<PAGE> 1
FINANCIAL STATEMENTS
1996
LOGO
ADVISORY FOREIGN FIXED INCOME PORTFOLIO
ADVISORY MORTGAGE PORTFOLIO
SEMI-ANNUAL REPORT
1996
<PAGE> 2
We are pleased to present the Semi-Annual Report for the Advisory Foreign Fixed
Income and Advisory Mortgage Portfolios of MAS Funds as of March 31, 1996.
TABLE OF CONTENTS
<TABLE>
<S> <C>
MAS Overview and Statement of Net Assets
Advisory Foreign Fixed Income
Portfolio............................. 1
Advisory Mortgage Portfolio.............. 3
Statement of Operations..................... 11
Statement of Changes in Net Assets.......... 12
Financial Highlights........................ 13
Notes to Financial Statements............... 14
</TABLE>
THIS SEMI-ANNUAL REPORT CONTAINS CERTAIN INVESTMENT RETURN INFORMATION. IT
SHOULD BE NOTED THAT PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS AND
THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH EITHER MORE OR LESS THAN
THEIR ORIGINAL COST.
THIS REPORT HAS BEEN PREPARED FOR SHAREHOLDERS AND MAY BE DISTRIBUTED TO OTHERS
ONLY IF PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS.
<PAGE> 3
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
ADVISORY FOREIGN FIXED
INCOME PORTFOLIO
(UNAUDITED)
MAS OVERVIEW
- ---------------------------------------------------------
The Advisory Foreign Fixed Income Portfolio is used as a vehicle for making
opportunistic foreign bond investments in core fixed-income portfolios managed
by Miller Anderson & Sherrerd. This strategy concentrates on enhancing total
returns through investments in foreign fixed-income securities and is managed as
one component of a diversified portfolio. All securities held in the Portfolio
have a credit quality of A or better. Derivatives may be used to represent
country investments or otherwise pursue portfolio strategy. Investment results
for this fund should not be analyzed on a stand-alone basis, but as part of the
total return for a diversified fixed-income investment. Returns are presented
here in compliance with reporting requirements for mutual funds. The Portfolio
is available only to private advisory clients of Miller Anderson & Sherrerd,
LLP.
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------
AVERAGE ANNUAL RETURNS ENDED 3/31/96*
MAS INDEX
--------------------------------
SIX MONTHS 7.1% 2.5%
ONE YEAR 15.7 10.9
SINCE INCEPTION 13.1 11.4
- ---------------------------------------------------------
</TABLE>
MAS Funds returns are net of all fees. Returns represent past performance and
are not indicative of future results.
The investment return and principal value of an investment will fluctuate so
that an investor's shares, when redeemed, may be worth either more or less than
their original cost.
Until further notice, the Advisor has voluntarily agreed to waive its advisory
fees and reimburse certain expenses to the extent necessary, if any, to keep
total annual operating expenses for the Advisory Foreign Fixed Income Portfolio
from exceeding 0.15% of average daily net assets.
* Returns since inception on 10/7/94 to 3/31/96 for the Advisory Foreign Fixed
Income Portfolio are compared to the Salomon Broad Index, an unmanaged market
index. Returns for periods less than one year are cumulative.
STATEMENT OF NET ASSETS
FIXED INCOME SECURITIES (69.8%)
<TABLE>
<CAPTION>
- ---------------------------------------------------------
RATINGS FACE
(STANDARD AMOUNT VALUE
MARCH 31, 1996 & POOR'S) (000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
AUSTRIAN SCHILLING (1.1%)
Government of Austria
5.50%, 1/18/04 AAA ATS 80,000 $ 7,381
- ---------------------------------------------------------
DANISH KRONE (19.1%)
Kingdom of Denmark
8.00%, 3/15/06 AAA DKK 375,000 67,933
9.00%, 11/15/00 AAA 316,945 61,576
- ---------------------------------------------------------
GROUP TOTAL 129,509
- ---------------------------------------------------------
EUROPEAN CURRENCY UNIT (3.0%)
United Kingdom
9.125%, 2/21/01 AAA ECU 14,445 20,142
- ---------------------------------------------------------
FINNISH MARKKA (1.9%)
Government of Finland
9.50%, 3/15/04 AAA FIM 55,000 13,134
- ---------------------------------------------------------
FRENCH FRANC (1.6%)
Credit Foncier
9.20%, 1/2/00 A FRF 52,000 11,066
- ---------------------------------------------------------
GERMAN MARK (16.9%)
Allgemeine Hypo Bank
AG
6.00%, 9/16/02 AAA DEM 20,000 13,597
Government of
Germany
++ 7.125%, 1/29/03 AAA 18,595 13,353
7.50%, 9/9/04 AAA 50,000 36,335
7.75%, 10/1/02 AAA 51,065 37,856
International Bank for
Reconstruction
& Development
7.125%, 4/12/05 AAA 275 194
LKB-Baden Wurtt
6.00%, 1/25/06 AAA 20,000 12,933
- ---------------------------------------------------------
GROUP TOTAL 114,268
- ---------------------------------------------------------
NETHERLANDS GUILDER (16.6%)
Netherlands
Government
5.75%, 1/15/04 AAA NLG 120,000 70,708
6.50%, 4/15/03 AAA 23,580 14,672
8.50%, 3/15/01 AAA 39,300 26,871
- ---------------------------------------------------------
GROUP TOTAL 112,251
- ---------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
1
<PAGE> 4
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ADVISORY FOREIGN FIXED
INCOME PORTFOLIO
<S> <C> <C> <C> <C>
RATINGS FACE
(STANDARD AMOUNT VALUE
(CONT'D) & POOR'S) (000) (000)+
- ---------------------------------------------------------
SPANISH PESETA (4.9%)
Spanish Government
11.30%, 1/15/02 AA ESP 3,850,000 $ 33,553
- ---------------------------------------------------------
U.S. DOLLAR (4.7%)
## Bank of Hawaii,
Honolulu
5.343%, 11/25/96 A $ 2,000 2,000
## Chase Manhattan
Bank
6.00%, 7/15/96 A 5,000 5,001
## Dean Witter
Discover & Co.
6.00%, 1/3/97 A 5,000 5,006
## Ford Motor
Credit Corp.
5.727%, 10/21/97 A+ 5,000 5,006
## John Deere
Capital Corp.
5.767%, 7/22/96 A 5,000 5,003
## Nationsbank
Corp.
5.50%, 11/18/96 A 3,000 3,001
## Province of
Quebec
5.581%, 9/14/97 A+ 3,500 3,500
## World Savings &
Loan Association
5.395%, 2/24/97 A+ 3,500 3,500
- ---------------------------------------------------------
GROUP TOTAL 32,017
- ---------------------------------------------------------
TOTAL FIXED INCOME SECURITIES (Cost
$477,421) 473,321
- ---------------------------------------------------------
FOREIGN CURRENCY (0.0%)
- ---------------------------------------------------------
Danish Krone DKK 15 3
European Currency
Unit ECU 1 1
@ Netherlands NLG
Guilder 1 --
- ---------------------------------------------------------
TOTAL FOREIGN CURRENCY (Cost $4) 4
- ---------------------------------------------------------
CASH EQUIVALENTS (28.6%)
- ---------------------------------------------------------
COMMERCIAL PAPER (20.0%)
Cargill Financial Services
Corp
5.38%, 4/12/96 $ 13,500 13,478
CIT Group Holdings, Inc.
5.18%, 4/5/96 13,500 13,492
Colgate Palmolive Co.
5.18%, 4/2/96 13,500 13,498
Commercial Credit Co.
5.38%, 4/10/96 13,500 13,482
Gannett Co.
5.25%, 4/23/96 14,000 13,955
IBM Credit Corp.
5.37%, 4/11/96 13,500 13,480
Monsanto Co.
5.35%, 4/25/96 11,100 11,060
PHH Corp.
5.25%, 4/26/96 14,000 13,949
Prudential Funding Co.
5.37%, 4/15/96 13,500 13,472
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)+
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
Southern Cal Edison Co.
5.35%, 4/30/96 $ 11,000 $ 10,953
Weyerhaeuser Mortgage Co.
5.17%, 4/4/96 5,000 4,998
- ---------------------------------------------------------
GROUP TOTAL 135,817
- ---------------------------------------------------------
REPURCHASE AGREEMENTS (8.6%)
The Chase Manhattan Bank,
N.A. 5.35%, dated 3/29/96,
due 4/1/96, to be
repurchased at $19,348
collateralized by various
U.S. Government Obligations,
due 5/31/96-5/31/97, valued
at $19,531 19,339 19,339
Goldman Sachs & Co.
5.18%, dated 3/29/96, due
4/1/96, to be repurchased at
$19,347 collateralized by
U.S. Treasury Bond, 13.75%,
due 8/15/96, valued at
$19,852 19,339 19,339
Merrill Lynch & Co. 5.15%,
dated 3/29/96, due 4/1/96,
to be repurchased at $19,347
collateralized by U.S.
