frequently within this category.
B+, B, B-: Below investment grade and possessing risk that obligations
will not be met when due. Financial protection factors will fluctuate widely
according to economic cycles, industry conditions and/or company fortunes.
Potential exists for frequent changes in the rating within this category or into
a higher or lower rating grade.
CCC: Well below investment grade securities. Considerable uncertainty
exists as to timely payment of principal, interest or preferred dividends.
Protections factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.
DD: Defaulted debt obligations. Issuer failed to meet scheduled
principal and/or interest payments.
DP: Preferred stock with dividend arrearage.
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<PAGE>
Description of Bond Ratings
---------------------------
Excerpts from Moody's Investors Service, Inc.'s Preferred Stock Ratings
- -----------------------------------------------------------------------
aaa: An issue which is rated aaa is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least risk
of dividend impairment within the universe of preferred stocks. aa: An issue
which is rated aa is considered a high-grade preferred stock. This rating
indicates that there is reasonable assurance that earnings and asset protection
will remain relatively well maintained in the foreseeable future. a: An issue
which is rated a is considered to be an upper medium grade preferred stock.
While risks are judged to be somewhat greater than in the aaa and aa
classifications, earnings and asset protection are, nevertheless expected to be
maintained at adequate levels. baa: An issue which is rated baa is considered to
be medium grade, neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any great
length of time. ba: an issue which is rated ba is considered to have speculative
elements and its future cannot be considered well assured. Earnings and asset
protection may be very moderate and not well safeguarded during adverse periods.
Uncertainty of position characterizes preferred stocks in this class. b: An
issue which is rated b generally lacks the characteristics of a desirable
investment. Assurance of dividend payments and maintenance of other terms of the
issue over any long period of time may be small. caa: An issue which is rated
caa is likely to be in arrears on dividend payments. This rating designation
does not purport to indicate the future status of payment. ca: An issue which is
rated ca is speculative in a high degree an is likely to be in arrears on
dividends with little likelihood of eventual payment. c: This is the lowest
rated class of preferred of preference stock. Issues so rated can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
Note: Moody's may apply numerical modifiers 1,2 and 3 in each rating
classification from "aa "through "b" in its preferred stock rating system. The
modifier 1 indicated that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range raking; and the modifier 3
indicates that the issue ranks in the lower end of its generic rating category.
Excerpts from Standard & Poor's Corporation's Preferred Stock Ratings
- ---------------------------------------------------------------------
AAA: This is the highest rating that may be assigned by S&P's to a
preferred stock issue and indicates an extremely strong capacity to pay the
preferred stock obligations. AA: A preferred stock issue rated AA also qualifies
as a high quality fixed income security. The capacity to pay preferred stock
obligations is very strong, although not as overwhelming as for issues rated
AAA. A: An issue rated A is backed by a sound capacity to pay the preferred
stock obligations , although it is somewhat more susceptible to the adverse
effect of the changes in circumstances and economic conditions. BBB: An issue
rated BBB is regarded as backed by an adequate capacity to pay the preferred
stock obligations. Whereas it normally exhibits adequate protection parameter,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to make payments for a preferred stock in this category than
for issues in the A category. BB,B,CCC: Preferred stock rated BB, B, and CCC are
regarded, on balance, as predominantly speculative with respect to the issuer's
capacity to pay preferred stock obligations. Bb indicates the lowest degree of
speculation and CCC the highest degree of speculation. While such issues will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties of major risk exposures to adverse conditions. CC: The
rating CC is reserved for a preferred stock in arrears on dividends or sinking
fund payments but that is currently paying. C: A preferred stock rated C is a
non-paying issue. D: A preferred stock rated D is a non-paying issue with the
issuer in default on debt instruments.
Plus(+) or Minus(-): The ratings from "AA" for "B" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
Excerpts from Fitch Investors Services, Inc. Preferred Stock Ratings:
- ---------------------------------------------------------------------
AAA: Preferred stocks assigned this rating are the highest quality.
Strong asset protection, conservative balance sheet ratios, and positive
indications of continued protection of preferred dividend requirements are
prerequisites for an "AAA" rating.
AA: Preferred of preference issues assigned this rating are good
quality. Asset protection and coverages of preferred dividends are considered
adequate and are expected to be maintained.
A: Preferred of preference issues assigned this rating are good
quality. Asset protection and coverages of preferred dividends are considered
adequate and are expected to be maintained.
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<PAGE>
BBB: Preferred or preference issues assigned this rating are reasonably
safe but lack the protections of the "A" to "AAA" categories. Current results
should be watched for possible of deterioration.
BB: Preferred or preference issues assigned this rating are considered
speculative. The margin of protection is slim or subject to wide fluctuations.
The loner-term financial capacities of the enterprises cannot be predicted with
assurance.
B: Issues assigned this rating are considered highly speculative. While
earnings should normally cover dividends, directors may reduce or omit payment
due to unfavorable developments, inability to finance, or wide fluctuations in
earnings.
CCC: Issues assigned this rating are extremely speculative and should
be assessed on their prospects in a possible reorganization. Dividend payments
may be in arrears with the status of the current dividend uncertain.
CC: Dividends are not currently being paid and may be in arrears. The
outlook for future payments cannot be assured.
C: Dividends are not currently being paid and may be in arrears.
Prospects for future payments are remote.
D: Issuer is in default on its debt obligations and has filed for
reorganization or liquidation under the bankruptcy law.
Plus (+) Minus (-) Plus and minus signs are used with a rating symbol
to indicate the relative position of a credit within the rating category. Plus
and minus signs, however, are not used in the "AAA", "CCC", "CC", "C", and "D"
categories.
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<PAGE>
MAS FUNDS
PART C: OTHER INFORMATION
Post-Effective Amendment No. 40
Item 24. Financial Statements and Exhibits:
(a) Financial Statements:
Part A: None
Financial Highlights
Part B: None
(b) Additional Exhibits
(1) Amended and Restated Declaration of Trust (incorporated
by reference to Exhibit 1 of the initial Registration
Statement as filed on March 1, 1984).
(1)(a) Amendment No. 1 to Amended and Restated Declaration of
Trust, dated May 20, 1992 (incorporated by reference to
Exhibit 2 of Post-Effective Amendment No. 25 as filed on
January 28, 1993).
(1)(b) Amended and Restated Declaration of Trust, dated November
18, 1993 (incorporated by reference to Exhibit 1 of
Post-Effective Amendment No. 29 as filed on December 27,
1993).
(2) By-Laws (incorporated by reference to Exhibit 2 of the
initial Registration Statement as filed on March 1,
1984).
(2)(a) By-Laws (incorporated by reference to Exhibit 2 of
Post-Effective Amendment No. 29 as filed on December 27,
1993).
(3) Not Applicable.
(4) Specimen of Security for the Global Fixed Income
Portfolio and the Balanced Portfolio dated (incorporated
by reference to Exhibit 4 of Post-Effective Amendment No.
24 as filed on October 30, 1992).
(4)(a) Specimen of Security for the Growth Portfolio dated
(incorporated by reference to Exhibit 4 of Post-Effective
Amendment No. 26 as filed on June 28, 1993).
