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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 15, 1996
File No. 2-89729
File No. 811-3980
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
POST-EFFECTIVE AMENDMENT NO. 42 [x]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 45 [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
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (610) 940-5065
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Ms. Lorraine Truten
One Tower Bridge
West Conshohocken, PA 19428-068
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(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
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It is proposed that this filing will become effective (check appropriate box)
Immediately upon filing pursuant to paragraph (b), or
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On [date] pursuant to paragraph (b), or
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60 days after filing pursuant to paragraph (a), or
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On [date] pursuant to paragraph (a) of Rule 485, or
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X 75 days after filing pursuant to paragraph (a) of Rule 485.
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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. 42
CROSS REFERENCE SHEET
N-1A ITEM NO. LOCATION
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PART A
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
Summary; Prospectus Glossary:
Strategies and Investments; Risk
Factors; Fund Expenses; General
Shareholder Information; Other
Information
Item 5. Management of the Fund Investment Adviser; 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
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N-1A ITEM NO. LOCATION
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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 Adviser; 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.
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<PAGE>
LOGO
MAS FUNDS
PROSPECTUS
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Balanced Plus Portfolio
, 1996
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-seven portfolios, one of which is described in this
Prospectus. The Balanced Plus Portfolio (the "portfolio") operates
as a separate diversified investment company and its investment
objective is described with a summary of investment policies as
referenced below. This Prospectus offers the Institutional Class
Shares of the portfolio. The Fund also offers Adviser Class Shares
and Investment Class Shares.
PORTFOLIO PAGE REFERENCE
How to Use This
Prospectus: 2
Prospectus Summary: 3
Prospectus Glossary:
Strategies 9
Investments 12
General Shareholder
Information: 22
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 30, 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.
MILLER
ANDERSON
& SHERRERD, LLP ONE TOWER BRIDGE o WEST CONSHOHOCKEN, PA 19428
<PAGE>
EXPENSE SUMMARY - INSTITUTIONAL CLASS SHARES
The following tables illustrate the various expenses and fees that a
shareholder for the portfolio will incur either directly or indirectly.
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
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Investment Total
Advisory Other Operating
Portfolio Fees Expenses(1) Expenses
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<S> <C> <C> <C> <C>
Balanced Plus Portfolio 0.550% 0.126% 0.676%
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(1) Other Expenses are based on estimates for the current fiscal year.
EXAMPLE
The purpose of this table is to assist in understanding the various expenses
that a shareholder in the 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. Because the Portfolio has
less than 10 months of operations, only 1 and 3 year examples are shown.
<TABLE>
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Portfolio 1 year 3 year
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<S> <C> <C>
Balanced Plus Portfolio $7 $22
</TABLE>
HOW TO USE THIS PROSPECTUS
A PROSPECTUS SUMMARY begins on page 3;
A description of YIELD AND TOTAL RETURN begins on page 5;
GENERAL INFORMATION including INVESTMENT LIMITATIONS pertinent to the
portfolio begins on page 5;
A SUMMARY PAGE for the portfolio's Objective, Policies and Strategies is on
page 8;
The PROSPECTUS GLOSSARY which defines specific Allowable Investments,
Policies and Strategies printed in bold type throughout this Prospectus
begins on page 9;
GENERAL SHAREHOLDER INFORMATION begins on page 22.
2
<PAGE>
PROSPECTUS SUMMARY
The Balanced Plus 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 common stocks of domestic and foreign
issuers and fixed-income securities.
RISK FACTORS: Prospective investors in the Fund should consider the following
factors as they apply to the portfolio's allowable investments and policies.
See the Prospectus Glossary for more information on terms printed in bold
type:
o The 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 The 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;
o Investments in common stocks are subject to market risks which may cause
their prices to fluctuate over time. Changes in the value of portfolio
securities will not necessarily affect cash income derived from these
securities, but will affect the Portfolio's net asset value.
o Securities purchased on a When-Issued basis may decline or appreciate in
market value prior to their actual delivery to the portfolio;
o The 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 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 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, U.S. government securities, or other liquid high grade
Fixed-Income 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.
3
<PAGE>
HOW TO INVEST: Institutional Class Shares of the portfolio are available to
clients of the Adviser with combined investments of $5,000,000 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 Fund also offers Investment and Adviser 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 the 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.
See Redemption of Shares and Shareholder Services.
THE FUND'S INVESTMENT ADVISER: Miller Anderson & Sherrerd, LLP (the "Adviser"
or "MAS") is a Pennsylvania limited liability partnership founded in 1969,
wholly owned by indirect subsidiaries of the Morgan Stanley Group, Inc. 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 $36 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. Chase Global Funds Services
Company, a subsidiary of The Chase Manhattan Bank, N.A., serves as Transfer
Agent to the Fund. See Administrative Services.
4
<PAGE>
YIELD AND TOTAL RETURN:
From time to time the portfolio 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 the 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 the 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, the portfolio may also quote an
aggregate total return for various periods representing the cumulative change
in value of an investment in the 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 the 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, therefore 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 portfolio may also advertise or quote a yield
which is gross of expenses.
The performance of the 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, Investment Class Shares and
Adviser Class Shares differ because of any class specific expenses paid by
each class and the shareholder servicing fees charged to Investment Class
Shares and distribution fees charged to Adviser 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:
Objectives: The 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 the portfolio may
not be as great as that achieved by another portfolio that can invest in a
broader range of securities. The objective of the portfolio is fundamental
and may only be changed with approval of holders of a majority of the shares
of the portfolio. The achievement of the portfolio's objective cannot be
assured.
Suitability: The portfolio is 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
portfolio is designed principally for the investments of tax-exempt fiduciary
investors who are entrusted with the
5
<PAGE>
responsibility of investing assets held for the benefit of others. Since such
investors are not subject to Federal income taxes, securities transactions
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.
Securities Lending: The 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, the 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: The portfolio 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: The Adviser manages the portfolio 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 portfolio will
not trade for short-term profits, but when circumstances warrant, investments
may be sold without regard to the length of time held. The portfolio's annual
turnover rate is not expected to exceed 100% with respect to Equity
Securities. The annual turnover rate with respect to the fixed income portion
of the portfolio will ordinarily exceed 100% due to changes in portfolio
duration, yield curve strategy or commitments to forward delivery mortgage-
backed securities.
High rates of portfolio turnover necessarily result in correspondingly
heavier brokerage and portfolio trading costs which are paid by the
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 distribution resulting from such
gains are considered ordinary income for federal income tax purposes.
Cash Equivalents/Temporary Defensive Investing: Although the portfolio
intends to remain substantially fully invested, a small percentage of the
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
the portfolio. In addition, the 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. The portfolio will not concentrate investments in any one industry.
Investment Limitations: The 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, the 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.
(b) with respect to 75% of its assets, the 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.
6
<PAGE>
(c) the 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) the 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) utility companies will be
divided according to their services, for example, gas, gas transmission,
electric and telephone will each be considered a separate industry; (3)
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 and (4) asset- backed
securities will be classified according to the underlying assets securing
such securities.
(e) the 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) the 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) 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.
(h) the 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 the 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.
7
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Balanced Plus 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 of domestic and foreign issuers and fixed-income
securities.
Approach: The Adviser determines the mix of investments in
domestic and foreign equity and fixed-income 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. When the Adviser believes it to be in the best
interests of the fund, opportunistic investments in both
the high yield and international fixed-income markets
will be made.
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 At least 25% invested
in senior Fixed-Income Securities
Domestic Equity
Capitalization: Generally greater than $1 billion
Quality Specifications: None
Maturity and Duration: Average weighted maturity generally greater than 5 years
<TABLE>
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<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>
Comparative Index: A weighted blend of quarterly returns compiled by the
Adviser using: 54% S&P 500 Index 40% Salomon Broad
Investment Grade Index 6% MSCI World Ex U.S. Index
Strategies:
Asset Allocation Management
Fixed Income Management and Asset Allocation
Maturity and Duration Management
Value Investing
Foreign Fixed Income Investing
Core Equity Investing
International Equity Investing
Emerging Markets Investing
High Yield Investing
Foreign Investing
Mortgage Investing
8
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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 the
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. The portfolio will focus its
investments on those emerging market countries in which the Adviser believes
the potential for market appreciation outweighs these risks and 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: 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. 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.
9
<PAGE>
Foreign Fixed Income Investing: The Adviser invests 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 Foreign
Bonds and Foreign Equities involves certain special considerations which are
not typically associated with investing in domestic securities.
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 securities than about U.S. securities.
Foreign Bonds and Foreign Equities 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.
Since Foreign Bonds and Foreign Equities may be denominated in foreign
currencies, and since the portfolio may temporarily hold uninvested reserves
in bank deposits of foreign currencies prior to reinvestment or conversion to
U.S. dollars, the 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.
Although the 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 the 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 the portfolio receives from the
companies comprising the portfolio's investments.
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 the 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.
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 the portfolio may experience sudden and
substantial price declines. This lower liquidity might have an effect on the
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, the portfolio may find it difficult
to value its securities accurately. The 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.
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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, the
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. The portfolio seeks to diversify
investments broadly among both developed and newly industrializing foreign
countries. Where appropriate, the 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 the portfolio's
investments 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 the Adviser's
fixed-income strategy.
About Maturity and Duration: 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.
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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: At times it is anticipated that greater than 50% of the
fixed-income securities held by the portfolio 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 Association (FNMA), other government
agencies, and private issuers. It is expected that the portfolio's primary
emphasis will be on mortgage-backed securities issued by the various
Government-related organizations. However, the 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.
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 the 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
The portfolio may invest in the securities defined below in accordance with
its 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.
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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).
The 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.
The portfolio 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) The 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) 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
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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.
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. The portfolio will buy
Corporates subject to any quality constraints. If a security held by the
portfolio is down-graded, the portfolio may retain the security if the
Adviser deems retention of the security to be in the best interests of the
portfolio.
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 of assets that are not
listed in the applicable Allowable Investments for the portfolio. Any
applicable limitations are described under each investment definition. The
portfolio may enter into over-the-counter Derivatives transactions (Swaps,
Caps, Floors, Puts, etc., but excluding CMOs, Forwards, Futures and Options,
and SMBS) 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. Derivatives include, but
are not limited to, CMOs, Forwards, Futures and Options, SMBS, Structured
Investments, Structured Notes and Swaps. See the portfolio's listing of
Allowable Investments to determine which of these the portfolio may hold.
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.
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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.
See the portfolio's listing of Allowable 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 the portfolio's listing of Allowable Investments to
determine which securities the 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 Bonds: are Fixed-Income Securities denominated in foreign currency
and issued and traded primarily outside of the U.S., 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.
Foreign Currency: The portfolio will regularly transact security purchases
and sales in foreign currencies. The portfolio 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 denominated in foreign currency and traded primarily in
non-U.S. markets. Investing in foreign companies involves certain special
considerations which are not typically associated with investing in U.S.
companies (see Foreign Investing).
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 the 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.
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The 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 portfolio 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 the portfolio has or
expects to have portfolio exposure. The portfolio 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. 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 high- grade, liquid securities or cash equal to the
portfolio's obligations in a segregated account throughout the duration of
the contract.
The 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, the
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, the 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 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. When the 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.
The 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 the portfolio and the prices of futures and options
relating to the stocks, bonds or futures contracts purchased or sold by the
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 the 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 the 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
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agencies. The following are excerpts from the Moody's and Standard & Poor's
definitions for speculative-grade debt obligations:
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 the 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 portfolio is 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 portfolio 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 portfolio from acquiring in the
aggregate more than 10% of the outstanding voting shares of any registered
closed-end investment company.
To the extent the portfolio invests a portion of its assets in Investment
Companies, those assets will be subject to the expenses of the investment
company as well as to the expenses of the portfolio itself. The portfolio 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
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companies listed and traded on the stock exchanges in these countries is
permitted by certain emerging market countries through investment funds. The
portfolio is subject to applicable law as discussed under Investment
Restrictions and 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. The portfolio 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.
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.
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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.
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 portfolio 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 the 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 its value, including accrued interest, always
equals or exceeds the repurchase price.
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Pursuant to an order issued by the Securities and Exchange Commission, the
portfolio may pool its daily uninvested cash balance with other portfolios of
MAS Funds. By entering into repurchase agreements on a joint basis, it is
expected that the portfolio will incur lower transaction costs and
potentially obtain higher rates of interest on such repurchase agreements.
The portfolio's participation in the income from jointly purchased repurchase
agreements will be based on the portfolio's percentage share in the total
repurchase 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.
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 the portfolio's yield to maturity. If the underlying
mortgage assets experience greater than anticipated prepayments of principal,
the 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 the 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. The 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 the 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,
the portfolio may agree to swap the return generated by a fixed-income index
for
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the return generated by a second fixed-income index. The currency swaps in
which the portfolio may enter will generally involve an agreement to pay
interest streams in one currency based on a specified index in exchange for
receiving interest streams denominated in another currency. Such swaps may
involve initial and final exchanges that correspond to the agreed upon
national amount.
The 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 the portfolio receiving or paying, as
the case may be, only the net amount of the two returns. 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, U.S. Government securities, or high grade debt
obligations. The 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 the
portfolio is contractually obligated to make. If the other party to an
interest rate or total rate of return swap defaults, the portfolio's risk of
loss consists of the net amount of interest payments that the 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, the 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 portfolio 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.