Treasury Note, 4.375%, due
8/15/96, valued at $19,347 19,339 19,339
- ---------------------------------------------------------
GROUP TOTAL 58,017
- ---------------------------------------------------------
TOTAL CASH EQUIVALENTS (Cost $193,834) 193,834
- ---------------------------------------------------------
TOTAL INVESTMENTS (98.4%) (Cost $671,259) 667,159
- ---------------------------------------------------------
OTHER ASSETS AND LIABILITIES (1.6%)
Cash 1
Interest Receivable 9,076
Receivable for Daily Variation on
Futures Contracts 3,125
Unrealized Gain on Forward Foreign
Currency Contracts 2,623
Payable for Fund Shares Redeemed (3,755)
Payable for Administrative
Fees (47)
Payable for Custodian
Fees (39)
Other Liabilities (24)
--------
10,960
- ---------------------------------------------------------
NET ASSETS (100%)
- ---------------------------------------------------------
Applicable to 61,753,928 outstanding
shares of beneficial interest
(unlimited
authorization, no par value) $678,119
- ---------------------------------------------------------
NET ASSET VALUE PER SHARE $ 10.98
- ---------------------------------------------------------
+ See Note A1 to Financial Statements.
@ Value is less than $500.
++ A portion of these securities was pledged to cover
margin requirements for futures contracts.
## Variable or floating rate security-rate disclosed
is as of March 31, 1996.
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
2
<PAGE> 5
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
ADVISORY MORTGAGE
PORTFOLIO
(UNAUDITED)
MAS OVERVIEW
- ---------------------------------------------------------
The Advisory Mortgage Portfolio is used as a vehicle for making mortgage
investments in core fixed-income portfolios managed by Miller Anderson &
Sherrerd. The Advisory Mortgage Portfolio invests in a broad range of mortgage
securities, collateralized mortgage obligations (CMOs), asset-backed securities,
U.S. Government and other fixed-income securities and is managed as one
component of a diversified portfolio. Miller Anderson & Sherrerd selects
mortgages that appear most attractively priced, while managing the Portfolio's
prepayment sensitivity. Derivatives may be used to pursue portfolio strategy.
Investment results for this fund should not be analyzed on a stand-alone basis,
but as part of the total return for a diversified fixed-income investment.
Returns are presented here in compliance with reporting requirements for mutual
funds. The Portfolio is available only to private advisory clients of Miller
Anderson & Sherrerd, LLP.
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------
RETURNS ENDED 3/31/96*
MAS INDEX
--------------------------------
SIX MONTHS 3.3 % 2.9 %
SINCE INCEPTION 9.5 9.4
- ---------------------------------------------------------
</TABLE>
MAS Funds returns are net of all fees. Returns represent past performance and
are not indicative of future results.
The investment return and principal value of an investment will fluctuate so
that an investor's shares, when redeemed, may be worth either more or less than
their original cost.
Until further notice, the Advisor has voluntarily agreed to waive its advisory
fees and reimburse certain expenses to the extent necessary, if any, to keep
total annual operating expenses for the Advisory Mortgage Portfolio from
exceeding 0.08% of average daily net assets.
* Returns since inception on 4/12/95 to 3/31/96 for the Advisory Mortgage
Portfolio are compared to the Lehman Mortgage Index, an unmanaged market index.
Returns for periods less than one year are cumulative.
STATEMENT OF NET ASSETS
FIXED INCOME SECURITIES (101.8%)
<TABLE>
<CAPTION>
---------------------------------------------------------
RATINGS FACE
(STANDARD AMOUNT VALUE
MARCH 31, 1996 & POOR'S) (000) (000)dag.
---------------------------------------------------------
<S> <C> <C> <C> <C>
ADJUSTABLE RATE MORTGAGES (7.9%)
## Government National
Mortgage Association II
Various Pools:
++ 6.00%,
11/20/23-6/20/25 Agy $ 37,763 $ 37,585
6.50%,
3/20/22-2/20/25 Agy 57,944 58,277
7.00%,
10/20/23-11/20/24 Agy 24,486 24,674
- ---------------------------------------------------------
GROUP TOTAL 120,536
- ---------------------------------------------------------
AGENCY FIXED RATE MORTGAGES (39.6%)
Federal Home Loan Mortgage
Corporation
Conventional Pools:
6.00%, 1/1/01 Agy 43 42
6.50%, 3/1/02 Agy 35 34
6.75%, 12/1/05 Agy 253 249
8.25%,
11/1/07-7/1/08 Agy 289 295
10.25%,
1/1/09-9/1/16 Agy 176 192
10.50%,
1/11/11-12/1/20 Agy 3,987 4,362
11.00%,
1/1/12-11/1/20 Agy 9,070 10,107
11.25%,
6/1/10-10/1/15 Agy 157 175
11.50%,
2/1/00-7/1/19 Agy 4,698 5,274
12.00%,
10/1/09-8/1/15 Agy 986 1,117
12.50%,
10/1/09-9/1/13 Agy 173 198
13.50%, 2/1/10 Agy 45 52
Gold Pools:
7.00%,
2/1/26-3/1/26 Agy 51,000 49,740
9.50%,
9/1/20-1/1/21 Agy 27,373 29,336
10.00%,
1/1/21-10/1/21 Agy 1,913 2,084
10.50%,
6/1/11-3/1/21 Agy 904 983
11.00%,
5/1/12-11/1/15 Agy 526 588
11.50%,
8/1/15-10/1/19 Agy 329 370
April TBA
7.00%,
8/15/23-8/15/25 Agy 175,650 171,314
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
3
<PAGE> 6
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ADVISORY MORTGAGE
PORTFOLIO
<S> <C> <C> <C>
RATINGS FACE
(CONT'D) (STANDARD AMOUNT VALUE
& POOR'S) (000) (000)dag.
- ---------------------------------------------------------
Federal National Mortgage
Association
Conventional Pools:
10.00%,
9/1/16-5/1/22 Agy $ 21,929 $ 24,010
10.50%,
5/1/11-4/1/22 Agy 10,815 12,007
10.75%,
6/1/13-8/1/13 Agy 245 272
11.00%,
3/1/16-11/1/20 Agy 4,474 4,997
11.25%.
1/1/11-1/1/16 Agy 513 571
11.50%,
11/1/15-9/1/25 Agy 643 723
12.00%,
2/1/15-2/1/18 Agy 306 346
12.50%,
2/1/11-9/1/15 Agy 4,358 4,925
April TBA
7.00%, 12/15/25 Agy 50,000 48,719
9.50%, 4/15/26 Agy 4,600 4,906
May TBA
7.00%, 10/15/25 Agy 135,000 131,330
Government National
Mortgage Association
Various Pools:
10.00%, 11/15/18 Agy 55 61
10.50%,
10/15/00-5/15/21 Agy 9,359 10,411
11.00%,
12/15/09-11/20/19 Agy 5,185 5,832
11.50%,
1/15/13-2/15/16 Agy 1,352 1,511
12.00%,
11/15/12-4/15/15 Agy 778 891
12.50%,
11/15/10-7/15/15 Agy 795 914
13.00%,
11/15/13-9/15/14 Agy 440 511
13.50%, 5/15/13 Agy 175 202
April TBA
7.00%,
1/15/24-11/15/24 Agy 3,100 3,020
May TBA
7.00%, 11/15/25 Agy 12,500 12,158
7.50%, 2/15/26 Agy 61,500 61,308
- ---------------------------------------------------------
GROUP TOTAL 606,137
- ---------------------------------------------------------
ASSET BACKED MORTGAGES (0.4%)
Security Pacific Home Equity
Trust Series:
91-A A2
8.90%, 3/10/06 AAA 3,194 3,232
91-AB
10.50%, 3/10/06 A+ 3,305 3,420
- ---------------------------------------------------------
GROUP TOTAL 6,652
- ---------------------------------------------------------
<CAPTION>
<S> <C> <C> <C>
RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)dag.
- ---------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS-
AGENCY COLLATERAL SERIES (2.9%)
Collateralized Mortgage
Obligation Trust Series
86-13 Q Inv Fl
15.276%, 1/20/03 AAA $ 349 $ 389
Federal Home Loan
Mortgage Corporation
Series:
88-17 I PAC-1(11)
9.90%, 10/15/19 Agy 2,200 2,409
88-22 C PAC 11
9.50%, 4/15/20 Agy 760 839
88-23 F PAC-1(11)
9.60%, 4/15/20 Agy 1,025 1,134
89-39 F PAC-2(11)
10.00%, 5/15/20 Agy 1,350 1,500
89-47 F PAC
10.00%, 6/15/20 Agy 1,435 1,597
89-110 F PAC
8.55%, 1/15/21 Agy 800 829
90-129 H PAC
8.85%, 3/15/21 Agy 135 145
90-164 B12
9.50%, 7/15/21 Agy 4,700 5,102
90-1007 F Inv Fl
22.882%, 1/15/20 Agy 10 12
Federal National Mortgage
Association
Series:
89-22 G PAC (11)
10.00%, 5/25/19 Agy 4,975 5,616
89-92 G PAC (11)
8.60%, 12/25/04 Agy 750 790
90-85 D
9.50%, 9/25/19 Agy 7 7
90-106 J PAC
8.50%, 9/25/20 Agy 1,905 1,977
90-118 S Inv Fl
29.965%, 9/25/20 Agy 145 213
91-34 S Inv Fl
20.841%, 4/25/21 Agy 5,757 6,680
92-33 S Inv Fl IO
12.24%, 3/25/22 Agy 6,245 6,334
93-5 M
7.00%, 1/25/08 Agy 190 189
93-46 SD Inv Fl
4.851%, 4/25/23 Agy 8,330 4,381
93-115 SB Inv Fl
4.305%, 7/25/23 Agy 4,760 2,853
G 92-32 SQ Inv Fl IO
2707.832%, 6/25/22 Agy 28 1,877
Kidder Peabody
Mortgage Assets Trust
Series:
87 B Principal Only
4/22/18 Agy 207 159
87 B IO
9.50%, 4/22/18 Agy 207 56
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
4
<PAGE> 7
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)dag.
