<PAGE>
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MAS
- ---------
MAS FUNDS
INVESTMENT CLASS PROSPECTUS
January 30, 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-six
portfolios, ten of which are described in this Prospectus. Each portfolio in
this Prospectus operates as a separate diversified investment company. The
investment objective of each portfolio is described with a summary of investment
policies as referenced below. This Prospectus offers the Investment Class Shares
of the Fund. The Fund also offers Adviser Class Shares and Institutional Class
Shares.
Shares of the Cash Reserves Portfolios are neither insured nor guaranteed by the
U.S. Government. The Portfolio seeks to maintain, but there can be no assurance
that it will be able to maintain, a constant net asset value of $1.00 per share.
The High Yield Portfolio will invest primarily, and certain other portfolios of
the Fund may invest to varying degrees, in high yield, high risk securities
which are speculative with regard to payment of interest and return of principal
(commonly referred to as junk bonds); therefore, investments in these portfolios
may not be suitable for all investors. See High Yield Investing in the Glossary
of Strategies for additional information regarding certain risks associated with
investment in such securities.
<TABLE>
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PORTFOLIO PAGE REFERENCE
<S> <C> <C>
How to Use This Prospectus: 3 Cash Reserves 18 Prospectus Glossary:
Fixed Income 19 Strategies 24
Portfolio Summaries: High Yield 20 Investments 28
Equity 16 Special Purpose Fixed Income 21
International Equity 16 Balanced 22 General Shareholder
Mid Cap Value 17 Multi-Asset-Class 23 Information: 38
Value 17
Table of Contents: Back Cover
</TABLE>
This Prospectus, which should be retained for future reference, sets forth
concisely information that you should know before you invest. A Statement of
Additional Information containing additional information about the Fund has been
filed with the Securities and Exchange Commission. Such Statement is dated
January 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 o 800-354-8185
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<PAGE>
EXPENSE SUMMARY - INVESTMENT CLASS SHARES
The following tables illustrate the various expenses and fees that a shareholder
for that portfolio will incur either directly or indirectly. The annual expenses
and fees set forth below are estimated based upon the portfolios attaining
certain average asset levels. The Advisor may from time to time waive fees or
reimburse expenses thereby reducing total operating expenses.
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
Shareholder Servicing Fee 0.15%
Investment Total
Advisory Other Operating
Portfolio Fees Expenses Expenses
- ---------------------------- ------------ ---------- -----------
Equity 0.500% 0.150% 0.800%
International Equity 0.500 0.250 0.900
Mid Cap Value 0.000* 0.650 1.100
Value 0.500 0.150 0.800
Cash Reserves 0.140* 0.260 0.550
Fixed Income 0.375 0.155 0.680
High Yield 0.375 0.175 0.700
Special Purpose Fixed Income 0.375 0.155 0.680
Balanced 0.450 0.200 0.800
Multi-Asset-Class 0.310* 0.390 0.850
* The Adviser has voluntarily agreed to waive advisory fees. Absent these
waivers, estimated Total Operating Expenses for the Mid Cap Value, Cash
Reserves and Multi-Asset-Class Portfolios would be 1.850%, 0.660% and 0.990%,
respectively.
<PAGE>
EXAMPLE
The purpose of this table is to assist in understanding the various expenses
that a shareholder in a portfolio will bear directly or indirectly. The
following example illustrates the expenses that an investor would pay on a
$1,000 investment over various time periods assuming (1) a 5% annual rate of
return, and (2) redemption at the end of each time period. The example should
not be considered a representation of past or future expenses and actual
expenses may be greater or less than those shown.
Portfolio 1 year 3 year 5 year 10 year
---------------------------- -------- -------- -------- ---------
Equity $8 $26 $44 $ 99
International Equity 9 29 50 111
Mid Cap Value 11 35 61 134
Value 8 26 44 99
Cash Reserves 6 18 31 69
Fixed Income 7 22 38 85
High Yield 7 22 39 87
Special Purpose Fixed Income 7 22 38 85
Balanced 8 26 44 99
Multi-Asset-Class 9 27 47 105
HOW TO USE THIS PROSPECTUS
A PROSPECTUS SUMMARY begins on page 4;
FINANCIAL HIGHLIGHTS and a description of YIELD AND TOTAL RETURN begin on
page 7;
GENERAL INFORMATION including INVESTMENT LIMITATIONS pertinent to all
portfolios begins on page 13;
SUMMARY PAGES for each portfolio's Objective, Policies and Strategies begin
on page 16;
The PROSPECTUS GLOSSARY which defines specific Allowable Investments, Policies
and Strategies printed in bold type throughout this Prospectus begins on page
24;
GENERAL SHAREHOLDER INFORMATION begins on page 38.
<PAGE>
PROSPECTUS SUMMARY
EQUITY PORTFOLIOS
Equity - seeks to achieve above-average total return over a market cycle of
three to five years, consistent with reasonable risk, by investing primarily in
a diversified portfolio of Common Stocks of companies which are deemed by the
Adviser to have earnings growth potential greater than the economy in general
and greater than the expected rate of inflation.
International Equity - seeks to achieve above-average total return over a market
cycle of three to five years, consistent with reasonable risk, by investing
primarily in a diversified portfolio of Foreign Equities.
Mid Cap Value - seeks to achieve above-average total return over a market cycle
of three to five years, consistent with reasonable risk, by investing in Common
Stocks with equity capitalizations in the range of the companies represented in
the S&P MidCap 400 Index which are deemed by the Adviser to be relatively
undervalued based on certain proprietary measures of value. The portfolio will
typically exhibit a lower price/earnings value ratio than the S&P MidCap 400
Index.
Value - seeks to achieve above-average total return over a market cycle of three
to five years, consistent with reasonable risk, by investing primarily in a
diversified portfolio of Common Stocks which are deemed by the Adviser to be
relatively undervalued based on various measures such as price/earnings ratios
and price/book ratios.
FIXED-INCOME PORTFOLIOS
Cash Reserves - seeks to realize maximum current income, consistent with
preservation of capital and liquidity, by investing in a diversified portfolio
of money-market instruments, Cash Equivalents and other short-term securities
having expected maturities of thirteen months or less. The portfolio seeks to
maintain, but does not guarantee, a constant net asset value of $1.00 per share.
Fixed Income - seeks to achieve above-average total return over a market cycle
of three to five years, consistent with reasonable risk, by investing primarily
in a diversified portfolio of U.S. Governments, Corporates, Mortgage Securities,
Foreign Bonds and other Fixed-Income Securities and Derivatives. The portfolio's
average weighted maturity will ordinarily exceed five years.
High Yield - seeks to achieve above-average total return over a market cycle of
three to five years, consistent with reasonable risk, by investing primarily in
a diversified portfolio of High Yield Securities, Corporates and other
Fixed-Income Securities (including bonds rated below investment grade) and
Derivatives. The portfolio's average weighted maturity will ordinarily exceed
five years.
Special Purpose Fixed Income - seeks to achieve above-average total return over
a market cycle of three to five years, consistent with reasonable risk, by
investing primarily in a diversified portfolio of U.S. Governments, Corporates,
Mortgage Securities, Foreign Bonds and other Fixed-Income Securities and
Derivatives. The portfolio is structured to complement an investment in one or
more of the Fund's Equity Portfolios for investors seeking a balanced
investment. The portfolio's average weighted maturity will ordinarily exceed
five years.
BALANCED INVESTING
Balanced Portfolio - seeks to achieve above-average total return over a market
cycle of three to five years, consistent with reasonable risk, by investing in a
diversified portfolio of Equity Securities, Fixed-Income Securities and
Derivatives. When the Adviser judges the relative outlook for the equity and
<PAGE>
fixed-income markets to be neutral, the portfolio will be invested 60% in equity
securities and 40% in fixed-income securities. The asset mix is actively managed
by the Adviser, with equity securities ordinarily representing between 45% and
75% of the total investment. The average weighted maturity of the fixed-income
portion of the portfolio will ordinarily be greater than five years.
Multi-Asset-Class Portfolio - seeks to achieve above-average total return over a
market cycle of three to five years, consistent with reasonable risk, by
investing primarily in a diversified portfolio of Equity Securities, Fixed-
Income Securities and High Yield Securities of United States and foreign issuers
and Derivatives. The asset mix is actively managed by the Adviser.
Balanced Investing and the Balanced Investment Program - MAS offers a balanced
investing option allowing clients to combine investments in two or more
portfolios of the Fund. Clients can authorize MAS to manage the mix of assets
among the portfolios according to their individual objectives and
specifications. If client objectives are consistent with active management of
investments in the Equity and Special Purpose Fixed Income Portfolios around a
60/40 asset mix, the account will be managed in the same manner as the Adviser's
fully-discretionary, Balanced Investment Program. When client objectives require
use of different portfolios, a different neutral asset mix or specific
limitations, a balanced program is managed according to those specifications.
RISK FACTORS: Prospective investors in the Fund should consider the following
factors as they apply to each Portfolio's allowable investments and policies.
See the Prospectus Glossary for more information on terms printed in bold type:
o Each portfolio may invest in Repurchase Agreements, which entail a risk of
loss should the seller default in its obligation to repurchase the security
which is the subject of the transaction;
o Each portfolio may participate in a Securities Lending program which entails
a risk of loss should a borrower fail financially;
o Fixed-Income Securities will be affected by general changes in interest rates
resulting in increases or decreases in the value of the obligations held by a
portfolio. The value of fixed-income securities can be expected to vary
inversely to changes in prevailing interest rates, i.e., as interest rates
decline, market value tends to increase and vice versa;
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 a 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 Each portfolio (except the Cash Reserves Portfolio) may invest a portion of
its assets in Derivatives including Futures & Options. Futures contracts,
options and options on futures contracts entail certain costs and risks,
including imperfect correlation between the value of the securities held by
the portfolio and the value of the particular derivative instrument, and the
risk that a portfolio could not close out a futures or options position when
it would be most advantageous to do so;
o Investments in floating rate securities (Floaters) and inverse floating rate
securities (Inverse Floaters) and mortgage-backed securities (Mortgage
Securities), including principal-only and interest-only Stripped
Mortgage-Backed Securities (SMBS), may be highly sensitive to interest rate
changes, and highly sensitive to the rate of principal payments (including
prepayments on underlying mortgage assets);
<PAGE>
o Investments in securities rated below investment grade, generally referred to
as High Yield, high risk and/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 investng 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.
HOW TO INVEST: Investment Class Shares of each portfolio are available to
Shareholders with combined investments of $1,000,000 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 Institutional and
Adviser Class Shares which differ from the Investment Class Shares in expenses
charged and purchase requirements. Further information relating to the other
classes may be obtained by calling 800-354-8185.
HOW TO REDEEM: Shares of each portfolio may be redeemed at any time at the net
asset value of the portfolio next determined after receipt of the redemption
request. The redemption price may be more or less than the purchase price,
except ordinarily in the case of the Cash Reserves Portfolio which seeks to
maintain, but does not guarantee, a constant net asset value per share of $1.00.
See Redemption of Shares and Shareholder Services.
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
$35 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.
<PAGE>
FINANCIAL HIGHLIGHTS -- FISCAL YEARS ENDED SEPTEMBER 30
Selected per share data and ratios for a share of the Institutional Class
of each Portfolio outstanding throughout each period
The following information should be read in conjunction with the Fund's
financial statements which are included in the Annual Report to Shareholders
incorporated by reference in the Statement of Additional Information.
The Fund's financial statements for the year ended September 30, 1995 have
been examined by Price Waterhouse LLP whose opinion thereon
(which was unqualified) is also incorporated by reference in the
Statement of Additional Information.
Institutional Class share financial information is provided to investors for
informational purposes only and should be referred to as an historical guide to
a Portfolio's operations and expenses. Past performance does not indicate
future results. Financial information for Investment Class shares will be
provided to investors upon completion of the fiscal year.
(Adjusted to reflect a 2.5 for 1 share split as of August 13, 1993 except for
the Mid Cap Value, Cash Reserves and Multi-Asset-Class Portfolios)
<TABLE>
<CAPTION>
Net Gains Dividend
Net Asset or Losses Distributions Capital Gain
Value- Net on Securities Total from (net Distributions
Beginning Investment (realized and Investment investment (realized net Other
of Period Income unrealized) Activities income) capital gains) Distributions
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Equity Portfolio (Commencement of Operations 11/14/84)##
1995 $21.05 $0.52 $4.55 $5.07 ($0.52) ($1.17) --
1994 22.82 0.44 0.41 0.85 (0.41) (2.21) --
1993 22.04 0.41 1.95 2.36 (0.43) (1.15) --
1992 20.78 0.43 1.86 2.29 (0.42) (0.61) --
1991 15.86 0.44 5.64 6.08 (0.44) (0.72) --
1990 18.65 0.48 (2.57) (2.09) (0.54) (0.16) --
1989 14.48 0.51 4.15 4.66 (0.46) (0.03) --
1988 17.14 0.40 (1.93) (1.53) (0.32) (0.81) --
1987 14.09 0.43 3.67 4.10 (0.41) (0.64) --
1986 10.83 0.45 3.49 3.94 (0.49) (0.19) --
International Equity Portfolio (Commencement of Operations 11/25/88)##
1995 $14.52 $0.19 ($0.75) ($0.56) -- ($1.35) ($0.10)+
1994 13.18 0.12 1.63 1.75 ($0.16) (0.25) --
1993 11.03 0.21 2.14 2.35 (0.20) -- --
1992 11.56 0.36 (0.33) 0.03 (0.56) -- --
1991 9.83 0.22 1.83 2.05 (0.23) (0.09) --
1990 11.86 0.26 (1.90) (1.64) (0.31) (0.08) --
1989 10.00 0.26 1.75 2.01 (0.15) -- --
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
Total End of Total Period to Average to Average Turnover
Distributions Period Return** (thousands) Net Assets Net Assets Rate
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Equity Portfolio (Commencement of Operations 11/14/84)##
1995 ($1.69) $24.43 26.15% $1,597,632 0.61% 2.39% 67%
1994 (2.62) 21.05 4.11 1,193,017 0.60 2.10 41
1993 (1.58) 22.82 11.05 1,098,003 0.59 1.86 51
1992 (1.03) 22.04 11.55 918,989 0.59 2.03 21
1991 (1.16) 20.78 40.18 675,487 0.60 2.36 33
1990 (0.70) 15.86 (11.67) 473,261 0.59 2.66 44
1989 (0.49) 18.65 32.95 602,261 0.59 3.29 29
1988 (1.13) 14.48 (8.41) 385,864 0.62 2.99 51
1987 (1.05) 17.14 30.89 322,803 0.66 2.88 66
1986 (0.68) 14.09 37.60 108,367 0.68 3.17 52
International Equity Portfolio (Commencement of Operations 11/25/88)##
1995 ($1.45) $12.51 (3.36%) $1,160,986 0.70% 1.90% 112%
1994 (0.41) 14.52 13.33 1,132,867 0.64 0.89 69
1993 (0.20) 13.18 21.64 891,675 0.66 1.23 43
1992 (0.56) 11.03 0.37 512,127 0.70 1.41 42
1991 (0.32) 11.56 21.22 274,295 0.67 2.08 51
1990 (0.39) 9.83 (14.38) 126,035 0.65 2.40 45
1989 (0.15) 11.86 20.36 87,083 0.63* 3.05* 4
</TABLE>
* Annualized
** Total return figures for partial years are not annualized.
+ Represents distributions in excess of net realized gains.
## For the period ended September 30, 1995, the Ratio of Expenses to Average Net
Assets for the Equity and International Equity Portfolios excludes the effect
of expense offsets. If expense offsets were included, the Ratio of Expenses
to Average Net Assets would be 0.60% and 0.66%, respectively.