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 the portfolio in a when-issued transaction until the
portfolio receives payment or delivery from the other party to the
transaction. Although the 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. The 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 OF SHARES
Institutional Class Shares are available to clients of the Adviser with
combined investments of $5,000,000 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 the portfolio may be purchased at the net asset
value per share next determined after receipt of the purchase order. The
portfolio determines its net asset value as described under Other
Information- Valuation of Shares each day that the portfolio is 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 contacting MAS Funds' Client Services Group at 1-800-354-8185,
One Tower Bridge, Suite 1150, P.O. Box 868, West Conshohocken, Pennsylvania
19428-0868.
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. Please note that purchases made
by check in the 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 purchasing shares by
wire.
Initial Purchase by Wire: Subject to acceptance by the Fund, Institutional
Class Shares of the portfolio may also be purchased by wiring Federal Funds
to the Fund's Custodian Bank, The Chase Manhattan Bank, N.A. (see
instructions below). A completed Account Registration Form should be
forwarded to MAS Funds' Client Services Group in advance of the wire.
Notification must be given to MAS Funds' Client Services Group at
1-800-354-8185 prior to the determination of net asset value. Institutional
Class Shares will be purchased at the net asset value per share next
determined after receipt of the purchase order. (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)
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 MAS Funds' Client Services Group at
the address noted under Initial Investments by Mail. Investments made by
check must indicate account number, account name and portfolio name.
Additional investments may also be made by wiring Federal Funds to the
Custodian Bank as outlined above. Shares will be purchased at the net asset
value per share next determined after receipt of the purchase order.
Notification must be given to MAS Fund's Client Services Group at
1-800-354-8185 prior to the determination of net asset value.
Other Purchase Information: The Fund reserves the right, in its sole
discretion, to suspend the offering of Institutional Class Shares of the
portfolio 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.
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<PAGE>
Purchases of 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 portfolio 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 portfolio 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 portfolio does
not pay compensation to or receive compensation from Shareholder
Organizations for the sale of Institutional Class Shares.
REDEMPTION OF SHARES
Institutional Class Shares of the 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.
See other Information-Closed Holidays and Valuation of Shares.
By Mail: The 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 Client Services Group, 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 MAS
Funds' Client Services Group 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 MAS Funds' Client Services Group 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 MAS Funds' Client Services Group to ensure that the instructions have been
properly received by the Fund. The original request must be promptly mailed
to MAS Funds, c/o Client Services Group, One Tower Bridge, Suite 1150, P. O.
Box 868, West Conshohocken, PA 19428-0868.
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<PAGE>
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.
Payment of the redemption proceeds will ordinarily be made within three
business days after receipt of an order for a redemption. The portfolio may
suspend the right of redemption or postpone the date of redemption at times
when the NYSE, the Custodian, or the portfolio is closed (see Other
Information-Closed Holidays) 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 portfolio to make payment
wholly or partly in cash, the portfolio may pay the redemption proceeds in
whole or in part by a distribution in-kind of readily marketable securities
held by the 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: The portfolio's Institutional Class Shares may be
exchanged for Institutional Class shares of the Fund's other portfolios 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 Client
Services Group, 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 Client Services Group, 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.
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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 of
the portfolio is determined as of the latter of the close of the NYSE or one
hour after the close of the bond markets (normally 4:00 p.m. Eastern Time) on
each day the portfolio is open for business.
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.
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.
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES:
The portfolio will normally distribute substantially all of its net
investment income to shareholders in the form of quarterly dividends. If the
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 portfolio will 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.
25
<PAGE>
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.
Federal Taxes: The portfolio intends to qualify for taxation as a regulated
investment company under the Code so that the 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 the
portfolio from net investment income will be taxable to shareholders as
ordinary income. 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 the 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 the 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 the portfolio.
Such dividends and distributions may also be subject to state and local
taxes.
Exchanges and redemptions of shares in the 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.
The portfolio intends to declare and pay dividends and capital gain
distributions so as to avoid imposition of the Federal excise tax. To do so,
the 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 the portfolio will be deemed to have been
paid by the 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.
Foreign Income Taxes: Investment income received by the portfolio 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 the portfolio 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 portfolio's
assets to be invested within various countries is not known. The portfolio
intends to operate so as to qualify for treaty reduced rates of tax where
applicable.
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.
26
<PAGE>
TRUSTEES OF THE TRUST: The 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
herein, 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 $36 billion in assets under
management. On January 3, 1996, 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 ("Agreement") with MAS Funds dated as of
January 3, 1996, 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 the Agreement with the Fund, 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, the portfolio pays the Adviser an advisory fee
calculated by applying a quarterly rate, based on an annual percentage rate
of 0.550%, to the portfolio's average daily net assets for the quarter.
27
<PAGE>
PORTFOLIO MANAGEMENT
The investment professionals of MAS who are primarily responsible for the
day-to-day management of the Balanced Plus Portfolio are Thomas L. Bennett,
John D. Connolly, Gary G. Schlarbaum, Horacio A. Valeiras, Richard B. Worley
and the Balanced Plus Portfolio in 1996.
Thomas L. Bennett, Portfolio Manager, 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 1985, the Fixed Income
Portfolio II in 1990, the Special Purpose Fixed Income and Balanced
Portfolios in 1992, the Multi-Asset-Class Portfolio in 1994 and the Balanced
Plus Portfolio in 1996.
John D. Connolly, Portfolio Manager, 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, the Multi-Asset-Class Portfolio in 1994 and the
Balanced Plus Portfolio in 1996.
Gary G. Schlarbaum, Portfolio Manager, 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, Mid Cap Value Portfolios in 1994 and the Balanced Plus
Portfolio in 1996.
Horacio A. Valeiras, Portfolio Manager, 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, the Multi-Asset-Class Portfolio in 1994 and the Balanced Plus Portfolio
in 1996.
Richard B. Worley, Portfolio Manager, 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, the Multi-Asset-Class
Portfolio in 1994 and the Balanced Plus Portfolio in 1996.
ADMINISTRATIVE SERVICES: MAS serves as Administrator to the Fund pursuant to
an Administration Agreement dated as of November 18, 1993. Under its
Administration Agreement with the Fund, MAS receives an annual fee, accrued
daily and payable monthly, of 0.08% of the portfolio's average daily net
assets, and is responsible for all fees payable under any sub-administration
agreements. 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.
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 the portfolio and directs the Adviser to
use its best efforts to obtain the best execution with respect to all
transactions for the portfolio. In doing so, the 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.
28
<PAGE>
Some securities considered for investment by the portfolio may also be
appropriate for other clients served by the Adviser. If purchase or sale of
securities consistent with the investment policies of the 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. MAS may use its broker dealer affiliates, including Morgan Stanley
& Co., a wholly owned subsidiary of Morgan Stanley Group Inc., the parent of
MAS's general partner and limited partner, to carry out the Fund's
transactions, provided the Fund receives brokerage services and commission
rates comparable to those of other broker dealers.
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-seven 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 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.
29
<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; Portfolio Manager,
Miller Anderson & Sherrerd, LLP; Director, MAS Fund Distribution, Inc.
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.
Vincent R. McLean, elected Trustee of MAS Funds in February, 1996;
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).
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; Head of Mutual Funds, 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; Partner, Morgan, Lewis & Bockius, LLP;
formerly Attorney, Ropes & Gray.
30
<PAGE>
LOGO
MAS FUNDS
ACCOUNT REGISTRATION FORM
MAS Fund Distribution, Inc.
General Distribution Agent
<TABLE>
<S> <C>
/1/ | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
REGISTRATION/PRIMARY -------------------------------------------------------------------------------------------------------
MAILING ADDRESS | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
-------------------------------------------------------------------------------------------------------
Confirmations and month-end Attention | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
statements will be mailed -------------------------------------------------------------------------------------------
to this address. Street or P.O. Box | | | | | | | | | | | | | | | | | | | | | | | | | | | |
----------------------------------------------------------------------------------
City | | | | | | | | | | | | | | State | | | | | | | Zip | | | | | |
-----------------------------------------------------------------------------------------------
Telephone No. | | | |-| | | |-| | | | |
-----------------------------------
Type of Account: / / Defined Benefit Plan / / Defined Contribution Plan / / Profit Sharing/Thrift Plan
/ / Other Employee Benefit Plan
-------------------------------------------------------
/ / Endowment / / Foundation / / Taxable / / Other (Specify)
--------------------------
/ / United States Citizen / / Resident Alien / / Non-Resident Alien, Indicate Country of Residence
------------------
/2/
INTERESTED PARTY Attention | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
OPTION -------------------------------------------------------------------------------------------
Company
(If Applicable) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
In addition to the account -------------------------------------------------------------------------------------
statement sent to the above Street or P.O. Box | | | | | | | | | | | | | | | | | | | | | | | | | | | |
registered address, the ----------------------------------------------------------------------------------
Fund is authorized to mail City | | | | | | | | | | | | | | State | | | | | | | Zip | | | | | |
duplicate statements to the -----------------------------------------------------------------------------------------------
name and address provided Telephone No. | | | |-| | | |-| | | | |
at right. -----------------------------------
For additional interested
party mailings, please
attach a separate sheet.
</TABLE>
/3/ INVESTMENT
For Purchase of shares in the Balanced Plus Portfolio in the amount of $------.
/4/
TAXPAYER IDENTIFICATION NUMBER IMPORTANT TAX INFORMATION
Part 1. You (as a payee) are required by law to
Social Security Number provide us (as payer) with your correct
| | | |- | | |- | | | | | taxpayer identification number. Accounts
- ---------------------------------- that have a missing or incorrect taxpayer
or identification number will be subject to
Employer Identification Number backup withholding at a 31% rate on
| | | |- | | |- | | | | | ordinary income and capital gains
- ---------------------------------- distribution as well as redemptions.
Backup withholding is not an additional
Part 2. BACKUP WITHHOLDING tax; the tax liability of person subject
/ / Check the box if the account to backup withholding will be reduced by
is subject to Backup Withholding the amount of tax withheld.
under the provisions of Section
3406(a)(1)(C) of the Internal You may be notified that you are subject
Revenue Code. 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.
MILLER
ANDERSON
& SHERRERD, LLP ONE TOWER BRIDGE o WEST CONSHOHOCKEN, PA 19428 o 800-354-8185
SIDE ONE OF TWO --
<PAGE>
LOGO
MAS FUNDS
/5/ TELEPHONE REDEMPTION OPTION
Please sign below if you wish to redeem or exchange shares by telephone.
Redemption proceeds requested by phone may only be mailed to the account's
primary registration address or wired according to bank instructions SIDE TWO OF
TWO provided in writing. A signature guarantee is required if the bank account
listed below is not registered identically to your Fund Account. The Fund and
its agents shall not be liable for reliance on phone instructions reasonably
believed to be genuine. The Fund will maintain procedures designed to
authenticate telephone instructions received.
Telephone requests for redemptions or exchanges will not be honored unless
signature appears below.
(X)
- ----------------------------------------------
Signature Date
- --------------------------------------------------------------------------------
/6/ WIRING INSTRUCTIONS -- The instructions provided below may only be changed
by written notification.
Please check appropriate box(es):
/ / Wire redemption proceeds
/ / Wire distribution proceeds (please complete box |Z7 below)
------------------------------------------------------------------------------
Name of Commercial Bank (Net Savings Bank) Bank Account No.
------------------------------------------------------------------------------
Name(s) in which your Bank Account is Established
------------------------------------------------------------------------------
Bank's Street Address
------------------------------------------------------------------------------
City State Zip Routing/ABA Number
- --------------------------------------------------------------------------------
/7/ DISTRIBUTION OPTION -- Income dividends and /8/ WIRING INSTRUCTIONS
capital gains distributions (if any) will be
reinvested in additional shares unless either box For purchasing
below is checked. The instructions provided below Shares by wire,
may only be changed by written notification. please send a
Fedwire payment to:
/ / Income dividends and capital gains to be paid in
cash.
Chase Manhattan
/ / Income dividends to be paid in cash and capital Bank, N.A. 1 Chase
gains distribution in additional shares. Manhattan Plaza New
York, NY 10081
If cash option is chosen, please indicate
instructions below:
ABA# 021000021 DDA#
/ / Mail distribution check to the name and address 910-2-734143 Attn:
in which account is registered. MAS Funds Ref.
(Portfolio name,
/ / Wire distribution to the same commercial bank your Account number
indicated in Section 6 above. your Account name)
<PAGE>
- --------------------------------------------------------------------------------
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 MAS
Funds Prospectus 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)
- -------------------------------------- FOR INTERNAL USE ONLY
Signature Date
(X)
(X) --------------------------------------
- -------------------------------------- Signature Date
Signature Date
--------------------------------------
(X) O / / F / / OR / / S / /
- --------------------------------------
Signature Date
MILLER
ANDERSON
& SHERRERD, LLP ONE TOWER BRIDGE o WEST CONSHOHOCKEN, PA 19428 o 800-354-8185
/
<PAGE>
(This page intentionally left blank)
<PAGE>
LOGO
MAS FUNDS
PROSPECTUS
, 1996
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 Shareholder Information
Prospectus Summary 3 Purchase of Shares 22
Yield and Total Return 5 Redemption of Shares 23
Investment Suitability 5 Shareholder Services 24
Investment Limitations 6 Valuation of Shares 25
Portfolio Summary 8 Dividends, Capital Gains
Prospectus Glossary: Distributions and Taxes 25
Strategies 9 Investment Adviser 27
Investments 12 Portfolio Management 28
Administrative Services 28
General Distribution Agent 28
Portfolio Transactions 28
Other Information 29
Trustees and Officers 30
MILLER
ANDERSON
& SHERRERD, LLP ONE TOWER BRIDGE o WEST CONSHOHOCKEN, PA 19428 o 800-354-8185
<PAGE>
MAS FUNDS
STATEMENT OF ADDITIONAL INFORMATION
__________________, 1996
MAS Funds (the "Fund") is a no load mutual fund consisting of twenty-seven
portfolios offering a variety of investment alternatives. This Statement of
Additional Information sets forth information about the Fund's Balanced Plus
Portfolio (the "portfolio").