- ---------------------------------------------------------
Morgan Stanley
Mortgage Trust Series
88-28 8 PAC
9.40%, 10/1/18 AAA $ 125 $ 132
- ---------------------------------------------------------
GROUP TOTAL 45,220
- ---------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS-
NON-AGENCY COLLATERAL SERIES (30.2%)
American Housing
Trust Series:
IV 2
9.553%, 9/25/20 A 2,525 2,589
V 1G
9.125%, 4/25/21 AAA 5,940 6,044
Chase Mortgage Finance
Corp Series:
sec. 93-1 B2
7.911%, 3/28/24
(acquired 4/28/95-
10/30/95,
cost $3,407) A- 3,555 3,568
+ 93-N A8
6.75%, 11/25/24 Aaa 2,550 2,284
+ 94-H A7
7.25%, 6/25/25 Aaa 2,075 1,937
Chemical Mortgage
Securities, Inc.
Series:
sec. 93-1 M
7.45%, 2/25/23
(acquired 4/28/95-
10/30/95, cost
$4,287) AA 4,579 4,488
sec. 93-3 M
7.125%, 7/25/23
(acquired 6/9/95,
cost $5,750) AA 6,013 5,755
96-1 A9
7.25%, 1/25/26 AAA 12,258 11,840
Citicorp Mortgage
Securities, Inc.
Series:
90-7 A7
9.50%, 6/25/05 AA 773 771
90-11A 5
9.50%, 7/25/20 AAA 351 352
93-9 A1
7.00%, 3/25/20 AAA 585 586
94-7 A5
6.25%, 4/25/24 AAA 3,650 3,054
sec. 95-3 A6
7.50%, 11/25/25
(acquired 11/2/95-
1/25/96, cost
$3,801) AAA 3,723 3,685
CMC Securities Corp.
IV
Series 94-G A4
7.00%, 9/25/24 AAA 8,235 7,489
<CAPTION>
<S> <C> <C> <C>
RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)dag.
- ---------------------------------------------------------
Countrywide Funding
Corp. Series:
93-C A11
6.50%, 1/25/24 AAA $ 10,072 $ 9,196
94-12 A10
7.00%, 5/25/24 AAA 855 773
sec. 95-4 M
7.50%, 9/25/25
(acquired 9/13/95,
cost $6,544) AA 6,625 6,448
DLJ Mortgage
Acceptance Corp.
Series:
sec. 93-MF7 A1
7.40%, 6/18/03
(acquired 4/28/95-
11/29/95, cost
$8,796) AAA 8,704 8,885
93-M10 A2
7.20%, 7/15/03 AAA 4,957 5,010
First Boston Mortgage
Securities Corp.
Series:
sec. 92-BB M
8.625%, 7/25/23
(acquired 5/18/95-
12/12/95, cost
$2,268) AAA 2,221 2,265
sec. 92-4 B1
8.125%, 10/25/22
(acquired 4/28/95,
cost $71) A 78 76
93-2 B1
7.50%, 3/25/33 A 2,517 2,404
++sec. 93-5 B1
7.30%, 7/25/23
(acquired 1/25/96,
cost $766) A 778 737
GE Capital Mortgage
Services, Inc.
Series:
92-10A F
7.50%, 8/25/22 AAA 7,727 7,505
(+) 94-6 M
6.50%, 4/25/24 AA 2,274 2,063
94-14 A7
7.50%, 4/25/24 AAA 4,000 3,813
+ 94-19 M
7.50%, 8/25/24 A2 7,243 7,262
94-24 A4
7.00%, 7/25/24 AAA 9,324 8,568
94-27 A6
6.50%, 7/25/24 AAA 8,750 7,694
(+) 95-6 B2
7.00%, 8/25/25 N/R 3,095 2,852
95-9 A6
7.50%, 11/25/25 AAA 12,158 11,986
95-11 A6
7.50%, 12/25/25 AAA 9,681 9,410
96-2 A8
7.00%, 2/25/26 AAA 9,611 9,158
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
5
<PAGE> 8
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ADVISORY MORTGAGE
PORTFOLIO
<S> <C> <C> <C>
RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)dag.
- ---------------------------------------------------------
Independent National
Mortgage Corp. Series:
+sec. 94-O B1
7.875%, 9/25/24
(acquired 11/9/95,
cost $14,774) A2 $ 14,809 $ 14,389
95-Q A11
7.40%, 11/25/25 AAA 224 224
sec. 95-U A3
7.13%, 9/25/24
(acquired
10/17/95, cost
$11,573) AAA 11,672 11,237
sec. 95-V A3
7.12%, 2/25/26
(acquired
10/24/95, cost
$16,512) AAA 16,742 16,100
Mid-State Trust
Series 88-2 A4
9.625%, 4/1/03 AAA 18,045 19,822
Old Stone Credit
Corporation
Series 92-3 B1
6.35%, 9/25/07 AAA 352 346
PNC Mortgage Securities
Corp. Series 94-3 A8
7.50%, 7/25/24 AAA 4,525 4,364
Prudential Home
Mortgage Securities
Co., Inc. Series:
90-5 A3
9.50%, 5/25/05 AAA 145 145
90-8 A5 PAC-1(11)
9.50%, 9/25/20 AAA 166 166
(+) 92-A 1B4
7.90%, 4/28/22 AAA 4,045 4,019
(+) 92-A 2B4
7.90%, 4/28/22 AA 1,484 1,359
+sec. 92-33 B1
7.50%, 11/15/22
(acquired 4/28/95,
cost $686) A2 779 746
(+) 93-B B1
7.836%, 4/28/23 AA 3,443 3,412
(+) 93-B B2
7.836%, 4/28/23 A 5,115 5,005
+sec. 93-17 B1
6.50%, 3/1/23
(acquired 4/28/95,
cost $956) A2 1,028 985
++(+) 94-A 3B3
6.803%, 4/28/24 A 7,530 6,829
(+) 94-A 3B3
6.803%, 4/28/24 N/R 8,053 7,331
sec. 95-2 M
8.50%, 6/25/25
(acquired 9/26/95,
cost $347) AA 338 343
<CAPTION>
<S> <C> <C> <C>
RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)dag.
- ---------------------------------------------------------
sec. 95-6 M
7.50%, 9/25/25
(acquired 8/25/95,
cost $5,243) AA $ 5,386 $ 5,246
sec. 96-5 A6
7.25%, 4/25/26
(acquired 2/27/96,
cost $12,742) AAA 12,975 12,541
Residential Funding
Mortgage Securities
Co., Inc. Series:
87-S7 A
9.00%, 8/25/17 AAA 67 68
90-2 A
10.50%, 3/25/20 AA 59 59
92-S2 M
8.00%, 1/25/22 AA 3,554 3,593
sec. 92-S6 M
7.50%, 2/25/22
(acquired 4/28/95-
8/30/95, cost
$2,953) AA 3,109 3,081
92-S15 A5
8.00%, 5/25/07 AAA 1,070 1,074
92-S20 A11
8.10%, 6/25/22 AAA 491 495
sec. 93-MZ1 A2
7.47%, 3/2/23
(acquired 6/30/95-
9/28/95, cost
$973) AA 1,000 985
sec. 93-MZ2 A2
7.47%, 5/30/23
(acquired 4/28/95-
6/30/95, cost
$2,872) AA 3,069 2,961
++sec. 93-MZ3 A2
6.97%, 8/28/23
(acquired 6/2/95-
8/30/95, cost
$6,214) A 6,650 6,151
93-S2 M2
8.00%, 1/25/23 A 895 889
sec. 93-S43 A10
6.50%, 11/25/23
(acquired 6/12/95-
1/25/96, cost
$7,204) AAA 7,753 7,089
sec. 93-S27 M2
7.50%, 6/25/23
(acquired 1/25/96,
cost $489) A 486 467
sec. 94-S1 A19
6.75%, 1/25/24
(acquired 4/28/95-
10/30/95, cost
$8,412) AAA 9,190 8,565
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
6
<PAGE> 9
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)dag.
- ---------------------------------------------------------
95-R20 A5
7.50%, 12/25/25 AAA $ 10,163 $ 9,989
95-S11 A16
7.50%, 9/25/25 AAA 16,755 16,701
95-S16 A7
7.50%, 11/25/25 AAA 11,210 11,005
95-S17 A8
7.50%, 12/26/25 AAA 11,205 10,999
Resolution Trust Corp.
Series 92-16 C2
7.75%, 8/25/25 A 1,575 1,558
Rural Housing Trust
Series:
87-1 D
6.33%, 4/1/26 AAA 19,523 19,041
87-1 M
3.33%, 4/1/26 A- 18,676 17,183
87-2 C
6.83%, 4/1/26 AAA 13,829 13,705
Ryland Mortgage
Securities Corp.