<PAGE>
FINANCIAL HIGHLIGHTS -- FISCAL YEARS ENDED SEPTEMBER 30
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<TABLE>
<CAPTION>
Net Gains Dividend
Net Asset or Losses Distributions Capital Gain
Value- Net on Securities Total from (net Distributions
Beginning Investment (realized and Investment investment (realized net Other
of Period Income unrealized) Activities income) capital gains) Distributions
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<S> <C> <C> <C> <C> <C> <C> <C>
Mid Cap Value Portfolio (Commencement of Operations 12/30/94)##
1995 $10.00 $0.55o $2.90 $3.45 -- -- --
Value Portfolio (Commencement of Operations 11/05/84)##
1995 $12.63 $0.31 $3.34 $3.65 ($0.31) ($1.08) --
1994 12.76 0.30 0.59 0.89 (0.29) (0.73) --
1993 12.67 0.30 1.92 2.22 (0.31) (1.82) --
1992 12.92 0.35 1.05 1.40 (0.38) (1.27) --
1991 10.29 0.44 3.79 4.23 (0.44) (1.16) --
1990 14.56 0.52 (3.14) (2.62) (0.62) (1.03) --
1989 12.42 0.54 2.73 3.27 (0.47) (0.66) --
1988 15.81 0.48 (1.68) (1.20) (0.46) (1.73) --
1987 14.26 0.55 2.47 3.02 (0.53) (0.94) --
1986 10.78 0.57 3.89 4.46 (0.58) (0.40) --
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
Total End of Total Period to Average to Average Turnover
Distributions Period Return** (thousands) Net Assets Net Assets Rate
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<S> <C> <C> <C> <C> <C> <C> <C>
Mid Cap Value Portfolio (Commencement of Operations 12/30/94)##
1995 -- $13.45 34.50% $4,507 0.93%*++ 10.13%*o 639%o
Value Portfolio (Commencement of Operations 11/05/84)##
1995 ($1.39) $14.89 32.58% $1,271,586 0.60% 2.43% 56%
1994 (1.02) 12.63 7.45 981,337 0.61 2.40 54
1993 (2.13) 12.76 19.67 762,175 0.59 2.48 43
1992 (1.65) 12.67 12.83 448,329 0.60 2.87 55
1991 (1.60) 12.92 45.54 458,117 0.60 3.67 64
1990 (1.65) 10.29 (19.88) 369,044 0.59 3.87 51
1989 (1.13) 14.56 28.49 726,776 0.59 4.05 35
1988 (2.19) 12.42 (5.40) 619,287 0.59 3.96 47
1987 (1.47) 15.81 22.99 700,538 0.62 3.68 28
1986 (0.98) 14.26 43.65 636,805 0.66 4.26 33
</TABLE>
* Annualized
** Total return figures for partial years are not annualized.
++ The Adviser has voluntarily agreed to waive its advisory fees and reimburse
certain expenses to the extent necessary in order to keep the total annual
operating expenses for the Mid Cap Value Portfolio from exceeding 0.88%.
Voluntarily waived and reimbursed expenses totalled 2.13%* for the period
ended September 30, 1995.
## For the period ended September 30, 1995, the Ratio of Expenses to Average Net
Assets for the Mid Cap Value Portfolio excludes the effect of expense
offsets. If expense offsets were included, the Ratio of Expenses to Average
Net Assets would be 0.88%*. For the period ended September 30, 1995, the
Ratio of Expenses to Average Net Assets for the Value Portfolio excludes the
effect of expense offsets. If expense offsets were included, the Ratio of
Expenses to Average Net Assets would not significantly differ.
o Net Investment Income, the Ratio of Net Investment Income to Average Net
Assets and the Portfolio Turnover Rate reflect activity relating to a
nonrecurring initiative to invest in higher-paying dividend income producing
securities.
<PAGE>
FINANCIAL HIGHLIGHTS -- FISCAL YEARS ENDED SEPTEMBER 30
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Gains Dividend
Net Asset or Losses Distributions Capital Gain
Value- Net on Securities Total from (net Distributions
Beginning Investment (realized and Investment investment (realized net Other
of Period Income unrealized) Activities income) capital gains) Distributions
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash Reserves Portfolio (Commencement of Operations 8/29/90)##
1995 $1.000 $.055 -- $.055 ($.055) -- --
1994 1.000 .034 -- .034 (.034) -- --
1993 1.000 .028 -- .028 (.028) -- --
1992 1.000 .038 -- .038 (.038) -- --
1991 1.000 .064 -- .064 (.064) -- --
1990 1.000 .007 -- .007 (.007) -- --
Fixed Income Portfolio (Commencement of Operations 11/14/84)##
1995 $10.93 $0.80 $0.69 $1.49 ($0.60) -- --
1994 12.86 0.77 (1.28) (0.51) (0.82) ($0.47) ($0.13)+
1993 12.67 0.88 0.75 1.63 (0.83) (0.61) --
1992 12.20 0.90 0.74 1.64 (1.02) (0.15) --
1991 10.94 0.94 1.25 2.19 (0.93) -- --
1990 11.64 0.92 (0.49) 0.43 (1.03) (0.10) --
1989 11.40 0.90 0.11 1.01 (0.76) (0.01) --
1988 10.86 0.97 0.43 1.40 (0.86) -- --
1987 11.95 0.93 (0.61) 0.32 (0.91) (0.50) --
1986 10.92 0.99 1.20 2.19 (1.02) (0.14) --
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
Total End of Total Period to Average to Average Turnover
Distributions Period Return** (thousands) Net Assets Net Assets Rate
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash Reserves Portfolio (Commencement of Operations 8/29/90)##
1995 ($.055) $1.000 5.57% $44,624 0.33%++ 5.45% N/A
1994 (.034) 1.000 3.40 37,933 0.32++ 3.70 N/A
1993 (.028) 1.000 2.81 10,717 0.32++ 2.78 N/A
1992 (.038) 1.000 3.89 12,935 0.32++ 3.95 N/A
1991 (.064) 1.000 6.63 24,163 0.32++ 6.57 N/A
1990 (.007) 1.000 0.74 23,285 0.48* 8.31* N/A
Fixed Income Portfolio (Commencement of Operations 11/14/84)##
1995 ($0.60) $11.82 14.19% $1,487,409 0.49% 7.28% 140%
1994 (1.42) 10.93 (4.43) 1,194,957 0.49 6.79 100
1993 (1.44) 12.86 14.26 909,738 0.47 7.06 144
1992 (1.17) 12.67 14.35 859,712 0.47 7.50 137
1991 (0.93) 12.20 21.12 831,547 0.47 8.25 143
1990 (1.13) 10.94 3.79 666,736 0.46 8.43 209
1989 (0.77) 11.64 9.25 559,995 0.47 8.36 100
1988 (0.86) 11.40 13.43 405,385 0.49 8.91 168
1987 (1.41) 10.86 2.55 290,824 0.52 8.54 202
1986 (1.16) 11.95 21.27 95,898 0.55 8.39 169
</TABLE>
* Annualized
** Total return figures for partial years are not annualized.
+ Represents distributions in excess of realized net gain.
++ The Adviser has voluntarily agreed to waive its advisory fees and reimburse
certain expenses to the extent necessary, if any, to keep the total annual
operating expenses for the Cash Reserves Portfolio from exceeding 0.32%.
Voluntarily waived fees and reimbursed expenses totalled 0.05%, 0.08%, 0.24%,
0.14% and 0.11% for the years 1991, 1992, 1993, 1994 and 1995 respectively.
## For the period ended September 30, 1995, the Ratio of Expenses to Average Net
Assets for the Cash Reserves and Fixed Income Portfolios excludes the effect
of expense offsets. If expense offsets were included, the Ratio of Expenses
to Average Net Assets would be 0.32% and 0.48%, respectively.
<PAGE>
FINANCIAL HIGHLIGHTS -- FISCAL YEARS ENDED SEPTEMBER 30
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Gains Dividend
Net Asset or Losses Distributions Capital Gain
Value- Net on Securities Total from (net Distributions
Beginning Investment (realized and Investment investment (realized net Other
of Period Income unrealized) Activities income) capital gains) Distributions
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
High Yield Portfolio (Commencement of Operations 2/28/89)#, ##
1995 $ 8.97 $0.90 $ 0.19 $1.09 ($0.85) ($0.08) ($0.05)+
1994 9.49 0.75 (0.42) 0.33 (0.69) (0.16) --
1993 8.58 0.73 0.90 1.63 (0.72) -- --
1992 7.80 0.74 0.89 1.63 (0.85) -- --
1991 7.07 1.42 0.82 2.24 (1.51) -- --
1990 9.98 1.36 (2.82) (1.46) (1.42) (0.03) --
1989 10.00 0.55 (0.44) 0.11 (0.13) -- --
Special Purpose Fixed Income Portfolio (Commencement of Operations 3/31/92)##
1995 $11.52 $0.91 $ 0.75 $1.66 ($0.65) -- --
1994 13.40 0.80 (1.28) (0.48) (0.78) ($0.53) ($0.09)+
1993 12.72 0.88 0.92 1.80 (0.82) (0.30) --
1992 11.80 0.39 0.72 1.11 (0.19) -- --
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
Total End of Total Period to Average to Average Turnover
Distributions Period Return** (thousands) Net Assets Net Assets Rate
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
High Yield Portfolio (Commencement of Operations 2/28/89)#, ##
1995 ($0.98) $ 9.08 13.58% $220,785 0.50% 10.68% 96%
1994 (0.85) 8.97 3.57 182,969 0.50 9.01 112
1993 (0.72) 9.49 20.12 50,396 0.53++ 8.94 99
1992 (0.85) 8.58 22.49 20,491 0.53++ 9.74 148
1991 (1.51) 7.80 36.70 6,453 0.76 19.45 106
1990 (1.45) 7.07 (16.26) 4,820 0.82 16.93 65
1989 (0.13) 9.98 0.91 3,479 0.73* 11.66* 17
Special Purpose Fixed Income Portfolio (Commencement of Operations 3/31/92)##
1995 ($0.65) $12.53 14.97% $390,258 0.49% 7.33% 143%
1994 (1.40) 11.52 (4.00) 384,731 0.50 6.66 100
1993 (1.12) 13.40 15.19 300,185 0.48 6.84 124
1992 (0.19) 12.72 9.47 274,195 0.53* 6.94* 138
</TABLE>
* Annualized
** Total return figures for partial years are not annualized.
+ Represents distributions in excess of net realized gains.
++ The Adviser has voluntarily agreed to waive its advisory fees and reimburse
certain expenses to the extent necessary, if any, to keep the total annual
operating expenses for the High Yield Portfolio from exceeding 0.525% for the
periods indicated. Voluntarily waived fees and reimbursed expenses totalled
0.22% and 0.09% for 1992 and 1993, respectively.
# Formerly High Yield Securities Portfolio (through December 23, 1994).
## For the period ended September 30, 1995, the Ratio of Expenses to Average
Net Assets for the High Yield and Special Purpose Fixed Income Portfolios
excludes the effect of expense offsets. If expense offsets were included, the
Ratio of Expenses to Average Net Assets would be 0.49% and 0.48%,
respectively.
<PAGE>
FINANCIAL HIGHLIGHTS -- FISCAL YEARS ENDED SEPTEMBER 30
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Gains Dividend
Net Asset or Losses Distributions Capital Gain
Value- Net on Securities Total from (net Distributions
Beginning Investment (realized and Investment investment (realized net Other
of Period Income unrealized) Activities income) capital gains) Distributions
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balanced Portfolio (Commencement of Operations 12/31/92)##
1995 $11.28 $0.54 $1.78 $2.32 ($0.47) ($0.07) --
1994 11.84 0.47 (0.45) 0.02 (0.43) (0.15) --
1993 11.06 0.25 0.66 0.91 (0.13) -- --
Multi-Asset-Class Portfolio (Commencement of Operations 7/29/94)#, ##
1995 $ 9.97 $0.44 $1.33 $1.77 ($0.40) -- --
1994 10.00 0.07 (0.10) (0.03) -- -- --
</TABLE>
<TABLE>
<CAPTION>
Net Asset Net Assets- Ratio of Ratio of
Value- End of Expenses Net Income Portfolio
Total End of Total Period to Average to Average Turnover
Distributions Period Return** (thousands) Net Assets Net Assets Rate
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balanced Portfolio (Commencement of Operations 12/31/92)##
1995 ($0.54) $13.06 21.37% $334,630 0.58% 4.55% 95%
1994 (0.58) 11.28 0.19 309,596 0.58 4.06 75
1993 (0.13) 11.84 8.31 291,762 0.58* 3.99* 62
Multi-Asset-Class Portfolio (Commencement of Operations 7/29/94)#, ##
1995 ($0.40) $11.34 18.28% $ 96,839 0.58%++ 4.56% 112%
1994 -- 9.97 (0.30) 51,877 0.58*++ 4.39* 20
</TABLE>
* Annualized
** Total return figures for partial years are not annualized.
++ The Adviser has voluntarily agreed to waive its advisory fees and reimburse
certain expenses to the extent necessary, if any, to keep the total annual
operating expenses for the Multi-Asset-Class Portfolio from exceeding 0.58%.
Voluntarily waived fees for 1994 and 1995 were 0.26% and 0.14%, respectively.
# Formerly known as Global Balanced Portfolio (through December 23, 1994).
## For the period ended September 30, 1995, the Ratio of Expenses to Average Net
Assets for the Multi-Asset-Class Portfolio excludes the effect of expense
offsets. If expense offsets were included, the Ratio of Expenses to Average
Net Assets would not significantly differ. For the period ended September 30,
1995, the Ratio of Expenses to Average Net Assets for the Balanced Portfolio
excludes the effect of expense offsets. If expense offsets were included, the
Ratio of Expenses to Average Net Assets would be 0.57%.
<PAGE>
YIELD AND TOTAL RETURN:
From time to time each portfolio of the Fund advertises its yield and total
return. Both yield and total return figures are based on historical earnings and
are not intended to indicate future performance. The average annual total return
reflects changes in the price of a portfolio's shares and assumes that any
income dividends and/or capital gain distributions made by the portfolio during
the period were reinvested in additional shares of the portfolio. Figures will
be given for one-, five- and ten-year periods ending with the most recent
calendar quarter-end (if applicable), and may be given for other periods as well
(such as from commencement of the portfolio's operations). When considering
average total return figures for periods longer than one year, it is important
to note that a portfolio's annual total return for any one year in the period
might have been greater or less than the average for the entire period.
In addition to average annual total return, a portfolio may also quote an
aggregate total return for various periods representing the cumulative change in
value of an investment in a portfolio for a specific period. Aggregate total
returns may be shown by means of schedules, charts or graphs and may include
subtotals of the various components of total return (e.g., income dividends or
returns for specific types of securities such as industry or country types).
The yield of a portfolio (other than the Cash Reserves Portfolio) is computed by
dividing the net investment income per share (using the average number of shares
entitled to receive dividends) earned during the 30-day period stated in the
advertisement by the closing price per share on the last day of the period. For
the purpose of determining net investment income, the calculation includes as
expenses of the portfolio all recurring fees and any non recurring charges for
the period stated. The yield formula provides for semiannual compounding, which
assumes that net investment income is earned and reinvested at a constant rate
and annualized at the end of a six-month period. Methods used to calculate
advertised yields are standardized for all stock and bond mutual funds. However,
these methods differ from the accounting methods used by the portfolio to
maintain its books and records, 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. A portfolio may also advertise or quote a
yield which is gross of expenses.
From time to time the Cash Reserves Portfolio may advertise or quote its yield
and effective yield. The yield of the Cash Reserves Portfolio refers to the
income generated by an investment in the portfolio over a stated seven day
period. This income is then annualized. That is, the amount of income generated
by the investment during that week is assumed to be generated each week over a
52-week period and is shown as a percentage of the investment. The effective
yield is calculated similarly, but the income earned over the seven day period
by an investment in the portfolio is assumed to be reinvested when the return is
annualized. The "effective yield" will be higher than the yield because of the
compounding effect of this assumed reinvestment.
The performance of a portfolio may be compared to data prepared by independent
services which monitor the performance of investment companies, data reported in
financial and industry publications, returns of other investment advisers and
mutual funds, and various indices as further described in the Statement of
Additional Information.
The performance of Institutional Class Shares, 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.
<PAGE>
GENERAL INFORMATION:
The following information relates to each portfolio of the Fund and should be
read in conjunction with the specific information about each portfolio.
Objectives: Each portfolio seeks to achieve its investment objective relative to
the universe of securities in which it is authorized to invest and, accordingly,
the total return or current income achieved by a portfolio may not be as great
as that achieved by another portfolio that can invest in a broader range of
securities. Fixed-Income Portfolios will seek to produce total return by
actively trading portfolio securities. The objective of each portfolio is
fundamental and may only be changed with approval of holders of a majority of
the shares of each portfolio. The achievement of any portfolio's objective
cannot be assured.
Suitability: The Fund's portfolios are designed for long-term investors who can
accept the risks entailed in investing in the stock and bond markets, and are
not meant to provide a vehicle for playing short-term swings in the market. The
Fund's portfolios are designed principally for the investments of tax-exempt
fiduciary investors who are entrusted with the responsibility of investing
assets held for the benefit of others. Since such investors are not subject to
Federal income taxes, securities transactions for all portfolios 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: Each portfolio may lend its securities to qualified brokers,
dealers, banks and other financial institutions for the purpose of realizing
additional income. Loans of securities will be collateralized by cash, letters
of credit, or securities issued or guaranteed by the U.S. Government or its
agencies. The collateral will equal at least 100% of the current market value of
the loaned securities. In addition, a portfolio will not loan its portfolio
securities to the extent that greater than one-third of its total assets, at
fair market value, would be committed to loans at that time.
