<PAGE>
MAS Funds
Supplement dated August 28, 1996 to the Adviser
Class Prospectus dated January 30, 1996
This supplement to the Adviser Class Prospectus dated January 30, 1996,
supersedes and replaces any existing supplements to the prospectus. This
supplement provides new and additional information beyond that contained in the
Prospectus and should be read in conjunction with the Prospectus. Unless
otherwise indicated in this supplement, defined terms have the same meaning as
in the Prospectus.
Mid Cap Growth Portfolio
The Portfolio Summary is revised to reflect the following:
Approach The Adviser uses a four-part process combining
quantitative, fundamental, and valuation analysis
with a strict sales discipline. Stocks that pass an
initial screen based on estimate revisions undergo
detailed fundamental research. Valuation analysis is
used to eliminate the most overvalued securities.
Holdings are sold when their estimate-revision scores
fall to unacceptable levels, when fundamental
research uncovers unfavorable trends, or when their
valuations exceed the level that the Adviser believes
is reasonable given their growth prospects.
Other Changes
The following represents additional information pertaining to all or certain MAS
Funds portfolios, as indicated:
RISK FACTORS
o Each portfolio may invest in certain instruments such as Forwards,
certain types of Futures & Options, certain types of Mortgage
Securities and When-Issued Securities which require the portfolio to
segregate some or all of its cash or liquid securities to cover its
obligations pursuant to such instruments. As asset segregation reaches
certain levels, a portfolio may lose flexibility in managing its
investments properly, responding to shareholder redemption requests, or
meeting other obligations and may be forced to sell other securities
that it wanted to retain or to realize unintended gains or losses.
Investment Limitations
(g) Each portfolio may pledge, mortgage or hypothecate assets in an amount
up to 50% of its total assets, provided that each portfolio may also
segregate assets without limit in order to comply with the requirements
of Section 18(f) of the Investment Company Act of 1940, as
<PAGE>
amended, and applicable interpretations thereof published from time to
time by the Securities and Exchange Commission and its staff.
Prospectus Glossary
Investments
The definitions of CMOs, Forwards, Mortgage Securities, Swaps, and When-Issued
Securities are hereby revised as follows:
CMOs: The third paragraph of the definition is deleted and the following is
inserted in its place:
Like bonds in general, mortgage-backed securities will generally
decline in price when interests rates rise. Due to prepayment risk,
rising interest rates also tend to discourage refinancings of home
mortgages with the result that the average life of mortgage securities
held by a portfolio may be lengthened. This extension of average life
causes the market price of the securities to decrease further than if
their average lives were fixed. In part to compensate for these risks,
mortgages will generally offer higher yields than comparable bonds.
However, when interest rates fall, mortgages may not enjoy as large a
gain in market value due to prepayment risk because additional mortgage
prepayments must be reinvested at lower interest rates.
Forwards: The first paragraph of the definition is deleted and replaced with the
following:
--Forward Foreign Currency Contracts: are Derivatives which are used to
protect against uncertainty in the level of future foreign exchange
rates. A forward foreign currency 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 do
not eliminate fluctuations caused by changes in the local currency
prices of the securities, but rather, they establish an exchange rate
at a future date. Also, although such contracts can 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.
The last sentence of the second paragraph of the definition is hereby
amended to read as follows:
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 liquid securities or cash equal to the portfolio's obligations in
a segregated account throughout the duration of the contract.
The fourth paragraph of the definition is hereby deleted and replaced
with the following:
There is a risk in adopting a transaction hedge or position hedge to
the extent that the value of a security denominated in foreign currency
is not exactly matched with a portfolio's
<PAGE>
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. For proxy hedges, transaction hedges, or a synthetic position,
there is an additional risk in that those transactions create residual
foreign currency exposure. When a portfolio enters into a forward
contract for purposes of creating a position hedge, transaction hedge,
cross hedge, or a synthetic security, it will generally be required to
hold liquid securities or cash in a segregated account with a daily
value at least equal to its obligation under the forward contract.