Series:
92-A 1A
8.301%, 3/29/30 A- 5,274 5,298
+ 93-4 A9
7.50%, 8/25/24 Aaa 11,720 11,173
93-A 1A
7.45%, 1/28/23 AAA 1,724 1,649
94-7B 4A2
7.50%, 8/25/25 AAA 1,900 1,809
Ryland Mortgage
Securities Corp. Two
Series 1B
8.50%, 12/26/21 A 9,800 9,916
Salomon Brothers
Mortgage Securities
Series:
85-1
10.50%, 11/1/00 AA+ 22 22
+sec. 93-3 B1
7.20%, 8/25/23
(acquired 1/25/96,
cost $484) Aa2 487 464
Saxon Mortgage
Securities Corp.
Series:
93-4 1B
7.25%, 6/25/24 AAA 500 459
93-8A A6
7.375%, 9/25/23 AAA 390 367
Securitized Asset
Sales, Inc.
Series:
sec. 95-3 B1
7.50%, 10/25/25
(acquired 12/28/95
cost $4,525) A 4,476 4,298
<CAPTION>
<S> <C> <C> <C>
RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)dag.
- ---------------------------------------------------------
sec. 95-5 A7
7.50%, 12/25/25
(acquired
10/19/95-11/20/95,
cost $11,394) AAA $ 11,267 $ 11,104
+sec.95-B M
7.41%, 9/25/24
(acquired 6/30/95-
7/28/95, cost
$4,806) Aa1 5,133 4,798
Travelers Mortgage
Services, Inc.
Series 86-3 A
10.00%, 8/25/16 AA 122 125
- ---------------------------------------------------------
GROUP TOTAL 462,296
- ---------------------------------------------------------
COMMERCIAL MORTGAGES (11.8%)
American Southwest
Financial Securities
Corp. Series:
++ 93-2 A1
7.30%, 1/18/09 AA 8,285 8,314
+ 95-C1 A1B
7.40%, 11/17/04 Aaa 17,600 17,976
Asset Securitization
Corp. Series:
95-D1 A1
7.59%, 8/11/27 AAA 14,062 14,502
95-MD4 A1
7.10%, 8/13/29 AAA 16,437 16,525
Beverly Finance
8.36%, 7/15/04 AA- 9,040 9,459
(+) Equitable Life
Assurance Society of the
U.S.
6.633%, 7/23/03 AA 16,825 16,584
(+) Carousel Center Finance,
Inc. Series:
1 A1
6.828%, 11/15/07 AA 350 345
1 B
7.188%, 11/15/07 A 12,425 12,310
1 C
7.527%, 11/15/07 BBB+ 145 144
(+) CBM Funding Corp.
Series 96-1 A3PI
7.08%, 2/1/13 AA 14,225 14,131
(+) Creekwood Capital Corp.
Series 95-1A
8.47%, 3/16/15 AA 3,433 3,608
(+) CVM Finance Corp.
7.19%, 3/1/04 AA 441 437
+(+) DeBartolo Capital Corp.
Series A 2
7.48%, 5/1/04 Aaa 13,405 13,811
(+) FSA Finance, Inc.
Series 95-1A
7.42%, 6/1/07 AA 4,868 4,952
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
7
<PAGE> 10
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ADVISORY MORTGAGE
PORTFOLIO
<S> <C> <C> <C>
RATINGS FACE
(STANDARD AMOUNT VALUE
(CONT'D) & POOR'S) (000) (000)dag.
- ---------------------------------------------------------
J.P. Morgan Commercial
Mortgage Finance Corp.
Series 95-C1 A1
7.268%, 7/25/10 AAA $ 3,499 $ 3,534
(+) Lakeside Finance
Corp.
6.47%, 12/15/00 AA 240 235
(+) Lakewood Mall
Finance Co.
Series 95-C1 A
7.00%, 8/13/10 AA 11,925 11,758
Merrill Lynch Mortgage
Investors, Inc.
Series 96-C1 A3
7.42%, 3/25/26 AAA 1,150 1,161
Mortgage Capital
Funding, Inc.
Series 95-MC1 A1B
7.60%, 5/25/27 AAA 12,198 12,495
++ Nomura Asset Securities
Corp. Series:
94-MD1 A 1B
7.526%, 3/15/18 AAA 3,510 3,616
94-MD1 A2
7.676%, 3/15/18 AA 3,335 3,435
94-MD1 A3
8.026%, 3/15/18 A 3,850 4,053
Oakdale Mall
7.95%, 4/27/01 AAA 275 283
Sawgrass Financial
Series 93-A1
6.45%, 1/20/06 AAA 255 252
(+) Stratford Finance Corp.
6.776%, 2/1/04 AA 5,330 5,104
Woodland Finance Corp.
8.20%, 5/15/04 AA 700 730
- ---------------------------------------------------------
GROUP TOTAL 179,754
- ---------------------------------------------------------
FINANCE (1.1%)
## Caterpillar Financial
Services
5.513%, 6/20/97 A 4,775 4,776
## Ford Motor Credit Co.
5.513%, 11/3/97 A+ 3,125 3,127
## Household Finance Corp.
5.475%, 8/11/97 A 250 250
## Marshall & Ilsley Bank
5.465%, 5/26/97 A+ 4,375 4,375
## Wells Fargo & Co.
5.438%, 8/16/96 A- 4,625 4,625
- ---------------------------------------------------------
GROUP TOTAL 17,153
- ---------------------------------------------------------
FLOATING RATE NOTES (0.3%)
Federal Home Loan
Mortgage Corporation
Series
93-1634 SC Inv Fl
REMIC
6.697%, 12/15/23 Agy 4,000 2,083
<CAPTION>
<S> <C> <C> <C>
RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)dag.
- ---------------------------------------------------------
Federal National
Mortgage Association
Series:
93-22 S Inv Fl
REMIC
9.293%, 9/25/22 Agy $ 713 $ 541
93-46 SG Inv Fl
REMIC
6.65%, 7/25/22 Agy 2,810 1,816
- ---------------------------------------------------------
GROUP TOTAL 4,440
- ---------------------------------------------------------
/ / HEDGED MORTGAGES (4.0%)
Federal Home Loan
Mortgage Corporation
Series:
203-B Inv Fl IO CMO
92.248%, 4/15/23 Agy 2,535 6,663
1364-B Inv Fl IO CMO
6.107%, 9/15/07 Agy 13,489 1,709
1364-E Inv Fl IO CMO
9.432%, 9/15/07 Agy 16,204 3,247
1415-S Inv Fl IO CMO
20.063%, 11/15/07 Agy 157 67
1476-S Inv Fl IO
REMIC PAC
4.217%, 2/15/08 Agy 1,764 173
1485-S Inv Fl IO
REMIC
4.163%, 3/15/08 Agy 1,795 141
1600-SA Inv Fl IO
REMIC
2.563%, 10/15/08 Agy 26,112 1,363
1632-SB Inv Fl
REMIC
4.725%, 11/15/23 Agy 9,720 4,702
1699-SD Inv Fl IO
CMO
2.563%, 3/15/24 Agy 97,424 6,547
Federal National Mortgage
Association
Series:
91-46 S Inv Fl CMO
1266.656%, 5/25/21 Agy 43 1,320
91-90 S Inv Fl CMO
553.856%, 7/25/21 Agy 132 1,766
92-186 S Inv Fl IO
3.217%, 10/25/07 Agy 2,750 208
93-9 SB Inv Fl IO
REMIC PAC
7.306%, 1/25/23 Agy 6,177 1,945
G 91-20 S Inv Fl
21.066%, 6/25/21 Agy 5,225 6,544
G 92-3 SQ Inv Fl IO
2346.986%, 1/25/22 Agy 93 4,957
G 92-53 S Inv Fl IO
REMIC
34.031%, 9/25/22 Agy 7,189 5,301
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
8
<PAGE> 11
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)dag.
- ---------------------------------------------------------
G 92-63 S Inv Fl IO
REMIC
3.881%, 11/25/22 Agy $ 38,616 $ 3,340
G 93-41 SA Inv Fl IO
3.031%, 6/25/19 Agy 27,614 1,568
G 94-2 S Inv Fl IO
REMIC
2.631%, 1/25/24 Agy 42,781 2,456
Morgan Stanley Mortgage
Trust Series 41-2 Inv Fl
CMO
108.833%, 2/20/22 AAA 2,990 7,331
- ---------------------------------------------------------
GROUP TOTAL 61,348
- ---------------------------------------------------------
NON-AGENCY FIXED RATE MORTGAGES (0.1%)
sec. Coast Federal Series
84-3
7.941%, 3/1/06
(acquired 4/28/95,
cost $321) N/R 313 308
sec. Great American Federal
Series 84-2
8.595%, 4/1/99
(acquired 4/28/95,
cost $37) N/R 39 39
sec. Household Bank
Series 85-1
7.94%, 5/1/02
(acquired 5/31/95,
cost $375) N/R 372 372
- ---------------------------------------------------------
GROUP TOTAL 719
- ---------------------------------------------------------
RATED NON-AGENCY FIXED RATE MORTGAGES (2.4%)
Bank of America Series:
79-1
9.50%, 7/1/08 AAA 82 84
79-3
9.50%, 11/1/08 AAA 454 465
79-7
9.50%, 12/1/08 AAA 188 194
79-9
9.50%, 1/1/09 AAA 186 191
A
8.375%, 5/1/07 AAA 1,100 1,109
California Federal
Savings & Loan
Series 86-1A
8.80%, 1/1/14 AA 113 113
First Federal Savings &
Loan Association
Series 92-C
8.75%, 6/1/06 AA 403 408
##sec. Gemsco Mortgage Pass
Through Certificate
Series 83-TX A
8.635%, 11/25/10
(acquired 4/28/95-
11/29/95, cost
$924) AA 912 923
<CAPTION>
<S> <C> <C> <C>
RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)dag.