Illiquid Securities/Restricted Securities: Each of the portfolios may invest up
to 15% of its net assets (except the Cash Reserves Portfolio, which may invest
up to 10% of its net assets) in securities that are illiquid by virtue of the
absence of a readily available market, or because of legal or contractual
restrictions on resale. This policy does not limit the acquisition of (i)
restricted securities eligible for resale to qualified institutional buyers
pursuant to Rule 144A under the Securities Act of 1933 or (ii) commercial paper
issued pursuant to Section 4(2) under the Securities Act of 1933, that are
determined to be liquid in accordance with guidelines established by the Fund's
Board of Trustees.
Turnover: The Adviser manages the portfolios generally without regard to
restrictions on portfolio Turnover, except those imposed by provisions of the
federal tax laws regarding short-term trading. In general, the portfolios will
not trade for short-term profits, but when circumstances warrant, investments
may be sold without regard to the length of time held.
The larger than expected turnover rate for the Mid Cap Value Portfolio was due
to the small size of the portfolio and the fact that it commenced operations
during the fiscal year. In addition, the portfolio entered into various
transactions which increased the turnover rate in order to qualify under certain
tax rules. With respect to the Fixed Income Portfolios and the fixed-income
portion of the Balanced Portfolio, the annual turnover rate will ordinarily
exceed 100% due to changes in portfolio duration, yield curve strategy or
commitments to forward delivery mortgage-backed securities.
Portfolio turnover rates for certain portfolios are as follows: International
Equity - 112%, Mid Cap Value - 639%, Fixed Income - 140%, Special Purpose
Fixed Income - 143% and Multi-Asset-Class - 112%.
High rates of portfolio turnover necessarily result in correspondingly heavier
brokerage and portfolio trading costs which are paid by a portfolio. Trading in
<PAGE>
Fixed-Income Securities does not generally involve the payment of brokerage
commissions, but does involve indirect transaction costs. In addition to
portfolio trading costs, higher rates of portfolio turnover may result in the
realization of capital gains. To the extent net short-term capital gains are
realized, any distributions resulting from such gains are considered ordinary
income for federal income tax purposes.
Cash Equivalents/Temporary Defensive Investing: Although each portfolio intends
to remain substantially fully invested, a small percentage of a portfolio's
assets are generally held in the form of Cash Equivalents in order to meet
redemption requests and otherwise manage the daily affairs of each portfolio. In
addition, any portfolio may, when the Adviser deems that market conditions are
such that a temporary defensive approach is desirable, invest in cash
equivalents or the Fixed-Income Securities listed for that portfolio without
limit. In addition, the Adviser may, for temporary defensive purposes, increase
or decrease the average weighted maturity or duration of any Fixed-Income
portfolio without regard to that portfolio's usual average weighted maturity.
Concentration: Concentration is defined as investment of 25% or more of a
portfolio's total assets in the securities of issuers operating in any one
industry. Except as provided in a portfolio's specific investment policies, a
portfolio will not concentrate investments in any one industry.
Investment Limitations: Each portfolio is subject to certain limitations
designed to reduce its exposure to specific situations. Some of these
limitations are:
(a) with respect to 75% of its assets, a portfolio will not purchase securities
of any issuer if, as a result, more than 5% of the portfolio's total assets
taken at market value would be invested in the securities of any single issuer
except that this restriction does not apply to securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities.
(b) with respect to 75% of its assets, a Portfolio will not purchase a security
if, as a result, the portfolio would hold more than 10% of the outstanding
voting securities of any issuer.
(c) a portfolio will not invest more than 5% of its total assets in the
securities of issuers (other than securities issued or guaranteed by U.S. or
foreign governments or political subdivisions thereof) which have (with
predecessors) a record of less than three years of continuous operation;
(d) a portfolio will not acquire any securities of companies within one
industry, if, as a result of such acquisition, more than 25% of the value of the
portfolio's total assets would be invested in securities of companies within
such industry; provided, however, that (1) there shall be no limitation on the
purchase of obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities; (2) the Cash Reserves Portfolio may invest
without limitation in certificates of deposit or bankers' acceptances of
domestic banks; (3) utility companies will be divided according to their
services, for example, gas, gas transmission, electric and telephone will each
be considered a separate industry; (4) financial service companies will be
classified according to the end users of their services, for example, automobile
finance, bank finance and diversified finance will each be considered a separate
industry; and (5) asset-backed securities will be classified according to the
underlying assets securing such securities;
(e) a portfolio will not make loans except (i) by purchasing debt securities in
accordance with its investment objectives and policies, or entering into
Repurchase Agreements, (ii) by lending its portfolio securities and (iii) by
lending portfolio assets to other portfolios of the Fund, so long as such loans
are not inconsistent with the Investment Company Act of 1940, as amended or the
Rules and Regulations, or interpretations or orders of the Securities and
Exchange Commission thereunder;
(f) a portfolio will not borrow money, except (i) as a temporary measure for
extraordinary or emergency purposes or (ii) in connection with reverse
repurchase agreements provided that (i) and (ii) in combination do not exceed 33
1/3% of the portfolio's total assets (including the amount borrowed) less
liabilities (exclusive of borrowings);
(g) a portfolio will not pledge, mortgage, or hypothecate any of its assets to
an extent greater than 50% of its total assets at fair market value; and
<PAGE>
(h) a portfolio will not invest its assets in securities of any Investment
Company, except by purchase in the open market involving only customary brokers'
commissions or in connection with mergers, acquisitions of assets or
consolidations and except as may otherwise be permitted by the Investment
Company Act of 1940, as amended.
Limitations (a), (b), (d), (e) and (f), and certain other limitations described
in the Statement of Additional Information are fundamental and may be changed
only with the approval of the holders of a majority of the shares of each
portfolio. The other investment limitations described here and in the Statement
of Additional Information are not fundamental policies meaning that the Board of
Trustees may change them without shareholder approval. If a percentage
limitation on investment or utilization of assets as set forth above is adhered
to at the time an investment is made, a later change in percentage resulting
from changes in the value or total cost of the portfolio's assets will not be
considered a violation of the restriction, and the sale of securities will not
be required.
<PAGE>
Equity Portfolio
Objective: To achieve above-average total return over a market
cycle of three to five years, consistent with reasonable
risk, by investing primarily in dividend-paying common
stocks of companies which are deemed by the Adviser to
demonstrate long-term earnings growth that is greater
than the economy in general and greater than the
expected rate of inflation.
Approach: The Adviser evaluates both short-term and long-term
economic trends and their impact on corporate profits
and the relative value offered by different sectors and
securities within the equity markets. Individual
securities are selected based on fundamental business
and financial factors (such as earnings growth,
financial position, price volatility, and dividend
payment records) and the measurement of those factors
relative to the current market price of the security.
Policies: Generally at least 65% invested in Equity Securities Up
to 5% invested in Foreign Equities (excluding ADRs)
Derivatives may be used to pursue portfolio strategy
Capitalization Range: Generally greater than $1 billion
<TABLE>
<S> <C> <C> <C> <C>
Allowable Investments: Common Stock Preferred Stock Convertibles ADRs
Cash Equivalents Repurchase Agreements Foreign Equities Rights
Warrants Futures & Options Swaps Foreign Currency
Forwards U.S. Governments Zero Coupons Agencies
Corporates Foreign Bonds Investment Companies When Issued
</TABLE>
Comparative Index: S&P 500 Index
Strategies: Core Equity Investing
- -------------------------------------------------------------------------------
International Equity Portfolio
Objective: To achieve above-average total return over a market
cycle of three to five years, consistent with reasonable
risk, by investing in common stocks of companies based
outside of the United States.
Approach: The Adviser evaluates both short-term and long-term
international economic trends and the relative
attractiveness of non-U.S. equity markets and individual
securities.
Policies: Generally at least 65% invested in Foreign Equities of
issuers in at least 3 countries other than the U.S.
Derivatives may be used to pursue portfolio strategy
<TABLE>
<S> <C> <C> <C> <C>
Allowable Investments: Foreign Equities ADRs Emerging Markets Issuers Eastern European Issuers
Investment Funds Foreign Currency Forwards Cash Equivalents
Repurchase Agreements Common Stock Preferred Stock Convertibles
U.S. Governments Zero Coupons Agencies Corporates
Foreign Bonds Futures & Options Swaps Investment Companies
When Issued Rights Warrants Brady Bonds
Loan Participations Structured Investments Structured Notes
</TABLE>
Comparative Index: MSCI World Ex-U.S. Index
Strategies: International Equity Investing
Emerging Markets Investing
Foreign Investing
<PAGE>
Mid Cap Value Portfolio
Objective: To achieve above-average total return over a market
cycle of three to five years, consistent with reasonable
risk, by investing in common stocks with equity
capitalizations in the range of the companies
represented in the S&P MidCap 400 Index which are deemed
by the Adviser to be relatively undervalued based on
certain proprietary measures of value. The Portfolio
will typically exhibit a lower price/earnings value
ratio than the S&P MidCap 400 Index.
Approach: The Adviser selects common stocks which are deemed to be
undervalued at the time of purchase, based on
proprietary measures of value. The Portfolio will be
structured taking into account the economic sector
weights of the S&P MidCap 400 Index, with sector weights
normally being within 5% of the sector weights of the
Index.
Policies: Generally at least 65% invested in Equity Securities of
mid-cap companies deemed to be undervalued
Up to 5% invested in Foreign Equities (excluding ADRs)
Derivatives may be used to pursue portfolio strategy
Capitalization Range: Generally matching the S&P MidCap 400 Index (currently
$500 million to $3 billion)
<TABLE>
<S> <C> <C> <C> <C>
Allowable Investments: Common Stock Preferred Stock Convertibles ADRs
Cash Equivalents Repurchase Agreements Foreign Equities Rights
Warrants Futures & Options Swaps Foreign Currency
Forwards U.S. Governments Zero Coupons Agencies
Corporates Foreign Bonds Investment Companies When Issued
</TABLE>
Comparative Index: S&P MidCap 400 Index
Strategies: Value Stock Investing
- -------------------------------------------------------------------------------
Value Portfolio
Objective: To achieve above-average total return over a market
cycle of three to five years, consistent with reasonable
risk, by investing in common stocks with equity
capitalizations usually greater than $300 million which
are deemed by the Adviser to be relatively undervalued,
based on various measures such as price/earnings ratios
and price/book ratios. While capital return will be
emphasized somewhat more than income return, the
Portfolio's total return will consist of both capital
and income returns. It is expected that income return
will be higher than that of the Equity Portfolio because
stocks which are deemed to be undervalued in the
marketplace have, under most market conditions, provided
higher dividend income returns than stocks which are
deemed to have long-term earnings growth potential which
normally sell at higher price/earnings ratios.
Approach: The Adviser selects common stocks which are deemed to be
undervalued relative to the stock market in general as
measured by the Standard & Poor's 500 Index, based on
the value measures such as price/earnings ratios and
price/book ratios, as well as fundamental research.
Policies: Generally at least 65% invested in Equity Securities
deemed to be undervalued Up to 5% invested in Foreign
Equities (excluding ADRs) Derivatives may be used to
pursue portfolio strategy
Capitalization Range: Generally greater than $300 million
<TABLE>
<S> <C> <C> <C> <C>
Allowable Investments: Common Stock Preferred Stock Convertibles ADRs
Cash Equivalents Repurchase Agreements Foreign Equities Rights
Warrants Futures & Options Swaps Foreign Currency
Forwards U.S. Governments Zero Coupons Agencies
Corporates Foreign Bonds Investment Companies When Issued
</TABLE>
Comparative Index: S&P 500 Index
Strategy: Value Stock Investing
<PAGE>
Cash Reserves Portfolio
Objective: To realize maximum current income, consistent with the
preservation of capital and liquidity, by investing in
money market instruments and other short-term securities
having expected maturities of thirteen months or less.
The Portfolio's average weighted maturity will not
exceed 90 days. The securities in which the Portfolio
will invest may not yield as high a level of current
income as securities of lower quality or longer
maturities which generally have less liquidity, greater
market risk and more price fluctuation. The Portfolio is
designed to provide maximum principal stability for
investors seeking to invest funds for the short term,
or, for investors seeking to combine a long-term
investment program in other portfolios of the Fund with
an investment in money market instruments. The Portfolio
seeks to maintain, but there can be no assurance that it
will be able to maintain, a constant net asset value of
$1.00 per share.
Approach: The Adviser selects a diversified portfolio of money
market securities of government and corporate issuers,
any of which may be variable or floating rate, and which
have remaining maturities of thirteen months or less
from the date of purchase. For the purpose of
determining remaining maturity on Floaters, demand
features and interest reset dates will be taken into
consideration.
Policies: The Portfolio seeks to maintain, but there can be no
assurance that it will be able to maintain, a constant
net asset value of $1.00 per share.
Quality Specifications: 100% of Commercial Paper Rated in Top Tier
Maturity and Duration: Dollar weighted average maturity less than 90 days
Individual maturities 13 months or less
<TABLE>
<S> <C> <C> <C> <C>
Allowable Investments: Cash Equivalents Repurchase Agreements U.S. Governments Zero Coupons
Corporates Agencies Asset-Backeds Floaters
</TABLE>
Comparative Index: Lipper Money Market Index
Strategy: Money Market Investing
<PAGE>
Fixed Income Portfolio
Objective: To achieve above-average total return over a market
cycle of three to five years, consistent with reasonable
risk, by investing in a diversified portfolio of U.S.
Government securities, corporate bonds (including bonds
rated below investment grade, commonly referred to as
junk bonds), foreign fixed-income securities and
mortgage-backed securities of domestic issuers and other
fixed-income securities. The Portfolio's average
weighted maturity will ordinarily be greater than five
years.
Approach: The Adviser actively manages the maturity and duration
structure of the Portfolio in anticipation of long-term
trends in interest rates and inflation. Investments are
diversified among a wide variety of Fixed-Income
Securities in all market sectors.
Policies: Generally at least 65% invested in Fixed-Income
Securities
May invest greater than 50% in Mortgage Securities
Derivatives may be used to pursue portfolio strategy
Quality Specifications: 80% Investment Grade Securities
Up to 20% High Yield
Maturity and Duration: Average weighted maturity generally greater than 5 years
<TABLE>
<S> <C> <C> <C> <C>
Allowable Investments: U.S. Governments Zero Coupons Agencies Corporates
High Yield Mortgage Securities SMBS CMOs
Asset-Backeds When Issued Convertibles Foreign Bonds
Brady Bonds Foreign Currency Forwards Floaters
Inverse Floaters Structured Notes Futures & Options Swaps
Cash Equivalents Repurchase Agreements Municipals Preferred Stock
Investment Companies Loan Participations
</TABLE>
Comparative Index: Salomon Broad Investment Grade
Lehman Brothers Aggregate
Strategies: Maturity and Duration Management
Value Investing
Mortgage Investing
High Yield Investing
Foreign Fixed Income Investing
Foreign Investing
<PAGE>
High Yield Portfolio
Objective: To achieve above-average total return over a market
cycle of three to five years, consistent with reasonable
risk, by investing in high yielding corporate
fixed-income securities (including bonds rated below
investment grade, commonly referred to as junk bonds).
The Portfolio may also invest in U.S. Government
securities, mortgage-backed securities, investment grade
corporate bonds and in short-term fixed-income
securities, such as certificates of deposit, treasury
bills, and commercial paper. The Portfolio expects to
achieve its objective through maximizing current income,
although the Portfolio may seek capital growth
opportunities when consistent with its objective. The
Portfolio's average weighted maturity will ordinarily be
greater than five years.
Approach: The Adviser uses equity and fixed-income valuation
techniques and analyses of economic and industry trends
to determine portfolio structure. Individual securities
are selected, and monitored, by fixed-income portfolio
managers who specialize in corporate bonds and use
in-depth financial analysis to uncover opportunities in
undervalued issues.
Policies: Generally at least 65% invested in High Yield securities
(including bonds rated below investment grade, commonly
referred to as junk bonds)
Derivatives may be used to pursue portfolio strategy
Quality Specifications: None
Maturity and Duration: Average weighted maturity generally greater than 5 years
<TABLE>
<S> <C> <C> <C> <C>
Allowable Investments: High Yield Corporates U.S. Governments Zero Coupons
Agencies Mortgage Securities SMBS CMOs
Asset-Backeds When Issued Convertibles Foreign Bonds
Brady Bonds Foreign Currency Forwards Floaters
Inverse Floaters Structured Notes Futures & Options Swaps
Cash Equivalents Repurchase Agreements Municipals Preferred Stock
Investment Companies Loan Participations Eastern European Issuers Emerging Markets Issuers
Foreign Equities
</TABLE>
Comparative Index: Salomon High Yield Index
Strategies: High Yield Investing
Maturity and Duration Management
Value Investing
Mortgage Investing
Foreign Fixed Income Investing
Foreign Investing
Emerging Markets Investing
<PAGE>
Special Purpose Fixed Income Portfolio
Objective: To achieve above-average total return over a market
cycle of three to five years, consistent with reasonable
risk, by investing in a diversified portfolio of U.S.