This Statement is not a Prospectus but should be read in conjunction with the
portfolio's Prospectus (the "Prospectus") dated ___________, 1996, each as
revised from time to time. To obtain a copy of the Prospectus, 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 5
Restrictions on the Use of Futures Contracts 6
Risk Factors in Futures Transactions 6
Options 7
Options on Foreign Currencies 8
Combined Transactions 10
Risks of Options on Futures Contracts, Forward Contracts and
Options on Foreign Currencies 10
Swap Contracts 11
Foreign Currency Exchange-Related Securities 12
Municipal Bonds 14
Duration 15
Mortgage-Backed Securities 16
Stripped Mortgage-Backed Securities 18
U.S. Government Securities 19
Zero Coupon Bonds 20
Eurodollar and Yankee Obligations 20
Brady Bonds 21
-1-
<PAGE>
Tax Considerations 22
Purchase of Shares 23
Redemption of Shares 23
Shareholder Services 24
Investment Limitations 25
Management of the Fund 27
Distribution Plan 29
Investment Adviser 30
Administration 31
Distributor for Fund 31
Custodian 31
Portfolio Transactions 31
Portfolio Turnover 33
General Information 33
Performance Information 35
Comparative Indices 38
Financial Statements 44
Appendix-Description of Securities and Ratings 45
Description of Bond Ratings 45
-2-
<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 supplements the characteristics and risks of
strategies and investments set forth in the Prospectus:
REPURCHASE AGREEMENTS
The portfolio may invest in repurchase agreements collateralized by U.S.
Government securities, certificates of deposit and certain bankers' acceptances.
Repurchase agreements are transactions by which the 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 the 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 the 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, 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.
SECURITIES LENDING
The 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, the portfolio attempts to increase its income through the receipt of
interest on the loan. Any gain or
-3-
<PAGE>
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. The 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.
FOREIGN INVESTMENTS
Investors should recognize that investing in foreign securities involves certain
special considerations which are not typically associated with investing in
domestic securities. Since the securities of foreign issuers are frequently
denominated in foreign currencies, and since the portfolio may temporarily hold
uninvested reserves in bank deposits in foreign currencies, the portfolio 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 portfolio permit
entering into forward foreign currency exchange contracts in order to hedge
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 non-U.S. companies 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 securities than about domestic securities. Securities of some
foreign issuers are generally less liquid and more volatile than securities of
comparable domestic companies. 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
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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 portfolio 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.
The portfolio 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
The 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)
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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. The portfolio's margin deposits will be placed in a
segregated account maintained by the Fund's Custodian.
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 portfolio 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
portfolio require that the aggregate initial margins and premiums required to
establish non-hedging positions not exceed 5% of the liquidation value of the
portfolio.
Although techniques other than the sale and purchase of futures contracts could
be used to control the portfolio's exposure to market fluctuations, the use of
futures contracts may be a more effective means of hedging this exposure. While
the portfolio 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
The 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, the portfolio would continue to be
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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 the portfolio's ability to effectively hedge. The 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. The 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 the 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 the 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 the 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. 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
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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
portfolio expects 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 the 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 portfolio or sold by them (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.
The portfolio may also write covered-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 protect against a decline in the U.S. dollar value
of a currency due to the changes of exchange rates vis a vis the U.S. dollar and
the option is written for a currency other than the currency in which the
security is denominated. In such circumstances, the portfolio will follow the
coverage requirements as described in the preceding paragraph.
OPTIONS ON FOREIGN CURRENCIES
The portfolio 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, the portfolio may purchase put options on the foreign
currency. If the value of the currency does decline, the 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, the portfolio may purchase
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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 the 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 portfolio
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 portfolio may write options on foreign currencies for the same purposes. For
example, where the 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.
Similarly, instead of purchasing a call option to hedge against an anticipated
increase in the dollar cost of securities to be acquired, the portfolio could
write a put option on the relevant currency which, if rates move in the manner
projected, will expire unexercised and allow the portfolio 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
portfolio 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, the 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 portfolio may only write covered call options on foreign currencies. A call
option written on a foreign currency by the 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 the 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 portfolio 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 the portfolio owns or has the right to acquire
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due to an adverse change in the exchange rate and which is denominated in the
currency underlying the option. In such circumstances, the portfolio will either
"cover" the transaction as described above or 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 portfolio 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 the
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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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
The 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, the 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
portfolio may enter will generally involve an agreement to pay interest streams
in one currency based on a specified index in exchange for receiving interest
streams denominated in another currency. Such swaps may involve initial and
final exchanges that correspond to the agreed upon notional amount.
The swaps in which the portfolio 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 the portfolio is
contractually obligated to make. If the
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other party to a swap defaults, the portfolio's risk of loss consists of the net
amount of payments that the 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 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. 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 portfolio 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 the portfolio receiving or paying, as the case
may be, only the net amount of the two payments. 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, 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 the portfolio's borrowing restrictions. The 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 ratings 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 portfolio would be less favorable than it would have been if this
investment technique were not used.
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-
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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 purchaser 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
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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.
MUNICIPAL BONDS
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.
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
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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 portfolio will meet the quality criteria set out in the
Prospectus.
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 portfolio.
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.
DURATION
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.
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
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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.
MORTGAGE-BACKED SECURITIES
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. 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 portfolio 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 portfolio 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 portfolio's 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
portfolio's net asset values since the prices at which these securities are
valued each day will reflect the payment procedures.
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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 portfolio. The compounding effect from reinvestment of
monthly payments received by the 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.
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.
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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 portfolio 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 portfolio will, consistent with its 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.
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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. 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 the portfolio yield to maturity from these securities. If the
underlying mortgage assets experience greater than anticipated prepayments of
principal, the 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 the portfolio's limitations on investment in illiquid securities.
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,
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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
zero coupon bonds issued by the U.S. Treasury 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 portfolio, 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).
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.
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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.
BRADY BONDS
A portion of the portfolio's fixed-income investments 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.
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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.
TAX CONSIDERATIONS
In order for the 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 portfolio'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.
The portfolio 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 the portfolio's assets,
may limit the extent to which the portfolio will be able to engage in these
transactions.
Some of the options, futures contracts, forward contracts, and swap contracts
entered into by the portfolio may be "Section 1256 contracts." Section 1256
contracts held by the 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
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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 the 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 the portfolio. In addition,
losses realized by the 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 the portfolio are not entirely clear.
The transactions may increase the amount of short-term capital gain realized by
the portfolio. Short-term capital gain is taxed as ordinary income when
distributed to shareholders.
The portfolio may make one or more of the elections available under the Code
which are applicable to straddles. If the 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.
PURCHASE OF SHARES
The 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.
REDEMPTION OF SHARES
The 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 the 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
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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 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 the 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 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 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 4:00 p.m. (Eastern time) for
the portfolio will be processed as of the close of business on the same day.
Requests received after this time 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.
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.
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.
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Transfer of Shares
Shareholders may transfer shares of the portfolio 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
The portfolio 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.
As a matter of fundamental policy, the 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;
(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;
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(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, 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.;
The 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, the 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. 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,
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;
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(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 assets in an amount greater than 50% of its
total assets, provided that the portfolio may 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;
(h) invest more than an aggregate of 15% of the net assets of the portfolio,
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 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.
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
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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; Portfolio Manager, Miller
Anderson & Sherrerd, LLP; Director, MAS Fund Distribution, Inc.
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.
Vincent R. McLean, Trustee of MAS Funds since February, 1996; 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).
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; Head of Mutual Funds, 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.
John H. Grady, Jr., Secretary; Partner, Morgan, Lewis & Bockius, LLP; formerly,
Attorney, Ropes & Gray.
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.
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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 $89,193 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>
Estimated
Aggregate Pension or Benefits Annual Total
Compensation Accrued As Part Benefits upon Compensation
Name of Trustee from the Fund of Fund Expenses Retirement from the Fund
- ---------------- --------------- ------------------- --------------- ---------------
<S> <C> <C> <C> <C>
Thomas L. Bennett* $ -0- $-0- $-0- $ -0-
David P. Eastburn** $20,000 $-0- $-0- $20,000
Joseph P. Healey $20,000 $-0- $-0- $20,000
Joseph J. Kearns $20,000 $-0- $-0- $20,000
C. Oscar Morong, Jr. $20,000 $-0- $-0- $20,000
</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.
**Trustee Eastburn retired as a Trustee of MAS Funds in February, 1996.
DISTRIBUTION PLAN
The Fund's Distribution Plan provides that the Adviser Class Shares will pay the
Distributor a fee of .25% of the average daily net assets of the portfolio
attributable to Adviser Class Shares, which the Distributor can use to
compensate broker/dealers and service providers which provide distribution
services to Adviser Class Shareholders or their customers who beneficially own
Adviser 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
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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 Adviser 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, the Adviser,
subject to the control and supervision of the Fund's Board of Trustees and in
conformance with the stated investment objective and policies of the portfolio,
manages the investment and reinvestment of the assets of the portfolio.
In this regard, it is the responsibility of the Adviser to make investment
decisions for the portfolio and to place the 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 portfolio and the taxes and brokerage
commissions, if any, payable in connection with the purchase and/or sale of such
securities), the portfolio pays the Adviser an advisory fee of .550% calculated
by applying a quarterly rate, based on the following annual percentage rates, to
the portfolio's average daily net assets for the quarter.
In cases where a shareholder of the portfolio 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 portfolio. This procedure will be utilized with
clients having contractual relationships based on total assets managed by Miller
Anderson & Sherrerd, LLP 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.
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 the portfolio. If the holders of the portfolio
fail to approve the Agreement, the Adviser may continue to serve as investment
adviser to the portfolio until new arrangements have been made. The Agreement is
automatically terminated if assigned, and may be terminated by the 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
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filing its registration statements under Federal and State securities laws,
reports to shareholders, and custodian fees. These Fund expenses are, in turn,
allocated to the portfolio, based on its relative net assets as compared to
the net assets of the Fund as a whole. The 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.
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 Distribution Agreement 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 prospectus, statement of additional information and reports to shareholders.
CUSTODIAN
The Chase Manhattan Bank N.A., New York, NY and Morgan Stanley Trust Company
(NY), Brooklyn, NY serve as custodians for the portfolio. The Custodians hold
cash, securities, and other assets of the Fund as required by the 1940 Act.
Morgan Stanley Trust Company is an affiliated person, as defined in the 1940
Act, of the Adviser and is compensated for its services as custodian on a per
account basis plus out of pocket expenses.
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 the portfolio and directs the Adviser to use its best efforts to obtain the
best execution with respect to all transactions for the portfolio. In so doing,
the Adviser will consider all matters it deems relevant, including the
following: the Adviser's knowledge of negotiated commission rates and spreads
currently available; the nature of the security or instrument being traded; the
size and type of the transaction; the nature and character of the markets for
the security or instrument to be purchased or sold; the desired timing of the
transaction; the activity existing and expected in the market for the particular
security or instrument;
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<PAGE>
confidentiality; the execution, clearance, and settlement capabilities of the
broker or dealer selected and other brokers or dealers considered; the
reputation and perceived soundness of the broker or dealer selected and other
brokers or dealers considered; the Adviser's knowledge of any actual or apparent
operational problems of a broker or dealer; and the reasonableness of the
commission or its equivalent for the specific transaction.
Although the Adviser generally seeks competitive commission rates and dealer
spreads, the portfolio will not necessarily pay the lowest available commission
on brokerage transactions or markups on principal transactions. Transactions may
involve specialized services on the part of the broker or dealer involved, and
thereby justify higher commissions or markups than would be the case with other
transactions requiring more routine services. In addition, the 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,
pricing, and execution services provided by the broker effecting the
transaction. The Adviser does not attempt to put a specific dollar value on the
research services rendered or to allocate the relative costs or benefits of
those services among its clients, believing that the research it receives will
help the Adviser to fulfill its overall duty to its clients. The Adviser uses
research services obtained in this manner for the benefit of all of its clients,
though each particular research service may not be used to service each client.
As a result, the Fund may pay brokerage commissions that are used, in part, to
purchase research services that are not used to benefit the Fund.
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 portfolio or who act as agents in the purchase
of shares of the portfolio for their clients.
Some securities considered for investment by the portfolio may also be
appropriate for other clients served by the Adviser. If purchases or sales of
securities consistent with the investment policies of the 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.
On January 3, 1996, affiliates of Morgan Stanley Group Inc. acquired the
Adviser. As a result of this transaction, the Adviser became affiliated with
certain U.S.-registered broker-dealers and foreign broker-dealers, including
Morgan Stanley & Co. Incorporated, Morgan Stanley & Co. International Limited,
Morgan Stanley Securities Ltd., Morgan Stanley Japan Ltd., and Morgan Stanley
Asia Ltd. (collectively, "Morgan Stanley"). The Adviser may, in the exercise of
its discretion under its investment management agreement, effect transactions in
securities or other instruments for the portfolio through Morgan Stanley.