Mortgage Securities: The second paragraph of the definition is hereby deleted.
The following is hereby inserted after the last paragraph of the definition:
Possible Risks: 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. Like bonds in general, mortgage-backed securities will
generally decline in price when interest rates rise. Due to prepayment
risk, rising interest rates also tend to discourage refinancings of
home mortgages, with the result that the average life of mortgage
securities held by a portfolio may be lengthened. This extension of
average life causes the market price of the securities to decrease
further than if their average lives were fixed. However, when interest
rates fall, mortgages may not enjoy as large a gain in market value due
to prepayment risk because additional mortgage prepayments must be
reinvested at lower interest rates. 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.
Swaps: Delete the second sentence of the second paragraph of the definition and
replace it with the following:
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 or liquid
securities.
When-Issued Securities: The last sentence of the definition is hereby deleted
and replaced with the following:
A portfolio will maintain with the custodian a separate account with a
segregated account consisting of cash or liquid securities in an amount
at least equal to these commitments.
<PAGE>
State and Local Taxes: The second sentence is hereby deleted and replaced with
the following:
The Fund will provide Pennsylvania taxable values on a per share basis
upon request.
Portfolio Management
The following lists changes in the investment professionals managing certain
portfolios:
Balanced Portfolio: Thomas L. Bennett, John D. Connolly, Gary G.
Schlarbaum, Horacio A. Valeiras and Richard B. Worley
High Yield Portfolio: Robert E. Angevine, Thomas L. Bennett and Stephen
F. Esser
Mid Cap Growth Portfolio: Arden C. Armstrong and Abhi Y. Kanitkar
Value Portfolio: Richard M. Behler, Robert J. Marcin and A. Morris
Williams, Jr.
A description of business experience during the past five years follows
for those investment professionals listed for the first time:
Robert E. Angevine, Portfolio Manager, joined Morgan Stanley Asset
Management in 1988. He assumed responsibility for the High Yield
Portfolio in 1996.
Richard M. Behler, Portfolio Manager, joined MAS in 1995. He served as
a Portfolio Manager from 1992 through 1995 for Moore Capital Management
and as Senior Vice President for Merrill Lynch Economics from 1987
through 1992. He assumed responsibility for the Value Portfolio in
1996.
Abhi Y. Kanitkar, Equity Analyst, joined MAS in 1994. He served as an
Investment Analyst from 1993 through 1994 for Newbold's Asset
Management and as Director & Investment Analyst from 1990 through 1993
for Kanitkar Investment Services, Inc. He assumed responsibility for
the Mid Cap Growth Portfolio in 1996.
Trustees and Officers
David P. Eastburn retired as a Trustee of MAS Funds in February, 1996
Vincent R. McLean, Trustee; Director, Alexander and Alexander Services, Inc.,
Director, Legal and General America, Inc., Director, William Penn Life Insurance
Company of New York; formerly Executive Vice President, Chief Financial Officer,
Director and Member of the Executive Committee of Sperry Corporation (now part
of Unisys Corporation).
<PAGE>
PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE.
<PAGE>
MAS Funds
Supplement dated August 28, 1996 to the Investment
Class Prospectus dated January 30, 1996, as revised April 30, 1996
This supplement to the Investment Class Prospectus dated January 30, 1996, as
revised April 30, 1996 supersedes and replaces any existing supplements to the
prospectus. This supplement provides new and additional information beyond that
contained in the Prospectus and should be read in conjunction with the
Prospectus. Unless otherwise indicated in this supplement, defined terms have
the same meaning as in the Prospectus.
Balanced Investing Program
All references to the Balanced Investing Program in the Prospectus are hereby
deleted.