(5) Investment Advisory Agreement with Miller Anderson &
Sherrerd, LLP dated July 1, 1988 (incorporated by
reference to Exhibit 3 of Post-Effective Amendment
No. 8).
(6) Distribution Agreement with MAS Fund Distribution, Inc.
dated April 13, 1993 (incorporated by reference to
Exhibit 6 of Post-Effective Amendment No. 26 as filed on
June 28, 1993).
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(7) Not Applicable.
(8) Custodian Agreement with Chase Manhattan Bank, N.A.
(incorporated by reference to Exhibit 8 of the initial
Registration Statement as filed on March 1, 1984).
(8)(a) Custodian Agreement with Morgan Stanley Trust Company
dated September 1, 1993 (incorporated by reference to
Exhibit 8 of Post-Effective Amendment No. 29 as filed on
December 27, 1993).
(9) Administration Agreement with The Vanguard Group dated
September, 1984 (incorporated by reference to Exhibit 9
of Pre-Effective Amendment No. 3 as filed on August 27,
1984).
(9)(a) Administration Agreement with Miller Anderson & Sherrerd,
LLP dated November 18, 1993 (incorporated by reference to
Exhibit 9 of Post-Effective Amendment No. 29 as filed on
December 27, 1993).
(9)(b) Sub-Administration Agreement with United States Trust
Company of New York dated November 18, 1993 (incorporated
by reference to Exhibit 9 of Post-Effective Amendment No.
29 as filed on December 27, 1993).
(9)(c) Transfer Agency Agreement with United States Trust
Company of New York dated November 18, 1993 (incorporated
by reference to Exhibit 9 of Post-Effective Amendment
No. 29 as filed on December 27, 1993).
(10) Opinion and Consent of Counsel dated August 23, 1984
(incorporated by reference to Pre-Effective Amendment No.
3 as filed on August 27, 1984).
(11) Consent of Independent Public Accountants.*
(12) Not Applicable.
(13) Not Applicable.
(14) Not Applicable.
(15) Distribution Plan Investment Class Shares.*
(15)(a) MAS Class Shareholder Service Agreement.*
(15)(b) MAS Class Service Provider Agreement.*
(16) Performance Quotation Computation (incorporated by
reference to Post-Effective Amendment No. 21 as filed on
April 6, 1992).
(18) Rule 18f-3 Multiple Class Plan.*
(24) Powers of Attorney.*
*Filed herewith
Item 25. Persons Controlled by or under Common Control with Registrant
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<PAGE>
Registrant is not controlled by or under common control with any person.
Item 26. Number of Holders of Securities:
As of November 10, 1995, the number of record holders of each class of
securities of Registrant was as follows:
Number of
Title of Class Record Holders
-------------- --------------
Advisory Foreign Fixed Income.....................................59
Advisory Mortgage.................................................49
Emerging Markets..................................................55
Equity...........................................................777
Growth.............................................................0
International Equity.............................................638
Mid Cap Growth...................................................231
Mid Cap Value....................................................118
Small Cap Value..................................................426
Value............................................................576
Cash Reserves....................................................131
Domestic Fixed Income.............................................16
Fixed Income.....................................................528
Fixed Income II...................................................45
Global Fixed Income...............................................69
High Yield.......................................................267
Intermediate Duration..............................................1
International Fixed Income........................................40
Limited Duration.................................................133
Mortgage-Backed Securities........................................17
Municipal.........................................................71
PA Municipal......................................................25
Special Purpose Fixed Income.....................................239
Balanced.........................................................121
Multi-Asset-Class.................................................77
Select Equity......................................................5
Item 27. Indemnification:
Reference is made to Article V of Registrant's By-Laws dated November 18, 1993,
which is incorporated by reference. Registrant hereby also makes the undertaking
consistent with rule 484 under the Securities Act of 1933, as amended.
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The Trust shall indemnify each of its Trustees and officers (including persons
who serve at the Trust's request as directors, officers or trustees of another
organization in which the Trust has any interest as a shareholder, creditor or
otherwise) (hereinafter referred to as a "Covered Person") against all
liabilities and expenses, including but not limited to amounts paid in
satisfaction of judgements, in compromise or as fines and penalties, and counsel
fees reasonably incurred by any Covered Person in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or criminal,
or whether by or in the right of the Trust, before any court or administrative
or legislative body, in which such Covered Person may be or may have been
involved as a party or otherwise or with which such person may be or may have
been threatened, while in office or thereafter, by reason of any alleged act or
omission as a Trustee or officer, except with respect to any matter as to which
such Covered Person shall have been finally adjudicated in any such action, suit
or other proceeding not to have acted in good faith in the reasonable belief
that such Covered Person's action was in the best interest of the Trust and
except that no Covered Person shall be indemnified against any liability to the
Trust or its Shareholders to which such Covered Person would otherwise be
subject by reason of self-dealing, willful misconduct or recklessness. Expenses,
including counsel fees so incurred by any such Covered Person, may be paid from
time to time by the Trust in advance of the final disposition of any such
action, suit or proceeding on the condition that the amounts so paid shall be
repaid to the Trust if it is ultimately determined that indemnification of such
expenses is not authorized under this Article.
Item 28. Business and Other Connections of Investment Advisor:
Miller Anderson & Sherrerd, LLP (the "Adviser") is a Pennsylvania limited
liability partnership founded 1969. The Adviser provides investment services to
employee benefit plans, endowment funds, foundations and other institutional
investors.
The information required by this Item 28 with respect to each director, officer,
or partner of the Adviser together with information as to any other business,
profession, vocation or employment of a substantial nature engaged in by such
officers and directors during the past two years, is incorporated by reference
to Schedules B and D of Form ADV filed by the Adviser pursuant to the Investment
Advisers Act of 1940 (SEC file No. 801-10437).
Item 29. Principal Underwriters:
(a) MAS Fund Distribution, Inc., the firm that acts as sole distributor of
the Registrant's shares, does not act as distributor for any other
investment company.
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(b) The principal address for MAS Fund Distribution, Inc. and each partner
and officer listed below is One Tower Bridge, West Conshohocken, PA
19428.
Name and Principal Positions and Positions and
Business Address Offices with Underwriter Offices with Registrant
Lorraine Truten President Vice President
Ronald R. Reese Secretary & Treasurer N/A
Gary G. Schlarbaum Director N/A
Thomas L. Bennett Director Trustee
James D. Schmid Director President
(c) Not applicable
Item 30. Location of Accounts and Records:
Books or other documents required to be maintained by Section 31(a) of the
Investment Company Act of 1940, and the rules promulgated thereunder, are
maintained as follows:
Chase Manhattan Bank, N.A.
One Chase Manhattan Plaza
New York, N.Y. 10081
(records relating to its function as custodian)
Morgan Stanley Trust Company
1 Pierrepont Plaza
Brooklyn, New York 11201
(records relating to its function as custodian)
Chase Global Fund Services
73 Tremont Street
Boston, MA 02108-3913
(records relating to its functions as sub-administrator,
transfer agent and dividend disbursing agent)
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Miller Anderson & Sherrerd, LLP
One Tower Bridge
West Conshohocken, Pennsylvania 19428
(records relating to its function as investment adviser)
Item 31. Management Services
Not Applicable
Item 32. Undertakings:
(a) Not applicable
(b) Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
(c) Registrant hereby undertakes to comply with the intent of the
provisions of Section 16(c) of the Investment Company Act of 1940 in
regard to shareholders' rights to call a meeting of shareholders for
the purpose of voting on the removal of trustees and to assist in
shareholder communications in such matters.