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PORTFOLIO TURNOVER
The Adviser manages the portfolio 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 portfolio will not trade for
short-term profits, but when circumstances warrant, investments may be sold
without regard to the length of time held. The portfolio's annual turnover rate
is not expected to exceed 100% with respect to Equity Securities. The annual
turnover rate with respect to the fixed income portion of the portfolio will
ordinarily exceed 100% due to changes in portfolio duration, yield curve
strategy or commitments to forward delivery mortgage-backed securities.
High rates of portfolio turnover necessarily result in correspondingly heavier
brokerage and portfolio trading costs which are paid by the 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 distribution resulting from such gains are considered ordinary
income for federal income tax purposes.
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-seven portfolios.
The shares of the portfolio 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 the portfolio 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), 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.
The Fund will continue without limitation of time, provided however that:
1) Subject to the majority vote of the holders of shares of the portfolio
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;
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2) Subject to the majority vote of shares of the portfolio 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 the 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 the portfolio as provided in paragraphs 1), 2), and 3) above, the
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 the portfolio.
Dividend and Capital Gains Distributions
The Fund's policy is to distribute substantially all of the 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 the
portfolio by an investor may have the effect of reducing the per share net asset
value of the portfolio by the per share amount of the dividend or distribution.
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 the portfolio 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.
The portfolio is treated as a separate entity (and hence, as a separate
"regulated investment company") for federal tax purposes. Any net capital gains
recognized by the 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.
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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.
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 the portfolio. 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
The 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
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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:
n
P (1+T) = 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
The portfolio 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 portfolio 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.
Yield
In addition to total return, the 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.
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For the purpose of determining the interest earned (variable "a" in the formula)
on debt obligations that were purchased by the 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 performance of the portfolio 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.
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COMPARATIVE INDICES
The portfolio 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 5-Year Municipal Bond Index
Lehman Brothers 5-year Municipal Bond Index is a total return performance
benchmark for the intermediate, investment grade tax exempt bond market. The
index includes general oligation bonds, revenue bonds, insured bonds and
prefunded bonds with maturities between 4 and 6 years.
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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.
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.
Lehman Brothers 10-Year Municipal Bond Index
Lehman Brothers 10-Year Municipal Bond Index is a total return performance
benchmark for the long term, investment grade tax exempt bond market. The index
includes general obligation
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bonds, revenue bonds, insured bonds and prefunded bonds with maturities between
8 and 12 years.
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.
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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.
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.
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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
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.
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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 the 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
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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
The Fund's Financial Statements for the fiscal year ended September 30, 1995,
including notes thereto and the report of Price Waterhouse LLP thereon are
incorporated herein by reference. A copy of the 1995 Annual Report will
accompany the delivery of this Statement of Additional Information.
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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.
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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.
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
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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.
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
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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
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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.
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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MAS FUNDS
PART C: OTHER INFORMATION
Post-Effective Amendment No. 42
Item 24. Financial Statements and Exhibits:
(a) Not Applicable
(b) Additional Exhibits
(1) Amended and Restated Declaration of Trust is 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 is 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 is incorporated by reference to Exhibit 1 of
Post-Effective Amendment No. 29, as filed on December 27,
1993.
(1)(c) Amended and Restated Agreement and Declaration of Trust
dated November 18, 1993, as corrected by the Trustees on
February 29, 1996, is filed herewith.
(2) By-Laws are incorporated by reference to Exhibit 2 of the
initial Registration Statement, as filed on March 1, 1984.
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(2)(a) By-Laws are 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 is 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 is
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 is incorporated by
reference to Exhibit 5 of Post-Effective Amendment No. 8.
(5)(a) Form of Investment Advisory Agreement with Miller Anderson &
Sherrerd, LLP is incorporated by reference to Exhibit 5(a)
of Post-Effective Amendment No. 41, as filed on January 30,
1996.
(6) Distribution Agreement with MAS Fund Distribution, Inc.
dated April 13, 1993 is incorporated by reference to Exhibit
6 of Post-Effective Amendment No. 26, as filed on June 28,
1993.
(6)(a) Form of Distribution Agreement with MAS Fund Distribution,
Inc. is incorporated by reference to Exhibit 6(a) of
Post-Effective Amendment No. 41, as filed on January 30,
1996.
(7) Not Applicable.
(8) Custodian Agreement with State Street Bank & Trust Company
is 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 is incorporated by reference to Exhibit
8(a) of Post-Effective Amendment No. 41 filed on January
30, 1996, as originally filed with Post-Effective Amendment
No. 29 on December 27, 1993.
(8)(b) Custodian Agreement with United States Trust Company of New
York dated July 22, 1994 is incorporated by reference to
Exhibit 8(b) of Post-Effective Amendment No. 41, as filed
on January 30, 1996.
(8)(c) Amendment dated January 3, 1996 between Morgan Stanley Trust
Company and MAS Funds is incorporated by reference to
Exhibit 8(c) of Post-Effective Amendment No. 41, as filed on
January 30, 1996.
(9) Administration Agreement with The Vanguard Group dated
September, 1984 is 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 is incorporated by reference to
Exhibit 9 of Post-Effective Amendment No. 29, as filed on
December 27, 1993.
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(9)(b) Sub-Administration Agreement with United States Trust
Company of New York dated November 18, 1993 is 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 is incorporated by
reference to Exhibit 9 of Post-Effective Amendment No. 29,
as filed on December 27, 1993.
(9)(d) Form of Administration Agreement with Miller Anderson &
Sherrerd, LLP is incorporated by reference to Exhibit 9(d)
of Post-Effective Amendment No. 41, as filed on January 30,
1996.
(10) Opinion and Consent of Counsel dated August 23, 1984 is
incorporated by reference to Exhibit 10 of Pre-Effective
Amendment No. 3, as filed on August 27, 1984.
(11) Not Applicable.
(12) Not Applicable.
(13) Not Applicable.
(14) Not Applicable.
(15) Distribution Plan relating to Adviser Class Shares is
incorporated by reference to Exhibit 15 of Post-Effective
Amendment No. 41, as filed on January 30, 1996.
(15)(a) Investment Class Shareholder Service Agreement is
incorporated by reference to Exhibit 15(a) of Post-Effective
Amendment No. 41, as filed on January 30, 1996.
(15)(b) Investment Class Service Provider Agreement is incorporated
by reference to Exhibit 15(b) of Post-Effective Amendment
No. 40, as filed on December 1, 1995.
(16) Performance Quotation Computation is incorporated by
reference to Exhibit 16 of Post-Effective Amendment No. 21,
as filed on April 6, 1992.
(18) Rule 18f-3 Multiple Class Plan is incorporated by reference
to Exhibit 18 of Post-Effective Amendment No. 41, as filed
on January 30, 1996.
(24) Powers of Attorney for David P. Eastburn, Joseph P. Healey,
Joseph J. Kearns, Douglas W. Kugler, John H. Grady, Jr.,
Lorraine Truten, C. Oscar Morong, Jr., Thomas L. Bennett,
James D. Schmid are incorporated by reference to Exhibit 24
of Post-Effective Amendment No. 40, as filed on December 1,
1995. Power of Attorney for Vincent R. McLean dated May 23,
1996, is filed herewith.
Item 25. Persons Controlled by or under Common Control with Registrant
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Registrant is not controlled by or under common control with any person.
Item 26. Number of Holders of Securities:
As of July 8, 1996, the number of record holders of each class of
securities of Registrant was as follows:
Number of
Title of Class Record Holders
Institutional Class:
Advisory Foreign Fixed Income.............................................64
Advisory Mortgage.........................................................54
Emerging Markets.........................................................151
Equity...................................................................735
Growth.....................................................................0
International Equity.....................................................630
Mid Cap Growth...........................................................268
Mid Cap Value............................................................229
Small Cap Value..........................................................432
Value....................................................................801
Cash Reserves............................................................122
Domestic Fixed Income.....................................................54
Fixed Income.............................................................576
Fixed Income II...........................................................58
Global Fixed Income.......................................................69
High Yield...............................................................350
Intermediate Duration......................................................8
International Fixed Income................................................51
Limited Duration.........................................................171
Mortgage-Backed Securities................................................21
Municipal.................................................................77
PA Municipal..............................................................29
Special Purpose Fixed Income.............................................231
Balanced.................................................................131
Multi-Asset-Class........................................................103
Select Equity..............................................................5
Investment Class:
Equity.....................................................................1
Value......................................................................4
Fixed Income...............................................................0
International Equity.......................................................4
High Yield.................................................................2
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Mid Cap Value..............................................................2
Special Purpose Fixed Income...............................................2
Multi-Asset-Class..........................................................2
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.
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 Adviser:
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.
C-5
<PAGE>
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. acts as sole distributor of the
Registrant's shares.
(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
Paul A. Frick Compliance Officer
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
C-6
<PAGE>
(records relating to its function as custodian)
Chase Global Funds Services
73 Tremont Street
Boston, MA 02108-3913
(records relating to its functions as sub-administrator,
transfer agent and dividend disbursing agent)
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.
(d) Registrant hereby undertakes to file a post-effective amendment to its
Registration Statement within four to six months of the effective date of
this Post-Effective Amendment No. 42 that contains financial statements for
the Balanced Plus Portfolio which need not be audited.
C-7
<PAGE>
Signatures
Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, the Registrant has
duly caused this Post Effective Amendment No. 42 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 15th day of July, 1996.
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 July 15, 1996
- -------------------------------------
Thomas L. Bennett
* Trustee July 15, 1996
- -------------------------------------
Joseph P. Healey
* Trustee July 15, 1996
- -------------------------------------
Joseph J. Kearns
* Trustee July 15, 1996
- -------------------------------------
Vincent R. McLean
* Trustee July 15, 1996
- -------------------------------------
C. Oscar Morong, Jr.
* President July 15, 1996
- -------------------------------------
James D. Schmid
* Treasurer July 15, 1996
- -------------------------------------
Douglas W. Kugler
*By: /s/ John H. Grady, Jr.
-------------------------------
John H. Grady, Jr.
Attorney-in-Fact
C-8
<PAGE>
EXHIBIT INDEX
Exhibit Page
EX-99.B1 Amended and Restated Declaration of Trust is 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 is 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 is incorporated by reference to Exhibit 1 of
Post-Effective Amendment No. 29, as filed on December 27,
1993.
EX-99.B1(c) Amended and Restated Agreement and Declaration of Trust
dated November 18, 1993, as corrected by the Trustees on
February 29, 1996, is filed herewith.
EX-99.B2 By-Laws are incorporated by reference to Exhibit 2 of the
initial Registration Statement, as filed on March 1, 1984.
EX-99.B2(a) By-Laws are 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 is 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 is
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 is incorporated by
reference to Exhibit 5 of Post-Effective Amendment No. 8.
EX-99.B5(a) Form of Investment Advisory Agreement with Miller Anderson
& Sherrerd, LLP is incorporated by reference to Exhibit
5(a) of Post-Effective Amendment No. 41, as filed on
January 30, 1996.
EX-99.B6 Distribution Agreement with MAS Fund Distribution, Inc.
dated April 13, 1993 is incorporated by reference to
Exhibit 6 of Post-Effective Amendment No. 26, as filed on
June 28, 1993.
EX-99.B6(a) Form of Distribution Agreement with MAS Fund Distribution,
Inc. is incorporated by reference to Exhibit 6(a) of
Post-Effective Amendment No. 41, as filed on January 30,
1996.
EX-99.B7 Not Applicable.
EX-99.B8 Custodian Agreement with State Street Bank & Trust Company
is incorporated by reference to Exhibit 8 of the initial
Registration Statement, as filed on March 1, 1984.
EX-99.B8(a) Custodian Agreement with Morgan Stanley Trust Company
dated September 1, 1993 is incorporated by reference to
Exhibit 8(a) of Post-Effective Amendment No. 41 filed on
January 30, 1996, as
<PAGE>
originally filed with Post-Effective Amendment No. 29 on
December 27, 1993.
EX-99.B8(b) Custodian Agreement with United States Trust Company of
New York dated July 22, 1994 is incorporated by reference
to Exhibit 8(b) of Post-Effective Amendment No. 41, as
filed on January 30, 1996.
EX-99.B8(c) Amendment dated January 3, 1996 between
Morgan Stanley Trust Company and MAS Funds is incorporated
by reference to Exhibit 8(c) of Post-Effective Amendment
No. 41, as filed on January 30, 1996.
EX-99.B9
Administration Agreement with The Vanguard Group dated
September, 1984 is 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 is
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 is
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 is incorporated by
reference to Exhibit 9 of Post-Effective Amendment No. 29,
as filed on December 27, 1993.
EX-99.B9(d) Form of Administration Agreement with Miller Anderson &
Sherrerd, LLP is incorporated by reference to Exhibit 9(d)
of Post-Effective Amendment No. 41, as filed on January
30, 1996.
EX-99.B10 Opinion and Consent of Counsel dated August 23, 1984 is
incorporated by reference to Exhibit 10 of Pre-Effective
Amendment No. 3, as filed on August 27, 1984.
EX-99.B11 Not Applicable.
EX-99.B12 Not Applicable.
EX-99.B13 Not Applicable.