Government securities, corporate bonds (including bonds
rated below investment grade, commonly referred to as
junk bonds), foreign fixed-income securities,
mortgage-backed securities and other fixed-income
securities. The portfolio is structured to complement an
investment in one or more of the Fund's equity
portfolios for investors seeking a balanced investment.
Approach: The Adviser actively manages the maturity and duration
structure of the portfolio in anticipation of long-term
trends in interest rates and inflation. Investments are
diversified among a wide variety of Fixed-Income
Securities in all market sectors. Both duration/maturity
strategy and sector allocation are determined based on
the presumption that investors are combining an
investment in the portfolio with an equity investment.
Policies: Generally at least 65% invested in Fixed-Income
Securities
May invest greater than 50% in Mortgage Securities
Derivatives may be used to pursue portfolio strategy
Quality Specifications: None
Maturity and Duration: Average weighted maturity generally greater than 5 years
<TABLE>
<S> <C> <C> <C> <C>
Allowable Investments: U.S. Governments Zero Coupons Agencies Corporates
High Yield Mortgage Securities SMBS CMOs
Asset-Backeds When Issued Convertibles Foreign Bonds
Brady Bonds Foreign Currency Forwards Floaters
Inverse Floaters Structured Notes Futures & Options Swaps
Cash Equivalents Repurchase Agreements Municipals Preferred Stock
Investment Companies Loan Participations
</TABLE>
Comparative Index: Salomon Broad Investment Grade
Lehman Brothers Aggregate
Strategies: Maturity and Duration Management
Value Investing
Mortgage Investing
High Yield Investing
Foreign Fixed Income Investing
Foreign Investing
<PAGE>
Balanced Portfolio
Objective: To achieve above average total return over a market
cycle of three to five years, consistent with reasonable
risk, by investing in a diversified portfolio of common
stocks and fixed-income securities. When the Adviser
judges the relative outlook for the equity and
fixed-income markets to be neutral the portfolio will be
invested 60% in common stocks and 40% in fixed-income
securities. The asset mix may be changed, however, with
common stocks ordinarily representing between 45% and
75% of the total investment. The average weighted
maturity of the fixed-income portion of the portfolio
will ordinarily be greater than five years.
Approach: The Adviser determines investment strategies for the
equity and fixed-income portions of the portfolio
separately and then determine the mix of those
strategies expected to maximize the return available
from both the stock and bond markets. Strategic
judgments on the equity/fixed-income asset mix are based
on valuation disciplines and tools for analysis
developed by the Adviser over its twenty-five year
history of managing balanced accounts.
Policies: Generally 45% to 75% invested in Equity Securities
Up to 25% invested in Foreign Bonds and/or Foreign
Equities (excluding ADRs)
Up to 10% invested in Brady Bonds At least 25% invested
in senior Fixed-Income Securities
Derivatives may be used to pursue portfolio strategy
Equity Capitalization: Generally greater than $1 billion
Quality Specifications: None
Maturity and Duration: Average weighted maturity generally greater than 5 years
<TABLE>
<S> <C> <C> <C> <C>
Allowable Investments: Common Stock Preferred Stock U.S. Governments Zero Coupons
Corporates High Yield Foreign Bonds Mortgage Securities
CMOs Asset-Backeds SMBS When Issued
Brady Bonds Floaters Inverse Floaters Structured Notes
Agencies Convertibles Futures & Options Swaps
Foreign Currency Forwards Cash Equivalents Repurchase Agreements
Eastern European Issuers Investment Funds Municipals Investment Companies
ADRs Foreign Equities Rights Warrants
Loan Participations
</TABLE>
Comparative Index: A weighted blend of quarterly returns compiled by the
Adviser using:
60% S&P 500 Index
40% Salomon Broad Investment Grade Index
Strategies: Asset Allocation Management
Core Equity Investing
Fixed Income Management and Asset Allocation
Maturity and Duration Management
Value Investing
Mortgage Investing
High Yield Investing
Foreign Fixed Income Investing
Foreign Investing
<PAGE>
Multi-Asset-Class Portfolio
Objective: To achieve above average total return over a market
cycle of three to five years, consistent with reasonable
risk, by investing in a diversified portfolio of common
stocks and fixed-income securities of United States and
Foreign issuers.
Approach: The Adviser determines the mix of investments in
domestic and foreign equity and fixed-income and high
yield securities expected to maximize available total
return. Strategic judgments on the asset mix are based
on valuation disciplines and tools for analysis which
have been developed by the Adviser to compare the
relative potential returns and risks of global stock and
bond markets.
Policies: Generally at least 65% invested in issuers located in
at least 3 countries, including the U.S.
Derivatives may be used to pursue portfolio strategy
Domestic Equity
Capitalization: Generally greater than $1 billion
Quality Specifications: None
Maturity and Duration: Average weighted maturity generally greater than 5 years
<TABLE>
<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:
50% S&P 500 Index
14% EAFE-GDP Weighted Index
24% Salomon Broad Investment Grade Index
6% Salomon World Ex U.S. Government Bond Index
6% Salomon High Yield Market Index
Strategies: Asset Allocation Management
Fixed Income Management and Asset Allocation
Maturity and Duration Management
Value Investing
Foreign Fixed Income Investing
Core Equity Management
International Equity Investing
Emerging Markets Investing
High Yield Investing
Foreign Investing
<PAGE>
PROSPECTUS GLOSSARY
CHARACTERISTICS AND RISKS OF STRATEGIES AND INVESTMENTS
STRATEGIES
Asset Allocation Management: The Adviser's approach to asset allocation
management is to determine investment strategies for each asset class in a
portfolio separately, and then determine the mix of those strategies expected to
maximize the return available from each market. Strategic judgments on the mix
among asset classes are based on valuation disciplines and tools for analysis
which have been developed over the Adviser's twenty-five year history of
managing balanced accounts.
Tactical asset-allocation shifts are based on comparisons of prospective risks,
returns, and the likely risk-reducing benefits derived from combining different
asset classes into a single portfolio. Experienced teams of equity, fixed-
income, and international investment professionals manage the investments in
each asset class.
Core Equity Investing: The Adviser's "core" or primary equity strategy
emphasizes common stocks of large companies, with targeted investments in small
company stocks that promise special growth opportunities. Depending on MAS's
outlook for the economy and different market sectors, the mix between value
stocks and growth stocks will change.
Emerging Markets Investing: The Adviser's approach to emerging markets investing
is based on the Adviser's evaluation of both short-term and long-term
international economic trends and the relative attractiveness of emerging
markets and individual emerging market securities.
As used in this Prospectus, emerging markets describes any country which is
generally considered to be an emerging or developing country by the
international financial community such as the International Bank for
Reconstruction and Development (more commonly known as the World Bank) and the
International Finance Corporation. There are currently over 130 countries which
are generally considered to be emerging or developing countries by the
international financial community, approximately 40 of which currently have
stock markets. Emerging markets can include every nation in the world except the
United States, Canada, Japan, Australia, New Zealand and most nations located in
Western Europe.
Currently, investing in many emerging markets is either not feasible or very
costly, or may involve unacceptable political risks. Other special risks include
the possible increased likelihood of expropriation or the return to power of a
communist regime which would institute policies to expropriate, nationalize or
otherwise confiscate investments. A portfolio will focus its investments on
those emerging market countries in which the Adviser believes the potential for
market appreciation outweighs these risks and the cost of investment. Investing
in emerging markets also involves an extra degree of custodial and/or market
risk, especially where the securities purchased are not traded on an official
exchange or where ownership records regarding the securities are maintained by
an unregulated entity (or even the issuer itself).
Fixed Income Management and Asset Allocation: Within the Balanced,
Multi-Asset-Class and Special Purpose Fixed Income Portfolios, the Adviser
selects fixed-income securities not only on the basis of judgments regarding
Maturity and Duration Management and Value Investing, but also on the basis of
the value offered by various segments of the fixed-income securities market
relative to Cash Equivalents and Equity Securities. In this context, the Adviser
may find that certain segments of the fixed-income securities market offer more
or less attractive relative value when compared to Equity Securities than when
compared to other Fixed-Income Securities.
For example, in a given interest rate environment, equity securities may be
judged to be fairly valued when compared to intermediate duration fixed-income
securities, but overvalued compared to long duration fixed-income securities.
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.
<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 a portfolio may temporarily hold uninvested reserves in
bank deposits of foreign currencies prior to reinvestment or conversion to U.S.
dollars, a portfolio may be affected favorably or unfavorably by changes in
currency rates and in exchange control regulations, and may incur costs in
connection with conversions between various currencies.
Although a portfolio will endeavor to achieve the most favorable execution costs
in its portfolio transactions in foreign securities, fixed commissions on many
foreign stock exchanges are generally higher than negotiated commissions on U.S.
exchanges. In addition, it is expected that the expenses for custodial
arrangements of a portfolio's foreign securities will be greater than the
expenses for the custodial arrangements for handling U.S. securities of equal
value. Certain foreign governments levy withholding taxes against dividend and
interest income. Although in some countries a portion of these taxes is
recoverable, the non-recovered portion of foreign withholding taxes will reduce
the income a portfolio receives from the companies comprising the portfolio's
investments.
High Yield Investing: Involves investing in high yield securities based on the
Adviser's analysis of economic and industry trends and individual security
characteristics. The Adviser conducts credit analysis for each security
considered for investment to evaluate its attractiveness relative to its risk. A
high level of diversification is also maintained to limit credit exposure to
individual issuers.
To the extent a portfolio invests in high yield securities it will be exposed to
a substantial degree of credit risk. Lower-rated bonds are considered
speculative by traditional investment standards. High yield securities may be
issued as a consequence of corporate restructuring or similar events. Also, high
yield securities are often issued by smaller, less credit worthy companies, or
by highly leveraged (indebted) firms, which are generally less able than more
established or less leveraged firms to make scheduled payments of interest and
principal. The risks posed by securities issued under such circumstances are
substantial.
The market for high yield securities is still relatively new. Because of this, a
long-term track record for bond default rates does not exist. In addition, the
secondary market for high yield securities is generally less liquid than that
for investment grade corporate securities. In periods of reduced market
liquidity, high yield bond prices may become more volatile, and both the high
yield market and a portfolio may experience sudden and substantial price
declines. This lower liquidity might have an effect on a portfolio's ability to
value or dispose of such securities. Also, there may be significant disparities
in the prices quoted for high yield securities by various dealers. Under such
conditions, a portfolio may find it difficult to value its securities
accurately. A portfolio may also be forced to sell securities at a significant
loss in order to meet shareholder redemptions. These factors add to the risks
associated with investing in high yield securities.
<PAGE>
High yield bonds may also present risks based on payment expectations. For
example, high yield bonds may contain redemption or call provisions. If an
issuer exercises these provisions in a declining interest rate market, a
portfolio would have to replace the security with a lower yielding security,
resulting in a decreased return for investors. Conversely, a high yield bond's
value will decrease in a rising interest rate market.
Certain types of high yield bonds are non-income paying securities. For example,
zero coupon bonds pay interest only at maturity and payment-in-kind bonds pay
interest in the form of additional securities. Payment in the form of additional
securities, or interest income recognized through discount accretion, will,
however, be treated as ordinary income which will be distributed to shareholders
even though the portfolio does not receive periodic cash flow from these
investments.
The following table provides a summary of ratings assigned to all U.S. and
foreign debt holdings of those portfolios with more than 5% invested in High
Yield securities (not including money market instruments). These figures are
dollar-weighted averages of month-end portfolio holdings and do not necessarily
indicate a portfolio's current or future debt holdings. Portfolios whose debt
holdings total less than 100% also invest in Equity Securities.
High Yield Portfolio Fixed Income Portfolio
QUALITY QUALITY
TSY, AGY, AAA 4.85% TSY, AGY, AAA 66.18%
AA 0.00% AA 10.03%
A 0.37% A 7.16%
BAA 3.12% BAA 4.54%
BA 26.14% BA 7.39%
B 49.15% B 3.27%
CAA 8.13% CAA 0.01%
CA OR BELOW 0.00% CA OR BELOW 0.00%
Not Rated 8.24% Not Rated 1.42%
TOTAL 100.00% TOTAL 100.00%
Special Purpose Fixed Income
Portfolio Balanced Portfolio
QUALITY QUALITY
TSY, AGY, AAA 64.17% TSY, AGY, AAA 28.21%
AA 12.04% AA 4.47%
A 6.49% A 2.65%
BAA 4.20% BAA 2.22%
BA 7.49% BA 4.02%
B 3.18% B 2.19%
CAA 0.09% CAA 0.18%
CA OR BELOW 0.00% CA OR BELOW 0.00%
Not Rated 2.34% Not Rated 0.98%
TOTAL 100.00% TOTAL 44.92%
Multi-Asset-Class Portfolio
QUALITY
TSY, AGY, AAA 26.50%
AA 1.98%
A 1.97%
BAA 1.35%
BA 3.73%
B 4.13%
CAA 0.46%
CA OR BELOW 0.00%
Not Rated 0.72%
TOTAL 40.84%
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.
<PAGE>
MAS considers fundamental investment characteristics, the principles of
valuation and diversification, and a relatively long-term investment time
horizon. Since liquidity will also be a consideration, emphasis will likely be
influenced by the relative market capitalizations of different non-U.S. stock
markets and individual securities. Portfolios seek to diversify investments
broadly among both developed and newly industrializing foreign countries. Where
appropriate, a portfolio may also invest in regulated Investment Companies or
Investment Funds which invest in such countries to the extent allowed by
applicable law.
Maturity and Duration Management: One of two primary components of the Adviser's
fixed-income investment strategy is maturity and duration management. The
maturity and duration structure of a portfolio investing in Fixed-Income
Securities is actively managed in anticipation of cyclical interest rate
changes. Adjustments are not made in an effort to capture short-term, day-to-day
movements in the market, but instead are implemented in anticipation of longer
term shifts in the levels of interest rates. Adjustments made to shorten
portfolio maturity and duration are made to limit capital losses during periods
when interest rates are expected to rise. Conversely, adjustments made to
lengthen maturity are intended to produce capital appreciation in periods when
interest rates are expected to fall. The foundation for maturity and duration
strategy lies in analysis of the U.S. and global economies, focusing on levels
of real interest rates, monetary and fiscal policy actions, and cyclical
indicators. See Value Investing for a description of the second primary
component of 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.
There are some situations where even the standard duration calculation does not
properly reflect the interest rate exposure of a security. For example, floating
and variable rate securities often have final maturities of ten or more years;
however, their interest rate exposure corresponds to the frequency of the coupon
reset. Another example where the interest rate exposure is not properly captured
by duration is the case of mortgage pass-through securities. The stated final
maturity of such securities is generally 30 years, but current prepayment rates
are more critical in determining the securities' interest rate exposure. In
these and other similar situations, the Adviser will use sophisticated
analytical techniques that incorporate the economic life of a security into the
determination of its interest rate exposure.
Money Market Investing: A money market fund like the Cash Reserves Portfolio
invests in securities which present minimal credit risk and may not yield as
high a level of current income as securities of lower quality or longer
maturities which generally have less liquidity, greater market risk and more
price fluctuation. A money market portfolio is designed to provide maximum
principal stability for investors seeking to invest funds for the short-term,
or, for investors seeking to combine a long-term investment program in other
portfolios of the Fund with an investment in money market instruments. However,
because the Cash Reserves Portfolio invests in the money market obligations of
private financial and non-financial corporations in addition to those of the
<PAGE>
U.S. Government or its agencies and instrumentalities, it offers higher credit
risk and yield potential relative to money market funds which invest exclusively
in U.S. Government securities. The Cash Reserves Portfolio seeks to maintain,
but does not guarantee, a constant net asset value of $1.00 per share.
Mortgage Investing: At times it is anticipated that greater than 50% of a
fixed-income portfolio's assets may be invested in mortgage-related securities.
These include mortgage-backed securities, which represent interests in pools of
mortgage loans made by lenders such as commercial banks, savings and loan
associations, mortgage bankers and others. The pools are assembled by various
organizations, including the Government National Mortgage Association (GNMA),
Federal Home Loan Mortgage Corporation (FHLMC), Federal National Mortgage
Association (FNMA), other government agencies, and private issuers. It is
expected that a portfolio's primary emphasis will be on mortgage-backed
securities issued by the various Government-related organizations. However, a
portfolio may invest, without limit, in mortgage-backed securities issued by
private issuers when the Adviser deems that the quality of the investment, the
quality of the issuer, and market conditions warrant such investments.
Securities issued by private issuers will be rated investment grade by Moody's
or Standard & Poor's or be deemed by the Adviser to be of comparable investment
quality.