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Signatures
Pursuant to the requirements of the Securities Act of 1933 (the
"Securities Act") and the Investment Company Act of 1940, the Registrant
has duly caused this Amendment to Registration Statement No. 2-89729 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of West Conshohocken, Commonwealth of Pennsylvania on the ____ day of November,
1995.
MAS FUNDS
By: *
--------------------------------
James D. Schmid, President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment has been signed below by the following persons in the capacity on the
dates indicated.
* Trustee November ___, 1995
- -----------------------
David P. Eastburn
* Trustee November ___, 1995
- -----------------------
Joseph P. Healey
* Trustee November ___, 1995
- -----------------------
Joseph J. Kearns
* Trustee November ___, 1995
- -----------------------
C. Oscar Morong, Jr.
* Trustee November ___, 1995
- -----------------------
Thomas L. Bennett
* President November ___, 1995
- -----------------------
James D. Schmid
* Treasurer November ___, 1995
- -----------------------
Douglas W. Kugler
*By: ------------------
John H. Grady, Jr.
Attorney-in-Fact
C-7
<PAGE>
EXHIBIT INDEX
Exhibit Page
- ------- ----
EX-99.B1 Amended and Restated Declaration of Trust (incorporated by
reference to Exhibit 1 of the initial Registration
Statement as filed on March 1, 1984).
EX-99.B1(a) Amendment No. 1 to Amended and Restated Declaration of
Trust, dated May 20, 1992 (incorporated by reference to
Exhibit 2 of Post-Effective Amendment No. 25 as filed on
January 28, 1993).
EX-99.B1(b) Amended and Restated Declaration of Trust, dated November
18, 1993 (incorporated by reference to Exhibit 1 of
Post-Effective Amendment No. 29 as filed on December 27,
1993).
EX-99.B2 By-Laws (incorporated by reference to Exhibit 2 of the
initial Registration Statement as filed on March 1, 1984).
EX-99.B2(a) By-Laws (incorporated by reference to Exhibit 2 of
Post-Effective Amendment No. 29 as filed on December 27,
1993).
EX-99.B3 Not Applicable.
EX-99.B4 Specimen of Security for the Global Fixed Income Portfolio
and the Balanced Portfolio dated (incorporated by reference
to Exhibit 4 of Post-Effective Amendment No. 24 as filed on
October 30, 1992).
EX-99.B4(a) Specimen of Security for the Growth Portfolio dated
(incorporated by reference to Exhibit 4 of Post-Effective
Amendment No. 26 as filed on June 28, 1993).
EX-99.B5 Investment Advisory Agreement with Miller Anderson &
Sherrerd, LLP dated July 1, 1988 (incorporated by reference
to Exhibit 3 of Post-Effective Amendment No. 8).
EX-99.B6 Distribution Agreement with MAS Fund Distribution, Inc.
dated April 13, 1993 (incorporated by reference to Exhibit
6 of Post-Effective Amendment No. 26 as filed on June 28,
1993).
EX-99.B7 Not Applicable.
EX-99.B8 Custodian Agreement with Chase Manhattan Bank, N.A.
(incorporated by reference to Exhibit 8 of the initial
Registration Statement as filed on March 1, 1984).
<PAGE>
EX-99.B8(a) Custodian Agreement with Morgan Stanley Trust Company dated
September 1, 1993 (incorporated by reference to Exhibit 8
of Post-Effective Amendment No. 29 as filed on December
27, 1993).
EX-99.B9 Administration Agreement with The Vanguard Group dated
September, 1984 (incorporated by reference to Exhibit 9 of
Pre-Effective Amendment No. 3 as filed on August 27, 1984).
EX-99.B9(a) Administration Agreement with Miller Anderson & Sherrerd,
LLP dated November 18, 1993 (incorporated by reference to
Exhibit 9 of Post-Effective Amendment No. 29 as filed on
December 27, 1993).
EX-99.B9(b) Sub-Administration Agreement with United States Trust
Company of New York dated November 18, 1993 (incorporated
by reference to Exhibit 9 of Post-Effective Amendment No.
29 as filed on December 27, 1993).
EX-99.B9(c) Transfer Agency Agreement with United States Trust Company
of New York dated November 18, 1993 (incorporated by
reference to Exhibit 9 of Post-Effective Amendment No. 29 as
filed on December 27, 1993).
EX-99.B10 Opinion and Consent of Counsel dated August 23, 1984
(incorporated by reference to Pre-Effective Amendment No. 3
as filed on August 27, 1984).
EX-99.B11 Consent of Independent Public Accountants.*
EX-99.B12 Not Applicable.
EX-99.B13 Not Applicable.
EX-99.B14 Not Applicable.
EX-99.B15 Distribution Plan Investment Class Shares.*
EX-99.B15(a) MAS Class Shareholder Service Agreement.*
EX-99.B15(b) MAS Class Service Provider Agreement.*
EX-99.B16 Performance Quotation Computation (incorporated by
reference to Post-Effective Amendment No. 21 as filed on
April 6, 1992).
EX-99.B18 Rule 18f-3 Multiple Class Plan.*
<PAGE>
EX-99.B24 Powers of Attorney*
*Filed herewith
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the references to us under the headings "Financial
Highlights" and "Other Information - Reports" in each of the Prospectuses
constituting parts of this Post-Effective Amendment No. 40 to the Registration
Statement on Form N-1A (the "Registration Statement") of the MAS Funds.
PRICE WATERHOUSE LLP
- -----------------------------
Price Waterhouse LLP
Boston, Massachusetts
November 27, 1995
<PAGE>
DISTRIBUTION PLAN
MAS Funds
Investment Class Shares
WHEREAS, MAS Funds (the "Fund"), is engaged in business as an open-end
investment company registered under the Investment Company Act of 1940, as
amended ("1940 Act"); and
WHEREAS, the Trustees of the Fund have determined that there is a
reasonable likelihood that the following Distribution Plan will benefit the
Fund's Investment Class and the owners of units of beneficial interest
("Shares") in the Fund's Investment Class.
NOW, THEREFORE, the Trustees of the Fund hereby adopt this Distribution
Plan pursuant to Rule 12b-1 under the 1940 Act.
Section 1. The Fund has adopted this Distribution Plan (the "Plan") to
enable the Fund to directly or indirectly bear expenses relating to the
distribution of Investment Class Shares of which the Fund is the issuer.
Section 2. The Fund will pay the Distributor a fee on the Investment
Class Shares of the Fund's Portfolios up to the amount set forth on Schedule A.
The Distributor may use this fee for (i) compensation for its services in
connection with distribution assistance or provision of shareholder and account
maintenance services; or (ii) payments to financial institutions and
intermediaries such as banks, savings and loan associations, insurance
companies, investment counselors, broker-dealers and the Distributor's
affiliates and subsidiaries as compensation for services or reimbursement of
expenses incurred in connection with distribution assistance or provision of
shareholder and account maintenance services.