- ---------------------------------------------------------
Marine Midland
Bank NA,
Series 91-1 A7
8.50%, 4/25/22 AA $ 21 $ 21
Mid-State Trust
Series 95-4 A
8.33%, 4/1/30 AAA 10,768 11,603
## Resolution Trust Corp.
Series 92-5 C
8.622%, 1/25/26 AA 6,944 7,110
Ryland Acceptance
Corp. IV Series 79-A
6.65%, 7/1/11 AA 3,791 3,633
Sears Mortgage
Securities Series:
sec. 82-1
9.25%, 11/1/10
(acquired 4/28/95-
11/13/95,
cost $864) AA 846 863
sec. 82-3
10.00%, 11/1/12
(acquired 4/28/95
cost $644) AA 619 631
sec. Shearson American
Express Series A
9.625%, 12/1/12
(acquired 4/28/95-
10/30/95,
cost $431) AA 422 433
+ ddag. Town & Country
Funding Corp.
5.85%, 8/15/98 Aa2 7,925 7,759
Washington Mutual
Savings Bank
Series A 1
9.00%, 5/25/08 AA 91 93
- ---------------------------------------------------------
GROUP TOTAL 35,633
- ---------------------------------------------------------
STRIPPED MORTGAGE BACKED SECURITIES-
AGENCY COLLATERAL SERIES (1.1%)
Federal Home Loan
Mortgage Corporation
Series:
13 B
10.00%, 6/1/20 Agy 3,285 1,010
16 B
10.00%, 6/1/20 Agy 1,724 528
18 B
10.00%, 5/1/20 Agy 856 263
Federal National
Mortgage Association
Series 43-2 IO
9.50%, 9/1/18 Agy 63 18
First Boston
Mortgage Corp.
Series 87-B2 IO
8.985%, 4/25/17 AAA 150 38
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
9
<PAGE> 12
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ADVISORY MORTGAGE
PORTFOLIO
<S> <C> <C> <C>
RATINGS FACE
(STANDARD AMOUNT VALUE
& POOR'S) (000) (000)dag.
- ----------------------------------------------------------
< Government National
Mortgage Association
Principal Strips,
11/20/05 Agy $ 460,593 $15,070
- ----------------------------------------------------------
GROUP TOTAL 16,927
- ----------------------------------------------------------
TOTAL FIXED INCOME SECURITIES (Cost
$1,556,758) 1,556,815
- ----------------------------------------------------------
OPTIONS (0.0%)
- ----------------------------------------------------------
U.S.Treasury Note
expiring 6/25/03 strike
price $106.50 (cost
$251) Agy 27,200 27
- ----------------------------------------------------------
CASH EQUIVALENTS (24.8%)
- ----------------------------------------------------------
COMMERCIAL PAPER (17.6%)
Beneficial Corp.
5.36%, 5/2/96 30,000 29,861
CIT Group Holdings, Inc.
5.20%, 4/4/96 30,000 29,987
Ford Motor Credit Corp.
5.21%, 4/5/96 30,000 29,983
General Electric Capital
Corp.
5.18%, 4/9/96 30,000 29,965
Household Finance Corp.
5.19%, 4/2/96 30,000 29,995
IBM Credit Corp.
5.37%, 4/12/96 30,000 29,951
John Deere Capital Corp.
5.35%, 5/9/96 30,000 29,831
Norwest Financial, Inc.
5.34%, 5/7/96 30,000 29,840
Prudential Funding Corp.
5.34%, 4/30/96 30,000 29,871
- ----------------------------------------------------------
GROUP TOTAL 269,284
- ----------------------------------------------------------
REPURCHASE AGREEMENT (7.2%)
The Chase Manhattan Bank,
N.A., 5.35%, dated 3/29/96,
due 4/1/96, to be
repurchased at $109,470,
collateralized by various
U.S. Government
Obligations, due 5/31/96-
5/31/97, valued at
$110,514. 109,421 109,421
- ----------------------------------------------------------
TOTAL CASH EQUIVALENTS (Cost $378,705) 378,705
- ----------------------------------------------------------
TOTAL INVESTMENTS (126.6%) (Cost $1,935,714) 1,935,547
- ----------------------------------------------------------
<CAPTION>
VALUE
(000)dag.
---------------------------------------------------------
<S> <C> <C> <C>
OTHER ASSETS AND LIABILITIES (-26.6%)
Interest Receivable $ 9,992
Receivable for Investments Sold 117,463
Receivable from Investment Adviser 56
Payable for Fund Shares Redeemed (5,125)
Payable for Investments Purchased (508,783)
Payable for Administrative Fees (100)
Payable for Daily Variation on Futures
Contracts (1,010)
Payable to Custodian (591)
Written Interest Rate Floors, at Value (18,201)
Other Liabilities (281)
--------
(406,580)
- ----------------------------------------------------------
NET ASSETS (100%)
- ----------------------------------------------------------
Applicable to 147,993,141 outstanding
shares of beneficial interest (unlimited
authorization, no par value) $1,528,967
- ----------------------------------------------------------
NET ASSET VALUE PER SHARE $ 10.33
- ----------------------------------------------------------
sec. Restricted Security-Total market value of
restricted securities owned at March 31, 1996
was $151,026 or 9.9% of net assets.
dag. See Note A1 to Financial Statements.
ddag. A portion of these securities was pledged to
cover margin requirements for futures
contracts.
+ Moody's Investor Service, Inc. rating. Security
is not rated by Standard & Poor's Corporation.
++ Fitch rating. Security is not rated by Standard
& Poor's Corporation or Moody's Investor
Service, Inc.
(+) 144A security. Certain conditions for public
sale may exist.
# Step Bond-Coupon rate increases in increments to
maturity. Rate disclosed is as of March 31,
1996. Maturity date disclosed is ultimate
maturity.
## Variable or floating rate securities-rate
disclosed is as of March 31, 1996.
< Structured Investments-Cash flows from this
security are paid monthly and are equal to 1%
per annum of the outstanding notional balance
of certain Government National Mortgage
Association Adjustable Rate Mortgage Pools. See
Note A7 to Financial Statements.
/ / Securities purchased with proceeds from written
floors. See Note A6 to Financial Statements.
CMO Collateralized Mortgage Obligation.
Inv Fl Inverse Floating Rate-Interest rate fluctuates
with an inverse relationship to an associated
interest rate. Indicated rate is the effective
rate at March 31, 1996.
IO Interest Only
N/R Not rated by Moody's Investor Service, Inc.,
Standard & Poor's Corporation, or Fitch.
PAC Planned Amortization Class.
REMIC Real Estate Mortgage Investment Conduit
TBA Security is subject to delayed delivery. See
Note A8 to Financial Statements.