Value Investing: One of two primary components of the Adviser's fixed-income
strategy is value investing, whereby MAS seeks to identify undervalued sectors
and securities through analysis of credit quality, option characteristics and
liquidity. Quantitative models are used in conjunction with judgment and
experience to evaluate and select securities with embedded put or call options
which are attractive on a risk- and option-adjusted basis. Successful value
investing will permit a portfolio to benefit from the price appreciation of
individual securities during periods when interest rates are unchanged. See
Maturity and Duration Management for a description of the other key component of
MAS's fixed-income investment strategy.
Value Stock Investing: Emphasizes Common Stocks which are deemed by the Adviser
to be undervalued relative to the stock market in general as measured by the
appropriate market index, based on value measures such as price/earnings ratios
and price/book ratios. Value stocks are generally dividend paying common stocks.
However, non-dividend paying stocks may also be selected for their value
characteristics.
INVESTMENTS
Each Portfolio may invest in the securities defined below in accordance with
their listing of Allowable Investments and any quality or policy constraints.
ADRs--American Depository Receipts: are dollar-denominated securities which are
listed and traded in the United States, but which represent claims to shares of
foreign stocks. ADRs may be either sponsored or unsponsored. Unsponsored ADR
facilities typically provide less information to ADR holders.
Agencies: are securities which are not guaranteed by the U.S. Government, but
which are issued, sponsored or guaranteed by a federal agency or federally
sponsored agency such as the Student Loan Marketing Association, Resolution
Funding Corporation, or any of several other agencies.
Asset-Backeds: are securities collateralized by shorter term loans such as
automobile loans, home equity loans, computer leases, or credit card
receivables. The payments from the collateral are passed through to the security
holder. The collateral behind asset-backed securities tends to have prepayment
rates that do not vary with interest rates. In addition the short-term nature of
the loans reduces the impact of any change in prepayment level. Due to
amortization, the average life for these securities is also the conventional
proxy for maturity.
Possible Risks: Due to the possibility that prepayments (on automobile loans and
other collateral) will alter the cash flow on asset-backed securities, it is not
possible to determine in advance the actual final maturity date or average life.
Faster prepayment will shorten the average life and slower prepayments will
<PAGE>
lengthen it. However, it is possible to determine what the range of that
movement could be and to calculate the effect that it will have on the price of
the security. In selecting these securities, the Adviser will look for those
securities that offer a higher yield to compensate for any variation in average
maturity.
Brady Bonds: are debt obligations which are created through the exchange of
existing commercial bank loans to foreign entities for new obligations in
connection with debt restructuring under a plan introduced by former U.S.
Secretary of the Treasury, Nicholas F. Brady (the Brady Plan). Brady Bonds have
been issued only recently, and, accordingly, do not have a long payment history.
They may be collateralized or uncollateralized and issued in various currencies
(although most are dollar-denominated) and they are actively traded in the
over-the-counter secondary market. For further information on these securities,
see the Statement of Additional Information. Portfolios will only invest in
Brady Bonds consistent with quality specifications.
Cash Equivalents: are short-term fixed-income instruments comprising:
(1) Time deposits, certificates of deposit (including marketable variable rate
certificates of deposit) and bankers' acceptances issued by a commercial bank or
savings and loan association. Time deposits are non-negotiable deposits
maintained in a banking institution for a specified period of time at a stated
interest rate. Certificates of deposit are negotiable short-term obligations
issued by commercial banks or savings and loan associations against funds
deposited in the issuing institution. Variable rate certificates of deposit are
certificates of deposit on which the interest rate is periodically adjusted
prior to their stated maturity based upon a specified market rate. A bankers'
acceptance is a time draft drawn on a commercial bank by a borrower usually in
connection with an international commercial transaction (to finance the import,
export, transfer or storage of goods).
A portfolio may invest in obligations of U.S. banks, foreign branches of U.S.
banks (Eurodollars), and U.S. branches of foreign banks (Yankee dollars).
Euro and Yankee dollar investments will involve some of the same risks of
investing in international securities that are discussed in the Foreign
Investing section of this Prospectus.
Portfolios will not invest in any security issued by a commercial bank unless
(i) the bank has total assets of at least $1 billion, or the equivalent in other
currencies, or, in the case of domestic banks which do not have total assets of
at least $1 billion, the aggregate investment made in any one such bank is
limited to $100,000 and the principal amount of such investment is insured in
full by the Federal Deposit Insurance Corporation, (ii) in the case of U.S.
banks, it is a member of the Federal Deposit Insurance Corporation, and (iii) in
the case of foreign branches of U.S. banks, the security is deemed by the
Adviser to be of an investment quality comparable with other debt securities
which may be purchased by the portfolio.
(2) Each portfolio (except Cash Reserves) may invest in commercial paper rated
at time of purchase by one or more NRSRO in one of their two highest categories,
(e.g., A-l or A-2 by Standard & Poor's or Prime 1 or Prime 2 by Moody's), or, if
not rated, issued by a corporation having an outstanding unsecured debt issue
rated high-grade by a NRSRO (e.g. A or better by Moody's, Standard & Poor's or
Fitch). The Cash Reserves Portfolio invests only in commercial paper rated in
the highest category;
(3) Short-term corporate obligations rated high-grade at the time of purchase
by a NRSRO (e.g. A or better by Moody's, Standard & Poor's or Fitch);
(4) U.S. Government obligations including bills, notes, bonds and other debt
securities issued by the U.S. Treasury. These are direct obligations of the
U.S. Government and differ mainly in interest rates, maturities and dates of
issue;
(5) Securities issued or guaranteed by U.S. Government sponsored
instrumentalities and Federal agencies. These include securities issued by the
Federal Home Loan Banks, Federal Land Bank, Farmers Home Administration, Farm
Credit Banks, Federal Intermediate Credit Bank, Federal National Mortgage
Association, Federal Financing Bank, the Tennessee Valley Authority, and others;
<PAGE>
(6) Repurchase agreements collateralized by securities listed above; and
(7) Investments by the Cash Reserve Portfolio in Cash Equivalents are limited by
the quality, maturity and diversification requirements adopted under Rule 2a-7
of the 1940 Act.
CMOs--Collateralized Mortgage Obligations: are Derivatives which are
collateralized by mortgage pass-through securities. Cash flows from the mortgage
pass-through securities are allocated to various tranches (a "tranche" is
essentially a separate security) in a predetermined, specified order. Each
tranche has a stated maturity -- the latest date by which the tranche can be
completely repaid, assuming no prepayments -- and has an average life -- the
average of the time to receipt of a principal payment weighted by the size of
the principal payment. The average life is typically used as a proxy for
maturity because the debt is amortized (repaid a portion at a time), rather than
being paid off entirely at maturity, as would be the case in a straight debt
instrument.
Possible Risks: Due to the possibility that prepayments (on home mortgages and
other collateral) will alter the cash flow on CMOs, it is not possible to
determine in advance the actual final maturity date or average life. Faster
prepayment will shorten the average life and slower prepayments will lengthen
it. However, it is possible to determine what the range of that movement could
be and to calculate the effect that it will have on the price of the security.
In selecting these securities, the Adviser will look for those securities that
offer a higher yield to compensate for any variation in average maturity.
Prepayment risk has two important effects. First, like bonds in general,
mortgage-backed securities will generally decline in price when interest rates
rise. However, when interest rates fall, mortgages may not enjoy as large a gain
in market value due to prepayment risk. Second, when interest rates fall,
additional mortgage prepayments must be reinvested at lower interest rates. In
part to compensate for these risks, mortgages will generally offer higher yields
than comparable bonds.
Common Stocks: are Equity Securities which represent an ownership interest in
a corporation, entitling the shareholder to voting rights and receipt of
dividends paid based on proportionate ownership.
Convertibles: are convertible bonds or shares of convertible Preferred Stock
which may be exchanged for a fixed number of shares of Common Stock at the
purchaser's option.
Corporates--corporate bonds: are debt instruments issued by private
corporations. Bondholders, as creditors, have a prior legal claim over common
and preferred stockholders of the corporation as to both income and assets for
the principal and interest due to the bondholder. A portfolio will buy
Corporates subject to any quality constraints. If a security held by a portfolio
is down-graded, the portfolio may retain the security 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. All of the portfolios of MAS Funds,
except the Cash Reserves 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 each individual Portfolio's listing
of Allowable Investments to determine which of these the Portfolio may hold.
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Eastern European Issuers: The economies of Eastern European countries are
currently suffering both from the stagnation resulting from centralized economic
planning and control and the higher prices and unemployment associated with the
transition to market economics. Unstable economic and political conditions may
adversely affect security values. Upon the accession to power of Communist
regimes approximately 40 years ago, the governments of a number of Eastern
European countries expropriated a large amount of property. The claims of many
property owners against those governments were never finally settled. In the
event of the return to power of the Communist Party, there can be no assurance
that the portfolio's investments in Eastern Europe would not be expropriated,
nationalized or otherwise confiscated.
Emerging Markets Issuers: An emerging market security is one issued by a company
that has one or more of the following characteristics: (i) its principal
securities trading market is in an emerging market, (ii) alone or on a
consolidated basis it derives 50% or more of its annual revenue from either
goods produced, sales made or services performed in emerging markets, or (iii)
it is organized under the laws of, and has a principal office in, an emerging
market country. The Adviser will base determinations as to eligibility on
publicly available information and inquiries made to the companies. Investing in
emerging markets may entail purchasing securities issued by or on behalf of
entities that are insolvent, bankrupt, in default or otherwise engaged in an
attempt to reorganize or reschedule their obligations, and in entities that have
little or no proven credit rating or credit history. In any such case, the
issuer's poor or deteriorating financial condition may increase the likelihood
that the investing fund will experience losses or diminution in available gains
due to bankruptcy, insolvency or fraud.
Equity Securities: Commonly include but are not limited to Common Stock,
Preferred Stock, ADRs, Rights, Warrants, Convertibles, and Foreign Equities. See
each individual portfolio 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 each individual portfolio listing of Allowable Investments to
determine which securities a portfolio may hold. Preferred Stock is contained in
both the definition of Equity Securities and Fixed-Income Securities since it
exhibits characteristics commonly associated with each type of security.
Floaters--Floating and Variable Rate Obligations: are debt obligations with a
floating or variable rate of interest, i.e. the rate of interest varies with
changes in specified market rates or indices, such as the prime rate, or at
specified intervals. Certain floating or variable rate obligations may carry a
demand feature that permits the holder to tender them back to the issuer of the
underlying instrument, or to a third party, at par value prior to maturity. When
the demand feature of certain floating or variable rate obligations represents
an obligation of a foreign entity, the demand feature will be subject to certain
risks discussed under Foreign Investing.
Foreign Currency: Portfolios investing in foreign securities will regularly
transact security purchases and sales in foreign currencies. These portfolios
may hold foreign currency or purchase or sell currencies on a forward basis (see
Forwards).
Foreign Equities: are Common Stock, Preferred Stock, Rights and Warrants of
foreign issuers 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).
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.
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Forwards--Forward Foreign Currency Exchange Contracts: are Derivatives which are
used to protect against uncertainty in the level of future foreign exchange
rates. A forward foreign currency exchange contract is an obligation to purchase
or sell a specific currency at a future date, which may be any fixed number of
days from the date of the contract agreed upon by the parties, at a price set at
the time of the contract. Such contracts, which protect the value of a
portfolio's investment securities against a decline in the value of a currency,
do not eliminate fluctuations caused by changes in the local currency prices of
the securities, but rather, they simply establish an exchange rate at a future
date. Also, although such contracts minimize the risk of loss due to a decline
in the value of the hedged currency, at the same time they limit any potential
gain that might be realized.
A portfolio may use currency exchange contracts in the normal course of business
to lock in an exchange rate in connection with purchases and sales of securities
denominated in foreign currencies (transaction hedge) or to lock in the U.S.
dollar value of portfolio positions (position hedge). In addition the portfolios
may cross-hedge currencies by entering into a transaction to purchase or sell
one or more currencies that are expected to decline in value relative to other
currencies to which a portfolio has or expects to have portfolio exposure.
Portfolios may also engage in proxy hedging which is defined as entering into
positions in one currency to hedge investments denominated in another currency,
where the two currencies are economically linked. A portfolio's entry into
forward contracts, as well as any use of Cross or Proxy hedging techniques will
generally require the portfolio to hold high-grade, liquid securities or cash
equal to the portfolio's obligations in a segregated account throughout the
duration of the contract.
A portfolio may also combine forward contracts with investments in securities
denominated in other currencies in order to achieve desired credit and currency
exposures. Such combinations are generally referred to as synthetic securities.
For example, in lieu of purchasing a foreign bond, a portfolio may purchase a
U.S. dollar-denominated security and at the same time enter into a forward
contract to exchange U.S. dollars for the contract's underlying currency at a
future date. By matching the amount of U.S. dollars to be exchanged with the
anticipated value of the U.S. dollar-denominated security, a portfolio may be
able to lock in the foreign currency value of the security and adopt a synthetic
investment position reflecting the credit quality of the U.S. dollar-denominated
security.
There is a risk in adopting a synthetic investment position to the extent that
the value of a security denominated in the U.S. dollar or other foreign currency
is not exactly matched with a portfolio's obligation under the forward contract.
On the date of maturity, a portfolio may be exposed to some risk of loss from
fluctuations in that currency. Although the Adviser will attempt to hold such
mismatching to a minimum, there can be no assurance that the Adviser will be
able to do so. When a portfolio enters into a forward contract for purposes of
creating a synthetic security, it will generally be required to hold high-grade,
liquid securities or cash in a segregated account with a daily value at least
equal to its obligation under the forward contract.
Futures & Options--Futures Contracts, Options on Futures Contracts and Options:
are Derivatives. Futures contracts provide for the sale by one party and
purchase by another party of a specified amount of a specific security, at a
specified future time and price. An option is a legal contract that gives the
holder the right to buy or sell a specified amount of the underlying security or
futures contract at a fixed or determinable price upon the exercise of the
option. A call option conveys the right to buy and a put option conveys the
right to sell a specified quantity of the underlying security.
A portfolio will not enter into futures contracts to the extent that its
outstanding obligations to purchase securities under these contracts in
combination with its outstanding obligations with respect to options
transactions would exceed 50% of its total assets. It will maintain assets
sufficient to meet its obligations under such contracts in a segregated account
with the custodian bank or will otherwise comply with the SEC's position on
asset coverage.
Possible Risks: The primary risks associated with the use of futures and options
are (i) imperfect correlation between the change in market value of the
securities held by a portfolio and the prices of futures and options relating to
the stocks, bonds or futures contracts purchased or sold by a portfolio; and
(ii) possible lack of a liquid secondary market for a futures contract and the
resulting inability to close a futures position which could have an adverse
impact on a portfolio's ability to execute futures and options strategies.
Additional risks associated with options transactions are (i) the risk that an
option will expire worthless; (ii) the risk that the issuer of an over-the-
counter option will be unable to fulfill its obligation to the portfolio due to
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bankruptcy or related circumstances; (iii) the risk that options may exhibit
greater short-term price volatility than the underlying security; and (iv) the
risk that a portfolio may be forced to forego participation in the appreciation
of the value of underlying securities, futures contracts or currency due to the
writing of a call option.
High Yield: High yield securities are generally considered to be corporate
bonds, preferred stocks, and convertible securities rated Ba through C by
Moody's or BB through D by Standard & Poor's, and unrated securities considered
to be of equivalent quality. Securities rated less than Baa by Moody's or BBB by
Standard & Poor's are classified as non-investment grade securities and are
commonly referred to as junk bonds or high yield, high risk securities. Such
securities carry a high degree of risk and are considered speculative by the
major credit rating agencies. The following are excerpts from the Moody's and
Standard & Poor's definitions for speculative-grade debt obligations:
Moody's: Ba-rated bonds have "speculative elements" so their future "cannot
be considered assured," and protection of principal and interest is
"moderate" and "not well safeguarded during both good and bad times in the
future." B-rated bonds "lack characteristics of a desirable investment" and
the assurance of interest or principal payments "may be small." Caa-rated
bonds are "of poor standing" and "may be in default" or may have "elements
of danger with respect to principal or interest." Ca-rated bonds represent
obligations which are speculative in a high degree. Such issues are often in
default or have other marked shortcomings. C-rated bonds are the "lowest
rated" class of bonds, and issues so rated can be regarded as having
"extremely poor prospects" of ever attaining any real investment standing.
Standard & Poor's: BB-rated bonds have "less near-term vulnerability to
default" than B- or CCC- rated securities but face "major ongoing
uncertainties . . . which may lead to inadequate capacity" to pay interest
or principal. B-rated bonds have a "greater vulnerability to default than
BB-rated bonds and the ability to pay interest or principal will likely be
impaired by adverse business conditions." CCC-rated bonds have a currently
identifiable "vulnerability to default" and, without favorable business
conditions, will be "unable to repay interest and principal." C The rating C
is reserved for income bonds on which "no interest is being paid." D - Debt
rated D is in "default", and "payment of interest and/or repayment of
principal is in arrears."