EX-99.B14 Not Applicable
EX-99.B15 Distribution Plan relating to Adviser Class Shares is
incorporated by reference to Exhibit 15 of Post-Effective
Amendment No. 41, as filed on January 30, 1996.
EX-99.B15(a) Investment Class Shareholder Service Agreement is
incorporated by reference to Exhibit 15(a) of
Post-Effective Amendment No. 41, as filed on January 30,
1996.
EX-99.B15(b) Investment Class Service Provider Agreement is
incorporated by reference to Exhibit 15(b) of
Post-Effective Amendment No. 40, as filed on December 1,
1995.
EX-99.B16 Performance Quotation Computation is incorporated by
reference to Exhibit 16 of Post-Effective Amendment No.
21, as filed on April 6, 1992.
<PAGE>
EX-99.B18 Rule 18f-3 Multiple Class Plan is incorporated by
reference to Exhibit 18 of Post-Effective Amendment No.
41, as filed on January 30, 1996.
EX-99.B24 Powers of Attorney for David P. Eastburn, Joseph P.
Healey, Joseph J. Kearns, Douglas W. Kugler, John H.
Grady, Jr., Lorraine Truten, C. Oscar Morong, Jr., Thomas
L. Bennett, James D. Schmid are incorporated by reference
to Exhibit 24 of Post-Effective Amendment No. 40, as filed
on December 1, 1995. Power of Attorney for Vincent R.
McLean dated May 23, 1996, is filed herewith.
<PAGE>
Exhibit 99.B1(c)
AMENDED AND RESTATED AGREEMENT AND DECLARATION OF TRUST
MAS FUNDS
THIS AMENDED AND RESTATED AGREEMENT AND DECLARATION OF TRUST made at
One Tower Bridge, West Conshohocken, Pennsylvania on the 18th day of November,
1993 by the Trustees hereunder and the holders of shares of beneficial interest
issued hereunder and to be issued hereunder as hereinafter provided, as
corrected by the Trustees hereunder on this 29th day of February, 1996:
WITNESSETH that
WHEREAS, the Agreement and Declaration of Trust has been amended and
restated by the Trustees pursuant to Section 12.7 of the Agreement and
Declaration of Trust as approved by the Trustees and as set forth herein.
WHEREAS, this Trust has been formed to carry on the business of an
investment company; and the Trustees and any successor Trustees elected in
accordance with Article IV hereof have agreed to manage all property coming into
their hands as Trustees of a Pennsylvania business trust in accordance with the
provisions hereinafter set forth.
NOW, THEREFORE, the Trustees hereby direct that this Amended and
Restated Agreement and Declaration of Trust be filed with the Department of
State of the Commonwealth of Pennsylvania and do hereby declare that they will
hold all cash, securities and other assets, which they may from time to time
acquire in any manner as Trustees hereunder IN TRUST, to manage and dispose of
the same upon the following terms and conditions for the pro rata benefit of the
holders from time to time of Shares in this Trust as hereinafter set forth.
ARTICLE I
Name and Definitions
Section 1. Name. This Trust shall be known as "MAS Funds" and the
----------------
Trustees shall conduct the business of the Trust under that name or any other
name as they may from time to time determine.
Section 2. Definitions. Whenever used herein, unless otherwise required
-----------------------
by the context or specifically provided:
(a) "Trust" refers to the Pennsylvania business trust
established by this Agreement and Declaration of Trust, as amended from time to
time;
(b) "Trustees" refer to the Trustees of the Trust elected in
accordance with Article IV hereof;
<PAGE>
(c) "Shares" means the equal proportionate units of interest
into which the beneficial interest in the Trust or in the Trust property
belonging to any Series of the Trust (as the context may require) shall be
divided from time to time and includes fractional as well as whole Shares;
(d) "Shareholder" means a record owner of Shares;
(e) "1940 Act" refers to the Investment Company Act of 1940
and the Rules and Regulations thereunder, all as amended from time to time;
(f) The terms "Commission" and "principal underwriter" shall
have the meanings given them in the 1940 Act;
(g) "Declaration of Trust" shall mean this Agreement and
Declaration of Trust, as amended or restated from time to time;
(h) "Bylaws" shall mean the Bylaws of the Trust as amended
from time to time;
(i) "Series Company" refers to the form of registered open-end
investment company described in Section 18(f) (2) of the 1940 Act or in any
successor statutory provision;
(j) "Series" refers to Series of Shares established and
designated under or in accordance with the provisions of Article III hereof; and
(k) "Majority Shareholder Vote" shall have the same meaning as
"vote of a majority of the outstanding voting securities" as that phrase is
defined in the 1940 Act, except that such term may be used herein with respect
to the Shares of the Trust as a whole or the Shares of a particular Series, as
the context may require.
ARTICLE II
Preliminary Provisions
Section 1. Business Trust. The Trust will be a business trust created
----------
under the laws of the Commonwealth of Pennsylvania and existing subject to
Chapter 95 of Title 15 of the Pennsylvania Consolidated Statutes (15 Pa.C.S.).
Section 2. Purpose. The purpose of the Trust is to provide investors a
----------
managed investment primarily in securities, debt instruments and other
instruments and rights of a financial character.
- 2 -
<PAGE>
Section 3. Registered Office. The initial registered office of the
----------
Trust in the Commonwealth of Pennsylvania shall be at the following address:
One Tower Bridge, West Conshohocken, Montgomery County, Pennsylvania
Section 4. Duration. Unless the Trust shall be terminated in accordance
----------
with Article VIII, Section 4, the period of its duration shall be perpetual.
ARTICLE III
Shares
Section 1. Division of Beneficial Interest. The beneficial interest in
-------------------------------------------
the Trust shall at all times be divided into an unlimited number of Shares,
without par value. Subject to the provisions of Section 6 of this Article III,
each Share shall have voting rights as provided in Article V hereof, and holders
of the Shares of any Series shall be entitled to receive dividends, when and as
declared with respect thereto in the manner provided in Article VI, Section l
hereof. No Share shall have any priority or preference over any other Share of
the same Series with respect to dividends or distributions upon termination of
the Trust or of such Series made pursuant to Article VIII, Section 4 thereof.
All dividends and distributions shall be made ratably among all Shareholders of
a particular Series from the assets belonging to such Series according to the
number of Shares of such Series held of record by such Shareholders on the
record date for any dividend or on the date of termination, as the case may be.
All Shares issued hereunder, including any Shares issued in payment of dividends
or other distributions or in connection with any split of Shares, shall be fully
paid and non-assessable. The Trustees may from time to time divide or combine
the Shares of any particular Series into a greater or lesser number of Shares of
that Series without thereby changing the proportionate beneficial interest of
the Shares of that Series in the assets belonging to that Series or in any way
affecting the rights of Shares of any other Series. Shares of the Trust or of
any Series may be issued in two or more classes, as the Trustees may, without
Shareholder approval, authorize, and Shares of any class shall be identical to
those of any other class of the Trust or such Series except that, if the
Trustees have authorized the issuance of Shares of any particular Series in two
or more classes, then such classes may, consistent with the 1940 Act, or
pursuant to any exemptive order issued by the Commission and other applicable
law, have such variations as to dividends, redemption, conversion, voting
rights, net asset value, expenses borne by the class, and other matters as the
Trustees shall have determined.
- 3 -
<PAGE>
Section 2. Ownership of Shares. The ownership of Shares shall be
-------------------------------
recorded on the books of the Trust or a transfer agent or similar agent for the
Trust, which books shall be maintained separately for the Shares of each Series.
No certificates certifying the ownership of Shares shall be issued except as the
Trustees may otherwise determine from time to time. The Trustees may make such
rules as they consider appropriate for the transfer of Shares of each Series and
similar matters. The record books of the Trust as kept by the Trust shall be
conclusive as to whom are the Shareholders of each Series or class and as to the
number of Shares of each Series or class held from time to time by each.
Section 3. Investments in the Trust. The Trustees shall accept
------------------------------------
investments in the Trust from such persons and on such terms and for such
consideration as they from time to time authorize.
Section 4. Status of Shares and Limitation of Personal Liability.
-----------------------------------------------------------------
Shares shall be deemed to be personal property giving only the rights provided
in this instrument. Every Shareholder by virtue of having become a Shareholder
shall be held to have expressly assented and agreed to the terms hereof and to
have become a party hereto. The death of a Shareholder during the continuance of
the Trust shall not operate to terminate the same nor entitle the representative
of any deceased Shareholder to an accounting or to take any action in court or
elsewhere against the Trust or the Trustees, but entitles such representative
only to the rights of said deceased Shareholder under this Trust. Ownership of
Shares shall not entitle the Shareholder to any title in or to the whole or any
part of the Trust property or right to call for a partition or division of the
same or for an accounting, nor shall the ownership of Shares constitute the
Shareholders partners. Neither the Trust nor the Trustees, nor any officer,
employee or agent of the Trust shall have any power to bind personally any
Shareholders, except as specifically provided herein to call upon any
Shareholders for the payment of any sum of money or assessment whatsoever other
than such as the shareholder may at any time personally agree to pay. As
provided by 15 Pa.C.S. ss. 9506(a) (relating to liability of trustees and
beneficiaries) a Shareholder, as such, shall not be personally liable for any
act, omission or obligation of the Trustees or of the Trust.
Section 5. Power of Trustees to Change Provisions Relating to Shares.
---------------------------------------------------------------------
Notwithstanding any other provisions of this Declaration of Trust and without
limiting the power of the Trustees to amend the Declaration of Trust as provided
elsewhere herein, the Trustees shall have the power to amend this Declaration of
Trust, at any time and from time to time, in such manner as the Trustees may
determine in their sole discretion, without the need for Shareholder action, so
as to add to, delete, replace or otherwise modify any provisions relating to the
Shares contained in this Declaration of Trust for the purpose of responding to
or complying with any regulations, orders, rulings or interpretations of any
- 4 -
<PAGE>
governmental agency or any laws, now or hereafter applicable to the Trust. The
establishment and designation of any class or Series of Shares shall be
effective upon the adoption of a resolution by a majority of the Trustees
setting forth such establishment and designation and the relative rights and
preferences of the Shares of such class or Series. At any time, if no Shares are
outstanding of a particular class or Series previously so established and
designated, the Trustees may by majority vote abolish such class or Series and
said establishment and designation thereof.
Without limiting the generality of the foregoing, the Trustees may, for
the above-stated purposes, amend the Declaration of Trust to:
(a) Create one or more Series or classes of Shares (in
addition to any Series or classes already existing or otherwise) with such
rights and preferences and such eligibility requirements for investment therein
as the Trustees shall determine and reclassify any or all outstanding Shares as
Shares of particular Series or classes in accordance with such eligibility
requirements;
(b) Amend any of the provisions set forth in paragraphs (a)
through (i) of Section 6 of this Article III;
(c) Combine one or more Series or classes of Shares into a
single Series or class on such terms and conditions as the Trustees shall
determine;
(d) Change or eliminate any eligibility requirements for
investment in Shares of any Series or class, including without limitation the
power to provide for the issue of Shares of any Series or class in connection
with any merger or consolidation of the Trust with another trust or company or
any acquisition by the Trust of part or all of the assets of another trust or
company;
(e) Change the designation of any Series or class of Shares;
(f) Change the method of allocating dividends among the
various Series and classes of Shares;
(g) Allocate any specific assets or liabilities of the Trust
or any specific items of income or expense of the Trust to one or more Series or
classes of Shares;
(h) Specifically allocate assets to any or all Series or
classes of Shares or create one or more additional Series or classes of Shares
which are preferred over all other Series or classes of Shares in respect of
assets specifically allocated thereto or any dividends paid by the Trust with
respect to any net income, however determined, earned from the investment and
reinvestment of any assets so allocated or otherwise provide for
- 5 -
<PAGE>
any special voting or other rights with respect to such Series or classes.
Section 6. Establishment and Designation of Series. Shares of each
---------------------------------------------------
Series established in this Section 6 shall have the following relative rights
and preferences:
(a) Assets belonging to Series. All consideration received by
-------------------------------
the Trust for the issue or sale of Shares of a particular Series, together with
all assets in which such consideration is invested or reinvested, and all
income, earnings, profits, and proceeds thereof from whatever source derived,
including, without limitation, any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to that Series for all purposes, subject only to the rights
of creditors, and shall be so recorded upon the books of account of the Trust.
Such consideration, assets, income, earnings, profits and proceeds thereof from
whatever source derived, including, without limitation, any proceeds derived
from the sale, exchange or liquidation of such assets, and any funds or payments
derived from any reinvestment of such proceeds, in whatever form the same may
be, are herein referred to as "assets belonging to" that Series. In the event
that there are any assets, income, earnings, profits and proceeds thereof, funds
or payments which are not readily identifiable as belonging to any particular
Series (collectively "General Assets"), the Trustees shall allocate such General
Assets to, between or among any one or more of the Series established and
designated from time to time in such manner and on such basis as they, in their
sole discretion, deem fair and equitable, and any General Asset so allocated to
a particular Series shall belong to that Series. Each such allocation by the
Trustees shall be conclusive and binding upon the Shareholders of all Series for
all purposes.
(b) Liabilities Belonging to Series. The assets belonging to
------------------------------------
each particular Series shall be charged solely with the liabilities of the Trust
in respect to that Series, expenses, costs, charges and reserves attributable to
that Series, and any general liabilities of the Trust which are not readily
identifiable as belonging to any particular Series but which are allocated and
charged by the Trustees to and among any one or more of the Series established
and designated from time to time in a manner and on such basis equitable. The
liabilities, expenses, costs, charges, and reserves so charged to a Series,
herein referred to as liabilities, expenses, costs, charges and reserves by the
Trustees, shall be conclusive and binding upon the holders of all Series for all
purposes.