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
10
<PAGE> 13
STATEMENT OF OPERATIONS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
-----------------------------------------
<S> <C> <C> <C> <C>
ADVISORY
FOREIGN ADVISORY
FIXED INCOME MORTGAGE
PORTFOLIO PORTFOLIO
-----------------------------------------
Six Months Ended March 31, 1996
(In Thousands)
- -------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Interest $ 20,981 $ 53,637
- -------------------------------------------------------------------------------------------------------------------------
Total Income 20,981 53,637
- -------------------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Services--Note B $ 1,245 $ 2,811
Less: Waived Fees (1,245) -- (2,811) --
Administrative Fee--Note C 266 600
Custodian Fee 84 95
Audit Fee 11 31
Other Expenses 35 64
Reimbursement from Investment Adviser -- (115)
- -------------------------------------------------------------------------------------------------------------------------
Total Expenses 396 675
- -------------------------------------------------------------------------------------------------------------------------
Expense Offset--Note G (4) (76)
- -------------------------------------------------------------------------------------------------------------------------
Net Expenses 392 599
- -------------------------------------------------------------------------------------------------------------------------
Net Investment Income 20,589 53,038
- -------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities 20,528 13,360
Foreign Currency Transactions 15,406 --
Futures 12,027 (3,717)
- -------------------------------------------------------------------------------------------------------------------------
Realized Net Gain (Loss) 47,961 9,643
- -------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)--Note E2
Investment Securities (19,445) (20,402)
Foreign Currency Transactions (2,400) --
Futures and Written Floors (2,771) 7,413
- -------------------------------------------------------------------------------------------------------------------------
Unrealized Appreciation (Depreciation) (24,616) (12,989)
- -------------------------------------------------------------------------------------------------------------------------
Net Gain (Loss) 23,345 (3,346)
- -------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 43,934 $ 49,692
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
11
<PAGE> 14
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
(Amounts for the six months ended March 31, 1996 are unaudited)
<TABLE>
<CAPTION>
-----------------------------------------------------------
<S> <C> <C> <C> <C>
ADVISORY
FOREIGN ADVISORY
FIXED INCOME MORTGAGE
PORTFOLIO PORTFOLIO
-----------------------------------------------------------
OCTOBER 7, SIX MONTHS APRIL 12, SIX MONTHS
1994** TO ENDED 1995** TO ENDED
SEPTEMBER 30, MARCH 31, SEPTEMBER 30, MARCH 31,
(In Thousands) 1995 1996 1995 1996
- -------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 32,367 $ 20,589 $ 30,663 $ 53,038
Realized Net Gain (Loss) (6,860) 47,961 671 9,643
Change in Unrealized Appreciation
(Depreciation)--Note E2 21,670 (24,616) 19,222 (12,989)
- -------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting
from Operations 47,177 43,934 50,556 49,692
- -------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS--Note A10:
Net Investment Income (14,709) (27,090) (21,968) (51,591)
Realized Net Gain -- (6,574) -- (8,052)
- -------------------------------------------------------------------------------------------------------------------------
Total Distributions (14,709) (33,664) (21,968) (59,643)
- -------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS: (1)
Issued 666,544 195,075 1,479,265 308,688
In Lieu of Cash Distributions 9,187 24,224 15,811 44,581
Redeemed (171,066) (88,583) (80,626) (257,389)
- -------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from Capital Share
Transactions 504,665 130,716 1,414,450 95,880
- -------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) 537,133 140,986 1,443,038 85,929
NET ASSETS:
Beginning of Period -- 537,133 -- 1,443,038
- -------------------------------------------------------------------------------------------------------------------------
END OF PERIOD (2) $ 537,133 $ 678,119 $1,443,038 $1,528,967
- -------------------------------------------------------------------------------------------------------------------------
(1) Shares Issued and Redeemed
Shares Issued 65,358 17,877 144,912 29,594
In Lieu of Cash Distributions 910 2,249 1,535 4,289
Shares Redeemed (16,545) (8,095) (7,785) (24,552)
- -------------------------------------------------------------------------------------------------------------------------
49,723 12,031 138,662 9,331
- -------------------------------------------------------------------------------------------------------------------------
(2) Net Assets Consist of:
Paid in Capital $ 504,665 $ 635,381 $ 1,414,450 $ 1,510,330
Undistributed (Overdistributed) Net Investment
Income 7,214 713 8,695 10,142
Undistributed (Overdistributed) Realized Net Gain
(Loss) 3,584 44,971 671 2,262
Unrealized Appreciation (Depreciation) on:
Investment Securities 15,345 (4,100) 20,235 (167)
Foreign Currency Transactions 4,856 2,456 -- --
Futures and Written Floors 1,469 (1,302) (1,013) 6,400
- -------------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS $ 537,133 $ 678,119 $1,443,038 $1,528,967
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
** Commencement of Operations.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
12
<PAGE> 15
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a Share Outstanding Throughout The Period
(Amounts for the six months ended March 31, 1996 are unaudited)
<TABLE>
<S> <C> <C>
------------------------------------
ADVISORY
FOREIGN
FIXED INCOME
PORTFOLIO
------------------------------------
OCTOBER 7, SIX MONTHS
1994** TO ENDED
SEPTEMBER
30, MARCH 31,
1995 1996
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 $ 10.80
- -------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.74 0.33
Net Realized and Unrealized Gain (Loss) on Investments 0.44 0.42
- -------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.18 0.75
- -------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (0.38) (0.46)
Net Realized Gain -- (0.11)
- -------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.38) (0.57)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.80 $ 10.98
- -------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 12.12% 7.07%
- -------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (Thousands) $537,133 $678,119
Ratio of Expenses to Average Net Assets ## 0.16%*++ 0.12%*++
Ratio of Net Investment Income to Average Net Assets 7.44%* 6.20%*
Portfolio Turnover Rate 96% 52%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Commencement of Operations.
++ Advisory Foreign Fixed Income Portfolio expense ratios are net of voluntarily
waived and reimbursed expenses of 0.38%* and 0.38%* for the period ended
September 30, 1995 and the six months ended March 31, 1996, respectively.
## For the period ended September 30, 1995 and the six months ended March 31,
1996, the Ratio of Expenses to Average Net Assets for the Advisory Foreign
Fixed Income Portfolio excludes the effect of expense offsets. If expense
offsets were included, the Ratio of Expenses to Average Net Assets would be
0.15%* and 0.12%*, respectively.
<TABLE>
<S> <C> <C>
------------------------------------
ADVISORY
MORTGAGE
PORTFOLIO
------------------------------------
APRIL 12, SIX MONTHS
1995** TO ENDED
SEPTEMBER
30, MARCH 31,
1995 1996
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 $ 10.41
- -------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.25 0.37
Net Realized and Unrealized Gain (Loss) on Investments 0.35 (0.03)
- -------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 0.60 0.34
- -------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (0.19) (0.36)
Net Realized Gain -- (0.06)
- -------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.19) (0.42)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.41 $ 10.33
- -------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 6.03% 3.25%
- -------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (Thousands) $1,443,038 $1,528,967
Ratio of Expenses to Average Net Assets ## 0.10%*++ 0.09%*++
Ratio of Net Investment Income to Average Net Assets 6.72%* 7.08%*
Portfolio Turnover Rate 110% 78%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Commencement of Operations.
++ Advisory Mortgage Portfolio expense ratios are net of voluntarily waived and
reimbursed expenses of 0.49%* and 0.39%* for the period ended September 30,
1995 and the six months March 31, 1996, respectively.
## For the period ended September 30, 1995 and the six months ended March 31,
1996, the Ratio of Expenses to Average Net Assets for the Advisory Mortgage
Portfolio excludes the effect of expense offsets. If expense offsets were
included, the Ratio of Expenses to Average Net Assets would be 0.08%* and
0.08%*, respectively.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
13
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
MAS Funds (the "Fund") is registered under the Investment Company Act of 1940
as an open-end investment company. Advisory Foreign Fixed Income Portfolio and
Advisory Mortgage Portfolio, each referred to as a "Portfolio", commenced
operations on October 7, 1994 and April 12, 1995, respectively. At March 31,
1996, the Fund was comprised of twenty-five active portfolios. The financial
statements of the remaining portfolios are presented separately.
A. The following significant accounting policies are in conformity with
generally accepted accounting principles for investment companies. Such
policies are consistently followed by the Fund in the preparation of its
financial statements. Generally accepted accounting principles may require
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results may differ from
those estimates.
1. SECURITY VALUATION: Market values for equity securities listed on the New
York Stock Exchange ("NYSE") or other U.S. exchanges or NASDAQ are based on
the latest quoted sales prices as of the close of the NYSE (normally 4:00
p.m. Eastern Time) on the valuation date; securities not traded on the
valuation date are valued at the mean of the most recent quoted bid and
asked prices. Equity securities not listed are valued at the mean of the
most recent bid and asked prices. Securities listed on foreign exchanges
are valued at the latest quoted sales prices. Bonds, including municipal
bonds, and other fixed income securities are valued using brokers'
quotations or on the basis of prices, provided by a pricing service, which
are based primarily on institutional size trading in similar groups of
securities. Mortgage-backed securities issued by certain government-related
organizations are valued using brokers' quotations which are based on a
matrix system which considers such factors as other security prices, yields
and maturities. Short term securities, are valued using the amortized cost
method of valuation, which in the opinion of the Board of Trustees,
reflects fair value. Securities for which no quotations are readily
available (including restricted securities) are valued at their fair value
as determined in good faith using methods approved by the Board of
Trustees.
2. FEDERAL INCOME TAXES: It is each Portfolio's intention to qualify as a
regulated investment company and distribute all of its taxable income.
Accordingly, no provision for Federal income taxes is required in the
financial statements.
Undistributed (Overdistributed) net investment income and undistributed
(Overdistributed) gain (loss) for the Advisory Foreign Fixed Income
Portfolio have been adjusted for prior year permanent book-tax differences.
3. REPURCHASE AGREEMENTS: Securities pledged as collateral for repurchase
agreements are held by the Portfolios' custodian bank until maturity of the
repurchase agreements. Provisions of the agreements ensure that the market
value of the collateral is at least equal to the repurchase value in the
event of default; however, in the event of default or bankruptcy by the
other party to the agreement, realization and/or retention of the
collateral may be subject to legal proceedings.
Pursuant to an Exemptive Order issued by the Securities and Exchange
Commission, each Portfolio may transfer its uninvested cash balances into a
joint trading account with other Portfolios of the Fund which invests in
one or more repurchase agreements. This joint repurchase agreement is
covered by the same collateral requirements as discussed above.
4. FUTURES: Futures contracts (secured by securities deposited with brokers as
"initial margin") are valued based upon their quoted daily settlement
prices; changes in initial settlement value (represented by cash paid to or
received from brokers as "variation margin") are accounted for as
unrealized appre-
- --------------------------------------------------------------------------------
14
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
ciation (depreciation). When futures contracts are closed, the difference
between the opening value at the date of purchase and the value at closing
is recorded as realized gains or losses in the Statement of Operations.
Futures contracts may be used by the Portfolios in order to hedge against
unfavorable changes in value of securities or to attempt to realize profits
from the value of the underlying securities. Futures contracts involve
market risk in excess of the amount recognized in the statement of net
assets. Risks arise from the possible movements in security values
underlying these instruments. The change in value of futures contracts
primarily corresponds with the value of their underlying instruments, which
may not correlate with the change in value of the hedged investments. In
addition, there is risk that a Portfolio may not be able to enter into a
closing transaction because of an illiquid secondary market.