While these securities offer high yields, they also normally carry with them a
greater degree of risk than securities with higher ratings. Lower-rated bonds
are considered speculative by traditional investment standards. High yield
securities may be issued as a consequence of corporate restructuring or similar
events. Also, high yield securities are often issued by smaller, less credit
worthy companies, or by highly leveraged (indebted) firms, which are generally
less able than more established or less leveraged firms to make scheduled
payments of interest and principal. The price movement of these securities is
influenced less by changes in interest rates and more by the financial and
business position of the issuing corporation when compared to investment grade
bonds.
The risks posed by securities issued under such circumstances are substantial.
If a security held by a portfolio is down-graded, the portfolio may retain the
security.
Inverse Floaters--Inverse Floating Rate Obligations: are Fixed-Income
Securities, which have coupon rates that vary inversely at a multiple of a
designated floating rate, such as LIBOR (London Inter-Bank Offered Rate). Any
rise in the reference rate of an inverse floater (as a consequence of an
increase in interest rates) causes a drop in the coupon rate while any drop in
the reference rate of an inverse floater causes an increase in the coupon rate.
Inverse floaters may exhibit substantially greater price volatility than fixed
rate obligations having similar credit quality, redemption provisions and
maturity, and inverse floater CMOs exhibit greater price volatility than the
majority of mortgage pass-through securities or CMOs. In addition, some inverse
floater CMOs exhibit extreme sensitivity to changes in prepayments. As a result,
the yield to maturity of an inverse floater CMO is sensitive not only to changes
in interest rates but also to changes in prepayment rates on the related
underlying mortgage assets.
Investment Companies: The portfolios that are permitted to invest in shares of
other open-end or closed-end investment companies. The Investment Company Act of
1940, as amended, generally prohibits the portfolios from acquiring more than 3%
of the outstanding voting shares of an investment company and limits such
<PAGE>
investments to no more than 5% of the portfolio's total assets in any one
investment company and no more than 10% in any combination of investment
companies. The 1940 Act also prohibits the portfolios from acquiring in the
aggregate more than 10% of the outstanding voting shares of any registered
closed-end investment company.
To the extent a portfolio invests a portion of its assets in Investment
Companies, those assets will be subject to the expenses of the investment
company as well as to the expenses of the portfolio itself. The portfolios may
not purchase shares of any affiliated investment company except as permitted by
SEC Rule or Order.
Investment Funds: Some emerging market countries have laws and regulations that
currently preclude direct foreign investment in the securities of their
companies. However, indirect foreign investment in the securities of companies
listed and traded on the stock exchanges in these countries is permitted by
certain emerging market countries through investment funds. Portfolios that may
invest in these investment funds are 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. Any
Portfolio permitted to hold Investment Grade Securities may hold unrated
securities if the Adviser considers the risks involved in owning that security
to be equivalent to the risks involved in holding an Investment Grade Security.
Loan Participations: are loans or other direct debt instruments which are
interests in amounts owed by a corporate, governmental or other borrower to
another party. They may represent amounts owed to lenders or lending syndicates,
to suppliers of goods or services (trade claims or other receivables), or to
other parties. Direct debt instruments involve the risk of loss in case of
default or insolvency of the borrower. Direct debt instruments may offer less
legal protection to the portfolio in the event of fraud or misrepresentation. In
addition, loan participations involve a risk of insolvency of the lending bank
or other financial intermediary. Direct debt instruments may also include
standby financing commitments that obligate the investing portfolio to supply
additional cash to the borrower on demand. Loan participations involving
Emerging Market Issuers may relate to loans as to which there has been or
currently exists an event of default or other failure to make payment when due,
and may represent amounts owed to financial institutions that are themselves
subject to political and economic risks, including the risk of currency
devaluation, expropriation, or failure. Such loan participations present
additional risks of default or loss.
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
<PAGE>
private insurers can meet their obligations under the policies. Mortgage-backed
securities issued by non-agency issuers, whether or not such securities are
subject to guarantees, may entail greater risk. If there is no guarantee
provided by the issuer, mortgage-backed securities purchased by the portfolio
will be those which at time of purchase are rated investment grade by one or
more NRSRO, or, if unrated, are deemed by the Adviser to be of investment grade
quality.
Due to the possibility that prepayments on home mortgages will alter cash flow
on mortgage securities, it is not possible to determine in advance the actual
final maturity date or average life. Faster prepayment will shorten the average
life and slower prepayments will lengthen it. However, it is possible to
determine what the range of that movement could be and to calculate the effect
that it will have on the price of the security. In selecting these securities,
the Adviser will look for those securities that offer a higher yield to
compensate for any variation in average maturity.
There are two methods of trading mortgage-backed securities. A specified pool
transaction is a trade in which the pool number of the security to be delivered
on the settlement date is known at the time the trade is made. This is in
contrast with the typical mortgage security transaction, called a TBA (to be
announced) transaction, in which the type of mortgage securities to be delivered
is specified at the time of trade but the actual pool numbers of the securities
that will be delivered are not known at the time of the trade. The pool numbers
of the pools to be delivered at settlement will be announced shortly before
settlement takes place. The terms of the TBA trade may be made more specific if
desired. Generally, agency pass-through mortgage-backed securities are traded on
a TBA basis.
A mortgage-backed bond is a collateralized debt security issued by a thrift or
financial institution. The bondholder has a first priority perfected security
interest in collateral, usually consisting of agency mortgage pass-through
securities, although other assets, including U.S. Treasuries (including Zero
Coupon Treasury Bonds), agencies, cash equivalent securities, whole loans and
corporate bonds, may qualify. The amount of collateral must be continuously
maintained at levels from 115% to 150% of the principal amount of the bonds
issued, depending on the specific issue structure and collateral type.
Municipals--Municipal Securities: are debt obligations issued by local, state
and regional governments that provide interest income which is exempt from
federal income taxes. Municipal securities include both municipal bonds (those
securities with maturities of five years or more) and municipal notes (those
with maturities of less than five years). Municipal bonds are issued for a wide
variety of reasons: to construct public facilities, such as airports, highways,
bridges, schools, hospitals, mass transportation, streets, water and sewer
works; to obtain funds for operating expenses; to refund outstanding municipal
obligations; and to loan funds to various public institutions and facilities.
Certain industrial development bonds are also considered municipal bonds if
their interest is exempt from federal income tax. Industrial development bonds
are issued by or on behalf of public authorities to obtain funds for various
privately-operated manufacturing facilities, housing, sports arenas, convention
centers, airports, mass transportation systems and water, gas or sewage works.
Industrial development bonds are ordinarily dependent on the credit quality of a
private user, not the public issuer.
General obligation municipal bonds are secured by the issuer's pledge of full
faith, credit and taxing power. Revenue or special tax bonds are payable from
the revenues derived from a particular facility or, in some cases, from a
special excise or other tax, but not from general tax revenue.
Municipal notes are issued to meet the short-term funding requirements of local,
regional and state governments. Municipal notes include bond anticipation notes,
revenue anticipation notes and tax and revenue anticipation notes. These are
short-term debt obligations issued by state and local governments to aid cash
flows while waiting for taxes or revenue to be collected, at which time the debt
is retired. Other types of municipal notes in which the portfolio may invest are
construction loan notes, short-term discount notes, tax-exempt commercial paper,
demand notes, and similar instruments. Demand notes permit an investor (such as
the portfolio) to demand from the issuer payment of principal plus accrued
interest upon a specified number of days' notice. The portfolios eligible to
purchase municipal bonds may also purchase AMT bonds. AMT bonds are tax-exempt
private activity bonds issued after August 7, 1986, the proceeds of which are
directed, at least in part, to private, for-profit organizations. While the
income from AMT bonds is exempt from regular federal income tax, it is a tax
preference item in the calculation of the alternative minimum tax. The
alternative minimum tax is a special separate tax that applies to a limited
number of taxpayers who have certain adjustments to income or tax preference
items.
<PAGE>
Preferred Stock: are non-voting ownership shares in a corporation which pay a
fixed or variable stream of dividends.
Repurchase Agreements: are transactions by which a portfolio purchases a
security and simultaneously commits to resell that security to the seller (a
bank or securities dealer) at an agreed upon price on an agreed upon date
(usually within seven days of purchase). The resale price reflects the purchase
price plus an agreed upon market rate of interest which is unrelated to the
coupon rate or date of maturity of the purchased security. Such agreements
permit the portfolio to keep all its assets at work while retaining overnight
flexibility in pursuit of investments of a longer term nature. The Adviser will
continually monitor the value of the underlying collateral to ensure that its
value, including accrued interest, always equals or exceeds the repurchase
price.
Pursuant to an order issued by the Securities and Exchange Commission, the
Fund's portfolios may pool their daily uninvested cash balances in order to
invest in repurchase agreements on a joint basis. By entering into repurchase
agreements on a joint basis, it is expected that the portfolios will incur lower
transaction costs and potentially obtain higher rates of interest on such
repurchase agreements. Each portfolio's participation in the income from jointly
purchased repurchase agreements will be based on that portfolio's percentage
share in the total purchase agreement.
Rights: represent a preemptive right of stockholders to purchase additional
shares of a stock at the time of a new issuance, before the stock is offered to
the general public, allowing the stockholder to retain the same ownership
percentage after the new stock offering.
SMBS--Stripped Mortgage-Backed Securities: are Derivatives in the form of
multi-class mortgage securities. SMBS may be issued by agencies or
instrumentalities of the U.S. Government and private originators of, or
investors in, mortgage loans, including savings and loan associations, mortgage
banks, commercial banks, investment banks and special purpose entities of the
foregoing.
SMBS are usually structured with two classes that receive different proportions
of the interest and principal distributions on a pool of mortgage assets. One
type of SMBS will have one class receiving some of the interest and most of the
principal from the mortgage assets, while the other class will receive most of
the interest and the remainder of the principal. In some cases, one class will
receive all of the interest (the IO class), while the other class will receive
all of the principal (the principal-only or PO class). The yield to maturity on
IOs and POs is extremely sensitive to the rate of principal payments (including
prepayments) on the related underlying mortgage assets, and a rapid rate of
principal payments may have a material adverse effect on a portfolio yield to
maturity. If the underlying mortgage assets experience greater than anticipated
prepayments of principal, a portfolio may fail to fully recoup its initial
investment in these securities, even if the security is in one of the highest
rating categories.
Although SMBS are purchased and sold by institutional investors through several
investment banking firms acting as brokers or dealers, these securities were
only recently developed. As a result, established trading markets have not yet
developed and, accordingly, certain of these securities may be deemed illiquid
and subject to a portfolio's limitations on investment in illiquid securities.
Structured Investments: are Derivatives in the form of a unit or units
representing an undivided interest(s) in assets held in a trust that is not an
investment company as defined in the Investment Company Act of 1940. A trust
unit pays a return based on the total return of securities and other investments
held by the trust and the trust may enter into one or more Swaps to achieve its
objective. For example, a trust may purchase a basket of securities and agree to
exchange the return generated by those securities for the return generated by
another basket or index of securities. A portfolio will purchase Structured
Investments in trusts that engage in such Swaps only where the counterparties
are approved by MAS in accordance with credit-risk guidelines established by the
Board of Trustees.
Structured Notes: are Derivatives on which the amount of principal repayment
and or interest payments is based upon the movement of one or more factors.
These factors include, but are not limited to, currency exchange rates,
interest rates (such as the prime lending rate and LIBOR) and stock indices
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such as the S&P 500 Index. In some cases, the impact of the movements of these
factors may increase or decrease through the use of multipliers or deflators.
The use of Structured Notes allows a portfolio to tailor its investments to the
specific risks and returns the Adviser wishes to accept while avoiding or
reducing certain other risks.
Swaps--Swap Contracts: are Derivatives in the form of a contract or other
similar instrument which is an agreement to exchange the return generated by one
instrument for the return generated by another instrument. The payment streams
are calculated by reference to a specified index and agreed upon notional
amount. The term specified index includes, but is not limited to, currencies,
fixed interest rates, prices and total return on interest rate indices,
fixed-income indices, stock indices and commodity indices (as well as amounts
derived from arithmetic operations on these indices). For example, a portfolio
may agree to swap the return generated by a fixed-income index for the return
generated by a second fixed-income index. The currency swaps in which the
portfolios may enter will generally involve an agreement to pay interest streams
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.
A portfolio will usually enter into swaps on a net basis, i.e., the two return
streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with a portfolio receiving or paying, as the case
may be, only the net amount of the two returns. A portfolio's obligations under
a swap agreement will be accrued daily (offset against any amounts owing to the
portfolio) and any accrued but unpaid net amounts owed to a swap counterparty
will be covered by the maintenance of a segregated account consisting of cash,
U.S. Government securities, or high grade debt obligations. A portfolio will not
enter into any swap agreement unless the counterparty meets the rating
requirements set forth in guidelines established by the Fund's Board of
Trustees.
Possible Risks: Interest rate and total rate of return swaps do not involve the
delivery of securities, other underlying assets, or principal. Accordingly, the
risk of loss with respect to interest rate and total rate of return swaps is
limited to the net amount of interest payments that a portfolio is contractually
obligated to make. If the other party to an interest rate or total rate of
return swap defaults, a portfolio's risk of loss consists of the net amount of
interest payments that a portfolio is contractually entitled to receive. In
contrast, currency swaps usually involve the delivery of the entire principal
value of one designated currency in exchange for the other designated currency.
Therefore, the entire principal value of a currency swap is subject to the risk
that the other party to the swap will default on its contractual delivery
obligations. If there is a default by the counterparty, a portfolio may have
contractual remedies pursuant to the agreements related to the transaction. The
swap market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Swaps that include caps, floors, and collars are more recent
innovations for which standardized documentation has not yet been fully
developed and, accordingly, they are less liquid than swaps.
The use of swaps is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. If the Adviser is incorrect in its forecasts of market
values, interest rates, and currency exchange rates, the investment performance
of the portfolios would be less favorable than it would have been if this
investment technique were not used.
U.S. Governments--U.S. Treasury securities: are Fixed-Income Securities which
are backed by the full faith and credit of the U.S. Government as to the
payment of both principal and interest.
Warrants: are options issued by a corporation which give the holder the
option to purchase stock.
When-Issued Securities: are securities purchased at a certain price even though
the securities may not be delivered for up to 90 days. No payment or delivery is
made by a portfolio in a when-issued transaction until the portfolio receives
payment or delivery from the other party to the transaction. Although a
portfolio receives no income from the above described securities prior to
delivery, the market value of such securities is still subject to change. As a
consequence, it is possible that the market price of the securities at the time
of delivery may be higher or lower than the purchase price. A portfolio will
maintain with the custodian a separate account with a segregated portfolio of
liquid, high-grade debt securities or cash in an amount at least equal to these
commitments.
<PAGE>
Zero Coupons--Zero Coupon Obligations: are Fixed-Income Securities that do not
make regular interest payments. Instead, zero coupon obligations are sold at
substantial discounts from their face value. The difference between a zero
coupon obligation's issue or purchase price and its face value represents the
imputed interest an investor will earn if the obligation is held until maturity.
Zero coupon obligations may offer investors the opportunity to earn higher
yields than those available on ordinary interest-paying obligations of similar
credit quality and maturity. However, zero coupon obligation prices may also
exhibit greater price volatility than ordinary fixed-income securities because
of the manner in which their principal and interest are returned to the
investor.
GENERAL SHAREHOLDER INFORMATION
PURCHASE OF SHARES
Investment Class Shares are available to Shareholders with combined investments
of $1,000,000 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.
Investment Class Shares of each portfolio except for the Cash Reserves Portfolio
may be purchased at the net asset value per share next determined after receipt
of the purchase order. Such portfolios determine net asset value as described
under Other Information-Valuation of Shares each day that the portfolios are
open for business. See Other Information-Closed Holidays and Valuation of
Shares.
The Cash Reserves Portfolio declares dividends daily and, therefore, at the time
of a purchase must have funds immediately available for investment. As a result,
payment for the purchase of shares must be in the form of Federal Funds (monies
credited to the portfolio's Custodian by a Federal Reserve Bank) before they can
be accepted by the portfolio. The portfolio is credited with Federal Funds on
the same day if the investment is made by Federal Funds. Institutional Class
Shares of the Cash Reserves Portfolio may be purchased at the net asset value
next determined after an order is received by the portfolio and Federal Funds
are received by the Custodian. The Cash Reserves Portfolio determines net asset
value as of 12:00 noon (Eastern Time) each day that the portfolios are open for
business. See Other Information-Closed Holidays and Valuation of Shares.