Section 3. This Plan (and any related agreement entered into pursuant
to Section 7) shall not take effect until it has been approved by (a) a vote of
at least a majority of the outstanding voting securities of each Portfolio's
Investment Class; and (b) by votes of the majority of both (i) the Trustees of
the Fund and (ii) the Qualified Trustees, cast in person at a Board of Trustees
meeting called for the purpose of voting on this Plan.
Section 4. This Plan (and any related agreement entered into pursuant
to Section 7) shall continue in effect for a period of more than one year after
it takes effect only for so long as such continuance is specifically approved at
least annually in the manner provided in Section 3(b) herein for the approval of
this Plan.
<PAGE>
Section 5. Any person authorized to direct the disposition of monies
paid or payable by the Fund pursuant to this Plan or any related agreement (as
provided in Section 7) shall provide to the Trustees of the Fund, and the
Trustees shall review, at least quarterly, a written report of the amounts so
expended and the purposes for which such expenditures were made.
Section 6. This Plan may be terminated at any time by the vote of a
majority of the Qualified Trustees or by vote of a majority of the outstanding
voting securities of each Portfolio's Investment Class.
Section 7. Any agreements with any person relating to this Plan shall
be in writing, and provide (a) that such agreement may be terminated at any
time, without payment of any penalty, by the vote of a majority of the Qualified
Trustees or by the vote of shareholders holding a majority of the outstanding
voting securities of each Portfolio's Investment Class, on not more than 60 days
written notice to any other party to the agreement; and (b) that such agreement
shall terminate automatically in the event of its assignment. This Plan shall
not obligate the Fund or any other party to enter into an agreement with any
particular person.
Section 8. This Plan may not be amended to increase materially the
amount of distribution expenses permitted pursuant to Section 2 hereof without
the approval of Shareholders holding a majority of the outstanding voting
securities of each affected Portfolio's Investment Class. All material
amendments to this Plan and any related agreement entered into pursuant to
Section 7 hereof shall be approved in the manner provided in Section 3(b) herein
for the approval of this Plan.
Section 9. As used in this Plan, (a) the term "Qualified Trustees"
shall mean those Trustees of the Fund who are not interested persons of the
Fund, and have no direct or indirect financial interest in the operation of this
Plan or in any agreements related to it, and (b) the terms "assignment" and
"interested person" shall have the respective meanings specified in the 1940 Act
and the rules and regulations thereunder, subject to such exemptions as may be
granted by the Securities and Exchange Commission.
Section 10. While this Plan is in effect, the selection and nomination
of those Trustees who are not interested persons of the Fund within the meaning
of Section 2(a)(19) of the 1940 Act shall be committed to the discretion of the
Trustees then in office who are not interested persons of the Fund.
<PAGE>
SCHEDULE A
MAS Funds
Portfolio Distribution Fee
- --------- ----------------
Balanced........................................................ .___%
Cash Reserves................................................... .___%
Domestic Fixed Income .......................................... .___%
Emerging Markets................................................ .___%
Equity.......................................................... .___%
Fixed Income.................................................... .___%
Fixed Income II................................................. .___%
Global Fixed Income............................................. .___%
Growth.......................................................... .___%
High Yield...................................................... .___%
Intermediate Duration........................................... .___%
International Equity............................................ .___%
International Fixed Income...................................... .___%
Limited Duration................................................ .___%
Mid Cap Growth.................................................. .___%
Mid Cap Value................................................... .___%
Mortgage-Backed Securities...................................... .___%
Multi-Asset-Class............................................... .___%
Municipal....................................................... .___%
PA Municipal.................................................... .___%
Select Equity................................................... .___%
Small Cap Value................................................. .___%
Special Purpose Fixed Income.................................... .___%
Value........................................................... .___%
<PAGE>
MAS FUNDS
MAS CLASS
SHAREHOLDER SERVICE AGREEMENT
MAS Funds (the "Fund") is an open-end investment company registered
under the Investment Company Act of 1940, as amended, and currently consisting
of a number of separately managed portfolios (the "Portfolios"). The Fund
desires to retain MAS Fund Distribution, Inc. (the "Distributor"), a
Pennsylvania corporation, to compensate Service Providers who provide the
services described herein to their clients (the "Clients") who may from time to
time beneficially own MAS Class shares (the "Shares") of the Portfolios
identified at Schedule A of this Agreement. The Distributor is willing to
compensate the Service Providers for providing such shareholder services in
accordance with the terms and conditions of this Agreement.
Section 1. The Distributor will enter into written agreements in the form
approved by the Fund's Board of Trustees with Service Providers pursuant to
which the Service Providers will provide the following shareholder services to
Clients who may from time to time beneficially own Shares:
(i) maintaining accounts relating to Clients that invest in
Shares;
(ii) providing information periodically to Clients showing
their positions in Shares;
(iii) arranging for bank wires;
(iv) responding to Client inquiries relating to the services
performed by the Service Provider;
(v) responding to inquiries from Clients concerning their
investments in Shares;
(vi) if required by law, forwarding shareholder communications
from the Fund (such as proxies, shareholder reports, annual
and semi-annual financial statements and dividend,
distribution and tax notices) to Clients;
(vii) assisting in processing purchase, exchange and
redemption requests from Clients and in placing such orders
with the Fund or its service providers;
(viii) assisting Clients in changing dividend options, account
designations, and addresses; and
(ix) providing such other similar services as the Fund may,
through the Distributor, reasonably request to the extent that
the Service Provider is permitted to do so under applicable
laws or regulations.
<PAGE>
Section 2. The Distributor will provide all office space and equipment,
telephone facilities and personnel (which may be part of the space, equipment
and facilities currently used in the Distributor's business, or any personnel
employed by the Distributor) as may be reasonably necessary or beneficial in
order to fulfill its responsibilities under this Agreement.
Section 3. Neither the Distributor nor any of its officers, employees, or agents
is authorized to make any representations concerning the Fund or the Shares
except those contained in the Fund's then-current prospectus or Statement of
Additional Information for the Shares, copies of which will be supplied to the
Distributor, or in such supplemental literature or advertising as may be
authorized in writing.
Section 4. For purposes of this Agreement, the Distributor will be deemed to be
an independent contractor, and will have no authority to act as agent for the
Fund in any matter or in any respect. By its written acceptance of this
Agreement, the Distributor agrees to and does release, indemnify, and hold the
Fund harmless from and against any and all direct or indirect liabilities or
losses resulting from requests, directions, actions, or inactions of or by the
Distributor or its officers, employees, or agents regarding the Distributor's
responsibilities under this Agreement, the provision of the aforementioned
services to Clients by the Service Providers, or the purchase, redemption,
transfer, or registration of Shares (or orders relating to the same) by or on
behalf of Clients. The Distributor and its officers and employees will, upon
request, be available during normal business hours to consult with
representatives of the Fund or its designees concerning the performance of the
Distributor's responsibilities under this Agreement.