Other Changes
The following represents additional information pertaining to all or certain MAS
Funds portfolios, as indicated:
RISK FACTORS
o Each portfolio (except the Cash Reserves Portfolio) may invest in
certain instruments such as Forwards, certain types of Futures &
Options, certain types of Mortgage Securities and When-Issued
Securities which require the portfolio to segregate some or all of its
cash or liquid securities to cover its obligations pursuant to such
instruments. As asset segregation reaches certain levels, a portfolio
may lose flexibility in managing its investments properly, responding
to shareholder redemption requests, or meeting other obligations and
may be forced to sell other securities that it wanted to retain or to
realize unintended gains or losses.
Prospectus Glossary
Investments
The definitions of CMOs, Forwards, Mortgage Securities, Swaps, and When-Issued
Securities are hereby revised as follows:
CMOs: The third paragraph of the definition is deleted and the following is
inserted in its place:
Like bonds in general, mortgage-backed securities will generally
decline in price when interests rates rise. Due to prepayment risk,
rising interest rates also tend to discourage refinancings of home
mortgages with the result that the average life of mortgage securities
held by a portfolio may be lengthened. This extension of average life
causes the market price of the securities to decrease further than if
their average lives were fixed. In part to
<PAGE>
compensate for these risks, mortgages will generally offer higher
yields than comparable bonds. However, when interest rates fall,
mortgages may not enjoy as large a gain in market value due to
prepayment risk because additional mortgage prepayments must be
reinvested at lower interest rates.
Forwards: The first paragraph of the definition is deleted and replaced with the
following:
--Forward Foreign Currency Contracts: are Derivatives which are used to
protect against uncertainty in the level of future foreign exchange
rates. A forward foreign currency 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 do
not eliminate fluctuations caused by changes in the local currency
prices of the securities, but rather, they establish an exchange rate
at a future date. Also, although such contracts can 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.
The last sentence of the second paragraph of the definition is hereby
amended to read as follows:
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 liquid securities or cash equal to the portfolio's obligations in
a segregated account throughout the duration of the contract.
The fourth paragraph of the definition is hereby deleted and replaced
with the following:
There is a risk in adopting a transaction hedge or position hedge to
the extent that the value of a security denominated in 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. For proxy hedges,
transaction hedges, or a synthetic position, there is an additional
risk in that those transactions create residual foreign currency
exposure. When a portfolio enters into a forward contract for purposes
of creating a position hedge, transaction hedge, cross hedge, or a
synthetic security, it will generally be required to hold liquid
securities or cash in a segregated account with a daily value at least
equal to its obligation under the forward contract.
Mortgage Securities: The second paragraph of the definition is hereby deleted.
The following is hereby inserted after the last paragraph of the definition:
Possible Risks: 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. Like bonds in general, mortgage-backed securities will
generally decline in price when interest rates rise. Due to prepayment
risk, rising interest rates also tend to
<PAGE>
discourage refinancings of home mortgages, with the result that the
average life of mortgage securities held by a portfolio may be
lengthened. This extension of average life causes the market price of
the securities to decrease further than if their average lives were
fixed. However, when interest rates fall, mortgages may not enjoy as
large a gain in market value due to prepayment risk because additional
mortgage prepayments must be reinvested at lower interest rates. 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.
Swaps: Delete the second sentence of the second paragraph of the definition and
replace it with the following:
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 or liquid
securities.
When-Issued Securities: The last sentence of the definition is hereby deleted
and replaced with the following:
A portfolio will maintain with the custodian a separate account with a
segregated account consisting of cash or liquid securities in an amount
at least equal to these commitments.
State and Local Taxes: The second sentence is hereby deleted and replaced with
the following:
The Fund will provide Pennsylvania taxable values on a per share basis
upon request.
Portfolio Management
The following lists changes in the investment professionals managing certain
portfolios:
Balanced Portfolio: Thomas L. Bennett, John D. Connolly, Gary G.
Schlarbaum, Horacio A. Valeiras and Richard B. Worley
Cash Reserves Portfolio: Abigail Jones Feder and Ellen D. Harvey
Equity Portfolio: Arden C. Armstrong, John D. Connolly, Timothy G.