5. SWAP AGREEMENTS: The Portfolios can enter into swap agreements to exchange
the return generated by one instrument for the return generated by another
instrument.
Interest Rate Swaps: Interest rate swaps involve the exchange of
commitments to pay and receive interest based on a notional principal
amount. Net periodic interest payments to be received or paid are accrued
daily and are recorded in the Statement of Operations as an adjustment to
interest income. Interest rate swaps are marked-to-market daily based upon
quotations from market makers and the change, if any, is recorded as
unrealized appreciation (depreciation) in the Statement of Operations.
Total Return Swaps: Total return swaps involve commitments to pay interest
in exchange for a market-linked return based on a notional amount. To the
extent the total return of the security or index underlying the transaction
exceeds or falls short of the offsetting interest obligation, the Portfolio
will receive a payment from or make a payment, respectively, to the
counterparty. Total return swaps are marked-to-market daily based upon
quotations from market makers and the change, if any, is recorded as
unrealized appreciation (depreciation) in the Statement of Operations.
Periodic payments received or made at the end of each measurement period
and prior to the termination of the swap, are recorded as realized gain or
loss in the Statement of Operations.
Realized gains or losses on maturity or termination of interest rate and
total return swaps are presented in the Statement of Operations. Because
there is no organized market for these swap agreements, the value reported
in the Statement of Net Assets may differ from that which would be realized
in the event the Portfolio terminated its position in the agreement. Risks
may arise upon entering into these agreements from the potential inability
of the counterparties to meet the terms of the agreements and are generally
limited to the amount of net interest payments to be received and/or any
favorable movements in the value of the underlying security at the date of
default.
6. WRITTEN INTEREST RATE FLOOR AGREEMENTS: A Portfolio will utilize written
interest rate floors to protect itself against fluctuations in interest
rates. When a Portfolio writes an interest rate floor, it agrees to make
periodic interest payments based on a notional principal amount to the
extent that a specified interest index falls below a specified interest
rate in exchange for the premium received. When a Portfolio writes an
interest rate floor the premium received by the Portfolio is recorded as a
liability and is amortized to interest income over the life of the
agreement. Interest rate floors are marked-to-market daily based on
quotations from market makers and the change, if any, is recorded as
unrealized appreciation or depreciation in the Statement of Operations.
Periodic payments of interest, if any, are reported as reductions to
interest income in
- --------------------------------------------------------------------------------
15
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
the Statement of Operations. Realized gains or losses from these agreements
are disclosed in the Statement of Operations.
Because there is no organized market for these agreements, the value
reported in the Statement of Net Assets may differ from that which would be
realized in the event the Portfolio terminated its position in the
agreement. Entering into these agreements involves, to varying degrees,
elements of interest rate and market risk in excess of the amount
recognized in the Statement of Net Assets. Such risk involves the
possibility that there is no liquid market for these agreements, and that
there may be adverse changes in interest rates or the index underlying
these transactions.
7. STRUCTURED INVESTMENTS: Each Portfolio may invest in structured investments
whose values are linked either directly or inversely to changes in foreign
currencies, interest rates, commodities, indices, or other underlying
instruments. A Portfolio uses these securities to increase or decrease its
exposure to different underlying instruments and to gain exposure to
markets that might be difficult to invest in through conventional
securities. Structured investments may be more volatile than their
underlying instruments, but any loss is limited to the amount of the
original investment.
8. DELAYED DELIVERY COMMITMENTS: Each Portfolio may purchase or sell
securities on a when-issued or forward commitment basis. Payment and
delivery may take place a month or more after the date of the transaction.
The price of the underlying securities and the date when the securities
will be delivered and paid for are fixed at the time the transaction is
negotiated. Collateral consisting of liquid, high-grade debt securities or
cash is maintained in an amount at least equal to these commitments.
9. FOREIGN EXCHANGE AND FORWARD FOREIGN CURRENCY CONTRACTS: The books and
records of the Fund are maintained in U.S. dollars. Foreign currency
amounts are translated into U.S. dollars at the bid prices of such
currencies against U.S. dollars quoted by a bank. Net realized gains
(losses) on foreign currency transactions represent net foreign exchange
gains (losses) from forward currency exchange contracts, disposition of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amount of investment income and foreign withholding taxes recorded on a
Portfolio's books and the U.S. dollar equivalent amounts actually received
or paid.
A forward foreign currency contract is an agreement between two parties to
buy or sell currency at a set price on a future date. The Advisory Foreign
Fixed Income Portfolio may enter into forward foreign currency exchange
contracts to protect securities and related receivables and payables
against future changes in foreign exchange rates. Fluctuations in the value
of such contracts are recorded as unrealized appreciation (depreciation).
Realized gains or losses, which are disclosed in the Statement of
Operations, include net gains or losses on contracts which have been
terminated by settlements. Risks may arise upon entering into these
contracts from the potential inability of counterparties to meet the terms
of their contracts and are generally limited to the amount of unrealized
gain on the contract (if any) at the date of default. Risks may also arise
from unanticipated movements in the value of the foreign currency relative
to the U.S. dollar.
10. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: The Advisory Foreign Fixed
Income Portfolio and the Advisory Mortgage Portfolio will normally
distribute substantially all of their net investment income to shareholders
in the form of quarterly and monthly dividends, respectively. Net realized
capital gains are distributed at least annually. The amount and character
of income and
- --------------------------------------------------------------------------------
16
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
gains to be distributed are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments for foreign
currency transactions.
11. OTHER: Security transactions are accounted for on the date the securities
are purchased or sold. Costs used in determining realized gains and losses
on the sale of investment securities are those of specific securities sold.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income is recognized on the accrual basis.
Discounts and premiums on securities purchased are amortized over their
respective lives. Most expenses of the Fund can be directly attributed to a
portfolio. Expenses which can not be directly attributed are apportioned
among the portfolios on the basis of their relative net assets. "Other
Expenses", as presented in the Statement of Operations, are mainly
comprised of registration fees.
B. INVESTMENT ADVISORY FEE: Under the terms of an Investment Advisory
Agreement, the Portfolios pay Miller Anderson & Sherrerd, LLP ("MAS" or "the
Adviser") for investment advisory services performed at a fee calculated by
applying a quarterly rate based on an annual percentage rate of 0.375% of the
Portfolio's average daily net assets for the quarter.
Until further notice, MAS has voluntarily agreed to waive its advisory fees.
On January 3, 1996, Morgan Stanley Group Inc. acquired Miller Anderson &
Sherrerd, LLP 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. In addition, Morgan
Stanley Asset Management Holdings Inc. and two other wholly owned subsidiaries
of Morgan Stanely Group Inc. became the limited partners of the Adviser. In
connection with this transaction, on January 3, 1996, the Adviser entered into
a new Investment Advisory Agreement with MAS Funds under the same terms and
conditions as stated above.
C. ADMINISTRATION FEE: MAS serves as Administrator to the Fund pursuant to an
Administration Agreement. Under the agreement, MAS receives an annual fee
accrued daily and payable monthly, of 0.08% of each of the Portfolios of the
Fund's average daily net assets. Chase Global Funds Services Company serves as
Transfer Agent to the Fund and provides fund accounting and other services
pursuant to a sub-administration agreement with MAS.
D. CUSTODY. Morgan Stanley Trust Company (NY) serves as custodian for the
Fund's assets held outside of the United States in accordance with a custodian
agreement. Morgan Stanley Trust Company is a wholly owned subsidiary of Morgan
Stanley Group Inc.