Section 5. In consideration of the services and facilities to be provided by the
Service Providers, each Portfolio will pay to the Distributor, and the
Distributor will pay to the Service Providers, a fee at the annual rate set
forth in Schedule A of this Agreement, which will be a percentage of the average
daily net asset value of the Shares of such Portfolio beneficially owned by the
Clients with whom the Service Provider has a servicing relationship (the
"Clients' Shares"), which fee will be computed daily and paid monthly. For
purposes of determining the fees payable under this Section 5, the average daily
net asset value of the Clients' Shares will be computed in the manner specified
in the Fund's Registration Statement (as the same is in effect from time to
time) in connection with the computation of the net asset value of Shares for
purposes of purchases and redemptions. The fee relating to any Portfolio set
forth in Schedule A may be prospectively increased or decreased by the Fund, in
its sole discretion, at any time upon notice to the Distributor. When it
receives such notice, the Distributor will notify the Service Providers of any
increase or decrease. Further, the Fund may, in its discretion and without
notice, suspend or withdraw the sale of Shares of any Portfolio, including the
sale of Shares to any Service Provider for the account of any Client or Clients.
<PAGE>
Section 6. The Fund may enter into other similar servicing agreements with any
other person or persons without the Distributor's consent.
Section 7. By its written acceptance of this Agreement, the Distributor
represents, warrants, and agrees that the services provided by the Distributor
under this Agreement will in no event be primarily intended to result in the
sale of Shares.
Section 8. This Agreement will become effective on the date a fully executed
copy of this Agreement is received by the Fund or its designee and shall
continue until terminated by either party. This Agreement is terminable with
respect to the Shares of any Portfolio, without penalty, at any time by the Fund
or by the Distributor upon written notice to the Fund.
Section 9. All notices and other communications to either the Fund or to the
Distributor will be duly given if mailed, telegraphed, telefaxed, or transmitted
by similar communications device to the appropriate address stated herein, or to
such other address as either party shall so provide the other.
Section 10. This Agreement will be construed in accordance with the laws of the
Commonwealth of Pennsylvania and may not be "assigned" by either party thereto
as that term is defined in the Investment Company Act of 1940.
Section 11. References to the "MAS Funds," the "Fund," and the "Trustees" of the
Fund refer respectively to the Trust created and the Trustees as trustees, but
not individually or personally, acting from time to time under the Amended and
Restated Declaration of Trust of the Fund dated November 18, 1993, a copy of
which is on file with the Department of State of the Commonwealth of
Pennsylvania and at the Fund's principal office. The obligations of the MAS
Funds entered into in the name or on behalf thereof by any of the Trustees,
officers, representatives, or agents are made not individually, but in such
capacities, and are not binding upon any of the Trustees, shareholders,
officers, representatives, or agents of the Fund personally.
<PAGE>
By their signatures, the Fund and the Distributor agree to the terms of this
Agreement.
MAS Funds
By: Date:
------------------------------- ----------------------------------
- ----------------------------------
MAS Fund Distribution, Inc.
By: Date:
------------------------------- ----------------------------------
<PAGE>
Schedule A
MAS Funds
Portfolio Rate
- --------- ----
Balanced.............................................................. .___%
Cash Reserves......................................................... .___%
Domestic Fixed Income ................................................ .___%
Emerging Markets...................................................... .___%
Equity................................................................ .___%
Fixed Income.......................................................... .___%
Fixed Income II....................................................... .___%
Global Fixed Income................................................... .___%
Growth................................................................ .___%
High Yield............................................................ .___%
Intermediate Duration................................................. .___%
International Equity.................................................. .___%
International Fixed Income............................................ .___%
Limited Duration...................................................... .___%
Mid Cap Growth........................................................ .___%
Mid Cap Value......................................................... .___%
Mortgage-Backed Securities............................................ .___%
Multi-Asset-Class..................................................... .___%
Municipal............................................................. .___%
PA Municipal.......................................................... .___%
Select Equity......................................................... .___%
Small Cap Value....................................................... .___%
Special Purpose Fixed Income.......................................... .___%
Value................................................................. .___%
<PAGE>
MAS FUND DISTRIBUTION, INC.
MAS FUNDS: MAS CLASS
SERVICE PROVIDER AGREEMENT
MAS Fund Distribution, Inc. (the "Distributor") is the distributor for
the MAS Funds (the "Fund"), an open-end investment company registered under the
Investment Company Act of 1940, as amended, and currently consisting of a number
of separately managed portfolios (the "Portfolios"). Pursuant to a shareholder
service agreement between the Fund and the Distributor, the Distributor is
authorized to retain ________________________, a ___________________
[corporation] (the "Service Provider") to provide the shareholder services
described in Section 1 to clients of the Service Provider (the "Clients") who
may from time to time beneficially own MAS Class shares (the "Shares") of
the Portfolios identified at Schedule A of this Agreement. The Service Provider
is willing to provide such shareholder services in accordance with the terms and
conditions of this Agreement.
Section 1. The Service Provider agrees to provide the following shareholder
services to Clients who may from time to time beneficially own shares:
(i) maintaining accounts relating to Clients that invest in
Shares;
(ii) providing information periodically to Clients showing
their positions in Shares;
(iii) arranging for bank wires;
(iv) responding to Client inquiries relating to the services
performed by the Service Provider;
(v) responding to inquiries from Clients concerning their
investments in Shares;
(vi) if required by law, forwarding shareholder communications from the
Fund (such as proxies, shareholder reports, annual and semi-annual
financial statements and dividend, distribution and tax notices) to
Clients;
(vii) assisting in processing purchase, exchange and redemption
requests from Clients and in placing such orders with the Fund or its
service providers;
(viii) assisting Clients in changing dividend options, account
designations, and addresses; and
(ix) providing such other similar services as the Fund may,
through the Distributor, reasonably request to the extent that the
Service Provider is permitted to do so under applicable laws or
regulations.
<PAGE>
Section 2. The Service Provider will provide all office space and equipment,
telephone facilities and personnel (which may be part of the space, equipment
and facilities currently used in the Service Provider's business, or any
personnel employed by the Service Provider) as may be reasonably necessary or
beneficial in order to provide the aforementioned services and assistance to
Clients.
Section 3. Neither the Service Provider nor any of its officers, employees, or
agents are authorized to make any representations concerning the Fund or the
Shares except those contained in the Fund's then-current prospectus or Statement
of Additional Information for the Shares, copies of which will be supplied to
the Service provider, or in such supplemental literature or advertising as may
be authorized in writing.
Section 4. For purposes of this Agreement, the Service Provider will be deemed
to be an independent contractor, and will have no authority to act as agent for
the Distributor or the Fund in any matter or in any respect. By its written
acceptance of this Agreement, the Service Provider agrees to and does release,
indemnify, and hold the Distributor and the Fund harmless from and against any
and all direct or indirect liabilities or losses resulting from requests,
directions, actions, or inactions of or by the Service Provider or its officers,
employees, or agents regarding the Service Provider's responsibilities hereunder
or the purchase, redemption, transfer, or registration of Shares (or orders
relating to the same) by or on behalf of Clients. The Service Provider and its
officers and employees will, upon request, be available during normal business
hours to consult with representatives of the Distributor or the Fund or their
designees concerning the performance of the Service Provider's responsibilities
under this Agreement.