Initial Purchase by Mail: Subject to acceptance by the Fund, an account may be
opened by contacting MAS Funds' Client Service 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, except for the Cash Reserves Portfolio. Purchases made
by check in the Cash Reserves Portfolio are ordinarily credited at the net asset
value per share determined two business days after receipt of the check by the
Fund. Please note that purchases made by check in any portfolio are not
permitted to be redeemed until payment of the purchase has been collected, which
may take up to eight business days after purchase. Shareholders can avoid this
delay by purchasing shares by wire.
Initial Purchase by Wire: Subject to acceptance by the Fund, Investment Class
Shares 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. For all portfolios (except the Cash Reserves
Portfolio), notification must be given to MAS Funds' Client Services Group at
1-800-354-8185 prior to the determination of net asset value. Investment 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:
<PAGE>
The Chase Manhattan Bank, N.A.
1 Chase Manhattan Plaza
New York, NY 10081
ABA #021000021
DDA #910-2-734143
Attn: MAS Funds
Ref: (Portfolio Name, Account Number, Account Name)
Purchases in the Cash Reserves Portfolio may also be made by Federal Funds wire
to the Fund's Custodian. If the portfolio receives notification of an order
prior to 12:00 noon (Eastern Time) and funds are received by the Custodian the
same day, purchases of portfolio shares will become effective and begin to earn
income on that business day. Orders received after 12:00 noon (Eastern Time)
will be effective on the next business day upon receipt of funds. Federal Funds
purchases will be accepted only on a day on which the portfolio is open for
business. See Other Information-Closed Holidays.
Additional Investments: Additional investments of Investment 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 or 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. For all
portfolios, notification must be given to MAS Fund's Client Services Group at
1-800-354-8185 prior to the determination of net asset value. For the Cash
Reserves Portfolio, notification of a Federal Funds wire must be received by
12:00 noon (Eastern Time). Purchases made by check in the Cash Reserves
Portfolio are ordinarily credited at the net asset value per share determined
two business days after receipt of the check by the Fund.
Other Purchase Information: The Fund reserves the right, in its sole discretion,
to suspend the offering of Investment Class Shares of any of its portfolios or
to reject any purchase orders when, in the judgment of management, such
suspension or rejection is in the best interest of the Fund. The Fund also
reserves the right, in its sole discretion, to waive the minimum initial and
subsequent investment amounts.
Purchases of a portfolio's Investment Class Shares will be made in full and
fractional shares of the portfolio calculated to three decimal places. In the
interest of economy and convenience, certificates for shares will not be issued
except at the written request of the shareholder. Certificates for fractional
shares, however, will not be issued.
Investment Class Shares of the Fund's portfolios are also sold to corporations
or other institutions such as trusts, foundations or broker-dealers purchasing
for the accounts of others (Shareholder Organizations). Investors purchasing and
redeeming shares of the portfolios through a Shareholder Organization may be
charged a transaction-based fee or other fee for the services of such
organization. Each Shareholder Organization is responsible for transmitting to
its customers a schedule of any such fees and information regarding any
additional or different conditions regarding purchases and redemptions.
Customers of Shareholder Organizations should read this Prospectus in light of
the terms governing accounts with their organization. The Fund does not pay
compensation to or receive compensation from Shareholder Organizations for the
sale of Institutional Class Shares.
REDEMPTION OF SHARES
Investment Class Shares of each portfolio may be redeemed by mail, or, if
authorized, by telephone. No charge is made for redemptions. The value of
Institutional Class Shares redeemed may be more or less than the purchase price,
depending on the net asset value at the time of redemption which is based on the
market value of the investment securities held by the portfolio. See other
Information-Closed Holidays and Valuation of Shares.
By Mail: Each portfolio will redeem Investment 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.
<PAGE>
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.
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 Fund may suspend the right
of redemption or postpone the date of redemption at times when the NYSE, the
Custodian, or the Fund is closed (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 Fund to make payment wholly or
partly in cash, the Fund may pay the redemption proceeds in whole or in part by
a distribution in-kind of readily marketable securities held by a portfolio in
lieu of cash in conformity with applicable rules of the Securities and Exchange
Commission. Investors may incur brokerage charges on the sale of portfolio
securities received in such payments of redemptions.
SHAREHOLDER SERVICES
Exchange Privilege: Each portfolio's Investment Class Shares may be exchanged
for shares of the Fund's other portfolios offering Investment Class shares 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,
1-800-354-8185.
<PAGE>
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 Service 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.
VALUATION OF SHARES
Equity, Value, Mid Cap Value and International Equity Portfolios:
Net asset value per share of each class is determined by dividing the total
market value of each portfolio's investments and other assets, less any
liabilities, by the total outstanding shares of that portfolio. Net asset value
per share is determined as of the close of the NYSE (normally 4:00 p.m. Eastern
Time) on each day the portfolio is open for business (See Other
Information-Closed Holidays). Equity Securities listed on a U.S. securities
exchange or NASDAQ for which market quotations are available are valued at the
last quoted sale price on the day the valuation is made. Price information on
listed Equity Securities is taken from the exchange where the security is
primarily traded. Equity Securities listed on a foreign exchange are valued at
the latest quoted sales price available before the time when assets are valued.
For purposes of net asset value per share, all assets and liabilities initially
expressed in foreign currencies are converted into U.S. dollars at the bid price
of such currencies against U.S. dollars. Unlisted Equity Securities and listed
U.S. Equity Securities not traded on the valuation date for which market
quotations are readily available are valued at the mean of the most recent
quoted bid and asked price. The value of other assets and securities for which
no quotations are readily available (including restricted securities) are
determined in good faith at fair value using methods approved by the Trustees.
Fixed Income, Special Purpose Fixed Income and High Yield Portfolios:
Net asset value per share is computed by dividing the total value of the
investments and other assets of the portfolio, less any liabilities, by the
total outstanding shares of the portfolio. The net asset value per share is
determined as of 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 (See Other
Information-Closed Holidays). Bonds and other Fixed-Income Securities listed on
a foreign exchange are valued at the latest quoted sales price available before
the time when assets are valued. For purposes of net asset value per share, all
assets and liabilities initially expressed in foreign currencies will be
converted into U.S. dollars at the bid price of such currencies against U.S.
dollars.
Net asset value includes interest on bonds and other Fixed-Income Securities
which is accrued daily. Bonds and other Fixed-Income Securities which are traded
over the counter and on an exchange will be valued according to the broadest and
most representative market, and it is expected that for bonds and other
Fixed-Income Securities this ordinarily will be the over-the-counter market.
However, bonds and other Fixed-Income Securities may be valued on the basis of
prices provided by a pricing service when such prices are believed to reflect
the fair market value of such securities. The prices provided by a pricing
service are determined without regard to bid or last sale prices but take into
account institutional size trading in similar groups of securities and any
developments related to specific securities. Bonds and other Fixed-Income
Securities not priced in this manner are valued at the most recent quoted bid
price, or when stock exchange valuations are used, at the latest quoted sale
price on the day of valuation. If there is no such reported sale, the latest
quoted bid price will be used. Securities purchased with remaining maturities of
60 days or less are valued at amortized cost when the Board of Trustees
<PAGE>
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.
Balanced and Multi-Asset-Class Portfolios: Net asset value per share is computed
by dividing the total value of the investments and other assets of the
portfolio, less any liabilities, by the total outstanding shares of the
portfolio. The net asset value per share of the Balanced and Multi-Asset-Class
Portfolios is determined as of the latter of the close of the NYSE or one hour
after the close of the bond markets on each day the portfolios are open for
business. Equity, fixed-income and other securities held by the portfolios will
be valued using the policies described above.
Cash Reserves Portfolio: The net asset value per share of the Cash Reserves
Portfolio is calculated daily as of 12:00 noon (Eastern Time) on each day that
the portfolio is open for business (See Other Information-Closed Holidays). The
portfolio determines its net asset value per share by subtracting the
portfolio's liabilities (including accrued expenses and dividends payable) from
the total value of the portfolio's investments and other assets and dividing the
result by the total outstanding shares of the portfolio.
For the purpose of calculating the portfolio's net asset value per share,
securities are valued by the amortized cost method of valuation, which does not
take into account unrealized gains or losses. This involves valuing an
instrument at its cost and thereafter assuming a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. While this method provides
certainty in valuation, it may result in periods during which value based on
amortized cost is higher or lower than the price the portfolio would receive if
it sold the instrument.
The use of amortized cost and the maintenance of the portfolio's per share net
asset value at $1.00 is based on its election to operate under the provisions of
Rule 2a-7 under the Investment Company Act of 1940, as amended. As conditions of
operating under Rule 2a-7, the portfolio must maintain a dollar-weighted average
portfolio maturity of 90 days or less, purchase only instruments having
remaining maturities of thirteen months or less and invest only in U.S.
dollar-denominated securities which are determined by the Trustees to present
minimal credit risks and which are of eligible quality as determined under the
rule.
The Trustees have also agreed to establish procedures reasonably designed,
taking into account current market conditions and the portfolio's investment
objective, to stabilize the net asset value per share as computed for the
purposes of sales and redemptions at $1.00. These procedures include periodic
review, as the Trustees deem appropriate and at such intervals as are reasonable
in light of current market conditions, of the relationship between the amortized
cost value per share and a net asset value per share based upon available
indications of market value. In such a review, investments for which market
quotations are readily available are valued at the most recent bid price or
quoted yield equivalent for such securities or for securities of comparable
maturity, quality and type as obtained from one or more of the major market
makers for the securities to be valued. Other investments and assets are valued
at fair value, as determined in good faith by the Trustees.
In the event of a deviation of over 1/2 of 1% between a portfolio's net asset
value based upon available market quotations or market equivalents and $1.00 per
share based on amortized cost, the Trustees will promptly consider what action,
if any, should be taken. The Trustees will also take such action as they deem
appropriate to eliminate or to reduce to the extent reasonably practicable any
material dilution or other unfair results which might arise from differences
between the two. Such action may include redeeming shares in kind, selling
instruments prior to maturity to realize capital gains or losses or to shorten
average maturity, withholding dividends, paying distributions from capital or
capital gains, or utilizing a net asset value per share not equal to $1.00 based
upon available market quotations.
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES: Dividends and Capital Gains
Distributions: The Fund maintains different dividend and capital gain
distribution policies for each portfolio. These are:
o The Equity, Value, Fixed Income, Special Purpose Fixed Income, High Yield,
Balanced and Multi-Asset-Class Portfolios normally distribute substantially
all of their net investment income to shareholders in the form of quarterly
dividends.
<PAGE>
o The International Equity and Mid Cap Value Portfolios normally distribute
substantially all of their net investment income in the form of annual
dividends.
o The Cash Reserves Portfolio declares dividends daily and normally distributes
substantially all of its investment income in the form of monthly dividends.
If any portfolio does not have income available to distribute, as determined in
compliance with the appropriate tax laws, no distribution will be made.
If any net capital gains are realized from the sale of underlying securities,
the portfolios normally distribute such gains with the last dividend for the
calendar year.
All dividends and capital gains distributions are automatically paid in
additional shares of the portfolio unless the shareholder elects otherwise. Such
election must be made in writing to the Fund and may be made on the Account
Registration Form.
In all portfolios except the Cash Reserves Portfolio, undistributed net
investment income is included in the portfolio's net assets for the purpose of
calculating net asset value per share. Therefore, on the ex-dividend date, the
net asset value per share excludes the dividend (i.e., is reduced by the per
share amount of the dividend). Dividends paid shortly after the purchase of
shares by an investor, although in effect a return of capital, are taxable as
ordinary income.
Certain Mortgage Securities may provide for periodic or unscheduled payments of
principal and interest as the mortgages underlying the securities are paid or
prepaid. However, such principal payments (not otherwise characterized as
ordinary discount income or bond premium expense) will not normally be
considered as income to the portfolio and therefore will not be distributed as
dividends. Rather, these payments on mortgage-backed securities will be
reinvested on behalf of the shareholders by the portfolio in accordance with its
investment objectives and policies.
Special Considerations for the Cash Reserves Portfolio: Net investment income is
computed and dividends declared as of 12:00 noon (Eastern Time), on each day.
Such dividends are payable to Cash Reserves Portfolio shareholders of record as
of 12:00 noon (Eastern Time) on that day, if the portfolio is open for business.
Shareholders who redeem prior to 12:00 noon (Eastern Time) are not entitled to
dividends for that day. Dividends declared for Saturdays, Sundays and holidays
are payable to shareholders of record as of 12:00 noon (Eastern Time) on the
preceding business day on which the portfolio was open for business.
For the purpose of calculating dividends, net income shall consist of interest
earned, including any discount or premium ratably amortized to the date of
maturity, minus estimated expenses of the portfolio.
Net realized short-term capital gains, if any, of the Cash Reserves Portfolio
will be distributed whenever the Trustees determine that such distributions
would be in the best interest of shareholders, but at least once a year. The
portfolio does not expect to realize any long-term capital gains. Should any
such gains be realized, they will be distributed annually.
Federal Taxes: Each portfolio of the Fund intends to qualify for taxation as a
regulated investment company under the Code so that each portfolio will not be
subject to Federal income tax to the extent it distributes its income to its
shareholders. Dividends, either in cash or reinvested in shares, paid by a
portfolio from net investment income will be taxable to shareholders as ordinary
income. In the case of the Equity, Value, Balanced, Multi-Asset-Class and Mid
Cap Value Portfolios, such dividends will generally qualify in part for the
dividends received deduction for corporations, but the portion of the dividends
so qualified depends on the aggregate taxable qualifying dividend income
received by each portfolio from domestic (U.S.) sources. The Fund will send each
shareholder a statement each year indicating the amount of the dividend income
which qualifies for such treatment.
<PAGE>
Whether paid in cash or additional shares of a portfolio, and regardless of the
length of time the shares in such portfolio have been owned by the shareholder,
distributions from long-term capital gains are taxable to shareholders as such,
but are not eligible for the dividends received deduction for corporations.
Shareholders are notified annually by the Fund as to Federal tax status of
dividends and distributions paid by a portfolio. Such dividends and
distributions may also be subject to state and local taxes.
Exchanges and redemptions of shares in a portfolio are taxable events for
Federal income tax purposes. Individual shareholders may also be subject to
state and municipal taxes on such exchanges and redemptions.
Each portfolio intends to declare and pay dividends and capital gain
distributions so as to avoid imposition of the Federal excise tax. To do so,
each portfolio expects to distribute an amount at least equal to (i) 98% of its
calendar year ordinary income, (ii) 98% of its capital gains net income (the
excess of short and long-term capital gain over short and long-term capital
loss) for the one-year period ending October 31st, and (iii) 100% of any
undistributed ordinary and capital gain net income from the prior year.
Dividends declared in December by a portfolio will be deemed to have been paid
by such portfolio and received by shareholders on the record date provided that
the dividends are paid before February 1 of the following year.
The Fund is required by Federal law to withhold 31% of reportable payments
(which may include dividends, capital gains distributions, and redemptions) paid
to shareholders who have not complied with IRS regulations. 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 portfolios from sources
within foreign countries may be subject to foreign income taxes withheld at the
source. The U.S. has entered into Tax Treaties with many foreign countries which
entitle these portfolios to a reduced rate of tax or exemption from tax on such
income. It is impossible to determine the effective rate of foreign tax in
advance since the amount of the portfolios' assets to be invested within various
countries is not known. The portfolios intend to operate so as to qualify for
treaty reduced rates of tax where applicable.
The International Equity Portfolio may file an election with the Internal
Revenue Service to pass through to the portfolio's shareholders the amount of
foreign income taxes paid by the portfolio, but may do so only if more than 50%
of the value of the total assets of the portfolio at the end of the fiscal year
is represented by foreign securities. The portfolio will make such an election
only if it is deemed to be in the best interests of the shareholders.
If this election is made, shareholders of the portfolio will be required to: (i)
include in gross income, even though not actually received, their respective pro
rata share of foreign taxes paid by the portfolio; (ii) treat their pro rata
share of foreign taxes as paid by them; and (iii) either deduct their pro rata
share of foreign taxes in computing their taxable income or use it within the
limitations set forth in the Internal Revenue Code as a foreign tax credit
against U.S. income taxes (but not both). No deduction for foreign taxes may be
claimed by a shareholder who does not itemize deductions.
Each shareholder of the portfolio will be notified within 60 days after the
close of each taxable (fiscal) year of the Fund if the foreign taxes paid by the
portfolio will pass through for that year, and, if so, the amount of each
shareholder's pro rata share (by country) of (i) the foreign taxes paid, and
(ii) the portfolio's gross income from foreign sources. Shareholders who are not
liable for Federal income taxes, such as retirement plans qualified under
Section 401 of the Internal Revenue Code, will not be affected by any such "pass
through" of foreign tax credits.