E. PORTFOLIO INVESTMENT ACTIVITY:
1. PURCHASES AND SALES OF SECURITIES. For the six months ended March 31, 1996,
purchases and sales of investment securities other than short-term
investments were:
<TABLE>
<CAPTION>
(000)
------------------------
Portfolio Purchases Sales
- ---------------------------------- ----------- -----------
<S> <C> <C>
Advisory Foreign
Fixed Income $ 351,771 $ 221,633
Advisory Mortgage 1,321,232 1,204,221
</TABLE>
2. FEDERAL INCOME TAX COST AND UNREALIZED APPRECIATION (DEPRECIATION). At March
31, 1996, cost and unrealized appreciation (depreciation) of securities for
Federal income tax purposes were:
<TABLE>
<CAPTION>
(000)
-----------------------------------------------
Portfolio Cost Appreciation Depreciation Net
- ------------------- ---------- ------------ ------------ -------
<S> <C> <C> <C> <C>
Advisory Foreign
Fixed Income $ 671,255 $ 3,722 ($ 7,822) ($4,100)
Advisory Mortgage 1,935,714 16,606 (16,773) (167)
</TABLE>
3. FORWARD FOREIGN CURRENCY CONTRACTS. Under the terms of the forward foreign
currency contracts open at March 31, 1996, the Advisory Foreign Fixed Income
Portfolio is obligated to deliver or receive currency in
- --------------------------------------------------------------------------------
17
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
exchange for U.S. dollars as indicated in the following table:
<TABLE>
<CAPTION>
(000)
----------------------------------------------------------------
Currency In Net Unrealized
to Exchange Settlement Appreciation
Deliver For Date Value (Depreciation)
--------- -------------- ---------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
Purchases
US$ 13,412 DKK 75,280 4/25/96 US$13,225 US$ (187)
53,380 FRF 270,000 4/25/96 53,695 315
27,540 FRF 137,775 4/25/96 27,400 (140)
31,947 FRF 161,700 4/25/96 32,157 210
26,574 CAD 36,075 6/4/96 26,490 (84)
-----------
US$ 114
-----------
Sales
NLG 46,555 US$ 28,970 4/11/96 US$28,207 US$ 763
DEM 19,890 13,703 4/18/96 13,489 214
DEM 20,955 14,213 4/18/96 14,212 1
ATS 78,350 7,642 4/19/96 7,562 80
DEM 73,895 50,269 4/24/96 50,136 133
DKK 127,990 22,445 4/25/96 22,485 (40)
DKK 300,000 52,610 4/25/96 52,704 (94)
FRF 340,000 67,387 4/25/96 67,617 (230)
FRF 96,845 19,194 4/25/96 19,259 (65)
FRF 53,700 10,594 4/25/96 10,679 (85)
FRF 88,000 17,311 4/25/96 17,501 (190)
DEM 57,250 38,814 4/25/96 38,846 (32)
DEM 31,090 20,978 5/6/96 21,108 (130)
DEM 66,900 45,638 5/8/96 45,428 210
DKK 23,310 4,090 5/13/96 4,097 (7)
FRF 40,365 7,968 5/15/96 8,033 (65)
FRF 37,525 7,455 5/15/96 7,468 (13)
DKK 91,155 16,249 5/22/96 16,031 218
NLG 117,000 72,293 5/23/96 71,092 1,201
NLG 55,850 34,493 5/23/96 33,936 557
NLG 24,070 14,858 5/23/96 14,626 232
CAD 36,075 26,292 6/4/96 26,491 (199)
DKK 33,140 5,830 6/11/96 5,831 (1)
FIM 61,210 13,345 6/25/96 13,294 51
-----------
US$ 2,509
-----------
NET US$ 2,623
-----------
ATS -- Austrian Schilling
CAD -- Canadian Dollar
DEM -- German Mark
DKK -- Danish Krone
FIM -- Finnish Markka
FRF -- French Franc
NLG -- Netherlands Guilder
US$ -- U.S. Dollar
</TABLE>
4. FUTURES CONTRACTS. At March 31, 1996, the Portfolios had the following
futures contracts open:
<TABLE>
<CAPTION>
Unrealized
Aggregate Appreciation/
Number of Face Value Expiration (Depreciation)
Contracts (000) Date (000)
--------- ----------- ---------- --------------
<S> <C> <C> <C> <C>
Purchases:
ADVISORY FOREIGN
FIXED
Canada 10 yr.
Government
Bond 855 CAD 92,374 Jun-96 US$ (414)
German 10 yr.
Government
Bond 896 DEM145,940 Jun-96 (888)
ADVISORY
MORTGAGE
U.S. Treasury
Long Bond 163 US$ 18,169 Jun-96 (536)
<CAPTION>
Unrealized
Aggregate Appreciation/
Number of Face Value Expiration (Depreciation)
Contracts (000) Date (000)
--------- ----------- ---------- --------------
<S> <C> <C> <C> <C>
Sales:
ADVISORY
MORTGAGE
90 day
Eurodollar 2,097 US$ 491,595 Jun-96-Mar-01 US$ 2,476
U.S. Treasury 5
yr. Note 990 US$ 105,884 Jun-96 1,844
U.S. Treasury
10 yr. Note 614 US$ 66,868 Jun-96 2,259
CAD -- Canadian Dollar
DEM -- German Mark
US$ -- U.S. Dollar
</TABLE>
5. INTEREST RATE FLOOR AGREEMENTS. At March 31, 1996 the Advisory Mortgage
Portfolio had the following open Written Amortizing Interest Rate Floor
Agreements:
<TABLE>
<CAPTION>
Notional
Amount Value
(000) Description (000)
<C> <S> <C>
--------------------------------------------------------
$1,834 Agreement with Barclays Bank plc $261
terminating on November 15, 2009,
to pay 9.60% minus 1 month LIBOR on
amortizing notional amount as long
as 1 month LIBOR is below 9.60%.
(Amortized Premium $239)
712 Agreement with Bankers Trust 97
Company terminating on September
15, 2009 to pay 9.45% minus 1 month
LIBOR on amortizing notional amount
as long as 1 month LIBOR is below
9.45%. (Amortized Premium $104)
1,362 Agreement with Bankers Trust 118
Company terminating on November 1,
1999 to pay 9.25% minus 1 month
COFI on amortizing notional amount
as long as 1 month COFI is below
9.25%. (Amortized Premium $117)
22,910 Agreement with Morgan Guaranty 2,598
Trust Company of New York
terminating on July 15, 2005 to pay
9.00% minus 1 month LIBOR on
amortizing notional amount as long
as 1 month LIBOR is below 9.00%.
(Amortized Premium $2,538)
</TABLE>
- --------------------------------------------------------------------------------
18
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Notional
Amount Value
(000) Description (000)
<C> <S> <C>
--------------------------------------------------------
$14,400 Agreement with Morgan Guaranty $1,328
Trust Company of New York
terminating on February 25, 2000 to
pay 8.61% minus 1 month LIBOR on
amortizing notional amount as long
as 1 month LIBOR is below 8.61%.
(Amortized Premium $1,456)
2,317 Agreement with Bankers Trust 151
Company terminating on November 25,
1999 to pay 8.25% minus 1 month
COFI on notional amount as long as
1 month COFI is below 8.25%.
(Amortized Premium $145)
43,479 Agreement with Bankers Trust 3,853
Company terminating on June 25,
2005 to pay 8.10% minus 1 month
LIBOR on amortizing notional amount
as long as 1 month LIBOR is below
8.10%. (Amortized Premium $3,251)
80,776 Agreement with Morgan Guaranty 4,319
Trust Company of New York
terminating on June 15, 2005 to pay
8.00% minus 1 month LIBOR on
amortizing notional amount as long
as 1 month LIBOR is below 8.00%.
(Amortized Premium $5,610)
23,715 Agreement with Morgan Guaranty 1,992
Trust Company of New York
terminating on May 15, 2008 to pay
8.00% minus 1 month LIBOR on
amortizing notional amount as long
as 1 month LIBOR is below 8.00%.
(Amortized Premium $1,631)
19,440 Agreement with Bankers Trust 3,484
Company terminating on February 15,
2015 to pay 7.80% minus 1 month
LIBOR on amortizing notional amount
as long as 1 month LIBOR is below
7.80%. (Amortized Premium $3,467)
---------
$18,201
---------
</TABLE>
F. POST OCTOBER LOSSES. Under current tax law, certain capital and net foreign
exchange losses realized after October 31 may be deferred and treated as
occurring on the first day of the following fiscal year. For the fiscal year
ended September 30, 1995, the Advisory Foreign Fixed Income Portfolio may elect
to defer losses occurring between November 1, 1994 and September 30, 1995 in
the amount of $1,323,000.
G. EXPENSE OFFSETS: Custodian Fees have been adjusted to include expense
offsets for custodian balance credits of $4,000 and $76,000 for the Advisory
Foreign Fixed Income and the Advisory Mortgage Portfolios, respectively.
H. OTHER. At March 31, 1996, the Advisory Foreign Fixed Income Portfolio's net
assets were substantially comprised of foreign currency denominated securities
and currency. Changes in currency exchange rates will affect the value of and
investment income from such securities and currency.
- --------------------------------------------------------------------------------
19
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
SHAREHOLDER MEETING: (UNAUDITED)
At a special shareholder meeting held on October 6, 1995, shareholders of the
MAS Funds (the "Fund") voted on the following proposals:
<TABLE>
<CAPTION>
VOTED VOTED TOTAL SHARES
FOR AGAINST ABSTENTIONS VOTED
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
1. To approve a new investment advisory agreement
between the Fund and MAS, effective upon the
acquisition of MAS by Morgan Stanley Asset
Management Holdings, Inc.
<CAPTION>
PORTFOLIO
<S> <C> <C> <C> <C>
----------------------------------
Advisory Foreign Fixed Income 39,982,805 -- -- 39,982,805
Advisory Mortgage 68,383,788 -- -- 68,383,788
</TABLE>
<TABLE>
<CAPTION>
VOTED WITHHOLD TOTAL SHARES
FOR AUTHORITY VOTED
------------ --------- ------------
<S> <C> <C> <C>
2. To elect the Fund's Trustees (voted on by the shareholders
of the Fund as a whole), as named below:
Thomas L. Bennett 487,847,649 5,426,010 493,273,659
David P. Eastburn 487,847,649 5,426,010 493,273,659
Joseph P. Healey 487,847,649 5,426,010 493,273,659
Joseph J. Kearns 487,847,649 5,426,010 493,273,659
C. Oscar Morong, Jr. 487,847,649 5,426,010 493,273,659
</TABLE>
- --------------------------------------------------------------------------------
20
<PAGE> 23
PRINTED IN U.S.A.
THIS REPORT HAS BEEN PREPARED FOR
SHAREHOLDERS AND MAY BE DISTRIBUTED TO
OTHERS ONLY IF PRECEDED OR ACCOMPANIED BY A
CURRENT PROSPECTUS.
MILLER ANDERSON & SHERRERD, LLP
INVESTMENT ADVISER (610) 940-5000
MAS FUNDS (800) 354-8185
ONE TOWER BRIDGE - WEST CONSHOHOCKEN, PA 19428-2899