Section 5. In consideration of the services and facilities provided by the
Service Provider hereunder, each Portfolio will pay to the Distributor, the
Distributor will pay to the Service Provider, and the Service Provider will
accept as full payment therefor, a fee at the annual rate set forth in Schedule
A of this Agreement, which will be a percentage of the average daily net asset
value of the Shares of such Portfolio beneficially owned by the Clients with
whom the Service Provider has a servicing relationship (the "Clients' Shares"),
which fee will be computed daily and paid monthly. For purposes of determining
the fees payable under this Section 5, the average daily net asset value of the
Clients' Shares will be computed in the manner specified in the Fund's
Registration Statement (as the same is in effect from time to time) in
connection with the computation of the net asset value of Shares for purposes of
purchases and redemptions. The fee relating to any Portfolio set forth in
Schedule A may be prospectively increased or decreased by the Fund, in its sole
discretion, at any time upon notice to the Distributor. When the Distributor
receives such notice, the Distributor will notify the Service Provider of any
such increase or decrease. Further, the Fund may, in its discretion and without
notice, suspend or withdraw the sale of Shares of any Portfolio, including the
sale of Shares to the Service Provider for the account of any Client or Clients.
<PAGE>
Section 6. The Fund or the Distributor may enter into other similar servicing
agreements with any other person or persons without the Service Provider's
consent.
Section 7. By its written acceptance of this Agreement, the Service Provider
represents, warrants, and agrees that: (i) the Service Provider will disclose to
its Clients the compensation payable to it in connection with the investment of
such Clients' assets in Shares, such compensation will be authorized by its
Clients, and such compensation will not be excessive; (ii) the services provided
by the Service Provider under this Agreement will in no event be primarily
intended to result in the sale of Shares; and (iii) if an issue pertaining to
this Agreement is submitted for shareholder approval, the Service Provider will
vote any Shares held for its own account in the same proportion as the vote of
those Shares held for its Client's Accounts.
Section 8. This Agreement will become effective on the date a fully executed
copy of this Agreement is received by the Distributor or its designee and shall
continue until terminated by either party. This Agreement is terminable with
respect to the Shares of any Portfolio, without penalty, at any time by the
Distributor or by the Service Provider upon written notice to the Distributor.
Section 9. All notices and other communications to either the Distributor or to
the Service Provider will be duly given if mailed, telegraphed, telefaxed, or
transmitted by similar communications device to the appropriate address stated
herein, or to such other address as either party shall so provide the other.
Section 10. This Agreement will be construed in accordance with the laws of the
Commonwealth of Pennsylvania and may not be "assigned" by either party thereto
as that term is defined in the Investment Company Act of 1940.
Section 11. References to the "MAS Funds," the "Fund," and the "Trustees" of the
Fund refer respectively to the Trust created and the Trustees as trustees, but
not individually or personally, acting from time to time under the Amended and
Restated Declaration of Trust of the Fund dated November 18, 1993, a copy of
which is on file with the Department of State of the Commonwealth of
Pennsylvania and at the Fund's principal office. The obligations of the MAS
Funds under the shareholder service agreement, and of the Distributor under this
Agreement, entered into in the name or on behalf thereof by any of the Trustees,
directors, officers, representatives, or agents of either the Fund or the
Distributor are made not individually, but in such capacities, and are not
binding upon any of the directors, shareholders, officers, representatives, or
agents of the Fund or the Distributor personally.
<PAGE>
By their signatures, the Fund and the Service Provider agree to the terms of
this Agreement.
MAS Funds
By: Date:
------------------------------ ---------------------------------
- ----------------------------------
(Service Provider)
By: Date:
------------------------------ ---------------------------------
<PAGE>
SCHEDULE A
MAS Funds
Portfolio Rate
- --------- ----
Balanced........................................................ .___%
Cash Reserves................................................... .___%
Domestic Fixed Income .......................................... .___%
Emerging Markets................................................ .___%
Equity.......................................................... .___%
Fixed Income.................................................... .___%
Fixed Income II................................................. .___%
Global Fixed Income............................................. .___%
Growth.......................................................... .___%
High Yield...................................................... .___%
Intermediate Duration........................................... .___%
International Equity............................................ .___%
International Fixed Income...................................... .___%
Limited Duration................................................ .___%
Mid Cap Growth.................................................. .___%
Mid Cap Value................................................... .___%
Mortgage-Backed Securities...................................... .___%
Multi-Asset-Class............................................... .___%
Municipal....................................................... .___%
PA Municipal.................................................... .___%
Select Equity................................................... .___%
Small Cap Value................................................. .___%
Special Purpose Fixed Income.................................... .___%
Value........................................................... .___%
<PAGE>
THE MAS FUNDS
Rule 18f-3
Multiple Class Plan
November 28, 1995
MAS Funds (the "Fund"), a registered investment company that
currently consists of a number of separately managed portfolios, has elected to
rely on Rule 18f-3 under the Investment Company Act of 1940, as amended (the
"1940 Act"), in offering multiple classes of shares in each portfolio listed on
Schedule A hereto (each a "Portfolio").
A. Attributes of Share Classes
1. The rights of each class of shares of the Portfolios shall
be as set forth in the respective Certificate of Class Designation for each
class (each a "Certificate") as each such Certificate is approved by the Fund's
Board of Trustees and as attached hereto as Exhibits.
2. With respect to each class of shares created hereunder,
each share of a Portfolio will represent an equal pro rata interest in the
Portfolio and will have identical terms and conditions, except that: (i) each
new class will have a different class name (or other designation) that
identifies the class as separate from any other class; (ii) each class will be
offered and sold only to investors meeting the qualifications set forth in the
Certificate and disclosed in the Fund's Prospectus; (iii) each class will
separately bear any distribution fees that are payable in connection with a
distribution plan adopted pursuant to Rule 12b-1 under the 1940 Act (a
"Distribution Plan"), and separately bear any other service fees ("service
fees") that are payable under any service agreement entered into with respect to
that class which are not contemplated by or within the scope of the Distribution
Plan; (iv) each class may bear, consistent with rulings and other published
statements of position by the Internal Revenue Service, the expenses of the
Portfolio's operations which are directly attributable to such class ("Class
Expenses"); and (v) shareholders of each class will have exclusive voting rights
regarding any matter submitted to shareholders that relates solely to such class
(such as a Distribution Plan or service agreement relating to such class), and
will have separate voting rights on any matter submitted to shareholders in
which the interests of that class differ from the interests of any other class.
<PAGE>
B. Expense Allocations
With respect to each Portfolio, the expenses of each class
shall be allocated as follows: (i) any Rule 12b-1 fees relating to a particular
class of shares associated with a Distribution Plan or service fees relating to
a particular class of shares are (or will be) borne exclusively by that class;
(ii) any incremental transfer agency fees relating to a particular class are (or
will be) borne exclusively by that class; and (iii) Class Expenses relating to a
particular class are (or will be) borne exclusively by that class.
Non-class specific expenses shall be allocated in accordance
with Rule 18f-3(c).
C. Amendment of Plan; Periodic Review
This Plan must be amended to properly describe (through
additional exhibits hereto) each new class of shares upon its approval by the
Board.