(c) Dividends, Distributions, Redemptions and Repurchases.
----------------------------------------------------------
Notwithstanding any other provisions of this
- 6 -
<PAGE>
Declaration, including, without limitation, Article VI, no dividend or
distribution (including, without limitation, any distribution paid upon
termination of the Trust or of any Series) with respect to, nor any redemption
or repurchase of, the Shares of any Series shall be effected by the Trust other
than from the assets belonging to such Series, nor shall any shareholder of any
particular Series otherwise have any right or claim against the assets belonging
to any other Series except to the extent that such Shareholder has such a right
or claim hereunder as a Shareholder of such other Series.
(d) Voting. Notwithstanding any of the other provisions of
-----------
this Declaration, including, without limitation, Section l of Article V, the
Shareholders of any particular Series shall not be entitled to vote on any
matters as to which such Series is not affected. On any matters submitted to a
vote of Shareholders, all Shares of the Trust then entitled to vote shall be
voted by individual Series, unless otherwise required by the 1940 Act or other
applicable law.
(e) Equality. All the Shares of each particular Series shall
-------------
represent an equal proportionate interest in the assets belonging to that Series
(subject to the liabilities belonging to that Series), and each Share of any
particular Series shall be equal to each other Share of that Series.
(f) Fractions. Any fractional Share of a Series shall carry
--------------
proportionately all the rights and obligations of a whole share of that Series,
including rights with respect to voting, receipt of dividends and distributions,
redemption of Shares and termination of the Trust.
(g) Conversion or Exchange Privilege. The Trustees shall have
-------------------------------------
the authority to provide that the holders of Shares of any Series shall have the
right to convert or exchange said Shares for Shares of one or more other Series
of Shares in accordance with such requirements and procedures as may be
established by the Trustees.
(h) Combination of Series. The Trustees shall have the
--------------------------
authority, without the approval of the Shareholders of any Series unless
otherwise required by applicable law, to combine the assets and liabilities
belonging to any two or more Series into assets and liabilities belonging to a
single series or class.
(i) Elimination of Series. At any time that there are no
--------------------------
Shares outstanding of any particular Series previously established and
designated, the Trustees may amend this Declaration of Trust to abolish that
Series and to rescind the establishment and designation thereof, such amendment
to be effected in the manner provided in Section 5 of this Article III.
- 7 -
<PAGE>
Section 7. Indemnification of Shareholders. In case any Shareholder or
-------------------------------------------
former Shareholder shall be held to be personally liable solely by reason of his
or her being or having been a Shareholder of the Trust or of a particular Series
and not because of his or her acts or omissions or for some other reason, the
Shareholder or former Shareholder (or his or her heirs, executors,
administrators or other legal representatives or in the case of a corporation or
other entity, its corporate or other general successor) shall be entitled out of
the assets of the Series of which he is a Shareholder or former shareholder to
be held harmless from and indemnified against all loss and expense arising from
such liability.
Section 8. No Preemptive Rights. Shareholders shall have no preemptive
--------------------------------
or other right to subscribe to any additional Shares or other securities issued
by the Trust, except as otherwise provided herein or as the Trustees in their
sole discretion shall have determined by resolution.
ARTICLE IV
The Trustees
Section 1. Election and Tenure. The Trustees may fix the number of
-------------------------------
Trustees, fill vacancies in the Trustees, including vacancies arising from an
increase in the number of Trustees, or remove Trustees with or without cause.
Each Trustee shall be a natural person and may, but need not, be a Shareholder.
Each Trustee shall serve during the continued lifetime of the Trust until he or
she dies, resigns or is removed, or, if sooner, until the next meeting of
Shareholders called for the purpose of electing Trustees and until the election
and qualification of his or her successor. Any Trustee may resign at any time by
written instrument signed by him or her and delivered to any officer of the
Trust or to a meeting of the Trustees. Such resignation shall be effective upon
receipt unless specified to be effective at some other time. Except to the
extent expressly provided in a written agreement with the Trust, no Trustee
resigning and no Trustee removed shall have any right to any compensation for
any period following his resignation or removal, or any right to damages on
account of such removal. The Shareholders may fix the number of Trustees and
elect Trustees at any meeting of shareholders called by the Trustees for that
purpose and to the extent required by applicable law, including paragraphs (a)
and (b) of Section 16 of the 1940 Act. In case of the declination, death,
resignation, retirement, removal, incapacity, or inability of any of the
Trustees, or in case a vacancy shall exist by reason of an increase in number,
or for any other reason, the remaining Trustees shall fill such vacancy by
appointing such other person as they in their discretion shall see fit
consistent with the 1940 Act; such power of appointment is subject to the
provisions of Section 16(a) of the 1940 Act. Until any such vacancy is filled as
provided in this
- 8 -
<PAGE>
Section 1, the Trustees then in office shall, regardless of their number, have
all powers granted to and discharge all duties imposed on the Trustees hereby.
Such appointment shall be evidenced by a written instrument signed by a majority
of the Trustees in office, even though less than a quorum, or by recording in
the records of the Trust, and shall take effect upon such signing or recording
and the acceptance of such appointment by the Trustee so appointed. An
appointment of a Trustee may be made by the Trustees then in office in
anticipation of a vacancy to occur by reason of retirement, resignation or
increase in number of Trustees effective at a later date, provided that said
appointment shall become effective only at or after the effective date of said
retirement, resignation or increase in number of Trustees.
Section 2. Effect of Death, Resignation, etc. of a Trustee. The death,
-----------------------------------------------------------
declination, resignation, retirement, removal, or incapacity of the Trustees, or
any of them, shall not operate to annul the Trust or to revoke any existing
agency created pursuant to the terms of this Declaration of Trust.
Section 3. Powers. Subject to the provisions of this Declaration of
------------------
Trust, the Trustees shall manage the business of the Trust as an investment
company, and they shall have all powers necessary and convenient to carry out
that responsibility including the power to engage in securities transactions of
all kinds on behalf of the Trust. Without limiting the foregoing, the Trustees
may adopt Bylaws not inconsistent with this Declaration of Trust providing for
the regulation and management of the affairs of the Trust and may amend and
repeal them to the extent that such Bylaws do not reserve that right to the
shareholders; they may fill vacancies in or remove from their number (including
any vacancies created by an increase in the number of Trustees); they may remove
from their number with or without cause; they may elect and remove such officers
and appoint and terminate such agents as they consider appropriate; they may
appoint from their own number and terminate one or more committees consisting of
two or more Trustees which may exercise the powers and authority of the Trustees
to the extent that the Trustees determine; they may employ one or more
custodians of the assets of the Trust and may authorize such custodians to
employ subcustodians and to deposit all or any part of such assets in a system
or systems for the central handling of securities or with a Federal Reserve
Bank, retain a transfer agent or a shareholder servicing agent, or both, provide
for the distribution of Shares by the Trust, through one or more principal
underwriters or otherwise, set record dates for the determination of
Shareholders with respect to various matters, and in general delegate such
authority as they consider desirable to any officer of the Trust, to any
committee of the Trustees and to any agent or employee of the Trust or to any
such custodian or underwriter.
Without limiting the foregoing, the Trustees shall have power and
authority:
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(a) To invest and reinvest cash, and to hold cash uninvested;
(b) To sell, exchange, lend, pledge, mortgage, hypothecate,
lease, or write options with respect to or otherwise deal in any property rights
relating to any or all of the assets of the Trust;
(c) To vote or give assent, or exercise any rights of
ownership, with respect to stock or other securities or property; and to execute
and deliver proxies or powers of attorney to such person or persons as the
Trustees shall deem proper, granting to such person or persons such power and
discretion with relation to securities or property as the Trustees shall deem
proper;
(d) To exercise powers and rights of subscription or otherwise
which in any manner arise out of ownership of securities;
(e) To hold any security or property in a form not indicating
any trust, whether in bearer, unregistered or other negotiable form, or in its
own name or in the name of a custodian or subcustodian or a nominee or nominees
or otherwise;
(f) To establish separate and distinct Series of Shares with
separately defined investment objectives, policies and purposes, and with
separately defined relative powers, rights, privileges and liabilities, and to
allocate assets, liabilities and expenses of the Trust to a particular Series of
Shares or to apportion the same among two or more Series, provided that any
liability or expense determined by the Trustees to have been incurred by a
particular Series of Shares shall be payable solely out of the assets of that
Series and to establish separate classes of Shares of each Series, all in
accordance with Article III hereof;
(g) To consent to or participate in any plan for the
reorganization, consolidation, merger or division of any corporation or issuer
of any security which is held in the Trust; to consent to any contract, lease,
mortgage, purchase or sale of property by such corporation or issuer; and to pay
calls or subscriptions with respect to any security held in the Trust;
(h) To join with other security holders in acting through a
committee, depositary, voting trustee or otherwise, and in that connection to
deposit any security with or transfer any security to, any such committee,
depositary or trustee, and to delegate to them such power and authority with
relation to any security (whether or not so deposited or transferred) as the
Trustees shall deem proper, and to agree to pay, and to pay, such portion of the
expenses and compensation of such committee, depositary or trustee as the
Trustees shall deem proper;
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<PAGE>
(i) To compromise, arbitrate or otherwise adjust claims in
favor of or against the Trust or any matter in controversy, including but not
limited to claims for taxes;
(j) To enter into joint ventures, general or limited
partnerships, limited liability companies and any other combina- tions or
associations;
(k) To borrow funds or other property;
(l) To endorse or guarantee the payment of any notes or other
obligations of any person; to make contracts of guaranty or suretyship, or
otherwise assume liability for payment thereof; and to mortgage and pledge the
Trust property or any part thereof to secure any or all of such obligations;
(m) To purchase and pay for entirely out of Trust property
such insurance as they may deem necessary or appropriate for the conduct of the
business, including without limitation, insurance policies insuring the assets
of the Trust and payment of distributions and principal on its portfolio
investments, and insurance policies insuring the Shareholders, Trustees,
officers, employees, agents, investment advisers, principal underwriters, or
independent contractors of the Trust individually against all claims and
liabilities of every nature arising by reason of holding, being or having held
any such office or position, or by reason of any action alleged to have been
taken or omitted by any such person as Trustee, officer, employee, agent,
investment adviser, principal underwriter, or independent contractor, including
any action taken or omitted that may be determined to constitute negligence,
whether or not the Trust would have the power to indemnify such person against
liability;
(n) To pay pensions as deemed appropriate by the Trustees and
to adopt, establish and carry out pension, profit-sharing, share bonus, share
purchase, savings, thrift and other retirement, incentive and benefit plans,
trusts and provisions, including the purchasing of life insurance and annuity
contracts as a means of providing such retirement and other benefits, for any or
all of the Trustees, officers, employees and agents of the Trust;
(o) To establish, from time to time, a minimum total
investment for Shareholders, and to require the redemption of the Shares of any
Shareholders whose investment is less than such minimum upon giving notice to
such Shareholder;
(p) To enter into contracts of any kind and description;
(q) To name, or to change the name or designation of the Trust
or any Series or class of the Trust, as permitted by any applicable Federal,
state or local law;
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<PAGE>
(r) To take whatever action may be necessary to enable the
Trust to comply with any applicable Federal, state or local statute, rule or
regulation; and
(s) To engage in any other lawful act or activity in which
corporations organized under the Pennsylvania Business Corporation Law may
engage.
The Trustees shall not in any way be bound or limited by any present or
future law or custom in regard to investments by Trustees. The Trustees shall
not be required to obtain any court order to deal with any assets of the Trust
or take any other action hereunder.
Section 4. Manner of Acting. Except as otherwise provided herein or
from time to time in the Bylaws, any action to be taken by the Trustees, or a
committee thereof, may be taken by a majority of the Trustees present at a
meeting of Trustees, or of the committee members present at a meeting of such
committee (if in either case a quorum is present), within or without
Pennsylvania, including any meeting held by means of a conference telephone or
other communications equipment by means of which all persons participating in
the meeting can communicate with each other simultaneously or by written consent
of a majority of the Trustees or members of such committee, then in office. At
any meeting of the Trustees, or a committee thereof, a majority of the Trustees
or members of such committee, as the case may be, shall constitute a quorum. If
a quorum is present when a duly called or held meeting is convened, the Trustees
present thereat may, following the withdrawal of one or more Trustees originally
present, continue to transact business until adjournment thereof, even though
such Trustees would not otherwise constitute a quorum. Meetings of the Trustees,
or a committee thereof, may be called orally or in writing by the Chairman of
the Trustees or of such committee or by any two other Trustees or committee
members, as the case may be. Notice of the time, date and place of all meetings
of the Trustees, or a committee thereof, shall be given to each Trustee or
committee member as provided in the Bylaws.
Notice of any meeting need not be given to any Trustee (or committee
member) who attends that meeting without objecting to the lack of notice or who
executes a written waiver of notice with respect to the meeting. Subject to the
requirements of the 1940 Act, the Trustees by majority vote may delegate to any
one of their number the authority to approve particular matters or take
particular actions on behalf of the Trust.