Connors, Nicholas J. Kovich, Robert J. Marcin and Gary G. Schlarbaum
High Yield Portfolio: Robert E. Angevine, Thomas L. Bennett and Stephen
F. Esser
International Equity Portfolio: Hassan Elmasry, Horacio A. Valeiras and
Dean Williams
<PAGE>
Multi-Asset-Class Portfolio: Thomas L. Bennett, John D. Connolly, J.
David Germany, Gary G. Schlarbaum, Horacio A. Valeiras and Richard B.
Worley
Mid Cap Value Portfolio: Bradley S. Daniels, Gary D. Haubold, Gary G.
Schlarbaum, and William B. Gerlach
Value Portfolio: Richard M. Behler, Robert J. Marcin and A. Morris
Williams, Jr.
A description of business experience during the past five years follows
for those investment professionals listed for the first time:
Robert E. Angevine, Portfolio Manager, joined Morgan Stanley Asset
Management in 1988. He assumed responsibility for the High Yield
Portfolio in 1996.
Richard M. Behler, Portfolio Manager, joined MAS in 1995. He served as
a Portfolio Manager from 1992 through 1995 for Moore Capital Management
and as Senior Vice President for Merrill Lynch Economics from 1987
through 1992. He assumed responsibility for the Value Portfolio in
1996.
Hassan Elmasry, Portfolio Manager, joined MAS in 1995. He served as
First Vice President & International Equity Portfolio Manager from 1987
through 1995 for Mitchell Hutchins Asset Management. He assumed
responsibility for the International Equity Portfolio in 1996.
Abigail Jones Feder, Portfolio Manager, joined Morgan Stanley in 1985.
She assumed responsibility for the Cash Reserves Portfolio in 1996.
William B. Gerlach, Equity Analyst, joined MAS in 1991. He served as an
applications software programmer for Alphametrics Corporation from 1987
to 1991. He assumed responsibility for the Mid Cap Value Portfolio in
1996.
Closed Holidays: The description of weekdays on which the Fund is closed for
business is changed to reflect that the Cash Reserves Portfolio will be open for
business on Martin Luther King Day, Columbus Day, and Veteran's Day.
<PAGE>
Trustees and Officers
David P. Eastburn retired as a Trustee of MAS Funds in February, 1996
Vincent R. McLean, Trustee; Director, Alexander and Alexander Services, Inc.,
Director, Legal and General America, Inc., Director, William Penn Life Insurance
Company of New York; formerly Executive Vice President, Chief Financial Officer,
Director and Member of the Executive Committee of Sperry Corporation (now part
of Unisys Corporation).
PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE.
<PAGE>
MAS Funds
Supplement dated August 28, 1996 to the Small Cap Value
Prospectus dated January 30, 1996
This supplement to the Small Cap Value Prospectus dated January 30, 1996,
supersedes and replaces any existing supplements to the prospectus. This
supplement provides new and additional information beyond that contained in the
Prospectus and should be read in conjunction with the Prospectus. Unless
otherwise indicated in this supplement, defined terms have the same meaning as
in the Prospectus.
RISK FACTORS
o The portfolio may invest in certain instruments such as Forwards,
certain types of Futures & Options, certain types of Mortgage
Securities and When-Issued Securities which require the portfolio to
segregate some or all of its cash or liquid securities to cover its
obligations pursuant to such instruments. As asset segregation reaches
certain levels, the portfolio may lose flexibility in managing its
investments properly, responding to shareholder redemption requests, or
meeting other obligations and may be forced to sell other securities
that it wanted to retain or to realize unintended gains or losses.
Investment Limitations
(g) The portfolio may pledge, mortgage or hypothecate assets in an amount
up to 50% of its total assets, provided that the portfolio may also
segregate assets without limit in order to comply with the requirements
of Section 18(f) of the Investment Company Act of 1940, as amended, and
applicable interpretations thereof published from time to time by the
Securities and Exchange Commission and its staff.