The Board of Trustees of the Fund, including a majority of the
Trustees who are not "interested persons" of the Fund as defined in the 1940
Act, must review this Plan at least quarterly for its continued appropriateness,
and must approve any material amendment of the Plan as it relates to any class
of any Portfolio covered by the Plan. In approving any material amendment to the
Plan, the Trustees, including a majority of the Trustees who are not interested
persons of the Fund, must find that the amendment is in the best interests of
each class individually and the Fund as a whole.
<PAGE>
Schedule A
----------
MAS Funds
Portfolio
- ---------
Balanced
Cash Reserves
Domestic Fixed Income
Emerging Markets
Equity
Fixed Income
Fixed Income II
Global Fixed Income
Growth
High Yield
Intermediate Duration
International Equity
International Fixed Income
Limited Duration
Mid Cap Growth
Mid Cap Value
Mortgage-Backed Securities
Multi-Asset-Class
Municipal
PA Municipal
Select Equity
Small Cap Value
Special Purpose Fixed Income
Value
<PAGE>
Exhibit A
MAS FUNDS
CERTIFICATE OF CLASS DESIGNATION
Institutional Class Shares
1. Class-Specific Distribution Arrangements; Other Expenses.
---------------------------------------------------------
Institutional Class Shares are sold without a sales charge and are not
subject to any Rule 12b-1 fee or service fees.
2. Eligibility of Purchasers
-------------------------
Institutional Class Shares generally require a minimum initial
investment of $2,000,000 and are available only to contractual clients of Miller
Anderson & Sherrerd, LLP. Shareholders who hold shares of a Portfolio on January
31, 1996 will automatically receive Institutional Class Shares of that
Portfolio.
3. Exchange Privileges
-------------------
Institutional Class Shares of each Portfolio may be exchanged for
Institutional Class Shares of each other Portfolio of the Fund in accordance
with the procedures disclosed in the Fund's Prospectus and subject to any
applicable limitations resulting from the closing of Portfolios to new
investors.
4. Voting Rights
-------------
Each Institutional Class shareholder will have one vote for each full
Institutional Class Share held and a fractional vote for each fractional
Institutional Class Share held. Institutional Class shareholders will have
exclusive voting rights regarding any matter submitted to shareholders that
relates solely to the Institutional Class (such as a distribution plan or
service agreement relating to the Institutional Class), and will have separate
voting rights on any other matter submitted to shareholders in which the
interests of the Institutional Class Shareholders differ from the interests of
holders of any other class.
5. Conversion Rights
-----------------
Institutional Class Shares do not have a conversion feature.
<PAGE>
Exhibit B
MAS FUNDS
CERTIFICATE OF CLASS DESIGNATION
MAS Class Shares
1. Class-Specific Distribution Arrangements; Other Expenses.
---------------------------------------------------------
MAS Class Shares are sold without a sales charge and are not subject to
any Rule 12b-1 fee. MAS Class Shares are subject to a shareholder service fee.
The Fund, on behalf of the applicable Portfolio, will make monthly payments to
the Distributor under the form of the Shareholder Service Agreement approved by
the Board of Trustees at an annual rate of up to .15% of each Portfolio's
average daily net assets attributable to MAS Class Shares. The Distributor will
use the shareholder service fee to compensate financial intermediaries, plan
fiduciaries, and investment professionals, including Miller Anderson & Sherrerd,
LLP ("Service Providers"), for providing one or more personal services to MAS
Class shareholders (including, where applicable, any underlying beneficial
owners) identified in the Shareholder Service Agreement.
2. Eligibility of Purchasers
-------------------------
MAS Class Shares generally require a minimum initial investment of
$500,000.
3. Exchange Privileges
-------------------
MAS Class Shares of each Portfolio may be exchanged for MAS Class
Shares of each other Portfolio of the Fund in accordance with the terms of the
investing defined contribution plan and the procedures disclosed in the Fund's
Prospectus. Exchanges are subject to any applicable limitations resulting from
the closing of Portfolios to new investors.
4. Voting Rights
-------------
Each MAS Class shareholder will have one vote for each full MAS Class
Share held and a fractional vote for each fractional MAS Class Share held. MAS
Class shareholders will have exclusive voting rights regarding any matter
submitted to shareholders that relates solely to the MAS Class (such as a
distribution plan or service agreement relating to the MAS Class), and will have
separate voting rights on any other matter submitted to shareholders in which
the interests of the MAS Class shareholders differ from the interests of holders
of any other class.
5. Conversion Rights
-----------------
MAS Class Shares do not have a conversion feature.
<PAGE>
Exhibit C
MAS FUNDS
CERTIFICATE OF CLASS DESIGNATION
Investment Class Shares
1. Class-Specific Distribution Arrangements; Other Expenses.
---------------------------------------------------------
Investment Class Shares are sold without a sales charge, but are
subject to a Rule 12b-1 fee. The Fund, on behalf of the applicable Portfolio,
will make monthly payments to the Distributor under the Distribution Plan
approved by the Board of Trustees at an annual rate of up to .__% of each
Portfolio's average daily net assets attributable to Investment Class Shares.
The Distributor will use the Rule 12b-1 fee it receives for (i) compensation for
its services in connection with distribution assistance or provision of
shareholder or account maintenance services, or (ii) payments to financial
intermediaries, plan fiduciaries, and investment professionals, including Miller
Anderson & Sherrerd, LLP ("Service Providers") for providing distribution
support services, and/or account maintenance services to shareholders
(including, where applicable, any underlying beneficial owners) of Investment
Class Shares.
2. Eligibility of Purchasers
-------------------------
Investment Class Shares generally require a minimum intimal investment
of $500,000.
3. Exchange Privileges
-------------------
Investment Class Shares of each Portfolio may be exchanged for
Investment Class Shares of each other Portfolio of the Fund in accordance with
the procedures disclosed in the Fund's Prospectus and subject to any applicable
limitations resulting from the closing of Portfolios to new investors.
<PAGE>
4. Voting Rights
-------------
Each Investment Class shareholder will have one vote for each full
Investment Class Share held and a fractional vote for each fractional Investment
Class Share held. Investment Class shareholders will have exclusive voting
rights regarding any matter submitted to shareholders that relates solely to the
Investment Class (such as a distribution plan or service agreement relating to
the Investment Class), and will have separate voting rights on any other matter
submitted to shareholders in which the interests of the Investment Class
shareholders differ from the interests of holders of any other class.
5. Conversion Rights
-----------------
Investment Class Shares do not have a conversion feature.
<PAGE>
MAS FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee and/or
officer of MAS Funds (the "Fund"), a business trust organized under the laws of
The Commonwealth of Pennsylvania, hereby constitutes and appoints Lorraine
Truten, Douglas W. Kugler, and John H,. Grady, Jr., and each of them singly, his
or her true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution, to sign for him or her and in his or her name,
place and stead, and in the capacity indicated below, to sign any or all
amendments (including post-effective amendments) to the Fund's Registration
Statement on Form N-1A under the provisions of the Investment Company Act of
1940 and the Securities Act of 1933, each such Act as amended, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, acting alone, full power and
authority to do and perform each and every act and thing requisite or necessary
to be done in and about the premises, as fully to all intents and purposes as he
or she might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents or any of them, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand
and seal as of the date set forth below.