Section 5. Payment of Expenses by the Trust. The Trustees are
authorized to pay or cause to be paid out of the principal or income of the
Trust, or partly out of principal and partly out of income, as they deem fair,
all expenses, fees, charges, taxes and liabilities incurred or arising in
connection with the Trust, or in
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<PAGE>
connection with the management thereof, including but not limited to, the
Trustees' compensation, as authorized pursuant to Article VII, Section 1 hereof,
and reimbursement for expenses and disbursements, and such expenses and charges
for the services of the Trust's officers, employees, investment adviser or
manager, principal underwriter, auditor, counsel, custodian, transfer agent,
shareholder servicing agent, and such other agents or independent contractors
and such other expenses and charges as the Trustees may deem necessary or proper
to incur, provided, however, that all expenses, fees, charges, taxes and
liabilities incurred or arising in connection with a particular Series of Shares
or class as determined by the Trustees consistent with applicable law, shall be
payable solely out of the assets of that Series or class. Any general
liabilities, expenses, costs, charges or reserves of the Trust which are not
readily identifiable as belonging to any particular Series shall be allocated
and charged by the Trustees between or among any one or more of the Series in
such manner as the Trustees in their sole discretion deem fair and equitable.
Each such allocation shall be conclusive and binding upon the Shareholders of
all Series for all purposes. Any creditor of any Series may look only to the
assets of that Series to satisfy such creditor's debt.
Section 6. Payment of Expenses by Shareholders. The Trustees shall have
-----------------------------------------------
the power, as frequently as they may determine, to cause each Shareholder, or
each Shareholder of any particular Series, to pay directly, in advance or
arrears, for charges of the Trust's custodian or transfer, shareholder servicing
or similar agent, an amount fixed from time to time by the Trustees, by setting
off such charges due from such Shareholder from declared but unpaid dividends
owed such Shareholder and/or by reducing the number of Shares in the account of
such Shareholder by that number of full and/or fractional Shares which
represents the outstanding amount of such charges due from such Shareholder.
Section 7. Ownership of Assets of the Trust. Title to all of the assets
--------------------------------------------
of the Trust shall at all times be considered as vested in the Trustees as joint
tenants. The right, title and interest of the Trustees in such assets shall vest
automatically in each person who may hereafter become a Trustee, and upon any
Trustees' death, resignation or removal, such Trustee shall automatically cease
to have any right, title or interest in such assets. Vesting and cessation of
title as set forth in this Section 7 shall be effective notwithstanding the
absence of execution and delivery of any conveyancing documents.
Section 8. Management and Distribution Contracts. Subject to such
-------------------------------------------------
requirements and restrictions as may be set forth in the Bylaws, the Trustees
may, at any time and from time to time, contract for exclusive or nonexclusive
advisory and/or management services for the Trust or for any Series thereof with
any corporation, trust, association or other organization (the
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<PAGE>
"Manager"); and any such contract may contain such other terms as the Trustees
may determine, including without limitation, authority for the Manager to make
changes in the Trust's investments and to determine from time to time without
prior consultation with the Trustees what investments shall be purchased, held,
sold or exchanged and what portion, if any, of the assets of the Trust or any
Series thereof shall be held uninvested and to make changes in the investments
of the Trust or any Series thereof. The Trustees may also, at any time and from
time to time, contract with any corporation, trust, association or other
organization, and appoint it exclusive or nonexclusive distributor or principal
underwriter for the Shares. Every such contract shall comply with such
requirements and restrictions as may be set forth in the Bylaws, and any such
contract may contain such other terms as the Trustees may determine.
The fact that:
(i) any of the shareholders, Trustees or officers of the Trust
is a shareholder, director, officer, partner, trustee,
employee, manager, adviser, principal underwriter, distributor
or affiliate or agent of or for any corporation, trust,
association, or other organization, or of or for any parent or
affiliate of any organization, with which an advisory or
management contract, or principal underwriter's or
distributor's contract, or transfer, shareholder servicing or
other agency contract may have been or may hereafter be made,
or that any such organization, or any parent or affiliate
thereof, is a Shareholder or has an interest in the Trust, or
that
(ii) any corporation, trust, association or other organization
with which an advisory or management contract or principal
underwriter's or distributor's contract, or transfer,
shareholder servicing or other agency contract may have been
or may hereafter be made also has an advisory or management
contract, or principal underwriter's or distributor's
contract, or transfer, shareholder servicing or other agency
contract with one or more other corporations, trusts,
associations, or other organizations, or has other business or
interests,
shall not affect the validity of any such contract or disqualify any
Shareholder, Trustee or officer of the Trust from voting upon or
executing the same or create any liability or accountability to the
Trust or its Shareholders.
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<PAGE>
ARTICLE V
Shareholders' Voting Powers and Meetings
Section 1. Voting Powers. The Shareholders shall have power to vote
-------------------------
only (i) for the election of Trustees as provided in Article IV, Section 1, (ii)
with respect to any manager as provided in Article IV, Section 8, (iii) with
respect to any amendment of this Declaration of Trust to the extent and as
provided in Article VIII, Section 9, (iv) to the same extent as the stockholders
of a Pennsylvania business corporation as to whether or not a court action,
proceeding or claim should or should not be brought or maintained derivatively
or as a class action on behalf of the Trust or the Shareholders, (v) with
respect to the termination of the Trust or any Series to the extent and as
provided in Article VIII, Section 4, (vi) with respect to any merger,
consolidation, sale of assets, or incorporation of the Trust or any Series to
the extent and as provided in Article VIII, Sections 6 and 7, hereof, and (vii)
with respect to such additional matters relating to the Trust as may be required
by this Declaration of Trust, the Bylaws or any registration of the Trust with
the Commission (or any successor agency) or any state, or as the Trustees may
consider necessary or desirable. Each whole Share shall be entitled to one vote
as to any matter on which it is entitled to vote and each fractional share shall
be entitled to a proportionate fractional vote. There shall be no cumulative
voting in the election of Trustees. Shares may be voted in person or by proxy. A
proxy with respect to Shares held in the name of two or more persons shall be
valid if executed by any one of them unless at or prior to exercise of the proxy
the Trust receives a specific written notice to the contrary from any one of
them. A proxy purporting to be executed by or on behalf of a Shareholder shall
be deemed valid unless challenged at or prior to its exercise, and the burden of
proving invalidity shall rest on the challenger. At any time when no Shares of a
Series are outstanding, the Trustees may exercise all rights of Shareholders of
that Series with respect to matters affecting that Series and may, with respect
to that Series, take any action required by law, this Declaration of Trust or
the Bylaws to be taken by the Shareholders.
Section 2. Voting Power and Meetings. Meetings of the Shareholders may
-------------------------------------
be called by the Trustees for the purpose of electing Trustees as provided in
Article IV, Section 1 and for such other purposes as may be prescribed by law,
this Declaration of Trust or the Bylaws. Meetings of the Shareholders may also
be called by the Trustees from time to time for the purpose of taking action
upon any other matter deemed by the Trustees to be necessary or desirable. A
meeting of Shareholders may be held at any place designated by the Trustees.
Written notice of any meeting of Shareholders shall be given or caused
to be given by the Trustees by mailing such notice at
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<PAGE>
least seven days before such meeting, first class postage prepaid, stating the
time and place of the meeting, to each Shareholder at the Shareholder's address
as it appears on the records of the Trust. If the Trustees give notice by mail
of any regular or special meeting of the Shareholders (or any other notice
required by law or this Declaration of Trust or the Bylaws to be given to all
Shareholders or to all Shareholders of one or more Series) at least 20 days
prior to the day named for the meeting or any Trust or Shareholder action
specified in the notice they may use any class of postpaid mail. Whenever notice
of a meeting is required to be given to a Shareholder under this Declaration of
Trust or the Bylaws, a written waiver thereof, executed before or after the
meeting by such Shareholder or his attorney thereunto authorized and filed with
the records of the meeting, shall be deemed equivalent to such notice. When a
meeting of Shareholders is adjourned, it shall not be necessary to give any
notice of the adjourned meeting or of the business to be transacted at an
adjourned meeting, other than by announcement at the meeting at which the
adjournment is taken, unless the Trustees fix a new record date for the
adjourned meeting or this Declaration of Trust or the Bylaws require notice of
the business to be transacted and such notice has not previously been given.
Section 3. Quorum and Required Vote. Except when a larger quorum is
required by law, the Bylaws or this Declaration of Trust, 40% of the Shares
entitled to vote shall constitute a quorum at a Shareholders' meeting. When any
one or more Series is to vote as a single class separate from any other Shares
which are to vote on the same matters as a separate class or classes, 40% of the
Shares of each such class entitled to vote shall constitute a quorum at a
Shareholder's meeting of that class. Any meeting of Shareholders may be
adjourned from time to time by a majority of the votes properly cast upon the
question, whether or not a quorum is present, and the meeting may be held as
adjourned within a reasonable period of time after the date set for the original
meeting without further notice. When a quorum is present at any meeting, a
majority of the Shares voted shall decide any questions and a plurality shall
elect a Trustee, except when a larger vote is required by any provision of this
Declaration of Trust or the Bylaws or by law. If any question on which the
Shareholders are entitled to vote would adversely affect the rights of any
Series or class of Shares, the vote of a majority (or such larger vote as is
required as aforesaid) of the Shares of such Series or class voting thereon
which are entitled to vote, voting separately, shall also be required to decide
such question.
Section 4. Action by Written Consent. Any action taken by Shareholders
may be taken without a meeting if (i) Shareholders holding a majority of the
Shares entitled to vote on the matter (or such larger proportion thereof as
shall be required by any express provision of this Declaration of Trust or by
the Bylaws) and holding a majority (or such larger proportion as aforesaid) of
the
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<PAGE>
Shares of any Series or class entitled to vote separately on the matter consent
to the action in writing and such written consents are filed with the records of
the meetings of Shareholders. Such consent shall be treated for all purposes as
a vote taken at a meeting of Shareholders.
Section 5. Record Dates. For the purpose of determining the
Shareholders of any Series who are entitled to vote or act at any meeting or any
adjournment thereof, the Trustees may from time to time fix a time, which shall
be not more than 90 days before the date of any meeting of Shareholders, as the
record date for determining the Shareholders of such Series having the right to
notice of and to vote at such meeting and any adjournment thereof, and in such
case only Shareholders of record on such record date shall have such right,
notwithstanding any transfer of shares on the books of the Trust after the
record date. For the purpose of determining the Shareholders of any Series who
are entitled to receive payment of any dividend or of any other distribution,
the Trustees may from time to time fix a date, which shall be before the date
for the payment of such dividend or such other payment, as the record date for
determining the Shareholders of such Series having the right to receive such
dividend or distribution. Without fixing a record date the Trustees may for
voting and/or distribution purposes close the register or transfer books for one
or more Series for all or any part of the period between a record date and a
meeting of shareholders or the payment of a distribution. Nothing in this
section shall be construed as precluding the Trustees from setting different
record dates for different Series.
Section 6. Additional Provisions. The Bylaws may include further
provisions for Shareholders' votes and meetings and related matters.
ARTICLE VI
Distributions, Redemptions and Repurchases
Section 1. Distributions of Net Income. The Trustees shall each year,
or more frequently if they so determine in their sole discretion, distribute to
the Shareholders of each Series, in shares of that Series, cash or otherwise, an
amount approximately equal to the net income attributable to the assets
belonging to such Series and may from time to time distribute to the
Shareholders of each Series, in shares of that Series, cash or otherwise, such
additional amounts, but only from the assets belonging to such Series, as they
may authorize. All dividends and distributions on Shares of a particular Series
shall be distributed pro rata to the holders of that Series in proportion to the
number of Shares of that Series held by such holders and recorded on the books
of the Trust at the date and time of record established for that payment of such
dividend or distributions. The manner of
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<PAGE>
determining net income, income, asset values, capital gains, expenses,
liabilities and reserves of any Series may from time to time be altered as
necessary or desirable in the judgment of the Trustees to conform such manner of
determination to any other method prescribed or permitted by applicable law. Net
income shall be determined by the Trustees or by such person or persons as they
may authorize at the times and in the manner provided in the Bylaws.
Determinations of net income of any Series and determinations of income, asset
value, capital gains, expenses, and liabilities made by the Trustees, or by such
person or persons as they may authorize, in good faith, shall be binding on all
parties concerned. The foregoing sentence shall not be construed to protect any
Trustee, officer or agent of the Trust against any liability to the Trust or its
security holders to which he or she would otherwise be subject by reason of
self-dealing, willful misconduct or recklessness.
If, for any reason, the net income of any Series determined at any time
is a negative amount, the pro rata share of such negative amount allocable to
each Shareholder of such Series shall constitute a liability of such Shareholder
to that Series which shall be paid out of such Shareholder's account at such
times and in such manner as the Trustees may from time to time determine (x) out
of the accrued dividend account of such Shareholder, (y) by reducing the number
of Shares of that Series in the account of such Shareholder or (z) otherwise.