Prospectus Glossary
Investments
The definitions of Forwards, Swaps, and When-Issued Securities are hereby
revised as follows:
Forwards: The first paragraph of the definition is deleted and replaced with the
following:
--Forward Foreign Currency Contracts: are Derivatives which are used to
protect against uncertainty in the level of future foreign exchange
rates. A forward foreign currency 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 do
not eliminate fluctuations caused by changes in the local currency
prices of the securities, but rather, they establish an exchange rate
at a future
<PAGE>
date. Also, although such contracts can 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.
The last sentence of the second paragraph of the definition is hereby
amended to read as follows:
The portfolio's entry into forward contracts, as well as any use of
cross or proxy hedging techniques will generally require the portfolio
to hold liquid securities or cash equal to the portfolio's obligations
in a segregated account throughout the duration of the contract.
The fourth paragraph of the definition is hereby deleted and replaced
with the following:
There is a risk in adopting a transaction hedge or position hedge to
the extent that the value of a security denominated in foreign currency
is not exactly matched with the portfolio's obligation under the
forward contract. On the date of maturity, the 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. For proxy
hedges, transaction hedges, or a synthetic position, there is an
additional risk in that those transactions create residual foreign
currency exposure. When the portfolio enters into a forward contract
for purposes of creating a position hedge, transaction hedge, cross
hedge, or a synthetic security, it will generally be required to hold
liquid securities or cash in a segregated account with a daily value at
least equal to its obligation under the forward contract.
Swaps: Delete the second sentence of the second paragraph of the definition and
replace it with the following:
The 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
or liquid securities.
When-Issued Securities: The last sentence of the definition is hereby deleted
and replaced with the following:
The portfolio will maintain with the custodian a separate account with
a segregated account consisting of cash or liquid securities in an
amount at least equal to these commitments.
State and Local Taxes: The second sentence is hereby deleted and replaced with
the following:
The Fund will provide Pennsylvania taxable values on a per share basis
upon request.
Portfolio Management
<PAGE>
The list of investment professionals managing the Small Cap Value Portfolio is
changed to read as follows:
Bradley S. Daniels, Gary D. Haubold, Gary G. Schlarbaum, and William B.
Gerlach
A description of business experience during the past five years follows
for those investment professionals listed for the first time:
William B. Gerlach, Equity Analyst, joined MAS in 1991. He served as an
applications software programmer for Alphametrics Corporation from 1987
to 1991. He assumed responsibility for the Small Cap Value Portfolio in
1996.
Trustees and Officers
David P. Eastburn retired as a Trustee of MAS Funds in February, 1996
Vincent R. McLean, elected Trustee of MAS Funds in February, 1996; Retired;
Director, Alexander and Alexander Services, Inc., Director, Legal and General
America, Inc., Director, William Penn Life Insurance Company of New York;
formerly Executive Vice President, Chief Financial Officer, Director and Member
of the Executive Committee of Sperry Corporation (now part of Unisys
Corporation).
PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE.
<PAGE>
MAS Funds
Supplement dated August 28, 1996 to the Advisory Foreign Fixed Income
and Advisory Mortgage Prospectus dated January 30, 1996
This supplement to the Advisory Foreign Fixed Income and Advisory Mortgage
Prospectus dated January 30, 1996, supersedes and replaces any existing
supplements to the prospectus. This supplement provides new and additional
information beyond that contained in the Prospectus and should be read in
conjunction with the Prospectus. Unless otherwise indicated in this supplement,
defined terms have the same meaning as in the Prospectus.
RISK FACTORS
o Each portfolio may invest in certain instruments such as Forwards,
certain types of Futures & Options, certain types of Mortgage
Securities and When-Issued Securities which require the portfolio to
segregate some or all of its cash or liquid securities to cover its
obligations pursuant to such instruments. As asset segregation reaches
certain levels, a portfolio may lose flexibility in managing its
investments properly, responding to shareholder redemption requests, or
meeting other obligations and may be forced to sell other securities
that it wanted to retain or to realize unintended gains or losses.