/s/ David P. Eastburn Date: 9/28/95
- --------------------------------------- -----------------------------
David P. Eastburn
Trustee
<PAGE>
MAS FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee and/or
officer of MAS Funds (the "Fund"), a business trust organized under the laws of
The Commonwealth of Pennsylvania, hereby constitutes and appoints Lorraine
Truten, Douglas W. Kugler, and John H. Grady, Jr., and each of them singly, his
or her true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution, to sign for him or her and in his or her name,
place and stead, and in the capacity indicated below, to sign any or all
amendments (including post-effective amendments) to the Fund's Registration
Statement on Form N-1A under the provisions of the Investment Company Act of
1940 and the Securities Act of 1933, each such Act as amended, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, acting alone, full power and
authority to do and perform each and every act and thing requisite or necessary
to be done in and about the premises, as fully to all intents and purposes as he
or she might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents or any of them, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand
and seal as of the date set forth below.
/s/ Joseph P. Healey Date: 11/28/95
- --------------------------------------- -----------------------------
Joseph P. Healey
Trustee
<PAGE>
MAS FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee and/or
officer of MAS Funds (the "Fund"), a business trust organized under the laws of
The Commonwealth of Pennsylvania, hereby constitutes and appoints Lorraine
Truten, Douglas W. Kugler, and John H. Grady, Jr., and each of them singly, his
or her true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution, to sign for him or her and in his or her name,
place and stead, and in the capacity indicated below, to sign any or all
amendments (including post-effective amendments) to the Fund's Registration
Statement on Form N-1A under the provisions of the Investment Company Act of
1940 and the Securities Act of 1933, each such Act as amended, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, acting alone, full power and
authority to do and perform each and every act and thing requisite or necessary
to be done in and about the premises, as fully to all intents and purposes as he
or she might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents or any of them, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand
and seal as of the date set forth below.
/s/ Joseph J. Kearns Date: 10/17/95
- --------------------------------------- -----------------------------
Joseph J. Kearns
Trustee
<PAGE>
MAS FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee and/or
officer of MAS Funds (the "Fund"), a business trust organized under the laws of
The Commonwealth of Pennsylvania, hereby constitutes and appoints Lorraine
Truten and John H. Grady, Jr., his true and lawful attorneys-in-fact and agents
with full power of substitution and resubstitution, to sign for him and in his
name, place and stead, and in the capacity indicated below, to sign any or all
amendments (including post-effective amendments) to the Fund's Registration
Statement on Form N-1A under the provisions of the Investment Company Act of
1940 and the Securities Act of 1933, each such Act as amended, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, acting alone, full power and
authority to do and perform each and every act and thing requisite or necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Douglas W. Kugler Date: 9/21/95
- --------------------------------------- -----------------------------
Douglas W. Kugler
Treasurer
<PAGE>
MAS FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee and/or
officer of MAS Funds (the "Fund"), a business trust organized under the laws of
The Commonwealth of Pennsylvania, hereby constitutes and appoints Lorraine
Truten and Douglas W. Kugler, his true and lawful attorneys-in-fact and agents
with full power of substitution and resubstitution, to sign for him and in his
name, place and stead, and in the capacity indicated below, to sign any or all
amendments (including post-effective amendments) to the Fund's Registration
Statement on Form N-1A under the provisions of the Investment Company Act of
1940 and the Securities Act of 1933, each such Act as amended, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, acting alone, full power and
authority to do and perform each and every act and thing requisite or necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ John H. Grady, Jr. Date: 9/20/95
- --------------------------------------- -----------------------------
John H. Grady, Jr.
Secretary
<PAGE>
MAS FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee and/or
officer of MAS Funds (the "Fund"), a business trust organized under the laws of
The Commonwealth of Pennsylvania, hereby constitutes and appoints Douglas W.
Kugler and John H. Grady, Jr., her true and lawful attorneys-in-fact and agents
with full power of substitution and resubstitution, to sign for her and in her
name, place and stead, and in the capacity indicated below, to sign any or all
amendments (including post-effective amendments) to the Fund's Registration
Statement on Form N-1A under the provisions of the Investment Company Act of
1940 and the Securities Act of 1933, each such Act as amended, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, acting alone, full power and
authority to do and perform each and every act and thing requisite or necessary
to be done in and about the premises, as fully to all intents and purposes as
she might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set her hand and seal
as of the date set forth below.
/s/ Lorraine Truten Date: 9/22/95
- --------------------------------------- -----------------------------
Lorraine Truten
Vice President
<PAGE>
MAS FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee and/or
officer of MAS Funds (the "Fund"), a business trust organized under the laws of
The Commonwealth of Pennsylvania, hereby constitutes and appoints Lorraine
Truten, Douglas W. Kugler, and John H. Grady, Jr., and each of them singly, his
or her true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution, to sign for him or her and in his or her name,
place and stead, and in the capacity indicated below, to sign any or all
amendments (including post-effective amendments) to the Fund's Registration
Statement on Form N-1A under the provisions of the Investment Company Act of
1940 and the Securities Act of 1933, each such Act as amended, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, acting alone, full power and
authority to do and perform each and every act and thing requisite or necessary
to be done in and about the premises, as fully to all intents and purposes as he
or she might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents or any of them, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand
and seal as of the date set forth below.
/s/ C. Oscar Morong, Jr. Date: 9/30/95
- --------------------------------------- -----------------------------
C. Oscar Morong, Jr.
Trustee
<PAGE>
MAS FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee and/or
officer of MAS Funds (the "Fund"), a business trust organized under the laws of
The Commonwealth of Pennsylvania, hereby constitutes and appoints Lorraine
Truten, Douglas W. Kugler, and John H. Grady, Jr., and each of them singly, his
or her true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution, to sign for him or her and in his or her name,
place and stead, and in the capacity indicated below, to sign any or all
amendments (including post-effective amendments) to the Fund's Registration
Statement on Form N-1A under the provisions of the Investment Company Act of
1940 and the Securities Act of 1933, each such Act as amended, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, acting alone, full power and
authority to do and perform each and every act and thing requisite or necessary
to be done in and about the premises, as fully to all intents and purposes as he
or she might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents or any of them, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand
and seal as of the date set forth below.
/s/ Thomas L. Bennett Date: 9/21/95
- --------------------------------------- -----------------------------
Thomas L. Bennett
Chairman of the Board of Trustees
<PAGE>
MAS FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee and/or
officer of MAS Funds (the "Fund"), a business trust organized under the laws of
The Commonwealth of Pennsylvania, hereby constitutes and appoints Lorraine
Truten, Douglas W. Kugler, and John H. Grady, Jr., and each of them singly, his
or her true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution, to sign for him or her and in his or her name,
place and stead, and in the capacity indicated below, to sign any or all
amendments (including post-effective amendments) to the Fund's Registration
Statement on Form N-1A under the provisions of the Investment Company Act of
1940 and the Securities Act of 1933, each such Act as amended, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, acting alone, full power and
authority to do and perform each and every act and thing requisite or necessary
to be done in and about the premises, as fully to all intents and purposes as he
or she might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents or any of them, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand
and seal as of the date set forth below.
/s/ James D. Schmid Date: 9/21/95
- --------------------------------------- -----------------------------
James D. Schmid
President