State and Local Taxes: The Fund is formed as a Pennsylvania Business Trust and
therefore is not liable, under current law, for any corporate income or
franchise tax of the Commonwealth of Pennsylvania. The Fund will provide
Pennsylvania taxable values on a per share basis.
<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 above, certain
companies provide essential management, administrative and shareholder services
to the Trust.
INVESTMENT ADVISER: The Investment Adviser to the Fund, Miller Anderson &
Sherrerd, LLP (the Adviser), is a Pennsylvania limited liability partnership
founded in 1969 and is located at One Tower Bridge, West Conshohocken, PA 19428.
Miller Anderson & Sherrerd, LLP is an Equal Opportunity/Affirmative Action
Employer. The Adviser provides investment services to employee benefit plans,
endowment funds, foundations and other institutional investors and as of the
date of this prospectus had in excess of $35 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,
each portfolio pays the Adviser an advisory fee calculated by applying a
quarterly rate, based on the following annual percentage rates, to the
portfolio's average daily net assets for the quarter:
Rate
------
Equity Portfolio .500%
International Equity Portfolio .500
Mid Cap Value Portfolio* .750
Value Portfolio .500
Cash Reserves Portfolio .250
Fixed Income Portfolio .375
High Yield Portfolio .375
Special Purpose Fixed Income Portfolio .375
Balanced Portfolio .450
Multi-Asset-Class Portfolio .450
* Advisory fees in excess of 0.750% of average net assets are considered higher
than normal for most investment companies, but are not unusual for portfolios
that invest primarily in small capitalization stocks or in countries with
emerging market economies.
<PAGE>
For the fiscal year ended September 30, 1995, the Adviser received the following
as compensation for its services:
Rate
-------
Equity Portfolio .500%
International Equity Portfolio .500
Mid Cap Value Portfolio .000
Value Portfolio .500
Cash Reserves Portfolio .140
Fixed Income Portfolio .375
High Yield Portfolio .375
Special Purpose Fixed Income Portfolio .375
Balanced Portfolio .450
Multi-Asset-Class Portfolio .310
<PAGE>
PORTFOLIO MANAGEMENT
The investment professionals of MAS who are primarily responsible for the
day-to-day management of the Fund's portfolios are as follows:
Equity Portfolio: Arden C. Armstrong, John D. Connolly, Timothy G. Connors,
Nicholas J. Kovich, Robert J. Marcin, Gary G. Schlarbaum and A. Morris
Williams, Jr.;
Value Portfolio: Robert J. Marcin and A. Morris Williams, Jr.;
Mid Cap Value Portfolio: Bradley S. Daniels, Gary D. Haubold and Gary G.
Schlarbaum;
Fixed Income and Special Purpose Fixed Income Portfolios: Thomas L. Bennett,
Kenneth B. Dunn and Richard B. Worley;
High Yield Portfolio: Thomas L. Bennett and Stephen F. Esser;
Cash Reserves Portfolio: Ellen D. Harvey;
Balanced Portfolio: Thomas L. Bennett, John D. Connolly, Gary G. Schlarbaum
and Richard B. Worley;
Multi-Asset-Class Portfolio: Thomas L. Bennett, John D. Connolly, J. David
Germany, Gary G. Schlarbaum, Horacio A. Valeiras, Dean Williams and Richard
B. Worley;
International Equity Portfolio: Horacio A. Valeiras and Dean Williams;
A description of their business experience during the past five years is as
follows:
Arden C. Armstrong, Portfolio Manager, joined MAS in 1986. She assumed
responsibility for the Equity Portfolio in 1994.
Thomas L. Bennett, Portfolio Manager, joined MAS in 1984. He assumed
responsibility for the Fixed Income Portfolio in 1984, the High Yield Portfolio
in 1985, the Special Purpose Fixed Income and Balanced Portfolios in 1992 and
the Multi-Asset-Class Portfolio in 1994.
Timothy G. Connors, Portfolio Manager, joined MAS in 1994. Mr. Connors served
as Vice President and Managing Director of CoreStates Investment Advisers
from 1986 to 1994. He assumed responsibility for the Equity Portfolio in
1994.
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
Portfolio in 1990, the Balanced Portfolio in 1992 and the Multi-Asset-Class
Portfolio in 1994.
Bradley S. Daniels, Portfolio Manager, joined MAS in 1985. He assumed
responsibility for the Mid Cap Value Portfolio in 1994.
Kenneth B. Dunn, Portfolio Manager, joined MAS in 1987. He assumed
responsibility for the Fixed Income Portfolio in 1987 and the Special Purpose
Fixed Income Portfolios in 1992.
<PAGE>
Stephen F. Esser, Portfolio Manager, joined MAS in 1988. He assumed
responsibility for the High Yield Portfolio in 1989.
J. David Germany, Portfolio Manager, joined MAS in 1991. He served as Vice
President & Senior Economist for Morgan Stanley & Co. from 1989 to 1991. He
assumed responsibility for the Multi-Asset-Class Portfolio in 1994.
Ellen D. Harvey, Portfolio Manager, joined MAS in 1984. She assumed
responsibility for the Cash Reserves Portfolio in 1990.
Gary D. Haubold, Portfolio Manager, joined MAS in 1993. Mr. Haubold served as
Senior Vice President at Wood, Struthers & Winthrop in 1993. He assumed
responsibility for the Mid Cap Value Portfolio in 1994.
Nicholas J. Kovich, Portfolio Manager, joined MAS in 1988. He assumed
responsibility for the Equity Portfolio in 1994.
Robert J. Marcin, Portfolio Manager, joined MAS in 1988. He assumed
responsibility for the Value Portfolio in 1990 and the Equity Portfolio in 1994.
Gary G. Schlarbaum, Portfolio Manager, joined MAS in 1987. He assumed
responsibility for the Equity Portfolio in 1987, the Balanced Portfolio in 1992
and the Multi-Asset-Class and Mid Cap Value Portfolios in 1994.
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 and the Multi-Asset-Class
Portfolio in 1994.
A. Morris Williams, Jr., Portfolio Manager, joined MAS in 1973. He assumed
responsibility for the Equity and Value Portfolios in 1984.
Dean Williams, Portfolio Manager, joined MAS in 1988. He assumed responsibility
for the International Equity Portfolio in 1988 and the Multi-Asset-Class
Portfolio in 1994.
Richard B. Worley, Portfolio Manager, joined MAS in 1978. He assumed
responsibility for the Fixed Income Portfolio in 1984, the Balanced and Special
Purpose Fixed Income Portfolios in 1992, and the Multi-Asset-Class Portfolio in
1994.
ADMINISTRATIVE SERVICES: MAS serves as Administrator to the Fund pursuant to an
Administration Agreement dated as of November 18, 1993. Under its Administration
Agreement with the Fund, MAS receives an annual fee, accrued daily and payable
monthly, of 0.08% of the Fund's average daily net assets, and is responsible for
all fees payable under any sub-administration agreements. 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 each of the Fund's portfolios and directs
<PAGE>
the Adviser to use its best efforts to obtain the best execution with respect to
all transactions for the portfolios. In doing so, a portfolio may pay higher
commission rates than the lowest available when the Adviser believes it is
reasonable to do so in light of the value of the research, statistical, and
pricing services provided by the broker effecting the transaction.
It is not the Fund's practice to allocate brokerage or principal business on the
basis of sales of shares which may be made through intermediary brokers or
dealers. However, the Adviser may place portfolio orders with qualified
broker-dealers who recommend the Fund's Portfolios or who act as agents in the
purchase of shares of the portfolios for their clients.
Some securities considered for investment by each of the Fund's portfolios may
also be appropriate for other clients served by the Adviser. If purchase or sale
of securities consistent with the investment policies of a portfolio and one or
more of these other clients served by the Adviser is considered at or about the
same time, transactions in such securities will be allocated among the portfolio
and clients in a manner deemed fair and reasonable by the Adviser. Although
there is no specified formula for allocating such transactions, the various
allocation methods used by the Adviser, and the results of such allocations, are
subject to periodic review by the Fund's Trustees. 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-six portfolios.
The shares of each portfolio of the Fund are fully paid and non-assessable, and
have no preference as to conversion, exchange, dividends, retirement or other
features. The shares of each portfolio of the Fund have no preemptive rights.
The shares of the Fund have non-cumulative voting rights, which means that the
holders of more than 50% of the shares voting for the election of Trustees can
elect 100% of the Trustees if they choose to do so. Shareholders are entitled to
one vote for each full share held (and a fractional vote for each fractional
share held), then standing in their name on the books of the Fund.
Meetings of shareholders will not be held except as required by the Investment
Company Act of 1940, as amended, and other applicable law. A meeting will be
held to vote on the removal of a Trustee or Trustees of the Fund if requested in
writing by the holders of not less than 10% of the outstanding shares of the
Fund. The Fund will assist in shareholder communication in such matters to the
extent required by law.
As of January 25, 1996, Sun Company, Inc. (Philadelphia, PA) c/o Bankers Trust
Company owned a controlling interest (as that term is defined in the Investment
Company Act of 1940, as amended) of the Cash Reserves Portfolio.
Custodians: The Chase Manhattan Bank N.A., New York, NY and Morgan Stanley Trust
Company (NY), Brooklyn, NY serve as custodians for the Fund. The custodians hold
cash, securities and other assets as required by the 1940 Act.
Transfer and Dividend Disbursing Agent: Chase Global Funds Services Company,
a subsidiary of The Chase Manhattan Bank, N.A., 73 Tremont Street, Boston, MA
02108-3913.
Reports: Shareholders receive semiannual and annual financial statements.
Annual financial statements are audited by Price Waterhouse LLP, independent
accountants.
Litigation: The Fund is not involved in any litigation.
Closed Holidays: Currently, the weekdays on which the Fund is closed for
business are: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. In addition,
the Fixed Income, Special Purpose Fixed Income, Cash Reserves and High Yield
Portfolios will be closed on Martin Luther King Day, Columbus Day, and
Veteran's Day.
<PAGE>
TRUSTEES AND OFFICERS
The following is a list of the Trustees and the principal executive officers
of the Fund and a brief statement of their present positions and principal
occupations during the past five years:
Thomas L. Bennett,* Chairman of the Board of Trustees; Portfolio Manager,
Miller Anderson & Sherrerd, LLP; Director, MAS Fund Distribution, Inc.
David P. Eastburn, Trustee; Retired; formerly: Director (Trustee) of each of
the investment companies in The Vanguard Group, except Vanguard Specialized
Portfolios; Director of Penn Mutual Life Insurance Company and General Accident
Insurance; President, Federal Reserve Bank of Philadelphia.
Joseph P. Healey, Trustee; Headmaster, Haverford School; formerly Dean,
Hobart College; Associate Dean, William & Mary College.
Joseph J. Kearns, Trustee; Vice President and Treasurer, The J. Paul Getty
Trust.
C. Oscar Morong, Jr., Trustee; Managing Director, Morong Capital Management;
Director, Ministers and Missionaries Benefit Board of American Baptist Churches,
The Indonesia Fund, The Landmark Funds; formerly Senior Vice President and
Investment Manager for CREF, TIAA-CREF Investment Management, Inc.
*Trustee Bennett is deemed to be an "interested person" of the Fund as that
term is defined in the Investment Company Act of 1940, as amended.
===============================================================================
James D. Schmid, President; 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.
<PAGE>
MAS LOGO ACCOUNT REGISTRATION FORM
- --------
MAS FUNDS MAS Fund Distribution, Inc.
General Distribution Agent
- -----------------------------------------------------------------------------
/1/
REGISTRATION/PRIMARY MAILING ADDRESS
Confirmations and month-end statements will be mailed to this address.
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Attention
---------------------------------------------------------------------
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 OPTION
In addition to the account statement sent to the above registered address,
the Fund is authorized to mail duplicate statements to the name and address
provided at right.
For additional interested party mailings, please attach a separate sheet.
Attention
----------------------------------------------------------------------
Company
(If Applicable)
----------------------------------------------------------------
Street or P.O. Box
-------------------------------------------------------------
City State Zip -
------------------------ ------------------- -------------- ---------
Telephone No. - -
----------- ---------- -----------
===============================================================================
/3/ INVESTMENT
For Purchase of:
/ / Equity Portfolio $_________________
/ / International Equity Portfolio _________________
/ / Mid Cap Value Portfolio _________________
/ / Value Portfolio _________________
/ / Cash Reserves Portfolio _________________
/ / Fixed Income Portfolio _________________
/ / High Yield Portfolio _________________
/ / Special Purpose Fixed Income Portfolio _________________
/ / Balanced Portfolio _________________
/ / Multi-Asset-Class Portfolio _________________
/ / Balanced Investing--Indicate Portfolios _________________
===============================================================================
<PAGE>
/4/
TAXPAYER IDENTIFICATION NUMBER
Part 1.
Social Security Number
-- --
------- --------- --------
or
Employer Identification Number
-
----- --------------
Part 2. BACKUP WITHHOLDING
/ / Check the box if the account is subject to
Backup Withholding under the provisions of
Section 3406(a)(1)(C) of the Internal Revenue Code.
- -------------------------------------------------------------------------------
IMPORTANT TAX INFORMATION
You (as a payee) are required by law to provide us (as payer) with your correct
taxpayer identification number. Accounts that have a missing or incorrect
taxpayer identification number will be subject to backup withholding at a 31%
rate on ordinary income and capital gains distribution as well as redemptions.
Backup withholding is not an additional tax; the tax liability of person subject
to backup withholding will be reduced by the amount of tax withheld.
You may be notified that you are subject to backup withholding under section
3406(a)(1)(C) because you have underreported interest or dividends or you were
required to, but failed to, file a return which would have included a reportable
interest or dividend payment. If you have been so notified, check the box in
PART 2 at left.
===============================================================================
MILLER
ANDERSON
& SHERRERD, LLP
ONE TOWER BRIDGE o WEST CONSHOHOCKEN, PA 19428 o 800-354-8185
- -------------------------------------------------------------------------------
SIDE ONE OF TWO
<PAGE>
MAS 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
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 /7/ 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
<TABLE>
=======================================================================================================================
<S> <C>
/7/ DISTRIBUTION OPTION -- Income dividends and capital gains distributions /8/ WIRING INSTRUCTIONS
(if any) will be reinvested in additional shares unless either box below
is checked. The instructions provided below may only be changed by written For purchasing Shares by wire,
notification. please send a Fedwire payment
to:
/ / Income dividends and capital gains to be paid in cash.
Chase Manhattan Bank, N.A.
/ / Income dividends to be paid in cash and capital gains distribution in 1 Chase Manhattan Plaza
additional shares. New York, NY 10081
ABA# 021000021
If cash option is chosen, please indicate instructions below: DDA# 910-2-734143
Attn: MAS Funds
/ / Mail distribution check to the name and address in which account is Ref. (Portfolio name, your
registered. Account number
your Account name)
/ / Wire distribution to the same commercial bank indicated in Section 6
above.
</TABLE>
===============================================================================
<PAGE>
/8/ WIRING INSTRUCTIONS
For purchasing Shares by wire, please send a Fedwire payment to:
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, your Account number, your Account name)
===============================================================================
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)
- ----------------------------------------------------------------------------
Signature Date
(X)
- ----------------------------------------------------------------------------
Signature Date
(X)
- ----------------------------------------------------------------------------
Signature Date
- --------------------------
FOR INTERNAL USE ONLY
(X)
- --------------------------
Signature Date
- --------------------------
O / / F / / OR / / S / /
- --------------------------
===============================================================================
MILLER
ANDERSON
& SHERRERD, LLP
ONE TOWER BRIDGE o WEST CONSHOHOCKEN, PA 19428 o 800-354-8185
- -------------------------------------------------------------------------------
SIDE TWO OF TWO
<PAGE>
MAS LOGO INVESTMENT CLASS PROSPECTUS
- --------
MAS FUNDS
January 30, 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
<TABLE>
<CAPTION>
Page Page
<S> <C> <C> <C>
Fund Expenses 2 General Shareholder Information 38
Prospectus Summary 4 Purchase of Shares 38
Financial Highlights 7 Redemption of Shares 39
Yield and Total Return 12 Shareholder Services 40
Suitability 13 Valuation of Shares 41
Investment Limitations 14 Dividends, Capital Gains Distributions
Portfolio Summaries 16 and Taxes 42
Equity Investments 16 Investment Adviser 45
Fixed-Income Investments 18 Portfolio Management 47
Prospectus Glossary: Administrative Services 48
Strategies 24 General Distribution Agent 48
Investments 28 Portfolio Transactions 48
Other Information 49
Trustees and Officers 50
</TABLE>
MILLER
ANDERSON
& SHERRERD, LLP
ONE TOWER BRIDGE o WEST CONSHOHOCKEN, PA 19428 o 800-354-8185
- -------------------------------------------------------------------------------