Investment Limitations
(g) Each portfolio may pledge, mortgage or hypothecate assets in an amount
up to 50% of its total assets, provided that each portfolio may also
segregate assets without limit in order to comply with the requirements
of Section 18(f) of the Investment Company Act of 1940, as amended, and
applicable interpretations thereof published from time to time by the
Securities and Exchange Commission and its staff.
Prospectus Glossary
Investments
The definitions of CMOs, Forwards, Mortgage Securities, Swaps, and When-Issued
Securities are hereby revised as follows:
CMOs: The third paragraph of the definition is deleted and the following is
inserted in its place:
Like bonds in general, mortgage-backed securities will generally
decline in price when interests rates rise. Due to prepayment risk,
rising interest rates also tend to discourage refinancings of home
mortgages with the result that the average life of mortgage securities
held by a portfolio may be lengthened. This extension of average life
causes the market price of the securities to decrease further than if
their average lives were fixed. In part to compensate for these risks,
mortgages will generally offer higher yields than comparable
<PAGE>
bonds. However, when interest rates fall, mortgages may not enjoy as
large a gain in market value due to prepayment risk because additional
mortgage prepayments must be reinvested at lower interest rates.
Forwards: The first paragraph of the definition is deleted and replaced with the
following:
--Forward Foreign Currency Contracts: are Derivatives which are used to
protect against uncertainty in the level of future foreign exchange
rates. A forward foreign currency 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 do
not eliminate fluctuations caused by changes in the local currency
prices of the securities, but rather, they establish an exchange rate
at a future date. Also, although such contracts can 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.
The last sentence of the second paragraph of the definition is hereby
amended to read as follows:
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 liquid securities or cash equal to the portfolio's obligations in
a segregated account throughout the duration of the contract.
The fourth paragraph of the definition is hereby deleted and replaced
with the following:
There is a risk in adopting a transaction hedge or position hedge to
the extent that the value of a security denominated in 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. For proxy hedges,
transaction hedges, or a synthetic position, there is an additional
risk in that those transactions create residual foreign currency
exposure. When a portfolio enters into a forward contract for purposes
of creating a position hedge, transaction hedge, cross hedge, or a
synthetic security, it will generally be required to hold liquid
securities or cash in a segregated account with a daily value at least
equal to its obligation under the forward contract.
Mortgage Securities: The second paragraph of the definition is hereby deleted.
The following is hereby inserted after the last paragraph of the definition:
Possible Risks: 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. Like bonds in general, mortgage-backed securities will
generally decline in price when interest rates rise. Due to prepayment
risk, rising interest rates also tend to discourage refinancings of
home mortgages, with the result that the average life of mortgage
<PAGE>
securities held by a portfolio may be lengthened. This extension of
average life causes the market price of the securities to decrease
further than if their average lives were fixed. However, when interest
rates fall, mortgages may not enjoy as large a gain in market value due
to prepayment risk because additional mortgage prepayments must be
reinvested at lower interest rates. 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.
Swaps: Delete the second sentence of the second paragraph of the definition and
replace it with the following:
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 or liquid
securities.
When-Issued Securities: The last sentence of the definition is hereby deleted
and replaced with the following:
A portfolio will maintain with the custodian a separate account with a
segregated account consisting of cash or liquid securities in an amount
at least equal to these commitments.
State and Local Taxes: The second sentence is hereby deleted and replaced with
the following:
The Fund will provide Pennsylvania taxable values on a per share basis
upon request.
Trustees and Officers
David P. Eastburn retired as a Trustee of MAS Funds in February, 1996
Vincent R. McLean, Trustee; Director, Alexander and Alexander Services, Inc.,
Director, Legal and General America, Inc., Director, William Penn Life Insurance
Company of New York; formerly Executive Vice President, Chief Financial Officer,
Director and Member of the Executive Committee of Sperry Corporation (now part
of Unisys Corporation).
PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE.