Section 2. Redemptions and Repurchases. The Trust shall purchase such
Shares as are offered by any Shareholder for redemption, upon the presentation
of a proper instrument of transfer together with a request directed to the Trust
or to a person designated by the Trust that the Trust purchase such Shares, or
in accordance with such other procedures for redemption as the Trustees may from
time to time authorize; and the Trust will pay therefor the net asset value
thereof, as determined in accordance with the Bylaws, next determined. Payment
for said Shares shall be made by the Trust to the Shareholder within seven days
after the date on which the request is made. The obligation set forth in this
Section 2 is subject to the provision that in the event that any time the New
York Stock Exchange is closed, other than weekends or holidays, or if permitted
by the rules of the Commission during periods when trading on the Exchange is
restricted or during any emergency which makes it impracticable for the Trust to
dispose of the investments of the applicable Series or to determine fairly the
value of the net assets belonging to such Series or during any other period
permitted by order of the Commission for the protection of investors, such
obligations may be suspended or postponed by the Trustees. If there is such a
suspension, any Shareholder may withdraw any demand for redemption and any
tender of Shares which has been received by the Trust during any such period and
any tender of Shares the applicable net asset value of which would but for such
suspension be calculated as of a time
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<PAGE>
during such period. Upon such withdrawal, the Trust shall return to the
Shareholder the certificates therefor, if any. Shareholders who do not so
withdraw any such demand shall receive payment based on the net asset value next
determined after the termination of such suspension. The Trust may also purchase
or repurchase Shares at a price not exceeding the net asset value of such Shares
in effect when the purchase or repurchase or any contract to purchase or
repurchase is made.
Section 3. Payment in Kind. Subject to any generally applicable
---------------------------
limitation imposed by the Trustees, any payment on redemption, purchase or
repurchase by the Trust of Shares may, if authorized by the Trustees, be made
wholly or partly in kind, instead of in cash. Such payment in kind shall be made
by distributing securities or other property, constituting, in the opinion of
the Trustees, a fair representation of the various types of securities and other
property then held by the Series of Shares being redeemed, purchased or
repurchased (but not necessarily involving a portion of each of that Series'
holdings) and taken at their value used in determining the net asset value of
the Shares in respect of which payment is made.
Section 4. Additional Provisions Relating to Redemptions and
------------------------------------------------------------
Repurchases. The completion of redemption, purchase or repurchase of Shares
- ------------
shall constitute a full discharge of the Trust and the Trustees with respect to
such Shares and the Trustees may require that any certificate or certificates
issued by the Trust to evidence the ownership of such Shares shall be
surrendered to the Trustees for cancellation or notation.
Section 5. Assets Available for Dividends, Distributions, Redemptions
---------------------------------------------------------------------
and Repurchases. No dividend or distribution (including, without limitation, any
- ----------------
distribution paid upon termination of the Trust or of any Series) with respect
to, nor any redemption or repurchase of, the Shares of any Series shall be
effected by the Trust other than from the assets of such Series.
Section 6. Redemptions at the Option of the Trust. The Trustees shall
--------------------------------------------------
have the power at any time to redeem Shares, of any class of any Series, of a
Shareholder at a redemption price determined in accordance with the provisions
of Section 2 of this Article if at such time the aggregate net asset value of
the Shares of that class of that Series in such Shareholder's account is less
than the minimum investment amount established by the Trustees for that class of
that Series. A Shareholder shall be notified prior to any such redemption and
shall be allowed 60 days to make additional investments in Shares of that class
of that Series before such redemption is effected.
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<PAGE>
ARTICLE VII
Compensation and Limitation of Liability of Trustees
Section 1. Compensation. The Trustees as such shall be entitled to
------------------------
reasonable compensation from the Trust; they may fix the amount of their
compensation. Nothing herein shall in any way prevent the employment of any
Trustee for advisory, management, legal, accounting, investment banking or other
services and payment for the same by the Trust.
Section 2. Limitation of Liability. The Trustees shall not be
-----------------------------------
responsible or liable in any event for any neglect or wrongdoing of any officer,
agent, employee, Manager or principal underwriter of the Trust, nor shall any
Trustee be responsible for the act or omission of any other Trustee. As provided
by 15 Pa.C.S. ss. 9506(a) (relating to liability of trustees and beneficiaries)
Trustees, as such, shall not be personally liable for any obligation of the
Trust or for any act or omission as a Trustee of the Trust, but a Trustee, as
such, shall have the fiduciary liability to the Trust and to the Shareholders
that a director of a business corporation has to the corporation and its
shareholders under 15 Pa.C.S. Subchapter 17B (relating to fiduciary duty).
Every note, bond, contract, instrument, certificate or undertaking and
every other act or thing whatsoever issued, executed or done by or on behalf of
the Trust or the Trustees or any of them in connection with the Trust shall be
conclusively deemed to have been issued, executed or done only in or with
respect to their or his or her capacity as Trustees or Trustee, and such
Trustees or Trustee shall not be personally liable thereon.
ARTICLE VIII
Miscellaneous
Section 1. Trustees, Shareholders, etc. Not Personally Liable; Notice.
----------------------------------------------------------------------
As provided by 15 Pa.C.S. ss. 9506(a) (relating to liability of trustees and
beneficiaries), all persons extending credit to, contracting with or having any
claim against the Trust or any Series shall look only to the assets of the
Trust, or, to the extent that the liability of the Trust may have been expressly
limited by contract to the assets of a particular Series, only to the assets
belonging to the relevant Series, for payment under such credit, contract or
claim and neither the Shareholders nor the Trustees, nor any of the Trust's
officers, employees or agents, whether past, present or future, shall be
personally liable therefor.
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<PAGE>
Every note, bond, contract, instrument, certificate or undertaking made
or issued on behalf of the Trust by the Trustees, by any officers or officer or
otherwise shall give notice that this Declaration of Trust is on file with the
Department of State of the Commonwealth of Pennsylvania and shall recite that
the same was executed or made by or on behalf of the Trust or by them as
Trustees or Trustee or as officers or officer or otherwise and not individually,
and that the obligations of such instrument or instruments are not binding upon
any of them or the Shareholders individually but are binding only upon the
assets and property of the Trust or upon the assets belonging to the relevant
Series for the benefit of which the Trustees have caused the note, bond,
contract, instrument, certificate or undertaking to be made or issued, and may
contain such further recital as he, she or they may deem appropriate, but the
omission of any such recital shall not operate to bind any Trustees or Trustee
or officers or officer or Shareholders or Shareholder or any other person
individually.
Section 2. Trustee's Good Faith Action, Expert Advice, No Bond or
------------------------------------------------------------------
Surety. The exercise by the Trustees of their powers and discretions hereunder
- -------
shall be binding upon everyone interested. The Trustees may take advice of
counsel or other experts with respect to the meaning and operation of this
Declaration of Trust, and shall be under no liability for any act or omission in
accordance with such advice or for failing to follow such advice. The Trustees
shall not be required to give any bond as such, nor any surety if a bond is
required.
Section 3. Liability of Third Persons Dealing with Trustees. No person
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dealing with the Trustees shall be bound to make any inquiry concerning the
validity of any transaction made or to be made by the Trustees or to see to the
application of any payments made or property transferred to the Trust or upon
its order.
Section 4. Duration and Termination of Trust. Unless terminated as
---------------------------------------------
provided herein, the Trust shall continue without limitation of time. The Trust
may be terminated at any time by vote of at least 66-2/3% of the Shares of each
Series entitled to vote and voting separately by Series or by the Trustees by
written notice to the shareholders. Any Series may be terminated at any time by
vote of at least 66-2/3% of the Shares of that Series or by the Trustees by
written notice to the shareholders of that Series.
Upon termination of the Trust (or any Series, as the case may be),
after paying or otherwise providing for all charges, taxes, expenses and
liabilities belonging, severally, to each Series (or the applicable Series, as
the case may be), whether due or accrued or anticipated, as may be determined by
the Trustees, the Trust shall in accordance with such procedures as the Trustees
consider appropriate reduce the remaining assets belonging, severally, to each
Series (or the applicable Series, as the case may be), to
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distributable form in cash or shares or other securities, or any combination
thereof, and distribute the proceeds belonging to each Series (or the applicable
Series, as the case may be), to the Shareholders of that Series, as a Series,
ratably according to the number of Shares of that Series held by the several
Shareholders on the date of termination.
Section 5. Filing of Copies, References, Headings. The original or a
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copy of this instrument and of each amendment hereto shall be kept at the office
of the Trust where it may be inspected by any Shareholder. A copy of this
instrument and of each amendment hereto shall be filed by the Trust with the
Department of State of the Commonwealth of Pennsylvania and with any other
governmental office where such filing may from time to time be required. Anyone
dealing with the Trust may rely on a certificate by an officer of the Trust as
to whether or not any such amendments have been made and as to any matters in
connection with the Trust hereunder; and, with the same effect as if it were the
original, may rely on a copy certified by an officer of the Trust to be a copy
of this instrument or of any such amendments. In this instrument and in any such
amendment, references to this instrument, and all expressions like "herein" and
"hereunder," shall be deemed to refer to this instrument as amended or affected
by any such amendments. Headings are placed herein for convenience of reference
only and shall not be taken as a part hereof or control or affect the meaning,
construction or effect of this instrument. This instrument may be executed in
any number of counterparts, each of which shall be deemed an original.
Section 6. Merger, Consolidation, Division and Sale of Assets. The
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Trust may merge or consolidate with any other corporation, association, trust or
other organization or may sell, lease or exchange all or substantially all of
the assets of the Trust (or all or substantially all of the assets allocated or
belonging to a particular Series of the Trust) including its good will, upon
such terms and conditions and for such consideration when and as authorized, at
any meeting of Shareholders called for such purpose, by the vote or written
consent of the holders of two-thirds of the outstanding Shares of all Series of
the Trust voting as a single class, or of the affected Series of the Trust, as
the case may be; provided, however, that if such merger, consolidation, sale,
lease or exchange is recommended by the Trustees, the vote or written consent by
Majority Shareholder Vote shall be sufficient authorization; and any such
merger, consolidation, sale, lease or exchange shall be deemed for all purposes
to have been accomplished under and pursuant to the statutes of the Commonwealth
of Pennsylvania. The Trust may also participate in a division of the Trust,
similar to a division of a Pennsylvania business corporation, pursuant to a Plan
of Division under 15 Pa.C.S. Subchapter 19D (relating to division of
corporation). Nothing contained herein shall be construed as requiring approval
of Shareholders for any sale of assets in the
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ordinary course of the business of the Trust. Holders of Shares of any Series or
class shall have no appraisal rights with respect to their Shares.
Section 7. Incorporation, Reorganization. With the approval of the
-----------------------------------------
holders of a majority of the Shares outstanding and entitled to vote, the
Trustees may cause to be organized or assist in organizing a corporation or
corporations under the laws of any jurisdiction, or any other trust, unit
investment trust, partnership, association or other organization to take over
the assets of the Trust or to carry on any business in which the Trust shall
directly or indirectly have any interest, and to sell, convey and transfer such
assets to any such corporation, trust, partnership, association or organization
in exchange for the shares or securities thereof or otherwise, and to lend money
to, subscribe for the shares or securities of, and enter into any contracts with
any such corporation, trust, partnership, association or organization in which
the Trust holds or is about to acquire shares or any other interest. Subject to
Section 6 of this Article VIII, the Trustees may also cause a merger or
consolidation between the Trust or any successor thereto and any such
corporation, trust, partnership, association or other organization if and to the
extent permitted by law. Nothing contained in this Section shall be construed as
requiring approval of Shareholders for the Trustees to organize or assist in
organizing one or more corporations, trusts, partnerships, associations or other
organizations and selling, conveying or transferring a portion of the assets of
the Trust to such organization or entities.
With the approval of a Majority Shareholder Vote of any Series, the
Trustees may sell, lease or exchange all of the assets allocated or belonging to
that Series, or cause to be organized or assist in organizing a corporation or
corporations under the laws of any other jurisdiction, or any other trust, unit
investment trust, partnership, association or other organization, to take over
all of the assets allocated or belonging to that Series and to sell, convey or
transfer such assets to any such corporation, trust, unit investment trust,
partnership, association, or other organization in exchange for the shares or
securities thereof or otherwise.
Section 8. Applicable Law. This Declaration of Trust is made in the
--------------------------
Commonwealth of Pennsylvania, and it is created under and is to be governed by
and construed and administered according to the laws of said Commonwealth. The
Trust shall be of the type commonly called a Pennsylvania Business Trust,
subject to Chapter 95 (relating to business trusts) of the Pennsylvania
Associations Code and without limiting the provisions hereof, the Trust may
exercise all powers which are ordinarily exercised by such a trust.
Section 9. Amendments. This Declaration of Trust may be amended at any
----------------------
time by an instrument in writing signed by a
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majority of the then Trustees when authorized to do so by vote or written
consent of Shareholders, except that an amendment which shall affect the holders
of one or more Series or classes of Shares but not the holders of all
outstanding Series or classes shall be authorized by vote or written consent of
the Shareholders of each Series or class affected and no vote of Shareholders of
a Series or class not affected shall be required. Amendments having the purpose
of changing the name of the Trust or of supplying any omission, curing any
ambiguity or curing, correcting or supplementing any defective or inconsistent
provision contained herein shall not require authorization by Shareholder vote.
IN WITNESS WHEREOF, the undersigned Trustees have hereby set their
hands as of this 29th day of February, 1996.
/s/ Thomas L. Bennett
------------------------
Thomas L. Bennett
/s/ David P. Easburn
------------------------
David P. Eastburn
/s/ Joseph P. Healey
------------------------
Joseph P. Healey
/s/ Joseph J. Kearns
------------------------
Joseph J. Kearns
/s/ C. Oscar Morong, Jr.
------------------------
C. Oscar Morong, Jr.
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Exhibit 99.B24
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, Thomas L. Bennett 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/ Vincent R. McLean Date: May 23, 1996
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Vincent R. McLean
Trustee
